Month: December 2011
5. Can central banks still raise rates when they wish?, important questions in this piece.
Jonathan Israel, Democratic Enlightenment: Philosophy, Revolution, and Human Rights, 1750-1790. With 1152 pages, a major author, and a clear writing style, this is a major work. I’ve only browsed it.
Zara Steiner, The Triumph of the Dark: European International History, 1933-1939. Repeat the above description but up the number of pp. to 1248.
David Weinberger, Too Big to Know: Rethinking Knowledge Now That the Facts Aren’t the Facts, Experts Are Everywhere, and the Smartest Person in the Room Is the Room. Not out yet; will this be one of the big books of 2012? Probably.
The link and pointer come from Ben Casnocha, here is one excerpt (emphasis is from Ben):
…as a general rule, we’re too inclined to tell the good vs. evil story. As a simple rule of thumb, just imagine every time you’re telling a good vs. evil story, you’re basically lowering your IQ by ten points or more. If you just adopt that as a kind of inner mental habit, it’s, in my view, one way to get a lot smarter pretty quickly. You don’t have to read any books. Just imagine yourself pressing a button every time you tell the good vs. evil story, and by pressing that button you’re lowering your IQ by ten points or more.
One interesting thing about cognitive biases – they’re the subject of so many books these days. There’s the Nudge book, the Sway book, the Blink book, like the one-title book, all about the ways in which we screw up. And there are so many ways, but what I find interesting is that none of these books identify what, to me, is the single, central, most important way we screw up, and that is, we tell ourselves too many stories, or we are too easily seduced by stories. And why don’t these books tell us that? It’s because the books themselves are all about stories. The more of these books you read, you’re learning about some of your biases, but you’re making some of your other biases essentially worse. So the books themselves are part of your cognitive bias. Often, people buy them as a kind of talisman, like “I bought this book. I won’t be Predictably Irrational.” It’s like people want to hear the worst, so psychologically, they can prepare for it or defend against it. It’s why there’s such a market for pessimism. But to think that buying the book gets you somewhere, that’s maybe the bigger fallacy. It’s just like the evidence that shows the most dangerous people are those that have been taught some financial literacy. They’re the ones who go out and make the worst mistakes. It’s the people that realize, “I don’t know anything at all,” that end up doing pretty well.
The talk itself is here on video.
From George Magnus in the FT:
Markets may derive some comfort from this initiative in the short-term as default risks are reduced, but like all financing measures, it only buys time in which economic depression will undermine it. And by effectively binding banks and sovereigns even more closely together, it is a roundabout route to nationalisation of sovereign finance, which ironically, makes fragmentation of the euro more likely.
And here is John Cochrane, in what is generally a provocative essay:
Indebted governments have been pressuring banks to buy more debt, not less. As banks have been increasing capital, they have loaded up even more on “risk-free” sovereign debt, which they can use as collateral for ECB loans. The big ECB “liquidity operation” that took place yesterday will give banks hundreds of billions of euros to increase their sovereign bets. Bank depositors and creditors have figured this out, and are running for the exits.
By stuffing the banks with sovereign debt, European politicians and regulators are making the inevitable default much more financially dangerous. So much for the faith that regulation will keep banks safe.
Here is the lot, much to ponder, there is one from me too but flip through the whole series.
Over at www.grantland.com, here is my piece with Kevin Grier, on the question of bowls vs. playoffs. Here is an excerpt:
In 2007, Mark Schlabach chronicled the Chick-fil-a Bowl’s selection process. He explained that Boston College was not invited to the game in Atlanta because organizers worried that BC’s fan base wouldn’t buy enough tickets and spend enough money.
“The BC thing ate me up for a week,” Stokan (the Bowl President) said. “The factors on the field were very favorable to Boston College. But when you look at this thing, you have to take into account the players, the administrators, the relationships with the leagues and the financial commitments. The city really depends on us because we’re one of the top 10 conventions. We have an obligation to hotels, restaurants and retailers.”
Are you surprised that this bowl is run by the local Chamber of Commerce?
…Did you know that there is a “Sugar Bowl CEO”? Circa 2009, he was paid more than $600,000 a year. Is it surprising that the Sugar Bowl and Fiesta Bowl each have more than $30 million in net assets? Did you know that many of these bowls also receive government subsidies?
The piece ends thus:
In sum, we have a system where the games are not designed to produce the best on-field matchups, the competitors often lose money but fight fiercely to participate, outsiders and observers complain vehemently, and the organizers amass and waste a great deal of money with little oversight.
Welcome to capitalism, American style. Get back to us when you’ve found a better system.
Here is Art Carden on the same topic.
I am a big fan of Steven Landsburg’s books such as The Armchair Economist, More Sex is Safer Sex, and The Big Questions so Landsburg’s review of Launching the Innovation Renaissance was a personal thrill:
…This is a great book. It’s fast-paced, fun to read, informative as hell, and it gets everything right. At first I wished I’d written it— until I realized I could never have written it half so well.
…I wish everyone in the world would read this book. It only takes a couple of hours, and it is by far the best introduction I know of to the topic that towers above all others in its importance for the happiness of human beings everywhere, now and in the future, namely how to foster and accelerate the kinds of innovation that lead to economic growth. It will, I hope and expect, make you an enlightened advocate for enlightened policies. And it will arm you with a bundle of fun facts and anecdotes to share with your friends. This book might turn you into a proselytizer, but it will surely not turn you into a bore.
In today’s FT, here is his final paragraph:
I like this book: it starts from provocative theses and ends with a plea for investment in science. I do not agree with all of it, far from it. But it is good to remember that there are far bigger economic stories than the failure of finance or the appeal of austerity. In the long run, our future depends on good ideas. These may not be ours to determine. But they remain ours to influence.
LAUSD students hate the new lunch menu.
The district has received awards for improving lunches from the U.S.D.A and from the Physicians Committee for Responsible Medicine, but the students literally aren’t having it. Participation in the lunch program is down, lots of food is being thrown away, kids are coming to class hungry and L.A. Unified’s food services director, Dennis Barrett, acknowledged the rollout of the new menu was a “disaster,” according to the Los Angeles Times.
When the district tested out the menu, it found that 75 percent of students liked the food, but the food at the taste-test did not have translate well to mass production. One student the Times spoke with Andre Jahchan, a 16-year-old at Esteban Torres High School, said the food was “super good” at the tasting but it was super gross on campus: the chicken pozole was watery, the vegetable tamale was burned and the noodles were soggy.
Adults have been selling “black market” candy, chips and instant noodles to hungry students, who have been ditching lunch and suffering from headaches, stomach pains and even anemia, the Times reports.
Here is more, and for the pointer I thank Todd Myers. Here is Todd’s new book Eco-Fads: How the Rise of Trendy Environmentalism is Harming the Environment.
In Spain, the carry trade seems to be operating (FT):
However, the success of recent Spanish government bond auctions has raised eyebrows. Spain sold €5.64bn of three-month debt on Tuesday, with the yield paid to investors falling to 1.735 per cent, down from the 5.11 per cent seen in a similar auction last month. Brokers say smaller Spanish banks may be loading up on bills to use as collateral at the ECB operations.
But don’t be too happy, here is from Jed Graham:
Much discussion — and possibly today’s stock market rally — has centered on the notion that the European Central Bank’s new policy of providing ultralow-interest, 3-year financing to banks can serve as a backdoor bailout of over-indebted sovereigns.
But don’t get too excited. This bazooka is actually a bulldozer. Rather than having the potential to flatten sovereign debt problems, it can only make them pile up into an untenable mountain — with far too much maturing within the 3-year life of the ECB program.
…Note that today’s [yesterday’s] Spanish debt sale comprised 3-month and 6-month bills.
As Reuters pointed out, Spain, unlike Italy, has relatively little debt to roll over before April. Thus, the 3-month and likely even the 6-month bills carry little risk.
But as Spain issues more short-term debt to meet new borrowing needs and to roll over maturing debt, the ECB’s backyard bulldozer is bound to produce a growing mountain of short-term funding needs.
Perhaps if Spain’s oversubscribed sale on Tuesday were for 5- or 10-year debt, one might make a case that the ECB policy was a real game-changer. But banks are unlikely to risk damaging their own credibility with investors by loading up on longer-term issuance of at-risk sovereigns.
Here is more. The optimal policy here of course is time inconsistent. Lend out all the money and somehow forget to ask for it back, but don’t make that clear up front. On a related note, another possible approach to the eurozone crisis is to have the United States guarantee all (non-Greek) eurozone debt, but if those countries can’t pay up simply void the guarantee, claim Berlusconi or someone blackmailed the U.S. government, and reaffirm the commitment to U.S. Treasury securities. The market might just believe us.
Hey, you! Do you ever leave comments on MR?
NASA’s Kepler mission has discovered the first Earth-size planets orbiting a sun-like star outside our solar system. The planets, called Kepler-20e and Kepler-20f, are too close to their star to be in the so-called habitable zone where liquid water could exist on a planet’s surface, but they are the smallest exoplanets ever confirmed around a star like our sun.
The discovery marks the next important milestone in the ultimate search for planets like Earth. The new planets are thought to be rocky. Kepler-20e is slightly smaller than Venus, measuring 0.87 times the radius of Earth. Kepler-20f is slightly larger than Earth, measuring 1.03 times its radius. Both planets reside in a five-planet system called Kepler-20, approximately 1,000 light-years away in the constellation Lyra.
The link is here and for the pointer I thank Bernard Guerrero.
The inclusion of taxes both at the corporate level and on dividends changes our perspective on which countries are high tax and which are low tax. For example, Ireland has the lowest statutory corporate tax rate among O.E.C.D. countries, yet is still a relatively high-tax country because of the high tax rate it imposes on dividends. By contrast, Japan has the highest statutory corporate tax rate but only the 12th highest overall rate because it has one of the lowest tax rates on dividends.
Those advocating a cut in the corporate tax rate today generally ignore the tax on dividends, as well as many other provisions of United States and foreign tax law that may reduce the effective tax rate well below the statutory rate.
A recent study found that only 25 percent of the largest American corporations pay anywhere close to the statutory corporate tax rate of 35 percent on their earnings, while 40 percent pay less than half that rate.
Indeed, General Electric, the nation’s largest corporation, paid no federal corporate taxes in the United States in 2010, according to a report in The New York Times.
…while it may be a good idea to reduce the corporate tax rate as part of a tax reform package, the idea that this will jump-start growth is nonsense.
Behind Door #1 are people of extraordinary ability: scientists, artists, educators, business people and athletes. Behind Door #2 stand a random assortment of people. Which door should the United States open?
In 2010, the United States more often chose Door #2, setting aside about 40,000 visas for people of extraordinary ability and 55,000 for people randomly chosen by lottery.
It’s just one small example of our bizarre U.S. policy toward high-skill immigrants.
4. Roland Fryer holds out for RCT, the DC government will not oblige.