Month: January 2013
The review is here, here is one interesting paragraph:
Mr. Blinder omits a crucial fact about Lehman, one that, by itself, explains why the huge drop in value of Lehman’s mortgage-backed securities led to its collapse: the effect of changes in federal bankruptcy law. Thanks to the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act, when Lehman went bankrupt it could not simply, as in earlier days, pay holders of derivatives as much as possible with its assets. Instead, it had to give each derivative holder a new contract identical to the one it had signed with Lehman, but with a different counterparty. Lehman would also have to pay the transaction cost of the new contract. Such costs are typically about 0.15% of the contract’s total value. That’s small, right? No. When Lehman went bankrupt, the face value of Lehman’s derivative contracts was $35 trillion—with a “t.” The transaction costs alone were $52.5 billion. That is what sank Lehman.
The strange and indeed unjustified senior status of derivatives contracts remains an under-discussed area for financial reform. Here is a relevant Bolton and Oehmke paper (pdf). The Blinder book you can buy here.
2. Stealth wear.
7. Review of a Texas middle school economics textbook (possibly unreliable).
1. One might prefer, for macro reasons, to start with fiscal consolidation a year from now rather than now. But still the question can be considered with that slight shift of time frame if need be.
2. One major problem is that America is aging, and benefit cuts or decelerations will become successively harder to achieve as the years pass. There will be many more elderly voters and the elderly as a voting bloc are already quite effective at getting their way.
3. As the years pass, our health care establishment becomes increasingly geared to require especially high revenue streams. It becomes successively harder to back out of an excessively costly health care system. Do you believe it would have been easier to put in a more unified and more efficient system of health care assistance in say 1969? Probably so, and this is simply the mirror side of that belief.
4. Whether one likes it or not, U.S. politics phases in benefit cuts, or benefit decelerations, only slowly. Grandfathering is much preferred, so that a critical mass of elderly voters will support the changes and arguably this is more fair as well. That means one must start relatively early to have a significant cumulative fiscal impact over time.
4b. David Henderson makes numerous good points, here is one: “people can adjust better when they have more time to adjust. If the Social Security formula is altered for the future, people can have longer to save to make up for the higher benefits they would have got but will not get. That’s the argument for doing something about it now rather than later. Remember what happened in 1981 when OMB Director David Stockman tried to cut the early retirement benefit by about one third for people retiring only a few years later. That got nowhere. People looking at a one-third reduction in their retirement benefits who are planning to retire in a few years will not look on that kindly. But what if some previous Administration had announced in 1962 a gradual reduction in the early retirement benefit for people retiring in the early 1980s. Those people would have had much more time to plan.”
5. Krugman has written about why raising the retirement age is a bad way to make up for fiscal gaps and I agree with many of his arguments. Nonetheless I would insist on taking the continuing survival of such proposals as a kind of datum, indicating just how many other (possibly more sensible) proposals are complete political non-starters. Let’s learn and draw inferences from the popularity of “raise the retirement age” proposals rather than merely condemning them.
6. The threat is not that future benefits will have to be cut (if that were the case, cutting benefits now would be an odd solution, as Krugman notes). The threat is that future benefits cannot be cut or slowed and that the U.S. will spend far too much on consumption and the elderly, along with having excessively high taxes and permanently slower growth.
7. I am puzzled by Matt’s argument that government cannot easily save for the future. Even if one accepts it as stated, government could subsidize private consumption of health care and other amenities less than it does. That would be easy to achieve.
8. Morgan Stanley estimates that most developed economies are, when unfunded liabilities are taken into account, in some manner insolvent. Or ask how the fiscal picture would look if the standards for private pension funds were applied to the government.
Maybe my reading is missing it, but I don’t see that Krugman pays much if any heed to political lock-in arguments. Overall I do not see entitlement spending paths as very easy to alter, mostly for political reasons. One plausible scenario is simply that it is already too late and has been too late for some time (the rejection of managed care in the 1990s?), although denouement (which does not have to mean default) remains a ways away. If you are fiscally and/or growth doomed anyway, hurry at the margin will indeed seem of not much extra value. But that is on net hardly an argument for fiscal complacency.
2. When male CEOs have kids, employees make less money (speculative).
4. Martin Ford on Paul Krugman on robots (I think the post is mistitled by the way).
Designers talk of digital walls, which have sensors embedded so you can interact with them.
Or, if you want the professor’s technical explanation, “dye sensitised solar cells with titanium oxide layers on a surface with light absorbing dye molecules adsorbed on surface which can generate electricity”.
These walls will build up a profile of you and change your working environment accordingly.
This could mean the lighting around your desk dims slightly when you arrive, or a pre-determined microclimate is created for your meeting.
The technology that enables this interaction, known as “nano-coating”, will basically turn your cold, unfeeling office into an expressive medium
It could mean the moment you enter the building your workspace starts preparing itself for your imminent arrival – even if you are hot-desking.
Recently the LATimes ignited a firestorm of anti-sports commentary by arguing that people who don’t watch sports are being ripped off by Cable TV.
A key concern is that the higher bills driven by sports are being shouldered by subscribers whether they watch sports or not.
…”I pay $98 a month for cable and half of that is for sports?” said Vincent Castellanos, 51, a fashion stylist who lives inLos Feliz. “I’ve never once gone to a single sports channel. I wasn’t even aware I was paying for it. I want my money back. Who do I call?”
Derek Thompson at The Atlantic corrected some of the numbers but agreed with the analysis:
If you watch sports, millions of pay-TV households who never click on their ESPN channels are subsidizing your habit. If you don’t watch sports, you’re one of the suckers paying an extra $100 a year for a product you don’t consume.
Kevin Drum demanded a la carte pricing so that:
“sports fans would be forced to pay the actual cost of their sports programming without being subsidized by the rest of us.”
I don’t watch sports very often but I think the commentators have misunderstood the economics of Cable TV and the math of content provision. Let’s consider a simple model, there are content providers such as ESPN and Bravo, distributors such as the cable company and consumers. Let’s assume that there are 4 consumers, 3 of them value football at $10 and Top Chef at $0 and one vice-versa so the model looks like this:
How much will ESPN and Bravo charge the distributors? Bilateral bargaining between content sellers and distributors can be complex but for the point I want to make we can assume that the distributors simple pass on their input costs to consumers. In this case, ESPN will charge the distributor $30 and Bravo will charge $10, the maximum that they can get.
Here is where the LA Times and the others go very wrong – they reason that $30 of the $40 charged is due to sports so each person is paying $7.50 for football ($7.50*4=$30) and $2.50 for Top Chef ($2.50*4=$10) and, therefore, the Top Chef viewer is being ripped off because 3/4 of their bill is going to support programming they never watch! Mathematically this is as true as any other division of total cost but conceptually it makes little sense. Consider, for example, what happens if we add football viewers. With 9 football viewers, ESPN will charge $90 and Bravo $10 and thus the LA Times would conclude that the Top Chef viewer is even more ripped off than before–90% of their bill is going to football! It’s very odd, however, that the ripoff of the Top Chef viewer gets bigger even as the price that they are charged and their viewing habits aren’t changing! Also as we add more football viewers the per-subscriber charge for Bravo gets smaller and smaller, with 10 viewers it’s only $1. Implicitly the LA Times is suggesting that this number represents what a la carte price would be or could be but that’s nonsense–whatever Bravo’s a la carte price would be it doesn’t get lower as we add more football viewers.
Conceptually it’s much clearer to say that each person is being charged $10 for the programming that they most want to watch. Moreover, the reason that Cable TV firms bundle is precisely because by making the demand for their product more homogeneous they can increase profits. In other words, the best bundle for the Cable TV firm is one in which everyone does in fact value the bundle equally.
The bottom line is that there is no reason to think that Top Chef viewers are subsidizing football.
The Robot Restaurant opened in Harbin in June and has taken the F&B industry in China further into the mechanized world. Robot Restaurant staffs a total of 20 robots as waiters, cooks and busboys. Turns out Noodle Bot might need to expand its repertoire if it hopes to compete with Robot Restaurant’s 18 different kinds of service robots.
Upon arrival, Usher Robot welcomes customers to the restaurant and directs them to the seating area. Patrons can then place their order, which is relayed by humans to one of the four the robot chefs who are able to cook various styles of dumplings and noodles. The robot chefs even determine the temperature and ingredients for each dish and usually take about 3 minutes to prepare the average order. These robot chefs are no slouches either. The kitchen staff is able to prepare a menu of over 30 dishes–perfect for a family dinner.
Waitress robots carry the food to customers by following a track that uses sensors placed under the floor for spatial awareness. Additionally, each robot comes equipped with its own sensors, helping it to avoid obstructions such as a kid that’s in its way.
The robots were designed and built by a local firm, the Harbin Haohai Robot Company. Each robot costs between 200,000 to 300,000 Chinese yuan (US$31,500 – US$47,000) with an additional 5 million yuan (US$790,000) invested into the restaurant itself. With the average Robot Restaurant meal costing less than 62 yuan (US$10), the restaurant is not meant to earn Harbin Haohai money. Instead, it turns out the restaurant is just a brilliant piece of marketing.
Eldar Shafir, editor, The Behavioral Foundations of Public Policy.
Ray Fisman and Tim Sullivan, The Org: The Underlying Logic of the Office.
Daniel C. Dennett, Intuition Pumps and Other Tools for Thinking.
All three would appear to be of interest; note that the latter is due out May 6.
And here is Rino Which Eats World’s Various Dishes (video).
5. Apply for Mercatus Master’s fellowships here.
6. How much of an advance would open access journals be? Excellent FT piece by John Gapper. And Orin Kerr on the Aaron Swartz case.
Andrew Gelman edits The Statistics Forum, a blog of the American Statistical Association. He is looking for a series of guest posts about what statisticians/econometricians/data scientist do during their day–not the theory but the nitty gritty of what a typical day with its frustrations and triumphs looks like. Kaiser Fung’s post, three hours in the life of a (glorified) “data scientist” could be a model. Submissions from stats people in any field, academia, business, non-profit etc. are all welcome. Write Andrew here.
A Twitter feud in June between the Estonian president and New York Times columnist Paul Krugman who questioned the impact of Estonia’s austerity measures, is being turned into an opera, US composer Eugene Birman told AFP on Wednesday.
“Our short opera will be first performed by Iris Oja and the Tallinn Chamber Orchestra conducted by Risto Joost during Tallinn Music Week on April 7,” Birman, who moved from Riga to the US at age of six, told AFP.
The piece, in two movements, uses two voices, those of Krugman and Estonian President Toomas Hendrik Ilves, reflecting their exchanges on the Twitter social network.
“‘Nostra Culpa’ (Our Fault) is a short 16 minutes operatic piece which takes up the age-old economic disagreement of austerity vs. stimulus,” journalist Scott Diel, who wrote the opera’s libretto, told AFP.
Here is a new paper by Lawrence Christiano, Roberto Motto, and Massimo Rostagno, reporting from the frontiers of actual business cycle theory:
We augment a standard monetary DSGE model to include a Bernanke-Gertler-Gilchrist financial accelerator mechanism. We fit the model to US data, allowing the volatility of cross-sectional idiosyncratic uncertainty to fluctuate over time. We refer to this measure of volatility as ‘risk’. We find that fluctuations in risk are the most important shock driving the business cycle.
A large and growing share of American workers are tapping their retirement savings accounts for non-retirement needs, new data show.
The withdrawals, cash-outs and loans are draining nearly a quarter of the $293 billion that workers and employers deposit into their 401(k) and other savings accounts each year, undermining already shaky retirement security for millions of Americans.
Is this because standards of living have been going up so much (free Facebook), or because some individuals, rightly or wrongly, feel compelled to make up for stagnant or declining job market prospects? You tell me, here is more on that one. I call it the tyranny of consumption smoothing, an underreported theme in welfare economics. And there is this:
Fresh data from Vanguard, one of the nation’s largest 401(k) managers, show a 12 percent increase in the number of workers who took loans against their retirement accounts or withdrew money outright since 2008.
The most common way Americans tap their retirement funds is through loans, which must be repaid with interest. Those who withdraw money face hefty penalties. In most cases, they not only incur a 10 percent federal tax penalty but also pay capital gains taxes.
And from the NYT, this article considers how the feeling of scarcity drives the desire to borrow. These points are related to income inequality, and here you will find my colleague Garett Jones on whether individuals with low time preference will inherit the earth (pdf).