A new mortgage plan?

by  Tyler Cowen in

I am not sure whether this article is describing progress, or lack of progress, but here was one interesting bit:

One potential compromise described in current drafts of the administration’s proposal would reduce the government’s role to a last line of defense for the mortgage market. A version of this idea has been advocated by David S. Scharfstein, a finance professor at Harvard who previously worked as an adviser to Mr. Geithner.

The core of Mr. Scharfstein’s proposal is to create a new government-owned corporation for the sole purpose of providing guarantees to mortgage investors. During normal times, the insurer would guarantee no more than 10 percent of mortgages, but in times of crisis, the government could raise that cap, offering guarantees to a broader range of investors so that money continues to flow into the mortgage market and credit remains available.

This plan is a good example of why public choice analysis remains an underrated field in economics.  How are these restrictions self-enforcing in light of special interest and electoral pressures?  Along related lines, Arnold Kling has interesting comments on Peter Wallison.

Malaria and IQ

by  Alex Tabarrok in

The figure below, from Bill Gates's annual letter, shows that countries with a higher disease burden have lower average IQs. The theory is that building brains and fighting disease are metabolically costly so more effort to fend disease diverts resources from brain development lowering IQ. 

Malaria-iq
Tyler blogged this research earlier writing "I'm not sure the authors have a very good test against alternative hypotheses, but still a correlation remains after making some appropriate adjustments."

Further evidence on causality is given by Atheendar Venkataramani in Early Life Exposure to Malaria and Cognition and Skills in Adulthood. Venkataramani finds that men born after widespread malaria eradication began in Mexico in the late 1950s have higher IQs (Raven scores) and are more likely to work in white collar jobs than men born shortly before eradication efforts began. Importantly, the effect is larger for men born in those states that began with high exposure to malaria.   

Were bankers fools or knaves?

by  Tyler Cowen in

This is a long "Control C" for a blog post, but it's worth it.  Via Simon Johnson:

New evidence in favor of the second interpretation [knaves] has just become available, thanks to the efforts of Sanjai Bhagat and Brian Bolton, who went carefully through the compensation structure of executives at the top 14 financial institutions in the United States from 2000 to 2008.

The key finding is that chief executives were “30 times more likely to be involved in a sell trade compared with an open-market buy trade” of their own bank’s stock and “the dollar value of sales of stock by bank C.E.O.’s of their own bank’s stock is about 100 times the dollar value of open market buys.” (See page 4 of the report.)

If the chief executives had really believed in what their banks were doing, they would have wanted to hold this stock – or even buy more.

And:

Professors Bhagat and Bolton argue that if this incentive problem is important, we should see chief executives make a great deal of money while long-term buy-and-hold shareholders lose money.

Table 4 in their paper (Pages 45-48) shows the amounts of money involved, and they are simply staggering. Collectively, the people who headed these 14 institutions pocketed – in hard cash terms – more than $2.6 billion during 2000-8. It’s true that the paper value of their wealth dropped in 2008, although this was an unrealized paper loss. Even including that notional loss, the chief executives made an impressive $650 million profit [emphasis from TC].

In contrast, long-term shareholders in these 14 banks did very badly, particularly in 2008 (see Figure 1 on Page 61 of the paper). Professors Bhagat and Bolton show that shareholders in the biggest banks – where chief executives got their hands on more cash – did significantly worse than investors in smaller banks.

Interestingly, chief executives in the smallest banks in their sample did not sell much stock relative to their purchases of their own bank’s stock. The big bank-small bank contrast is quite striking.

British Prime Minister Harold Macmillan used to call them "banksters."

The Nordic triangle?

by  Tyler Cowen in

Via Conor Friedersdorf, and Bagehot, here is a discussion of Henrik Berggren and Lars TrägÃ¥rdh:

Conor writes:

Here's an interesting frame for the difference between America, Germany, and Sweden: every society has a different relationship to "the triangle formed by reverence for the Family, the State and the Individual." 

Bagehot writes:

Americans favour a Family-Individual axis… suspecting the state as a threat to liberty. Germans revere an axis connecting the family and the state, with a smaller role for individual autonomy. In the Nordic countries… the state and the individual form the dominant alliance.

Here is Reihan on this topic.  Here is my earlier and very directly related post on Sweden and the Swede as individualist.  Does anyone have a link to the Pippi Longstocking paper itself?

Here is Bagehot again:

(Before you scoff, you should perhaps know that the French–a conservative and statist lot–have a very complicated relationship with Pippi Longstocking as a children's book. For many years, the only French translation available was a bowdlerised version, that played down Pippi's wilder, anti-authoritarian side. There is a moral in there somewhere.)

*The Evolution of Progress*

by  Tyler Cowen in

The excellent Brink Lindsey pointed my attention to this fascinating book, subtitled The End of Economic Growth and the Beginning of Human Transformation (like many subtitles, that one is an exaggeration), wirtten by C. Owen Paepke and published in 1993.  A brief book summary is here.

It is fascinating to read his take on how the biosciences will be the wave of the future and how much of human progress will come in the "interior" dimension.  Here is one excerpt:

The United States enjoyed the dubious honor of leading a world-wide parade toward lesser productivity gains.  The growth of both total factor productivity and labor productivity of every advanced economy, notably including Japan, has slowed since 1973.  Only the newly industrialized countries, such as South Korea and Singapore, maintained or increased their productivity growth during the 1970s and 1980s, largely by exploiting innovations earlier pioneered in the advanced economies.

In fairness to the data, this productivity trend was temporarily reversed in the mid-1990s, for a few years, right after Paepke wrote.  And:

By the middle of the next century, a new generation will surpass its precedessor, not in the traditional realm of possessions of life-style, but in the more fundamental one of genetic endowment.

It seems Paepke is a lawyer (one source has him running a pharmaceuticals company), here is Paepke on "Facebook like."  Here is Paepke's patent for "affinity analysis."  Here are Paepke's thirteen trademarks.

How do great entrepreneurs think?

by  Tyler Cowen in

Here is one interesting study:

That is not to say entrepreneurs don't have goals, only that those goals are broad and–like luggage–may shift during flight. Rather than meticulously segment customers according to potential return, they itch to get to market as quickly and cheaply as possible, a principle Sarasvathy calls affordable loss. Repeatedly, the entrepreneurs in her study expressed impatience with anything that smacked of extensive planning, particularly traditional market research. (Inc.'s own research backs this up. One survey of Inc. 500 CEOs found that 60 percent had not written business plans before launching their companies. Just 12 percent had done market research.)

…Sarasvathy explains that entrepreneurs' aversion to market research is symptomatic of a larger lesson they have learned: They do not believe in prediction of any kind. "If you give them data that has to do with the future, they just dismiss it," she says. "They don't believe the future is predictable…or they don't want to be in a space that is very predictable."

The article is interesting throughout and hat tip goes to The Browser.

Stagnation is not just about technology

by  Tyler Cowen in

According to data based on students who graduated in June, 2009, 5.1 percent of Rochester students who entered high school in the 2005-06 school year graduated school prepared for college or a career.

Rochester's graduation rate for that period was 46.6 percent, but because few of those graduates passed regents exams with scores of 80 or higher in math and 75 or higher in English, they were not deemed college or career ready.

The story is here.  In Syracuse and Buffalo, the readiness rate was a much higher fifteen percent.  Of course when it comes to gdp, all of these expenditures on their high schools are valued at cost.

Is Los Angeles in trouble?

by  Tyler Cowen in

For over a decade, Gregg Donovan, former valet to Bob Hope, greeted tourists on the street in a top hat and red tailcoat and yelled "Welcome to Beverly Hills!"  His original assigned job was to counter the impression — often derived from the Julia Roberts movie Pretty Woman — that Rodeo Drive was full of snooty sales clerks.  He often would escort people into the shops by hand and ease their way into the culture and show them how friendly the place really is.

Now he has been laid off, another casualty of the recession.  His image will live on:

Mr. Donovan has come to represent the city so thoroughly that there is now a debate over the rights to his likeness.

As part of the separation agreement sent to Mr. Donovan, the Conference and Tourism Board sought the right to continue to use his image on promotional materials. Mr. Donovan has refused to sign the agreement, his lawyer said.

It turns out Donovan is supposed to give up his personal rights to use his image in the job, which he does not want to do.

Elsewhere, Watts Towers — one of my favorite American landmarks — is facing budget cuts.  The three city workers who look after the towers have been laid off, so there is an attempt to recruit the Los Angeles County Museum to do the work and also to renovate the site.

Felix’s law

by  Tyler Cowen in

Felix Salmon, that is:

One of the paradoxes of news media is that most of the time, the more you’re paying to use it, the harder it is to navigate. Sites like HuffPo make navigation effortless, while it can take weeks or months to learn how to properly use a Bloomberg or Westlaw terminal. Once the NYT implements its paywall, it’s locking itself into that broken system: it will be providing an expensive service to a self-selecting rich elite who are willing to put in the time to learn how to use it. Meanwhile, most Americans will happily get their news from friendlier and much more approachable free services like HuffPo.

Read the whole post, which is about the differences between Huffington Post and the NYT, interesting throughout.  MR redesign is coming soon!

Creative style and achievement in ADHD adults

by  Tyler Cowen in

Here is the abstract:

Previous research has suggested that adults with ADHD perform better on some measures of creativity than non-ADHD adults. The present study replicated previous findings using a standardized measure of creativity (the Abbreviated Torrance Test for Adults, Goff & Torrance, 2002) and extended previous research by investigating real-world creative achievement among adults with ADHD. Results indicated that adults with ADHD showed higher levels of original creative thinking on the verbal task of the ATTA and higher levels of real-world creative achievement, compared to adults without ADHD. In addition, comparison of creative styles using the FourSight Thinking Profile (Puccio 2002) found that preference for idea generation was higher among ADHD participants, whereas preference for problem clarification and idea development was greater among non-ADHD participants. These findings have implications for real-world application of the creative styles of adults with and without ADHD.

The paper, by Holly A. White and Priti Shah, is here.  Note that ADHD individuals score high on "verbal originality."  Here is a previous White paper on ADHD and creativity.

It's also worth repeating the more general point that many (most?) ADHD individuals have a high variance of focus abilities, not a complete inability to focus on something.  They can be some of the world's best focusers, under the right circumstances.

The Living Constitution

by  Alex Tabarrok in

Laurence Tribe writes in today's New York Times regarding the health care law:

Since the New Deal, the court has consistently held that Congress has broad constitutional power to regulate interstate commerce. This includes authority over not just goods moving across state lines, but also the economic choices of individuals within states that have significant effects on interstate markets. By that standard, this law’s constitutionality is open and shut.

Quite so; but what Tribe forgets is that the constitution is a living document. The constitution's meaning is not fixed by the New Deal. The constitution evolves to meet the needs of the people in the here and now. Tribe's interpretation of the commerce clause, which may have been appropriate for the age of steel and iron, is not necessarily right for the age of genes and bytes. We are fortunate, the constitution lives.