Why so little gas station arbitrage?

by  Tyler Cowen in

RSaunders requests:

How does the Exxon at Virginia Ave [in DC] sustain gas prices that are $1 higher than anywhere else in DC (even Adams Morgan). Realize it’s only gas within 3mi and people probably don’t buy a full tank, but can there really be that many people about to run out of gas to buy 1 gal of gas at a time to sustain this differential?

This Exxon comes up right before the entrance ramps to the major highways, right before leaving the NW quadrant of the District for northern Virginia.  Some people simply need to fill up and they are intimidated by the notion of getting off the highway in the suburbs, finding a gas station on the right side of the road, making a subsequent U turn, and finding the entrance ramp back on to the highway they wanted.  They also may have memories of getting back on the Capital Beltway in the wrong direction, being confused by those ramps where going south is called “Baltimore” and going north is called “Richmond.”

If that ain’t worth $5 for America’s elite, I don’t know what is.

A fellow with almost the same name — rsanders — requested a book on Romanian political history.

Ireland fact of the day

by  Tyler Cowen in

Irish Life and Permanent is expected to require more than €3 billion – about 30 times its market value – to meet worst-case mortgage losses estimated in the tests.

Here is more.  Once the Irish government takes majority ownership in this company, virtually the entire Irish banking system will have been nationalized, with no prospect of re-privatization in sight.  Some of the stress tests, by the way, are based on data taken from Nevada.

In my pile and out the door

by  Tyler Cowen in

1. Emma Rothschild, The Inner Life of Empires, An Eighteenth Century History.  The story of the Johnstones, in Scotland and around the globe.  It appears to have lots of useful information, but it is too far from my current interests for me to read it now.

2. Robin Fox, The Tribal Imagination: Civilization and the Savage Mind.  Great themes, namely Hayek plus Levi-Strauss.  But it’s too diffuse for me to get a handle on.

3. John Gray, The Immortalization Commission: Science and the Strange Quest to Cheat Death.  A bunch of weird guys, in the early 20th century, thought they could cheat death but they couldn’t!  And it all has something to do with H.G. Wells and a Russian spy.  When is the cutting polemic against rationalism going to fall?  It doesn’t, and when the book ends it feels as if it is only one-third over.  The mood is wistful.  I recall once predicting to Jim Buchanan that Gray would someday end up converting to Roman Catholicism.  This one is now in the hands of Robin Hanson.

“Ethos of the Unit”

by  Tyler Cowen in

This is from a child and adolescent mental health group at University College London, but it could and should also count as “Ethos of the Blogger”:

•All research is provisional
•All research raises as many questions as it answers
•All research is difficult to interpret and to draw clear conclusions from
•Qualitative research may be vital to elaborate experience, suggest narratives for understanding phenomena and generate hypotheses but it can’t be taken to prove anything
•Quantitative research may be able to show hard findings but can rarely (never?) give clear answers to complex questions

And yet, despite all the challenges, it is still worth attempting to encourage an evidence-based approach, since the alternative is to continue to develop practice based only on assumption and belief.

For the pointer I thank Michelle Dawson.

Alan Greenspan does not like the Dodd-Frank Bill

by  Tyler Cowen in

Here is his FT Op-Ed, sure to draw fury from those who think he no longer has much cache as an expert on financial reform.  (Addendum: Henry comments.)  Here are the most interesting excerpt:

During the postwar years, the degree of financial complexity has appeared to grow with the rising division of labour, globalisation, and the level of technology. One measure of that complexity, the share of gross domestic product devoted to finance and insurance, has increased dramatically. In America for example, it rose from 2.4 per cent in 1947 to 7.4 per cent in 2008, and to a still larger 7.9 per cent during the severe contraction of 2009.

Increased financial shares are evident in the UK, the Netherlands, Japan, Korea, and Australia, among others. Even China has joined, its share rising from 1.6 per cent in 1981 to 5.2 per cent in 2009. Deregulation, especially in America during the 1980s, clearly accounts for part, but certainly not all, of the share rise.

“among others” is not especially satisfying — is it a general trend or not?  Here is a useful chart, showing the evolution of finance as a share of gdp in the United States (and many slides here).  It runs straight up from 1940 or so onwards.  That said, I am not sure this is grounds for optimism.  The share is very high in 1929, and does not re-achieve that height until the mid-1980s (an eyeball estimate).  Does the graph show a pattern of natural growth?  Or is excess finance like a tumor which must be periodically excised and can remain at lower levels, relative to gdp, for decades, with no apparent harm?

When does money help you remember?

by  Tyler Cowen in

In a new article, Kou Murayama and Christof Kuhbandner write:

Money’s ability to enhance memory has received increased attention in recent research. However, previous studies have not directly addressed the time-dependent nature of monetary effects on memory, which are suggested to exist by research in cognitive neuroscience, and the possible detrimental effects of monetary rewards on learning interesting material, as indicated by studies in motivational psychology. By utilizing a trivia question paradigm, the current study incorporated these perspectives and examined the effect of monetary rewards on immediate and delayed memory performance for answers to uninteresting and interesting questions. Results showed that monetary rewards promote memory performance only after a delay. In addition, the memory enhancement effect of monetary rewards was only observed for uninteresting questions. These results are consistent with both the hippocampus-dependent memory consolidation model of reward learning and previous findings documenting the ineffectiveness of monetary rewards on tasks that have intrinsic value.

The pointer is from Michael Rosenwald, who recently published The Silent Season of a Hero: The Sports Writing of Gay Talese.

How would the time-stream of humanity sort itself into coalitions?

by  Tyler Cowen in

Kevin Riste, a loyal MR reader, and perhaps a loyal Philip Jose Farmer reader, asks me:

…if all of the people in recent history (since, say, 10,000 BC or so?) through today were somehow gathered at a sort of “conference,” do you have any predictions for how they would align themselves over time? what distinctions would be most significant? assuming language barriers are overcome to an extent, since that seems most significant.. male/female? by decades? nerds/jocks?

Let’s assume that different eras send roughly equal numbers of people to the conference and let’s make the conference small enough to be manageable.  No one can bring weapons or iPhones.  I believe the most significant coalition would be “rulers vs. ruled.”  On one side of the banquet table would sit modern Americans, members of the Roman Senate and Imperium, Ghenghis Khan supporters, eighteenth century Brits, 15th century Nahuas, Song Dynasty fans, and so on.  They would commiserate over the plight of having to make all those tough militaristic decisions and how little they are appreciated for it.  They would have plenty of disagreements, but ultimately they could be unified if ever the other side threatened to take over.  The Albanians, Armenians, Angolans, Bolivians, the less powerful Native American groups, and others would show up on the other side and trade stories of commiseration.  They too would have plenty of disagreements, but with less underlying unity.

In fact there is a such a conference, in atemporal form, and it is called the United Nations.

Libya and our budget

by  Tyler Cowen in

From Ezra Klein’s Wonkbook:

The war in Libya is making defense cuts less likely, reports Carrie Budoff Brown: “For once, the unthinkable in Washington seemed within reach. From liberals to tea party conservatives to a defense secretary who served in a Republican administration, all agreed — it was time to begin reining in the Pentagon budget. Then along came Libya. Just as the debt debate ramps up on Capitol Hill, the lead role the United States is playing in the military action against Libya threatens to scramble an emerging consensus over the need to trim defense to reduce the deficit…The airstrikes are already being used by some in the Republican establishment to blunt momentum in favor of the cuts, long considered heretical in a town in which defense contractors constitute a formidable lobby and members of Congress view the Pentagon budget as a jobs program and fear being tagged as unpatriotic.”

How much productivity growth was there during 2007-2009?

by  Tyler Cowen in

Michael Mandel has a long and excellent blog post on this question.  He claims that the supposed productivity gains were concentrated in a small number of sectors (one of which, by the way, was financial services ha-ha) and that they are mostly illusory when cross-checked with other sources of data.  Here is his final conclusion:

However, the effect of the adjustment on the 2007-2009 period is spectacular.  Productivity growth, which had been 1.6% annually in the original data, basically disappears. The decline in real GDP is twice as large  (-1.3% per year in the original data, -2.9% in the adjusted data).  And economists are no longer presented with the confounding puzzle of why unemployment rose so much with such a modest decrease in GDP–it’s because the decrease in GDP was not so modest.  (see a piece here on Okun’s Law, which links GDP changes with unemployment changes).

His redone figures, by the way, are based on the assumption that intermediate inputs are growing and shrinking roughly at the rate of final product (Mandel believes we are mismeasuring these intermediate inputs and thus finding illusory productivity gains over that period.)  Think of his alternative numbers as illustrative rather than necessarily his best estimate.  The implications of his analysis include:

1. Productivity statistics aren’t well set up to cover outsourcing.

2. Beware of measured productivity gains, reaped over short periods of time, based on supposed drastic declines in intermediate inputs.  We’re probably mismeasuring those inputs.  Mike’s examples on these points are pretty convincing, walk through what he does for instance take a look at his numbers on mining: “Mining, for example, combines a 10% drop in real gross output with an apparent 46% drop in real intermediate inputs,  leading to a reported 23% gain in real value-added and a 26% gain in productivity.  It’s very hard to understand how intermediate inputs decline four times as fast as output!”

3. During the crisis, output fell more than we thought and thus our recovery isn’t going as well as we think.  (By the way, this is the most effective critique of the ZMP hypothesis, since the implied decline in true output now comes much closer to matching the measured decline of employment.)

4. Issues of “international competitiveness” are much more important than either economists or the Obama administration have been thinking.  Excerpt:

…the mismeasurement problem obscures the growing globalization of the  U.S. economy, which may in fact be the key trend over the past ten years. Policymakers look at strong productivity growth, and think they are seeing a positive indicator about the domestic economy.  In fact, the mismeasurement problem means that the reported strong productivity growth includes some combination of domestic productivity growth, productivity growth at foreign suppliers, and productivity growth ”in the supply chain’.  That is, if U.S. companies were able to intensify the efficiency of their offshoring during the crisis,  that would show up as a gain in domestic productivity.

5. Read #4 directly above, think about who captures those gains, and you can see that the Mandel productivity hypothesis is broadly consistent with some of the data on income inequality.

6. There really is a structural unemployment problem and it stems from ongoing low productivity growth.

7. At the risk of sounding self-congratulatory, if you combine Mike’s estimates with the new Spence paper, and the reestimation for male median wages (down 28 percent since 1969), in my view the TGS thesis is looking stronger than it did even two months ago when the book was published.

Fragments of truth

by  Tyler Cowen in

This time, not even an entire sentence is required:

…the Republican position appears to be: “How do we preserve current tax rates and most current spending while getting Democrats to accept deep cuts to the small fraction of the budget called non-defense discretionary spending?”

(Could you improve that fragment by subbing in “is” for “appears to be”?)  Ezra Klein’s associated prediction is that a government shutdown is on its way.