Sentences to ponder

Recent research by economists Amy Finkelstein, Erzo Luttmer, and Matthew Notowidigdo suggests that you’ll get a bigger bang for your consumer buck by spending while you’re healthy, before old age starts to take the fun out of life’s indulgences.

Here is more.  I worry about the asymmetry between gaining happiness and avoiding pain.  Surely money for the young is better for the former but how about the latter?

Customer relations

Treasury tried to head off such concerns by having David McCormick, the
undersecretary for international affairs, call foreign central banks and other
overseas buyers of the companies’ securities or debt to reassure them of the
instruments’ creditworthiness. Over the weekend, Treasury officials called
sovereign-wealth funds in Abu Dhabi and elsewhere in the Middle East, assuring
them that they were working on financial issues involving Fannie and Freddie,
says an individual apprised of the conversations.

Here is much more, interesting throughout.  Read this too.  But no, the buyers forced the hand of our government by essentially threatening, through inaction, to induce a massive run on the uninsured U.S. financial institutions.  One response is to insure all of those institutions, as the dominoes continue to fall.  Another response is to believe that runs on unprotected financial institutions are not very dangerous.  The third, correct response is…?

What are our personal obligations toward the environment?

From the hum of the city, while pondering fossil fuel consumption, Megan McArdle writes:

I understand that people’s desires for large houses in leafy suburbs
are every bit as valid as my ardent desire to live near the peaceful
hum of traffic.  Unfortunately, there is no such thing as a policy that
effects everyone equally, and the painful job of being an adult is
doing things we don’t like because they’re the morally right thing to
do.

From my mid-sized house in a leafy suburb, I will assume that a) environmental concerns are real, b) we will fall short of fixing those problems through public policy (Megan uses the word policy but mostly her post is about personal obligation), and c) we do in fact have personal obligations to limit consumption.  The question remains how much fun we can have.  Fossil fuel consumption isn’t necessarily the area of optimal sacrifice.  For instance here are two other options:

1. Send money and other forms of aid to the victims and future victims.

2. Have fewer children than otherwise, if only in the stochastic sense (e.g., don’t move to Alaska at a young age).  Climate change is not the last environmental burden we will place on the world and probably not even the biggest such burden, but fewer people does mean less human pressure along many environmental dimensions, present and future.

Assuming that restriction is indeed called for, either of those might be more personally imperative than:

3. Fly and drive less and buy a smaller house.

Most people focus on #3 because lower energy consumption makes them feel less affiliated with the particular problem at hand.  But instrumentally speaking at a low discount rate #2 is more potent and at any discount rate #1 can be a more effective form of aid to the victims.

In this setting, I can see a few theories of our duties:

a. Do that which yields the highest net social return if only you do it.

b. Do that which yields the highest net social return if many people were to do it.

c. Cut back on your activities which most closely resemble aggressive interference into the lives of others.

d. Perform the action most likely to influence the behavior of others.

Belief in "a" favors sending money.  Belief in "b" favors having fewer children.  Belief in "c" favors restricting your driving and flying.  I am not sure which course of action follows from belief in "d."

You might think that you should do some mix of 1, 2, and 3,  But if your MU schedules are sufficiently flat, an argument from Steven Landsburg implies it is optimal to concentrate your sacrifice in a single "best returns" project.  So it may suffice to pick either 1, 2, or 3 and do it very well.

The bottom line: Perhaps I should call this blog post An Apology for Me.

Did we *really* need that bail-out?

The highly-praiseworthy-but-ever-so-occasionally-totally-wrong Bryan Caplan suggests that Paulson should have simply let the debt securities of the mortgage agencies go.  In addition to the fact that he favors The End of the World, Bryan is underestimating at least two points:

1. The current operation of the money market requires ongoing faith in a variety of assets and commitments.  Just try tracing through the consequences of a general "run" on money market funds, which "promise" a redemption ratio of $1 a share but on the other hand really don’t make such a promise.  How quickly would Merrill Lynch cry Uncle, how quickly would the Fed’s balance sheet be exhausted, and how many commitments would they have made in the meantime and how many people would have to sell stocks to find cash and make margin calls?  Or think about what would happen if FASB ruled that Frannie debt securities did not qualify as "ready cash" for accounting purposes.  (As a general tendency I find that economists vastly underrate the importance of accounting as an economic force.  I might add that many market advocates are unaware of how quickly liquidity can vanish in these markets; just look at auction-rate securities.)  And those aren’t even the biggest potential problems arising from a default.

2. In essence we already agreed to the bail out some time ago.  Have you ever spent $17,000 on a car and asked the dealer what the warranty for the car "really meant"?  Well, the Chinese spent $340 billion on agency debt and probably asked the same question at least once or twice.  They live in a world of secret agreements with leaders, not transparent democratic arrangements.  So when it comes to the U.S government decision, we’re not just starting from scratch here.  How many phone calls do you think Hank Paulson has received from the Chinese central bank since August 2007?

"Are you *sure* that paper is safe enough for us to keep on buying?"

We’ll never know exactly what kind of verbal dance Paulson concocted in response, but just look at the resulting flow of purchases and the relatively slight mark-up over Treasuries over that period of time.  The Chinese (among others) thought we were standing behind the securities, at least in any world-state short of federal government quasi-bankruptcy.  (In fact Paulson is in a total bind once that phone call comes in.  He doesn’t have much incentive to just say "tough luck" and precipitate a crisis when otherwise no crisis is on the horizon.)

So should we try this: "Oh, is that what you thought?  Guaranteed?  Did we use that word? Sorry, try reading our signals better next time.  We love you.  Great job with those Olympics.  And when it comes to those Treasury Bills, we really do still mean it.  And don’t forget to support us on Iran and North Korea."

The libertarian critique of the mortgage agencies is, in my view, very much on the mark.  But still the error has been made and we must pay up.  As Steve Chapman points out, the bailout is a necessary evil, but with emphasis on the word "evil."

Wal-Mart and obesity

Here’s Charles Courtemanche and Art Carden:

We estimate the impacts of Wal-Mart and warehouse club retailers on height-adjusted body weight and overweight and obesity status, finding robust evidence that non-grocery selling Wal-Marts reduce weight while grocery-selling Wal-Marts and warehouse clubs either reduce weight or have no effect. The effects appear strongest for women, minorities, urban residents, and the poor. We then examine the effects of these retailers on exercise, food and alcohol consumption, smoking, and eating out at restaurants in order to explain the results for weight. Most notably, the evidence suggests that all three types of stores increase consumption of fruits and vegetables while reducing consumption of foods high in fat. This is consistent with the thesis that Wal-Mart increases real incomes through its policy of "Every Day Low Prices," making healthy food more affordable, as opposed to the thesis that cheap food prices make us eat more.

Of course, not everyone likes Wal-Mart.

Assorted links

1. Via Craig Newmark, a short class on behavioral economics (are the speakers or the audience more impressive?)

2. List of very good contemporary TV shows

3. Diasyrmus

4. The first Haitian opera (to buy it, right click on "shop" and then click on the Dutch phrase at the bottom of the page)

5. Nursing home reform I can favor.

6. Which three Senators receive the most Fannie Mae money?

Brazil fact of the day

In Brazil, they segregate their prisons according to gang membership.
No exceptions. Not even for individuals who in fact are not members of
any gang.

How does that work?  Easy.  Upon being admitted to the prison system, unaffiliated prisoners are required to join a gang.

Here is more, from Amanda Taub.  Here is her blog.  Here is another new economics blog, on models and agents.

The benefits of a winning sports team?

The consistently interesting Drake Bennett writes:

…a few scholars have started to suggest that there may indeed be another
kind of benefit from big-time sports. There’s a catch, though: the team
has to be good. In a forthcoming paper, economist Michael Davis and the
psychologist Christian End say that having a winning NFL football team
increases the incomes of the people who live and work in its hometown
by as much as $120 a year. And while the study doesn’t identify exactly
what causes the boost, the authors point to psychological literature
suggesting that winning fans are at once harder workers and bigger
spenders. In short, buoyed by the team’s success, we work longer hours,
take bigger risks, and shop more avidly, all of which helps the local
economy.

I have a simple hypothesis.  Winning sports team cause local fans to feel better and thus to spend more money.  Most importantly, consumption tends to be local and thus the spending shows up in the city of the winning sports team.  Saved funds, in contrast, are invested but banks and securitization make these funds mobile.  Savings will help the national or international economy but not the local economy so much.

Since more savings would be desirable, the best outcome is if no team wins, if a small city team wins, or if the victory is uninspiring.  Detroit vs. San Antonio, anybody?  That’s what the American economy needs.

Alternatively, you might think that the economic boost comes from greater confidence, higher labor supply, and other supply-side effects.  Then you should root for the teams from the largest cities (Los Angeles, New York, Philadelphia) and most of all you should root against the Washington Wizards.

Anathem, by Neil Stephenson

Here are a few reviews and a few more and more.  Here is the Amazon listing.  A partial read and a browse put me in (temporary?) agreement with this Amazon review:

The story, when it gets going, is exciting and relatively fast-paced
and all that. But it takes some 600-700 pages to get there, during
which time you are immersed in the world of Arbre and its native
culture. The first few pages are chock-full of in-world jargon à la A
Clockwork Orange, and it will be difficult to read. (Not to worry–
there is a glossary, and selections from the Arbran dictionary appear
throughout the text)…Anathem takes eight thousand years of
fictional history and makes it as relevant and meaningful as anything
from the Cycle.

In case you’ve been living under a rock, Cryptonomicon is the place to start.  It’s one of my favorite popular fictions from the last twenty years and you don’t even need to like "that sort of thing."

Insect politics

In case you had forgotten:

"Have you ever heard of insect politics? Neither have I! Insects don’t
have politics…. they’re very brutal. No compassion…. no compromise.
We can’t trust the insect. I’d like to become the first insect
politician. I’d like to, but…. I’m an insect…. who dreamed he was a
man, and loved it. But now the dream is over, and the insect is awake."

That’s from David Cronenberg’s The Fly.  I was reminded of the scene by this post.  Best of all, the YouTube of that scene is here.  I will genuinely be glad when this campaign is over.

Addendum: The new operatic version of The Fly is receiving negative reviews.

Why Libertarians Should Vote for Obama (1)

First, war.  War is the antithesis of the libertarian philosophy of
consent, voluntarism and trade.  With every war in American history
Leviathan has grown larger and our liberties have withered.  War is the
health of the state. And now, fulfilling the dreams of Big Brother, we are
in a perpetual war.

A country cannot long combine unlimited government abroad and limited
government at home. The Republican party
has become the party of war and thus the party of unlimited government.

With war has come FEAR, magnified many times over by the governing party. Fear is pulling Americans into the arms of
the state. If only we were better at
resisting. Alas, we Americans say that
we love liberty but we are fair-weather lovers.  Liberty will flourish only with peace. 

Have libertarians gained on other margins in the past eight years? Not at all. Under the Republicans we have been sailing due South-West on the Nolan
Chart
– fewer civil liberties and more government, including the largest new
government program in a generation, the Medicare prescription drug plan, and
the biggest nationalization since the Great Depression. Tax cuts, the summum bonum of Republican
economic policy, are a sham. The only
way to cut taxes is to cut spending and that has not happened.

The libertarian voice has not been listened to in Republican politics for a
long time. The Republicans take the libertarian wing of the party for granted
and with phony rhetoric and empty phrases have bought our support on the
cheap. Thus – since voice has failed – it is  time for exit.  Remember that if
a political party can count on you then you cannot count on it.

Exit is the right strategy because if there is any hope for reform it is by
casting the Republicans out of power and into the wilderness where they may
relearn virtue. Libertarians understand better
than anyone that power corrupts. The
Republican party illustrates. Lack of
power is no guarantee of virtue but Republicans are a far better – more libertarian –
party out-of-power than they are in power. When in the wilderness, Republicans turn naturally to a critique of
power and they ratchet up libertarian rhetoric about free trade, free
enterprise, abuse of government power and even the defense of civil liberties.  We can hope that new leaders will arise in
this libertarian milieu.