From Car Czar to Car Politburo
Headline in the NYTimes:
Obama is said to shift plans to fix Detroit: A Panel, Not a Car Czar.
The economics of conglomerates
Jessica Crispin reports:
McGraw-Hill Cos., the owner of the Standard & Poor’s
credit-rating service, won’t be publishing a book on the financial
crisis that the author says addresses S&P’s role in the markets’
plunge.
Barry Ritholtz, chief executive officer of equity-research firm
FusionIQ, said he withdrew the manuscript from the New York publisher
and plans to return his advance after the company tried to edit passages critical of S&P. McGraw-Hill says it wasn’t initially able to verify some of the book’s claims.
Addendum: Here is Barry's account.
Did the world almost come to an end Sept. 18th?
I've had so many of you write me and ask me what I think of this blog post. The main claim is taken from Paul Kanjorski:
draw-down of money market accounts in the U.S., to the tune of $550
billion was being drawn out in the matter of an hour or two. The
Treasury opened up its window to help and pumped a $105 billion in the
system and quickly realized that they could not stem the tide.
We were having an electronic run on the banks. They decided to close
the operation, close down the money accounts and announce a guarantee
of $250,000 per account so there wouldn't be further panic out there.
If they had not done that, their estimation is that by 2pm that afternoon, $5.5 trillion would have been drawn out of the money market system of the U.S.,
would have collapsed the entire economy of the U.S., and within 24
hours the world economy would have collapsed. It would have been the
end of our economic system and our political system as we know it.
The second paragraph is very much overstated (and I wonder about the exact numbers in the first paragraph). My personal guess — and guess is the right word — is that if nothing had been done on this day, a disaster would have resulted, though not on the scale postulated here. In my view there would have been an immediate bank holiday, partly improvised, plus complete insolvency for some very large financial institutions, followed by rapid nationalization. There would have been a much tougher whack to the commercial paper market than what we saw. Many businesses would have had problems meeting short-term payroll requirements. The downturn in the real sector would have been much steeper than it has been. In short, it would have been very bad but not the end of the world economy or democratic capitalism.
Wartime recovery and bank balance sheets
Paul Krugman poses a very good question. He points to:
…the role of WWII in cleaning up private-sector balance sheets.
During the war years there was very little private borrowing, thanks at
least in part to wartime restrictions; meanwhile there was both strong
economic growth and a lot of inflation. The result by the war’s end was
a very low private debt level relative to GDP.How big a role did these improved balance sheets play in the fact that the postwar economy didn’t fall back into depression?
The economic history of these years, in my view, still remains to be written.
Assorted links
1. New Yale econ classes (open, on the web), including Robert Shiller on finance.
2. How good is Shane Battier? (by Michael Lewis), and comment by Al Roth. So why aren't the Rockets better is my question.
3. China markets in everything fact of the day, hat tip to this very good China law blog.
4. NEA arts money ended up back in the stimulus bill.
5. Gramophone magazine, all the archives from 1923, now on-line and searchable.
The selective distribution of mofongos
It seems a little slow down here and this is one reason why:
Associated Bank says it has canceled a planned trip to Puerto Rico for
100 of its top employees after public outcry over what was called
lavish spending by a company receiving nearly half a billion dollars in
federal bailout money.
He would kill to win
That's the subtitle, the title is Cruel Games: A Brilliant Professor, a Loving Mother, a Brutal Killing, and yes it is the "true crime" account of the well-known game theorist who murdered his wife. Here is a review of the book. Here is an excerpt:
During one of their brainstorming sessions, Gallen wrote down "Game Theory" on his to-do list. With Robb as their primary suspect, they needed to understand better who he was and what made him tick. It became Marino's job to do the digging which began with the Penn website, where he easily came across Robb's take-home final for his graduate course in game theory. Marino read the exam and shook his head. Perhaps it made sense to economics students, but not to him. Given Robb's intellect and specialty, the detectives couldn't help but wonder if Robb was playing games with them.
Here is one Amazon review:
She, like many in the media, is quick to draw a connection between
Robb's expertise in game theory and him concocting a brilliant and evil
plan to kill his wife and avoid jail time. Nothing could be farther
from the truth. A game theory professor is very similar to a math
professor. They spend a lot of their time deriving proofs. They don't
know how to get away with a crime any better than anyone else.
Markets in everything, Australian style
John Hoehn, a loyal MR reader, directs my attention to the following:
Other duties may include (but are not limited to):
Feed the fish – There are over 1,500 species of fish living in the Great Barrier Reef. Don’t worry – you won’t need to feed them all.
Clean the pool – The pool has an automatic filter, but if you happen to see a stray leaf floating on the surface it’s a great excuse to dive in and enjoy a few laps.
Collect the mail – During your explorations, why not join the aerial postal service for a day? It’s a great opportunity to get a bird’s eye view of the reef and islands.
The funny thing is, my job is better than that.
Axel Leijonhufvud on fiscal stimulus
Here is one bit from a generally interesting article:
Fiscal stimulus will not have much effect as long as the financial system is
deleveraging. Even if that problem were to be more or less solved, the
government deficit would have to offset both the decline in industry investment
and the rise in household saving – a gap that is rising as the recession
deepens. Here, too, the public is sceptical and prone to conclude that a program
that only slows or stops the decline but fails to “jump start” the economy must
have been a waste of tax payers’ money. The most effective composition of such a
program is also a problem.
It is worth noting that Leijonhufvud is generally considered a Keynesian, not a rational expectations theorist. In my opinion the sophisticated Keynesian view is still that the stimulus won’t work.
Love Makes You Fat
Uri Gneezy and Jason Shafrin show that the more likely you are to get divorced or terminate your relationship the less likely you are to gain weight. We call this keeping one's options open.
My favorite things Puerto Rican
The list came out quite well:
1. Actress: Jennifer Lopez. Seriously. Out of Sight is quite good and the badly misunderstood The Cell makes perfect sense once you realize it is a retelling of parts of Sikh theology. Rita Moreno gets honorable mention.
2. Cellist: Pablo Casals (his mother was Puerto Rican and he ended up living there). His Bach Suites, while profound, are largely unlistenable due to the scratching and scraping. Nonetheless there are still revelations to be found in the trio recordings, Schubert, bits of the Beethoven, etc.
3. Artist: Jean-Michel Basquiat. Sneer if you wish, but his 1982-1984 period is very good, most of all the sketches. There are many bad Basquiat works, however, and lots of fakes.
4. Economic historian and colleague: Carlos Ramirez. Don't forget his paper on the bailout.
5. Poet: Juan Ramón Jiménez, who left Spain for Puerto Rico. Here is his Platero y Yo. Although he won a Nobel Prize in 1956, this very pure poet remains underrated in the United States.
6. Reggaeton song: Gasolina, by Daddy Yankee; note that reggaeton originated in Panama.
7. Guitarist: Jose Feliciano. Here is his Star-Spangled Banner (excerpt) and here. Here is Jose and Johnny Cash.
8. Musical, about: Paul Simon's The Caveman (not WSS, which I actively dislike).
9. Art museum: The two notable collections of pre-Raphelite art in this hemisphere are in Wilmington, Delaware and Ponce, Puerto Rico. Each is worth a visit.
10. Building: Puerto Rico has many fine homes and a surprising amount of Art Deco, plus the colonial buildings and fortifications in San Juan. Here is the over the top fire station in Ponce. But overall I'll pick the metalwork on one of the country homes, somewhere between San Juan and Ponce.
The bottom line: The achievements are strong and varied, noting that I've used a looser notion of affiliation than in some comparisons past.
The time is now 1234567890.
That is all.
Canada fest
and political tradition than does Canada. But then isn’t it all the
more interesting to note that, despite America’s unique “land of the
free” self-conception, we’re no more free than Canadians? I feel
strongly that American culture is more varied, alive, weirder,
synthetic, and creative than probably any other. This is in part
because of, and not despite, the odd conservative and religious strands
in American culture. And it is a culture especially amenable to all
sorts of entrepreneurial experiments, which gives American culture a
level of innovation and vitality (including countless varieties of
religious weirdness) that I think partly explains why it is the world’s
dominant exporter of culture. And I think the U.S.’s wealth relative to
other countries is actually underestimated. We are astoundingly rich
(recession or no recession) and this is a place of crazy opportunity.
So I think the U.S. does better in positive liberty terms than it
sometimes gets credit for.
But that doesn’t begin to mean that we live up to our reputation for
the kind of liberty classical liberals tend to care about. My sense is
that some American libertarians have a vague sense that if Canada
really was more free, then they should want to move there. But they
emphatically don’t want to move to Canada. My diagnosis is that many
libertarians prefer to live in a place where it easy to find others who
share their individualistic and libertarian values over living in a
place where they would actually be more free, but would feel more culturally alienated.
Via Megan McArdle, here's talk of safe Canadian banks and yet Canadian is still seeing the same downturn as the United States. One can preach the virtues of Canadian banking regulation as much as one wants, but the Fischer Black-like question remains: how much real net risk exposure did Canadian industry accept vis-a-vis all external sources of risk, U.S. financial institutions included? Lots. A decision not to economically decouple from a large, leveraged economy is a small bit like a decision to leverage oneself, though many people do not welcome this perspective. The bottom line is that risk mistakes have been made by just about everybody, not just the obvious culprits.
Addendum: Arnold Kling is not Canadian but Megan McArdle defends him aptly; he wasn't guilty of anything in the first place, except perhaps having exaggerated the coercive nature of taxation,
Keith Stanovich and what IQ is good for
The always-interesting-and-still-underrated Michelle Dawson points me to this batch of work. Here is one of the papers, by Keith E. Stanovich and Richard F. West:
In 7 different studies, the authors observed that a large number of thinking biases are uncorrelated with cognitive ability. These thinking biases include some of the most classic and well-studied biases in the heuristics and biases literature, including the conjunction effect, framing effects, anchoring effects, outcome bias, base-rate neglect, “less is more” effects, affect biases, omission bias, myside bias, sunk-cost effect, and certainty effects that violate the axioms of expected utility theory. In a further experiment, the authors nonetheless showed that cognitive ability does correlate with the tendency to avoid some rational thinking biases, specifically the tendency to display denominator neglect, probability matching rather than maximizing, belief bias, and matching bias on the 4-card selection task. The authors present a framework for predicting when cognitive ability will and will not correlate with a rational thinking tendency.
Even more interesting, in my view, is that higher-IQ people are more likely to behave rationally when they are told that a rationality issue is on the table, but less so otherwise.
If you are interested in issues of IQ, or for that matter overcoming bias, you should read Stanovich's work. As noted above, higher-IQ people seem to be just as guilty of "myside bias."
Stanovich has a new book summarizing some of the results, namely What Intelligence Tests Miss: The Psychology of Rational Thought. It is more idiosyncratic than the articles (he overcommits to one very particular model of the mind; cognitive laziness, without regard for margin) but recommended nonetheless. For those who care about these issues, a must.
Is love a countercyclical asset?
Or is it the quest for love which is countercyclical?
for instance, had its strongest fourth quarter in the last seven years,
and brick-and-mortar outfits like Amy Laurent International, a
matchmaking service with outposts in New York, Los Angeles and Miami,
say business is up 40 percent among women over the last four months. Those
in the online dating industry say the increased traffic can be
explained by at least a few factors: unemployed and underemployed
people have more time on their hands to surf the Web, and online dating
is a relatively inexpensive way to meet people. Offline matchmakers add
that organized dating events are cheaper than financing a series of
potentially stultifying meals with blind dates. And some experts say
singles seek the comfort of relationships during difficult times.
Here is the full story.