What is the real mutual fund scandal?

It’s not market timing, not according to Mark Hulbert. He writes:

Market timing, as the phrase has traditionally been used in the stock market, refers to shifting a portfolio from equities to cash in the hope of sidestepping a market decline, then moving back into the market in anticipation of a rally. There are many approaches to market timing; they vary according to the techniques used to forecast rallies and declines and in the frequency of the switching. Market timers’ track records also vary widely.

Strictly defined, market timing has little to do with the fund industry’s current troubles.

In part, late trading allows some shareholders to trade after the market close. But much of the real problem is — stale pricing:

Some mutual funds have been accused of allowing certain investors to take advantage of out-of-date securities prices used by funds in calculating their net asset values. Because those stale prices were sometimes too low or too high, investors who frequently switched into and out of these funds could realize substantial profits at the expense of other shareholders.

This stale-price arbitrage, as the practice is sometimes called, happens most often in international stock funds. When funds calculate their net asset values at 4 p.m., they generally use the prices at which their portfolio stocks traded most recently. For international funds, those prices can be several hours out of date.

Here is a related New York Times article, on Eric Zitzewitz, who is developing means of measuring asset values more correctly, to prevent stale pricing. The problem: fund managers themselves engage in the practice, and so they are reluctant to adopt these innovations. The solution?: Enforce current laws, already on the books.

See also my earlier post, on how much the mutual fund scandals cost investors.

Everything you always wanted to know about currency boards…

Here is an extensive web site on currency boards and dollarization, maintained by Kurt Schuler (conflict of interest notification: he is a former student of mine).

If you doubt Kurt’s thoroughness, follow the link to a piece on currency boards in St. Helena, yes that’s right the place where Napoleon went. The site also offers an extensive discussion of what went wrong in Argentina, again all links run through the main page. Thanks to the Mises blog for the pointer.

Vuelos Baratos

Not sure what the headline means? Then you won’t be able to get the cheap flights. A little known, but standard means of price discrimination among airlines is to advertise different prices in different languages and in particular to sell blocks of cheap seats to discounters who specialize in serving poorer immigrant communities.

Worrying Survey on Democracy

An article in Sunday’s Washington Post drew encouragement from a World Values Survey that found over 60 percent of people in Arab countries agree that “Democracy is the best form of Government.” It passed over without comment, however, the finding from the same survey that less than 40 percent of people in the U.S., Canada, Australia and New Zealand agreed. What were the other 60 percent thinking? Can this survey be accurate? The figure is not in the online WP article and I couldn’t verify it’s accuracy from the source but this United Nations report has the same figure (figure 1).

Score one for humanity

Yes, Kasparov comes back to take the third game from Fritz. Here is the link.

The computer played weakly and aimlessly throughout, showing that the machines are still often inept at positional play and strategic thinking. Kasparov, after a horrid blunder in game two, was masterful. The machines have not yet taken over!

The bottom line so far: In the first two games the machine pulled out a draw and a win, largely because Kasparov committed uncharacteristic outright blunders. It is clear that the machine is not capable of outplaying Kasparov from scratch. The deciding game is this Tuesday, and it is up to Kasparov, who will have black, whether he should play for a win, and thus risk losing, or settle for a draw.

Who are the top Marxists?

Here is the result of one survey, thanks to www.crookedtimber.org. First place goes to Rosa Luxembourg, I suppose that Marx himself is out of the running by definition.

Why is she number one? Could it be because of her violent murder in 1919, which both martyred her, and likely prevented her from later endorsing totalitarian regimes?

You will note that numbers three (Lenin) and seven (Mao) on the list are mass murderers, don’t neglect to follow this link to Bryan Caplan’s award-winning site on the communist slaughter of innocents.

I don’t want to go on record as, well, “pushing” for Stalin, but I can’t help noticing that he doesn’t even make the top thirty. There is, after all, a book called The Essential Stalin, on his theoretical contributions. Nor can it be said that mass murder is an immediate disqualification from doing well on the list. Note that the creator of this poll, who calls himself anti-communist, is both highly intelligent and honest in his writing. He questions whether a poll of “top Nazis” would be no less legitimate, remarking that “greatness” and “goodness” are not the same thing.

My question: Would they have let me vote for David Horowitz?

Milton Friedman’s early life

“He was born in Brooklyn in 1912. His parents had been poor immigrants from Carpatho-Ruthenia. Milton and his three sisters grew up in Rahway, New Jersey, where his parents earned a modest living as merchants. His father died when he was a senior in high school, but a state scholarship permitted him to go to Rutgers College, which was then a small private school.

“A high school teacher had taught him to love mathematics, and, like Kenneth Arrow about a decade later, he prepared for a career as an insurance actuary. At the same time, economics courses by Arthur F. Burns, later Federal Reserve Chairman, and Homer Jones, later research director of the Federal Reserve Bank of Saint Louis, aroused his interest in economics. Eventually he majored in both fields.

“Upon graduation in 1932, influenced partly by his teachers and partly by the Depression, Friedman chose a tuition fellowship in economics over one in applied mathematics at Brown University. He described Jacob Viner’s first-year graduate course in economics as the greatest intellectual experience of his life. One of his classmates was Rose Director, who later became his wife, his life-long collaborator, and mother of his two children.”

This is from David Warsh, quoting Jurg Niehans.

I can only say that our gain is the insurance industry’s loss. Warsh’s columns are consistently excellent, you can get a free subscription by following the link above.

Which states donate the most money?

Here is the list, done in per capita terms.

Mississippi, the poorest state in the nation, is number one. Then comes Arkansas, South Dakota, Oklahoma, and Alabama, all relatively poor states. The richer states, Connecticut, New Jersey, and Massachusetts, all lie near the bottom.

Andrew Sullivan tells us that the giving states are those that tend to support Bush and the Republicans, suggesting that Republicans are more generous. Well, sort of, church giving is driving these results. Here is the distribution of giving for 2000, churches get 36.5% of all American donations, the single largest category. Art and culture get 11.4%. No doubt, religious states both give more and support Bush more.


I need a much larger vocabulary to talk to you than to talk to myself.

From James Richardon’s Vectors: Aphorisms and Ten-Second Essays, a recent book of aphorisms.

It is hard to write a good book of aphorisms today, it no longer suits the temper of the times, perhaps a bit like the classical symphony. Some in this book I find trite, such as:

Wind shakes the flame but feeds the fire.


Bryan Caplan, with whom I regularly argue about free will, might like this one:

Determinism: How romantic to think the mind a machine reliable enough to transform the same causes over and over again into the same effects. When even toasters fail!

Tell that one to Gary Kasparov!

More to the point is:

If only we were satisfied to have others think of us what we think of them.

While we are on the topic, here is a web list of favorite aphorisms of Nietzsche. And here is a selection of aphorisms from Schopenhauer, also not a cheery fellow, how about this one:

National character is only another name for the particular form which the littleness, perversity and baseness of mankind take in every country. Every nation mocks at other nations, and all are right.

For aphorisms to fit the spirit of the times, perhaps we need a world where at least some negative thoughts are still shocking.


Hey, I wrote a book called In Praise of Commercial Culture, and even I think movies have stunk this year. The only three compelling Hollywood entries I can think of are Finding Nemo, Kill Bill, Part I (for a dissenting opinion, Gregg Easterbrook offers what is about the most negative serious review of a movie I have ever read), and now Mystic River, directed by Clint Eastwood. See the latter before it disappears from theaters. The celebrity system in Hollywood comes under much attack, but a movie this serious and this expensive probably could not have been made without Clint’s hold on the public imagination.

And, by the way, what would Dirty Harry think of Alex’s recent reassurance, directly below, that the government of Singapore tracks the movements only of “scofflaws”?

Congestion Pricing III

…Alex is asking the American public to give our trustworthy government monopoly pricing power over our ability to get around…We also would have to give that same government knowledge of our daily movements….

Ouch, that really hurts! (The debate so far, Tyler I, Alex 1, Tyler II). Tyler seems to forget, however, that government already taxes gasoline (and automobiles, motorcycles, airplanes – even bicycles). Perhaps we should eliminate these taxes but no one thinks much of the argument that we shouldn’t put a price on bicycles because this lets the government (and bicycle manufacturers) control “our ability to get around.” Road pricing is no different on this score.

The privacy argument is a complete non-starter. Singapore, for example, is rarely considered a bastion of privacy yet its system allows drivers to be fully anonymous. The Singapore system is simple. Drivers buy a cash card, much like a copy-card, and every car has a reader. As the cars move under a gantry the system deducts the toll from the card. No identification is ever necessary. (Only scofflaws who drive under the gantry without enough money on their card have their license plate photographed – a bill is then sent to the owner of the car. Exactly the same system we have here in Virginia at many traffic lights.)

All this is not to say that we shouldn’t be wary of government inefficiently using road prices as a revenue source, but this problem is hardly unique to roads and for those who really worry about government note that road pricing is a necessary first step toward road privatization.

A good mom should be sociable

At least in the world of baboons:

Baby baboons born to outgoing mums who enjoy hanging out with other females are considerably more likely to survive their crucial first year than infants born to less friendly mothers…

And the difference is a big one:

Susan Alberts, at Duke University in North Carolina, and one of the research team was surprised by the significance of sociability. “Eight per cent of infant survival is explained by sociality,” she told New Scientist. That is “striking”, she explains, because “we wouldn’t expect to have a large amount of variation that is deterministic – things that a mother can actually control – it’s amazing.”

Here is the full story. In my family of primates, the wife/mother is definitely the sociable one, at night I like to stay at home and write my blog or read.

Bickering with Alex, again

I agree with much of Alex’s post on road pricing, immediately below. And I favor road pricing in a wide variety of instances. But I don’t think it is so easy either.

Alex notes that people are willing to pay for parking, and that no one finds the idea to be strange. True, but how would they feel if you made them pay for “parking within a half mile of their homes”? Most people would rebel against this idea. They understand the difference between a monopolist (someone who controls a major road), and a parking lot owner, who has little monopoly power. If parking rights were subject to monopoly issues, people wouldn’t want to be charged for that either. So I don’t see the two cases as the same, as Alex suggests.

Here are some cases where toll roads have worked, illustrating Alex’s point. But almost always they are imbedded in a context where free (albeit congested) alternatives are also available. A true solution to the congestion problem would involve a much more widespread use of pricing, thus exacerbating the monopoly issue.

We should not forget previous history. It was originally promised that various bridge and highway tolls would be removed, once the infrastructure was paid for, but of course this never happened. In similar fashion, we can expect more widespread road pricing to become an important means of local and state government finance.

In effect, Alex is asking the American public to give our trustworthy government monopoly pricing power over our ability to get around, and in a time of state and local fiscal crises. We also would have to give that same government knowledge of our daily movements, and thus give up our privacy. Yes, people are irrational (I know that I am!), but I am not surprised that this a difficult political sell.

Congestion Pricing II

Tyler asks, Why doesn’t the public doesn’t accept road pricing? But in fact the public does accept road pricing – at least so long as their vehicles are stationary. I am speaking, of course, about pay-parking. Strangely, no one thinks it odd that they should have to pay for road space at point A and at point B but ask them to rent the space in between and you are thought a kook (or, much the same thing, an economist).

The radical disconnect between two things that are the same, suggests that the public’s lack of acceptance for road pricing is due to poor information, an inability to understand the theory, and the terrible weight of the status quo and is not a rational calculation (contra Tyler and Will Baude). I think, however, that we are on the cusp of major breakthroughs. Singapore has long led the way but London’s plan has been a great success. HOT lanes and toll roads are working in CA, Virginia and elsewhere. It won’t be easy but road pricing is the only solution to congestion in major metropolitan areas like Washington, the San Francisco Bay Area and Atlanta. Once a major city adopts the idea others will follow very quickly.

Addendum: We should pay for parking more often too.