General Interest

Category: General Interest

This Side of The Atlantic

I Roomed with Zonker in College

Though the publishing industry is on the rocks, I’ve been getting The Atlantic Monthly for more than 20 years.  It’s a great general interest publication that has contained some of my all-time favorites, like “Why McDonalds French Fries Taste So Good,” “The Truth About Dogs,” and the extraordinary “Laws Concerning Food and Drink.” I often will send these to my former students in the Peace Corps, who are always happy to get something interesting. Actually, they are happy to get anything, period.

I was reminded of these when my renewal notice came along with my latest edition and I was wondering whether I should continue to support these guys.  The answer was a resounding yes.

Why?

Here are few sample sentences from this month’s issue to wet your beak:

Simpson is not yet selling his rum by the bottle—he serves it at his bar and trades it for other exotic liquors—but I had a chance to try it recently when a sample arrived in the mail. It came in Simpson’s standard packaging: a used whiskey bottle tightly wrapped in a brown paper bag, the cap sealed with duct tape.  “Gunpowder on the Rocks“

Then there is this strange and horrifying image:

Many of the visitors to the tin-roofed shrine labeled Pol Pot Cwmation site in Anlong Veng are local men who light incense in the hope that the spirit of the murderous Communist leader will provide them with money for prostitutes. “Dark Tourism“

And, finally, this bit of comedy of absurdity, also strange and horrifying in a different dimension:

“If you’re a terrorist, you’re going to hide your weapons in your anus or your vagina.” He blushed when I said “vagina.”

“Yes, but starting tomorrow, we’re going to start searching your crotchal area” — this is the word he used, “crotchal” — and you’re not going to like it.” “For the First Time, TSA Meets Resistance“

And all that is before I’ve gotten to the feature articles I want to read, which generally run about 2000 words longer than a reasonable person would find reasonable.

The economics writing is a different matter, a lot of what Paul Krugman used to call “pop internationalism.”  I remember reading a cover story when I was in grad school called “Head to Head,” where Lester Thurow was arguing that the Japanese and Europeans were going to bury the US in the 1990s (I don’t see that one in the archives now?).  It’s not clear why they keep giving that guy space. But, I don’t read it for the economics.

So there you have it, my pitch for you to subscribe to The Atlantic.

Not Everyone in the US Loves QE2

As a follow-up to Professor Gerard’s post, I  draw your attention to Tom Hoenig, President of the Federal Reserve Bank of Kansas City, who has been the lone dissenter on the Open Market Committee votes on monetary policy.  He fears the consequences of our short term reactive policy making.  His position parallels that of Raghuram Rajan, among others, who note that monetary policy has done all it can and that some of the potential consequences of further monetary easing are destructive both domestically and internationally.  The Chinese and the Brazilians aren’t the only ones yelling STOP!

QE2

Those of you who think that “quantitative easing” means that we’ve relaxed the general education requirements might consider cracking a newspaper — or the virtual equivalent.

This second round of quantitative easing, or QE2 for short, is all over the news because the Federal Reserve Board (the Fed, not “the feds”) plans to “inject” $600 billion into circulation.  Out of thin air.  Wa la.

As you might expect, the dollar is down and gold is up.  And stocks are up, too, though I didn’t necessarily believe this argument.

Not everyone is happy about this, and by not everyone, I mean the Brazilians and the Chinese. Keep an eye on this one.

The Fiscal Train Wreck at the End of the Tunnel

Courtesy of a former student of Professor Gerard, Lawrence faculty and students have access to the Roubini website.  I encourage you, especially those of you interested in either international economics or macroeconomics, to pay regular visits to the site.  Recently, Nouriel Roubini – after whom the site is obviously named – penned a short opinion piece entitled “U.S. Fiscal Policy:  A Train Wreck Down the Line?” which lays out some fundamental questions that our political structure has failed to address.  Although next year’s Congress will have different interests than the current group, Roubini’s concerns (and mine too) still obtain.  Check it out.

Is this efficient or inefficient?

From the Kids Prefer Cheese blog, we have a story older than the hills — mackerel in a ball.

So you think the little fishies are cooperating? Not so much… It’s actually a straightforward prisoners’ dilemma problem: If all the little fish would scatter at the same moment, most would escape, because there are so many and the predators are few. But if I expect YOU to take off, I should stay in the ball. One or two fish trying to escape will be caught. And if I expect you to stay in the ball…I should STILL stay in the ball.

Got all that?

If so, have we got a course for you…

Plenty of seats still available.

Lawrence Scholars in Business Lame-a-rick

The LSB program burst on this year’s scene in the form of the Alternative Investments Summit on Sunday. (Here is the announcement.) I saw many new faces, which is great: students discovering the program. I know that students always learn a lot from these events. (Proof by Introspection: I myself always learn a lot from these events. Therefore, so do students. Q.E.D.) I enjoyed hearing from Messrs. Spaeth, Allweiss and Perille, who said that Private Equity people simply have more fun. Anyway, my quick summary:

Your liberal learning has gravity,
Match it with years in an industry,
Get credit training
(It isn’t too draining)
You’re ready to try private equity.

The case studies always add an element to this event that infuses it with that real-life excitement that I wish more of my classes had. As often in the past, Mr. Perille put his money where his mouth was, and offered up a small percentage of the proceeds of his latest deal for the best team in the room. After over an hour of reading and vibrant discussion, each team had to take the stage in turns. The winning team: Aimen, Minh, Ranga, Regina, Vishvesh. They showed us quick and smart analysis, presented cogently. The judges, Sandy and Kirk Ryan ’83 were visibly impressed. Their classmate, Jonathan Bauer ’83 is leading the next Summit, on Management Consulting–coming up on January 15th. That one’s always a riot, featuring–again–some hands-on case study work. No $100 prize in the past, though. That does give you a hint about one difference between consulting and private equity.

Old Ideas from Undead Economists?

A recent EconTalk has John Quiggin, left-of-center author of Zombie Economics, discussing ideas with Russ Roberts, moderator and pro-market guy. Quiggin names his book such because he asserts that there are many economists clinging to ideas that have been thoroughly thrashed and should be discarded, yet they continue to emerge and thrive.  Foreign Policy has a summary of  Quiggin’s five most egregious “undead” ideas:

I'm an idea zombie

The Great Moderation: the idea that the period beginning in 1985 was one of unparalleled macroeconomic stability that could be expected to endure indefinitely.

The Efficient Markets Hypothesis: the idea that the prices generated by financial markets represent the best possible estimate of the value of any investment. (In the version most relevant to public policy, the efficient markets hypothesis states that it is impossible to outperform market valuations on the basis of any public information.)

Dynamic Stochastic General Equilibrium (DSGE): the idea that macroeconomic analysis should not be concerned with observable realities like booms and slumps, but with the theoretical consequences of optimizing behavior by perfectly rational (or almost perfectly rational) consumers, firms, and workers.

The Trickle-Down Hypothesis: the idea that policies that benefit the wealthy will ultimately help everybody.

Privatization: the idea that nearly any function now undertaken by government could be done better by private firms.

Roberts certainly doesn’t agree with Quiggin’s overall assessment, though they do find much to agree on.  This is a great EconTalk for those who think that economists all drink from the same cup.

Econ 300 students might listen to the part about the Efficient Markets Hypothesis and compare it to what Landsburg says in Chapter 9.

And, if you like the dead-undead econ riff, you might check out Todd Buchholz’s now-classic, New Ideas from Dead Economists.

Schump-Voter Fest?

Rational ignorance is a common theme of economists thinking about voting and the electorate, but what about willing ignorance?  That’s the gist of this Schumpeter quotation:

“[T]he typical citizen drops down to a lower level of mental performance as soon as he enters the political field. He argues and analyzes in a way which he would readily recognize as infantile within the sphere of his real interests…”

Here is some more background on that quote.  It is certainly consistent with the overarching theme of Capitalism, Socialism and Democracy that capitalism might die out due to lack of enthusiasm from its principal beneficiaries.

The accompanying illustration is from the legendary political cartoonist, Herblock.  I snagged both the quote and the picture from the Spirit of Moderation blog.

Kotlikoff puts the “scare” in “scaricity”

The Globe and Mail has a piece onLaurence Kolikoff’s assessment of the U.S. fiscal situation, and it’s not pretty.  The official estimate is that government debt is about 60% of GDP ($13.5-trillion).  Kotlikoff says “Let’s get real,” and puts the figure at more like $200 trillion.

For those of you that want to go straight to the source, Kotlikoff lays out his case in the IMF publication, Finance & Development.

Economic Education: Film Creation/ Entrepreneurship Opportunity

The Federal Reserve Bank of St. Louis (which you know offers numerous publications that contain a fabulous array of macroeconomic data) recently announced a contest to produce a YouTube video that helps explain the factors of production in general and the role of entrepreneurs in particular to high school students.  For some of you, this is too good an opportunity to pass up.  Go to St. Louis Fed to learn the details.

Negative “Adds” in the Bond Market

Ah, my favorite macro thought experiment

Slate has a very nice piece on investors buying US Treasury bonds that yield negative interest rates! Now, why on earth would someone buy a bond with a negative interest rate? Though the answer is not complicated, it is more than a sentence explanation, so I will let you read it for yourself.  Let me just say, inflation is involved.

For those of you not versed in corporate finance (or “core-fin,” as it’s known), the article provides a good summary of how debt markets work.

What Ever Happened to Good Government in Wisconsin?

Is this protected speech?

That’s the title of Monday’s panel in the Hurvis Room of the  Warch Campus Center at 6:30, and it should be a corker. Ever since the Supreme Court decided Citizens United v. Federal Election Commission this past January, all you-know-what has broken loose about money in U.S. politics. The president famously called out the court in his State of the Union address, with Justice Alito brazenly mouthing the words, “not true.” And it hasn’t gotten any friendlier from there. Now, that’s entertainment!

Of course, over here in the econ department, we wonder “Why is there so little money in U.S. politics?”

The event will cover a lot of ground, including these Common Cause talking points:

  • Redistricting Reform
  • Disclosure of interest-group ads and other outside spending
  • Public Financing of Wisconsin Supreme Court and other state elections
  • Campaign Finance Reform in Wisconsin after the U.S. Supreme Court decision on Citizens United vs F.E.C.

We will welcome panalists from both sides of the aisle, including State Representatives Penny Bernard Schaber (D-Appleton) and Dean Kaufert (R-Neenah), Andrea Kaminski from the League of Women Voters, and Jay Heck of Common Cause in Wisconsin.

Given the number of co-sponsors, I’m guessing there is ample interest.  The co-sponsors are: the Lawrence Government Department, the College Republicans, the League of Women Voters of Appleton, League of Women Voters of Wisconsin, the Education Fund, the American Association of University Women – Appleton Branch, and the Wisconsin Alliance for Retired Americans.

I am moderating the event, so I hope to see you there.

 

Is it Time for Efficient Markets?

Estrada in a Nutshell

The Wall Street Journal has a piece on whether it is possible to time the market, or whether one should stay in to make sure they are in when the big, tasty gains come along.  The story goes that investors should stay in the market because the lion’s share of gains accrue on only a few days.  If you missed the ten best days over the past 40 years, for instance, you would miss out on half the total gains during that period (yes, you read that correctly).  With that in mind, you’d better be sure to have your stakes on the table when they spin the wheel.

But, there’s a catch.  What if you managed to be out of the market on the ten worst days?  Well, it turns out that missing the ten worst days would have been even better for your portfolio than being in on the ten best days.  Yowza!

This is pretty interesting and all, but the real reason I bring it up is that the hero of the WSJ piece is my graduate school colleague, Javier Estrada.   Professor Estrada is the head of the Department of Financial Management at the International School of Management at  la Universidad de Navarra (that’s in Pamplona, Spain), a widely published scholar in investment and finance, and the author of a couple of popular finance books. Anyone that finds themselves in Spain should stop in and see him, as he is a genuinely friendly and engaging character.  And I never knew he was so well read.

Political Scientists Eat Their Own

Here’s an interesting fact — a legislator with a degree in political science is more likely to vote to cut research funding for, wait for it, political science. Perhaps they know something?

Here’s from Uscinski and Klofstad.

In October 2009, political scientists learned of a Senate amendment sponsored by Tom Coburn (R-OK) that would eliminate political science funding from the National Science Foundation budget. The American Political Science Association condemned the proposed amendment, and concerned political scientists contacted their senators to urge the amendment’s defeat. On November 5, 2009, the amendment was defeated 36-62 after little debate. This article examines the vote on the Coburn Amendment to understand the role that senators’ personal, constituency, and institutional characteristics played in their votes. Logit analysis reveals that even after controlling for party, several factors significantly predict the vote, including the number of top-tier political science Ph.D. programs in the senator’s state and whether the senator graduated with a bachelor’s degree in political science.

Zing!

Joseph Uscinski and Casey A. Klofstad. 2010. “Who Likes Political Science?: Determinants of Senators’ Votes on the Coburn Amendment”. PS: Political Science and Politics October: 701-706.

Nobel prize

Though this year’s winners of the Bank of Sweden’s prize in memory of Alfred Nobel may not have been on the radar screens of many, at least two of the three were predicted by a very prominent group of economists. As reported on the Cheap Talk blog,

Northwestern Econ and Kellogg Nobel predictions

Northwestern’s economists and those in several departments at the neighboring Kellogg School of Management put Dale Mortensen as their top prediction, with Peter Diamond in third place. Well, perhaps I should mention that Dale Mortensen is at Northwestern… Anyways, Jean Tirole was also highly favored, really by everyone except the Nobel committee. The only rational conclusion can be that the Nobel committee has good reasons to believe that Monsieur Tirole will have a long life. Though he did not get the Nobel (again) this year, he should be able to use this to get a lower life insurance rate. Anyways, take a look at Jeff Ely’s “live blogging” of the Nobel at Cheap Talk. By the way, In spite of 12 faculty members in the relevant disciplines believing that Mortensen was getting the big prize, apparently this news caught the Northwestern PR people by surprise, too. Almost three hours after the prize was announced, the top news on the Northwestern homepage is still the refurbishing of Evans House:

Nobel for Search Theory

In what I’d have to say is a surprise, Peter Diamond, Dale Mortensen, and Christopher Pissarides picked up this year’s Nobel in economics for their work on search theory in labor markets. That means, for the second year in a row, the Lawrence University prize for picking the winner will roll over to the next year.

Tyler Cowen on Mortensen.

Tyler Cowen on Diamond.

I was chatting with Professor LaRocque on Saturday, and he felt that we were due for some theorists, so here you go.

Wall Street Incentives Have Not Changed

Despite 2,000 + pages of D0dd-Frank legislation and new  Basel III conditions,  NY Times columnist Willam Cohan, author of among other works House of Cards (The Rise and Decline of Bear Stearns), opines that few incentives have changed for the high rollers on Wall Street.  In short, he argues that Wall Street financiers are still playing with everybody else’s money but their own; so “heads I win, tails you lose” effects are still with us.  To cite, Steven Landsburg’s favorite definition of economics: “incentives matter; all else is commentary.”   I encourage you to read the details.

A Very Hot Topic

I'm an ordinary guy...

If you don’t make your car payment, can you reasonably expect to drive off the lot with a car?  If you don’t pay your doctor, can you reasonably expect him to take care of you next time you are sick?  If you don’t pay your $75 for fire protection, will the fire department really stand by and watch while your house burns to the ground?

Well, that’s only approximately what happened in Tennessee this past week.

From the story:

A local neighborhood is furious after firefighters watched as an Obion County, Tennessee, home burned to the ground.

The homeowner, Gene Cranick, said he offered to pay whatever it would take for firefighters to put out the flames, but was told it was too late.  They wouldn’t do anything to stop his house from burning.

Each year, Obion County residents must pay $75 if they want fire protection from the city of South Fulton.  But the Cranicks did not pay.

Remarkable.

I have yet to talk to anyone who didn’t find this an engaging question. Where does an ordinary guy draw the line?

For those of you without anyone to talk to, these links provide about three hundred sixty five degrees of background and commentary.

Yet Another Update on the Economics Nobel

Some wagering odds have arrived on the scene. UPDATE: And here.

Looks like my picks of Thaler and Shiller are leading the way, followed by Weitzman, Hart, Nordhaus, and Tirole.

This time of year, there are typically grumblings about the lack of sufficient talent to justify a yearly Nobel in economics, but that is certainly an impressive list.  Weitzman wrote a paper 30 years ago that still defines the core idea of environmental economics.  No one has done more on the empirical cost-benefit modeling of climate change than Nordhaus.

Tirole is a co-author of a standard graduate industrial organization text,  as well as several highly-influential pieces on the economics of innovation.  This title alone should merit consideration for Tirole — “The Fat Cat Effect, the Puppy-Dog Ploy, and the Lean and Hungry Look.” Is there a more effective title to help teach strategic behavior?

Oliver Hart helped to push agency theory forward, developed a formal theory of the firm that is still being hashed out (in Economics 450 among other places), and probably has substantially expanded our understanding of corporate governance.

It’s probably worth noting that last year’s odds-on favorite, Eugene Fama, is not even among the leaders (UPDATE: The Ladbrokes odds have him 5:1).  Not to mention Armen Alchian.  No, I don’t think there is an absence of talent.

Of course, I’ll write about Shiller and Thaler next week after they win the prize.

UPDATE: Professor LaRocque has predicted Jeffrey Williamson.