IS-LM links of the day 10-30-09

Five Steps to Consistent Profits [for traders] (The Kirk Report)

The Uncorrelated Return Myth (FAJ)

A defence of the buy-and hold: Most investors would have been better of doing nothing the past 18 months (Index Universe)

Scientists start to identify why some people are better at specific tasks (ScientificAmerican)

Great News! GDP up 3.5%!

From the BEA:

Real gross domestic product -- the output of goods and services produced by labor and propertylocated in the United States -- increased at an annual rate of 3.5 percent in the third quarter of 2009,(that is, from the second quarter to the third quarter), according to the "advance" estimate released by theBureau of Economic Analysis. In the second quarter, real GDP decreased 0.7 percent.

The Bureau emphasized that the third-quarter advance estimate released today is based on sourcedata that are incomplete or subject to further revision by the source agency (see the box on page 5). The"second" estimate for the third quarter, based on more complete data, will be released on November 24,2009.

The increase in real GDP in the third quarter primarily reflected positive contributions frompersonal consumption expenditures (PCE), exports, private inventory investment, federal governmentspending, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP,increased.

The upturn in real GDP in the third quarter primarily reflected upturns in PCE, in privateinventory investment, in exports, and in residential fixed investment and a smaller decrease innonresidential fixed investment that were partly offset by an upturn in imports, a downturn in state andlocal government spending, and a deceleration in federal government spending.

Motor vehicle output added 1.66 percentage points to the third-quarter change in real GDP afteradding 0.19 percentage point to the second-quarter change. Final sales of computers subtracted 0.11percentage point from the third-quarter change in real GDP after subtracting 0.04 percentage point fromthe second-quarter change.

Hooray! For the first time in more than a year we have growth. Hopefully we are on the path to a full recovery, although most experts doubt that we won't resume our growth trajectory until 2011 or so and the labor market has yet to show light at the end of the tunnel. My fear is that this good news is just an uptick before another downward plunge.

IS-LM links of the day 10-29-09

Warren Buffet wins title of investor with the most wisdom (Bloomberg)

Bill Gross: November Outlook (PIMCO)

Placing idiot trades (Trader Feed)

When should you shut down your startup (AsktheVC)

Why do business crises occur in the fall? (Economix)

The Value of Ivy League Smarts (The New Republic)

America, the land of opportunity (Capital Gains and Games)

Development Economics-Alleviating Poverty in the Developing World

Question: what institutions can enable the world’s poor to realize their power and achieve prosperity?

When I posed this challenging question to my significant other, she had the same initial reaction that I had. “Jobs?” she replied, questioning whether I had already come up with her most obvious and logical answer. Of course I had, what with the rugged individualist spirit and conservative economics background. Jobs, industry, and economic progress are absolutely the best candidates to raise the world’s poor above subsistence levels in the most rapid timeframe possible. Just look at the transformations that have taken hold in Eastern Europe and Southeast Asia over the last two decades!

If the developing world needs jobs, and wages are rising in places that have already experienced tremendous growth recently (e.g. China), a secondary yet important question is: why haven’t those jobs migrated to other lands and taken advantage of the relatively lower labor costs? I would suggest that the significant factor inhibiting the spread of capitalism (reads: economic growth) is inadequate government policy. Corruption, populism, inadequate property rights, and the inability to facilitate the rule of law all prevent companies from relocating to new places with lower relative wages, e.g. sub-Saharan Africa.

The one institution that I believe can enable the world’s poor to realize their power and a giant leap towards realizing sustained economic progress is democracy. I don’t think democracy is a necessary condition for fostering growth, as we readily observe the Chinese model, but it does enable poverty-stricken people to realize their power, thus answering half of the question. Expounding further, democracy is a sufficient condition for cultivating a culture that champions freedom which has been demonstrated (thanks to the Heritage Foundation) to inextricably tie to economic opportunity and prosperity.

When I invoke the institution of democracy, I’m not specifically referring to elections. I think that while elections are helpful in gauging public opinion to build policies on as well as giving society the feeling that they are in control (although many in America would refute such a statement), they are not the end-all-and-be-all of government. I speak of democracy in the spirit of Milton Friedman where governments respect their citizens individual freedoms. If the [sometimes] oppressive and [mostly] ineffective governments of the world's most impoverished countries worked, as Ayn Rand describes in her book We the Living, “as a servant and a convenience for a large number of people, just like the light bulb and the plumbing system” rather than a mechanism for natural leaders to further their own fortunes and personal power, the poorer nations of this world would be much better off.
JDW

IS-LM links of the day 10-28-09

David Wessel: Three theories to solve Too-Big-To-Fail (WSJ)

On Jeremy Grantham: (Jeremy Grantham himself) (The Money Game) (MarketBeat) (Credit Writedowns)

10 things Google has taught us (Fortune)

Jeremy Siegel: Efficient Market Theory and the Crisis (WSJ)

A great list of books for gaining an investing edge (Contrarian Edge)

Goldman Sachs: lookit we're the good guys (NYT)

A tribute to an emminent free trader

I just read this last night for the first time...and...it...was...awesome! It bears repeating:

A PETITION From the Manufacturers of Candles, Tapers, Lanterns, sticks, Street Lamps, Snuffers, and Extinguishers, and from Producers of Tallow, Oil, Resin, Alcohol, and Generally of Everything Connected with Lighting.
To the Honourable Members of the Chamber of Deputies.
Gentlemen:You are on the right track. You reject abstract theories and little regard for abundance and low prices. You concern yourselves mainly with the fate of the producer. You wish to free him from foreign competition, that is, to reserve the domestic market for domestic industry.
We come to offer you a wonderful opportunity for your -- what shall we call it? Your theory? No, nothing is more deceptive than theory. Your doctrine? Your system? Your principle? But you dislike doctrines, you have a horror of systems, as for principles, you deny that there are any in political economy; therefore we shall call it your practice -- your practice without theory and without principle.
We are suffering from the ruinous competition of a rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price; for the moment he appears, our sales cease, all the consumers turn to him, and a branch of French industry whose ramifications are innumerable is all at once reduced to complete stagnation. This rival, which is none other than the sun, is waging war on us so mercilessly we suspect he is being stirred up against us by perfidious Albion (excellent diplomacy nowadays!), particularly because he has for that haughty island a respect that he does not show for us [1].
We ask you to be so good as to pass a law requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, casements, bull's-eyes, deadlights, and blinds -- in short, all openings, holes, chinks, and fissures through which the light of the sun is wont to enter houses, to the detriment of the fair industries with which, we are proud to say, we have endowed the country, a country that cannot, without betraying ingratitude, abandon us today to so unequal a combat.
Be good enough, honourable deputies, to take our request seriously, and do not reject it without at least hearing the reasons that we have to advance in its support.
First, if you shut off as much as possible all access to natural light, and thereby create a need for artificial light, what industry in France will not ultimately be encouraged?
If France consumes more tallow, there will have to be more cattle and sheep, and, consequently, we shall see an increase in cleared fields, meat, wool, leather, and especially manure, the basis of all agricultural wealth.
If France consumes more oil, we shall see an expansion in the cultivation of the poppy, the olive, and rapeseed. These rich yet soil-exhausting plants will come at just the right time to enable us to put to profitable use the increased fertility that the breeding of cattle will impart to the land.
Our moors will be covered with resinous trees. Numerous swarms of bees will gather from our mountains the perfumed treasures that today waste their fragrance, like the flowers from which they emanate. Thus, there is not one branch of agriculture that would not undergo a great expansion.
The same holds true of shipping. Thousands of vessels will engage in whaling, and in a short time we shall have a fleet capable of upholding the honour of France and of gratifying the patriotic aspirations of the undersigned petitioners, chandlers, etc.
But what shall we say of the specialities of Parisian manufacture? Henceforth you will behold gilding, bronze, and crystal in candlesticks, in lamps, in chandeliers, in candelabra sparkling in spacious emporia compared with which those of today are but stalls.
There is no needy resin-collector on the heights of his sand dunes, no poor miner in the depths of his black pit, who will not receive higher wages and enjoy increased prosperity.
It needs but a little reflection, gentlemen, to be convinced that there is perhaps not one Frenchman, from the wealthy stockholder of the Anzin Company to the humblest vendor of matches, whose condition would not be improved by the success of our petition.
We anticipate your objections, gentlemen; but there is not a single one of them that you have not picked up from the musty old books of the advocates of free trade. We defy you to utter a word against us that will not instantly rebound against yourselves and the principle behind all your policy.
Will you tell us that, though we may gain by this protection, France will not gain at all, because the consumer will bear the expense?
We have our answer ready:
You no longer have the right to invoke the interests of the consumer. You have sacrificed him whenever you have found his interests opposed to those of the producer. You have done so in order to encourage industry and to increase employment. For the same reason you ought to do so this time too.
Indeed, you yourselves have anticipated this objection. When told that the consumer has a stake in the free entry of iron, coal, sesame, wheat, and textiles, ``Yes,'' you reply, ``but the producer has a stake in their exclusion.'' Very well, surely if consumers have a stake in the admission of natural light, producers have a stake in its interdiction.
``But,'' you may still say, ``the producer and the consumer are one and the same person. If the manufacturer profits by protection, he will make the farmer prosperous. Contrariwise, if agriculture is prosperous, it will open markets for manufactured goods.'' Very well, If you grant us a monopoly over the production of lighting during the day, first of all we shall buy large amounts of tallow, charcoal, oil, resin, wax, alcohol, silver, iron, bronze, and crystal, to supply our industry; and, moreover, we and our numerous suppliers, having become rich, will consume a great deal and spread prosperity into all areas of domestic industry.
Will you say that the light of the sun is a gratuitous gift of Nature, and that to reject such gifts would be to reject wealth itself under the pretext of encouraging the means of acquiring it?
But if you take this position, you strike a mortal blow at your own policy; remember that up to now you have always excluded foreign goods because and in proportion as they approximate gratuitous gifts. You have only half as good a reason for complying with the demands of other monopolists as you have for granting our petition, which is in complete accord with your established policy; and to reject our demands precisely because they are better founded than anyone else's would be tantamount to accepting the equation: + x + = -; in other words, it would be to heap absurdity upon absurdity.
Labour and Nature collaborate in varying proportions, depending upon the country and the climate, in the production of a commodity. The part that Nature contributes is always free of charge; it is the part contributed by human labour that constitutes value and is paid for.
If an orange from Lisbon sells for half the price of an orange from Paris, it is because the natural heat of the sun, which is, of course, free of charge, does for the former what the latter owes to artificial heating, which necessarily has to be paid for in the market.
Thus, when an orange reaches us from Portugal, one can say that it is given to us half free of charge, or, in other words, at half price as compared with those from Paris.
Now, it is precisely on the basis of its being semigratuitous (pardon the word) that you maintain it should be barred. You ask: ``How can French labour withstand the competition of foreign labour when the former has to do all the work, whereas the latter has to do only half, the sun taking care of the rest?'' But if the fact that a product is half free of charge leads you to exclude it from competition, how can its being totally free of charge induce you to admit it into competition? Either you are not consistent, or you should, after excluding what is half free of charge as harmful to our domestic industry, exclude what is totally gratuitous with all the more reason and with twice the zeal.
To take another example: When a product -- coal, iron, wheat, or textiles -- comes to us from abroad, and when we can acquire it for less labour than if we produced it ourselves, the difference is a gratuitous gift that is conferred up on us. The size of this gift is proportionate to the extent of this difference. It is a quarter, a half, or three-quarters of the value of the product if the foreigner asks of us only three-quarters, one-half, or one-quarter as high a price. It is as complete as it can be when the donor, like the sun in providing us with light, asks nothing from us. The question, and we pose it formally, is whether what you desire for France is the benefit of consumption free of charge or the alleged advantages of onerous production. Make your choice, but be logical; for as long as you ban, as you do, foreign coal, iron, wheat, and textiles, in proportion as their price approaches zero, how inconsistent it would be to admit the light of the sun, whose price is zero all day long!
Frédéric Bastiat (1801-1850), Sophismes économiques, 1845
credit to bastiat.org

IS-LM links of the day 10-27-09

Did Gordon Gekko inspire Wall Street or the other way around? (Credit Writedowns)

Profit from insider trading (New Rules)

Why do bankers make so much money? (Rick Bookstaber)

Remembering John Meyer, the father of transportation economics (Economix)

The pay czar is distracting us from the real issue (EconLog)

IS-LM links of the day 10-26-09

A simple look at dark pools (WSJ)

Can economists be funny (Peter Martin)

FACT CHECK: Health insurers don't earn "outsize profits" (MyWayNews)

The psychology of trading (TraderFeed)

"The ability to sit through a trade is greatly underappreciated."

Economics made fun, as a movement (EJPE)
Six Steps to Revitalize the Financial System-by Sandy Weill (WSJ)

"5) Capital requirements and reserve policies need to be overhauled.
6) Align executive compensation with long-term returns."

This is what I advocated two weeks ago in my essay here.

Thoughts from the weekend

I have a lot more time to think and reflect on the weekend when the hustle and bustle of daily life aren't weighing me down. So, I came up with a few financial ideas that I would like to share:

1.) What if the small-cap stock premium could be explained by investors' risk adversity combined with the hope that their stock will shoot to the moon? I don't have any data to support this thought, but I would suspect that small cap stocks have lower prices as well as smaller equity issues, so investors are able to pick up large swaths of stock very cheaply so they minimize downside while hoping for a maximum upside, like a "I hope this is the next MSFT?" *crosses fingers-type of thing.

2.) We should securitize sports, i.e. make futures or options for sports teams. You could do it for points or wins, but each unit would be worth a set amount of money so payouts could be easily calculated. A team's goals would be set by the market! It could be a rallying point, "screw those people down at the sport's trade!" And it goes without saying that players would be forbidden from betting, specifically on the downside.
But that isn't the most fascinating aspect of this idea-it would open a whole new world for securities markets. Definitely they would have a correlation with other assets of zero so it would benefit an overall portfolio.

JDW

DC Residency and Marriage

Katie Connolly wrote over at The Gaggle an article on why so few DC residents are married.

She cites a rich, white polulation; a poor, black population; and an under-educated demographic as the leading causes of the statistics. Her article was quixotically antagonistic, almost begging for the PR of creating a blogosphere stir.

Oh well, I'll oblige, but not to rabble-rouse.

I disagree with her main points. Rather, I think it has a great deal to do with age and stage. DC is a young, single town while the surrounding countryside teems with families and the elderly. The median age of a DC resident is 34.6, well under the US median of 37.6 (courtesy of the all-knowing Wikipedia). This is for a good reason, the hustle and bustle of a city is sexy and chique, naturally lending itself for young professionals who can afford it. But as you get older you want the finer things in life, by that I mean a house with a plot of land, nice schools, and low crime. So you have to move out of the District to gain these things: Fairfax and Montgomery Counties both have great schools and lower crime than DC does (not to mention lower population density). So a natural age-associated migration occurs which begets this unusual statistic-that DC has a lower marriage rate than the national average.
JDW

Today in Not Understanding Your Charge

We have Kenneth Feinberg who doesn't understand the ethos or goings-on of the finance industry. From the New York Times, "Pay Czar Doubts Cuts Will Make Bankers Leave."

“I wouldn’t begin to say how much money you should make on Wall Street,” Mr. Feinberg said in an interview last week, as he prepared to slash pay for the top 25 earners at seven firms that received significant government aid. “I’ve never worked on Wall Street. I don’t claim to know the ethos of Wall Street.”

“If any one of these people left, I would be very disappointed,” he said.

Mr. Feinberg said he expected his ruling to please no one. If that happened, he added, he would consider it a mark of success.
“The populists will undoubtedly say:, ‘You caved. You gave Wall Street financiers too much money,’ ” he said. “The other side, the Wall Street culture, will say I put those companies at a disadvantage.”

I don't agree with his job or the need for it, but I think he should realize that creating these disincentives for the highest-skilled financiers at bailed-out firms will induce them to flee for firms that don't have these requirements. After all, power finance and banking is very geographically clustered, not to mention the fact that these workers are highly mobile under normal conditions. So it isn't even hard for them to jump ship!

Hayek Original Haiku of the Day

Haven't had one in awhile and I'm feeling creative today.

Supply and demand,
decide equilibrium
price and quantity.

JDW

IS-LM links of the day 10-23-09

Volcker is a guy who knows a thing or two (Market Talk)

Allan Meltzer opines on the coming fiscal crisis (WSJ)

How Harvard Economists Invest (Crimson) via Greg Mankiw

An excellent article on rethinking your thoughts on Enron (EconLog)

John Bates Clark Scary Chart of the Day II

The mean amount of time the unemployed remain without work is hitting all time highs. Just take a look at this chart, courtesy of Zero Hedge, via Felix Salmon:

John Bates Clark Scary Chart of the Day

This chart was used in the article, the Growing Case for a Jobless Recovery, by Atlanta Fed's David Altig (MacroBlog).

IS-LM links of the day 10-22-09

Alex Tabarrok echoes my sentiments here (MR) when I saw this article (WSJ) this morning. I definitely had an Ayn Rand flashback to Atlas Shrugged. I've had a lot of those in the last nine months.

The "Break up the Banks Delusions" (Salon.com)

Today in Give-and-Take- the good: Leading Economic Indicators Rise More than Expected (Bloomberg) and the bad: Weekly unemployment claims rise (Calculated Risk)

..AND a fantastic piece on incentives amongst traders (Adam Pasick-Reuters)

IS-LM links of the day 10-21-09

Today's learning point of the day, the Phillips Curve: Unemployment and inflation (Econbrowser)

Warren Buffett on new regulation-harsh long-term penalties are in order (DealBreaker)
This echoes my sentiments a week ago; liabilities should move back onto the executives charged with making the big decisions (i.e. risks).

Bryan Caplan writes 7 guidelines for writing good non-fiction (EconLog)

Sweet chart of the day: Average credit score by email domain (CreditKarma)

IS-LM links of the day 10-20-09

Excellent introductory reading on the labor market in a downturn (WSJ)

Mark Thoma on the economic outlook and output gap (Economist's View)

Anyone looking for a research topic: Over- and Under- explored areas of economic research (MR)

Good news: humans are still evolving (EurekAlert)

A really smart guy defends his stance against an environmentalist (Freakonomics/NYT)

Life advice

I loved this post from Ben Casnocha that I had to share. A friend had asked a former prof for advice, and this is what he responded:

Don't think too much and don't worry (advice from someone who did too much of both). Dewey has a lot to say about being on the road. The most important thing is to give up the idea that the end is already fixed. It is happening in real time. Be in what you are doing, and always remain open -- there are opportunities that will be created that don't even exist yet. Just be there. They'll come.

IS-LM links of the day 10-19-09

A great post on inequality (RortyBomb)
which is a response to a fantastic essay on inequality from Will Wilkinson (Cato)

The level of real economic inequality is lower than popular treatments of the issue have led many of us to think.
The level of economic inequality is an unreliable indicator of a society’s justice or injustice.
Inequality distracts us from real injustices that are given too little attention.

How to end poverty (AidWatch)

The shortest and best case for financial innovation that I have ever read (Interfluidity)

Paul Krugman thinks the banks are not alright (NYT)

How Moody's sold out its ratings (McClatchy)

An analysis of Q3 GDP (EconBrowser)

On SuperFreakonomics

A squabble between two very famous economists, Paul Krugman and Steven Levitt, over global warming. More specifically, the global warming chapter in Levitt's new book SuperFreakonomics. Update: This story has become big in the blogosphere with a lot of commentary. I'll try to keep up with the posts.

Paul Krugman's commentary.

Steven Levitt's rebuttal.

More Krugman.

Update: Felix Salmon says that the stir being created by Levitt's book isn't the first occurence.

Update 2: Tim Hartford weighs in on the global warming chapter (FT).

Update 3: the stand-up economist, Yoram Bauman, comments on the global warming chapter.

Update 4: Bauman and Levitt exchange emails. Interesting stuff.

Splash..

A former professor of mine asked a few days ago on his blog at Division of Labor for entrants to explain, in 250 words or less, why he should vote in the upcoming Memphis election.
I responded:

Dr. Carden:

From a former Rhodes economics student ('08) who saw your post on Division of Labor: there are two reasons why you should vote:

1. Bryan Caplan has thrown down the gauntlet and outright challenges smart people, such as yourself, to vote. Don't be noise; rather, be one of Caplan's informed elite who actually counts in the tallies. and

2. With low voter turnout, you will have a disproportionately high level of influence on the powerful Memphis political machine.Here's hoping you're swayed,

Dan Wright

...which resulted in this post today. I guess I was runner-up. Not too shabby.

Friedman Bearish Fact of the Day

The S&P 500 is now trading at 20% over its 200 day moving average, which generally is a harbinger of bearish sentiment in the upcoming days.
The table, constructed by Small Fish, Big Odds, depicts what happens 1, 2, 5, and 10 days after this point in the past. The averages [not shown] are -0.26% after 1 day, -0.16% after 2, -0.79% after 5, and -1.41% after 10. Today, as I write this, we are well on our way toward shaving off that 1.5%.

IS-LM links of the day 10-16-09

Peter Wallison asks: if capitalism is to blame for the housing crisis, what is FHA's excuse? (WSJ)

Bryan Caplan wonders whether having kids has ever paid off, historically (EconLog)

Consumer prices rise; inflation still only a small worry (WSJ)

$250 payment to seniors, a bribe? Tyler Cowen weighs in. (MR)

Has Greenspan abandoned the free market? (LOLfed)

Try Gapminder, a cool interactive data tool

John Bates Clark Uplifting Chart of the Day

Well it isn't the Great Depression. At least that argument has been settled in our favor.
Click to enlarge. Courtesy of dshort.com

The grades are in...

...and it doesn't look good for the Federal Government's Stimulus program.

It seems like the people over at Dealbreaker are giving the project an "F" with their headline running ".03 Million Down, 3.47 Million to Go" [referring, of course, to jobs].

The full story is here at the New York Times.

Businesses that got stimulus contracts directly from the federal government reported creating or saving 30,383 jobs so far, according to data published Thursday by the Obama administration.

Way to go. $787,000,000,000.00 well spent.

IS-LM links of the day 10-15-09

David Wessel discusses the deficit dilemma (WSJ)

Mark Thoma writes about how hard it is to get a job (Economist's View)
Steven Davis has ideas for getting America back to work (Fortune)

What about investing for the long haul? (Abnormal Returns)

An article I disapprove of and probably will be writing about later:
Finance's Five Fatal Flaws (HuffPo)

The evolving uses of Twitter (Ben Casnocha)

The right capitalization ratio

A lot of people (i.e. media pundits and bloggers) have been publicly debating the issue of the "right" or "appropriate" level for capitalization ratios as it pertains to new regulations.

First, a brief background on the topic and why it is important:

Capitalization is also known as common equity, or the excess of assets over liabilities, and provides a buffer on losses arising from bad loans or trading positions. Larger amounts of capital reduces the risk of a bank becoming insolvent. In the run-up to this crisis, financial institutions "leveraged up," taking on more and more debt on top of their equity.

Below is a graph of major investment banks leverage ratios over the period 2003-2007, as you can see the trend is definitively positive.

This meant that less capital was available to cover losses if positions were to sour. Chasing ever-higher earnings estimates drove IBers to take on enormous amounts of risk. But as we've witnessed in this crisis, central banks are unwilling (with notable exceptions) to let large and complex banks fail because their bankruptcy would create undue hardships on the financial system. And so the risks that should have been born by the employees and shareholders of these banks have instead been born by taxpayers (not just the US). So as the world economy appears to be coming out of the depths of a severe recession the discussion seems to be turning from what needs to be done to fix the current crisis to what needs to be done to prevent the next one.

Now, the discussion on the "right level" of capitalization rates:
It seems doubtful to me that any absolute level or even simply-calculated relative rate, I've heard 15% of tier 1 capital been thrown around, would be the most efficient form of regulation. A better plan would revolve around Basel II which has been implemented in New Zealand [a review of this can be found here].

My idea would say let the people who know best decide what capitalization rate works best for their specific business model. This idea requires rolling an incorporated bank back into a pseudo-proprietorship where the highest executives (who make the biggest business decisions): directors, CEO, and CFO would be required to take on sizable, personal liability for the business actions that they undertake. If Dick Fuld had to stake 100% of his net worth in Lehman Brothers (I know he lost a considerable amount, but he is still very well off), do you think his actions concerning leverage and MBS's would have been the same? I don't.

I don't think regulatory action of compensation practices is the way to reign in risk-taking in the financial sector. Introducing personal liability into the fold may bring down the risk of our great lending institutions.

Make the players get a little skin in the game and see how it turns the play around.

JDW

IS-LM links of the day 10-14-09

The US Job Market, in charts (Economix)

An idea like this could help out congestion in DC (Freakonomics/NYT)

Brad Delong says "Yes we can! [afford more deficit spending]" (Delong)

View on the causes of the financial crisis: smart bankers (Felix Salmon) and (Calvin Trillin-NYT)

A how to guide to starting a hedge fund (TBI)

Dollar is losing its reserve status

An article from the New York Post, citing the International Monetary Fund, reports that that dollar's share of central bank's reserves has fallen to 62%, the lowest on record.

As an economist, the idea that the dollar will fall in real value is not scary as the dollar's depreciation will be offset by a falling current account deficit (rising current account balance). The scary notion comes if the dollar does actually lose its reserve status and is perceived as less of a safe bet which may make it harder for the US to borrow to fund its deficits.

The way to strengthen the dollar relative to other currencies would be to start raising rates prior to other central banks rate hikes. I agree with other economists' estimations that the Fed won't raise rates until the spring as they have to curtail the monetary easing (buying alternative investments such as mortgage backed securities and commercial paper) which has reduced the real interest rate into negative territory.

But I worry that Mr. Bernanke is repeating a doomed play out of Mr. Greenspan's book: keeping rates too low for too long. Banks already have a license to print their own money taking advantage of the spreads between borring at effectively 0% (LIBOR has hovered at 0.3% for months) and lending at ~5-6%. I wonder: is preventing an overcorrection in the housing market the right thing to do? Sure it is if you're a homeowner (I'm not). But has the Fed, in preventing market forces to determine the natural equilibrium, caused long-term damage to the economy? I'll have to do more research, but only time will tell the true answer.

JDW

Global warming skeptics vindication

Article here, courtesy of the BBC.

The most poinagnt fact in the article that I found:

This headline may come as a bit of a surprise, so too might that fact that the warmest year recorded globally was not in 2008 or 2007, but in 1998.
But it is true. For the last 11 years we have not observed any increase in global temperatures.
And our climate models did not forecast it, even though man-made carbon dioxide, the gas thought to be responsible for warming our planet, has continued to rise.

So 2009's data on the debate seem to be swinging to the skeptics. Congratulations on mollifying the environmentalist extremists, at least for the short-term.

Book of Odds launches tomorrow (10-14-09)

A new, searchable statistical encyclopdiea called the Book of Odds launches tomorrow.
From the website:

Three years ago we set out to create the missing dictionary, one of numbers, not words – the probabilities of everyday life.
Book of Odds will cover a wide range of topics including health, crime, politics, accidents, and relationships. Its consistent format will make it easy to understand. Any one odds statement may be used to better grasp another – the unfamiliar made more comprehensible by the familiar.
It will be extensive: over 50 staff-years of research have gone into creating a database of odds numbering in the hundreds of thousands, and over time it will expand into new topics, times, and geographies.
It will be accurate and transparent so anyone can replicate or correct any odds statement.
It will be engaging, fun to navigate, and full of surprising information and juxtapositions of facts.
It tries to answer the question people ask almost daily: “What are the odds of that?”
We believe we have made an amazing start. We hope you agree and will join us at launch to expand our shared understanding of the odds of everyday life.

IS-LM links of the day 10-13-09

Ominously worrying article of the day: businesses slash costs, battering investment which could spell lower growth and earnings in the future (WSJ)

David Henderson thinks this year's Nobel in Economics was awesome (WSJ)

Twitter statistics (CheapTalk)

Econ 101: Price of cocaine in London drops from 70 pounds a gram to 40 and the number of users double means cocaine has an elastic demand (Bloomberg)

Just say no to AT&T controlling data usage (PCWorld)

Why I have no future by Galen Strawson (TPM)

And the winner is...

Elinor Ostrom and Oliver E. Williamson for their work on corporate governance.

Story here, courtesy of the New York Times.

Note: on Thursday, October 8th, both of these award winners were running odds of 50 to 1 on Ladbrokes (which I can't link-to directly so go here to find the link)

Recessionary consequences

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
Slim Thug Feels the Recession
www.thedailyshow.com
Daily Show Full Episodes Political Humor Ron Paul Interview

IS-LM links of the day 10-7-09

Lessons of states on healthcare-essentially why I am against healtcare reform (WSJ)

RortyBomb on where to go from here in financial research

Markets in a post-efficiency world (FT)

Save money by drinking your own hooch (Sloshspot)

Interesting browsing: Intrade archive

Dilbert invoking the spirit of David Ricardo

I can hear the words still coming out of my international economics teacher's mouth: "Comparitive advantige."

$1035.65 per ounce

Gold hit an all time high today. Story here courtesy of Yahoo!Finance

IS-LM links of the day 10-6-09

Stick away from art- the returns suck: 4.03% per year (Felix Salmon)

Roubini and Bremmer on steering the Fed to safety (WSJ)

A great article by David Brooks (NYT)

Robert Fisk on the demise of the dollar (The Independent)

John Bates Clark Scary Chart of the Day

Click to enlarge.


Courtesy of Calculated Risk

What we have and haven't been buying for the last six years

Click on the picture to enlarge. Courtesy of the NYT.

Foodie Premium: The price of buying local

James McWilliams, a historian from Texas State University, posted an informative and short article on Freakonomics this morning.

(The picture on the left is of Michelle Obama shopping at the farmer's market in Washington DC which is very close to where I work)

The article that Dr. McWilliams wrote provides a history-centric view of the increase in farmer's markets in the past decade. I tend to view the world through an economics lens so I feel like I have a somewhat-alternative view on farmer's markets.

My giflfriend and I live in a (very for me, fairly for her) liberal neighborhood in DC which happens to facilitate a farmer's market every Sunday as long as the weather permits. When we first moved here (pretty recently) we were very excited about the prospect of eating locally grown, organic (not to mention tasty) vegetables. But because we couldn't fulfill all of our shopping in that market and the construction of groceries is such that you are required to walk through the produce aisle first, we couldn't help but comparison shop. Just for illustration, the ripe tomatoes were $6 per pound at the farmer's market and $2.29 a pound at our local, chain grocery store. A markup of nearly 200%!

This "produce" premium got my economic gears spinning. At first I thought that locavores must definitively be utility, not wealth, maximizers to place such a high premium on nearly identical products (in economics courses the term is undifferentiated). But as I thought about it, such a large group of people wouldn't be so far from the ideal homo economicus. So what other factors must be influencing these John Mackey-haters to flock away from Whole Foods to local markets: a.) the idea that store-bought produce doesn't taste as good as locally grown produce, b.) the notion that enriching neighbors is preferential to filling corporate coffers, c.) along the same lines as (b)-consumer experiences should be personalized in a way that a corporate chain can't provide, d.) the idea that buying from local farmers reduces your carbon footprint due to the large amount of shipping that large grocers do, e.) a deep belief that agrocorporations are genetically altering produce which will lead to health problems.

These are all the reasons that I could imagine why someone would be willing to spend more for what I consider to be the same thing. (a) and (c) I consider matters of preference, (b) and (e) I also consider preferences but that relate to personal politics, while (e) is the only one that can be quantifiably refuted. This article by Christopher Weber and Scott Matthews concludes that the impact of buying local does less to save the environment than is commonly thought, because 83% of the carbon release is in the growth, and not in the transportation, of produce.

But hey, if I ever need to find a large sample of people who have sharply contrasting political views from me on a Sunday morning, I'll know where to look.

JDW

IS-LM links of the day 10-5-09

Roger Farmer: The US recession ended in May (Vox)

Net Neutrality as a business tool to hurt rural competitors (WSJ)

The dollar costs of being homosexual (NYT)

In defence of investment bankers

A four part saga by the Epicurean Dealmaker. Interesting read. It is worth mentioning on its own, separate from the regular links.

Part II

Part III

Part IV

IS-LM links of the day 10-2-09

Unemployment hits 9.8%, U-6 number is 17.1% (Yahoo!)

All asset classes appreciated in September, correlation positive (Capital Speculator)

Shiller: Five years before housing turnaround (WSJ)

Noobs beware: think twice before trading options (VIX)

A paper titled: A Unified theory of Superman's Powers (Qwantz)

30 Dumb inventions (Time)

IS-LM links of the day 10-1-09

The costs of closing schools for H1N1 (Brookings)

Economics of condoms (CheapTalk)

Surprising jobs that pay $25 an hour (Yahoo!)