economics
razib | May 29, 2009Felix Salmon pointed me to The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street today. There really is a boom in these sorts of books recently! Are we overdoing the "irrationality" bit? Probably. Mike offers up some skepticism about the creeping of irrationality as an explanation for everything.
mikethemadbiologist | May 29, 2009
No, not skinny models, mathematical models. Katrina Lamb writes:
As I see it, the problem with the financial market meltdown is not that David Li published an article in the Journal of Fixed Income Securities on the Gaussian copula function, or even that in his article Li, then an analyst with JPMorganChase, identified the price of credit default swap (CDS) contracts as a seemingly elegant proxy for the mortgage market - a proxy that greatly reduced the immense complexity of modeling values and risks in this market but, as it turned out, lost a great deal of critically important…
mikethemadbiologist | May 28, 2009A recent column by Dan Arielly gives me a reason to discuss what I think are some of the problems with the recent emphasis on irrationality in economic theory. Before I get into that, I should note that I liked Arielly's book Predictably Irrational, and am impressed by Shiller's work. The idea that people behave non-optimally regarding economics--that is, we are not perfect economic calculators--is very important. For instance, understanding economic bubbles doesn't really make sense unless one accounts for irrationality (e.g., Shiller's work). Likewise, Arielly's Predictably Irrational…
razib | May 24, 2009
People By Nature Are Universally Optimistic, Study Shows:
Data from the Gallup World Poll drove the findings, with adults in more than 140 countries providing a representative sample of 95 percent of the world's population. The sample included more than 150,000 adults.
Eighty-nine percent of individuals worldwide expect the next five years to be as good or better than their current life, and 95 percent of individuals expected their life in five years to be as good or better than their life was five years ago.
...
At the country level, optimism is highest in Ireland, Brazil, Denmark, and New…
mikethemadbiologist | May 19, 2009Admittedly, you won't hear credit card companies call Congress' failure to cap credit card interest at 15% annually (which is what credit unions are forced to do) that, but, as Ian Welsh notes, that is exactly what Congress' inability to enact a cap means:
The Senate just stopped limits on credit card rates. Sometimes it takes a socialist to say the obvious:
"When banks are charging 30 percent interest rates, they are not making credit available," said Mr. Sanders, who noted credit unions are limited to 15 percent. "They are engaged in loan-sharking."
The banks have been given, loaned and…
ddobbs | May 18, 2009via Ezra Klein comes this bottom-line chart from the Center for Economic and Policy Research:
That orange line headed heaven-ward? That's our deficit. All those other lines dipping down? That's our deficit if we had the same health care spending per person as France, Germany, Canada, and the UK (all countries, incidentally, with higher life expectancies than our own). You might say, of course, that even radical reform would not bring us down to their health care spending. We could copy France's system wholesale and still pay more for care. You would be right. But such reforms would bring…
stoat | May 17, 2009One thing that has puzzled me for a bit about the current mess is the intereaction between the Government and the Central Bank (Bank of England or BoE, in our case). So the government is raising money by selling Gilts, in quantities that I forget but of the order of £200b when I last looked. Meanwhile, the BoE is indulging in Quantiative easing, a process whereby it pumps money into the economy by buying various bonds, but mostly Gilts, of the order of £20b.
This appears, at least at first sight, to be pointlessly self-cancelling. The government is selling gilts to itself (unless we pretend…
pontiff | May 12, 2009The other day I ran into a good friend from Tlön, who told me the most fascinating story about his discovery of a new theory of games.
I owe my discovery of the nature of equilibrium in card games to an odd conjunction of mirrors and an encyclopedia. The mirror was in our library, and the encyclopedia was called Encyclopedia Equilibria (London, 1942, Enlarged ed. 1983). The mirror was an abomination, for in its reflection, one could see their opponents cards, and thus it led me to a crisis in belief. The encyclopedia, however, was even more of an anomaly, containing a fallaciously named…
stoat | May 7, 2009At least we are as I write this. What we are when you read this I don't know.
Disclaimer: this post contains no inside information at all.
mikethemadbiologist | May 6, 2009According to economist Simon Johnson, economists can learn a lot from the swine flu public health response--and, while he might not mean it, that says a great deal about economics. And you thought the Mad Biologist can be pessimistic:
Experience from the past two years surely teaches us that economics is in a position similar to that of medicine before the germ theory of disease, and we should plan accordingly.
Johnson argues that there are five advantages public health has over the field of economics. The first is that "we take public health professionals very seriously" which is due to "…
mikethemadbiologist | May 3, 2009One of the disturbing trends over the last decade, give or take, has been how ethical behavior has become synonymous with "a conviction overturned on appeal." Just because something is legal, doesn't mean it's ethical. With that, I give you Matthew Yglesias (boldface mine; italics original):
They're not actually saying that what they did was right. Rather, they're saying that it was selfish but also legal. ...one is within one's rights, under certain circumstances, to insist on one's ability to inflict suffering on vast numbers of people in order to make more money for your rich self and…
razib | May 2, 2009Calculated Risk has a great chart showing GDP fluctuations which puts into perspective just how big a downtown the Great Depression represented, and how it compares to the current one. For the population ~30 and under the current downswing is already 3 times more extreme from the peak than any recession they have memory of. In fact, we're already approaching the biggest downswing since World War II and the recession will certainly be the longest as well. On the other hand, we're as far from the commonly accepted definition of a Depression of a 10% decline in GDP as the 1991 one recession was…
ddobbs | April 29, 2009As I've noted before, the U.S.'s health-care and education systems share some fundamental flaws: In both medical care and schooling we spend far more than other countries and get substandard results; in both cases, the overspending and poor results occur partly because our decentralized "systems" mean everyone does and measures everything differently, so you can't compare apples to oranges to even find out what works.
The folks at Economix look at this dynamic in education from a return-on-investment perspective:
Education is a form of investment in a country%u2019s labor force and its…
purepedantry | April 27, 2009Razib and I have a discussion up at Bloggingheads.tv about genetics and behavior as well as a brief discussion of neuroeconomics. Check it out below the fold:
ddobbs | April 23, 2009Reading the Mindreading Studies - Science Progress seeks a handle on fMRI hype, hope, and horizons
The evolving Swine Flu story [Effect Measure] The skinny on a scary run of deadly swine flu, from people who've been doing this a while.
Green Issues Fade Is green losing its lustre?
Eli Lilly Tops List of Drug-Company Pay to Vermont Docs Altogether, 78 drug companies spent just shy of $3 million dollars in payments to health professionals in Vermont last year. This is a state of about 600,000 people, and only a few thousand doctors. Payments to psychiatrists, for instance, totaled $479,306.19…
mikethemadbiologist | April 18, 2009We hear a lot about 'too big to fail' and how future regulation should be designed, at least in the financial sector, to prevent growth to that size. Apparently, Treasury Secretary Geithner hasn't heard about this:
Even worse is Geithner's notion of designating certain banks as too big to fail and then subjecting them to more stringent capital requirements and a special tax that would be used to pay for the occasional government bailout. In practice, that approach is likely to create a competitive imbalance between the biggest banks and everyone else, while inviting the giants to find clever…
mikethemadbiologist | April 12, 2009Economist Dean Baker makes an excellent point about the supposed complexity of the housing crisis:
There are some very basic points here that everyone should understand. The details of any form of regulation will be "complicated." For example, the actual fire safety rules for schools are undoubtedly very complicated. How many of us could write up the appropriate safeguards to ensure that our children will be protected from fire risks as they study? Similarly, the safety rules that are necessary to ensure that our food is not contaminated would also require background that very few of us have…
mikethemadbiologist | April 11, 2009Matt Taibbi says everything I've been thinking regarding Wall Street compensation (but better):
Here's the real problem with people like Jake DeSantis. Throughout this whole period, they never were able to connect the dots -- to grasp the fact that when they skimmed a million here or a million there off the great rivers of capital that flowed through their offices, that that money came from somewhere, from someone. To them, it wasn't someone else's money, it was just money, and why shouldn't they have it?
...For a guy like this, his worth as a human being is wrapped up in buying a bag of…
ddobbs | April 10, 2009Via Tyler Cohen's Marginal Revolution comes this amusing anecdote -- and, perhaps, helpful example -- from the life of Peter Orszag, Obama's very brainy budget director. To motivate himself to train for a marathon, he somehow set up a penalty if he didn't hit his training targets: His credit card would make a contribution to a charity or cause he hated:
]"If I didn't achieve what I wanted to, a very large contribution would automatically come out of my credit card and go to a charity that I very much didn't support," Orszag says of his training strategy. "So that was a very strong motivation…
mikethemadbiologist | April 9, 2009There's been a lot of discussion over Obama economic advisor Larry Summers' economic ties to Wall Street (7.2 million such ties in 2008 alone). What I don't get is why Obama sees the need to keep him around.
Yes, Summers is an asshole. He was an asshole at Harvard, and I don't see why he would have changed. Yes, he's a corrupt asshole, but we already knew he was getting paid millions by a hedge fund. But what I don't get why Obama considers him to be essential. Consider these speaking fees:
GIANT BAILOUT SECTOR
Goldman Sachs: $202,500 (two speeches)
Citigroup: $99,000 (two speeches)
JP…