Latest Stories

• Readings: BP, Japan, Australia/China, F-Bombs, Mortgages, etc.
• Cities' "Profound Homogenizing Effect"
• How and When Did the U.S. Start Veering Economic Nativist?
• Soccer Goalkeepers: Action Bias, or Not?
• Beds and Food Are For Sissies. We Want WiFi.

 

Readings: BP, Japan, Australia/China, F-Bombs, Mortgages, etc.

A few links from my weekly Weekend Reading column [-]:

• BP installs fully functioning BOP on Macondo
• Japan H as More Than Just a Yen Crisis
• The Deal Is Simple. Australia Gets Money, China Gets Australia
• F-Bombs, Vanishing Billions Spice Rattner's Inside Tale of Auto Rescue
• Debt load weighs on L.A.-Long Beach ports' rail expressway
• Credit default swap tango
• No Money Down Mortgages Creep Back
• 2010 All-America Fixed-Income Research Team: The Incredible Shrinking Market

 

Cities' "Profound Homogenizing Effect"

Intriguing paragraph from recent doctoral thesis on the merits of native plant and seed collectors:

... the problem of the loss of biodiversity faces significant challenges in gaining the public’s attention. For example, cities not only threaten biodiversity through the direct conversion of habitat, they have a profound homogenizing effect on biodiversity (McKinney, 2006; Miller, 2005; Ricketts & Imhoff, 2003). Consequently, since most people now live in cities, most people only experience biological uniformity (Miller, 2005). Therefore, within the day-to-day life of most people, the world seems to function quite fine with low biological diversity.

 

How and When Did the U.S. Start Veering Economic Nativist?

A colleague of mine is giving a talk soon on economic growth and immigration. He recounted to me today how in telling the organizer about his intended talking point -- that there is money lying on the sidewalk for the first U.S. state to open up to immigrant entrepreneurs -- the fellow's eyes hardened, and he went off about "citizens first", and the perils of immigration.

This anecdote is supported by recent polling data, like the following from Pew which shows that, at best, people are of multiple minds with respect to legal immigration.

When did this young, immigrant-founded country start to veer toward nativism? Separating the discussion of legal from illegal immigration -- I'm not interested in Arizona chatter, when did sentiment change toward immigration in this country? Or is it just me, and the U.S. has always been so conflicted in its view of this force that has been on of its primary ones for growth? [-]

 

Soccer Goalkeepers: Action Bias, or Not?

There is a well-known paper from a few years ago (Action Bias Among Elite Soccer Goalkeepers: The Case of Penalty Kicks, by Eli, et al.) that argues soccer goalies have an action bias when in a penalty kick situation. They jump one way or the other, when they should be better off standing still in the middle of the net.

It is an appealing conclusion, one that makes oodles of "ah-ha!" sense to us in how we think about our penchant for feeling like we should be doing ... something. But is it true? A more recent paper says no:

Bar-Eli et al. (2007, hereafter BE) conclude that goalkeepers in football suffer from an action bias that preserves them from optimally playing in penalty kicks. Particularly, they are thought to jump too often to the sides and to stay too seldom in the centre. This bias is explained by a norm that goalkeepers should jump to the sides in order to minimize their mental costs when failing to stop the ball. Because in this case at least they have done something instead of just watching how the kicker converts the penalty. We show that these conclusions are wrong using the data set of BE, the data set of the criticized Chiappori et al. (2002), an own data set consisting of 1043 penalty kicks from the German Bundesliga and data of the likewise criticized Palacios-Huerta (2003). The crucial mistake of BE consists of modeling the strategic interaction between the players as if it was a parametric decision. A game theoretic analysis that takes into account the middle as an option shows that goalkeepers on average behave astoundingly close to their optimal choices. Therefore, the action bias BE identify in an enquiry of goalkeepers actually is a rule of thumb that helps the goalies to maximise the chance of stopping the penalty kick. Finally, it is shown that players are not only rational in choosing their sides in a sole penalty kick but also in a series of kicks.

More here.

 

Beds and Food Are For Sissies. We Want WiFi.

Interesting chart from J.D. Power showing the ranked list of things hotel guests want most. The list is led by wireless networking, with pillows, cushy beds, breakfast (mostly) and TV all falling well behind. [-]

Source.

 

Leaving Las Vegas: The Exodus Continues

The exodus of people from Las Vegas continues, well in excess of new arrivals:

The Census Bureau estimates that from July 2008 to July 2009, the migration out of Clark County exceeded the migration in by more than 1,000. The year before — when the recession wasn’t as severe — the opposite was true, with inbound exceeding outbound by more than 14,000.

Jeremy Aguero, principal analyst for the consulting firm Applied Analysis, said he expects that outbound migration will continue to overshadow incoming migration. Fewer driver’s licenses have been surrendered at the DMV compared with past years, meaning fewer people have been moving here and turning in their old licenses, he said.

In July, 4,683 licenses were surrendered, down 3.3 percent from 4,845 in July 2009. The figure has been dropping since 2004, when 8,889 licenses were surrendered in July, the highest on record, Aguero said.

There has also been an increase in one-way bus tickets out of Las Vegas, he said.

More here.

 

Readings: Decoupling, Las Vegas, Obesity, Spare Capacity, Popcorn, etc.

• The odd decouple of the U.S. economy (Source)
• 100 years of US obesity (Source))
• All signs point to continuing Las Vegas exodus (Source)
• U.S. spare capacity is sticky high (Source)
• Heat causes corn to pop in Kentucky field (Source)

 

Portages: Or, The Economic Past is Here -- It's Just Evenly Distributed

I am fascinated with how we don't notice that much of the past is still with us, that it's so evenly distributed as to be invisible. I often talk about this in the context of urban fire departments, and the small percentage of their calls that are actually for fires.

A new NBER paper got me thinking about the same thing in a surprising context: river portages. I think this stuff is riveting. [-]

Portage: Path Dependence and Increasing Returns in U.S. History

Hoyt Bleakley, Jeffrey Lin

We examine portage sites in the U.S. South, Mid-Atlantic, and Midwest, including those on the fall line, a geomorphologic feature in the southeastern U.S. marking the final rapids on rivers before the ocean. Historically, waterborne transport of goods required portage around the falls at these points, while some falls provided water power during early industrialization. These factors attracted commerce and manufacturing. Although these original advantages have long since been made obsolete, we document the continuing—and even increasing—importance of these portage sites over time. We interpret this finding in a model with path dependence arising from local increasing returns to scale.

 

Readings: Immigration, Salmon, Krill, Crops, Australian Mining Boom, etc.

• Immigration wave in the U.S. (Source)
• How I Learned to Love Farmed Salmon (Source)
• Ecologists fear Antarctic krill crisis  (Source)
• Landowners Shout `Bingo' on Property Boom in West Australia Mining Towns (Source)
• Warmer temperatures in China to reduce crop yields (Source)

 

[Updated] Actuarial Brain-Teaser

From a friend, an actuarial brain-teaser:

My friend Josh (55) and his wife Ericka (48) asked another couple to be their guardians if both of them die.  According to actuarial tables, Josh has a 1/125 chance of dying this year and Ericka has a 1/358 chance.  Without spending too much time on it, what are the chances that their friends become guardians in the next year?  What about the next 9 years?  (After nine years their youngest is 21).

Have at it. I'll put up some analysis/ideas later. [-]

[Update] Here are some thoughts on the problem from my friend Jeff, a hedge fund manager near here, who originally posited the problem:

Let's look first at the chances of them both dying in the first year. An obvious lower bound is assuming the deaths are completely independent, thus 1/125 * 1/358 =1/44750 is a good lower bound. There are two ways to proceed: try to estimate the correlation, which seems very hard, or to try to estimate the P(J|E), or the probability that Josh dies given that Ericka has died. Plane crashes are orders of magnitude less likely than car crashes, so let's focus on car crashes. Given 36,000 automobile deaths per year, and assuming Ericka is as likely as average to die in a car crash, that means 3% of her deaths will occur in a car. The chance that Josh is a) in the car times the chance that Josh also dies is pretty small, perhaps 5-10%. So this means that the chance that Josh dies in a car crash with Ericka is about the same as both of them dying independently. There are other ways they could both die together (from a communicable disease, for instance). And, of course, the kids could die as well. So I'm going to estimate that P(J|E) is around 1/40. This means that for the first year the chances of both dying are 1/40 * 1/358 or about 1/14000. Over the next nine years the chances that each of them die almost doubles (nice estimate, Rick, right on the mark there), so we'll make our official estimate (9*1.5)/14000 or about 1 in a 1000 that their friends become guardians.

 

Get Your Econo-Geek Groove on with KC Fed Jackson Hole Docs

You can now geek out on Kansas City Federal Reserve documents from the just-completed Jackson Hole econo-fest. Here are the documents that have now been posted: [-]

Opening Remarks	BEN S. BERNANKE Chairman, Board of Governors of the Federal Reserve System
Evaluating the Global Economic Recovery
Author:	CARMEN M. REINHART Professor, University of Maryland
Paper:	After the Fall
Discussant:	WILLIAM R. WHITE Chairman, Economic Development and Review Committee, Organisation for Economic Co-operation and Development
General Discusssion
Incorporating Financial Factors into Macroeconomic Analysis
Author:	LAWRENCE J. CHRISTIANO Professor, Northwestern University
Paper:	Monetary Policy and Stock Market Booms
Discussant:	JOHN GEANAKOPLOS Professor, Yale University
General Discussion
Inflation Dynamics in the Decade Ahead
Authors:	JAMES H. STOCK Professor, Harvard University
	MARK W. WATSON Professor, Princeton University
Paper:	Modeling After the Inflation Crisis
Discussant:	FRANK R. SMETS Director General, Research, European Central Bank
General Discussion
Luncheon Address	JEAN-CLAUDE TRICHET President, European Central Bank
General Discussion
Rethinking Monetary Policy in Light of the Crisis
Author:	CHARLES R. BEAN Deputy Governor, Bank of England
Paper:	Monetary Policy After the Fall
Discussants:	ALAN S. BLINDER Professor, Princeton University
	JOHN B. TAYLOR Professor,Stanford University and Senior Fellow, Hoover Institution
General Discussion
Risks and Challenges of Large Fiscal Deficits
Author:	ERIC M. LEEPER Professor, Indiana University
Paper:	Monetary Science, Fiscal Alchemy
Discussant:	FRANCESCO GIAVAZZI Professor, Bocconi University
General Discusson
Reconsidering the International Monetary System
Panelists:	JOHN LIPSKY First Deputy Managing Director, International Monetary Fund
	MAURICE OBSTFELD Professor, University of California, Berkeley
	UMAYYA S. TOUKAN Governor, Central Bank of Jordan

 

On Being Wrong(er): My Conversation with Kathryn Schultz

As part of the Kauffman podcast series we've called "Infectious Talk", I had a half-hour conversation recently about "wrongness" with the delightful and smart Kathryn Schultz. She has a wonderful book out on the subject called Being Wrong.

The topics unsurprisingly ranged from rocketry, to climbing, to economics, to sports. Listen here.

[-]

 

Economists and Experienced Suicide Terrorists

The summary of a new NBER paper on the link between economics and the "quality" of suicide terrorism:

We analyze the link between economic conditions and the quality of suicide terrorism. While the existing empirical literature shows that poverty and economic conditions are not correlated with the quantity of terror, theory predicts that poverty and poor economic conditions may affect the quality of terror. Poor economic conditions may lead more able, better-educated individuals to participate in terror attacks, allowing terror organizations to send better-qualified terrorists to more complex, higher-impact, terror missions. Using the universe of Palestinian suicide terrorists against Israeli targets between the years 2000 and 2006 we provide evidence on the correlation between economic conditions, the characteristics of suicide terrorists and the targets they attack. High levels of unemployment enable terror organizations to recruit more educated, mature and experienced suicide terrorists who in turn attack more important Israeli targets. [Emphasis mine]

Experienced suicide terrorists? Say what?

 

The U.S. Needs a Helicopter Drop

From VoxEU, the case for radical moves -- like a reversing sales taxes slash -- aided and abetted by the U.S. Treasury:

A helicopter drop for the Treasury

Ricardo Caballero
30 August 2010

The US may be near a liquidity trap. This column argues that the ineffectiveness of monetary policy can be turned on its head by using money creation to finance fiscal policy stimulus – such as a large but temporary cut in sales taxes. To avoid future problems, the Treasury could commit to transfer resources back to the Fed when the economy is back to full employment. This would be a helicopter drop with a drainage contingency.

The economy is barely muddling through. While some of this is unavoidable given the magnitude of the financial shock that is slowly working its way out of the system, macro-policy still has an important role to play in preventing a relapse. Unfortunately, the Federal Reserve has the resources but not the instruments, while the US Treasury has the policy instruments but not the resources. It stands to reason that what we need is a transfer from the Fed to the Treasury.

This is not a step to be taken lightly, as much of the progress in central banking over the last few decades has been aimed at giving central banks independence from hungry executive branches. However, all good systems need escape clauses if they are to be preserved as the anchor for daily policy concerns. Moreover, the Chairman of the Fed should have the final, and perhaps the first, word over this matter.

Isn't quantitative easing just such policy? Not quite. Quantitative easing, when directed to Treasuries, adds a little bit of good to the mix by lowering the cost of funding public debt, and it also helps a little bit with the long-run cost of capital for the private sector. But these are second-order effects; the Treasury still increases public debt at a fast pace, and a slightly lower cost of capital doesn’t much help the private sector if aggregate demand is not there to buy the goods in the first place.

Cutting taxes without raising public debt

Instead, what we need is a fiscal expansion (e.g. a temporary and large cut of sales taxes) that does not raise public debt in equal amount. This can be done with a “helicopter drop” targeted at the Treasury. That is, a monetary gift from the Fed to the Treasury.

Critics may argue that this is simply voodoo accounting, as it is still the case that the consolidated balance sheet of the government, which includes the Fed, has incurred a liability. But this argument misses the point that the economy is in liquidity-trap range, and once this happens the system becomes willing to absorb unlimited amounts of money. In this context, by changing the composition of the liabilities of the consolidated public sector in the direction of money, the government gets a sort of “free lunch.”

Critics can also argue that even if the above logic holds during a liquidity trap, things can get quickly out of control once we are out of it. I counter that this can be solved by having Fed mechanisms ready for a quick drainage once the economy is out the woods (the Fed has already been working on the design of these mechanisms) and by adding a contingency to the helicopter gift. For example, the Treasury could commit to transfer resources back to the Fed once the economy returns to full employment.

From the point of view of public debt stability, the scenario to be concerned with is a combination of large fiscal deficits with stagnation. By making public debt contingent on the end of stagnation, this dreaded scenario is averted. And by having this contingent debt being held by the Fed, there is the added benefit that the ineffectiveness of monetary policy in the neighbourhood of a liquidity trap is turned on its head by acting instead as fiscal policy.

 

Readings: Behavioral Tennis, Sugar, Nixon, Tapeworms, etc.

• A helicopter drop for the US Treasury (Source)
• A birth surge from all that 'cocooning' in blizzards (Source)
• Sugar Imports by China May Jump 42% as Demand Exceeds Supply, Survey Shows (Source)
• Here's Something You Don't Want To Know (Source)
• The Web 2.0 Summit Points of Control Map (Source)
• Dan Ariely on procrastination (Source)
• Orange County Is No Longer Nixon Country (Source)
• The value of luminosity data as a proxy for economic statistics (Source)
• Economic conditions and the quality of suicide terrorism (Source)
• Pros should whack the crap out of their second serve more often (Source)
• Tennis players should challenge more calls (Source)