Thursday, January 31, 2008

No Deal!?

I can’t stand Deal or No Deal. Everytime I watch it, they offer someone a ridiculously wonderful deal, and they don’t take it and lose the money and once-in-a-lifetime prizes. My wife ranted about one of those episodes last year.

Last night was NFL night, where they had several Hall of Famers making guest appearances (and the models were actually almost fully clothed with NFL jerseys, a nice change). You can watch the episode here.

The male contestant was a huge Colts fan, a teacher, and apparently he and his wife are deeply in debt.

His 3rd offer was $51,000. His 4th offer was $61,000. His 5th offer (with $1 million still on the board) was:

1 Chevy Tahoe
Tailgaiting equipment (cooler, utensils, grill, etc).
2 Superbowl tickets w/airfare and hotel provided.
4 season tickets to Colts games.
2 autographed team balls from the Colts Super Bowl team.
2 sideline passes to the Colts game of his choice.
1 ticket to a Colts practice and behind-the-scenes access.
He would get to throw out the opening ball at a Colts game.

The total value of this offer was given at over $106,000. This was understated because he could sell the Super Bowl tickets for $thousands$ more than face value.

His wife told him NOT to take the deal, and he obeyed her. He turned down the deal! Apparently, she didn’t feel they could pay off all of their debt with just $50,000 plus whatever extra they could get for the Tahoe! He lost all of that once in a lifetime offer (the Tahoe was given to a lucky audience member). His wife had the kind of…demeanor…that tells you that she always gets what she wants.

After he later turned down yet another offer for $214,000, his offer dropped to $189,000 and he took the deal. (If you're going to turn down the above NFL prize, why not play for the million!?)

Ironically, the $1 million grand prize was in his suitcase.

At this point, we were treated to a wild-eyed Marcus Allen running on stage screaming “I TOLD YOU IT WAS IN THERE!! I TOLD YOU!!!”

(This is the same Marcus Allen who insisted that O.J. was innocent).

I can’t imagine turning down an offer like he did. I hope he enjoys the $189,000, especially after taxes, but I don’t think it will ever replace all of the Colts stuff he turned down. I promised to never watch the show again, and I will stick to that promise.

Wednesday, January 30, 2008

Book Review (2nd of 2008)

We just finished listening to Faith of My Fathers, read aloud by John McCain.

It's the story of his grandfather's and father's upbringing in the Navy, as well as McCain's coming of age as a young Midshipman at the Naval Academy, and later as a bomber pilot in Vietnam.

The second half of the book is McCain's retelling of his capture and torture by the Vietnamese in the Hanoi Hilton from 1967 to 1972. The tales of all the POWs is disturbing and very moving. The books ends with his homecoming in '72.

I'm voting for McCain, first and foremost, because this man endured much for his country, and grew to love it even more than before. That experience has shaped him like no other candidate.

Commentary: I imagine that seeing government bogged down in partisanship is quite painful to someone who sat languishing in a POW camp while politicians in Washington argued about things. I think that's probably why McCain reaches across the aisle so often and helps pass legislation that is considered "liberal" to his fellow Republicans.

Tuesday, January 29, 2008

Rational vs. Spiritual (again)

This continues my previous series of posts on spirit-led behavior vs. purely rational behavior.

Dubner and Levitt (the Freakonomics authors) have a great article on unintended consequences of legislation. How the Citizens with Disabilities Act and the Endangered Species Act actually have hurt those it was intended to help due to people behaving rationally in response to incentives/disincentives in the laws. But, the article also points out harmful rational behavior in response to a God-given law.

As commanded in the Bible, all Jewish-owned lands in Israel were to lie fallow every seventh year, with the needy allowed to gather whatever food continued to grow. Even more significant, all loans were to be forgiven in the sabbatical…So for a poor Jewish sandal maker having trouble with his loan payments, the sabbatical law was truly a godsend. If you were a creditor, however, you saw things differently. Why should you lend the sandal maker money if he could just tear up the loan in Year Seven? Creditors duly gamed the system, making loans in the years right after a sabbatical, when they were confident they would be repaid, but then pulling tight the purse strings in Years Five and Six.

We can’t blame the Law-Giver for writing a law to which the rational response would be to shirk parts of that law. But, I think it’s another great example of people behaving rationally rather than spiritually. The Jewish lenders should have shown mercy to the borrowers and made the loan even though it would mean suffering a loss (and borrowers, in turn, should also not have taken advantage of this mercy, had it been given). The Jews eventually figured out a way to fulfill the letter of the law rather than the spirit of the law, and Jesus rebuked them for such things when He came.

As I’ve pointed out in previous posts, spiritual behavior is intentional behavior. This intentionality is important, we have to strive to love our enemies, for example. It’s foolishness to the world because it is irrational.

Joni and I were at my favorite church in Knoxville on Sunday, and they had a local pastor come and share his vision for a church he had just planted in town. He was black and speaking to an all-white church. He asked those present to pray for diversity for his church. As my previous posts have pointed out, diversity of income and race in churches is extremely rare and a sign of spiritual behavior rather than rational (it can’t otherwise be explained). God has to do it, and we have to be intentionally obedient to NT teachings about welcoming diversity in income and race in our churches. He made a great point:

“If the greater Church is a diverse group, shouldn’t the local church reflect that diversity, if it is truly authentic?”

I’m thinking about sending him an email to tell him that he’s on the right track and to continue to pray for that diversity. More to come on a project I’m doing to make my own contributions to spiritual behavior.

Monday, January 28, 2008

What I Learned from Watching Glory Road

Nothing, really. Remember, I don't like that movie and it's ridiculously inaccurate. But, Joni was watching it the other day and I got all sad (again) watching Rupp and UK lose. So, I decided to look up the box score and apply Dean Oliver's methods (made famous by Pomeroy) to it.

The first thing you notice is that Kentucky had 70 FGAs! In an era without the shot clock. Wow! What was the pace of the game?

Well, they didn't collect data on Offensive Rebounds until 1999, so it's hard to calculate Possessions (FGA - OReb + TO + FTA*.4). I estimate ORebs by multiplying Total Rebounds by .33 (this causes some problems, more on that later). I then use those numbers to calculate the other team's ORebs. It comes out to 80.2 possessions for UK! The fastest-pace team in Div-I today averages about 80.2 possessions, and most teams going that fast aren't very good.
It shed light on why the Old Timers say "Kentucky basketball is fast-break basketball!"

Texas Western only had 67.6 possessions. They played a slower pace and were better at getting to the free throw line. It worked well.
Kentucky's Offensive Rating (points/possessions) was a dismal 0.81.

This spurred me to look up other historical games and do the same math. The next time UK played in the Championship was 1975, under Joe B. Hall (John Wooden's last game). The knock on Hall was that he played slower than Rupp. But in that fast-paced game, Kentucky took 86 shots and had 91.7 possessions! UCLA had 78.7 possessions, still fast, but slower than UK in the UCLA win.

In 1978 against Duke, UK had 83.3 possessions and pulled the win thanks to good-shooting by Jack Givens. (w/my Offensive Rebounding formula, the Offensive Rating totals say Duke won, which is impossible. So, .33 doesn't quite work in this case but is as close as you can get).

When UK went to the Twin Towers in the 80's of Bowie and Turpin, pace slowed quite a bit. In the 1984 Final Four, UK had only 63.4 possessions in probably the most miserable loss ever by a team ranked so high.

Pace picked up when Pitino came on board. In the 92 Duke vs. UK game, Kentucky took 65 shots on 80.3 possessions (remember, this was OT). The '96 game saw 73 FGAs on 79.9 possessions. Rupp would have been proud. The '97 team had 77.8 possessions, almost 18 more than Arizona, and loss as Arizona was efficient in scoring at their slower pace.

Contrast this with Tubby Smith's team in '98. Against Duke in the Elite 8, Kentucky had 70.8 possessions, and against Utah in the championship game Kentucky had only 66.8 possessions. Tubby's teams were slower overall, thus leading to complaints about his style.

Pace is declining in basketball overall. In the NBA this has been evident for some time, observe the chart from Dean Oliver:
So, when you hear pundits moan about how teams don't score 130 points every night, know that teams are more efficient than when they did score that many.

What about BCG? UK had 56 FGAs and 79.8 possessions in the very fast-pace loss against Louisville. This was the fast exception to the slow rule for him, though. We'd have perhaps been wiser to slow the pace down, as we did against Tennessee (62 possessions). I don't think you'll see Kentucky take 70 shots in a game again anytime soon. And if they do, I might not like it.

So, as Texas Western wisely figured out in 1966, slow the pace down against a team that likes to run and you will likely increase your chances of winning. Kentucky may have been fast-break basketball in the past, but fast-break basketball is more for losers these days than winners.

Saturday, January 26, 2008

Prayers for a friend

I was watching the news tonight when I recognized the name and face of an aid worker in Afghanistan who has been kidnapped. I met "Sid" when I was working for the same organization. She was partly responsible for overseeing my well-being when I went overseas 5 years ago. I remember her as a kind older single woman who eagerly wanted to devote her life to help women in Afghanistan.

Please pray for her strength and courage. The organization she works for has a policy not to negotiate for release so pray that God will use her to influence her captors and that they will show her mercy.

His name will be...

We wanted to make the big announcement… We’ve settled on a name for our baby boy!

His name will be…

Elias John Tapp

How we settled upon this name:

The Arabic/Turkic name for Elijah is Ilias (EE-lee-ahs), and Justin has liked this name for several years. However, we knew that most Americans seeing “Ilias” would not pronounce it correctly. Elias is a Greek variation of Elijah, and Elias (ee-LYE-us) is a common English rendering of this name, so we decided it would work well. So, if we ever live in a different culture, it will be no problem to pronounce it “Ilias.”

He will likely be called Eli for short. The name Eli has historical significance for the Tapp family. Justin is descended from Eli Tapp, who moved to Kentucky from North Carolina in 1833, he and his brothers were the first Tapps to settle in Hopkins County, where Justin still has many relatives.

Plus, Justin has always really liked the song by one of his favorite bands of all-time Three Dog Night called “Eli’s Coming,” and so that will be our new theme song for this pregnancy, and maybe his life (“Eli’s coming, hide your heart girl!”) Here’s a clip of the song performed by the band on a late 1960’s comedy show:

John is the name of Joni’s father, who is also her hero. Joni has always wanted to honor her father by naming her first son after him in some fashion. Therefore, it was such a blessing that Justin’s father is also named John, as was his father’s father. That way we could honor three men in our families all with the same name! John is, of course, a Biblical name and many great men in history are also named John.

We wanted to go ahead and get this news out before the Super Bowl, to make sure that everyone knew we were not naming our child after Eli Manning. (Eli Manning’s name is actually Elisha, so ours is clearly not the same, but we expect Eli will be a popular baby name this year.) Regardless of who wins the Super Bowl, our child will still be Elias.

Thanks to all for your suggestions for a baby name – We hope you like our choice!

Friday, January 25, 2008

Recessionary Predictions from Davos

From the annual World Economic Forum in Davos. The NY Times is keeping a running blog of the event.

Note this post from a dinner debate Wednesday night:

When the moderator asked a show of hands from the 60-odd participants on whether they expected the American economy to go into recession or not, only 12 indicated that they didn’t.

But yes, you heard right: 12 did not expect the United States economy to have two successive quarters of negative growth. One of them was Richard N. Cooper, the renouned professor for international economics at Harvard. Cooper uttered these reassuring words: “My best guess is that there won’t be a recession.” He also recounted later that at his table several business leaders, while worried about it, had not seen an actual slowdown in their activity.

So, a lot of smart people think there won't be one. This post from today's meetings, a debate hosted by the BBC:

John Snow, the former Treasury secretary and now head of a private equity fund, sounded at first like he had never left the Bush administration. “If you listen to the panels here, you’d jump off a tower.” He thinks the system is adjusting rapidly, and sees no recession.

Hmm, don't know if Snow can be considered to be credible... the middle ground seems to be that there will be a mild recession.

Jacon Frenkel, a former central banker who is now vice chairman of AIG...expects a mild recession, with the economy turning up by mid-2008. Any thoughts of a storm, he said, should recall that the “vessels” in the sea were doing very well before the storm, and could ride one out.

But then there is a sound of alarm from Ken Rogoff, Harvard professor and former chief economist for the IMF (and someone more impartial than the previous two). I have read a lot of Rogoff's articles and papers in the past few years and would be inclined to take his words quite seriously:

Mr. Rogoff replied that the vessel to consider was the Titantic. Then he changed the metaphor: “The plumbing of the U.S. economy has been deeply damaged,” he said. “It is a long window of vulnerability.”

Floyd Norris, the author of the post uses Rogoff's quote to underscore his observations of Davos:
The financial types are terrified. Those who do not pay much attention to the functioning of the credit system do not understand what the fuss is about.

Apparently one of the problems with the "plumbing" is pricing. People still are not certain what securities are worth. Price transmits a lot of information that the market depends on. If prices are not being transmitted properly, then you have real market failure. It may be a long while before the credit market gets this sorted out. If so, credit will continue to be tight for a long time.

But no one knows.

Something I Despise...

I despise sports media.

Sports talk radio is the worst. In a 2 hour show every host puts a 2-second pause between every sentence to stretch the show out because there’s not much to talk about. I turned on Jim Rome’s show on ESPN Radio the other day and heard him say the same sentence 5 different ways, in a row, with 2-second pauses between each one. Then, they get a caller or an emailer who makes some lame remark and this requires 20 minutes of airtime to discuss… with 2-second pauses between sentences. Listening to this stuff makes you dumb.

Halftime and postgame analysis is almost as bad. You listen to the opinions of people in a studio who didn’t watch much of the game. Then, they second-guess a coaching decision ex post. “Clearly, it was a bad decision to have ______ inbound the ball because he threw it away.” This ignores all the information that the coach had at that time. It was, most likely, the best decision, it just didn’t work out that time. Run the same play 100 other times and it wouldn’t be thrown away. But this gets ignored by the media.

Because the media ignore data and sound statistical analysis. Digger Phelps proves every day that he never took a stats class in college. Kansas must be better than Memphis because the Jayhawks beat Arizona by 1 more point than Memphis did.” Digger ignores the range of spreads that could be produced by playing that game 1,000 times. (There’s also no mention of Arizona’s star player who didn’t play the Memphis game, or how that maybe made a difference). Digger 1.) didn’t see the games 2.) doesn’t remember them 3.) doesn’t know anything.

And most sports media don’t attempt to understand player analysis like those done by Hollinger or tempo-free stats like those printed by Pomeroy. Pomeroy likes to point out that people (including their own coach!) criticize UNC's defense every year, when possession-by-possession they usually have a great defensive team. It's just that their tempo is so high that opponents' have more possessions to work with than other teams' opponents and they therefore score more points.

Talking heads are like the political commentators who criticize economists because they don’t understand or think analysis is all just “voo doo.” When an economist analyzes every play of every game for 20 years…over 1,000 games, and reaches a scientific conclusion about something shouldn’t you listen to it? When that conclusion is that you shouldn’t punt the ball on 4th-and-short on your opponent’s end of the field, and yet coaches get criticized for going for it all the time, Les Miles is considered to be “crazy” or “lucky,” it’s further proof that sports media are all fools.

I despise the prominence given to polls. I’ve already written about how unscientific pollsters are in college football, it’s the same for basketball. “Who should be #1. Does Memphis deserve it?” Who cares??? It doesn’t MEAN anything EVER! It’s not like anyone gets a ton of gold for being elected #1 in a given week.

I want real analysis. “Wow, Tom Brady is completing 96% of his passes. That’s more than 2 standard deviations above the mean! What a rare event!”

“Yes, the left tackle gave up a sack on that crucial 3rd down play, but he successfully stopped the pass rush on 15 other blitzes. That’s a 93.75% success rate, well above average for someone of his small stature.”

“Vanderbilt is has yet to play any team in anyone’s top 50, and has struggled to beat projected spreads against much smaller and weaker opponents. Most mathematical models have them ranked around #50 and project them struggling to reach .500 in the SEC. What are the sportswriters thinking by ranking them #17?”

When someone comes out with a channel called “sports for geeks,” then you can sign me up. FoxSports has been playing “Sports Scientists,” which I enjoy. It applies the physical sciences to athletic performance to prove/disprove things. It’s a show about sports that I don’t despise.

Wednesday, January 23, 2008

We shouldn't panic about the economy

It's easy to get the impression from the media that we're a.) in a recession and b.) the recession will be long and deep.

I saw a quasi-economist from Fortune Magazine on the Colbert Report last night getting grilled but speaking the truth: We don't know if we're in a recession, or if there will even be a recession. We don't know until after the fact.
We can look at some indicators, some traits that were common before the economy entered previous recessions, but there are few universal indicators. And conditions change. Who's to say a previous indicator will still be applicable now?

In the Democratic debate last week, Hillary blasted Bush for waiting "too long" to put out a fiscal stimulus. I've heard other Democratic spokespeople on CNN criticizing Bush for saying for so long that the economy was healthy and growing (implying that it's obviously not). That's ridiculous. The economy has been strong and growing! The unemployment rate has fallen as jobs have been created in the past two years. It's only recently that things have slowed down, and they might not be going backwards. And no one, including Bernanke back in May, foresaw the depth of this crisis. It's as ridiculous as the claim that Bush's tax cuts only helped the rich. I've written the truth on this before.

A better question is: Do we really even need a $150 million fiscal stimulus?

Mankiw points to Alan Blinder's research that says:

"Under normal circumstances, monetary policy is a far better candidate for the stabilization job than fiscal policy. It should therefore take first chair. Nothing in this paper is intended to dispute this piece of conventional wisdom. That said, however, there will be occasional abnormal circumstances in which monetary policy can use a little help, or maybe a lot, in stimulating the economy—such as when recessions are extremely long and/or extremely deep, when nominal interest rates approach zero, or when significant weakness in aggregate demand arises abruptly. To be prepared for such contingencies, it makes sense to keep one or more fiscal policy vehicles tuned up and parked in the garage, and perhaps even to adopt institutional structures that make it easier to pull them out and take them for a spin when needed."

And Mankiw wonders if 5% unemployment and 1% (positive!) growth predictions for next year qualifies as an "abnormal circumstance."

The Washington Post also has a somewhat humorous article about the "5 Myths About That Depressing R-word." The author quotes this paper from the Romer family (David Romer is the same guy that proved you should never punt on 4th-and-short on your opponents' territory) that says:
"We analyze the contributions of monetary and fiscal policy to postwar economic recoveries. We find that the Federal Reserve typically responds to downturns with prompt and large reductions in interest rates. Discretionary fiscal policy, in contrast, rarely reacts before the trough in economic activity, and even then the responses are usually small. Simulations using multipliers from both simple regressions and a large macroeconomic model show that the interest rate falls account for nearly all of the above average growth that occurs early in recoveries. Our estimates also indicate that on several occasions expansionary policies have contributed substantially to above normal growth outside of recoveries."

In other words, the Fed rate cuts do most of the work and fiscal stimulus is often too late and unnecessary.

Bill Conerly at Businomics also reminds us that the stock market does NOT equal the economy.
Note this graph:

Stock prices are much more volatile than GDP and are not always a good indicator of what the economy will do. (Conerly predicts slower growth but no recession). So, don't watch your nightly news, see the dow dropped another 100 points and think it must mean a recession.

Now there are some (besides Barack Obama) who think that there will indeed be a recession and that it will be extraordinary and deep because the housing market hasn't bottomed out yet and credit is extraordinarily tight. But no one knows! Over at Intrade, the recession prediction for 2008 is now at 69%, down from 75% a couple days ago. So, 3 out of 10 people are betting on no recession at all.

There's no need to panic in any case, and no need to point fingers at Bush, as though he is a wizard of the economy. It also takes a full year for any change in interest rates to fully make it's way through the economy. That means the Fed's first rate cuts earlier last year haven't fully worked their benefit through the system yet. Yesterday's cuts will also take a full year to reap full benefits.

Any fiscal stimulus is likely to take just as long. I'd say, in the long run, the risk of further breaking the bank by increasing the deficit through fiscal stimulus must be taken into consideration when calling for a fiscal stimulus package.

Tuesday, January 22, 2008

On Applying for Jobs

They should probably teach a class in college about applying for jobs. Most universities have a career center that offer some help, but why not make it a required course (like Business Writing)?

According to statistics from the Harvard Business School and Forrester, the average return on applying for jobs online is 4%. So, for every 100 jobs you apply for you might get 4 interviews. I'd say it's more like 4 general responses. Keep that in mind, kids.

It's hard NOT to apply for jobs online. The only way to bypass that is to have someone in the company that can put a resume on someone's desk for you, or walk-in. Walk-in only works if it's local or you're willing to travel a lot. But, most companies say "apply through our website."

The toughest part about applying for jobs is the tedium. If you send a cover letter to each job your applying for (as you should) then you end up making tedious minor modifications to each one. I have 30 cover letters saved as templates. Occasionally, during modification I'll misspell something, or badly edit it and not see the typo until I've used it as a template for other letters. One time I left such an error in and sent a bad typo to probably 20 different job sites. Needless to say, I didn't hear back from any of them...most HR folks will apparently toss anything with a typo immediately and consider that a good filtering technique.

I also just realized that I put the wrong cell phone number on my resume when I changed it to put in my new cell #. I don't know how many people got a resume with the wrong phone # (they're calling my sister's cellphone). The e-mail address was right, so maybe they'll think it's a wrong number and email me.

The other hard part of applying is the waiting game. How long do you wait for a position you want to be filled before you take a less-interesting job somewhere else? Should you get desperate and take the first job that calls, even though if you wait an extra week you might have a chance at something better?
(Add a wife who is 5-months pregnant and without health insurance and you have an equation for my stress level right now).

My guess is that 90% of jobs are posted publicly for legal or other reasons but already have a candidate in mind from inside the company. Jobs are often posted publicly only after being posted inside the company. So, you might, quite often, be applying for a job that has already been filled.

I mainly use for my online searching. Jobster collects openings from Monster, CareerBuilder, local papers, etc. Once a week Jobster emails me the latest openings based on my search criteria. So, it prevents me from having to go to 20 different websites to search and making my life a little easier. Aside from that, I go directly to the websites of companies I think I'd want to work for, and the local papers of cities I want to work in. I often pick up a BusinessWeek and just apply to every company I see written about. (I actually have a better response rate from firms that I've done randomly like that).

So, that's how applying for jobs goes. It's a part-time job for me, about 15-20 hours a week of searching, applying, filling out questionnaires, and e-mailing people for references and following up with HR departments, and it's been that way since October.

Monday, January 21, 2008

Good article

I think every American should read this op-ed piece in the NY Times by Roger Cohen.

You can argue about the details and the numbers but the points raised are very important.

Saturday, January 19, 2008

Sports Weekend

I had a dream the other night that Fred Thompson won more than 10% of the vote in SC, and it took enough votes from another candidate that Romney won. Or maybe Huckabee won, it's fuzzy now. In any case, it ended McCain's campaign. Take that for what it's worth.

Let's break from economics and politics.

Longar Longar of Oklahoma is by far my favorite player to watch. I think he's the most fundamentally sound player in Div-I, next to maybe Notre Dame's Luke Harangody. I also liked watching Longar's teammate Blake Griffin until he got hurt. During the games it's immensely fun to yell "Longar!!!"

Florida probably has the youngest team in NCAA Div-I (with 0.6 years of average player experience), but also one of the top offenses. The spread is UF by 8, and that's also Pomeroy's projection. If UK at least gets within 8, then I'll consider it a win.

Ever since I read The Blind Side, watching football just isn't the same. I think all the commentators are idiots, and I spend most of my time watching the offensive line, particularly the left tackle. No stats are kept on for offensive lineman, and no effort is made to distinguish who is an LT, even though they're paid much more than the other linemen.

I ran a very simple regression on height vs. QB performance and came up with nothing. I think if I were to factor in some physical traits of the LT, something might jump out. ATTN Please make your stats downloadable in Excel format for those of us who don't want to spend hours re-typing your stats in our spreadsheets. Thanks.

So far this morning, the computers and Vegas are all projecting Green Bay by 7. That should be a great game.

The computers are picking New England by 10.5. The line is currently 13.5, after opening at 15. So, despite the plethora of injuries, even gamblers think SD will perform well (the computers don't know about injuries). Tough call here.

We have family coming down this weekend and it looks like we'll join the masses in Gatlinburg. That means I'll get to hit up lots of NASCAR shops and hopefully find me some cheap #48 Jimmie Johnson wear, and/or a sticker for the Camry. First race is a month a way and I'm already getting quite excited.

Friday, January 18, 2008

On Tax Reform

First, a follow-up from yesterday's post. Paul Krugman chimes in on the issue, (IMO accurately) defending Greenspan's rate cuts but criticizing him (and others) for not calling for more regulation:
"It wasn’t just Alan Greenspan’s unwillingness to admit that there was anything more than a bit of 'froth' in housing markets, or his refusal to do anything about subprime abuses. The fact is that as America’s financial system has grown ever more complex, it has also outgrown the framework of banking regulations that used to protect us — yet instead of an attempt to update that framework, all we got were paeans to the wonders of free markets."

Again, many would argue that the packaging of debt into securities is, on balance, a good thing. And some of the new regulations create unintended consequences (HT: Businomics).

Onto taxes:
Economist Bruce Bartlett has written an extensive critique of Huckabee's Fair Tax proposal. Here's a condensed version. "The FairTax is unworkable. It is a fantasy to think otherwise."

But, here's a convincing response to him by Laurence J. Kotlikoff from the Americans for Fair Taxation.

Bartlett's thoughts come from a (realist?) view that anything government tries to do will end up being deviated by special interests, and have pork or other things added on, even on a Fair Tax. Kotlikoff disagrees with Bartlett's numbers and even shows how the Fair Tax could be more progressive than the income tax.

The Democrat's first line of defense thus far is "A Fair Tax unfairly taxes the poor more than the rich," which is simplistic and misleading. I think Huckabee is a good salesman. If Kotlikoff and co. is right, then they couldn't have asked for a better spokesman to sell the plan.

But, this video makes me cynical about tax reforms in the U.S. I think that the majority of Americans see income redistribution as a good thing, and want their government to do more and more, like governments in Europe. (Not saying these are bad things, it's subjective. Just saying that's how it is these days).

Most Americans are also not free-traders, and react in horror to columns like this one by Landsburg in the NY Times yesterday (Wish this article had been written a year ago, I would have made my students read it). McCain says "I'm the biggest free trader you'll ever meet," whereas Romney is (at least in Michigan) taking a much more protectionist stance. I don't trust Mitt.

(Hat Tip to Greg Mankiw for all these sources. If you're following the Republican campaign at all and want good economic background, his blog is a must-read (it's a must-read anyway...and none of his posts take more than 15 seconds to read). Officially, Mankiw advises the Romney campaign but differs with Romney on some things and likes to give credence to other candidates' ideas).

Thursday, January 17, 2008

About Subprime

The BBC has the best, simplest explanation of the subprime crisis that you can find, complete with great graphs. Note the great morphing graph of how the crisis has affected the Cleveland area.

"Traditionally, banks have financed their mortgage lending through the deposits they receive from their customers. This has limited the amount of mortgage lending they could do. In recent years, banks have moved to a new model where they sell on the mortgages to the bond markets. This has made it much easier to fund additional borrowing. But it has also led to abuses as banks no longer have the incentive to check carefully the mortgages they issue."

The more bonds that were sold, the more money came in and the higher the pressure was to issue mortgages to people who couldn't afford them. There were already laws in place to insure that the lenders explained things to the borrowers, they just weren't followed. (The Fed has since passed new rules to try and reinforce what lenders already should have been doing). The more loans were made, the more houses were built, and the more important the housing sector became to the economy.

As the economy overheated and the Fed raised interest rates to fight inflation, mortgages adjusted and suddenly debtors began to default. All of a sudden, these bonds (that received high ratings) became unsafe investments. People began to not want to hold them, companies that held a lot of the bonds lost billions of dollars, and then people asked "What else isn't safe?" As Bernanke testified today:
"Notably, as the rising rate of delinquencies of subprime mortgages threatened to impose losses on holders of even highly rated securities, investors were led to question the reliability of the credit ratings for a range of financial products, including structured credit products and various special-purpose vehicles. As investors lost confidence in their ability to value complex financial products, they became increasingly unwilling to hold such instruments. As a result, flows of credit through these vehicles have contracted significantly."

Banks and financial institutions holding these bonds have lost billions. As the BBC says:
"Banks and other lenders are cutting back on how much credit they will make available.

They are rejecting more people who apply for credit cards, insisting on bigger deposits for house purchase, and looking more closely at applications for personal loans."

So, fewer loans means fewer houses, which means the engine of recent economic growth is put in "park." As credit gets tight there is less investment and less potential economic growth.

So, since the housing market has driven the economy the last 6 years and is now parked, a lot of people are laying the blame for the current recession at the feet of Greenspan and others who should have seen it coming.

In my view, there's not much Greenspan could have or should have done. He warned of "irrational exuberance" in the stock market in the 90's and no one listened. He eventually raised rates as the economy overheated, the bubble burst and he was blamed for it. Just as the dishonesty of Enron and Worldcom played a role in shaking investor confidence then, the current credit problem is the result of shady, often dishonest, loan practices. Greenspan warned of "froth" in the housing markets years ago, and the debate began of whether the Fed should actively try to pop asset bubbles.

I don't think anyone would argue that, in the face of 9/11, Greenspan shouldn't have lowered interest rates. It was lower rates that led to the housing bubble in the first place. If it wasn't for the housing bubble we wouldn't have had near as good growth in the economy the past few years (and growth means jobs).

Can you blame Bush? His "ownership society" stresses the need for every American to own a home and use it as a tax shelter. Perhaps that led high-ranking officials to turn a blind eye to the overinflated housing market.

Can you blame the market, "unfettered capitalism," particularly for packaging these securities in the first place? In May of last year a friend at an insurance company in Waco sent me an investment strategy newsletter written in-house. A guy named Tom Hayden (not to be confused with the lawyer brother from the Godfather) went to Wall Street and was amazed at all of the Collateralized Debt Obligations being traded as "nothing can go wrong." CDOs are like the mortgage securities, except they involve other forms of debt (credit card, loans, etc.). Hayden feels like this is a house of cards (so, mortgages may only be the tip of the iceberg):
"No one (on Wall Street) wanted to discuss solid cash credit ideas (your average run-of-the-mill bond). I was told that 'today's' investor' wants 'structured products.' I jokingly asked if they could structure a product that measured the duration of Britney Spears' next marriage and the response was: 'Sure, we'll just find a counter party, convert it to note form and you can carry it on your books as an NAIC 2 bond.'"

By packaging these debt obligations as securities, credit is now available more readily than ever before. This, in theory, leads to greater investment and greater future economic growth.

Much of the blame has to be placed at the feet of the lending agents who made bad loans, and the American consumer who took out multiple mortgages on multiple houses, acquired equity through their houses and spent like crazy. Now, people are realizing the error of their ways and cutting back. Housing prices are plunging and people are figuring out they need to cut back.

So, there's really no one to blame but ourselves. The market will adjust. Information about safe and unsafe securities will emerge. Americans will tighten their belts some, and eventually we'll move forward again. Just like every other recession (my guess is we're currently in a recession, although some say we may not even see one in 2008).

Bernanke and the Fed will slash interest rates again, we might see a $100 million fiscal stimulus, and then we'll see what new bubble will be created.

Tuesday, January 15, 2008

My Happy Planet

From clicking on an ad on Facebook I found a very cool new website called My Happy Planet. "Learn a language. Make Friends. Have Fun." The site is still in beta testing but already shows great promise. It's a networking site for practicing language. You list the languages you speak, then list the languages you want to learn. You search for people who are native speakers of the language you want.
The awesome part of the site is that you send a message and give the recipient the option of correcting your original message when they respond. So, I get to keep some of my Russian fresh in my mind while also getting some of my grammar mistakes corrected (I have a dictionary on my desktop to make sure I spell things correctly). It even allows users to upload lessons and video lessons to share with other users.

Within 30 minutes of creating an account, a 17 year old Russian economics student sent me a statistics homework problem he was having issues with. So, I get to read and deciper the problem in Russian, then determine a way to explain my answer. And he corrects my grammar... for free. Totally awesome.

I already had an account on the Russian version of Facebook called "Мой Мир" (My World). My Happy Planet makes it more educational. To me, this is the ultimate way to have fun. More fun than watching sports, or reading blogs, or pretty much anything.

Monday, January 14, 2008

Uh oh...

Distressing chart from the NY Times today:
Not historical highs, but the jump is distressing. Recession on the way? There are still some saying no, and saying that December's sales plunge is just a "blip." Online betting today puts chance of recession at 63%:

Saturday, January 12, 2008

A Bad Sign

I took this picture in Eddyville (actually, Joni took it while I drove):
Obviously, one of the letters has fallen off and the sign now says something different than intended.
There are two kinds of people: Those who like these signs, and those who think they are unnecessary. I'm in the latter camp. The original thought is ambiguous and Scripturally wrong. What's the point of writing it?
I guess now the casual bypasser will be depressed, knowing that God is mocking them. If the person had never visited the church before, he's certainly not likely to now. Kind of takes away from the "visitors welcome" sign above it.

Friday, January 11, 2008

The Republican Debate in South Carolina

Journalists seem eager to show they know more than the people they're interviewing. Britt Hume & Co. seemed eager to have that tone last night. They threw one softball out there that all the candidates whiffed on (transcript):

WALLACE: Mayor have been running ads that say reducing taxes actually will increase revenues. But the bipartisan Congressional Budget Office, as well as two chairmen of President Bush's Council of Economic Advisers, all say that tax cuts don't pay for themselves, that in fact they add to the deficit, they don't reduce it.

So, given that, do you stand by your statement?

GIULIANI: Well, the reality is that some tax cuts do add to revenues. Other tax cuts don't add to revenues. It depends on the tax cut. And tax cutting has been part of the Bush program, the Reagan program, the Kennedy program, and it always led to significant increase in economic activity. The Club for Growth looked at our plan, which is the biggest tax cut in history, and said that it would be a significant improvement in the economy and it would add to growth in the economy.

There's been a myth since the 1970's, attributed mostly to Dick Cheney, that "tax cuts pay for themselves." Democrats know it's a myth and like to use it to make Republicans look like idiots about the economy. Wallace gave the field a chance to say once and for all that they didn't buy the myth. None of them did.

The idea that tax cuts increase revenues comes from an economist named Art Laffer, who in the 1970's met with Dick Cheney and some other high Republicans and drew this picture on a napkin:
From Mankiw's textbook (which I taught with):

One day in 1974, economist Arthur Laffer sat in a Washington restaurant with some prominent journalists and politicians. He took out a napkin and drew a figure on it to show how tax rates affect tax revenue...Laffer then suggested that the United States was on the downward-sloping side of this curve (ie: the right side on the diagram). Tax rates were so high, he argued, that reducing them would actually raise tax revenue...
Economists continue to debate Laffer's argument. Many believe that subsequent history refuted Laffer's conjecture that lower tax rates would raise tax revenue. Yet because history is open to alternative interpretations, other economists view the events of the 1980s as more favorable to the supply siders.
Some economists take an intermediate position. They believe that while an overall cut in tax rates normally reduces revenue, some taxpayers at some times may find themselves on the wrong side of the Laffer curve. Other things equal, a tax cut is more likely to raise tax revenue if the cut applies to those taxpayers facing the highest tax rates.

At the extreme, if government taxed 100% of revenue no one would work anymore, and the government would have 0 revenue. There's some theoretical point where government can maximize revenue, and the trick is getting to that point (if you believe government should be about maximizing revenue!).

Someone (Dick Cheney) took this argument and turned it into "tax cuts pay for themselves," and politicians who know nothing about economics bought it because it sounded good. The Club for Growth, which is aligned with Americans for Tax Reform, which is now allied with the evangelical right, LOVES this stuff. I've written on this horror before. Most Americans now believe a conservative Christian is someone who is pro-life and pro-tax cuts. It makes me sick to see candidates pander to these morons.

Nowadays Republicans avoid the "pay for themselves" and just say "raise revenues." At least Guiliani indicated this isn't always true, but his ads seem to say it is. It's impossible to know the elasticities and what side of the Laffer curve each bracket is potentially on, and by how much. And an across-the-board cut potentially increases tax revenue from the highest bracket, and lowers it from the lower brackets. Historically, this has led to an increase in the deficit. Every "economic stimulus" package (like those currently being discussed) gets laden with pork projects and balloons the deficit further.

In a recent interview, Art Laffer himself says:
"I've never said all tax cuts pay for themselves. I never even said Reagan's tax cuts would pay for themselves."

How the Bush and Reagan tax cuts have worked(very simplistically):
Government takes in $100 billion in tax revenue. Government decides to cut taxes by 20%. In the past, people might have said the government will now take in $80 billion in tax revenue. But, after the tax cut the government takes in $85 billion.
Revenue clearly decreased. But, revenue did not decrease by the amount of the tax cut. The effects of this over time is what Mankiw has termed dynamic scoring.

Deficit spending does stimulate the economy but also conceivably leads to higher interest rates (as Ron Paul said while Mitt Romney fowned). We make up the budget shortfall by borrowing from China and Japan. Not a single candidate mentioned that, in the long run, eventually these debts will have to be paid and the greater the debt, the greater the decrease in government spending or the increase in taxes will be necessary to pay for them. Not even John McCain mentioned that (he only mentioned the need to cut spending, which no administration [even Reagan!] ever has). "Must cut taxes!" has become a dangerous, mindless mantra in the Republican party.

Fred Thompson took the time to express his ignorance AND slam my profession:
"So much for the experts, as far as that's concerned. It does stimulate growth and it's overall beneficial for the economy...We still have a bunch of two-handed economists in Washington. On the one hand, we may go into recession, and, on the other hand, we may not. Nobody knows."

Other notes:
I liked how Huckabee took a swipe at the Club for Growth by (correctly) pointing out that they wouldn't have supported Reagan due to his raising taxes in California. Responsible government sometimes raises taxes. Huckabee gets a pass because he wants to institute a 23% sales tax and eliminate all other taxes.

For one economist's detailed critique of Huckabee's plan: Click here.
For another economist's less-scientific and more wishful positive thoughts on the plan: click here.(Slate)

Overall, I wish we had more honesty about the danger of constantly pushing tax cuts. Even David Brooks in the NY Times today says:

"Supply-side economics had a good run, but continual tax cuts can no longer be the centerpiece of Republican economic policy. The demographics have changed. The U.S. is an aging society. We have made expensive promises to our seniors. We can’t keep those promises at the current tax levels, let alone at reduced ones. As David Frum writes in “Comeback,” his indispensable new book: “In the face of such a huge fiscal gap, the days of broad, across-the-board, middle-class tax cutting are over.”

Thursday, January 10, 2008

"Signs, signs, everywhere there're signs!"

Joni's brother-in-law does a "sign of the week" post, and I sometimes send him material to use for it. I took some pictures of signs on our drive through Kentucky and decided to make my own posts about them.
This uplifting monument can be found at the first truckstop north of Tennessee on I-75. It tells us how many people have died on Kentucky highways. From 2003-2006 there were 3,793 casualties. I highlight these years because of the Iraq war taking place at the same time. According to, 3,003 American soldiers died in Iraq during the same period. So, the data says 790 more people (mostly Americans) died on KY roads than Americans in Iraq from 2003-2006.

It would be wrong to say "You have a better chance of dying on Kentucky highways than you would if you were in Iraq." There are 4 million people in Kentucky, and no telling how many millions passing through it each year. There are only 160,000 or so Coalition troops in Iraq, so the percentages of casualties-per-American are much higher in Iraq.

But, I like this sign precisely because it makes you think about those numbers. If it's this high in Kentucky, how much higher is it in big states California and Texas? A lot more Americans are dying on highways than in wars but we don't hear so much about the highway deaths. I think the purpose of the sign is to make you think and make you slow down on the interstate.
Later we saw a digital sign on I-75 that said: "Stupid driving makes stupid mistakes." This makes no grammatical sense but tries to get the same response from its readers-- slower and more careful driving.

Wednesday, January 09, 2008

On Traveling in Western Kentucky

Joni and I began our Kentucky drive on Saturday, driving north to Lexington for the Louisville game. We got to see several friends in LexVegas, 2 sets of which were unexpected, which was fun. We drove to Eddyville after the game because Lexington isn't a place where we want to stay anymore. Every time I'm there I just think "I've been there, done that, no thank you." I always encourage people who are stuck there to at least try living in another place to broaden their horizons.

The best part about driving in West Kentucky is finding bluegrass on the radio. West of E-town we found several stations on Saturday night. And of course, 89.7 out of Murray plays "All Bluegrass, all the time." Which means I don't change the dial once we get in range. Nothing soothes the soul like bluegrass.

The next best part about driving in West KY is the food. Plenty of mom-n-pop places and barbecue joints that are the bomb. We ate at the Bluegrass Steak House in Eddyville twice. This is an old favorite of mine. It's owned by a Greek immigrant. How does a Greek guy show up in Eddyville to run a steak house?
It's great food at good prices. They've launched a new gourmet pizza/calzone menu that is awesome. All kinds of white pizzas Mediterranean style. Try the excellent stromboli for $4.95.

We also had some home cooking in Madisonville with some relatives. They decided to re-create part of their Christmas meal since Joni and I had missed it. Much appreciated!
We drove to Owensboro to meet up with more relatives and they very kindly took us to the Moonlite, which is world famous barbecue. It's the only known place in the world that you can get barbecue mutton. (and sorry, there was no briscuit!) Texans don't know that West Kentucky considers itself a barbecue capital, it's just not about the beef.

The last best thing about driving through West KY is the storms. In college, I drove through a few bad storms and even a tornado once on my way to Henderson. The storms that roll through the Midwest usually end up in West KY, which is what happened on Wednesday. Joni and I drove through a really nasty patch in Princeton only to hear the radio interrupted by a tornado warning for that area just a few moments later. It was good times. No damage done, no tornadoes spotted.

*Bonus cool thing* is Ft. Campbell (home of the 101 Airborne) is just down the road from Eddyville, so sometimes you get to see interesting things. We saw a Blackhawk refueling in mid-air just above my parents' exit on the interstate, and that was cool.

The worst part about staying in West KY is the lack of high speed internet in rural areas. And the phone lines are so bad you can barely get 28.8kbps where my parents are at. My dad is spending a large sum to buy the hardware to allow him to "share" internet with his neighbor who just got a satellite hookup, but this is not successful yet so we basically fasted from internet for a few days. The previous governor launched a campaign to get high speed internet to all areas of Kentucky, and was almost successful. Sadly, Democrats succeeded in ousting him before he could finish the job.

We've now returned to Tennessee where I am again able to blog. Good times had by all!

Friday, January 04, 2008

Price Matters

Today I went to a walk-in clinic in Oak Ridge, TN. I've had a cough for about 5 months but it's gotten a lot worse since we've returned from Moldova and I can hardly sleep at night.

As I waited in the lobby I heard complaints from other patients about how this is the slowest and worst clinic, how coming here is an all-day affair, etc. I waited about an hour before I was called. They were pretty efficient in their tests and things, it was just over another hour before I was done.

In the end, they diagnosed it as something having flared up my long-dormant asthma, and I have bronchitis on top of that. I was given:
1. A chest X-ray.
2. A TB test.
3. I was hooked to one of those breathing machines for asthmatic people.
4. A consultation with a doctor.

The doctor was good about not giving me other things because they were expensive, and she even called around to see if it would cheaper to get an x-ray elsewhere. I appreciated that.

When I went to pay, the initial bill was $107. But, they took $41 off the bill simply because I was paying immediately. So, it cost me $66 total for the visit. I was quite pleased to get all of these things and was reminded of two things:

1. Paying up front (sometimes in cash) gets you discounts. Every company knows that if someone walks out their door without paying their entire bill there's a good chance they'll never get their money.
2. If I had had insurance, the full bill would have been $107. Partly because of the above reason. While I would not have had to pay that full amount, the total inflated bill would have contributed to the inflated cost of health care in America.

The doctor wrote prescriptions for 4 items, two of which were generic. I got them filled at Wal-Mart to try and save a little extra. In all, they cost me much more money than the visit itself. (Actually, someone else paid for all these items, so we're thankful).

But, I appreciated the quality and discount at the clinic. If you're ever sick in Oak Ridge, check out the Park Med Urgent Care Center.

Thursday, January 03, 2008

Book Review (1st of 2008)

The Blind Side: Evolution of a Game by Michael Lewis.

An excellent book! Lewis tells the story of Michael Oher, currently left tackle for Ole Miss. Lewis also weaves into the story the evolution and importance of the left tackle position, the changes in football due to Bill Walsh's innovations, and contrasts Walsh-style coaches with Bill Parcells-style coaches. I learned so much in this book.

Oher is a kid who basically raised himself in West Memphis, and no one even knew of his existence until, at age 14, someone takes him to an all-white Christian school in East Memphis where they're amazed at a 6'5" 350 pound guy who can play point guard and shoot the three. He is uneducated, barely knows how to read or do math. A wealthy sports family adopts him, and then he develops into the most sought-after player in all of college football.

Even the non-football fan can get into the life story of this kid. For the football fan, there's a great history of how Lawrence Taylor vs. Bill Walsh forever changed football. It also gives a personal look at recruiting in the SEC.

To read a few chapters that Lewis edited for The New York Times Magazine, click here.
Great book, 5 stars! Thanks to Joni's parents for buying it off my wish list!

Tuesday, January 01, 2008

Kentucky basketball data

I wanted to start the New Year off with some sort of chart. I've been tracking all Pomeroy and Sagarin data for the Wildcats since start of the season. Here I post Sagarin's ELO_CHESS (the most accurate measure of who we've beaten without regard to score) next to our RPI (as calculated by Pomeroy). The big jump in the Elo is when we lost to UAB and Sagarin removed his pre-season weights and the measure became more accurate.

Click to enlarge. Where you see the opponent listed, the ranking is the morning BEFORE the game. The next is the morning AFTER.

Notice how the RPI improves with losses to good teams and worsens with wins over teams like FIU. The Elo doesn't do that as much. Both are beginning to converge. A win against Louisville would help both considerably.