Tuesday, December 30, 2008

Book Review (#24 of 2008)

Long drives on the holidays are good for knocking out books.

Revolutionary Characters: What Made the Founders Different by Gordon Wood is a great history of several of our Founding Fathers. Pulitzer prize winner Wood has compiled a lot of information from essays and other sources over the years and condensed them into neatly packaged chapters on each founder.

I enjoyed the explanation of what it meant to be a "gentleman" in the 1700s, and how public service was something seen as a voluntary burden to bear on behalf of the people (ie: the foresaking of private wealth for an impoverished life as a public servant).

The most intriguing biographies for me were those of James Madison and Alexander Hamilton. Madison was once a proponent of a strong federal government until he saw what that was meaning in the new U.S. and later became a staunch advocate of states' rights.

Alexander Hamilton envisioned an America with a larger land mass, large government with large debts, large military force, and a modern economy with a prominent central bank. Hamilton is likely the only Founder who would be at home in America today.

This book would have been perfect without the Epilogue. I find introductions and epilogues to be ways that authors slide their own personal sermons in.

4.5 stars out of 5.

Thursday, December 25, 2008

Book Review (#23 of 2008)

Nixon and Mao: The Week that Changed the World by Margaret MacMillan.

This was one of my $1 garage sale audiobook purchases, it has taken me a long time to get through all 13 CDs because my commute to work is only about 7 minutes. You might ask how a 1-week event fills 19 chapters and 13 CDS. It's because the author provides all the necessary background information--mini biographies of all the key players involved, the historical context, a brief history of U.S. involvements in East Asia (namely Korea, Vietnam, and the support of Taiwan), a brief history of Communist China under Mao, stories of Kissinger's secret trips and the diplomatic backchannels over the years that made the trip possible, the details of every part of the week-long trip, the world's reaction, etc.

If you're looking for a book that will give you all of the above, you've found it. It's quite readable. The only dry parts are the biographical information about the various government ministry folks from both countries, but even those are sometimes intriguing.

I read this book because I wanted to know more about China, and particularly Mao. This book gives excellent insights into what can be known of The Chairman. I enjoyed the author's attention to detail, often quoting from memoirs, collected letters, Nixon's secret tapes, etc. A fascinating look at diplomacy.

I give it 4 out of 5 stars.

Wednesday, December 24, 2008

Merry Christmas!

One year ago today we were flying back from Moldova (via a night in Vienna). Praise God, a lot's changed since then. This Christmas season, thus far, has been very low-key and I'm glad.

Here's Elias enjoying some of his early Christmas gifts from my side of the family. He'll see his mom's side of the family the next couple weeks and learn what it's like to be in the car for a whole two days. :-\

Hope everyone has a safe and happy holiday season!

For fun, here's a NY Times' reading list of Christmas economics.

Tuesday, December 23, 2008

Book Review (#22 of 2008)

I just finished The Soul of the American University: From Protestant Establishment to Established Disbelief by George M. Marsden.

I won't lie-- I was required to read this book. It's a comprehensive history of religion in American universities since the establishment of the U.S. Marsden does a good job of being comprehensive. Thus, the book is long and rather dry. While I read a lot of history, I didn't enjoy this book much. The person who assigned it to me had to read it for a class in his doctorate.

I found a few things interesting-- the early influence of Scottish thinkers like Adam Smith on early curriculum, Protestants' eager embrace of the quest for scientific knowledge in the belief that new discoveries would always jive with Scripture (which eventually led to the downfall of religion in universities), and the parallels of the 1920's "lost" youth culture with today's postmodern youth culture. I also found some of the individual universities' histories interesting.

Marsden's "unscientific conclusion" is that today's universities are hypocritical in their espousement of tolerance while refusing to tolerate pluralistic views in academia-- namely the viewpoints of various religions. Marsden is an oft-cited voice on how many Christians have bought the lie that to be Christian means you must chuck your higher academic thinking at the door.

That's about it. Two stars out of five.

Monday, December 22, 2008

New Protectionism and Game Theory

The World Bank's Crisis Talk blog has a post today on the rise of protectionism in the midst of the crisis. Fears of Hawley-Smoot. The post is worth checking out more for the links to this The Economist article discussing the issue and this link to the stories of Russian protesters being arrested and beaten for demonstrating against new tariffs on foreign imported cars. (If you've ever been forced to drive a Russian car, you'd know why they're protesting).

It brought me to think about something Dani Rodrik wrote few weeks ago. When you design a fiscal stimulus package, like the Obama team is currently designing, you use some Keynesian multipliers to calculate how much of an increase in GDP you expect to see given an increase in government spending. One thing you have to factor in is the Marginal Propensity to Import. Because some of the new cash Americans get will end up buying foreign goods and "leak" from our economy.

You stop the "leaks" in two ways:
1. Decrease the marginal propensity to import by raising import prices through tariffs & quotas (or subsidize domestic industry to lower domestic prices or devalue the currency).
2. Get other nations to pass stimulus packages together, so that all of the "leaks" cancel out. As we buy more from the EU, they're buying more from us as well. Coordinated fiscal and monetary policy is very difficult.

Rodrik doesn't mention it, but both are classic game examples. Option #1 is a game with first-mover advantage. The first person to raise tariffs wins in the short run by stimulating the domestic economy. In the long run, all other countries will retaliate and we'll end up at a Nash equilibrium and lose out on gains from trade. All players have a time-inconsistency problem because they're faced with an incentive to cheat for short-run gain.

Option #2 is a game of first-mover disadvantage. For example, the EU might agree to a stimulus package, but reneg after the U.S. passes one. The EU economy gets stimulated at no cost through Americans with new cash buying European imports. Knowing that this would be the European response would make Congress less likely to pass a stimulus. We end up in another Nash equilibrium--no one passes a stimulus.

Option #1 is easy to do, and politically popular with interest groups. Option #2 is difficult to do for many reasons (including the above reason), and developing economies don't have the money to boost spending and/or cut taxes.

So, assuming a stimulus is absolutely necessary, Option #2 is impossible for the reasons mentioned and we can convince Congress not to be time-inconsistent on Option #1, the package has to be big enough to overcome the "leakage" that will occur as some of the stimulus money is spent on imports.
So, maybe this a reason why the projected dollar figure has grown over the past month.

Right now, the U.S. isn't raising its tariffs, but Russia and other developing countries are quickly throwing up trade barriers. China is pursuing an equivalent beggar-thy-neighbor approach by devaluing its currency. So, Option #1 is very difficult to resist and appears to be winning.

Friday, December 19, 2008

We live in weird times

The sky must be falling because I'm linking to another liberal Democrat's words for the second time today. Former Clinton Secretary of Labor Robert Reich is upset that after Congress denied Detroit money, the President told Hank Paulson to use the TARP funds to bail them out:

If TARP is a slush fund, everything's arbitrary. We're no longer a nation of laws; we're a nation of Treasury and White House officials with hundreds of billions of dollars of taxpayer money to dispense as they see fit. Why rescue autos and not, say, the newspaper industry, which is heading for oblivion. Better yet, why not rescue state and local governments? They're running short about $100 billion this year and as a result are slashing public services, including the nation's schools... an economic crisis is no excuse to turn our backs on democracy.

Reich is right. One of the most conservative Presidents in history is trying hard to hand us over to Socialism. As one of the commenters pointed out, it's as if we've declared war on the economic crisis, and the President is using his expanded war-time executive powers to again circumvent the democratic process.

I think I agree...

Wow, Paul Krugman is usually so far out in left field that conservatives hate reading his stuff. He's been accused recently of being "intellectually dishonest" in several places.

But, as a Christian who teaches economics/finance, I find his column today spot-on. It's about how Bernard Madoff is a symptom:

How much has our nation’s future been damaged by the magnetic pull of quick personal wealth, which for years has drawn many of our best and brightest young people into investment banking, at the expense of science, public service and just about everything else?

Most of all, the vast riches being earned — or maybe that should be “earned” — in our bloated financial industry undermined our sense of reality and degraded our judgment.

Think of the way almost everyone important missed the warning signs of an impending crisis. How was that possible? How, for example, could Alan Greenspan have declared, just a few years ago, that “the financial system as a whole has become more resilient” — thanks to derivatives, no less? The answer, I believe, is that there’s an innate tendency on the part of even the elite to idolize men who are making a lot of money, and assume that they know what they’re doing.

After all, that’s why so many people trusted Mr. Madoff.

The column echoes Nicholas Nassim Taleb in a few ways. A lot of major banks and investors put their money with Madoff because he seemed to have a secret formula to beat the market. Really, he was just ripping them off. But, it's not any different than all the fund managers that get lauded for their success at beating the market when the success is due to randomness and their luck is about to run out, at which point they're canned and someone else becomes the shooting star.

Tuesday, December 16, 2008

The Shoe...

The Bush vs. Shoe incident in Iraq led me to check some Iraq blog feeds that I haven't read in a long while. The demonstrations in the streets of some cities yesterday in support of the journalist are telling. The more reserved "This was impolite, Bush was a guest" responses are also interesting.

The NY Times had a blog detailing reactions from various cities.

Inside Iraq, a McClatchy Newspapers blog hosted on the Washington Post's website, has a couple posts relating the "man on the street's view," (the authors are all Iraqi).

"Oh my God! It was astounding! I couldn't believe my eyes! I don't know whether I would call him a hero, but he certainly did what no one else has dared to do: He stood up strait and told the whole world his opinion about this shameful occupation. They may hurt him, behind closed doors – they may even kill him – but they can never take back that shoe. In history, Bush's term ends with flying "shoes"."

Iraqis are clearly amused; Americans are probably just confused. But Americans have had their head in the sand for a while. A new 513 page Federal report on the Iraq reconstruction, and its many blunders, began circulating last weekend. The summaries of the report I've read say: "Failure." We were lied to going into it, we were lied to all through the reconstruction-- how much money was being spent, how big the Iraqi police forces were, how quickly utilities were coming back online, etc.

I was also struck by an ABC interview with Dick Cheney last night that showed just how much power he had in making decisions (and Bush seemingly so little). Other recent reports about the White House approving CIA interrogation methods through secret memos seem to indicate that Bush was rarely present when decisions were made:

"In interviews, the officials recounted a series of private briefings about the program with members of the administration's security team, including Rice and Cheney, followed by more formal meetings before a larger group including then-Attorney General John D. Ashcroft, then-White House counsel Alberto R. Gonzales and then-Defense Secretary Donald H. Rumsfeld. None of the officials recalled President Bush being present at any of the discussions."

(The implication here is that people are covering for him so that he can't be prosecuted for decisions he didn't make, but maybe he really just wasn't party to some of the discussions).

Bush's "so what?" answers about Al Qaeda not existing in Iraq before the invasion (CBS last night) would have been "shocking" 2 years ago, but now we're just tired of hearing it. Will history really reflect more favorably upon Mr. Bush than our current complacency does?

Our leaders are laughing off the incident or saying "what a great example of freedom and democracy!" I think the incident shows that Iraqis have been asking "what price, freedom?"

Iraqis are still dying by the hundreds every month. There is still a lot of ethnic fighting and the government may not be functional for very long. Infrastructure is still slowly being rebuilt, and being blown up at the same time. It seems that many Iraqis have felt they haven't had a good voice to complain, which is why the journalist who chucked his shoes is being hailed as a "hero" by many.

Sunday, December 14, 2008

Are people more likely to attend church during a recession?

The NY Times has an article on this subject today, namely how Evangelical churches are booming during this recession. They are examining the work of David Beckworth, a macroeconomist whose blog I've been following for a while. Here is a pretty clear explanation of his published work in his own words. He writes about the income vs. substitution vs. wealth effects.

Several studies have been done on church attendance, I've mentioned a few on this blog over the years. Beckworth's conclusions conform with many others, namely that church attendance is a function of income.

Evangelicals tend to be found in the lower-income quintiles moreso than mainline protestants (Lutheran, Episcopalian, etc.). Hence, evangelicals' opportunity cost of attending church is lower, and their church services longer, than their mainstream brethren. As Beckworth illustrates, whether they attend church at all also depends on the opportunity cost of foregone income.

Substitution, to work or to attend church:
The opportunity cost for you to attend church is your foregone wages-- you could be earning $X.XX working instead of sitting in church for 2 hours. The higher those possible wages, the higher the opportunity cost of going to church and the less likely you are to attend. Beckworth finds that economic expansions mean more opportunities to earn income, so Evangelical church attendance falls during expansions. The opposite occurs during a recession-- the opportunity cost of attending church is much smaller today than a year ago.

Mainline protestants, however, are wealthier and the substitution effect is smaller for them-- an economic expansion may not lead to that much more marginal income from working a couple additional hours on Sunday to make it worth it, so they'd rather be in church. Beckworth found that mainline protestant attendance rises slightly during economic expansions.

However, there is also an income effect that countervails against the substitution effect:
If you're used to the benefits of making $XX,XXX per year and suddenly you're making less because your boss cut your hours, you might want to find a second job on weekends to keep your income level constant, and hence you'd skip church.

It appears that for Evangelicals, however, the income effect is outweighed by the substitution effect.

Similar to the desire to keep their income stream constant, people also like to be able to consume the same amounts of goods/services at all times. During an economic contraction, many will turn to churches for (cheaper) daycare, food items, entertainment, clothing, etc. Wealthier mainline protestants may not need to substitute for cheaper services, so they are less likely to turn to the church during an economic downturn.

Beckworth also notes something else of interest:
Individuals may also turn to churches for less tangible consumption needs such as a sense of certainty and divine guidance in a job search...In addition, mainline Protestant denominations often place less emphasis on absolute truths than evangelical ones and, as a result, are not able to create the same sense of certainty or appeal to an all powerful, job-providing God. Individuals, therefore, may choose to join an evangelical Protestant denomination rather a mainline one during a recession.[1] Consequently, the consumption smoothing ability of churches also points to a stronger countercyclical component for evangelical Protestants.

[1] Conversely, these same individuals may find a mainline Protestant denomination more appealing than an evangelical one during an economic upturn when the need for certainty and employment are less pressing concerns.

Friday, December 12, 2008

Too Much Reader...

I use Google Reader to keep track of my blogs. Unfortunately, there are limitations to what it can do. I'm considering switching to the highly acclaimed Feed Demon. I've installed it but have not played with it much.

Feed Demon alerts me when updated posts contain certain keywords of my choosing. That's nice. Otherwise, I have to sift through all the updated posts on Google Reader just to find which posts cover topics that I want to read, kind of like thumbing through a very large newspaper. And manually keyword searching every time just gets silly because there are several keywords that I look for. Why can't Reader have a feature like this?

On the positive side, Google Reader now has an automatic translation feature. You can subscribe to a non-English blog and it will automatically translate it into English for you (or something close to English... somewhat readable, anyway). This would come in handy during the next war that I decide to track. As it is, I subscribe to about 30 foreign feeds but mostly in English.

My biggest problem is clutter... information overload... trying to find a way to organize that. And I'm not big on organization. My Desktop looks just like my desk at work-- cluttered and disorganized. Currently, I just mark posts I find valuable with a Star, and occasionally use Google Notebook to record posts and categorize them.

I don't know how many feeds I subscribe to. There are almost 40 in my Economics section alone, most of which I follow regularly for information on the crisis. It's important, right? One nice thing about the profession is that everyone who is anyone has a blog, or will soon. Hopefully the market will soon deliver us the perfect feed reader.

8 Predictions

Not many people ask my opinions on the current recession and financial crisis. Things change every day as new data arrive, so people's opinions often change as the facts change.

Predicting and forecasting is just a waste. The people who have been right in the past year may have just been lucky. The people who have been wrong this year might get lucky next year. The people who were wrong this year might have made sound predictions, there were just too many unknown unknowns. Our hindsight bias discounts them as "obviously wrong," and so the few people who went against the grain are "obviously right."

Worse, many people making predictions in the news have vested interests. Financial economists want to shore up confidence in the market to boost investment in their firms, academic economists tend to be much more pessimistic. The pessimistic predictions have been the most accurate in the past year, so maybe there's a pessimism bias in academia right now.

Fortune Magazine has compiled what they call "8 really, really scary predictions"from eight different players. From Nouriel Roubini to a guy who's been managing funds on Wall Street for over 50 years. The contrasts are interesting; some predictions are not that scary.

Sticking with the 8s, The NY Times' Economix Blog has 8 different economists' answers to the question: "How would you design the ideal $500 billion stimulus package?"

Wednesday, December 10, 2008

On the Big 3

David Leonhardt on point today. Shows how the $73/hour in labor costs figure has been misconstrued in the media. A good part of that $73/hour comes from the costs the Big 3 incur because of payments to their large number of retirees. But, he sums up:

It’s a sad story, in many ways. But it can’t really be undone at this point. If we had wanted to preserve the Big Three, we would have bought more of their cars.

Tuesday, December 09, 2008

This day in history...

It wasn't on the news tonight, but the yield (interest rate) on the 3-month Treasury bill went negative today for the first time in history. This is like paying someone to borrow your money.

Various explanations abound. John Jansen writes:

What is going on in the front end? Central banks have flooded the system with money and the system is awash in a surfeit of liquidity. That money is searching for a home.

I also think that very large chunks of money which left the stock market and money funds when Lehman crumbled is in government-only funds and that creates a tremendous demand for bills.

December is always a month with bill demand as the process of sanitizing balance sheets for year end examination is always a concern. With the trials and tribulations in the financial markets this year that demand will be orders of magnitude larger than normal.

These are interesting times.

A guy in the NY Times article linked above says:

''There's a price for safety,'' said Peter Crane, president of money market mutual fund information company Crane Data LLC. ''Down slightly is the new up.''

Monday, December 08, 2008

BCS Controversy- Don't blame the "computers!"

It's official, Oklahoma and Florida will play for the BCS Championship.
I've heard a lot of gripes in the past few weeks from Big 12 folks about "the stupid computers!" (They're not computers but mathematical formulas put together by some individuals).

In front of me is a spreadsheet of the inputs that go into the BCS formula. I do this so I can see exactly how close it was. I didn't hear anyone talking about this on Fox last night.

I calculate that if Texas had gotten about 20 more points in both the Coaches' Poll and the Harris Poll (or some distribution of 40 points taken away from Florida and given to Texas in both polls holding all else constant), then Oklahoma and Texas would be playing for the BCS title.
That means that if just 40 voters had moved Texas up a spot and Florida down a spot, we'd have a different championship game. There are 114 voters in the Harris Poll and 61 in the Coaches' Poll (175 total).
*update*- it appears Alabama is the real spoiler. Many voters ranked Alabama ahead of Texas. Had Florida blown out Alabama resoundingly, would the polls have been different? Probably.

The "computers" ranked Texas ahead of Florida by a clear margin. The average rank among the 6 ratings the BCS uses was:
Texas: 2.5
Florida: 3.75
(Oklahoma was ranked #1 by all 6 "computers.")

The BCS drops the lowest and the highest rank. It considers a #1 ranking worth 25 points, #2 worth 24 points, etc. Since by dropping 2 "computers" you have 100 points possible, Texas ends up with 94 points, Florida with 89. This is turned into a percentage (94%, 89%) and is the number used by the BCS, and makes up 1/3 of the formula.

It came down to the polls, where Florida beat Texas in resounding fashion. The Harris Poll makes the biggest difference, Florida finished #1 and got 97.4% of a possible 2850 points. The Harris Poll is made up of
"former players, coaches, administrators and current and former media who are committed to ranking the college teams each week during the 2008 college football season"
You can see individual votes here. (Let me know if you find anything suspect).

The Coaches' Poll is the other one. Texas received some first place votes in that one, but Florida was only 1 point away from finishing #1 in the Coaches' Poll. It was 73 votes ahead of Texas. That made the difference 97.1% for Florida vs. 92.3% for Texas (out of a possible 1525 points).

So, it was the pollsters, primarily those in the Harris Poll that made the difference. If the "computers" had their way, we'd see Texas and OU squaring off again for the title.

That said, I hope Florida beats Oklahoma 56-14.

Friday, December 05, 2008

Ringing the Bell

Today I volunteered to ring the bell for the Salvation Army. SBU is assigned various days for employees to ring the bell, usually in hour shifts, and they desperately needed someone for today.

I found it to be a very rewarding way to volunteer my time. It's interesting to see the effect, walking by the bell-ringer just makes people feel guilty, particularly the elderly. Several made a comment like "You're really hitting me hard." I only just smiled and said "Mornin'!" to people walking by but many would say "Oh, I promise I'll give on the way out!" Little kids like the bell and want to put money in. I enjoyed the chance it gives to speak blessings into someone's life, I took that rather seriously.

My bell fell apart twice. Once the doohickey inside fell out, another time the handle became unscrewed and the entire bell fell apart (it almost flew and hit some lady in the head...nice). Several people said "I rang the bell yesterday," or "I'll ring the bell tomorrow!" (small town).

I'd bet at least $100 worth was put in the bucket in my hour. Makes me sad for the hours that someone doesn't stand there, that's $100 not raised for a great cause. The Salvation Army's commercials are pretty dramatic and moving, they make you want to give immediately.

It reminded me of how generous we are as a country, people give so much to charities (even though one can easily argue we don't give enough!) even during the worst economic times since the Great Depression.

My wife suggested I sing Christmas carols while I rang the bell. Not gonna happen. But, in my head I was singing a song I learned at a summer day camp I attended when I was 7 or 8. The Salvation Army song. Do you know it? It's probably at least 100 years old, I didn't understand most of it when I was 7 and my mom forbade me to sing it. It makes fun of the Salvation Army and had some pretty lewd verses (can't find many of those online, though... why would you teach little kids to sing filth they don't understand? Ah, because it's summer camp.)

Anyway, volunteering time feels pretty good.

Thursday, December 04, 2008


This week, governors of the United States met with President-elect Obama to ask for some federal aid. Many states are running budget deficits (which for some is unconstitutional) and are making dramatic spending cuts.

One example of a state with a budget crunch is Tennessee, which has begun cuts to its university system:

Recent cuts of $6 million to the UT campus, part of $17 million in budget reductions in the UT system, will mean fewer upper-division classes, reduction in faculty research support and additional reductions in the number of faculty, funding for admissions and in the ability to modernize teaching and classrooms through the use of technology.

State Finance Commissioner Dave Goetz said higher-education spending at all schools statewide must be reduced by $42 million. The UT system already trimmed $21.1 million from its budget earlier this year, with $11.1 million of that from the Knoxville campus.

In light of this, the University of Tennessee announced the hiring of Lane Kiffin as its new football coach.

Kiffin agreed to a six-year contract that will pay him $2 million, plus incentives, in 2009.

I don't fault Lane Kiffin. And UT isn't the only school whose athletics department is shelling out additional millions of dollars for a new coach in light of massive budget cuts and layoffs by the rest of the university. It's supply and demand, and the market demand for a coach over education comes from seriously messed up priorities, IMO.

I wonder if the same private donors/boosters that raised the $2 million+ for Kiffin would have been willing to give the money instead to keep admission spots open for students, or keep faculty in their jobs, or keep certain classes/departments open. It's sad there wasn't an outcry of "Let's not hire a football coach until more of the $11.1 million shortfall for the Knoxville campus is made up."

I'm seriously, painfully starting to wonder if I should consider boycotting NCAA athletics.

Wednesday, December 03, 2008

Art (and coffee)

Here's an innovative blog made up completely of the author's artwork. This set is about coffee.

I relate to several of the napkins, particularly the first few and then the line graph showing love for types of coffee over time.

I currently am drinking individual-brew Folgers (the ones that are like tea bags). They're pretty quick and easy and taste better than if I brewed it myself in a coffee maker. Ingenious invention. Unlike my colleagues, I'm not embarrassed to have a hot mug of coffee on my desk (everyone else drinks in the privacy of their home or not at all).

I drink only one cup a day if I'm paying for it. But I still tend to go wherever I can get "free" coffee.

BTW-- I had breakfast at a Subway the other day and enjoyed their French vanilla as well as regular brew. If you're ever stuck in a Wal-Mart for 2 hours beyond your control, you might check out the Subway's coffee.