by Chris Bertram on January 27, 2004
This is really Daniel’s department, but I’ve been waiting for Samuel Brittan to update his website with “his review”:http://www.samuelbrittan.co.uk/text173_p.html of John Allen Paulos’s “A Mathematician Plays the Market”:http://www.amazon.com/exec/obidos/ASIN/0465054803/junius-20 for a while, and he’s finally done it. The most bloggable point is borrowed — I think — from Taleb’s “Fooled by Randomness”:http://www.amazon.com/exec/obidos/ASIN/1587991845/junius-20
bq. In financial discussions you often hear how about Ms.X or Mr.Y who has had a consistently good record in beating the market indices. Paulos shows how such “successful” analysts can emerge purely by chance. Of 1,000 analysts, roughly 500 might be expected to outperform the market next year. Of these another 250 might be expected to do so well for a second year and 125 in the third. Continuing the series we might expect to find one analyst who does well for ten consecutive years by chance alone. But will she do better in the 11th year? Your guess is as good as mine.
by Daniel on January 23, 2004
I stole this idea from Cosma Shalizi, who got it from something else. Anyway, it’s basically an irregular sampling of economics things that interested me. Mainly post-Keynesian, econophysics or sociology of economics stuff, but if I see a good Austrian piece I’ll use it. Also a few things that aren’t really all that heterodox but struck me as good. I’m trying to put in a few bits that will interest fellow nerds and obsessives, and a bit of didactic stuff for the layman, so if any of it strikes you as incomprehensible and/or patronising, then I’ll hide behind the excuse that it probably wasn’t meant for you. Email suggestions very welcome.
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by Daniel on January 22, 2004
The discussion on the Caroline Payne story below reminds me of a fine old piece of doggerel attributed to James Tobin:
The poor complain
They always do
But that’s just idle chatter
Our system brings rewards to all
At least, all those who matter
by Chris Bertram on January 21, 2004
No sooner have I “mentioned”:https://www.crookedtimber.org/archives/001180.html 1960s expectations of what the future would be like — “future cities in which we’d all be whizzing about in our personal aeroplanes” — than I read “John Kay in the Financial Times”:http://www.johnkay.com/trends/318 doubting whether our age is, as commonly supposed, one of unprecedented technological advance:
bq. I began to doubt the conventional wisdom when I discovered a Hudson Institute report from the mid-1960s that predicted technological changes from then till 2000. Its prognostications about information technology were impressively accurate – it foresaw mobile phones, fax machines and large-scale data processing.
bq. But in other areas the Hudson Institute was wide of the mark. Where are the personal flying platforms, the space colonies, the artificial moons to light our cities, the drugs that make weight reduction a painless process? Progress in IT has fully matched the expectations of three or four decades ago. But advance in other areas has, by historic standards, been disappointing.
Worth a glance.
by Ted on January 19, 2004
Via The Big Picture’s Barry Ritholtz, CNN has an interesting article about which Democratic presidential candidate Wall Street might prefer. You’ve got to love the lead:
A recent study from the University of California at Berkeley, published in the October issue of the Journal of Finance shows that between 1927 and 1998, the stock market returned approximately 11 percent more a year under a Democratic president versus safer, three-month Treasurys. By comparison, the stock market only returned 2 percent more a year versus the T-bills under Republicans.
(Dwight Merideth had a marvelous series of posts on this subject called “Just For the Record”, by the way.)
I shouldn’t have been surprised, but Bush’s support from the “investor class” is far from monolithic. A Money magazine poll of “investor class” voters, however defined, revealed that only half planned to vote for Bush. And while Republicans got more in donations, they didn’t get that much more.
The piece goes on to detail:
* the Republican vs. Democratic donations of some of the largest major financial institutions.
* the positions re: corporate governance, taxes, international outsourcing, of the major Democratic candidates that would affect the investor class. (There’s a lot there I didn’t know- Dean used to be a stockbroker? Edwards is the only guy who would require expensing of stock options? Wow.)
* non-crazy quotes from Don Luskin about prominent Democrats.
It’s short and well worth a look; go to it.
by Chris Bertram on January 19, 2004
An email from a reader alerts me to “The Cheating Culture”:http://cheatingculture.com/ by David Callaghan, a new book which blames a whole raft of scandals in the US — from Enron to athlete doping — on the erosion of a sense of fair play in the winner-takes-all society. The book’s website has “an interview with the author”:http://cheatingculture.com/davidcallahaninterview.htm and also incorporates “the author’s own blog”:http://www.cheatingculture.com/cheatingblog.html on the issues covered by the book. Worth a look.
by Chris Bertram on December 22, 2003
“Paul Krugman in the Nation”:http://www.thenation.com/doc.mhtml%3Fi=20040105&s=krugman :
bq. The other day I found myself reading a leftist rag that made outrageous claims about America. It said that we are becoming a society in which the poor tend to stay poor, no matter how hard they work; in which sons are much more likely to inherit the socioeconomic status of their father than they were a generation ago. The name of the leftist rag? _Business Week_ …
by Ted on December 19, 2003
I’m so glad that John Q. brought up the terrorism futures markets, because I’ve been dying to talk about them. The proposal to open a market in “terrorism futures” only lasted a day before it was retracted, and captured the imagination of many libertarians and libertarian-sympathizers. It was sharply criticized by Congressional Democrats, who felt that it was abhorent that the government would open a market that would allow terrorists to earn a monetary profit off of their terrorist actions. But there’s an answer to that:
“Why wouldn’t terrorists just hop online and start betting if they couldn’t either mislead American authorities about their plans or make money to fund more al Qaeda operations?” Wyden asked. Why not indeed? If terrorists were trying to use PAM to make money that “would mean that they are giving up information to gain money,” says Hanson. “In other words, we’re bribing them to tell us what they are going to do. That’s kind of like normal intelligence gathering when we bribe agents for information.”
I agree that the idea is fascinating, and it was probably retracted too soon. Nonetheless, I don’t see any way that it could work.
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by John Q on December 18, 2003
Once there were three bubbles. The one that attracted everyone’s attention was the dotcom bubble, of which no more needs to be said. The second bubble, noted by plenty of economists was the glaring overvaluation of the bubble. Given chronic deficits in both the budget and current account, and the fact that the US dollar was trading at a value well above purchasing power parity, anyone who gave any credence to the view that markets eventually reach equilibrium could conclude that the US dollar was bound to fall, and it has duly done so. (this only leaves the question of why putatively rational investors did not sell earlier)
The third bubble seemed, until this year, like part of the second. Rates of interest on 10-year US government bonds are amazingly low, currently around 4.25 per cent (the price is inversely proportional to the interest rate, so low interest rates mean a bubble in bond prices). Most economists would, I think have assumed that, as the US dollar declined in value, long-term interest rates would go up. But, apart from a brief panic a few months ago, this hasn’t happened.
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by Chris Bertram on December 17, 2003
I’ve just reached Amartya Sen’s chapter “Famines and Other Crises” in “Development as Freedom”:http://www.amazon.com/exec/obidos/ASIN/0385720270/junius-20 . He has some discussion of the great famines that depopulated Ireland from 1845 onwards. The potato blight had destroyed the crop but the Irish peasantry lacked the resources to buy alternative foodstuffs which continued to be exported:
bq. ship after ship — laden with wheat, oats, cattle, pigs, eggs and butter — sailed down the Shannon bound for well-fed England from famine-stricken Ireland. (p.172)
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by Ted on December 12, 2003
by Chris Bertram on December 12, 2003
I’ve been reading Amartya Sen’s magnificent “Development as Freedom”:http://www.amazon.com/exec/obidos/ASIN/0385720270/junius-20 this week. A more bloggable books would be hard to find: startling facts and insights jostle one another on every page. Even when you already know something, Sen is pretty good at reminding, underlining and making you think further about it. So this, for example on the life prospects of African Americans:
bq. Even though the per capita income of African Americans in the United States is considerably lower than that of the white population, African Americans are very much richer in income terms than the people of China or Kerala (even after correcting for cost-of-living differences). In this context, the comparison of survival prospects of African Americans vis-a-vis those of the very much poorer Chinese or Indians in Kerala, is of particular interest. African Americans tend to do better in terms of survival at low age groups (especially in terms of infant mortality), but the picture changes over the years.
bq. In fact, it turns out that men in China and in Kerala decisively outlive African American men in terms of surviving to older age groups. Even African American women end up having a survival pattern for the higher ages similar to that of the much poorer Chinese, and decidedly lower survival rates than then even poorer Indians in Kerala. So it is not only the case that American blacks suffer from _relative_ deprivation in terms of income per head vis-a-vis American whites, they are also _absolutely_ more deprived than low-income Indians in Kerala (for both women and men), and the Chinese (in the case of men), in terms of living to ripe old ages.
Shocking, for the strongest economy on earth to create these outcomes (which, as Sen reminds us, are even worse for the black male populations of particular US cities).
UPDATE: Thanks to Noumenon for “a link to this item”:http://noumenon.typepad.com/noumenon/2003/12/sen_relative_po.html . I closed the comments thread because I didn’t want to spend my weekend fighting trolls. But email suggests that there are some people who have worthwhile things to say so I’m opening it again (though I won’t be participating myself).
by Daniel on December 4, 2003
This is a piece I’ve been thinking about for around a year and have now finally got round to writing up now that the Cardhu Scandal has made it arguably topical again. Basically it’s an idea for anyone who wants an easy way into thinking about capital theory. I’ve thought for a while that the booze industry ought to be used much more as an example for people thinking about time and production, because it allows you to abstract from considerations of technology and the production process; there are any number of ways to produce a chair, some more time-consuming that others, but there’s only one way to produce a cask of ten-year-old whisky[1]; start with a cask full of nine year old whisky and wait. The fact that time is intrinsically part of the production process for wine and brown spirits is why you see “capitalised interest” on the balance sheets of drinks companies; part of the economic cost of whisky production, and therefore part of the eventual sale price and the value of the goods, is the interest foregone during the process of maturation. It’s this interest element which I’m going to concentrate on.
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by Chris Bertram on November 26, 2003
In “a post yesterday”:https://www.crookedtimber.org/archives/000880.html about the later age at which academics get proper jobs nowadays, I focused on how this means that academics now have fewer children later (or none at all). But there’s another consequence of the way the job market and accreditation process have changed: pensions. Academics here in the UK still have a final salary pension scheme (which is nice). The scheme assumes to that to receive a full-value pension (50 per cent of final salary) you have made 40 years worth of contributions. I’ve even met some academics — appointed at around age 23 in the 1960s — who’ve managed this. But those who have entered the profession late (and burdened with debt) from the 1990s onwards, at age 30+ will _never_ pay in their 40 years (given retirement at 65) and will therefore receive a lower income in their old age. I’ve assumed in this post that the system is the UK one, but obviously the point generalises beyond final-salary schemes. Those who earn proper salaries later (and are debt-ridden) will not contribute so much towards their pension — especially if they are trying to bring up a delayed young family! — and will suffer in their retirement.
by Daniel on November 4, 2003
Given that Paul Krugman is reminding us all of Stein’s Law (“Things that can’t go on forever, don’t”), I thought I’d remind everyone of Davies’ Corolloraries:
1. Things that can’t go on forever, go on much longer than you think they will.
2. Corollorary 1 applies even after taking into account Corollorary 1.