Showing posts from February, 2012


55 million years or so ago, the Earth got darn hot for 150 K years or so. Probably due to CO2. Anyway, a bunch of species went extinct, but others just got smaller. I can see that happening with our current warming episode. I picture a future with tiny people - I imagine them as looking a bit like hobbit sized versions of David Brooks or Lumo. The tall descendants of basketball players and my line will have gone extinct. The human species might bifurcate in two, the peaceful descendants of liberals and hippies living above ground and eating flowers. The conservatives will have moved underground, out of sight of Sun and Moon, and will be called Morlocks, or if you want them to rhyme with the flower people, the Eloi, just call them Luboi.

HAL: It can only be attributable to human error.

CERN finds a big oops. Maybe those neutrinos aren't so fast really. Did you check the cables, Dave?

Deflationary Universe

Suppose you live in a country with deflating prices – a country where prices keep going down. This might seem like a good idea, but as with much in economics, there is a downside. Suppose you have some savings. In a deflationary regime, banks tend not to pay much, or maybe any, interest, but if you just hang on to that cash, or maybe even just stick it under your mattress, it has the prospect of buying more tomorrow than it can today. This creates an incentive to save, which conversely, is an incentive not to spend. If nobody is spending, demand evaporates, businesses start closing their doors, and the result is recession or depression. This is the regime Europe has imposed on Greece, and Japan has imposed on itself. In Greece, add the threat of default and exit from the Euro zone, and Greeks have a huge incentive to take their money out of Greek banks and put it almost anywhere else, in a German bank or under the mattress. If you are a creditor, like Germany, deflation has a …

Discovering America

Every once in a while, David Brooks reads a book and comes up with a new theory of America. These theories are usually worth the amount of high quality thinking he has devoted to them, that is, not much. The latest is The Talent Society. Brooks reads that half of the women in the US under 30 are having babies out of wedlock, and decides that this is the badge of a new spirit of independence and a society in which everyone's talents can be exploited to the fullest. The amount of evidence he brings to bear on this is, uh, zero, but hey, he had a column to write. It's not that there aren't other theories out there, for example that the poor and lower middle class have been shattered by the economics of a society which gives more and more to the rich and less to everybody else. That theory not only has some evidence to back it up - especially the distribution of out of wedlock births by economic status - but also doesn't fit the current conservative fantasy story.


Via Kevin Drum, the story of the stuff long term memories are made of.It seems that the archives of memory must be constantly tended at the molecular level, and the archivist is a molecule called PKMzeta.
What does PKMzeta do? The molecule’s crucial trick is that it increases the density of a particular type of sensor called an AMPA receptor on the outside of a neuron. It’s an ion channel, a gateway to the interior of a cell that, when opened, makes it easier for adjacent cells to excite one another. (While neurons are normally shy strangers, struggling to interact, PKMzeta turns them into intimate friends, happy to exchange all sorts of incidental information.) This process requires constant upkeep—every long-term memory is always on the verge of vanishing. As a result, even a brief interruption of PKMzeta activity can dismantle the function of a steadfast circuit.

If the genetic expression of PKMzeta is amped up—by, say, genetically engineering rats to overproduce the stuff—they beco…

Jeremy Lin

Basketball is an arena where big talents tend to be identified early - sometimes before junior high school. Jeremy Lin was not exactly invisible in high school - he was High School Player of the year in California - but he was lightly recruited out of high school and was a star a Harvard, which, unfortunately, is a bit like being the best actor in Abilene.
The NBA usually drafts enough college players to fill three leagues each year, but Lin wasn't one of them. He did manage to get on an NBA team, where he saw little action in his first season. After being waived a couple of times, he got on with the New York Knicks, where he once again occupied the far end of the bench. Until nine games ago, when he got his very first NBA start.
Since that time, he and the previously hapless Knicks have exploded, winning eight of nine, and Lin has been putting up superstar numbers. I saw him play for the first time today (on television) and he once again played like a champ, scoring 28 points a…

Affirmative Action

Peter Thiel undoubtedly has made some clever investment decisions, notably co-founding Pay-Pal and buying in on Facebook very early. According to Wikipedia, he also seems to have managed to blow most of seven billion in some currency market speculations, but most of that may have been other people's money.
Newsweek columnist Niall Ferguson begins his drooling paean to Thiel like so:
Damn. Peter Thiel is smarter than I am.The list of people smarter than Niall Ferguson is a not a short one, but what really impresses him is that Thiel is really rich. He is also pretty impressed that Thiel is a libertarian, and has some thoughts on how the world ought to be organized.
Ferguson seems to be an economic history professor at Harvard, perhaps the beneficiary of some affirmative action program to hire more right-wing Brits.Ferguson interviewed Thiel:
I ask him why he thought that for the past 30 years innovation has been so narrowly concentrated in technology and finance, with miserably littl…

IQ's of Scientists

It seems that sixty some years ago, Harvard psychologist Anne Roe gave some IQ tests to 64 noted biologists, physical scientists and social scientists. IQ fan Rodrigo de la Jara has posted some results, including a nice table of results in verbal, spatial and mathematical sections. The highest score among them was a 195 in the mathematical section, which was achieved despite disqualifying all the physical scientists for whom the test was "too easy." Presumably they all or mostly maxed it. The lowest score by anyone was a 121 verbal, which, if adjusted for sixty years worth of Flynn effect reduces to 108.
While this does tend to show that famous scientists indeed do have pretty high IQs (the median combined score was 152), I was more interested in the exclusion of the physical scientists part. So why was the math too easy for them?
Talent might be some of it, but I have to think that training was the key. They were very good at solving math problems because they had had e…

MIT Differential Equations

The new MIT Open Courseware Scholar courses are a giant step toward making good instruction available to the wider world. These courses are intended to include all the materials needed for an independent learner, including notes, videos, problems, solutions, and exams. The newest course is Differential equations. Execution is also required, and the first detailed discussion of a DE begins:
Example. Find all solutions to
x” = t
For which they find the general solution
x(t) = t^3/3 + C1*t + C2
Now I have probably forgotten a lot about DE, but that surely doesn’t look right to me.

Hard Cases Make for Bad Law

It's fashionable to say, and I've probably said, that Obama faced the most difficult situation of any President since Roosevelt. In one critical way he faced a more difficult situation. The Great Depression started on Hoover's watch, and he had more than two years to try to deal with it by the time FDR took office. His utter failure meant that American expectations were near zero when FDR started. Obama, by contrast, was elected just as the catastrophe showed itself, and the economy was still in the throes of its first collapse when he took office.
Most Americans failed to grasp that what was occurring was not a standard issue recession - and to an extent that was true of many top economists as well. That the Great Recession (or Little Depression) never became another Great Depression was due in large part to the early interventions of both the Bush and Obama Administrations.
These interventions were huge - but almost certainly not big enough - and extremely controversi…

College Ala Carte

For the most part, a college education in the US is a package deal. When you buy a degree from a school, the school has all the discretion in deciding what hoops you have to jump through to get it. The internet makes possible a rather different model, where degree requirements are defined independently of any particular school and can be achieved by educational attainment by any means the student can manage. In principle, this allows the student to become a comparison shopper, taking a mix of courses from a wide range of sources and instructors.
Of course this would require some system wide standards of achievement - not a bad idea anyway. It might also mean never having to attend a 2000 student lecture class by a boring instructor. One downside is that lousy teachers might need to find some other way to justify their presence on the payroll - not too different from today's situation at most universities.
The primary economic advantage of the proposed system is that it would ten…

S[o]wing the Wind

Someone, probably Israel, aided by Iranian anti-government militants, has been blowing up Iranian nuclear scientists. Iran seems to have taken offence, and has apparently launched a series of attacks against Israelis abroad. So far, they have fallen far short of the Israeli efficiency and professionalism, but I doubt that we can count on that over the long run.
It seems that the American government has distanced itself from the assassinations, which was probably a really good idea, since if Iran starts attacking inside the US, we will have little alternative but to smash them.
The Israelis face the fundamental question of "Now what?" It's not beyond credibility that Israeli hardliners pushed the assassination program in order to force Iran to respond and provide a casus belli.

The Eye of Sauron

Kevin Drum can turn a phrase:
So what happens now that both the national spotlight and Romney's millions are turned on Santorum like the eye of Sauron? Nothing good, I imagine. Alternatively, maybe he really does have a chance, and Republicans have made up their minds to stage a nostalgic revival of 1964. The mind reels.

A Corrupt Profession

I watched the Academy Award winning documentary "Inside Job" tonight. It's pretty much guaranteed to raise one's blood pressure by twenty points or so.
One point that caught my eye was that in addition to the billions the financial services industry lavishes on lobbying and political candidates they also spend a fortune corrupting important economists. Such payoffs take the form of lavish consulting fees (Summers, Hubbard), lucrative board memberships, or more direct fee for service arrangements, like the quarter of a million dollar fees paid to a former Fed Governor and a leading British economist to praise the soundness of Icelandic banks (not long before they collapsed.) If you are a prominent economist, and speak the truth as Wall Street would like it, you should make many times as much from such fees as from your salary.

Finis for Football?

Tyler Cowen asks about the prospects for an end to football, American style.
When I was in high school, my debate coach, himself a former football star, told us we were crazy to play football. I took his advice, but my more talented colleagues mostly didn't, and 6 years later our superstar quarterback was a crippled old man who had trouble walking down the street. And that was before we knew about the cumulative damage concussions do. Football is a very dangerous, brain destroying sport, but its also strategically the deepest sporting event, and by far the popularity champ.
Recent rule changes to limit hits have perhaps made the sport a bit safer at the margins, but have also been unpopular. A huge problem is the fact that players keep getting bigger and faster, increasing the momentum tranfer in collisions.
I don't see any good way to limit speed, but there is a very simple way to limit size. Modern football linemen are enormously muscular, but they are also packing 50-60 p…

Nowhere Man

An awful lot of people, including some of his oldest colleagues, seem to think that the real Mitt Romney is either elusive or non-existent. Frank Rich looks for the soul of the mystery man but doesn't find much:
Back in the thick of the 2008 Republican presidential race, I asked a captain of American finance what he had made of Mitt Romney when they were young colleagues at Bain & Company. “Mitt was a nice guy, a smart businessman, and an excellent team player,” he ­responded without missing a beat. Then came the CEO’s one footnote, delivered with bemusement, not pique: “Still, whenever the rest of us would go out at the end of the day, we’d always find ourselves having the same conversation: None of us had any idea who this guy was."
He can come across like an android who’s been computer-­generated to be the perfect genial candidate. When forced to interact with actual people, he tries hard, but his small talk famously takes the form of guessing a voter’s age or na…

Gospel According to Suskind Chapter 13

It's pretty clear now that Suskind's message is not so much that Emanuel, Summers, or Geithner - or probably any of the other people who talked to him - failed, but Obama. Obama, it seems, could give terrific speeches but flunked follow up.
Perhaps most momentous and characteristic was his encounter with the Captains of all the big banks on Wall Street. They were shaking in their boots. Obama told them that he was all that stood between them and the pitchforks and they all got the reference. Then he made his catastrophic mistake.
Obama is a consensus seeker to his core. He likes to find a position everybody can agree on. But his audience was an audience of sharks. They understood fear and they understood weakness. If Obama had wielded the former like a sword they would have bowed to any demand that spared their necks. Instead, he told them "I'm here to help you." They smelled weakness and blood and his power evaporated like a bad Wall Street dream.
Obama r…

Asymmetric Information

One way to get advantage over someone else is to some crucial fact that your rival doesn't. You might, for example know the cards in his poker hand while he doesn't know yours. Freshwater economics is based on the idea of perfect markets, which require perfect information. Real markets with large information asymmetries allow large rents to be extracted from the economy.
This fact is the reason it's cheating to have a colleague signal you the contents of somebody else's card hand, and the reason market and company insiders are prohibited from profitting through their insider information.
Financial engineering, Wall Street style, was and is all about creating and maintaining information asymmetry, which they do by creating and trading exotic financial instruments sold over the counter with little oversight. These "dark pool" markets are ideal since only the broker/creator really knows the terms of the other paties to the deal, and because with no open market,…

Paul Volker

In the late 1970's the United States was suffering from ruinous inflation from a variety of causes. Jimmy Carter appointed Paul Volker to head the Federal Reserve system in 1979 and Volker made his bones by determining to squeeze inflation out of the system. He did this by clamping down brutally on the money supply, raising the Federal funds rate to 20% and producing the worst recession since depression days. The country suffered, but inflation evaporated, and thus he broke inflation and made Ronald Reagan's career when the economy rebounded sharply. Reagan, however, didn't care for his pro regulation stance and ultimately replaced him with Alan Greenspan, who achieved an outsized reputation for financial genius before it became clear that his easy money policies and hands off regulatory stance had contributed greatly to building the monster that ate the world's financial system in 2007-2008.
After the fall, and Obama's election, Volker, who had been a key Obama…

The Boys Club And The Sisterhood

Though most of the men won’t say it, they feel that the nexus of math and risk—and the gaming of both, without flinching—is an area of male inclination. In fact, many of the women agree. They say that’s part of the problem.

Suskind, Ron (2011-09-20). Confidence Men: Wall Street, Washington, and the Education of a President (p. 205). Harper. Kindle Edition.
The view from Chapter 9.
The battles Brooksley Born had fought and mostly lost in the Clinton administration were refought under Obama, just with higher stakes. This time the sisterhood was larger, including Washington Senator Maria Cantwell, an early critic of Paulson and Geithner, FDIC Chair Sheila Bair, SEC Chair Mary Shapiro, and Elizabeth Warren, head of TARP oversight. They were still drastically outnumbered by the old boys network led by Geithner and Wall Street, but they had one crucial advantage - they had been mostly been right where Summers, Greenspan, and the other efficient markets devotees had been wrong. Bair, a Bus…

Meritocracy and Information

Ron Süßkind reports a revealing musing of Larry Summers to the effect that information has probably contributed to inequality by making it possible to pay people what they are worth. I recall a Business Week cover story of a decade or two back which similarly reported that customer service had become so lousy because computers had revealed to businesses just how little our business was worth to them.
If you are the travel scheduler for a major corporation, airlines will anoint your feet with oil and pave your path with gold, but if you are a family travelling with children - not so much. Similarly, the rainmakers of the corporate world are showered with cash, while the faceless worker bots see their salaries driven relentlessly downward.
A meritocratic society, where merit is measured purely by contribution to the profit center, can be a very unequal one indeed. Libertarians say "so be it." Conservatives say "as God intended." Liberals, though, have a more dif…

Newton's First Law: Superbowl Edition

Mike Pesca of NPR attributes this law of physics to Carolina Panthers quarterback Cam Newton:
An object in motion tend to stay in motion until shoved out of bounds...

The Difference

If you doubt the difference between Obama and Romney, consider this story asserting that a cabal of billionaires led by the Koch brothers has pledged $100 million to defeat Obama:
At a private three-day retreat in California last weekend, conservative billionaires Charles and David Koch and about 250 to 300 other individuals pledged approximately $100 million to defeat President Obama in the 2012 elections.

A source who was in the room when the pledges were made told The Huffington Post that, specifically, Charles Koch pledged $40 million and David pledged $20 million.Freed from any restraints by the Supremo's Citizens United decision, the billionaires club has moved very successfully to demonize Obama to a degree that American Presidents have rarely been subjected. The slanderous attacks likely to be mounted will probably the worst the country has seen.

Financial Derivatives and The Bankers Who Love Them

Why were the financial derivatives markets so beloved of the giant investment banks, and why did they fight so hard to keep them unregulated? Ron Süßkind tells the story (which Cynthia has already mentioned in comments) of how Greenspan, Rubin, and Summers defeated Brooksley Born's plan to bring them into the regulatory fold, and reveals how they manage to extract gigantic rents from them.
The magic rent extraction potion is information. The first ingredient of an efficient market is perfect information, and as long as derivatives were the proprietary property of a few big banks, they could hoard information so that buyer and seller saw only what they wanted them to see. Stock and commodities exchanges were established to free their respective items of commerce from this kind of "dark pool" and Born wanted the same for derivatives. She lost that battle and the big banks won and the rest of us got stuck with the financial meltdown.
At the start of his term, Obama had to…

Chess and Economics

Ken Rogoff became a chess grandmaster while still a teenager, but eventually concluded that he couldn't climb to the very top, so switched to economics, and is now a Harvard professor and one of the world's most influential economists.  Via Tyler Cowen, this Gideon Rachman financial times story from Davos, which is heavy on the chess. On Bobby Fisher, and praise:
Rogoff’s real hero, however, was Bobby Fischer, the American chess champion of the 1970s. He remembers following the games from the famous Fischer-Spassky world chess championship in 1972, and being awed by Fischer’s play – “It was like seeing the hand of God at work; the originality, the simplicity.” He shakes his head in delight and amazement. Fischer even paid the teenaged Rogoff the compliment of analysing and praising one of his games in an article. But Rogoff did not let that go to his head. “I took that to mean that he knew I could never beat him. Because I knew he was hyper-competitive. I completely understood…

American Idle: The Presidential Sing Off

All signs point to a close election between Obama and Romney this fall, but consider whom you want leading the country in ... song

Review: Could somebody please take that dog out in the street and shoot it.

Review: President of the United States of Soul

Stop The Presses

Too bad nobody even knows what that used to mean anymore.
Lubos hears hints that a press stopping event, namely, sighting of a stop squark - the supersymmetric partner of a top quark - (did physicists get too f****** cute for their britches there, or what) might have been sighted at CERN.
I'm in no position to speculate on the plausibility of this rumor, but if true, it's huge, or rather, gianormous. Confirmation of supersymmetry would do an enormous amount to validate all the work done on it, and slightly less directly, string theory. It would also mean that supersymmetry, and perhaps some string implications would be accessible at energies not beyond the range of our technology.

The Undeserving Poor

Lately the right wing has taken to indulging its obsession with the undeserving poor - that is to say, those that they consider to deserve to be poor. One econ prof defined them to be those who are poor but could reasonably have avoided being poor if they had made better life choices.
It probably is true that many could have avoided poverty if they made smarter choices, or fewer dumb ones - like, I imagine, having kids out of wedlock, being a drunk or drug addict, eating too much fatty food, and voting Republican.
More interesting, to me, said someone, are the undeserving rich. Not sure how those are defined, but those who got rich dishonestly or unscrupulosly, or by dumb luck might count.

Confidence Man: The View from Chapter 8

So far, Süßkind is a heck of a storyteller. The story of the great crash and Obama's campaign are both told as a series of mainly personal vignettes - clearly the remembrances of major and some less major players. These are personal stories, but the central narrative is always in the background, and the parts of the story we get are those experienced by the players we hear about.
So far this has been mostly the story of how the looming catastrophe was gradually apprehended by a few bankers and economists close to the industry. These Cassandras suffered the usual fate of their clan - they were ignored, or mocked, or fired, but a few managed to keep thier heads above water and even save a bank or two.
Obama had friends and advisors among this group, and was probably the first prominent politician to have even a murky picture of the impending crash. At first, though, both he and his advisors saw it as something fairly far ahead - something that might happen in the middle of his seco…