This (9 minute, 28 second) video from 1948 is remarkably prescient considering our present economic (and political) circumstances!
All posts by Jim Garven
Assorted Links (10/26/2010)
Here’s a list of articles that I have been reading lately:
No Second Thoughts
www.nytimes.com
“In spite of the polls, the Democrats are quite sure somebody else is to blame.”
Study: Homeowners Rates Still Inadequate » Insurance Industry Blog
www.iii.org
“The majority of U.S. homeowners insurance rate filings approved by regulators still do not adequately recognize the cost of capital needed to protect policyholders in the case of a large catastrophic event, according to an annual review by Aon Benfield Analytics.”
What’s Your Econ 101 Professor Worth?
freakonomics.blogs.nytimes.com
“The Texas A&M University system has embarked on a new accountability program. For every department – indeed, for every professor – revenue generated and cost incurred are calculated; and profit – the difference – is reported. Each professor is presumably supposed to have a marginal revenue product above his/her compensation.”
Cash for Clunkers in a Macro Context
johnbtaylorsblog.blogspot.com
“Using the Mian-Sufi results, which are based on a comparison of different regions of the United States, I estimated the amount by which total personal consumption expenditures first increased as people were encouraged to trade in their clunker and purchase new cars, and then declined because many of the trade-ins were simply brought forward.”
Detecting Political Momentum Is Harder Than You Think
freakonomics.blogs.nytimes.com
“Over at FiveThirtyEight.com, Nate Silver has a post attempting to debunk the idea that there is momentum in political campaigns. But I think he’s wrong. And his post provides a fun opportunity for a simple statistics lesson on the difficulty of discovering momentum.”
Tim Geithner’s Global Central Planning
online.wsj.com
“In The Wall Street Journal, University of Chicago Professor John Cochrane criticizes the public letter by U.S. Treasury Secretary Tim Geithner, who called for the IMF to manipulate exchange rates in order to rebalance the world economy.”
Can the U.S. Avoid Europe’s Mess?
www.realclearpolitics.com
“In Britain, where politics is more polite but the problems are perhaps just as dire, the government is proposing budget cuts on a scale not seen for nearly a century.”
The Challenge of Forecasting the 2010 House of Representatives Election
online.wsj.com
“Less than two weeks before the election, there remain major divisions between forecasters about the outcome of the House races, reflecting the challenge of predicting politics.”
Google Uses Loopholes to Cut Taxes by $3.1 Billion – Video
www.bloomberg.com
“Google Inc. cut its taxes by $3.1 billion in the last three years using a technique that moves most of its foreign profits through Ireland and the Netherlands to Bermuda. Google’s income shifting helped reduce its overseas tax rate to 2.4 percent, the lowest of the top five U.S. technology companies.”
How to Privatize the Mortgage Market – WSJ.com
online.wsj.com
“In The Wall Street Journal, Dwight Jaffee of the University of California, Berkeley, writes that Fannie Mae and Freddie Mac should be phased out and the mortgage industry privatized.”
The Rules Of the Game and Economic Recovery
www.realclearmarkets.com
Amity Shlaes, who is the author of “The Forgotten Man: A New History of the Great Depression” provides a cautionary tale concerning the strong parallels which exist between FDR’s Great Depression era policy initiatives and Obama’s Great Recession policy initiatives…
Putting a Price on Professors
online.wsj.com
“Should public universities care how much their faculty contribute to the bottom line?” I think the answer is probably yes, but not based upon the kind of myopic “analysis” that Texas A&M purports to do. The methodology seems to stack the deck in favor of adjunct faculty who teach required freshman and sophomore courses with large enrollments. If cost per student is used as the primary criterion, then why not do away with academic research entirely and just have a cadre of contract lecturers handling the “burden” of teaching undergraduates?
I doubt whether many graduate degree programs could possibly survive the Aggies’ cost-benefit analysis; what’s needed is some type of cost-benefit analysis which provides an unbiased assessment of the value added by “intangibles” such as the advancement of science and enhancement of the institution’s overall academic reputation…
Commentary: The Inequality Delusion
www.businessweek.com
“Americans think the U.S. has far more income equality than it has. They want it to be even fairer. Yet they hate the policies that would make it so.”
Can Yoga Be Christian?
online.wsj.com
The Chris Christie Clones
online.wsj.com
“In The Wall Street Journal, Potomac Watch columnist Kimberley A. Strassel writes that across the country, candidates are taking up the government-reform mantra embodied by New Jersey’s new governor.”
Tea Party to the Rescue
online.wsj.com
“Peggy Noonan writes in The Wall Street Journal on how the GOP was saved from Bush and the establishment.”
NPR’s Taxpayer-Funded Intolerance
online.wsj.com
“In The Wall Street Journal, Emilio Karim Dabul writes that all Americans, particularly those of Arab or Muslim descent, should protest the firing of Juan Williams.”
Google to Post the Dead Sea Scrolls – Copyright Infringement Claims Unlikely
www.vogelitlawblog.com
“Google will not be accused of copyright infringement by posting the Dead Sea Scrolls unlike the current litigation about Google’s Books Library.”
Charles Krauthammer – Obama Underappreciation Syndrome
www.washingtonpost.com
“Democrats have anxiety-induced Obama Underappreciation Syndrome.”
Keith Hennessey's "Other Side of the White House white board"
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Keith Hennessey’s “Other Side of the White House white board”
Intrade.com US Midterm Elections Market Update (Friday, October 22, 2010)
|
Control of the House of Representatives |
Probability |
|
Democrats |
10.30% |
|
Republicans |
88.90% |
|
Neither |
1.00% |
|
Number of House seats gained by the GOP |
|
|
20 Seats Gained |
97.70% |
|
30 Seats Gained |
96.00% |
|
40 Seats Gained |
93.90% |
|
50 Seats Gained |
73.00% |
|
60 Seats Gained |
37.00% |
|
Control of the Senate |
|
|
Democrats |
58.70% |
|
Republicans |
16.10% |
|
Neither |
28.80% |
|
Number of Senate seats held by GOP |
|
|
45 GOP Seats |
95.00% |
|
46 GOP Seats |
88.10% |
|
47 GOP Seats |
84.00% |
|
48 GOP Seats |
70.20% |
|
49 GOP Seats |
48.00% |
|
50 GOP Seats |
30.30% |
|
51 GOP Seats |
20.40% |
|
Senate Race Spotlight: COLORADO |
|
|
Michael Bennet (D) |
37.60% |
|
Ken Buck (R) |
60.00% |
|
Senate Race Spotlight: CALIFORNIA |
|
|
Barbara Boxer (D) |
70.10% |
|
Carly Fiorina (R) |
29.50% |
"Fat Tails" and implications for risk management
Benoît Mandelbrot passed away last week at the ripe old age of 85. Mandelbrot was most famous for his seminal work in the field of fractal geometry, but is also considered by many (e.g., Nassim Nicholas Taleb, the author of Fooled by Randomness and The Black Swan) as the “intellectual father” behind critiques of efficient markets models. Mandelbrot’s critique of efficient market theory was centered on the notion that actual return distributions are more “fat tailed” than would be implied by the normal distribution. Taleb provocatively argues in chapter 15 of his book The Black Swan that the bell curve (normal distribution), when applied to financial markets, is a “great intellectual fraud”. Taleb has also recently argued that “… the Nobel Prize for Economics (specifically, the 1990 awards to Harry Markowitz, Merton Miller and William Sharpe for their work on portfolio theory and asset-pricing models and the 1997 awards to Myron Scholes and Robert Merton for their work on option pricing theory) has conferred legitimacy on risk models that caused investors’ losses and taxpayer-funded bailouts…”, and that “investors who lost money in the financial crisis should sue the Swedish Central Bank for awarding the Nobel Prize to economists whose theories he said brought down the global economy” (see “`Black Swan’ Author Says Investors Should Sue Nobel for Crisis“). While there is no question that Dr. Taleb’s narrative is brash and provocative, I am not convinced. Of course, he would argue that people like me who received their graduate training in finance during the past 2-3 decades have a vested interest in defending orthodoxy for its own sake. However, it’s only fair to also recognize that Dr. Taleb has a vested interested in defending heterodoxy for its own sake. It seems that Taleb seeks to discredit pretty much anyone who happens to disagree with him, not on the strength of the arguments that they marshall on behalf of “orthodoxy”, but rather on the basis of ad hominem arguments about how they can’t be taken seriously because they are intellectually biased a priori in favor of efficient markets orthodoxy. I couldn’t have explained the implications of Benoit Mandelbrot’s research for financial markets any better than Dr. Ewan Kirk, who is Chief Executive for Cantab Capital Partners in Cambridge, UK, so I quote directly from Dr. Kirk’s letter to the Financial Times entitled “How Mandelbrot Caused Confusion“: “It is true that markets are very difficult to model precisely. Indeed, even after this simple transformation, there continue to be significant non normal features to markets and of course there are always “unknown unknowns” and “black swan” events. However, these issues are considerably more subtle than just presenting the 100-year unscaled daily returns of the stock market and implying that foolish theoreticians and practitioners are modeling the returns as a stationary Gaussian or normal distribution.” Also, the essay by Bob Gillespie entitled “Black Swans and Absurdistan” is worth reading. In closing, I would like to point out two interesting videos from FT.com. The first video, “Inefficient markets and Mandelbrot“, features a debate concerning whether the impact of Mandelbrot’s legacy has been overstated. The other video, “Why ‘efficient markets’ collapse” is an interview with Mandelbrot recorded last year in which Mandelbrot explains his more than 40-year old critique of the “efficient markets” hypothesis and why new (i.e., Mandelbrotian) theories on price movement discontinuities are needed in light of the financial crisis of 2007-????.”]]>
“Fat Tails” and implications for risk management
Yale mathematician and emeritus professor Benoît Mandelbrot passed away last week at the ripe old age of 85. Mandelbrot was most famous for his seminal work in the field of fractal geometry, but is also considered by many (e.g., Nassim Nicholas Taleb, the author of Fooled by Randomness and The Black Swan) as the “intellectual father” behind critiques of efficient markets models. Mandelbrot’s critique of efficient market theory was centered on the notion that actual return distributions are more “fat tailed” than would be implied by the normal distribution. Taleb provocatively argues in chapter 15 of his book The Black Swan that the bell curve (normal distribution), when applied to financial markets, is a “great intellectual fraud”. Taleb has also recently argued that “… the Nobel Prize for Economics (specifically, the 1990 awards to Harry Markowitz, Merton Miller and William Sharpe for their work on portfolio theory and asset-pricing models and the 1997 awards to Myron Scholes and Robert Merton for their work on option pricing theory) has conferred legitimacy on risk models that caused investors’ losses and taxpayer-funded bailouts…”, and that “investors who lost money in the financial crisis should sue the Swedish Central Bank for awarding the Nobel Prize to economists whose theories he said brought down the global economy” (see “`Black Swan’ Author Says Investors Should Sue Nobel for Crisis“).
While there is no question that Dr. Taleb’s narrative is brash and provocative, I am not convinced. Of course, he would argue that people like me who received their graduate training in finance during the past 2-3 decades have a vested interest in defending orthodoxy for its own sake. However, it’s only fair to also recognize that Dr. Taleb has a vested interested in defending heterodoxy for its own sake. It seems that Taleb seeks to discredit pretty much anyone who happens to disagree with him, not on the strength of the arguments that they marshall on behalf of “orthodoxy”, but rather on the basis of ad hominem arguments about how they can’t be taken seriously because they are intellectually biased a priori in favor of efficient markets orthodoxy.
I couldn’t have explained the implications of Benoit Mandelbrot’s research for financial markets any better than Dr. Ewan Kirk, who is Chief Executive for Cantab Capital Partners in Cambridge, UK, so I quote directly from Dr. Kirk’s letter to the Financial Times entitled “How Mandelbrot Caused Confusion“: “It is true that markets are very difficult to model precisely. Indeed, even after this simple transformation, there continue to be significant non normal features to markets and of course there are always “unknown unknowns” and “black swan” events. However, these issues are considerably more subtle than just presenting the 100-year unscaled daily returns of the stock market and implying that foolish theoreticians and practitioners are modeling the returns as a stationary Gaussian or normal distribution.” Also, the essay by Bob Gillespie entitled “Black Swans and Absurdistan” is worth reading.
In closing, I would like to point out two interesting videos from FT.com. The first video, “Inefficient markets and Mandelbrot“, features a debate concerning whether the impact of Mandelbrot’s legacy has been overstated. The other video, “Why ‘efficient markets’ collapse” is an interview with Mandelbrot recorded last year in which Mandelbrot explains his more than 40-year old critique of the “efficient markets” hypothesis and why new (i.e., Mandelbrotian) theories on price movement discontinuities are needed in light of the financial crisis of 2007-????.”
Assorted Links (10/21/2010)
Here’s a list of articles that I have been reading lately:
Can Yoga Be Christian?
online.wsj.com
“In the Wall Street Journal’s Houses of Worship column, Stephen Prothero of Boston University examines how an exercise craze provokes questions of body and soul.”
The Chris Christie Clones
online.wsj.com
“In The Wall Street Journal, Potomac Watch columnist Kimberley A. Strassel writes that across the country, candidates are taking up the government-reform mantra embodied by New Jersey’s new governor.”
Tea Party to the Rescue
online.wsj.com
“Peggy Noonan writes in The Wall Street Journal on how the GOP was saved from Bush and the establishment.”
NPR’s Taxpayer-Funded Intolerance
online.wsj.com
“In The Wall Street Journal, Emilio Karim Dabul writes that all Americans, particularly those of Arab or Muslim descent, should protest the firing of Juan Williams.”
Google to Post the Dead Sea Scrolls – Copyright Infringement Claims Unlikely
www.vogelitlawblog.com
“Google will not be accused of copyright infringement by posting the Dead Sea Scrolls unlike the current litigation about Google’s Books Library.”
Charles Krauthammer – Obama Underappreciation Syndrome
www.washingtonpost.com
“Democrats have anxiety-induced Obama Underappreciation Syndrome.”
Vaclav Klaus: An anti-human ideology
opinion.financialpost.com
“Global warming may just be statistical fluctuations … The global warming dispute starts with a doctrine which claims that the rough coexistence of climate changes, of growing temperatures and of man-made increments of CO2 in the atmosphere — and what is more, only in a relatively short period of time — is a proof of a causal relationship between these phenomena. To the best of my knowledge there is no such relationship between them. It is, nevertheless, this claim that forms the basis for the doctrine of environmentalism.”
An Unthinkable Tax Code
www.realclearmarkets.com
“Pity the politician who tries to take a serious look at our federal budget and tax mess and come up with a fix.”
ObamaCare’s Incentive to Drop Insurance
online.wsj.com
“In the Wall Street Journal, Tennessee Gov. Philip Bredesen writes that his state could reduce costs by over $146 million using the legislated mechanics of health reform to transfer coverage to the federal government.”
The Biggest Race You Haven’t Heard Of
online.wsj.com
“In the Wall Street Journal, Wonder Land columnist Daniel Henninger writes that Harry Wilson thinks he can defuse New York State’s public-pension bomb. ”
Dodd-Frank: A critical assessment | vox – Research-based policy analysis and commentary from leading
www.voxeu.org
“The Dodd-Frank Wall Street Reform and Consumer Protection Act is widely viewed as the most sweeping set of reforms to the US financial sector since the Great Depression. Despite being broadly in favour of the measures, this column identifies flaws that fail to deal with the main causes of the crisis.”
How the Foreclosure Fiasco Threatens the Economy – Rick Newman (usnews.com)
money.usnews.com
“If paperwork flaws turn into something bigger, it could trigger another recession. ”
Assorted Links (10/20/2010)
Here’s a list of articles that I have been reading lately:
Democrats and the Politics of Recession
online.wsj.com
“In The Wall Street Journal, J.T. Young notes that the myth that Roosevelt ended the Depression has come back to haunt the current administration. If FDR solved the problem, why can’t Obama?”
Bernanke’s Inflation Target Misses the Mark
online.wsj.com
“In The Wall Street Journal, Henry Kaufman writes that the more latitude the Federal Reserve has to try to spur economic growth, the more economic uncertainty there will be.”
Review & Outlook: ObamaCare, for Some
online.wsj.com
“The Wall Street Journal says that the Obama Administration has decided not to enforce some of the health law’s consumer protections.”
The Overseas Profits Elephant in the Room
online.wsj.com
“In the Wall Street Journal, John Chambers of Cisco Systems and Safra Catz of Oracle Corporation write that a trillion dollars is waiting to be repatriated if tax policy is right.”
How the Fed Is Holding Back Recovery
online.wsj.com
“In The Wall Street Journal, economist David Malpass says that the Federal Reserve, by promising to print more money, is giving Congress an excuse to avoid critical tax and spending cuts.”
Small Worlds
www.boston.com
“Nikon International Small World Photomicrography Competition recently announced its list of winners for 2010. The competition began in 1974 as a means to recognize and applaud the efforts of those involved with photography through the light microscope. Peering into the small worlds of animal, plants and minerals using many techniques and different instruments, this year’s entries brought us images of crystalline formations, fluorescent body parts, cellular structures and more, valuable for both their beauty and insight.”
Consensus Points Toward 50-Seat G.O.P. Gain in House
www.nytimes.com
“Extent of the “enthusiasm gap” may play a big role in determining how successful the Republicans are.”
Eyes on the Prize
www.cafehayek.com
“Explaining the political necessity that many Democrats feel to publicly denounce House Speaker Nancy Pelosi – and conceding that these denunciations will cause problems for Democrats in the next Congress – Democratic political strategist Mark Mellman says “But more people are concerned about winning than about whatever post-election problems we might have.”
Why Construction Projects Often Run Over Budget – The Numbers Guy – WSJ
blogs.wsj.com
“Why initial cost estimates for major building projects so often prove to be underestimates.”
The Weekend Interview with Robert Mundell: On Currency, Where Do We Go From Here?
online.wsj.com
“In the Wall Street Journal, economist Judy Shelton interviews Nobel Prize-winning economist Robert Mundell, who says that the most important initiative we could take to improve the world economy would be to stabilize the dollar-euro rate.”
Obamanomics Paints Ohio Red – WSJ.com
online.wsj.com
“Stephen Hayes writes in The Wall Street Journal that Republicans appear poised for major gains in November elections in the Midwest, a region dominated by the president in 2008.”
Viva Chile! They Left No Man Behind. – WSJ.com
online.wsj.com
“A show of competence and determination inspires the world, Peggy Noonan writes.”
Lies, Damn Lies and the ObamaCare Sales Pitch – WSJ.com
online.wsj.com
“Joe Rago writes in The Wall Street Journal about the Obama administration’s health-care fabrications.”
Peter Berkowitz: Why Liberals Don’t Get the Tea Party Movement – WSJ.com
online.wsj.com
“In the Wall Street Journal, Peter Berkowitz of the Hoover Institution writes that our universities haven’t taught much political history for decades, so it’s no wonder that so many progressives have disdain for the principles that animated the Federalist debates.”
Charles Krauthammer – Your pre-election post-mortem
www.washingtonpost.com
“We don’t need to wait for Nov. 2 with this pre-election post-mortem.”
Health Care Plans, Waivers, Choice?
www.realclearmarkets.com
“The Department of Health and Human Services celebrated the six-month “anniversary” of enactment of the new health care law by granting waivers of its requirements to 30 companies, covering almost a million workers, so that those companies can keep their insurance plans going for another year.”
Assorted Links (10/15/2010)
Here’s a list of articles that I have been reading lately:
The 4 Ways to Spend Money by Milton Friedman
www.youtube.com
“In his book Free to Choose, Milton Friedman described four ways to spend money. 1. You spend your own money on yourself. 2. You spend your own money on someone else. 3. You spend someone else’s money on yourself. 4. You spend someone else’s money on someone else.” In a nutshell, he makes a very compelling case for allocating resources through the private sector rather than the public sector.
Book Review: Extraordinary, Ordinary People
online.wsj.com
“Tunku Varadarajan reviews Condoleezza Rice’s Extraordinary, Ordinary People: A Memoir of Family.”
Review & Outlook: ObamaCare in Court
online.wsj.com
“The Wall Street Journal writes that a Florida judge allows the major state lawsuit to proceed to trial.”
Review & Outlook: Liberalism and Public Works
online.wsj.com
“The Wall Street Journal writes that entitlement politics leaves little money for roads and tunnels.”
Stop Bashing Business, Mr. President
online.wsj.com
“Ken Langone, the co-founder of The Home Depot, writes in The Wall Street Journal that if he and his partners tried to start their business today, it’s a stone cold certainty that it would never get off the ground.”
Scott Gottlieb and Tom Miller: How to Reform ObamaCare Starting Now
online.wsj.com
“In the Wall Street Journal, Scott Gottlieb and Tom Miller of the American Enterprise Institute write that states should steer the mandated health-insurance exchanges in a pro-market direction and dare Washington to stop them.”
Book Review: The Hellhound of Wall Street
online.wsj.com
“James Grant reviews Michael Perino’s, The Hellhound of Wall Street: How Ferdinand Pecora’s Investigation of the Great Crash Forever Changed American Finance.”
Capitalism Saved the Miners
online.wsj.com
“In The Wall Street Journal, Wonder Land columnist Daniel Henninger writes that the profit = innovation dynamic was everywhere at the Chilean mine rescue site.”
President Obama Looks Forward — and Back
nytimes.com
“Mr. Obama reflects on his presidency, admitting that he let himself look too much like “the same old tax-and-spend Democrat,” realized too late that “there’s no such thing as shovel-ready projects” and perhaps should have “let the Republicans insist on the tax cuts” in the stimulus.”
What is going on with marriage?
nytimes.com
“You’ve probably heard the latest marriage narrative: With the recession upon us, young lovers can’t afford to marry. As appealing as this story is, it has one problem: It’s not true.”
Should the Nobel Folks Be Sued for the Financial Crisis?
freakonomics.blogs.nytimes.com
“The recent financial crisis clearly had many contributing villains. But if you’re looking to sue someone to recover losses, Nassim Nicholas Taleb maintains, the choice is clear: the Swedish Central Bank, which awards the Nobel Prize in Economics.”
The Foolish Foreclosure Moratorium — The American, A Magazine of Ideas
www.american.com
“Democrats are calling for a nationwide end to mortgage foreclosures. It’s hard to imagine a more shortsighted policy under our current economic circumstances.”