18 Nov 2009

Geeconosphere Joke of the Month

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From Zdeno in the comments at EconLib:

How many neo-keynesian economists does it take to change a lightbulb? Wait for it….

… Answer: Two. Paul Krugman learns how to do it from Scott Sumner, while Brad Delong deletes any comments that disagree with his technique. Oh no I di-int.)

Ohhhhh! Thanks for coming. Be sure to grab your tricorder and Vulcan ears on the way out.

18 Nov 2009

Krugman: "If This Were a Dictatorship Things Would Be Easier…Just So Long As I’m the Dictator (Heh Heh)"

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No, he didn’t literally say that; who the heck would literally say that?!

Even so, Krugman has bared his inner Mussolini as of late. Like Matt Yglesias, Krugman comes just shy of calling for the abolition of the Senate (though in fairness his post is far more tongue-in-cheek than Yglesias’). And in today’s post, Krugman laments that Tim Geithner paid full price for bank assets during the AIG bailout instead of saying to them (strikethrough in the original):

Also, individual banks are in a long-term relationship with the public and the government. They have an interest in preserving that relationship. The Epicurean Dealmaker offers an imaginary speech that Tim Geithner an anonymous government official could have given:
[T]hose people and institutions in this room which did not help us, which put their own narrow personal and corporate interests before the interests of this nation and its people, will be remembered as well.

And let me tell you something, gentlemen, banker to banker: you do not want to be on that list. That list will be a world of pain. That list will be Death.

Indeed. Bear Stearns famously refused to participate in the rescue of LTCM — and it’s widely believed that the lingering bad feelings from that exercise in free riding had a lot to do with the firm’s demise last year.

I encourage you to read the post. (Just to clarify, Krugman is lifting that hypothetical speech from the link. But he’s obviously agreeing with the basic idea.) Not a single word about the possible downside of having regulators threaten banks in this way. Nope, Geithner’s failure to do this–and let’s just pretend for a moment it was because of his timidity, and not because the whole )(*#$#$ point of TARP was to shovel hundreds of billions to bankers–is bad because it weakens the public’s faith in government bailouts and stimulus, leaving the whole economy at risk if there is another downturn.

18 Nov 2009

The Policeman Is Not Your Friend, 10-year-old Girl Edition

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Here’s a good one (HT2LRC):

Police Officer Uses Taser On 10-Year-Old Girl

OZARK, Ark. — Ozark police said they were called to a home where a mother asked for help with her unruly child, but the 10-year-old’s father said he’s outraged at the force police used against his daughter.

“I would like to say Ozark police Tased this little girl right here. Ten years old and [they] shot electricity through her body, and I want to know how the heck in God’s green earth can they get away with this,” said the girl’s father, Anthony Medlock.

Medlock said his daughter was at her mother’s house when Ozark police Officer Dustin Bradshaw shocked her in the back with a Taser and arrested her.

“If you can’t pick the kid up and take her to your car, handcuff her, then I don’t think you need to be an officer,” Medlock said.

Medlock said his daughter does show signs of having emotional issues, but she “doesn’t deserve to be treated like a dog. She’s not a tiger.”

According to a police report, the officer was called to the home by the mother and witnessed the child kicking and screaming.

The officer’s statement said the girl’s mother, Kelly Hamlert, told him to use a Taser on her if he needed to.

The officer did shock the girl after he said she kicked him in the groin.

“He had no other choice. He had to get the child under control,” said Ozark police Chief Jim Noggle.

Noggle said the officer shocked the girl for about a second.

Ozark police said it is their policy to use a Taser on someone who is a threat to others, no matter their age.

Noggle said simply restraining the child could be harmful.

“Well, if he tried to restrain her, he might hurt her by restraining her. If you grab somebody, you can slip an arm out of joint. They can slip from you and fall on the ground,” Noggle said.

“I don’t know what kind of policy it is. I don’t think it’s right,” Medlock said.

17 Nov 2009

Where’s That Inflation?

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Veronique de Rugy tackles the big question in her Reason column, and quotes me. And yikes, compared to the other serious academics, the quotes from Free Advice sound very uppity.

17 Nov 2009

WSJ Punts On Explaining Risk-Taking

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This article (HT2 Dan Simmons) is actually pretty good in explaining the logic behind Patriots’ coach Bill Belichick’s decision to go for it (rather than punt) on 4th down with the ball in his own territory and his team with a small lead. Since the Patriots were stopped and ended up losing the game, tons of people said Belichick was an idiot. You can read the article to see a defense of Belichick’s decision.

However, I want to quibble with what seems to be a mistake on the part of the WSJ writers:

[T]he essence of Mr. Belichick’s “crime” may be something simpler than all this: His decision went against the natural instincts of all human beings when they’re forced to make high-stakes decisions. In a recent study, researchers from Duke and UCLA found that when faced with a decision involving risk, people have an overwhelming tendency to make the supposedly safe choice—to err on the side of caution—even though doing so may lead to worse results.

By studying thousands of hands of blackjack played by random people, the researchers found that when they strayed from the “book” or the optimal strategy, those players who did something aggressive were more successful than those who did something passive.

In fact, the subjects made four times as many passive mistakes as they did aggressive ones. And these passive mistakes—holding on a 16 when the dealer has a king showing, for example—were more costly: They cost $2 for every $1 won, versus $1.50 for every $1 won on aggressive mistakes.

At issue, it seems, is the very idea of what constitutes gambling. If going for it gave the Patriots a statistically better chance of winning—and if aggressive deviations are often better than passive ones—then the gamble would have been to punt, even though that was the seemingly safe play.

In the part I’ve put in bold, I think the writes are mixing things up. First of all, the Blackjack deviations were from the correct play, so by definition, the deviation was a mistake. In contrast, the football statistician’s research (if correct) shows that Belichick deviated from the conventional wisdom but not from what the truly optimal play was.

Second of all, the WSJ writers are making it sound as if researchers have discovered some tendency that says, “If you’re going to deviate from tradition, better to err on the side of boldness–it will probably be better than if you err on the side of caution.”

But that’s not what the researchers found. No, they found that because people (apparently) have a predisposition to caution–they are afraid to hit and bust in Blackjack–you see them making relatively stupider moves when they err on the side of caution, compared to the times they err on the side of recklessness.

In other words, it’s not as if the researchers found that a “randomly generated mistake” is more likely to hurt you if the mistake is in refraining from taking a hit (when the optimal play is to take a hit), compared to a mistake when you hit and you really shouldn’t. Maybe that’s true and maybe it isn’t, but that’s not the question the researchers looked at.

In summary then, the safest (ha ha) thing to say would be: If you are stuck on a decision that’s really close, err on what seems to be the risky side, because your natural biases are already giving unwarranted appeal to the apparently safe side.

AN ASIDE: Blackjack is actually a very complex game, compared to something like Tic Tac Toe. I am pretty sure that when people refer to the “optimum play” they are actually relying on computer simulations. So for example, I don’t think it has actually been mathematically proven that you maximize your expected payout by hitting a 16 versus a Dealer’s face card. (Just think through how complicated that would get.) Instead, I think they just run through a bajillion computer simulations of a randomized deck (or maybe they model it with x decks), and then try different strategies and keep track of the outcomes.

17 Nov 2009

Tyler Cowen on Health Care: So Close, Yet So Far Away

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I knock Tyler Cowen a lot far not being “hardcore” enough on the free market. So I do want to say I’ve been very impressed by how much he’s sticking his neck out in opposing ObamaCare (or PelosiCare or whatever slur you want to use).

And yet, poor Tyler can’t bring himself to just say, “Get the government out of it!” Now if he doesn’t think that’s really the answer, OK, fair enough. Yet I can’t help but think he does believe that’s the answer, and has decided it’s not politically feasible. So instead he recommends things like this instead of the pending legislation:

1. Construct a path for federalizing Medicaid and put it on a sounder financial footing; call that the “second stimulus” while you’re at it….

2. Take some of the money spent on subsidizing the mandate and put it in Medicaid….

2b. Make any “Medicare to Medicaid” $$ trade-offs you can, while recognizing this may end up being zero for political reasons.

3. Boost subsidies to medical R&D by more than the Obama plan will do….

4. Make an all-out attempt to limit deaths by hospital infection and the simple failure of doctors to wash their hands and perform other medically obvious procedures.

5. Make an all-out attempt, working with state and local governments (recall, since the Feds are picking up the Medicaid tab they have temporary leverage here), to ease the spread of low-cost, walk-in health care clinics, run on a WalMart sort of basis.

6. Make an all-out attempt, comparable to the moon landing effort if need be, to introduce price transparency for medical services….

7. Preserve current HSAs. The Obama plan will tank them, yet HSAs, while sometimes overrated, do boost spending discipline….

8. Invest more in pandemic preparation….

9. Establish the principle that future extensions of coverage, as done through government, will be for catastrophic care only.

10. Enforce current laws against fraudulent rescission. If these cases are so clear cut and so obviously in the wrong, let’s act on it. We can strengthen the legal penalties if need be.

11. Realize that you cannot tack “universal coverage”…onto the current sprawling mess of a system, so look for all other means of saving lives in other, more cost-effective ways. If you wish, as a kind of default position, opt for universal coverage if the elderly agree to give up Medicare….

As always, go to the full post to see the nuances and context, but the above IS what Tyler recommended in his role as an economist shouting advice from the sidelines, not as a DC staffer or a voting Senator.

Here’s my comment:

Tyler (if you’re still reading this far), not that you wake up in the morning trying to earn my approval, but I find your list odd. It seems as if you’re saying, “Whoa whoa whoa! The proposed big government plan will not work as advertised and will make us all worse off.” (I agree, and I applaud you for having the courage to say so.)

But then you are mostly saying, “If I were central planner, this is what I’d do instead.”

I don’t disagree that your proposals are better, but do you really think Pelosi et al. have an intellectual disagreement with you about the cost-effectiveness of doctors washing their hands?

In other words, I think this is all hopeless if we keep trying to get the central planners to “do the efficient thing.” We know the system is designed so that they won’t do the efficient thing. I realize you don’t want to sound like a knee jerk libertarian, but some of us are knee jerk libertarians with good reason…

17 Nov 2009

CNBC: "3.7% Annualized Inflation Rate Is Tame"

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On its main page CNBC linked to this article with the headline “Inflation at Bay as Wholesale Prices Remain Tame.” As with just about every blurb of this nature, I have to ask: What is the cutoff point at which inflation is not at bay? From the article:

U.S. producer prices rose more slowly than expected in October despite a rebound in food and energy costs, according to a government report on Tuesday that pointed to tame inflation pressures.

The Labor Department said the seasonally adjusted index for prices paid at the farm and factory gate rose 0.3 percent following a 0.6 percent drop in September.

So let’s see… If you take 1.003 and raise it to the twelfth* power, you get a 3.7% increase (with rounding). Is everyone comfortable knowing that a 3.7% annual inflation rate is considered tame?

As always, I know I know, you can’t freak out about a single month’s blip. But these news stories are always couched in reaction to the single month’s blip. And as far as the year/year comparison, I’ve been saying all year how nonsensical that is, since prices fell like a stone last year up to December, and have been rising steadily ever since. From Dec 08 through October 09, the Producer Price Index is up 2.6%, and when you adjust it for only being 10 months, that works out to an annualized rate (in 2009) of 3.1%. Not the Weimar Republic, to be sure, but hardly evidence of “tame inflation.”

Here’s what I want to know: In January, when they are reporting the PPI and CPI numbers for December 2009, is everyone going to freak out when all of a sudden the year/year numbers go through the roof? Nah, I’m sure at that point somebody at CNBC or Bloomberg say, “You know, I wonder if the year/year figures have been screwy all this time? Don’t worry folks, inflation is still at bay!”

By the way, in case you are skeptical of my rhetoric: I am not flipping back to my worries of imminent explosions in the CPI. The big spurt in M1 and M2 back in late 2008 have been moderated by the lack of growth starting in about March of 2009.

Even so, I still maintain that the press is constantly pushing this “deflation trap” idea, when the actual numbers (as doctored as they are) illustrate the exact opposite story.

* It took me three or four tries before Blogger liked my spelling of twelfth.

16 Nov 2009

Jeffrey Tucker Continues His Assault on IP

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I admit there are still some areas that make me uneasy, but ever since reading Stephan Kinsella’s “Against Intellectual Property” [.pdf] I have thought IP cannot stand. At Mises.org Jeff Tucker goes over one of the latest absurdities flowing from the principle of owning ideas:

Some Harvard professors are taking very seriously their “intellectual property rights” and have claimed copyright to the ideas that they spread in their classrooms. What prompted this was a website in which students posted their notes to help other students.

The professors have cracked down. It might have been enough to legislate against this behavior in particular. Instead, they wrapped their objection in the great fallacy of our age: the professor owns his ideas and they may not be spread without his permission.

This action has opened up a can of worms, and now other universities have taken up the puzzling question: how do you at once enforce intellectual property and uphold the ideal of a university, which is, after all, about teaching and spreading ideas to others?

If I’m understanding Jeff correctly, students at some schools are actually having to (or may soon have to?) sign contracts like this before taking a class:

My lectures are protected by state common law and federal copyright law. They are my own original expression and I record them at the same time that I deliver them in order to secure protection. Whereas you are authorized to take notes in class thereby creating a derivative work from my lecture, the authorization extends only to making one set of notes for your own personal use and no other use. You are not authorized to record my lectures, to provide your notes to anyone else or to make any commercial use of them without express prior permission from me.

Of course we can come up with “obvious” cases where it seems as if someone is stealing from somebody else. E.g. if someone bought a copy of one of my books, slapped his name on it, and mass produced it as “his” book, I’d be furious.

However, given my present views, I would have to say that technically he didn’t steal “my book.” If he committed a true crime at all, it was that we had an implicit contract that he wouldn’t engage in such behavior when he bought the physical item containing the arrangement of words that I (and the editors) had discovered / created.

If you say people can own an idea, you run into all sorts of problems really fast. E.g. let’s say a mathematician proves some new and important result (like the Riemann hypothesis). Can subsequent mathematicians rely on the result in their own proofs, or do they need to pay him to get a license to use it?

If you can imagine the absurdity and material poverty the above system would cause (relative to one where there are no property rights in theorems), then you can imagine how much more sensible and richer we just might be if States didn’t enforce IP laws.