Sunday, June 29, 2008
When gas hit $2, and even when it reached $3, car dealers saw little change in their monthly tallies. People grumbled, but they still bought cars and let their fantasies govern their decisions. If they wanted something that would dominate the road, they dug a little deeper and took out a loan.
When you want people to respond to incentives, the incentives have to be binding.
If we had included, say, infrastructure spending as part of the initial stimulus package, then the effects would kick in on a sustained basis over time rather than as a one-time hit as with the tax cuts. Thus, this type of spending could have provided the continuous stimulus Shiller is calling for. And if we are wrong and there is no recession, how big a problem is that? Well, what's so bad about building new infrastructure repairing what we already have, don't we need to do that anyway? With a stronger economy, wouldn't it be easier to pay for it? Insurance that also has investment value seems like a good bet to me. But we didn't include infrastructure spending, or any other type of sustained stimulus in the initial package, and while I'd like to see more infrastructure investment in any case, short of an obvious and sharp downturn in the outlook, there doesn't appear to be much chance of any new tax rebates, or spending on infrastructure or anything else anytime soon.
Can pork barrel projects be considered fiscal stimulus? Or what about my wild plan for telco competition? Particularly interesting would be to consider the whether an increase in maintenance and repair such as McGrattan and Schmitz in a DGE models can generate sustained growth and whether this view can be supported by the data. This is identical to the argument on whether public capital is productive. See for instance, early work by Aschauer, Mary Finn who argues that some spending such as highway spending is productive, and Evans and Karras who find that only educational inputs are productive.
Thursday, June 26, 2008
In the recent debate about whether the rise in the price of oil is due to speculation or fundamentals, I'm in the a bit of both camp. This puts me into J. Hamilton's camp. Mark Thoma has a nice summary of the debate so far and has even responded to the question: Why isn't there a similar argument on speculation in agriculture here. (Older posts by Brad Setser and Econbrowser here.)
Much of the arguments have been centered on why there hasn't been any increase in inventories and whether there are alternate ways of hoarding without us seeing a rise in inventories. The other part of the argument is if speculators foresaw an increase in demand why did they not speculate on the price earlier, i.e. why did prices rise now rather than earlier? Speculators hence would have played a role in damping the price increases.
I've been trying to digest this post on the reason for the rise in global food prices and have been wondering whether it is part of the explanation for oil as well:
1. The increase in wealth has made consumers less willing to substitute away from the good that has risen in price.
2. A series of unanticipated supply shocks has also decreased global supply of the good.
3. There is no speculation because shocks were unanticipated.
4. Inventories are drawn down thus increasing pressure on demand as consumption stays the same because of high inelasticity of demand as wealth increases.
5. Since demand continues to be strong prices continue to stay high.
This argument is persuasive but seems to be an argument as to why prices stay high but does not explain the daily volatility of the good. Nor does it explain why the price keeps rising in the apparent (?) absence of any news of supply shocks.
Wednesday, June 25, 2008
1. From young whenever our kids say No to something, we would counter with something like: Why don't you try it first? You'll never know until you try.
2. We try to teach cooperation and compromise until it becomes a habit. A No means no compromising which we teach them to be something possibly rude or selfish.
How should we teach our children when it's okay to say no, how to differentiate the situations where it is okay to say no, and importantly how to say no. Only when they feel that saying anything other than No would threaten their safety? But safety of the body or the mind or both? I can say no because saying yes might make me uncomfortable even though I may not feel threatened - aggressive panhandlers along my usual route for instance. If I say no they may become aggressive. If I say yes and give them a dollar they might ask for more. Is it okay to say no in this case? I might be uncomfortable saying both yes and no.
" ... according to Professor Eric Johnson, may be the frequency with which consumers are seeing higher prices. “Things that you buy more frequently and that have large percentage increases will weigh more in people’s perception of inflation,” Johnson was quoted as saying.
He elaborated in the article with the following example: a person paying an extra $25 to fill up the gas tank is reminded of that cost once a week, or more often if you count the times he or she sees a $4-per-gallon price in giant numbers on a sign. In contrast, a rent increase of $100 would only happen once a month but would have the same financial impact."
It seems like this should be easy to test:
Volatile components of the CPI should have a larger effect on inflation expectations.
The data for CPI consists of food, energy and all other items less food and energy (the assumed less volatile components).
Food and/or energy should have larger "impacts" on inflation expectations.
In a regression of inflation expectations on change in food, energy and all other prices, the coefficients of food/energy is expected to be larger than the coefficient on changes of all other prices. (I think this is correct. I realize that the size of the coefficient does not always imply that the effect is larger but in this case it should work because all the right hand side variables are measured in the same units - percent change.)
To be more precise, it is not the size of the coefficient but the average effect as measured by the coefficient multiplied by the average changes in food, energy and all other prices that gives the size of change.
At the risk of further embarassing myself since I haven't engaged in any real econometrics in years here are some results:
I use non-seasonally adjusted data on CPI from FRED and inflation expectation from Michigan's Survey of Consumers.
The following plots the mean and median expectations of percent changes in inflation with the percent change in food.
Inflation expectations are of several orders of magnitude larger than actual percent changes in prices. Surprisingly changes in all other goods excluding food and energy are more variable than changes in food prices (mean percent change is 0.34 versus 0.31).
What about the results from an estimated regression equation? The mean percent change in each of the price indices multiplied by its regression coefficient is summarized below - the estimate is the middle line while the 95% confidence intervals are the top and bottom of the bars:
Surprisingly, (if my naive estimates are correct), changes in food and energy prices have smaller effects on consumer expectations of inflation than changes in all other prices.
I am also reminded by Jim Hamilton that time varying volatility might be present in the dependent variable. (In fact, it looks like it's present in all the series but I don't know how to handle this.) I reestimated the above assuming a GARCH(1,1) and find that the results do not change substantially. (I haven't plotted the coefficients yet and maybe at some point I will update this post with the plots.)
2. Stephen Baxter's Manifold Time
David Brin's book published in 1990 was far sighted in the sense that it predicted the effects of climate change long before it became mainstream public discourse. I especially liked the look into the future where a new "religion" based on environmentalism was formed - NorAChuGa - the North American Church of Gaia. He also notes that most of Miami is under water and a hazardous occupation using divers to go through the under water cities to find valueable items had emerged. Landfills have become full and now 50 years later were proving to become sources of raw materials that have now become scarce and a new venture of landfill mining had emerged. Most of Greenland had warmed and was now open of emigration. Some had also begun seasteading. The ozone layer has been depleted and skin cancer was on the rise. The population mostly wore goggles that double as a video recorder to record crimes and hats. A splinter group called RaRa rebels against this and instead embraces the sunlight. Insights like these were quite amusing and interesting. At over 650 pages though it did make for slow reading and the pace doesn't pick up until about page 400. One blemish was naming one of the characters Sepak Takraw.
Stephen Baxter's book was not as massive and is an interesting exploration of the evolution of the universe and causality violation/multiverses. Both books take place in the near future - Baxter's in 2010-2012 and Brin's in 2030 or so. It's too tempting to prove them right and wrong so I'll do that here.
Both are overly optimistic and overly pessimistic at the same time. The scale of disaster brought on by war, population growth (of Malthusian proportions) and environmental degradation seems a little overstated although Brin still has the luxury of time on his side (30 years more or so) to be proven right. Both authors used an artifact called a "softscreen" which I assume is to be some kind of computer/laptop with foldable/rollable screen. As nice as it sounds I think that this may be a little far off still (but again, Brin has time on his side). (Brin also forsees an interface using thought which sounds interesting. See this entry for some possibilities.) As long as manufacturers continue to concentrate on processor speeds things like energy consumption, battery life, user interfaces and idea as to what constitutes a computer takes a back seat. However, I should also contradict myself by saying that Intel/AMD have also focused on energy consumption of their chips because of laptops (although not fast enough for me) and touch-screen interfaces are being used (again not as fast as I'd like to see) and Apple has been in the forefront with design with Mac Air -- not quite what I imagine a softscreen to be. In order for this to happen both user interface and design have to converge.
The weakest assumption is the seeming ease at which individuals are connected to the Web. Certainly in large cities this is the case but I'm not sure that there is sufficient coverage in rural areas to assume that everyone can remain easily and cheaply connected. I'm looking forward to a day when access points are available anywhere and are free.
Tuesday, June 24, 2008
One review here. Prices range from $299.99 to $549.99 which was cheaper than I had proposed. Granted, it doesn't have Kindle nor does it read Sony Reader books but it has Linux with a very fast bootup, USB ports, and built in Wifi. Some models also have a built in camera and microphone. All right, no MP3 player but I'm sure it plays MP3 and its battery life is still up in the air (reviewers seem to complain that it lasts between 90 minutes to 2 hours depending with the more expensive models having longer battery life). I'm a little torn between the 7" versus 10" models - yes, the 10" models have bigger keyboards (and people have typed on smaller keyboards) but it seems to defeat the purpose of portability. Still 10" is about the size of a large hardcover book.
Three horrors await Americans who get behind the wheel of a car for a family road trip this summer: the spiraling price of gas, the usual choruses of "are-we-there-yet?" -- and the road rage of fellow drivers. Divine intervention might be needed for the first two problems, but science has discovered a solution for the third. Watch out for cars with bumper stickers.
That's the surprising conclusion of a recent study by Colorado State University social psychologist William Szlemko. Drivers of cars with bumper stickers, window decals, personalized license plates and other "territorial markers" not only get mad when someone cuts in their lane or is slow to respond to a changed traffic light, but they are far more likely than those who do not personalize their cars to use their vehicles to express rage -- by honking, tailgating and other aggressive behavior. It does not seem to matter whether the messages on the stickers are about peace and love -- "Visualize World Peace," "My Kid Is an Honor Student" -- or angry and in your face -- "Don't Mess With Texas," "My Kid Beat Up Your Honor Student."
The key to the phenomenon apparently lies in the idea of territoriality. Drivers with road rage tend to think of public streets and highways as "my street" and "my lane" -- in other words, they think they "own the road." Why would bumper stickers predict which people are likely to view public roadways as private property? Social scientists such as Szlemko say that people carry around three kinds of territorial spaces in their heads. One is personal territory -- like a home, or a bedroom. The second kind involves space that is temporarily yours -- an office cubicle or a gym locker. The third kind is public territory: park benches, walking trails -- and roads. Previous research has shown that these different territorial spaces evoke distinct emotional responses. People are willing to physically defend private territory in ways they would never do with public territory. And people personalize private territory with various kinds of markers -- in their homes, for example, they hang paintings, alter the decor and carry out renovations. "Territoriality is hard-wired into our ancestors from tens of thousands of years ago," said Paul Bell, a co-author of the study at Colorado State. "Animals are territorial because it had survival value. If you could keep others away from your hunting groups, you had more game to spear . . . it becomes part of the biology." Drivers who individualize their cars using bumper stickers, window decals and personalized license plates, the researchers hypothesized, see their cars in the same way as they see their homes and bedrooms -- as deeply personal space, or primary territory. Unlike any environment our evolutionary ancestors might have confronted, driving a car simultaneously places people in both private territory -- their cars -- and public territory -- the road. Drivers who personalize their cars with bumper stickers and other markers of private territory, the researchers argue, forget when they are on the road that they are in public territory because the immediate cues surrounding them tell them that they are in a deeply private space. "If you are in a vehicle that you identify as a primary territory, you would defend that against other people whom you perceive as being disrespectful of your space," Bell added. "What you ignore is that you are on a public roadway -- you lose sight of the fact you are in a public area and you don't own the road." Szlemko said that, in an as-yet-unpublished experiment, he conducted tests of road rage in actual traffic. He had one researcher sit in a car in a left-turn lane. When the light turned green, the researcher simply stayed still, blocking the car behind. Another researcher, meanwhile, examined whether the blocked car had bumper stickers and other markers of territoriality. The experimental question was how long it would take for the driver of the blocked car to honk in frustration. Szlemko said that drivers of cars with decals, bumper stickers and personalized license plates honked at the offending vehicle nearly two full seconds faster than drivers of cars without any territorial markers.
Unfortunately, there are a lot of cars with bumper stickers in Washington, DC. If I get honked again because the driver behind me thinks I'm too slow .... grrr ... almost makes me want to move out of the region.
1. Trust your intuition/instincts.
2. Fear is different from anxiety and it is necessary to be able to differentiate between them.
3. Human behavior can be predicted fairly accurately, especially if it is someone you already know and/or have observed frequently.
Most of the book were the expansions of these concepts using cases that he is familiar with, i.e. his clients. The pace of the book is good and flows easily. I am still confused between disengaging and confronting when dealing with a stalker/persistent date etc. He argues that in a lot of cases a restraining order is not a good idea unless the person is a total stranger and is not prone to violence. In cases where the person is known to victim, i.e. husband, date, coworker a restraining order can lead to violence. My confusion how to differentiate between the using one or another technique. He has some tools in his book but it doesn't always seem to be helpful and in many cases it does boil down to "listening to yourself". He highlights the cases where a restraining order led to violence and the victim was reluctant to obtain a restraining order because her instinct told her not to.
What I also found interesting was the following list of how we all behave (pg. 82):
1. We seek connection with others.
2. We are saddened by loss and try to avoid it.
3. We dislike rejection.
4. We like recognition and attention.
5. We will do more to avoid pain than we will do to seek pleasure.
6. We dislike ridicule and embarassment.
7. We care what others think of us.
8. We seek a degree of control over our lives.
In discussing whether perserverance/persistence is a virtue (it is seen to be in men but not in women) he writes:
We have to teach young people that "No" is a complete sentence. This is not as simple as it may appear, given the deep cultural roots of the no/maybe hybrid. It has become part of the contract between men and women and was even explored by the classic contract theorists, Rousseau and Locke. Rousseau asked: "Why do you consult their words when it is not their mouths that speak?" Locke spoke of a man's winning "silent consent" by reading it in a woman's eyes "in spite of the mouth's denial." Locke even asserted that a man is protecting a woman's honor when he ignores her refusal: "If he then completes his happinessm he is not brutal, he is decent." In Locke's world, date rape wouldn't be a crime at all - it would be a gentleman's act of courtesy.
For example, if a man in a movie researches a woman's schedule, finds out where she lives and works, even goes to her work uninvited, it shows his commitment, proves his love. ... But when she shows up at his work unannounced, interrupting a business lunch, it's alarming and disruptive. (pg. 208)
A few thoughts:
1. I think that some men might find it flattering that a woman did the above (research schedules, shows up unannounced) etc.
2. De Becker also points out the role of media in contrasting the differences between persistence versus disruptive between men and women by noting the differences in their portrayals in movies. (Dustin Hoffman in The Graduate, Robert Redford in Indecent Proposal versus Sharon Stone in Basic Instinct, Glenn Close in Fatal Attraction). I also wonder how big a role romance novels play in contrasting these differences.
Sunday, June 22, 2008
"As far as I know, there has never been a rigorous ex post evaluation of CGE models in practice, one that compares predicted to actual outcomes. Based on performance, is there any evidence that such models add value—that their predictions are any better than those derived from macro or sector-specific models, or even a random walk?"
This is not new and in fact this challenge has been issued and taken up by Tim Kehoe in "An evaluation of the performance of applied general equilibrium models of the impact of NAFTA"
This paper evaluates the performances of three of the most prominent multisectoral static applied general equilibrium models used to predict the impact of the North American Free Trade Agreement. These models drastically underestimated the impact of NAFTA on North American trade. Furthermore, the models failed to capture much of the relative impacts on different sectors. Ex-post performance evaluations of applied GE models are essential if policymakers are to have confidence in the results produced by these models. Such valuations also help make applied GE analysis a scientific discipline in which there are well-defined puzzles with clear successes and failures for competing theories. Analyzing sectoral trade data indicates the need for a new theoretical mechanism that generates large increases in trade in product categories with little or no previous trade. To capture changes in macroeconomic aggregates, the models need to be able to capture changes in productivity.
The main problem with validation is the ceteris paribus approach in CGE modeling and the fact that a lof of them are static so the time of transition from one state to another is left unaddressed. For instance, if the CGE model predicts that with a change of taxes from 10 to 11 percent will reduce consumption by 0.2 points we need to confirm this by taking the model to the data.
We can start with the current data but when should we look again after the 1 percent increase in taxes is implemented? Do we look at consumption data at the time the 1 percent increase, 1 quarter after or 1 year after? Most static CGE models are silent on this issue. In addition, there are possibly multiple shocks to the economy between two points in time so even if consumption did fall by 0.2 points can we really attribute all of this fall to the 1 percent increase in taxes?
"The Little House books carried me through all the anxious times of my childhood. I'd always thought that reading about the hardships of cold and hunger had given me some childhood version of schadenfreude, making my own anxieties easier to bear. Now, when I reread the books with my daughters, though, I have another insight: The books actually provide an escape into a wonderful home, because of the way they portray Charles and Caroline's love for each other. This is a big part of what makes Laura (and by extension, perhaps, made me) feel so cozy and warm in bed at night. In our current collective imagination, how much imagery do we have of parents who love and enjoy each other like this? Who aren't harried and snapping at each other, whose children don't worry—once they become aware of the threat—that they will someday get divorced? There's a lesson in that."
A few things struck me:
1. LIW writes in great details things like sewing, cooking and all her chores and these were quite a revelation.
2. Some parts were extremely religious almost to the point of proselytizing which made me uncomfortable because we're not a religious. We haven't discussed these parts with K1 and she hasn't asked.
3. She also describes in gruesome detail killings for food e.g. deer and one particular scene that I had just heard was when their kitten killed its first mouse.
4. Pa Ingalls was a bit of a dreamer trying to strike it rich moving his family all over the country and although he never became wealthy, he was able to provide with some struggle. His ability to remain optimistic and fiddle his way through the hard times is an example for us.
5. It's hard to remember that while the events may have been true they may not necessarily have happened as written. I'm thinking of the death of their dog, Jack one the eve of the night that Pa was about to move to South Dakota.
6. "Gay" and "queer" used to mean something different than it does today.
The Wikipedia entry was great as way to find out what happened to everyone although I think all the entries on LIW and on the siblings could do with a little more footnoting and sourcing. An interesting book was William Anderson's "The Little House Guidebook".
"... here are the correlations for the four rounds played at the Memorial Tournament two weeks ago. Basically these correlations all hover around 0. There is no evidence here that the rank ordering of participants from round to round has any appreciable level of stability. And yet $6 million of prize money was doled out on the basis of this selection process."
However, in order to be conclusive, this exercise needs to be repeated for many tournaments or at least a series of tournaments, e.g. all USGA or all LPGA. The post also shows correlations of rankings rather than correlations of scores which I think will make a difference since the test-retest reliability involves actual scores rather than rankings.
Recall that rankings for the top 10 at any end of the day may be separated by only very few strokes so it is possible for someone to score the same score on two days but be at very different positions of the ranking.
"When the Toronto Star ran an article alleging that a shocking 60 percent of NBA athletes “go broke” five years after retiring, did we not all pull out that very tiny violin we have reserved for such occasions? The NBA players union and the NBA have both disputed that assertion."
1. From Chris Wheelan, the Naked Economist:
1. Dump the McMansion.
There's been so much wreckage across the real estate market that we've neglected likely trends. The ironclad law hasn't changed; it's still "location, location, location." But the definition of a good location is certainly different if gas is $4 a gallon -- let alone $6 or $8.
Those giant houses 50 and 60 miles from the metro core now have three strikes against them: 1) Low-density development is rarely near public transit; 2) The resulting commute by car is wickedly expensive; and 3) The whole point of living that far from a metro area is to get a bigger house, which is now more expensive to heat and cool.
Other neighborhoods will emerge as a lot more attractive. We'll hear real estate agents say things like, "And you can walk to the train station." Americans might even develop more of a taste for condos and apartments. Nothing lowers the utility bill in the winter quite like having a common wall on two sides and heat wafting up from the apartment below.
2. Firms might begin to make business location decisions based on the commuting costs of their workers.
Suppose you're considering two jobs: One is in a building three blocks from the commuter train station, and the other is in an office complex 21 miles away from anything except cornfields. How is that decision affected by $6 gas?
In 1989, the retailer Sears closed its headquarters in the Sears Tower, a Chicago skyscraper, and moved 5,500 workers to a lower-cost campus in suburban Hoffman Estates, 30 miles from downtown and virtually inaccessible from most parts of the region by public transit. That kind of thing just isn't going to happen as much anymore. Sure, firms will still be looking for low-cost real estate, but they usually need high-quality workers even more -- and mandating long, expensive commutes is a good way to lose scarce human capital.
3. If you add it all up, the next several decades will be relatively good for cities -- at least compared to the last half century.
Part of this is driven by more expensive gas, as described above. But there are other forces at work, too. Worsening traffic congestion will make long commutes more costly in terms of time, not just money. Many aging baby boomers will seek urban culture and entertainment offerings (and more diverse housing choices) as they find themselves "empty nesters." Violent crime -- often one of top reasons for fleeing cities -- has been falling steadily for more than a decade. Both Chicago and New York City had the fewest number of homicides in 2007 than in any year since the mid-1960s.
The suburbs are not going to shrivel up and die. They tend to be lovely places, and most urban areas still haven't managed to cobble together decent public schools for middle-class families. But for the first time in a long time, basic economic forces will favor density over decentralization.
2. Richard Green's Blog on Urban Economics
People often wonder why European densities are so much higher than US densities. Part of it is history (Paris and London largely developed before automobiles); but part of it is that Europeans have been paying high prices for gasoline for a long time, and that they have had transit as an alternative. That said, the dynamics of European cities has been toward sprawl--central Paris has been losing population to its suburbs for the past fifty years.
I am wondering whether the rise in urban density will result in more convenience Mom-Pop grocery stores. I noticed them in Paris and to some extent New York but not in Washington DC. Will there be fewer box stores? Perhaps not - I'm reminded of some sit-coms where the characters need to find someone with car or mini van so that they can go shopping in the suburban malls/Home Depot.
3. Brutal commutes:
The Metro Orange line has been a mess all week -- several serious delays, and terrible overcrowding even when the trains are running. When I got to the station yesterday morning, the platform was so crowded that they had to stop the escalator to make sure no one was pushed onto the tracks. And the air conditioning in my car seems to be dead, so I'm soaked in sweat by the time I get home. It's only taking a little longer than usual, but it's really taking the stuffing out of me. The scary thing is that it's only going to get worse if the price of gas makes more people switch to the train.
Porter Square has changed a lot since I was last in Boston which was about 20 years ago. There are a lot more dining choices (besides Unos and Christophers's) - Wok and Roll which we tried, Tamarind House (which I would have liked to try) and a Korean place in the Porter Square Exchange (which we tried). The Porter Square Exchange also houses the Lesley University (used to be College when I lived in Boston) and the Porter Square Tavern which seemed a little noisy to us. Mostly we did take out since all these places were about a block or two away from the Frost House.
I never really liked Boston when I lived there - the main reason was that Boston sports fans can be obnoxious on the T and it seemed like there were always obnoxious sports fan on the T - if not Red Sox fans then it was the Bruins or the Celtics. Fortunately, the Celts had already won the 2008 NBA when we got there. I wasn't looking forward to riding the T with drunken fans. Mostly Bostonians which seem to be identified with the label of Brahmin liberal northeasterners and can be summarized by what I read here:
John Quincy Adams had seen this day coming for years. His only consolation was that he had helped postpone it till now. The son of the man he considered most responsible for American Independence, Adams felt a peculiar responsibility for the outcome of the republican experiment. And these last few years the experiment hadn't been turning out well at all. His father, John Adams, and most of the other Founders had feared that republicanism would degenerate into democracy: that government of the people would become government by the people. Nothing in history disposed them to look hopefully on such a development, for never in history had ordinary people run their own affairs without very quickly running them into the ground. The elder Adams linked arms after the Revolution with those who sought to curb the popular excesses of the revolutionary era; at Philadelphia in 1787 they wrote a constitution that took power from the states and conferred it on the central government, and in doing so diminished the influence of the people in politics generally. As vice president and then president, John Adams continued to work to keep power out of the hands of the unlettered and incompetent, and in the hands of those best suited by education and experience to exercise it responsibly.
-Preface to Andrew Jackson, His Life and Times, by H.W. Brands -
Perhaps things must be different now since Mitt Romney became governor.
Monhegan Island is about 10 miles out from the mainland and what struck me first was how it became such a tourist destination compared to the other closer islands like Hooper's Island. There were certainly a lot more that were more accessible and my guesses are:
1. The inhabitants of the islands own most of the land and have chosen not to become more dense. Certainly there are fewer houses on some of these islands than Monhegan which has a year round population of about 70.
2. There residents of these low population islands are wealthier and do not have to sell their land (hence increasing density).
The weather was showery, overcast and cool for most of our stay. It was the perfect weather for hikes and though we did not do all 17 miles of trails we did manage to get out the Whitehead and back through the meadow (lots of flies which K1 and K2 did not like), Lobster Cove to see the shipwrecked tugboat DT Sheridan (circa 1948) and to Pebble Beach to the seal ledges where we did get to see one (and maybe another swimming) seal on the rocks.
The room was a one bedroom apartment with a pull out sofa which I'm determined never to have to sleep on one again for any vacation. It had a kitchen/living room where the sofa was, which we used to make 2 dinners (pasta and sauce). We tried to get chicken from the store (the Carina) but they ran out - chicken's coming in on the late boat - they said. For some reason, it sounded funny. It would have been nice to have a microwave or a toaster and a broom to sweep out the sand but there was a vacuum cleaner in the closet in the hall. They also had pots and pans (some pots without covers) which were sufficient for our needs. No TV which was also okay but there was some WiFi which unfortunately was rather weak and sometimes I would lose connectivity completely.
There was a strong smell in the room that I could not place - either bleach or propane (the propane tanks were right outside) and fortunately I got used to it. There was a gas fireplace which was nice (and useful for drying clothes). The bathroom was shower stall only and fortunately neither K1 nor K2 minded. The bedroom had a queen bed which was comfortable when we got to sleep in it instead of K1 or K2.
All around are signs that water is scarce on Monhegan as well as to recycle since garbage disposal is expensive. Day trippers are encouraged to bring their garbage out with them. The Monhegan General store used only paper bags encouraged us to reuse. Pickup trucks and golf carts have right of way on the paths on Monhegan. There are no paved roads, no street lights and some houses for rent seem to claim proudly "No electricity".
Breakfast was in the common room - continental breakfast so we did not expect too much - bagels, muffins (if we're there early enough), juice, coffee, cereals. There was a complaint on Tripadvisor about the breakfast and I guess I can see their point although the website was clear that it was not a hot breakfast. Perhaps the cereals could have been in some containers instead of the boxes but all in all I was fine with it.
The innkeeper John Murdock kept mostly to himself. He was releasing a CD that week we were there "Songs of the Sails" but his wife, Winnie spent some breakfasts talking to us. She was very pleasant and K1 and K2 helped her with the garden along with some other inn guests (Carroll and Connie) who seemed to know one another. (Connie was on the CD with John, I think). They were there for a wedding and the CD release (concert to benefit the Monhegan Church). The owners also had two cats which added to K1 and K2's contentment at being there.
There were only two dinner options on the island: the Island Inn which we went to on our last night (entrees $25-$40) the Trailing Yew (which was also a rooming house). The Monhegan House had not opened its dining room to the public yet although on it's website it said that it would come 6/27. There were several sandwich and grocery stores on the island - the Monhegan Store, Carina, Black Duck, Novelty and all seemed pricey. We bought a small box of Cheerios for over $5.00 and sandwiches were generally in the $7-$8 range. I was torn between feeling ripped off and a desire to support the locally owned stores.
Besides hiking, K1 and K2 met some other children who were on the island for the wedding. They tried to build a dam near the creek that ran into the beach and had a great time. They also liked Connie and Winnie and some other guests that we met and had a great time. Connie came down to the wharf to see us off and gave us some wildflowers to throw off the boat as it left the harbor. A symbol that we would return to Monhegan. Of course, K1 and K2 didn't want to throw the pretty flowers but we did. They were very sad we were leaving (first time I think and mostly because of the symbolism).
Thursday, June 12, 2008
Economic modeling assumes, for the most part, that agents are Bayesian, that is, that they entertain probabilistic beliefs, objective or subjective, regarding any event in question. We argue that the formation of such beliefs calls for a deeper examination and for explicit modeling. Models of belief formation may enhance our understanding of the probabilistic beliefs when these exist, and may also help up characterize situations in which entertaining such beliefs is neither realistic nor necessarily rational.
Unfortunately not. This paper was more a summary of earlier works and if I thought it would provide an answer as to where priors come from, I was wrong. One of the suggestions by the authors was, yikes(!) to use multiple priors. In any case, the idea was intriguing enough that I should probably take a look some time in the future. References are in the paper.
We do not take blind stabs at temp and rain possibilities. We do not regurgitate forecasts that are made by other entities (at least most broadcast outlets create their own from scratch). We independently create our own forecasts, based on data and our experience, making the best judgement call possible given the situation. And whoever said “We have no idea what is going to happen beyond three days out,” is completely wrong. The purpose of a seven day forecast is not so much its dead-set accuracy as it is to give viewers the ability to see trends. Are days 6 and 7 going to feature warmer conditions? Does it look unsettled? Things such as that. So let’s say we are experiencing a week of 80s in spring, and I predict a day 7 cooldown. I forecast 58 on day seven. It verifies as 52 degrees. I am off by six degrees, but I still told you seven days ago that a significant cooldown was expected in a week. Am I really wrong?
Another thing you do is grade the consistency of the forecasts, and you comment on how it changes from day to day. My question is, does that really matter? If I forecast 46 for a high on day 7 and the next day, it looks maybe a bit warmer, should I keep that 46 or bump it up to 49? You want the best, most accurate forecast, so unless you have significant reservations, you’re going to increase the temperature forecast. Weather is inconsistent. That’s why it’s so fascinating. So in my personal opinion, while you don’t want your meteorologist making 10 degree temperature adjustments every day, you do want to present the best forecast you can, and if that means making changes, then so be it.
We do not forecasts POPs where I am for this very reason. You’re better off verbalizing to a viewer that “there will be a few hit or miss showers around.” Some meteorologists prefer POPs. Others hate them. It all depends on your point of view. That said, although I hate them, I do not entirely believe that your grading method was fair. If a meteorologist says there is a 40% chance of rain and it does not rain at a specific point as you chose (KC Intl), does that really mean they failed? KCI is located several miles NNW of the city. So what you are saying is that if the met. went with a 40% chance, and it did not rain at KCI, but downtown KC received a thunderstorm, their forecast was incorrect. That is not fair to the forecaster or to people who will look at this and devise notions of their television meteorologist.
Monday, June 9, 2008
1. On investment bankers:
"Both at Goldman and more broadly even at business school, the basic persona of investment bankers or aspiring investment bankers is wholly inconsistent with this compensation structure. [salaries are set by "class" (the year started at Goldman) and compensation is expected to go up by about $100,000 per year.] One cannot spend even a few minutes talking to an investment banker without getting a palpable sense that they view themselves as defined by - and see the extraordinary salaries they make as being justified by - their aggressive, entrepreneurial, risk-taking approach to life and business. But the lockstep compensation scheme described was clearly designed for exactly the opposite type of person." (pg. 57)
"The key to successfully managing large numbers of highly competitive, ambitious people, it seems, is to feed their most unrealistic illusions about themselves. And the best way to keep them is to instill a subconscious belief that those illusions will be shattered when exposed to the light of the outside world. I remember particularly a leadership training course that I went to with a dozen other young vice presidents at Goldman at which we were all asked to put our heads down on the table. The facilitator asked those who believed they were in the top 1 percent of their peer group to raise their hand. The bar was then lowered to top 3 percent and then 5 percent. When we sat up I discovered that I was the only member of the group who had not raised his hand. It takes a very special kind of skill to keep more than 90 percent of the bankers believing they are in the top 5 percent of their class" (pg. 58)
"Bankers by nature are a delusional lot, each imagining they are responsible for much more of any success with which they have some affiliation than an objective observer would consider fully rational." (pg. 132)
2. On the Internet bubble:
"... Morgan Stanley had established a reputation for sponsoring very high-quality companies such as Silicon Graphics in 1986, Cisco in 1990, and, most notably, Netscape in 1995. But there was a cost to limiting yourself to high-quality companies, particularly when the Netscape IPO established for the first time a public market for early stage companies with little operating history and no prospects for profitability. The public had clearly lowered its standards for investing in IPOs; if investment banks followed suit and lowered their standards for underwriting securities there was a lot of money to be made." (pg. 145)
"Although there is no denying that Quattrone was an excellent marketer and effective banker, it is clear that he offered not only extra capacity but a lower quality bar. Quattrone targeted companies that Morgan Stanley and Goldman Sachs told to "wait a quarter or two" before the were ready to go public. Admittedly this would seem an eternity to an entrepreneur whose peers have already gone public and become rich, particularly a sophisticated entrepreneur who knows "waiting a quarter or two" is investment banker-speak for "I don't know when or if you'll be ready but you sure aren't now." This strategy in turn put pressure on Goldman and Morgan to weaken their own internal procedures and lower their standards. Soon companies hungry to join the IPO orgy not always truthfully, when seeking sponsorship from Morgan or Goldman to have been offered to be underwritten by Quattrone." (pg. 148)
"As the boom era moved to an end in the latter part of 2000, among the casualties was the culture of excellence and client service that had once prevailed at the leading investment banking houses. In its place was a culture of celebrity that countenanced a systematic lowering of standards. These included hiring standards, underwriting standards, research standards, standards for conflicts, work quality standards, teamwork standards, and standards of behavior. These lowered standards were apparent to both employees and clients." (pg. 149)
3. On MBA classes at Stanford:
"When I was getting my MBA in the late 1980s at Stanford University, the most intellectually stimulating course I took was the core macroeconomics class. That year my section was taught by Thomas Sargent, a distinguished visiting faculty member who is one of the fathers of the "rational expectations" school of economic thought. Sargent did something unexpected. He decided not to simply offer the usual slightly souped up version of the traditional macro course offered at every liberal arts college in the country. Instead, he recast the class as an introduction to game theory in which the Federal Reserve, the Congress, and consumers were each cast as players. Rather than being stimulated by this provocative approach, my classmates revolted. This was not what they had signed up for. They had lots of other classes to prepare for and job interviews and they really didn't have time to debate the applicability of the prisoner's dilemma to the macro economy. Just provide some sample questions for the final exam and they would take care of the rest." (pp. 152-3)
4. On effects of the crash on investment banks:
"It is rare that anyone knows the exact moment that a bust begins as it is being experienced. ... Whatever the exact date, two highly relevant facts are clear. First, through the first half of 2000, investment baks continued their relentless build up of staff and cost infrastructure. ... Second, by the last months of 2000, all investment banking business had slowed to a crawl. ... This timing had several implications. First, because most bankers are paid based on something close to a calendar-year results ... no one had an incentive to declare the boom permanently over. Second, the relative strength of the overall year's results would temporarily conceal the magnitude of the mismatch between the unprecedented cost base that had been systematically amassed through at least the middle of 2000on the one hand and the new, dramatically reduced transaction base that would need to be serviced in a postboom world. ... because decisions about new hiring levels are made a year in advance, the entering analyst and associate classes that the firms had committed to hiring for the fall of 2001 would be in many cases the largest on record, further inflating the banks' already bloated overhead" (pp. 172-173)
"In boom times, money was obviously the yardstick: how much you could generate for the firm (or be associated with) and how much you could convince the firm to pay you. In a downturn, bankers with time on their hands, knowing the short-term payday would be modest by historic standardsm feeling vulnerable not jut financially but in terms of their status both internally and the world at large, naturally became focused on the only game in town left to play: politics. This is a parallel to the situation in academia, where, as the saying goes, the politics are so brutal because the stakes are so low. In investment banking, when the statkes become temporarily low, energies are quickly redirected toward honing survival skills, managing upward, looking for internal administrative responsibilities, and generally positioning oneself for the eventual upturn." (pg. 183)
5. On the future of investment banking:
"The real role of equity research is to drive investment banks' enormous trading operations. ... Equity research is part of massive "soft dollar" arrangements under which institutional investors are provided with off-setting "value" to compensate for the higher [trading] prices. Radically cutting back proprietary research could have significant implications for this engine of trading operations. The bottom line is that, as I write this, no one knows for sure what the new long-term business model - for research specifically and marketing and distributing securities generally - will ultimately look like post-Spitzer. ... rules for how and when they [investment bankers] can communicate with research analysts vary among firms but pretty uniformly require the presence of the corporate legal department before most interactions. It is now easier for a banker outside of Morgan Stanley to get information from one of its research analysts about how investors look at a particular company than for a banker who works there." (pg. 218)
"The cost structure of the full-service investment banks puts pressure on them to complete as many transactions as possible. It is this transactional focus that has made many clients suspicious about the advice they get from investment banks and limits the kinds of assignment that investment banks are even willing to undertake." (pg. 225)
In all three books, the foot soldier on the frontline wonders why the higher ups don't give them more support. They also feel that know best since they are in the forefront of all the action. Certainly this is how a lot of people feel, including meter maids to programmers. It's a natural feeling and I have no doubt that the authors believe in what they do. The fact that they care and are dedicated is what brings the feeling that they know best out.
Unfortunately, in a lot of the cases in all the 3 books, the agents are working on hunches without much evidence to corroborate their suspicions. Given the risk averse nature of bureacracy (i.e. White House, NSC, CIA) they would not be supported. It is unfortunate of course, that in some cases (perhaps not all) that their hunches proved correct.
In all three books, the agents deplored what the CIA had become - overly risk averse, bureaucractic and political - yet behind that thought was that the CIA in the past had been better. I would disagree that the CIA ever functioned well. As a successor to the OSS, the CIA operated behind the curve - using WW2 techniques to train its agents even though the skills were no longer necessary, operating as though in a war footing, not investing in technology and computers and then swinging over to the other end of the spectrum after the fall out from its rogue operations. The CIA still has to find a successful model to function.
For instance, it's decision to "outsource" may not have been the best but I'm not sure that it's for certain that it's a bad idea although it may have created perverse incentives:
"One American consultant in London was paid more than the director of the CIA and the president of the United States put together. She had an open first-class ticket to fly back and forth to the U.S. anytime she wanted. In London, she rented some of the priciest office space available. When the CIA went out to inspect, we found she had subleased the office, defrauding the government of even more money. In this one instance alone, I could account for $1 million just flushed down the toilet. It was out-and-out theft, and there were at least twenty other instances with other people that involved similar amounts of money.
Incidentally, the woman who had set up the payment to the London consultant resigned from the CIA on a Friday and went to work for the same company the London woman worked for the following Monday. The CIA inspector-general's office found, to its horror, that the same woman, while at the CIA, had funneled two other equally large contracts in that consulting firm, the same one that she now worked for. In the end it was too painful for the agency to bring the case to the Department of Justice's attention, and the London consultant continues today to successfully shake down Congress for money." (pg. 235).
Passages like these really need to be sourced and the fact that they are not (and the woman was not named) make this to be nothing more than an accusation and nothing else more.
What surprised me most in the book for someone who pretty much slept through the Clinton years were the relevations/accusations on campaing financing involving oil companies and Roger Tamraz. Again, it is unfortunate that a lot of these sound like unsubstantiated accusations based on heresay and/or secondary sources.
1. Tamraz hired Senator Kennedy's wife to gain access to Al Gore and President Clinton. (pg. 238)
2. A man by the name of Jim Giffen was known as Mr. Kazakhstan because his company held all the power in the country. (pg 241) Unfortunately, Baer does not say how this came about.
3. "Aliyev filled us in. In March 1995 he had received a call from the State Department's undersecretary for economic affairs, Joan Spiro. ... In unmistakeable terms, Spiro threatened that if Azerbaijan wanted to maintain good relations with U.S., Aliyev would have to give Exxon its 5 percent." (pg. 240-241)
4. "After it borke in the press that Tony Lake and his wife had skirted the law by holding on to $304,000 in energy stocks when he was appointed national security adviser, I wondered if Lake had anything to do with Spiro's and White's calls." (pg. 241)
5. The NSC wanted to payoff Georgia and President Eduard Shevardnadze with an air defence system for his commitment to an oil pipeline. (pp. 242-243)
6. Baer wanted to plant a bug an Iranian facility in the Caspian but was initially rejected by the NSC because they were afraid that the Iranians would retaliate against Amoco. (pg. 251)
In any case, Chapter 20 was an eye opener for me and I'm not sure I wanted them opened.
From, "See No Evil" by Robert Baer (pp. 18-19)
"A computer has been trained to "read" people's minds by looking at scans of their brains as they thought about specific words, researchers said on Thursday.
They hope their study, published in the journal Science, might lead to better understanding of how and where the brain stores information.
This might lead to better treatments for language disorders and learning disabilities, said Tom Mitchell of the Machine Learning Department at Carnegie Mellon University in Pittsburgh, who helped lead the study."
Cool. This reminded me of the subvocal interface that David Brin imagined in his novel "Earth". It's sounds better than talking to a computer.
1. Solar panels on our roof (with backup batteries - I know, not very environmentally friendly) for backup power?
2. Satellite Internet for backup? Too expensive based on what I've been looking at from Hughes Net.
3. What about alternative sources of natural gas - and what can I do about water - dig a well?
4. Garbage disposal - compost everything?
Unfortunately, we are all interconnected these days and it is very hard to get off the grid. Perhaps we should be investing in infrastructure to build in some redundancies.
In any case, this thought was triggered partly by this WaPo article.
"Bethesda eighth-grader Jacob Rasch could not do his history homework assignment on the Compromise of 1877 on Thursday because, he said, he couldn't look it up on Wikipedia.
His mother could not e-mail health forms so Jacob can play baseball in high school this fall because severe thunderstorms that rolled through the Washington region this week took down the family's power and their Internet connection.
And his father couldn't fix the generator outside the house because he couldn't visit HowTo.com to find out how to clean the carburetor so that the generator would spring to life and power, among other things, the wireless router to their computer network."
It turns out that I tend to hold others to higher standards than I do myself.
1. I won't have someone clean house because if I do pay them then I would expect them to do a better job than I would. I would be the one to run a finger along all the counters to check for dust for instance.
2. Our shower curtain liner is disgusting yet I tolerate it. If I saw the same thing in a bathroom of a hotel I would scream!
Friday, June 6, 2008
1. The fall in the number of miles driven
2. The fall in consumption of gasoline
3. The fall in the sales of light trucks
See a summary here by Jim Hamilton. Yet how has causality been determined? Certainly, not by randomized trial or by any econometric methods - except for ocular regression. Two time series are running in different directions therefore it has to be the cause. Fifty years from now, when we look at these time series again can we actually conclude that the price of oil cause the declines?
In all fairness there are differences between Washington DC and Penang at the time:
1. Fewer people
2. Fewer trees that can knock down power lines
In any case, Pepco still has a ways to go in communicating how long a certain area can expect to get their power back. Right now their line seems to be more like this: "We're working really hard to get power back to everyone. We know it seems strange that your neighbor behind you has power and everyone else on your block is out (which did happen to us!) but we are working behind the scenes to optimally bring as many people back on line as we can at a time. Please let us do our work peacefully. Everything may seem haphazard but there really is a method to this that only those who work in the industry can understand. So please bear with us."
When NDB called to rate the blinds I told the representative I was not satisfied with them because of the above problem. She suggested that I call customer service which I eventually did -- but the point here is that no company really knows service anymore. Not Verizon, nor Comcast and now, not even NDB. As far as I'm concerned, after having heard my complaint, NDB should have had a rep call me to arrange to have the blinds fixed.
So should I call Comcast now? Not any time soon. As far as I'm concerned I in their records as having no cable tap so they should just be able to look me up and come out and get the job done without me having to tell them to. If they can do that then that's service and they've won themselves a new customer. It's obvious to me that they have no clue that we don't have a cable tap because we get numerous mailers from them to call and get cable service.