Monday, April 27, 2009

To Prius or not

Test drove a Prius last week and it was nice. Unfortunately, it was more car than I wanted, i.e. it came with options that I was not interested in (backup camera, smart key, iPod connection, better sound system) which drove the MSRP to over $24K. The dealer offered $22K but I walked away from that deal. It was $2-3K more than I wanted to pay. The base model would have been fine which would have probably been offered a $20K but the dealer said that those models are only available to rental agencies. Huh?

Tuesday, April 21, 2009

Reading Piketty Saez

A while back (before the financial crisis), there was a lot of discussion on income inequality on MR which cited the paper Income Inequality in the United States: 1913-1998. After having read it (finally!) - with annual updates available from Prof. Saez's website - I was still trying to grasp how the authors made their calculations. It would have been great if they had made the raw data and computations available.

My first impression had been that they had access to all IRS tax returns which would have made this the definitive work on income inequality. But they did not and made inferences based on aggregate data which leaves room for quibbles.

"Using the published information on composition of income by brackets and a simple linear interpolation method, we decompose the amount of income for each fractile into five components: salaries and wages, dividends, interest income, rents and royalties, and business income. We use the same methodology to compute top wage shares using published tables classifying tax returns by size of salaries and wages."

It is sometimes said that regressions is what we do when we don't know what else to do. The same could be said for linear interpolation.

Wednesday, April 15, 2009

Borders in Malaysia

When we were in Malaysia last, we noticed that the Borders bookstore in Kuala Lumpur was selling books at market exchange rates which means that a US$10.00 was selling for M$35.00. Given that the incomes in Malaysia and U.S. are so different its hard to believe that the stores could sell that many books. Or could it be that they think they can make the sale because Asians value books/education more than other races? Could this post shed any light on this?

Or is this one reason why Borders is for sale?

Education spending and race

In a previous post on conspicuous consumption and race I noted that the authors of the paper were not able to perform an analysis for Asians. I singled out Asian because of this table that shows that on average Asians spend 2.7 of their income on education versus 1.9 percent for the sample.

Conspicuous consumption and race

Virginia Postrel's article reminded me to read Conspicuous Consumption and Race by Charles, Hurst, and Roussanov. I was drawn to this article mainly because of some preconceived notions that this was true and the paper confirms that blacks and hispanics engage in higher levels of conspicuous consumption. Instead of making a race based argument they instead show that the higher spending is a result of the lower average income of their reference group (in this case blacks/hispanics in the state of residence). Unfortunately, this is a tautalogical argument since compared to whites the average state income for blacks and hispanics are expected to be lower so there is no way to separate the two hypotheses. It would be nice to have been able to do this at a lower level of aggregation - county level for instance but the data does not allow it.

However, in support of their hypothesis they also do different cuts within blacks/hispanics by age for instance and find that conspicuous consumption is lower the higher the average income of these subgroups. (No effects for education interestingly enough - see their Table 2.) So in some sense, they do try to tease out these effects but not sufficiently in my opinion.

They also claim to use a nationally representative data set of households but as far as I can tell it cannot possibly be representative because they were not able to perform separate analysis for Asians. (If the sample were representative, they should be able to do this.) I suspect that the deletions that were done on the same were responsible for this. Also, as far as I can tell the analysis does not make use of the survey weights so the results really are not representative.


Upgraded to FIOS last month and am so far fairly satisfied. I was mainly looking for a way to decrease our monthly phone bill currently around $99 a month. I did not get to that but the upgrade from DSL to FIOS resulted in the same charges - at least for now.

It took Verizon several attempts to install it. The first appointment was for between 1 and 5 but the installer did not show up until 6 pm. At this point he decided that he needed to run a cable into house and was not going to be able to do it at the time.

Point against Verizon: They should have known that we were not FIOS ready and that a cable was needed.

The installer said that Verizon would call and reschedule. I was ready for a blowoff like I got from Comcast. (They said we needed a cable tap and would call to reschedule but never did.) Surprisingly Verizon called and rescheduled.

Point for Verizon: Keeping true to their word.

This resulted in several reminder calls that they were coming out on a Sunday to do the installation until the Saturday before when they called to cancel.

Point against Verizon: What was up with that? Although my guess was since they needed to run a cable across a busy street they needed extra hands to hold up traffic and they did not want to pay over time for this. If they had told me this I would have been fine with it but instead they hemmed and hawed that this kind of installation cannot take place on a weekend. Why didn't they know this before hand when they scheduled it on a weekend?

Point for Verizon: Yes, another reschedule and this time they allowed me to pick any day of the week.

Finally, the installation was done although it took almost 5 hours. The same installer showed up. I was pleased since he already knew the situation and did not have to go over the same problems again. The installation was completed around 6 pm although he said he was leaving to do another house.

So far FIOS seems to be a bit faster. K1 and K2 think it is as far as their Internet games are concerned but for what I do I don't notice much difference.

Recent William Gibson

For me anyway - it's been a long time since Mona Lisa Overdrive and Neuromancer. Pattern Recognition and Spook Country aren't science fiction although for some reason the library has put these books in the science fiction section. (I find the same thing for some of Kim Stanley Robinson's books - he's written some science fiction but there are some that are "alternative histories" that I would not classify as science fiction.)

Liked Pattern Recognition more than Spook Country which I thought seemed to drag or perhaps it was my attitude that week. I had forgotten how Gibson writes - almost minimalist is the only word that comes to mind. Not quite dry nor monotonously overly-narrative but simple and to the point. I'm still not quite sure what to make of the style.

Tuesday, April 7, 2009

Ticketmaster charge

Or is there such a thing as too much transparency?

Grandstand tickets to the National Cherry Blossom Festival: $17.00
Convenience Charge: $4.25
Order Processing Fee: $3.25

Assuming all charges are profit, that's almost a 44% markup over the $17.00. The order was taken over the Internet with no human interface required. Too little competition: I think so. Monopoly? You bet. Would I have been better off if I had not known the charges and just shelled out $24.50? Maybe.

Some related links to Ticketmaster charges:
Raw Deal: Ticketmaster service charges
Why Ticketmaster Sucks
A whole website devoted to why
An old anti competitive filing at the DOJ against Ticketmaster in 1988.
Why Tickemaster should not be sued - it's the venues
Ticketmaster-LiveNation merger

Thursday, April 2, 2009

Could financial transparency have prevented the crisis?

The Wired article Road Map for Financial Recovery: Radical Transparency Now! suggests that it could. The argument appears to rest on two arguments:
1. Tagging with XBRL tags: ... if those mortgages and loans carried XBRL tags, and everybody who touched them along the way was required to use those tags as well, anyone would have been able to track their circuitous route through the financial industry and judge each CDO based on its actual content. They could have seen which loans were in default and which weren't, which CDO was overweight on Las Vegas real estate and which was in the relatively safe Louisville market. An amateur risk assessor could have separated the junk assets from those worth keeping and either bet against the companies holding the garbage, blogged about it, alerted the Feds—or all of the above.
2. Openness: ... LendingClub, a Web site that matches individual lenders with borrowers who need loans. Like other peer-to-peer lending companies, LendingClub asks borrowers to provide personal details—education, employment history, salary—and to write essays explaining why they want a loan and how they plan to pay it back. LendingClub runs its own credit checks, sorts borrowers by default risk, and comes up with interest rates. But LendingClub is unique in that it makes nearly all that information public (aside from data that could lead to privacy concerns), giving lenders the ability to sort through its database. It also tracks and publishes the history of every loan it helps broker.

Bartz downloaded the database of 4,600 loans—every essay, every neighborhood, every late payment—and started searching for patterns. He identified the 300 most common words in borrowers' essays and correlated them with payment histories. Sure enough, certain words seemed linked to late payments. Among the red flags: need, bills, and business. "Those were all words that reflected that the borrower might be in financial difficulty at the moment," Bartz says. Another one was also, which Bartz theorizes meant that the loan was being used for more than one purpose.

The main problem with any kind of reporting requirement is that those who have to report also have the incentive to manipulate the numbers. This lesson has been learned over and over again in Enron as well as other accounting scandals. It is the reporting requirment that led banks to move to so call special investment vehicles and off balance sheet items. Decades of FASB rules may have made accounting reports more streamlined but have hardly prevented any financial improprieties.

While it is likely that reporting requirements can decrease the instances of outright crime, the free market system and the spirit of capitalism survives so that for every rule that is made an anti-rule will be devised. While tagging may force companies to classify certain items with certain tags so that they can be tracked, it also provides the incentive for them to misclassify other items so that they cannot be tracked.

When we subject ourselves to scrutiny we inevitably affect our own behavior so that while under scrutiny we behave as we are expected but when wish to have some privacy we will build the blinds ourselves. Privacy concerns are enough for us to want to draw those blinds. A recent visit to Lending Club did not point to any open database for download. Surely, this is out of privacy concerns.