Thursday, August 20, 2009

Armand Hammer

Just finished Armand Hammer: The Untold Story (An Unauthorized Biography) by Steve Weinberg. I had meant to skim this book but parts of it were so fascinating (the Occidental Petroleum years) that I found it hard to stop. Despite what one may think of him, there is no doubt that he is everything the books say he is: ruthless, charming, generous, vicious, cheap, greedy, vindictive, calculating, energetic, self-effacing, media hungry all at the same time. Given that he was over sixty when he controlled Occidental through force of personality (and a friendly board) his achievements (glorious and inglorious) all point to the truism that one is never too old for anything.

Was also surprised to learn that both he and Bechtel made use of the Export Import Bank to get international deals through. Guess I don't really know what the Exim Bank really does - but both paint a picture that political connections can get you further. Also surprised to learn of Albert Gore Sr.'s connection to Hammer.

This biography is also extensively footnoted and evenly balanced I thought. As the author notes, there is some difficulty in establishing basic facts due to the lack of (and sometimes conflicting) documentation and also some of incidents related cannot be double checked since only few parties were involved. All in all, it was more enjoyable than I had expected.

Wednesday, August 19, 2009

Dislocated shoulder

It's been 6 months since I dislocated my shoulder and am still suffering some pain and discomfort. It's on and off so it has not been enough to drive me to see an orthopaedist yet. Had 3 months of physical therapy and have been continuing with the exercises.

My original impression was that a dislocation was easier to heal than a broken bone but now I'm not sure. Too many movies where the protagonist just shrugs his shoulder back and goes on to fight the bad guys, I think. The muscles around the shoulder seem to be the source of the discomfort rather than the shoulder itself.

Physical therapy itself is a bundle consisting of warm up exercises (1/2 hour), electrical stimulus (1/4 hr) and PT (1/4 hr) with a human. Electrical stimulus helped in the first week of treatment but after that its effect was negligible. Googling for randomized trials of the efficacy of electrical stimulus seems to indicate that it is effective only for cases of high pain. If insurance wasn't paying for the treatment I probably would have refused electrical stimulus. So if I were asked if I had been overtreated , I would probably respond with a cautious yes.

When I first entered the ER the shoulder was X-rayed and then after the shoulder was back in place, it was X-rayed again. I don't believe there was any over-treatment here. Moreover, instead of physician services, I received a physician assistant who worked out just as well (and probably had a better bedside manner). The bill however was from the physician whose rates were not the same as the rates from the insurer so I had to cover the difference. While I was not over treated, I was definitely over billed!

A follow up visit was to an orthopaedist who took another X-ray. I thought it was necessary given the decentralized system of medical care but in a centralized system it would have been just as effective if the post repair X-ray from the ER had been forwarded to him digitally. I barely spent 15 minutes with him and again not over treated but definitely over charged. (Assume doctor's rates are over $150 per visit - not quite unlike a plumber's rates the moment he steps through the doors!)

The first month of PT did not go as planned because there was some suspicion of scar tissue which required a cortisone shot. There was a real desire on my part to have an MRI to confirm the presence of scar tissue but this really would not have changed the treatment and to the orthopaedist's credit he did not require an MRI. It's not unlike a plumber who wants to send a camera into our drain to see what was causing the block - the fact that there is a block means that the treatment really doesn't change - they need to snake it out regardless of what they see on the camera. (Trust me after falling for this scam I won't be having a camera snake through our drains again!)

So overall, the dislocated shoulder's contribution to the overall economy was modest but not insignificant.

Provence and Julia Child

Did not realize that she spent her time in Provence:

A far less elaborate meal awaited us at La Pitchoune, Julia and Paul Child’s onetime house in Plascassier, 95 miles east of Aix. This was the vacation house Julia built on Simone Beck’s family estate in 1962, a place where she cooked and entertained. Today it’s home to Cooking with Friends in France, a culinary immersion program run by Kathie Alex, a former student of Beck’s. The kitchen is as Julia left it, with the outlines of her utensils stenciled on the Peg-Board wall.

This is from Luke Barr who visits Provence based on his parents' memories:

I have every reason to love the market in the place Richelme: I inherited a love for it, indeed, for Aix itself. My father lived here when he was a kid in 1959: my grandmother Norah Barr brought her three sons and rented a house not far from her sister, M.F.K. Fisher, who had rented a place just outside Aix with her two daughters.

Selling magazines door to door for charity

We had two cases in one week - one was a mom trying to raise money for their soccer club and another to help the troops. After "subscribing" to this several times over the course of 5 years (e.g. to raise money for college, to help kids get a fresh start) I finally decided to check it out which validated what I've always suspected. This is nothing more than a scam. A scan of google searches came up with these:

1. Coal Run Police Chief Todd Akers says people are claiming they are selling magazine subscriptions for a charity or a college, but he says their stories do not check out.
He says no local charities or colleges say they are selling magazine subscriptions.

2. Yes, some of the sellers are hardened dyed in the wool con artists with criminal records, but you may also want to keep in mind that an increasing number of the sellers are innocent people who have gotten trapped into this form of modern day indentured servitude/youth exploitation by unscrupulous "recruiters". Some of the sellers may be as young as 14, but are telling people they are 18.

3. Traveling Sales Crews via Absolute Write.
From the latter link:
The kids who just came to my door (all adorable wide-eyed smiles when trying to hook me, and abusive and cursing when I politely turned them down) were from American Community Services, Inc., but there are many such organizations that function like gangs and ensnare kids into a truly horrible lifestyle.

4. In Seattle, WA: If a young person knocks on your door and says they're selling magazines for a charity, wait before reaching for your pocketbook. Fresh Start Opportunities claims that money from the subscriptions will be used to help young people get a “fresh start on life,” but the company isn’t a registered charity. ... Solicitors represent that the purchase of subscriptions will help young people get off the street and back on their feet so they can earn money to go to school. ... A 19-year-old man working for Fresh Start Opportunities was arrested in October after he allegedly broke into an Edmonds home, attacked the owner and stole her purse. The man was also a suspect in burglaries in Sammamish and Tumwater. Fresh Start Opportunities employees have also been linked to California thefts.

What if these "sales people" are also using this as a pretext to see how vulnerable a home is to burglary?

Perhaps not answering the door is the best option.

Monday, August 10, 2009

More on the state of macroeconomics

1. A defense by Robert Lucas:

It has been known for more than 40 years and is one of the main implications of Eugene Fama’s “efficient-market hypothesis” (EMH), which states that the price of a financial asset reflects all relevant, generally available information. If an economist had a formula that could reliably forecast crises a week in advance, say, then that formula would become part of generally available information and prices would fall a week earlier. (The term “efficient” as used here means that individuals use information in their own private interest. It has nothing to do with socially desirable pricing; people often confuse the two.)

The Economist’s briefing also cited as an example of macroeconomic failure the “reassuring” simulations that Frederic Mishkin, then a governor of the Federal Reserve, presented in the summer of 2007. The charge is that the Fed’s FRB/US forecasting model failed to predict the events of September 2008. Yet the simulations were not presented as assurance that no crisis would occur, but as a forecast of what could be expected conditional on a crisis not occurring. ... Mr Mishkin recognised the potential for a financial crisis in 2007, of course. Mr Bernanke certainly did as well. But recommending pre-emptive monetary policies on the scale of the policies that were applied later on would have been like turning abruptly off the road because of the potential for someone suddenly to swerve head-on into your lane. The best and only realistic thing you can do in this context is to keep your eyes open and hope for the best.

2. A rebuttal by Ping Chen:

Lucas was silent about the major questions, which were brought about by the current crisis: What is the nature of financial crisis, what is the role of government in macro management, and who should be responsible for economics’ ill prevention and preparation of crisis.

Lucas was the leader of the so-called counter Keynesian revolution under the banner of rational expectations and microfoundations since 1970s. According to his simplistic but elegant theory, unemployment is worker’s rational choice between work and leisure. The source of business cycles is external shocks. There is no room for government intervention, since market system is inherently stable and always in equilibrium. We found out that Lucas theory of microfoundations had weak evidence under the Principle of Large Numbers in 2002. The rational expectations may also defeated by arbitrage activity when pair of relative prices moving to opposite directions, say, stock price went down but housing price went up, or wage down but consumption up under easy credit. This financial crisis gave a historic blow to his microfoundations theory, since financial crisis was rooted not from microfoundations at household level, but meso foundation, i.e. the financial intermediate itself. The Great Depression and the current crisis show clearly that financial market is inherently unstable, ... Lucas had no courage to defend his infamous theory of microfoundations, but tried to shift the debate from macroeconomics to financial theory.

Surprisingly, Lucas claimed that the current crisis even strengthened the credit of the efficient market hypothesis (EMH). His argument was that no one could make a short-term forecast of crisis and make profit from the right forecast. Mr. Lucas seems have more belief in laissez fair economics than his knowledge of EMH and its alternatives. The fundamental assumption behind EMH is that financial market is ruled by random walks or the Brownian motion. If this theory is true, then it is very unlikely to have large price movements like financial crisis.

3. Mark Thoma's rebuttal:

I agree that the analytical tools economists use are not the problem. We cannot fully understand how the economy works without employing models of some sort, and we cannot build coherent models without using analytic tools such as mathematics. Some of these tools are very complex, but there is nothing wrong with sophistication so long as sophistication itself does not become the main goal, and sophistication is not used as a barrier to entry into the theorist's club rather than an analytical device to understand the world.

But all the tools in the world are useless if we lack the imagination needed to build the right models. Models are built to answer specific questions. When a theorist builds a model, it is an attempt to highlight the features of the world the theorist believes are the most important for the question at hand.

One major debate, for example, was the rate at which the macroeconomy returns to its long run equilibrium after a shock. Both New Keynesians and Chicago type equilibrium theorists believed the economy was always moving in the right direction—toward long-run equilibrium—the question was simply how fast that movement occurred and whether there was any role for policy to help the process along. Neither side of the debate seriously considered the possibility that the economy would continue to move away from its long-run equilibrium outcome for a substantial period of time—for years—as a housing price bubble developed, and that once the bubble popped the interconnectedness of financial markets would cause the problem to spread in a falling domino fashion that would throw the entire economy into a deep recession.

... policymakers couldn't and didn't take seriously the possibility that a crisis and meltdown could occur. And even if they had seriously considered the possibility of a meltdown, the models most people were using were not built to be informative on this question. It simply wasn't a question that was taken seriously by the mainstream.

Why did we, for the most part, fail to ask the right questions? Was it lack of imagination, was it the sociology within the profession, the concentration of power over what research gets highlighted, the inadequacy of the tools we brought to the problem, the fact that nobody will ever be able to predict these types of events, or something else?

It wasn't the tools, and it wasn't lack of imagination. As Brad DeLong points out, the voices were there—he points to Michael Mussa for one—but those voices were not heard. Nobody listened even though some people did see it coming. So I am more inclined to cite the sociology within the profession or the concentration of power as the main factors that caused us to dismiss these voices.

And here I think that thought leaders such as Robert Lucas and others who openly ridiculed models they disagreed with have questions they should ask themselves (e.g. Mr Lucas saying"At research seminars, people don’t take Keynesian theorizing seriously anymore; the audience starts to whisper and giggle to one another", or more recently "These are kind of schlock economics"). When someone as notable and respected as Robert Lucas makes fun of an entire line of inquiry, it influences whole generations of economists away from asking certain types of questions, some of which turned out to be important. Why was it necessary for the major leaders in macroeconomics to shut down alternative lines of inquiry through ridicule and other means rather than simply citing evidence in support of their positions? What were they afraid of? The goal is to find the truth, not win fame and fortune by dominating the debate.

... I don't know for sure the extent to which the ability of a small number of people in the field to control the academic discourse led to a concentration of power that stood in the way of alternative lines of investigation, or the extent to which the ideology that markets prices always tend to move toward their long-run equilibrium values caused us to ignore voices that foresaw the developing bubble and coming crisis. But something caused most of us to ask the wrong questions, and to dismiss the people who got it right, and I think one of our first orders of business is to understand how and why that happened.

Most economists took Lucas' view:
1) cost of stabilizing business cycles is small,
2) the problem of business cycles have been solved. (See here.)

Most of these economists then went on to build DSGE models to explain "stylized facts". (Previous comment here.) Perhaps the Chicago school (or any school) should be prevented from being too influential in a field? Or is this a failure of economists to police themselves in a free market of ideas? Will rational expectations one day be the lobotomy of economics?

4. Robert Solow (Via Mark Thoma):

What is needed for a better macroeconomics? My crude caricature of the Ramsey-based model suggests some of the gross implausibilities that need to be eliminated. The clearest candidate is the representative agent. Heterogeneity is the essence of a modern economy. In real life we worry about the relations between managers and shareowners, between banks and their borrowers, between workers and employers, between venture capitalists and entrepreneurs, you name it. We worry about those interfaces because they can and do go wrong, with likely macroeconomic consequences. We know for a fact that heterogeneous agents have different and sometimes conflicting goals, different information, different capacities to process it, different expectations, different beliefs about how the economy works. Representative-agent models exclude all this landscape, though it needs to be abstracted and included in macro-models.

I also doubt that universal rational expectations provide a useful framework for macroeconomics. One understands the appeal. Think of it this way: Herb Simon was surely right about bounded rationality; no one would deny that most economic agents are actually like that, and natural selection does not work fast enough to eliminate them. Why did the notion of "satisficing" never catch on? I think it is because the assumption of complete rationality tells the modeller what to do, whereas bounded rationality only tells the modeller what not to do. That is not helpful. Something similar is true about rational expectations. If there were a nice parametric family of alternative ways to model expectations, it might catch on. Most of us would happily go along with the notion of expectational equilibrium: if specific underlying expectations generate an outcome in which those expectations are systematically and non-trivially violated, that situation can not be an equilibrium. It is what happens then that needs thought. The situations that agents need to anticipate need not even be probabilistic, surely not stationary. The popular device used to be adaptive expectations; that may have been inadequate. Maybe this is a case for the application of psychological research (and sociological research as well, because the formation of expectations is a social process). Maybe experiments can be designed. Heterogeneity across agents and classes of agents is certainly important precisely here. One would like a simple, definite way to proceed, if that is possible. A good example of the sort of thing I mean is the way the Dixit-Stiglitz model made monopolistic competition easy. (The trouble is that we are dealing with an unobservable.)

Of course, it was Solow's growth model that was adopted by the freshwater schools to provide microfoundations of a representative agent model (RAM) even though Solow himself had very little to do with it. At the same time, the RAM was a serious modeling attempt to derive microfoundations for the AD-AS curves of macroeconomists. So if RAMs are a problem then perhaps the entire AS-AD/IS-LM framework should be seriously questioned as well.
Robert Kaplan's poetic description of Baluchistan:

To travel the Makran coast is to experience the windy, liberating flatness of Yemen and Oman and their soaring, sawtooth ramparts the color of sandpaper, rising sheer off a desert floor pockmarked with thornbushes. Here, along a coast so empty that you can almost hear the echoing camel hooves of Alexander’s army, you lose yourself in geology. An exploding sea bangs against a knife-carved apricot moonscape of high sand dunes, which, in turn, gives way to crumbly badlands. Farther inland, every sandstone and limestone escarpment is the color of bone. Winds and seismic and tectonic disruptions have left their mark in tortuous folds and uplifts, deep gashes, and conical incrustations that hark back far before the age of human folly.

The article itself however is a somber assessment of the Pakistani governments attempt to wrest power via a land grab and to then develop the region thereby enriching themselves.

Thursday, August 6, 2009

Reconciling EHS and HS results

It is difficult to reconcile the positive (and large) effects of Early Head Start on 3 year olds with the lack of positive findings in the first year of the first year findings of Head Start impact study. It is possible that the positive effects found are overstated because it does not take the effects of sample design on standard errors.

Something as important (and controversial) as childhood development assessment does not need sampling design effects to further confound the public. It is therefore hard to reconcile the resistance against the Head Start National Reporting system (HSNRS) that tested every child (as much as possible) in Head Start and was not subject to sample design effects with the desire and even need to see positive impacts of Head Start. The resistance stems entirely from the appropriateness of the assessments used in HSNRS.

The challenge for early childhood educators is to come up with a way of assessing impact appropriately. Why should this be so difficult when parents can (and are even encouraged to) use developmental milestones to guide them in seeing if their child is showing adequate progress?

There is a vocal minority who believe that children should NEVER be tested at such an early age (3-5) and it is possible that this is the minority who are driving public policy regardless of any desire to investigate the effectiveness of Head Start. Moreover, they (and others) believe (perhaps correctly) that the research is used to drive funding and not improvement of programs. Less effective (however defined) programs would be defunded rather than shown how to improve. Does politics trump the need to find out if such programs are effective and how these programs can be improved?

Samuel J Meisels and Sally Atkins Burnett, The Head Start National Reporting System: A Critique
John M Love, et. al., The Effectiveness of Early Head Start for 3-Year-Old Children and Their Parents: Lessons for Policy and Programs

Was Deming Just a Fad?

It seems to be so if I count all the Six Sigma books on the business shelves these days. Based on what I've been reading, some of the organizations/companies that have adopted the Deming approach seem to have done well.

Mary Walton's Deming Management at Work features 5 organizations:
1. Florida Power and Light
2. Health Corporation of America
3. Tri Cities Tenessee
4. United States Navy
5. Bridgestone

A chart of the stock price of FPL indicates that it is doing extremely well. HCA has been taken private amidst some controversy over Medicare fraud so it is hard to judge. Likewise it's hard to judge outcomes for the US Navy but population of Tri Cities Tenessee has continued to increase and Bridgestone has gone on to take over Firestone.

Another book on Deming by Rafael Aguayo, Dr Deming – The American Who Taught the Japanese About Quality is a brief overview of the Deming method. I was surprised to learn that even though the method is all about measurement and continuous improvement, he was opposed to using the outcomes (the "stuff" measured) to judge performance of individuals. Using outcomes for continuous improvement however is incredibly hard and challenging because the work is never done.