Gary Gorton’s Panic of 2007 was a fairly interesting read only because it confirms most of my biases about the subprime crisis so yes, this post is confirmation bias at its worst.
- The lack of a way to short the crisis did not allow asset prices to adjust.
- The introduction of the ABX index allowed shorts to finally reveal their expectations and beliefs.
- The size of the the trade on short side of the ABX revealed to the market the expectations which set the market into a downward spiral.
- The ABX index made it easier to mark MBS to market which fed back into the downward spiral.
Most surprising passage (in other words investors bought stuff they had no idea how to value):
With the increase in crime in our neighborhood my thoughts turned to whether it might be worthwhile to procure a gun. As part of my research on the costs and benefits of gun ownership I deferred to John Lott’s “More Guns, Less Crime”. (link is Wikipedia version - I read the 2nd edition)
I found the book and its research pretty comprehensive. Included were many sensitivity analysis which I appreciated. The effects were large and require some explanation. Lott’s explanation is that more guns means less crime. Unfortunately I was not quite convinced and like Gary Kleck of University of Florida whom Lott cites in the book, I feel like something is missing in the regression specification but I can’t quite put my finger on it.
Perhaps the first problem with the results was the lack of published R-squares. If his model explained more than 80 percent of the variation in crime I may be more persuaded.
The second “problem” is that this is not really a study of guns and crime but the passage of concealed carry laws in states. Lott’s analysis is at the state and county level using longitudinal data. I have serious issues with instrumental variables but most economists are in love with it so I’m in the minority. In my book, the year the concealed carry law is passed is an instrumental variable. When we use different instruments we would naturally get different size effects. The implication here is that the passage of concealed carry laws led to higher gun ownership although this chart seems to indicate that it might not be the case. (I may take this with a grain of salt since its in Mother Jones - and I would have to convince myself by actually doing my own tabulation.) Anyway it would be whole lot different if the regressions were run on actual gun ownership so that the results would be more easily interpretable as in the following manner: “Increasing one gun in the county reduces 3.2 robberies” or something to that effect. There is no indication that the year concealed carry is passed is a correlated with gun ownership nor as far as I can see the use of an alternative instrument.
Lott rejects the use of trend terms in his model because including a quadratic term might capture most of the effects in his model. In his charts, after the passage of a concealed carry law, the number of robberies, for instance would decline and continue falling. He objects to using the trend term because then it would capture the intended effects of the year concealed carry is passed. His models use year as dummies so he claims that this effect is partially captured and including a trend would obviously invalidate the results. If I read it correctly, some other economists who have tried to replicate his results have included a trend term and have found that the effects are not statistically significant. I am undecided at this point whether including turning points as part of the regression is a mispecification or an omitted variable.
The other larger substantive issue is that even though Lott claims that more guns would lead to less crime he does not say how much more (although he does say that it is more than what it is now). Introspection will indicate that 100% gun ownership will not drive crime down to 0. If everyone owns a gun there is no uncertainty when a criminal intends to rob someone. Since he knows for certainty the the other person is armed he will shoot first and then rob the victim while the victim is incapacitated.
Likewise 0% gun ownership is not a stable equilibrium either unless we can stuff the knowledge of gun making and guns into a vacuum. There will always be an incentive to own a gun because then - well - I would outgun you and can rob you easily.
More speculatively, I would also suggest that anything above 50% gun ownership would have the same effect as 100% ownership. The story that Lott tells is that a criminal is uncertain of whether the potential victim has a gun and therefore this uncertainty drives the criminal away toward other ‘safer’ crimes such as burglary.
I have my doubts as to how substitutable different types of crimes actually are for instance one doesn’t think that rape and robbery are substitutes and it isn’t clear to me that robberies and burglaries are highly substitutable either. In the latter case someone who commits robberies is likely to be impatient and hence just sticks some up rather than have the patience to case a place to determine whether he should break in or not.
In sum I thought that the research on guns and crime is important but I also think that attention needs to shift toward finding other instruments or measuring actual gun ownership directly such as gun registrations, etc. (Yes, this will be biased since there are stolen, unregistered guns which is why I say different instruments so that gun ownership while biased would presumably still be a valid instrument.)
P.S. I also flipped through The Bias Against Guns but it didn’t really hold my attention. Most of the book was about whether guns increased other types of crimes such as mass shootings and such.
And why we would be too if we were in the 1 percent: Housing and education for children
The lack of affordable housing in the city which is close to jobs and good public education in the neighborhood.
“We could all move to Montana, but what would we do there?”“Yes, the kids can go to public school - but isn’t private school better?”
Or perhaps housing, good jobs and good education is all relative and that we need these things is just an illusion.
Our email filter traps all emails with zip attachments. I asked a recent college grad who was trying to send me a zip file to rename the extension to txt which generally fools the filter. I could then rename it to zip. However, I received an email from the server saying that the email could not be delivered and its attachment was named ‘filename.txt.zip’.
For those of us who grew up in the days of DOS and command lines, renaming a file was a no-brainer. Today, slick GUIs that try to hide the mechanics from the user can wreak havoc. Windows explorer defaults to hiding file extensions so that when a user renames a file, the extension is unchanged.
Is the user or the GUI the problem?
Consider also the following:
Not long ago I was using a research database to try to get a PDF of an article published in a journal to which my college's library has a digital subscription. I knew the title of the article, the author's name, the title of the journal, and the issue date. I plugged all those in to the appropriate text boxes, clicked "search" . . . and got hundreds of results. But the one that I wanted wasn't on the first several pages.
I sent an email to a reference librarian describing this event, and he wrote back saying, "Oh, see, you should have entered the journal's ISSN." Really? Exact title of article and journal, exact name of author, exact date of publication -- that's not enough?
The cradle of democracy is evolving to revolution? If this (HT: MR) is what democracy brings then what else can we expect?
In addition to concerns about what would happen to their savings and what sort of social unrest would be stoked if Greece exited the EZ, most Greeks are cynical about how a new, independent central bank would operate. They recall that the central bank in Greece before EMU regularly printed money to line politicians’ pockets and encourage favors. If Greece exits the EZ, they expect that kind of cronyism and corruption would flourish once again.
While product and labor market reforms matter, it is hard to see how by themselves it can lift Greece out of its crisis:
A friend and I met up at a new bookstore and café in the centre of town, which has only been open for a month. The establishment is in the center of an area filled with bars, and the owner decided the neighborhood could use a place for people to convene and talk without having to drink alcohol and listen to loud music. After we sat down, we asked the waitress for a coffee. She thanked us for our order and immediately turned and walked out the front door. My friend explained that the owner of the bookstore/café couldn’t get a license to provide coffee. She had tried to just buy a coffee machine and give the coffee away for free, thinking that lingering patrons would boost book sales. However, giving away coffee was illegal as well. Instead, the owner had to strike a deal with a bar across the street, whereby they make the coffee and the waitress spends all day shuttling between the bar and the bookstore/café. My friend also explained to me that books could not be purchased at the bookstore, as it was after 18h and it is illegal to sell books in Greece beyond that hour. I was in a bookstore/café that could neither sell books nor make coffee.
The prognosis for the cradle of democracy is bleak:
… Greece has few export industries it could rely on to grow its way out of the crisis even if it devalued its currency. He conceded there is tourism, but argued that any profits from shipping are kept out of the country and green energy is still but a mere pipe dream as an export industry for Greece. Given that Greece is not self-sustaining in agriculture, he suggested that a devaluation accompanied by hyperinflation would result in a starving population, and that the resulting civil unrest would destabilize the entire Balkan region.
Bottom line: It can’t exit the EZ. It can’t grow itself out of a crisis. It has no exports to speak of. It cannot create jobs. Might I also add that it can’t even encourage migration because the rest of Europe is unable to create jobs to absorb the inflow who might have been able to work elsewhere and send Euros back to Greece.
Is complete collapse of Greece inevitable? If it is try imagining what it would look like - mass emigration to China? Mass murders and suicides? I can't imagine it.
… measurement problems may be the reason why there are differences among the major statistical bases to estimate the level of GDP per capita and their determinants. For the IMF, the Euro Area does not have a productivity problem since, according to its estimates, hourly productivity is higher in the Euro Area than in the US, and all the differences in per capita GDP are due solely to the lower number of hours worked in the EU. For EUROSTAT, based on its structural indicators, however, a completely different picture emerges, suggesting that 45 percent of the gap in living standards between the Euro Area and the US are due to lower productivity per hour, with the 55 percent due to lower number of hours worked. Finally, the OECD estimates suggest a position that lies roughly between the two previous estimates, …, one-third of the GDP per capita difference with the US is due to lower productivity and two-thirds are due to the lower number of hours worked.
What are the measurement problems? Some but not all are due to the use of hedonic pricing in constructing price indices especially in the US where it is applied to ICT and cars and durable goods. Another is the fact that the US uses a higher depreciation for capital in the first year while the EU uses the same rate of depreciation every year.
This is from Europe at the Crossroad by Guillermo de la Dehesa, a summary of various OECD and IMF reports. Less insightful than expected.
With apologies to This American Life and Lat.
- Some pictures of Malaysian life from MalaysiaFinance. As some of the comments indicate, the road names are probably faked. Some of these, well - you just have to be Malaysian to get it. The one that I found very funny was “Salesgirl” which translated to “Penjual gadis” which actually means seller of women. Fortunately, Google translate does better - translating “salesgirl” to “gadis jualan”.
- Memories of a kampung girl
- Discrimination - Malaysian style. Under Search Rooms - Click on the drop down box that says “Any Preference” to see the racial preferences of the renters.
