Andrew Gelman points to an article on The Fallacy of Hypothesis Testing. I'm not sure I agree with everything in the article but this paragraph caught my eye:
Third, I've learned that the scientific community's emphasis on hypothesis-based research leads too many scientists to devise experiments to prove, rather than test, their hypotheses. Many journal submissions lack any discussion of alternative competing hypotheses: Researchers don't seem to realize that collecting data that are consistent with their original hypothesis doesn't mean that it is unconditionally true. Alternatively, they buy into the fallacy that absence of evidence for something is always evidence of its absence.
Gelman responds:
... I imagine many of my social science colleagues could present a defense of hypothesis testing. (Just to be clear, I think we're talking here about the idea of posing and testing hypotheses, not the textbook statistical methods called "hypothesis testing." The hyp testing that Pepperberg is talking about could just as easily be done using confidence intervals or whatever; her real distinction, I think, is between studies that are exploratory and studies that are designed to test particular scientific theories.
The general criticism seem to be that hypothesis testing is conducted in the absence of competing models. But if different models lead to the same hypothesis test then the question seems to be one of differentiating between alternative models.
Sunday, March 30, 2008
Harpers Ferry
We were at Harper's Ferry most of this past week. Quiet, peaceful ... it looks to be a wonderful view in the fall.
Monday, March 24, 2008
Administrator/Teacher ratio
MR points to an InsideHigherEd article:
...the federal statistics provide evidence for another shift, in which the majority of full-time professional employees in higher education are in administrative rather than faculty jobs.
This sounds like K1 and K2's school. Looking at the year book it seems almost like there is a 1-1 ratio of teachers to administrators. I wonder where the fees are going.
...the federal statistics provide evidence for another shift, in which the majority of full-time professional employees in higher education are in administrative rather than faculty jobs.
This sounds like K1 and K2's school. Looking at the year book it seems almost like there is a 1-1 ratio of teachers to administrators. I wonder where the fees are going.
Langkawi
Ondine Cohane's article on Pulau Langkawi makes it sound like an idyllic place and it certainly could be given that she spent her time at The Andamman, The Datai and The Four Seasons. I had looked into some more affordable places (like Hilton/Sheraton etc.) but the reviews at Tripadvisor were so mixed that I decided to back off from it.
Some good links to the credit crisis
Some good links to the credit crisis:
1. How The Fed took the money out of monetary policy:
Here’s how a repurchase agreement would change the Fed’s balance sheet, after offsetting it with an open market operation:
| Changes in the Fed's balance sheet after a $1,000M repurchase agreement, offset by an open market operation | ||
| Assets | US government securities | -1,000 |
| Repurchase agreements | +1,000 | |
| Reverse repurchase agreements | 0 | |
| Direct loans | 0 | |
| Other assets | 0 | |
| Liabilities | Currency in circulation | 0 (-1,000 + 1,000) |
| Reserve balances | 0 | |
By themselves, TAF loans would increase both assets and liabilities of the Fed, just like open market operations and repos. But, once again, the Fed partially offset those loans by selling securities and withdrawing cash from the system. Here’s the simplified balance sheet on December 26 and August 15:
| Federal Reserve's balance sheet, $ millions | |||
| Assets | Aug. 15, 2007 | Dec. 26, 2007 | |
| US government securities | 789,601 | 754,612 | |
| Repurchase agreements | 24,000 | 42,500 | |
| Reverse repurchase agreements | -31,941 | -40,542 | |
| Term Auction Facility loans | 0 | 20,000 | |
| Direct loans | 264 | 4,535 | |
| Other assets | 37,058 | 52,869 | |
| Liabilities | Currency in circulation | 813,085 | 829,193 |
| Reserve balances | 5,897 | 4,781 | |
Source: Federal Reserve, H.4.1 release.
The first one is the Term Securities Lending Facility (TSLF), to open on March 27. At this new window, all primary dealers -all banks and brokers that trade in government securities with the Fed- are allowed to borrow up to $200bn of government securities for 28 days. Borrowers must pledge collateral for these loans, but the minimum quality of the assets is even lower than for the TAF (it includes federal agency debt, federal agency residential-mortgage-backed securities (MBS), and non-agency AAA/Aaa-rated private-label residential MBS).
The second institution is the Primary Dealer Credit Facility (PDCF), which started operating on March 17. This venue provides overnight loans to all primary dealers, backed by even riskier collateral: they accept all collateral eligible for repos, plus investment-grade corporate securities, municipal securities, MBS and asset-backed securities. With the PDCF, all primary dealers have de facto access to the discount window, from which only depository institutions could borrow before.
Here’s the balance Fed again, in December and after the PDCF opened:Federal Reserve's balance sheet, $ millions Assets Dec. 26, 2007 Mar. 19, 2008 US government securities 754,612 660,484 Repurchase agreements 42,500 62,000 Reverse repurchase agreements -40,542 -46,143 Term Auction Facility loans 20,000 80,000 Primary Dealers Credit Facility 0 28,800 Direct loans 4,535 125 Other assets 52,869 36,603 Liabilities Currency in circulation 829,193 818,362 Reserve balances 4,781 3,507
Source: Federal Reserve, H.4.1 release.
With its new tools, the Fed has provided liquidity without printing much money. It has temporarily absorbed risky and illiquid securities, and supplied government securities, which are risk-free.
2. Mark Thoma's response to Steve Waldman's Credit Crisis for Kindergartener's:
"Couldn't the parents force the kids to keep their promises (under threat of a large penalty for default)? Either do what you promised, or incur some punishment that makes doing the chores the only reasonable choice? That seems a lot like the way a court would enforce contracts, so we need one of the kids to declare bankruptcy (or simply refuse to work and accept the punishment of having assets stripped, getting sent to their room, grounded, etc.) to get this going."
JP Morgan's decision to raise its price for Bear Stearns from $2 to $10 weakens the penalty effect.
Wednesday, March 19, 2008
Voter theories
Louis Menand's New Yorker article The Unpolitical Animal was a fun read. Some interesting sections:
1. Skepticism about the competence of the masses to govern themselves is as old as mass self-government. Even so, when that competence began to be measured statistically, around the end of the Second World War, the numbers startled almost everyone. ... About forty-two per cent of voters, according to Converse’s interpretation of surveys of the 1956 electorate, vote on the basis not of ideology but of perceived self-interest. The rest form political preferences either from their sense of whether times are good or bad (about twenty-five per cent) or from factors that have no discernible “issue content” whatever. Converse put twenty-two per cent of the electorate in this last category. In other words, about twice as many people have no political views as have a coherent political belief system.
2. In a paper written in 2004, the Princeton political scientists Christopher Achen and Larry Bartels estimate that “2.8 million people voted against Al Gore in 2000 because their states were too dry or too wet” as a consequence of that year’s weather patterns. Achen and Bartels think that these voters cost Gore seven states, any one of which would have given him the election.
3. The most widely known fact about George H. W. Bush in the 1992 election was that he hated broccoli. Eighty-six per cent of likely voters in that election knew that the Bushes’ dog’s name was Millie; only fifteen per cent knew that Bush and Clinton both favored the death penalty. It’s not that people know nothing. It’s just that politics is not what they know.
4. There is nothing in the Constitution requiring candidates to be listed on the ballot with their party affiliations, and, if you think about it, the custom of doing so is vaguely undemocratic. It makes elections a monopoly of the major parties, by giving their candidates an enormous advantage—the advantage of an endorsement right there on the ballot—over everyone else who runs. It is easy to imagine a constitutional challenge to the practice of identifying candidates by party, but it is also easy to imagine how wild the effects would be if voters were confronted by a simple list of names with no identifying tags. Every election would be like an election for student-body president: pure name recognition.
1. Skepticism about the competence of the masses to govern themselves is as old as mass self-government. Even so, when that competence began to be measured statistically, around the end of the Second World War, the numbers startled almost everyone. ... About forty-two per cent of voters, according to Converse’s interpretation of surveys of the 1956 electorate, vote on the basis not of ideology but of perceived self-interest. The rest form political preferences either from their sense of whether times are good or bad (about twenty-five per cent) or from factors that have no discernible “issue content” whatever. Converse put twenty-two per cent of the electorate in this last category. In other words, about twice as many people have no political views as have a coherent political belief system.
2. In a paper written in 2004, the Princeton political scientists Christopher Achen and Larry Bartels estimate that “2.8 million people voted against Al Gore in 2000 because their states were too dry or too wet” as a consequence of that year’s weather patterns. Achen and Bartels think that these voters cost Gore seven states, any one of which would have given him the election.
3. The most widely known fact about George H. W. Bush in the 1992 election was that he hated broccoli. Eighty-six per cent of likely voters in that election knew that the Bushes’ dog’s name was Millie; only fifteen per cent knew that Bush and Clinton both favored the death penalty. It’s not that people know nothing. It’s just that politics is not what they know.
4. There is nothing in the Constitution requiring candidates to be listed on the ballot with their party affiliations, and, if you think about it, the custom of doing so is vaguely undemocratic. It makes elections a monopoly of the major parties, by giving their candidates an enormous advantage—the advantage of an endorsement right there on the ballot—over everyone else who runs. It is easy to imagine a constitutional challenge to the practice of identifying candidates by party, but it is also easy to imagine how wild the effects would be if voters were confronted by a simple list of names with no identifying tags. Every election would be like an election for student-body president: pure name recognition.
Monday, March 17, 2008
Update on Can the Fed engineer a turnaround
Update on this post where I suggested:
Assuming that the same institutions who invested in these securities can classify them as toxic or possibly non-radioactive then a workout perhaps similar to the Resolution Trust for S&L can be created for the toxic securities ...
Today, Paul Krugman echoes something similar in the NYT:
Looking ahead, we probably need something similar to the Resolution Trust Corporation, which took over bankrupt savings and loan institutions and sold off their assets to reimburse taxpayers.
Today the news is all about the Fed "bailout" of Bear Stearns - the Fed has agreed to help finance the buyout of of Bear Stearns at $2 per share by JP Morgan by holding some BS MBS as collateral. Some details at MR and EV.
Update (3/19): JDH expains why this is not a bailout. I would tend to agree although:
"True, the Fed did offer a $30 billion non-recourse loan to JPMorgan to sweeten the deal. But what twist of logic would lead us to describe that as a "bailout" of Bear as opposed to an inducement to JPMorgan to help clean up the mess?" My response: How non-recourse is the non-recourse loan?
Why did the Fed force a fire sale of BS at $2 a share? Is it perhaps sending a signal to other banks/hedge funds/SIVs/SPVs to clean up their act or the Fed will do it for them on the Fed's terms? MR writes:
"The Fed's regulatory powers make crisis deals less than fair. If you, as a bank, don't accept the Fed's terms, you can be prosecuted or thrown in jail or at least ruined by your friendly regulator. Being an advocate of the rule of law, I'm not entirely comfortable with this arrangement, but it does mean that the Fed has a much easier time managing crises. Keep in mind also that the failing banks are indeed the most likely ones to have been criminal, so the unfairness is not usually being applied to the innocent."
MR continues:
"First, the very active role of the Fed in the Bear Stearns crisis must, in the long run, give rise to a fundamental revaluation of the role and powers of the SEC, the entity technically responsible for investment banks. The SEC now appears relatively toothless.
Second, the more commitments made by the Fed, the more we lose the (quasi) independence of our central bank; for a large commitment Treasury sign-off is needed. The realignment of the regulatory universe will eventually emerge as a big story from the current crisis, though it is hardly commanding much attention right now."
Assuming that the same institutions who invested in these securities can classify them as toxic or possibly non-radioactive then a workout perhaps similar to the Resolution Trust for S&L can be created for the toxic securities ...
Today, Paul Krugman echoes something similar in the NYT:
Looking ahead, we probably need something similar to the Resolution Trust Corporation, which took over bankrupt savings and loan institutions and sold off their assets to reimburse taxpayers.
Today the news is all about the Fed "bailout" of Bear Stearns - the Fed has agreed to help finance the buyout of of Bear Stearns at $2 per share by JP Morgan by holding some BS MBS as collateral. Some details at MR and EV.
Update (3/19): JDH expains why this is not a bailout. I would tend to agree although:
"True, the Fed did offer a $30 billion non-recourse loan to JPMorgan to sweeten the deal. But what twist of logic would lead us to describe that as a "bailout" of Bear as opposed to an inducement to JPMorgan to help clean up the mess?" My response: How non-recourse is the non-recourse loan?
Why did the Fed force a fire sale of BS at $2 a share? Is it perhaps sending a signal to other banks/hedge funds/SIVs/SPVs to clean up their act or the Fed will do it for them on the Fed's terms? MR writes:
"The Fed's regulatory powers make crisis deals less than fair. If you, as a bank, don't accept the Fed's terms, you can be prosecuted or thrown in jail or at least ruined by your friendly regulator. Being an advocate of the rule of law, I'm not entirely comfortable with this arrangement, but it does mean that the Fed has a much easier time managing crises. Keep in mind also that the failing banks are indeed the most likely ones to have been criminal, so the unfairness is not usually being applied to the innocent."
MR continues:
"First, the very active role of the Fed in the Bear Stearns crisis must, in the long run, give rise to a fundamental revaluation of the role and powers of the SEC, the entity technically responsible for investment banks. The SEC now appears relatively toothless.
Second, the more commitments made by the Fed, the more we lose the (quasi) independence of our central bank; for a large commitment Treasury sign-off is needed. The realignment of the regulatory universe will eventually emerge as a big story from the current crisis, though it is hardly commanding much attention right now."
Accident Externality from Driving
Aaron Edlin and Pinar Karaca-Mandic's "Accident Externality from Driving":
Abstract:
We estimate auto accident externalities (more specifically insurance externalities) using panel data on state-average insurance premiums and loss costs. Externalities appear to be substantial in traffic-dense states: in California, for example, we find that the increase in traffic density from a typical additional driver increases total statewide insurance costs of other drivers by $1,725–$3,239 per year, depending on the model. High–traffic density states have large economically and statistically significant externalities in all specifications we check. In contrast, the accident externality per driver in low-traffic states appears quite small. On balance, accident externalities are so large that a correcting Pigouvian tax could raise $66 billion annually in California alone, more than all existing California state taxes during our study period, and over $220 billion per year nationally.
This was an interesting paper and certainly could use more empirical work.
1. I first thought that state level estimates were too coarse but then it sounds logical since insurance premiums seem to differ state by state rather than county by county.
2. This data set seems small enough that I might be curious to find out how the results would change if a multilevel model was used instead. The data is state level from 1987-95 and the authors use a "panel data approach" which I use to mean fixed state and time effects.
3. I also thought they might have computed the costs for all 50 states and then rank order them and present them graphically instead of in a table.
Abstract:
We estimate auto accident externalities (more specifically insurance externalities) using panel data on state-average insurance premiums and loss costs. Externalities appear to be substantial in traffic-dense states: in California, for example, we find that the increase in traffic density from a typical additional driver increases total statewide insurance costs of other drivers by $1,725–$3,239 per year, depending on the model. High–traffic density states have large economically and statistically significant externalities in all specifications we check. In contrast, the accident externality per driver in low-traffic states appears quite small. On balance, accident externalities are so large that a correcting Pigouvian tax could raise $66 billion annually in California alone, more than all existing California state taxes during our study period, and over $220 billion per year nationally.
This was an interesting paper and certainly could use more empirical work.
1. I first thought that state level estimates were too coarse but then it sounds logical since insurance premiums seem to differ state by state rather than county by county.
2. This data set seems small enough that I might be curious to find out how the results would change if a multilevel model was used instead. The data is state level from 1987-95 and the authors use a "panel data approach" which I use to mean fixed state and time effects.
3. I also thought they might have computed the costs for all 50 states and then rank order them and present them graphically instead of in a table.
Saturday, March 15, 2008
Drug development costs
The price of innovation: new estimates of drug development costs by Joseph DiMasi, Ronald Hansen and Henry Grabowski is an excellent introduction into the nitty gritty of estimating costs of R&D in the pharmaceutical industry especially for someone reading about this topic for the first time.
1. I was surprised to learn that some of the firms surveyed were unable to respond because of lack of data. It sounds as though the firms themselves do not have a clear idea as to what R&D development costs are. DiMasi et. al. estimate an average of $403 million (in 2000 dollars) and capitalizing the costs until drug approval doubles the estimate to $802 million (in 2000 dollars).
2. They don't quite answer why drug development costs have increased (7.4% over the inflation rate) so quickly but hints at two possiblities: a) Pharmaceutical companies are focusing more on chronic and degenerative diseases that are more complex and costly to test, and b) firms need to test the cost effectiveness of their drugs not against a placebo but against the current treatment alternatives which can require larger clinical trials.
3. Another possibility that they do not explore is the promised rewards of a blockbuster drug. The rewards can be so large that the pharmaceutical companies do not pay attention to the cost. (This is speculative of course since I'm not familiar with the field.)
1. I was surprised to learn that some of the firms surveyed were unable to respond because of lack of data. It sounds as though the firms themselves do not have a clear idea as to what R&D development costs are. DiMasi et. al. estimate an average of $403 million (in 2000 dollars) and capitalizing the costs until drug approval doubles the estimate to $802 million (in 2000 dollars).
2. They don't quite answer why drug development costs have increased (7.4% over the inflation rate) so quickly but hints at two possiblities: a) Pharmaceutical companies are focusing more on chronic and degenerative diseases that are more complex and costly to test, and b) firms need to test the cost effectiveness of their drugs not against a placebo but against the current treatment alternatives which can require larger clinical trials.
3. Another possibility that they do not explore is the promised rewards of a blockbuster drug. The rewards can be so large that the pharmaceutical companies do not pay attention to the cost. (This is speculative of course since I'm not familiar with the field.)
Wednesday, March 12, 2008
Never thought I'd see the day
From the BBC: Penang abandons pro-Malay policy:
The Malaysian state of Penang says it will no longer follow a controversial central government policy favouring ethnic Malays above other citizens. ... Lim Guan Eng was sworn into office as head of state in Penang, after his Democratic Action Party (DAP) won a convincing election victory.
From the Star newspaper:
The new Penang state government will have two deputy chief ministers - Penanti assemblyman Mohammad Fairus Khairuddin of PKR and Prai assemblyman Dr P. Ramasamy of DAP. ... Chief Minister Lim Guan Eng told a press conference at his office in Komtar on Wednesday that the two would be appointed Deputy Chief Minister I and II respectively. ... He said the appointment of the two deputies was the right choice to effectively represent all Penangites. ... Asked for his response to the appointment, Mohammad Fairus, a 32-year-old business management consultant, said this was a new era of politics put forward for the people and he humbly gave his commitment to serve all Penangites. ... Political scientist Dr Ramasamy, 58, said the people wanted democracy, justice and dynamic change, and he would work hard for the people.
Also in Wikipedia:
Penang
The opposition dealt a heavy blow to the Barisan Nasional government by taking the state of Penang. Although Penang was regarded as a hotly contested state, the outcome unexpectedly turned out to be a landslide win with the opposition, the DAP gaining the majority of the state seats. Many seats saw the opposition winning over two-thirds of the votes, rather than the usual 50-50 distribution. BN only won 2 of the 13 parliamentary seats and 11 of the 40 state seats, its worst performance in Malaysian history. The Democratic Action Party (DAP) will form the next government in Penang with Lim Guan Eng, who is also the party's Secretary General, as its designated next Chief Minister.[50] ... In terms of party landscape, Gerakan, which has led the state since 1969 was defeated, and essentially out of the political landscape, winning only 3 state seats and 2 parliamentary seats (none of which were in this state), not being able to hold on to a single seat in state or federal level—over 30 years of rule gone in one night. Some interesting individual constituencies include Jeff Ooi, who rose to fame with his blog that was constantly critical of the ruling government and made his first foray into politics this election under the DAP, winning the Jelutong parliamentary seat. ... Another significant blow was the defeat of Gerakan President, Tan Sri Dr. Koh Tsu Koon, who was looking to move up from state politics, decided not to run for his state seat and subsequently gave up his Chief Minister post of 18 years, to challenge the Batu Kawan parliamentary seat. Some speculated this was part of a larger ambition to be a cabinet member, only to lose to newcomer P. Ramasamy of the DAP by a large margin of 9,485 votes.
Questions remain: Will there be transition to a more participatory pluralistic democracy? I have no idea what that means but am trying to say:
1. Larger turnouts
2. Votes are not along racial lines
3. More press and freedom and individual political freedom
Will there be violence?
The Malaysian state of Penang says it will no longer follow a controversial central government policy favouring ethnic Malays above other citizens. ... Lim Guan Eng was sworn into office as head of state in Penang, after his Democratic Action Party (DAP) won a convincing election victory.
From the Star newspaper:
The new Penang state government will have two deputy chief ministers - Penanti assemblyman Mohammad Fairus Khairuddin of PKR and Prai assemblyman Dr P. Ramasamy of DAP. ... Chief Minister Lim Guan Eng told a press conference at his office in Komtar on Wednesday that the two would be appointed Deputy Chief Minister I and II respectively. ... He said the appointment of the two deputies was the right choice to effectively represent all Penangites. ... Asked for his response to the appointment, Mohammad Fairus, a 32-year-old business management consultant, said this was a new era of politics put forward for the people and he humbly gave his commitment to serve all Penangites. ... Political scientist Dr Ramasamy, 58, said the people wanted democracy, justice and dynamic change, and he would work hard for the people.
Also in Wikipedia:
Penang
The opposition dealt a heavy blow to the Barisan Nasional government by taking the state of Penang. Although Penang was regarded as a hotly contested state, the outcome unexpectedly turned out to be a landslide win with the opposition, the DAP gaining the majority of the state seats. Many seats saw the opposition winning over two-thirds of the votes, rather than the usual 50-50 distribution. BN only won 2 of the 13 parliamentary seats and 11 of the 40 state seats, its worst performance in Malaysian history. The Democratic Action Party (DAP) will form the next government in Penang with Lim Guan Eng, who is also the party's Secretary General, as its designated next Chief Minister.[50] ... In terms of party landscape, Gerakan, which has led the state since 1969 was defeated, and essentially out of the political landscape, winning only 3 state seats and 2 parliamentary seats (none of which were in this state), not being able to hold on to a single seat in state or federal level—over 30 years of rule gone in one night. Some interesting individual constituencies include Jeff Ooi, who rose to fame with his blog that was constantly critical of the ruling government and made his first foray into politics this election under the DAP, winning the Jelutong parliamentary seat. ... Another significant blow was the defeat of Gerakan President, Tan Sri Dr. Koh Tsu Koon, who was looking to move up from state politics, decided not to run for his state seat and subsequently gave up his Chief Minister post of 18 years, to challenge the Batu Kawan parliamentary seat. Some speculated this was part of a larger ambition to be a cabinet member, only to lose to newcomer P. Ramasamy of the DAP by a large margin of 9,485 votes.
Questions remain: Will there be transition to a more participatory pluralistic democracy? I have no idea what that means but am trying to say:
1. Larger turnouts
2. Votes are not along racial lines
3. More press and freedom and individual political freedom
Will there be violence?
On Liquidity and Leverage
"Liquidity and Leverage" by Tobias Adrian and Hyun Song Shin sounded promising:
Our findings also shed light on the concept of "liquidity" as used in common
discourse about financial market conditions. In the financial press and other market
commentary, asset price booms are sometimes attributed to "excess liquidity"
in the financial system. Financial commentators are fond of using the associated
metaphors, such as the financial markets being "awash with liquidity", or liquidity
"sloshing around". However, the precise sense in which "liquidity" is being used
in such contexts is often left unspecified.
In general, I thought the paper's writing could be tightened. The above quote from the introduction needs to make it explicit that the kind of liquidity that is being talked about in the press is the funding liquidity that is in the paper. I know, I know, for some people like me, I need to be based over the head with things mainly because I'm not versed in the financial jargon. The abstract was meaningless to me because of my lack of familiarity. I may as well have been reading something about game theory. The paper is a nice length and readable although the section on existing literature seems to be standing by itself. The authors didn't try too hard to tie together the literature with what they are doing. It looks as though a referee made them put it in and they did.
1. The main item that I thought the authors should have emphasized more was the implications of the forecastability of the VIX index of implied volatility using aggregate intermediary balance sheet size (again, the authors could be less jargoned as just say size of short term lending measured using repos). If I'm reading this right, they are saying that "risk appetite" (again they need to make this term clearer) as proxied by the VIX can be forecasted. What are the implications? If we use the repos position as a predictor for future volatility then can we expect increase use of repos in the next period? Some papers have shown that merger activity increases as share prices increases -- can these be tied to the use of repos?
2. My main interest in the paper was the increase in liquidity that could be accounted for by marking to market. Unfortunately this was not attempted (and I don't know if it can). The authors use the repos positions of five investment banks to empirically verify the procyclity of marked-to-market leverage. This put a damper on things since the introduction seemed to indicate that they would address what it means to be awash in liquidity. If 5 investment banks can wash the world in liquidity then the financial system can't be too stable.
3. The abstract really needs to be catchier which means shorter sentences. Here's my 2 cent rewrite:
In a financial system where balance sheets are continuously marked to market, asset price changes show up immediately in changes in net worth. When asset prices go up, financial intermediaries increase their use of leverage. Marked-to-market leverage is strongly procyclical. The aggregate consequence of this behavior is to increase the risk appetite of financial intermediaries. Changes in the marked-to-market-leverage can predict innovations in risk appetite as proxied by the VIX index. The aggregate liquidity in the financial system can now be clearly seen as the rate of change of the balance sheets of financial intermediaries.
Our findings also shed light on the concept of "liquidity" as used in common
discourse about financial market conditions. In the financial press and other market
commentary, asset price booms are sometimes attributed to "excess liquidity"
in the financial system. Financial commentators are fond of using the associated
metaphors, such as the financial markets being "awash with liquidity", or liquidity
"sloshing around". However, the precise sense in which "liquidity" is being used
in such contexts is often left unspecified.
In general, I thought the paper's writing could be tightened. The above quote from the introduction needs to make it explicit that the kind of liquidity that is being talked about in the press is the funding liquidity that is in the paper. I know, I know, for some people like me, I need to be based over the head with things mainly because I'm not versed in the financial jargon. The abstract was meaningless to me because of my lack of familiarity. I may as well have been reading something about game theory. The paper is a nice length and readable although the section on existing literature seems to be standing by itself. The authors didn't try too hard to tie together the literature with what they are doing. It looks as though a referee made them put it in and they did.
1. The main item that I thought the authors should have emphasized more was the implications of the forecastability of the VIX index of implied volatility using aggregate intermediary balance sheet size (again, the authors could be less jargoned as just say size of short term lending measured using repos). If I'm reading this right, they are saying that "risk appetite" (again they need to make this term clearer) as proxied by the VIX can be forecasted. What are the implications? If we use the repos position as a predictor for future volatility then can we expect increase use of repos in the next period? Some papers have shown that merger activity increases as share prices increases -- can these be tied to the use of repos?
2. My main interest in the paper was the increase in liquidity that could be accounted for by marking to market. Unfortunately this was not attempted (and I don't know if it can). The authors use the repos positions of five investment banks to empirically verify the procyclity of marked-to-market leverage. This put a damper on things since the introduction seemed to indicate that they would address what it means to be awash in liquidity. If 5 investment banks can wash the world in liquidity then the financial system can't be too stable.
3. The abstract really needs to be catchier which means shorter sentences. Here's my 2 cent rewrite:
In a financial system where balance sheets are continuously marked to market, asset price changes show up immediately in changes in net worth. When asset prices go up, financial intermediaries increase their use of leverage. Marked-to-market leverage is strongly procyclical. The aggregate consequence of this behavior is to increase the risk appetite of financial intermediaries. Changes in the marked-to-market-leverage can predict innovations in risk appetite as proxied by the VIX index. The aggregate liquidity in the financial system can now be clearly seen as the rate of change of the balance sheets of financial intermediaries.
Can the Fed engineer a turnaround?
The following makes me think NOT.
1. Rogoff on inflation risks:
The U.S. is now ground zero for global inflation. Faced with a vicious combination of collapsing housing prices and imploding credit markets, the Fed has been aggressively cutting interest rates to try to stave off a recession. But even if the Fed does not admit it in its forecasts, the price of this "insurance policy" will almost certainly be higher inflation down the road, and perhaps for several years.
2. Asking too much of Monetary Policy:
What's an example of a problem you can't solve with monetary policy? Suppose you were convinced that house prices in the United States were at the moment substantially higher than they should be relative to the price of other goods and services. How could that have happened, an economist would want to ask, and let's suppose that the answer is that a credit market profoundly distorted by moral hazard problems loaned vast sums to households that could not reasonably be expected to be repaid if real estate prices stopped rising. The purchase of the properties financed by those loans drove up the price of housing relative to what it would have been (and should have been) with a correctly functioning credit market, so now the relative price of housing must fall.
3. Why Monetary Policy Cannot Stabilize Asset Prices:
Whatever merits such a stabilisation policy has in theory, our research suggests that in practice, monetary policy is too blunt an instrument to be used to target asset prices – the effects on real property prices are too small, given the responses of real GDP, and they are too slow, given the responses of real equity prices. In particular, there is a risk that setting monetary policy in response to asset price movements will lead to large output losses that exceed by a wide margin those that would arise from a possible bubble burst.
Is there still any disagreement over whether the current subprime crisis is rooted in liquidity or solvency? This will probably not be settled but it's straightforward to recognize that it may well be a little of both or a lot of one and a little of another. It's hard to gauge what the Fed is trying to do but it does seem like it is trying to solve the subprime crisis as a liquidity crisis. My two cents:
1. Recognize that for some institutions that it is a solvency issue. There will be a class of securities/mortages (the ability to identify these is left to the imagination for now since I don't know) that will never ever be repaid.
2. For others, again depending on the ability to identify their class of securities, this might well be a liquidity issue.
3. Assuming that the same institutions who invested in these securities can classify them as toxic or possibly non-radioactive then a workout perhaps similar to the Resolution Trust for S&L can be created for the toxic securities (and its underlying assets -- again assuming these can be identified).
4. Issues: a) a systematic workout to avoid a spiral of declining asset prices leading to asset prices close to its class also falling leading to the "death spiral" scenario.
b) Help those that can most easily be helped first. This may well be those who are healthiest or they may well also be those that are weakest. By working through the weakest institutions first and using a small enough pool of toxic securities can avoid the death spiral scenario.
c) Institutions are not going to willingly disclose all this information. Moral suasion may have to come into play.
5. If this could be done it probably would have been done now.
Paul Krugman is right. There has not been any real meaningful analysis of the problem. His figures assume that all the toxic securities have the same demand and supply curves but it may only apply to some and differ in degrees with others. It's good to see him doing economics again.
1. Rogoff on inflation risks:
The U.S. is now ground zero for global inflation. Faced with a vicious combination of collapsing housing prices and imploding credit markets, the Fed has been aggressively cutting interest rates to try to stave off a recession. But even if the Fed does not admit it in its forecasts, the price of this "insurance policy" will almost certainly be higher inflation down the road, and perhaps for several years.
2. Asking too much of Monetary Policy:
What's an example of a problem you can't solve with monetary policy? Suppose you were convinced that house prices in the United States were at the moment substantially higher than they should be relative to the price of other goods and services. How could that have happened, an economist would want to ask, and let's suppose that the answer is that a credit market profoundly distorted by moral hazard problems loaned vast sums to households that could not reasonably be expected to be repaid if real estate prices stopped rising. The purchase of the properties financed by those loans drove up the price of housing relative to what it would have been (and should have been) with a correctly functioning credit market, so now the relative price of housing must fall.
3. Why Monetary Policy Cannot Stabilize Asset Prices:
Whatever merits such a stabilisation policy has in theory, our research suggests that in practice, monetary policy is too blunt an instrument to be used to target asset prices – the effects on real property prices are too small, given the responses of real GDP, and they are too slow, given the responses of real equity prices. In particular, there is a risk that setting monetary policy in response to asset price movements will lead to large output losses that exceed by a wide margin those that would arise from a possible bubble burst.
Is there still any disagreement over whether the current subprime crisis is rooted in liquidity or solvency? This will probably not be settled but it's straightforward to recognize that it may well be a little of both or a lot of one and a little of another. It's hard to gauge what the Fed is trying to do but it does seem like it is trying to solve the subprime crisis as a liquidity crisis. My two cents:
1. Recognize that for some institutions that it is a solvency issue. There will be a class of securities/mortages (the ability to identify these is left to the imagination for now since I don't know) that will never ever be repaid.
2. For others, again depending on the ability to identify their class of securities, this might well be a liquidity issue.
3. Assuming that the same institutions who invested in these securities can classify them as toxic or possibly non-radioactive then a workout perhaps similar to the Resolution Trust for S&L can be created for the toxic securities (and its underlying assets -- again assuming these can be identified).
4. Issues: a) a systematic workout to avoid a spiral of declining asset prices leading to asset prices close to its class also falling leading to the "death spiral" scenario.
b) Help those that can most easily be helped first. This may well be those who are healthiest or they may well also be those that are weakest. By working through the weakest institutions first and using a small enough pool of toxic securities can avoid the death spiral scenario.
c) Institutions are not going to willingly disclose all this information. Moral suasion may have to come into play.
5. If this could be done it probably would have been done now.
Paul Krugman is right. There has not been any real meaningful analysis of the problem. His figures assume that all the toxic securities have the same demand and supply curves but it may only apply to some and differ in degrees with others. It's good to see him doing economics again.
On having goals
By Lauren. Definitely an uplifiting piece. I wonder about my goals in life.
1. Learn to play the guitar
2. Learn to play them drums. (May be too late for this.)
3. Write a book.
4. Stress less - hit the pause button more.
And definitely be a better parent (whatever it may mean).
1. Learn to play the guitar
2. Learn to play them drums. (May be too late for this.)
3. Write a book.
4. Stress less - hit the pause button more.
And definitely be a better parent (whatever it may mean).
What is home?
Richard Ford's contemplation on what it means to be home made me wonder the same thing.
1. Home is where the heart is.
2. Anywhere I hang my hat is my home.
3. Money can buy a house but not a home.
4. Place of birth.
5. House with fixed address.
There is a sense of "homeyness" that I sometimes feel when I sit down in the morning and enjoy a morning cup of coffee or watching the kids play. But then this feeling goes away sometimes when we have visitors or sometimes, this sense increases with other visitors. There is also the feeling of familiarity when we come back from a trip that qualifies as homeyness. I've lived in different places and have not actually been able to call most of them home. When I go back to Malaysia, it doesn't have the same homey feeling. Sometimes when we're in Maine where I went to college I have a feeling of home even though I don't live there. But here in Washington, with my family, I'm definitely home.
1. Home is where the heart is.
2. Anywhere I hang my hat is my home.
3. Money can buy a house but not a home.
4. Place of birth.
5. House with fixed address.
There is a sense of "homeyness" that I sometimes feel when I sit down in the morning and enjoy a morning cup of coffee or watching the kids play. But then this feeling goes away sometimes when we have visitors or sometimes, this sense increases with other visitors. There is also the feeling of familiarity when we come back from a trip that qualifies as homeyness. I've lived in different places and have not actually been able to call most of them home. When I go back to Malaysia, it doesn't have the same homey feeling. Sometimes when we're in Maine where I went to college I have a feeling of home even though I don't live there. But here in Washington, with my family, I'm definitely home.
Paying for the view with higher gas prices
This idea is definitely not new - river/ocean view rooms tend to cost more. Resorts/hotels in places with great views can charge more without having to provide much in terms of service/cleanliness/value. This article in the NYT seems to indicate that almost everything is more expensive in places with wonderful views.
Locals have gotten used to paying a lot for a little, as almost everything has to be trucked in from big towns up and down the coast. A twelve-pack of Budweiser costs nearly $15, and a small coffee at the general store is more expensive than at the average Starbucks. ... “You’re paying for the view,” said Brian Boyer, another of the service attendants at Amerigo. “And the entertainment.” ... And Gorda is not alone in pricey petrol along the coast. In Cambria, 35 miles south, the price of regular at the Chevron station was $3.95 on Tuesday. In Big Sur, the tourist-friendly hideaway 40 miles north, a gallon of regular went for $4.80 at one Shell station.
It's more than just the view that makes everything cost more - it's also the remoteness. I'm thinking of small island economies that need to have everything shipped in e.g. Maldives, Fiji, or closer to the U.S. the smaller Hawaiian Islands and other more small islands (San Juan Islands?) or remote (usually landlocked) countries like Bhutan, Nepal, Liechstenstein(?)
Locals have gotten used to paying a lot for a little, as almost everything has to be trucked in from big towns up and down the coast. A twelve-pack of Budweiser costs nearly $15, and a small coffee at the general store is more expensive than at the average Starbucks. ... “You’re paying for the view,” said Brian Boyer, another of the service attendants at Amerigo. “And the entertainment.” ... And Gorda is not alone in pricey petrol along the coast. In Cambria, 35 miles south, the price of regular at the Chevron station was $3.95 on Tuesday. In Big Sur, the tourist-friendly hideaway 40 miles north, a gallon of regular went for $4.80 at one Shell station.
It's more than just the view that makes everything cost more - it's also the remoteness. I'm thinking of small island economies that need to have everything shipped in e.g. Maldives, Fiji, or closer to the U.S. the smaller Hawaiian Islands and other more small islands (San Juan Islands?) or remote (usually landlocked) countries like Bhutan, Nepal, Liechstenstein(?)
What makes a Mandarin Oriental a Mandarin Oriental?
Or a Four Seasons a Four Seasons -- not to the customer. Well, yes partly to the customer. In other words how do these hotels maintain a high level of service. Being a service oriented trade means relying on its workers to provide the service. Do these workers get paid more than say, a hotel employee at a Best Western? Or do the hotels rely on more workers but still at low pay and use a "management style" that trains the staff to be more attentive?
Likewise, is being a waiter at a Morton's different than being a waiter at an IHOP? What kinds of people work as waiters at Morton's vis a vis a Perkins? Is there self selection or selection by the restaurant such as in a matching game?
Likewise, is being a waiter at a Morton's different than being a waiter at an IHOP? What kinds of people work as waiters at Morton's vis a vis a Perkins? Is there self selection or selection by the restaurant such as in a matching game?
Tuesday, March 11, 2008
Interaction variables yet again
This is the first time I've put any thoughts on this but I had thought that everyone had read the post on New Economist and the links in the post. The catalyst for this post was a paper by Matthew Kotchen and Laura Grant, "Does Daylight Saving Time Save Energy? Evidence from a Natural Experiment in Indiana". What bothered me a little was that they labeled their paper "Very Preliminary" yet allowed themselves to present their findings in the Wall Street Journal. See Marginal Revolution's post for the link. What bothered me even more was that this paper was presented at the NBER and no one seemed to have caught the error. This indicates to me that economists make this error more often than not -- just like political scientists. See this link for the same error made by political scientists.
However, I have to admit that even after getting a PhD I was not pointed to this type of error until I started working - by statisticians. One analyst (another PhD economist) proposed estimating an equation with interaction terms but without including all of the variables as main (or level) variables. The statistician on the project had to point out that this is not correct. I can now see why this is the case. For instance, let's say we want to estimate:
2. Leaving out one of the main effects (or level variables), for instance, X2 is tantamount to assuming/imposing the restriction c = 0. There is no a priori reason to do this. Econometrics lets us test this restriction and there really is no harm to keeping it in.
3. Leaving out one variable is similar to doing model selection by dropping insignificant variables but in this case the authors do not test that this is the case. In any case, even if a variable is not statistically significant there is still no good reason to drop the variable in these types of analyses.
4. At most analysts should consider including the variable as a main effect as part of sensitivity analysis (even if they do not believe that the variable should be included as a main effect).
In their paper, Kotchen and Grant focus on the coefficient of the interaction, d, in this case which they use to support their claim that DST increases energy usage. My guess is that if they were to estimate the model correctly, the size of the coefficient, d, would fall. Right now their estimates of d are partially capturing the effects of the omitted variable. I suppose the other possibility is that including all the relevant variables as main effects could have resulted in some perfect collinearity although they don't indicate this is the case.
However, I have to admit that even after getting a PhD I was not pointed to this type of error until I started working - by statisticians. One analyst (another PhD economist) proposed estimating an equation with interaction terms but without including all of the variables as main (or level) variables. The statistician on the project had to point out that this is not correct. I can now see why this is the case. For instance, let's say we want to estimate:
Y = a + bX1 + cX2 + dX1X2
1. From an ANOVA standpoint there is no reason to exclude X1 and X2 separately (one or both) and just include X1X2.2. Leaving out one of the main effects (or level variables), for instance, X2 is tantamount to assuming/imposing the restriction c = 0. There is no a priori reason to do this. Econometrics lets us test this restriction and there really is no harm to keeping it in.
3. Leaving out one variable is similar to doing model selection by dropping insignificant variables but in this case the authors do not test that this is the case. In any case, even if a variable is not statistically significant there is still no good reason to drop the variable in these types of analyses.
4. At most analysts should consider including the variable as a main effect as part of sensitivity analysis (even if they do not believe that the variable should be included as a main effect).
In their paper, Kotchen and Grant focus on the coefficient of the interaction, d, in this case which they use to support their claim that DST increases energy usage. My guess is that if they were to estimate the model correctly, the size of the coefficient, d, would fall. Right now their estimates of d are partially capturing the effects of the omitted variable. I suppose the other possibility is that including all the relevant variables as main effects could have resulted in some perfect collinearity although they don't indicate this is the case.
Some thoughts on DST
A post at MR and even earlier at Half Changed World got me thinking about DST and its effects on power usage. Here are 2 possible changes:
1. Usage does not change - it stays the same but just slides along by the hour change.
2. It changes at the margins at the beginning and at the end of the day.
Both of these indicate that at best the effects of DST on are small. #2 indicates that as the weeks pass the changes at the margin are not constant across the entire DST period.
A paper by Ryan Kellogg and Hendrik Wolff estimate the effects of DST on energy use based on an "experiment" in Australia when because of the Olympics, 2 states in Australia extended their DST by 2 months. This paper used half hourly data on energy use in the two states in Australia (1 that extended DST and another that did not -- another state which hosted the Olympics was not included. ) This was an impressive attempt at trying to obtain the causal effect of DST. They find that extending DST did not save energy which with some introspection is not unlikely. There were some weaknesses in the paper none of which can be attributed to the authors:
1. The aggregated nature of the data did not allow them to separately identify the effects of DST on residential versus industry energy demand.
2. The two extra months of DST did not allow them to measure the effects of DST over the entire DST period which runs from March through October.
Overall, Figures 3 and 6 in the paper pretty much summarized their findings although they had to estimate whether the increase in consumption early in the day outweighed the savings at the end of the day (Figure 6). The technical details of their estimator was a little overwhelming for me however. The title of the paper is: Does Extending Daylight Savings Time Save Energy? Evidence from An Australian Experiment. Their paper can be found here: http://repositories.cdlib.org/ucei/csem/CSEMWP-163/
Some of the deficiencies in the Kellogg and Wolff data were overcome by Matthew Kotchen and Laura Grant "Does Daylight Savings Time Save Energy? Evidence from a Natural Experiment in Indiana". They take advantage of the fact that some counties in Indiana never observed DST while some did and in 2006 a law forced all counties to comply. This allowed for indentification of the effects of daylight savings. They focus on residential energy use -- their data are the monthly bills of all residential customers in Indiana for three years (2004, 2005, 2006) which allows them to also estimate the effects of DST over the entired period covered by DST. They find that DST actually increases energy usage! This finding made it to the general public on various blogs and news releases. Unfortunately, their findings are marred by an error in their specification. They use interaction variables to identify the effect of DST but fail to include all of the interactions as main effects as well. More on this here. I liked their attempt to confirm their findings using a DOE simulation of home energy use, though. Their findings (?) however are not really representative of the country.
Their paper can be found here (at the time of writing): http://www2.bren.ucsb.edu/~kotchen/links/DSTpaper.pdf
Final thoughts: If all we're interested in are the differences in energy use due to the one hour difference, it seems like we could look at energy use for towns that are sufficiently "close" to the border of different time zones and just look at the differences in differences of those as well. Unfortunately, the dividing line for time zones usually go through rural areas. Perhaps I'm missing something because this seems like another obvious place to look. Another obvious comparison is Arizona with another state since AZ does not observe DST as well (?) The drawback here is that AZ is not comparable to other states since differences in differences will not work in this case.
1. Usage does not change - it stays the same but just slides along by the hour change.
2. It changes at the margins at the beginning and at the end of the day.
Both of these indicate that at best the effects of DST on are small. #2 indicates that as the weeks pass the changes at the margin are not constant across the entire DST period.
A paper by Ryan Kellogg and Hendrik Wolff estimate the effects of DST on energy use based on an "experiment" in Australia when because of the Olympics, 2 states in Australia extended their DST by 2 months. This paper used half hourly data on energy use in the two states in Australia (1 that extended DST and another that did not -- another state which hosted the Olympics was not included. ) This was an impressive attempt at trying to obtain the causal effect of DST. They find that extending DST did not save energy which with some introspection is not unlikely. There were some weaknesses in the paper none of which can be attributed to the authors:
1. The aggregated nature of the data did not allow them to separately identify the effects of DST on residential versus industry energy demand.
2. The two extra months of DST did not allow them to measure the effects of DST over the entire DST period which runs from March through October.
Overall, Figures 3 and 6 in the paper pretty much summarized their findings although they had to estimate whether the increase in consumption early in the day outweighed the savings at the end of the day (Figure 6). The technical details of their estimator was a little overwhelming for me however. The title of the paper is: Does Extending Daylight Savings Time Save Energy? Evidence from An Australian Experiment. Their paper can be found here: http://repositories.cdlib.org/ucei/csem/CSEMWP-163/
Some of the deficiencies in the Kellogg and Wolff data were overcome by Matthew Kotchen and Laura Grant "Does Daylight Savings Time Save Energy? Evidence from a Natural Experiment in Indiana". They take advantage of the fact that some counties in Indiana never observed DST while some did and in 2006 a law forced all counties to comply. This allowed for indentification of the effects of daylight savings. They focus on residential energy use -- their data are the monthly bills of all residential customers in Indiana for three years (2004, 2005, 2006) which allows them to also estimate the effects of DST over the entired period covered by DST. They find that DST actually increases energy usage! This finding made it to the general public on various blogs and news releases. Unfortunately, their findings are marred by an error in their specification. They use interaction variables to identify the effect of DST but fail to include all of the interactions as main effects as well. More on this here. I liked their attempt to confirm their findings using a DOE simulation of home energy use, though. Their findings (?) however are not really representative of the country.
Their paper can be found here (at the time of writing): http://www2.bren.ucsb.edu/~kotchen/links/DSTpaper.pdf
Final thoughts: If all we're interested in are the differences in energy use due to the one hour difference, it seems like we could look at energy use for towns that are sufficiently "close" to the border of different time zones and just look at the differences in differences of those as well. Unfortunately, the dividing line for time zones usually go through rural areas. Perhaps I'm missing something because this seems like another obvious place to look. Another obvious comparison is Arizona with another state since AZ does not observe DST as well (?) The drawback here is that AZ is not comparable to other states since differences in differences will not work in this case.
Wednesday, March 5, 2008
To ski or not to ski?
ELB at Half Changed World struggled with this. We're having the same kinds of issues with horseback riding. Right now, skiing tops horseback riding. As much as my impression that skiing is for rich snotty kids, horseback riding is even for richer snottier kids. While I'm ranting about this, what not throw in tennis and golf lessons as well?
In any case, like ELB here's a list of Pros and Cons (I'm having trouble coming up with any Pros actually so I'll start with the Cons.)
Cons:
1. It's expensive.
2. It's not a life skill that is useful like swimming.
3. It's associated with rich snotty kids who drink champagne while discussing horses asses.
Pros:
1. It gets them closer to nature.
2. It might teach some responsibility and how to care for animals.
All in all, maybe it's not too bad since we are breaking down and considering the Rock Creek Horse Center which is still pricey.
1 WEEK SESSION $500 (non-refundable)
Monday thru Friday 9:00 am - 3:00 pm
For boys and girls ages 8-14
From the beginner to the more experienced, our campers learn to ride and care for horses at all levels of accomplishment. Each session includes instruction, lectures on horsemanship theory and safety, as well as trail rides, picnics and games.
We're hoping that horse care and stable cleaning are part of the lessons -- they should learn that it's not all fun and games and there responsibilities as well.
In any case, like ELB here's a list of Pros and Cons (I'm having trouble coming up with any Pros actually so I'll start with the Cons.)
Cons:
1. It's expensive.
2. It's not a life skill that is useful like swimming.
3. It's associated with rich snotty kids who drink champagne while discussing horses asses.
Pros:
1. It gets them closer to nature.
2. It might teach some responsibility and how to care for animals.
All in all, maybe it's not too bad since we are breaking down and considering the Rock Creek Horse Center which is still pricey.
1 WEEK SESSION $500 (non-refundable)
Monday thru Friday 9:00 am - 3:00 pm
For boys and girls ages 8-14
From the beginner to the more experienced, our campers learn to ride and care for horses at all levels of accomplishment. Each session includes instruction, lectures on horsemanship theory and safety, as well as trail rides, picnics and games.
We're hoping that horse care and stable cleaning are part of the lessons -- they should learn that it's not all fun and games and there responsibilities as well.
Monday, March 3, 2008
Do sales encourage hoarding?
Well, not hoarding as when there are short supplies but this title sounded catchier. Whenever there are sales I tend to buy a lot more than I need at the time rationalizing that I will eventually get around to using whatever it is that is on sale: toilet paper, paper towels, soap, shampoo, etc. A consequence of all this is that I need to find room for all this stuff. So the question now is: Do sales (and Cotsco) cause us to want more room in our houses, or even catchier (and probably more inaccurate), do sales and Cotsco cause McMansions?
Is suicide rational?
I used to think it was but this article "The Golden Gate: A Bridge Too Deadly?" convinced me otherwise:
Gazing at the Pacific Ocean over a railing only four feet high, he found the sole remaining impediment to his death was his own willpower, which turned out to be fleeting. "I counted to 10, and I couldn't do it," Baldwin said. "And I counted to 10 again, and I vaulted over. "And my hands were the last thing to leave, and once they left, I thought: 'This is the worst decision I've ever made in my life.' " CalTrans officials point to a University of California survey's finding that nine out of 10 people prevented from jumping off the Golden Gate were still alive years later or had died of natural causes, despite the rationale that a barrier would prompt them only to "go somewhere else to end it." The study is part of a growing body of scientific literature that explodes persistent myths about suicide while reinforcing a simple principle: When it is harder to kill oneself, fewer people do so.
Gazing at the Pacific Ocean over a railing only four feet high, he found the sole remaining impediment to his death was his own willpower, which turned out to be fleeting. "I counted to 10, and I couldn't do it," Baldwin said. "And I counted to 10 again, and I vaulted over. "And my hands were the last thing to leave, and once they left, I thought: 'This is the worst decision I've ever made in my life.' " CalTrans officials point to a University of California survey's finding that nine out of 10 people prevented from jumping off the Golden Gate were still alive years later or had died of natural causes, despite the rationale that a barrier would prompt them only to "go somewhere else to end it." The study is part of a growing body of scientific literature that explodes persistent myths about suicide while reinforcing a simple principle: When it is harder to kill oneself, fewer people do so.
Bad hotels
I was looking into Tripadvisor customer reviews at two places: Timberline Lodge in Oregon and Canaan Valley Resort in West Viriginia. Both places are different but they seem to offer great views (Oregon) or activities (Canaan Valley). Both had very mixed (tending toward the negative) reviews on the quality of accomodations (given the price).
I've noticed that the signal to noise ratio from:
1. web site pictures
2. brand names (e.g. Hilton, Marriott, etc.)
are very low. I don't know when the pictures are taken. I don't know if the hotel will no longer be a brand name in the next few months because it is not up to standard.
So I've relied on Tripadvisor and Yahoo ratings which when the results are mixed leave me with a very quesy feeling as on our trips to Penang (2005) where we stayed at the Gurney Hotel and Kuala Lumpur (2007) where we stayed at the Lanson. The Gurney billed it self as a 5 star hotel but by Best Western standards it was below Best Western. Although service was good and the people were friendly, the carpet was threadbare, the furniture felt cheap, the couch was stained, and the sheets had holes in them. The toilet kept overflowing even though they came every other day to fix it. The Lanson turned out to be a pleasant experience although it was a little far from KLCC.
In general, hotels seem to lack any desire to upgrade their facilities until they "have to". When is this "have to" point - when marginal costs of not renovating exceed marginal benefits. They have to close e.g. Boca Raton Resort and Club ("The Boca Raton Resort and Club is excited to announce a complete renovation of our Boca Beach Club, including the arrival, lobby, guestrooms, restaurants & bars, fitness center, children’s activity center, and pools. A stunning new Pool Oasis will feature three redesigned swimming pools, an oceanfront bar, additional beach access, upgraded cabanas plus sunning terraces, lounging platforms & lush landscape. The new Pool Oasis is scheduled to reopen April 1, 2008; hotel rooms, lobby, and the interiors are scheduled to reopen in 2009." accessed 3/10/2008) and what do they do with their employees at this time?
The marginal benefits for some hotels are exceptionally high for a lot of these places mainly because of their location and hence, their monopoly power i.e. they are located on an island, or the view of the Grand Canyon for instance, , the view of Red Rocks in Sedona, the Cascades from Timberline Lodge and in Canaan Valley the draw are the facilities (such as skiing) make it more likely that people will tolerate bad accomodations (for a high price).
Unfortunately, for people like me who prefer both nice accomodations and views/facilities these places turn me off.
I've noticed that the signal to noise ratio from:
1. web site pictures
2. brand names (e.g. Hilton, Marriott, etc.)
are very low. I don't know when the pictures are taken. I don't know if the hotel will no longer be a brand name in the next few months because it is not up to standard.
So I've relied on Tripadvisor and Yahoo ratings which when the results are mixed leave me with a very quesy feeling as on our trips to Penang (2005) where we stayed at the Gurney Hotel and Kuala Lumpur (2007) where we stayed at the Lanson. The Gurney billed it self as a 5 star hotel but by Best Western standards it was below Best Western. Although service was good and the people were friendly, the carpet was threadbare, the furniture felt cheap, the couch was stained, and the sheets had holes in them. The toilet kept overflowing even though they came every other day to fix it. The Lanson turned out to be a pleasant experience although it was a little far from KLCC.
In general, hotels seem to lack any desire to upgrade their facilities until they "have to". When is this "have to" point - when marginal costs of not renovating exceed marginal benefits. They have to close e.g. Boca Raton Resort and Club ("The Boca Raton Resort and Club is excited to announce a complete renovation of our Boca Beach Club, including the arrival, lobby, guestrooms, restaurants & bars, fitness center, children’s activity center, and pools. A stunning new Pool Oasis will feature three redesigned swimming pools, an oceanfront bar, additional beach access, upgraded cabanas plus sunning terraces, lounging platforms & lush landscape. The new Pool Oasis is scheduled to reopen April 1, 2008; hotel rooms, lobby, and the interiors are scheduled to reopen in 2009." accessed 3/10/2008) and what do they do with their employees at this time?
The marginal benefits for some hotels are exceptionally high for a lot of these places mainly because of their location and hence, their monopoly power i.e. they are located on an island, or the view of the Grand Canyon for instance, , the view of Red Rocks in Sedona, the Cascades from Timberline Lodge and in Canaan Valley the draw are the facilities (such as skiing) make it more likely that people will tolerate bad accomodations (for a high price).
Unfortunately, for people like me who prefer both nice accomodations and views/facilities these places turn me off.
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