Wednesday, January 30, 2008

A Bold Idea

With last night's victory, Senator Clinton now claims two states—Florida and Michigan—whom the DNC has stripped of delegates due to voting before February 5th. She won both handedly; in the case of Michigan, she was the only viable candidate to not withdraw from the ballot in placation to New Hampshire (which she won anyhow).

My thought: What if the Senator knows that the DNC will capitulate and give Florida and Michigan's delegates a seat at the convention?

Indeed, what if her campaign is actively pushing for this outcome with the DNC, and secretly worked to ensure Clinton's victory in Florida and Michigan?

With her forecasted-win in California, Florida's delegates, and her believed-lock on the superdelegates, that is a ball game.

Friday, January 25, 2008

Some Sort of Winged Wolf

We awoke to find a hawk on our sill:

A Hawk in Boston
"Yah, I'm hot"

Folks are asking what I think of the fiscal stimulus plan: Meh.

It should come as no surprise that I strongly favor monetary over fiscal policy. In fact, I thought we all came to that conclusion over the last 25 years. There is arguably a place for fiscal policy, when the threat of recession is strong and monetary policy is ineffective. Then, you want a fiscal policy that meets the three T's:

  • Timely: Stimulus should be enacted immediately (in this case, no later than Q2 2008)
  • Targeted: Stimulus should be directed at those who will spend it (and thus increase aggregate demand)
  • Temporary: Stimulus should be sudden and short-lived, increasing short-term demand without a long-run structural increase in the deficit

With the exception of timely—I am skeptical that people will see these checks before late summer—the proposed package is not bad. To be sure, it could be much worse. The democratic congress's food stamp proposal, for example, is just ridiculous (although it would have been timely). Senator Clinton's fiscal stimulus package is awful; huge and overly directed, it is political pandering before economics.

But that is what the proposed plan is, too. The stimulus won't do much to ward off recession, but Congress has to do something. Politics, not economics.

The first reason that fiscal stimulus is unneeded is that the economic downturn is not going to be, by any standard, very bad. The latest CBO report says the "CBO does not expect the slowdown in economic growth to be large enough to register as a recession," forecasting GDP growth of "1.7 percent in real terms." This is in line with corporate economist projections of one to two percent real growth.

The second demerit against fiscal policy is that monetary policy is not, at this point, ineffective. With rates at 3.5%, The Fed still has plenty of room to maneuver, and they have shown themselves willing to try innovative approaches. From a paper by Alan Blinder:

Under normal circumstances, monetary policy is a far better candidate for the stabilization job than fiscal policy. It should therefore take first chair. Nothing in this paper is intended to dispute this piece of conventional wisdom. That said, however, there will be occasional abnormal circumstances in which monetary policy can use a little help, or maybe a lot, in stimulating the economy—such as when recessions are extremely long and/or extremely deep, when nominal interest rates approach zero, or when significant weakness in aggregate demand arises abruptly.

We are not looking at an extremely long or deep recession, nor are rates zero.

As an aside, I am a fan of automatic fiscal stabilizers, such as a (slightly) progressive tax system and unemployment programs. As an economy slows, these benefits automatically and immediately accrue, avoiding the institutional effects inherent in other forms of fiscal policy.

A Hawk in Boston
"I could kill you without breaking a sweat"

Moments later, the winged beauty swooped down and lit a trolly on fire. Cf., the Chinese variant.

Wednesday, January 23, 2008

Lou Dobbs is Xenophobic

The Boston Globe's Carolyn Johnson on the new 802.11-based location detecter in Apple's iPhone:

Skyhook's technology uses signals from Wi-Fi hot spots to triangulate and find a person's location, instead of using a chip that lets a mobile device communicate with the Global Positioning System.

They developed the technology using the fact that each router has a unique identifier—essentially a beacon that can be picked up by any Wi-Fi-enabled device. Today Skyhook's technology works in about 8,000 U.S. cities and towns, and the company is expanding its database by mapping Wi-Fi signals in Europe and Asia.

In this manner, wireless access points provide a positive externality. Of course, if your wireless network is open you already provide a sizable public good.

The technology behind Skyhook—based right here in Boston—is simple. The onerous and impressive part is assembling the database mapping MAC address to location.

Here is how it works: Every wireless network access point has a unique number associated with it, called its MAC or BSSID address. This address is encoded into every signal sent out over the wireless network, including special beacon signals sent about once every second. Your laptop and iPhone can see these signals, and thus the unique address, without having to connect to the wireless network (and without needing any otherwise-requisite security keys). Skyhook has built a database mapping these addresses to longitude/latitude pairs—either by getting users at known locations to run software that records base station addresses, which in bulk would slowly build the database, or by driving a vehicle around with a wireless interface and GPS and recording the output. Skyhook then provides software for use on your iPhone that looks at the access point addresses in sight and maps them to their prerecorded locations. The more access points in sight, the more accurate the estimate, as the intersection of overlapping access points shrinks your probable location. As said, the software bits are trivial, but building and maintaining the database is remarkable.

Elsewhere, I am reading Tim Harford's new book, The Logic of Life, which is sadly not officially available for The Kindle. The book, like his last, applies a nuanced view of rational choice theory to everyday and unexpected situations.

An early example analyzes condom use by Mexican prostitutes, who charge a 25% premium for service sans condom:

It's tempting to argue that the prostitutes do not understand the risks. That's patronizing: Even without the efforts of the health and development organizations, prostitutes probably know more about the risks of sexually transmitted infections than anyone who thinks of them as simpleminded victims. In fact, prostitutes know that while the risks are real, they are modest. Only one in eight hundred Mexicans carries HIV, and even among prostitutes it afflicts just one in three hundred. Even if a prostitute is unlucky enough that one of her unprotected jobs is with a man who is HIV-positive, the risk that she will catch it is less than two percent if one of them is carrying some other sexual infection and less than one percent otherwise. None of the prostitutes want to catch HIV, but the risks of catching it because of one instance of unprotected sex are small, while the pay is substantially higher.

The typical Morelian prostitute is acting as though she valued one extra year of healthy life at between fifteen thousand and fifty thousand dollars or up to five years income.

Such analysis may appear insensitive, but understanding the incentives behind the choices helps policy makers and social workers better tailor their approach.

Monday, January 14, 2008

April is the Cruelest Month

So it snowed.

Cambridge covered in snow

A reader sent in Ten Recurring Economic Fallacies from the The Ludwig von Mises Institute, an Austrian School think tank in Alabama.

The first fallacy—that of the broken window—is certainly common, as Austrian School economists never fail to point out. Missing, but equally prevalent, is the zero-sum fallacy, the misbelief that wealth is allocated and reallocated, but never created.

Improving the citizenry's economics and statistics education should be a national priority.

Thursday, January 10, 2008

Markets for Everything

I am a fan of prediction markets as forecasting tools—see this paper on our internal market—but the wisdom of the crowds sure gets elections wrong:

Intrade Clinton market

From inevitable to dead and then back to frontrunner.

Markets aggregate information, and that information is mostly polls, and the polls were erroneous. In fact, looking at the market for any given candidate, the pricing is just some amalgam of state polls, national polls, and current buzz. Intrade and other prediction markets are far from perfect, but I suspect the real problem is that elections are simply hard to forecast and thus markets and polls alike are poor prognosticators.

One mitigator would be to combine the two: Run markets where buyers are voters in the given election. The commingling might reduce some of the biases and errors that manifest in the standalone forms and it would constrain market participants to those with more information than the average person—say, folks actually caucusing. One downside, however, is that participants would have a pecuniary incentive to not change their minds.

As for the current pricing of a Senator Clinton victory, I suspect the markets (as with the media) are overreacting to her New Hampshire comeback, overcompensating for their earlier pessimism. I would put the odds at 6-to-5 and pick 'em.

Tuesday, January 8, 2008

Harpertown

Jon Stokes at Ars Technica on Intel's Penryn launch. Apple is quick out the door with new Mac Pros with quadcore goodness, but as of yet no new laptops. See also Ars' review of the Santa Rosa MacBooks.

Boston's Back Bay from the Longfellow:

Boston skyline

Sometime after I left for St Lucia, my Kindle's wireless stopped working. Modulo the inability to initiate a connection to Whispernet—which sounds like some sort of dorky crime tips hotline—the device works fine. Rang Amazon's tech support; a replacement device is en route.

Buy.com is back, or never left, and has Linux System Programming for a mere $26. Plus they support Google Checkout, with whom first-time users can save another $10. Now is your chance to grab another seven copies on the cheap.

Monday, January 7, 2008

Drudge on Clinton

Matt Drudge on Senator Clinton's exit:

Facing a double-digit defeat in New Hampshire, a sudden collapse in national polls and an expected fund-raising drought, Senator Hillary Clinton is preparing for a tough decision: Does she get out of the race? And when?!

"She can't take multiple double-digit losses in New Hampshire, South Carolina and Nevada," laments one top campaign insider to the DRUDGE REPORT. "If she gets too badly embarrassed, it will really harm her. She doesn't want the Clinton brand to be damaged with back-to-back-to-back defeats."

Meanwhile, Democrat hopeful John Edwards has confided to senior staff that he is staying in the race because Hillary "could soon be out."

"Her money is going to dry up," Edwards confided, a top source said Monday morning.

Key players in Clinton's inner circle are said to be split. James Carville is urging her to fight it out through at least February and Super Tuesday, where she has a shot at thwarting Barack Obama in a big state.

Writing off the Clinton Campaign Machine at this point is premature, but everyone should be surprised to see where we are now vis-à-vis a month ago, when the senator was not only a near-lock for the Democratic nomination but also the likely general contest victor.

Sainte Lucie, finale

I miss St Lucia—the rainforest, the idyllic beach, most of all the rum punch—but Tyler Cowen brings me home with this out-of-the-park apercu:

Government-dominated health systems, insofar as they work well (a number of them do), succeed simply by lowering costs. Health care has a murky relationship to human health, pharmaceuticals and broken limbs aside. A version of the single-payer system, as might be adopted in the United States, would not lower costs. We would be raising taxes and lowering medical innovation to give poor people a good deal more financial security and a slight bit more health; that is the relevant tradeoff.

Our national debate would benefit from decoupling the healthcare problem into two disjoint issues: First, healthcare is (too) expensive. Second, the desire to provide (near) universal care. The separation is important, if for no other reason than sufficiently solving the former would make irrelevant the latter—the issue rests not just on the fact that healthcare is a basic component of well-being (so is water), but that it is very expensive, particularly for certain demographics.

Anyhow, I have the immune system of a wolf, so I spend my hours lying in the sun, inebriated:

St Lucia

St Lucia

St Lucia

St Lucia

Photos one through three shot on a Canon EOS 5D with EF 24-105mm f/4L IS USM lens; photo four shot on a Canon SD800 IS by guest.

Sunday, January 6, 2008

Dueling Debates

I have a couple of thoughts on last night's double-header debateSenator Clinton appeared tired and worn yet won on foreign policy, Governor Romney looked bad, Congressman Paul needs to stop talking about the "hidden tax" of U.S. monetary policy—but one exchange in particular sticks out for its contrast.

Charlie Gibson asked:

None of you have favored a carbon tax. Is it a bad idea, or is it just so politically unpalatable that you guys don't want to propose it?

Governor Richardson, former Secretary of Energy, went first:

You know, I was energy secretary. It's a bad idea. Because, when you have a carbon tax, first of all, it's not a mandate. What you want is a mandate on polluters, on coal companies, on those that pollute, to reduce greenhouse gas emissions by a certain target.

Under my plan: 30 percent by the year 2020; 80 percent by the year 2040. It takes international leadership. The better way to do it is through a cap-and-trade system which is a mandate.

Furthermore, a carbon tax, that's passed on to consumers, that's passed on to the average person, that's money you take out of the economy.

So it's a bad idea.

Cap-and-trade is a mandate, but it's also going to take presidential leadership. It's going to take all of us here, every American, you know, to think more efficiently about how we transport ourself, what vehicles we purchase, appliances in our homes.

Governor Richardson is assuredly well-versed in the topic; suggesting that cap-and-trade's cost is not passed on to consumers is either profound perfidiousness or incredible ignorance.

Senator Obama, on the other hand, took the noble yet politically risky path of labeling both price raisers:

Well, I agree with Bill that I think a cap-and-trade system makes more sense. That's why I proposed it: because you can be very specific in terms of how we're going to reduce the greenhouse gases by a particular level.

Now, what you have to do is you have to combine it with a 100 percent auction. In other words, every little bit of pollution that is sent up into the atmosphere, that polluter is getting charged for it.

Not only does that ensure that they don't game the system, but you're also generating billions of dollars that can be invested in solar and wind and biodiesel.

I do disagree with one thing, though, that Bill said, and that is that on a carbon tax, the cost will be passed on to consumers, and that won't happen with a cap-and-trade.

Under a cap-and-trade, there will be a cost. Plants are going to have to retrofit their equipment. And that's going to cost money, and they will pass it onto consumers.

The senator goes for cap-and-trade over a carbon tax—it does, after all, have the politically-untenable word tax in it—but, channeling President Kennedy, Obama deserves points for admitting the costs and declaring that Americans need to make the sacrifice regardless.

The economics behind either scheme is unambiguous: Both put a price on carbon emissions, which raises the costs of carbon-involved products and services. The increased costs put downward pressure on demand. Both have the benefit of using market forces to regulate pollution, which is important: We do not know where the marginal benefit of cutting emissions equals the marginal cost. Both plans essentially devolve into the same thing, at an economic level. I favor a carbon tax due to its simplicity: less bureaucracy, less gaming potential, more transparency.

In either a cap-and-trade system or a carbon tax, the costs of carbon are passed on to the consumer—there is no debating this, both ultimately function in the same way. (Some of the carbon costs eat profits, particularly where prices are sticky, but over the long-term most of the rising costs will result in higher consumer prices.) Some or even all of the rising costs, however, can be rebated back to consumers through the lowering of other, productivity-deterring taxes, such as those on income and payroll.

Friday, January 4, 2008

Sainte Lucie, deux

New yearsing in St Lucia—home to perhaps the world's only drive-in volcano—I came across the French etiquette guide, Rules of Civility and Decent Behaviour In Company and Conversation, that President Washington translated into English when he was but a schoolboy.

When in Company, put not your hands to any part of the body not usually discovered.

St Lucia

Eat not in the streets, nor in your house, out of season.

St Lucia

Kill no vermin, fleas, lice, ticks, et cetera in the sight of others; if you see any filth or thick spittle put your foot dexterously upon it; if it be upon the clothes of your companions, put it off privately, and if it be upon your own clothes, return thanks to him who puts it off.

St Lucia

If you cough, sneeze, sigh, or yawn, do it not loud but privately, and speak not in your yawning, but put your handkerchief or hand before your face and turn aside.

St Lucia

The gestures of the body must be suited to the discourse you are upon.

Photos one, three, and four shot on a Canon EOS 5D with EF 24-105mm f/4L IS USM lens; photo two shot on a Canon SD800 IS.

Thursday, January 3, 2008

St Lucia

Back in Boston after new yearsing in St Lucia, named for the patron saint of the blind and one of the few women actually acknowledged by the Roman Catholic Church, where the air is so dewy-sweet you don't even have to lick the stamps.

St Lucia

St Lucia

St Lucia

St Lucia

Photos one and three shot on a Canon EOS 5D with EF 24-105mm f/4L IS USM lens; photos two and four on a Canon SD800 IS.