Saturday, December 31, 2011

Computer Software Replacing Scientists

From ScienceNews, "Software Scientist: With a little data, Eureqa generates fundamental laws of nature" by Rachel Ehrenberg:
A new computer program called Eureqa comes up with fundamental mathematical laws, the great equations of textbooks and history, from scratch. Feed Eureqa a mess of raw data, and it will find the underlying rules describing the observations.

Consider the laws of motion and conservation of energy. Eureqa’s creators, Cornell engineer and computer scientist Hod Lipson and then–graduate student Michael Schmidt, used a motion-tracking camera to capture the chaotic swings of two pendulums linked together. After measuring the pendulums’ angles and velocities, the researchers fed the numbers to Eureqa. Without any knowledge of geometry or physics, the program came up with Newton’s second law of motion and other equations governing the double pendulum’s behavior.

Friday, December 30, 2011

Character Building Programs Improve Student Educational Outcomes

A study of 20 elementary schools in Hawaii has found that a focused program to build social, emotional and character skills resulted in significantly improved overall quality of education, as evaluated by teachers, parents and students.

The concept includes organized activities to build character that go beyond more traditional rules or policies to control or punish problem behaviors. But it still takes only about an hour a week away from traditional education, and previous research has documented much lower numbers of suspensions, lower absenteeism, and better reading and math scores on standardized tests.

Comment To Tyson's Economix Post "Wyden-Ryan’s Unrealistic Assumptions"

A comment I posted to The New York Times, Economix blog, "Wyden-Ryan’s Unrealistic Assumptions" by Laura D'Andrea Tyson:
Governments do not lower costs. They increase costs to the user outside of government accounting, which appear to lower government costs but merely shift these costs to end users.

By paying below market rates, as Ms Tyson's chart indicates, the number and quality of medical providers decreases, waiting time increases as well as denial rates for service.

Additionally, out of pocket medical expense increases to offset government's lower payment rate, as in England where people buy secondary medical private insurance to supplement their government health insurance, or as in Canada where people travel to the US for faster and better medical care.

Furthermore, administrative costs is a red herring, since there are many other government functions that Medicare relies on that are outside of its accounting statements and measured costs, but which are included as costs for private insurers.

Wednesday, December 28, 2011

Labor Force Participation Is Key To Future Unemployment Rate

From The Federal Reserve Bank Of New York, "Labor Force Exits Are Complicating Unemployment Rate Forecasts" by Richard Peach, Josiah Bethards, and Joseph Song:
What will the unemployment rate be in 2013? Even if you were certain how much the U.S. economy (gross domestic product, or GDP) would grow over the next year or two, it would still be difficult to forecast the unemployment rate over that period. The link between GDP growth and unemployment is complex in part because it depends on how many people decide to work or look for work—that is, the labor force participation rate. In this post, we discuss the recent steep decline in the labor force participation rate and explain how uncertainty regarding the future path of that variable contributes to conflicting views about the future path of the unemployment rate.

Read the complete NY Fed blog post.

Sunday, December 25, 2011

Intercity Bus Ridership Growing: Departure Growth Exceeds Airline And Rail

From Bloomberg, "Bus Trips Surge as Free Wi-Fi Beats Driving" by Jeff Plungis:
Higher gasoline costs make driving a car more expensive at the same time as buses offer access to free Wi-Fi and cheaper fares than on planes and trains, Schwieterman said. Once viewed as a last resort in the U.S., bus travel is now attracting more affluent riders, students and women traveling alone, he said.

“Bus travel is suddenly cool,” Schwieterman said. “There’s a fatigue over driving combined with a revitalized image of the bus.”

Exceeds Airline Gains

Daily intercity curbside bus departures increased to 778 from 589 a year ago, according to a DePaul study to be published today. Scheduled departures for the total bus industry, which includes Greyhound Lines, increased 7.1 percent to 2,693. That compares with a gain of 1.5 percent for airline seat miles and 1.2 percent for rail seat miles, according to the study.

Wednesday, December 21, 2011

Ineffectiveness Of TSA Airport Screening

Charles C. Mann has written an interesting article in Vanity Fair on the uselessness and waste of taxpayer dollars of TSA screening at airports.

From Vanity Fair, "Smoke Screening" by Charles C. Mann:
To a large number of security analysts, this expenditure makes no sense. The vast cost is not worth the infinitesimal benefit. Not only has the actual threat from terror been exaggerated, they say, but the great bulk of the post-9/11 measures to contain it are little more than what [ Bruce] Schneier mocks as “security theater”: actions that accomplish nothing but are designed to make the government look like it is on the job. In fact, the continuing expenditure on security may actually have made the United States less safe.
From an airplane-hijacking point of view, Schneier said, al-Qaeda had used up its luck. Passengers on the first three 9/11 flights didn’t resist their captors, because in the past the typical consequence of a plane seizure had been “a week in Havana.” When the people on the fourth hijacked plane learned by cell phone that the previous flights had been turned into airborne bombs, they attacked their attackers. The hijackers were forced to crash Flight 93 into a field. “No big plane will ever be taken that way again, because the passengers will fight back,” Schneier said. Events have borne him out. The instigators of the two most serious post-9/11 incidents involving airplanes— the “shoe bomber” in 2001 and the “underwear bomber” in 2009, both of whom managed to get onto an airplane with explosives—were subdued by angry passengers.
As I waited at security with my fake boarding pass, a T.S.A. agent had darted out and swabbed my hands with a damp, chemically impregnated cloth: a test for explosives. Schneier said, “Apparently the idea is that al-Qaeda has never heard of latex gloves and wiping down with alcohol.” The uselessness of the swab, in his view, exemplifies why Americans should dismiss the T.S.A.’s frequent claim that it relies on “multiple levels” of security. For the extra levels of protection to be useful, each would have to test some factor that is independent of the others. But anyone with the intelligence and savvy to use a laser printer to forge a boarding pass can also pick up a stash of latex gloves to wear while making a bomb. From the standpoint of security, Schneier said, examining boarding passes and swabbing hands are tantamount to performing the same test twice because the person you miss with one test is the same person you'll miss with the other.
Staffing the airport checkpoints, at least in theory, are “behavioral detection officers,” supposedly trained in reading the “facial microexpressions” that give away terrorists. It is possible that they are effective, Schneier says—nobody knows exactly what they do. But U.S. airlines carried approximately 700 million passengers in 2010. In the last 10 years, there have been 20 known full-fledged al-Qaeda operatives who flew on U.S. planes (the 9/11 hijackers and the underwear bomber, who was given explosives by a Yemeni al-Qaeda affiliate). Picking the right 20 out of 700 million is simply not possible, Schneier says.

Tuesday, December 20, 2011

All Time High Odds Of Independent Or Third Party Run For Palin, Trump, Bloomberg, Paul or Bachmann For Presdient

Intrade odds of Palin, Trump, Bloomberg, Paul or Bachmann running for President as Independent or 3rd party candidate are at an all time high of 44.9 percent:

Source Intrade: Palin, Trump, Bloomberg, Paul OR Bachmann to run for President as Independent or 3rd party candidate

Federal Reserve Proposal To Strengthen Regulation And Supervision Of The Banking System

The Federal Reserve Board issued a Press Release on its proposed steps to strengthen regulation and supervision of the banking system:
Press Release

Release Date: December 20, 2011

For immediate release

The Federal Reserve Board on Tuesday proposed steps to strengthen regulation and supervision of large bank holding companies and systemically important nonbank financial firms. The proposal, which includes a wide range of measures addressing issues such as capital, liquidity, credit exposure, stress testing, risk management, and early remediation requirements, is mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The proposal generally applies to all U.S. bank holding companies with consolidated assets of $50 billion or more and any nonbank financial firms that may be designated by the Financial Stability Oversight Council as systemically important companies. The Board will issue a proposal regarding foreign banking organizations shortly. In general, savings and loan holding companies (SLHCs) would not be subject to the requirements in this proposal, except certain stress test requirements. The Board plans to issue a separate proposal later to address the applicability of the enhanced standards to SLHCs.

The Board is proposing a number of measures, including:

  • Risk-based capital and leverage requirements. These requirements would be implemented in two phases. In the first phase, the institutions would be subject to the Board's capital plan rule, which was issued in November 2011. That rule requires firms to develop annual capital plans, conduct stress tests, and maintain adequate capital, including a tier one common risk-based capital ratio greater than 5 percent, under both expected and stressed conditions. In the second phase, the Board would issue a proposal to implement a risk-based capital surcharge based on the framework and methodology developed by the Basel Committee on Banking Supervision.
  • Liquidity requirements. These measures would also be implemented in multiple phases. First, institutions would be subject to qualitative liquidity risk-management standards generally based on the interagency liquidity risk-management guidance issued in March 2010. These standards would require companies to conduct internal liquidity stress tests and set internal quantitative limits to manage liquidity risk. In the second phase, the Board would issue one or more proposals to implement quantitative liquidity requirements based on the Basel III liquidity rules.
  • Stress tests. Stress tests of the companies would be conducted annually by the Board using three economic and financial market scenarios. A summary of the results, including company-specific information, would be made public. In addition, the proposal requires companies to conduct one or more company-run stress tests each year and to make a summary of their results public.
  • Single-counterparty credit limits. These requirements would limit credit exposure of a covered financial firm to a single counterparty as a percentage of the firm's regulatory capital. Credit exposure between the largest financial companies would be subject to a tighter limit.
  • Early remediation requirements. These measures would be put in place for all firms subject to the proposal so that financial weaknesses are addressed at an early stage. The Board is proposing a number of triggers for remediation--such as capital levels, stress test results, and risk-management weaknesses--in some cases calibrated to be forward-looking. Required actions would vary based on the severity of the situation, but could include restrictions on growth, capital distributions, and executive compensation, as well as capital raising or asset sales.
The Board is proposing that firms would need to comply with many of the enhanced standards a year after they are finalized. The requirements related to stress testing for bank holding companies, however, would take effect shortly after the rule is finalized.

The Federal Reserve consulted with other members of the Financial Stability Oversight Council in developing the proposal. Comments on the proposal are requested by March 31, 2012.

For media inquiries, call 202-452-2955.

Household Wealth To Income Ratio Back To Long Term Trend After Pre-Recession Peak

From Federal Reserve Bank of Cleveland, Economic Trends, "Household Financial Position" by O. Emre Ergungor and Patricia Waiwood:
In the years preceding the stock market and housing bubbles, household wealth grew faster tan incomes, leading Americans to believe that they were getting richer. As the bubbles burst, the wealth-to-income ratio took a dive and returned to its long-term trend. The adjustment took place as households constrained their spending and reduced their debt. After peaking in 2008, household consumption expenditures dropped slightly (1.69 percent), hitting a trough in 2009. Yet since then, the wealth ratio has stabilized, and consumption expenditures have resumed growth, already climbing 2.2 percent beyond the pre-recession peak.

Source: Federal Reserve Bank of Cleveland

Sunday, December 18, 2011

Public Choice Theory Recognizes Many One Percenter Groups With Concentrated Political Power And Similar Interests

From Forbes, "Occupy Wall Street And The Myth Of The 99%" by Todd Henderson, professor at the University of Chicago Law School:
The ‘Occupy’ movement will never succeed against its “one percent” adversaries until it begins to understand that there is not a single one percent, but rather many.

An entire field of economics, known as “public choice,” studies how small, concentrated groups with similar interests generally prevail politically against larger groups of diffused interests. And, in our society, these concentrated interests – like unions, defense contractors, religious groups, farmers , etc. – are not necessarily part of the “one percent” Occupy talks about, and several have even joined or co-opted the Movement. But they are part of the broader one-percent problem.

Saturday, December 17, 2011

High Income Volatility In The Top 1 Percent

From The Wall Street Journal, "The Truth About Wealth: Affluence Is Becoming a Temporary Phenomenon. Here's How to Dodge the 'Beta Trap' and Hold On to What You've Got" by Robert Frank:
The total income of the top 1%—or those earning more than $343,000 in 2009—fell by more than 30% from 2007, according to the most recent Internal Revenue Service data. By contrast, the average income of the bottom 90% fell less than 3% during the same period.

A November Federal Reserve study, meanwhile, found that a third of the people in the top 1% in 2007, as measured by wealth, were no longer in the top 1% in 2009.

CBO Infographic Of TARP

CBO's infographic of the Troubled Asset Relief Program (TARP).

Larger version of the TARP infographic.

Friday, December 16, 2011

SEC Sues Ex-CEOs Of Fannie Mae And Freddie Mac For Misleading Subprime Disclosures

From Bloomberg, "Ex-Freddie, Fannie CEOs Sued Over Loans" by David Glovin and Joshua Gallu:
Daniel Mudd, the former chief executive officer of Fannie Mae, and Richard Syron, ex-CEO of Freddie Mac, were sued by the U.S. Securities and Exchange Commission for understating by hundreds of billions of dollars the subprime loans held by the firms.
Also named as defendants are Patricia Cook, Freddie Mac’s former executive vice president; Donald Bisenius, ex-senior vice president at Freddie Mac; Enrico Dallavecchia, who was chief risk officer for Fannie Mae; and Thomas Lund, Fannie’s Mae’s former executive vice president.

Thursday, December 15, 2011

Wyden-Ryan Medicare Proposal To Use Vickrey Reverse Auction To Control Costs

From The Wall Street Journal, "The Wyden-Ryan Breakthrough
A better, bipartisan Medicare future.
But there are several key changes. Most of the substantive argument turns on how the premium supports should grow over time. Wyden-Ryan would dispose of a predetermined rate—GDP plus 1%, medical inflation, etc.—and instead use competitive bidding. Insurers and traditional Medicare, which would remain intact, would essentially participate in a reverse auction and the second lowest bid would set the benchmark for a given region. Seniors would pay at the margin for more expensive options.

Wednesday, December 14, 2011

Teen Cigarette And Alcohol Use At Historic Low

From National Institute Of Health News, "Cigarette and alcohol use at historic low among teens:"
Cigarette and alcohol use by eighth, 10th and 12th-graders are at their lowest point since the Monitoring the Future (MTF) survey began polling teenagers in 1975, according to this year’s survey results.
The 2011 results showed that 18.7 percent of 12th-graders reported current (past-month) cigarette use, compared to a recent peak rate of 36.5 percent in 1997 and 21.6 percent five years ago. Only 6.1 percent of eighth-graders reported current smoking, compared to a recent peak of 21 percent in 1996 and 8.7 percent five years ago.
For alcohol, 63.5 percent of 12th-graders reported past year use, compared to a recent peak of 74.8 percent in 1997. Similarly, 26.9 percent of eighth-graders reported past year use of alcohol in 2011, compared to a recent peak rate of 46.8 percent in 1994. There also was a five-year decrease in binge drinking, measured as five or more drinks in a row in the past two weeks, across all three grades. Binge drinking was reported by 6.4 percent of eighth-graders, 14.7 percent of 10th-graders, and 21.6 percent of 12th-graders, down from the 2006 rates of 8.7 percent, 19.9 percent and 25.4 percent respectively.

Thailand Using Financial Markets To Minimize Damage Risks Where US Would Regulate Activities Instead

Thailand is suggesting it will allow flood related futures trading to hedge the risk of damage from flooding. Thailand appears to understand its economy and financial markets in a way that the US does not; markets are a risk transference mechanism -- not a risk avoidance mechanism without losses.

Futures and other derivatives are a zero sum investment. For one investor to show a gain, another investor, the counter-party, must show a loss. Hedgers in flooded areas will be compensated for their losses at the expense of counter-parties to the futures transactions.

Thailand will allow the markets to deal with the risk of damage from flooding, unlike the US approach of attempting to regulate away the risk by dictating and limiting what activites, how and where can be conducted in a flood prone area.

Also, Thailand will avoid the need to provide subsidies for flood plain insurance and catastrophes, as is done in the US through its flood plain subsidies.

From Bloomberg, "Thai Floods May Prompt Water Futures Trading" by Anuchit Nguyen:
Thailand may start trading of water derivatives, giving investors a means of hedging against disasters after the nation’s worst floods in almost 70 years, the [Thai] Securities & Exchange Commission said.

Tuesday, December 13, 2011

CBO Letter On Impact Of A Financial Transaction Tax

CBO letter to US Sen. Orrin Hatch, Chairman of the Finance Committee, on the effect of a proposed US tax on financial transactions.

CBO Hatch Letter on Financial Transaction Tax

CBO Infographic Of Federal Budget

CBO infographic of the US federal budget:

Larger image of infographic.

Monday, December 12, 2011

Higgs Boson Intrade Price Plummets In Advance Of Announcement

The Intrade price (odds) for discovery of the Higgs boson particle prior to December 31, 2013, plummeted from 88 to 30 prior to the CERN LHC update conference on December 13, 2011.

Source: Intrade: Before December 31, 2013 Higgs Boson Observation 

Voters Not Concerned About Income Inequality

From Bloomberg, "Voters Not Buying Obama’s Bogus Inequality Talk" by Ramesh Ponnuru:
When the National Opinion Research Center asked people whether they believed the government has a responsibility “to reduce the differences in income between people with high incomes and those with low incomes,” in 2008, only 37 percent agreed. Forty-three percent disagreed, and 20 percent had no opinion. When pollsters ask people to name the top issue facing the country, almost nobody volunteers inequality, notes Karlyn Bowman, an opinion-research analyst at the American Enterprise Institute. “I’ve literally never seen it cross the 1 percent threshold,” she says.

But if voters don’t especially care about how much money the rich are making, they do care about how much they themselves are making. A return to robust economic growth and rising middle-income wages doesn’t require reversing a decades-long trend toward higher inequality. It requires improvements to our monetary, tax and health-care policies.

A Mess Only Congress Can Create

From The Wall Street Journal, "The Cellulosic Ethanol Debacle: Congress mandated purchase of 250 million gallons in 2011. Actual production: 6.6 million."
To recap: Congress subsidized a product that didn't exist, mandated its purchase though it still didn't exist, is punishing oil companies for not buying the product that doesn't exist, and is now doubling down on the subsidies in the hope that someday it might exist. We'd call this the march of folly, but that's unfair to fools.

Friday, December 9, 2011

Most Americans Favor Televising US Supreme Court's Hearing Of Healthcare Law

From Gallupp, "Americans Favor Televising Supreme Court Healthcare Case: Large majorities of Republicans and Democrats favor cameras in the high court for this case" by Lydia Saad:
Nearly three-quarters of Americans, 72%, think television cameras should be allowed into the U.S. Supreme Court when it hears oral arguments in its upcoming review of President Barack Obama's healthcare law.

Thursday, December 8, 2011

Time For The Fed To Raise Short-Term Interest Rates To Boost The Economy

The Fed has held short term interest rates, during and after the recession, at close to zero level in an attempt to jump start the US economy, but to little avail. GDP growth is slow. Employment growth is weak and housing has not recovered in either prices or construction activity. The other tools the Fed tried to lower the longer end of the maturity curve have also not added to the strength of the economic recovery.

As reported in Bloomberg, the US Census Bureau reported that many households experienced a loss of income from rents, dividends and interest payments.

The Fed's actions have failed to grow the housing market. It cannot control or affect corporate dividends, but the Fed can raise short term interest rates.

Higher short term rates will put more money into households' pockets. With the additional income, households will spend more and the economy will grow faster than it has. A rise in short term rates will neither affect the housing market nor corporate investment.

It is time for the Fed to shift gears and add spendable income to the economy and households by raising short term rates. The Fed's efforts at the shorter end of the yield curve have not boosted the economy to an acceptable rate of growth. Its actions have been ineffective and the loss of household income from the extended period of lower rates may have actually been harmful and delayed the economic recovery.

From Bloomberg, "Plummeting Income Shaves Household Cash" by Frank Bass and Timothy R. Homan:
The housing market collapse, historically low interest rates and corporations stingy with dividends helped cut the median household income in two of every three U.S. counties, the U.S. Census Bureau reported today.

The number of American households that made money from rent, interest or dividends fell by one-third to 24.2 percent in 2010, even in affluent counties including those that encompass New York City and San Francisco.

Financial Crises Do Not Affect Economic Recoveries After Recessions: Fed Reserve Research Study

A new research paper from the Federal Reserve finds that financial crises do not affect the strength of recoveries from recessions; housing prices decline in recessions; larger home price declines lead to slower recoveries; deviation from output trend is due to less labor input, implying that the output gap is smaller than assumed by macro models.

From The Federal Reserve Board, "Are Recoveries from Banking and Financial Crises Really So Different?" by Greg Howard, Robert Martin, and Beth Anne Wilson, November 2011:
Abstract: This paper studies the behavior of recoveries from recessions across 59 advanced and emerging market economies over the past 40 years. Focusing specifically on the performance of output after the recession trough, we find little or no difference in the pace of output growth across types of recessions. In particular, banking and financial crisis do not affect the strength of the economic rebound, although these recessions are more severe, implying a sizable output loss. However, recovery does change with some characteristics of recession. Recoveries tend to be faster following deeper recessions, especially in emerging markets, and tend to be slower following long recessions. Most recessions are associated with a slowing, if not outright decline in house prices, but recessions with large declines in house prices also tend to have slower recoveries. Long recessions and those associated with poor housing-market outcomes can lead to sustained output losses relative to pre-crisis trends. Consistent with microeconomic studies showing permanent income loss to job-losing workers during recessions, we find that the sustained deviation in output from trend is associated with a reduction in labor input, especially linked to declines in employment and labor-force participation following recessions. On net, our results imply that the output/employment gap following a severe, long recessions is considerably smaller than is typically assumed by standard macro models, which in turn may have substantial implications for macroeconomic policy during recoveries. [Emphasis added]

The Wealthiest 1% Have More Education Than The 99%

From Gallup, "U.S. '1%' Is More Republican, but Not More Conservative: Nearly half of wealthiest Americans have postgraduate education" by Lydia Saad:
Advanced Education Separates the 1% From the 99%

Apart from their bank accounts, Gallup finds education to be the greatest difference between the wealthiest 1% of Americans and everyone else. The Gallup analysis reveals that 72% of the wealthiest Americans have a college degree, compared with 31% of those in the lower 99 percentiles. Furthermore, nearly half of those in the wealthiest group have postgraduate education, versus 16% of all others.

(HT: Greg Mankiw)

Wednesday, December 7, 2011

Bernanke's Letter To Congress On Alleged Secretive Lending To Financial Institutions

Federal Reserve Chairman Bernanke's response, in a letter to Congress, to recent news articles about alleged secretive emergency lending to financial institutions during the financial crisis.

Bernanke Responds to Recent Articles on Emergency Lending Activities

Tuesday, December 6, 2011

Fed Is Camouflaging The True Cost Of Capital And Hiding The Funding Risk Of Our Tax And Spend Policies

From The Wall Street Journal, "The 'Financial Repression' Trap: In capitals world-wide, policy makers deliberately obscure market prices and prevent informed judgments." by Kevin Warsh, former Federal Reserve governor:
Markets are not always efficient, but the market-clearing prices for stocks, bonds, currencies and other assets (like housing) are critical to informing judgments, in good times and bad. Market-determined asset prices often reveal inconvenient truths. But the sooner the truth is revealed, the sooner judgments can be rendered and action taken.

By contrast, government-induced prices send false signals to users and providers of capital. This upsets economic activity and harms market functioning. Markets that rely on governmental participation will turn out to be less enduring indicators of value.
Financial repression is sometimes the effect of policy even if it is not the intent. It manifests itself, for example, when policy makers react more forcefully to declines in asset prices than to increases. Price increases tend to be treated with benign indifference. But declines often lead policy makers to respond with force, deploying fiscal stimulus and monetary accommodation. Market participants then conclude that governments have their backs.

Consider the fiscal trajectory of the United States. However well-intentioned, the Federal Reserve's continued purchase of long-term Treasury securities risks camouflaging the country's true cost of capital. Private investors are crowded out of the market when the Fed shows up as a large and powerful bidder. As a result, the administration and Congress make tax and spending decisions—with huge implications for our standard of living—with heightened risks around future funding costs.

Monday, December 5, 2011

Effective Schools Come From Teacher Feedback, Tutoring, Data Guided Instruction, More Instructional Time And High Expectations: Not Small Class Size, Not More Dollars Per Student, Not Teachers' Certifications, Not Teachers' Advance Degrees

A new research paper (abstract below), finds that neither teacher certification, teacher advance degree, class size, nor dollars spent per pupil are important for school effectiveness.

Instead, the researchers found that "five policies ... frequent teacher feedback, the use of data to guide instruction, high-dosage tutoring, increased instructional time, and high expectations" are the important criteria for school effectiveness.

From research paper abstract, "Getting Beneath the Veil of Effective Schools: Evidence from New York City" by Will Dobbie, Roland G. Fryer, Jr, NBER Working Paper No. 17632, Issued in December 2011:
We find that traditionally collected input measures -- class size, per pupil expenditure, the fraction of teachers with no certification, and the fraction of teachers with an advanced degree -- are not correlated with school effectiveness. In stark contrast, we show that an index of five policies suggested by over forty years of qualitative research -- frequent teacher feedback, the use of data to guide instruction, high-dosage tutoring, increased instructional time, and high expectations -- explains approximately 50 percent of the variation in school effectiveness.

Investor-Owners of Multiple Homes Were Large Share Of Subprime Borrowers And Mortgage Defaulters During Housing Boom And Bust

From Federal Reserve Bank Of New York, "Flip This House”: Investor Speculation and the Housing Bubble" by Andrew Haughwout, Donghoon Lee, Joseph Tracy, and Wilbert van der Klaauw:
new findings from our recent New York Fed study that uses unique data to suggest that real estate “investors”—borrowers who use financial leverage in the form of mortgage credit to purchase multiple residential properties—played a previously unrecognized, but very important, role. These investors likely helped push prices up during 2004-06; but when prices turned down in early 2006, they defaulted in large numbers and thereby contributed importantly to the intensity of the housing cycle’s downward leg.
At the peak of the boom in 2006, over a third of all U.S. home purchase lending was made to people who already owned at least one house. In the four states with the most pronounced housing cycles, the investor share was nearly half—45 percent. Investor shares roughly doubled between 2000 and 2006. While some of these loans went to borrowers with “just” two homes, the increase in percentage terms is largest among those owning three or more properties. In 2006, Arizona, California, Florida, and Nevada investors owning three or more properties were responsible for nearly 20 percent of originations, almost triple their share in 2000.
Because investors don’t plan to own properties for long, they care much more about reducing their down-payments than reducing their interest rates. The expansion of the nonprime mortgage market during the 2000s provided the perfect opportunity for optimistic investors to get low-down-payment credit, albeit at high interest rates. As shown in the charts below, investors were far more likely than owner-occupants to use nonprime credit to make their purchases, especially at the peak.
borrowers with multiple mortgages start out being better risks—their loans were less likely to become seriously delinquent before 2006—but end up accounting for a disproportionate amount of defaults thereafter. What changed in 2006? Prices started to fall. In 2007-09, investors were responsible for more than a quarter of seriously delinquent mortgage balances nationwide, and more than a third in Arizona, California, Florida, and Nevada. [Emphasis added].

Intrade Odds Of Finding A Higgs Boson In Next Two Years Jump To 88 Percent

The Intrade odds of observing a Higgs Boson particle before December 31, 2013, have jumped to 88 percent.

The prices of the other Intrade securities for finding the Higgs Boson in different years are listed here.

Political Nonsense Of Linking Specific Taxes To Specific Programs

All tax revenues and fees go into a general revenue pot to pay for all government programs and expenses. To say that a specific tax is for a specific program is just silly political theater and under Obama, divisive class warfare.

Identifying taxes for targeted programs is like putting cash into a bank account, then making a withdrawal a few weeks later and expecting the serial numbers on the currency withdrawn to be the same as on the cash previously deposited.

It is like going on a driving trip and noticing that the gas tank is half full, filling the tank up and expecting to use the new gas for the later part of the trip and the gas that was originally in the tank for the beginning part of the trip, as if the gas did not mix in the tank.

The government works the same way. No specific tax can pay for any specific program. The government takes in a total sum of money from taxes and fees and spends that money on all its programs and expenses. Any extra money left over is a surplus and any shortfall of funds is a deficit that must be borrowed.

Opportunity Cost of Taxes And Programs

Any new tax or revenue increase whether linked to a new program or not is deficit reducing. Any new program whether linked to a specific tax or not is deficit increasing. By joining taxes and programs together as a single item, politicians are hiding from the public and media that new programs are spending and deficit increases and that new taxes and ending existing programs are deficit reductions.

New taxes justified as the basis for new programs, ignores the lost opportunity of using the new taxes to reduce the deficit. Likewise, failing to end an existing program, ignores that the termination of that program would also reduce the budget deficit.

All existing programs are deficit increases because ending any program would reduce the deficit. Likewise, any new tax revenue is deficit reducing and failing to increase revenues is an increase in the deficit.

Friday, December 2, 2011

Call For A Deregulation Job Stimulus

From City Journal, "The Regulatory Thicket: It’s time to cut it back." by Iain Murray and David Schoenbrod:
How to Do It

Iain Murray

In the seemingly endless debate about how to put Americans back to work, one solution dare not speak its name: deregulation. Yet if implemented correctly, it would provide an almost cost-free stimulus of a trillion dollars or more. According to the Small Business Administration (SBA), the regulatory burden on our economy is a staggering $1.75 trillion annually.
Reining in the Rules

David Schoenbrod

The economic consequences of regulating business are huge. Regulatory costs raise prices, depress incomes, and encourage companies to locate in friendlier climes, harming our economy and hampering recovery. Unfortunately, the perennial cry to reduce “regulatory drag” has yielded few results at the federal level. Congress rarely responds to such pleas because voters usually regard regulation one-sidedly, believing that it simply reduces risks without imposing burdens.

Alcohol Driving Studies, Multicollinearity, And Missing Variables

A comment I posted on John Goodman's Health Policy Blog, "Alcohol: Is the Medium the Message?" by John Goodman:
Actually auto accidents and alcohol drinking is not as clear-cut as common wisdom believes.

Night driving, driving while tired (later at night after being out), younger, inexperienced drivers, and risk takers all have higher accident rates than the general public, even without alcohol consumption.

Studies about alcohol and accidents do not include these other accident causative factors. If they did, the increase in accident rates from effects of alcohol consumption would be greatly diminished and maybe even found to be not statistically significant.

By excluding the additional causative factors, the studies would show a continuing need to lower alcohol consumption to lower auto accident rates. The vested interest groups which fund the studies and which lobby for lower alcohol consumption do not have any interest in seeing studies showing a lower effect of alcohol consumption on driving accidents.

When variables are correlated among themselves, multicollinearity, or when variables are excluded, the strength of the effect on the outcome of any of the included variables, like alcohol consumption, cannot be determined accurately. Alcohol's correlation with the missing variables may make it appear that it is a cause of accidents when in effect it may not be.

Medical Marijuana Decreases Alcohol Use And Auto Accidents

My posted comment to Carpe Diem blog, "More Pot, Less Beer, and Fewer Traffic Fatalities" by Mark Perry:
The decrease in traffic accidents and fatalities from legalizing marijuana may be only temporary. The decrease may not be from decrease in alcohol consumption, but from the change in social setting for medical marijuana versus alcohol. There could be a decrease in total driving and nighttime driving, which will lower the accident rates.

The authors found that the main beneficial effect on traffic fatalities was at night and weekends: "Likewise, we find that the estimated effects of MMLs [medical marijuana legalization] on fatalities at night and on weekends (when alcohol consumption rises) are larger, and are more precise, than the estimated effects of MMLs on fatalities during the day and on weekdays."

There are more driving accidents at night, more accidents among younger (more likely to go out to drink and socialize), inexperienced drivers, more accidents among tired drivers, e.g. later at night after being up all day (when drinkers return home after a night out), more accidents among risk-taking drivers, like those willing to risk a DUI/DWI after having a few drinks, and more accidents the more miles driven, even without the driver drinking alcohol. These added accident causes are in addition to any physical or reaction impairment due to excessive alcohol.

The legalization of marijuana will increase the social use of the drug and make it as socially acceptable as drinking. The partial legalizing for medical use may have the unintended effect of decreasing nighttime driving, which will not occur if there is full legalization and full social acceptance.

Full legalization will increase nighttime driving, increase the number of younger people driving to use or obtain it, etc., over the amount for medical marijuana, raising the additional driving accident causative factors to the same level as with alcohol.

As far as I know neither the CDC nor alcohol groups run a multivariable analysis to see which accident causative factors predominate as the leading cause of accidents while driving after a few drinks. They just assume it is alcohol if alcohol consumption is present in either driver.

It may very well be that alcohol impaired driving during the daylight, when the driver is well rested, in older, experienced drivers, in non-risk taking drivers (safe drivers) does not cause accidents.

CDC could do, or anti-alcohol groups like MADD could fund, a study that would show the additive effects of alcohol consumption on the other known accident risk factors.

In effect, not including as variables in the statistical studies these non-alcohol accident factors will enable the studies to show a continuing need for lower levels of alcohol consumption. However, including the additional factors might upset the well-funded vested interest groups and diminish alcohol's role as a major accident causer.

With full marijuana legalization and social acceptance, the driving accident rate might not be lower as the study shows for medical marijuana legalization.
If you are not regularly reading Mark Perry's blog Carpe Diem, you should.

Thursday, December 1, 2011

Maintenance Cost Savings, Not Energy Cost Savings, Pushing Commercial Switch To LEDs

From The Wall Street Journal, "The Math Changes on Bulbs: Modern LEDs, While Expensive, Save Companies on Labor" by Kate Linebaugh:
Bulbs built around light-emitting diodes—semiconductors that produce bright light when zapped with electricity—last 10 times longer than conventional bulbs, meaning fewer ladders blocking frozen-food aisles or unsightly scaffolds towering in hotel lobbies as workers change blown-out bulbs. With energy savings not yet enough in some cases to cover the higher cost of the new bulbs, it's lower maintenance costs that are getting sales across the finish line.
It also means the switch to lower energy use LEDs would most likely have happened without government involvement in mandating energy efficient light bulbs. Of course, the government will still take the credit.

Since 1995, Wal-Mart has increased the number of skylights in its stores to reduce its energy use and need for light bulbs. Wal-Mart did this without any government incentives or mandates to use more skylights.

Improvements in energy use and efficiency is a natural part of the on-going cost savings process in companies and occurs without government incentives or mandates. The profit motive is the natural process to motivate companies to lower costs, including energy use.

Two-Thirds Of Illegal Immigrants Lived In The US For Over 10 Years: Half Are Parents Of Minors

From Pew Hispanic Center, "Unauthorized Immigrants: Length of Residency, Patterns of Parenthood" by Paul Taylor, Mark Hugo Lopez, Jeffrey Passel, and Seth Motel:
Nearly two-thirds of the 10.2 million unauthorized adult immigrants in the United States have lived in this country for at least 10 years and nearly half are parents of minor children, according to new estimates by the Pew Hispanic Center.

Read the full 13-page Pew Hispanic Research report, "Unauthorized Immigrants: Length of Residency, Patterns of Parenthood" by Paul Taylor, Mark Hugo Lopez, Jeffrey Passel, and Seth Motel.

US Has Comparatively High Life Expectancy

As I have said on this blog in previous posts, e.g. here and here, and in comments to other health related blogs about US life expectancy, the US health related life expectancy is much better than OECD statistics make it appear.

From John Goodman's Health policy Blog, "Do We Really Spend More and Get Less?" by John Goodman:
What about life expectancy statistics — a favorite of the critics, since Americans don’t score very high? It turns out that when you remove outcomes doctors have almost no impact on — death from fatal injuries (car accidents, violent crime, etc.) — U.S. life expectancy jumps from 19th in the world to number one!

Wednesday, November 30, 2011

US Flips From Voracious Fuel Importer To Fuel Exporter

From The Wall Street Journal, "U.S. Nears Milestone: Net Fuel Exporter" by Liam Pleven and Russell Gold:
U.S. exports of gasoline, diesel and other oil-based fuels are soaring, putting the nation on track to be a net exporter of petroleum products in 2011 for the first time in 62 years.
According to data released by the U.S. Energy Information Administration on Tuesday, the U.S. sent abroad 753.4 million barrels of everything from gasoline to jet fuel in the first nine months of this year, while it imported 689.4 million barrels.

Tuesday, November 29, 2011

Cleveland Fed Predicts 0.8 Percent Real GDP Growth Next Year

From Federal Reserve Bank Of Cleveland, "Yield Curve and Predicted GDP Growth" November 1, 2011, Covering September 23-October 28, 2011, by Joseph G. Haubrich and Margaret Jacobson:
Projecting forward using past values of the spread and GDP growth suggests that real GDP will grow at about a 0.8 percent rate over the next year

More Mortgage Borrower Rights Delay But Do Not Decrease Foreclosures

Increasing mortgage borrowers' foreclosure protection rights neither increase renegotiations of the defaulting mortgages nor decrease the number of foreclosures. The extra consumer rights just delay the inevitable foreclosure. They are an unnecessary and useless added process and expense.

From Federal Reserve Bank Of Atlanta, Working Paper Series, "Do Borrower Rights Improve Borrower Outcomes? Evidence from the Foreclosure Process" by Kristopher Gerardi, Lauren Lambie-Hanson, and Paul S. Willen, Working Paper 2011-16, November 2011:
In other words, in the long run, a given number of defaults is expected to yield the same number of foreclosures regardless of the laws. These borrower-protection laws do not prevent foreclosure, they merely delay it.

The third metric for the effectiveness of lengthening the foreclosure timeline involves looking at the likelihood of renegotiation between borrowers and lenders. One powerful argument for increased borrower protection is that it facilitates renegotiation, both directly by allowing borrowers more time to make the case to their lender and indirectly by increasing borrower bargaining power. We find no effect of longer foreclosure timelines on the likelihood that a borrower receives a mortgage modification or, in the case of the right-to-cure law, on the difference in modification rates across states.

Men Honestly Overate Their Job Performance More Than Women: Reason For More Male Bosses

From ScienceBlog, "Honest Overconfidence May Lead To Male Domination In The C-Suite:"
A study conducted by Columbia Business School’s Prof. Ernesto Reuben, Assistant Professor, Management, alongside Pedro Rey-Biel, Associate Professor, Autonomous University of Barcelona, Paola Sapienza, Associate Professor, Professor of Finance, Northwestern University, and Luigi Zingales, Robert C. McCormack Professor of Entrepreneurship and Finance, the University of Chicago Booth School of Business, finds men’s honest overconfidence — not overt discrimination — may play an important role in male domination of the C-suite.
The researchers found that when they compared actual with recalled performance, most participants overestimated their performance — a tendency documented in different forms in different studies. The major difference was that men consistently rated their past performance about 30 percent higher than it really was. Women, on the other hand, consistently rated their past performance only about 15 percent higher than it actually was. [Emphasis Added]
The research study is "The Emergence of Male Leadership in
Competitive Environments
" by Ernesto Reubena, Pedro Rey‐Bielb, Paola Sapienzac, and Luigi Zingalesd.

IQ Can Rise Or Fall Over The Years

From The Wall Street Journal, "Ways to Inflate Your IQ: Your Intelligence Level Can Fluctuate, Studies Show; Battling the Post-Vacation Dip" by Sue Shellenbarger:
Many people think of IQ as a genetic trait, like brown eyes or short legs: You're born with it and you're stuck with it. Now, a growing body of research is showing that a person's IQ can rise—and even fall—over the years.
"There are many myths about IQ, such as the notion that IQ is a fixed number or that it is a crystal ball for future performance," says Eric Rossen, director of professional development and standards for the National Association of School Psychologists in Bethesda, Md.

Total US Debt Chart: Government Plus Private Debt

From "A terrifying U.S. debt chart you’ve never seen before" by James Pethokoukis:

Total American debt, from The Enterprise Blog (via Mary Meeker)

Monday, November 28, 2011

Historical Look At Job Growth Drivers: Video

From The Wall Street Journal Blog, Real Time Economics, "Where Are the Jobs? A Look Back at Growth Drivers" by Phil Izzo:
The past four decades have witnessed changes in the makeup of the economy, and the industries that dominate economic expansions have changed over the years. A look back at past expansions offers some clues.

Example Of Government Failing To Consider Monitoring Costs And Inaccuracies For Environmental Mandates

As 2009 Economics Nobel Prize winner Elinor Ostrom, and others in her field, have noted, when governance of the commons shifts from participants at the local level to a centralized government structure, information and observations are lost and monitoring of effects on the commons becomes costly and inaccurate.

For example, from Nature, "The problems with emissions trading: How does putting a price on carbon reduce greenhouse-gas emissions?" by Hannah Hoag:
Alberta’s Can$60 million (US$57 million) carbon-cutting programme is failing, according to the latest report from the Canadian province’s auditor-general, Merwan Saher. Like many such programmes around the world, it includes an emissions trading scheme, which allows polluters to meet their emissions reductions targets by buying carbon offsets from a selection of approved projects. The offsets are supposed to be real, measurable and provable. But the report claims that the province, despite earlier warnings, has not improved its regulatory structure — and calls the emissions estimates and the offsets themselves into question.

Tuesday, November 22, 2011

Limited Marginal Economic Impact Of Unemployment Insurance

My comment on Rortybomb blog, "Eight Things We Know About Extending Unemployment Insurance" by Mike Konczal:
Unemployment is not a means tested program. As such, some of unemployment payments substitute for spending from savings (including IRA’s 401k’s, etc.), asset sales (stocks, bonds, extra car, jewelry, vacation home, collectibles, etc.) of the unemployed person, his/her household members, relatives or friends.

The marginal impact on spending of an extra $44 million of unemployment payments due to the above substitution effect will be less than the full amount of benefits.

Additionally, there are other government programs for the needy unemployed, such as food stamps, Medicaid, and accelerated Social Security for those over 62 years of age, etc.

Extended unemployment payments can easily have close to a zero marginal impact on the economy if they mostly substitute for other available funds and other government benefits.

Monday, November 21, 2011

Market Uncertainties Impede Organ Market Development

My posted comment about organ sales on Cafe Hayek blog, "Free the Market. Save Lives." by Don Boudreaux:
Market prices, or as might be said in a Coasean framework, negotiated prices, include a bundle of legal rights and warranties related to the sale in addition to the item. Markets are most liquid and most accurately priced when all relevant information is available, such as when there is some standardization or fungibility of the product for sale. To me, market impediments and not illegality are stopping the sale of organs and development of an organ market.

In an organ sale, there is a lot of asymmetric information. The provider of the organ knows a lot more about his/her health, family's medical history and previous habits, such as alcohol use, drug use, smoking, high fat diets, exercise, etc.

The organ providers who are younger, healthy, ate healthy diets, exercised, refrained from drinking and smoking, and come from families with long life expectancy will want a market that allows them to capture a higher price for their better quality organs. The others with the less healthy organs will want a market that obscures or ignores the quality of their organs in order to obtain a price higher than under full disclosure.

Since standardization is impossible for organ sales (the organ quality will vary by individual), attaching product warranties to sales facilitates market transactions and alleviates many asymmetric information problems, but creates a new set of problems.

Should someone who gives up a kidney for cash, have to return the cash if the kidney is defective, disease-ridden, short-lived, fails in the recipient, etc?

Should organ sales be limited to only those providers who have healthier lifestyles, better genetics and who can provide a higher quality organ?

If sales of different quality organs occur, market prices will reflect quality (poor quality – lower price, higher quality – higher price) and have a range. Will society allow the sale of cheaper, poorer quality organs to poorer members of society who cannot afford to pay more for a better quality organ? Will society tolerate that some in poverty with unhealthy poverty related lifestyles will get less for their organs than those who are rich and can afford healthier lifestyles?

Who owns a child's organs? Can a parent ever sell a child's organ? Suppose, it is the only available means to raise funds for expensive medical treatments to save the child's life from another disease? Or child's organ, but parent's or sibling's life?

If the market will price younger organs at a higher price, are we creating a new risk for children?

As far as I know, there is not a significant black market selling and buying of organs in the US, despite severe shortages and the availability of wealth among some of the future recipients.

The lack of a sizable black market despite the apparent need for more organs indicates to me that market transaction impediments, and not morality or illegality, is the major obstacle to organ sales.

When the market can resolve the asymmetry information problems, sale transactions in organs will start to occur (probably underground and in a black market). When enforceable legal rights and warranties attach to the sales, a full-blown, visible and legal, organ market will develop.

Ted Forstmann, Early Leverage Buyout Financier, Dies: Originator Of Phrase "Barbarians at the Gate."

From The New York Times, "Theodore Forstmann, Private Equity Pioneer, Is Dead at 71" by Andrew Ross Sorkin:
Theodore J. Forstmann, a colorful financier and philanthropist who helped pioneer leveraged buyouts, died on Sunday at the age of 71.

The cause was brain cancer, his spokesman said. Mr. Forstmann, who lived in Manhattan had been diagnosed with a malignant glioma earlier this year.

Mr. Forstmann was among the very first executives to use debt to acquire companies, fix them and then sell them for millions – and sometimes billions – of dollars in profits.
Bloomberg obituary, "Ted Forstmann, LBO Pioneer Who Sounded Alarm on Junk Bonds, Dies at Age 71" by Laurence Arnold.

Friday, November 18, 2011

Estimated Losses From Auto Bailout Raised 65 Percent

From "Taxpayers Get Bigger Bill From GM, Chrysler Bailout" on
The Treasury Department issued a new estimate last week, indicating losses on the bailout will be $23.6 billion, more than 65% higher than the previous estimate of $14.3 billion. Including payments made to auto industry suppliers, the total cost of the General Motors/Chrysler bailout is roughly $85 billion.
GM's worth continues to fall. On Jan. 7, GM stock closed at $38.98 a share. By October, it had fallen below $20. It closed Friday below $22.

For taxpayers to break even on the GM portion of the bailout — about $50 billion of the $85 billion — General Motors stock [onwed by the US} needed to be sold at somewhere between $45 and $55 a share when the "new" GM went public in November 2010. But that price has never been reached. In fact, the stock has never found the $40 mark.

25 Percent Of Sampled Hedge Funds Misprice Their Equity Stock Holdings

From the research paper, "Caught in the Act: How Hedge Funds Manipulate Their Equity Positions" by Gjergji Cici, College of William and Mary - Mason School of Business, Alexander Kempf, University of Cologne - Department of Finance and Alexander Puetz, University of Cologne - Department of Finance:
Focusing on the position valuations of common stocks, presumably the most liquid securities, allows us to document direct evidence of manipulation while eliminating the possibility of unintentional mispricing due to stale prices or pricing discretion.
we document that about 150 thousand positions (roughly seven percent) out of about 2.3 million positions are mismarked. To get a sense for the economic magnitude of mismarking, we show that the reported valuations for these 150 thousand positions deviate from CRSP-based valuations by roughly 2.5 percent in absolute terms. Such a level of mismarking, although not extreme, is not trivial in an economic sense
Previous research suggests that the majority of hedge fund advisors rely on independent pricing committees or external parties to compute their NAVs, and among these advisors fewer pricing irregularities are to be found (see, Cassar and Gerakos (2011)). Our results from the cross-section of hedge fund advisors are consistent with this previous finding, as we show that the majority of hedge fund advisors show little or no mismarking. However, a non-trivial fraction of roughly 25 percent of our sample advisors shows mismarking of an economically significant magnitude.
Our findings from a battery of tests show that the documented mismarking is strongly related to hedge fund incentives, and therefore is not the byproduct of some unknown random process.

30 Years Of Satellite Measurements Of Earth's Lower Atmosphere Temperature Finds Human Induced Global Warming

To address criticism of the reliability of thermometer records of surface warming, Lawrence Livermore National Laboratory scientists analyzed satellite measurements of the temperature of the lower troposphere (the region of the atmosphere from the surface to roughly five miles above) and saw a clear signal of human-induced warming of the planet.

Satellite measurements of atmospheric temperature are made with microwave radiometers, and are completely independent of surface thermometer measurements. The satellite data indicate that the lower troposphere has warmed by roughly 0.9 degrees Fahrenheit since the beginning of satellite temperature records in 1979. This increase is entirely consistent with the warming of Earth’s surface estimated from thermometer records.
Read the entire post here.

Wednesday, November 16, 2011

Higher Credit Scores Correlate With Higher Employee Conscientiousness And Loyalty

From CBS Money Watch, "Does bad credit make you a bad employee?" by Kimberly Weisul:
What your credit score says about you

Here are the traits that did seem to be linked to credit scores:

Conscientiousness: Employers care about this one. And employees with higher credit scores tended to also score higher on conscientiousness on the personality test.

Loyalty: Workers with higher credit scores scored higher on a scale of "organizational citizenship," and were more likely to show loyalty to their employers.

Tuesday, November 15, 2011

Removing Air Pollution Increases Global Warming

From NPR, "Air Pollution: Bad For Health, But Good For Planet?" by Richard Harris:
Cleaning up the air, while good for our lungs, could make global warming worse. That conclusion is underscored by a new study, which looks at the pollutants that go up smokestacks along with carbon dioxide.
Read the transcript or listen to the audio version of this NPR program.

Majority Of Islamic Terrorists In US Are American Citizens

From ScienceBlog, "60% of people arrested for Islamic terrorist activities were American citizens:"
Sixty percent of people arrested for Islamic terrorist activities between January 2009 and April 2011 were American citizens, according to a new report from Rice University’s Baker Institute for Public Policy. The study of 104 people who were arrested included U.S. and non-U.S. citizens living in America or abroad.

The report, “Analyzing the Islamic Extremist Phenomenon in the United States: A Study of Recent Activity,” was authored by Joan Neuhaus Schaan, fellow in homeland security at the Baker Institute. Jessica Phillips, an intern with the Baker Institute’s homeland security and terrorism program, provided research support for the study [report weblink added].
The complete report is available from the Baker Institute.

Monday, November 14, 2011

2012 Presidential Election Market Predicts Democrats Will Get Majority Of Popular Vote

The Iowa Electronic Election Markets now predict that the Democrats will garner a majority of the popular vote in the 2012 presidential election.

For the last several months, the Iowa market was predicting that the Republicans will get the majority of the popular vote in the next presidential election.

2012 US Presidential Election Vote Share Market
2012 US Presidential Election Vote Share Market
Source: Iowa Election Markets

The Intrade Market is also predicting a win for the Democrats (Obama) in the next presidential election, after several months of predicting a Republican win. See last Friday's blog post, "Republican Odds Of Winning 2012 Presidential Election Declining: Democrat (Obama) Now Favored To Win 2012 Presidency."

Saturday, November 12, 2011

US Income Inequality And Pareto Distributions

My comment to The Wall Street Journal article, "Income Ladder's Sticky Steps" by Carl Bialiki:
Income and wealth follow mathematical rules known as power law distributions, as noticed by the economist Vilfredo Pareto over 100 years ago. More familiarly, people know these rules as the 80-20 rule. For example, twenty percent of customers produce 80 percent of sales, etc.

These types of income distributions have several characteristics. They are scale free -- meaning that sub-parts have the same characteristics. For example in the top 10 percent of wealth or income, the top 20 percent of that group will have 80 percent of the income or wealth. The same is true for the top 1 percent or the bottom 10 percent.

While the exact break down can vary and need not be exactly 80-20 (can be 80-30 or 70-10 for example), all economies, at all times, have unequal concentrations of wealth and income. For example, 20 percent of countries produce about 82 percent of GDP.

The US Income Pareto distribution changes over time. The inequality levels, as measured by a Pareto distribution were high around 1920 and are about the same level as now. Pareto inequality declined from 1920 until around the 1970's and started to increase again until the beginning of the recession. No one has a good answer as to why income level distributions have been cyclical over the last 100 years, or whether it will continue its trend towards more income and wealth concentration or reverse as it did in the 1970s.

Power law distributions are a fundamental rule of nature, just like the binomial distribution.

Networks and Internet sites also follow power law rules and 20 percent of sites get 80 percent of traffic. So do many other natural, sociological and economic phenomena.


As an example, think of all the aspiring singers and rock groups, or high school and college football and basketball players. Only a few will get professional contracts and of those, only a few will become stars with multi-million dollar salaries. Think of mom and pop stores. How many will become a Wal-Mart?

Should governments ban us from shopping at the large national chains because of their concentration of sales and forced us to shop at stores with higher prices, older merchandise, and tougher return policies? Should we have to buy music from groups we do not like because their song sales are low? Should we have to use doctors that are not the ones recommended by our friends and families because too many people use those doctors and ignore the others? Should we have to watch professional sports teams that use players that otherwise would not be selected?

Our daily consumption choices create much of the wealth and income concentration.

Should someone who can take a mom and pop store, turn it into a Wal-Mart and expand its sales a million or more fold get paid the same amount as someone whose local store never expands its locations, items it carries or goes out of business? Should a quarterback, who loses most of his games and throws lots of interceptions, get paid the same amount as a quarterback who can consistently win and take his team to the Superbowl?

Pareto distributions (power laws) have another characteristic. If the leaders are eliminated, other leaders form. If you eliminate the top income earners, top internet sites, top musical groups, top doctors, etc., other earners, sites, groups and doctors will become the top 20 percent garnering 80 percent.

It is our natural tendency to be social animals; herded like sheep, into the same music, clothes, movies, cars, etc. that creates wealth and income concentration. It is also the entrepreneurial spirit of the US to reward success, while inwardly we harbor jealousy and beliefs that under the right circumstances, we too could have achieved that level of success.

Penn State Bond Rating Downgrade Possible Due to Sex Abuse Scandal

From Bloomberg, "Penn State May Face Credit Downgrade" by John Hechinger and Heather Perlberg:
Moody’s put Penn State’s Aa1 rating of about $1 billion in bonds on review while it considers the reputational and financial risk arising from the [on campus sex abuse] situation.

Public Schools Switching To Online, At Home, Teaching

From The Wall Street Journal, "My Teacher Is an App: More kids than ever before are attending school from their living rooms, bedrooms and kitchens. The result: A radical rethinking of how education works." by Stephanie Banchero and Stephanie Simon:
In a radical rethinking of what it means to go to school, states and districts nationwide are launching online public schools that let students from kindergarten to 12th grade take some—or all—of their classes from their bedrooms, living rooms and kitchens. Other states and districts are bringing students into brick-and-mortar schools for instruction that is largely computer-based and self-directed.

In just the past few months, Virginia has authorized 13 new online schools. Florida began requiring all public-high-school students to take at least one class online, partly to prepare them for college cybercourses. Idaho soon will require two. In Georgia, a new app lets high-school students take full course loads on their iPhones and BlackBerrys. Thirty states now let students take all of their courses online.

Nationwide, an estimated 250,000 students are enrolled in full-time virtual schools, up 40% in the last three years, according to Evergreen Education Group, a consulting firm that works with online schools. More than two million pupils take at least one class online, according to the International Association for K-12 Online Learning, a trade group.

Friday, November 11, 2011

Republican Odds Of Winning 2012 Presidential Election Declining: Democrat (Obama) Now Favored To Win 2012 Presidency

Republican Party chances of winning the 2012 presidential election declined in the last few weeks and are now below 50 percent on Intrade election markets, while the Democratic Party chances are above 50 percent. A few weeks ago, the Intrade odds were in favor of a Republican win in the next presidential election.

The Intrade odds for a Republican president next term are currently 46.5 percent.

The Intrade odds for a Democratic president next term are currently 51.3 percent.

Republican President Intrade Prices (Odds)

Democratic President Intrade Prices (Odds)

Note right side price scales start at different points in the two charts above.

Thursday, November 10, 2011

Value Of Winning College Football Coaches: Paterno And Penn State Football Ticket Resale Prices

From Bloomberg, "Penn State Football Ticket Prices Fall 23%" by Erik Matuszewski and Eben Novy-Williams:
Ticket resale prices for Penn State’s football game against the University of Nebraska have dropped almost 23 percent since coach Joe Paterno was fired last night.

Defensive coordinator Tom Bradley, 55, was promoted on an interim basis to replace Paterno, who was dismissed along with university President Graham B. Spanier four days after former assistant football coach Jerry Sandusky was charged with sexually assaulting boys in the school’s athletic complex.
Penn State’s Beaver Stadium has been expanded to seat 106,572 fans, up from 46,284 when Paterno took over as coach in 1966. The school’s biggest crowd was 110,753 for a 2002 game against Nebraska.

Penn State is 8-1 and ranked 12th in the Bowl Championship Series rankings entering this weekend’s game against 19th-ranked Nebraska (7-2).
The resale ticket prices dropped $63 from $283 to $220 on the news of Paterno's firing. On the earlier announcement of Paterno's retirement at the end of this season, the resale ticket prices increased about $140.

His coaching ability and celebrity value is worth about $15 million dollars to the spectators (106,572 seats times $140). His on field presence during a game is worth about $6.7 million (106,572 times $63). The remaining $8 million is the value of of seeing a winning record team coached in preparation for a game by Paterno.

Wednesday, November 9, 2011

Home Prices Continue Their Nationwide Decline

From Bloomberg, "Home Prices Decline in NYC Area, Rise in Boston" by Kathleen M. Howley:
The median price of a single-family home decreased from a year earlier in 111 metropolitan areas out of the 150 measured, the National Association of Realtors said in a report today.

Wal-Mart To Offer Low Cost Medical Services

From The Wall Street Journal, "Wal-Mart Seeks Partners for Health-Care Expansion" by Miguel Bustillo:
Wal-Mart Stores Inc. says it is aiming to become "the largest provider of primary healthcare services in the nation" and is seeking other companies to help it provide medical care for the new program, which it will market through its giant fleet of more than 3,800 U.S. stores.

The world's largest retailer is seeking "strategic partners to rapidly create a comprehensive healthcare solution" as part of a plan to offer "the lowest cost primary healthcare services and products," according to a request for information the retailer recently sent out to other companies.
Wal-Mart said in its proposal document that it is interested in offering services including clinical care such as monitoring for asthma, sleep apnea and osteoporosis; diagnostic services such as allergy and blood testing; and preventative services such as vaccinations and physical exams, as well as health and wellness products.

Tuesday, November 8, 2011

Traffic Exhaust Causes Brain Damage

From The Wall Street Journal, "The Hidden Toll of Traffic Jams: Scientists Increasingly Link Vehicle Exhaust With Brain-Cell Damage, Higher Rates of Autism" by Robert Lee Hotz:
Children in areas affected by high levels of emissions, on average, scored more poorly on intelligence tests and were more prone to depression, anxiety and attention problems than children growing up in cleaner air, separate research teams in New York, Boston, Beijing, and Krakow, Poland, found. And older men and women long exposed to higher levels of traffic-related particles and ozone had memory and reasoning problems that effectively added five years to their mental age, other university researchers in Boston reported this year. The emissions may also heighten the risk of Alzheimer's disease and speed the effects of Parkinson's disease.
In New Jersey, premature births, a risk factor for cognitive delays, in areas around highway toll plazas dropped 10.8% after the introduction of E-ZPass, which eased traffic congestion and reduced exhaust fumes, according to reports published in scientific journals this year and in 2009. The researchers, Princeton University economist Janet Currie and her colleagues at Columbia University, analyzed health data for the decade ending 2003.

Teachers Are Overpaid For Their Skill Level: Teachers' Standardized Tests Scores Are In The Bottom Half Of College Graduates

From The Wall Street Journal, "Public School Teachers Aren't Underpaid: Our research suggests that on average—counting salaries, benefits and job security—teachers receive about 52% more than they could in private business." by Andrew G. Biggs And Jason Richwine:
Education is widely regarded by researchers and college students alike as one of the easiest fields of study, and one that features substantially higher average grades than most other college majors. On objective tests of cognitive ability such as the SAT, ACT, GRE (Graduate Record Examination) and Armed Forces Qualification Test, teachers score only around the 40th percentile of college graduates. If we compare teachers and non-teachers with similar AFQT scores, the teacher salary penalty disappears.

While salaries are about even, fringe benefits push teacher compensation well ahead of comparable employees in the private economy. The trouble is that many of these benefits are hidden, meaning that lawmakers, taxpayers and even teachers themselves are sometimes unaware of them.
Properly counted, a typical public school teacher with a salary of $51,000 would receive another $51,480 in present or future fringe benefits. A worker in private business with the same salary would receive around $22,185 in fringe benefits.

Smokin' Joe Frazier Dies

The Fight of the Century:

From Bloomberg, "Joe Frazier, Who Battled Ali in Public Eye, Dies" by Nancy Kercheval and Laurence Arnold:
Joe Frazier, who used a pounding left hook to fight his way to boxing’s heavyweight title, then battled Muhammad Ali in three epic matches and in the court of public opinion, has died. He was 67.

Sunday, November 6, 2011

Misuse Of Statistics In Economics And Other Social Sciences

From "Odds Are, It's Wrong: Science fails to face the shortcomings of statistics" in ScienceNews:
Another common error equates statistical significance to “significance” in the ordinary use of the word. Because of the way statistical formulas work, a study with a very large sample can detect “statistical significance” for a small effect that is meaningless in practical terms. A new drug may be statistically better than an old drug, but for every thousand people you treat you might get just one or two additional cures — not clinically significant. Similarly, when studies claim that a chemical causes a “significantly increased risk of cancer,” they often mean that it is just statistically significant, possibly posing only a tiny absolute increase in risk.

Statisticians perpetually caution against mistaking statistical significance for practical importance, but scientific papers commit that error often. Ziliak studied journals from various fields — psychology, medicine and economics among others — and reported frequent disregard for the distinction.

“I found that eight or nine of every 10 articles published in the leading journals make the fatal substitution” of equating statistical significance to importance, he said in an interview. Ziliak’s data are documented in the 2008 book The Cult of Statistical Significance, coauthored with Deirdre McCloskey of the University of Illinois at Chicago.
“Replication is vital,” says statistician Juliet Shaffer, a lecturer emeritus at the University of California, Berkeley. And in medicine, she says, the need for replication is widely recognized. “But in the social sciences and behavioral sciences, replication is not common,” she noted in San Diego in February at the annual meeting of the American Association for the Advancement of Science. “This is a sad situation.”

Saturday, November 5, 2011

US Physicians' Treatment Responses To Medicare Reimbursement Changes Varies By Geographic Region

From The New England Journal Of Medicine, "Geographic Variation in Physicians' Responses to a Reimbursement Change" by Mireille Jacobson, Ph.D., Craig C. Earle, M.D., and Joseph P. Newhouse, Ph.D.:
We studied the variation in geographic response to a major reform of Medicare's reimbursement system for physician-administered drugs (Part B), the vast majority of which are chemotherapy agents.

On January 1, 2005, Medicare instituted an average sales price (ASP) payment system for physician-administered drugs, setting reimbursement at the national average of manufacturers' sales prices from two earlier quarters plus a 6% margin.
the new ASP system reduced profit margins substantially for many chemotherapy-drug manufacturers. In one extreme case, that of paclitaxel, a drug commonly used to treat lung cancer, standardized monthly reimbursements decreased by a factor of 10 when the ASP system took effect. Physicians responded to this change by increasing the rate of chemotherapy treatment for patients with lung cancer, with the increase concentrated in treatment given by office-based oncologists.2 Rates of chemotherapy treatment increased by more than 10%, or about 2 percentage points, within 30 days after a diagnosis of lung cancer and by almost 4 percentage points within 180 days.
Oncologists' response to the payment change varied markedly across states (see graph), with some states increasing treatment rates by more than 4 percentage points within 30 days after diagnosis and a few actually reducing treatment rates. A small part of the variation is random, as shown by the upper limit of the 95% confidence interval in the graph, but the great bulk of it is real; we can reject the null hypothesis that the change in chemotherapy treatment was the same across states (P<.001).
First, to the long-standing question of why physicians practice medicine differently in different geographic areas, we can add the question of why their responses to a change in reimbursement are so geographically clustered. It may not be surprising that a physician with large, unpaid debts for, say, education loans might respond to a fee cut differently from a physician who is near retirement and has paid off any education loans, has paid for his children's college education, and has no mortgage on his residence — but physicians of both types are found in every state. Even more puzzling is why oncologists in Minnesota responded by increasing chemotherapy rates much more than those in California or why oncologists in New Hampshire and Connecticut responded by substantially increasing chemotherapy rates, while those in Rhode Island responded by increasing them only slightly and those in Massachusetts responded by decreasing them, albeit slightly.

Thursday, November 3, 2011

Innovation The Consumer And Politicians Do Not See

From Bloomberg', "Ikea’s Paper Pallet Challenges Wood’s Reign" by Ola Kinnander:
Ikea, which uses 10 million pallets to supply its stores with bookcases, pillows and candles, will ditch wood by January in favor of a lighter, thinner, paper-based alternative the Swedish company says will shave 10 percent from transport costs.

“We don’t know if the paper pallet will be the ultimate solution, but it’s better than wood,” said Jeanette Skjelmose, sustainability manager at Ikea’s supply-chain unit. Though made from folded corrugated-card, the design can support a load of 750 kilograms (1,650 pounds), the same as timber, she said.

Assembled from locally sourced card by Ikea’s 1,200 global suppliers, the pallets will be good for a single delivery before being pulped by the retailer. One-third the height of wooden trays at 5 centimeters (2 inches) and 90 percent lighter at 2.5 kilos, they’ll save thousands of truck trips and cut transport bills by 140 million euros ($193 million) a year at a cost of 90 million euros for paper purchases and new forklifts, Ikea says.
A great deal of innovation occurs out of view of consumers and politicians. To the public, innovation is the fancy gadget, such as the IPhone, Kindle, etc. To producers, innovation is anything that speeds up or lowers the cost of the production process, which includes transportation and fuel savings.

Lowering the weight and size of cargo, increases the the number of goods a truck can carry, decreases the number of trips and trucks needed to deliver the cargo and lowers fuel use per unit of goods. It is equivalent to an increase in miles per gallon per unit of goods transported.

Businesses have a profit incentive to increase fuel efficiency, lower cost, per unit of goods, as the IKEA example shows. It is an example of one of the reasons government regulation often does not work. IKEA's pallet example is an example of increasing MPG per unit of goods by lowering weight and number of trips. Yet, it is not seen or understood by the government and environmental regulators as a increase in truck fuel efficiency.