Sunday, January 31, 2010

If You Can Dodge A Drunk, Armed Man

FLG thinks this was a huge misunderstanding:
Rip Torn...was arrested late on Friday after police allegedly found him intoxicated and armed inside a Connecticut bank.

Obviously, it was just extreme dodge ball training:

Definitive Proof The Internet Is Not An Authoritative Source

Here are some selections from one list of "Awesome Weight Loss Tips":
  • Never, never, never eat between the 3 main meals. Then eat what you want when it is time to eat.
  • Snack between meals – starving yourself for 6 or 7 hours at a time between lunch and dinner means you will overeat at dinner.

  • No fast food. Period.
  • Everything in moderation. If you really want French fries and a hamburger, or ice cream, or a cookie… it’s OK to indulge a little occasionally. Key word is occasionally. Better to indulge a little, than to binge later.

Obviously, some yahoo just cut and pasted a bunch of tips from other yahoos out there. Many of these types of things are filled with faddish nonesense, but I'd never seen a list that explicitly contradicts itself.

Saturday, January 30, 2010

Quote of the day

Caroline Fidanza:
I think that 99 percent of why people don’t think of themselves as good cooks is that they’re reluctant to use salt at home.

FLG can't remember where he heard it, but some chef, perhaps Paul Bocuse, said that the difference between a good restaurant and a great one is liberal use of salt and pepper. When he first heard this, FLG dismissed it. However, over the years, it has become increasingly clear that salt and pepper, and in particular salt, is the key to great cooking.

NB: If you are using standard table salt in your cooking, then you need to go out right now and buy some kosher salt. It lacks the iodine flavor, is easy to pinch, and pretty cheap.

Friday, January 29, 2010

Hot Chicks Are The Key To World Peace

FLG has long maintained that hot chicks are the secret to world peace. Today, FLG read this:
Caught between exclusion from a normal family life and brutal behavior in the public sphere, the best outlet for many young men is jihad: “The bottled-up sexual rage of the Muslim male,” Darwish argues, “must explode in the faces of the foreign infidel.”

FLG is not so sure about the two books reviewed in the article, both of which apparently argue how awful shari'a is, but he will probably read one or both eventually.

Just to clarify: it's not that FLG denies the existence of some terrible aspects of shari'a. They exist. But arguments that it is all bad in its entirety he has issue with.

Game Review

I found this one hilarious:

Cell Phone Ban

WaPo:

More than five years after the District banned the use of hand-held cellphones while driving, the first definitive evidence emerged Friday that it hasn't made the streets much safer.

Ten days after a national study found that cellphones and texting were to blame for 28 percent of crashes, a report released Friday concludes that hands-free cellphones are no less distracting than those held to the ear.

What bugs FLG the most about cell phones, whether in the car, in line at the supermarket, or wherever, is that 99% of the calls are inane or time-wasters. FLG can understand a quick call that you are going to be late or "Honey, can you pick up some milk." But the vast majority of calls simply don't need to be made or could wait.

FLG longs for the day when cell phone calls were a several dollars a minute.

Homophones

Looks like FLG ain't the only person with homophone issues. From the WaPo website:

Quote of the day

Romer and Romer:
Tax changes have very large effects: an exogenous tax increase of 1 percent of GDP lowers real GDP by roughly 2 to 3 percent.

One of those Romers is Christina, who just so happens to be the current Chair of the Council of Economic Advisers.

HT: Buttonwood

Centerfuge

FLG has been up to 4g's in a centerfuge and is positive he would've passed out at 5. Most recently he was up to 2.5 at EPCOT center.

7g's? Shirely, you must be joking. It does, however, provide comedy gold.

Photo of the Day

Here. May be NSFW.

FLG can't stop laughing at it.

L'Ex-Dauphin Attaque Le Roi

Christopher Hitchens, Gore Vidal's one-time appointed successor, rightly takes down Gore Vidal.

Thursday, January 28, 2010

Labor Rigidities

A commenter named Hudson wrote the following over at A&J:
Don't conservatives favor labor mobility as being economically rational, efficient and leading to the highest benefit for individuals as well as productivity/wealth generation for the economy at large? Aren't you a capitalist?

Americans who want EU citizenship are just laborers who want the mobility to seek the best jobs/benefits/lifestyle available to them. What the desire for EU citizenship tells us is that the EU economy is offering attractants the US economy isn't. (Money, vacation time, health benefits, parental leave, worker friendly labor laws, etc.) The classic reasons for a brain drain.

Recognizing this doesn't make these folks unpatriotic, it makes them observant. Anymore than the millions of immigrants, legal and illegal, to America are not unpatriotic Mexicans, Chinese, etc., they just figured out they could get a better return on the investment of their labor here in America.

If you want to avoid a brain drain from America to Europe, (not to mention losing top international talent to the EU) appealing to people's patriotism will go only so far. Offering salaries and benefits and lifestyle that are competitive with the EU's is the only real solution.

I replied with the following:
Uh-huh. I seriously doubt that the truly talented and ambitious, the people who really are who we care about when talking about brain-drain, are saying to themselves, "Man, it would be so much better if I could work in a place with higher taxes and larger labor rigidities."

Hudson responded:
When you add the cost of health insurance to taxes in the US it's the same as the cost of taxes (which include health insurance) in the EU. But you get better services for your tax/insurance money in the EU. 'Truly talented people' figure this out quickly. The only group of people whose net tax burden is significantly lower in the US are the mega-rich Are you a multi-millionaire? Then why be a schill for them?

As far as 'labor rigidities'--most people are employees, not employers, including the international corporate elite, so 'labor rigidities' like job security, health benefits, parental leave, number of work hours, workplace safety, etc. appeal to them too. Truly talented and ambitious people care about not being worked to death, being able to spend time with their families too.

And then me again:
Your analysis is flawed. Sure, it would seem, prima facie, that employees would want labor rigidities, but a more careful analysis reveals that these increased rigidities adversely affect a talented employee's ability to take advantage of better opportunities indirectly thorough the disincentives to create jobs.

A plodder, who just wants a 9-5 job for the rest of their life with a single employer with no real ambition, loves the perks that come with labor rigidities. An ambitious person is constrained.

So, in the short-term, direct scope you proposed, yes, your logic makes sense, but if you broaden the analysis the opposite is true.

I just want to be clear about this because I think it makes perfectly understandable and logical sense. Above average workers, all things being equal, benefit less and have higher costs from labor protections. Employers want to hire and keep above average workers almost by definition. Therefore, their jobs are generally not in jeopardy and to the extent that employers have difficulty getting rid of unproductive workers or creating new positions it hurts above average workers more. The people who benefit most from labor protections are below average workers. When you are talking about global brain drain, for la creme de la creme, don't think the relative labor market flexibility doesn't play a role.

And anecdotally and empirically, but FLG would have to do research, this is supported:
Stephanie Wahl, of the Institute for Economics, based in Bonn, said that those who are leaving Germany are mostly highly motivated and well educated. "Those coming in are mostly poor, untrained and hardly educated," she added.

Fed up with comparatively poor job prospects at home - where unemployment is as high as 17 per cent in some regions - as well as high taxes and bureaucracy, thousands of Germans have upped sticks for Austria and Switzerland, or emigrated to the United States.

This doesn't mean that any particular program that adds labor protections or raises taxes should be opposed, but the overall scope of labor protections and tax burden relative to the rest of the world is something to at least keep in mind if you are concerned about brain drain.

A Conversation

Two co-workers walk into FLG's office.

Co-worker A: FLG, ever heard the phrase "Nothing straight has ever be made out of the crooked timber of man?"

FLG: Sure. That's not the exact quote, but it's Kant's.

Co-worker A: Who?

FLG: Immanuel Kant.

Co-worker A: Shoot.

FLG: Why?

Co-worker B: We were debating who wrote that, and he thought it was Rousseau.

FLG: Well, for my money Rousseau is just Plato plopped down smack dab in the Enlightenment, and Plato's Protagoras talks about how children are sometimes like warped or bent wood. So, I guess I could see that. However, since Kant was making almost the opposite claim as Plato, then it wouldn't make much sense if you assume Rousseau is Plato reincarnate.

Silence.

A beat.

Co-worker A: Well, uh, great, um, thanks.

FLG Is Probably Alone In The People Who Visit This Space

...who read French and are interested in debates about the French higher education system, but to continue his coverage of the topic he's linking to this piece.

Is FLG The Only One

...who thinks that the Sopapilla flavored custard that Dairy Godmother is going to have on February 26th and 27th sounds awesome?

FLG is currently listening to

"Science Fiction Sex Machine" and "Get it on" by a fucking insane Magic 8 Ball Juicer who was kind enough to send me some of his tunes a couple of months ago.

One Child Policy Responsible For Global Economic Imbalances?

Interesting analysis, but keep in mind that this only partially explains the savings. Why the savings are diverted to the US is another question? FLG likes the Chinese financial system is insufficiently efficient and deep to deal with the Chinese domestic savings, but there are other explanations as well.

FLG Learned Something New Today

FLG learns something new everyday, but he's not sure how he missed this before. He was reading this blog post when he came across this term:
Garde des Sceaux

It translates to Keeper of the Seals, which FLG hadn't heard before, but thought it must either be some Lord of the Rings reference he doesn't get or a euphemism for who knows what, but probably something sexual. Neither made sense in context.

Anyway, it turns out that Garde des Sceaux is the title of the French Justice minister, which makes perfect sense because the subject of the post was Rachida Dati, who was justice minister.

Three Conclusions FLG Has Recently Come To As Well

Buttonwood writes:
1. The system cannot insure itself. People tried to hedge their portfolios against disaster but that hedge was only as good as the credit of the counterparty with whom the position was hedged. Here I confess that I was too inclined to believe the Greenspan argument that the new instruments had spread risk right round the system, and thus reduced the risk of a crash. This turned out to be wrong in practice, as well as theory; the risks were highly concentrated as AIG proved.

At the time, FLG really did believe this spread risk.

2. The three most important factors are leverage, leverage and leverage. At the macro level, rapid credit growth always precedes a crisis. At the micro level, Patterson quotes Ed Thorp** as saying that "Any good investment, sufficiently leveraged, can lead to ruin." And of course if credit growth is too fast at the macro level, investors will be piling money into the markets, slashing yields and trimming arbitrage opportunities and thus encouraging individual firms to use more leverage in order to earn the desired returns.

FLG thinks he's mentioned that leverage really is the culprit on multiple occasions. However, since real estate is where most people take the most leverage he also thinks we need to look at that secondarily as well.

3. Economics and markets are not like chemistry. One can discover "laws" or patterns in past data, but acting on those patterns will affect the future; whereas a chemical does not change its behaviour because we have discovered it.

This is one of those things that drives me nuts when people use the idea that economics didn't predict X or Y as evidence in an argument that economics is bullshit. Economics, and indeed all the social sciences, but especially economics involves human beings. Human beings change their behavior in response to other human beings and events. If I find a way to beat the market, then you can reverse engineer may way and beat the market too. Eventually, and by eventually I mean pretty quickly, the market incorporates my method and I can no longer beat it. Physical systems are different. Gravity doesn't change based on our actions. It always acts in the same, predictable manner.

Wednesday, January 27, 2010

Word Fail FLG

Rut-Row.

HT: E.D. Kain

The Device Which Will Not Be Named

First of all, FLG was always partial to the name iSlate.

Next, FLG has always been skeptical of the tablet computer. It just isn't all that compelling to him. This one, which is really just a big iPhone, isn't all that compelling to him either because, as he said, it's a big and pretty iPhone, but it doesn't fit in your pocket.

Anyway, FLG could see some uses for it. He can see carrying it around the house as a personal entertainment system. He could see doctors carrying it around instead of a clipboard. It would be pretty damn useful with digital medical records and X-rays. He could also see some other business and retail uses. An important common denominator to all of these is that while they are "mobile" they are limited to an existing building with WiFi. This leads FLG to think the only people who will buy the more expensive 3G versions complete with monthly fee are ostentatious gadget geek douches who will sit at bars wasting time on it while not so secretly hoping chicks find it cool and come by to talk to them. He doesn't see regular people carrying these things around everywhere. It's too big a form factor. Well, he could see people bringing them on plane rides. But again WiFi would be the way to go.

Maybe FLG will be wrong. Maybe this will spark a whole new revolution in education with the tablet replacing textbooks. Maybe new forms of social gaming will take hold on these iSlates. Maybe it will open up whole new uses for information technology that had heretofore been completely undiscovered. Maybe, but right now FLG sees a big iPhone that can't fit in a person's pocket.

Lastly, FLG can't believe for the life of him, if this is supposed to be a mobile lifestyle device or whatever, that there isn't a camera to Skype with.

This Made FLG Laugh

From the comments on the previous post:
Doug Henwood said...

Hi.

Fuck you.

Love,

Doug

Current Reading

FLG just read Wall Street: How It Works and for Whom by Doug Henwood and the review on Amazon articulates FLG's thoughts precisely:
Henwood flails at both the Left and the Right, and he doesn't hide his biases, but he lovingly quotes Keynes and Marx a little too often. Henwood doesn't claim to be offering any practical investment advice; nor does he present any solutions to the problems against which he fulminates. The result is a difficult, divisive, unpleasant, querulous, and uninstructive book that larger business collections might tolerate.

The Economist On Bank Reform

Here and it's worth a read. They call it "Glass-Steagall lite."

Clive Crook responds:
Allow me a quibble over nomenclature (ie, the politics). To have this plan referred to as any kind of Glass-Steagall–”lite”, “in the spirit of”, whatever–annoys me because that designation is all about pandering to the view that the repeal of Glass-Steagall caused the crisis. It did not. And this plan (as The Economist’s article explains) does not come close to repealing the repeal.

But the money quote is this:
There are things to be said for the proposal: it’s just that none of them has anything to do with the crisis we have just witnessed.

Andrew, Maybe You Missed This

...because it was buried at the bottom of the post:
Andrew Stevens, you haven't said anything on this front. What's your take on Glass-Steagall and banking reform?

I find it doubtful that you have no thoughts on the matter.

Tuesday, January 26, 2010

There Already Is A France

FLG wonders sometimes about the people who so admire Europe's social democracy. You know, the people who detail how great the French health care system is. How awesome the labor protection is. The fantastic culture. The more enlightened foreign policy. The list goes on...At some point, wouldn't it be easier for all involved if those Americans who pine for a more French-like America to simply move to France themselves?

Don't get FLG wrong. He is all for looking around the world for public policy that works. Also, he appreciates different cultures. He's not some xenophobic nutjob. But if you find yourself in a situation where you'd rather live in a country that's like a European country, then why not move to the actual Europe. It's there and all European-y already.

He's not saying to anybody that they ought to leave, but if you want government health care and a heavily-regulated economy then perhaps you ought give a thought to moving to places that already have it.

Three Captions That Sound Funnier Than They Are

Beachgoers play on large inflatable thongs on Bondi Beach in Sydney... in a World Record attempt...... presumably to see how many fun loving Aussies they can get so swim with an inflatable thong!

Also, who wrestles in vegemite? FLG thought it was used for making sandwiches.

Be On The Lookout For Bodysnatchers

The normally interesting and intelligent Amber attended a Lady Gaga concert. Further, she wrote that Lady Gaga "is really inspiring."

Monday, January 25, 2010

American Republic

Alan stopped by a few nights ago and mentioned for the second or third time that he thought Deneen was wrong to write the following:
Mr. Dionne certainly knows that this nation was founded not as a democracy but as a republic.

I'm still not quite sure what Alan's objection is because for all I can tell is that our government is a republic. It certainly ain't Athenian direct democracy. Ben Franklin notably called it a republic, and wondered if we could keep it.

Republics and democratic government aren't some sort of dichotomy. Republics can be more or less democratic. Ours certainly is more democratic than Republican Rome.

Our government is democratic, but it is most surely a republic and not a democracy. America is a republic in that it isn't a direct democracy. Moreover, there were and are various checks and balances (the federal system, bicameral legislature, division of powers between the three branches) that further constrain and impede pure democratic forces. So, I'm not quite sure what Alan's objection is.

As Somebody Who Took A Shitload Of AP Classes

...this is some whiny bitchiness.

FLG took AP Physics, Biology, European History, and Calculus during his senior year and yet his joints never swelled. Also, given that the US is falling behind in K-12 education, this ain't the time to worry about pushing kids too hard.

Actually, there are two separate worlds. One in which upper-middle class kids, predominately white and Asian, are hyper-competitive academically and a second in which poorer, predominantly African-American and Hispanic, kids are stuck in rundown classrooms without enough books let alone AP classes. With this in mind, FLG can't deal with the bitching of upper-middle class kids about too much homework.

Inglourious Basterds

The FLGs rented Inglourious Basterds over the weekend. FLG thought that the dialogue was well-written and the acting by Brad Pitt, Diane Kruger, and especially Christoph Waltz was fantastic, but it was missing something. Something, FLG doesn't quite know what, that made it unsuccessful for him.

Sunday, January 24, 2010

Correspondence

I've received some emails regarding my Glass-Steagall stance. Most are along the lines of: "I don't understand how most of this works, but if Glass-Steagall seemed to have worked since the 1930s, then that seems like a good plan to me." I'll try to explain.

The big flaw in that plan is computers.

Lots of eyes glaze over when it comes to finance, but at it's core it is very simple: Person A gives money to person B on some date(s), and in return person B promises to give money back at some future date(s). Over the years we developed lots of names for these things (mortgages, insurance, bonds, bills of exchange, etc), but what is happening is that somebody is giving money to somebody else in return for the promise of getting money later. When we worked with pencil and paper ledgers, calculation and tabulation were relatively difficult. We had, as I mentioned above, set types of financial transactions that were relatively well-defined and people and companies specialized in particular products.

Fastforward to the advent of computers and calculations become cheap. Mathematical concepts that were known but too labor intensive due to the number of calculations involved became possible. MIT PhDs used these techniques and technology to create new ways of person A giving money to person B and paying it back that had certain properties of different products. Hybrids, so to speak. These were far more efficient and cheaper than many of the old methods of doing things.

For example, interest rate swaps allow banks with too many fixed rate loans on their books basically to turn some percentage of them into variable rate loans. This helps them manage their interest rate exposure almost in real-time. Ah, but interest rate swaps are "derivatives" that "greedy speculators" use to "gamble" on the "casino" that is Wall Street.

My point here is that in the age of computerized finance it's not so simple as saying this bank can invest in a risky instrument and this one can't. New products, if understood and used properly, could help manage risk. We can't roll back the clock to an earlier era where only investment banks do risky stuff and commercial banks engage in staid, boring transactions. We really ought to focus on the composition and size of capital reserves for the different types of banks, but I'm nowhere near smart enough to figure that out.

Andrew Stevens, you haven't said anything on this front. What's your take on Glass-Steagall and banking reform?

Saturday, January 23, 2010

God Damn Glass-Steagall Fixations

Over at Maximum Leader's place, I saw two comments:
Huck Foley, groveling minion said:

“Ach! Zese verdamt ‘bankers,’ vill ve neffer be free uff zem?!”
-Oberfuhrer Baracken Von Obamastein

“… repeal some of the legislation that allowed commerical banks and investment banks to merge and own other types of companies (like brokerages and insurance companies). ”

Seriously, how hard would it be for them to UN-repeal the Glass-Steagall Act? Instead, what I (and apparently Judah Kraushaar) expect we’ll be getting is “Protracted congressional hearings on the bank crisis, piecemeal new regulations, sporadic attacks on bank compensation, and an ad hoc approach to taxing banks…”
Short version: if THIS administration manages to fix this problem, it’ll be an accidental side-effect of their shabby populist demogoguing and scapegoating.
22.01.10 um 3:16 pm

Huck Foley, groveling minion said:

“I can’t recall the name of the legislation from the late 1990s that enabled commerical banks to own investment and insurance enterprises, but reviewing how that legislation has work (or not) might be a good thing.”

The Gramm-Leach-Bliley Financial Services Modernization Act of 1999.
I wrote a case study about it, actually, but I won’t be trying to shoehorn it into this comments thread, despite my frustration at failing to find a publisher for it.
Very short version:
It acted in conjunction with the Community Redevelopment Act of 1977 to create a giant, fatal bubble in the housing market.
See? Short.
22.01.10 um 3:25 pm

I responded thusly:
Huck Foley:

I’m still waiting for a reasonable explanation why GLB, ie the repeal of Glass-Steagall, caused the problems.

As I see it, GLB allowed BoA to buy Merrill during the crisis, which ameliorated the conditions, not exacerbated them. Lehman and Bear were pure investment banks and the stuff still hit the fan.

The financial system changed since 1933 and the Chinese wall between investment and commercial banks was not only outdated, but unwise. To clarify: I’m all for keeping risky stuff quarantined, but I don’t think either keeping Glass-Steagall or re-instating is the ideal or even an effective way to do so in today’s financial system.

This Killed FLG



HT: Gary the Llama.

For those of you who live in a cave, on Mars, with your fingers in your ears, going La-la-la, (or are named Sir Basil) here's the original:

Friday, January 22, 2010

Quote of the day

WSJ:
A poll conducted on behalf of the AFL-CIO found that 49% of Massachusetts union households supported Mr. Brown in Tuesday's voting, while 46% supported Democrat Martha Coakley.

Ha. Ha ha. Ha ha...ha...ha ha...ha ha ha ha...

Bump.

Ooops. Sorry. I fell on the floor. I thought I'd read that more Massachusetts union members supported the Republican.

What? I did read that? Ha...ha...ha....bump...ha ha ha.

What Is Up With British Men?

Telegraph:
One in ten British men have admitted using their partner's make-up

This is just the latest in an ever increasing number of stories posted on this blog that raise serious questions about the existences of balls, or bollocks, across the pond.

Bank Reform Part Trois

Buttonwood:
The banking crisis was caused, as banking crises are almost always caused, by banks lending too much money against dodgy collateral, usually property. So the way to tackle that is to restrict their leverage, insist on lower loan-to-value ratios, or intervene (via monetary policy) to try to curb credit growth.

In a post about China during the Fall of '08, I mentioned this:
For these reasons, real estate booms lead to financial crises such as the Asian crisis ten years ago and our current problems.

The simple fact is that most people take on huge leverage to buy a house, but few take lots of leverage to buy other assets. So perhaps the way to deal with this is to look at housing lending. That said nothing I know about the 1929 crash, and the ensuing Depression, had anything to do with housing.

It really is always about too much leverage.

Bank Reform Part Deux

Buttonwood raises the same question I had:
How would one separate prop trading from business done on behalf of clients? If a big client wants to sell 1m shares in IBM does the bank have to match buyer and seller? If instead the bank takes the position on its book until it finds a buyer, is that prop trading? Will it depend on how long it holds the stake? Or makes a profit? And if the banks do withdraw from trading, what does that do to spreads? The market will be less liquid, raising costs for the rest of us.

Bank Reform

Maximum Leader has come out with tentative support for banking reform.

I'm in favor of banking reform. The implicit guarantee has created too much moral hazard. Bankers have lost sight of reality. The reason they are supposed to be so well compensated is because they are taking risk, but in reality it is the American taxpayer, not them or their companies, that is taking the risk. Yet, many of them seem legitimately shocked that people are pissed at them. Also, they seem to actually believe they deserve all that money. Until two years ago, I would've agreed. Now, however, it is clear they screwed the fucking pooch and don't deserve what they are getting. That said, I'm concerned about some of the talk coming out.

The primary purpose of a financial system is to allocate capital from savers to borrowers.

There are four ways that banks make this happen:
  • Maturity Intermediation - If I have money to lend for 6 months, then that doesn't help somebody who wants it for 1 year. Banks can smooth these discrepancies out.
  • Diversification - If I make a loan, I'm more at risk because I'm only making one. The law of large numbers allows banks to determine and mitigate some of the risk of lending.
  • Cost Reduction - They do this in many ways, but generally speaking they can specialize in the knowledge required for making loans and investments, which reduces costs.
  • Payment Mechanism - Banks take the difficulty and risk out of the movement of money, which reduces frictions in the allocation of capital.

(There may be others, but they don't come to mind at present.)

There are two predominant financial systems -- bank-based and market-based. Bank-based means that bank deposits are relatively larger as a percentage of GDP and the market capitalization is smaller than market-based systems where the converse is true.Broadly speaking, Continental European financial systems (notably Germany and France) and Japan's are bank-based. Anglo-Saxon countries (Britain and the US) and to some extent commonwealth and former colonies, like Singapore, are more market-based. In the UK and US, companies generally go to the stock and bond markets to get capital. In Europe and Japan, they go to a bank for a loan. There are a variety of reasons for the differences: the relative timing of Industrialization (US and UK industrialized first), civil versus common law, cultural reasons, and others.

The World Bank has a paper with the results of a multinational comparison of bank-based versus market-based financial systems:
A clear pattern emerges: 1) Banks, other financial intermediaries, and stock markets all grow and become more active and efficient as countries become richer. As income grows, the financial sector develops. 2) In higher income countries, stock markets become more active and efficient than banks. Thus, financial systems tend to be more market based. 3) Countries with a common law tradition, strong protection for shareholder rights, good accounting standards, low levels of corruption, and no explicit deposit insurance tend to be more market-based, even after controlling for income. 4) Countries with a French civil law tradition, poor accounting standards, heavily restricted banking systems, and high inflation generally tend to have underdeveloped financial systems, even after controlling for income.

Getting back to financial regulation, a lot of what I hear from Democrats, and frankly concerns me, seems to be a desire to shift to a more bank-based financial system or doesn't seem to understand either what banks do or the role they play in our market-based financial system.

I can understand why Dems like the idea of shifting more toward a bank-based financial system. Banks making loans to specific individuals can be more narrowly regulated than market transactions. Political preferences can be encouraged. Also, less cynically, a bank taking deposits and then loaning them out is easy for people to understand, including regulators.

Securitization has gotten a bad rap because of the mortgage-backed security's role in the crisis, but it does have many benefits. The pricing mechanism of the market is good signal of information, and I'd argue that a market determination of an interest rate for a corporate bond is better than a big bank running credit analysis and offering the loan themselves.

Market-based financial systems allow for more innovation, but at the cost of greater risk and uncertainty. Both type of financial systems can have panics, but markets are more prone. Nevertheless, as the excerpt above makes clear -- "In higher income countries, stock markets become more active and efficient than banks."

Getting back to the reform idea, the demagoguery that comes from the Left that describes the market as a casino bothers me. Even the evil speculators, out for short term profits, provide information to the market. But to call market finance a casino misses an important point. A casino game is rigged, the market, if full information is available, isn't. The problem arises when some people are in a position to have more information than others, also called asymmetric information. That's why we have insider trading laws.

The key for me is to allow the market-based system to be creative and innovative, but require sufficient capital and some other protections that losses can be privatized, i.e. banks can fail.

Jim Manzi put it well:
If you want to have a safe, secure banking system for small depositors, but don’t want to make risky investing illegal (which would be very damaging to the economy), the obvious solution is to not allow any one company to both take guaranteed deposits and also make speculative investments. This was the solution developed and implemented in the New Deal. We need a modernized version of this basic construct, and as far as I can see, this is what President Obama has proposed.

The New Deal construct, Glass-Steagall, created a bright line between commercial/ retail banking and investment banking. The bank you put your money in was regulated and guaranteed. Banks in the more risky market end were not guaranteed. But this line didn't recognize the changing nature of the financial system. As I mentioned above, the market is more efficient in allocating capital in wealthier nations. Various derivatives, interest rate and currency swaps for example, allow banks to mitigate risk cheaply and efficiently. Keeping commercial banks in too tight a box, one that bans them from trading in derivatives for example, might not be helpful. Also, securitizing loans has benefits. If we keep a bright line between investment banks and retail banks, then this may be hindered or distorted. The financial world today isn't 1933. Information technology has made new products possible that commercial banks may find helpful in diversifying or mitigating their loan risk.

So, there's the nature regulation, which I looked at a bit above, but another question I have is the feasibility. This morning I was listening to BBC's Wake Up To Money. A commentator mentioned how Goldman Sachs sold mortgage-backed securities to customers, only to short them in their proprietary trading. He was saying that the Obama reform would step in to stop this. For those of you who don't know, proprietary trading is when the banks make trades for themselves rather than customers.

I had two questions. First, if the US gets too restrictive about trading, what's stopping them from moving to Switzerland or the Caymans or wherever? Second, can we devise regulation that differentiates between market making, trading for clients, and proprietary trading?

Banks make markets. They buy and sell currencies, securities, etc as part of this. Furthermore, they act in the financial markets in all sorts of ways on behalf of their clients. I find it hard to believe that given the fungibility of money that bankers can't find a way to make proprietary trades no matter what the regulation says, even if they aren't called proprietary trades.

So, what does that all mean? I'm not opposed to the regulation in principle and many of the key aspects I'm hearing about I could support. (But notably I don't support a new agency tasked with "consumer protection" and anything with the words "vanilla product.") The devil really is in the details though. Given how the health care thing has gone, I'm not hopeful.

Sorry if this post was an impenetrable, incoherent mess.

Economists Really Don't Understand Politics And FLG's Smart Kid Pet Peeve

Krugman:
Tuesday’s Republican victory in the Massachusetts special election means that Democrats can’t send a modified health care bill back to the Senate.


Obviously, the nominal reason for health care reform's stall is the lack of votes in the Senate. But, uh, Paul. Tuesday’s Republican victory in the Massachusetts special election means that even people in the blue state of Massachusetts don't want these health care reform packages. The Democratic pols in both the House and Senate got that message loud and clear.

I'd argue that health care reform is necessary, but that the current proposals would make everything worse. Nevertheless, for the sake of argument, let's say that they are exactly the right thing to do, I'd still say that the level of public skepticism according to polling data and as clear a rejection as possible short of a national referendum at the voting booth of the issue means that ramming it through would require a name change to the UnDemocratic Party.

The thing that bothers me most about that the Left is the feeling that most the elites were the smart kid in the class. And by smart kids I don't necessarily mean the smartest kid in the class. No, I mean the ones who insisted on raising their hands for every answer and if they weren't called on then they'd just blurt them out. The ones with contempt and resentment for their fellow classmates that as adults expanded it to their fellow citizens. Right elites and leaders have their own problems, but the smart kid thing bugs me.

Thursday, January 21, 2010

Health Care Reform

I read this piece by Jamelle arguing that the Republicans have no interest in health care reform, and also this follow-up by Mark Thompson that says, of course, Republicans aren't going to support a liberal bill. Mark makes a good point here:
Democrats have been insisting that that our health care system’s problems are caused by A and B and that the way to solve those problems is with some negotiable degree of X and Y. But Republicans, to the extent they are willing to acknowledge the problem at all, are insistent that those problems are caused or exacerbated by the levels of X and Y that are already in the system, or that adding X and Y will only create new problems without solving old ones. If that is true, then under no circumstance will you ever get a Republican to go along with a policy that uses X and Y as its principle mechanism, even if you minimize the amount of X and Y used. But that’s a far cry from saying that all Republicans will be unwilling to agree to something that relies on any one of mechanisms C-W, even if this is true of many or most Republicans.

What gets lost in all this discussion about health care is what is actually driving it. For the Democrats, there are two things: 1) the idea that everybody ought to have health insurance because health care is a human right, and 2) the cost of existing public health care costs are projected, like a boa constrictor, to squeeze the federal budget and then devour it whole.

The first reason has been debated at great length, and I'm going to leave it alone.

The second point has largely revolved around the accuracy and effectiveness of CBO scoring. Politically, this has largely resulted in two approaches. The Ezra Klein approach -- Ignore cost. Just get the benefit in place after which the public will so love it and the Democrats who gave it to them that they'll accept rational cost cutting measures. I think that's fucking asinine and totally unrealistic. The second approach is the called, Chose a politically acceptable CBO score and then game it even though everybody with half a brain knows it's complete bullshit accounting tricks.

What all of this analysis misses is one crucial point -- Republicans want the government to do less and Democrats want the government to do more. More now and presumably more in the future. Democrats look at the numbers and see a world in which the government can't even do what it's doing now. Therefore, a large part of the motivation for many Democrats is, I believe, not covering people, but make sure that the programs created previously don't prevent them from doing more given an American electorate that is largely tax-phobic. (And even if they weren't the amount taxes would need to rise to cover the cost of existing programs is still probably problematic.) But being Democrats they need to put some sort of feel-good and idealistic coating on their agenda. So, the age-old Democratic goal of covering more people gets front billing. Nevertheless, the real goal, deep down, isn't to save families money, but to ensure the ability of resources for government to do more in the future. Being Democrats, their base's solution and their leadership's proclivity is to solve the problem with more government programs. Better ones. By better, they mean more efficient. By more efficient, they mean economies of scale. By economies of scale, they mean single payer insurance.

Many Democrats think the Republican obstructionism is part of a tactic to undermine Obama. It is, but like good liberals their analytical time horizons are too short. Republicans look at this and see a legacy of Democratic enacted entitlements (Medicare, Medicaid, Social Security, etc) that they, and anybody with a calculator, always knew weren't indefinite sustainable. (Sure, health care costs have shot up more than people expected, but it's reasonable that health care costs would outpace inflation as a nation grows wealthier.) Anyway, the Republicans see the government budget on a collision course with the abyss that is a result of Democratic policies. By delaying they're starving the beast and they're betting that when the public stares into that abyss, in a decade or two, it will undermine not just the all Democrats in power who couldn't reform health care, but their entire liberal-democratic-technocratic project and ideology. In short, the Republicans are not stalling only to undermine Obama, but FTW.

Actually, I'm hoping I'm wrong on both counts because each of them scares the shit out of me.

What Better Way To Commemorate The Bicentenary Of Your Country

than to pose in Playboy?

William Of Balding?

This picture makes it look like Prince William is balding. Is he? I don't follow the royals all that closely. Seems awful young.

Wednesday, January 20, 2010

FLG Found This Mildly Amusing

For A Liberal Matt Yglesias Is Sounding Awful Anti-Democratic

He writes:
The option of responding to this setback with determination exists. There’s no rule preventing the House from passing the Senate health care bill. For that matter, there’s no rule preventing the reconciliation process from being used to implement a carbon tax with the revenue split between rebates, investments in clean energy, and deficit reduction. That’s not going to happen, but the reason it’s not going to happen is that Democratic members of congress don’t want to do it. They could go down in history as the people who took bold action to solve that problem, but they prefer not to.

You can rationalize the loss anyway you'd like (bad economy, bad candidate, MA already has health care, etc), but the simple fact is that the Democrats lost in Massachusetts. When Massachusetts votes against a Democratic agenda, the idea that pushing ahead is anything but in direct conflict with the people is either willful ignorance or outright contempt.

Tuesday, January 19, 2010

US Military In Haiti

I've been pretty quiet about the Haiti thing, but some foreigners are starting to complain about the US role. Apparently, when confronted with a bottleneck in arrivals the US military decided that they could run the airport in Port-au-Prince better than the locals, and it was correct. It largely straightened out the traffic there.

For what it's worth, the immediate aid after a earthquake is something that I think governments are relatively good at. As I said, if it's something akin to sending in the Marines, by which I mean marshaling lots of resources in a short period of time with little concerns about the costs, then the government is the route to take. In this case, they are in fact sending in the Marines.

Ah, but the nutjobs are starting to claim the US is invading militarily. And not just the nutjobs, but the surrender monkeys too. And not just surrender monkey internet commenters, but elected officials:
A French communist MEP said the United States should not be allowed to "occupy" Haiti on the pretext of handing out aid. You could dismiss that as a rant from the far left, except for the fact that the French press has been bandying the word "occupation" about all weekend

Charlemagne opens the post I linked to above with another important piece of information:
THERE are many things to worry about in Haiti just now. The immediate "visibility" of the European Union, you might think, is not one of them. Honourable members of the European Parliament, assembled in Strasbourg today, take a different view.

In my more cynical moments, I think the Left is more concerned about seeming to help, or perhaps even more importantly feeling like it's helping, than whether it is actually helping.

Safe Web Surfing

My parents were in town this weekend, and my mother asked what the safest way to access the Internet was. She uses Internet Explorer, so a switch to Firefox should make a good deal of difference. However, the safest way to surf the web is to do so within a virtual machine.

For those of you who aren't up on virtualization, it works like this. Your computer, the one you use right now, is called the host machine. It is the core system. You can install virtual computers or virtual machines (VMs) that use the resources of your computer, but act as if they were completely separate computers. This is different than dual-booting where a computer can run different operating systems, but only one at a time. With virtualization you can run two or more operating systems at the same time. Mac users often run Windows VMs on the Macs so that they can use software only available for Windows. Windows runs like another application window on their desktop.

You can download VMWare player for free and then install another operating system on your current computer within a virtual machine that VMWare player will create for you. It sounds complicated, but it's actually super easy. For example, if you wanted to run an Ubuntu Linux VM, then this is what you'd do:
1) Download and install VMWare Player.
2) Download Ubuntu linux. The file you download will end in .iso. Remember where you saved it.
3) Launch VMWare Player.
4) Click Create New Virtual Machine.
5) Choose "installer disc image file" and browse to the iso you just downloaded.
6) VMWare recognizes that you are installing Ubuntu. You run through a wizard that asks you all the relevant questions and in 10-15 minutes you have an Ubuntu VM running.

Now, you might ask, what does this do for me? Well, that Ubuntu computer is far less susceptible to viruses and malware. And the best part is even if it does get compromised, your regular computer won't be infected. You just delete the VM and create a new one. Specially designed web browsing VMs are even available that take up few resources and just let you access email and web browsers and maybe a chat program.

It can be a pain to activate the VM every time you want to browse the Internet. Also, it can be annoying to transfer files you download in the VM to your host computer. But it is much safer. If you find yourself getting infected a lot, like my father does, then you might want to try it out.

Crystal Cooter

FLG has no idea what to make of the news that Jennifer Love Hewitt puts Swarovski crystals her nether-regions. He'd love to say he thinks it's "Hot!" But it's just odd. The logistics of engaging in the act when there are precision cut pieces of glass nearby are frightening.

Filibuster and Pirates

I thought of the filibuster as I was reading The Invisible Hook: The Hidden Economics of Pirates yesterday.

Leeson explains that pirates had to unanimously consent to living under the constitutions governing pirate crews. This minimized external costs of governance because nobody lived under rules that they didn't agree to in advance. While this lowered the external costs, eliminated them actually, it greatly increased the cost of governance, which is to say that it was difficult to get everybody to agree. The filibuster is a mechanism that lowers the external costs of governance while increasing the cost of governance itself, which is to say that by pushing the required votes from 51 to 60 it lowers the number of people who fall under a law that they don't agree with.

Many decisions have low external costs. Nobody cares what the font on a DMV form, for example, is. Some bureaucrat can make it and nobody gives a shit. In these cases, better to just appoint somebody to make the decision, and we'll all live with the external cost of governance.

But some decisions are too important. Example from the piratical world include the division of the spoils and various prohibitions on-board ship. Examples from the current political world include health care reform.

Now, for economists this boils down to a cost equation that can be minimized mathematically. This isn't exactly how things happen in real-life. However, the filibuster, to the extent that it lowers external costs, can be beneficial, even if it increases the costs of governance. Then again, when mitigating the external costs of governance simply means increasing pork and pay-offs it's less appealing.

Sunday, January 17, 2010

Secrecy Versus Sharing

Bruce Schneier raises an interesting point about our adversaries, and what that means for the intelligence community:
[During the Cold War,] We needed to defend against technologically advanced electronic eavesdropping operations, their agents trying to bribe or seduce our agents, and a worldwide intelligence gathering capability that hung on our every word.

In that environment, secrecy was paramount. Information had to be protected by armed guards and double fences, shared only among those with appropriate security clearances and a legitimate "need to know," and it was better not to transmit information at all than to transmit it insecurely.

Today's adversaries are different. There are still governments, like China, who are after our secrets. But the secrets they're after are more often corporate than military, and most of the other organizations of interest are like al Qaeda: decentralized, poorly funded and incapable of the intricate spy versus spy operations the Soviet Union could pull off.

North Korea

Strategy Page:
As expected, North Korea now demands that sanctions be lifted and a peace treaty with the United States be negotiated and signed, before there can be any resumption of talks about North Korea's nuclear weapons program. The U.S. quickly turned this down, and told North Korea to start negotiating, or else they can starve in the dark.

Saturday, January 16, 2010

Holy Fucking Shit

In real life, Poulos makes sense. FLG has heard him. But this is just gobbledygook:
I hope I’m not in bad odor with self-identified real conservatives for a number of reasons, but at the top of the list is my own self-identification as — well, let’s say a ‘mere conservative’. I suppose any confusion on this count is my own doing. During and immediately after the Culture11 years (2008-2009), my ‘project’, such as it was, involved what now strikes me as a far too academic move to peck tactically at the edges of certain debates while taking up strategically, for purposes of criticism, a position too readily mistaken for a view from nowhere. Even on its own terms, I can’t say that approach worked. But trying to match my dispositions, commitments, and convictions — to speak the language I tried to work with back then — to events on the ground in such a way as to ‘declare for’ one team or another seemed like an exercise in pundit theater. Often, in DC, if you want to make it as a pundit the first thing you must do (and sometimes the only thing) is pick, defend, and advocate for a team with the enthusiasm, if not the sophistication, of a well-paid lawyer. I hoped my unwillingness to sign up for an ism — neocon, paleo, libertarian, whatever — would be made good by the sweeping changes of ’09: the election of Obama, the defeat of the Clintons and Clintonism, the waning of the Iraq War, and, of course, the Econopocalypse. I bet that those things would make it possible again to speak intelligibly and successfully as an undifferentiated or otherwise unclassifiable conservative.

In the best post-mortem on Culture11, I was described as “far too idiosyncratic in [my] own politics” to get wrapped up in the “self-immolating Hindenburg of movement conservatism.” Since it’s movement conservatism itself that has started to change that formulation — courtesy, in no small part, of the tea partiers, I’m obliged, I think, to return the favor and step out from behind the mannered meta-critiques of yesteryear. This is a good place to start.

Dude. Get over yourself.

Friday, January 15, 2010

Quote of the day II

Withywindle:
East-Coasters are a rugged breed, capable of standing up to temperatures below fifty and humidity over fifty percent. West Coasters are unspeakably delicate wretches, whose tans and conceits are the surface that conceal, badly, men of straw. Midwesterners we respect as a sort of shaggy breed of East-Coaster, bred for the winter, whose pizzas are deeper than ours.

Floating Exchange Rates And Prices

Buttonwood:
It is no mystery why developed countries abandoned fixed rates. By anchoring the currency, governments forced the real economy to absorb shocks. This implied wage cuts or higher unemployment, all for the benefit of creditors. But in a democracy the votes of debtors tend to overwhelm the interests of creditors.

Interesting analysis, but something about it doesn't sit right with FLG. This passage feels problematic:
Freed from the need to defend their currencies, and with consumer inflation a minor problem over the past 20 years, central banks could afford to let interest rates drift steadily lower.

Buttonwood's analysis all makes sense. Short-term currency prices are determined, as FLG has mentioned many times before, pretty much by interest rate parity. Long-term, it's about purchasing power parity, or the differing rates of inflation between the two countries.

The standard model for thinking about international macroeconomics is an IS-LM-FE model, where IS is the real economy, LM is the money market, and FE is the foreign exchange market. Thanks to Walras' Law, we know that if two of these markets are in equilibrium, then all of three of them must be. (FLG thinks it holds for N markets, but he's not sure.)

FLG will have to think about this more. There's something about foreign investment still coming in even as interest rates stay low that seems wrong. If you bring in other factors, like the lack of a broad and deep financial market in places like China, then it might start to make more sense.

Quote of the day

dcist:
A Jesuit education

At the Verizon Center after Georgetown beat UConn:

Inebriated Georgetown student to an older man wearing a UConn sweatshirt: "You blew it! You blew it like Johnny Depp in Blow!"

Chapeau à Madame FLG

Bank Tax Incidence

FT:
it [is] quite likely that customers of banks will pay the banking tax

Don't Tell Matt Yglesias

..but there's this thing called the Internet that makes smart-ass comments look stupid sometimes.

Matt Yglesias:
Don’t tell Jim Manzi but Denmark’s super-rich and features sky-high taxes and tons of green policies.

From the CIA World Fact Book:
Denmark Per Captia GDP (PPP): $37,200 (2008 est.)
US Per Capita GDP (PPP): $47,500 (2008 est.)

Therefore, the US is 27.68% more super-rich than Denmark.

Now, he'd probably say that he's talking about median income or something, but Manzi was talking about GDP. And even more specifically Manzi was talking about GDP as a tool for geopolitical influence and power.

And lastly, directed not just at Matt, Manzi didn't say that Europe was a shit hole. Just that European social democracies can be expected to grow at a slower pace. Responses like Paul Krugman's that "For those Americans who have visited Paris: did it look poor and backward?" is a fucking strawman and somebody as intelligent as both of you fucking know it.

Again, we can say that economics growth isn't everything, as the EU does in this video, but this childish sniping at tangential issues and mischaracterizing Manzi's argument is wrong.

Thursday, January 14, 2010

Quote of the day

Matt Yglesias:
It’s surprisingly hard to say why Haiti is so poor, but I think we can dismiss that devil-based theory.

Wednesday, January 13, 2010

The Ability Of Government

FLG always says to think of the government as something akin to the Marines. By this he means, that if you need a lot of resources quickly deployed toward a well-defined goal, then government is the way to go. If you want long-term, efficient, and intelligent management, then not so much.

Kinda like how the Marines are really good at invasion. They'll get it done in a couple of weeks with few casualties. But they're not as good at that messy nation-building stuff.

Anwyay, FLG was listening to an interview with the author of If We Can Put a Man on the Moon: Getting Big Things Done in Government and thinks the book may be worth a perusal.

In fact, getting a man to the moon is often how many people respond to FLG's statements above. Getting to the moon, they argue, is not a job for the Marines.

Poppycock.

Getting a man to the moon was an impressive feat. However, the basic idea was pretty well understood. We build a really big rocket and send them on their way. Yes, many technical obstacles had to be overcome, but these were mostly iterative rather than revolutionary challenges. In fact, just as the Manhattan Project was run by the War Department, so could the moon shot. It was really a matter of driving toward a specific goal in a fixed time with a large amount of resources using largely existing technology.

Where FLG has less confidence is when the government has to manage something indefinitely with conflicting and often ambiguous goals -- health care, to name a timely example. Or in solving some problem in a new and innovative way -- he doesn't see the government inventing something like Google.*

Katrina was so shocking to FLG because the initial aftermath should be in the government's wheelhouse -- just get food, water, blankets, etc to the damn city. Yet, they screwed it up. He was not surprised, however, that they screwed up the management of all the people over the following years.

From the interview, it sounds like the authors focus more on technocratic and bureaucratic aspects, but FLG might pick it up anyway and add it to the growing pile of things he intends to read.


------------------------
* Yes, FLG knows the Internet was invented by DARPA.

FLG is currently listening to

Two songs with the word "horse" in the title:


FLG is currently listening to

A Conversation

Coworker: FLG, did you make any New Year's resolutions?

FLG: Sure did. Lose 30 lbs.

Coworker: How's that going?

FLG: Only 31 to go.

FLG'd Be Pissed If He Were Jim Manzi

Manzi's interlocutors seem to be engaging disingenuously, and his response here is far more reasonable than FLG's would be.

And FLG can't believe that people who know economics, like, dunno, Paul Krugman, could argue with a straight face that social democracy, with its disincentives toward work, increased regulation, and discretionary taxes, etc, doesn't inhibit growth. FLG thinks a compelling case could be made that what Manzi calls social cohesion brings non-economic benefits that aren't measured in standard GDP. This might be why the EU releases videos downplaying the importance of GDP growth

This doesn't mean, and FLG doesn't read Manzi implying in anyway, that social democracies are somehow terrible places to live. Just that there is a trade-off between growth and cohesion.

There's something very childish about the responses he been receiving. They either nitpik data in a way that has no real relevance to the point he was making or simply reject that societies face choices and can't have it both ways.

Obvious And Irrefutable Truths

To continue his complaints about grading bias...

Obviously, FLG received a weak grade in his grad school class because his professor is a Godless Communist who has it out for conservatives.

What else could it possibly be?

His paper certainly wasn't a rambling mess with little coherence or insight.

FLG is not quite sure why

Pandora thinks this is similar to Elvis Presley.

Lincoln Nutcracker

FLG saw this Abraham Lincoln nutcracker in a store the other day. He'd still rather have the Darth Vader one, but he did laugh.

Quote of the day

Bill Flanigen
I think urban agriculture is a fine hobby for the really committed penny-pincher, but I think we also know just the sort of people who would take advantage of this new freedom. Insufferable, self-righteous [motherfucking] hipster vegetarians.

I felt compelled to add to it.

Tuesday, January 12, 2010

The French Withywindle?

There's more discussion about les grandes écoles here and here, but this passage, from the second link, stuck out:
Le changement majeur des années 1980, c'est la "démocratisation de l'accès au supérieur", le fameux objectif de "80 % d'une classe d'âge au niveau bac". Bel objectif théorique, désastre total dans les faits. Aujourd'hui, je peux affirmer que nombre de titulaires du bac scientifique (ceux auxquels j'enseigne en première année de fac) seraient incapables d'obtenir le certificat d'études de 1950 : déficience en lecture (incapacité à comprendre des énoncés simples), en écriture (incapacité à construire des phrases grammaticalement correctes avec moins d'une faute d'orthographe par phrase en moyenne), en calcul (méconnaissance de la règle de trois, de l'addition de fractions, du volume d'un parallélépipède, confusion entre la surface du cercle et du carré, j'en passe et des meilleures). Chaque semaine je dois apprendre à mes étudiants des notions de base que j'ai moi-même apprises lorsque j'avais cinq ou dix ans de moins qu'eux.

Rough translation:
The major change occurred in the 1980s with the "democratization of access to higher education" and the famous objective of "sending 80% of students to college." Beautiful in theory, but total disaster in actual fact. Today, I can attest that many students who focused on science in high school (and whom I teach as freshman in college) wouldn't have passed in 1950: deficiencies in lectures (incapable of understanding simple statements), in writing (unable to construct grammatically correct sentences with less than one mistake per sentence on average), in math (misunderstanding of cross-multiplication, of addition with fractions, of the volume of a cube/box, confusion between the surface of a circle and of a square, I pass them and better). Each week I must teach my students basic notions that I myself learned when I was 5 or 10 years younger than them.

At least it's not just us Americans with these sorts of problems. Then again, I must say that some of this is attributable to "Kids these days" combined with "back in my day." Nevertheless, increasing access to higher education does sound great, but some people just aren't capable of doing the work. At some point, the benefits of increasing access begin to become costs because either students waste lots of time attempting something they won't be able to finish or the standards are lowered to accommodate them and the other students are ripped off. Precisely where that function is maximized such that the most people get access to the best possible education is open for debate, but I'm confident that sending more than half of students to college is probably into the cost section.

Terrorism Risk Continued

Bruce Schneier on the topic here.

Monday, January 11, 2010

Terrorism Risk

Folks, for a variety of reasons, like to point out that the probability of dying in a terrorist attack is very small and that it is somewhat irrational to focus so many resources to combat it when other things are much more likely -- car accidents, for example. There are two problems with this.

First, Hobbes isn't still discussed so widely because his basis for politics (the fear of dying violently at the hands of another human being) doesn't have some serious validity. Therefore, terrorists will always be scarier than quotidian risks like car accidents. So, yes, it may be irrational, but it may be natural and ingrained.

Second, risk is the product of two factors -- the probability of an event occurring and the value of the loss resulting from an event occurring. To date the frequency of major terrorist attacks has been relatively low. Or alternatively, the attacks that occur frequently are relatively small. If you tabulate the data, then it looks like the risk is low.

But this is exactly what people thought before 2001. Terrorists will hijack a plane. Fly to Tunisia. After a day or so of ridiculous demands, they'll get raided. Perhaps a couple hostages will get hurt or killed, but not too much. Best just to play along. But that all changed.

Likewise, looking at historical data for terrorism may underestimate the risk. There hasn't been nuclear terrorism, but that doesn't mean it will never happen. Looking at historical terrorist activity and impact isn't the same as measuring some natural phenomenon. The Sun doesn't change its rays to compensate for people using sunscreen. Terrorists, however, change and adapt to the actions we take. They aspire to more powerful attacks. Therefore, saying that heretofore terrorism hasn't been that big a deal isn't all that compelling.

Don't get me wrong. I'm not reflexively pro-spending when the word terrorism is attached. In fact, I'm a big believer that most spending justified under the name of counter-terrorism is simply pork. Furthermore, I agree we need to make informed decisions using historical data. That said, I don't think that pointing out the irrationality of the fear people have towards terrorism is particularly useful. And I certainly don't think that using historical data gives the full picture of the terrorist threat. There's a black swan problem in that data.

FLG is currently listening to



Also, how can you not love that hat? I really need to get me one.

You Keep Using That Word

E.D. Kain writes:
Nor am I sure why Sullivan thinks that this is an example of Conor being a “contrarian conservative.”

Somewhere, Miss Self-Important wrote, and I'm paraphrasing, that the only thing that seems to make Conor a conservative is repeated self-description as one. I've come to agree with that assesement. He keeps using that word, and I do not think it means what he thinks it means.

Plus, there's never a bad time to post this mash-up:

Sex Robot

FLG wrote a while back about how the end of sex slavery would most likely occur after the invention of a lifelike sex robot. This, however, doesn't fit the bill.

I would've thought the Japanese would've invented this. Perhaps even dressed up in some sort of CosPlay get-up.

Also, fear not ladies, "A male version of the doll, dubbed Rocky, is also planned."

Latin, Programming, & Business

In the comments, David Foster linked to one of his old posts on business education:
Michael Hammer, the renowned management consultant, says this: I often recall advice once offered to me by a senior executive at a major pharmaceutical firm, an Englishman with the advantage of a traditional public school education. "All one need learn," he said, "is Latin and computer programming--Latin for communication and programming for thinking." He wasn't far off.

FLG doesn't know Latin, but he certainly agrees that his knowledge of French helps his English grammar. Furthermore, learning a second language does focus the mind into a conscious consideration of what one is trying to communicate rather than the more instinctual manner in which one communicates using a maternal language.

Also, as some of you know, FLG was once an engineering student. As such, he took the core engineering classes -- physics, chemistry, math, programming, etc. Therefore, when he argues that liberal arts are more important than science and math he does so with some understanding of what each entails. FLG certainly finds his programming knowledge helpful in many circumstances, but he can't entirely agree with this:
Each line of software that you write will interact with each and every other line of software. Unless you develop some big-picture thinking capability, your program will never work.

Yes, it's true. But programming is deterministic. FLG has argued previously that this determinism seeps into the cognition of programmers. If one learns programming, but doesn't imbibe of the deterministic way of looking at the world, then he'll agree it's beneficial.

Miss Self-Important also brought up a good point in the comments -- by the time somebody is in a MBA program they're an adult and if they haven't learned to think by then, well, they're a lost cause. No amount of forcing poorly designed, miniature liberal arts courses on them will change it. Furthermore, it's pretty fucking condescending.

Sunday, January 10, 2010

Quotes of the day

Charlemagne:
Europeans are far from monolithic in their preferences, but lots of them, in lots of countries, like long holidays, restrictive labour laws, generous welfare states and 35 hour weeks. They do not want to change university systems that spit out graduates in their late 20s or even early 30s, armed with masters degrees in psychology, rather than sending them out with bachelors' degrees in more vocational subjects. Europeans in some countries, such as the Netherlands, are more or less calm about the idea of official retirement ages being pushed back to 67. In others, it remains an incendiary suggestion.

Charlemagne:
DID none of them read the Lisbon Treaty? By them, I mean the grand commentators now tut-tutting in the pages of various European newspapers about the complexity of the European Union's new institutional arrangements.

Buttonwood:
In a world of low inflation and low interest rates, then logically currency moves should have a much greater impact on investors' portfolios. Investors ought to be much more twitchy, therefore, about countries with weak economies and budget deficits. That is why the foreign exchange markets are where the crisis will probably occur next.

Liberal Arts and Business

FLG has continually stressed that liberal arts is more important for America's civic and economic health than narrowly focusing on math and science. Well, it turns out that business schools may be thinking similarly.

students needed to learn how to think critically and creatively every bit as much as they needed to learn finance or accounting. More specifically, they needed to learn how to approach problems from many perspectives and to combine various approaches to find innovative solutions.

You mean that learning the time-value of money, double entry accounting, and how to price a currency swap are not all there is to business? Surely, you jest. Seriously though, this obviously makes sense, but it is much harder to teach and test. And that brings me to the core problem of this type of business school revamp -- that it is often done poorly.

Two years ago, for example, the Graduate School of Business at Stanford made a sweeping curriculum change that included more emphasis on multidisciplinary perspectives and understanding of cultural contexts. The first-quarter mandatory curriculum, for example, now includes a class called “The Global Context of Management and Strategic Leadership.” First-year students also must take a course called “Critical and Analytical Thinking.”

This is just the type of bullshit stuff that these changes produce -- bullshit. You can't make some mental plodder into a creative and innovative thinker by throwing a class together and making them take it. One course on "Global Context" is a huge circle jerk of uselessness. At least the courses that are similar that I've been in have, without exception, been useless time-wasters that try to give students tools, often called frameworks by the instructors, for understanding foreign cultures. When in reality this is really is how to put countries into oversimplified boxes that, while partially true, which may seem to work, but will only get the students in big trouble later on.

I spent four years studying international economics, culture, history, and relations, and I've only scratched the surface. And don't talk to me about understanding foreign cultures when you don't bother to require proficiency in a foreign language for graduation.

Educators, for reasons I cannot quite understand, resort to technical changes. Changes like "interdisciplinary studies," "critical thinking," etc. As if there is some additional ingredient or mixture of existing ingredients that can fix everything.

The purpose of education should be to relate to people. Liberal arts is primarily about studying how people think, feel, and interact, not narrowly scientifically as in psychology or sociology, but through the art, philosophy and literature that they produce. Likewise, the primary problem with focusing on math and science in engineering education is that it is often devoid of human context. It's about how things can be done or built and how to do them better, but not what should be done or why. To or for what human purpose? is the missing piece of the engineering education.

And finally, same for business. What all so-called stakeholders have in common is that they are people. Customers are people. Investors are people. Co-workers, etc are people. Perhaps the people in one country vary from the people in another country, but they are still people. Dividing them up into boxes defined by their primary material interest or country of origin can be helpful, but it also oversimplifies.

My point here isn't that managers need to treat every single customer as a unique and special individual because that's impossible. It's about not treating them as merely data points in a OLS regression and putting them into boxes based upon some cultural rubric created by some anthropologist. The entire social scientific, data driven, tool-based approach is folly. Managers need more intuition, not more empirical toolkits.

Saturday, January 9, 2010

FLG Has No Idea What Is Going On

...in this post.

Human rights do not and cannot have any grounding or final justification.

FLG is either too smart or too stupid to fully comprehend that sentence.

Emily Hale Comments

...on the best addition to a royal bloodline ever. And Lord knows those hemophiliacs needed a shot in the arm.

Friday, January 8, 2010

Two Years

Fear and Loathing in Georgetown is now two years old.

If I'm Reading This Correctly

...then Matt Yglesias is arguing that health reform won't really make people that much healthier, but will create jobs:
The most obvious way that health care reform impacts people is by helping sick people get treatment. That said, most studies indicate that the impact of health care services on health outcomes is actually a lot smaller than people are inclined to believe. The health care system is, however, a major chunk of the economy. And making it operate more efficiently should thus have noteworthy macroeconomic impacts.

He goes on to say that the economic impact isn't all that big.
To be fair, this impact is not super-gigantic. And you could say much the same about reform’s deficit-reduction potential. It’s not something you should sneer at, but it’s not earth-shattering. And this is the way it goes with a very good, but fundamentally moderate bill. On all major fronts—growth and jobs, access, delivery system reform, cost control, deficit reduction, access expansion—it moves the ball forward.


But nevertheless I'm fucking baffled by the statement that access to health care has a lot smaller impact than people think, but it's still super important that everybody have access. I mean, isn't that what all the sob stories are about?

Mrs. Sympathetic Person was denied care; she died.

If that implied causality isn't that big a deal in many cases, then what the fuck are we doing all this for?

I wish I could remove my brain, soak it in turpentine or beer (I'm not quite sure which), and still blog, like Mr. Yglesias. It's sad really. Before he went to work for CAP, I thought he was a reasonable and intelligent liberal. Now, he's like a hamster on a wheel. Lots of activity without much to show for it.

If you'd invested...

I always hate it when people argue that "if you'd invested X dollars Y years ago, then you'd still have X dollars today" after a stock market drop. I hate it even worse when people talk about this as a reason that the stock market isn't a valid place to put retirement money.

These things only hold if you invest a chunk of money all at once and then have to pull it all out at once after a crash. Most people don't do that, and what is particularly relevant is that almost zero people do that with retirement funds.

Most retirement funds are invested as part of payroll deductions or at worst yearly contributions over decades. The stock market having the same value on two arbitrary days separated by 10 years has little to no effect on their retirement outlook.

This isn't to say that stock market drops can't screw up people's retirement plans. They sure as hell can. However, one can diversify much of that risk away and gradually transition to less volatile investments over time. And if some huge crash that affects all types of investments, including relatively safe ones, most people still don't have to cash out all of their investments at once. They can extend work a year or two or make some other temporary adjustments.

The thing for me between private retirement investments and social security is this -- one has investment risk that I can mitigate through risk selection, diversification, and additional saving and one has political risk that I can't anticipate or control. If they choose to cut social security on me, then I'm stuck.

I guess my point here is that even though the stock market appears more risky, it's a risk I can account for. What the government does is almost entirely out of my hands. I can't opt for a social security fund with less political risk.

Sorry, a discussion I just had set me off.

FLG is currently listening to

FLG is currently listening to

Thursday, January 7, 2010

Grandes Ecoles

FLG has read several articles about education reform in France and the role of the grandes écoles. For those of you who don't know the grandes écoles are specialized, elite institutions that are separate from the university system. Here's the wikipedia article.

Anybody who passed the high school graduation test, le baccalauréat, gets into their university, which are free. (Or damn near close.) This leaves them with a lot of students and little funding. Attempts to add selectivity or fees have faced fierce ideological opposition from the socialist groups that permeate France.

The grandes écoles are selective and students spend a year or two preparing for entrance exams. These years are called, creatively, "classes préparatoires" or "prepas."

Any self-respecting middle class parent wants their kid to attend a grande école and not a university. Certain positions in the government bureaucracy are reserved for graduates of the grandes écoles. A particularly influential one is Ecole nationale d'administration, or ENA, whose graduates are known as enarques. M. Sarkozy is notable for being the first in who knows how long in not being an alumus of that school.

To put the whole thing in perspective, this article says that 55% of higher education students are in university and only 14% are in classe préparatoire or a grande école. And some of those in classe préparatoire will not be accepted and end up in a university.

On paper, the grandes écoles were supposed to be a meritocracy, but, as it is everywhere, there are a bunch of people left out. Particularly minorities. The grande ecoles are facing pressure to increase their diversity. They are resisting a call for a 30% quota, fearing that their standards will decrease among other things.

Another article argues that universities and grandes ecoles must work together to improve quality and equality. (Complete with the "to compete in a globalized economy" blather...)

As one of the articles asks:
Comment croire que le niveau des concours doit être intangible afin de fixer à jamais une hiérarchie entre jeunes Français à l'âge de 20 ans?

Rough translation:
How to believe that the competition between 20 year-olds must fix a permanent hierarchy for the rest of their lives?

And that is where the crux of the problem lies. It's that the numerous rigidities in the French labor market. Once you have a job you are protected. But once you enter the grande ecole you are super protected because certain jobs, the plush ones, are reserved for you.

Harvard is difficult to get into and it's not a perfect meritocracy either. And while it certainly helps in the job market to have Harvard on there, no jobs are reserved for only Harvard alumni by law.
 
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