ideas and growth on econtalk

December 14th, 2009

on the place of ideas contributing to growth - evidently a point not commonly recognized among economists

Prosperity, Poverty, and Economics 2.0 (12/14/2009) - Arnold Kling of EconLog and the author (with Nick Schulz) of From Poverty to Prosperity: Intangible Assets, Hidden Liabilities and the Lasting Triumph over Scarcity talks about how modern economists think about growth in both developed and undeveloped countries and contrasts those ideas with earlier views in economics. The focus of the modern understanding is on ideas and the ability of ideas to improve technology, leading to prosperity. Unlike physical capital, ideas can be enjoyed by many people at once, explaining why past models that ignored ideas and focused on physical capital failed to account for the observed magnitude of economic development. Kling also discusses the success of China and India.

Matt Taibbi on Bear Stearns

October 25th, 2009



Taibbi describes many events of the preceding months, weeks, and days that showed BS was closer and closer to the brink.  Given what was apparently known, quite broadly in that industry, about the fragile state of Bear Stearns, to me it's surprising that more people were not betting against it.   Given all that, it seems inappropriate to use the term "blindsided" to describe the effect on BS of the eventual avalanche of creditors trying avoid being buried themselves.  Given the broad recognition that it was over leveraged and its creditors were dropping them, is it surprising that large numbers of people would try to short the stock?  I'll bet the options market showed a lot of puts as well.  Even in the absence of the apparent fraud (or at least inadequate transparency) associated with the "naked" short selling, BS was hugely leveraged in the housing bubble.

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culture on econtalk

August 31st, 2009

on cultural mores and global differences...   Habits and manners and politeness are so much established by our respective cultures, it makes me think about the common features that allow us to live and work together, and what motivates that commonality.

Cultural Norms (8/31/2009) - Michael Munger of Duke University talks about cultural norms--the subtle signals we send to each other in our daily interactions. Mike, having returned from a four-month stint as a visiting professor in Germany, talks about the challenges of being an American in a different culture with very different expectations on how people will interact. Our speech patterns, how we wait in line, how we treat each other at the grocery, the interaction between a teacher and a student, how we drive, how we tip for services rendered, even how we listen to music all emerge from our culture and are often different in different countries. The listener will learn what Ted Williams and Joe Dimaggio have to do with the Book of Judges along with the relative merits of Williams and Dimaggio performances in 1941.

liberalism on econtalk

May 11th, 2009

The discussion starts with characterizing three aspects of liberalism: substantive (a set of principles), procedural (societal organization), and temperamental (individual willingness to experiment).

Liberalism (5/11/2009) - Alan Wolfe, Professor of Political Science at Boston College and author of The Future of Liberalism, talks about liberalism. Wolfe argues that the essence of liberalism is giving as many people as possible control over their own lives. Wolfe traces the evolution of liberalism through Western civilization. He rejects the distinction between modern liberalism and classical liberalism seeing Adam Smith as a liberal but not F. A. Hayek. The conversation closes with a discussion of the role of competition in encouraging religiosity in the United States.

Rant on the Village Voice "What Cooked the World's Economy?"

March 9th, 2009

A friend sent me the linked article, so I responded as follows... originally 3/9/2009... lightly edited since then

It's mis-stating the situation to blame free markets on the recent financial crisis when a free market would not protect fraudsters and financial idiots from their own risky behavior.

Such protections have a long history, which effect has been to make subsequent claims of being "too big to fail" appear all the more dramatic.  The more recent examples include Continental Illinois (in 1984) and Long Term Capital Management (late '90's, concluding 1998), which were bailed out after engaging in risky financial business that crashed down atop them. Bear Stearns is more memorable from the last 8 months, and AIG of course. None of these firms or the others should have been bailed out and saved from their stupid mistakes. They should have gone into receivership or whatever is the standard methods of settling assets with creditors, and leave the stockholders with whatever might have been left over.

Instead, not only were those guys bailed out, it was followed by that of several others. They don't call this moral hazard for nothing. It's also called privatizing the rewards and socializing the losses, and is a hallmark of our mixed economy.

But not everyone gets the largess. And that mixed response is part of the problem now. The Feds have a ton of money to pass around, but the rules for getting it change by the whim of the politicos in charge of it. Just think back to last October when the first $700B was approved; the advertised purpose before the law turned out completely different just a couple weeks later.

Is it any wonder then that remaining investors are holding back, not knowing what to do? The rules are up for grabs and there's no clear sign that decisions made today based on today's rules will still be profitable tomorrow. There are vultures out there who would be willing to buy up those "toxic" assets, were it not for the bailout money giving hope to the current holders that they might get something more, and fear to the potential buyers that their risk/reward balance will tilt away from them. This is what is keeping those assets from clearing and the flow of capital from loosening up.

Doubtless there could be better monitoring and oversight, but keep in mind the structural provisions that regulations drove into the system, by for example mandating only "AAA" ratings on certain portfolios. And credit default swaps traded on exchanges rather than over the counter would have given the exchanges very great incentives to keep things under control.

The way to punish fraud is with jail; the way to punish hugely bad financial decisions is to leave those people with nothing - zero - zip - nada. That's what the free market would do.

Would that completely preclude the prospect of bystanders being hit by the backlash? Probably not. But enforcement of no bailouts, ever, would make everyone that much more prudent. And our current approach of selective bail outs sure hasn't kept the backlash from happening.

Two satellites collide in orbit

February 11th, 2009

[a version of this post was previously made to my fb account]

When I saw this story, I had not yet heard the news about this collision, but knew for several months prior of the "defunct" satellite that was out of control and threatening other satellites.  Even when out of control, satellites obey orbital mechanics, and NORAD is tracking thousands of such things (most are very much smaller).

However, the behavior is not so easily described as two-body mechanics that we use for first order trajectory planning. Perturbations arise due to the moon, the sun, other planets, the fact that the Earth is not a perfect sphere (I think there's a joke there somewhere in my past), incident solar radiation, and the very thin atmosphere that rises above the surface of our planet, which in low earth orbits can become the dominant term, more so if the exposed area is large with respect to the mass. So even if we could get a perfect fix on position and velocity (Heisenberg writ large), we would still need regular updates to maintain a good prediction of the object path.

No one wants uncontrolled chunks of stuff floating around where one is trying to do work (communicate, survey, ...). Usually when spacecraft are dying, the controllers know well enough in advance that they can command them to an out of the way place in space (or drive them to re-entry), but this one must have been a surprise failure of two redundant paths, happening in some sequence to quickly to react.

The problems of space junk like this has been a concern all of my professional life. When I was working on the Space Station I learned some things specifically about this concern. Mostly in that environment the requirements were concerned with the effect of collisions with micrometeoroids, as opposed to space debris like this represents - tiny grains of fragmentary asteroids or moon dust spit up from a crater, as opposed to what might be substantially larger pieces of who knows what. Traveling at a closing velocity of 14 km/s is pretty darned fast, remembering that kinetic energy is a velocity squared function. Space station has taken evasive action in the past to avoid much smaller objects than this one satellite represents; there is a famous case of a fleck of paint causing a large crack in the windshield of the Space Shuttle.

And now it's collided with another satellite, most likely both being broken up into a larger number of smaller chunks, each now of which need to be tracked until they too decay into the atmosphere. The article says their orbit is around 790 km altitude. Space Station is around 400 km, so there is a lot of time for all those little pieces to drop down far enough that their orbits intersect, subject to orbit ellipticity; it might be a couple years or longer before that point, but when we do start seeing this, it will be like a rain of objects to monitor and maneuver around.

When micrometeoroids collide with the space station, there is a protective shield surrounding the pressure vessel in which the astronauts/cosmonauts live. The collision with the shield causes the micrometeoroid to vaporize, so what hits the main wall of the living space is a high pressure wave created by the vaporized combination of micrometeoroid and what once was shield material. As I recall, the material composition makes a difference in how effective this works, which means the fragments will more likely be vaporized if they are similar to aluminum (which I think is the shield material - it's been a while since I worked this every day).

The victim in this encounter was an Iridium satellite. This was one of 60-70 in a constellation that provides global telecommunication services to people in remote outposts, and various government agents. All of those travel at about the same orbit, phased around the earth to provide service worldwide. That means the debris field that is expanding around the collision is centered in the same altitude as all those other satellites.

My guess is that the Iridium controllers are more than a little worried.

the crisis on econtalk

February 9th, 2009

The discussion expands on a paper critiquing the economics profession relative to the belief that monetary policy had "solved" the problem of the business cycle. Later parts of the discussion involves assessments of risk, false presumptions that one can eliminate risk, challenges in enforcing liability for people who take huge risks and lose (with examples at least as far back as Long Term Capital Management), and the key role of institutional elements that contribute to the smooth functioning of the market.  A side topic is the difference in feedback mechanisms present in economic and political realms.

The Financial Crisis (2/9/2009) - Daron Acemoglu, of MIT, talks about the financial crisis and the lessons that need to be learned from the crisis. He argues that economists overestimated the stability of self-interest and ignored the institutional context of financial decision-making. He makes the case for new regulation and worries that political decisions will neglect the importance of growth.

open sources on econtalk

January 19th, 2009

on the advent of the internet, net neutrality, the market for software engineers, and the aesthetic sense of the really good ones

Hacking, Open Source, and the Cathedral and the Bazaar (1/19/2009) - Eric Raymond, author of The Cathedral and the Bazaar, talks about why open source software development has been so successful, the culture of open source, under what conditions open source is likely to thrive and not to thrive, and the Hayekian nature of the open source process. The conversation closes with a discussion of net neutrality.

credit default swaps on econtalk

November 10th, 2008

A comprehendible discussion of credit default swaps and related matters associated with the problems in financial markets. Kling is formerly with the Fed and Fredie Mac

Credit Default Swaps, Counterparty Risk, and the Political Economy of Financial Regulation (11/10/2008) - Arnold Kling of EconLog talks about the role of credit default swaps and counterparty risks in the current financial mess. The conversation opens with the logistics of credit default swaps and counterparty risks and moves on to their role in the financial collapse. The conversation closes with a discussion of the political economy of pending financial regulation.

Iran first strike drum beats

July 8th, 2008

I tracked down a recent article that summarizes some of the debate in Washington about what they want to do with Iran, including "White House pressure to undertake a military strike against Iran", from the New Yorker.

Here is a CBS news report from June 24 of "Israel prodding US to attack Iran" - "Vice President Cheney is said to favor a strike, but both [Joint Chiefs Chairman Admiral] Mullen and Defense Secretary Gates are opposed to an attack which could touch off a third war in the region."

From Foreign Policy magazine: "President Bush will need to bomb Iran's nuclear facilities before leaving office", also referenced in The Washington Note.  The author's bio, Joshua Muravchik, calls him "Member, State Department’s Advisory Committee on Democracy Promotion, 2007-present"

Here is a Senate resolution that calls for a blockade of Iran to keep it from importing refined oil products (of which Iran apparently imports 40% of it's demand).    On June 30, Justin Raimondo reported "The Senate version has attracted 32 cosponsors, while the House version has 220 cosponsors."

On the more hopeful side, Joe Klein in Time-CNN reports the opposition to this war mongering among top military figures.