August 2010

Because central bankers may tend to use that discretion to screw them over.

So says David Zaring, while Orin Kerr reminds us that correlation is not causation.

I don’t know where the expression “white shoe” came from. My tennis-shoes are white, while I only wear dark shoes for job interviews or formal occasions. I first heard of it from this post at n/a’s race/history/evolution notes blog, which makes the old elitist WASP firms look rather dim for not pursuing an evolutionarily stable strategy.

A number of possible answers could be correct but the one I’m looking for was Kurdish genocide denial. My previous post on Wanniski’s denialism here.
UPDATE: As mtraven notes, Wright only quibbles about semantics rather than facts.

Near the end of Richard Dawkins’ “The Blind Watchmaker” he presents a fictional debate between a “Real-life” and “Caricature” Darwinian. The caricature says that selection didn’t favor bats having wings like angels (which are separate from their arms). As human beings we assume arms are for manipulation (like Waldo), for most animals they are for locomotion and wings take care of that. Furthermore, breathing fire like a dragon would be quite costly (and likely dangerous), and a cow jumping over the moon would be signing its death-sentence (in addition to terminal velocity being quite costly to obtain). I know there are some good evo-devo type arguments about the constraints of past development, but Dawkins doesn’t seem good at coming up with good examples.

I was going to note something off-topic, but on further thought I think it is on-topic. Opening a pdf a few minutes ago I noticed one I have opened yesterday but not read any of*. It was about the original meaning of “cruel and unusual”, with an emphasis on the latter adjective. I had heard before that the phrase was a legal term of art dating back to Freeborn John, but I can’t remember where I had come across that either. How is that on-topic? In reading Orin Kerr’s Constitutional Theory Debates in a Nutshell (Or a Lot of Them, Anyway) I saw that the sticking point was that originalism would force us to adhere to antiquated and extremely unpopular views, a bullet I’ll openly bite. In a literal sense, I don’t resemble Kerr’s caricature, since it is of a “faint-hearted” originalist, but I do resemble the reductio presented by the hypothetical anti-originalist. One thing I’m surprised few originalists mention is that to the extent such policies are unpopular, we should expect basic majoritarian politics to do as able a job as the court in restricting their use. The question of why we should expect courts to do a better job is rarely asked. One could argue that, like the senate, obstruction is a virtue all its own even when the obstructors are not much better than the obstructed, but the senate is unpopular enough that few think there is anything positive to imitate.
*I still haven’t read much of it, or the second paper I’m linking to here. It also occurs to me that this new interpretation suffers from the same ratchet-effect terminating in a null set of available punishments that originalists complain about for the “evolving standards” version. But a bullet-biter should be able to say that we can use the amendment process when we get to that bridge.

Bob Murphy complained that an op-ed by David Henderson and Jeffrey Rogers Hummel is no longer available at Investor’s Business Daily. I found it at the internet archive, but because that isn’t always reliable I decided to archive it here.

Blame Federal Gov’t, Not The Fed, For Subprime Mortgage Problems


Posted 3/27/2008

Many prognosticators on the economy blame the Federal Reserve for the current subprime crisis. But a careful look at the evidence shows that monetary policy, whatever its faults, did not cause the subprime mess. At least part of the blame is on the feds, not the Fed.

Why do people judge the Federal Reserve, whether under Alan Greenspan or Ben Bernanke, to be a major cause of the subprime bust? They note how low interest rates were from 2002 through 2004 and make the classic mistake of using interest rates to judge monetary policy. If interest rates are low, they reason, monetary policy must have been excessively expansionary.

Years ago, Milton Friedman pointed out one problem with this reasoning by emphasizing the distinction between nominal and real rates. Nominal rates can be low because expected inflation is low, an indicator of tight monetary policy.

A second problem is that interest rates also can change as a result of real factors involving supply and demand. In short, the market ultimately determines interest rates.

While central banks are big enough players in the loan market (and the quintessential noise traders to boot) that they can somewhat push rates up or down, globally integrated financial markets reduce that ability.

Greenspan is therefore correct when he attributes the unusually low interest rates early this decade to a massive flow of savings from emerging Asian economies and elsewhere.

The better way to judge monetary policy is by the monetary measures: MZM, M2, M1 and the monetary base. Since 2001, the annual year-to-year growth rate of MZM fell from over 20% to nearly 0% by 2006. During that time, M2 growth fell from over 10% to around 2%, and M1 growth fell from over 10% to negative rates.

The Fed most directly controls the monetary base. Its year-to-year annual growth rate since 2001 fell from 10% to below 5% in 2006 and now is 2%. Also, nearly all of the growth of the monetary base went into currency, much of which is held abroad.

The banking deregulation of the early 1980s admittedly attenuates the Fed’s control over the broader monetary aggregates. But when all the measures agree, the message is clear: Monetary policy was not expansionary.

To see how the government contributed to the subprime mess, we must look at the feds, not the Fed. The feds helped create the problem in three main ways.

First, the federal government contributes to what economists call moral hazard — that is, people taking risks because they know that if things turn out badly, someone else will bear a large portion of the cost.

The federal government’s semiautonomous mortgage agencies — Fannie Mae, Freddie Mac and Ginnie Mae — all buy and resell mortgages. Of the more than $12 trillion in mortgages in existence, one-third of them are owned by, or were securitized by, Fannie Mae, Freddie Mac, Ginnie Mae, the Federal Housing and Veterans Administration, plus other government agencies that subsidize mortgages.

Although Fannie Mae and Freddie Mac are no longer government agencies, their status as government-sponsored enterprises causes people who buy their repackaged loans to assume an implicit federal government guarantee. Also, to the extent government views large lending companies and banks as “too big to fail,” it contributes to moral hazard.

For the market economy to function well, it needs to be a profit system and a profit-and-loss system, with the losses being the penalty for bad decisions.

The second way the feds contributed to the subprime mess was with a little-noted change in regulations by the comptroller of the currency in December 2005 that acted as the trigger.

Financial planner Less Antman has pointed out that the comptroller started requiring banks to require minimum payments on credit card balances, causing increases of at least 50% for most cards and as much as 100% on others. Many people who hold subprime mortgages are people for whom a higher monthly payment on a credit card would be a problem.

Imagine that you’re such a person and that before you always made sure you made your mortgage payments. With the new regulation, you instead make your credit card payment but miss your mortgage payment, a widely observed transformation in the traditional American delinquency pattern.

Thus the comptroller’s apparently small change in regulations had the unintended effect of causing some mortgage borrowers to default.

The third federal contributor to the subprime crisis is the Community Reinvestment Act. This act, first passed in 1977 and beefed up in 1995, requires banks to lend to high-risk areas that they otherwise would avoid. Those banks that fail to comply pay fines and have more difficulty getting approval for mergers and branch expansions.

As Stan Liebowitz, a University of Texas economist, has pointed out, a Fannie Mae Foundation report enthusiastically singled out one mortgage lender that followed “the most flexible underwriting criteria permitted.” That lender’s loans to low-income people had grown to $600 billion by 2003.

Its name? Countrywide, the largest U.S. mortgage lender and one of the lenders in the most trouble for its lax lending practices.

How ironic, then, that the same federal government, and many of its boosters, now attack Countrywide for following the very policies the government wanted earlier.

Without any further bailouts, the government could reverse some of the steps that led to this debacle. Will it? Not likely.

Hummel is an assistant professor of economics at San Jose State University. Henderson, a research fellow with the Hoover Institution and an associate professor of economics at the Naval Postgraduate School, is the editor of The Concise Encyclopedia of Economics.

Copyright 2000-2008 Investor’s Business Daily, Inc.

I remember seeing a list of the most expensive substances, and printer ink was high up there. I’ve heard the claim that printers are underpriced and the manufacturers make up for it with the margins on ink, like with razorblades (though I myself have never bought blades separate from razors), but printers are still a fairly large fixed cost. Why doesn’t some company just sell ink to be used with printers?

Something that struck out at me from Harold Berman’s “Law and Revolution”:
“Beaumanoir’s longest chapter […] is devoted to crimes. These he divides into: (1) those punishable by death, together with confiscation of the criminals goods by the lord on whose property they were situated; [2 and 3 are those punishable only by fine and/or imprisonment]. The first group includes murder, treason, violent homicide, rape, arson, robbery, heresy, counterfeiting, escape from prison, poisoning, and attempted suicide.” Emphasis mine.

There’s a joke where students of different nationalities are asked to write about elephants, and the Canadian comes up with “Elephants: A Federal or Provincial Responsibility?” I invite suggestions as to what an American would have written.

I was listening to American Roots and Nick Spitzer mentioned that his guest (Tracy Nelson) was writing an “autobiographical murder mystery”. I did a double-take at that. Has that combination ever been done before, and what does it say about the other. It was shortly revealed that the murder victims are just archetypes that she fantasizes about killing (in real life, in the novel I assume they really die).

On a completely unrelated note, melendwyr/Caledonian finds it odd that the Roman and Persian empires didn’t conquer one another. People who know something about the period are encouraged to toss in their two cents.

I’ve taken a break from the lengthy, narrow-appeal old history book I’ve been reading (and blogging about) in favor of “From Eternity to Here” by Sean Carroll (not the evolutionary biologist of the same name). The book is about time and the mystery of why the past (and more specifically, the period near the Big Bang) has lower entropy. I was disappointed that there is so little attention paid in it to Julian Barbour’s “The End of Time”, since that really digs at the foundations Carroll seems to be concerned with and has an explanation of why the small, dense initial period is the logical beginning for all subsequent events. But this post isn’t to give an overall review, just to point out something I found out.

In discussing black holes and Hawking radiation, he writes “The total energy of a virtual particle/antiparticle pair is exactly zero, since they must be able to pop into and out of the vacuum. For real particles, the energy is equal to the mass times the speed of light squared when the particle is at rest, and grows larger if the particle is moving; consequently, it can never be negative. So if the real particle that escapes the black hole has positive energy, and the total energy of the original virtual pair was zero, that means the partner that fell into the black hole must have a negative energy. When it falls in, the total mass of the black hole goes down.”

I was confused by that, perhaps because I don’t know enough about antiparticles. One definition, that would fit well with Carroll’s themes, is that they are like regular particles with time reversed. Murray Gell-Man in “The Quark and the Jaguar” explains them as having the reverse charge and color of their opposite. The examples Carroll gives in his book like the positron and anti-strange quark (whose color might be “antigreen”) have positive mass, as I recall. And since the question of which member of the pair is absorbed is determined by which is closer to the black hole, how do we know it is the “real” one which will escape? Why can’t the mass of the rest of the universe be decreased while that of the black hole increases? Carroll notes elsewhere that gravity is an unusual force in that it is only attractive and never repulsive. By the usual equations of gravity, a negative mass would imply a reversed gravitational force, so I would expect a negatively-massed particle to be repelled by the mass of the black hole anyway. But if that’s impossible, I don’t know what it means for something to have negative mass/energy. If it was possible though, that could explain “white holes” which he notes sound similar to the Big Bang.

It wasn’t that long ago that I thought it made sense that monetary policy (if there was to be any) was set by a relatively independent agency staffed by experts. I’ve become less sanguine recently, particularly after reading this (also, a bit of this). Not that I think Congress would do a good job.

Googling for movie line I ended up electing not to include in a blog comment, I came across this AV Club list of things Woody Allen just doesn’t get (as revealed by his films). Commenter Indeer opined “Michael Bay is the opposite of Woody Allen. Woody Allen doesn’t understand anything about the human beings outside himself while Bay probably engages in zero introspection but has a strong grasp on what many, many other people are-and hence what they like.” I suppose it’s not too original an idea (haven’t there been a number of movies where some sort of man-child is hired by a big company because he/she/it knows in their gut “what the people want”?), but I don’t think I’ve had a post about it before. Michael Bay has become too much of a synecdoche for what people of taste (like “people of color” or of gender) dislike so I invite others who watch movies to give examples.

Compare also an anonymous commenter’s claim that Clint Eastwood’s “monkey movies” were some of his biggest commercial successes as well as Country of the Blind.