Places to Drink: Morseland

April 23, 2009 in food and wine | Tags: | by | Leave a comment

I’m always hoping that Rogers Park yields some benefits so I don’t have to shlep downtown from Evanston for a good meal and a drink.  Somehow managed to hear about Morseland. They can’t quite decide what they are – a bar, a restaurant or a club.  It still seems to work.   Couple of guys were playing pool, a few were watching a NBA playoff game at the bar.  Eclectic mix of people eating.  The types who spend hours making sure the goatee is just right but not much time at work.  (What I aspire to be?)

Food was good and the beer list was great.  Definitely going here again.  Maybe, I’ll check out the music.  Wish it was open for lunch.

What I See when I Pee

April 23, 2009 in Uncategorized | by | 8 comments

I see 036this:

This proves it is over a urinal:

037

I wonder if this is the wave of the future.  You can Tivo through the commercials on TV.  You’re pretty trapped when you’re peeing whether you are a man or a woman.  Someone  is going to come up with paid ads to put in these places, you mark my words.

Anyway, at Kellogg, this form of advertising is mainly used for lectures and parties.  As urinals provide such a convenient location I was wondering if and how my talk was being advertised in the women’s restrooms.  Having left my dress and wig at home, I recruited a surprised female helper.  She guarded the door while I went into one restroom.  As I suspected, my talk as not advertised near the wash basins.  My helper told me to look in the stall.  She was right – there was a p0ster but it was this one:

038

I was advertised in another restroom though.  I chickened out and my female helper (she wants to be anonymous but her name begins with P), went in and saw some posters.

With this sample of advertising, I believed that norming for Kellogg student intake, there would be more men than women at my talk.  Also, P said she thought there were fewer women’s restrooms than men’s.  P said I should take a photo at the talk too, too verify my hypothesis.  I was too nervous and I forgot.  My memory is that my simple theory was right.

In Praise of Cadavers

April 22, 2009 in Uncategorized | Tags: | by | Leave a comment

By the time students here wield their scalpels, they will know the dead intimately, composing poems and slide shows to them, writing their biographies and sometimes lighting incense in their honor. When they are finished, the students will carry the donors’ coffins to the crematory, mourning them as their “silent mentors” who taught them with their bodies.

Read about how a Buddhist nun in Taiwan has used religious teachings to change a long-standing aversion to cadaver donation.  Maybe ideas like this can be used to promote organ donation by the living.

The Estate Tax

April 22, 2009 in Uncategorized | Tags: , , | by | 18 comments

The Baseline Scenario has a nice overview of the political issues around the estate tax.  The estate tax, politely referred to as The Death Tax, is motivated both by principles of fairness and principles of economics.  The fairness motivation is obvious.  And death seems like a focal moment for redistributing wealth.

The economic motivation also points toward the moment of death as a natural timing for taxation.  The economic cost of taxation is the distortion of freely made choices that it induces.  Sales taxes reduce the gains from trade, income taxes reduce the incentive to work, etc.  On the other hand, activities and resources that are in fixed supply can be taxed without distortion.  Well, death is in fixed supply, we all get exactly one.  And while the timing can be controlled to some extent, the effect of income after death on its timing is surely second-order.

However, economic arguments against estate taxation point out that it distorts behavior before death increasing consumption over investment.  The estate tax translates into a tax on investment because, in the event of death, a fraction of the payoff will be confiscated.  Provided that a bequest is a normal good, this reduces investment.

There is a simple way to amend the estate tax to undo this distortion and increase tax revenue. The government can offer a tax shelter in the form of a life-insurance policy where the household pays c in cash to the government in return for shielding a fraction q of wealth from estate taxation.  The effect is to capture some of what would have been extra expenditure on consumption in the form of a direct transfer to the government, and compensate the estate by reducing taxes after death.

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Swagel’s Post-Mortem

April 21, 2009 in Uncategorized | Tags: , | by | 2 comments

Phillip Swagel was the Assistant Secretary for Economic Policy at the Treasury from December 2006 to January 2009, the peak of the financial crisis.  He has written a post-mortem of Treasury’s anticipation of, and response to, the financial crisis.  This includes the decision to support the buyout of Bear Stearns, to allow Lehman Brothers to fail, to bail out AIG (the very next day) and the proposal and later abandonmnet of the use of TARP funds to buy toxic assets.

This is absolutely essential reading.  Swagel has been very thorough and very honest.  Here are the highlights of this 52 page retrospective. (Helmet Hoist:  the Baseline Scenario.)

Anticipation of the Crisis Henry Paulson was organizing economists at the Treasury to prepare for stress to the financial system as early as Summer 2006 when he was appointed Treasury Secretary.

Secretary Paulson also talked regularly about the need for financial institutions to prepare for an end to abnormally loose financial conditions.

They recognized that recent financial innovation and increased international integration would pose novel challenges if there were a shock to the system.  Nevertheless, Swagel acknowledges that they significantly underestimated the threat of the housing downturn as a potential shock. Here is an eye-opener.

What we missed was that the regressions did not use information on the quality of the underwriting of subprime mortgages in 2005, 2006, and 2007.  This was something pointed out by staff from the Federal Deposit Insurance Corporation (FDIC), who had already (correctly) pointed out that the situation in housing was bad and getting worse and would have important implications for the banking system and the broader economy.

Initial Reactions to the Developing Crisis The first two major policy proposals emerged in August 2007.  One was focused on increasing transparency of the quality of mortgages underlying asset-backed securities.

The paradox was that this database did not exist already—that investors in mortgage-backed securities had not demanded the information from the beginning.

The second was an early incarnation of what was eventually TARP.  The MLEC was a kind of “bad bank” intended to hold toxic assets off bank balance-sheets while the market adjusted and re-priced them.  This was the earliest expression of the Treasury stance that the assets are underpriced by the market and what was needed was patience for the turmoil in the markets to cool down.  The banks didn’t go for it:

While banks dealt with the problem on their own, the MLEC episode looked to the world and to many within Treasury like a basketball player going up in the air to pass without an open teammate in mind—a rough and awkward situation.

Neither of these plans “came to fruition.”  In the case of MLEC, the reason is implicit in the above quote, but Swagel is silent on what happened to the database idea.

Addressing the Housing Crisis Directly There is a long discussion in the article about various policies to intervene directly in the housing market.  The general theme here is that Treasury, and especially White House Staff, were resistant to any policy that would appear to help out “irresponsible homeowners.”  While Congress enacted some policies aimed at mortgage modifications, the White House would not go farther than removing red tape to streamline the modification process for mortgage servicers.  The effects of all of these policies were limited:

As a practical matter, servicers told us that considerations of moral hazard meant that they did not write down principal on a loan when the borrower had the resources to pay—never.  They would rather take the loss in foreclosure when an underwater borrower walked away than have to take multiple losses when entire neighborhoods of homeowners asked for similar write downs of loan principal.

(By the way, a game theorist would call this “reputation effects” rather than moral hazard, but that’s beside the point…)

Bear Stearns, Lehman, AIG There is not much explanation for why the Fed decided to make loans to JPMorgan to help them buy out Bear Stearns.  Essentially, Swagel is saying they were caught off-guard, saw serious problems with a Bear-Stearns failure, and had to act quickly.

At Treasury, two additional lessons were learned:  (1) we had better get to work on plans in case things got worse, and (2) many people in Washington, DC did not understand the implications of non-recourse lending from the Fed.  This latter lesson was somewhat fortuitous, in that it took some time before the political class realized that the Fed had not just lent JP Morgan money to buy Bear Stearns, but in effect now owned the downside of a portfolio of $29 billion of possibly dodgy assets.

Why did they bail out AIG but not Lehman?

In sum, AIG was larger, more interconnected, and more “consumer facing” than Lehman. There was little time to prepare for anything but pumping in money—and at the time only the Fed had the ability to do so for AIG.  Eventually the AIG deal was restructured with TARP funds being used to replace Fed lending in order to give AIG a more sustainable capital structure and avoid a rating agency downgrade that would have triggered collateral calls.

But there are regrets.

As time went on, it became clear that AIG was a black hole for taxpayer money and perhaps a retrospective analysis will demonstrate that the cost-benefit analysis of the action to save AIG came out on the other side.  But this was not apparent at the time.

Fannie and Freddie Interestingly, the debate about whether to take ownership of the GSEs centered not around moral hazard, but whether making explicit the already implicit government guarantees of their debt would threaten to downgrade Treasuries.

putting the GSEs into conservatorship raised questions about whether their $5 trillion in liabilities  would be added to the public balance sheet.  This did not seem to Treasury economists to  be a meaningful issue, since the liabilities had always been implicitly on the US government balance sheet—and in any case were matched by about the same amount of  assets.  But the prospect that rating agencies might downgrade U.S. sovereign debt was unappealing.

TARP and its Abandoment The econ-blogosphere’s favorite topic.  What was Treasury’s rationale for proposing to use reverse auctions to buy “toxic assets.”  Swagel vociferously denies that the intention was to inject capital by overpaying for assets.  Instead, they had a multiple-equilibrium view.  Committing to buy enough of the assets would restore confidence in their value and would unstick the markets.  But he has a difficult time explaining this without it sounding like overpaying for assets.

if Treasury were to get the asset prices exactly right in the reverse auctions, those prices will be higher than the prices that would have obtained before the program was announced. That difference means that by paying the correct price, Treasury would be injecting capital relative to the situation ex-ante. And the taxpayer could still see gains—say if the announcement and enactment of the TARP removes some uncertainty about the economy and asset performance, but not all. Then prices could rise further over time. But the main point is that it is not necessary to overpay to add capital.

Surprisingly, Swagel says that Treasury had reverse auctions “ready to go” in October 2008.  Why were they never started?

A concern of many at Treasury was that the reverse auctions would indicate prices for MBS that were so low they would make other companies appear to be insolvent if their balance sheets were revalued to the auction results.

Swagel suggests that their auction consultants (Ausubel and Cramton) had a way to deal with this but,

to some at Treasury the whole auction setup looked like a big science project.

Parting Shot He concludes with the following.

An honest appraisal is that the Treasury in 2007 and 2008 took important and difficult steps to stabilize the financial system but did not  succeed in explaining them to a skeptical public.  An alternative approach to this challenging necessity is to use populist rhetoric and symbolic actions to create the political space under which the implicit subsidies involved in resolving the uncertainty of legacy assets can be undertaken.  It remains to be seen whether this approach will be successful in 2009.

Neuroenhancers

April 21, 2009 in Uncategorized | by | Leave a comment

There is a great article in the New Yorker (via The Browser) about drugs that sharpen mental facilities and the generation of over-achievers they are creating.  It is definitely worth reading the whole article but here are some choice passages.

In 2003, a doctor gave him a diagnosis of A.D.H.D., and he began taking Adderall. Within six months, he had won $1.6 million at poker events—far more than he’d won in the previous four years. Adderall not only helped him concentrate; it also helped him resist the impulse to keep playing losing hands out of boredom. In 2004, Phillips asked his doctor to give him a prescription for Provigil, which he added to his Adderall regimen. He took between two hundred and three hundred milligrams of Provigil a day, which, he felt, helped him settle into an even more serene and objective state of mindfulness; as he put it, he felt “less like a participant than an observer—and a very effective one.” Though Phillips sees neuroenhancers as essentially steroids for the brain, they haven’t yet been banned from poker competitions.

Somehow I doubt that this kind of performance enhancer will be viewed with the same scorn as steroids.  Perhaps this is because poker players are not placed on the same pedestal as, say, baseball players.  Anyway, eventually the guy got bored of poker and moved on to Scrabble, which he also gave up but only after memorizing every 5-letter word in the dictionary.

The article also touches on the distinction between creativity, which some take to require passive concentration, and the kind of focused, active thinking that these drugs facilitate.

Jimi Hendrix reported that the inspiration for “Purple Haze” came to him in a dream; the chemist Friedrich August Kekule claimed that he discovered the ring structure of benzene during a reverie in which he saw the image of a snake biting its tail. Farah told me, “Cognitive psychologists have found that there is a trade-off between attentional focus and creativity. And there is some evidence that suggests that individuals who are better able to focus on one thing and filter out distractions tend to be less creative.”

Many of thee users interviewed for the article seemed to understand this distinction and integrated the drug use into their workflow accordingly.  First they would develop the main idea without the drug, then they would use the drug when it was time to do the focused work of developing the idea into a finished product.  They learned to do this the hard way:

“The number of times I’ve taken Adderall late at night and decided that, rather than starting my paper, hey, I’ll organize my entire music library! I’ve seen people obsessively cleaning their rooms on it.”

Palindromic Video

April 21, 2009 in Uncategorized | Tags: , | by | 1 comment

This video would be identical if played backwards.  That by itself is not so impressive (just make a video and play it first forwards and then backwards) but the way it was done here is clever and funny (via BoingBoing.)

Open Border Security

April 21, 2009 in Uncategorized | Tags: , | by | 2 comments

There was a story on NPR about a program in Texas to decentralize border patrol efforts.  Texas sheriffs are webcasting their surveillance cameras to the website bluservo.net where private citizens can login, monitor the video stream and report any suspicious activity they see.

Putting aside the political dimension of this, I see it as an interesting case study in open-source security.  In the realm of computer network security, there is a debate about openness vs “security by obscurity.”  For example, we may debate whether an open-source operating system like Linux is more or less secure than closed-source Windows.  On the one hand, the security measures are in plain view for all the black-hats to see and try to circumvent.  On the other hand, the openness enables the enourmous community of white hats to fix whatever problems they find.  Which effect dominates?

The Texas sheriffs apparently side with the open-source community on this one.  They seem not to be worried that the black-hat coyotes will use these cameras to figure out where to cross the border without being seen.

Obama’s New Bank Rescue Plan

April 21, 2009 in economics | Tags: , , , | by | Leave a comment

The federal government owns preferred stock in many of the banks it has bailed out.  According to the NYT, it is thinking about converting this preferred stock to common stock.  The article also claims that this reduces the need for a further capital infusion and hence the need to go back to a feisty Congress for more money.

How could that be?  Isn’t the re-labeling of stocks going to leave banks with exactly the same amount of capital and not change anything?  This is just rearranging chairs on the Titanic.

The key sentence is the article is:

The administration said in January that it would alter its arrangement with Citigroup by converting up to $25 billion of preferred stock, which is like a loan, to common stock, which represents equity.

Preferred stock used to recapitalize banks does not come with voting rights but does come with a compulsory dividend.  It is 5% now and rises to 9% after five years.  In that sense, the preferred stock are more like debt that equity.  There is a risk that a bank defaults on this in the same way it could default to other debt holders.  Converting it to common stock implies the government gets voting rights but gives up the dividend.  This reduces the payments the bank has to make on a regular basis and hence makes  it more liquid. This appears to be the main idea.  It is good for the banks as their debt obligations are reduced.  It makes it more likely they survive.

What about taxpayers?  They are taking on more risk as their stake is more junior than before.  There are two countervailing effects.  First, maybe the probability of bankruptcy goes down as a result of this so the risk goes down.  Second, the initial decision to acquire preferred stock may have been politically expedient in which case it did not maximize shareholder/taxpayer value.  There is the perception of a big political cost of being seen to nationalize banks.  The initial plan reflected this political constraint.  This plan is a move to pay this cost to avoid the new political constraint, the cost of going to Congress.  So, maybe the Congress constraint is helping Obama to move to the economic optimum from the constrained political optimum as one political constraint cancels out the other.

Spam Driving AI Research

April 20, 2009 in Uncategorized | Tags: , | by | 1 comment

“If [the spammers] are really able to write a programme to read distorted text, great – they have solved an AI problem,” says von Ahn. The criminal underworld has created a kind of X prize for OCR.

Reading the ubiquitous CAPTHCAs (those smeared words that are often impossible for even humans to read) is a big incentive to design new optical character recognition algorithms.  I don’t understand the article’s connection to “Turing tests” but the economics are interesting.  Spam is an inefficient way to provide incentives for research, it would be better to just use cash.  But since they are going to try to spam us anyway (the cash just adds to the incentive), we might as well keep the cash and reward them with spam.

Tenure is Obsolete?

April 20, 2009 in Uncategorized | Tags: , | by | 2 comments

That’s the position of an editorialist writing in the Washington Post.  The author is a tenured professor so this is not an attack from the outside.  He argues that tenure continues to be an important safeguard of academic freedom but that

…the system has turned the academy into one of the most conservative and costly institutions in the country. Yes, conservative: Economists joke that their discipline advances one funeral at a time, but many fields must wait for wholesale generational turnover before new approaches take hold.

The system also hamstrings younger untenured professors, making them fearful of taking intellectual risks and causing them to write in jargon aimed only at those in their narrow subdiscipline: Thus in economics, people have “utility functions” instead of needs and wants.

Tenure is indeed important for academic freedom.  I have seen a few cases in which tenure insulated from public pressure academics who expressed controversial views.  However, in my opinion this is a small part of the benefit of the tenure system and in fact the editorial has it backward.

It is true that academia is conservative.  But by merely observing that

  1. We have tenure
  2. We are conservative

it does not follow that 1 implies 2.  Without tenure it would be even worse.  Basic research occurs in universities because there is a missing market:  it is too difficult to guage its benefits in the short-run.  This is often true even for insiders within the field, let alone outsiders who would make hiring, firing,  and promotion decisions based on published research.  Without a good measure of successful research, these decisions would be based on litigatable bright-line criteria which would create greater distortions in research than tenure has.  Witness that a professor of political economy would judge economists for using “utility functions.”

Indeed, the author makes exactly my point with the example of untenured professors. Only untenured professors face the prospect of having their research evaluated for promotion.  They understand very well the incentives this creates.  Unfortunately there must be one such evaluation period.  Tenure ensures that there is at most one, and that it is as short as possible.

“Can We Try to Steer Clear of Pathos?”

April 20, 2009 in Uncategorized | Tags: , | by | 1 comment

That’s a line from a crucial moment in the play Art by Yazmina Reza.  I saw the play at the Steppenwolf Theater in Chicago last week.  This was one of the best plays I have seen there in my 10 years as a subscriber (putting aside August: Osage County which is in another category altogether.)  Highly recommended.

But it is not for everybody.  Sandeep wouldn’t like it for example (then again as documented previously on this blog Sandeep has bad taste.)  I wanted to write a review to give a sense of who might like the play and I spent some time thinking about how to convey that, but a conventional review failed to materialize.  After a while I realized that the right way to review it is in the form of a dialog between the characters in the play.

There are three characters:  Serge, a dilettante who has created some buzz with a painting he just bought, Marc, a friend who is having a difficult time articulating his reaction to said painting, and Yvan who is helplessly caught in the middle.  Hit the link below for the review.

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What is Political Science?

April 20, 2009 in Uncategorized | Tags: , | by | 2 comments

Family conversation at restaurant:

Wife: …her husband is a political scientist at U of C.

Son (7 years old): What is a political scientist?

Wife: Your father can answer that question better.

Me: Well, scientists who are physicists study physics. Chemists study chemistry and political scientists study politics.

Son: Oh, so they’re not really scientists.

Wife and I fall about laughing.

Me to son: Why do you say that?   What do they do?

Son: They study votes and stuff like pollsters.  That’s not science.

Out of the mouths of children…..

(True story, I swear.  Have yet to have a long conversation about economists.)

Pointers

April 19, 2009 in Uncategorized | by | 1 comment

  1. Justice Stevens rules for the Earl of Oxford.
  2. What doesn’t taste good with bacon.
  3. In defense of puns.

Clark Medal Rejects

April 19, 2009 in Uncategorized | Tags: | by | Leave a comment

The American Economic Association will begin awarding the Clark Medal every year rather than every other year as it has done since the prize was founded. Because the prize can be given only to an economist under 40, this raises the interesting question of who would have won in the off-years in the past had the prize always been annual.  David Warsh comes up with a pretty good list.

Note that if it appears to you that the runners-up in recent years don’t match up to the heavyweight rejects from past years (Lucas, Tirole, etc.) keep in mind that the more time has passed the more hindsight plays a role.  In 15 years time the true heavyweights of today will be revealed.

The Bad Plus with Wendy Lewis in Concert

April 18, 2009 in Uncategorized | Tags: | by | Leave a comment

The Bad Plus is a unique piano trio that straddles jazz, rock, and classical and at their best combines all three.  In their most recent album, For All I Care, they are joined by vocalist Wendy Lewis who sings on a number of rock covers.  (Here was my review of the album.) Wendy Lewis is joining them on their current tour and Sandeep and I saw their Chicago show at the Old Town School of Folk Music on Friday 4/17 (the early show at 8PM.)

The show began with the trio alone playing some older tunes as well as the three classical pieces on For All I Care, Stravinsky’s Variation d’Appollon, Ligety’s Fem, and Semi-Simple Variations by Milton Babbitt.  This was an enjoyable mini-set and worth the price of admission, although in my opinion the band was not in top form.  The pianist Ethan Iverson was having somewhat of an off-night and failed to find the main groove on the improvised parts of “You Are” and “Dirty Blonde.”  His trademark foundation-shifting flourishes lose their punch without a smooth and deliberate buildup from the point of departure.  On the other hand, the classical pieces were all very tight and were the highlight of the show.  There was one new tune, an Ethan Iverson composition entitled “Bill Hickman at Home.”  This was a blues number with a very nice extended bass solo from Reid Anderson and some great playing from Iverson too.

Wendy Lewis joined halfway through the set and the band began with Lithium which also opens the album.  She successfully navigated the tempo changes that add an additional slant to the Nirvana original and her usual flat delivery worked well in this tune as it did for Kurt Cobain.  Up next was the Yes classic Long Distance Runaround, another very clever arrangement in which the jazzy instrumental part dissolves into a slow backdrop for Lewis’ powerful vocals.  Unfortunately these were the last successful combinations until the fiery encore of Barracuda which was also the best tune on the album.  The pretty chorus on Wilco’s Radio Cure could not recover from the dull, almost spoken-word delivery of the opening verses.  (Fortunately, at the end of the song the trio left her behind with a searching group-improvisation that began with drummer Dave King mysteriously massaging his skins with his elbow, built up to Iverson’s hands flying all over the keyboard and finished with a very satisfied audience.)

The next tune, Blue Velvet (not on the album) was a puzzling choice.  Wendy Lewis is a skillful vocalist and she can sing big on tunes like Barracuda, but her voice is not right for this song:  too flat and emotionless.  Finally, Comfortably Numb is one of the strong points of the album but on stage it was straightforward, uninspired rendition.

The Bad Plus are making some of the most innovative music in jazz today.  They are to be commended for experimenting, however in my opinion this experiment did not pay off.  I am looking forward to the next one.

Twenty-First Century Marxism – Taliban Style

April 18, 2009 in Uncategorized | by | 1 comment

The Soviet Union has collapsed.  Karl Marx is read mainly in Comparative Literature Departments.  You may think class war is no more.

You’d be wrong.

The Taliban are the new Bolsheviks, the new Lenins.  Marx wanted communist revolutionaries to exploit class war.  Persuade and provoke the proletariat to overthrow capitalists living off the surplus of labor.  It is a strategy desgined for a capitalist society. Rural Pakistan has not reached that level of development and is largely a feudal society.  The Taliban have simply taken Marxist strategy and applied it to this more primitive society. They are pitting the rural population against their landlords.  The landlords are fleeing, their lives in peril.  Their land is redistributed to their workers by the Taliban.  In return, the Taliban impose Islamic Law and get a  share of any profits.  Not the outcome Marx envisaged.  Power to the Taliban not Power to the People.

What does the future hold?  The Taliban have taken control of Swat using this strategy.  They might extend it into Punjab Province.  And who kows where it goes from there.  Pakistan, a nuclear state, is frightening.  It’s hard to know what to do.  Land reform for the peasants seem to be the least aggressive option.  This would make them less amenable to joining the Taliban.  Helping the Pakitani army fight the insurgents is a more aggressive policy.  This could easily backfire amd draw more support for the insurgents.

The Navy Seals should be training to take over nuclear bunkers as well as shoot Somali pirates.

Ashton Kutcher is not an Implementation Theorist

April 17, 2009 in Uncategorized | by | 12 comments

You may have seen in the news that Ashton Kutcher was trying to sign up 1,000,000 Twitter followers and in order to make that goal he offered the 1,000,000th follower a copy of the game Guitar Hero.  This is not a very good mechanism because the optimal strategy it induces is not to sign up (until 999,999 others do, which will not happen because they are also waiting.)  Here is a story about the Kutcher mechanism. (thanks to Joe Spanier and Toomas Hinnosaar for the pointer.)

A better mechanism is the following.  Set a deadline, say midnight.  If at midnight there are fewer than 1,000,000 followers then each of the existing followers wins a prize and the prize that the nth follower wins is decreasing in n. Thus, the 1st follower gets a larger prize than the 2nd which is larger than the 3rd, etc.  On the other hand, if before midnight the number of followers reaches 1,000,000, then give only the 1,000,000th follower a prize.  And it can be a very small prize.

In this mechanism, there is no incentive to wait to sign up and as a result the goal is guaranteed to be reached and the beautiful twist is that the only prize given out is the small prize to the 1,000,00th.

Coincidentally, just last week (before the Kutcher thing) I played this game with my intermediate microeconomics students where my goal was to sign up 150 followers in 2 days.  I offered prizes ranging from $40 for the first follower down to $10 for the 149th follower and $1 to the 150th follower if I made my goal.  If you look at the sidebar to this blog (scroll down on the left) and click through to my twitter page, you can see how I did.

Pity the Cook

April 17, 2009 in Uncategorized | Tags: , | by | 4 comments

Ever notice that food tastes better when your spouse cooked it (controlling for talent of course)?  Why do leftovers often taste better than when the food was fresh?  I believe the same phenomenon explains both of these.

A large part of tasting is actually smelling.  You can verify this by, for example, eating an onion with your nose plugged.  Our sense of smell tends to filter out persistent smells after being exposed to them for awhile so that we cannot smell them anymore.  This means that when you are cooking in the kitchen, surrounded by the aromas of your food, you are quickly de-sensitised to them.  Then when you sit down to eat, it is like tasting without smelling.

When your spouse has done the cooking you were likely in another room, isolated from the aromas.  When you walk into the kitchen to eat, you get to smell and taste the food at the same time.  That’s why it tastes better to you.  The same idea applies to leftovers.  It takes much less time to reheat leftovers than it took to prepare the food in the first place so you retain sensitivity to more of the aromas when it comes time to eat.

I believe that when recipes direct you to “allow the food to rest so that the flavors can combine” what is really happening is that you are induced to leave the kitchen and return with a renewed sensitivity.  This also explains why dinners which you spent all day preparing are often disappointments.  And it implies that when you have guests over for dinner you should entertain them outside of the kitchen so that they will enjoy the food more when it is ready.

On the Subject of Double-Entendres

April 16, 2009 in Uncategorized | Tags: | by | Leave a comment

I lost count.

Presumably the copyeditor at MSNBC is soon to be out of a job (via the Browser.)

When should you get citizenship and drop the green card?

April 16, 2009 in Uncategorized | by | Leave a comment

There’s a serious answer to this question.  Something to do with inheritance tax, going on leave abroad…but you’re not going to get that answer here!

When I first moved to the U.S, I arrived in Boston.  Californians told me native Bostonians had a weird accent.  I could hear a small difference but not large enough to really notice.  Now, I think the accent is weird and exotic.  It sounds British!    I guess  I’m a foreigner everywhere.  Maybe it’s time to become a citizen?

Elephant Walk, Boston

April 16, 2009 in Uncategorized | by | 2 comments

Less elegant than its counterpart in Cambridge, the branch of the Elephant Walk in Boston did not disappoint.  There was a Dilbert-worthy business hard sell going on at an adjacent table.  We split water on our table.  Despite all that, we enjoyed the excellent food.  What’s in those wonderful deep fried spring rolls?  My Mee Siem noodles were fantastic.  We all had them so I can’t recommend any other dishes!  Just go if you’re in the neighborhood.

Potty Parity

April 15, 2009 in Uncategorized | Tags: | by | 3 comments

It may be the biggest moment “for potty parity that we have seen, to have two big facilities open at the same time, and all these restrooms open at once,” said Kathryn Anthony, a professor of architecture at the University of Illinois and a board member of the American Restroom Association.

The new Yankee Stadium and Mets’ ballpark will adhere to new laws in place in New York City requiring two women’s toilets for every one men’s toilet. Read about it here in the New York Times (via The Browser.) Empirically, a woman’s visit to the stall lasts twice as long as a man’s on average so the ordinance is intended to equalize waiting times for men and women.  A few thoughts come to mind (double-entendres noted in parentheses).

  1. This will actually overshoot (!).  The waiting times will be equalized only at times of peak demand when queuing occurs.  If women have more stalls than men, they will queue less often.  As a result average waiting times will be lower for women than for men.
  2. We should not be equating waiting times anyway, we should equate the marginal cost of an additional fixture relative to the resulting reduction in average waiting times.  Urinals are cheaper than stalls.
  3. There is a moral hazard problem coupled with an externality that is not being taken into account.    When queuing is a possibility, the patron trades-off the instantaneous urgency versus the alternative of waiting for off-peak moments, for example avoiding the seventh-inning stretch.  If prices could be charged, Ramsey pricing would dictate that prices would be positive only at times of peak-load (!).   This is to encourage the less urgent to wait for the off-peak reducing the externality imposed on others.  When prices cannot be charged, some level of congestion will be part of a second-best (number two !) incentive instrument.
  4. In queuing problems in general, it is efficient to first serve those whose needs require the shortest use of the facility because they impose the least externality on others.  This principle points toward disparity in favor of men.
  5. I hope they have looked into this.

Casino Schools in Boston and Cambridge

April 15, 2009 in Uncategorized | by | 2 comments

In Evanston, the location of your residence determines which school your kids attend.  In Boston and Cambridge, there is a lottery system that determines where your kids end up.  You list schools in order of preference.  If your first choice is oversubscribed, you get to try for your second choice.  But, at this point, people who listed your second choice as first are ahead of you.   This gives you the incentive to lie and perhaps put your true second choice as your first.  Because of these problems, Boston has changed its system to one that is resistant to such gaming (Al Roth, his students and co-authors have been at the forefront of this research and its application).

There is one other issue.  An obvious response to this lottery is just to get out.  Go to a suburb with better public schools where you are not subject to the random outcome of this strategic casino game.  The price you pay is extra property tax.  Or you might like living in cosmopolitan Boston or university-rich Cambridge.  Welcome to suburbia, former bohemian.  What impact does this have in the city you left behind?  I guess richer people leave.  Or people who do not get their first choice, presumably the best school in everyone’s ranking.  The more concerned parents are about education, the greater will be their outflow.

I guess it actually requires a model to work out the equilibrium impact on the quality of students left in each locale.  It would be surprising if it resulted in higher quality students in Casino School Districts.

Hereditary Disciplines?

April 15, 2009 in Uncategorized | Tags: , | by | 4 comments

Robert Akerlof, the son of Nobel Laureate economist George Akerlof, was on the economics PhD job market this year from Harvard.  It raises the question of which academic disciplines are the most recurrent within families.  I see two arguments about the heridity of economics.

On the positive side, economics is a language and framework for thinking about things that come up in everyday life.  It will be more natural and common for an economist parent to explain economic concepts to their kids than it would be for parents in other disciplines, even other social sciences.  On top of that, being an economist probably shapes one’s style of parenting more than being, say, a chemist does and so there is an additional, covert, channel of transmission.

On the negative side, I sometimes think that what inspires someone to go for a PhD in some discipline is when they discover that it allows them to organize and understand things in a new way.  If a child is raised to think like an economist at an early age, they will never have this kind of revelatory moment and so may never feel drawn to economics as an academic discipline.

Finally, the question of heredity conditions on the child going to academia at all.  It could be that having parents who are economists make you less likely to get any sort of advanced degree.

It would be interesting to see the data.

Absinthe

April 15, 2009 in Uncategorized | Tags: | by | 1 comment

It is back.  Production was legalized in the US in 2007 after being banned for nearly a century based on bogus claims of psychedelic properties.  The marquee ingredient in absinthe is wormwood but it typically includes other herbs such as anise and fennel.  Out of the bottle it is clear, but the spirit is prepared by dropping in a cube of sugar which then drives the herb particulates out of solution producing the famous green haze.  It is usually then diluted with 3 to 5 parts water but it is also a key ingredient in some cocktails.  The most famous is the Sazerac, a classic from New Orleans.

The last time I was in New Orleans, absinthe was not yet widely marketed and the Sazerac was still being made with the substitute spirit Herbsaint.  Did you ever notice that Herbsaint is nearly an anagram for Absinthe?  I don’t think its a coincidence.  But I think they missed a big chance with Thesbian.  Like Herbsaint, its not a word (clearly it should be) but its an exact anagram.

Here is a recipe for a sazerac from wikipedia:

One old fashioned glass is packed with ice. In a second old fashioned glass, a sugar cube and 3 dashes of Peychaud’s Bitters are muddled. The Rye Whiskey is then added to the sugar/Bitters mixture. The ice is emptied from the first old fashioned glass and the Absinthe is poured into the glass and swirled to coat the sides of the glass. Any excess Absinthe is discarded. The Rye-Sugar-Bitters mixture is then poured into the Absinthe coated glass and the glass is garnished with a lemon peel.

Here is Gary Vaynerchuck tasting and reviewing three absinthe brands.

Child’s Play

April 14, 2009 in Uncategorized | Tags: , | by | 13 comments

It’s Sunday morning.  You are reading the Week in Review section of the New York Times and realize piracy still exists in the twenty-first century.  Who would have thought it? The Travel Section leaves you a bit wistful as you realize how many interesting places in the world you’ll never visit. Now you pack like a small army because you have two young children.  You wish you had done the Inca Trail in 1987 when you went to Peru.  That might have invited a kidnapping at the hands of the Sendero Luminoso, but maybe that’s better than grad school?

You hear the sound of Lego and see your kids building the John Hancock Building out of Lego.  You smile, thinking, “The Inca Trail can never compare to the joy I just felt seeing the kids playing together so happily.”  You turn to the crossword puzzle.  Your reverie comes to a screaming end as a fight breaks out behind you.  Who got one of diagonal bits that criss-cross the Hancock a bit wonky?  You will never know but each kid blames the other.

What to do?

The situation reminds you of the famous Moral Hazard in Teams paper by Bengt Holmstrom.  Someone clearly did not exert the cooperative effort level. But you cannot tell who it was as there is no kid-specific signal, just the aggregate signal of the building falling over and the fight.  First, you think that you should be fair and punish a child if and only if the weight of evidence is high. You realize you’re screwed as you never have that level of evidence.  You could ask the children what happened and cross-check what one did against the other.  In fact, this would give an opportunity to apply your own research and you’re excited about that.  It dawns on you that the 8 year old can always out-lie the 4 year old.   And the volume of the four year old’s cries is measured on the Richter scale.  Your research obviously did not take account of these practical matters.

Incentive theory gives the obvious answer: punish them both.  This works very well if there is nothing random that can cause the building to fall over.  Then, each child knows they get punished if they start fighting so no-one fights as long as the punishment is big enough.  If a fight can start randomly – and we parents know this can happen – sometimes you’ll punish them even though nothing truly bad happened.  This is unfair and inefficient but what can you do?  This second-best solution is still better than no incentives at all.

Briefly, you think about the theory of repeated games which claims to get cooperation even when the game is quite noisy and there is lots of private information about who did what to whom.  You  remember that Jeff has made important contributions to this theory.  You use your common sense and decide that using his research might take the application of game theory to family life a little bit too far.  You get up, confiscate the Lego and send the kids to their room to get out of their pajamas and put clothes on.  The ultimate punishment.  The lovely mother of your lovely children has solved the crossword puzzle by the time you’re done. Bugger.

Chicago Parking Meter Privatization

April 14, 2009 in Uncategorized | Tags: , , | by | 10 comments

On Friday the 13th of February, the City of Chicago saw the first of a planned series of parking meter rate hikes which will eventually quadruple the hourly parking rate in the downtown area.  This is happening because last year the City of Chicago sold the cash flow from parking fees for approximately $1 billion to a private investment fund.  (No doubt soon to be securitized and tranched into Meter-Backed Securities.  Quick:  tell me how to price CDS protection against the event that Daley renegs once the billion is spent.)

The deal enables Chicago Parking LLC to raise fees according to a set schedule over the next ten years.  After that, further rate increases must be approved by the City Council.  The contract expires in 75 years.

Why would the City go for such a deal?  Yes it is starved for cash and parking meters currently hard-wired at 50 cents an hour in most of the city are long overdue for an uptick.  But this just argues for a fee increase, it doesnt explain why the meters should be privatized.

The economics of privatization are straightforward in this case.  The city seeks bids for the parking meter cash flow.  A bidder offers an upfront payment and a schedule for price increases.  The upfront payment will be no less than the present value of the cash flow as determined by the new prices.  Competition will ensure that the payment will be exactly this cash flow.  This means that the high bidder will be the one who demands a price that maximizes the present value of cash flows.  In other words, the monopoly price.

Remember from your textbook microeconomics that the monopoly price is associated with inefficiently low quantity.  Zero marginal cost doesnt make this any less damaging, in fact it implies that on many streets there will be empty spaces all day long.  Cozy, inviting parking spaces will be utilized by nobody.

Again the city could set the monopoly price on its own, so we still have the puzzle of why, if the City is willing to allow monopoly pricing it has to use a private entity as its agent.  The answer is not because the City wants its cash up front.  Apparently it does want its cash up front but it could always just borrow against the parking cash flows.

The only answer I can come up with is a commitment problem.  The City could certainly borrow against the cash flows and set the monopoly price but then the City itself would be the target of the uproar that will soon occur when drivers in the city realize that their cars are now worthless.  The political pressure would force the fees to be kept low and the City would then have to find another way to finance its parking debt.  In fact, foreseeing this, no lender would be willing to lend the full present value of monopoly cash flows.

By contractually delegating the fee-setting to a private agent, the City effectively commits never to lower fees so that the monopoly cash flow is guaranteed and the City can extract it all in an upfront payment.

Tomorrow I Will Have a Talk With My Roaster

April 13, 2009 in Uncategorized | Tags: | by | Leave a comment

From Coffee Culture, Jerry Baldwin’s blog at The Atlantic:

A few specialty roasters in the US have begun to experiment with putting robusta into their espresso blends. The typical reasons are to make it more like Italian blends or make a thicker crema. I do understand the preference for the texture of a good crema, but I don’t understand sacrificing flavor to achieve it.

whoa, I thought I was a coffee snob but I never would have thought to ask the robusta question.  Wikipedia says this about robusta:

[Robusta] is easier to care for than the other major species of coffee, Coffea arabica, and, because of this, is cheaper to produce. Since arabica beans are considered superior, robusta is usually limited to lower grade coffee blends as a filler. It is however often included in instant coffee, and in espresso blends to promote the formation of “crema“. Robusta has about twice as much caffeine as arabica.

back to the Coffee Culture article:

Why try to make espresso “more Italian” when specialty roasters in Italy are either abandoning robusta completely or have developed 100 percent arabica blends at the top of their product range? Torrefazione Mexico in Milan, Illycaffe in Trieste, and Caffe Kimbo in Naples are just a few of countless roasters who are 100 percent arabica or, “prefer the excellence of a 100 % arabica blend,” as Kimbo says on its website. Even Lavazza, the Folgers of Italy, has 100 percent arabica blends that are at the high end of their offerings.

Lavazza:  the Folgers of Italy. (cap tap:  The Browser.)

A Lot of Nerve

April 13, 2009 in Uncategorized | Tags: , | by | 1 comment

I collect examples of Kludges.  Luis Rayo has sent me a very nice one.

In mammals, for instance, the recurrent laryngeal nerve does not go directly from the cranium to the larynx, the way any competent engineer would have arranged it. Instead, it extends down the neck to the chest, loops around a lung ligament and then runs back up the neck to the larynx. In a giraffe, that means a 20-foot length of nerve where 1 foot would have done. If this is evidence of design, it would seem to be of the unintelligent variety.

Apparently, some evolutionary biologists take this to be evidence of our fish ancestry.

“The circuitous path of the left recurrent laryngeal nerve in humans is evidence for their evolution from a fishlike ancestor… because the nerve remained behind this arch but still connected to a structure on the neck, it was forced to evolve a pathway that travels down to the chest, loops around the aorta and the remnants of the sixth aortic arch, and then travels back up to the larynx. The indirect path does not reflect intelligent design but can be understood only as the product of our evolution from ancestors having very different bodies.”

The latter quote is from “Why Evolution is True” by Jerry A. Coyne.