Weekly Roundup 03: A Curated Linkfest For The Smartest People On The Web
1. Why Margin Requirements Made Sense in 1934 – Via Conglomerate Blog- In this post I will explain why restricting margin lending is consistent with the three principles I offered for regulating portfolio insurance: do not panic, supervise the sale of insurance products, and do not rely on the sophistication of investors.
2. Multitasking isn’t good for you – Via Psych Central- A whole generation (the “Net Gen”) is growing up supposedly learning and doing more by multitasking. But what’s really happening? If more time spent IMing means less ability to concentrate on tasks and activities that are needed for real life (you know, like learning in school, reading, boring stuff like that), they aren’t really doing more. They’re learning to do less, be less patient, and be less able to concentrate on a single task for more than a few minutes at a time (resulting in an inability to actually “go deep” or engage in critical thinking on any topic) (Levine et al., 2007).
3. Economics Behavioral Biology, & Law – Via Neuroethics – The article first compares economics and behavioral biology, examining the assumptions, core concepts, methodological tenets, and emphases of the two fields. Building on this, the article then compares the applied interdisciplinary fields of law and economics, on one hand, with law and behavioral biology, on the other – highlighting not only the most important similarities, but also the most important differences. The article subsequently explores ways that biological perspectives on human behavior may prove useful, by improving economic models and the behavioral insights they generate. The article concludes that although there are important differences between the two fields, the overlaps between economics and biology warrant even greater congress between these two disciplines, and expanded exchange between the legal thinkers interested in each of them.
4. The Bailout: A Billion Here, A Trillion There…. – Via Organizations & Markets- How expensive is the bailout? Where will the money come from? Consider the numbers: $29 billion for the Bear Stearns mess; $700 billion to buy spoiled assets; $200 billion to buy stock in Fannie Mae and Freddie Mac; an $85 billion loan to AIG insurance; another $37.8 billion for AIG; and $250 billion for bank stocks. Hundreds of billions in guarantees to back up money market funds and to guarantee bank deposits. And who knows what expenses are still to come. . .
5. The Behavioral Revolution – Via NYTs- Roughly speaking, there are four steps to every decision. First, you perceive a situation. Then you think of possible courses of action. Then you calculate which course is in your best interest. Then you take the action.Over the past few centuries, public policy analysts have assumed that step three is the most important. Economic models and entire social science disciplines are premised on the assumption that people are mostly engaged in rationally calculating and maximizing their self-interest.
6. Why Does America Encourage Debt – Via True Cost – America (and the world!) is now being punished for its relentless accumulation of debt during the housing bubble and before. Commentators of all stripes have laid blame for the credit bubble, whether upon Alan Greenspan, lack of regulation, greedy Wall Street, or otherwise.
7. A Page From Japan’s Playbook – Naked Capitalistm – One of the widely criticized features of Japan’s approach to its post-bubble crisis was that its regulators tried for some time to avoid the recognition of bank losses. In a deflationary environment, it was not clear how this would lead to a better ending, since with a flagging economy and no inflation to reduce the real (as opposed to nominal) value of the debt, there was no reason to expect the borrowers’ ability to pay to improve. Thus, these dud assets would remain dud assets until some banks (occasionally) made large writeoffs, forcing others to at least whittle away at their dud loans, and a worsening of the downturn in the late 1990s and some financial firm failures finally forced the government to recapitalize banks.
8. Bankruptcies & Plant Closings Rise In China – Via Naked Capitalism – We featured reports earlier this year on plant closings in China, and the suffering in manufacturing areas is becoming more acute as the global downturn cuts into Chinese exports. Reader Michael sent us this report on China’s toymakers, but it also stresses that China may be more vulnerable to a global financial shock than advanced economies. Part of the problem is that many manufacturers were also speculating in currencies or commodities. We also feature a second report from the Guardian, which says that growth in China may fall below 8% due to the drop in manufacturing. While that sounds like a high-class problem, in fact it would be difficult for China, which requires 8% expansion to maintain employment levels. Chinas’ fragile social contract requires more growth to maintain stability. Protests are taking place now, and the worst has yet to arrive.
9. Keynes, Krugman, & Capitulation – Via Mises.org- To go along with Frank’s excellent piece today, we have (Who else?) Paul Krugman — excuse me, Nobel Laureat Paul Krugman — declaring that we are in a “liquidity trap” and that the only way out is for the government to spend money that it does not have.
10. Video of Rothbard on Banking in 1983– Via Mises.org
11. Roubini on Structural Problems in the World Economy – Via Marginal Revolution- There is a huge excess capacity for the production of manufactured goods in the global economy, as the massive, and excessive, capital expenditure in China and Asia (Chinese real investment is now close to 50% of gross domestic product) has created an excess supply of goods that will remain unsold as global aggregate demand falls.
12. Paul Krugman Tells Us When Should Consumers Cut Their Spending – Via NYT & Marginal Revolution- Sooner or later, then, consumers were going to have to pull in their belts. But the timing of the new sobriety is deeply unfortunate. One is tempted to echo St. Augustine’s plea: “Grant me chastity and continence, but not yet.” For consumers are cutting back just as the U.S. economy has fallen into a liquidity trap — a situation in which the Federal Reserve has lost its grip on the economy.
13. A Federalist Fiscal Stimulus – Via Greg Mankiw- f there is going to be another fiscal stimulus, there will likely be a division between those who want tax rebates to households and those who want to help states pay for extra infrastructure spending. I have a compromise, based on the grand U.S. tradition of federalism: Let each state decide.
14. Challenging The Crowd In Whispers Not Shouts – Via Nyt- ALAN GREENSPAN, the former Federal Reserve chairman, acknowledged in a Congressional hearing last month that he had made an “error” in assuming that the markets would properly regulate themselves, and added that he had no idea a financial disaster was in the making. What’s more, he said the Fed’s own computer models and economic experts simply “did not forecast” the current financial crisis.
15. Tax Hedging- Via Greg Mankiw– Over at Intrade, you can bet on future tax rates. Currently, the implied probability of a hike in the top income tax rate in 2009 is about two-thirds.
16. Wall Street Journal Political Crash n Burn – Via Grasping Reality- I know, it is hardly shocking that the WSJ would publish a piece suggesting that Barack Obama is the wrong man for the times. (This one by Fouad Ajami.) Nor that it would reach, Pravda-like, to find the latest argument against him. Haven’t looked, but I bet that when Sarah Palin was drawing big crowds the Journal’s editorialists noted this with approval. But doesn’t a certain self-protective “wait a minute, can we really say that?” instinct kick in at some point?
17. Getting The IMF’s Groove Back – Via FT & Economist View – The worldwide financial crisis … should be the perfect opportunity for the International Monetary Fund to get its groove back. Indeed, a strong multilateral institution with teeth is essential to promote international financial stability. But it will take some radical changes for the IMF to fill that role. …
18. The Economics Of Labour Market Intermediation – Via Voxeu.org – The labour market depicted by undergraduate textbooks (e.g. Mankiw 2006) is a pure spot market with complete information and atomistic price-taking. Labour economists have long understood that this model is highly incomplete. Search is costly, information is typically imperfect and often asymmetric, firms are not always price takers, and atomistic actors are typically unable to resolve coordination and collective action failures.
19. Covered Bonds: Funding Residential Mortgages – Via Cleveland Fed- Like the now government-owned Fannie Mae and Freddie Mac, large investment banks helped create funds to finance new mortgages by issuing securities backed by pools of existing mortgages. But private firms have abandoned these instruments, and with them a large source of mortgage funds has disappeared. Four large investment banks plan to create a new U.S. market for an old instrument, hoping to bring liquidity back to the mortgage market.
20. Brief Interview with author of The Price Of Everything – Via Cafe Hayek
21. Rules of the game: the bailout – Via Cafe Hayek – Bob Higgs claims that “regime uncertainty,” the uncertainty about the rules of the game, is what made the New Deal so ineffective. Because business didn’t know what the government was going to do next, people were hesitant to invest and take risk in the 1930s. It’s possible but it’s very hard to measure. Maybe investors were discouraged by the lack of opportunities in the economy or some other reason
22. Don’t Just Do Something, Stand There– Via Wall Street Journal- People ask me if the current mess feels like 1929. But the right comparison is 1932, when Herbert Hoover was desperately trying anything, anything at all, to get the economy going. The stock market had crashed. The economy was starting to follow it down. So what did Hoover and his fellow policy makers do? In 1930, Congress passed a massive tariff increase, in hopes of protecting American jobs. Hoover signed it. But it simply accelerated the economy’s slide. The Federal Reserve contracted the money supply, taking a recession and making it into a depression. By 1932, real GDP was 25% lower than three years earlier.
23. Risk Avoidance In the Face of Chronic Economic Loss– Via Science Daily- Individual investors are liquidating their holdings at record levels as financial markets sink, often absorbing losses to avoid possibly worse pain later. Contradicting the counsel of many financial advisers, it also flies in the face of widely accepted behavioral theory and reinforces recent research by Michigan State University scientists.
24. What Is Intelligence – Via Brain Blogger – Intelligence has been discussed throughout much of human history. Socrates gave one definition of intelligence: “I know that I am intelligent, because I know that I know nothing.” Intelligence over the years has been defined as such diverse things as understanding others, knowledge gained, who you surround yourself by, what you accomplish, and the ability to reason.
25. Evolution and Trustworthiness – Via Gene Expression – Humans are not the same. We vary. And we vary in part because of heritable biological factors. Some evolutionary psychologists, Satoshi Kanazawa comes to mind, work under an old model where deviations from their expectation of human modal behavior is treated simply as trivial holdovers along the transient from the ancestral to the derived phenotype, or noise introduced by environmental factors. Because of he elegant simplicity of their model evolutionary psychologists of this school are expert verbal showmen.
26. The Hedonistic Paradox– Via Geary Behavior Center- A recent paper in Journal of Public Economics explores the idea that more altruistic people are happier than people who are greedy. Using evidence from combining well-being measures, psychometric markers and information on play in dictator games they find evidence for personality traits leading people toward greater levels of both giving and happiness.
27. Extensive Paper on Behavioral Economics & Financial Regulation – Financial services decisions can have enormous consequences for household well-being. Households need a range of financial services—to conduct basic transactions, such as receiving their income, storing it, and paying bills;
to save for emergency needs and long-term goals; to access credit; and to insure against life’s key risks. But the financial services system is exceedingly complicated and often not well-designed to optimize household behavior. In response to the complexity of our financial system, there has been a long-running debate about the appropriate role and form of regulation. Regulation is largely stuck in two competing models—disclosure, and usury or product restrictions.
28. Cognition Links Collection on Mind Hacks – Via Mind Hacks – Welcome to the 57th edition of the Encephalon psychology and neuroscience writing carnival, where we have the honour of hosting the best in the last fortnight’s mind and brain writing, here on Mind Hacks.
29. Money On The Brain – Via Mind Hacks – Tim Harford, who blogs as the Undercover Economist, presents a rollercoaster ride through the field of neuroeconomics, for Radio 4. The documentary is available via Radio 4’s Listen Again site for the next week, and reportedly via a podcast (which I unfortunately can’t find). This whistle-stop tour covers neuromarketing, behavioural economics and the possible effects of hormone levels on risk tasking among stockmarket brokers.
30. What Everyone Should Know About Their Minds – Via PsyBlog – Ever wondered where your opinions come from, how you manage to be creative, or how you solve problems? Well, don’t bother. Psychology studies examining these areas and more have found that while we’re good at inventing plausible explanations, these explanations are frequently completely made-up.
31. How to Spin A Good Story – Via Psychology Today- Award-winning storyteller Kevin Cordi first came to appreciate the power of tales when he worked as a teenage door-to-door salesman. Today, Cordi is the first full-time high school storytelling teacher in the country and a strong believer in the therapeutic value of spinning yarns. “It helps people think through and deal with difficult situations,” Cordi says.
32. Cognitive Dissonance & Carmen Miranda – Via Cognitive Daily – Carmen Miranda is probably best-known today as the former spokesperson for Chiquita bananas, but she was equally famous — and outrageous — as an actress, singer, and dancer in the 1940s and 1950s.Cognitive dissonance is a psychological phenomenon that occurs when people’s actions contradict strongly-held beliefs.
33. Video The Big Sort– Via PopTech – Author of the striking book “The Big Sort: Why the clustering of like-minded America is tearing us apart,” Bishop is ringing an alarm bell on the country’s self-imposed “way-of-life segregation.” Here he details the increasing polarization of American communities and the corresponding impact on American culture, politics, economy and potential.
34. US Geography of Presidential Elections – Via Open Culture – The Geography of US Presidential Elections keeps rolling along. With his well-crafted lectures, Martin Lewis shows you this week how America’s political map and its political parties changed dramatically following the Civil War. In the space of 90 minutes, he takes you through the Reconstruction period, The Gilded Age, the Depression, World War II and The Cold War, up through the Vietnam War.
35. Building A commodities Market in Ethiopia– Via Ted Talks – Economist Eleni Gabre-Madhin outlines her ambitious vision to found the first commodities market in Ethiopia. Her plan would create wealth, minimize risk for farmers and turn the world’s largest recipient of food aid into a regional food basket.
36. Competition Between Striatum and Hippocampus During Learning – Via The Neurocritic – Yale researchers have described how dueling brain systems may explain why you forget to drop off the dry cleaning and may point to ways that substance abusers and people with OCD can overcome bad habits.
37. Wrong Economics Theories and performativity– Via Socializing Finance – Let me give you the context. The issue here is the question of whether or not a ‘wrong’ economic theory can be performed in such a way that it ‘becomes’ accurate. I claimed that Black-Scholes-Merton is an example (in fact, a very good example) for a wrong, but very successful, economic model.