Weekly Roundup 54: A Curated Linkfest For The Smartest People On The Web

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Weekly Cartoon (Via Dilbert.com & Paul Kedrosky):


Miguel’s Weekly Favorites :

Why American Consumers Will Spend Lavishly Again – Via Harvard Business – Let me introduce you to Susan Householder.* Here she is, standing in the entrance of her garage in a middle class suburb of Ridgefield, New York. She is surveying a mountain of stuff: bicycles, toboggans, a work bench, exercise equipment, canned goods, Christmas decorations, a picnic hamper, board games, lots of wrapping paper, several boxes of stem ware, and lots and lots of containers, contents unknown. There’s so much stuff here, this ceased to be a garage a long time ago. It’s now a storage locker, Susan’s very own U-Store-It. (Cars are consigned to the drive way.) If we wanted a monument to all the spending Susan did in the 00s, this is it.What created this mountain of stuff? Was it irrational exuberance and cheap money? It was not. This crowded garage springs from cultural motives. These things were not purchased to express vanity or pursue status. They were purchased to help Susan build a life.

Policies Designed for Self-Interested Citizens May Undermine “The Moral Sentiments”: Evidence from Economic Experiments – Via ScienceMag – High-performance organizations and economies work on the basis not only of material interests but also of Adam Smith’s “moral sentiments.” Well-designed laws and public policies can harness self-interest for the common good. However, incentives that appeal to self-interest may fail when they undermine the moral values that lead people to act altruistically or in other public-spirited ways. Behavioral experiments reviewed here suggest that economic incentives may be counterproductive when they signal that selfishness is an appropriate response; constitute a learning environment through which over time people come to adopt more self-interested motivations; compromise the individual’s sense of self-determination and thereby degrade intrinsic motivations; or convey a message of distrust, disrespect, and unfair intent. Many of these unintended effects of incentives occur because people act not only to acquire economic goods and services but also to constitute themselves as dignified, autonomous, and moral individuals. Good organizational and institutional design can channel the material interests for the achievement of social goals while also enhancing the contribution of the moral sentiments to the same ends.

Kenneth Reinert on Teaching the World Economy in Crisis – Via Princeton – Ken Reinert, has penned a fantastic piece about how to teach the world economy during one of the worst financial collapses since the Great Depression.  Hopefully, Ken’s piece can help our international economics teachers help their students understand the problems–and prevent it from happening again.  Enjoy!

Exclusive Features (The Must Reads):

How a great entrepreneur deals with complexity – Via Fred Destin – I aksed Joe Cohen at Seatwave how he deals with the ongoing complexity and varied demands on his time that come from managing a hypergrowth company and I thought I would share the thoughts he jotted down for me.

The 10 Questions You Should Never Stop Asking – Via Forbes – n the early 1990s, I was brought in as an interim president/CEO of two regional monthly magazines. Both are now out of business. It was a trying time–and also one of the great learning experiences of my life. One magazine focused on business, and the other on the arts. What the two had in common were the investors, who forced them into a shotgun wedding and put them under one roof. These geniuses (including your intrepid columnist) thought they could squeeze pennies and boost margins by merging the back offices and the sales teams. The editorial staffs couldn’t be combined because they required different expertise.

BAILOUT! STIMULUS!—YOUR ESSENTIAL GUIDE – Via CJR – In a specially commissioned study, The Audit offers a first-stop, comprehensive guide to the big federal spending programs. Read it. Love it. Use it daily.

Ignorance is really bliss – Via Business Standard – Indian banks didn’t have the expertise to use the tools of statistics and finance, which misled US investment banks into making bad decisions

Jean-Claude Trichet: Key lessons from the crisis – Via BIS

Jim Rogers on Why Gold Is Glittering So Brightly – Via Business Week – I was on assignment in Singapore on Nov. 24 when gold hit an all-time high of $1,174 an ounce. That was fortuitous because Singapore is the home base of commodities guru Jim Rogers, creator of the Rogers International Commodities Index. Meantime, back in the U.S., reports were surfacing about growing discontent in the halls of Congress over the performance of Treasury Secretary Tim Geithner and the possibility he might be replaced by JPMorgan Chase (JPM) CEO Jamie Dimon. When I rang up Rogers, he was his usual low-key self, with quiet opinions about the future of gold prices, commodities to watch, and why Obama should dump Geithner.

From The Man Behind The Paulson ABX Trade, Paolo Pellegrini, Comes The First Investor Letter And A 81% Return YTD – Via Zero Hedge – Unlike other funds, Pellegrini seems to enjoy blockbuster months: making 24% in December 2008 and 67% in January 2009, thanks to a “highly profitable strategy” of shorting “either Treasuries or the S&P but not both.” Going short the S&P and long Treasuries at the beginning of 2009 explains the performance.

Think You’re Multitasking? Think Again Via NPR –  Don’t believe the multitasking hype, scientists say. New research shows that we humans aren’t as good as we think we are at doing several things at once. But it also highlights a human skill that gave us an evolutionary edge. As technology allows people to do more tasks at the same time, the myth that we can multitask has never been stronger. But researchers say it’s still a myth — and they have the data to prove it.

The Biology Behind the Milk of Human Kindness – Via NYT – Be thankful that, on at least one occasion, your mother did not fend off your father with a pair of nunchucks, but instead allowed enough contact to facilitate your happy conception. Be thankful that when you go to buy a pale, poultrylike entity, the grocery clerk will accept your credit card in good faith and even return it with a heroic garble of your last name. Be grateful for the empathetic employee working the United Airlines ticket counter the day after Thanksgiving, who understands why you must leave town today, this very minute, lest someone pull out the family nunchucks.

Can Asset – Price Bubbles Be Harmless – Via Mises – Frederic Mishkin believes that the Fed should continue with its loose stance, even if doing so blows more bubbles. Mishkin is known as a close confidant of Fed Chairman Ben Bernanke

The “investmentless” recovery – Via Fatas –  The behavior of U.S. employment at the end of the last two recessions (1991 and 2001) was different than in previous recessions. Employment did not grow fast and it took several years to reach the pre-recession levels. Because of this, the recovery years that followed both of these two recessions have been labelled “jobless recoveries”. Below is a chart from Brad de Long that compares them to two other previous recessions (original posting is here).

China, the Renminbi, and Global Imbalances: A Quantitative View – Via Econbrowser – President Obama’s trip to China has returned to scrutiny the role of China’s currency and macroeconomic policies in perpetuating global imbalances

Animal spirits and what else is wrong with neoclassical economics – Via Reality Base – A much discussed book this year has been Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism by George Akerlof and Robert Shiller. One of the best discussions is by John Gray in the London Review of Books. Link. He credits Akerlof and Shiller for their evisceration of neoclassical economics for assuming at its core rational behavior of human beings—conceiving them to be a species, homo economicus, that is not us. Gray goes beyond this and points out that even if we all were homo economicus, important parts of the future are always unknowable and cannot be quantified and factored into market decisions as probabilities. A third theme of the review is the hubris of the neoclassical school in assuming that the magic beans they had discovered would work in any environment and that, indeed, no other doctrine would lead to economic abundance. Unaccountably and regrettably, these ideologues appear not to have noticed in the real world the massive contradictions to that view.

China: The Vampire Squid of Commodities Why We Should Learn to Stop Worrying and Love Our New Chinese Overlords Via GetRealist – His reasoning is astute: Even if the Fed’s fiscal stimulus turns to drag, and we don’t get the recovery, then where does the dollar go? Down – which will be bullish for commodities. And if we have a V-shaped recovery, demand and prices will rise – again, bullish for commodities.


Time To Prepare for the Next Bubble? – Via WSJ – As low interest rates around the world help create potential bubbles in everything from stock markets in Brazil and China to pockets of real estate in Asia and Australia, it may be time to prepare for the next big, financial bubble. But don’t count on gold to keep your portfolio safe

Tentatively and Sporadically, Real Estate Investing Makes a Comeback – Via Wharton – Real estate is showing some early signs of a revival as an attractive investment destination compared to other opportunities like corporate debt, but the equity and debt markets have to open their wallets with more confidence to resume a normal flow of deals. That was one notable assessment by panelists at the fall conference of the Samuel Zell and Robert Lurie Real Estate Center held at Wharton recently. They also offered insights on lessons learned from the supervisory gaps that fueled the recent collapse of the financial markets and ways to fix them.

Home Prices May Be Nearing a New Dip – Via NYT – Home prices are enduring an early winter chill, raising the odds that the economy may suffer another jolt while it is still weak.

Girls Can’t Trade – via Premoderneconhist – What does traders’ success on the market floor depend on? Earlier studies have shown that one’s level of testosterone did affect one’s daily results. Since “prenatal androgens have organizing effects on the developing brain, increasing its later sensitivity to […] testosterone”, it would make sense that prenatal androgens also have a structural effect on a trader’s results on the long term.A surrogate marker is commonly used to define one’s exposure to prenatal androgens: the second-to-fourth digit length ratio, noted 2D:4D. Such market has been found to predict professional athletes’ performance. In this paper, the autors test the hypothesis that a high exposure to prenatal androgens as indicated by 2D:4D would also predict traders’ long-term profit.

How To Jump Start The Economy & Create Millions of Jobs-Via BlogMaverick – More than a year ago I wrote a post (see below) about taxing stock transactions. I suggested 10c per share on both sides. Some of our politicians are suggesting .025pct.  There really is no reason not to do it either way. Spreads have narrowed in the past several years to pennies from nickels, dimes and quarters. So we know that the market can operate with the wider spreads.  Historically spreads are the profit margin of market makers. Well in this era, who is a bigger market maker than the US Treasury ? They are providing liquidity at every corner, so why shouldn’t they (we) get paid for it ?

Watching Too Much Crime TV Skews Views for the Worse – Via NeuroNarrative – If you watch prime-time television, chances are you watch at least one crime drama. Most of us do. Year in and year out, the most consistently popular shows on television are about crime: CSI, Law & Order, Cold Case, The Closer, and all of the other spin-offs and ad nauseum syndications.Regrettably for the viewing audience, a recent study from Purdue University suggests that the more we feed this craving for crime drama, the more distorted are our views of the criminal justice system and crime rates overall.

Structural Versus Cyclical Deficits – Via Megan McArdle – As I’ve been writing about the deficits, one of the things that occurs to me is that conservative and liberal policy analysts are really talking past each other on this issue, because they’re talking about different sorts of deficits. Liberals are focusing on the cyclical deficit, which is not a big problem. Conservatives are talking about the structural deficit, which is a huge problem. And so one side says, “the deficit is a problem,” and the other side says, “the deficit is manageable,” and both sides are both right and wrong.

Does “Internet Addiction” Really Shrink Your Brain? – Via Neurocritic – Internet addiction is a murky and controversial disorder that is the subject of intense debate over whether it should be included in the new DSM-V. Here are the proposed diagnostic criteria as developed by Dr. Kimberly Young.

Why didn’t Darwin discover Mendel’s laws? – Via Laden’s Blog – Perhaps we are all subject to falling into the trap of what I call the Hydraulic Theory of Everything. If you eat more you will be bigger, if you eat less you will be smaller. Emotional states are the continuously varying outcome of different levels of a set of hormones, forming “happy” or “stressy” or “angry” cocktails. Your brain is a vessel into which life pours various elixirs. Too much of one thing, and there will not be enough room for something else. Even political arguments are hydraulic. The ‘balanced’ middle view between two arguments is like the mixture of contrasting primary colors on a pallet.

Bootstrapping vs. Venture Funding – Via Venture Made Transparent – How entrepreneurs finance their company is one of the most critical decisions that they will make during the course of their startup.  The structure of their financing will be one of the key drivers of the financial return from their venture.

The Four Horsemen Of The Financial Apocalypse Via Zero Hedge

John Mauldin: Why I am an Optimist – Via Thoughts From The Frontline – I admit that of late my writings have had a rather dark tone. There are certainly a number of severe long-term problems that we must deal with, and they’re going to serve up a lot of economic pain. But the Thanksgiving weekend with the kids has me in a reflective mood, and one that has only served to underscore my long-term optimism. This week we look at why 2007 will not be the good old days we will yearn for in 20 years, after we briefly visit Dubai and the latest unemployment numbers.

New study finds men and women may respond differently to danger – Via Eureka Alert – Researchers using functional magnetic resonance imaging (fMRI) to study brain activation have found that men and women respond differently to positive and negative stimuli, according to a study presented today at the annual meeting of the Radiological Society of North America (RSNA).”Men may direct more attention to sensory aspects of emotional stimuli and tend to process them in terms of implications for required action, whereas women direct more attention to the feelings engendered by emotional stimuli,” said Andrzej Urbanik, M.D., Ph.D., chair of Radiology at Jagiellonian University Hospital in Krakow, Poland.

Classic social psychology study explores our yearning to bask in the reflected glory of successful others. – Via PsyBlog – Here in England we have a strange tradition called ‘test cricket’. It’s a ridiculous game that goes on for five days, stops for tea and bad light, has impenetrable rules, weird names for fielding positions like ‘silly-mid-on’ and ‘short-backward-leg’ and which frequently ends, after the aforementioned five days, with neither side victorious.

The great trade collapse: Presenting the new Ebook – Via Voxeu- World trade experienced a sudden, severe and synchronised collapse in late 2008 – the sharpest in recorded history and deepest since WWII. VoxEU today posts a new Ebook – written for the world’s trade ministers gathering for the WTO’s Trade Ministerial in Geneva – that presents the economics profession’s received wisdom on the collapse. Two dozen chapters, written by leading economists from across the planet, summarise the latest research on the causes of the collapse as well as the consequences and prospects for recovery.

Media (Audio, Videos, Etc):

Amy Goodman & Denis Moynihan: Breaking the Sound Barrier – Via Fora.Tv – In place of the usual suspects—the “experts” who, in Goodman’s words, “know so little about so much, explain the world to us, and get it so wrong”—this accessible, lively collection allows the voices the corporate media exclude and ignore to be heard loud and clear.

Weak dollar may fuel bubbles – Via APM – Asia correspondent Scott Tong talks with Kai Ryssdal about how the weak dollar is stoking up a new investment scheme that’s creating fears of the next big bubble.
VCTips at Web 2.0 Expo – Via Christine.net

Rethinking the idea of gift giving – Via APM – Some economists say giving gifts just doesn’t make sense. Joel Waldfogel, author of “Scroogenomics,” talks with Kai Ryssdal about how the idea is fraught with value destruction.

The Yellow Brick Road: Relating Oz to a Zero Interest Rate Policy & 6932 Years – Via Mc Alvany

MIT World’s “Paint it Black: Avoiding the Financial Beast of Burden in 2009 and Beyond – Via MIT

The Archaeology of Innovation – Via LongNow

Acidic Oceans: Why Should We Care? Andrew Dickson – Via Science Stage

Academic Papers:

Reconciling Climate Change and Trade Policy – Via Policy Pointers – This 45-page US working paper offers some preliminary quantification of the impact of possible climate change policy approaches on growth in developing countries

A Bayesian Approach to Estimating Tax and Spending Multipliers – Via Federal Reserve Bank of NY – This paper outlines a simple Bayesian methodology for estimating tax and spending multipliers in a dynamic stochastic general equilibrium (DSGE) model. After forming priors about the parameters of the model and the relevant shock, we used the model to exactly match only one data point: the trough of the Great Depression, that is, an output collapse of 30 percent, deflation of 10 percent, and a zero short-term nominal interest rate. Because we form our priors as distributions, the key economic inference of our analysis—the multipliers of tax and spending—are well-defined probability distributions derived from the posterior of the model. While the Bayesian methods used are standard, the application is slightly unusual. We conjecture that this methodology can be applied in several different settings with severe data limitations and where more informal calibrations have been the norm. The main advantage over usual calibration exercises is that the posterior of the model offers an interesting way to think about sensitivity analysis and gives researchers a useful way to describe model-based inference. We apply our simple estimation method to the American Recovery and Reinvestment Act (ARRA), passed by Congress as part of the 2009 stimulus plan. The mean of our estimate indicates that ARRA increased output by 3.6 percent in 2009 and 2010. The standard deviation of this estimate is 1 percent.

Do supermarket prices change from week to week – Via Bank Of England –This paper examines the behaviour of supermarket prices in the United Kingdom, using weekly scanner data supplied by Nielsen. A number of stylised facts about pricing behaviour are uncovered. First, prices change very frequently in supermarkets, with 40% of prices changing each week, and even controlling for ‘temporary’ changes, a quarter of prices change each week. Importantly, there is evidence that focusing on monthly observations, rather than weekly ones, overstates the implied stickiness of prices. Second, the probability of price changes is not constant over time – all product categories have declining hazard functions. Third, the range of price changes is very wide, with some very large price cuts and price rises; but despite this, a significant number of price changes are very small. Fourth, there appears to be little link between the frequency and magnitude of price changes – prices that change less frequently do not tend to change by more. Fifth, the strongest correlation between price and volume changes is contemporaneous, suggesting that prices and volumes move together from week to week. And sixth, rough analysis based on simplifying assumptions suggests that consumers are fairly price sensitive: volumes change by more than prices.

Endogenous choice of bank liquidity: the role of fire sales – Via Bank Of England – Banks’ liquidity is a crucial determinant of the adversity of banking crises. In this paper, we consider the effect of fire sales and entry during crises on banks’ ex-ante choice of liquid asset holdings. We consider a setting with limited pledgeability of risky cash flows relative to safe ones and a differential expertise between banks and outsiders in employing banking assets. When a large number of banks fail, market for assets clears only at fire-sale prices and outsiders enter the market if prices fall sufficiently low. In such states, there is a private benefit of liquid holdings to banks from purchasing assets. There is also a social benefit since greater banking system liquidity reduces inefficiency from liquidation of assets to outsiders. When pledgeability of risky cash flows is high, for instance, in countries with well-developed capital markets, banks hold less liquidity than is socially optimal due to risk-shifting incentives; otherwise, banks may hold even more liquidity than is socially optimal to capitalise on fire sales. However, if there is a systemic cost associated with crises, for example, in the form of fiscal costs associated with provision of deposit insurance, then socially optimal liquidity may always be higher than the privately optimal one, and, in turn, regulation in the form of prudent liquidity requirements may be desirable. We provide some international evidence on banks’ liquid holdings that is consistent with model’s predictions.

Trade, pollution, and the environment: New international evidence – Via Voxeu- The “pollution haven” view asserts that globalisation draws industries to countries with lax environmental regulation. This column present evidence that that the major polluting industries are not very footloose and that changes in emissions through the relocation of activities are relatively small. The growth of trade itself, however, is likely to contribute to growing emissions associated with transport.

The Credit Crisis as a Problem in the Sociology of Knowledge – Via SPS – This article examines the role in the current credit crisis of “evaluation cultures”
(shared beliefs, practices, ways of calculating, and technical systems that are employed when market participants evaluate financial instruments) and “metadevices” (relatively durable configurations of social relations and technical systems, such as the “canonical mechanism,” largely identified by Carruthers and Stinchcombe, and the credit ratings system). Employing documentary sources and a set of 55 predominantly oral-history interviews, the article presents a historical sociology of the two categories of financial instrument crucial to the crisis (ABSs, asset-backed securities, and CDOs, collateralized debt obligations), and in particular discusses the evaluation of and the role played by a fateful concatenation of the two, ABS CDOs.

Global Reach: Emerging Ties Between Sanfrancisco Bay Area& India – Via Bayeconfor.org

Other Very Interesting Items:

Does It Make Any Sense to Look for a “National IQ”? – Via Big Think –  Writing about intelligence is like running a ferry service between two different planets. On one, everyone assumes that g, general intelligence, is a real and important trait, in which heredity plays a big role, and which is accurately measured by tests. On the other planet, g is a social and historical phenomenon–a belief one set of people have about themselves, or about other people. Most of the time the natives on each world speak happily only to each other. When you land with your news of the other place, the usual reactions are incredulity (those people don’t exist!), anger (no one can believe that!) and/or a droning recitation of the sacred texts (please see these 114 papers listed below). See the comments on my Pinker-Gladwell post for examples.

In Global Terms, How Rich Are You? Via Sociological Images – When we consider how well we are doing financially, we must choose a referent.  That is, when we ask the question (”How well am I doing?”), we are also, simultaneously choosing a comparison group (e.g., people in our profession, people of our same sex, people our age, etc).

Were does Humor and Laughter Reside in the Brain? – Via Dr. Shock – That is a difficult question for two reasons:The exact meaning of the terms `laughter,’ `humour’ and `funny’ have been formulated for individual studies, a broad consensus on their exact meanings has yet to be reached. Are tickling and contagious laughter one and the same or manifestations of particular kinds of humour? Is humour a kind of perception or is humour `something’ that is produced? Or is it both? The meaning of these terms may vary over time. What was funny 20 years ago may not be funny today. Moreover, definitions vary not only with time but also among languages and cultures.

Organizational Psychologists Use Rock Band to Study How People Achieve Flow While at Work – Via ScienceDaily — By playing the video game Rock Band for an hour, Kansas State University students were able to help a pair of psychology professors with their research to understand how people can achieve flow while at work or while performing skilled tasks.

Auditory Illusion: How Our Brains Can Fill in the Gaps to Create Continuous Sound – Via ScienceDaily — It is relatively common for listeners to “hear” sounds that are not really there. In fact, it is the brain’s ability to reconstruct fragmented sounds that allows us to successfully carry on a conversation in a noisy room. Now, a new study helps to explain what happens in the brain that allows us to perceive a physically interrupted sound as being continuous. The research, published by Cell Press in the November 25 issue of Neuron provides fascinating insight into the constructive nature of human hearing.

Brains Benefit from Multilingualism ViaScienceDaily — For a considerable time already there has been discussion within scientific circles about whether knowing and using multiple languages could possibly have positive effects on the human brain and thinking. There have been a number of international studies on the subject, which indicate that the ability to use more than one language brings an individual a considerable advantage.

Should There Be College Dropout Insurance? – Via The New Republic –  As David Leonhardt revealed in September, almost half of all students who enter college in the U.S. don’t graduate. Cutting this number down should be a national priority, but even a determined effort is likely to leave many students short of a bachelor’s degree. Instead, what they’ll be leaving school with is a sizable debt burden. Is there a way to protect these students? Philly Fed’s Satyajit Chatterjee and Colgate’s Felicia Ionescu argue that there is — a government-backed insurance program. Such insurance would increase the value of going to school which, in turn, would likely encourage graduation rates and encourage more high school students to enroll in college.

Weekly Joke: (The Stimulus Plan)

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About Miguel Barbosa

I run this site.

29. November 2003 by Miguel Barbosa
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