Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Saturday, August 20, 2005

Target Buys All Ad Space in The New Yorker;
Effect on Wal-Mart Could be Positive

Target has bought all the advertising space in one issue of The New Yorker. This seems odd, given the antipathy of (some/many) New Yorkers toward massive discount stores. Or is their antipathy only toward Wal-Mart as a symbol?

Target has purchased every advertisement in The New Yorker. At first glance, Target and The New Yorker seem like an odd match. (The last time Target pulled off the buy-every-ad gimmick, it was the sole sponsor of an issue of People.) Only recently did the "Bloomingdale's of the discount industry" vanquish Wal-Mart and Kmart to win the hearts and minds of the middlebrow. Moreover, when compared to the modish boutiques that usually advertise in the New Yorker, Target looks rather vulgar; there is no sign at the entrance of Louis Vuitton, for example, that reads "Welcome to Low Prices."
How will this strategy affect Wal-Mart? Will Target get an advantage by appealing to the middle-brow market of New Yorkers? We know from the past that Wal-Mart has been attempting to upgrade its image, in apparel especially, and so the image-reshaping is going on at both chains.

In a Christmas photo op, Michael Bloomberg was seen exiting a local Target clutching a George Foreman grill and a cheese grater, gifts that would surely please one of the gardeners at Gracie Mansion.

That, in a nutshell, is the story of Target's blossoming—making discount acceptable for the rich and famous, and, hence, everyone else. But the appeal Target holds in the minds of the upper crust does not end there. The rich (at least in Manhattan) profess to visit Target because of its social progressivism. Target, they insist, is a more enlightened corporate behemoth. Viewed through the Upper West Side prism in which "enlightened" equals "liberal," there is some truth to this contention. Sam Walton's heirs donate to the GOP, while Target scion Mark Dayton serves as a Democrat in the U.S. Senate. But because Target isn't as large as Wal-Mart means certain bugaboos (a nonunion shop, part-time workers without benefits) are more easily overlooked.
So the major problem with Wal-Mart (for Wal-Mart haters) is that it supports the Republicans and it is large. They will consider shopping at Target, however, even though Target has labour and import policies that are very similar to those of Wal-Mart.

My guess is that if the advertising by Target in The New Yorker works, however that might be defined and assessed, it will initially have the effect of stealing a bit of market share from Wal-Mart, but not much -- after all, what's to steal from Wal-Mart in Manhattan? But in the longer run, in this case perhaps only a few months, if middlebrow elitist-wannabes begin to set foot in Target, the effect might also be to increase the demand for goods at Wal-Mart as well. Once people get the taste of reasonable quality at very low prices, and once they realize that both large chains have similar labour and trade policies, they might be more likely to accept a Wal-Mart in their neightbourhood.

In other words, the effect of Target's buying all the advertising space in The New Yorker might be to let people know that it is okay for the middle and upper classes to shop at large discount chains.

[cross-posted at Always Low Prices]

A Picture is Worth . . . . . a Whole Lot:
the Contrast along the Israel-Egypt Border

Take a look at the border between Israel and Egypt,
courtesy of the hybrid feature in Google maps.

The contrast between the green and the tan is amazing!
[Thanks to Jack for his advice on screen captures]

Swimming Pool Etiquette

How much gawking is appropriate or permissable at a public swimming pool?

Last month, I took my six-year-old granddaughter, Laura Bush Palmer, to the town swimming pool. While there, I was..... well..... impressed by some of the revealing swimsuits.

I do not wish to appear to be a dirty old man, and I do not wish to offend anyone, and so I try not to stare and gawk. But I could not help stealing a few extra glances at one swimming suit that had a two-inch wide net cleavage from the neck to below the navel.

Note: I Googled "Swimming pool etiquette" with "stare", "staring", or "gawk" and received only this:
Do not, I repeat, do NOT stare at women.

Which isn't very helpful.

Friday, August 19, 2005

The Emirates Economist

John Chilton, blogging as The Emirates Economist is back blogging again with his usual pithy material that applies economics to various issues in the United Arab Emirates, the Gulf, and elsewhere. Time to check him out again after his brief hiatus.

Deterrence and Expectations

Recently a former Canadian resident was kidnapped in Iraq, held for ransom, and murdered before the ransom could be paid.

Toronto — Iraqi gunmen have kidnapped and killed a Canadian citizen in Baghdad, a slaying that occurred despite the fact his family was preparing to pay $250,000 demanded for his release.

Zaid Meerwali fled dictator Saddam Hussein's Iraq to live in Canada in the early 1990s. His family says he became a successful chartered accountant before returning to his homeland early this year to get married and start an import-export business.

Then, slightly more than two weeks ago, 10 gunmen disguised as police officers stormed into his compound, hitting his wife with a rifle butt and stealing cash and jewellery before throwing Mr. Meerwali into the back of one of three waiting pickup trucks, his brother, Munir, said yesterday.
I have made the following position very clear to my family. I hope these wishes are honoured:

If I am ever kidnapped, do everything possible to inflict costs (time costs and other costs) on the criminals. Do what you can to help apprehend and incarcerate and/or kill them. At the same time, it would be nice if you could free me, but that must not be the most important objective.

In the end, do not pay any ransom. If a delivery of cash is expected, delay it. If a delivery must be made, deliver a bomb instead. Whatever you do, don't pay a ransom.

I am older than middle-aged; I have had a good life. Pain does not scare me (though I do not wish to experience it). But I would rather the money stayed with my family than go to criminals. And I understand completely about familial love; they should pay nothing.

Will my having made this statement public have any deterrent effect on potential kidnappers?
Or will they interpret it as a strategy from someone whose family would pay anything to get him back?

If the latter, they seriously misunderstand both my net worth and my family.

Trade and Aid

I argued back in January that trade liberalization would be a terrific form of aid to countries that suffered from the December tsunami:

One of the best ways to aid developing countries, regardless of whether they were hit by the earthquake and tsunami, is to open the borders to their exports. The EU is doing this by speeding up the implementation of trade liberalization policies for Sri Lanka, India, Thailand, et al...

In support of my earlier piece, I refer you to this by Tyler Cowen of Marginal Revolution:

Total tsunami foreign aid from the U.S.: $908 million

U.S. tariff revenue from Sri Lanka, Thailand, India, and Indonesia: $1.87 billion

Healthy Advice from Newmark's Door

Yesterday, Craig Newmark had two interesting items that were health-related.

1. Sleep is important. From a very detailed, informative piece in The Harvard Magazine (it is well worth reading the entire article),

Sleeping well helps keep you alive longer. Among humans, death from all causes is lowest among adults who get seven to eight hours of sleep nightly, and significantly higher among those who sleep less than seven or more than nine hours. (“Those who sleep more than nine hours have something wrong with them that may be causing the heavy sleep, and leads to their demise,” White notes. “It is not the sleep itself that is harmful.”)

Sleep is essential to normal biological function. “The immune system doesn’t work well if we don’t sleep,” says White.

... The moral of much sleep research is startlingly simple. Your mother was right: You’ll get sick, become fat, and won’t work as well if you don’t get a good night’s sleep. So make time for rest and recovery.
2. Slow the physical depreciation of the body with green tea and red wine; also avoid sugar. From,

An experiment with her tiny worms is responsible, [Cynthia Kenyon] says; that experiment proved that sugar switches on a genetic sequence that increases the amount of insulin produced by an organism, which in turn causes the body to demand more sugar. This not only adds flab to the waistline, if worms had a waistline, but also increases damage to cells in the body, speeding up the slow degradation of cells that contributes to aging.

"It was a revelation," Kenyon says. She also drinks red wine and green tea, which her lab and others have shown help repair cells and contribute to an increased life span. [note from EclEco: do you think aspartame has the same effect?]

digression: JJ sent me this, which says "bright fruits and vegetables help fight arthritis."

Cynthia Kenyon also has a good sense of humour:
"...people have mistaken me for 30, even 25."
"How old are you, really?" asked Newman.
"I'm 150."

A Conference on "Global Queeries: Sexualities, Postcolonialities, Globalities"

Thanks to AA for having sent me a pointer to this call for papers for a conference to be held next spring at The University of Western Ontario.

Global Queeries:
Sexualities, Postcolonialities, Globalities
University of Western Ontario May 11-13, 2006

Sexuality and globalization are currently pressing sites of scholarly and creative inquiry. The crisis of AIDS in Africa, the complicated relations between the local and the global, between decolonization and sexual liberation struggles — these represent some key areas of interconnectedness. The organizers of the conference encourage a diversity of political, theoretical, cultural, and practical responses to these areas of critical inquiry. Key questions we hope to address include: Where and how do queer, postcolonial, and anti-racist representations, theories, and practices intersect and diverge? How is heteronormativity implicated in the history of imperialism and colonization, as well as in current neoliberal and global practices? How are sexuality and desire imagined and queered across global spaces? Alternatively, how do sexualities destabilize or resist economic and political structures of globalization? How do lesbian and gay liberation struggles travel theoretically and politically across the globe?
The organizers are primarily from the English department. I would be delighted if papers were submitted by such market-oriented libertarians and champions of gay rights as Kip Esquire or Tom Palmer. I'd especially want to attend the conference if they were there.

Update: Aaron has posted two alternative versions of this call for papers at Grandinite, one by Fil and one by him.

Thursday, August 18, 2005

Gasoline Taxes and Gasoline Prices

Aaron Braaten at Grandinite has a very thorough discussion of the share of gasoline prices accounted for by taxes. The correct formula, as he points out, is neither linear nor constant. Here is his graph:

Aaron is in Alberta, and so his calculations refer to Alberta prices and taxes. In his article, he points out that blaming the high gasoline prices on gubmnt taxes is probably too strong at best and possibly incorrect, depending on the context.

Too bad he hasn't learned how to spell "gubmnt" yet.

Grandinite is a good blog. I've added it to my list.

What I want:
wireless ergonomic USB keyboard with glidepad

I would like a wireless keyboard with the split-and-hump [no rude remarks, please] ergonomic design and a glidepad in the middle. I've been searching the net for days, looking for one that uses USB and have been unable to find one. If you know where I can find one, please let me know. Thanks.

China and the Housing Bubble

Given my insular existence in small-town midwestern Ontario, I have not experienced the current housing bubble first hand. I have read that housing prices in major cities (including Arlington, Virginia) have been rising rapidly, though. And I have also read that [many? some?] buyers are financing second home or first home purchases with easy-money mortgages at very low interest rates.

The question in many people's minds is, "If high housing prices are the result of low interest rates, then why are interest rates so low?"

The immediate source of supply of lendable funds that comes to mind for many is China. The trade imbalance between the U.S. and China has led to the holding of considerable U.S. debt by the Chinese central bank. This is the view of former Secretary of Labor under Clinton, Rober Reich:

Here’s where the China connection comes in. A major reason why mortgage rates have stayed low is that there’s a lot of money around. And much of that money has been coming from abroad. China and the rest of Asia have been putting their spare cash into America, in order to prop up the dollar and make it easier for them to export to us.

But that’s about t[o] change. We’ve been pressuring them to let their currency rise, and they’re getting the message. We don’t know yet how much they’ll let it rise. But the writing’s on the wall, in Chinese characters. And other Asian nations are following China’s lead.

You don’t have to be a zen master to see this means less Asian money flowing into the United States. Which in turn means long-term interest rates -- including mortgage rates -- will start to rise. It’s just supply and demand: less money around, and the cost of borrowing goes up.

As a result, the housing bubble bursts. I can’t give you an exact date. It depends how fast China and the rest of Asia unleash their currencies.

It looks to me as if the bubble will not exactly burst. Rather, it will slowly fizzle as prices stop rising so rapidly. This seems to be the view of The New Economist as well.

What puzzles me, though, is why mortgage lenders grant zero principal loans on the basis of such fragile collateral. It reminds me of the brokers in 1929 who lent far more money than was prudent for people to buy stocks on margin. I hope the two situations are not so closely analogous.

Appeasement Rarely Works

Until recently, I had not thought of the Israeli pull-out from Gaza as a limited form of appeasement. But of course Hamas is now proclaiming this to be a first step in their struggle to regain their homeland, and are declaring a victory. Negotiating peace may be even more difficult in the future if the Hamas spin on things is held widely. [Thanks to MA for this link]

Hamas leader Khaled Mashaal declared on Wednesday that the Israeli withdrawal from the Gaza Strip and northern West Bank marked the beginning of the end of the Zionist dream in Palestine.

..."Now, after the victory in the Gaza Strip, we will transfer the struggle first to the West Bank and later to Jerusalem," Zahar told the London-based pan-Arab daily Asharq Al-Awsat. "We will continue the struggle until we liberate all our lands. This is an important day for the Palestinians and proof that the armed struggle has born fruit."

Asked about Hamas's future plans, Zahar said: "Neither the liberation of the Gaza Strip, nor the liberation of the West Bank or even Jerusalem will suffice us. Hamas will pursue the armed struggle until the liberation of all our lands. We don't recognize the state of Israel or its right to hold onto one inch of Palestine. Palestine is an Islamic land belonging to all the Muslims."

Zahar said the disengagement would boost morale in the Arab and Muslim world and positively influence the [anti-US] campaign in Afghanistan and Iraq. "We are part of a large global movement called the International Islamic Movement," he explained.
If the Palestinian leaders and residents hold similar views, this is a war that will never end. And if that is the case, it doesn't matter what Israel does, so it might as well forget long-run goals of peace and do what is best for the safety of its citizens in the short-run.

I hope this view is incorrect. For a very thoughtful and more positive outlook, see these comments at Powerline. Also, see this column, which quotes Sharon
"I've reached a deal with the Americans," he said. "I prefer a deal with the Americans to a deal with the Arabs."

Read that entire column to see what this is about. Also, see this for the comments of a close colleague of Ariel Sharon:

This plan is necessary to save the Jewish people for the long-term," Dan says, in the words he wished Sharon had used. "Anyone who knows our history understands that we've never had an Arab partner. Every Zionist move to reconcile with the Arabs failed, so the borders of the Jewish state have to be consolidated in the best way possible."

Dan believes that after disengagement, Sharon will complete the process of "consolidating" those borders by drawing a frontier of settlement blocs in Judea and Samaria that includes the Jordan Valley and Hebron.

[Most links courtesy of MA]

Operation Murambatsvina

For aerial photos of one small portion of the destruction produced by Mugabe in Zimbabwe, see this entry at Wikipedia.

Something else Mugabe apparently has been able to produce with ease: money.

Inflation is a serious problem there because Zimbabwe has fewer goods with more dollars chasing them. For some fascinating stories, see here. Also see the Zimbabwean Pundit here. [Thanks to MA for the links]. An excerpt from the latter:
There is nothing that money can buy in Zimbabwe. People have nothing-nothing. People are suffering and they are hungry.
It sounds a bit like descriptions at Cafe Hayek of the tragedies in Niger. The Zimbabwean Pundit continues:

The prices of food and everything have gone up threefold since fuel price increases were effected but our salaries have not been reviewed.
and lists some prices. Unfortunately, he blames the intermediaries for the high prices, when it is Mugabe-created declines in supply plus an inflated money supply [see here] that are causing the rampant inflation.

Sadly, poverty is a problem involving real economic variables, not nominal ones. And throwing money at it does more harm than good if the real resources do not change or are actually destroyed.

Insight into Saudi Arabia

Jack sent me this link to a review of Saudi Arabia Exposed. The review is worth reading, even if you don't order the book.

In "Saudi Arabia Exposed," John R. Bradley, a British journalist who spent two and a half years as a newspaper editor and reporter in Saudi Arabia, will not make Americans feel any better about the Saudi royals, whom he calls "perhaps the most corrupt family the world has ever known." But he does provide a highly informed, temperate and understanding account of a country that, he maintains, is an enigma to other Arabs, and even to the Saudis themselves.
. . . .

It also appears an updated version is in the offing.

Wednesday, August 17, 2005

Outrage of the Day

From Little Green Footballs [h/t to JJ]:

The United Nations truly has hit bottom now—directly funding anti-Israel propaganda, and then brushing it off as insignificant when they’re caught: United Nations Bankrolled Latest Anti-israel Propaganda. (Hat tip: LGF readers.)

The United Nations bankrolled the production of thousands of banners, bumper stickers, mugs, and T-shirts bearing the slogan “Today Gaza and Tomorrow the West Bank and Jerusalem,” which have been widely distributed to Palestinian Arabs in the Gaza Strip, according to a U.N. official.

The U.N. support of the Palestinian Authority’s propaganda operation in the midst of the Israeli evacuation of Jewish settlers from the Gaza Strip has provoked outrage from Israeli and Jewish leaders, who are blaming Turtle Bay for propagating an inflammatory message that they say encourages Palestinian Arab violence. ...
In light of everything else the UN does wrong, why do I get surprised and outraged with each new example?

Scalping Computers: What Happens When the Price Is Set Less Than the Market-Clearing Price

When the price mechanism is not used to ration scarce goods, other rationing devices must be used. Some of the criteria include:

  • Strength. Stronger people or countries muscle out the weaker ones.
  • Queuing. First-come, first-served -- but it requires some enforcement.
  • Privilege. Those who know the right person or live in the right place benefit.

All three criteria were used when Henrico County, VA, decided to sell off a thousand 4-year-old iBooks for $50 each. [registration required]

Four years ago, Henrico County purchased 18,000 of the computers for about $1,100 each for its public school students and teachers. The county decided to sponsor yesterday's event to sell 1,000 surplus iBooks to residents.

The county posted the event on its Web site, local newspapers ran stories on the sale and news otherwise spread on blogs and by word of mouth. But no one expected such a crowd, Stanley said.

... the county initially was going to open the sale to the general public. When Henrico began receiving inquiries as far away as California and Germany, however, it decided to restrict the sale to county residents...

"I just think the whole system was overwhelmed with the number of people that showed up," he said.

People began lining up as early as 1:30 a.m., and the traffic to the sale caused a five-mile backup on streets leading to the raceway. Some people parked a mile away and walked to the gates for the chance to purchase one computer each.

When the gates opened, Stanley said, one "aggressive group of individuals" rushed through.

And, of course, when the nominal price is set below the market-clearing price, people have an incentive to resell the product at a higher price (I've heard of scalping sporting event tickets, but scalping computers? It's just another form of arbitrage.):
The sale ended by 1 p.m., and many people left empty-handed. Some who bought laptops sold them to others for more than $50...
A terrific example of supply, demand, and market-clearing prices.

Update: Phil Miller suggests they should have checked out e-Bay to get an idea about the market clearing prices.

Why Are Oil Prices So High?

Tom Hanna has suggested that one reason oil prices are so high is the U.S. Federal gubmnt's stockpiling of emergency reserves.

The Strategic Petroleum Reserve is now at 699.8 million barrels with another .7 million scheduled for delivery. After that the Royalty-in-kind oil deliveries to the SPR of 1-200,000 barrels per day will be on the market. With the reserve full and private reserves, we have several months import protection, so if not only the Middle East but also Nigeria, Venezuela, Mexico, Canada, Russia, Norway, the North Sea and every other source of imported oil dried up overnight, we’d be months from needing gas prices in the $3/range to deal. The futures market is out of whack. Something has to give and my secret hope is that when it does these oil traders get burned bad.
Of course if all the sources of oil are considerably smaller than people had previously been estimating, then expectations of shortages in the future would drive up prices today. That seems to be the position of Matthew Simmons in this interview [h/t to MA for the link]:

Let me tell you what the numbers were all about, because I had not thought about this until yesterday and today. In 1990 the United States was still producing 7.3 million bpd of crude oil, today it’s 5.1; the 7.3 was after a drop over the previous 5 years of 1.6 million bpd; our refineries only needed to run at 13 ½ million bpd; and we only needed to import 5.8 million bpd of crude oil imports to balance our system. Today we have to run our refineries at 100% or we have major product shocks; today, we have to import 10-11 million bpd, or we lose crude oil stocks; we have to basically create almost 3 million bpd of finished product imports; we have to run the system on a 24-7, all Summer long. And we still liquidate stocks.

So we have actually now created a pending domestic embargo, and we’re going to be lucky to get through the Summer without some periodic shortages. We probably will, but the odds are probably as high we will have some shortages, and then if we get through the Summer we have a fabulous respite from Labor Day to Thanksgiving, until we hunker to try to figure out how the world gets through the Winter of 2005 and 2006 because oil demand globally could easily go to 86-88 million bpd during the Winter, and that could easily exceed supply by 2-5 million bpd.[38:53]

[Interviewer]: If that was to happen we would almost be looking at $75-80 oil, I suspect.

MATT: No, no, no. Oil prices could easily go up 5-10 times.

If he is correct, there is a LOT of money to made in oil futures, where such projections appear to be heavily discounted. Some additional thoughts about the Simmons interview:

I found it very engaging. Simmons' major argument is that oil reserves have been overstated for years, and that, as a result, oil prices are too low, encouraging too much oil use (relative to what would happen if everyone believed Simmons' numbers).

Subsidiary point 1 (by implication) is that the Saudi royal family has had an incentive to over-pump in order to generate enough revenue to try to buy off the local opposition, including Wahabis.

Subsidiary point 2 is that when the rest of the world recognizes that oil reserves are smaller than we have been told, we won't necessarily leave it to the market to sort out the short term adjustments -- we will want our gubmnts to grab the oil -- and we're in for more serious wars that are more explicitly about oil.

If you think Matt Simmons is right, and if you do not expect futures markets to prepare us for the future, there might be a good reason to tax oil a whole bunch more in North America.

But the question keeps gnawing away at me: why aren't futures markets driving oil prices even higher??

And here is a strong possible answer from James Hamilton: Despite Simmons' research, oil supplies are likely to increase over the next 10 to 15 years. Be sure to read the entire piece because how much demand will continue to grow, how much supply will increase, and the impact of volatile (and unexpectedly high, for most of us) oil prices are all open to wildly varying interpretations.

Please, May the CBC Lockout Continue Forever!

Shortly after I began listening to CBC FM back in the late 1970s or early 1980s, there was a strike or lockout or something. I loved it. There was no talk. All that happened was some manager would show up and play music. I can't recall for sure, but I think they did announce what was being played.

We have a similar situation now, roughly 25 years later. The CBC has locked out its employees. The result is that we have much less talk and much more music on CBC-2 (which has replaced CBC-FM).

Sadly, there are some problems with this lock-out:

  1. The CBC is still attempting to present news. They should shut down the news arm of the corporation now, too.
  2. They don't announce what music they are playing. My recommendation: take the managers out of the newsroom and have them do some minimal DJ work.
  3. As is typical during a work stoppage, the managers are still working. In fact, there is a good chance the managers will earn fat overtime bonuses when the work-stoppage is over. Not that I hold a brief for the employees; it's just that I don't hold one for the managers, either.

Meanwhile, Alan Adamson wonders why it appears that French CBC is not included in the lockout.

Stop the Presses!
Trono City Councilor Urges Efficient Profiling of Young Black Males

When most gunshot violence is perpetrated by young black males, and when most victims are blacks, it is reasonable to expect that representatives of black groups and neighbourhoods would want politicians to advocate that young black males be targeted for extra attention by the police. That is exactly what has happened in Toronto:

Toronto — A Toronto city councillor is floating a controversial idea on curbing gun violence in the city.

Michael Thompson says police should be allowed to “target” young black men at random as part of a crackdown on guns.

Mr. Thompson, who is black, said a large percentage of the guns being used and a large number of people being killed are in the black community, so there is a need to target people in the community.

He said he is not calling for police to pull people over just because they are black but because gun violence is affecting the black community.
Sadly, many are concerned that this efficient use of Trono's police force may be perceived as racist and oppose it. Apparently, they would rather there be less appearance of racism and more gunshot violence involving blacks.

Deputy police chief Keith Forde, who is also black, says chief Bill Blair would “never, ever agree to that.”
The mayor also opposes the suggestion. Too bad. And of course CAIR [the Council on American-Islamic Relations] has piled on with a press release on August 16th demanding an apology from Michael Thompson. Heaven forbid that any sensible profiling be implemented.

Tuesday, August 16, 2005

for fashion-conscious warriors

Blending plaid and camouflage.

The latest fashion statement.


Available at

[h/t to CharLeBois at the Western Standard]

Finding a Good Sports or Financial Analyst

In a comment to a recent item, Jabber asked whether I thought an analyst who beat the market 4 or 5 times running was a good analyst. As any good economist would answer, "It all depends."

Let's use sports as an example first. I haven't looked for awhile, but many sports publications used to run ads "Call us toll free and get one free pick for this week's line-up of NFL games." My guess is that they gave out one side of the bet to half the callers and the other side of the bet to the other half of the callers.

Then when people called for a free pick the next week, even (especially!) if they had called before, they were given a free pick again. And again, half the callers were given one side of the bet, while the other half were given the other side of the bet.

After 4 replications of this purely random strategy, roughly 1 out of every 16 of the original callers would have received a correct pick every single week (and presumably the others would have tried a different service). There is a very good chance that these people would be glad to order the full service of predictions from this service, believing that the service operators were brilliant when, in fact, they were just lucky. And, I expect, once they ordered the service they probably found that they were doing little better than 50-50 in their bets. (note: I am aware of some complex models that claim to have done slightly better than the spread over time, so don't get too worked up over this point).

In other words, just because someone predicts something correctly four times in a row, don't necessarily conclude they're good. They might just be lucky.

Now apply this same analysis to financial advisors. What if you learned that 1 out of every 32 financial analysts beat the market for the past five years running? That is exactly what you would expect if they were all just tossing coins. In other words, with these results it would be difficult to reject the hypothesis that the financial advisors were no better than coin tosses would be.

Don't Ignore the Placebo Effect

In the mid-1990s, echinacea became the new, faddish, herbal concoction of choice to deal with the common cold. It turns out to be completely ineffective, according to this report [registration required, though it is probably in the archive by now]:

The study, ... published ... in The New England Journal of Medicine, involved 437 people who volunteered to have cold viruses dripped into their noses. Some swallowed echinacea for a week beforehand, others a placebo. Still others took echinacea or a placebo at the time they were infected.

Then the subjects were secluded in hotel rooms for five days while scientists examined them for symptoms and took nasal washings to look for the virus and for an immune system protein, interleukin-8. Some had hypothesized that interleukin-8 was stimulated by echinacea, enabling the herb to stop colds.

But the investigators found that those who took echinacea fared no differently from those who took a placebo: they were just as likely to catch a cold, their symptoms were just as severe, they had just as much virus in their nasal secretions, and they made no more interleukin-8.
I wonder how effective a placebo is, compared with doing nothing.

Several years ago, I was with my friend, BenS, in a drug store when he asked, "Where do you keep your placebos?"

Use It Or Lose It

The mind, apparently, is much like any other capital good. It depreciates and obsolesces over time unless there is considerable and continuing maintenance and reinvestment. Optimizing with respect to this investment over time is a typical investment decision involving uncertain outcomes.

Further evidence that continuing mental activity and exercise helps stave off deterioration in later years (i.e., reduce the rate of depreciation) is summarized in this article in the Washington Post (registration required).
A large body of evidence indicates that people who are mentally active throughout their lives are significantly less likely to suffer senility, and a handful of studies have found that mental exercises can boost brain function. Elderly people who go through training to sharpen their wits, for example, score much better on thinking tests for years afterward. The minds of younger people who drill their memories seem to work more efficiently.

... Among the most tantalizing evidence are studies that have given rise to the use-it-or-lose-it theory. Several large projects have found that people who are more educated, have more intellectually challenging jobs and engage in more mentally stimulating activities, such as attending lectures and plays, reading, playing chess and other hobbies, are much less likely to develop Alzheimer's and other forms of dementia.

Scientists suspect that a lifetime of thinking a lot may create a "cognitive reserve" -- a reservoir of brain power that people can draw upon even if they suffer damaging silent strokes or protein deposits that are the hallmarks of Alzheimer's.
Ms. Eclectic and I spend a lot of time doing crosswords and sudoku together. I hope it helps.

Monday, August 15, 2005

The Efficient Markets Hypothesis:
a restatement

I am wrong 50% of the time. But my broker is wrong 75% of the time.

[courtesy of BenS]

Input Substitution and Economic Efficiency

In the August 22nd issue of The Western Standard, Will Verboven writes (hard copy only, unfortunately),

As western commercial agriculture has shown so convincingly, cheap and plentiful food can only be produced by the exgtensive use of fertilizers, pesticides, leading-edge plant and animal genetics and large-scale, high-tech mechanized agricultural practices.
My economist reaction is, "Maybe. It all depends." It depends on the prices of the inputs. If labour is very inexpensive, and if chemicals and capital and good quality land are all comparatively inexpensive, it may be more efficient to use labour intensive production techniques.

In just one sentence does Verboven point to the major problem facing agriculture in many African countries:
In Africa, political and social stability would also help.
Indeed. Only if property rights are expected to remain stable, by which I mean well-defined and enforced, will people attempt to invest in the land and in agricultural equipment. If they fear confiscation or confiscatory taxes or land reform, they will use short-term optimizing techniques which will not be as efficient in the long-run.

Maybe what the farmers in these economies need is much less of the type of gubmnt planning Verboven discusses in the rest of his piece, and more reliance on market forces.

Better Quality sound from your PC

Sometimes, when I'm listening to Otto's Baroque via WinAmp on my laptop, I think to myself, "Gee, this sounds sort of tinny."


My solution has been to run a cable from the earphone outlet to my mediocre sound system. The improvement in sound quality has been considerable; the result is adequate for me, most of the time, but it isn't anywhere near the quality I can get directly from a CD. Here, from Slate, is an explanation of the problem:

The trick is to bypass the built-in sound hardware. Your desktop's soundcard, not digital file compression, is the weak link in PC music.

... First, the digital-to-analog converter—a circuit that translates binary bits into old-fashioned voltage—is low grade in most computers. Second, the converted analog signal is subject to all kinds of electronic interference from your computer's other hardware. That adds hiss, hum, and whiny robot noises to your music before it reaches the output jack.
The solution is to get an add-on that connects to a USB port to bypass the soundcard in the PC:

It doesn't matter how old, slow, or crappy-sounding your PC is—these gadgets will bypass its internal hardware completely. Each unit connects to your computer via a USB port, which also provides all the power they need. For maximum bliss, run a USB extension cable as close to your stereo or theater inputs as possible. Park the USB audio converter there, then run a short analog audio cable the rest of the way to your hi-fi gear. This will reduce the amount of interference and degradation the analog signal suffers en route.
The Slate article reviews three of the many devices on the market. The iMic is inexpensive but suffers from less dynamic range and from interference from other devices.

The device that looks better-suited to my tastes is the M-Audio Transit. It costs less than $80 from Amazon and does a better-than-decent job.

At the high end, the article reviews the Total Bit-Head, which doesn't appear to be available from Amazon.

Before you get one of these gadgets, read the Slate article and check out the Amazon reviews.

Sunday, August 14, 2005

Questions and Answers about Retirement

For various reasons, I intend to work until I am 90 years old. However, Ms. Eclectic is retired and quite enjoying her life as a retiree. She recently sent me this list of questions and answers about retirement:

Q. When is a retiree's bedtime?
A. Three hours after they fall asleep on Couch.

Q. How many retirees does it take to change a light bulb?
A. Only one, but it might take all day.

Q. What's the biggest gripe of retirees?
A. There is not enough time to get everything done.

Q. Why don't retirees mind being called Seniors?
A. The term comes with a 10% percent discount.

Q. Among retirees what is considered casual attire?
A. Tied shoes. [This one puzzles me. My experience has been that many retirees prefer slip-ons except for more formal occasions.]

Q. Why do retirees count pennies?
A. They are the only ones who have the time. [Ugh. It's consistent with my earlier items about getting rid of pennies.]

Q. What is the common term for someone who enjoys work and refuses to retire?
A. NUTS! [well..... What does that say about me?]

Q. Why are retirees so slow to clean out the basement, attic or garage?
A. They know that as soon as they do, one of their adult kids will want to store stuff there.

Q. What do retirees call a long lunch?
A. Normal

Q. What is the best way to describe retirement?
A. The never ending Coffee Break.

Q. What's the biggest advantage of going back to school as a retiree?
A. If you cut classes, no one calls your parents.

Q. Why do retirees often say they don't miss work, but miss the people they used to work with?
A. They are too polite to tell the whole truth.

Enjoyable Self-Deprecation:
Overheard at The University of Western Ontario

I have no idea how reliable this source is, but some of the conversations reported here are pretty amusing. Two recent examples:

And you thought the Greek system had its priorities out of whack. For shame.

Sorority girl: There's something wrong with all of the other sororities. They're either ugly or nobody likes them really because they're too high-maintenance. But the guys pretend to like them. But really they don't. But all of the frats like to party with my sorority because we're so pretty and fun to be around and fun to party with. We're their favourite. It's because we're so down-to-earth.

-- UC Hill
"Mackenzie King" / "Mackenzie, King"... It's all so similar...

TA: Sooo, can anyone tell me what the major audience of newspapers in Canada was in the 1820s - 1830s?
Blonde MIT girl: Oh, the elites... you know, like, ummm, like the Canadian royalty!
TA: .... Ummm, I don't think there was any royalty IN Canada in the 1830s... I was thinking more along the lines of merchants? Or, umm, lawyers?
Girl: Oh... Yeah, them too.

-- History of Communications tutorial

I presume that most of the statements were made by socionomology students.
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