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, September 24, 2005

British Boycott of Israeli Universities?
Continued Vigilence is Necessary

Regardless of one's views of what should happen in the Middle East, the renewed attempts to boycott Israeli universities are a flagrant affront to the concepts of academic freedom.
A new attempt to bring about an academic boycott of Israel is now being made by British academics affiliated with The British Committee for Universities of Palestine (BRICUP).
Last May, the Association of University Teachers (AUT), one of Britain's two academic unions, overturned a proposal made by a group of its members to boycott Bar-Ilan University and the University of Haifa.

On October 1, however, some of the same AUT members who campaigned earlier this year in favor of the boycott – including Bradford University's Hillary Rose and Birmingham University's Sue Blackwell – plan to relaunch their campaign with a series of public gatherings on different campuses.
I was so offended by these attempts last spring, I actively sought and obtained affiliation with both Bar-Ilan University and the University of Haifa. Everyone should continue to support academic freedom, and everyone should continue to oppose academic boycotts as a political strategy.

Stifling academic inquiry will do considerable harm to future generations, and those who support these boycotts are behaving as if they are among the worst thought-control fascists.

Computer Programmers and Serial Killers

Ms. Eclectic sent me this little quiz. Decide, simply by examining a picture, whether the person in the picture is a computer programmer or a serial killer. She got 8 out of 10; I got 7 out of 10.

This Company Hopes to Raise $1 Billion

Paul Kedrosky draws our attention to the Canadian Company, Apollo Publications.
Apollo Publication Corporation has her mission to unify the world Language, History and Culture, to form all documents of Law on IOE(The Imperial Of the Earth), to print all Specifications and Standards on IOE, to issue the new and only Notes of Currency and Stamp on IOE, to publish News about founding of IOE, to consolidate Globe School Textbooks, to Web World Wide Customers Online purchasing, schooling, banking and charting, etc.

Welcome you to join our team, to support our school texbook, to do what ever you can help no matter big or small. Let's together to build better world on the Earth.

IOE is not the dream but the reality. Believe the God Luo is with you.
What interested Kedrosky was that this corporation has filed with the US Securities and Exchange Commission to raise $1 billion.

But the best part of the Apollo release is its list of board members and advisors. They come as more than a little of a surprise:


Simon Victor (Honorable Chairman of Director Board Committee)
George Herbert Bush Sr. (Honorable Chairman of Director Board Committee)
Rutang Luo (Honorable Chairman of Director Board Committee)
Xiaobo Lucy Luo (Chair and CEO, Chief Executive Officer/First Director)
George Walker Bush Sr. (Chair and President/Second Director)
Paul Martin (CFO, Chief Financial Officer)
Lishan Yang (COO, Chief Operating Officer/Third Director)
William Snow (Treasurer/USA)
Rongji Zhu(Treasurer/PRC)
John Paul Manley (Treasurer/Canada)
Joseph Liberman (CLO, Chief Legal Officer)
Jie Jenny Luo (CIO, Chief Information Officer)

James Baker (Independent Director)
Jimmy Carter (Independent Director)
Jean Chretien (Independent Director)
Paul Oneil (Independent Director)
Al Greenspan (Independent Director)

Typos and former Canadian prime ministers aside, this is a fairly stellar list. Trouble is, sadly, none of those people mentioned are actually doing anything for the company, which, as you might imagine, is irritating the SEC to no end.

Holy Rita!

My younger son lives south of Houston, so I'm following Rita with concern. It looks as if this map showing the forecast of Rita's path is upgraded automagically about once every five or six hours, and so I'll just post-date this item and leave it at the top.

Imagine being a NOLA refugee and having to move again!

Update: The hurrican hit shore along the Texas/Louisiana border. Houston won't suffer nearly as much as people were forecasting earlier this week.

Friday, September 23, 2005

This Is So Sensible, I Can Hardly Believe It!

From the WSJ Storm News Tracker:

2:32 p.m.: U.S. Homeland Security Secretary Michael Chertoff and Housing Secretary Alphonso Jackson announced a program to pay for three-month rental costs anywhere in the country for homeowners or renters whose residences were destroyed by Katrina.
It looks as if this means the planning bureaucrats have abandoned the truly horrible plan of building a FEMA compound.


Jack says this information might be useful. Let me add that it might be especially important for people in evacuation areas.

    1. 75% of Americans are chronically dehydrated.
    2. In 37% of Americans, the thirst mechanism is so weak that it is often mistaken for hunger.
    3. Even MILD dehydration will slow down one's metabolism as much as 3%.
    4. One glass of water will shut down midnight hunger pangs for almost 100% of the dieters studied in a University of Washington study.
    5. Lack of water, the #1 trigger of daytime fatigue.
    6. Preliminary research indicates that 8-10 glasses of water a day could significantly ease back and joint pain for up to 80% of sufferers.
    7. A mere 2% drop in body water can trigger fuzzy short-term memory, trouble with basic math, and difficulty focusing on the computer screen or on a printed page.
    8. Drinking 5 glasses of water daily decreases the risk of colon cancer by 45%, plus it can slash the risk of breast cancer by 79%, and one is 50% less likely to develop bladder cancer.
He didn't say whether diet pop is a good substitute.

Hot for a Hybrid?
Things to Consider

With the rising price of gasoline, more people are considering hybrid cars. But here are some important things to consider [thanks to Jack for the pointer; please note that the original article contains extended details for each of the points listed below]:
  • What's available? Right now, there are just 10 hybrid vehicles available in dealer showrooms...
  • How a hybrid works. Where they differ is in how the gas and electric motors work together.
  • What's the fuel mileage? As an example, "...Consumer Reports found that in its regular driving cycle it could do no better than 25 mpg on average in its Accord Hybrid, just 2 mpg better than a test of a gasoline-only V6 Accord."
  • What about the environment? [the impact is smaller than many might think]...And there's another -- as-yet-unexplored -- environmental issue with hybrids: What's to be done about recycling or disposal of those highly toxic battery packs when they wear out?
  • What about maintenance and durability? far there isn't enough real-world experience to know for sure how hybrids are going to fare over the long haul.
  • Are hybrids a good buy? Based solely on the price of a gallon of gasoline, it makes no economic sense to buy a hybrid in comparison to the same vehicle with a gasoline-only engine. ... Even if the cost of gasoline goes to $5 a gallon, the 122 gallon difference would save you $610 and it would still take almost four years ($2,390 divided by $610 is 3.9 years) to recoup the extra cost of the hybrid. [see the article for the details]
  • What about tax incentives on hybrids? True, tax breaks will offset some of the higher costs of a hybrid and reduce the time it would take to break even, but not by much.

The West's Last Chance?

Steve Muscatello at has a review of the book The West's Last Chance. Read the review, even if you don't buy the book. Here is one quote from the book:
“The day is upon us when the West will have to decide which it values more: granting … rights and tolerance to those who wish to destroy us, or the survival of Western civilization.”
Very powerful and all too true.
Here is another excerpt that appears in the review:
If Western civilization has kept women down with its sexism, how does it compare with Islamic civilization? If Western civilization has asserted cultural imperialism on the Third World, how does it compare with Islamic influence in the Third World ? If we still discriminate against homosexuals, how does it compare with how the Islamic world treats homosexuals? If the West has been corrupted by materialism, how does it compare with the material standards of Islamic societies? It all comes down to this: If the choice is a flawed Western civilization or an impending fundamentalist Islamist civilization, which one do you want to live in?
Muscatello concludes:
The choice is stark. Either all of this talk of terrorism and the demise of Western civilization is complete and utter hyperbole – or it is the most important challenge the world has faced since World War II, one that will require unprecedented commitment and sacrifice for the defense of freedom.

See this review. [h/t to BenS]

Thursday, September 22, 2005

Group Live-Blogging Rita;
also, Houston Plywood Price Too Low

The Houston Chronicle is hosting a group of citizens who are live-blogging their experiences as they prepare for hurricane Rita. The blog is called "Stormwatchers." One of the group is Tom Kirkendall of the blog, Houston's Clear Thinkers. Their entries are fascinating.

My son and his wife tell me there is no plywood to be found in Houston. I guess the building supply stores didn't set the price high enough initially.

If you lived in the area, would you have loaded up a truck with plywood on Wednesday afternoon in Dallas or Amarillo or El Paso and driven it to Houston? Is there a price at which you would consider doing so? Even if you wouldn't have done so, do you think others might have?

That's One Ringy-Dingy:
payphones & the market for coins

What do you do if you want to make a long distance call in Saudi Arabia? Obtaining phone service is very difficult. That leaves pay phones and phone cabins. But the pay phones require the use of obsolete coins.

Surprise! There is a market for the older coins!
The problem ... was that payphones would only take 'old' ten-halala coins. A smaller version of this coin had been introduced previously, but STC had never got around to converting their payphones to use it, so you had to find the obsolete version of the coin if you wanted to make an international call. Well, these coins were no longer in general circulation, because some canny old men had spotted a niche market and were exploiting it ruthlessly. They would somehow manage to collect all available old 10 halala coins, and they would hang around clusters of phone booths and sell a bag of nine coins for ten riyals.
[h/t to The Emirates Economist]

Is there a black market for pre-paid cell phones with UAE service in Saudi Arabia?

How to Write a Term Paper

I fear that far too many students take this advice:
  1. Sit in a straight, comfortable chair in a well lit place in front of your computer.
  2. Log onto MSN and ICQ (be sure to go on away!). Check your email.
  3. Read over the assignment carefully, to make certain you understand it.
  4. Walk down to the vending machines and buy some chocolate to help you concentrate.
  5. Check your email.
  6. Call up a friend and ask if he/she wants to go to grab a coffee. Just to get settled down and ready to work.
  7. When you get back to your room, sit in a straight, comfortable chair in a clean, well lit place.
  8. Read over the assignment again to make absolutely certain you understand it.
  9. Check your email.
  10. You know, you haven't written to that kid you met at camp since fourth grade. You'd better write that letter now and get it out of the way so you can concentrate.
  11. Look at your teeth in the bathroom mirror.
  12. Grab some mp3z off of kazaa.
  13. Check your email. ANY OF THIS SOUND FAMILIAR YET?!
  14. MSN chat with one of your friends about the future. (ie summer plans).
  15. Check your email.
  16. Listen to your new mp3z and download some more.
  17. Phone your friend on the other floor and ask if she's started writing yet. Exchange derogatory emarks about your prof, thecourse, the college, the world at large.
  18. Walk to the store and buy a pack of gum. You've probably run out.
  19. While you've got the gum you may as well buy a magazine and read it.
  20. Check your email.
  21. Check the newspaper listings to make sure you aren't missing something truly worthwhile on TV.
  22. Play some solitare (or age of legends!).
  23. Check out
  24. Wash your hands.
  25. Call up a friend to see how much they have done, probably haven't started either.
  26. Look through your housemate's book of pictures from home. Ask who everyone is.
  27. Sit down and do some serious thinking about your plans for the future.
  28. Check to see if has been updated yet.
  29. Check your email and listen to your new mp3z.
  30. You should be rebooting by now, assuming that windows is crashing on schedule.
  31. Read over the assignment one more time, just for heck of it.
  32. Scoot your chair across the room to the window and watch the sunrise.
  33. Lie face down on the floor and moan.
  34. Punch the wall and break something.
  35. Check your email.
  36. Mumble obscenities.
  37. 5am - start hacking on the paper without stopping. 6am -paper is finished.
  38. Complain to everyone that you didn't get any sleep because you had to write that stupid paper.
  39. Go to class, hand in paper, and leave right away so you can take a nap.

As horrible as I was as an undergraduate student, I never wrote term papers that way. [h/t to Slacker]

Opera and Firefox

Jack tells me that Opera browser is now available at no charge (though it apparently has ads in it). To try it you can check here for version 8.50 for Windows.

JB likes it, and BenS has sent me this link, reviewing Firefox and Opera. Be sure to read the comments, which have some valuable information.

Me? I don't want to install and learn a new browser. I just use IE.

Wednesday, September 21, 2005

The Economics of Dead-bolt Locks

When we moved to this small town (pop. 3300) 9 years ago from the big, evil city of London, Ontario, we asked someone about putting dead-bolt locks on the doors. He smiled condescendingly and then laughed:
Dead bolt locks are only good for keeping your friends out.
He then pointed out that all our doors had glass windows in them, and it would be very easy to break the glass, reach in, and twist the deadbolt locks.

Deadbolt locks make sense, I guess, if you have metal security doors. But even then, I'm not so sure:

A number of years ago, the economics department installed deadbolt locks on all the office doors. If I recall correctly, this was after some student went up and over the walls, through the suspended ceiling tiles, to try to steal an advance copy of an exam. I guess there had been other incidents of attempted break-ins, but I don't remember them.

Then two years ago, my office neighbour had a hole punched in the drywall next to his door (his deadbolt was locked). The criminal then unlocked the door, and his office was ransacked.

After that episode, I received a very stern warning that I must double lock my office door, using the deadbolt lock. Yeah, well, whatever,....

The economics: What percentage of attempted office breakins is deterred by deadbolts? I expect the number is very small, but perhaps non-zero. What is the value of potential loss from those break-ins? I have no idea, and I don't mean to trivialize it, but if people broke into my office about all they'd get is a 15-year old HPIIIp laser printer and busted bar fridge that I painted lavender to match the rest of my office furniture (the walls are bright pink).

In contrast, what was the cost of installing the deadbolt locks? non-trivial, especially since now that they are in place, we annually receive warnings:
Security Alert
This is a reminder to please deadbolt office doors.
Can anyone say "sunk costs"? It is as if the memo read:

This is a reminder: we spent all that money on deadbolt locks, so justify that expenditure by using them.
Our homeowners insurance company threatened to cancel our house insurance if we didn't install deadbolt locks on all five doors to our house. I explained the situation and informed them that we had no intention of replacing the doors with glass in them, and told them that if they were serious, we would find another insurer. They quickly relented.

Ain't competition grand?

I expect that in some settings, deadbolt locks make sense. They certainly do not make sense in our home, and I'm not so sure they do at my office, though I might be mistaken about the expected costs and benefits.


Many of us find it difficult to fathom what it must be like to be a refugee. While maybe 40,000 Katrina refugees made the news via the SuperDome or the New Orleans Convention Centre, there were hundreds of thousands of others who left on their own before the storm hit. Here's one story, via Cynthoughts (who lives in Houston):

My mother is a girl scout leader for my much younger sister's troop. One of the girls in the troop is from New Orleans and had, until recently, twenty six additional members of the family living with them. These aren't poor people, but it is safe to say that they've lost everything. Since most of these people can't go back home, they are starting to find jobs and apartments in Houston. My mom had a lot of extra furniture: my old bed and television, my sister's old bedroom furniture and bed (she got new ones for her birthday) and some smaller items. When the Father/Husband came over to pick up the stuff, he was embarrassed. "We're usually the people helping out others. I can't believe we're in this situation."
And for those who need housing, Alex Tabarrok is absolutely right: it would be huge mistake to house people in mobile-home-based refugee camps. Those centres would become worse than the housing projects built in major urban areas in the fifties and sixties. I hope the gubmnts listen to his recommendation: provide rental vouchers and let refugees select their own locations and accommodations according their preferences.

Violence Impedes Economic Development

As Melanie Phillips says, "Duh!"

The UN Development Programme’s Human Development Report 2005 is a massive tome. But chapter five which deals with violent conflict makes it clear that it was the second intifada beginning in Sept. 2000 which reversed a small trend towards improvement on the Human Development Index [HDI] and resulted ‘in a sharp deterioration in living standards and life chances,’ more than doubling the poverty rate. Israel is commonly blamed for this deterioration. But as the report observes: ‘...violent conflict is one of the surest and fastest routes to the bottom of the HDI table’.

And we know who initiated the violence after September 2000.

What does this say about Scotland (ref by The Gods of the Copybook Headings)?

Tuesday, September 20, 2005

Holy Rita!
Look out Galveston and Houston (or New Orleans)

I realize the MSM seem to be focused on the possibility that hurricane Rita might hit New Orleans. But these forecast possibilities show the centre of the forecast going just west of Galveston and Houston. If the hurricane does follow this path, and if it becomes as strong as some fear it might, Galveston and Houston are in for an especially big hit, since the worst of the wind and surge are on the eastern side of the eye of the storm. If I lived there, I'd be making motel reservations in Tulsa or Amarillo for this weekend.

Update: I gather, though, that in some models the projected path is being adjusted eastward, to take Rita over New Orleans (link from William Polley):

The latest GFDL model, one of the best hurricane models out there, is in fact showing a 150 MPH hurricane (strong category 4) slamming into New Orleans on Friday, with the NHC model taking it right through the city as well. The official NHC track will be adjusted eastward later today; they like to be conservative and want to make sure this thing is heading into Louisiana before they cause inevitable alarm along the Gulf coast. However, they should have 60 hours of lead time on this one, wherever it heads inland.

Just what those unfortunate people need... whew.

What is the Price Elasticity of Demand for Plastic Grocery Bags?

In Ireland, the 5-month price elasticity of demand (arc measure) for plastic garbage bags is between -.45 and -.68
In March 2002, Ireland enacted a nationwide tax of nine pence (15 cents) on the use of plastic grocery bags, to be collected by retailers. Predictably, in just five months the tax cut plastic bag use by 90 percent.

The above quotation is from The Tax Foundation Blog's "Bootleggers, Baptists, and the Irish Plastic Bag Tax". [thanks to Kip Esquire for the pointer]. I assume the standard ceteris paribus assumption is implied.

The calculation is pretty amusing because arc elasticities are peculiar when

  1. We are not really sure what is meant by a 90% reduction in Q. If you take it at face value, then the elasticity is -.45
  2. A price of zero is involved because then all % changes in P are 2.

    % change in Qd = -(Q -.1Q)/[(Q + .1Q)/2] = -1.36
    % change in P = (P - 0)/[(P + 0)/2] = 2

    Here's a funny result: even if a 1 cent tax reduced the quantity demanded by 90%, the measured arc elasticity of demand would be exactly the same.

    Any wonder that I don't teach this material in my intro course?

    In truth, I expect the price elasticity of demand would be much higher than 0.68. See this.

The Precarious State of Household Finances

The International Monetary Fund is warning that many households in the US and UK are dangerously over-extended:

The world's chief financial watchdog said households in countries such as the UK and US were exposed to asset prices such as housing that were being used as collateral for their debts.

"These developments increasingly expose the household sector to the performance of asset markets," it said in its biannual review of financial stability. "Most likely, substantial asset price declines would undermine consumer confidence and reduce personal consumption."
In another report on this warning from the IMF, focusing on personal bankruptcies in the UK:
The highly-respected economic watchdog sounded the alarm over the recent record increase in personal bankruptcies.

They rose by 37% to 11,195 between April and June compared to the same period last year, according to government figures.

The IMF's experts said that if the increase in bankruptcies continued, it would be a serious threat to the UK economy.

... The unsecured debt mountain - which includes credit card borrowing, loans and overdrafts - has soared to £190billion, according to the Bank of England. This translates to £3,200 for every person in Britain, including children.
This outcome could have serious ramifications if it occurs in the US and leads to depressed aggregate demand. Calculated Risk says:

In my view, whether the US economy has reached a "tipping point" depends on housing. Housing is the key. If the boom ends, mortgage extraction will end, and the US consumer will be forced to live within their means. That isn't necessarily "dire" and I'm not wearing a sign proclaiming the "End of the World as We Know It" - but I do think these are interesting economic times. Achieving a soft landing, expecially without fiscal and public policy leadership, seems impossible.
Here are some of the IMF data for the UK:
At the end of 2004, household debt represented 102 per cent of GDP, and 150 per cent of annual household income, pointing to some potential vulnerability in household balance sheets," it said. Total household debt hit the £1 trillion mark this year, although the pace of increase has slowed since then.

The slowdown has been most dramatic in the housing market. The annual rate of house price inflation fell to just 2.5 per cent last month, compared with 21.3 per cent in the same period a year earlier. Mortgage approvals in May 2005 were down 24 per cent from a year ago, while mortgage equity withdrawal - raising money against the value of a home - has fallen from £17.5bn to £6.5bn between the end of 2003 and the start of this year.

Add the following from George Trefgarne to the above doom and gloom stories:

I am going to make a rash but depressing prediction: 2006 is going to be the toughest year for the economy for more than a decade.

... in the face of new evidence, I have done the only rational thing possible: changed my mind. The British economic tiger is suddenly looking rather mangy and won't do tricks any more when circus master Brown cracks his whip.

The negative signs do not seem so powerful for the US economy. Nevertheless, it might be time to go liquid [scotch or money markets -- take your pick].

[Thanks to SC and MA for the pointers]

The Dangers of a Monopolized Press
(and the social value of blogs)

When there is a monopoly or near-monopoly of the press, egregious journalistic errors or biases go unchallenged. But when there are other media to challenge the monopoly, the errors and biases are likely to be caught and exposed. [this economic framework was pointed out to me by Phil Miller]

One of the very worst examples of journalistic error, bias, and apparent manufacturing of misinformation involves the reported death of 12-year-old Muhammad al-Dura in Gaza five years ago. There is very compelling evidence that the scenes were staged by Palestinian reporters and cameramen, operating for the French TV. And yet, the French TV made it extremely difficult for anyone to examine the raw footage of the events that day.

During the 55-second sequence we see two bullets hitting the wall, which is already pockmarked with a number of other bullet holes nowhere near father and child. A cloud of dust obscures the last few frames. There is no sign or sound of a crossfire. There are no death throes.

The rest, as we say in French, is literature. There can be no further attempts to reconstruct the incident by adding to those 55 seconds since, as France-2 has now revealed, there is no additional footage.

But now look again at the Reuters outtakes. A jeep drives up a road, turns, goes down the other side, takes part in a battle scene. An ambulance pulls up, a “wounded” man is dragged across the road, placed on a stretcher, loaded into the ambulance, the ambulance drives away. Men run from position A to position B. Children toss Molotov cocktails at the IDF fortress. There is much laughter and cheering from the “audience,” clusters of cheerful young men watching the show.

All this time, traffic trundles through the intersection, schoolchildren go by with their bookbags, a fashionably dressed woman talks on her cellphone and chats and jokes with cameramen who stand nonchalantly with their backs to the Israeli position. Things are moving, the energy level is high, the shababs are fearless. Palestinian policemen mingle in the crowd, occasionally shoot a few rounds into the air, join in the battle scenes, get “wounded” and come back for more. Children set fire to tires; you can almost smell the rubber burning. The France-2 cameraman, Abu Rahmeh, is there, too, clearly visible, in the heat of the action, filming ambulance evacuations of fake casualties in large patches of real time. Familiar, retrievable, believable.

In a very thoroughly documented piece in Commentary (from which the above quotation is taken), Nidra Poller raises some serious questions about what happened. And if, as many believe, this single news story has done so much to reopen the wounds in the Middle East, the reporters and French TV have much to answer for.

The piece is quite long, but required reading. Phil has pointed out that a competitive press (including the blogosphere) may not lead to fewer errors, but it does discipline and correct the errors that are made, intentionally and otherwise.

Thanks to BenS, MA, and SC for this and various related links.

Monday, September 19, 2005

Interest Rates Are Going to Rise,
But When? And by How Much?

President Bush's plan to increase federal gubmnt spending by $200b. for reconstruction and relief following hurricane Katrina will have to be funded somehow. He has explicitly ruled out tax increases.

Bush says the US gubmnt will have to cut spending elsewhere. But Mark Thoma has a detailed analysis of the possibilities, and they suggest that the maximum spending cuts will be only about $62b., leaving $138b. to be raised somehow.

In case you were wondering what Bush had in mind for cuts to offset spending on Katrina, one possibility is Cato's plan. Take a close look and see what you think. Then remember this only covers a third or less of the projected spending for Katrina (62 out of the 200 billion), and less than one sixth of the 400 billion dollar overall deficit projected by Cato.
Suppose the remaining $138b. won't be raised via taxes or via spending cuts. That leaves only increasing deficits, which means a substantial increase in the demand for lendable funds.

There are three possible scenarios, all of which will lead to an increase in interest rates:
  1. Increases in the demand for lendable funds, by themselves, will have an impact on interest rates, but it might not be large in a world market: the supply of lendable funds to US borrowers, especially the US gubmnt, could very easily be highly interest-elastic. But if this expected growth in US gubmnt debt creates jitters among foreign and domestic lenders, this increased demand for lendable funds could easily drive up interest rates, a la "crowding-out" arguments.
  2. What if the Fed monetizes this debt, buying up huge Treasury offerings and thus increasing the money supply? The resulting increase in aggregate demand would increase the rate of inflation, the expected rate of inflation, and, eventually, nominal interest rates (via the Fisher Equation).
  3. Suppose, instead, the Fed fears that the increasing deficits will increase aggregate demand and exert inflationary pressure on the economy? The result might be immediate policies to force interest rates upward. [reg. req'd]:
    "But that extra stimulus, coming as the economy is expanding strongly and unemployment is low, also will fan inflationary pressures, analysts said.

    "That gives the Fed one more reason to move up its benchmark short-term interest rate Tuesday, and possibly to raise it higher than it otherwise would next year to make sure inflation stays under control."

Combine any one of these scenarios with the recent data indicating that unemployment rates have been low in the US, and it seems very highly probably that interest rates will be rising soon. And the rise could be substantial, though for the immediate future, William Polley expects it to be modest.

Everyone who thinks a big chunk of the increase in federal gubmnt debt will not be monetized, raise your hands.

Just as I expected. I don't see any raised hands.
All the more reason to rebalance out of long-term assets, including bonds.

New Zealand Green Candidate to Run Naked Through the Streets

As I noted earlier, Rodney Hide won the MP seat for Epsom in Saturday's New Zealand election. As a result, the Green Party candidate will have to run naked through the streets:

Green MP Keith Locke is really regretting promising to run naked through the streets of Epsom if Rodney Hide was victorious.

"I'll do it. I have to," Mr Locke said resignedly. "I was so confident, but I've turned out to be wrong and I've got to do it."

He promises to alert the media when it happens "sometime soon", but it wouldn't be in the dead of night. "That wouldn't be in the spirit of the promise."

Already the Newmarket Business Association is promising to "warn the faint-hearted, clear the footpath on Broadway from Two Double Seven to Khyber Pass Rd, ensure there are the necessary officials, and provide a much-needed loincloth", says manager Cameron Brewer.

Mr Hide will be averting his eyes.

"It wasn't my idea. I knew that he would have to do it. I was on track to win the seat, and I couldn't believe that he could be so foolish."

The Greens failed to read the signals coming from voters, he said. "One of the things that amazed me was just how out of touch they were with people in Epsom."
Congratulations, once again, to Rodney Hide.

Toyota Going All Hybrid?

The Toyota Motor Corporation said this week that all its vehicles would eventually be run by hybrid gasoline-electric motors, as record fuel prices curb demand for conventional automobiles.

"In the future, the cars you see from Toyota will be 100 percent hybrid," Kazuo Okamoto, executive vice president, told reporters in Frankfurt Monday, without giving a specific timetable.

... The company is planning to sell 240,000 to 250,000 hybrids this year and a million a year by 2010. [This link courtesy of Jack]
But what if the price of gasoline does not stay this high in real terms? There are several good arguments for expecting world oil prices to stop rising (and probably to fall in real terms; see here and here). If that happens, there will be far less interest in hybrids, and Toyota would be unlikely to implement this plan.

For Toyota to be prepared, in case oil prices rise, is probably wise. For them not to announce a timetable, in case oil prices do not rise, is also probably wise.

Crazy Mortgages:
Will They Trigger the Housing Crash?

There has been an explosion of creative mortgaging in the past few years. This article has a superb explanation of each of them and how they work [thanks to MA for the pointer]. It also says,

A few years ago, so-called "nontraditional" mortgages were a mere sliver of the market (less than 3 percent by some estimates); a July survey by the mortgages Federal Reserve found that they now account for more than a quarter of new business at a third of the nation's largest home lenders.

That swift rise has industry observers worried.

"We're very concerned with how safe these products are," says Stu Feldstein, president of financial research firm SMR Research. "There's an awful lot of risk out there."

My own view is that the over-extension of credit for housing (presumably related to expectations that prices will continue to rise) will not cause the housing bubble to deflate; the trigger will be something else.

But as housing asset values begin to shrink in the affected areas, people who have these creative mortgages will surely feel the pinch. Their attempts to meet their monthly payments on homes that will no longer be worth as much as they owe will induce some people to walk away from them. As the repossessed houses hit the market, with lenders trying to recoup their bad loans, look for more downward pressure on housing prices.

I am still reasonably confident that this scenario will play out mostly in markets that have experienced skyrocketing prices during the past two or three years. The rest of us, who didn't experience nearly the same boom will also not see much, if any, of a crash, either.

But Gary Shilling, writing in Forbes, disagrees with my assessment [link from Calculated Risk (h/t to MA)]:

Today's boom is national in scope: low interest rates, loose mortgage-lending practices and investor caution over stocks following the 2000-02 bloodbath. Yes, today's boom is mainly on the coasts, but that's where the population and income are concentrated. When the U.S. bubble breaks, it will affect more families than the recent stock slump, since 69% of families own their abodes while 50% own stocks.

... This is a dire forecast. Still, a severe nationwide break in house prices could destroy enough net worth and spawn a big enough financial crisis to shift the good deflation of excess supply I foresee to the bad deflation of deficient demand.
Along the same lines, Paul McGowan thinks several major retail chains will go under soon because of a stall in consumer spending. I can readily imagine that some chains will go into receivership because they are already on the ropes; and one reason they are on the ropes has more to do with changes in retailing in general and less to do with any stall or downturn in consumer spending.

The housing bubble is only beginning to deflate, and yet consumer confidence has already plummeted, but David Altig is far less pessimistic than McGowan seems to be. I don't think I'm quite as optimistic as Altig is, but I'm not as pessimistic as McGowan because even while some retail chains go belly-up, others will be growing, and it is a mistake to look only at the failures in an economy..

Sunday, September 18, 2005

Decoration Day

I just returned from playing with the community band for "Decoration Day" ceremonies at the local cemetary to honour soldiers who died in the line of duty.

Believe me, I am grateful for all they did, and I am happy to honour them.

Nevertheless, I feel uncomfortable at these ceremonies because they are so infused with "God is on our side" jingoism. I'm sure our enemies claim God is on their side, too. I do not believe either claim; I am concerned, disgusted, and a bit frightened by such claims.

More Evidence that the Housing Bubble is Deflating

Richard Bernstein, a strategist at Merrill Lynch, pointed out in a note to clients that construction company executives had been vigorously selling their shares in their businesses. Heavy insider selling is a red flag.

"We think there is a strong contrary message," Mr. Bernstein said, because share sales at home builders are occurring "at a record pace across nearly the entire industry."

"We think this insider selling somewhat mimics that of the technology sector during the year surrounding the peak of the bubble," he said.
If insiders are selling, it is not a good sign for the near-term outlook of the industry.

[from this link, courtesy of Sean]

Blair and Clinton Agree:
BBC Blatantly Anti-American

That the BBC is blatantly anti-American comes as no surprise. But the people most recently making the accusations add considerable strength to the accusations against the BBC about its coverage of the Katrina disaster [thanks to JJ for the pointer].

Tony Blair was shocked by the BBC's coverage of Hurricane Katrina, describing it as "full of hatred of America", Rupert Murdoch, chairman and chief executive of News Corporation, said last night.
Mr Murdoch, a long-time critic of the BBC who controls rival Sky News, said the prime minister recounted his feelings in a private conversation this week in New York.

Bill Clinton, the former US president, and Sir Howard Stringer, chief executive of Sony Corporation, also criticised the tone of the BBC's coverage during a seminar on the media at the Clinton Global Initiative conference in New York.

Mr Murdoch said Mr Blair was in New Delhi when he turned on the BBC coverage of New Orleans: "He said it was just full of hatred of America and gloating at our troubles."
Mr Clinton said the corporation's coverage had been "stacked up" to criticise the federal government's slow response.

Sir Howard, a former head of CBS News, said he had been "nervous about the slight level of gloating" in the BBC coverage.
And if you don't like the reporting at the Financial Times, try the Independent, which reports the same story but omits any mention of Clinton or Sir Howard but instead chastises Blair for saying such things to Murdoch.

Update: additional links at Instapundit.

Emergency Lists

Yesterday I posted some concerns about Avian Flu, along with BenS's tongue-in-cheek suggestions for dealing with it. But in all seriousness, the hurricane Katrina and its aftermath led Ms. Eclectic and me to reassess our preparedness for possible emergencies.

Where we live, we are extremely unlikely to see serious flooding of the sort experienced in New Orleans or along major rivers. Our major concerns for the future include power outages, being snowed in, tornados, major ice storms (which can knock out the power for weeks on end), and avian flu.

So we did up some emergency lists. Here they are. I hope they are helpful. And if you have suggestions for altering them, please let us know.

My Son's Engagement

As I mentioned earlier, (see here and here) my younger son, Adam Smith Palmer, was married last month. Here is a brief excerpt from his website, describing his proposal to his wife:

Adam proposed to Laura on Friday, August 13th, 2004 with an unset diamond. Laura had earlier that evening been complaining about how all her friends and colleagues were getting engaged and she wasn't. Little did she know that Adam had already planned to propose to her that night. Boy, was she embarrassed! Well, not really, 'cause Adam certainly had waited long enough. Geez.
Anyway, Laura accepted Adam's proposal with the condition that the diamond be set in a ring, and not stapled to her finger as Adam initially suggested. Adam agreed to the condition.
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