Friday, February 27, 2009
Thursday, February 26, 2009
Starting today, a range of next-generation financial services companies, all of whom employ technology in innovative ways, have teamed up to market some much-needed help to consumers with the Uncrunch America campaign. Like a team of of financial Superfriends, Lending Club offers personal loans through a peer-to-peer model, Virgin Money (yes, a pro-social for-profit offshoot of the Branson empire) has peer-to-peer mortgage financing, OnDeck Capital offers small business loans with a proprietary holistic scoring model, CreditKarma has credit score tools, and Geezeo offers personal finance and budgeting tools.Since the beginning of the year, UnCrunch members have lent almost $75 million to one another.My last post on P2P lending was just a few days ago, so clearly I am sold on the idea. If nothing else it will ease suffering while our leaders figure out what to do about TARP II and the zombie banks.
Wednesday, February 25, 2009
The purpose of the hearing is to examine the role of informal environments in promoting STEM learning. The Subcommittee will explore the potential for informal STEM learning to engage students in math and science in ways that traditional formal learning environments cannot, as well as the ways in which informal STEM education can complement and enhance classroom STEM studies. Furthermore, we will receive testimony on the National Academies report, "Learning Science in Informal Environments: People, Places, and Pursuits."
- Dr. Joan Ferrini-Mundy, Division Director, Division of Research on Learning inFormal and Informal Settings, Education and Human Resources Directorate, National Science Foundation.
- Dr. Phillip Bell, Co-Chair, National Academies report “Learning Science in Informal Environments: People, Places, and Pursuits,” and Professor, College of Education, the University of Washington, Seattle.
- Dr. Alejandro Grajal, Senior Vice President of Conservation, Education, and Training, the Chicago Zoological Society.
Saturday, February 21, 2009
Recent evidence from Mexico based on a matched difference-in-difference evaluation - not too different from a randomized evaluation - has found that reducing the number of days to register a business does make a significant difference in the business environment.The results come from a recent World Bank study by Miriam Bruhn.* The results are summarized here. Employment increased by 2.8% in eligible industries after the reforms and incumbent firms, which had benefited from the barriers to entry, lowered their prices and saw their monopoly profits decline. More wage earners opened new businesses, but existing businesses outside the formal sector did not formally register with the government. The last point is a worrying sign in a generally upbeat report.
* Bruhn, Miriam (2008). “License to Sell: The Effect of Business Registration Reform on Entrepreneurial Activity in Mexico.” World Bank Policy Research Working Paper 4538.
Friday, February 20, 2009
Technology has helped economic and social progress since the industrial revolution. If technology is measured as total factor productivity, it explains much of the differences in both the level and rate of growth of income across countries (e.g. Hall and Jones 1999). However, if technology is defined as scientific innovation and invention it is almost exclusively an activity of richer countries, with many developing country nationals performing research in frontiers of science in high-income countries (e.g. a large proportion of NASA and Silicon Valley engineers are foreign born). Technological progress in rest of the world is achieved through the adoption and adaption of pre-existing but new technologies to firms and plant. For this diffusion to accelerate, openness to trade, foreign direct investment, and domestic investments in human capital is found to be critical. This discussion leads to the conclusion that technology is both a determinant of incomes and an outcome of rising incomes.Read the rest.
A profound secondary effect of the down market will be an increase in the availability of peer-to-peer finance and its convergence with traditional lending. My bet is that mainstream investors and banks will cherry-pick the best investors in Lending Club and other systems -- reducing risk by tapping their superior credit-assessment capabilities -- and fund them to grant more and bigger loans. Moreover, within five years every major bank will probably have its own peer-to-peer lending network.
If innovative legislation were drafted to allow peer-to-peer risk coverage, similar transactions might begin to flourish in the insurance market. Precise knowledge of local conditions would allow individuals to band together in order to underwrite the cost of insuring properties in safe neighborhoods or to make insurance more widely available in higher-risk neighborhoods.
The current economic constraints will only accelerate the growth of these new entities. I predict that they will be among the most important financial-services innovations in the coming decade.
Thursday, February 19, 2009
- Mostly Harmless Econometrics, a new book by Joshua Angrist and Jörn-Steffen Pischke gets reviewed by statistician Andrew Gelman. There is also a review of Gelman's review, and a reaction to that review by Gelman.
- A guide to regression discontinuity by David Lee and Thomas Lemieux.
- The end of the Lott vs. Levitt defamation case (see Empirical Legal Studies).
- "Comparing IV with Structural Models: What Simple IV Can and Cannot Identify," by James Heckman and Sergio Urzua. The abstract (NBER):
This paper compares the economic questions addressed by instrumental variables estimators with those addressed by structural approaches. We discuss Marschak's Maxim: estimators should be selected on the basis of their ability to answer well-posed economic problems with minimal assumptions. A key identifying assumption that allows structural methods to be more informative than IV can be tested with data and does not have to be imposed.
A labor market tautology says that any change in labor usage can be decomposed into a movement along a marginal productivity schedule and a shift of the schedule. I calculate this decomposition for the recession of 2008, assuming an aggregate Cobb-Douglas marginal productivity schedule, and find that all of the decline in employment and hours since December 2007 is a movement along the schedule. This finding suggests that a reduction in labor supply and/or an increase in labor market distortions are major factors in the 2008 recession. The decline in aggregate consumption suggests that the reduction in labor supply (if any) is neither a wealth nor an intertemporal substitution effect. "Sticky real wages" or the emergence of significant work disincentives are possible explanations for these findings.
The point is that even those of us labeled as "aid critics" do not believe aid has been a universal failure. If we give you aid agencies grief on failures, it is because we have seen some successes, and we would like to see more!
Wednesday, February 18, 2009
Despite the negative effects of the economic downturn and unprecedented financial markets crisis, the first survey of the top 20 recipients of government investment through the Capital Purchase Program (CPP) found that banks continued to originate, refinance and renew loans from the beginning of the program in October through December 2008.For information about individual bank lending see Treasury's report (pdf). For a short synopsis see their snapshot (pdf). Here's coverage of the report from the Washington Post.
Overall, loan origination and underwriting activities were weak from October to November 2008 but picked up from November through December, fueled by falling mortgage interest rates and the Federal Deposit Insurance Corporation's Temporary Liquidity Guarantee Program.
Here is the abstract (SSRN):
"Treasury Secretary Geithner announced a plan, which the Treasury is willing to finance with up to $1 trillion of public funds, to partner with private capital to buy banks' "troubled assets." The Treasury has not yet settled on the plan's design, and its announcement has encountered substantial skepticism as to whether an effective plan for a public-private partnership in buying troubled assets can be worked out. This paper argues that, yes, it can. The paper also analyzes how the plan should be designed to contribute most to restarting the market for troubled assets at the least cost to taxpayers.
"The government's plan should focus on establishing a significant number of competing funds that will be privately managed and dedicated to buying troubled assets - not on creating one, large public-private aggregator bank. Establishing competing funds, I show, is necessary both to securing a well-functioning market for troubled assets and to keeping costs to taxpayers at a minimum.
"Each new fund will be partly financed with private capital, with the rest coming (say, in the form of non-recourse debt financing) from the government's Investment Fund planned by the Treasury. One important element of the proposed design is a competitive process in which private managers seeking to establish a fund participating in the program will submit bids as to what fraction of the fund's capital will be funded privately. The government will set the fraction of each participating fund's capital that must be financed with private money at the highest level that, given the received bids, will still enable establishing new funds with aggregate capital equal to the program's target level. Overall, I show that the proposed design will leverage private capital to the fullest extent possible and will provide the most effective and least costly mechanism for restarting the market for troubled assets. "
Economics has shifted from lowly paid arts and science to well compensated professional field. Consider the following: In an article on the crummy academic job market, the Wall Street Journal reports on a University of Arkansas study that shows that entry level econ PhD’s make $86,000 (scroll about half way down). That’s right - an average econ PhD with few (or no) publications makes the same as a full professor in many arts and sciences areas. If an economist lands a job at a leading program, the assistant professor salaries easily start at $100,000+. B-schools start even higher. In the private sector, consultancies and related work are better compensated.Economists make more money than other social scientists for several reasons. First, the median economist has better quantitative skills than the median social scientist, and the market tends to reward those skills higher relative to qualitative skills. Second, some economists can teach finance at business schools, which I believe pays better than what a sociologist or psychologist would earn at a business school (is this true?). Third, there are many other alternatives for top economics talent, like Wall Street, which pay way more than academia, although they are no longer strictly research jobs (compensating differentials and all that). Add to that more opportunities in consulting and private sector work and you generally have a much more lucrative field. Fourth, since economics is usually the largest undergraduate social science major, it makes sense to have more TAs and research assistants to help with the large class sizes. Oh, and it's not like economists produce shoddy academic work either.
Let me emphasize this: professional economists do better than nearly any other arts and science field (except maybe computer science) and do well compared to lawyers and MD’s.
Note that Fabio doesn't specifically say that economists should subsidize other grad students, but that's about what this amounts to. So should they? It strikes me as odd to say that because there is more demand for economists than english professors we should charge economists more. In fact we should limit the number of awardees in fields that have low demand. I really don't see why we need to limit the number of econ PhD's that we grant. It is certainly not like other fields where the excess supply is dampening wages.
Finally, in terms of equality, our progressive tax system insures that economists pay more in taxes. This may not equate salaries at universities, but I see no reason why they need to be equal. If historians want to make more money, they should pay attention to cartel behavior and produce fewer history PhDs. At UCLA, my undergratuate alma mater, the history dept is much larger than the political science department. You can guess which dept has better placements. There are lots of good comments to Fabio's post so be sure to read those as well.
Tuesday, February 17, 2009
Reducing energy consumption is clearly a global imperative, but before one can reduce it helps to know how much one is already consuming. Targeting the 40 million "smart meters" now in use worldwide—and the 100 million more soon to be added—Google is testing a new gadget that will take the information such devices collect and make it more easily accessible to the consumer.More from Google:
How much does it cost to leave your TV on all day? What about turning your air conditioning 1 degree cooler? Which uses more power every month — your fridge or your dishwasher? Is your household more or less energy efficient than similar homes in your neighborhood?
Our lack of knowledge about our own energy usage is a huge problem, but also a huge opportunity for us all to save money and fight global warming by reducing our power usage. Studies show that access to your household's personal energy information is likely to save you between 5–15% on your monthly bill, and the potential impact of large numbers of people achieving similar efficiencies is even more exciting. For every six households that save 10% on electricity, for instance, we reduce carbon emissions as much as taking one conventional car off the road (see sources and calculation).
Recovery.gov is a website that lets you, the taxpayer, figure out where the money from the American Recovery and Reinvestment Act is going. There are going to be a few different ways to search for information. The money is being distributed by Federal agencies, and soon you'll be able to see where it's going -- to which states, to which congressional districts, even to which Federal contractors. As soon as we are able to, we'll display that information visually in maps, charts, and graphics.
Monday, February 16, 2009
On a related note, Wired has an article on the troubles President Obama faces converting his tech savvy campaign into a tech savvy government. It was written before the inauguration, so bits are already dated, but worth going through anyway (via Prometheus).
There is a sub-category for social entrepreneurship as well. A lecture on the surge in social entrepreneurship is a good place to start. Do not be intimidated, these are generally not full length lectures. The videos I linked to are all around five minutes. I hope these inspire you.
Gallup's survey results for states are here, and I used state median income from the Census Department's American Community Survey. One reporter picked up on the link between religion and income (AFP) - thanks for the link Steve. Note that the relationship tends to hold between nation-states as well, with the US as the well known exception.
I would simply urge caution in interpreting the graph above. It does not imply that religion causes poverty or vice-versa. In fact it says nothing about causality. All it is showing is a relation between two variables. As you can see there is a clear downward trend indicating that as people's median incomes increase the importance of religion in their daily lives tends to decrease, ceteris paribus. As Ronald Inglehart has noted, religion can instill values that shape a nation over a long period even as religion itself becomes less important in daily life.
Sunday, February 15, 2009
Despite strong economic growth in the past few decades, China still has a number of pressing challenges, including the need to reduce rural poverty, provide for a large and rapidly aging population, meet the population's health and sanitation needs, meet growing energy demands, address water shortages, reduce pollution, and sustain high economic growth.
Saturday, February 14, 2009
The crisis has exposed deep structural problems, not just in the U.S. but worldwide. Europe’s model of banking has proved no more resilient than America’s, and China has shown that it remains every bit the codependent partner of the United States. The Dow, down more than a third last year, was actually among the world’s better-performing stock-market indices. Foreign capital has flooded into the U.S., which apparently remains a safe haven, at least for now, in uncertain times.
It is possible that the United States will enter a period of accelerating relative decline in the coming years, though that’s hardly a foregone conclusion—a subject I’ll return to later. What’s more certain is that the recession, particularly if it turns out to be as long and deep as many now fear, will accelerate the rise and fall of specific places within the U.S.—and reverse the fortunes of other cities and regions.
The evidence suggests that culture plays a much more crucial role in democracy than the literature of the past two decades would indicate. [...] In the long run, democracy is not attained simply by making institutional changes or through elite-level maneuvering. Its survival also depends on the values and beliefs of ordinary citizens.
Thursday, February 12, 2009
This paper provides an overview of the political and economic decisions that helped to create the financial crisis of 2008. It begins with an overview of U.S. efforts to promote home ownership and how those policies, along with banking regulatory decisions in the late 1990s and early 2000s, helped to create a highly leveraged and risky international portfolio of mortgage-based securities. Declines in the price of housing, consequently, had major effects on the balance sheets and portfolios of financial institutions throughout the world, because the risk of mortgage-backed securities was under priced. The effects of mortgage-backed securities effectively doubled the usual effect of the end of a housing bubble.Via Marginal Revolution.
The political response to the “crisis” of 2008 has been rapid and large. The response has been partially accomplished through new legislation (TARP) and partly through standing agencies with authority to address credit and housing issues. In general, the differences in the effectiveness of policy responses shows the advantage of standing institutions at crisis management relative to innovative legislation. The paper concludes by discussing the relevance of public choice, constitutional political economy, and the theory of regulation for explaining the crisis management undertaken.
The service has attracted 4 million to 5 million users, 70 percent of whom joined in 2008, calculates a recent report from HubSpot.com, which analyzes business activity on the Web. An estimated 5,000 to 10,000 new Twitter accounts are opened each day, and traffic to the site grew by more than 600 percent in the most recent 12-month period HubSpot measured.Schumpeter's Century has a page on Twitter you can follow here.
Last month, Twitter passed Digg.com, a successful, established news aggregation website, in market share of visitors, says Heather Dougherty, research director for Hitwise, an Internet measurement and analysis firm. And Twitter is “probably much bigger” than the Hitwise statistics show, she says, because much of Twitter’s traffic flows through mobile devices or other third-party software that isn’t being captured in Hitwise’s data.
The moderator at Nasaspaceflight.com responds:
Dear Dr. Robert D. Ballard:Read the rest.
Since my childhood I have enjoyed reading about your research/discoveries, and had grown to admire you as an academic. However, I have to say that I was appalled by your comments about the negatives of NASA versus that of NOAA. Indeed, NOAA is underfunded, but that is a symptom of the general apathy that the Federal government has toward science. The solution is not to cannibalize the budget of another science agency, it is to raise awareness as well as funds for the entire science community.
Imagine living in a city with the country's highest rate for violent crime and the second-highest unemployment rate. As an added kicker you need more Superfund dollars allocated to your city to clean up contaminated toxic waste sites than just about any other metro.
Unfortunately, this nightmare is a reality for the residents of Detroit. The Motor City grabs the top spot on Forbes' inaugural list of America's Most Miserable Cities.
The full list is here. California's Central Valley, my poor old homeland, doesn't fare too well either.
Tuesday, February 10, 2009
On November 21, when Barack Obama announced that he was nominating Tim Geithner to be his Treasury secretary, the Dow rose 494 points and broke through the 8,000 barrier. On February 10, when Geithner gave his first major speech as Treasury secretary, the Dow fell 273 points and broke through the 8,000 barrier.Two great lines from Felix Salmon. I would like to believe in the efficient markets hypothesis but the fact that inTrade does not have a prediction market for when Gaithner will resign casts doubt, at least on the strong version of the emh. It was not just the markets that were disappointed in Gaithner's performance, yesterday members of Congress were not impressed either.
Gaithner's tax evasion - yes, I use that term and not tax avoidance - was reason enough to oppose his nomination. But instead we were told that his nomination was too important to be held up over some trivial mistakes made years ago. We were told that with his experience at the NY Fed he would be able to hit the ground running. Instead, after much time to prepare, we got a statement that they were considering their options, they had some good ideas, and that in general they would get back to us soon. And they delayed his press conference by a day to bring us this news. So where's that prediction market?
Monday, February 9, 2009
On average, anyone walking into Wal-Mart is likely to spend more than $200,000 at the store during the rest of his life. Therefore, any clueless employee who alienates that customer will cost the store around a quarter-million dollars. "If we don't remember that our customers are in charge," our trainer warned us, "we turn into Kmart." She made that sound like devolving into some lesser being - a toad, maybe, or an ameba.From a former Wired writer turned Walmart employee (NY Post). Charles Platt, the author, is guest-blogging at boingboing. Via Mark Perry.
Friday, February 6, 2009
Research by Donald R. Davis who retired from Biochemical Institute at The University of Texas (in my hometown of Austin) and in conjunction with the Bio-Communications Research Institute in Wichita Kansas, has summarized three kinds of evidence that points towards the decline in the nutrient value of fruits and vegetables in the US and UK over the last 50 to 100 years.
Thursday, February 5, 2009
The lesson is this: Don't tell me the future. I've learned, unquestionably, that resilience - not prophecy - is the greatest gift.Read the rest.
Now, that idea runs counter to human nature and desire. Seeking to know the future has been man's eternal quest - from ancient mythology to the 21st century (and into the 24th century if judged by Star Trek episodes).
If we remember back to studies of the classics and mythology, both gods and mortals sought out Tieresias at the gates of Thebes for his gift of prophecy. We haven't changed much over time. Today, among the storefronts of any city in the world, we find neon signs for psychics who'll tell our future. And, in video arcades, kids are still fascinated by the Great Zambini and his crystal ball, who will "reveal all" for a quarter.
Astrology aside, modern forecasting techniques are widely employed in science and business. Clearly, it can save lives and fortunes to be able to predict weather patterns, epidemics, and financial markets. (No question, we have a long way to go in telling the future of financial markets!)
But, it's important to recognize the limits of even the most sophisticated models and forecasting methods - and to rely on them as tools, not oracles.
I'm convinced that prophecy would be a curse, not a gift, in our most important human endeavors, from corporate strategy to national destiny to personal relationships.
[...] Much more than prophecy, resilience - the ability to rise to the occasion and opportunity, whatever the future may bring - is the far greater gift. And, it's also a gift we can reasonably attain.
Resilience is optimistic opportunism. Its power can be seen in the prescient observation that"Things turn out the best for those who make the best of the way things turn out." Think about that:"Things turn out the best for those who make the best of the way things turn out."
When rooted in hard work and experience, resilience is better than any crystal ball.
Wednesday, February 4, 2009
This article challenges cross-sectional findings that democracy has a negligible effect on growth. We employ a new dataset of political transitions during the Third Wave of Democratisation and examine the within effect of democratisation in countries that abandoned autocracy and consolidated representative institutions. The panel estimates imply that on average democratisations are associated with a 1% increase in annual per capita growth. The dynamic analysis reveals that: while during the transition growth is slow, in the medium and long run it stabilises at a higher level. This evidence favours development theories of democratic rule and Friedrich Hayek (1960)s idea that the merits of democracy appear in the long run.Here is the SSRN link. Here is a link to a free copy (pdf). The authors are Elias Papaioannou and Gregorios Siourounis. Papaioannou won a young economist award for this paper back in 2005 from the European Economic Association. This is also a good example of how long it takes to get a paper published in a top tier economic journal.
From the WSJ:
Here's a previous installment about the downfall of Rock City.
Crowned as the arsenal of democracy in World War II, Detroit seemed to have everything going for it -- a strategic location on the Great Lakes waterway, a thriving auto industry, well-paying jobs and the legacy of superb city planning: magnificent avenues and parks, palace-like public buildings, striking commercial architecture and handsome residential housing in dozens of thriving neighborhoods.
How much things have changed. Detroit today is so deeply depressed economically and so permeated by its illegal drug trade that it is now perfectly apt to tell the city's story from the point of view of two young black drug dealers. This is what Luke Bergmann sets out to do in "Getting Ghost." The title mingles a street phrase -- "getting ghost" means to disappear from the neighborhood or to float in and out of the drug trade or simply to die -- with a metaphorical reference to Detroit's ghostly past.
Tuesday, February 3, 2009
"We are, right now, in the midst of a global shift of epic proportions. Not only is change occurring--as it always has--it is occurring with greater volatility, and greater reach, than ever before. As a consequence of the wrenching turn taken by the global economic system in the past six months, millions of the world's citizens may descend, or return, into poverty--an alarming reversal in the progress made over the past quarter century in advancing the human condition.
"This collection of readings has been produced with one goal: to introduce into the conversation components of a new language to describe the challenges ahead, and to offer for your use the rough cut of a new lens through which you may perceive elements of a solution. The language centers on the words 'social innovation'; the lens is designed to help us all perceive the mechanisms of resilience in times of disruptive change."
Abstract: Some risks have extremely high stakes. For example, a worldwide pandemic or asteroid impact could potentially kill more than a billion people. Comfortingly, scientific calculations often put very low probabilities on the occurrence of such catastrophes. In this paper, we argue that there are important new methodological problems which arise when assessing global catastrophic risks and we focus on a problem regarding probability estimation. When an expert provides a calculation of the probability of an outcome, they are really providing the probability of the outcome occurring, given that their argument is watertight. However, their argument may fail for a number of reasons such as a flaw in the underlying theory, a flaw in the modeling of the problem, or a mistake in the calculations. If the probability estimate given by an argument is dwarfed by the chance that the argument itself is flawed, then the estimate is suspect. We develop this idea formally, explaining how it differs from the related distinctions of model and parameter uncertainty. Using the risk estimates from the Large Hadron Collider as a test case, we show how serious the problem can be when it comes to catastrophic risks and how best to address it.Source.
Monday, February 2, 2009
As an example, via Springwise comes news that British beat duo Groove Armada is ditching Sony BMG and signing with Bacardi. Yeah, the alcohol company. The first song they're releasing is Bacardi B-live. Will other musicians follow suit? Will authors be obliged to name their songs after their financial benefactors? It will be interesting to watch how this new agreement affects other bands. Are we looking at a vibrant new business model or are we going to be subjected to a constant stream of product placements?
Sunday, February 1, 2009
To get a great overview of Chandler's work, without going through his rather sizable books, his 1992 article, "Organizational Capabilities and the Economic History of the Industrial Enterprise," in the Journal of Economic Perspectives is a great read.