Relevant and even prescient commentary on news, politics and the economy.

Behavioral Economics and Conservatism

David Brooks has noticed the increasing popularity of behavioral economics. He argues that it would be a mistake to allow the recognition that people aren’t perfectly rational to convince us that policy makers should intervene more in the economy, since they aren’t rational either. My reaction is that, of course, the level of sophistication required to play it safe is less than the level of sophistication required to beat the market and so support for prudential regulations does not require the assumption that the regulators are smarter than market participants.

Matthew Yglesias demonstrates (again) that he is a genius and that a degree in philosophy can be an excellent preparation for economic analysis. He considers the ban on interstate banking — clearly not an optimal policy — and argues that concerns about human irrationality might have convinced us to keep it

when we’re looking at a regulatory regime that seems to be working okay, and the regulated parties start saying we need tweaks x and y and z and oh there’s no danger there we should be very suspicious. We shouldn’t count on being to fine-tune our results to perfection,

Oddly he entitles his post “The case for crude measures” and concludes “we should either lean in with a heavy hand or else stay away.” His reasoning has nothing to do with this conclusion. He is arguing in favor of conservatism. If something has existed for a long time and seems to be working okay, we shouldn’t change it — even if it is a regulation.

This argument makes sense (and was made by Edmund Burke some time ago I might add). It may have seemed to some people, including economists (one of the groups detested by Burke) that economic theory gave us a simple guide to optimal regulation. It may have seemed to some of them that optimal regulation was no regulation. These people are radicals who trust their own reasoning more than the wisdom of the ages.

Behavioral economics teaches us two things. First it is much more difficult to understand the economy than it would be if we could count on it to be in Nash equilibrium, so we should be cautious about our theories including our theories based on a particular hypothesis about irrationality. Second, we’re not rational either, so we should be humble. Both support conservatism.

The strange thing is that Brooks doesn’t seem to remember what conservatism originally was. He suggests that it tells us we should regulate — that is odd since economies have traditionally been regulated and respect for tradition and things the have been found to serve and work okay would suggest we continue to regulate it. This is particularly odd, because Brooks is unusual among contemporary American conservatives, because he leaves no doubt that he has actually read Burke and, in large part, agrees with him.

Odd that he uses the old old conservative argument in the defense of radical free market experimentation.

Given the polls, it is not odd that Yglesias doesn’t want to admit that a strong case can be made for actual conservatism as I’m sure he believes that it will in the near future become again the ally of right wingness after having spent 8 to 28 years as its nearly effective adversary (that is the least weak of the pathetically weak hindrances to right wing lunacy).

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Halloween Economics

Halloween’s Voodoo Economics (Business Week)

Americans will spend 50% more in 2006 than they did last year on Halloween jack-o-lanterns, spooky costumes, and ghoulish decorations.

From haunted houses to horror flicks and tales of headless horsemen, Halloween is a day when the fearful becomes fun. But maybe scarier than any demonic costume are the record amounts consumers are spending to celebrate the holiday. From elaborate lawn decorations to couture costumes, Americans will spend nearly $5 billion this Halloween, or about $60 a person-roughly 50% more than last year, says the National Retail Federation. With the craze for all things spooky growing every year, Halloween is becoming a season unto itself.

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Story for George Bush, Hank Paulson, and Ben Bernanke

by cactus

Story for George Bush, Hank Paulson, and Ben Bernanke

My wife and I are renters – we figured we never could justify paying the crazy prices we saw people charging for houses. But now the bubble burst, and we figured – OK, now’s our time.

So there’s this house my wife likes. A lot. So much so that we’ve had our eye on it for the past six months. Here’s the story. We were driving through a neighborhood she likes and saw a For Sale sign. We made an appointment and saw the house.

A week later, my wife called the woman who owned the place to discuss making an offer. We had a figure in mind that worked out to precisely the price you see on Zillow, and which, if you work backward from her property tax bill, tells you was the about the figure the property tax assessor had come up with at the last assessment. (Put another way – given the bubble burst, the bid we made was higher than I was comfortable with, but my wife really, really liked the house, and in its defense, there had been some nice work done inside.)

The woman turned down our offer. She claimed she needed to get 40% more just to pay what she owed on the house. We offered to try to deal with Countrywide to arrange a short sale but she simply stopped responding to us. It turns out the home had been up for sale for well over a year – there’s no chance she could have gotten that price even before the bubble burst.

We then learned the property was in the foreclosure process. The sheriff’s assessment of the house was actually more than 10% below the price we had offered. (And, I might add, within a few thousand dollars of the price I told my wife the house was worth when we first contacted the woman who owned it.)

So we showed up on the day of the sheriff’s auction when the home was going to be up for bid, but she had declared bankruptcy that morning, which apparently removes the home from the “to be auctioned” list. Since my wife was still interested in the home, and bankruptcy filings are public records, we took a look.

Here’s what we learned: the amount owed to Countrywide is 140% of the sheriff’s assessed value, and of course, the odds of it fetching the sheriff’s assessed value is quite low, even in good times. Plus, it seems the woman’s other debts mean her total debt is more than twice what she owes on her mortgage, and she has no job. (I’m not sure what the woman or Countrywide were thinking, but hey, this is why I didn’t buy a house before.)

So we’ve contacted Countrywide to make another offer taking into account the current circumstances. Our offer is equal to what we think that house would fetch at the auction. No “yes,” no “no,” no nothing. We contacted them repeatedly.

According to the bankruptcy filing, the woman intends to surrender the home to Countrywide. (I can’t imagine she has much of a choice in the circumstances.) So in a few weeks, they will take possession of the house. I don’t see any way that a deal can be worked out with the woman who borrowed the money to buy it in the first place. (Remember – debts equal to twice the outstanding mortgage, plus no income.) So they either sell the house, or pay for its maintenance and property taxes.

You’d think in this environment, Countrywide would have some interest in talking to eager potential buyers. You’d be wrong. Its one thing to bail out companies that got themselves in trouble doing stupid things, as we’re doing to Countrywide’s now parent-company. Its another to bail them out when they go out of their way to avoid developing a viable business model.

And its not just that the plan is rewarding companies that made insane decisions and encouraging them to make new insane decisions. It also impedes the market and ties up capital by preventing willing, responsible buyers with money in their pockets from buying homes. This is the very predictable result of the bail-out. Mission Accomplished.
by cactus

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TV serials as an indicator of inflation

by: Divorced one like Bush

Just a little point of order regarding how bad this economy is.

Lost in Space 120 episodes, 33.2 per season
Batman (on twice weekly) 120 episodes, 53.33 per season
The Virginian, 249 episodes, 27.67 per season
The Beverly Hillbillies, 274 episodes, 30 per season
Gilligan’s Island, 98 episodes, 32.67 per season

New season started this year around September 22. Last Monday night (10/27/08), CBS sitcom night, my date night with my flower girl… every one of the shows was a repeat.

It’s bad enough we get 7 minutes of commercials all timed to the other networks, but now they can’t even get to Halloween before running out of new shows!

We’re entering a depression, and we can’t get new comedy? Guess I’ll just have to rely on the real thing. All 190 of them.

On no! They’ve been co-oped.

There is only one solution. We must all immediately call our congress critters and the presidential candidates and demand a bailout for the sitcom industry! It is our only salvation, our only true hope. It is what worked in the past regarding our sanity and stopped us from becoming like the bankers we loath.

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I work hard for my money


Yves Smith comments on a NYT piece about NY Attorney General Cuomo.  The following caught my attention this morning.  Admittedly before coffee:

Banks have proven to be remarkably immune to condemnation over senior level pay. CEOs and top level producers seem to have an undimmed sense of entitlement, even though the nine banks receiving the first Treasury handouts equity purchases earned a collective $305 billion from 2004 to mid 2007, followed by $323 billion in writedowns.

Is this something that needs a solution for spending public monies?

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