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Edward Hugh, RIP

I’m still not here,* but do want to note the official confirmation that One of the Good Ones

Yes, Brad, He Has

This has produced another edition of “Simple Answers to Simple Questions.”

Just to expand this a bit, and to deal with the 1987 absurdity, the proximate cause of the 1989 adjustment—an adjustment of less than 10% in the Dow that only took two full calendar months to return to its level at close on 12 October—was that a certain Japanese bank (for which I happen to have been trading derivatives at the time) declined to go forward with LBO funding for United Airlines.

You’re welcome to believe that one, but no one at the bank did. And I don’t remember there being any reference to it when Gillian Tett wrote that firm’s obituary.*

*It is saddening to note that of the three firms where I worked that failed in spectacular displays of mismanagement, the chronicler of the failure goes from Gillian Tett to William D. Cohan. It’s like having Robert Caro write the first chapter, but only being able to get Kitty Kelley for the next.**

**The third’s obituary was never Writ Large. By this, from August of 1991, certainly belies the idea that “Real Estate Only Goes Up” would be the conceit of anyone with a sense of even recent American history:

Security Pacific surprised Wall Street with poor financial results in three of the last four quarters, partly because of problem real estate loans in Britain, Australia and Arizona and the cost of quitting certain businesses. The weak California real estate market has casts a cloud over all California banks.

Taking on Security Pacific’s loan portfolio could present a major risk for BankAmerica. However, the bank’s officials said they had thoroughly examined Security Pacific’s portfolio. Other industry analysts said that any new problem loans could be compensated for by the savings in expenses because of the merger.

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Quote of the Day Last Thirty Years of Economics

From, naturally, Robert Waldmann, chez DeLong, pointing out that the Emperor not only has no clothes, but has been deliberately strutting his lack of stuff since the late 1970s:

Oh another thing — [the problem with economic modeling] isn’t [limited to] new classical macroeconomics. The same criticisms apply to new Keynesian DSGE models. Adding totally unexplained Calvo alarm clocks doesn’t liberate the model from the implausible assumption that there is a representative agent. In fact, the current standard NK model (Eichenbaum, Christiano, Evans, Smets, Wouters) has to add implausible Calvo alarm clock conditional markets to reconcile the assumptions that there is a representative consumer and that there are different types of labor with variable relative wages.

The effort to reconcile DSGE with reality is based on doing whatever it takes to make a DSGE model behave like an old Keynesian model (that is fit the data as old Keynesian models do). Academic macoreconomists ignore the proposal to cut out the middle man who transforms assumptions we don’t believe to implications which we know are valid from empirical research, because we are the middle men and the sensible short cut from what we know to what we know would achieve greater efficiency by eliminating our jobs.

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A Carleton S. Fiorina Finger Exercise

Brad DeLong catches Tim Berners Lee Timothy B. Lee [h/t Bob in comments] being, to be nice, disingenuous:

…The idea was that [HP and Compaq] would be able to do the things they already did more effectively if they joined forces. Management consultants who examined the merger for HP found that (as Fiorina loved to put it) HP and Compaq ‘fit together like a zipper’…

Stop right there: when you are reduced to quoting management consultants hired to make the case for the deal the CEO wants to do, you are demonstrating that you have no good arguments.

Brad is being too nice. Here’s the Daniel Davies-style Finger Exercise:

  1. A CEO runs a company with an annual ROE of X. They are considering buying a company of similar size that (best case) products that might be complementary to—but also modular to—the company’s highest-margin good.
  2. The company to be aquired has a current annual ROE of Y. Y is significantly less than X, and the company’s primary market continues to become increasingly commoditized.
  3. The CEO tells you they are doing this in an attempt to increase the company’s margins (which should in turn increase company ROE).


1) Attempt to specify an algorithm that can justify your claimed expectations. Caution: use of negative coefficients is not permitted.

Use your results to answer the following questions:

2) Is there anyone with math skills greater than the average third-grader who couldn’t see at the time that this was sheer idiocy?*

3) Would you be surprised if that CEO were fired and never again offered the opportunity to run a company of any size?

Bonus Question:

4) Even granting West Coast bias, why would anyone looking at Fiorina’s performance at Lucent have been silly enough to offer her the job at HP in the first place?

*Exclude Carleton S. Fiorina and Michael Eisner from possible answers

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Marking Beliefs to Market, Stan Fischer edition

Brad DeLong Friday morning:

I cannot help but note strong divergence between the near-consensus views of Fed Chair Janet [Yellen]’s and Fed Vice-Chair Stan [Fischer]’s still-academic colleagues and students that tightening now is grossly premature, financial markets’ agreement with the hippies as evidenced by the ten-year breakeven, commercial-banker and wingnut demands for immediate tightening, the extraordinarily awful performance since 2007 of not all but the average regional Fed president as revealed in the transcripts, and the Federal Reserve’s strong predisposition to an interest-rate liftoff soon.

Prolix but accurate, and with the strong implication that Yellen and Fischer Know Better, but are constrained by their cohort.

Stan Fischer, Saturday morning (via Mark Thoma, whose presentation is more accurate and informative):

[B]ecause monetary policy influences real activity with a substantial lag, we should not wait until inflation is back to 2 percent to begin tightening.

As I said before—to the apparent dissatisfaction of those who want to be polite losers or believe that “well, they’re saying the right things now” is redemptive and not damning— who of the Sensible Technocrats is worth the trouble of paying attention to when they have a chance to do something in government and make a point of forgetting everything they have learned?

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Serious Question, Janet Yellen Edition

In spite of a sustained lack of inflation, a large, sustained gap in the Civilian Employment/Population Ratio, an abiding lack of post-recession growth domestically, and significant underperformance (old, new, [PDF] and overall) internationally, the Fed appears prepared to raise interest rates this year. Which leaves me now wondering:

With the possible exception of Robert, is there any former colleague/roommate/coworker of whom Brad DeLong has spoken highly who is worth the trouble of paying attention to when they have a chance to do something in government?*

My top-of-the-head list is:

  1. LawrenceLarryH. Summers (the RoboQB of the Econ field, in more ways than one)
  2. Tim Bloody Effing Geithner (all links but one to Brad in his post-Chief Internet Geithner Apologist days)
  3. Andrei Shleifer
  4. Christina Romer (though I’ll be the second or third to stipulate that It Wasn’t Her Fault; see above), and, now,
  5. Janet Yellen

What good is alleging that you have sharp, respectable people who Know What to Do if they then Don’t Do It? When the perpetual answer you get when they screw up is a variation on “You said you regretted not doing more. What do you regret not doing?”

*Robert isn’t and hasn’t been, so far as I know, in a position to make policy. So whether he counts as an exception is left as an exercise.

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Or Is It really a Kenyan this time?

Carter, Begin, Sadat, Brezhnev, and Deng are all long gone.

Rumor has it that the last political icon of Tim Curry’s only pop hit has joined them.

Or has he?

The death of Fidel Castro, 88, has also often been mistakenly declared before on social media and this time may have been confused with the recent death in Nairobi of Fidel Castro Obinga, the son of a prominent Kenyan politician.

Either way, an excuse to “kill your ears, man.”

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Just Go Read

As I said on Facebook, it appears that Tim Armstrong—who got paid $12 million last year alone as CEO of the dead-on-its-feet AOL—is even more of an asshole than anyone previously believed.

The pull quote:

Until the morning I woke up in labor, every exam indicated that our daughter was perfectly healthy. In fact, had signs of trouble emerged, such as bleeding or pre-eclampsia, the doctors would have had the chance to mitigate the danger, administering steroids to speed up her lung development or hormones to delay labor. Instead, even with the best medical care available, we had no warnings, and we will never have an explanation for what went wrong. This is why the head neonatologist referred matter-of-factly to our daughter’s birth as “catastrophic.”

In other words, we experienced exactly the kind of unforeseeable, unpreventable medical crisis that any health plan is supposed to cover. Isn’t that the whole point of health insurance?

The story has a happy ending. Except that around ten years from now, that daughter is going to find out what someone who isn’t fit to shine her shoes but somehow runs an American corporation said about her when she was fighting for her life.

The next mofo who makes the absurd claim that “the 1% work harder” better have overcome at least what Deanna Fei’s daughter did and is. In a just world, or even the world of Brad DeLong’s Sensible Technocrat Economist *** dreams, anyone on AOL’s Board of Directors who did not come out publicly for Armstrong’s firing would be summarily dismissed from any other Board on which she or he served due to nonfeasance.

Instead, Armstrong is an invited guest at Davos, though he didn’t show up this year. Saving the Swiss being lectured about how evil it is to allow pregnancies to go to term.

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