Jack

The Great Recession led to a lot of "if only" comments. If only we could charge a negative interest rate on reserves, to discourage banks from hoarding excess reserves. If only we had had more regulation back during the housing boom, so that banks didn't make all those reckless sub-prime mortgages. If only we hadn't fed the real estate boom with a policy that held interest rates artificially low via taxpayer backstops of mortgage-backed bonds.

How serious were these regrets? Apparently not at all. One by one we've addressed all of these policy issues, and each time we've blinked. Let's start with negative interest on reserves. The Fed says it's reluctant to go this route because it could make the money market mutual funds insolvent. Almost everyone seems to agree that the MMMF industry needs to change its pricing policy, so that the funds don't collapse if the market value falls below $1. Unfortunately "everyone" doesn't have much political clout:

The Securities and Exchange Commission, poised to implement structural changes to money funds in coming months, is expected to broaden an exemption for mom-and-pop retail investors from requirements that certain money funds abandon their signature $1 share price and float in value like other mutual funds, these people said. Supporters of a floating share price argue it would train investors to accept slight fluctuations in the value of their shares and so not panic if they fall below the $1 price.

The revised approach would mark a victory for mutual-fund companies that have pressed the SEC to scale back provisions from a June proposal. It also would deal a blow to other regulators, including 12 regional Federal Reserve Bank presidents, who have argued for tougher rules requiring more funds, including those catering to retail investors, to float share prices. . . .

Such a move is likely to inflame proponents of tougher rules, including former SEC Chairman Mary Schapiro, who led a failed effort to make structural changes to the funds two years ago. Ms. Schapiro last summer criticized the SEC's approach as insufficient, saying meaningful change should "cover the entire sector" rather than just a narrow segment involving institutional investors. She declined to comment on the new approach until the SEC makes its changes final.

So the MMMF industry has more clout than the unemployed. Is anyone surprised?

With all the complaints back in 2008 about how "deregulation" had led to the housing/banking crisis, you might have expected at least a mild attempt to address the root cause of the excesses--public subsidies encouraging mortgage-backed bonds and subprime mortgages. In fact, Congress is about to pass a law that makes the subsidies explicit, and actually encourages subprime lending. Your tax dollars at work, creating another housing crisis:

A RARE area of agreement about the financial crisis of 2008 is that Fannie Mae and Freddie Mac were at the core of the meltdown and are in urgent need of reform. On March 16th the leading Republican and Democratic members of the key Senate Banking Committee belatedly released a plan for restructuring the two publicly traded mortgage giants.

The plan has received widespread attention in part because it appears to address the most evident problems of Fannie and Freddie and because it is deemed likely to be approved by Congress. Yet neither of these assumptions, on deeper examination, seems to be true.

To satisfy those who want low-priced mortgages on terms that private markets would never endorse, the plan makes explicit the government guarantee on debt which had been implicit for Fannie and Freddie. This would lower the interest rate on high-risk loans, while obscuring the cost of the subsidy. . . .

Opponents of Fannie and Freddie contend that the two played a key role in the crisis by encouraging the issuance of loans with tiny downpayments through a benign-sounding "affordable housing" mandate. Nothing much has changed. Under the new plan, downpayments of as little as 3.5% of the loan value would be permitted. Strewn through the proposed law are words such as "affordable", "equal access" and "underserved communities", which suggest that lending decisions will be based on political rather than credit criteria. "The result", says Edward Pinto of the American Enterprise Institute, a think-tank, "will be risky lending for those least able to cope."

Next time you hear politicians complain about "deregulation," just recall how they reacted to the 2008 crisis. There is zero desire in either party to regulate in a way that would inconvenience favored groups like MMMFs, small bankers, real estate salesmen, builders, and home buyers. Too many votes at stake. Instead, complaints about deregulation after a market fiasco are merely empty rhetoric designed to fool the public, earnest NPR listeners, and certain credulous bloggers and pundits. The real action takes place elsewhere, and much later, when no one is even paying attention. The GOP doesn't want deregulation and the Dems don't want regulation. Both want to use political power to advance the interest of their favored groups--often shared by both parties. (8 COMMENTS)

As chairman of the Harvard economics department, I am delighted to announce the merger of the Harvard and MIT economics departments. After consulting with the department chairs, the Presidents of Harvard and MIT have concluded that the synergies were too great for the departments to operate separately, only two miles apart, as we have for many years. As a result, a new building is to be built at 950 Mass Ave, between the schools and near the NBER, that will house both departments as a new single entity. The faculty will teach courses open to undergraduates at both schools. The PhD programs will be completely merged to create a single, unified program. This development is considered a pilot project, which, if successful, could lead to a complete merger of Harvard and MIT in the future.

To learn more about this exciting development, click here.

In The National Interest, Rep. J. Randy Forbes (R-VA) and Elbridge Colby of the Center for a New American Security warn that the U.S. is losing its military edge over China. I believe they are correct, and that there is an urgent need to rethink the U.S. defense portfolio if we hope to meet the challenge posed by China's military modernization.Earlier this month, The Economist reported on China's fast-growing defense budget. It is important to keep in mind that rising military expenditures are not in themselves the issue. If Chinese military expenditures were growing yet China's military forces weren't growing
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Since the financial crisis, it's been assumed that big banks in the U.S. and Europe enjoy an implicit government subsidy due to the bailouts firms like them received in 2008. But the size of it is up for debate -- and a recent estimate from the IMF, Matthew Klein of Bloomberg View calculates, means that the subsidy for big banks is larger than their profit margins."Systemically important" or "too big to fail" institutions borrow at noticeably lower rates than other banks with similar risk profiles, suggesting that an implied government backstop is allowing them to borrow more cheaply and therefore
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Some see Narendra Modi, leader of India's right-of-center Bharatiya Janata Party (BJP) and one of Asia's most polarizing politicians, as the second coming of Margaret Thatcher or Ronald Reagan, thanks to his impressive achievements as chief minister of Gujarat, one of India's most affluent and rapidly modernizing states. Others insist that he is a cryptofascist deeply hostile to India's large and impoverished Muslim minority, in light of his (alleged) failure to intervene more aggressively to prevent anti-Muslim pogroms that rocked urban Gujarat at the start of his tenure. Ashutosh Varshney, a political scientist at Brown University and a leading expert
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The Supreme Court’s McCutcheon decision strengthens democracy by enabling the parties to take back power from major donors.

What if Skyrim had a grand opening modeled after the memorable intro from Game of Thrones? Vimeo user Brady Wold has made it happen, and it couldn’t be a better fit. The game and fantasy television series go together like peanut butter and chocolate.

Wold started the project about two years ago and spent thousands of hours working and rendering the images. Wow. He used programs such as After Effects, Maya, Photoshop, and more to create the beautiful opening.

Watch it after the break.

(via BuzzFeed)

This very cool piece of graffiti tagged by TEXER ALB has been spotted twice in the last five months with quick thinking nerds snapping its picture as it rolls on down the line. The three non-standard buttons aren’t a mistake, but are marked A, L, and B for the artist behind this creation.

Image via Kgriffin88

See another picture after the break…

Image via elsewhere1

(reddit via Laughing Squid)

(via Cheezburger)

Father Slawomir Kostrzewa is cautioning parents that the Lego Monster Fighters series could be bad news for kids. Specifically, it could destroy their souls. According to Kostrzewa:

Friendly fellows have been replaced by dark monsters. These toys can have a negative effect on children. They can destroy their souls and lead them to the dark side.

Okay, now I’m confused because I thought the Dark Side was a Star Wars thing. Are these toys going to destroy my children’s souls or turn them into Sith? The priest even quoted research from New Zealand’s University of Canterbury that shows happy expressions on the faces of Lego minifigs has been on the decline since their introduction in 1975. As for the good people at Lego, they responded to Mashable saying:

As a company solely focused on a child’s well-being as developed through creative play, our only agenda is to provide toys that foster creative building and role-play opportunities. Vampires, monsters and zombies are often the subject of fantasy-based stories, which is how they were represented in the Lego play world

Rest easy parents. Your children’s souls are safe.

I was surprised by my colleague Neil Paine’s analysis of Miguel Cabrera’s record-breaking new contract extension. I thought the Detroit Tigers would come out looking much worse.

According to Neil’s estimate, which used projections from Baseball Prospectus’ PECOTA system, Cabrera’s market value for the next 10 years is roughly $275 million. That’s not as much as the $292 million that the Tigers will be paying him, but the difference is modest.

Neil’s valuation assumed that teams are willing to pay about $6.5 million per additional win in the free-agent market, based on research from Dave Cameron and Lewie Pollis. These estimates come from comparing the salaries given to free agents against their expected on-field production. (Neil further assumed that the market price of a win will increase by 5 percent per year.)

In other words, Cabrera isn’t that vastly overpaid as compared to recent free agents. If Mike Napoli is making $16 million per year, then Cabrera’s $29 million per year doesn’t look so bad.

But Cabrera’s market value is not the same as Cabrera’s economic value to the Tigers. It could be that free agents as a group are vastly overpaid, relative to the revenue they bring to their teams.

In the 2006 book “Baseball Between the Numbers,” I estimated the marginal value of a win to a baseball team, based on how responsive different categories of revenue (such as ticket sales and TV deals) are to a team’s quality. I estimated that an additional game won added only about $1.2 million to a team’s bottom line, after subtracting revenue-sharing payments. (This assumes that the value of a win is constant from team to team, which it isn’t, but we’ll leave that aside for now.)

That estimate is now eight years old. Total gross revenue accruing to the 30 Major League Baseball clubs has increased since then; it was $7.1 billion in 2013, according to Forbes, as compared to $4.7 billion in 2005.

If the marginal economic value of a win has increased proportionately, a win would now be worth about $1.8 million. That’s still far less than the $6.5 million that teams are willing to pay for a win. Are baseball owners being irrational?

Perhaps, but their motivation to own a baseball team may not be based solely in profits and losses. They may just be having fun. (I can think of a lot of worse ways to splurge.)

And they may know that if they choose to sell their teams, they can do so — probably at a significant profit. The market value of an MLB franchise has increased by more than 600 percent since 1990, according to valuations from Financial World and Forbes magazine (see Rodney Fort’s website for the data). By comparison, the Standard & Poor’s 500 index rose by about 450 percent between March 27, 1990, and March 27, 2014. (Framed in terms of compound annual growth rates, baseball teams have increased in value by 8.5 percent per year since 1990, as compared with 7.3 percent for the stock market.)

Not only have baseball franchises outperformed the stock market, but the patterns in their growth rates have been quite different. The stock market rose dramatically in the 1990s, but has teetered back and forth since then. By contrast, the rise in MLB franchise values has been much steadier.

What accounts for this?

Here’s a theory. The average baseball franchise is now worth $817 million, according to Forbes. Loosely speaking, you need to be a billionaire to afford one. And there are a lot more billionaires than there used to be.

Forbes estimates that there are 492 billionaires in the United States, as compared to 99 in 1990. The increase in the number of billionaires, like the increase in baseball franchise values, has been relatively steady. (The number of American billionaires fell after the financial crisis of 2007-09 but has risen to a new high since then.)

In a sense, the Tigers may be betting less on Cabrera’s performance and more on economic and regulatory conditions. If the number of billionaires continues to rise, Tigers owner Mike Ilitch (worth $3.6 billion) should find plenty of buyers should he sell the team down the line. Cabrera’s presence might make the Tigers a more attractive purchase — or if not, the liability might be modest as compared with the Tigers’ resale price. But if the rise of the billionaire reverses, Cabrera’s contract might come to look like the peak of a bubble.

Some doubted the wisdom of Disney's deal for the comics empire. But under Kevin Feige, Marvel's heroes have been box office gold

It's not Ryan's hammock.

PRIVACY: How Your Location Data Is Being Used to Predict the Events You Will Want to Attend. Well, when I check in on Facebook — almost always with the Insta-Wife — Facebook helpfully “suggests” people to check in with, usually Facebook friends I’ve never checked in anywhere with, and often friends I’ve never met in the flesh at all. So, we’ll see how good this is. . . .

Over at Econlog I have a post discussing why most highly educated people have never heard of policy proposals that would provide clear benefits to humanity, but are very aware of policy proposals with dubious merits.  That is because only the latter group of policies gets debated in the media.  If everyone agrees then there is nothing to debate, and hence people don’t know about the ideas.

There is also another group of policies that get ignored, those where both the right and the left find the proposal to be completely beyond the pale.  In the US those proposals tend to be related to our puritanical approach to drugs, alcohol, sex, etc. One example is heroin legalization, combined with public treatment facilities for addicts.  Here is a British publication that is willing to “defend the indefensible.”

THE death of Philip Seymour Hoffman from a heroin overdose on February 2nd left the extraordinary actor’s fans distraught. Artists have always been prone to self-destruction, and no one knows how to change that. Drug-abuse experts do, however, have a good idea of how to stop more people from destroying themselves by injecting heroin.

Over the past two decades many have come to favour tackling heroin abuse through “harm reduction” policies, rather than tougher policing. Many governments have decriminalised personal use and provided free therapy programmes, using drugs such as methadone and buprenorphine that block heroin’s high. Two other proven ways to reduce harm, however, are more politically controversial: setting up safe sites where users can inject while monitored by health-care staff, and—for registered addicts who cannot or will not comply with treatment regimes—providing heroin itself free.

Switzerland and the Netherlands pioneered this “Heroin Assisted Treatment” (HAT) approach in the 1990s, and both countries later adopted it as national policy. HAT trials have also been run in Spain, Britain, Germany and Canada. The evidence suggests that HAT slashes heroin-related deaths and HIV infection, since users are shooting up under medical supervision. It also drastically reduces heroin-related crime, since addicts have no need to steal or sell their bodies to get money for their fix. Some studies find that HAT actually works better than methadone or buprenorphine. Heroin use is falling steadily in both Switzerland and the Netherlands; by the late 2000s the Dutch incidence of new heroin users had fallen close to zero, and the ageing population of addicts from the 1970s and 1980s continues to shrink.

Decriminalisation of marijuana use has also played a role in limiting Dutch heroin use, since it separates the use of cannabis from the use of harder drugs. More interestingly, harm reduction including HAT appears to lead to lower illicit heroin consumption, in part because free government heroin drives out private-sector providers. When addicts shoot up in safe rooms monitored by public-health staff, where they are recruited into treatment programmes or (if they fail or refuse) simply receive free heroin, it gradually erodes the market for dealing the drug. As they say in the tech world, you can’t compete with free.

PS.  I realize that ‘legalization’ is not quite the right term here, but neither is “decriminalization,” which implies a non-prison penalty such as a monetary fine. These countries have no penalty at all for heroin use, just a requirement that the drug be used in safe (actually “less dangerous”) conditions.

PPS.  ”Harm reduction” is a nice utilitarian concept.  Unfortunately the countries in northern Europe are well ahead of the US in utilitarianism, which I regard as the most important difference between civilization and barbarism.

Software engineers are often put in a bizarrely challenging situation.

Essentially, they're sometimes forced to collaborate with business and sales executives who don't understand the first thing about how programming works.

So what happens when your co-workers or clients don't have a clue about what your job entails?

You end up getting assigned ridiculous tasks that are literally impossible. And that's exactly what Lauris Beinerts' parody video "The Expert" nails perfectly.

The sketch takes place in a meeting during which Anderson, the engineer (or "expert") is asked to draw seven red lines. The catch, however, is that the client needs these lines to be drawn in green ink or transparent ink. And they all must be perpendicular, which anyone with basic knowledge knows doesn't make any sense. 

"I'd assumed you'd known what perpendicular lines are like," one business associate snarks at Anderson when he asks what the lines should be perpendicular to. 

"Of course he does, he's an expert!" Anderson's project manager chimes in.

Anderson tries his best to keep cool as his managers and partners demand the impossible. Not only do they imply that he doesn't understand the concept behind their project, but they fail to even consider the fact that their idea makes no logical sense.

Check out the video below for a good laugh. 

(Via CNET)

Join the conversation about this story »

Over the past few decades, there has been an amazing shift in how businesses are taxed.  See the figure below, which is from CBO.  Businesses are more and more taxed as pass-through entities, where the income shows up on personal tax returns rather than on corporate returns.  (Here is an article discussing how the mutual giant Fidelity recently switched from one form to the other.)

This phenomenon complicates the interpretation of tax return data.  For example, when one looks at the growth of the 1 percent, or the 0.1 percent, in the Piketty-Saez data, that growth is likely exaggerated because some income is merely being shifted from corporate returns. I don't know how much.  If someone has already quantified the magnitude of this effect, please email me the answer. If not, someone should write that paper.

A hospital in Pennsylvania will soon begin clinical trials to put gunshot or other accident victims into a state of suspended animation while their organs are repaired. By all measures the people suspended will be dead for hours but with luck many will be brought back to life.

The first step is to flush cold saline through the heart and up to the brain – the areas most vulnerable to low oxygen. To do this, the lower region of their heart must be clamped and a catheter placed into the aorta – the largest artery in the body – to carry the saline. The clamp is later removed so the saline can be artificially pumped around the whole body. It takes about 15 minutes for the patient’s temperature to drop to 10 °C. At this point they will have no blood in their body, no breathing, and no brain activity. They will be clinically dead.

In this state, almost no metabolic reactions happen in the body, so cells can survive without oxygen. Instead, they may be producing energy through what’s called anaerobic glycolysis. At normal body temperatures this can sustain cells for about 2 minutes. At low temperatures, however, glycolysis rates are so low that cells can survive for hours. The patient will be disconnected from all machinery and taken to an operating room where surgeons have up to 2 hours to fix the injury. The saline is then replaced with blood. If the heart does not restart by itself, as it did in the pig trial, the patient is resuscitated. The new blood will heat the body slowly, which should help prevent any reperfusion injuries.

The technique will be tested on 10 people, and the outcome compared with another 10 who met the criteria but who weren’t treated this way because the team wasn’t on hand. The technique will be refined then tested on another 10, says Tisherman, until there are enough results to analyse.

No one knows how long people can be maintained in suspended animation before revival is impossible. We know from accidents where people drown in icy lakes that suspended animation can work for at least half an hour and experiments on pigs suggest no cognitive defects from revived animals suspended for up to an hour, mice have been suspended for up to six hours and roundworms for up to 24 hours.  If the initial trials are successful, further experiments will likely discover ways to lengthen the period of suspended animation in humans and perhaps suggest improvements to current cryonic techniques.

Hat tip: Noah Smith.

Remarkably, the man who was driven out of politics not once but twice for embarrassing personal scandals is proving to be even worse as a pundit than he was as a politician. In his first post as newly hired writer for Business Insider, Weiner has penned a terrible article on [...]

I am two generations into Android smartphones now, and they're fine. But here's an admission that might make me look my age: I still miss Blackberry. Not the OS (at all), so you might guess what: The keyboard. I've tried swyping, stylus-ing and talking (and repeating and repeating and repeating) and [...]

Via Dani Rodrik we get this finding from Derek Headey. That higher food prices appear to reduce poverty among the absolutely poor. This really isn't what we would expect at all but I think that it's possible to explain it in simple terms. The paper is here and here is the [...]

When you work in an environment that's all about battling germs, bacteria, and disease, common sense dictates that you should always keep your hands clean. But that's easier said than done, at least until these clever PullClean sanitizer dispensing door handles are installed in every hospital, doctor's office, and clinic around the world.

Read more...

Judge Koh clears the path to trial for a class-action lawsuit alleging wage-fixing and collusion by tech juggernauts, one that could lead to sweeping changes in Silicon Valley.

An anonymous reader writes with news that the U.K. government will finally legalize the copying of data from CDs, DVDs, and other types of media for personal use. This will allow U.K. citizens to legally make backups and digital copies of their media, which has been forbidden by copyright law previously. The changes will go into effect this June. It also grants permission for people to upload the ripped media to a remote host, though sharing of course remains illegal. "The mismatch between the law and public opinion became apparent through a Government-commissioned survey, which found that 85% of consumers already thought that DVD and CD ripping was legal. More than one-third of all consumers admitted that they’d already made copies of media they purchased. Besides the new private copying rights, the upcoming amendments will also broaden people’s fair use rights. For example, people no longer have to ask permission to quote from or parody the work of others, such as a news report or a book, as long as it’s “fair dealing” and the source is recognized."

Read more of this story at Slashdot.

Why don’t more seniors take advantage of food stamps?

Of the many schemes to make the government more efficient, this is probably the only one that involves typography. A middle schooler in Pittsburgh has calculated that by simply switching the typeface used in government documents from Times New Roman to Garamond, it would save taxpayers $400 million in ink.

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Play-Doh's all well and good when it comes to entertaining a toddler. But when you grow up, you need science to deliver something a bit more captivating. And what could be a better way to waste away the hours at work than with a handful of crystal clear putty that looks like liquid glass?

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In surprising booze news, Wonkblog's Christopher Ingraham gives an unexpected (and classy) spin to conventional drinking wisdom: if you're looking to get the most alcoholic punch per calorie, don't reach for "the hard stuff." You're better off drinking champagne or sparkling wine.

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In perhaps the most unexpected turn of events in Ukrainian politics, RT News says that Darth Vader, Sith Lord of the Galactic Empire, has declared himself a candidate in the Ukrainian presidential election. The political force is strong with this one.

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