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  • What is Economics?

    I have noticed that many of the stories I read and heard lately, about economists work, is not exactly what you would expect: Randomization in Sports, Violent Films May Drive Down Crime Rate, Study ties dropouts to violent crime rate, Seat Belts Still Best Hedge Against Injury.

    I understand that it is possible to see the economic interest in almost everything (though things like randomization in sports it gets pretty hard). It seems to me lately there has been an increase in economist studying interesting areas that really are not about the economy. It seems like the knowledge and skill to examine complex data sets and draw conclusions is really defining what some economists are becoming (instead of the study of economic matters specifically). While the majority of economists still examine traditional economy related data some others are increasingly studying other areas. But this may just be my perception.

    Some economics definitions:

    • Princeton WordNet – “the branch of social science that deals with the production and distribution and consumption of goods and services and their management”
    • Illinois State Water Survey – “The study of choice and decision-making in a world with limited resources”
    • American Economic Association – “Economics is the study of how people choose to use resources.”

    Related: Curious Cat Economics Dictionary – articles on economics – economics related blog posts

  • Prediction Markets at Google

    Another interesting experiment from Google: Using Prediction Markets to Track Information Flows: Evidence from Google

    In Google’s terminology, a market asks a question (e.g., “how many users will Gmail have?”) that has 2”5 possible mutually exclusive and completely exhaustive answers (e.g., “Fewer than X users”, “Between X and Y”, and “More than Y”). Each answer corresponds to a security that is worth a unit of currency (called a “Gooble”) if the answer turns out to be correct (and zero otherwise). Trade is conducted via a continuous double auction in each security.
    …
    Google’s prediction markets are reasonably efficient, but did exhibit four specific biases: an
    overpricing of favorites, short aversion, optimism, and an underpricing of extreme outcomes.

    Interesting paper. Prediction markets are an interesting attempt to use a market principles to gain insight into future prospects.

    Related: Google Experiments Quickly and Often – Secrets of the World’s Best Companies

  • Rent Controls are Unwise

    Response to: The desirability of rent controls

    I do not believe rent controls are wise, in general. There are some options I wouldn’t mind – some sort of affordable housing that has breaks from the government (tax…) in exchange for a commitment to keep rental rates down. But wholesale rent controls are very unwise I believe.

    A related issue I find amusing. You will hear don’t regulate at all state that it is regulation preventing housing being constructed (zoning regulations) that create rising prices which they imply is unfair. It seems to me the data shows the opposite of what those people claim. People are willing to pay more for the regulated housing markets. That means the market forces value the regulation and in order to increase the economic utility (which is represented by what people will pay) more regulation should be used not less.

    Related: articles on real estate investing – regulatory risk (for rent control that would be the risk that investment property rights were limited due to rent control)

  • Revised GDP Calculations for China

    The great fall of China

    World Bank, which published updated statistics on the economic output of 146 countries. China’s economy, said the bank, is smaller than it thought. About 40% smaller. China, it turns out, isn’t a $10-trillion economy on the brink of catching up with the United States. It is a $6-trillion economy, less than half our size.
    …
    Unfortunately, comparing hundreds and even thousands of prices in almost 150 economies all over the world is a difficult thing to do. Concerned that its purchasing-power-parity numbers were out of whack, the World Bank went back to the drawing board and, with help from such countries as India and China, reviewed the data behind its GDP adjustments.

    It learned that there is less difference between China’s domestic prices and those in such countries as the United States than previously thought. So the new purchasing-power-parity adjustment is smaller than the old one — and $4 trillion in Chinese GDP melts into air.

    Related: China Economy Report by the World Bank – Accuracy of Manufacturing Data – Manufacturing Jobs Data: USA and China – Curious Cat Economics Web Search

  • Paul Krugman Speaks at Google

    Paul Krugman, who was named Columnist of the Year by Editor and Publisher magazine, writes a twice-weekly column for the op-ed page of the New York Times. He is a professor of economics and international affairs at Princeton University, and the author or editor of 20 books and more than 200 professional journal articles. In recognition of his work, he has received the John Bates Clark Medal from the American Economic Association, an award given every two years to the top economist under the age of 40. The Economist said he is “the most celebrated economist of his generation.”

    Related: Google Tech Webcasts – Steven Levitt (Freakonomics author) – Income Inequality in the USA

  • Bad Practice: .05% Interest From a Stock Broker

    Unfortunately it is not uncommon to find companies that choose to line their pockets at the expense of customers. I wish we could find companies that want to provide good value and make some profit by doing so. My stock broker used to allow clients idle cash to be invested and earn a reasonably decent rate (not Vanguard money market fund but you know for a company that doesn’t want to provide the best customer value a least something remotely approaching fair). This year (or last year) they stopped doing so and switched to the following rate structure:

    Dollar Range Interest Rate Annual Percentage Yield
    $0.01-$4,999 0.04999% 0.05%
    $5,000-$24,999 0.04999% 0.05%
    $25,000-$99,999 0.29959% 0.30%

    You might think they make an error and mean 5% and just put the decimal in the wrong place but you would be wrong. It used to be leaving your money in money market accounts with the broker wasn’t great but the 50+ basis point hit was worth the convenience. Now HSBC pays 4.25% for online savings. So at 100 times what the broker pays they would be slightly higher than HSBC. Sorry paying 1/85 of what HSBC pays is not just talking a bit of your clients money for yourself. That is obscene. You can no longer trust that your stock broker will only talk 50+ basis points of you money market earnings. Take a look at your account and setup an account with HSBC, Vanguard (current yield 4.64%) or something similar that pays a reasonable rate for any short term savings.

    If your broker pays less than 2% on a money market account of $5,000 that is a scary sign. What else they might be doing that isn’t so obviously unfair is difficult to know. Getting above 4% for a cash saving account now is pretty good, in my opinion.

    Related: Customer Hostility from Discover Card – Frugality Versus Better Returns – Learning About Personal Loans

  • $8,000 Per Gallon

    $8,000-per-gallon printer ink leads to antitrust lawsuit

    For most printer companies, ink is the bread and butter of their business. The price of ink for HP ink-jet printers can be as much as $8,000 per gallon, a figure that makes gas-pump price gouging look tame. HP is currently the dominant company in the printing market, and a considerable portion of the company’s profits come from ink.

    The printer makers have been waging an all-out war against third-party vendors that sell replacement cartridges at a fraction of the price. The tactics employed by the printer makers to maintain monopoly control over ink distribution for their printing products have become increasingly aggressive. In the past, we have seen HP, Epson, Lenovo and other companies attempt to use patents and even the Digital Millennium Copyright Act in their efforts to crush third-party ink distributors.

    The companies have also turned to using the ink equivalent of DRM, the use of microchips embedded in ink cartridges that work with a corresponding technical mechanism in the printer that blocks the use of unauthorized third-party ink.

    Tip – by a printer from a company that doesn’t rip you off as much for ink: The Kodak 5300 All-in-One Printer, which uses ultra low-priced ink to help you save up to 50 percent. Kodak has made the strategic decision to compete with the entrenched printing companies by not ripping off customers as much.

    Related: Kodak Debuts Printers With Inexpensive Cartridges – Price Discrimination in the Internet Age – Zero Ink Printing – Open Source 3-D Printing

  • UK Real Estate Prices Decline

    London Leads the Biggest U.K. House-Price Drop for Five Years

    The average U.K. asking price fell 3.2 percent to 232,396 pounds ($473,437) from November, the largest decline since the survey of real-estate agents’ listings began in 2002, Britain’s most-used property Web site said today. London home costs dropped 6.8 percent, also the most recorded by Rightmove.
    …
    Prices in the London region fell an average of 28,099 pounds on the month and all 32 areas of the capital in the survey had declines, led by the districts of Hackney, Tower Hamlets and Islington, Rightmove said. Home costs in Kensington and Chelsea, where Russian billionaire Roman Abramovich lives, fell 4.9 percent to 1.65 million pounds.

    Related: Fourteen Fold Increase in 31 Years

  • Fed Plans To Curb Mortgage Excesses

    Fed Plans To Curb Mortgage Excesses, way late but at least they may do something.

    Before Ben S. Bernanke became chairman nearly two years ago, “the Fed racked up a long record of neglect in regards to predatory lending,” said Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.), who introduced his version of mortgage-lending reform this week

    Yes the Fed should have taken more aggressive action. But the legislators should not throw stones at others – what have they done? A recent example – they want to lower the down payment required for FHA loans to 1.5%. I can’t take anyone’s opinion, of how others should have behaved seriously, when they vote for such legislation in the midst of a subprime mortgage loan crisis. What are these people thinking. Ok, everyone now says loan standards were to lax, people stopped putting 20% or even 10% down on home purchase. Ok, lets blame the Fed and then lower the down payment required for federal backed mortgages to 1.5% (from the already very low 3%). Did this crazy legislation just barely squeak by? Nope, passed the senate 93-1! Lets have the politicians explain what they have done right before they just criticize others. Their game of blaming others while doing next to nothing positive themselves is sad.

    “If you are too severe or too draconian, you are going to eliminate value in the marketplace,” said Steve O’Connor, senior vice president of government affairs for the Mortgage Bankers Association.

    Another real voice of reason. The Mortgage Bankers Association (MBA) really expects anyone to pay any attention to their opinions. They have someone managed to create a threat to the economy so large that $90 a barrel oil is not the threat to the economy people are worried about. I think anyone that reads these opinions from the MBA and doesn’t see them as self serving statements and nothing else should be ashamed of themselves. Shouldn’t the Washington Post at least include some follow up question on why the public should listen to that organization. What was there senior vice president saying 5 years ago to ensure the economy wasn’t threatened by the reckless action of their members? We seem to have forgotten that individuals and organization should be held accountable for their actions. Quote some people that are not only concerned with their benefits without regard for what it does to everyone else. If that is not what they are doing, lets see 5 policy recommendations they have made in the last 5 years that are good for America and bad for you and your members. I don’t think the rest of us believe what is good for the MBA is good for America.

    Related: Why do we Have a Federal Reserve Board? – Ignorance of Many Mortgage Holders – How Not to Convert Equity – Washington Paying Out Money it Doesn’t Have – Legislation to Address the Worst Credit Card Fee Abuse (Maybe) – Lobbyists Keep Tax Off Billion Dollar Private Equities Deals and On For Our Grandchildren

  • Randomization in Sports

    Here is my comment on, The Sun Devil Suggestion System a few days ago:

    My father was a professor at the University of Wisconsin. I remember one time he wanted the football coach to randomly select the play for certain situations. They would have say 4 plays for 3rd and 3. Instead of making the decision of which to run he thought they should just randomly pick from those 4. The idea was that would eliminate the coaches’ bias which the defense could predict and plan for. The theory was being more unpredictable would lead to more success. They didn’t go for it.

    Here is a post on the Freakonomics blog today, Why Don’t Sports Teams Use Randomization? by Ian Ayres:

    Levitt and others have tested the degree to which professional tennis and soccer players are successful at playing randomized strategies. But it remains a mystery to me why coaches don’t have random number generators (any laptop would do) to help them pick the next pitch in baseball, or the next play they will call in football.

    He then goes on to discuss an equally interesting but different topic faulting coaches for failing to take enough risk in football – in going for a first down on fourth down. That supports my gut instincts. The “conventional wisdom” seems mainly about not “seeming stupid” not the best long term results.

    Related: Testing Mixed-Strategy Equilibria When Players Are Heterogeneous: The Case of Penalty Kicks in Soccer – Minimax Play at Wimbledon