How Many Calories for a Dollar?

Michael Pollan, as always, making perfect sense:

Now watch Will Allen on urban farming…

If You Had A Billion Dollars…

If you had a billion dollars to make the world a better place, how would you spend it?…

Health Care Parallels Education

I was listening today to a Fresh Air interview from a couple of weeks ago on the reasons for the high cost of health care:

Audio clip: Adobe Flash Player (version 9 or above) is required to play this audio clip. Download the latest version here. You also need to have JavaScript enabled in your browser.

AudioPlayer.embed("audioplayer_1", {soundFile:"aHR0cDovL3B1YmxpYy5ucHIub3JnL2Fub24ubnByLW1wMy9ucHIvZmEvMjAwOS8wNy8yMDA5MDcyN19mYV8wMS5tcDM"});

Highly informative and thought provoking. One thing that struck me was the discussion about how we don’t pay primary care physicians enough and that specialists make a majority of the dollars. This is not earth shattering news, but it I was reminded of a similar problem in higher education. Specialization is highly valued where as general studies and thinking/life skills are not, despite the fact that it’s these more general abilities and knowledge that determine how successful you are in your chosen trade (specialized or not). Same thing in medical care: it’s not the specialists who have the most impact on your health and mortality, it’s …

Name That Financial Debacle!

The following quotes are from a book describing a real set of events:

[The incident] is an extraordinary example of what happens when you get… a dozen people with an average IQ of 160… working in a field in which they collectively have 250 years of experience… employing a ton of leverage.

It’s hard to overstate the significance of a [government-led] rescues of a private [corporation].  If a [company], however large was too big to fail, then what large [company] would ever be allowed to collapse?  The government risked becoming the margin of safety.  No serious consequences had come about in the end from the… near-meltdown.

Was the incident:

a) The savings and loan scandal

b) The collapse of Enron

c) The sub-prime mortgage meltdown

d) none of the above

First correct answer gets to invest in an exciting new bridge project I’m involved with in New York!…

Robin Hood Foreclosure Fund, part II

Pursuant to my earlier post, it turns out there already is such a group:

Foreclosure Angel Foundation

Thanks to Marissa Chien who found it and pointed me to it.  She also suggests that people who are having trouble with their mortgage should seek advise from HUD.  Information is power and many people (I’ve learned) are irrationally scared of approaching their lender and negotiating.  More and more lenders are willing to cut deals to avoid foreclosures.…

Robin Hood Foreclosure Fund

Have you ever heard of anyone selflessly helping out a stranger by buying their house at a bank foreclosure auction and just giving it back to them?  Well, now you have.

More likely, you’ve probably heard of private investors taking advantage of the banks’ unwillingness (or inability) to deal with all the bad loans on their books. Like the group of investors in Act 2 of this This American Life episode, you buy a house that’s in foreclosure for a significant discount on its true market value and then “you get the homeowner into either a mortgage they can afford, or they’re able to rent it, or you pay them a bit to move somewhere else.”

Well, what if there was a way to combine these two activities so that you are doing good for someone else while doing well for yourself financially?  There are many variants of how this could work, but here’s the basic concept:…

Are Realtors Really Making Too Much?

The Freakonomics guys have been on this rant for years, and until recently, I agreed with their logic.  But the mounting evidence (in my mind) is starting to swing the other way.…

Stability Through Instability

A friend pointed me to a doubly prescient talk given by George Soros in 1994 about his theory of reflexivity in the markets.  Essentially Soros notes that there’s feedback in terms of what agents believe about the market and how the market behaves.  Not groundbreaking, but he takes this thinking to some logical conclusions which are in contrast to standard economic theory:…

Best Reader Comment Award

I’m giving my “2009 Q1 award for most concise, lucid comment” to Paul Phillips for this gem:

Viewed from a thousand miles, the financial system has a incalculably large incentive to fail catastrophically as frequently as it can do so without killing the goose that lays the golden eggs.

As long as there is such a thing as “too big to fail” and trillions of dollars are available for siphoning, according to what logic can this cycle be dampened? Nobody has to explicitly pursue this outcome (although there are many who will) for it to be inevitable; the system obeys its own logic above all else.

[ commenting on Alfred Hubler on Stabilizing CAS ]

The Good, The Bad & The Ugly

A few articles on the economy that were sent my way recently.

The Good: After Capitalism (Geoff Mulgan)

The era of transition that we are entering will be disruptive—but it may bring a world where markets are servants, not masters.”  I urge you to read this entire article, and leave your ideological biases at the door.  Despite the title, this is no polemic.  Here’s the punchline:

Contemporary biology and social science has confirmed just how much we are social animals—dependent on others for our happiness, our self-respect, our worth and even our life. There is no inherent contradiction between capitalism and community. But we have learned that these connections are not automatic: they have to be cultivated and rewarded, and societies that invest large proportions of their surpluses on advertising to persuade people that individual consumption is the best route to happiness end up paying a high price.

Alfred Hubler on Stabilizing CAS

With his permission, I am posting an email thread between myself and Alfred Hubler.  I had contacted him on the recommendation of John Miller when Kevin and I were posting on the possibility of dampening boom-bust cycles in the financial markets through policy or other mechanisms.  Here’s what Hubler had to say:…

If Rafe Were In Charge: Major Medical Edition

Kevin started an interesting discussion that included a thoughtful proposal for the problem of major medical care costs risk mitigation.  You should read that here before reading my proposal below.

Part 1: Major Medical Annuities. Federally mandated/funded (similar to SSI/Medicare), with a specific initial lifetime value that is the same for everyone. The concept is that you pick a number slightly bigger than the average expected lifetime major medical bill and set aside that pot of money for everyone individually. At some point (e.g. 65) you can choose to start drawing down from your pot as taxable income. Prior to then, the only way the fund can be used is for major medical expenses not covered by other insurance you may have. Such payments go directly to providers and are tax-exempt. When you die, any leftover amount gets transferred to the MMA accounts of your heirs (per your desired breakdown, or according to probate law in the absence of a will).…

Leveraging Taxes for Civil Engagement

Dan Ariely had an interesting idea on NPR’s Marketplace today.  Here’s the audio of the segment.  The idea is to get tax payers thinking about how their tax dollars should be spent, thus getting them more civilly engaged.  His research and that of others suggests that such activity would reduce the propensity to cheat on one’s taxes, and may even get people to pay more than they would otherwise.…

Asymmetry Is the Root of All Value

It’s not hard these days to find vignettes like this one (starting at minute 1:45) that describe a microeconomic chain of events that give you a glimpse into the recessionary dynamic.  I think it’s a good starting point to explain my personal theory of why asymmetry is the root of all value (economic and otherwise).…

Another Must Read on the Origins of the Crisis

Steven Gjerstad and Vernon Smith have published a really nice article that starts out with bubbles in general and goes on to explain why the bursting of this particular bubble hurt the economy so much.  It echoes a lot of themes that I’ve covered before, but is obviously much more soundly though out.

The short version is that the effect of a bubble on the economy is determined by its effect on consumer spending.  The Dot Com Bubble didn’t have much of an effect because it primarily affected institutions and already relatively wealthy consumers. However, the Fed’s attempt to shorten the resulting recession created a loose monetary policy which forced dollars into the most attractive asset class: homes.  This attractiveness stemmed from relaxed lending standards and tax-free capital gains on homes, which created more buyers. But asset appreciation in this class is fundamentally limited by the ability of consumers to repay loans from income, which was not growing fast enough. As the institutions insuring mortgages …

Too Big to Fail = Too Big to Exist?

I asked this question on twitter/facebook and got a lot of variants of “I agree” and only one person who stated disagreement (but provided inadequate reason, IMO).  Jay Greenspan put it this way:

Interesting question this morning, and something I’ve been wondering about. I’ve yet to see anyone really argue that state of non-regulation we’ve been in for the last years has been a good idea.  I’ve heard some thoughtful conservatives talk about how their views have changed radically — coming to understand that forceful regulation is absolutely necessary.

The super-conservatives I’ve seen are talking more about taxes, avoiding the subject. I’d be very interested to see a credible argument for a hands-off approach.

So how about it, anyone game to take up a considered argument for not mandating that companies who get big enough to affect the global economy should be broken up or otherwise handicapped?…

Executive Compensation

The main problem with executive pay is not that they are compensated too highly, but that there’s not enough pain for them personally when they do a bad job.  I propose that the top three executives in all public companies be required to invest 100% of their salary in their own stock each year, with a decaying lockup period before they can sell.…

3 Interesting Articles on The Economy

1) The Quiet Coup

The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.

Betting on Recovery

I have a bet with a friend that Dow will exceed 14,000 at least once by October 12, 2012 (he says it won’t).

Click here to make your prediction on what year that will take place.

Comment below on why you think what you think.…

Behavioral Economics With Dan Ariely

If you liked this talk (as I do), check out Ariely’s 3 irrational lessons from the Bernie Madoff scandal.…

How to Change the Climate in 3 Years

Oh, and re-grow the rainforrest, strengthen the social, political and economic climate, save endangered species and increase biodiversity and resilliance all at the same time without any budget.…

Radical Transparency

In a March 2009 Wired article, Daniel Roth calls for radical transparency in financial reporting as the path to recovery and a more secure financial system.  He argues that the reporting requirements today allow companies to obscure what’s going on and that the way to fix things is as follows.   Embrace a markup language with which bite-sized chunks of standardly defined pieces of financial data are thrown out to the world so that users can crowdsource the true picture of a company’s financial health.…

Complexity Economics

In Chasing the Dragon, I wondered aloud whether we could dampen boom-bust cycles in the financial system with an economic equivalent of a controlled burn.  Kevin suggested that “generic countercyclical policies” might work.  Underlying both mine and Kevin’s thinking is the idea that you can possibly do better (for the world as a whole) by (a) understanding the entire economic system better and (b) enacting policies which are in line with that understanding.  In contrast to these assumptions are a point of view articulated by one of the readers on a different thread:…

Chasing the Dragon

Kevin just posted about a great article by Felix Salmon in Wired.  I underlined three quotes in my reading of it:

  1. “Correlation trading has spread through the psyche of the financial markets like a highly infectious thought virus.” (Tavakoli)
  2. “…the real danger was created not because any given trader adopted it but because every trader did. In financial markets, everybody doing the same thing is the classic recipe for a bubble and inevitable bust.” (Salmon)
  3. “Co-association between securities is not measurable using correlation…. Anything that relies on correlation is charlatanism.” (Taleb)

American Recovery and Reinvestment Act of 2009

Has anyone read the entire text of the stimulus package?

The ambiguity of this question is intentional.