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Tuesday, September 30, 2008

Or Not

On Tuesday the stock market had a big rally after the plunge on Monday.  The headlines everywhere were more or less, "Markets Rally Because of Renewed Optimism That Bailout Plan Will Eventually Pass".

So, how does the Main Stream Media know that for the hundreds of millions of shares that traded, the price was driven up because of buyers' renewed hope that some bailout plan would pass?  Why didn't they have at least some of that optimism on Monday?

If I was left to make up the headline, I would have guessed something more like, "Markets Rally Because Everyone Came to Their Senses and Realized That the Bailout Plan Wasn't Really Particularly Great After All" or, "Markets Rally Because Dollar Surges Against Foreign Currencies".  Or, how about, "Markets Rally Because Fed Continues to Inject Huge Amounts of Liquidity Into System Along with Planning to Reduce Reserve and Capitalization Requirements"?

It could be renewed excitement about the Bailout.  Or not.

Monday, September 29, 2008

Something for Everyone

The beauty of the financial situation is that there's something for
everyone. It was a real team effort by multitudes of players.

If you want to blame evil capitalist lenders and banks, there was
certainly plenty of greed and fraud to point your finger at.

If you want to blame big government, the CRA and Freddie and Fannie
give lots of opportunity for that sort of thing.

Hate mark-to-market regulations? Go ahead and blame that. Hate short
selling? Sure, why not blame that? Sarbanes-Oxley is even fair game
if you don't mind stretching a bit.

You think Bush and/or Congress suck? Certainly plenty of ammo for
blame there.

That's the wonderful thing. No matter what your ideology, there's
someone for you to blame!!! And that blame proves beyond a shadow of
a doubt that your ideology has been perfectly flawless all these
years!!! What could be better than that?

I haven't seen so many people so happy ever!!!

Friday, September 26, 2008

Great Depression History

In tonight's presidential debate, Obama said:
"Even if we get all $700 billion back, let's assume the markets recover, we' holding assets long enough that eventually taxpayers get it back and that happened during the Great Depression when Roosevelt purchased a whole bunch of homes, over time, home values went back up and in fact government made a profit."
Can somebody point me to a link that describes the Roosevelt Administration's profitable home purchasing program? I missed that part of the history of the great depression and I'm having trouble finding information about it with Google.

Friday, September 12, 2008

A more comprehensive perspective

Recently, Alan Blinder wrote a column appearing in NYT espousing the superiority of Democrat economic policy. I was a bit embarrassed for Mr. Blinder given the obvious weakness of the case he presented. Russ Roberts picked apart the claims here offering several points including:
I learned from my textbook (Samuelson) the fallacy of post hoc, ergo propter hoc. After this, therefore because of this. Alan Blinder commits this fallacy...

Most economists will also tell you that Presidents don't even control fiscal policy. Here in the United States we have three branches of government. The Presidency is one of them. Then there is what is called the Congress. They have a say, too. Then there are external events besides fiscal policy and monetary policy and oil prices that affect the economy and that are beyond the President's control. Demographics. Cultural trends. Technology. None of these are controlled by the President.

Statistical regularities are stubborn things? No they're not. They are dominated by randomness almost by definition. That's why they're called regularities. They reveal a pattern in the data. Nothing more. Nothing less. Without a theory (and saying Democratic presidents are better at running the economy than Republican presidents is not a theory) it's just a regularity.
Don Luskin makes his contribution with DIVIDED GOVERNMENT IS BEST FOR THE MARKET:(read the whole article)
Let's get something settled once and for all. Have the stock markets and the economy historically done better under Democrats or Republicans?

I've run the numbers myself. Superficially at least, the Democratic claims are true: Since 1948, the Standard & Poor's 500 total return (capital gains plus dividends) has averaged 15.6% when a Democrat was in the White House and only 11.1% when a Republican was in the White House.

You get a similar result if you look at growth in real gross domestic product. Under Democratic presidents, the average since 1948 has been 4.2%. Under Republican presidents it has been only 2.8%.

But it's not so simple when you study that "study." First, not all Democrats act like Democrats, and not all Republicans act like Republicans. John F. Kennedy, for example, was an enthusiastic supply-side tax cutter, and George H.W. Bush raised taxes. Bill Clinton promoted free trade, and Richard Nixon imposed wage and price controls.

If you assign those four presidents to the opposite party based on that -- make the two Democrats into Republicans and the two Republicans into Democrats -- the numbers completely reverse. Now stocks average 14.7% under Republicans and only 10.5% under Democrats.

In fact, it turns out that if you do just one single switch -- if you make Richard Nixon into a Democrat -- it's enough to reverse the numbers. Then stocks average 14% under Republicans and only 12.1% under Democrats. This fact discredits this whole study more than it does Republicans, or even Richard Nixon himself. Any analysis that can be undone by omitting or changing a single data point isn't very robust.

By the way, as fond as Democrats are of saying how poorly stocks have performed under George W. Bush, here's a sobering fact: Stocks averaged 14.1% return in those Bush years when Republicans controlled Congress -- and when Democrats got in there and mucked things up, the average has been a loss of 8.9%. That's not even including 2008 year-to-date, which doesn't look so pretty.

If the electorate were really smart, it would elect a Democratic president and a Republican Congress. Under that deal, stocks have averaged a 20.2% total return, and real GDP averaged 4%. That tells us that economic and stock market success isn't really about partisan politics at all. Sadly, nobody has a political incentive to conduct a study about that.

The role of Nixon's economic record is rather interesting. I have long been amused that the left is so angry with RMN for nailing their boy Alger Hiss. If they really knew any economics they would have a better appreciation for how his economic policies set off an economic stink bomb that nobody knew how to defuse until Ronald Reagan came along. That would really get them worked up.

Also, did you make note of this?: Any analysis that can be undone by omitting or changing a single data point isn't very robust. Failure to grasp the significance of this point is yet another wonderful example of what Richard Feynman called fragile knowledge.

Finally, I'm a pretty big fan of divided government, Bret is an even bigger fan. Pretty smart guy that Bret!

global what?

Top Russian scientist: global cooling coming
For the remainder of this century, it will be global cooling we'll have to worry about, according to highly credentialed Russian scientist, Dr. Oleg Sorokhtin.

The high standing of Dr. Sorkhtin and the inherent plausibility of his argument that climate will continue to follow the same basic causal factor, solar activity, make this another heavy blow to the heavy breathing of the global warming alarmists, who insist there is no argument at all.
We shall see. Meanwhile, we have this:

There has not been a public debate about the causes of global warming and most of the public and our decision makers are not aware of the most basic salient facts:

1. The greenhouse signature is missing. We have been looking and measuring for years, and cannot find it.

Each possible cause of global warming has a different pattern of where in the planet the warming occurs first and the most. The signature of an increased greenhouse effect is a hot spot about 10km up in the atmosphere over the tropics. We have been measuring the atmosphere for decades using radiosondes: weather balloons with thermometers that radio back the temperature as the balloon ascends through the atmosphere. They show no hot spot. Whatsoever.

2. There is no evidence to support the idea that carbon emissions cause significant global warming. None. There is plenty of evidence that global warming has occurred, and theory suggests that carbon emissions should raise temperatures (though by how much is hotly disputed) but there are no observations by anyone that implicate carbon emissions as a significant cause of the recent global warming.

3. The satellites that measure the world's temperature all say that the warming trend ended in 2001, and that the temperature has dropped about 0.6C in the past year (to the temperature of 1980).

4. The new ice cores show that in the past six global warmings over the past half a million years, the temperature rises occurred on average 800 years before the accompanying rise in atmospheric carbon. Which says something important about which was cause and which was effect.

None of these points are controversial. The alarmist scientists agree with them, though they would dispute their relevance.

The world has spent $50 billion on global warming since 1990, and we have not found any actual evidence that carbon emissions cause global warming. Evidence consists of observations made by someone at some time that supports the idea that carbon emissions cause global warming. Computer models and theoretical calculations are not evidence, they are just theory.

It will be fun to watch this play out in the public arena.

Thursday, September 04, 2008

I Must've Seen a Different Speech

The reviews of Sarah Palin's VP nomination acceptance speech seem to be overwhelmingly positive, at least those reviews from conservative pundits: "The start of something truly big", "A star was born last night"; "She has star quality"; etc.

I watched her speak and I thought it was a pretty decent delivery of a somewhat marginal speech. The crowd stepped on a lot of her lines with applause, she made a lot of references to Obama's foibles that people who aren't political junkies probably didn't get, and while she was trying to stress her relevant experience, she still looks pretty green to me.

On the other hand, looking at the faces at the convention while she was speaking, and also noticing the rapt look on my daughters (ages 12 and 9) and wife's faces, she is clearly a mesmerizing speaker for many people. Just like Obama. Now each ticket has their very own hypnotist. I'm not surprised that Obama hypnotizes people. His cadence and tone sound somewhat hypnotic to me. I'm a little more surprised that Palin has this effect since she has a much different speaking style. However, I'm pretty convinced that a lot of the crowd was hypnotized.

This could be a serious problem. This election, like the previous two presidential elections, might also be close. Hypnotized followers can be incited to do very extreme things. Hitler was such a speaker and leader and his leadership didn't turn out too well for the world. I'm not saying that either Obama or Palin (McCain) would take us in a direction even vaguely similar to Hitler. What I am saying is that the side that loses this election, being hypnotized, may be even more irrational in dealing with their disappointment than in previous elections. And the losers were already pretty scary in those previous elections.

My wife and I have made a strict rule that we're not going to talk about politics at all with friends, family, co-workers, or anybody in person until well after the election. Many of our friends are already hypnotized by one side or the other and are clearly extremely emotional when politics is even mentioned. Emotional to the point of visibly shaking. Emotional to the point of being completely irrational. Emotional to the point of talking about moving out of the country if their candidate loses. And these are generally intelligent and balanced people. I'm finding it very scary.

Fortunately, I can still spout off about politics here in the safety of the blogosphere. If I piss y'all off, at least I won't suffer any significant harm.

Ultimately, I'm confident that the country will survive just fine regardless of who's elected. Everybody needs to splash some cold water on their faces, wake up, take a deep breath, and get a grip.

Tuesday, September 02, 2008

A Heartbeat Away

On the face of it, one of the stronger arguments against McCain/Palin is that McCain is older than dirt and will likely keel over any second now, and that Palin is too inexperienced to take over when that happens.

So what is the likelihood that McCain does indeed shuffle off this mortal coil shortly after being elected? I'm surprised that I haven't seen this probability published in any of the dozens of articles that I've read that have made the above argument.

I looked up the relevant probabilities in the Social Security Administrations Actuarial Life Table. I don't think there is any information regarding McCain that would allow us to do better than these tables. Yes, he's had skin cancer and his ancestors have died somewhat younger than average. On the other hand, he looks reasonably fit, healthy, and vibrant, and I think that pushes him back towards having typical life expectancy. Maybe not, but it's still an interesting exercise to consider life expectancies for typical men of McCain's age.

From the tables, McCain has close to 97% probability of surviving the first year and better than 85% chance of surviving all four years. So no, he's not all that likely to kick the bucket during the next presidential term.

Another way of looking at it is this. If experience is critically important, and you consider McCain to be adequately experienced, but Obama only to be 80% likely to be adequately experienced for situations that might come up in the next four years, you'd be better off voting for McCain, even if you think that Palin certainly does not have adequate experience.