Thursday, March 26, 2009

Nothing like paper

Data rot refers mainly to problems with the medium on which information is stored. Over time, things like temperature, humidity, exposure to light, being stored not-very-good locations like moldy basements, make this information very difficult to read.

The second aspect of data rot is actually finding the machines to read them. And that is a real problem. If you think of the 8-track tape player, for example, basically the only way you can find 8-track cartridges is in a flea market or a garage sale.

The problem, strangely enough, is not so bad on the older stuff, but quite bad on the more recent stuff. So we can read tapes here at the museum that are 50 years old. ...

Making lots of backups is good advice, and on different formats, different places; consider paper as an archival medium. Some paper we have has lasted thousands of years. If Moses had gotten the Ten Commandments on a floppy disk, it would never have made it to today.
--Dag Spicer, NYT, on the glory of paper

Wednesday, March 25, 2009

The taxi tale of the computer

On average, drivers work about nine and a half hours a day, the commission said. That covers the time from a driver’s first pickup to the last drop-off.

That is in contrast to what many cabbies have long told officials: that they often work 11 or 12 hours a day.

The data also shows that the greatest number of cabs are on the road at about 7 p.m. At that time on an average day in February, about 10,000 cabs were cruising the streets. At noon, an average of 8,700 cabs were on the road. The fewest cabs were available at 5 a.m., when about 2,600 cabs were out. ...

Mr. Daus said that drivers’ wages appear to have remained steady at $14 to $16 an hour after expenses.
--William Neuman, NYT, on what newly installed computers tell us about New York cabbies

Sunday, March 22, 2009

In defense of the fair-weather fan

Very much back in the day, Theseus was the mythical king of Athens. And among his many possessions, he had a ship that he used to return from slaying the Minotaur. After his death, this ship was preserved for hundreds of years in the harbor of Athens. Or was it? Whenever a wooden plank rotted out, it was replaced. If a beam fell apart, a new one was fashioned in its stead. After enough time had passed, every part had been replaced. So now it was a boat that looked very much like the ship of Theseus, and occupied the same spot in the harbor, but not a single piece of it had existed when Theseus sailed. Essentially, it was a replica. And yet people persisted in referring to this ship as the ship of Theseus. In philosophy, this problem of identity has become known as the Ship of Theseus paradox.

To make the analogy abundantly clear: sports teams change from year to year. These days, they change a lot. You might hold a great attachment to the 2004 Red Sox World Series champions, but only around 10 percent of this year's roster consists of players from that team (actual fact!). And if you have been rooting for the Sox for more than 14 years, you're rooting for a fully replaced team - different players are playing the game, different owners get your ticket money. You can see why this is an absurdity. ...

So walk with your [head] held high, you fair-weather fan! If someone besmirches your team of choice simply because your family has not been wearing its merchandise for generations, you may unleash the full force of impeccable logic upon them, starting with your fists. Mine are named Plato and Aristotle.
--Samuel Arbesman, Boston Globe, on why sports fandom is illogical

You and your research

An awesome talk by the great applied mathematician Richard Hamming on how to do research:


Over on the other side of the dining hall was a chemistry table. I had worked with one of the fellows, Dave McCall; furthermore he was courting our secretary at the time. I went over and said, "Do you mind if I join you?'' They can't say no, so I started eating with them for a while. And I started asking, "What are the important problems of your field?'' And after a week or so, "What important problems are you working on?'' And after some more time I came in one day and said, "If what you are doing is not important, and if you don't think it is going to lead to something important, why are you at Bell Labs working on it?'' I wasn't welcomed after that; I had to find somebody else to eat with! That was in the spring.

In the fall, Dave McCall stopped me in the hall and said, "Hamming, that remark of yours got underneath my skin. I thought about it all summer, i.e. what were the important problems in my field. I haven't changed my research,'' he says, "but I think it was well worthwhile.'' And I said, "Thank you Dave,'' and went on. I noticed a couple of months later he was made the head of the department. I noticed the other day he was a Member of the National Academy of Engineering. I noticed he has succeeded. I have never heard the names of any of the other fellows at that table mentioned in science and scientific circles. They were unable to ask themselves, "What are the important problems in my field?''

Friday, March 20, 2009

Cutting off the nose to spite the face

If the "TARP bonus" bill the House passed becomes law, any of the hundreds of thousands of people who work for Citigroup, Bank of America, AIG, and nine other major US corporations will have to fork over 90 cents of every bonus dollar that puts their household income over $250,000.

That's household income, not individual income. If you're married and filing singly, you'll have to surrender anything over $125,000. Indefinitely.* (The bill seems to apply only to "bonuses", although this isn't crystal clear in the wording. If so, this distinction is ludicrous: Companies will just pay execs bigger salaries.)

Is $250,000 per household a lot of money? Sure. But it's not a lot of money for two moderately successful corporate executives. Or a corporate secretary married to a lawyer. ...

But that's not the really distressing part. The really distressing part is what this tax will do to the corporations that we now own and are supposedly trying to save.

(Remember? That's the reason we bailed Citigroup, AIG, GM, and the rest of them out--to save them. Because we convinced ourselves that civilization would end if we didn't.)

Thanks to our stupidity bailouts, we now own major stakes in these firms--at mind-boggling expense. So it's not clear why we want to destroy them. But that's what we seem determined to do.

Believe it or not, hidden inside these companies are thousands of decent, competent people whose households bring in more than $250,000 a year. Many of these folks had nothing to do with the gambling addiction that bankrupted their firms. Many of them still have a choice where to work. And now that they've learned that their family's pay will be capped at $250,000 indefinitely, many of them will quickly decide that now is a good time to pursue their careers elsewhere. (That is, unless their firm takes the easy and obvious step of just paying them a fatter salary, which just renders the whole thing a farce.)

The real lesson here, unfortunately, is that it's a disaster for the government to run private companies. We used to understand that. But ever since we started telling ourselves that we had to save bankrupt institutions by taking them over and pretending not to "nationalize" them, we have apparently forgotten.
--Henry Blodget, Huffington Post, on populist outrage going off the rails

Wednesday, March 18, 2009

Another credit crisis explanation

The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

Thugz on executive compensation

You have to be real careful when you mess with folks at the top, because when the war is over, you’ll need these guys real quick. Ninety-nine percent of people just doing what they’re told — you couldn’t find half a brain among all of them. But the ones with the brains — don’t let them go.

There’s two kinds of brains you need to run a good business. Sometimes you need “Sleepy Heads.” You know, the ones who pick up the money from the crews; the ones who make sure everyone got ammo; the ones who just do their job, don’t cause no trouble. Then you need bona fide Killers. The Killers like watching you bleed to death while they are eating a plate of ham and collard greens. You understand?

See, by the time there’s a crisis, the Sleepy Heads are already gone. They’re the ones who keep the books, so they know where the money is, and they know when trouble starts. So they usually get out first. But at this point, in most of these companies, all you got left is the Killers. They’re the ones who like hanging around, who ain’t got no home life, who just love the blood, and the guts, who love the pain!

Never lose your killers. Never let them go, because you’ll need them when things gets better. You can always get the Sleepy Heads back. They’re hiding under a rock anyway. But the Killers! Those folks are hard to find, so you got to give up the money. Pay the ones at the top, the one’s who like to smell blood. Let the Sleepy Heads go, but keep the Killers.

The real key to working with Killers is that you have to destroy one of them, just for show. Because as much as they like to see their enemies in pain, they love to see one of their own bleed even more. … If you want to keep them hungry, kill one of them just for fun.
--Former drug dealers, Freakonomics blog, defending the bonuses at AIG

Sunday, March 15, 2009

Two-handed bowling

[Jason] Belmonte has been the amateur World Bowler of the Year twice (2004 and '07). He has bowled 34 perfect games and competed in 19 countries. His average is 230. ...

Belmonte's unorthodox style, simply, is power bowling. He slips two fingers in the ball, never using his thumb. He rears back from the right side with both hands and slingshots the ball toward the pins. Only at the very last moment does he release the left hand. It's all about spin; most pros get 400 revolutions per minute on the ball, but Belmonte can hit 630. Consequently, more energy hits the pins. ...

Other two-handers are thriving. The Bolivian national team switched to the two-handed style and had its best showing ever. Using the technique, a 10-year-old kid from Ohio, Chaz Dennis, became the youngest player to roll a perfect 300 game. Osku Palermaa, a Finnish two-hand bowler who gets even more revolutions on the ball than Belmonte, has thrived in Europe.
--Stan Grossfeld, Boston Globe, on the latest innovation in bowling technique

I-banker etiquette

IN 1996, fresh out of business school, I found myself working an average of over 100 hours per week as a Bear Stearns investment banker. I think I worked the first three months straight, including weekends, without a day off. ...

So it was with real satisfaction that I sat in my group head’s office to receive my first-year performance review, and was told the amount of my incentive compensation. After receiving the requisite balance of praise and constructive criticism and then learning what at the time seemed like an impossibly high payment for my first year’s work, I was asked if I had any particular observation I wished to express.

“Well,” I said, still in shock over my bonus figure, “I would just like to thank you and the firm for giving me the opportunity to work hard and to learn my job.”

My group head, who was very much a glass-is-half-empty sort of person, just looked at me and then chuckled. It was not a “ho-ho-ho” or even a “ha-ha-ha” kind of laugh. Rather, he gave a “he-he-he” chuckle, like Louie from the television show “Taxi.”

“That’s nice, Doug,” he said matter-of-factly. “But if I ever hear you say something like that again, we will ...” I can’t complete his quotation here, but let’s just say that what he threatened to do to me is better left to the imagination.

Ever mindful of that early lesson, I never said thank you again.
--S. Douglas Pugliese, former Bear Stearns managing director, on taboo words for an investment banker

Alleviating iPhone envy

For many, the iPhone has become a symbol of the gap between the promise of a powerful device and the reality of inconsistent service. Its owners complain of continual hiccups, particularly in certain cities. ...

Even when the network is within reach, its speeds are often not what they should be. A Gartner research report released in January found that data speeds for mobile phone users are often half of what is advertised by the carriers. The most glaring problem, Gartner found, is at AT&T. ...

Rebecca Hwang, 29, a San Franciscan who has had a 2G iPhone since December 2007, said her calls were cut off periodically and she did not receive 30 percent of her text messages. But she is still a fan of the phone.

“I love the camera, the music is great, I use the GPS and map all the time,” Ms. Hwang said. “If I could have a reliable phone, it would be just perfect.”
--Matt Richtel, NYT, on phones that don't work as phones

Thursday, March 12, 2009

Stimulus funds as gift cards on the secondary market

In Los Angeles County, cities are buying federal stimulus funds from each other at deep discounts, turning what was supposed to be a targeted infusion of cash into a huge auction.

It all started when the county's Metropolitan Transportation Agency decided to hand out $44 million from the federal stimulus package in the form of $500,000 transportation grants to each of the county's 88 cities. But some cities didn't have any shovel-ready transportation projects. So with MTA's blessing, they're selling the grants to the highest bidder:
La Habra Heights, a city of 6,000, has sold its $500,000 in federal funds to the city of Westlake Village for $310,000 cash. Irwindale, population 1,500, also sold its $500,000 to Westlake Village, for $325,000 cash.

The city of Rolling Hills, population 1,900, sold its $500,000 share to the city of Rancho Palos Verdes for $305,000 cash. The city of Avalon has reached an agreement to swap its $500,000 with L.A. County.
--Josh Harkinson, Mother Jones, on the low marginal value of stimulus funds. HT: Marginal Revolution

Wednesday, March 11, 2009

The high cost of Yale pain and suffering

A Yale University student from Ohio has filed a lawsuit seeking $1 million from US Airways for a video game console he says was taken from his luggage.

Twenty-one-year-old Jesse Maiman alleges that during a flight from New Haven, Conn., to Cincinnati in December, his Xbox 360 with a specialized hard drive disappeared from his luggage.

Maiman says he got what he called "an unconscionable run-around" from the airline. He's asking $1,700 for the loss of the gaming system and for the maximum damages allowable, or $1 million.
--Associated Press warning the world not to mess with Yale students. We have a great law school, and we will sue.

Monday, March 9, 2009

The political economy of financial structure

Perhaps the financial situation - e.g., in and around derivatives - really is too complex for anyone to understand, unless they have the inside knowledge of regulators. This would mean, of course, that going forward no one can question Treasury about anything important.

But that, in turn, makes congressional oversight impossible - even if we move to closed door hearings. And it raises the question: if our financial system has become so economically complex that President Obama is right, then is it also too complex to be politically sustainable?

Big financial players now know they have a colossal potential put or bailout option. They can also construct interconnected structures that no one can understand, except possibly the Treasury. So every 10-20 years (or more often?) we will experience a crisis of current proportions? ...

Derivatives have the potential to create a rent-seeking structure that is unparalleled in human history. No society can afford to allow that kind of financial system to operate. Either we figure out how to make it much more transparent - and amenable to outside review - or the re-regulation process currently in the hands of Senator Dodd and Congressman Frank needs to consider more radical alternatives.
--Simon Johnson, Baseline Scenario, on too complex to be permissible

Friday, March 6, 2009

Did corporate do-goodism abet the economic crisis?

That question [of corporate charity] animates the recent but largely unnoticed book Creative Capitalism: A Conversation With Bill Gates, Warren Buffett, and Other Economic Leaders, overseen by Slate's founding editor, Michael Kinsley. Beginning with Bill Gates' 2008 Davos speech by calling for "creative capitalism"—a loosely defined "hybrid engine" of corporate do-gooderism and entrepreneurial know-how—Kinsley calls on an all-star panel of economists and capitalists to respond.

If Gates expected his fellow captains of industry to sit in a circle and sing "Kumbaya," it's certainly not what he got. What's remarkable about Creative Capitalism is that the best arguments belong to the tightwads—to those who believe, as Warren Buffett bluntly tells Gates in one conversation, "Basically, I don't feel I've got the right to give away the shareholder's money." By the time Richard Posner comes aboard, the question's not whether corporations should be finding new ways of being charitable—it's whether they should engage in any charity. ...

Yet the most bare-knuckled takedown comes from where you'd least expect it: beardy Berkeley prof and former Secretary of Labor Robert Reich. Corporate charity, Reich charges, is window dressing with a negligible effect on social problems—and it's actually pernicious. "The message that companies are moral beings with social responsibilities diverts public attention from the task of establishing laws and rules in the first place," Reich writes. "Meanwhile, increasingly, the real democratic process is being left to companies and their lobbyists." He's not speaking in hypotheticals, either; Larry Summers, Obama's new chief of the National Economic Council, joins in to point out that the problem behind Fannie Mae and Freddie Mac was that "the illusion that the companies were doing virtuous work made it impossible to build a serious case for regulation."
--Paul Collins, Slate, on why mixing charity and profit-maximizing might be a bad idea

Did statistics help?

--xkcd on the epistemological uncertainty that understanding endogeneity and omitted variable bias engenders

Thursday, March 5, 2009

Friendster is not a zombie

But as seen in those weird transmissions to my inbox, Friendster does still exist. Despite the fact that Friendster trails Facebook, MySpace, and numerous other social-networking sites in the American market, the company continues to raise venture capital at an impressive clip, including a $20 million infusion last summer. Why are people still dumping cash into what looks like a social-networking graveyard? Because real human beings—plenty of them, actually—still log on to Friendster. It's just that now they're all logging on from Asia.

According to comScore, Friendster had roughly 30 million unique visitors in December 2008. More than 28 million of those visitors came from Asia. Friendster's internal tracking suggests that the comScore tally—which doesn't include visits from Internet cafes—actually understates the site's traffic. If so, that would make Friendster roughly as popular in Asia as Facebook and MySpace combined. And Friendster's users spend more time on the site, on average, than users of any other social-networking site.
--David Roth, Slate, on why Friendster is not as dead as it seems in the U.S.

Wednesday, March 4, 2009

A Dartmouth welcome for Jim Yong Kim

Yesterday came the announcement that President of the College James Wright will be replaced by Chinaman Kim Jim Yong. And a little bit of me died inside.

It was a complete supplies.

On July 1, yet another hard-working American's job will be taken by an immigrant willing to work in substandard conditions at near-subsistent wage, saving half his money and sending the rest home to his village in the form of traveler's checks. Unless "Jim Yong Kim" means "I love Freedom" in Chinese, I don't want anything to do with him. Dartmouth is America, not Panda Garden Rice Village Restaurant.

Y'all get ready for an Asianification under the guise of diversity under the actual Malaysian-invasion leadership instituted under the guise of diversity. It's a slippery slope we are on. I for one want Democracy and apple pie, not Charlie Chan and the Curse of the Dragon Queen. I know I sure as shit won't ever be eating my Hop dubs bubs with chopsticks. I like to use my own two American hands.
--Campus-wide e-mail sent at Dartmouth to welcome new Dartmouth president Jim Yong Kim

The origin of the non-existent meal

A search for "such thing as a free lunch" pulled up an article in the El Paso Herald-Post, June 27, 1938, entitled "Economics in Eight Words." This is a fable in which a king asks his advisers to summarize economics in a "short and simple text." They respond with 87 volumes of 600 pages each, drawing the king's wrath and accompanying executions. Further demands and more executions force ever-briefer summations, until, finally, the last economist, "a man of profound wisdom," speaks: "Sire, in eight words I will reveal to you all the wisdom that I have distilled through all these years from all the writings of all the economists who once practiced their science in your kingdom. Here is my text: 'There ain't no such thing as free lunch.'"
--Fred R. Shapiro, Yale Alumni Magazine, on who Milton Friedman cribbed the phrase from

Stop asking us about Björk

Because Iceland is really just one big family, it’s simply annoying to go around asking Icelanders if they’ve met Björk. Of course they’ve met Björk; who hasn’t met Björk? Who, for that matter, didn’t know Björk when she was two? “Yes, I know Björk,” a professor of finance at the University of Iceland says in reply to my question, in a weary tone. “She can’t sing, and I know her mother from childhood, and they were both crazy. That she is so well known outside of Iceland tells me more about the world than it does about Björk.”
--Michael Lewis, Vanity Fair, on the only thing most people used to know about Iceland

Tuesday, March 3, 2009

The irrelevance of modern macroeconomic theory

Warning: This entry is of interest to economists only.

The Monetary Policy Committee of the Bank of England I was privileged to be a ‘founder’ external member of during the years 1997-2000 contained... quite a strong representation of academic economists and other professional economists with serious technical training and backgrounds. This turned out to be a severe handicap when the central bank had to switch gears and change from being an inflation-targeting central bank under conditions of orderly financial markets to a financial stability-oriented central bank under conditions of widespread market illiquidity and funding illiquidity. ...

The most influential New Classical and New Keynesian theorists all worked in what economists call a ‘complete markets paradigm’. In a world where there are markets for contingent claims trading that span all possible states of nature (all possible contingencies and outcomes), and in which intertemporal budget constraints are always satisfied by assumption, default, bankruptcy and insolvency are impossible. As a result, illiquidity - both funding illiquidity and market illiquidity - are also impossible...

Both the New Classical and New Keynesian complete markets macroeconomic theories not only did not allow questions about insolvency and illiquidity to be answered. They did not allow such questions to be asked. ...

If one were to hold one’s nose and agree to play with the New Classical or New Keynesian complete markets toolkit, it would soon become clear that any potentially policy-relevant model would be highly non-linear, and that the interaction of these non-linearities and uncertainty makes for deep conceptual and technical problems. Macroeconomists are brave, but not that brave. So they took these non-linear stochastic dynamic general equilibrium models into the basement and beat them with a rubber hose until they behaved. This was achieved by completely stripping the model of its non-linearities and by achieving the transsubstantiation of complex convolutions of random variables and non-linear mappings into well-behaved additive stochastic disturbances. ...

Those of us who have marvelled at the non-linear feedback loops between asset prices in illiquid markets and the funding illiquidity of financial institutions exposed to these asset prices through mark-to-market accounting, margin requirements, calls for additional collateral etc. will appreciate what is lost by this castration of the macroeconomic models. ...

Charles Goodhart, who was fortunate enough not to encounter complete markets macroeconomics and monetary economics during his impressionable, formative years, but only after he had acquired some intellectual immunity, once said of the Dynamic Stochastic General Equilibrium approach which for a while was the staple of central banks’ internal modelling: “It excludes everything I am interested in”. He was right.
--Willem Buiter, Financial Times, on why most macroeconomic research has proven useless in the face of the current crisis

The coming pain at Harvard

There have been a number of bubbles over the past decade that we now know about. Unfortunately, we are also about to find out if there was an education bubble. ...

In 2007, approximately $5.16 billion of Harvard’s total portfolio was in private equity, and by my estimate, a total of $11.2 billion, or 26 percent, in all kinds of illiquid assets (the others being real estate and land). ...

Calculating the losses in year-end 2008, I estimate that Harvard’s total private equity portfolio declined 40 percent to around $3 billion. ...

This is the general point of these numbers: Even as you adjust them, Harvard is about to go from an asset illiquidity level of 26 percent (and a target level of 31 percent) to a much higher level [of 42 to 44 percent].

The reason the illiquid part grows is future investment commitments by the endowment to private equity and real estate partnerships. The 2007-2008 report did not disclose these commitments, but the 2006-2007 report stated they were $8.17 billion through 2017. Assuming that this commitment stayed the same or went down by no more than $1 billion in 2008 (Harvard last year said they were going to grow the portfolio), Harvard is going to have to follow through on about $7 billion to $8 billion in commitments in the coming years.

So, my numbers are rough, very rough estimates — but the problem is apparent. In the short term, unless it boosts its liquid returns, Harvard is going to have to raise a lot in donations or eat up its liquid assets to fund university obligations and its private equity commitments. This results in a spiraling decline in Harvard’s liquid assets as each year they go lower to meet these needs and more and more assets become tied up in private equity. This assumes the markets stay where they are in the next three years — there are scenarios where liquid assets do worse (like yesterday), or better, of course.

This is likely why Harvard recently sold $1.5 billion in debt, and unsuccessfully tried to sell $1.5 billion of its private equity portfolio. ... Other universities may be in worse positions. Duke, for example, sold $500 million in bonds, and Princeton $1.5 billion. Again, the reason appears to be to fund liquidity.
--Steven M. Davidoff, NYT, on universities' liquidity problem

Monday, March 2, 2009

"Fresh" orange juice

[Orange juice] is a heavily processed product. It's heavily engineered as well. In the process of pasteurizing, juice is heated and stripped of oxygen, a process called deaeration, so it doesn't oxidize. Then it's put in huge storage tanks where it can be kept for upwards of a year. It gets stripped of flavor-providing chemicals, which are volatile. When it's ready for packaging, companies such as Tropicana hire flavor companies such as Firmenich to engineer flavor packs to make it taste fresh. People think not-from-concentrate is a fresher product, but it also sits in storage for quite a long time.
--Alissa Hamilton, author of "Squeezed: What You Didn't Know About Orange Juice," on what's really in your orange juice

Cheap charity marketing

I was drinking Tropicana orange juice this morning. The company has a clever marketing campaign. If you go to its website and type in the code on the Tropicana carton, Tropicana will set aside 100 square feet of rain forest to preserve on your behalf. ...

I calculate that the land my daughter saved in the Amazon this morning was worth about 11 cents. When I asked my daughter how much she thought the land was worth, she said $20. When I asked my wife, she guessed $5. Whenever a company can give away something worth 11 cents that people think is worth $5, they are doing something right.

The most remarkable thing of all is that even after we figured out that the rain forest we saved would only cost 11 cents, we still felt good about the fact that there was this little patch of land as big as the room we were eating breakfast in that we had saved.
--Steve Levitt, Freakonomics blog, on value creation over breakfast