Archive for March, 2007|Monthly archive page

What is the matter with empirical economics? freak, freakonomics again.

Earlier, I posted a link to Rubenstein’s excellent Freak Freakonomics paper. Here is another even more telling paper, that is also an indictment of the way economics is doing its business. I am posting so much of it because I think that it is so good.

I have never been convinced by econometric results. When I was in grad school I imagined that it might be fun to tackle a serious economic problem, but instead of using real data I wanted to take a very large number of series of random numbers. Once that could be called long-term interest rates, another the log of long-term interest rates, and others representing treasury note rates, gross domestic product, the rate of change of gross domestic product, and so on. Then run regressions until I get a particular mix of data it gives an “interesting” result — sort of like the monkeys typing up Shakespeare.

If my data did not create something interesting, then I would have to massage it, using lag data or transforming the data in some other way until my Shakespearean monkeys finally got it right. Continue reading

Shocking Immigration Fact of the Day


“Indian-born residents of the U.S. are four times as likely to have a graduate degree as the native-born and their median income is 16% higher than the median income of the native-born. A population that is only 0.1% of the population of India has aggregate income that is 10% of Indian national income.”

Desai, Mihir A., Devesh Kapur, and John McHale. 2002. “The Fiscal Impact of High Skilled Emigration: Flows of Indians to the U.S.”


Trophy Houses and Poor Corporate Performance

Earlier I wrote about Oswald’s finding that home ownership seems to be a major determinant of unemployment. Crocker Liu and David Yermack look home ownership by CEOs — the type of trophy homes that defy description.

Yermack is the economics I cited in The Confiscation of American Prosperity who showed how CEOs private use of corporate jets was a predictor of poor economic performance of their companies.

Here, Yermack & his co-author show that the ownership of these trophy homes is also a good predictor of poor performance. The idea is that these executive are signaling that they are confident that their job is secure regardless of performance. Anyway, here are my notes from this fascinating paper. Continue reading

Anti-immigrant policies may harm US exports

This article shows how immigrants help to encourage exports from the U.S. to their country of origins, suggesting that policies that make immigrants less welcome might harm the U.S. economy.

Flandez, Raymund. 2007. “Immigrants Gain Edge Doing Business Back Home: Knowledge of Culture, Personal Connections Help to Open Doors.” Wall Street Journal (20 March): p. B 6.

The Scandal of Privatization at Walter Reed

Waxman, Henry, chairman of the House Committee on Oversight and Government Reform. 2007. “Letter to Major General George W. Weightman, former commander of Walter Reed Army Medical Center.” (2 March).

Click to access 20070302131606-66371.pdf

“We have learned that in January 2006, Walter Reed awarded a five-year, $120 million contract to a company called IAP Worldwide Services for base operations support services, including facilities management. IAP is one of the companies that experienced problems delivering ice during the response to Hurricane Katrina. The company is led by Al Neffgen, a former senior Halliburton official who testified before our Committee in July 2004 in defense of Halliburton’s exorbitant charges for fuel delivery and troop support in Iraq.”

“According to multiple sources, the decision to privatize support services at Walter Reed led to a precipitous drop in support personnel at Walter Reed. Prior to the award of the contract, there were over 300 federal employees providing facilities management and related services at Walter Reed. By February 3, 2007, the day before IAP took over facilities management, the number of support personnel had dropped to under 60. Yet instead of hiring additional personnel, IAP apparently replaced the remaining 60 federal employees with only 50 IAP personnel. The conditions that have been described at Walter Reed are disgraceful. Part of our mission on the Oversight Committee is to investigate what led to the breakdown in services. It would be reprehensible if the deplorable conditions were caused or aggravated by an ideological commitment to privatize government services regardless of the costs to taxpayers and the consequences for wounded soldiers.” Continue reading

Linda Bilmes & The Hidden Cost of Iraq Veteran’s Medical Care

Stephen, Andrew. 2007. “Iraq: The Hidden Cost of the War.” The New Statesman (12 March).

“The Pentagon is trying to silence economists who predict that several decades of care for the wounded will amount to an unbelievable $2.5 trillion.”

“Thanks to the work of a Harvard professor and former Clinton administration economist named Linda Bilmes, and some other hard-working academics, we have discovered that the administration has been putting out two entirely separate and conflicting sets of numbers of those wounded in the wars.” Continue reading

Privatizion, Medical Care, and Walter Reed

This a three part posting about privatization, medical care, and Walter Reed. The first part consists of an extract from an excellent article form the Boston Globe describing how the Veterans Administration managed to create one of the best health delivery systems in the country — suggesting the potential of national health care.

The second piece discusses Linda Bilmes’s important work estimating the enormous cost of the care of Iraq war veterans, which could come to $2.5 trillion. Her estimate might be high, not because she overestimates the cost, but because of the efficiency of the government in denying health care — HMO behavior writ large. The article also describes how the government has taken measures to obfuscate the looming costs by fudging figures.

The third piece consists of notes from Henry Waxman to Major General George W. Weightman, former commander of Walter Reed Army Medical Center. This letter details how privatization has violently cut the number of personnel at Walter Reed and led to the voluntary departure of many skilled workers. As a result of this screw up, the reputation of government health care will be tarnished.

Here is the first article: Continue reading

Financial advice from everybody’s favorite central banker

Alan Greenspan is not totally responsible for the subprime mortgage meltdown, but he did make a significant contribution.

Here is Greenspan back in 2004, advocating adjustable interest rate home loans. He had to have known at the time that he was holding interest rates unusually low and that they would have to rise in the near future. Continue reading

Millisecond Recipe for Disaster

In 1987, the stock market crashed in part because speculators were using “portfolio insurance,” automated programs that were supposed to eliminate risk. Things unraveled quickly leading to enormous losses.

Now, modern technology allows trading to work at warp speed — millisecond trading. Continue reading

How to succeed as an economist

As an economist, I should applaud measures to increase my net worth, but the law & economics movement, which supposedly requires the courts to subject their rulings to “sound economics” (like “sound science). As a result, economists are enjoying a boom period as expert witnesses.

The following article tells the story of David Teece of UC Berkeley, who seems to have earned more than $50 million first as an expert witness & then also running a major corporation with 1,300 employees, while working as a full time professor until he recently changed to half time.

I have enjoyed reading Teece’s work before, but virtually everything that I have seen was done before 1990. Anyway, the article gives an interesting window into the economics industry. Continue reading