Friday, April 19, 2002

Extremadura Measures: Linux
"Following the lead of poorer countries worldwide, Spain's Extremadura region adopts Linux as the official operating system of public schools and offices."

This is very significant. An operating system becomes more valuable the more people who use it, because the more users there are of a given operating system the more software will be written for it. If many poorer regions adopt Linux, than Linux gains strength relative to Windows even in rich markets where price is not a major factor in operating system purchase decisions.

Thursday, April 18, 2002

ArabNews: Boycott America? What a joke! (From a Saudi Paper.) As the author explains, it's not that they don't want to it's just that Arab countries are economically insignificant compared to the U.S. It's a good sign for freedom of the press, however, that this article could be published in a Saudi paper.

Imagining the Music Industry

Suppose that the music industry wanted to use the best technology, rather than fight it. I argue that they could make money, perhaps more than they make today.
Plane Crash Probably Not An Accident

Using simple probability analysis we can determine that the crash was probably intentional. Imagine if yesterday you were asked to estimate the following two variables:

X = the probability that a plane will accidently crash into the most significant building in Milan.
Y = the probability that terrorist would deliberately crash a plane into the most significant building in Milan.

My guess is that most people would estimate that Y was much higher than X. This means that even without any other evidence we can assume that the attack was most likely deliberate.
[It now seems likely that the crash was an accident. Given the initial information, however, I still believe it was reasonable to initially assume that the crash was probably intentional.]
[Perhaps I was right.]

Health Care Costs

The New York Times reports on rising health care costs for employers. I can understand the nation spending more on health care, because the population is aging. But why are employer health care plans under such pressure? My guess is that we will see dramatic improvements in health care productivity in the next decade, due to new discoveries. Meanwhile, as Robert Solow once said about computers, you can see biotech advances everywhere but in the productivity statistics.

Wednesday, April 17, 2002

When To Drill in ANWR

It seems likely that Congress won't approve drilling in ANWR. Bush should propose a trigger that would allow drilling if oil prices go above some level. It would be difficult for Democrats to argue against such a trigger, and the trigger would provide a disincentive for OPEC to raise prices.

The Law of Demand

Dr. Bonzo (who I found following a link from winterspeak) shows how music consumers obey the Law of Demand: when the price of CD's is high, they consume less.

Policy to Prolong the Recession

Extending unemployment benefits helps to prolong recessions, according to Brad DeLong. In an April 16 comment on the Industrial Production index, he throws off this parenthetic remark.
Whenever the President and Congress agree in a recession to extend the duration of unemployment benefits for an additional 13 weeks, they virtually guarantee themselves a half a percentage point rise in the unemployment rate over the ensuing six months.

Not that DeLong is against extending unemployment benefits.

Inflation Squirrely

Caroline Baum thinks core inflation is running higher than consensus. She and Joe Carson parse the CPI components in her column.

It is interesting that ten year Treasury Inflation-Indexed Securities have been yielding around 3.2% while the consensus inflation estimates have been been averaging 2.5%. That implies that TIIS will provide a total nominal return of about 5.7% compared to a ten year treasury rate of 5.22%. This certainly suggests that the bond market is pricing in a 0.5% lower inflation rate than economists, including the Fed. Baum appears to be on the high end of the economists, as she sees a 3.5 - 4% core inflation rate. Accepting her view suggests TIIS are a screamin' buy.

More Krugmanwatch Material

from Random Jottings.
Krugman is becoming quite adept at smearing people with little more than innuendos and third party rumors.

If Krugman's academic writing is analagous to John "beautiful mind" Nash's professional work, then Krugman's Times columns are analagous to Nash's mad ravings.

Tuesday, April 16, 2002

(BBC News) Israel under hack attack
Prediction: The hack attack will continue, but it will make Israel the best in the world at Internet security. Internet security will consequently become a major service export for Israel

New Rules

An unwelcome development in the post-Enron era is the way regulators are feeling their oats. That means new rules:

As most of you may know, securities professionals have their personal trading closely supervised. The intent is to prevent securities professionals from trading on inside information or "front-running" trades done for clients. The latter is avoided by restricting securities for a period after they are purchased for client accounts or funds. Employers maintain lists of securities that representatives cannot buy or sell, and pre-approve (it used to be monitor) trades. This is all well and good.

Here's one of the new bright ideas: Now you can't buy a security for seven days before it is purchased or sold for client accounts. Which begs the question, how do you know a security is going to be purchased or sold a week from now? Purchases are sometimes premeditated for weeks, although managers tend to buy a small subset of purchase candidates. The decision to sell can happen immediately on an earnings announcement or change in the investment thesis.

Here's another: All associated persons, meaning the family of the employee or anybody living with her, must also have their trades pre-approved. The firm can be fined if it does not prevent its employees spouse or live-in family member from trading restricted securities (or following other trading rules).

Of course the immense practical problems of implementing such rules should not be an obstacle to such overreaching. And compliance monitoring must, of course, be fully automated. Everybody overhaul your systems budget. Well, at least the good times are rolling in the stock market...oops, you mean they aren't?.

Cost-benefit Analysis and Security

Security expert Bruce Schneier always uses economic analysis, which helps keep his ideas well grounded. In his latest newsletter, he writes

This five-step process works for any security measure, past, present, or future:

1) What problem does it solve?
2) How well does it solve the problem?
3) What new problems does it add?
4) What are the economic and social costs?
5) Given the above, is it worth the costs?
When you start using it, you'd be surprised how ineffectual most security is these days. For example, only two of the airline security measures put in place since September 11 have any real value: reinforcing the cockpit door, and convincing passengers to fight back. Everything else falls somewhere between marginally improving security and a placebo.

Monday, April 15, 2002

A Mind is Hollywood's Beautiful Thing To Waste

John Nash and Adam Smith. The Nash Equilibrium (as pointed out by Arnold Kling below).

Executive Compensation According to Mindles Dreck

My cranky contribution to the executive compensation discussion.

The Happy Taxcutter

NRO's James Robbins has a different reaction to tax day. He propose to eliminate the income tax for the lower half of the income distribution.

The standard argument against having the income tax rate be zero for most people and then phase in suddenly at, say, $26,500 a year is that this creates a high marginal tax rate at the point that the income tax phases in. But Robbins wants that to happen--he figures that most people want higher incomes, and if they were aware of high marginal tax rates they might be less supportive of big government.

Sunday, April 14, 2002

The Happy Taxpayer

On April 13, Brad DeLong looked at all the taxes he pays, and he counted his blessings.
Our laws, our courts, our police, and most of all our democracy itself are items of extraordinary value bought by our taxes...

Then comes the meat and fish of the government: social security, medicare, medicaid, veterans' administration and the other social insurance programs; Burton Valley Elementary School; roads, traffic lights, bridges, and tunnels; the National Science Foundation, the National Institutes of Health, the Center for Disease Control, the Advanced Research Projects Administration, and the National Institutes of Science and Technology; the National Park Service. It is easy to convince yourself that one-third of government spending is wasted. I, at least, also find it easy to convince myself that the other two-thirds of government spending buy capabilities and accomplishments that the private market--which could not exist without the institutional underpinnings provided by the government--would never provide at all.

I am to the right of DeLong on education and Social Security. I would feel better if my school taxes were used for vouchers, rather than to entrench the educrats. And I see Social Security as creating excessive and ever-increasing dependency on government, because we have failed to adjust the retirement age to match the increases in longevity.

The Case for Data Mining

Should the government use databases to help screen for terrorists? Many net-heads say "no," but I see data mining as a Nash equilibrium.

Free Trade: What we say and what we do

Chief trade negotiator Bob Zoellick says we are for free trade. George Will points out examples of inexcusable protectionism.

I thought that Zoellick should have resigned to protest the steel tariffs. But reading his op-ed article, I can see where he is coming from. As a trade negotiator, he measures success by the number of agreements signed.

It seems to me that trade agreements are neither necessary nor sufficient to promote free trade. We can, and should, get rid of trade barriers unilaterally.

We need officials who will stand up for free trade. We don't need no stinkin' trade negotiator.