Category Archives: economics

1. Produce defective cars 2. ? 3. Double profit!

“Profit Doubles at G.M., as It Strives to Move Past Its Litany of Recalls”:

General Motors’ quarterly earnings report on Thursday was noteworthy mostly for what it lacked: another big financial charge for safety recalls.

After running up special charges of nearly $3 billion in the first half of the year for safety problems, G.M., the nation’s biggest automaker, avoided additional charges for recalls in the third quarter.

While G.M. did incur $700 million in costs for fixing recalled vehicles during the quarter, the company had already booked those charges in previous periods….

By accounting for the bulk of its recall costs in the first half of the year, G.M. has turned a corner — at least financially — in its struggle to move beyond the worst safety crisis in its history.

So let me make sure I understand this:  GM is still blowing trainloads of cash fixing its mistakes, but they decided to declare that the money they’re spending now was actually spent earlier in the year, so that their official profit in the first half is below the real figure, and their official profit for the third quarter is above the real figure, and then they get a sunny headline in the New York Times saying they “doubled their profit?”

My grandfather the CPA would not approve.



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August linkdump

  • The company that makes OldReader, the RSS reader I fled to after the sad demise of Google Reader, is from Madison!  OK, Middleton.  Still part of Silicon Isthmus.
  • I never new that Mark Alan Stamaty, one of my favorite cartoonists, did the cover of the first They Might Be Giants album.
  • Hey I keep saying this and now Allison Schrager has written an article about it for Bloomberg.  Tenure is a form of compensation.  If you think tenure is a bad way to pay teachers, and that compensation is best in the form of dollars, that’s fine; but if California pretends that the elimination of tenure isn’t a massive pay cut for teachers, they’re making a basic economic mistake.
  • New “hot hand” paper by Brett Green and Jeffrey Zweibel, about the hot hand for batters in baseball.  They say it’s there!  And they echo a point I make in the book (which I learned from Bob Wardrop) — some of the “no such thing as the hot hand” studies are way too low-power to detect a hot hand of any realistic size.
  • Matt Baker goes outside the circle of number theory and blogs about real numbers, axioms, and games.  Daring!  Matt also has a very cool new paper with Yao Wang about spanning trees as torsors for the sandpile group; but I want that to have its own blog entry once I’ve actually read it!
  • Lyndon Hardy wrote a fantasy series I adored as a kid, Master of the Five Magics.  I didn’t know that, as an undergrad, he was the mastermind of the Great Caltech Rose Bowl Hoax.  Now that is a life well spent.
  • Do you know how many players with at least 20 hits in a season have had more than half their hits be home runs?  Just two:  Mark McGwire in 2001 and Frank Thomas in 2005.
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Where are people buying How Not To Be Wrong?

Amazon Author Central shows you Bookscan sales for your books broken down by metropolitan statistical area.  (BookScan tracks most hardcover sales, but not e-book sales.)  This allows me to see which MSAs are buying the most and fewest copies, per capita, of How Not To Be Wrong.  Unsurprisingly, Madison has by far the highest number of copies of HNTBW per person.  But Burlington, VT is not far behind!  Then there’s a big drop, until you get down to DC, SF, Boston, and Seattle, each of which still bought more than twice as many copies per person as the median MSA.

Where do people not want the book?  Lowest sales per capita are in Miami.  They also have little use for me in Los Angeles, Atlanta, and Houston.  Note that for reasons of time I only looked at the 30 MSAs that sold the most copies of the book; going farther down that list, there are more pretty big cities where the book is unpopular, like Tampa, Charlotte, San Antonio, and Orlando.

It would be interesting to compare the sales figures, not to population, but to overall hardcover book sales.  But I couldn’t find this information broken down by city.


Sympathy for Scott Walker

The Milwaukee Journal-Sentinel suggests that the slow pace of job creation in Wisconsin, not recall campaign shenanigans, may be Scott Walker’s real enemy in his upcoming re-election campaign:

In each of Walker’s first three years, Wisconsin has added private-sector jobs more slowly than the nation as whole, and the gap is sizable. Wisconsin has averaged 1.3% in annual private-sector job growth since 2010; the national average has been 2.1%. Wisconsin’s ranking in private-sector job growth was 35 among the 50 states in 2011, 36 in 2012 and 37 in 2013.

Combining the first three years of Walker’s term, the state ranks behind all its closest and most comparable Midwest neighbors: Michigan (6 of 50), Indiana (15), Minnesota (20), Ohio (25), Iowa (28) and Illinois (33).

I think this is slightly unfair to Walker!  Part of the reason Michigan is doing so well in job growth since 2010 is that Michigan was hammered so very, very hard by the recession.  It had more room to grow.  Indiana’s unemployment rate was roughly similar to Wisconsin’s in the years leading up to the crash, but shot up to 10.8% as the economy bottomed out (WI never went over 9.2%.)  Now Indiana and Wisconsin are about even again.

But I do mean slightly unfair.  After all, Walker ran on a change platform, arguing that Jim Doyle’s administration had tanked the state’s economy.  In fact, Wisconsin weathered the recession much better than a lot of our neighbor states did.  (The last years Wisconsin was above the median for private-sector job growth?  2008 and 2010, both under Doyle.)   There’s some karmic fairness at play, should that fact come back to make Walker look like a weak job creator compared to his fellow governors.



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Quarreling with Cato

Last week Salon printed an excerpt from How Not To Be Wrong, in which I tweak Daniel J. Mitchell of the Cato Institute for asking the rhetorical question “Why is America trying to become more like Sweden when Swedes are Trying to be Less Like Sweden?”  I describe the vision of economics implied by the headline as “linear” (or, more generally, “monotone”)  In particular, the headline seems to take the view that smaller government is either a good thing or  a bad thing, independent of context.  If it’s good for Swedes, it’s good for us too.


Mitchell didn’t like what I had to say very much, accusing me of calling him a “buffoon”.  He complains that he doesn’t hold any such simplistic linear view.


And that’s right!  He doesn’t.  Nobody does, if they sit down to think consciously about what their views are.  But when you sit down to write a zingy headline, sometimes you just reach for something that expresses your vague rules of thumb instead of your carefully articulated beliefs.  (And yes, as a fellow blogger, I get that sometimes you stretch your point a little bit when you reach for that headline; take it from the guy who just published a piece about Berkson’s fallacy called “Why Are Handsome Men Such Jerks?”)


The headline makes it sound like there’s something incongruous about Sweden shrinking its government while we grow ours.  But there’s nothing strange about that at all – unless you have in mind something like the linear model that Mitchell correctly disavows.

So what is Mitchell’s actual view about the relation between Swedishness and prosperity?  He says it’s governed by something called the Rahn curve.  According to that curve, or at least Mitchell’s take on it, prosperity peaks when government spending is about 20 percent of GDP, and declines roughly linear thereafter.  As of 2012, there was only one country in the developed world, sorta-free Singapore, whose government spending was that low.  Which means that in the range occupied by countries from the United States to Sweden, from Australia to Korea, the relation between Swedishness and prosperity is more or less exactly the one I drew in the picture Mitchell objects to.  It may well be that the US government should spend less on its citizens.  But contra Mitchell’s headline, Sweden’s best course gives no guidance concerning ours.

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Guilt pangs

Not even going to link to this article but this is so magnificently dumb I had to share it with someone.

As everyone knows by now, GM’s entry into the electric car market–the Chevy Volt–costs $41,000 before tax breaks. After the tax breaks, you can happily drive one off the lot for $33,000 … if you can ignore those guilt pangs knowing your fellow Americans have chipped in $8,000 to your new ride.

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The trouble with billionaires

Cathy blogs today about the enthusiasm for billionaires displayed at the AMS public face of math panel, and her misgivings about it.  Cathy points out that, while gifts from big donors obviously accomplish real, useful, worthwhile goals for mathematics, they have a way of crowding out the public support we might otherwise have gotten, and sapping our will to fight for that support.

I think there’s an even deeper problem.  When we’re talking about putting up buildings or paying people’s salaries, we’re talking about things that require many millions of dollars, and asking:  who’s going to pay for them?  It’s not crazy that the answer “a rich person” is one of the things that comes to mind.

But when we talk about improving the public image of mathematics, we are not talking about something that automatically costs lots of money.  We’re talking about something that we can do on social media, something we can do in the newspaper, something we can — and frankly, should — do in the classroom.  Cathy describes the conversation as centering on “How can we get someone to hire a high-priced PR agent for mathematics?”  That means that the billionaire solution isn’t just crowding out other sources of money, it’s crowding out the very idea that there are ways to solve problems besides spending money.


On Thermonuclear War

This is the world we used to live in.  Herman Kahn, one of the architects of postwar US nuclear policy, from his 1960 book On Thermonuclear War:

However, our calculations indicate that even without special stockpiles, dispersal, or protection, the restoration of our prewar GNP should take place in a relatively short time — if we can hold the damage to the equivalent of something like 53 metropolitan areas destroyed.




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The Wall Street Journal‘s headline today:

TEPID JOB GROWTH FUELS WORRY:  Unemployment Rate Hits 7.8% as Economy Stays Sluggish

Doesn’t the word “hits” there kind of make you think the rate rose to 7.8%?  But no, it was 7.8% last month too, and is down from 8.5% at the end of last year.

Meanwhile, the New York Times goes with

JOB CREATION IS STILL STEADY DESPITE WORRY:  Gain of 155,000 Keeps Jobless Rate at 7.8%

which gets the constancy of the unemployment right — but “steady” alone conveys a misleadingly sunny impression.

Cheers to the Milwaukee Journal Sentinel, which rolls it pretty straight down the lane:

JOBLESS RATE STAYS PUT:  U.S. economy adds just 155,000 jobs in its 34th month of subpar growth

It’s steady and tepid!

Framing the jobs report

In defense of Nate Silver and experts

Cathy goes off on Nate Silver today, calling naive his account of well-meaning people saying false things because they’ve made math mistakes.  In Cathy’s view, people say false things because they’re not well-meaning and are trying to screw you — or, sometimes, because they’re well-meaning but their incentives are pointed at something other than accuracy.  Read the whole thing, it’s more complicated than this paraphrase suggests.

Cathy, a fan of and participant in mass movements, takes special exception to Silver saying:

This is neither the time nor the place for mass movements — this is the time for expert opinion. Once the experts (and I’m not one of them) have reached some kind of a consensus about what the best course of action is (and they haven’t yet), then figure out who is impeding that action for political or other disingenuous reasons and tackle them — do whatever you can to remove them from the playing field. But we’re not at that stage yet.

Cathy’s take:

…I have less faith in the experts than Nate Silver: I don’t want to trust the very people who got us into this mess, while benefitting from it, to also be in charge of cleaning it up. And, being part of the Occupy movement, I obviously think that this is the time for mass movements.

From my experience working first in finance at the hedge fund D.E. Shaw during the credit crisis and afterwards at the risk firm Riskmetrics, and my subsequent experience working in the internet advertising space (a wild west of unregulated personal information warehousing and sales) my conclusion is simple: Distrust the experts.

I think Cathy’s distrust is warranted, but I think Silver shares it.  The central concern of his chapter on weather prediction is the vast difference in accuracy between federal hurricane forecasters, whose only job is to get the hurricane track right, and TV meteorologists, whose very different incentive structure leads them to get the weather wrong on purpose.  He’s just as hard on political pundits and their terrible, terrible predictions, which are designed to be interesting, not correct.

Cathy wishes Silver would put more weight on this stuff, and she may be right, but it’s not fair to paint him as a naif who doesn’t know there’s more to life than math.  (For my full take on Silver’s book, see my review in the Globe.)

As for experts:  I think in many or even most cases deferring to people with extensive domain knowledge is a pretty good default.  Maybe this comes from seeing so many preprints by mathematicians, physicists, and economists flushed with confidence that they can do biology, sociology, and literary study (!) better than the biologists, sociologists, or scholars of literature.  Domain knowledge matters.  Marilyn vos Savant’s opinion about Wiles’s proof of Fermat doesn’t matter.

But what do you do with cases like finance, where the only people with deep domain knowledge are the ones whose incentive structure is socially suboptimal?  (Cathy would use saltier language here.)  I guess you have to count on mavericks like Cathy, who’ve developed the domain knowledge by working in the financial industry, but who are now separated from the incentives that bind the insiders.

But why do I trust what Cathy says about finance?

Because she’s an expert.

Is Cathy OK with this?

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