Category Archives: economics

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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Most tech writers are single but most phone buyers aren’t

Matthew Yglesias, in Slate, says you’d have to be nuts to buy a phone on a contract:

If you buy a subsidized iPhone 5 from AT&T, the cheapest plan available costs $85 per month and only comes with 1 GB of data, a minimum of $2,040 over the two years of the contract. A basic T-Mobile unlimited voice plan with 2 GB of data costs $59.99 per month, $1,440 over the two years. In order to get that $450 iPhone discount, you would end up paying $600 more to AT&T over the life of the contract, and get less data….

Of course, customers have to actually recognize that the new deal is better. The subsidy model is basically a scam, but it only arose thanks to our own collective mental failings

All this is true – if you’re buying a single phone.

Otherwise, it’s wrong.

On the basic AT&T family plan with two lines, you get your $450 subsidy on both phones, and you pay $40 for voice plus $45 per phone; so $130 a month in all.  On T-Mobile, with no annual contract, you’re paying $120 per month for your two phones; the $240 in bills you save over the life of the 2-year contract doesn’t come close to making up the money you lose by forgoing the $900 phone subsidy.  AT&T has LTE coverage in major cities already, and Verizon has even more; T-Mobile doesn’t even start building LTE until next year.  Now the T-Mobile family will have 2GB of data each, but the AT&T family will have only 1GB to share.  1GB is fine for me and my wife (I’ve never used more than 300MB in a single month) but if you want more, you can get 4GB shared between the two phones for $150 a month.  You’re still coming out ahead on money, plus you can share your 4GB of data however you like instead of splitting it 2 and 2, and you’re on a faster network.  By the way, if you want tethering on T-Mobile, you’ll have to pay extra:  on AT&T’s contract, it comes with.

The details of the AT&T family plan aren’t really the point — the point is that people who write about tech are largely drawn from the universe of young single people.  What applies to them does not apply to everyone!


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Ten-second tragedy

Two undergrads sitting against the wall this morning outside Ingraham Deli.

First undergrad:  “So, what are you going to do with your life?”

Second undergrad:  “Good question!  (very long pause)  I think I’m applying to journalism school?”


Gigantic pensions are rare

From a 2010 New York Times story:

The use of public money for outsize retirement pay really stings when budgets don’t balance, teachers are being laid off, furloughs are being planned and everything from poison-control centers to Alzheimer’s day care is being cut, as is happening in New York.

According to pension data collected by The New York Times from the city and state, about 3,700 retired public workers in New York are now getting pensions of more than $100,000 a year, exempt from state and local taxes. The data belie official reports that the average state pension is a modest $18,000, or $38,000 for retired police officers and firefighters. (The average is low, in part, because it includes people who worked in government only part time, or just a few years, as well as surviving spouses getting partial benefits.)

Roughly one of every 250 retired public workers in New York is collecting a six-figure pension, and that group is expected to grow rapidly in coming years, based on the number of highly paid people in the pipeline.

The data do not belie anything.  If the average pension is $18,000 (the median is presumably lower still) then it should be extremely rare for anyone to be drawing above $100K.  And it is.  But “Most public pensions in New York State are quite modest” isn’t much of a headline.

Every system can be gamed.  There will always be a few public employees and CEOs who get fat pensions they don’t deserve but are contractually entitled to.  There will always be a few rich people who find legal ways to avoid paying any taxes.  By all means, be vigilant about rules and structures to reduce the number of gamers as much as you can.  But don’t expect to get it down to zero, not if you want the system to be complicated enough to do its job.

(Note:  I don’t see how 3700 people can be 1 in 250 retired public workers; there can’t possibly be almost a million retirees from state service in New York, can there?  But however many there are, 3700 is a tiny fraction of them.)

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David Brooks and impossible lifestyles


In Europe, workers across the Continent want great lifestyles without long work hours. They want dynamic capitalism but also personal security. European welfare states go broke trying to deliver these impossibilities.

This is a weird thing to say.  I’m no European, but I think what Continental folks mean by “great lifestyles” is not “a 3000 sq foot house” or “a new car every five years” but something more like “a flexible schedule with time to spend on family and travel.”  I think they would say, of us, “Workers across America want a great lifestyle with long work hours and two weeks vacation a year.  American families make themselves crazy trying to deliver these impossibilities.”  And they would be right.


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Should Harvard offer a “good enough, but no room” certificate?

There are people who think that the information conveyed by a Harvard diploma is almost entirely made up of the fact of admission to Harvard; that is, that Harvard graduates on average have no more skills than students who got into Harvard but chose to go somewhere else.

I’m not one of those people.  But it got me thinking — the fact of admission certainly conveys some information.  And there are unquestionably lots of students who the admission office feels are academically strong enough to attend Harvard, but who don’t make it into the entering class.

What would happen if the admissions office offered exactly this certification?  A signed piece of paper saying, “At age 17, student X had credentials which would have made academic success at Harvard very likely, had there been room.”  Would that be a valuable piece of paper for a 22-year-old to have?  Would it be in Harvard’s interest to offer a certain number of certificates of that kind?

Related question:  can a student who gets into Harvard, but goes to a lower-ranked school (say, for financial or family reasons) put on their CV that they were admitted to Harvard, but declined?  Something about that strikes me as strange.  But why?  Isn’t it useful information for a potential employer?

(Note:  obviously the above applies with any elite university in place of “Harvard.”)

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Coin frequencies, in my salad bowl and through American history

I just dumped a huge amount of accumulated household change into the sorting machine at our credit union.  I was impressed that it managed to count all the US change while spitting out two Canadian coins and a taka.

Here’s what was in there:

  • 354 pennies
  • 99 nickels
  • 163 dimes
  • 129 quarters

The source was a salad bowl that sits on our bookshelf into which I periodically empty my pocket when I feel it’s too heavy with change.  I don’t think I ever take anything out.  So this should be a fairly accurate estimate for the steady-state proportion of different coins in my pocket.

On the other hand, here’s the number of coins of each denomination in circulation in the US:

  • 13b pennies;
  • 841m nickels;
  • 1.8b dimes;
  • 1.1b quarters.

So the relative proportions of nickels, dimes, and quarters in my salad bowl are just about equal to what you find in nature.  But I have very few pennies.  Why?  Because I actually make an effort to pull out a number of pennies from my pocket equal to price modulo 5, when I pay by cash.  Whereas I seldom try systematically to keep down the number of nickels, dimes, and quarters I carry around.  I can’t say I have any particular rationale for this behavior, but it explains the statistics of my salad bowl.

But wait:  the numbers on the site I linked to are surely wrong.  1.1b quarters is about 4 per American, way too low — despite what the site claims, I think those must be the number of coins produced per year.  And according to Wikipedia, those numbers fluctuate wildly from year to year.  In 2008, the Mint made more than twice as many quarters as dimes, but in 2011 there were almost four times as many dimes as quarters.  And the total number of coins produced, which had held steady at about 14b/yr through most of the decade, dropped to 3.5b in 2009 and rebounded to 8.2b last year.  What’s going on?  It looks like coin production is at least to some extent correlated with the strength of the economy.  It dropped to almost nothing during the Depression.  The song “Brother, Can You Spare a Dime” was written in 1931.  I never knew that they actually made no dimes in 1932 or 1933!


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