Saturday, April 9, 2011

Sometimes Government Works Well

From the LA Times:
A few years ago, the U.S. Forest Service was getting ready to open up several large stands of old-growth trees here on Kupreanof Island in an attempt to sustain southeast Alaska's beleaguered timber industry.

The target was up to 70 million board feet of timber. Much of it would be plucked from remote, roadless forests. Even getting to the trees was going to mean building 25 miles of roads at a cost of more than $6 million.

The three tiny sawmills in nearby Kake, where the unemployment rate is 80%, couldn't hope to bid on such a massive and expensive logging operation.

What happened next marked a crucial turnaround for the Forest Service, which traditionally works mainly with large mills in Alaska and has encountered endless lawsuits by environmental groups.

The local Forest Service ranger, Chris Savage, set up meetings with Kake's 500-some residents to ask — they say they had never been asked before — what they wanted to happen in the remaining uncut forests around their village.

Jobs, people said first. Check. A few timber sales small enough that our own mills can bid on them. Check. Stay out of roadless areas so the blacktailed deer we hunt can have a chance to flourish. Check.

The result is a new plan that will cut only 26 million board feet of timber, requiring just 1.8 miles of permanent new roads. Much of the harvest will be offered in "micro-sales" that will almost certainly go to mill owners in Kake. Community residents will be offered contracts to maintain old forest roads, repair culverts and thin newly growing forests to ready them for logging later.

Schlitz


A little history of Schlitz from wikipedia:
The Joseph Schlitz Brewing Company was an American brewery based in Milwaukee, Wisconsin and was once the largest producer of beer in the world. Its namesake beer, Schlitz, was known as "The beer that made Milwaukee famous" and was famously advertised with the slogan "When you're out of Schlitz, you're out of beer". Schlitz first became the world's top beer producer in 1902 and enjoyed that status at several points during the first half of the twentieth century, exchanging the claim with Anheuser-Busch multiple times during the 1950s.
The company was founded by August Krug in 1849 but acquired by Joseph Schlitz in 1858. Schlitz would eventually be bought by Stroh Brewery Company in 1982, and subsequently be sold again along with the rest of Stroh's assets to the Pabst Brewing Company in 1999.
The company flourished through much of the 1900s, starting in 1902 when the production of one million barrels of beer surpassed Pabst's claim as the largest brewery in the world. Schlitz was continuously in competition as one of the top breweries in America for the next 70 years. While prohibition forced the suspension of alcoholic brewing, the company changed its name from Brewing Company to Beverage Company and adapted its slogan to "The drink that made Milwaukee Famous."
Popularity of Schlitz's namesake beer, along with the introduction of value priced Old Milwaukee in 1955, kept the brewery on a strong financial footing. However, changes implemented in the early 1970s led to its eventual fall.
Faced with the need to meet large volume demands while also cutting the cost of production, the brewing process on Schlitz's flagship Schlitz beer was changed in the early 1970s. The primary change involved using high-temperature fermentation instead of the traditional method. Schlitz also experimented with a continuous fermentation process. even designing and building a new Baldwinsville, New York, brewery around the process. The reformulated product resulted in a beer that not only lost much of the bite and taste of the old formula but spoiled more quickly, rapidly losing public appeal.
Schlitz remained the No. 2 brewery in America as late as 1976, but ongoing problems with formula changes continued the downfall. The ultimate blow to the company was a crippling strike at the Milwaukee plant in 1981, which led to serious financial difficulties and acquisition by Stroh Brewery Company of Detroit, Michigan, after a lengthy 1982 legal battle.
What remained of the historic Schlitz Brewery complex in Milwaukee was transformed with Tax Increment Financing and other government support into a mixed-use development called Schlitz Park.
During the reformulating period of the late 1960s and early 1970s, the original Schlitz formula was lost and never included in any of the subsequent sales of the company. Through research of documents and interviews with former Schlitz brewmasters and taste-testers, the 1960s formula was reconstructed; the new beer, along with a new television advertising campaign, was officially introduced in 2008.
Schlitz was my beer of choice throughout college, because at $6 a case, I couldn't beat the value.  It was also cool in that time frame when they brought out old style cans in honor of the fiftieth anniversary of WWII, when Schlitz was provided to soldiers, and was also the #1 selling beer in America.  I didn't realize that Schlitz introduced Old Milwaukee.  I thought it was always a Stroh's beer.  I guess it doesn't make sense that a Detroit brewery would start another beer named Old Milwaukee.  Here is a link to a detailed history of Schlitz from 1933-1969.

NCAA Hockey Update

Michigan meets Minnesota-Duluth in the NCAA hockey finals in St. Paul, tonight at 8.  Yesterday Andy Miele of Miami of Ohio won the Hobey Baker Award.

photo: Jim Rosvold

Economic Inequality

Marc Chandler on the similarities between the Great Depression and today:
A nation’s aggregate income can be divided into two parts: wages and salaries on one hand and profits on the other. The Great Depression was preceded by a shift of national income shares toward profits and away from wages and salaries.

Work cited by the American historian James Livingston (Rutgers University) found that 90% of American taxpayers had less disposable income in 1929 than they did in 1922, which corporate profits rose by nearly two-thirds and dividends doubled. The top 1% of tax payers experienced more than a 60% increase in disposable income.

In the US, since the recovery began, total US wages and salaries have risen by $168 bln, while profits have risen by $528 bln. BCA Research indicates this is the first time profits have outperformed wages and salaries in absolute terms in 50 years.

The Economist notes that this is not strictly a US phenomenon. It recently reported that since the recovery began, German profits have risen 113 bln euros (~$160 bln), while wages and salaries have risen by 36 bln euros. The UK situation is more uneven: profits have risen by GBP14 bln (~$23 bln) while wages have fallen by GBP2 bln.

When thinking about post-WWII institutions, the UN, the IMF, the World Bank, GATT/WTO and Bretton Woods quickly come to mind. There is another one that is often forgotten. There was a social pact of sorts that linked wages and salaries to productivity gains. Various forces led to a break of this pact and the de-coupling was between wages and salaries and productivity.

From 1973 through 2007, US productivity rose 83%. Real median wages rose 5%. Mean wages rose faster reflecting the rising income inequality. In an international ranking of income equality the US is in 90th place with a .45 GINI score (on a scale of 0-1, with the higher number being associated with greater income inequality), more than twice as high as Sweden, which enjoys the least income inequality and has a GINI score of 0.23.

Wealth is also highly concentrated. The quality of the data varies around the world, but academic work suggests that 10% of the world adult population control about 85% of the global household wealth, based on data from 2000. In the US, the top 10% own almost 70% of the household wealth.

Switzerland is the only major industrial country that wealth is more concentrated and its top 10% account for a little more than 73% of the nation’s household wealth. In comparison, France was at 61%, Sweden was near 58.5% and the UK was at 56%. Ten percent of Canadian adults control 53% of the country’s household wealth, while in Germany the figure is near 44.5% and Finland is near 42.5%.
We need a more progressive income tax system.  The dividend and capital gains tax cuts should have gone away last year.  Obama really dropped the ball on that.  It is criminal to be looking at cutting programs supporting the poor while cutting taxes on the ultra wealthy.

U.S. Manufacturing

Via Mark Thoma, Dennis Lockhart, President of the Federal Reserve Bank of Atlanta, gives an overview of U.S. manufacturing:
Manufacturing output represents about 11 percent of the U.S. economy in real GDP terms. It may surprise you that this percentage has been relatively constant for several decades. A lot has been written about the growing demand for Chinese-made goods, and China's manufacturing sector is expanding rapidly. Despite China's rapid growth, the United States remains the world's largest manufacturer. According to U.N. data, the United States accounts for one-fifth of global manufacturing output in real terms. That share has held largely constant for the past 20 years.
The United States' high share of global manufacturing output reflects to a significant extent the size of the U.S. economy and domestic demand. Although U.S. exports have grown rapidly, the United States is not the world's largest goods exporter. China and Germany export more manufactured goods than the United States.
In the current recovery, manufacturing production has grown faster than total GDP. But while GDP has already reached prerecession levels, manufacturing output is still about 10 percent lower than three years ago because of its outsized decline during the recession.
With all the job losses and plant closures, it is surprising that manufacturing has remained so consistent as a percentage of GDP.

Naked Capitalism Link of the Day

Today's link: How Secrecy Undermines Audit Reform, at the New York Times:
In 2002, when the auditing firms had been humiliated by audit failures, their efforts to prevent any regulation failed, but they did win one crucial victory in the details of the Sarbanes-Oxley law. The oversight board must keep secret its most critical assessments of audits unless a firm fails to respond to the criticism. And the board’s disciplinary actions remain secret until they are resolved by the board and the Securities and Exchange Commission has ruled on any appeal.
It is as if the fact a man was suspected of robbing a bank had to be kept secret until after he was not only convicted but failed in his appeal.
That secrecy was justified as necessary to protect reputations that could be tarnished by charges that might later be disproved. In practice, board officials complain, it has led to stalling tactics by firms that figure they can avoid negative publicity indefinitely. The board has asked Congress to change the law, but that seems unlikely.
Exactly what is the point if the findings are kept secret.  Must be a cover-my-ass provision.

Aged Bourbon

Fortune Magazine:
Bourbon runs deep in American lore. David Crockett swigged it. Harry Truman liked a glass when playing poker. Screen star Tallulah Bankhead was famed for being able to polish off a bottle of the stuff in under 30 minutes. Not all bourbons, however, are alike. Aged bourbon, it turns out, attracts an almost cultlike following. This brew has been carefully distilled and then sits in oak barrels for years -- sometimes for nearly a quarter of a century -- until ready to drink. When that much time and care go into making a product, it means it is expensive and hard to find. And that's just the way Julian Van Winkle III, 61, the president of a small, premium Kentucky bourbon company, likes it. He calls it a strategy of scarcity.
Old Rip Van Winkle Distillery, with 2010 sales of $2 million, markets only about 7,000 cases a year -- puny by liquor industry standards. Van Winkle not only is able to sell out his inventory -- he says he could unload two or three times what he makes -- but can also raise prices just about every year. That allows his two-person firm (his son Preston, 33, is marketing manager) to stay profitable while competing with giants such as Maker's Mark and Wild Turkey.
Van Winkle's approach is a good game plan for any small business that goes head to head with big competitors. Companies often get into trouble when they try to grow too big too fast. Van Winkle believes that if you make a great product and keep production low, you'll never get stuck with big inventories when the economy turns tough. "That's been the downfall of a lot of bourbon producers," he says. "They just make too much of it. It loses all cachet and is not as special."
Hopefully aged bourbon is much better than the 6 year stuff.

Friday, April 8, 2011

Mr. Obvious Headline of the Day

Businesses Stand to Gain Most in Rivalry of States, at the NYT:
Though some say such moves strengthen communities with new jobs and tax revenue, a growing chorus of leaders on both sides are wondering about the point of it all, warning that the efforts serve only to help private companies at taxpayer expense. Even some beneficiaries confess surprise at neighbors’ competing with such rancor.
“In all candor, it’s unusual and a little disconcerting,” said Gerry Lopez, chief executive of AMC Entertainment, the movie theater chain, which is being offered incentives to move to Kansas from Missouri. “I do wonder whether this is an appropriate role for government to be playing.”
Other Midwest states are engaged in similar battles, and have set aside neighborliness for easy growth as they search for answers to rising unemployment in their still-struggling economies.
Though they may say their development efforts are designed to help them compete with the two coasts for companies, they often end up fighting over companies already in the region.
The states have been in a race to the bottom for years, taxpayers pick up the burdens and companies get richer.  It is pretty sad.  Worse is when a business needs to expand, so they make the threat that they are looking at sites in one or two other states, just so they get some sweetheart deal right by where they started.  See Evans, Bob.  It is good political symbiosis between business interests and Republicans to keep this alive, always giving them the ability to wave a bloody shirt over taxes.  Screw those thugs.

This Week's Kentucky Derby Prep Races

This week features the Wood Memorial, where Uncle Mo will be the heavy favorite, the Illinois Derby and the Santa Anita Derby.

USDA updates Corn Stocks Report

Here:
Rising demand for corn from ethanol producers is pushing U.S. reserves to the lowest point in 15 years, a trend that could lead to higher grain and food prices this year. The Agriculture Department on Friday left its estimate for corn reserves unchanged from the previous month. The reserves are projected to fall to 675 million bushels in late August, when the harvest begins, or roughly 5 percent of all corn consumed in the United States. That would be the lowest surplus level since 1996.
The limited supply is chiefly because of increasing demand from ethanol makers, which rose 1 percent to 5 billion bushels. That's about 40 percent of the total crop.
But the increase didn't alter the agency's overall estimate, mostly because livestock producers are expected to scale back their corn purchases.
The Agriculture Department estimated that demand from livestock producers fell 1 percent to 5.15 billion bushels.

Another Shocking Headline

LA Times-CBO says Republican Rep. Ryan's Medicare privatization plan would increase costs:
When House Budget Committee Chairman Paul D. Ryan unveiled his blueprint this week for cutting federal spending by $5.8 trillion over the next decade, he argued that a revamping of the government's health safety net would rein in skyrocketing costs.

But because commercial insurers cost more to run than government plans, the Wisconsin Republican's proposal to privatize Medicare starting in 2022 would actually spark a dramatic increase in how much the nation spends on healthcare for the elderly, according to an independent analysis by the nonpartisan Congressional Budget Office.

Even as the federal government cut its own spending, seniors would end up paying almost twice as much out of their own pockets — or more than $12,510 a year, the CBO estimates. Altogether, the total cost of insurance would be higher.

Ryan's office did not respond to repeated requests for comment about the CBO analysis. But the congressman has repeatedly said that applying what he calls "free-market principles" to the insurance market is the best way to control costs.

I can't believe the private market wouldn't save seniors money.  Actually, I would be surprised if private health insurers would touch insuring old people with a ten-foot pole, unless they had a guarantee of federal backing on any costs over a certain amount.  Good luck finding insurance when you are 80.

Rational Inattention

Mark Thoma highlights a report  from the Federal Reserve Board in Dallas:
One macroeconomic school of thought—known as rational expectations—assumes that people fully and quickly process all freely available information. By comparison, under rational inattention theory, information is also fully and freely available, but people lack the capability to quickly absorb it all and translate it into decisions. Rational inattention is based on a simple observation: Attention is a scarce resource and, as such, it must be budgeted wisely.[1]
A world with overwhelming amounts of facts and data means prioritizing activities, recognizing individual processing limitations and accepting the consequences when acting, even if all information isn’t fully analyzed. Given a physical constraint on the rate at which people can process information—referred to as Shannon’s channel, after Claude Shannon, a Bell Labs researcher who pioneered information theory in the 1940s—people choose how much attention to devote to different subjects so they can maximize their productivity.
This seemingly abstract concept has a familiar resonance with day-to-day experience. For instance, the maximum amount of information that somebody can download from a computer at any one moment cannot exceed a number—the transmission rate—provided by the manufacturer. Likewise, a person cannot instantaneously respond to a given email. The amount of time it takes to answer email depends on its content and how much information that person wants to process to produce a sensible reply. The brain, which has limits on its processing abilities, is the channel through which an individual directs information, from the original email to the reply.
As Thoma mentions, the theories are interesting, but the mathematics underlying it is difficult.  I would guess so.  Really, this is just a way to try to fit real-life to the theory of rational expectations.  Even with the help of behavioral economics, I don't think you will be able to accurately predict what people are going to do in the future.  I know that my decision-making process is pretty harried, involves quick mistakes and built-in biases, and a whole lot of chance.  If someone observed me for a long time and tried to predict what decision I would reach, I bet they wouldn't be too successful.  Trying to do that for the whole world is pointless, especially when misinformation and propaganda is so prevalent. 

WWHCD?

According to the LA Times, that is the question in Congress right now:
Forget funding the government or sorting out conservative social policies. In some quarters, the question of the day in Congress was, "What would Henry Clay do?"

Revered as the nation's "Great Compromiser," Clay has made an extraordinary number of cameos in the current budget drama — a saga filled with people who claim to be aspiring to, but moving slowly toward, compromise, great or not.

Senate Majority Leader Harry Reid (D-Nev.) on Thursday declared that Clay — a former House speaker best known for the slavery compromises that delayed the Civil War — was "one of the greatest speakers of all time."

"All legislation is based on mutual consent," Reid said, as he declared that Democrats would go no further to appease Republicans while on the edge of the first government shutdown in 15 years. "Isn't this the time to do just that? Remember the word that is so important in what Henry Clay said is 'mutual concession.' "

Senate Minority Leader Mitch McConnell, a Kentuckian, like Clay, had another interpretation.

"He would have approved very much of that bill that the House will be sending over later today," said McConnell, a Republican.

There is a little more history thrown into the story after that.

A Week In

So far this baseball season has been going pretty well for Reds fans, a 5-1 start was much better than anticipated.  Even sweeter, the Red Sox (along with the Rays) are now 0-6.  I'm not going to shed any tears for the folks in Beantown, especially before Patriots' Day (not the stupid Patriot Day label for September 11).

Agricultural Extortion and Terrorism

Alex Tabarrok:
Single bottles of wine from La RomanĂ©e-Conti, the legendary vineyard of Burgundy, sell for upwards of $10,000. In 2010 the owner received a threat, the vineyard would be poisoned unless the owner paid one million euro. When the owner didn’t pay a map was delivered that identified several vines that had already been poisoned by drill and syringe. The French don’t want to talk about this and for good reason, agricultural extortion is very easy and they fear copycats.
I have thought about this issue on and off for many years beginning with the Chilean grape scare of 1989. In that scare an anonymous caller to the US Embassy in Chile announced that Chilean fruit had been injected with cyanide. The FDA found two grapes with evidence of cyanide poisoning. Exports of fruit from Chile were temporarily banned, millions of pounds of fruit were destroyed and the Chilean fruit industry lost millions of dollars.  Many people now think the call was a hoax and the FDA evidence mistaken but either way the point was demonstrated, it’s easy to create millions of dollars worth of damage.
A few other lesser known cases are even more concerning. In 1996, for example, the police were tipped off that liquid fat at a Wisconsin rendering plant had been contaminated doing some $250 million dollars worth of damage. The criminal probably would never have been caught had not more threatening letters and further contamination followed. Eventually a competitor was charged with the crime.
These definitely have stayed under the radar with me.

Naked Capitalism Link of the Day

Today's link: British Bank Proposal Expected to Include Stiff Rules, at the NYT:
While British regulators are expected to propose that banks make structural changes to defuse the threat from institutions considered too big to fail, their counterparts in Washington have focused on putting in place shock absorbers to mitigate the effects of another financial crisis. These American rules include making banks hold more capital to cushion unexpected losses and giving new legal powers for regulators to help failing financial institutions unwind in a way that does not threaten the entire system.
Despite all the complaints from Wall Street about Dodd-Frank, several British institutions have hinted that they might move their base of operations to New York from London. By contrast, the veiled threats by American banks that they might go elsewhere, voiced when the Dodd-Frank legislation was being debated, never gained traction.
Last week, Robert E. Diamond Jr., the chief executive of Barclays, issued a full-throated defense of keeping risky investment banking and safe deposit-taking under the same roof.
“It’s the model,” he said, “that’s enabled us to build a bank that’s diversified by business, by geography, by customers and by funding sources.”
But leaders of the commission have already called into question the argument — a core maxim of international banking — that universal banks like Barclays in Britain and Bank of America in the United States provide a public benefit because of their size, diverse range of services and ability to attract low-cost capital.
What's funny is that even though Dodd-Frank isn't nearly restrictive enough, Republicans and their bank backers want to dismantle it.  My feeling is that we ought to return to Glass-Steagall and restrict commercial banks from investment banking and vice versa.  Goldman and Citigroup will squeal like stuck pigs, but let them, they would have died without the government and the Fed in 2008.

Fibonacci Sequence in Lateralus

Via Ritholtz:
Whether you are an investment trader, a music fan, a mathematician, a curious observer wishing to learn more about human nature, or any combination thereof, you will appreciate this lesson on the Fibonacci Sequence (more on this after the YouTube link):
The video, created by a college student to help explain the Fibonacci sequence, features images of space from the Hubble Telescope and music from the cerebral and progressive hard rock band Tool.  What makes the video and song incredibly compelling is the lyrics, which teach a lesson on pattern recognition.
For those non-traders and non-mathematicians out there, a Fibonacci sequence is a series of numbers where, after two starting values, each number is the sum of the two preceding numbers.  For example, the number sequence 2, 3, 5, 8 and 13 are a Fibonacci sequence (2+3=5, 3+5=8, 5+8=13, and so on).
Making the video and song more interesting is that the cadence of the lyrics (number of syllables of succeeding verses) follows a Fibonacci sequence.  What’s more, the meaning and lesson of the lyrics implies that humans are hopelessly addicted to looking for patterns everywhere they turn:  The “over-thinking” and “over-analyzing,” as the lyrics suggest, have an effect of dulling intuitive thought and often results in missed opportunities.
There is more in the post about pattern recognition, pro and con.  Here's the video:

Thursday, April 7, 2011

Beer Break

In honor of the end of Prohibition for beer, 78 years ago, it's time to call it a day.

The Puck Drops at the Frozen Four

Tonight in St. Paul, Notre Dame vs. Minnesota-Duluth at 5 PM EDT and North Dakota vs. Michigan at 8:30 PM.  Go Irish!

Also, the Hobey Baker Award for the player of the year will be given out Friday.  The finalists are Cam Atkinson of Boston College, Andy Miele of Miami of Ohio, and Matt Frattin of North Dakota.

Here is a Sports Illustrated article about Hobey Baker I remember reading in high school.  An excerpt:
But Hobey was much more than the sum of his achievements. He was the beau ideal of American sport, a hero in every particular. He was, by our standards, a small man, only 5'9" and 160 pounds, but not so small at a time when the heaviest of football linemen weighed barely 200 pounds. And he was so flawlessly proportioned, so impossibly graceful in body and manner, that he seemed to tower over his fellows. With wavy blond hair and soft blue-gray eyes, he was among the handsomest of men, so disarming in appearance that his contemporaries at Princeton were not embarrassed to call him beautiful. Add to all this a humble manner, a noble character and what his biographer, John Davies, calls "a foreboding, a sense that Hobey was somehow playing out a Greek tragedy," and you have the stuff of literature.
F. Scott Fitzgerald, who entered Princeton in the fall of Hobey's senior year, 1913-14, saw him as "an ideal worthy of everything in my enthusiastic admiration, yet consummated and expressed in a human being who stood within ten feet of me," according to Davies. It is no accident that the protagonist of Fitzgerald's first novel, This Side of Paradise, is named Amory Blaine or that Hobey should appear as a character named Allenby. Fitzgerald describes Amory sitting on the steps of his Princeton rooming house as "a white-clad phalanx" of singing students passes by: "There at the head of the white platoon marched Allenby, the football captain, slim and defiant, as if aware that this year the hopes of the college rested on him, that his hundred-and-sixty pounds were expected to dodge to victory through the heavy blue and crimson lines."
Fitzgerald biographer Andrew Turnbull wrote that in the Princeton of that time, "varsity football players were looked upon as demi-gods, and 'Hobey' Baker...loomed so high in the heavens that he was scarcely visible. But Baker had the common touch. Now and then he came down from Olympus to fraternize with the freshmen, and Fitzgerald actually spoke to him one day in October."
John Tunis, author of innumerable sports novels for boys, found the inspiration for his immaculate heroes in Hobey. Tunis wrote: "The whole atmosphere was electric when [Hobey] was playing. Everybody would just stand up when he got the puck or caught the punt. Never wore a headguard in football, and I remember that great shock of blond hair—Hobey standing waiting all alone. He was the only player on the field you looked at, the only player you saw.... He did everything with a kind of showmanship that wasn't showmanship because it was natural to him. He was a kind of panther. His coordination and footwork were so wonderful that he could take chances and do things that others wouldn't dare to.... He would drop-kick, tackle and run with a kind of feline intelligence, grace and charm—he would make everything look so easy. Never was anybody like Baker."

Getting to the Cause of Death

Ezra Klein makes a reading recommendation:
For a more vivid look at the importance of medical practices in lowering health-care costs and improving health-care quality, read this amazing article on the power of autopsies, and why we should be upset that hospitals have largely stopped conducting them. That we prefer to spend a lot of money to conduct MRIs and other expensive scans, despite their often dubious utility, rather than a little money to conduct autopsies, despite their frequently fantastic payoffs, is the sort of thing that both drives our health-care costs and rarely gets talked about when we’re discussing policy solutions.
I would just guess that hospitals don't want to tell people they want to do an autopsy because that only reinforces in the family's mind that the hospital doesn't know why somebody in their care died, besides the fact that a lot of people would find it intrusive and disturbing to have the hospital dissecting grandma.  I would imagine that a ton could be learned from autopsies, but that the general public just isn't into it.

A Little Fun on the Bench

From the Chicago Tribune:
Goaltender Marty Turco hasn't played much for the Chicago Blackhawks down the stretch, but that doesn't mean the fun-loving veteran hasn't found ways to have a good time.

According to a Montreal Canadiens season ticket-holder, during the Hawks' 2-1 overtime loss to Montreal on Tuesday night, Turco and the fan engaged in a little wagering.

A fan named "Robert" called into Montreal radio station Team 990 on the "Game Points with Matthew Ross" show and said he bet Turco $5 that the Hawks wouldn't score after Michael Cammalleri had given the Canadiens a 1-0 lead in the second period. After Patrick Kane tied it a short time later, the fan gave Turco a $5 Canadian bill with the words "Habs Rule" written on it.

As the game continued, the bet apparently increased that the Canadiens would win the game. After P.K. Subban won it for Montreal in overtime, Turco allegedly handed over some bills, including the original with the word "Habs" crossed off and "Turco" added so it read "Turco Rules."

That's pretty cool, but as for having fun when not playing, nothing beats Tom Browning going over to the rooftop seats across the street from Wrigley in uniform and eating a hot dog with the fans there.

Naked Capitalism Link of the Day

Today's link: Farmers look to earn their corn with new storage bins, at the Financial Times:
Soaring corn prices have sparked a rush by US farmers to build storage bins across the Midwest, with many hoping to profit from an expected shortage by hanging on to grain supplies.
The rapid pace at which bins are being erected has made the glint of galvanised steel a more common sight in rural parts of the US, their growing presence a sign that farmers expect to fetch higher prices for their corn as the country’s stocks fall to critically low low levels.
“Storage has had an incredible boom,” said Michael Swanson, agricultural economist at Wells Fargo. “Farmers have built more on-farm grain storage in the last three to four years than they’ve built in the previous 30.”
Government economists believe that US corn inventories will fall sharply before combine harvesters start rolling in the autumn, to 675m bushels by August. Corn futures prices have doubled in a year to surpass $7.70 per bushel, breaking records set in the commodity price spike of 2008.

Have a Beer and Celebrate


On April 7,1933, the Cullen-Harrison Act went into effect.  From Wikipedia:
The Cullen–Harrison Act, named for its sponsors, Senator Pat Harrison and Representative Thomas H. Cullen, enacted by the United States Congress March 21, 1933 and signed by President Franklin D. Roosevelt the following day, legalized the sale in the United States of beer with an alcohol content of 3.2% (by weight) and wine of similarly low alcohol content, thought to be too low to be intoxicating, effective April 7, 1933. Each state had to pass similar legislation to legalize sale of the low alcohol beverages in that state. Roosevelt had previously sent a short message to Congress requesting such a bill. Sale of even such low alcohol beer had been illegal in the U.S. since Prohibition started in 1920 following the 1919 passage of the Volstead Act. Throngs gathered outside breweries and taverns for their first legal beer in many years.
Prosit!



Since I quoted the song, I ought to play it, too:


I didn't realize until I searched YouTube that the tune is also the University of Iowa Hawkeye Victory Polka.

Interesting Ideas from an Interesting Man

Via Mark Thoma, Rajiv Sethi celebrates Albert Hirschman's 96th birthday:
Interesting lives make for interesting ideas, and Hirschman's is a case in point. Born to a German family of Jewish origin in 1915, he was baptized (but never confirmed) as a Protestant. His education was in French and German, though he would later become fluent in Italian, and eventually in Spanish and English. By the age of sixteen he had joined the youth movement of the Social Democratic Party. Through his sister Ursula (who was a major influence on his life and thought) he met Eugenio Colorni, whose Berlin hotel room was used for the production of anti-fascist pamphlets and fliers. Ursula would later marry Colorni, and one of their daughters, Eva, would go on to become an economist in her own right and marry Amartya Sen. (Eva's untimely death and her influence on Sen's thought is acknowledged in the emotional leading footnote of this paper.)

Hirschman watched the rise of Hitler with increasing alarm, and fled Berlin for Paris alone at the age of 18 just a couple of months after the Reichstag fire. Over the course of the next few years he would live in France, England, Spain, and Italy. He spent a year at the London School of Economics in 1935-36, taking courses with Robbins and Hayek, but finding greater intellectual affinity with a younger group of economists among whom was Abba Lerner.

When war broke out in 1939 he joined the French Army and, for fear of being shot as a traitor by approaching German forces, was compelled to adopt a new identity as a Frenchman, Albert Hermant. By 1941 he had migrated to the United States, where he met and married Sarah Hirschman. (They have now been married for seventy years.) He joined the US Army in 1943, and found himself back in Italy as part of the war effort soon thereafter.

At the end of the war Hirschman returned to the US and was involved with the development of the Marshall plan. He subsequently spent four years in Bogota, first as an adviser to the government on development policy, and then as a private economic consultant. After a sequence of appointments at Yale, Stanford, Columbia and Harvard, he moved to the Institute for Advanced Study in Princeton where he and Sarah remain. 
Hirschman feels, "a dislike for too unilateral and uniform diagnoses."  The ability to see similarities and differences and nuance from one circumstance to another seems very important to me.  I sometimes fall into the trap that when one has a hammer, everything looks like a nail, and definitely that is the default setting in the political world.  Being able to find the little things that make one situation different from another, and seeing unique solutions to each problem are skills I would like to acquire.

More Bad Fans

From the LA Times:
Minutes before San Francisco Giants fan Bryan Stow was beaten in the Dodger Stadium parking lot, he texted a relative to say that he feared for his safety, his cousin said Tuesday.

In the text message, he said he was "scared inside the stadium," his cousin John Stow said, adding: "He doesn't use that term loosely."

A short time later, after the game had ended, the 42-year-old paramedic and father of two walked out to look for a taxi and was attacked so brutally that he remains in a coma with a brain injury.

On Tuesday, Bryan Stow's family gathered outside Los Angeles County-USC Medical Center and thanked well-wishers in Los Angeles, San Francisco and around the country for their support.

As the Dodgers head to San Francisco next week for the Giants' opening home stand, Stow's family called for civility among rival sports fans and asked those who saw anything or know the assailants to help detectives arrest those responsible.

Wednesday, April 6, 2011

Columbia Rubber Plantations Grow

From the LA Times:
Until recently, few shared it in Colombia, where pests and poor soil were thought to make rubber plantations unfeasible. Southeast Asia is the source of 94% of the world's rubber supply. The success of the 1,200-acre Mavalle operation was considered an anomaly. Colombia accounted for only a tiny fraction of the 11 million tons of rubber harvested worldwide last year.

But the doubling of rubber prices since 2007 to about $2.25 per pound, along with advances in soil management, are once again spurring interest in the cultivation of rubber in South America. Giant agribusinesses as well as small entrepreneurs are planting thousands of acres in this sparsely populated region, hoping to cash in.

In Colombia, rubber tree planting has increased tenfold over the last decade to 25,000 acres, a figure that could triple again by 2016. Last year's harvest of 3,200 tons of rubber is projected to reach 35,000 tons by 2020.

Driving rubber prices higher are brisk car sales in China, India and other emerging nations. That has created a corresponding demand for tires, which soak up 70% of the world's natural rubber production, said Raul Nizo, the business manager for Mavalle, which is owned by Colombian billionaire Luis Carlos Sarmiento.

A Short History of Pringles

NYT:
The company’s expertise in edible oils was used widely by the potato chip industry in the 1950s and 1960s, and shaped the invention of Pringles, the thinly sliced saddle-shaped crisp. Company officials still aren’t sure how the chips got their name, but one theory holds that two Procter advertising employees lived on Pringle Drive in Cincinnati and the name paired well with potato.
The creator of the famous Pringles can was so proud of his invention that he asked that his ashes be buried in one.
Yet Pringles, which is basically dehydrated potato flakes that are rolled and then fried, was not universally loved.
It was such a dud in its early years that some called for Procter to dump the brand. The brand did not take off until the company tweaked the flavor in 1980 and introduced the “Fever for the Flavor of Pringles” advertising campaign.
By the late 1990s, Pringles had become a $1 billion a year brand. On the television series “Ally McBeal,” Ally got into a grocery store skirmish with a woman over a can of Pringles.
I always wondered what Pringles were made of.  One thing I can cross off my bucket list.

A Confession

Yesterday I bashed on the Cubs fans for low attendance.  Then I went down to the Reds game last night.  It was a good game, the Reds won 8-2, moving to 4-0 for the first time since 1990.  But attendance was a moribund 11,821, and there wasn't anywhere near that many people there.  Sure, Cincinnati is a much smaller market than Chicago, but the Cardinals announced attendance in St. Louis was 33,666.  As much as it hurts me to say it, St. Louis is a much better baseball town than Cincinnati.

Will Competition fix Medicare?

Kash Mansori at the Street Light doesn't think so:
The notion that Medicare costs have been rising because it is a government-run health insurance program, or because it is not a "competitive" health insurance program, is odd. Theoretically, economists can list a number of very specific ways in which the markets for health care and health insurance are characterized by market failures. And for those of you who have forgotten your Econ 101 lessons, please recall that economic theory clearly predicts that when there are market failures there is no reason to necessarily expect that competition (i.e. the free market solution) will provide a good outcome.

Providing yet another example when economic theory actually matches what we see in the real world quite well, we find that there is absolutely no evidence that competition among private health insurance companies leads to lower costs. The Kaiser Family Foundation conducts a survey of employer-sponsored health insurance programs every year to estimate private health insurance premiums. Health insurance premiums for workers in large companies -- those employing 200 people or more, which encompasses about 65% of all workers covered by private, competitive, employer-sponsored health insurance plans -- rose by 135% over the ten year period 1999 to 2009.

Meanwhile, Medicare spending per person rose by about 103% over the same period. (Note that to get this figure I simply divided total Medicare costs from the CBO (pdf) by the number of Medicare enrollees as provided by Census (pdf).)

Surprise, Farmers-Monsanto's Making Money

Who'd have guessed that. Today:
Rising corn seed sales helped Monsanto Co. boost its second-quarter profit by 15 percent compared to last year. The world's biggest seed company said Wednesday that corn seed revenue jumped 7 percent. The company is rolling out more expensive brands of genetically altered corn seeds, and competing fiercely for market share against seed developers like DuPont.
also:
Second quarter results are critical for Monsanto, because they cover a period when the company books its seed sales to farmers. Analysts had questioned whether Monsanto would be able to convince farmers to pony up more money for strains of corn seed that had several genetically altered traits. Competitors like DuPont's Pioneer Hi-Bred have been trying to steal away customers, in part by lowering prices.
Monsanto CEO Hugh Grant said the second quarter results show Monsanto's sales strategy is working.
My own observation, Pioneer's former outperformance in yield isn't there anymore.  The large investment Monsanto has made in buying up smaller seed companies and merging their genetics with its GMO technology seems to be paying off.

Germans and this blog

I have come across an interesting phenomenon in my minimal blog experience.  According to the page view stats that Blogger tracks, I've received 91 page views all-time from Germany.  31 of those came the day I posted an excerpt from Michael Lewis's Vanity Fair article on the Irish bank fiasco.  58 have come in the last day when I posted on Paul Ryan's budget plan.  Actually, in the past 24 hours, more pageviews were from Germany than the United States.  This leads me to believe that a reasonable number of Germans are very interested/concerned about the world economy, and budget problems in Ireland and the United States.  My expectation is that their concern regards whether the United States and Ireland will default on debt held in Germany.  I also figure that I only have Google to thank for sending these readers in my direction.

I welcome any German readers to the site, and would be glad if you were to inform me if these suppositions are correct or not.  Please use this as a conduit to express your views on the budget mess and deficits, I am interested to hear them.  Thanks.

Something Republicans Should Note

Edward Glaeser takes a look at the census:
In 1970, when I was 3, there were 170 million non-Hispanic white Americans, and they represented 83 percent of America’s population. Today, there are 197 million non-Hispanic whites in this country, and they represent less than 64 percent of America’s population.
If current trends continue at the same pace — and if my life isn’t cut short by overconsumption of oysters or cigars — I will live to see the 2050 Census measure an even more wonderfully diverse America, where my own demographic subgroup has become a minority.
Without this increasing diversity, America’s population would have been largely stagnant. Over the last 40 years, our country’s population has increased by 106 million people. Seventy-four percent of that increase, 78 million people, came from the growth of the minority population.
Over the last decade, the non-Hispanic white population increased by a paltry 2.26 million, less than a tenth of the overall population increase of 27 million.

While this change may scare some (racist) white people, anyone with a brain in the Republican party (if any remain) might want to quit demonizing minorities and start working with said brown people to help make government work for them to improve their lives in this country.  If not, the Republican party will continue to be the rump party of aging white rural and suburban folks, albeit with less impact on this country.  Well, when said that way, maybe things will work out well for the country.

Naked Capitalism Link of the Day

Today's link: Ryan's Budget Plan is Ridiculous, But it Could Shift the Debate, by David Dayen:
So this is a pretty pathetic budget. And it also happens to be a complete fiction. The numbers are not to be trusted at all. Ryan assumes $1.4 trillion in savings from health care repeal when the Congressional Budget Office scores repeal as increasing the deficit. He uses “dynamic scoring” to perpetuate a fiction that tax cuts will increase tax revenue. He sets unrealistic spending caps without determining how to get there or how future Congresses not bound by his budget will abide by them. Worst, he assumes a world-historical low unemployment rate based on a Heritage Foundation study that claimed the Bush tax cuts would lead to the same kind of prosperity (hint: they didn’t). Indeed, by 2021, Ryan assumes a 2.8% unemployment rate, which is how he achieves the revenue needed to make the numbers work. Included with this projection is an implausible housing boom. Jim Tankersley and Katy O’Donnell, middle-of-the-road journalists, say in their headline that the plan “pushes optimism to the outer limits.”
Where would that spectacular growth come from? Based on an analysis provided to Ryan by the Heritage Foundation, a conservative think tank, it would come from the liberating effects of lower taxes and less government debt.
But the forecasted growth is so high that it falls on the outer edge of what most economists say is plausible—or even desirable—for the next decade [...]
“They don’t have a strong track record of their projections matching reality when it comes to these kinds of scenarios,” said Heather Boushey, senior economist at the Center for American Progress. In particular, Boushey called the math behind projections of massively increased housing investment “fuzzy” given the realities of the market.
“I just don’t see how you spark a boom in housing,” she added. “Would that be good for the U.S. economy? Would that be at all likely? I think the answer to both questions is no.”
As long as everyone’s throwing around the word “serious,” this is the least serious budget proposal in recent history. It’s made up of unicorns and rainbows.
There is also a link to Bronte Capital about a another Chinese corporation which appears to be a fiction to separate westerners from their investment capital.  I would wager that the China bubble will burst in the next couple of years.  Then we'll really have a mess on our hands.

This Budget-cutting Farce

Mark Thoma has a post titled, "The Ryan Plan Is "Fundamentally Immoral."  I think I would have to agree with this.  Slashing medical care for the poor so that rich people can pay less in taxes isn't right.  Thoma summarizes by looking at the causes of the record deficits, and ends with a sigh about how unserious the potential solutions are:
As also noted above, we already have something like that in the works, it's in the Affordable Care Act, and we'd be much better off focusing on making this program function effectively than dreaming that somehow individual vouchers are the answer. They're not, and "the greatest risks will fall on the poorest, sickest, or least savvy."
The game being played here has little to do with the budget itself. It is an ideological debate about the role and obligation of government. First, cut taxes for the wealthy to create a big hole in the budget, have a Great Recession aid the cause by stripping government at all levels of tax revenue, increasing costs of serving people, and creating short-run deficit problems (and a war here and there doesn't hurt the cause either), and finally use the deficit as a club against social insurance programs such as Medicare and Social Security.
The cover for the attempt to get government out of the social insurance game is the deficit, but deficit reduction is not the primary purpose. The goal to reduce the government's involvement in these programs by whatever means. If deficit reduction was, in fact, the primary goal, there are much better ways to do this than the Ryan plan, e.g. the market-based mechanisms in the ACA.
I wish I could trust Democrats as the gatekeepers, but they seems just as determined as Republicans to kill some program so that they can wear the badge of deficit reduction for the upcoming election. The badge itself seems much more important than what it takes to get it. Democrats are itching to kill something, anything, so they can put the notch on their gun, and that is the most worrisome part. "We don't need no stinkin' badges!," but it looks like that's what we are going to get.
In the end, my opinion is that cost-savings in health care will probably only come about with less competition, not more competition.  Why do I say that?  Because in the end, multiple hospitals providing the same services will all end up underutilized, as they each expand to try to take more of the market.  It is nearly impossible to maintain the proper staffing to maximize efficiency in such a random situation.  Likewise, with a large number of insurance companies each negotiating different pricing arrangements with the hospitals and doctors, there are a number of extra hands in the till. 

Because it is a public good, health care will need to be managed as such.  That goes in the face of our national belief in the perpetual goodness of markets, but I don't see a way around it.  People can't be expected to be rational consumers of health care when they are facing health emergencies.  Anything else will end up leaving large numbers of people without health care or bankrupting the country.

Tuesday, April 5, 2011

The Ryan Tax Plan

Matthew Yglesias:
Look. If congress does not enact new deficit-increasing legislation, then the medium-term deficit picture is fine. Paul Ryan’s draconian cuts to Medicare, though draconian, also aren’t even supposed to take effect until outside the ten year budget window. In the medium-term the deficit is all about the conventional wisdom that congress will enact new deficit-increasing legislation. There are many villains in this, but the main culprit is the determination of many members of congress, Ryan included, to keep extending tax cuts that are scheduled to expire. What needs to happen to get the medium-term deficit under control is not enact these tax cuts. But the whole essence of Ryan’s plans is to make tax cuts for the rich affordable. That’s fine. Ryan is a member of the modern American conservative movement, a movement that’s fanatically focused on lowering taxes for the rich and completely uninterested in the budget deficit. If you want to have an adult conversation about the cataclysmic impact of this tax cut agenda on public services, then the Ryan Ripoff is an excellent place to start. But if you want to have an adult conversation about the deficit, you start by not digging
Exactly.  Getting rid of all of the Bush Tax Cuts would have cut the deficit by $400 million.  Trying to lower taxes on the wealthy isn't going to solve any problems.

Marketing Strategies

From the LA Times:
When Dodger Stadium opened 49 years ago, historian Kevin Starr observed, it was "state of the art," from its "column-free construction" and "unobstructed view of home plate from every seat" to its "escalators serving four levels" and "comfortable seats for fans."

There was just one problem, he noted: There were no drinking fountains.

Well, actually there were two, one in each team's dugout. But, of course, the fans in the 56,000-seat ballpark were not allowed to get in line with the players when they needed a sip.

One ticket-holder at the April 10, 1962, opener complained afterward to The Times that when she asked a Dodgers employee where she could get a drink of water, she was told she was welcome to use any of the taps in the ladies' rooms.

Which prompted Times columnist Jim Murray to quip: "You can, to be sure, drink direct from the tap. All you have to do is hang by your heels from the water pipes like a sloth. This way, you get more exercise than the left fielder."

The Dodgers, Murray added, "might also have pointed out that there is plenty of water under the ground if the patrons would only take the trouble to drill for it."

In the ensuing hubbub, City Councilman Edward Roybal pointed out that Los Angeles Memorial Coliseum had 150 drinking fountains and the Sports Arena had 48. He suggested that Dodger Stadium's water shortage might have been an attempt "to facilitate beer sales."
I find it hard to believe that Dodger Stadium and Disneyland not having drinking fountains was an oversight.  Sounds like a captive audience problem to me.  That's pretty entertaining.

Cubs Bandwagon has room

From the Chicago Tribune:
The newest challenge facing the Cubs isn't an opposing pitcher or hitter.

It's trying to return to the days when lousy weather wasn't a deterrent in filling their ballpark.

Playing in front of their smallest crowd in nine years, the Cubs beat the Diamondbacks 4-1 Monday behind strong pitching by Randy Wells, a pair of RBIs by Alfonso Soriano and some clutch pitching out of the bullpen.

The attendance was announced at 26,292, or about double the number of actual fans at Wrigley Field.The Cubs confirmed it was the smallest crowd at Wrigley since 20,032 showed up on Sept. 26, 2002, when interim manager Bruce Kimm's team was playing out the string against the Reds and rookie Carlos Zambrano was on the mound.
I can believe bad weather would keep the crowd down, but the team being terrible has to figure into that.  Although, the enjoyment of a trip to Wrigley is inversely proportional to the number of Cubs fans there.

Paul Ryan's Budget

Outlined in today's Wall Street Journal.  Here he is on tax reform:
Tax reform: This budget would focus on growth by reforming the nation's outdated tax code, consolidating brackets, lowering tax rates, and assuming top individual and corporate rates of 25%. It maintains a revenue-neutral approach by clearing out a burdensome tangle of deductions and loopholes that distort economic activity and leave some corporations paying no income taxes at all.
Maybe I'm just being a skeptic, but 28% top marginal rate was too low when Reagan changed it, and the only way to get that is to get rid of the mortgage interest deduction and state tax deductions, I bet this idea doesn't make it.  The only way this can be revenue neutral is if taxes go up on the middle-class, because they'll be lower on the wealthy.  Also, higher corporate taxes overall probably isn't going to fly.  Republicans are going to get pummelled on this.

How to Balance the Budget

Robert Reich:
Here’s the truth: The only way America can reduce the long-term budget deficit, maintain vital services, protect Social Security and Medicare, invest more in education and infrastructure, and not raise taxes on the working middle class is by raising taxes on the super rich.
Even if we got rid of corporate welfare subsidies for big oil, big agriculture, and big Pharma – even if we cut back on our bloated defense budget – it wouldn’t be nearly enough.
The vast majority of Americans can’t afford to pay more. Despite an economy that’s twice as large as it was thirty years ago, the bottom 90 percent are still stuck in the mud. If they’re employed they’re earning on average only about $280 more a year than thirty years ago, adjusted for inflation. That’s less than a 1 percent gain over more than a third of a century. (Families are doing somewhat better but that’s only because so many families now have to rely on two incomes.)
Yet even as their share of the nation’s total income has withered, the tax burden on the middle has grown. Today’s working and middle-class taxpayers are shelling out a bigger chunk of income in payroll taxes, sales taxes, and property taxes than thirty years ago.
Of course he goes on to say that it is exactly the opposite case for the wealthy.  The class war is waged from above, and they are winning in a walk.  It makes Quaddafi vs. the rebels (without NATO help) look like a fair fight.  Tea Partiers just happen to be the Quaddafi supporters in Tripoli.

Did the Fed Asset Purchases Drive Commodity Prices

Via Mark Thoma, these guys say no:
In this Economic Letter from the FRBSF, Reuven Glick and Sylvain Leduc argue that the Fed did not cause the run-up in commodity prices:
Prices of commodities including metals, energy, and food have been rising at double-digit rates in recent months. Some critics argue that Federal Reserve purchases of long-term assets are fueling this rise by maintaining an excessively expansionary monetary stance. However, daily data indicate that Federal Reserve announcements of large-scale asset purchases tended to lower commodity prices even as long-term interest rates and the value of the dollar declined.

Medicare Privatization

Krugman:
More when we have some details. But two key points:
1. Privatizing and voucherizing Medicare does nothing whatsoever to control costs. We’ve seen that from the sorry history of Medicare Advantage. I’m sure that the Republicans will claim savings — but those savings will come entirely from limiting the vouchers to below the rate of rise in health care costs; in effect, they will come from denying medical care to those who can’t afford to top up their premiums.
Oh, and for all those older Americans who voted GOP last year because those nasty Democrats were going to cut Medicare, I have just one word: suckers!
2. E.J. Dionne is right: This will be Obama’s defining moment. Will he stand up for the principle that society takes care of those in need? Or will he cave in? I wish I had confidence in the answer.
I love how Paul Ryan is probably going to introduce a plan that doesn't go into effect for 10 years.  What a way to put off the backlash.  But seriously, this is a terrible idea.  It has all the worst parts of Obamacare, with the explicit addition of putting private insurance companies in the position of deciding grandma doesn't need that treatment because it costs too much.  So everything the Republicans campaigned against, they will probably be proposing, but only for people who are 55 or younger.  Don't worry Republican base, you're still covered.  Stupid.

Naked Capitalism Link of the Day

Today's link: Mr. Greenspan takes it all back.  His Old Time Religion was right after all, at Credit Writedowns.  This piece is a perfect takedown of Greenspan, who should be shunned from all media coverage.  I really liked this part:
Mr. Greenspan’s euphemism for dysfunctional is “complex.” His op-ed says what priests or nuns tell parochial school pupils who ask about how God can let so many bad things happen here on earth. The answer is simply to say: “God is too complex for you to understand. Just have faith.” Nobody has sufficient skills to be “entrusted with forecasting, and presumably preventing, all undesirable repercussions that might happen to a market when its regulatory conditions are importantly altered.” Just look at how Bush Administration happy-face appointees at the FDIC and IMF expressed faith that risks were declining in 2007-08. “Regulators were caught ‘flat-footed’ by a breakdown we had erroneously thought was more than adequately reserved against.” Who could have seen that fraud was going on? Certainly nobody that was let into the Fed’s policy meetings.
Federal Reserve Board Governor Ed Gramlich’s warning about subprime mortgage fraud is ignored as an anomaly here. When Mr. Greenspan says “we” in the above quote he means the useful idiots that Wall Street insists that the government hire – true believers in the deregulatory kool-aid being doled out on behalf of their financial god too complex for mortals to know. “The problem is that regulators, and for that matter everyone else, can never get more than a glimpse at the internal workings of the simplest of modern financial systems.” But the “regulators who never got more than glimpse” were co-religionists headed by Bubblemeister Greenspan himself. He bears his failure to “more than glimpse” like a badge of honor.
It seems that only bankers really understand what they’re selling, but you must trust Wall Street to do the right thing. (If Mr. Greenspan mouthed such a claim in Wisconsin, where five school districts were suckered into borrowing $200 million in addition to their original investment in CDOs, he would meet with considerable ridicule.) If bankers do not make money for their customers, they will lose their trust. Why would bankers and financial institutions act in such a way as to profiteer at their customers’ expense (and that of the overall economy for that matter)?
The reason, of course, is that the financial sector notoriously lives in the short run. Countrywide Financial, Lehman Brothers, WaMu, Bear Stearns, A.I.G. et al. gave their managers enormous salaries and even more enormous bonuses to turn themselves into a new power elite with fortunes large and “complex” enough to endow their heirs for a century.
The Federal Reserve Bank of Minneapolis has just published statistics showing that the wealthiest 1% of America’s population doubled its share of wealth over the decade ending in 2007 as the bubble reached its peak.
Greenspan's philosophy was proven completely wrong in the market meltdown.  Letting the fox into the henhouse never works out.  His argument is that if you put in regulations to catch bad guys, it will harm good guys, so let the bad guys go.  Unfortunately, in the finance industry, good guys can't compete.  They get pushed out of business during flush times, and only come back in when the bad guys blow up.  The man is a failure, just like his philosophy.  The whole article is brilliant.  There are a lot of other good points made in it.

Luck and Hard Work

Kentaro Toyama takes a balanced look at the pathway to success:

Success, though, is obviously a function of both virtue and luck. Virtue alone isn't sufficient for material success (e.g., hard-working people laid off in the recession), and people with little virtue can succeed wildly (Charlie Sheen, anyone?). Luck matters -- luck of the parents you were born to, luck of talent you inherited, luck of the people you happen to know, and often, just plain vanilla luck. Virtue's link to success is partial and probabilistic, never an absolute guarantee.
Still, even if life outcomes were only 1% up to you and as much as 99% up to luck, it helps to believe that it's all you for three reasons: First, you're the part of the world that you have the most control over. Second, it's discouraging to think that it's mostly luck. And third, even 1% every day accumulates like compound interest. That's why Benjamin Franklin propagated the idea that "God helps those that help themselves." That's why we love rags-to-respectability Horatio Alger stories. That's why we blithely tell our children, "You can achieve anything, if you just work hard enough!"
But though the white lie of the self-made person is great motivation, accepting it as fact leads to both blaming the victims in the unemployment line and encouraging oversized self-esteem on Wall Street. This gap between what motivates us and what explains us is the crux. Hobgoblins lurk in the attempt to reconcile.
Conservatives accept the self-made person, blame victims, lionize the superrich, and want to shrink government. This view is consistent. It's also oversimplified, but conservatives have committed to it and gone far.
Liberals deny the self-made person (at least in public) and invoke social context. This view is also consistent and oversimplified, but liberals waver on it because it violates their own intuitions. Liberals, for instance, are no different from conservatives in wanting to instill individual virtues in their children.

Banks Lending to Farmers Are More Profitable

The Des Moines Register is reporting on profits of banks lending to farmers, but along the way, remembers the land boom in the 1970's:
The average price for an acre of Iowa farmland was $5,707 in March, up 25 percent from a year earlier, according to a survey by the Iowa Farm & Land Chapter of the Realtors Land Institute. The all-time high - adjusted for inflation - is $5,711 per acre in 1979, just before the farm crisis. Land prices rose sharply in the 1970s thanks to high commodity prices, inflation, easy loans and - later - land speculation by investors, according to a report on the crisis from the FDIC.

Farmers took on massive debt to expand, using land as collateral. They borrowed from banks, but also from life insurance companies, the federally backed Farmers Home Administration and the Farm Credit System, which was by far the largest farm lender.
Much the way lenders in the 2000s believed home values would always rise, farm lenders in the 1970s failed to foresee a drop in farmland prices. Bankers loaned on faith that the land's value would keep climbing. Getting a loan was easy.
"In the early '80s, we hadn't really heard of cash flow yet," said Greenland, who began his career as a banker in 1982.

When the Federal Reserve raised interest rates in 1979 to combat inflation, farmers projected lower profits and land prices began to sink. Then President Jimmy Carter imposed an embargo on grain sales to the Soviet Union in 1980, and commodity prices tumbled. Existing farm debt, which had quadrupled nationally in the 1970s, became crushing for farmers when adjustable-rate loans reset at twice or three times the interest.

Hopefully, we can avoid the mistakes of the past.  But it unnerves me to hear people talking about how they don't make any more land, and that with all the demand grain prices won't go down.  As soon as things look inevitable, everything changes.  It is good to see that debt levels are much lower today than they were in the 70's.  Still, it feels like a bubble to me.

Monday, April 4, 2011

Hello, My Baby

One of my all-time favorites:

Change in Over-the-Rhine

The Cincinnati Enquirer looks at changes in Over-the-Rhine since the riots in 2001:
The dead-end alley where a police officer shot Timothy Thomas 10 years ago is gone, replaced by a gated walkway between lofts with bamboo floors and condominiums with Rookwood tile fireplaces.
The park where a protest over Thomas’ death dissolved into violence is being rebuilt as a “green oasis” with fountains, a dog park and a playground.
And the streets where mobs once hurled bottles at police are now patrolled by officers who get support - and even praise - for the way they do their jobs.
Over-the-Rhine is no longer the place it was in April 2001 when Thomas died and the neighborhood erupted.
The center of unrest and riots a decade ago, Over-the-Rhine now is home to $160 million in development projects, more than a dozen new businesses, about 200 renovated apartments and condos, a smaller population, less housing for the poor and a rate of serious crime that's half what it was in 2001.
"A change is taking place," said the Rev. Damon Lynch III, pastor of New Prospect Baptist Church on Elm Street. "And it's dramatic."
Over-the-Rhine's transformation is stunning to those who have watched generations of politicians and activists bicker about how to save the historic neighborhood from blight, crime and poverty.
But some of the changes have triggered a new struggle that is in some ways more significant than the battles fought a decade ago in the streets.
This is an interesting development, as gentrification comes to a city that has long just built further and further from downtown, and generally still is.

Dialed In Wins Florida Derby

Dialed In came up from way back to chase down 60-1 long shot Shackleford and win the Florida Derby while Travelin Man won the Swale Stakes.  Here is the video of the Florida Derby:

The Plight of a Knuckleball Pitcher

The New York Post talks to R.A. Dickey:
Here's the crazy part of the way R.A. Dickey makes his living: On some days -- on some of his best days, in fact -- he has no idea what he's doing.
OK, that's not quite right: In his brain, he has a perfect, almost pristine, understanding of how he wants to go about his business, how he wants to attack hitters, how he wants to manage batting orders. It's just that his most bankable skill -- the ability to throw not one but two knuckleballs, one that tops out at 80 mph, one that bottoms out near 60 -- is the kind of proficiency that isn't reliant solely on his right arm.

Anthony J. Causi
PITCHER PERFECT: R.A. Dickey, who struck out seven, walked three and gave up five hits over six innings of work yesterday, delivers a pitch during the Mets' victory over the Marlins.

"The wind can be a big help," he said yesterday. "Or it can be a big problem."
"How do you know which is which?" he was asked.
"A lot of times you don't," he said.
He smiled as he said it, not surprising since in his first outing of 2011 Dickey looked an awful lot as he did across most of 2010. With the wind turning the baseball into a Wiffleball, he struck out seven Marlins; he also walked three of them. It's why his day only lasted six innings, but he wasn't complaining. The Mets didn't win a road series last year until June; after this 9-2 drubbing of the Fish they're already 1-for-1.
That is the challenge of being a knuckleball pitcher, some days it works, but some days it doesn't.  When it works, it is awesome, and when it doesn't, you are taking an "L".  It is by far the most interesting and yet the most frustrating pitch in the history of baseball, and good practitioners make the game the best there is to watch.

Craft Beer Market Growing

Chicago Tribune:
A homegrown revolution that took root in the 1980s, the craft beer industry grew from a handful of pioneers to more than 1,750 breweries in 2010. Early leaders included Sierra Nevada, Samuel Adams and Anchor Brewing, which was sold last year to the Griffin Group, a private-equity firm.

Leveraging local roots, flavorful, sometimes fanciful, products and quirky marketing, craft beer accounted for 5 percent of beer sales nationally in 2010. With mainstream sales flat, some analysts think that share could reach 20 percent within the decade.

"Craft beer is kind of a rising tide right now," said Benj Steinman, president of Beer Marketer's Insights. "It's really in the sweet spot of where more consumers are going, and that seems to be toward the sort of innovation, flavor and variety that the craft brewers are epitomizing."

Craft beer sales came in at just under 10 million barrels in 2010, an 11 percent annual increase, while total U.S. beer sales were down 1 percent, to 203.5 million barrels, according to the Brewers Association. Some 30 percent of craft beer is sold on tap, three times the industry average.

With a higher price point — most sell for about $9 per six-pack — craft beer revenue is relatively stronger, accounting for $7.6 billion out of $101 billion in total beer sales last year.
This is a bright spot in an otherwise weak beer market.