Archive for April, 2003


April 16, 2003

Reader’s Digest

Three quirky little papers from the always interesting (though bizarrely difficult to navigate) SSRN website.

1. Lots of good sense from John Bogle about the perils of “getting what you measure”. Mainly about stock market and accounting issues, but the things he’s saying are of far more general relevance, particularly for economists at Warwick or Birkbeck universities.

2. Geomagnetic storms influence equity returns, apparently. People have been laughing at the behavioural finance crowd for this sort of windy, speculative, data-dredging stuff for years now, without obvious effect. Sunspots, etc. I haven’t seen a working paper yet relating trading volumes to menstrual cycles but I’m sure it’s out there.

3. Long term trends in given name frequencies in the UK. No really. Popularity of first names follows a power law, something that I would probably have intuitively predicted given that power laws tend to be generated by models with positive network effects.

oh yeh, and a bonus. Another paper criticising the old Lott ‘n’ Mustard ‘n’ Guns ‘n’ Crime paper. I haven’t done any in depth reading of the econometrics and frankly don’t propose to, but they do make a couple of points which I’ve made myself on the web in the past but haven’t seen in print: a) that Lott’s “demographic” variables included %black and %white, meaning that the model is collinear and thus highly prone to spurious fits (Lott also did this to a disgraceful extent when giving testimony in the Florida voting machines case, proving in my mind that he doesn’t understand the OLS regression model). and b) that *all* of these exercises are doomed to failure in terms of generating robust results, as it is just not possible to gather data on conditions in local crack cocaine markets, and without that data, the regressions are most likely worthless.



April 14, 2003

Two models

Just random thoughts, tangentially related to economics, the sort of thing you think about while you’re dozing off on long flights:

  • The drift of civilization. Robert Anton Wilson, among others, has advanced the theory that the center of human civilization has a tendency to drift “westward and slightly northward” over time (China – Middle East – Europe – America), an idea which is drawn from the historian Brooks Adams and his “Law of Civilisation and Decay”. This theory sounds a bit too batty and deterministic to be worth considering, and its main historic use has been to shore up some pretty windy American exceptionalism, but when you start thinking about how one might go about modelling the drift of human society, it seems pretty trivially true. Consider:

    A society is composed of some number of individuals, who start life at time t in the middle of some randomly selected landmass of the planet Earth. Every morning at dawn, they set off walking in some randomly selected direction, and continue until sunset, when they stop … now take a deep breath, think hard, and try to predict the next step … even in this simple model, there is a tendency for society to drift westward. Why? Because when they are moving westward, they’re moving in the direction of the setting sun, so their solar day is a couple of minutes longer than if they’re walking eastward. It’s the same effect which accounts for time zones. You can complicate the model as much as you like, adding terrain features which are hard to cross, etc, but it strikes me that as long as you’re modeling a planet which spins in the same way as Earth, you’re going to have this drift. Also note that, following similar reasoning, if you assume that the model society walks all day only during the summer, and then stays put when winter arrives, there’s going to be a northward drift in there too (more strictly, a drift toward the poles and away from the equator). You don’t need any of Wilson’s more esoteric theories; just the simple properties of a random walk.

  • Stock market anomalies and wristwatches. These are a set of slightly weird anomalies in the stock market, mainly associated with the month of January and with small firms. Basically, there is a strong and predictable seasonal component to some stock returns, which causes all sorts of problems for efficient markets theory. Again, let’s take a more simple model.

    How do you find out the time if you don’t have a watch? Well, an easy way to accomplish this is to ask the first 100 people you meet what the time is and take the average (note that I am an economist and therefore assume that you can carry out this process without it taking any time itself. It’s called “tatonnement”). Most days of the year, this will give you a really very accurate estimate of the exact time, as the errors in other people’s watches will tend to cancel out … shouldn’t they? Actually, this might not be true; some people systematically set their watches a few minutes fast in order to not be late for things, but few people systematically set their watches a few minutes slow. However, two days of the year, the estimate will most likely be quite significantly out, as some of the people concerned won’t have set their watches forward or back. Hey voila, more or less the simplest possible model of trying to make collective decisions on an objective but hidden variable, and I’ve already got an equivalent to the equity premium puzzle and an equivalent to the January effect. Aren’t collective action mechanisms wonderful?

No subtextual political or postKeynesian message here, by the way; just the economics equivalent of chess problems.


April 14, 2003

Back for the attack

What? Something go on while I was away? Ah well, whatever it was, I daresay it wasn’t important. In any case, here’s a prediction … what with folks here and there talking about the distribution of the Iraqi oil rents1 “to the people”, it won’t be long before somebody suggests that an even better wheeze would be to allow these oil rent shares to be tradeable, in order to accelerate the benefits of a market economy and the development of a “Western style equity culture”. In other words, it can’t be long before some bright spark not necessarily attached to the Harvard Institute suggests a voucher privatisation program for the Iraqi oilfields, with predictable consequences (see D2D passim)

1You can tell that this sort of proposal is either disingenuous or half-baked, by the way, because all the people talking about it talk about “the state’s oil profits” as if it were some technological constant fixed by the state of nature, rather than the whole bloody subject of negotiation; the proportion of Iraqi oil production which will be allocated to the Iraqi government rather than given up under contracts. Before yakking about “Alaskan solutions”, anyone who gives a fig for the Iraqi people ought to be talking in strict terms about ensuring that the Iraqi successor state will be given full property rights over the oil located under its soil (including the oil which the Kuwaitis were so notoriously eager to slant-drill), and that this successor government will have full rights to auction off or dispose of its mineral extraction rights in any way it chooses (including, for example, flogging the lot to the French and Russians) at market rates. Particularly, everyone ought to be on the lookout for obvious conflicts of interest on the part of anyone involved in the transititional administration; as a matter of principle, any military government administered by the US, UK or even UN ought not to have the power to make long-term contracts with respect to the oil.


April 5, 2003

Thoughts from the road

A big hullo to the residents of Dublin, Manchester, Helsinki, Stockholm, Copenhagen, Madrid, Paris, Muenich, Frankfurt, Milan, Geneva, Zuerich, Rotterdam, Utrecht and Amsterdam, all of whom have sold me drinks and sandwiches, driven me around and such-and-such over the last few weeks. Hence, light or shall we say non-existent updating of this site, likely to also be the case for the next ten days at least. Here’s a trademark facetious utterance to prove that this is me and not one of my many lookalikes.

Obviously, Iraq will be needing a new leader once the war is over, and although the US is keen to ensure that all the inportant functions of the state will be served by American companies on decent government contracts, it has to be assumed that this leader will be an important job, of the sort which it isn’t necessarily all that seemly to fill just by sending out to an employment agency for a temp. Anyway, I realise that other bloggers are getting behind the candidacy of Vaclav Havel, but I have my own suggestion.

Consider the requirements. An ideal candidate for leader of a liberated Iraq would have the following characteristics:

  • A Shi’a Muslim of unquestionable religious devoutness.
  • A credible record of Arab nationalism, so as not to be seen as a puppet
  • But on the other hand, someone with a Western education would be good
  • It needs to be someone who has experience with giving contracts to US firms like Halliburton
  • In fact, specifically, it would good to have someone with a background in the construction industry
  • The candidate will have to work closely with the White House; somebody with family connections to GW Bush would be good.
  • And of course, someone who is popular with Iraqis.

As far as I can see, there is a person who fits all of these requirements. Cometh the hour, cometh the man … step forward, Osama bin Laden1.

1For the thick kids, this is meant to be a pointed comment on the about fifty hours of CNN commentary I’ve heard over the last four weeks with people saying that “the Shi’ites hate Saddam”. Of course they do; but they hate us too.

Any road up … also a quiz question. Which is the OECD country which most recently had a Head of Government who was not democratically elected? When and who?