Economics

Something of an over-estimate?

~ Cheryl ~ 1 Comment

According to GalleyCat, a Technorati survey has found that 2% of blog writers regard their blog as their primary source of income. Is that good or bad? Well, look at the other numbers. Out of 133 million blogs, only 7.4 million have been updated in the past 120 days. And yet in the survey 15% of bloggers claim that their blog is a supplemental source of income. Yeah, right. Sorry, Technorati, I suspect that your respondents were mainly self-selecting. The true percentage of people who make a living from their blogs is probably much smaller.

Sausage Making

~ Cheryl ~ 1 Comment

I spend a fair amount of time making and running computer models. For the purposes of what I’m going to say it really doesn’t matter what the models are modeling. Kevin’s job involves making and running models too, they are just models of different things. But one thing is true of all models: they are not the same as the thing that they are actually modeling. They contain assumptions and short cuts and the like.

When you work in modeling, every so often you will come across a client who is suspicious of your model and wants to know more. This often leads to awkwardness, because models are like sausages: the more you know about how they are made, the less wholesome they appear. So you get a conversation that goes something like this:

Client: “These two pork sausages are different. They both taste the same, but they look different to me. Explain to me how they are made so that I can understand why they are different.”

Modeler; “OK, if you really want to know…” [and launches into an explanation of the sausage-making process].

Client: “Eeeuuw! You mean to say that you killed and cut up a pig to make these sausages?”

Modeler: “Well, not me personally, but they are pork sausages. That’s what pork is: dead pig.”

Client: “Well I’m not having it. Bring me some pork sausages that don’t contain dead pig instead.”

And it is not use complaining that pork is pork and you can’t make it without killing pigs. The client is always right, and must have what he asks for.

So yeah, I do get into conversations like this sometimes. So does Kevin. So does everyone who runs computer models.

Unfortunately sometimes the person who doesn’t want dead pig in his pork sausage is not the client, but the CEO. And that, I suspect, has a lot to do with how banks manage to get their financial modeling wrong.

FAIL For Real

~ Cheryl ~ 10 Comments

When all this financial crisis stuff first started hitting the headlines I did a post pointing out that, contrary to what you might be reading elsewhere, banks were not actually failing, and things were nowhere near as bad as they were in the Great Depression. That’s because most Western democracies have something like the FDIC that insures the bank deposits of small customers like you and me, and generally sees to an orderly takeover of banks that get into trouble. So while a number of US and British banks have ended up being sold, no one has actually lost their money.

Until now.
Continue reading →

Just Like Us

~ Cheryl ~ 2 Comments

Not many of my readers work in derivatives, I suspect, but a lot of you work in computer programming, and I think that this blog post from The Economist may resonate with you. The blogger is talking about how “quants” (people with top skills in esoteric math such as theoretical physicists) devised various complex financial instruments, but were back office staff and were not responsible for how they were used. That job fell to the sales suits in the front office, who didn’t have much idea how these things actually worked. Sound familiar? So now you have a good idea why we are in this mess.

As some of the commenters point out, many of the instruments were not that complex in and of themselves. It was what people did with them that was the problem. In software we have learned by painful experience that new releases need to be tested, often in extreme conditions. Too many banks appear to have had the equivalent of poor testing procedures that were more geared to getting the product out of the door than finding out whether it was bug free.

Descending into Farce

~ Cheryl ~ 2 Comments

When Kevin first explained to me how the US political system worked I was aghast. Over the years I have partially got used to it, but now it seems that Americans are starting to wonder too.

Most systems of parliamentary practice (e.g. the famous Robert’s Rules of Order) do not allow an amendment to a motion unless that amendment is germane to the subject of the original motion. But Congress, as I understand it, has a special standing rule allowing non-germane amendments, because they allow for the addition of pork.

Here’s how it works. Someone wants to pass a bill for, say, saving the country from economic collapse. “NO”, say the Congresscritters in unison, “it shall not pass. At least, not until we get ours.” And so the pork allocation begins. $xbn to struggling car manufacturers in Detroit, $ym to struggling wind farm owners in Texas, and so on. Some of these things are good, some bad, but they all have one thing in common – they bring in votes. Every Congresscritter has to be able to take back something to his or her backers (and by “backers” I may mean “voters”, but more often I mean “the people who supplied the campaign finance”). And the bigger the crisis, the more Congresscritters need to be bribed in this way, and the stranger their demands become. Because there is apparently one man in Congress who will not give his vote to save the country from disaster unless something is also done for the plight of people who cycle to work. Cyclist commuters of America rejoice, a $20/month tax break is coming your way.

You know, it is a great cause, and I’m very happy for all of those cyclists. I’ll also be happy if the good old USA doesn’t suffer terminal economic collapse. But sometimes I am tempted to imitate the great sage Obelix and tap my head in wonder.

More on the tax break for cyclists, and even more sarcasm, at Knowledge Problem.

Update: And lo, it worked. Offer them enough pork and they will vote for you.

Where Do We Go From Here?

~ Cheryl ~ 5 Comments

Well, it seems like a majority of the American people (or at least those who badger their Congresscritters) want the bailout deal to fail, and are prepared to accept the risk of a major financial meltdown. There are various reasons for this. Some of them are offended by the very idea of state involvement in business; some of them are dancing in the streets over the “death of Capitalism”; and some of them just think that watching bankers jump from skyscraper windows would make great reality TV. But all of them have one thing in common: they all think that someone else will suffer, not them.

They are wrong. We are all in this together.
Continue reading →

Gender Economics

~ Cheryl ~ 4 Comments

Yes, economists really do study all sorts of things. Tyler Cowen points to a study of the effects of gender transition in the workplace:

We find that while transgender people have the same human capital after their transitions, their workplace experiences often change radically. We estimate that average earnings for female-to-male transgender workers increase slightly following their gender transitions, while average earnings for male-to-female transgender workers fall by nearly 1/3.

Sadly the paper that Cowen references isn’t available to non-academics except by subscribing to the journal in which it is printed, so some of the assumptions in the study are not at all clear. I would like to know, for example, whether the people studied were known to be transgendered at their workplace, as that can make a huge difference to how they are treated.

But basically this comes back to what I was talking about in the Gender Balance Question: “the idea that women should naturally aspire to be more like men, but that no man in his right mind would want to be like a woman.”

And if you really want to know how badly women are treated in the workspace, ask a transgender woman who has transitioned mid-career. Someone who has grown up female in a society where women are routinely discriminated against can become used to the effect and stop noticing it, but someone who suddenly discovers that their opinions and skills have dropped precipitously in worth simply because they have become female sees the issue very clearly indeed.

On Financial Regulation

~ Cheryl ~ 3 Comments

I have seen a number of people around the blogosphere today saying that the Washington Mutual Bank has “failed”, and even that this is like being back in the Great Depression. Well, no.

I had a few thousand dollars in WaMu (much of it owed to the British government in taxes I will get billed for eventually). I’ve been watching the bank with concern for some months, but Kevin assured me that I didn’t need to take my money out because it was FDIC insured and I’d need to have much more cash than that deposited before I would be at risk of losing anything. And so it turned out, because WaMu has not failed. It was ordered to sell itself to another bank before it could fail. If it had failed, as banks did in the 1930s, I would have lost all of my money. As it is, the bank is still in operation, and I actually withdrew a fair chunk of cash today in the form of payments on my credit cards.

I find it rather odd that some of the same people who are calling for regulation of the financial sector in the face of the current crisis are also completely misrepresenting what has happened to WaMu. The FDIC system, after all, was set up after the Great Depression precisely to prevent things like that happening again. And in this case it has worked. Maybe people just don’t understand what has happened. But you know, if there was a car crash and the seat belts kept everyone safe then hopefully people would be saying what good things seat belts were, not going on about how there was a car crash and everyone died.

A Mad, Mad World

~ Cheryl ~ 4 Comments

I’ve been refraining from commenting further on the current economic meltdown because I don’t know enough about the actual issues to know whether what the US Treasury is doing will fix them or not, and I have no desire to add to the mass of uninformed comment already out there. On the other hand, I’m not exactly how well informed the Treasury folks are either. Most of you probably don’t read Forbes.com, so you won’t have seen this:

In fact, some of the most basic details, including the $700 billion figure Treasury would use to buy up bad debt, are fuzzy.

“It’s not based on any particular data point,” a Treasury spokeswoman told Forbes.com Tuesday. “We just wanted to choose a really large number.”

Never mind, John McCain is apparently off to Washington to sort things out, presumably with a six gun and some well-aimed fisticuffs. I gather that the elitist intellectuals are upset (The Economist described it as “ridiculous”), but the rest of the electorate thinks it is a great idea because who cares about boring old debates anyway, right? On the other hand, it has given Henry Farrell at Crooked Timber a chance to resurrect a famous moment from my favorite TV quiz.

Orbital Death Rays Watch

~ Cheryl ~ 4 Comments

Worldcons often have panels about alternative energy sources, and one of the ideas that often gets brought up is putting mirrors in space to concentrate solar energy and beam it down to earth. Well, Nature reports on a trial.

The experiment in question doesn’t actually use a satellite, but it does send the microwave ray through 100km of atmosphere – the sort of journey that would be required for a space-based power source. The experimenters are enthusiastic. I am less so. Quite apart from the wisdom of creating what really would be orbital death rays, I note that the efficiency of the trial was something in the region of 0.000001%, and the estimated cost of putting a small trial plant in orbit is around 100 times the cost of building a large new nuclear power station. Obviously this can be improved with sufficient investment of time and money, but I think this is still a little way off.

The Derivatives Panic

~ Cheryl ~ 2 Comments

Thanks to the goings on in Wall Street over the weekend, various newspapers are busily producing panic-filled articles about evil things called “derivatives”. This happens to be something I know a little about. Those of you who have a faith-based view of economics need read no further, but if you are interested in some more information, here it comes.
Continue reading →

Windmills of the Beast

~ Cheryl

In doing a post on US energy subsidies on my company blog today I discovered that in 2007 the US government gave $666m to the wind industry. Of course this number will have been rounded from something a lot less full of mythological significance, but that doesn’t usually stop the numerology crowd. I look forward to seeing a few posts about how this proves that renewable energy is a Satanic plot.

Economist on Blogger Pay

~ Cheryl

I doubt that anyone at The Economist reads SF book review blogs, but this post may be relevant to one of the current panics in our little corner of the blogosphere. For those of you who can’t be bothered to click through, here’s the final paragraph:

And finally, it’s a sad truth that not everyone can get paid to do what they enjoy doing. Professional footballers get paid to play football. Millions of others love playing football and would love to get paid to do it. But there is the market for amateur footballers is limited, and so payment is not forthcoming. Happily, playing football brings joy to those millions of athletes, and so they play anyway. And so many will blog anyway. Good for them.