Presidential winner announced on November 1st

The world will find out on November 1st who won the American presidential elections: Barack Obama or John McCain. At 6:00 pm EST, the winner will be announced.

Maybe you are confused with this update. But, it is true. Well, sort of.

The Economist has redrawn the electoral map to give all 195 of the world's countries (including the United States) a say in the election's outcome. As in America, each country has been allocated a minimum of three electoral-college votes with extra votes allocated in proportion to population size. With over 6.5 billion people enfranchised, the result is a much larger electoral college of 9,875 votes. But rally your countrymen—a nation must have at least ten individual votes in order to have its electoral-college votes counted.
There are few countries whose votes in the Global Electoral College are a foregone conclusion. So the winner is unlikely to be decided by a small number of "swing countries". Rather, they will have to cobble together a coalition of small, medium and large nations. (A campaign stop in Beijing is recommended, as well as a tour of Africa.) Voting in the Global Electoral College will close at midnight London time on November 1st, when the candidate with most electoral-college votes will be declared the winner.

The next administration and Congress are screwed!

It is increasingly clear that there will be one over-riding theme for the next administration: to deal with the inherited mess and, therefore, with very little latitude for constructive policy-making for the future. In addition to bringing an end to the entanglements in Iraq and Afghanistan:

• The federal debt is now more than a trillion dollars--a doubling in the mere eight years of this administration.
• The bailout, er, rescue plan is not only a huge $$$ commitment, but has also made most members of the Congress absolutely worried about government intervention--the word "socialism" is being tossed around by ultra-right and ultra-left alike.
• These are not good news for the value of the dollar, which, in turn, might affect future capital flow into the US
• If that capital flow slows down, then we will have to raise interest rates to attract capital
• But, higher interest rates will not help economic growth and job creation
• Meanwhile, the entire transportation industry is very close to bankruptcy--planes, trains, and automobiles!
• In such a context, there is no hope for any massive rethinking on healthcare, education, or any of the big issues that should really matter.

Simply awful is the prospect for the next eight years. It is amazing that despite these conditions, there are candidates who really want that job in the White House :-)

Enron was the canary in the coal mine

Hey, the more commentaries I read, the more Ralph Nader comes across as one we ought to have listened to; maybe I simply should vote for Nader, eh! Here is Bethany McLean, who is a contributing editor at Vanity Fair, and co-author of The Smartest Guys in the Room:

After Enron's implosion, everyone talked about how important it was to be able to understand how a company makes money. Now raise your hand if you understand how a modern financial services firm makes money. No hands? The truth is, there is no way to understand. These companies are as opaque as Enron. Just as Enron had off balance-sheet vehicles - SIVs - that allowed it to book earnings and hide debt, Citigroup and other financial institutions had structured investment vehicles that did the same. Indeed, Citigroup had to take almost $50bn of SIVs back on to its balance sheet after they ran into trouble. It would be nice if the accounting rule-makers would grasp this basic tenet: if they want to hide it, we want to know about it.
Of course, SIVs are only a small manifestation of the deeper problem, which is the evolution of financial engineering into a dark art. Enron now seems like the canary in the coal mine. After its bankruptcy, Steve Cooper, who was in charge of restructuring it, told the Wall Street Journal his task might leave him "in a wheelchair and drooling" due to the complexity of its financial structures and the "unbelievable amount of debt accumulated around the company". Doesn't that sound like our entire financial system?
Just as Enron packaged bad investments into a private equity fund run by its chief financial officer, Wall Street packaged mortgages given to people who couldn't afford the payments into sleek new instruments called RMBS and CDOs.

"History" and the class of 2012

With every passing year, the distance between freshmen and faculty like me widens even more. I used to joke about how we don't manufacture VCRs anymore; that joke ended a few years ago. Then I moved on to DVD players, which was even more short-lived as a joke. It helps, therefore, to be reminded of how different the context is for incoming freshman students. And that is what the Beloit College Mindset List does:

This month, almost 2 million first-year students will head off to college campuses around the country. Most of them will be about 18 years old, born in 1990 when headlines sounded oddly familiar to those of today: Rising fuel costs were causing airlines to cut staff and flight schedules; Big Three car companies were facing declining sales and profits; and a president named Bush was increasing the number of troops in the Middle East in the hopes of securing peace. However, the mindset of this new generation of college students is quite different from that of the faculty about to prepare them to become the leaders of tomorrow.
....The class of 2012 has grown up in an era where computers and rapid communication are the norm, and colleges no longer trumpet the fact that residence halls are “wired” and equipped with the latest hardware. These students will hardly recognize the availability of telephones in their rooms since they have seldom utilized landlines during their adolescence. They will continue to live on their cell phones and communicate via texting. Roommates, few of whom have ever shared a bedroom, have already checked out each other on Facebook where they have shared their most personal thoughts with the whole world.
It is a multicultural, politically correct and “green” generation that has hardly noticed the threats to their privacy and has never feared the Russians and the Warsaw Pact.

There is a chance that most of the items on the list will sound bizarre and ancient to students--almost a historical time capsule--while to us faculty it was, well, our life :-)

Are New Yorkers simply detestable?

Steven Chapman on Why it's time to bury the myth of rural virtue:

In 2007, a survey of 8th graders by the Monitoring the Future project at the University of Michigan found that country kids were 26 percent more likely to experiment with drugs than middle-schoolers elsewhere. Overall methamphetamine consumption among adults and teens is more than 50 percent higher in the country.The story with alcohol is worse still. ... Nor is the countryside exempt from social problems often associated with the inner city—such as, if you'll forgive me, out-of-wedlock births. ...The highest rates of births to unwed mothers are in Mississippi and New Mexico, both of which have high rural populations. The most urban states, New Jersey and California, do better than the average in out-of-wedlock births.

Jon Stewart got ticked off for the same big-town-bashing that certain politicians engage in, implying that big towns are nothing but immoral in every possible way. Watch him here:

How can lap dancers increase their incomes?

One of the Ig Nobel winners announced yesterday looked at this very question.

ECONOMICS PRIZE. Geoffrey Miller, Joshua Tybur and Brent Jordan of the University of New Mexico, USA, for discovering that a professional lap dancer's ovulatory cycle affects her tip earnings. REFERENCE: "Ovulatory Cycle Effects on Tip Earnings by Lap Dancers: Economic Evidence for Human Estrus?" Geoffrey Miller, Joshua M. Tybur, Brent D. Jordan, Evolution and Human Behavior, vol. 28, 2007, pp. 375-81

Such research and publications are triggered by the stupidly insane approach in universities that we characterize as "publish or perish." So, hey, such research is a rational response to an irrational system.

I wrote about this in an essay that was published in the Chronicle Review, back in 2001. In that, I wrote:

Last summer, I literally shouted "Aha!" in the middle of one night as I read the following sentences in Anton Chekhov's Uncle Vanya, in which the title character yells at a retired professor: "All our thoughts and feelings pertained to you alone. Our days were spent talking of you and your work, we were proud of you, we uttered your name with reverence, our nights were wasted reading books and magazines for which I now have the deepest contempt! ... But now my eyes have been opened! I see everything! You write about art, but you understand nothing of art! All your works, which I used to love, are not worth a copper kopeck. You've swindled us!"

The passage from Uncle Vanya reminded me of the public, whose taxes make it possible for universities like mine to exist. Would people be disillusioned if they knew that only a few of professors' publications are ever read by more than a handful of other scholars? Would people be disappointed in higher education if they realized that most academics' publications would not sell even for a penny? Would people agree with Uncle Vanya that professors who write but are rarely read and cited are swindlers? Could it be that people already grasp the truth, and that their knowledge is one cause of the decline in the prestige our society accords to faculty members? If I did not teach at a university, would I agree with Uncle Vanya?

"The Martingale" on Wall Street

Here's how to make money flipping a coin. Bet 100 bucks on heads. If you win, you walk away $100 richer. If you lose, no problem; on the next flip, bet $200 on heads, and if you win this time, take your $100 profit and quit. If you lose, you're down $300 on the day; so you double down again and bet $400. The coin can't come up tails forever! Eventually, you've got to win your $100 back.
This doubling game, sometimes called "the martingale," offers something for nothing—certain profits, with no risk. You can see why it's so appealing to gamblers. ....
The carefully synthesized financial instruments now seeping toxically from the hulls of Lehman Bros. and Washington Mutual are vastly more complicated than the martingale. But they suffer the same fundamental flaw: They claim to create returns out of nothing, with no attendant risk.

That was a pretty good piece by Jordan Ellenberg. And, again, I was reminded of Ralph Nader's warnings about derivatives and the various games that these "financial experts" were playing with borrowed money.

Save the jerks!

In short, the businessmen involved were jerks. And, whether in Japan or the U.S., it’s challenging for politicians to frame a bailout with the slogan: Save the jerks! ....
the priority is to get credit flowing again in the arteries of commerce, even if that means saving the jerks. Otherwise, we risk becoming Japan.

I like how succinctly the NY Times columnist, and Oregon native, Nicholas Kristof, describes the situation we are in.

Perhaps we should have an all-Oregon debate on this issue: Nicholas Kristof versus Peter DeFazio. Am awfully glad and proud to be an Oregonian; we need more of these two--particularly in the deep South :-)

Illegals leaving the US and returning home

Plagiarism is ok: not in academia, but in politics!

So, the Canadian prime minister, Stephen Harper, is the latest in a long line of politicians who have used other people's ideas without acknowledging that they borrowed those ideas. We academics call that plagiarism, but apparently the practice is par for the pols.
A Canadian columnist writes in the Toronto Star:

Academics and journalists are particularly conscious of this sin. When Rae says that Harper might have been expelled from university for stealing someone else's words, he's right.
But politicians – unlike students – regularly borrow without attribution. Indeed, given that few practising politicians write their own speeches, most are guilty of intellectual theft.

Oh well!

Call centers not attractive anymore?

Almost everybody has a story or two about calling a 800 number regarding a bill, or for customer support, and ending up talking with somebody in India. Well, it appears that Indians are rapidly losing interest in the call center industry; BBC reports that:

Abhishek Tiwari, with many years behind him as a call centre man, left the industry recently despite being promoted to senior manager and recruiting youngsters for his call centre.
He has completely changed his career and seems to be very happy.
"There was a time when our office was cluttered with 500 to 600 people who came for recruitment in one day," he says.
"Today, even after lowering our standards, getting 40-50 people a day was a struggle."
Aditya Ghia, who runs a recruitment company, hires people on behalf of his BPO clients.
"Some of the KPO (Knowledge process outsourcing) and the accounts-based outsourcing firms are not doing well," he says. "That's one of the primary reasons why youngsters are looking at alternative careers."

Here is a hilarious piece from Conan O'Brien's show

I hope things get better soon

It appears that our economic crisis and the bailout plan are in front and center across the global stage.

Last week, my brother, who is an accountant in Australia, instant-messaged me, and soon after the hello shifted to questions like “are more people losing jobs?” and “how much will Uncle Sam spend?”

It is not new to me anymore that my parents and siblings are like most of the world when it comes to how closely they follow major developments here in the United States. Of course, over the past decade, America has been in the news a lot, either by its own doing or otherwise.

It seems like more often than not events here tend to worry my parents. When I called them soon after the catastrophic events of September 11th, my parents sounded as sad and distraught as any American was on that fateful day—perhaps even more than the average American. And then dad suggested that I shave my beard and not go out anywhere—just in case some crazy people took out their frustrations on me.

And when the internet-economy bubble burst, dad suggested that I find a job in Singapore or Australia because their economies were booming, and because teaching in a university paid a lot more in those countries than here in America. My brother was confident: “now that you are an American citizen, you can earn more than double what others would get paid here.” There was a silver lining in that dark cloud: American citizenship commanded a significant economic premium!

Now, my parents and my brother are following the news about our economic crises, more so because the metaphorical tsunami waves are beginning to show up in their countries too. I asked my brother how things were in Australia and his response was, “ok, so far.” While Australia seems to be managing well for now, neighboring New Zealand has officially become the first country in the Asia-Pacific region to enter into a recession, with Japan and Singapore as most likely to follow suit. Credit is tightening in India, but it helps the retired folks like my parents because they are able to get higher interest rates now for their deposits.

My sister, who is keen on her daughter coming to the US for a doctorate in computer science, is concerned about the slowdown for completely different reasons: my niece has a fabulous offer to work in India for an American firm and might, therefore, be tempted to forego higher studies in America.

What is fantastic in all this familial feedback about the American economy is that there is only a feeling of “I hope things get better soon.” No feeling of schadenfreude—the German expression that describes the pleasure people enjoy in the misfortune suffered by others. Even the major newspapers in India seem to only express concern and worries about the crisis and how it is handled, and rare are commentaries that delight in our misfortunes.

A contrast to such a background was the recent comment from the finance minister of Germany, Peer Steinbrück, who lived up to the geographic origin of the phrase schadenfreude. In his remarks to the Bundestag—the German parliament—the finance minister proclaimed that America would soon be finished as an economic superpower, and that the US should show more humility.

At least in the public sphere, the likes of the German finance minister are in the minority. On the other hand, it appears that there is still enough punch in that old saying that when America sneezes, the rest of the world catches a cold.

We are a long way from being finished as an economic superpower. However, that possibility always remains. After all, the superpowers of yesteryears—from the Roman Empire to Spain and the UK—are economic laggards now. For a few brief years in the 1980s, Japan seemed poised to challenge us, and now we feel China’s speed.

I am hoping, and a tad confident as well, that this, too, shall pass. Then, my dad will not worry about my economic future. And, more importantly, German politicians will give up their schadenfreude!

The bailout bewilderment

Existing empirical research has shown that providing assistance to banks and their borrowers can be counterproductive, resulting in increased losses to banks, which often abuse forbearance to take unproductive risks at government expense. The typical result of forbearance is a deeper hole in the net worth of banks, crippling tax burdens to finance bank bailouts, and even more severe credit supply contraction and economic decline than would have occurred in the absence of forbearance.
Cross-country analysis to date also shows that accommodative policy measures (such as substantial liquidity support, explicit government guarantee on financial institutions' liabilities and forbearance from prudential regulations) tend to be fiscally costly and that these particular policies do not necessarily accelerate the speed of economic recovery.

That is from economists Luc Laevan and Fabian Valencia who have a working paper on banking crises [pdf] out for the International Monetary Fund, covering 42 meltdowns in 37 countries since 1970. (via Reason).

It is so bizarre that there is some serious disconnect between economists and politicians. Actually, there seems to be extensive differences:

• among economists
• between economists and politicians
• among politicians
• among Democrats
• among Republicans

When such a level of difference exists, my read of the Ockham's Razor is that we have no clue about the problem, and even lesser an understanding of the solution. In that case, is it really wise to jump into a 700 billion dollar commitment after a measly couple of days of debates and discussions?

As always, The Daily Show explains everything very well :-)

Bailout fails: 228 to 205

A hallmark of the crisis has been the stark contrast between the "real economy" of production and jobs and the tumultuous financial markets of stocks, bonds, banks, money funds and the like. Even with the 60 percent drop in housing construction since early 2006, the real economy has so far suffered only modest setbacks. Yes, there are 605,000 fewer payroll jobs than there were in December; still, 137.5 million jobs remain. Meanwhile, financial markets verge on hysteria. The question is whether this hysteria will drive the real economy into a deep recession or worse -- and what we can do to prevent that.

That was Robert Samuelson in Newsweek. I wonder what his reactions will be in his next column, which will surely be on the House voting down the bailout bill

Our local congressman, Peter DeFazio, opposed the bill all the way, and also explained his reasons in a commentary in the Register Guard. I applaud him for explaining his position so clearly to his constituents. Interestingly enough, only one Democrat from Oregon voted for the bill, and she is not up for re-election. The lone Republican voted for the bill. Details here.

Daniel Gross is livid that the House voted it down. He writes:

For in the meantime, the chaos they've created by coming to the table and then throwing a fit works to their disadvantage. Each time a deal is close to done and then gets scuppered, the market (and its many participants) freaks out. Huge quantities of wealth are destroyed. The markets fell about 8 percent after today's stunt, likely wiping out close to $1 trillion in wealth.

Paulson's plans across the Atlantic

Interesting comments by Wolfgang Münchau in the Financial Times:

What about the lesson from the US to Europe? It is that bank bail-outs require a swift political response. When you look at the eurozone, it is not clear at all where this response could come from.
By the time European ministers have travelled for a meeting in Brussels, let alone reached or implemented a decision, the financial markets would have long melted.
Peer Steinbrück, the German finance minister, who last week told the Bundestag that the US would soon be finished as an economic superpower, should show more humility. He was lucky that last week’s crisis did not happen in Berlin or Paris or Rome. He and his colleagues would have been totally unprepared. ...
While the Americans need a better rescue plan, the Europeans need a lot more: a system that could produce a rescue plan in the first place.

And, in the same paper, Larry Summers writes,

[The] worst possible actions in the current context would be steps that have relatively modest budget impacts in the short run but that cut taxes or increase spending by growing amounts over time. Examples would include new entitlement programmes or exploding tax measures. The best measures would be those that represent short-run investments that will pay back to the government over time or those that are packaged with longer-term actions to improve the budget. Examples would include investments in healthcare restructuring or steps to enable states and localities to accelerate, or at least not slow down, their investments.

Is it possible to regulate Fannie and Freddie?

We--the taxpayers--now own Fannie, Freddie, AIG, and some gazillion mortgages and more with the $700 billion bailout. Well, once we own them, somebody has to manage them on our behalf. They have to safeguard the "public interest" and also make money for us out of this mess. At least, minimize our losses. We will need technocrats--not politicians, please!--to do this.
Can it be done? I think not.
Why? Hey, I will use Warren Buffett's comments on Fannie, Freddie, and the complex investment transactions, and after reading them you tell me why we--the taxpayers--stand any chance of coming out ahead in this:

Mr. BUFFETT: Well, it's really an incredible case study in regulation because something called OFHEO was set up in 1992 by Congress, and the sole job of OFHEO was to watch over Fannie and Freddie, someone to watch over them. And they were there to evaluate the soundness and the accounting and all of that. Two companies were all they had to regulate. OFHEO has over 200 employees now. They have a budget now that's $65 million a year, and all they have to do is look at two companies. I mean, you know, I look at more than two companies.
...
Mr. BUFFETT: And they sat there, made reports to the Congress, you can get them on the Internet, every year. And, in fact, they reported to Sarbanes andOxley every year. And they went--wrote 100 page reports, and they said,`We've looked at these people and their standards are fine and their directorsare fine and everything was fine.' And then all of a sudden you had two of the greatest accounting misstatements in history. You had all kinds of management malfeasance, and it all came out. And, of course, the classic thing was thatafter it all came out, OFHEO wrote a 350--340 page report examining what went wrong, and they blamed the management, they blamed the directors, they blamed the audit committee. They didn't have a word in there about themselves, and they're the ones that 200 people were going to work every day with just two companies to think about. It just shows the problems of regulation.
QUICK: That sounds like an argument against regulation, though. Is that what you're saying?
Mr. BUFFETT: It's an argument explaining--it's an argument that managing complex financial institutions where the management wants to deceive you can be very, very difficult. Or even when the management doesn't know what's going on, and--just take Bear Stearns. Bear Stearns had--I read it,anyway--750,000 derivative contracts. Now, you know, I could clone Albert Einstein, you know, and--many, many times and have him work 12-hour days forme and he would not be able to keep track of what's going on in an institutionlike that. It's--the ones that are too big to fail may be too big to manage,in some cases. And they're particularly difficult to manage if they'repromising Wall Street and their investors that they're going to do things that can't be done.
(thanks to peter gordon's blog for the link to this transcript)

Latest football rankings

I am continuing with the football rankings from my earlier posts where I re-ranked the pre-season favorites according to their respective academic rankings in the world. The Institute of Higher Education at Shanghai Jiao Tong University has released its latest rankings, which I have used here. So, if you want the eventual champion to have at least a little bit of an academic standing in the world, then root for a school with high academic ranking in the world. (Full disclosure: I went to USC!)

Click here for my previous post comparing salaries of coaches at these same universities.

Alabama, knocked the lights out of Georgia--I watched the first half with sheer amazement. Strictly as a football game, the best one I have watched thus far this season.

Preseason Rank	University	Academic Rank--US	World Rank	Academic-Based Rank	AP Rank Sep 28
1	Georgia	Group 55-70	Group 102-150	10	11
2	USC	37	50	6	9
3	Ohio State	41	61	8	14
4	Oklahoma	Group 118-140	Group 305-402	19	1
5	Florida	38	51	7	12
6	LSU	Group 89-117	Group 203-304	13	3
7	Missouri	Group 89-117	Group 203-304	13	4
8	West Virginia	Group 141-166	Group 403-510*	24	Not ranked
9	Clemson	Group 118-140	Group 305-402	19	Not ranked
10	Texas	29	38	4	5
11	Auburn	Group 118-140	Group 305-402	19	13
12	Wisconsin	15	17	1	18
13	Kansas	Group 89-117	Group 203-304	13	16
14	Texas Tech	Group 118-140	Group 305-402	19	7
15	Virginia Tech	Group 71-88	Group 151-202	11	20
16	Arizona State	53	96	9	Not ranked
17	BYU	Group 118-140	Group 305-402	19	8
18	Tennessee	Group 71-88	Group 151-202	11	Not ranked
19	Illinois	19	26	3	Not ranked
20	Oregon	Group 89-117	Group 203-304	13	23
21	South Florida	Group 89-117	Group 203-304	13	10
22	Penn State	32	43	5	6
23	Wake Forest	Group 89-117	Group 203-304	13	25
24	Michigan	18	21	2	Not ranked
25	Fresno State	Unranked	Unranked	???	22

When two clueless politicos meet!

As a kid, I remember how a few politicians in other countries caught my attention. Moshe Dayan, Zulfikhar Ali Bhutto, Olaf Palme, to name a few. Bhutto, in particular, because I believed that he was the only hope we had in bringing about peace between India and Pakistan. So, it was interesting to read in Time that:

Pakistanis are fond of recalling an apocryphal 1963 exchange between John F. Kenned and Zulfikar Ali Bhutto — father of slain prime minister Benazir, to whom Zardari was married. Impressed by the then Foreign Minister, who would become prime minister before being deposed by a U.S.-backed military dictator in 1977 and later executed, Kennedy is alleged to have said: "If you were an American you would be in my cabinet." Bhutto is alleged to have answered, "Be careful Mr President, if I were an American, you would be in my cabinet."

Well, those were the old days, when politicians knew what they were up to, and up against. And, smart enough for repartees. What a pathetic contrast to that is the following from the same Time story (Note: it is all the more awful because Zardari has a playboy reputation!)

What Zardari said after shaking Palin's hand will likely prove a great deal less memorable. "You are more gorgeous than you are on [television]," he told Palin after she declared she was honored to meet him. "Now I know why the whole of America is crazy about you," Zardari added, flashing his trademark teeth-baring smile.

At this point, the two were urged to shake hands again, presumably for the benefit of the cameras. "I'm supposed to pose again," Palin said quietly. Pointing toward the aide that prompted them, Zardari said, "If he's insisting, I might hug."