State of the Union--well, from Warren Buffett

It is interesting how every year Warren Buffett's letter to shareholders contrasts with the presidential State of the Union Address. And, more often than not, Buffett's assessment on the state of the world is far more genuine than the President's. This year too ....

Buffett writes:

During 2008 I did some dumb things in investments. I made at least one major mistake of commission and several lesser ones that also hurt. I will tell you more about these later. Furthermore, I made some errors of omission, sucking my thumb when new facts came in that should have caused me to re-examine my thinking and promptly take action.

Can you imagine a President being this honestly self-critical?

What does Buffett say about the housing-led crisis?

Commentary about the current housing crisis often ignores the crucial fact that most foreclosures do not occur because a house is worth less than its mortgage (so-called “upside-down” loans). Rather, foreclosures take place because borrowers can’t pay the monthly payment that they agreed to pay. Homeowners who have made a meaningful down-payment – derived from savings and not from other borrowing – seldom walk away from a primary residence simply because its value today is less than the mortgage. Instead, they walk when they can’t make the monthly payments.

Here is one more of Buffett's that I like:

The investment world has gone from underpricing risk to overpricing it. This change has not been minor; the pendulum has covered an extraordinary arc. A few years ago, it would have seemed unthinkable that yields like today’s could have been obtained on good-grade municipal or corporate bonds even while risk-free governments offered near-zero returns on short-term bonds and no better than a pittance on long-terms. When the financial history of this decade is written, it will surely speak of the Internet bubble of the late 1990s and the housing bubble of the early 2000s. But the U.S. Treasury bond bubble of late 2008 may be regarded as almost equally extraordinary.
Clinging to cash equivalents or long-term government bonds at present yields is almost certainly a terrible policy if continued for long.

Finally, Buffett highlights the problems that lie ahead:

This debilitating spiral has spurred our government to take massive action. In poker terms, the Treasury and the Fed have gone “all in.” Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel. These once-unthinkable dosages will almost certainly bring on unwelcome aftereffects. Their precise nature is anyone’s guess, though one likely consequence is an onslaught of inflation. Moreover, major industries have become dependent on Federal assistance, and they will be followed by cities and states bearing mind-boggling requests. Weaning these entities from the public teat will be a political challenge. They won’t leave willingly.

Great (economic) Expectations

What would you say if the economy grew at 5.3 percent? I bet you would say that is fantastic, right? Well, it all depends. It depends on the geographic area where this number is touted. In India, the 5.3 percent growth is described as "dismal":

The Indian economy grew by 5.3 per cent in the third quarter, the slowest quarterly growth this fiscal, pulled down by contraction in manufacturing and farm production even as some services showed robust expansion.

What a contrast to the downwardly revised GDP numbers for the US that shows a nastier recession than previously estimated! Anyway, the good thing in this case: India is a democratic society with elections a few weeks away. So, depending on the mood of the electorate, there might be a change in the government--but, not anything chaotic.

That is not the story with China, Russia, Venezuela, ... where the regimes have a contract with the people. The contract is that people give up their political and human rights, and the government in return gives them high economic returns. Thomas Friedman likened the Chinese contract to the movie "Speed"--that the regime will not run into problems as long as a rapid economic growth rate is maintained. Robert Skidelsky writes that:

Deepening economic recession is bound to catalyze political change. The Western democracies will survive with only modest changes. But strongmen who rely on the secret police and a controlled media to maintain their rule will be quaking in their shoes. Even Venezuela’s Hugo Chávez, who built his power on populist anti-Americanism, must be praying for the success of US President Barack Obama’s stimulus package to lift his falling oil revenues.

The big countries with the highest political risk are Russia and China. The legitimacy of their autocratic systems is almost entirely dependent on their success in delivering rapid economic growth. When growth falters, or goes into reverse, there is no one to blame but “the system.”

Igor Yurgens, one of Russia’s most creative political analysts, has been quick to draw the moral: “the social contract consisted of limiting civil rights in exchange for economic well-being. At the current moment, economic well-being is shrinking. Correspondingly, civil rights should expand. It’s just simple logic.” The rulers in Moscow and Beijing would do well to heed this warning.

Harvard's Dani Rodrik writes that we are on the verge of designing a Capitalism version 3.0.

When Chinese-style capitalism met American-style capitalism, with few safety valves in place, it gave rise to an explosive mix. There were no protective mechanisms to prevent a global liquidity glut from developing, and then, in combination with US regulatory failings, from producing a spectacular housing boom and crash. Nor were there any international roadblocks to prevent the crisis from spreading from its epicenter.

The lesson is not that capitalism is dead. It is that we need to reinvent it for a new century in which the forces of economic globalization are much more powerful than before. Just as Smith’s minimal capitalism was transformed into Keynes’ mixed economy, we need to contemplate a transition from the national version of the mixed economy to its global counterpart.

This means imagining a better balance between markets and their supporting institutions at the global level . Sometimes, this will require extending institutions outward from nation states and strengthening global governance. At other times, it will mean preventing markets from expanding beyond the reach of institutions that must remain national. The right approach will differ across country groupings and among issue areas.

Designing the next capitalism will not be easy. But we do have history on our side: capitalism’s saving grace is that it is almost infinitely malleable.

It looks like a fitting ending to this post will be from Dickens--not the opening lines from Great Expectations though. Instead, it is from A Tale of Two Cities:

It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way

The graph "they" didn't want you to see

Several authors of the 2007 report by the Intergovernmental Panel on Climate Change on the projected effects of global warming now say they regret not pushing harder to include an updated diagram of climate risks in the report. The diagram, known as “burning embers,” is an updated version of one that was a central feature of the panel’s preceding climate report in 2001. The main opposition to including the diagram in 2007, they say, came from officials representing the United States, China, Russia and Saudi Arabia.

That was from the NY Times, which quotes Stephen H. Schneider, a climatologist at Stanford University who has been involved in writing the I.P.C.C. reports since 1988,:

4 fossil fuel dependent countries accepted the text but refused the figure. Remember, at the UN, consensus means everybody, so a few countries constitute in effect a small successful filibuster. No matter how much New Zealand, small islands states, Canada, Germany, Belgium and the UK said this was an essential diagram, China, the U.S., Russia and the Saudis said it was too much of a “judgment”

I dread the coming centenary celebrations ....

In two years, the presidential election will start all over again. The GOP candidates will all blabber the same thing about the profound importance of that year, 2011. What will that be, you ask? The centenary celebrations for Ronald Reagan, who was born on February 6, 1911. So, yes, soon after groundhog day in 2011, it will be Reagan all the time, 24x7 on Faux News, and the parading presidential wannabes will go on and on about the wisdom (ha) of Reagan.

As the Reaganpalooza begins, remember the facts about him, like the following one from Megan McArdle:

George Bush was indeed fiscally reckless, but the honor of most fiscally reckless president since FDR goes not to him, but to Ronald Reagan, who ran 6% deficits without even the excuse of a war.

I suppose you could claim that his decline was more impressive, but that decline was only about half due to tax cuts or spending; the rest was the popping of the stock market bubble, which both hammered GDP and changed the tax base in ways that made it less lucrative to the government.

McArdle is no leftie, and nor is the libertarian Mises Institute, which had this to say in 1988, at the end of Reagan's presidency:

Even Ford and Carter did a better job at cutting government. Their combined presidential terms account for an increase of 1.4%—compared with Reagan's 3%—in the government's take of "national income." And in nominal terms, there has been a 60% increase in government spending, thanks mainly to Reagan's requested budgets, which were only marginally smaller than the spending Congress voted. ....

His budget cuts were actually cuts in projected spending, not absolute cuts in current spending levels. As Reagan put it, "We're not attempting to cut either spending or taxing levels below that which we presently have."

The result has been unprecedented government debt. Reagan has tripled the Gross Federal Debt, from $900 billion to $2.7 trillion. Ford and Carter in their combined terms could only double it. It took 31 years to accomplish the first postwar debt tripling, yet Reagan did it in eight.

Stimulus package will pay Manny Ramirez, too!

Scott Boras, the agent known for representing the highest-paid players in baseball, set another record for the game's largest contract when he finalized Manny Ramirez's $20 billion agreement with the United States federal government on Thursday. "Manny's .396 batting average last season with the Dodgers, as well as his playoff performance, proved that he is as important to this country as infrastructure projects, health care, and renewable energy development," Boras said during an interview, adding that Ramirez is especially satisfied with the indefinite length of the contract. ... " A clause in the contract states Ramirez could receive an additional $6 billion if he successfully saves the American auto industry.

Well, that is not true--this is a satirical piece from, who else, The Onion :-)

The real story on Manny Ramirez' salary?

owner Frank McCourt and General Manager Ned Colletti made their latest pitch to Ramirez's representatives in a meeting at Dodger Stadium: two years, $45 million.

The proposed deal would pay Ramirez $25 million this season and includes a $20 million player option for 2010, according to baseball sources familiar with the negotiations who weren't authorized to speak publicly on the matter. Ramirez would be able to void the second year of the contract and re-enter the free agent market next winter.

Ramirez's agent, Scott Boras, was said to be informing Ramirez of the offer Wednesday evening and told the Dodgers that he could tell them of Ramirez's response as soon as this morning.

Song for Midwood

Osama bin Laden located

[Osama bin Laden] must have traveled 3.1 km over an approximately 4,000 meter pass in winter to enter Kurram, Pakistan. Doing so would have been extremely difficult for a 44-year old man with diabetes. Kurram is surrounded on three sides by the Afghan border (known as the Durand Line), which essentially cuts right though the ethnically Pushtun belt that straddles it.
....
the US intelligence community could make public a report based on all data collected from 2001 to 2006 [and] ... should also disprove the hypotheses that Osama bin Laden is: (1) located in the Kurram region of Pakistan, (2) located in the city of Parachinar, and (3) at one of the three hypothesized buildings.

That is from two UCLA geographers, Thomas W. Gillespie and John A. Agnew, based on an innovative study where they

use biogeographic theories associated with the distribution of life and extinction (distance-decay theory, island biogeography theory, and life history characteristics) and remote sensing data (Landsat ETM+, Shuttle Radar Topography Mission, Defense Meteorological Satellite, QuickBird) over three spatial scales (global, regional, local) to identify where bin Laden is most probably currently located.

Not bad, eh! And you thought geography was only about states and capitals :-)

Feb. 25, 1919: Oregon Taxes Gas by the Gallon

Feb. 25, 1919: Oregon Taxes Gas by the Gallon

By Randy Alfred 12 hours ago

Oregon's gasoline tax funded commercial and scenic highways, like the Columbia River Highway. This panoramic view looks east from Crown Point in the Columbia River Gorge.
Image: Oregon State Archives

1919: Oregon passes the nation's first per-gallon tax on gasoline. It's only a penny, and it's only one state, but you know where things go from here.

New York City started collecting registration fees on those new-fangled motor vehicles in 1901, and the state of Missouri took that road two years later. By 1914, every state collected registration fees (.pdf), and approximately 90 percent of the dough was going to road construction and maintenance.

Still, horseless carriages had a greater need for pavement than horses hauling carriages, and the long-distance capabilities of automobiles and trucks suggested a network of well-built intercity highways to rival the railroads. In Oregon, the state highway commission (created in 1913) started a "Get Oregon Out of the Mud" campaign for better roads in 1917.

Republican state legislator Loyal Graham (.pdf) sponsored the measure that made Oregon the first state in the nation to make road users pay at the pump to build and maintain those roads. Early projects included the Pacific Highway from the Washington state line to California and the Columbia River Highway along that mighty river.

The first gasoline tax was one cent a gallon (12 cents in today's money). Gasoline in those days sold for about 25 cents a gallon, which would be a bit more than $3 these days.

Colorado and New Mexico followed Oregon within six weeks to initiate per-gallon taxes. North Dakota followed later in the year. When New York finally joined the procession 10 years later, all 48 states had imposed taxes of 1, 2 or 3 cents per gallon. The federal government levied its first gasoline tax in 1932: a penny a gallon (15 cents today).

Ninety years after its inception, the Oregon gasoline tax is 25 cents imposed by the state, with up to 8 cents more in city and county taxes, and 18.4 cents for the feds. That could add up to 51.4 cents, depending on where you buy. The U.S. average is 45 cents a gallon, including the federal levy.

Oregon is still a leader in new ways to tax vehicle use. It ran a 300-car pilot program from 2006 to 2007 to test the idea of equipping all new vehicles with GPS and then taxing them by miles driven. The idea also been bandied about in Washington state, Idaho, Colorado, Texas, Minnesota, Florida, North Carolina, Ohio, Pennsylvania, Rhode Island, Massachusetts and — until President Obama nixed it last Friday — the federal government.

The future will undoubtedly be interesting.

Source: Wired.com
Thanks to Greg Mankiw

Sex, wins, and parking

Clark Kerr is reported to have said that a college administrator's job is to provide "parking for faculty, sex for students, and athletics for alumni."
An inside joke, I suppose :-)
But, wait, Clark Kerr was no ordinary guy; he was the top gun at the University of California system, and was one of the architects of the three-tier higher education model in California that was fantastic at one time. So, he could not have been joking--it is another example of many a true words spoken in jest.
And we relive the joke all over again.

Spend money, or else ....

The unbearable lightness of the stock market

Slumdog Millionaire: post-Oscar notes

First, this comment from Tunku Varadarajan, who wrote many interesting pieces in the Wall Street Journal until the arrival of Rupert Murdoch:

Maybe it's a result of 200 years of colonialism, but Indians are world champions at caring - really caring! - about what foreigners (more accurately, Westerners) think or say about them. They will live blithely with impressively foetid slums in their midst, thinking nothing of the juxtaposition of Victorian-era poverty and world-class, 21st-century living standards. But the national outrage stirred when a Western film-maker uses “slumdog” in the title of his film is an incandescent sight to behold.

That foreigner's neologism (“slumdog” doesn't exist in real parlance in India, although gali ka kutta, or alley-dog, comes close) is thought to heap more shame on the land than the slums themselves. And yet when that same film, with that same neo-imperialist title, is fêted by tuxedoed Americans at an awards ceremony watched across the globe, Indians burst with pride. Eight Oscars, yaah! Isn't that a record? Isn't A.R. Rahman the best composer in the world? Isn't Bollywood bloody wonderful? And aren't our slums a lesson in how to overcome adversity and cruelty?

Aren't our slum people stoical, resilient, self-reliant, courageous, fraternal, resolute and inventive? Aren't our slum people the world's best slum people?

Yes, we people from India are a strange lot. I routinely tell my students not to try to "understand" India because it is full of complex contradictions. There is no neat little narrative. Maybe India is truly a postmodernist society :-) So, I tell them to merely keep up with what ever goes on there ....

How celebratory is the mood in India? My mother, who rarely watches movies, and definitely not any new ones (I think) was all pumped up about AR Rahman grabbing two Oscars. The newspaper that I grew up with, The Hindu, had extensive coverage, including an editorial!
Here is an excerpt from that editorial:

The staggering interest in the fate of Slumdog Millionaire at the Oscars and the delight and celebration at its sweeping victory is a reflection of a curious but revealing fact. Although it has been made by a British Director and funded by a European company, it is seen by many at home as an Indian film. Unlike in Richard Attenborough’s Gandhi (which also won eight Oscars and which was also about how one man overcomes insurmountable odds), the cast of Slumdog Millionaire is almost entirely Indian. More importantly, the style that permeates the film is a curious amalgam — one that represents a true cinematic union between Hollywood and Bollywood. This interesting marriage was represented also in the choice of the film’s music, which earned India’s finest modern musician A.R. Rahman, whose compositions reflect a fusion of west and east, two richly deserved statuettes for the best original score and the best song. The recognition earned by the man who was once described as the Mozart of Madras should go a long way in opening Indian popular music to the world. India impacted on this year’s Oscars in another way, and one that deserves a special mention: the best documentary award to Smile Pinki. Shot in Bhojpuri and Hindi by Megan Mylan, it is a story about an Indian girl with a cleft lip who is socially ostracised before a social worker helps her avail of free surgery. In the midst of the delight over Slumdog Millionaire, we need to pause to also celebrate the victory of this life-affirming documentary about a real fairy tale.

To bring things to a full circle, and relate all these to where I currently live and work .... well, Megan Mylan who made Smile Pinki has Oregon connections :-) Here is an excerpt from the Statesman Journal's report:

Although the Mylan family moved to Texas after Megan finished elementary school, Jack and Irene Mylan kept their home in southeast Salem, and they return to visit each summer.Jack was a longtime law professor at Willamette University until moving on to Southern Methodist University in Dallas, Texas. He since has retired.

Is foreign aid screwing up African countries?

The NY Times Magazine has a short Q/A with Dambisa Moyo, whose comments are highly critical of aid to African countries, and the role of celebrities. It is a short one, and worth every minute of your time to read it. An excerpt here, where she compares African countries with China:

Think about it this way — China has 1.3 billion people, only 300 million of whom live like us, if you will, with Western living standards. There are a billion Chinese who are living in substandard conditions. Do you know anybody who feels sorry for China? Nobody.
Forty years ago, China was poorer than many African countries. Yes, they have money today, but where did that money come from? They built that, they worked very hard to create a situation where they are not dependent on aid.

Of course, there are lots of studies that are also critical of foreign aid. Including studies from the World Bank itself! Here is one:

Since the early 1980s, virtually every African country has received large amounts of aid aimed at stimulating policy reform. The results have varied enormously. Ghana and Uganda were successful reformers that grew rapidly and reduced poverty. Cote d'Ivoire and Ethiopia have shown significant reform in recent years, but it remains to be seen if this is sustained. In other countries policies changed little or even got worse. The paper synthesizes the findings from ten case studies that investigate whether, when, and how foreign aid has affected economic policy in Africa.

The main findings from the case studies are that:

• Policy formation is primarily driven by domestic political economy. Most major reforms have been preceded by economic and political crises.
• Large amounts of aid to countries with bad policy sustain those poor policies.
• In general donors have not discriminated effectively among different countries and different phases of the reform process. Donors tend to provide the same package of assistance everywhere and at all times.
• Aid played a significant and positive role in the two sustained reformers (Ghana, Uganda). It helped with ideas in the initial phase. Financial assistance grew as policy improved and increased the benefits of reform, helping sustain political support.
• The composition of aid is important. In the pre-reform period, technical assistance and policy dialogue are most supportive of reform. During periods of rapid reform, policy dialogue is important, as is finance. This is the phase in which conditional loans tend to be useful and effective. At a later stage of reform, conditionality is less useful, while finance remains important.
• In summary, aid in some cases has been effective in supporting policy reform, and by building on the lessons from these case studies assistance could be more systematically effective in this way.

I like Kenken :-)

So, I finally got a few minutes to test drive "kenken". It is cool. I thought I might take a few games to understand the rules; I was wrong. It is so simple, and just plain fun.

Try it out at NY Times. You will enjoy it, too.

Praise the transistor!

One of the valuable benefits of being a member (hey, I am a full-member with voting rights!) of Sigma Xi is the magazine--American Scientist. Even though my life now is in the social sciences, this magazine is a wonderful way that I can educate myself--perhaps in a half-baked mode, eh--about a few of the topics in science.

One article there is about the transistor--a review of the past, and what the future might hold. Lots of wonderful observations there. One, even though it might sound trivial, actually speaks volumes about the fantastic transformation of our lives with innovations in the semiconductor field. So, what is that trivial yet profound observation?

The price of integrated circuitry has long been a constant one billion dollars per acre, in spite of the increasing number of transistors on that acre. The current price per transistor on an integrated chip is about 0.002 cents. A staple used for fastening together sheets of paper costs 10 times as much as a transistor.

Awesome, right? Thanks to all those people who toil day in and day out in research labs and chip factories.

BTW, some of the other articles there are equally fascinating:

The Tacoma Narrows Bridge
If you gamble, knowing when to stop to your advantage

Enjoy.

Greenhouse Gasbags

The title and the content outsourced to Heather Mac Donald:

More proof that greenhouse-gas environmentalism—for liberals, one of the main reasons for getting rid of the allegedly anti-science, religiously-driven Bush Administration–is just posturing.

The California legislature has been struggling to close a $41 billion budget deficit. This is the same legislature that insists on imposing its own emissions standards on Detroit auto-makers—safely out of sight and out of the voting booth–because it cares so much about global warming. Now, if ever, one would think, would be the time to increase gasoline taxes, a two-fer that would raise revenue and discourage greenhouse gas emissions.

So did a proposed 12-cents-a-gallon surcharge on gas make it into the crippling $12.8 billion in tax hikes which the California legislature finally passed yesterday? Of course not. Voters would raise bloody hell. Better, apparently, to kill all businesses slowly with a sales tax hike than to interfere with Californians’ right to cheap gasoline. Liberal politicians’ pious devotion to the science of global warming never translates into action, unless the costs of action can be safely transferred onto non-voters. And environmental groups are just as cowardly. I sure didn’t notice the Sierra Club or the NRDC protesting when presidential candidate Hillary Clinton called for a suspension of the federal gas tax last year.

The Reader on Revolutionary Road

Kate Winslet has been nominated for an Oscar, but for the wrong movie.

Winslet was simply fantastic in The Revolutionary Road. She made sure that the character came across as real--that no viewer would ever think that the character she played could not have been possible in the 1950s. In fact, thanks to her performance, viewers would think that Winslet's character was indeed the norm, than otherwise.


I don't mean to suggest that Winslet was not good in The Reader. She was awesome. I agree with reviewers and critics who have opined that Winslet is such a terrific actor that she even in the nude scenes she is so real. However, she suffers from the story line and conversations that some times seemed rather stilted.


I suppose it is to Weinstein's credit that Winslet ended up being nominated for The Reader, and not for Revolutionar Road. I am not sure whether he did her a favor there; I think the category would have been a slam dunk for Winslet had she been nominated for the other role she played.

I have watched Winslet in so many movies that I am no longer suprised with her remarkable ease in performing the roles. What I really like about her is that she does not have the clinical/sterile approach that Meryl Streep presents. A long time ago, soon after the Titanic, Kate Winslet appeared in a movie, Hideous Kinky, that was set in Morocco. It was an impressive performance for a young actor--she was only 22 when that movie was made. In Little Children, she played the role of a restless and unhappy housewife with perfection. Eternal Sunshine of the Spotless Mind was another gem.

After all the movies that she has made, she is only 33!

Well, I hope Kate Winslet is awarded the Oscar this year--even if for the wrong movie.