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Assorted links
1. Conformal projections, hat tip to this excellent new blog
2. Who really won the socialist calculation debate?
3. Assigning the blame for subprime mortgage problems
4. We are risk averse like bonobos; in contrast chimps love risk
5. Does capitalism spur cooperation?
Posted by Tyler Cowen on March 29, 2008 at 08:25 PM in Web/Tech | Permalink
Comments
#1 Excellent new blog? Have you read some of the other blog posts?
Posted by: felixkrull at Mar 29, 2008 9:40:01 PM
"And their risk-taking strategy is also confirmed by the fact that, unlike bonobos, they hunt, kill and eat colobus monkeys. If the hunt comes off, the group gets to feast on protein-rich colobus meat -- if not, they all go hungry."
And yet, the supposedly risk-averse human was a hunting animal, no?
Posted by: Robert Olson at Mar 30, 2008 12:21:36 AM
#6: someone I dated for over a year once said I had to read Snow Crash, and if I didn't like it, our senses of humor were not compatible. (They were.) I don't think I could date anyone who hated my favorites; it would indicate enough incompatibility that a relationship would be doomed. Beyond those two or three, though, nothing is a deal-breaker so long as he too considers reading a hobby...
Posted by: Kat at Mar 30, 2008 1:48:38 AM
#5 Is anti-social punishment ultimately good for human development? Are our 'democratic' institutions giving us a false sense of security? Do we need to more directly confront the reality that we are actng purely in our self-interest (if that is indeed the case)?
Posted by: Chairman Mao at Mar 30, 2008 2:06:58 AM
#3 is bogus and of course blams meddling liberals. But he is misinformed.
Take his criticism of the Community Reinvestment Act. He uses Countrywide as proof that the CRE caused sub-prime lending and hence enormous foreclosure rates. The law itself and facts don't support such a view; the CRE went effect in 1977 -- the sub-prime problem is one of the past 6-7 years at most. Moreover the CRE doesn't require lending to people who can't pay back their loans.
Yes we've had high-ratio home loans for years with both --- VA/FHA and with private mortgage insurance -- and it worked fine with low defaults. But such loans were NOT made with no documentation for 100% of value. The Federal problem (and there has been one) was one of insufficient supervision of a business which knows only fear and greed.
Posted by: David Sucher at Mar 30, 2008 2:33:24 AM
Re #4 - I always loved how certain social-Darwinist types used to cite chimpanzee behaviour as "proof" for why humans were "naturally" violent, rapists, patriarchal, polygynistic etc -- and completely ignore the sex-mad, more peaceful bonobos who are equally closely related to us. The trick is not to assume we "are" one or the other. Bonobos might be risk-averse but impatient and chimpanzees risk-loving and patient; we could be moderately risk-averse, patient -- and have language, tools, approximately monogamous relationships and a moderate level of violence relative to chimpanzees.
And yes, I second David: blaming CRA (as per #3) is completely bogus. Most of the egregious subprime lending practices were perpetrated by non-depository lenders. Countrywide only has a small depository subsidiary - the bit that almost had a run until the first capital injection by BoA. Most of the other top ten subprime lenders were not depositories and not even covered by the CRA.
The authors also try to conflate "bad government intervention" of creating too-big-to-fail institutions like Fannie and Freddie, with the subprime crisis. That's also completely bogus. The whole point was that these subprime and Alt-A loans were not eligible to be bought by the GSEs, so they went into private-label securitisations sponsored by the big investment banks. GSEs had very little to do with it, other than possibly getting ripped off by buying apparently conforming loans that were subject to appraisal or other mortgage fraud.
Right-wingers and finance industry vested interests are desperately trying to prove it's anybody's fault but theirs.
Posted by: cb at Mar 30, 2008 3:04:10 AM
on socialist calculation debate. Actually Beer was essentially against any calculations. It was his point that it is NOT possible to 'calculate' outcomes as he provided proof that it is impossible ( that computing power required to compute the desired outcome is much more that anything we could provide ). So the device being used in Chile was not used for any calculations. It was used to assess the situation and provide decision makers with clues where to go next step.
That is pity that Hayek is viewed as opposing to Beer. I think Beer was wrong that there is a need in one 'assessing' center for the government ( now with the internet we can have a lot such centers ), but his proofs on incalculability of plans deserve to be mentioned along with Hayek position as it adds another angle to view and understand the economic phenomena .
Posted by: Sergey Kurdakov at Mar 30, 2008 4:41:43 AM
BTW I would recommend two books by Beer
The brain of firm
and
The heart of enterprise
these two books could add a lot to think to those who think that socialists do not understand incalculability argument. They do, still they offer some solutions ( which are just partially resolve the whole set of problems ) and it worths to think on where there approach could be combined with Austrian views ( I could even imagine a new economic field combining austrian views which refuse to compute and approach offered by Beer ( as it is really compatible with main Austrian arguments ) together with ideas from evolutionary economics ).
Posted by: Sergey Kurdakov at Mar 30, 2008 4:58:10 AM
1. Hmmm.
2. I think running the world like a production factory might make sense if the world was likea production factor. But it's more like an ecosystem...with chimpanzees and bonobos.
3. Sounds plausible to me. But hey, I'm just a dogmatic libertarian free market capitalist, apparently not because I've come to conclude that worldview best explains how economics and psychology best mesh, but because I like bashing meddling liberals. So, who knows. So what's the meddling liberal's explanation? I suppose "the answer is corporate greed, now what's the question?"
4. "So what makes chimps gamble is a clever survival mechanism -- their food resources are less certain, which means they have learnt to cope with going for big or bust" So, risk-taking or not is equally rational based on the expectations of the various primates. I wonder if there are certain chimps who don't like risk and certain bonobos who do? Of course there are, but what's the spread. Is the most conservative chimp moreso than the the most wild and crazy bonobo?
5. Or, does cooperation spur capitalism?
6. "I just thought Rand was a hilariously bad writer," I guess I just don't get the literary snobbery thing. In their world the "quality" of writing must be inversely proportional to how popular something is and how many lives have been changed by it. It's like when me and my friend could tell a movie was going to be awful depending on which awards it had won. I guess that makes me risk-averse when it comes to waiting for some indication of movie enjoyment before buying a theater ticket.
Posted by: Andrew at Mar 30, 2008 5:57:42 AM
Attacking the author's citing of CRA misses the point.
First of all, he offers 3 contributing factors. Secondly, they are contributing factors, not linear one-to-one cause and effect explanations. I assert that snafus like this always have numerous contributing factors, which is why they are able to fool really smart people and otherwise rational actors into speculative bubble behavior.
You can take all the contributing factors and one by one point out why that one particular factor isn't the culprit, but like I said, that misses the point.
2.5 years ago I bought a house from a person who was about to be foreclosed on. A lot of people in my neighborhood did the same thing. I got a decent house and she got out of it. I don't know exactly why all these people got into houses they couldn't afford all around the same time, but I'm sure it's a combination of a lot of factors.
Posted by: Andrew at Mar 30, 2008 6:26:06 AM
Snow Crash was good. I think I could forgive someone who didn't like it on the grounds that it is a bit silly - but then its been some years since I've read it.
Re: #3, when were most of the defaulting loans made? The Austrian in me wants to say that excessive growth isn't needed to increase malinvestments, especially when regulators channel those investments into a specific industry (although there was a ton of growth in the money supply around '02).
David, if the finance industry is somehow staffed by a bunch of Neanderthals who only experience the basest of emotions, then its good that many of those people are loosing money and/or jobs. However, I'd strongly doubt that professions - in any industry - are motivated strongly by fear. The externalities of our financial system harm others as well, but it wasn't businessmen who forced that system (and its externalities) on the nation at large.
Posted by: Grant at Mar 30, 2008 6:27:34 AM
People are more like bonobos then chimpanzees? I don't know about you, but I don't see orgies as conflict-resolution come up that often in human relations.
Posted by: Steve at Mar 30, 2008 6:35:08 AM
The fact that someone would consider incompatible literary tastes to be a dealbreaker would be a dealbreaker for me. It's the hallmark of a fussy, neurotic, high-maintenance and above all unreliable person, someone who obsesses over trivialities instead of the long-term big picture. In a slightly different context, the phrase "penny wise pound foolish" would apply.
Posted by: at Mar 30, 2008 6:53:29 AM
#6 Classic case of the type of NYT article in which the writer knows two friends in Manhattan who did something and calls it a trend.
Posted by: Hei Lun Chan at Mar 30, 2008 8:46:27 AM
Also, I can imagine a similar article on love and video games: X-Box owner breaks up with girlfriend when he visits her apartment and sees a Wii, someone checking out significant other's game collection and reacts with disgust upon seeing multiple games from the Shrek movies, a relationship that was never the same when she revealed that the carbine rifle was her favorite weapon in Halo 2, etc.
Posted by: Hei Lun Chan at Mar 30, 2008 9:01:52 AM
I would consider literary tastes a deal-breaker on a first date, or if I came to a woman's house and the shelves were covered in nothing but, say, Harlequin romance novels, but much past that and you're just making up excuses.
As for #3, any explanation that lets off the hook the people who actually signed these lousy loans in the first place doesn't deserve to be heard.
Posted by: Sean at Mar 30, 2008 1:16:05 PM
re #5, It also gels with anecdotal and personal experience of Hong Kongese and Taiwanese (or overseas Chinese) compared to mainland Chinese. The latter usually tending to far more individualistic behaiviour than the former. A purchase is a ruthless zero sum game, instead of a mutally beneficial transaction, and if a fovur is asked, the return favour is negotiated immedietly, not accepted as a vague promise in the future. Then of course, there's the pointlessly spiteful jealousy (red eye disease) dispaired of by Chinese.
It is important to note that this gets socialised out quite quickly once they're out of the PRC.
If think though that this is less the capitalisms in HK, Singapore, Taiwan and western countries breeding co-operation as Maoism, and particularly the cultural revolution destroying it alongside most of the remaining social fabric.
But in most capitalisms, co-operation substitutes from costlessly enforcible contracts, and whilst terms of the contract are determined by the market, co-operation assures those terms are met. With the absence of even the poor substitute (a decent legal system), I wonder if social evolution will return co-operation to the PRC and other post-communist countries, since the particularly brutal dog eat dog (or ren chi ren as they would have it) form of PRC capitalism seems to have far greater long term contraints than the alternative Chinese and other capitalisms.
Posted by: User1127 at Mar 30, 2008 5:53:05 PM
I wonder if anyone has determined the level of intelligence of the two species to see if something along the lines of the Stanford Marshmallow Experiment applies to these species as well as to explaining IQ in humans. Here is a link to a discussion of it
http://econlog.econlib.org/archives/2007/10/stanford_marshm.html
Posted by: Mike at Mar 30, 2008 8:27:26 PM
How can anyone think humans are just risk averse? The same people
who purchase insurance also play lotteries; in the first case paying an actuarially
unfair price to avoid risk in the latter paying an unfair price to assume risk.
Harry Markowitz had it basically right (in his correction of the Friedman/Savage theory) long ago, but nevermind.
Posted by: indiana jim at Mar 30, 2008 10:03:49 PM
No Andrew, I'm not missing the point.
You are failing to understand that I'm not going to provide the complete refutation of the article -- let alone a complete explanation of the mortgage crisis -- in a measly comment on someone else's blog.
Then, you said:
"Secondly, they are contributing factors, not linear one-to-one cause and effect explanations. "
Nobody said they had to be linear. But to be "contributing factors", they still have to be supported with, y'know, evidence, and robust to attempts at refutation. If something can't possibly be influencing the relevant actors' behaviour, then it's not a contributing factor, and certainly not an important one.
If you had read my comment with understanding, you would have seen refutation of two of his points. I said:
(1) CRA applies only to depositories; subprime lending was mainly done by non-depositories, who were not bound by CRA and therefore unlikely to be influenced by it.
(2) Fannie and Freddie insure prime loans, not subprime and Alt-A. So they were not involved in the creation of these crazy products.
I didn't bother with the third "factor" about credit card repayments, but I'm open to the argument that the 2005 changes to bankruptcy law had unintended consequences. The financial institutions that lobbied for it should be careful what they wish for, perhaps.
You COULD argue that government intervention contributed to the mortgage crisis by creating the Fannie-Freddie system that left everything outside that "conforming" space to an unregulated cowboy land, and then deliberating stymieing state-level attempts to regulate that non-conforming space. But that's not really an argument that regulationi is bad, and it doesn't let the Fed off the hook.
Posted by: cb at Mar 31, 2008 1:59:17 AM
"blaming CRA (as per #3) is completely bogus. Most of the egregious subprime lending practices were perpetrated by non-depository lenders."
So, blaming CRA in part for the overall situation is COMPLETELY bogus because MOST of the subprime lending practices were not directly under its purview? Am I understanding you right?
I apologize. I didn't realize there were people who would call something completely bogus without offering a complete refutation :)
This "subprime" crisis is not just of the subprime subset. I think "Subprime" is just shorthand. I'd guess true subprimes are just the marginal ones that are going bad first. The government has or is considering increasing coverage to the "jumbo" loans.
Now, I don't know, but I can think of two ways that such a law could marginally effect the system. First, it covers bank acquisitions and mergers. This could affect the behavior of an acquisition target. I don't know. Second, home prices that increase due to one lender, in effect, raise the market value of all homes, or at least the perceived market value.
No, I don't argue that government leaving people alone causes them to be cowboys. In my experience, that's the paradigm of people who believe "that which isn't forbidden, is mandated."
Posted by: Andrew at Mar 31, 2008 7:10:16 AM
Yes, blaming CRA is completely bogus: if it was a significant contributor, then firms subject to it would be MORE likely than non-depository lenders to become subprime lenders, not less likely as actually happened. That a couple of depositories had subprime lending programs doesn't mean CRA was a contributory factor -- the incidence of depository involvement was lower than what you would expect if it was random response to random business conditions. It would be like saying "Roger Ferguson was till recently a senior Fed official, so Head Start causes African-Americans to take up central banking." OR "Some teenagers who get comprehensive sex education still get pregnant, but at a lower rate than teenagers who get abstinence-only sex education...aha! Comprehensive sex education causes teen pregnancies!".
So I did actually offer a complete refutation, but one you were being too absolutist to understand.
I'm perfectly well aware that it's not just subprime. But since the argument was about CRA, which is about poor people, it was appropriate to focus on subprime, which people seem to think is mainly poor people (which it's not).
Sure, not being regulated doesn't make you into cowboys -- unless the incentives without regulation encourage it. In the financial sector, that's exactly what the incentives are, which is why financial sectors get regulated pretty much everywhere.
Posted by: cb at Apr 1, 2008 1:44:20 AM
Posted by: 燈光音響 at May 23, 2008 11:18:05 PM
