Tuesday, December 30, 2008
He (she?) discusses work put out by an Italian professor I once worked with, which shows that the gender gap in mathematical achievement disappears in more gender equal countries, and even reverses itself for sufficiently progressive societies. The unnamed genderist finds that such a gap exists and is durable. The Italians find otherwise because gaps close at high levels of ability--which are also countries where feminism is in vogue. Some statistics shows that this gap is largely explained through genetics. If you get tired of genetics-intelligence hand-waving, just check out Gladwell.
Cue the just-so evolutionary stories. I imagine telling these must be a high point of parenting.
Monday, December 29, 2008
The past four-week period has also shaken up Indian illusions regarding Washington's regional policies. It is plain to see that the US never really abandoned its "hyphenated" policy towards India and Pakistan as South Asia's two important rival powers, both of which are useful in their own ways for the pursuit of the US's geostrategies.
Wednesday, December 24, 2008
Tuesday, December 23, 2008
Sunday, December 14, 2008
Now, some people are looking at the underlying dynamics of why those things happen. Galor has an interesting scheme in which populations under Malthusian pressure gradually change their value structure to become more market-biased, and Gregory Clark claims that genetic and cultural changes lie behind Europe's economic dominance. Other folks at Brown have come up with some research which traces the population heritage of different groups, finding strong historical presistance for generating income.
This intersects nicely with other population genetic research. Heckman has done a lot of work on the technology of skill formation, finding that the amount of skills you can build up when early determines a lot about your future. So while everyone faces similar incentives to pursue education, people have differing abilities to do so, so you get income inequality. A major cause of population differences is time distance from agriculture. Groups that have been settled for a long-time look very different from groups that just picked up agriculture, the the latter groups have a very very difficult time adjusting--in terms of building up a tolerance to alcohol, for one.
There are a few issues with this picture:
1) How do the underlying cultural/genetic population parameters intersect with broader political themes? Presumably South Chinese populations across Hong Kong, Macao, Taiwan, Guandong are similar, but different largely exogenous political changes had very, very different results. But often, political institutions are built from other grassroots pressures, and interactions are complicated.
2) Why is this historically a bad predictor? If you go back thirty or fourty years, you see African countries living in a Malthusian environment where a high disease burden keept income relatively high above subsistence level. Post-colonial growth wasn't bad, while poverty was really concentrated in East and South Asia. Latin American countries weren't doing bad either (Argentina was one of the world's richest countries at one point) despite having a large population with minimal state history. Then things changed and historical stereotypes started to look like they have some relevance.
3) Among populations with similar experience in State-building, why is there so much variance? Mesopotamia/Egypt have a very long history of urbanization, while in England Romanization was very weak and the real state-building happened much later. But England made the transition into a Neoclassical economy first, and presumably carried the spillovers to other nearby northern European states with similarly short development history. The Mediterranean region, which is where you have the long state histories, still remained a backwater. So even within Europe, there are a lot of political/technological confounds. You can start to explain some of this by soil degration and salinity; early Mesopotamians destroyed the land so Persia and Greece became more important; and so forth until gradually the seat of power moves further north and west away from the site of initial agriculture, but this really adds to the complexity. This is also specific to irrigation-based technology for certain cereals.
Once you expand outside Europe, things get even trickier. China of course has a great long history of technological innovation and highly capable state formation, and rice cultivation with effective fertilizers kept soil productivity high. Income, however, lagged up till a few decades ago even the poorest of African nations. Catch-up growth has been significant, but that was not the only way it could have gone. India also has a very long state record, but the parts of the country with the biggest heritage in that direction are also some of the poorest right now. The point of much of this research (also Jared Diamond) is that you can kind of predict the important countries from 1500 and also some relative rankings since history matters, but this alone doesn't tell you why Europe and Japan have done well, and not Persia or Turkey. Explanations that try to do this (ie, Diamond's argument that Europe is near a lot of water) look pretty ad hoc.
4) Non-linear post agriculture histories play some part in this. For instance, many tribal people in India have known about agriculture for a long time, many are agriculturists, and all are in symbiosis with other settled groups. But they're not the same as either other agricultural groups or the more isolated groups such as the Senitalese. In India, long periods of political violence and a general lack of centralized authority (as well as whatever the effects of caste may be) probably kept the population in less of a "settled" mentality than other parts of the world. But it was still more prosperous in aggregate historically than places which only recently have seen wealth, say Eastern Europe.
5) Supply-side responses dominate how much money you have only recently (and maybe not even now). Brute force has generally been much more important.
6) Most likely, population parameters established through cultural and genetic selection determine cognitive and non-cognitive skills (The non-cognitive skills--persistence, motivation, learning to follow orders, etc. are pretty underappreciated and possibly more important). In a country like America, which is a pretty meritocratic place, you can look at the population's wealth share for a rough guide of the "potential" income (selection effects on immigrants and other historical legacies are important here too). You can look at Mauritius and Singapore similarly. Relative ordering may be fixed within a country, but explaining difference in average levels of income, even holding population composition constant, is a good deal about various geographical and political factors. In the long-run, a country's politics should respond to keep income at potential, especially in a competitive international environment, but this can take a while.
The slow rate of response of human labor to the demands of a commercial economy generates rents for the people who catch up. Capital is pretty elastically provided, so interest rates are pretty similar across time, but it's much slower to get a skilled human supply-side response, so some people collect substantial rents and you see a lot of inequality.
The traditional two-party result in Game Theory makes the assumption that voter preferences lie on a linear continuum. So given any two people, one will be more "left-wing" than the other, and you can find some moderate in between. Parties then jostle for the median voter, and political dominance is unstable.
In reality, the political landscape tends to be more broken up. You have issues like abortion which cleave the electorate. With large population areas, such large Democracies, there tend to be sufficiently many issues that the two parties take on many differing positions and you can effectively think about a "marginal voter" who is torn about which policy preferences should receive greater weight. So any political dominance is always unstable, as the other party can create enough wedge issues to come back.
The problem in smaller political units is that voters are split on fewer issues. Voters tend to be much lower information on local races and go with identity more often. In Chicago for instance, the Daley machine can get at least 60% of the vote in primaries from their vote bank of Irish, immigrants, and other whites. It's hard to compete as another Democrat (let alone a Republican) since Daley serves his base very well (plenty of union and city jobs), and his base is over half the Democrat primary pool. Add to that the fact that city dwellers tend to have relatively uniform social preferences on issues such as abortion, gay marriage, teaching evolution in school, etc.
Similar ethnic divisions are at play in Singapore (Malaysia too). With a large Chinese supermajority, the Lee family makes sure to reward their supporters well. South Africa displays this pattern too, with the ANC commanding the undivided support of a large black base (though high-profile splits in that party might be important).
Explaining this paradox is all about showing why a competing party can't arise in small places while they can in large ones. If you can get >50% of the population to care about a simple set of issues, and then become the best person at providing them with their needs, you have a stable dominant equilibrium even in a democracy.
More interesting perhaps is explaining the long legacy of one-party rule in large and pluralistic democracies like India, Mexico, Taiwan. There the answer also has to do with the costs of building a political machine, and the use of state coercion to tackle political opposition, as well as reputation buildup in the freedom struggle (in India). Information costs in large democracies mean that the scions of politically powerful families start with a heavy stock of reputation capital, explaining the prominence of political dynasties in South Asian Democracies (Gandhi, Bhutto, Zia), and also American and Japanese Democracies.
This is also why you see a greater share of female political leadership in some foreign democracies than in America. In the US, political leaders tend to be drawn from the stock of well-connected lawyers (which is largely male), while in other countries leaders are often drawn from certain families (which are, presumably, half female). Hillary Clinton's rise was only possible from her position in the Clinton family, and Pelosi too is politically well-connected. Just like female rule in those countries, the rise of female politicians here is more a dynastic victory than a feminist one (just like how Queens Elizabeth and Hatshepsut didn't really advance women causes either). People like Merkel, Thatcher, and Mayawati seem like better signs of social progress. But it's also seems easier for women to run in Parliamentary systems rather than in a more direct democracy system. With a Parliament system, you can become a great advocate for your party's views, making you as valuable as any other person, with the added benefits of tokenism. When you're running for election among real people, you also have to deal with certain stereotypes. Successful female candidates always seem to behave hyper-masculinely (Clinton, Thatcher, M from Bond) or very nurturing and non-threatening (Palin, Sheila Dixit), but they have the advantage that it's harder to attack them without looking bad. Widespread acceptance of female leaders is going to take a bit.
I suspect that as China goes democratic, it will also follow a one-party democracy. Running political operations in all Chinese states is very expensive, so a single party can take advantage of economies of scale. Meanwhile, there is a relative population homogeneity and relative policy consensus. Most political disagreements center on personality differences between rival power cliques, which currently takes place behind closed doors but could easily be democratically decided. The government is very popular and would easily win elections; popular pressures already determine much of state policy. The big difference might be on foreign policy, in which a democratically elected government would be constrained into acting more hawkish on a world stage to save face domestically. Economic policy would also probably become more distorted through the influence of rent-seeking interest groups. On the plus side, voting out incumbents is a great way to let of political steam. Right now this is taken care of by the occasional execution or firing of the designated fall-guys, but if conditions are bad enough you want the guy at the top to change too.
Wednesday, December 10, 2008
Monday, December 1, 2008
Thursday, November 27, 2008
Wednesday, November 26, 2008
Tuesday, November 25, 2008
This is indicative of a broader issue with Berkshire and value investing. Berkshire the business specializes in taking exactly these sorts of extreme catastrophic risks. Value investing in general specializes in exactly those companies which go under in times of extreme stress. Value stocks do bad in a crisis, and this fact pushes up the premium for these stocks in good times (who wants to own something that is worth so much less exactly when you need money?). Only when there's a crisis do you see--as you do now with United Health, the rail companies, GE, American Express--how bad things can get.
This can still be a smart bet to make. Thomas Sargent has some interesting Bayesian calculations in which different actors share risk. Normal people trade away risk, while other agents take these risks and make out like bandits in good states. But it's a bet that makes use of a broader story: Stock markets are as close to information-efficient as you like, and the whole story of day-to-day fluctuations is driven by differing risk premia. It's very very difficult to make money picking and choosing stocks (More on this later...), but there is a role for smart managers to pick up different sets of risk exposure. In some extreme sense, there is no other way to make sense of investing.
Monday, November 24, 2008
There's a big question in my mind why the Citiempire went down to begin with. It's pretty easy to see why Bear Sterns and Lehman fell. Both were borrowing short to lend long with a great deal of leverage, so their entire business model depends on trust. With the stock market as a barometer of that, their tangible value starts being a function of the stock value, and when the stock goes down, people have less trust, so the stock is worth less, and so on. Morgan Stanley and Goldman Sachs avoided these problems by becoming associated with bank deposits which lowered the counterparty risk of dealing with these companies.
AIG's bust is pretty straightforward as well--bad risk managment related to CDOs and credit default swaps caused counterparties to demand huge payments as collateral, which AIG could not provide. Buffett's Berkshire is currently going through similar problems related to their investments in long-long term S&P index puts (who are the buyers?), for which Goldman apparently wants some collateral, and also concerns of losing investment-grade ratings for debt.
Citigroup is a tougher case. On the face of it, they have healthy free cash flows (not as nice as say Banco Santander's, but better than WaMu). Sure, many of their assets are toxic, and it's tough to figure out which ones are, but they certainly have the cash to handle day-to-day transactions in ways the Investment Banks could not. Insured deposits and lines of credit with the Fed give it a much stronger lifeline. Somehow, the crisis in confidence was enough to sink the company.
Brad DeLong's explanation is the best I've heard. Bad distributions on risk models, exploding risk premiums, and general bank concerns sank the company.
(One thing to keep in mind about bad risk modeling is state dependency. That is, money isn't worth as much in different states of the world (which is why no one will buy insurance against nuclear winter). Ideally, this would be a reason for banks to make sure they have enough to survive in times of crisis--as with Rajan's proposal of financial crisis insurance. That proposal is a pretty clever way of making sure banks have capital in times of need, without needing to tie up cash in boom times when agency problems (ie, Chuck Prince) are pushing to make quick cash with that money. Plenty of people call for more regulation in financial markets, seeing it as the same sort of quantity-based good as infrastructure or oil. Banks are very, very good at regulatory arbitrage and regulatory capture, so short of China or India style regulation, there will still be bank crises, and the more interesting stuff is how to design institutions which are incentive-compatible between regulators and banks.)
So it's tough to detail exactly what's wrong with Citibank. The general problem common to all the minor problems, however, relates to the basic structure of the company. Citi was conceived as a "global universal bank" where you go for all banking needs. The critics said that this would lead to all sorts of sprawl and size issues, and they were right. Citi was incapable of judging or handling risks, insulated by the notion that it was a "safe, big" bank. Pandit has tried to keep the broader model alive, but the collapse of his old Hedge Fund under Citi's care shows that it's difficult to integrate many business segments with different risk appetites under one roof. There's a lot of pressure now to sell off Citi into manageable pieces. This is a problem for Citi and also those "Citi-clones"--UBS maybe, perhaps even JPMorgan. Internationally, you have banks like ICICI. Some of these are really too big to fail, and are maybe even solvent. But they face severe management problems.
But whatever the problems with any of the too big to fail banks, the Treasury can print out enough money to keep them afloat longer. How much longer can they keep doing that? With long-term entitlements and debt spending up to tens of trillions, huge deficits and stimulus plans pushing those further, more and more bank guarantees and bailouts, how much longer can the government keep up their credit rating? Right now, they benefit from the flight to safety. Eventually, this will stop, as will continued purchases of Treasuries by foreign governments. Facing higher costs of capital would destroy the financing capacity of the Federal Government to be the ultimate IMF for the American economy, bail out firms, and would crimp monetary and fiscal tools to combat recessions. On top of all the other problems in ensuring normal governance with expensive rather than cheap debt.
Wednesday, November 19, 2008
Monday, November 17, 2008
Sunday, November 16, 2008
Thursday, November 6, 2008
Here's a similar map for this election:
Not that much changed, though Obama made incremental progress in many places. Here, however, is where McCain did better than Republicans in 2004. Arizona and Alaska make sense, and of course southern Lousiana lost a lot of black Democrats. But McCain made his pickups almost exclusively in a particular geography--the upland south.
This is a rough breakdown of that region. It's a pretty distinctive part of the South. Slavery was never big here; there is virtually a total complement between this and the following graph.
The share of African-Americans.
Similarly, this is also where Bill Clinton won his votes in the Democrat primary (purple is where he won > 65% of the vote). Hillary Clinton did very well here in those areas as well.
This gets at ethnic breakdown in this area. This is be a bit hard to read, but basically the plurality ethnic group reported to the census here is "American"--these people are Scotch-Irish who predominately identify by nationality. The regions where such groups are numerous map very strongly to those places where McCain/Palin grew the Republican vote share. Household incomes tend to be fairly low, with some of the biggest pockets of isolated poverty anywhere in the country.
Presumably this reflects the impact of adding Palin to the ticket. You have cultural identification by "real Americans," a strong evangelical turnout, and racism, though I suspect Condoleezza Rice or Colin Powell would do well here. Further South, record turnout of black voters pushed Obama's share upwards, while further North, social conservatism, broadly, is a smaller force.
This illustrates the point that the South is both "larger" and "smaller" than people think. The Deep South plantation economy was restricted to the far southern geographies where that was economically viable, while broader southern culture is shared by a larger community of Scotch-Irish that stretches into Ohio and Pennsylvania.
Politically, it doesn't seem to make a lot of sense in retrospect for Republicans to double down on this demographic. One of the post-election quotes from MN governor Pawlenty caught my attention. The original Sam's Club Republican was caught saying that his party needs to focus on attracting women, Hispanics, blacks, and young people. Well. What demographics was your party targeting to begin with?
The young vote doesn't bode well for them, as young people these days are fairly liberal on a range of economic and social issues. Some of this will obviously fade away over time, but the social liberal bit will probably stay; roughly, every generation moves out a step more liberal than the previous one and stays there. The cost of catering to the real Americans is felt in the plummeting support Republicans see among young voters, minority voters, and the educated. Obviously, these groups are pretty large and growing, while whole communities of Rockefeller Republicans are going extinct. The electoral benefits are pretty slim, as the bordering states were Republican anyway. The Republicans faced a very bad fundamental position and were probably going to lose barring some crisis. But McCain's decision to head even further right after winning the Republican nomination, target this crowd through a VP pick, and then run a campaign centered on inconsequential right-wing dogma points and attack ads did little to endear him to the broad swaths of American independents who swing randomly from party to party, and for whom McCain is actually fairly popular. It's enough to make you nostalgic for some Rovian tactics. At least he realized that you need more than half of the population to win, even if hubris over statistically dubious "political realignments" did them in.
Wednesday, November 5, 2008
First Year #2: "No."
First Year #1: "This managing director is up in front of the podium answering a question about work-life balance someone asked, the junior guys are sitting in chairs on the stage behind him. Fifteen, maybe twenty seconds after the question one of the junior guys literally passes out and falls out of his chair onto the stage. They called the paramedics and everything. It was crazy."
First Year #2: "Is he ok?"
First Year #1: "Fine, apparently. Exhaustion. Just got off the plane from London, no sleep for a week because of a deal he was working. Right after the managing director just talked about how great the work-life balance is."
First Year #2: "They have a London office? Are they hiring for the London office?"