BY Kevin

At Gaper's Block, Ramsin Canon has an extended diatribe against WM in Chicago. I have added fiery comments demanding real-world justification for statements like, "there is quite an argument to be made that in fact the presence of the retailer would eventually be detrimental to a neighborhood's economic vitality," and "It is a virus. It is dangerous."

I'm willing to listen to arguments that we must fight WM until it dies; I just want WM antagonists to use WM's actual record to prove it.

Hat Tip: Paul of Phonezilla commenting at O'Donnellweb's, found via Businesspundit. Got it?

4/2/2004 03:33:35 PM
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BY Kevin

The WaPo has an interesting story about the secrecy of the Bureau of Labor Statistics before each month's employment numbers are released. I was amazed at the tortured agony and blood spilled in preparation of each document:

What is an acceptable verb? "Declined," Nardone said. "Rose. Grew." What about dropped? "We've used dropped," he said. Shed? "Shed we use." Bled? "No." Plunged? "No." Nose-dived? "No. The thing we're trying to avoid is being judgmental. . . . If you use nose-dived, or bled, or soared, or skyrocketed, then you're not just providing direction, there's some judgment of the direction."

Slumped?

"No, I think we would really stay away from that one."

The President's Council of Economic Advisors gets a copy a day early; the CEA prepares an early summary edition for the President, Treasury Secretary, and Fed Chairman.

UPDATE: Kikuchiyo notes an odd sentence fragment in the latest release.

4/2/2004 11:40:29 AM
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BY Kevin

You might have read that employment rose in March, and that this job growth is the strongest it has been since Bush started.

Can we trust this number? Short answer: Yes, just don't take it literally.

Total nonfarm payroll employment is generated the establishment survey, which has far more accuracy than the household survey (which I have discussed earlier), but it does not have pinpoint accuracy. The 300K positive change was 4.5 times larger than the standard error of 67,693, so there is no question that the change in employment was large and positive. That is, unless you believe that Bush has placed his cronies to manipulate the data so he looks good for the election. But there's little difference between a change of 308,000 and one of 300,000. I understand that the BLS will report data with such alleged precision as a matter of duty, but the only justifiable reason I can see for the press to report it is so they're not accused by foolish partisans of manipulation. However, I'd love to see what reporters would have done if the BLS had reported an increase 308,167. Would they have rounded off?

Btw, the full release of employment data is called The Employment Situation, which to me sounds like a Tom Clancy novel. Please let me know if you have any idea how it got this name.

4/2/2004 10:25:21 AM
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BY Kevin

From Swissinfo comes news of an expanding vegetarian fast food outlet, Tibits:

At a first glance, Tibits could be mistaken for copying the latest fast food trends, where sandwiches, soup, coffee or fresh juice are offered in cosy yet fashionable settings.

But the chain’s main ingredient and key to success is a large buffet of 30 different hot and cold vegetarian dishes, including everything from Tex-Mex to Indian curries, with a dash of old fashion Swiss cooking thrown in as well....

Added to the mix is a witty advertising campaign comprised of images of vegetables posing as fast food icons.

String beans instead of McDonald’s fries, a carrot imitating a hot dog and a banana with a takeaway handle cut out of its peel....

Much of the concept, including the food, was first successfully implemented at Zurich’s popular Hiltl restaurant, which was Europe’s first vegetarian eatery when it opened its doors in 1898.

This sounds like a good choice for those looking for a quick bite and self-service; it gets OK reviews. In addition to their Zurich, Bern and, Winterthur locations, they're opening up in Basel and in London. They've received many inquiries from US parties as well...

4/1/2004 01:45:59 PM
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BY Kevin

J.H. has several excellent (and really funny) posts about the economy and culture in San Cristobal de las Casas. Read about him watching live professional wrestling:

Unsurprisingly for Latin America, things did not get started on time. There were many false starts, when people thought that the wrestlers were entering, but it turned out to be no one special. Also, any women who came in late were greeted by whistles and cat calls from virtually the entire audience, which ranged in age from about 8 through the elderly.

Finally, the stars dashed in, to the cheers of the audience. And if you're wondering, many Indians do, in fact, cheer by making a high pitched noise as they tap their open mouths with the palm of their hands, thus substantiating my old theory: All ethnic stereotypes are true. But I digress.

The wrestlers were not quite what I expected of professional wrestlers. They seemed skinny. I guess they were somewhat muscular, but not spectacularly so. One must keep in mind that the indigenous folk probably have different standards when it comes to these things. After all, I, at about 5'10", was the tallest person in the room.

And don't miss his comments on bootleg DVD's of The Passion of the Christ:

But bootleg DVD's and VHS tapes -- filmed with video cameras from US theater screens, with Spanish subtitles superimposed -- can be found for sale everywhere, and were available even before the film hit Mexican cinemas.

I happened to see part of one such bootleg DVD this evening while dining in a Chinese restaurant. The image quality was surprisingly good. I certainly wouldn't count on a Mexican theater projectionist for better.

3/31/2004 12:41:34 PM
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BY Kevin

Alex Tabarrok notes an important paper by Thomas Dee, and concludes:

Using data from Tennessee's Project Star, a very important experiment in which K-3 students were randomly assigned to small and regular sized classes, Dee finds that black students improve when they have black teachers. So far so good. Dee also finds, however, that white students improve when they have white teachers. Uh, oh. There goes the diversity is good for everyone story.

These are serious results, but even the author is very cautious about making inferences beyond the domain of Tennessee and white/black racial dynamics. Will biracial children in New York perform better being taught by biracial teachers?

3/31/2004 11:03:35 AM
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BY Kevin

The Dallas Fed's latest Economic Insights examines the life and work of Knut Wicksell:

Wicksell’s work is linked directly to three major traditions in economic theory:

• the quantity theory of money and its implications for allowing an analysis of aggregate macro outcomes as well as their appropriate monetary policies;
• the Austrian theory of business cycles, which uses Wicksell’s concept of a natural rate of interest;
• and the modern Public Choice paradigm in public finance, which is based on Wicksell’s contentions regarding interest groups in democracies.

Robert Formaini crams in a lot of fun detail in a short space, and for those unfamiliar with Wicksell, it is a good read. However, it is more focused on Wicksell's Austrian connection than what I think is his more important James Buchanan--Public Choice connection. This is remedied in another good short review of Knut provided by the National Bank of Slovakia:

Wicksell also realized imperfections of the electoral systems used in democratic societies to decide about fiscal questions. He pointed to the fact that situations could arise, when the majority of voters could vote to force the minority to bear the cost of approved spending programmes, although the programmes would not be useful to the minority. Wicksell regarded the system of unanimous voting as the only way to prevent some individuals to transfer the cost of their decisions to other individuals. Wicksell demanded that the approval of important fiscal measures should require the agreement of all voters (the so-called Wicksell’s unanimity). However, he realized that the agreement of all voters, especially in case of a more numerous group of voters, would be associated with significant costs of negotiations and convincing of voters. The ability to veto decisions would also give every voter a significant position in the negotiation process. Therefore, Wicksell replaced the requirement for unanimous agreement with a notion that important fiscal decisions, such as the state budget, should be approved by a qualified majority.

3/30/2004 05:31:57 PM
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BY Kevin

The latest RAND publication which I have coauthored have just been released. My part of Aligning the Stars: Improvements to General and Flag Officer Management (avaiable in PDF for free) was to visualize the data, model how the system responds to changes in assignment length at particular points in a senior officer's career, and to explore how these changes can be integrated into longer careers.

I must admit that almost all of the writing was done by others, and I'm lucky to work with lead researchers who believe in sharing credit with the grunts.

A short version of this work can be found in the research brief Managing General and Flag Officers. It addresses Secretary Rumsfeld's concerns that in the military services, as compared to commercial business, turnover is "too high" at the level of senior management:

Private-sector careers resemble those of the military in that both organizations identify employees with high potential and carefully monitor and manage their careers, especially in the later stages of development. But the management of these employees differs. In the private sector, early jobs are developmental and help to build functional skills, organizational knowledge, and personal insights. Later jobs tend to have more complex and ambiguous responsibilities that draw on the knowledge and skills developed in earlier ones. Thus, the assignments have different purposes: Some develop skills, while others use skills previously developed. The “developing” assignments do not need to be as long as the “using” ones, and private-sector management reflects this practice.

The military also has developing and using jobs. Certain jobs appear repeatedly on the resumes of four-star officers — that is, those of the highest military rank. But unlike the private sector, assignment lengths do not vary between the two types of jobs. For example, the average assignment length for two- and three-star officers is about two years — too brief for either effectiveness or accountability. The upshot of these shorter job tenures is that the most-senior military officers hold their jobs for far less time than their private-sector peers (two to three years compared with eight) and retire much sooner. Almost 90 percent of four-star officers retire before reaching age 60, compared with only about a third of their private-sector counterparts.

I loved working on this project.

3/30/2004 10:22:28 AM
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BY Kevin

Walter Williams rips apart the economic logic behind the new anti-price gouging bill set to become law when the Virginia governor signs it. This law will prevent any price increase during times of disaster that is not due to a "cost" increase. Sounds kind and just, but remember that Adam Smith noted that we depend not on the benevolence of the butcher, but on his self-interest:

In Isabel's wake, private contractors from nearby states brought their heavy equipment to Virginia to clear fallen trees from people's houses. Producers and shippers of generators, plywood and other vital supplies worked overtime to increase the flow of these goods to Virginians. What was it that got these people and millions of others to help their fellow man in time of need? Was it admonitions from George Bush? Was it conscience or love for one's fellow man?

I'll tell you what it was. It was rising prices and the opportunity for people to cash in on windfall profits...

3/29/2004 09:26:39 PM
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BY Kevin

In Parchment versus Guns, Richard E. Wagner discusses reaching collective goals while effectively limiting government:

The articulation on parchment of a declaration of limited government to protect and preserve is not by itself sufficient to generate protection and preservation as the core activity of government...

As Vincent Ostrom (1984) explains with particular cogency, government involves a Faustian bargain: instruments of evil--power over other people--are to be employed because of the good they might do, recognizing that evil will also result...

The other approach looks primarily to a kind of opposition of interests to limit government predation. Metaphorically speaking, this alternative approach looks to guns more than to parchment. The basic principle behind this approach is for governmental action to require some concurrence among different participants with opposed interests...

[S]elf-interest is predominant in all human activity, in government as well as in commerce. The justification for government resides in the need to control the darker side of self-interest. With self-interest being ineradicable, the problem of constitutional control becomes one of how to control the operation of self-interest within government while allowing government the ability to perform those governing tasks that its justification requires. Ultimately, the task would seem to require both parchment and guns, that is, both knowledge pertinent to the task and rightly aligned incentives to act consistently with that knowledge.

The desire to limit government is generally perceived as a desire to limit democratic control. While this is true, it masks a more fundamental desire to limit nondemocratic control and predatory uses of collective organization.

3/29/2004 11:28:24 AM
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BY Cardozo

(story) From the Wall Street Journal (subsription req'd; sorry)

When Congress set up the federal court system in 1789, it gave aliens the right to sue for "violation of the law of nations or a treaty of the United States."

Tomorrow, 215 years after the law was passed, the U.S. Supreme Court will consider what that sentence means. The ruling could have a major impact on how human-rights cases, and even lawsuits against terrorists, are pursued in the future.

The law, known as the Alien Tort Claims Act, was rarely cited and all but forgotten by the 19th century. But since 1980, human-rights groups and victims of atrocities have filed about 100 lawsuits under the statute, according to lawyer Eric Biel of Human Rights First, an advocacy group.

The rest of the article goes into the recent history of the law, which is of interest to me as a law student. However, from the economics perspective, we must consider the costs such a law will impose on the US legal system. To date a Mexican alien has used this law to sue the DEA and alien victims of torture and mismanagement have sued various defendants, including two former Presidents of the Phillipines. A quick LexisNexis search in New York State alone reveals 51 cases have involved the law. Many of them are for alien plaintiffs suing alien defendants, such as Ullonoa Flores v. S. Peru Copper Corp., 343 F.3d 140

Claims under this Act are few, but the act remained dormant for almost 200 years after it was enacted in the 18th Century, and only recently has it become popular. The Courts have so far have been conservative in its application and enforcement, but as claims rise, inevitably so will Courts costs.

What benefit does the USA receive in adjudicating a dispute between a Peruvian copper mining company and some of its native employees? Undoubtably the employees will receive a more fair hearing here in the United States, but is it in our best interest to offer them a forum? A Courts system is extremely expensive to maintain and operate, and the free rider affects of such a law, if widely applied, could be quite burdensome.

Critics of the law have so far concentrated on its diplomatic and political consequences. They seem to fear that it will allow CIA or Special Forces operatives to be sued by foriegn nationals if they damage property or unnescesarily detain someone in the pursuit of terrorists or other ememies of our nation. Personally, this does not worry me. Our Courts system has historically been very protective of our military's right and responsibility to defend our nation. What worries me is the costs. Courts aren't totally blind to the costs of carrying out the law, but it is a secondary consideration for them. For balancing the needs of law and order against the costs of providing it, Congressional action and discretion will be required.

The political talking-heads are very much interested in tort reform for the fields of medical malpractice and product liability (for obvious reasons). If claims under the Alien Tort Claims Act continue to mount, we better hope that this issue is addressed in any comprehensive legislation.

3/29/2004 10:30:05 AM
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BY Kevin

A local car dealer, Dulles Motorcars is advertising 6 months of free gasoline to all those who buy a new car. They don't have the ad online, which is probably a good thing for them, since this type of bundling has previously been suspect of foul play. But the incentive for the car dealer is to play on the fears created by the hype of "record high gas prices" noted by every single newspaper in the country.

3/28/2004 08:22:51 AM
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BY Dragos

Here is an interesting reading for the weekend about Shell's overestimating its oil stock with direct implications on their forecasted revenues and consequently the share prices. It was a bit of a scandal as such, especially that there is this temptation for making comparisons about corporate scandals from US and Europe (or Enron, Tyco, WorldCom vs. Parmalat). Nevertheless I cannot see Shell falling into this category. Firstly because this story looks more like one about poor management rather than about unethical behavior for financial fraud. Secondly, the money routing in case of a fraud would have been more difficult to be made, due to the European bureaucracy when reporting financial statements. On top of that Shell has an unique corporate structure coming from its more than a 100-year history. That means they donot even have a typical European governance structure label, it is more complicated. Of course anything may be posible in these circumstances but I just can't see it as a case. Yet.

3/27/2004 07:04:45 AM
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BY Ian

Seen on a sign for mortgages in a Citibank branch:

"Rates will continue to fall! Lock yours in now!!"

Should we worry that the message was written with true conviction, or respect a rather "hiding in plain sight" attempt to exploit people who have trouble with Bayesian updating?

3/27/2004 03:07:09 AM
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BY Kevin

AP, CNN, Bloomberg, Reuters and everybody else is reporting that consumer spending (personal consumption expenditures) increased by 0.2% in February compared to January.

Of course no margins of error are given along with the estimates; the reporters could not provide them even if they wanted to, since the BEA does not expend national resources on constructing sampling or nonsampling errors for their national product estimates. (No estimates are to be found in the monthly news release or in the methodology papers, although Allan Young did look at changes between revisions of quarterly estimates of GDP.). However, the godfather of national income statistics, Simon Kuznets, did begin to construct margins of error in his National Income and its Composition. I quote Oskar Morgenstern in his fabulous On the Accuracy of Economic Observations:

Kuznets distinguished three groups of industries according to the relative margins of error judged to be present in their estimates. First, with a margins of error well below 15%..., were the basic manufacturing industries and public utilities--electric light and power, steam railroads, street railways, telephone, telegraph; second with margins of error of about 15 percent but well below 30 percent, were agriculture, mining, manufactured gas, pipe lines trade, banking, insurance, and government--industries for which information was extensive but not complete; and third were industries with an error margin of about 30 percent and higher--construction, water transportation, real estate, direct service industries....

The weighted margin of error for the estimate of national income was found to be about 20 percent... However, Kuznets felt that this figure was exaggerated.... As a result, Kuznets infers that an average margin of error for national income estimates of about 10 percent would be reasonable. (pages 254-255)

With this in mind as an upper bound, note that both Bloomberg and Yahoo report that forecasters' median estimate of personal spending was a 0.4% increase. In their conventional stories, this estimate is built into market expectations, and a resulting official statistic 0.2% higher than the median forecast drives market participants to rant about "volatility" and other terrifying market outcomes.

However, a difference of 0.2% growth in personal spending between median forecast and official point estimate is absolutely and completely meaningless in the light of a 10% (or even a 1%) margin of error in the levels. To state that a median forecast was 0.2% higher than a point estimate is equivalent to saying that the forecast could be too high or too low--we don't know which with any degree of certainty.

So, should markets be affected at all? Or are these data utter nonsense?

UPDATE: Roy H. Webb, at the Richmond Fed, might diagree with me:

One should not conclude that GNP estimates are more unreliable than other economic figures. On the contrary, GNP and related statistics are probably our best single source of economic data. The point is simply that even the best data can be misleading, especially when considering changes over intervals as short as one quarter. Therefore one should not place too much emphasis on short-term movements of economic data without carefully searching for hidden anomalies.

Though national accounts are perhaps the most useful data, they certainly aren't the most accurate.

3/26/2004 11:11:59 AM
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BY Bob

Hello everyone, I would like to thank Kevin for offering the invitation to post here at Truck & Barter. My name is Bob Arne. Currently, I'm a student at Claremont Graduate University working on a Ph.D. in Economics. This is my first year here after working as a trader in Chicago, Europe and recently from home in SoCal. My interests primarily lie in finance, markets, trade and institutions. As you would likely find better and much more successful traders than myself, I will leave it to other places, such as Thestreet.com, to cover the subject, but I do find many of the issues surrounding the industry to be fascinating. Five years ago, people were fretting the development of a 24 hour global exchange. Didn't quite happen as some people predicted, it turns out that most people like to invest locally. This, like many things in economics, will turn out to be long process, but there are signs that such a marketplace is developing(it already exists in some markets).

In addition, I feel obliged to cover China and Asian developement. We have some strong profs in this area at the Claremont Colleges, plus, I know people doing business in the region who are either getting fat or like to complain about what a pain in the ass it is. Speaking of which, look for a few posts on private equity/LBO shops, an area not covered too often in the blogosphere except for some about venture capital. There's a Wal-Mart story in there somewhere.

Some people may be wondering about the recent events here at Claremont, frankly, others have covered it enough. However, there is a post on some of the underlying friction at Claremont McKenna. It will have to wait as I have stuff due tommorrow.

3/24/2004 08:08:18 PM
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