The Real Debate

The race for the white house is drawing to a close, and though there have been different issues being thrown around, all will agree that the most important topic for the next US president is the economy. Hence, even though your attention might be drawn to other more interesting but irrelevant issues, the real debate should be on the economy.

Amazing Science: Scotch Tape and X-rays

What is the relation between the two? Answer: Scotch tape can create X-rays!

In the current issue of the journal Nature, Dr. Putterman and his colleagues report that surprisingly fierce flows of electrons were unleashed as the tape was unpeeled and its gooey adhesive snapped free of the surface. The electrical currents, in turn, generated strong, short bursts of X-rays — each burst, about a billionth of a second long, contained about 300,000 X-ray photons.

Who is Voting for Obama?

Some answers may surpise you:

So a canvasser goes to a woman's door in Washington, Pennsylvania. Knocks. Woman answers. Knocker asks who she's planning to vote for. She isn't sure, has to ask her husband who she's voting for. Husband is off in another room watching some game. Canvasser hears him yell back, "We're votin' for the n***er!"

Woman turns back to canvasser, and says brightly and matter of factly: "We're voting for the n***er."

That Looks Awesome!

Topology is fun! The videos below demonstrate this fact

Turning the Sphere Inside Out:




The Klein Bottle:

You had a Bad Day

Brokers with Hands on their Faces

And don't forget about George!

Intrade is Being Manipulated

Currently, the prices trading at Intrade:

Obama 83.4% of winning the election

McCain 16.1% of winning the election

However, not too long ago, Obama didn't have such a comfortable lead at Intrade. In fact, Intrade predicted a very close election, unlike other prediction markets which favored Obama. This caused some speculation that the traders at Intrade were pro-Republican. Now it is clear that McCain's winning probabilities were boosted by one particular trader:

An internal investigation by the popular online market Intrade has revealed that an investor’s purchases prompted “unusual” price swings that boosted the prediction that Sen. John McCain will become president.

Over the past several weeks, the investor has pushed hundreds of thousands of dollars into one of Intrade’s predictive markets for the presidential election, the company said.

“The trading that caused the unusual price movements and discrepancies was
principally due to a single ‘institutional’ member on Intrade,” said the company’s chief executive, John Delaney, in a statement released Thursday. “We have been in contact with the firm on a number of occasions. I have spoken to those involved personally.”

As you might guess, as much as this trader loves McCain, other more rational traders saw an opportunity to make money by selling McCain, and buying Obama. It didn't take long for Intrade to display the "true" probability of Obama winning.

It looks like its going to be a landslide!

The picture below shows the predicted distribution of electoral college.

5000 visitors!!!

Small milestone!! I am ecstatic!

James Heckman on Obama

Link

I do not think it's class warfare [Obama's economic policies], I think it's empirical economics. The real issue is the empirical content of the supply side economics dogma. It's pretty threadbare. The "real business cycle" theory is simply inconsistent with empirical evidence. That does not prevent it from being taught as gospel to students (it's really gospel not empirical evidence). I would first and foremost talk to Ray Fair (Yale) and Mark Watson (Princeton) about the evidence for the supply side model. What is ironic is that those who preach supply side practice a crude version of Keynesian economics that ignores all of those incentive effects claimed to be so important by the supply side theorists. The real question apart from the current turmoil is the longer run. Denying the value of investment in knowledge;in infrastructure;in basic science and education at all levels has been and will continue to be harmful to our long run health. In my mind Obama's eyes are fixed more on things that will improve the US economy in the next century. The basic data on the current crisis is still being revealed, but it's clear that the absence of serious regulatory oversight contributed mightily to the current problems. It's not class warfare; its about a future-oriented society.

What am I reading: Poincare's Prize

This semester, I'm taking a course on topology, just for fun. Hence, I've grown more and more interested in stories about mathematicians who work in the field of topology, and no tale is grander than the race to prove the Poincare Conjecture!

Math enthusiasts will know that it is no longer a conjecture, but a theorem now. It was finally proven for n=3 by Grigori Perelman, an odd Russian genius who chose seclusion and anonymity over fame and glory. The book "Poincare's Prize" is full of stories about mathematicians who succeeded in proving the conjecture for certain dimensions (Smale proved n>4, and Freedman proved n=4), and others who spent the better part of their lives searching for one.

As if the writing wasn't enough, the lives of these mathematicians keep the reader engaged. The story of some of these mathematicians will bound to make the reader smile (people like Stephen Smale), some will evoke unlimited sympathy (all those who failed to find a proof), some will leave the reader angry (like Yau Shing Tung), and finally there is one person who will force the reader to imagine the unconstrained capabilities of the human mind, and that person is Grigori Perelman.

Perelman is the shining star of the book, his ultimate triumph and his withdrawal from mathematics and the media's attention not only makes for a potential Hollywood movie, but also forces the reader to think about the meaning of accolades and prizes, more importantly to ponder the underlying drive to find truth.

Below are some pictures of Perelman, taken by a person who spotted him on the subway in Moscow.

Paul Krugman Wins Nobel Prize

As titled

I do not understand alot about internation economics beyond the concept of comparative advantage. However, everyone thinks that the award is well deserved.

However, I am surprised that he won the prize alone, despite the fact that there were serveral other economists who were instrumental in the development of the modern trade theory. People like Dixit, Helpman, and others. Bhagwati is very deserving too!

More Nobel Predictions

Thomson Reuter's Predictions

Again, a very very strong list! Armen Alchian is 94 years old, I think. He definitely deserves it!

In light of the financial crisis, a large portion of economists think that Richard Thaler and Robert Shiller are short listed, another portion feels that the institutionalists will win, people like Armen Alchian, Oliver Williamson, Jean Tirole, Oliver Hart, Gene Grossman, John Moore. The first two are the founders of the New Institutional Economics, while the last three have been instrumental in developing the incomplete contract theory, and Jean Tirole is just a genius in the field who will be recognized sooner or later.

By bet is still on Eugene Fama, Kenneth French and Richard Thaler, but if Oliver Williamson or Armen Alchian wins, I'd be very very happy too!

The Divide Among Multi Handed Economists

Something has always bugged me. It seems too irresponsible and naive to classify economists by the usual left versus right argument, or intervention versus non-intervention. Instead, Paul Romer gives us an alternate and better way of dividing economists (via Greg Mankiw):

Debate among economists about the $700 billion Paulson plan reveals a deep divide between realists and fundamentalists.

To be more specific:

The financial crisis provoked three open letters to policy makers. Fundamentalists opposed the plan. Realists supported the plan or supported more discretionary powers for dealing with the crisis without endorsing any specific plan.

A quick look through the lists of economists who signed the various letters shows that the camps do not separate cleanly along the familiar lines of left-versus-right or active-versus-limited government. The key difference lies in the relative weight each side gives to formal models as opposed to judgment.

Fundamentalists have an unswerving faith in models. Policies should always be derived from the best available model. Data should be filtered through a model. If an observation does not fit within the context of a model, it should be excluded from consideration.

Realists are more conscious of the limits of models and more comfortable with a division of labor between the researcher who improves the models and the clinician who makes policy decisions. They recognize that the power of models comes precisely from a commitment to abstraction that filters out potentially important complexity. They believe that useful evidence can accumulate with direct experience as well as through the research process of testing and refining models. They believe that researchers should consider the possibility that the fault lies with the model when its predictions diverge from clinical judgment and that policies should draw on both sources of evidence.

Well, so who is right!? The answer is not clear:

Many times, the confidence fundamentalists have had in abstract models turned out to be well founded and the objections raised by realists who were more focused on details were misplaced. The fundamentalists were right that an airline industry could still function even if airlines could set their own fares; that people could still talk to each other even if they purchased phone service from different companies. The realists pointed to all the complicated details that arise in such markets, details that simple models could not capture. Fundamentalists, correctly, ignored the detail and pushed prescriptions based on the textbook model of competition.

Other times, the models are missing something that is too important. In the study of macroeconomic fluctuations, real business cycle theorists and their descendants, the dynamic stochastic general equilibrium modelers, are the quintessential fundamentalists. Their models are a useful way to make research progress, but in macroeconomic policy making, the great depression, which these models cannot explain, is a decisive data point warning us that the models are incomplete and have to be supplemented by clinical judgment.

In my humble opinion, a level of abstraction is important for economics. There are a plethora of variables that affect an economic outcome, and the relationship between each variable is also too complicated to trace. Economic models are important for policy makers who wish to make decisive and quick judgements on the issues at hand. A model that is too complicated shadows the one or two variables that are truly important for making the right decisions. In other words, abstract models allow economists to focus on the things that matter.

However, economic models are inherently different from the real economy. Though the models are quite right under certain given conditions, changes in the environment that is ignored by the models can lead to incorrect predictions. As a result, on the other hand, economists also have to be wary of the limitations of these models. For too long, financial economists have downplayed the role of default risks, and risk managers have thus focused too much on market risks, leading to an underestimate in the amount of risk their assets are exposed to. The primary reason for this is their belief in models.

As to the 700 billion bail out plan... I have no idea whether or not it is a good idea. But to rejuvenate the economy with a large dose of liquidity is a good thing, and probably the only way to reignite the confidence in investors again. The question though, is how should we use this 700 billion dollar wisely? Where does this money go and how?

Debunking conventional wisdon: China's Pollution

A surpising new finding:

A detailed analysis of powerplants in China by MIT researchers debunks the widespread notion that outmoded energy technology or the utter absence of government regulation is to blame for that country's notorious air-pollution problems. The real issue, the study found, involves complicated interactions
between new market forces, new commercial pressures and new types of governmental regulation.

........ One of the most surprising findings was that "the kinds of technology currently being adopted in China are not cheap. They're not buying junk, and in some cases the plants are employing state-of-the-art technology."

And furthermore, Joe Biden was right about China burning dirty coal:

The findings suggest that emissions levels from Chinese powerplants, he said, "depend almost entirely on the quality of the coal they use. When they're hit by price spikes, they buy low-grade coal."

But there is hope!:

In some respects, the situation is more amenable to change than many people had assumed, Steinfeld said. With expanding regulatory capacity and increasingly sophisticated efforts to regulate through market-friendly pricing mechanisms, reformers could achieve change relatively quickly, he said. "At least the technology -- the physical infrastructure of China's energy system -- is not an impediment," he said. Indeed, it can ultimately prove a key asset for achieving better environmental outcomes.

That is what I call a bargain!

A woman buys a house on eBay for $1.75

I guess things are really bad right now.

If the world were allowed to vote....

If the whole world were allowed to vote for the president of the United States, Obama would win hands down! The only country that is leaning for McCain is Macedonia.

Taiwan supports Obama 78% to 22%, while China supports Obama 81% to 19%.