Economists respond to incentives

October 29, 2010

Here’s my short take, following on Barbara’s post Wednesday, on economists:

1. The single most valuable and durable lesson of economics is that incentives matter. Monetary incentives don’t always matter more than other motivations, and sometimes people’s behavior regarding money is a little nutty. But as an organizing principle for a social science, incentives matter is pretty good.

Is all quantitative financial risk management bunk?

October 28, 2010

The comments to my post here last week on Benoit Mandelbrot were for the most part significantly more sophisticated than the post itself. So, since my days at Chez Felix are numbered, I thought I should avail myself of the brilliance of his commenters while I still can to ask a very basic question: Is the practice of quantitative financial risk management one big con job?

What Gretchen Morgenson is good for

October 27, 2010

New York Times business columnist Gretchen Morgenson is Terry Gross’s guest on Fresh Air today. I caught about ten minutes of the conversation while out driving this afternoon, and it reminded me of why I’m not a big fan of Gretchen Morgenson’s work. She’s just not very interesting to listen to, or read: Too flat, too broad-brush, too predictable, lacking in cleverness and nuance and curiosity. That’s why I’d take a Joe Nocera column (or a Felix Salmon blog post) any day over a Morgenson offering.

What’s really behind that $1.3 trillion deficit?

October 25, 2010

The Treasury Department reported on Oct. 15 that the deficit in fiscal 2010, which ended Sept. 30, was $1.294 trillion. That’s less than FY 2009’s $1.416 trillion, but it’s still really really big. Why is it so big, though? Is it because of all that stimulus and bailout spending? Or is something else going on?

Tim Geithner’s poor imitation of John Maynard Keynes

October 22, 2010

Tim Geithner has proposed to his fellow G-20 finance ministers that trade surpluses and deficits be capped at 4% of GDP. The idea is already running into criticism from countries that run big trade surpluses. German Economy Minister Rainer Brüderle warned against “planned economy thinking,” according to Reuters, and  “makroökonomische Feinsteuerung und quantitative Zielsetzungen” (macro-economic fine-tuning and quantitative target-setting), according to Reuters Deutschland. “We doubt whether rigid numerical targets should be set,” said Japanese Finance Minister Yoshiko Noda.

Tax incentives: Boeing 707 edition

October 21, 2010

I’m going to a book party at a bar in Newton, Mass. tonight (yes, life here in metropolitan Boston is unspeakably glamorous) for Sam Howe Verhovek’s Jet Age: The Comet, the 707, and the Race to Shrink the World. It’s a great little book—and I don’t think the fact that Verhovek’s brother is a friend of one my wife’s best friends from high school (the reason I was invited to the book party) invalidates my positive opinion. I brought a galley along on a flight West a couple months ago and, despite being alarmed by Verhovek’s accounts of exploding jet airplanes, couldn’t stop reading. I had finished it by the time I landed in Reno.

Some people really need organizations. Like Marty Peretz, for example

October 19, 2010

The Boston Globe has a Local-Boy-Made-Controversial story about Marty Peretz (it was in yesterday’s paper, but I just got around to reading it today). There’s nothing much new in it, but it got me thinking about the changing division of labor in journalism and how it hasn’t worked out equally well for everybody.

Apple’s day of earnings glory, iPad disappointment

October 19, 2010

Apple’s earnings announcement this afternoon was something of an epic event. First, the company reported making a staggering amount of money: $4.3 billion in profit for the quarter. Second, Steve Jobs got on the phone and was even more obstreperously entertaining than usual. Third, iPad sales for the quarter were a bit lower than hoped and Apple’s stock price dropped 6% in after-hours trading.

Why didn’t people in finance pay attention to Benoit Mandelbrot?

October 18, 2010

Mathematician Benoit Mandelbrot was not one of those great thinkers who was ignored in his own time. He won lots of prestigious prizes. He wrote acclaimed books. He even gave two TED talks.