Kevin Drum

Quote of the Day: Dying As You Lived

| Mon Aug. 16, 2010 10:40 AM EDT

From Keith Humphreys, riffing on the question of whether notorious atheist Christopher Hitchens, who was recently diagnosed with cancer, is likely to have an end-of-life religious conversion:

For about eight years, I was a hospice volunteer, and had the honor to attend many people throughout their dying process. One of the most reliable rules was that people died as they had lived. Happy people were happy at the end, crabby people were crabby, anxious people were anxious. The story of human personality development is largely one of continuity. Temperamental differences measured within an hour of birth predict temperament 20 years later, and people who win million dollar lotto prizes tend, within a year, to return to being precisely as happy or unhappy as they were before their big win....The best bet therefore for an atheist is that s/he will die an atheist, just as Baptists, Hindus, Jews and Mormons tend to face death with the same religious views they have always had.

I would ask you how you feel about this passage, but I figure your reaction probably depends on your temperament and is therefore preordained. But what the hell. Go ahead and tell us anyway.

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GZM Goes National

| Mon Aug. 16, 2010 10:09 AM EDT

The New Black Panther story never really took off. Shirley Sherrod disappeared from the news after a few days. Birthright citizenship seems to be sliding back under the rock it came from. Thank God, then, for the Ground Zero mosque, which National Journal informs me went "national" while I was gone this weekend:

Until Friday night, the controversy over a proposed mosque near the site of the World Trade Center in NYC was a phenomenon of cable news networks, an obsession in the narrow I-95 corridor. Then, Pres. Obama weighed in.

....House Min. Leader John Boehner signaled GOPers would press the issue in a Saturday statement in which he called both the mosque itself and Obama's reaction "deeply troubling." If Boehner's saying it, most House GOPers will follow suit.

— Associating Obama with the mosque is less geared toward influencing the midterm elections than it is about undermining Obama's hopes in '12. GOPers' goals in '08 were partly about making Obama seem like the "other," and criticism during his first term has focused on his efforts at building international cooperation. In a time of economic angst, voters tend to focus inward, and appealing to the international community leaves Obama open to GOP attacks, fair or unfair....Expect Dem candidates across the country to be forced to choose between their president and the GOP's position.

Meanwhile, over in the New York Times, following in the footsteps of giants, Ross Douthat puts a sophisticated conservative sheen on this latest bout of hysterical bigotry. Aside from the complete lack of actual evidence for anything he says, I especially like his endorsement of both "fair means and foul" to make sure newbies get the message that they need to toe the WASP line. That's a nice touch.

Friday Cat Blogging - 13 August 2010

| Fri Aug. 13, 2010 1:56 PM EDT

The first thing Domino did when we brought her home from the shelter three years ago was hop into a bookcase. This is a little harder now than it used to be because she's a little bigger and the space in the bookcases is a little smaller, but she still manages from time to time. So here she is on Wednesday reliving the glory days of her youth. On the right, Inkblot has decided to steal her favorite spot of morning sunshine underneath the skylight at the top of the stairs, and he's feeling pretty smug about it.

As for me, I'm heading to the airport to spend the weekend in 90-degree weather in northern California. In the meantime, courtesy of my sister, here's some Friday Gorilla Blogging, starring Bawang, Bawang's adopted daughter, and a Nintendo DS. And also, a....

HOUSEKEEPING NOTE: We're upgrading our comment system (yay!), so comments will be turned off later today. Details here. I'm not quite sure exactly when they'll be back on, but Monday morning for sure unless something goes catastrophically wrong. See you then.

The Collapse of Lehman Brothers

| Fri Aug. 13, 2010 1:46 PM EDT

Why did Lehman Brothers collapse so quickly when their reported financial condition a week before had actually been fairly decent? Answer: because they were lying about their financial condition. Economics of Contempt has now read the entire 4000+ page (!) report written by the court-appointed examiner after Lehman's collapse, and it turns out that at the time they were reporting a $32.5 billion liquidity pool they actually had, at most, a $2.5 billion liquidity pool:

Earlier in 2008, Lehman's two main clearing banks, JPMorgan and Citi, started requiring Lehman to collateralize its intraday exposures....Lehman reluctantly agreed, but requested that the banks release the collateral at the end of each day. Why did they care if the banks released the collateral every night if it just had to be posted again the next morning? Because Lehman calculated its reportable liquidity at the end of each day, and if the clearing-bank collateral was released at the end of each day, Lehman considered it part of the "liquidity pool." By the end, roughly $19bn of the $32.5bn liquidity pool consisted of clearing-bank collateral.

In no functional sense was the clearing-bank collateral "unencumbered" — if Lehman requested the collateral back, JPMorgan and Citi would have at the very least required them to pre-fund their trades (which Lehman didn't have the cash to do), and more likely would have just stopped clearing their trades. People at Lehman admitted as much to the Examiner. And once a broker-dealer's clearing bank stops clearing its trades, the broker-dealer is finished. Including the clearing-bank collateral in its liquidity pool was not only inappropriate, but also aggressively deceptive.

Without liquidity — real liquidity, which means money that Lehman could get to within a day — Lehman was doomed. But they refused to report their true liquidity situation, and when their funders started dropping out they went bust almost instantly. This is one of the reasons why the obscure topic of the "net stable funding ratio," which is part of the Basel III negotiations, is important. More on that here.

The Price of CAPTCHA

| Fri Aug. 13, 2010 12:56 PM EDT

Via Alex Tabarrok, here's a fascinating little paper about the offshore industry that's grown up around the business of solving CAPTCHAs, those annoying distorted pieces of text that commenting systems often require you to solve before you're allowed to leave a comment. The idea is to eliminate machine-based spam, but it turns out that it's so cheap to pay people to solve them that it's hardly worth bothering with algorithmic hacks at all. CAPTCHAs, say the authors, "can increasingly be understood and evaluated in purely economic terms; the market price of a solution vs the monetizable value of the asset being protected. We examine the market-side of this question in depth, analyzing the behavior and dynamics of CAPTCHA-solving service providers, their price performance, and the underlying labor markets driving this economy."

And just how much does it cost to employ banks of computer serfs to do this work? Surprisingly little! The table below shows the going rates per thousand CAPTCHAs solved.

Chart of the Day: Oil Shocks

| Fri Aug. 13, 2010 12:03 PM EDT

James Hamilton has argued in the past that the spike in oil prices in 2007-08 can almost explain the ensuing recession all by itself. I doubt this is really the whole story, but I think it's been an underrated argument — and I think the historical impact of oil shocks in general has been underrated too. Today, Ryan Avent points to a 2009 paper by Hamilton where he quantifies things, and the chart on the right comes from that paper. It shows, roughly speaking, what happens to consumer expenditures when oil prices go up enough to reduce consumer income by 1%. The model Hamilton uses suggests a maximum response of 1.7%, but in reality it's bigger than that:

Following a decline that eventually would have reduced consumers’ ability to purchase non-energy items by 1.7%, we observe that on average consumers in fact eventually cut their spending by 2.2%. Why should consumption spending fall by even more than the predicted upper bound?

....One way that Edelstein and Kilian sought to explain these anomalies is by breaking down the responses in terms of the various components of consumption....The magnitude of the first two responses is in line with the simple expenditure-share effects, while the response of expenditures on durable goods is five times as big.

The first panel of Figure 16 looks in particular at the motor vehicles component of durables....Here the response is immediate and quite huge, with for example a 20% increase in energy prices in an environment with an energy expenditure share of 5% resulting in a 10% decrease in spending on motor vehicles. That there would be a direct link between such spending and energy prices is quite plausible.

To simplify then: oil prices go up, people stop buying cars, and that has a huge knock-on effect on the rest of the economy. Something to keep in mind before you buy stock in GM or Chrysler during the current period of (relatively) low oil prices. Those low prices might not last forever, after all.

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Quote of the Day: The End of Antibiotics?

| Fri Aug. 13, 2010 11:03 AM EDT

From Cardiff University professor Tim Walsh on the spread of a newly discovered gene called NDM 1 that makes a wide variety of bacteria antibiotic-resistant:

In many ways, this is it. This is potentially the end. There are no antibiotics in the pipeline that have activity against NDM 1-producing enterobacteriaceae. We have a bleak window of maybe 10 years, where we are going to have to use the antibiotics we have very wisely, but also grapple with the reality that we have nothing to treat these infections with.

That's from the Guardian, which reports that if the worst happens and we fail to find replacement antibiotics, transplant surgery will become virtually impossible, removing a burst appendix becomes a dangerous operation once again, pneumonia and tuberculosis come roaring back qas killers, and gonorrhea becomes hard to treat.

But then again, maybe we'll find some replacements. All those gene sequencing breakthroughs we've been hearing about have to be good for something, don't they?

(Via James Joyner.)

The Gift Card Activation Scam

| Fri Aug. 13, 2010 10:46 AM EDT

I guess I lead a sheltered life or something, but I didn't know about this:

Los Angeles resident James Myers stopped by a Target store in Culver City recently to buy a $25 gift card. Easy, right?

Not so much, it turns out. Inspecting his receipt, Myers discovered that he'd been charged $29 for the transaction. He was told that the price included a $4 "activation fee."

....Target isn't the only gift-card provider to charge an activation fee. American Express, for example, charges up to $6.95. Visa gift cards can come with activation fees of up to $5.95.

That's from LA Times consumer columnist David Lazarus, who notes that not only is $4 outrageously high for swiping a piece of plastic and pressing a couple of keys, but "the company offering the gift card already benefits in other ways." Like, say, taking in money now and getting to keep it until the gift card is used. Or the fact that some gift cards get lost and never redeemed at all. But enough is never enough, is it?

By the way, in the same column Lazarus reports that Wells Fargo and Bank of America have no intention of changing their habit of reordering debit card transactions even though Wells was just fined $203 million for doing it. "Say this about big banks," Lazarus writes, "They're persistent."

Every Click You Make

| Fri Aug. 13, 2010 5:00 AM EDT

Last week the Wall Street Journal ran a terrific series of stories called "What They Know." The general subject was personal privacy—or the lack of it—in the digital world, and the first article in the series explained how websites routinely track your movements on the web and collect a genuinely astonishing amount of personal information about you in the process. The Journal examined 50 sites using a test computer and discovered that these sites collectively installed a total of 3,180 tracking files—an average of 63 tracking files per site:

The state of the art is growing increasingly intrusive, the Journal found. Some tracking files can record a person's keystrokes online and then transmit the text to a data-gathering company that analyzes it for content, tone and clues to a person's social connections. Other tracking files can re-spawn trackers that a person may have deleted.

....Some of the tracking files identified by the Journal were so detailed that they verged on being anonymous in name only. They enabled data-gathering companies to build personal profiles that could include age, gender, race, zip code, income, marital status and health concerns, along with recent purchases and favorite TV shows and movies.

A full list of the sites they examined is here. The most intrusive were dictionary.com and msn.com, which installed over 200 tracking files each. The least intrusive were craigslist.org and wikipedia.org.

What to do about this? Europe, which generally has better rules than the U.S. regarding the collection and use of personal data, actually has tighter regulations about how long online data should be stored. After all, the local police might want to use it someday. The Christian Science Monitor reports that this is finally provoking a reaction:

Across Europe, a backlash against the storage of private data is growing. Civil society groups like the European Federation of Journalists have criticized the practice, and in Germany almost 35,000 people, including Justice Minister Sabine Leutheusser-Schnarrenberger, sued their own government over the issue.

"There is a real problem in Europe today. It is a breach of the European Convention on Human Rights, which says that everyone has the right to a private life. That fundamental right has to extend into digital life," says Christian Engström, a member of the European Parliament for Sweden's controversial Pirate Party, elected on a platform of digital rights.

This tension means that governments aren't always eager to restrict the collection of personal data online. Beyond that, though, there are technical difficulties for those who want to prohibit the practice. When Congress passed the Do Not Call law in 2003, their job was easy: everyone has a telephone number, and all you have to do is put those numbers into a database and tell solicitors not to call them. But there's no equivalent of a phone number in the digital world. Your computer's ID is its IP address, but most IP addresses change regularly. There's no way of creating a "Do Not Track" database and telling online solicitors to keep their tracking files away from everyone who signs up.

Alternatively, as Harlan Yu wrote recently, we could adopt the opposite approach: instead of asking users to register, we could require solicitors to register and then rely on browser settings that would prevent their domains from installing tracking files. Unfortunately, this has technical drawbacks as well, so Yu suggests instead a new standard that would allow your browser to notify every site you visit that you don't wish to be tracked:

The browser could enable x-notrack for every HTTP connection, or for connections to only third party sites, or for connections to some set of user-specified sites. Upon receiving the signal not to track, the site would be prevented, by FTC regulation, from setting any persistent identifiers on the user’s machine or using any other side-channel mechanism to uniquely identify the browser and track the interaction.

This would, of course, require legislation that requires online sites to honor the x-notrack request. That's the bad news. The good news is that whatever the eventual solution, the problem itself is finally getting some attention on Capitol Hill: Politico reported last week that Sen. Mark Pryor (D–AR) is writing a bill "aiming to give consumers more control over their online data....The focus of the bill, which is still in rough draft form, will be giving consumers the ability to opt out of being tracked across the Web." So stay tuned.

In the meantime, the Journal's full package of privacy articles is here, and they're well worth browsing through. It includes pieces that explain web tracking, cell phone monitoring, how much these tracking services know about you, the role of big companies like Google and Microsoft, and even advice on how to avoid tracking. You can't avoid it all, but there are things you can do to minimize it.

Scott Pilgrim vs. The Expendables

| Thu Aug. 12, 2010 3:58 PM EDT

So which movie will be the top grosser this weekend? In the red corner, we have Matt Zoller Seitz:

This weekend, "Scott Pilgrim" goes head-to-head with Sylvester Stallone’s 1980s-style, tough-guy action picture, "The Expendables," at the box office. ("Pilgrim" will win, trust me. Box office is driven by young viewers, and young viewers don't line up to see films starring 64-year-old men.)

And in the blue corner, Ben Fritz:

"The Expendables," directed by and starring Sylvester Stallone, has men of all ages excited to come to theaters this weekend, with pre-release surveys indicating it will sell about $35 million worth of tickets in the U.S. and Canada...."Scott Pilgrim vs. The World," based on a cult favorite series of graphic novels, has demonstrated only limited appeal among young men and is set to open to only about $15 million.

May the best man win. Which one are you planning to see?