Saturday, February 27, 2010

Some Hollywood Facts I learned yesterday at the Lusk Rena Sivitanidou Research Symposium

From Elizabeth Currid Halkett I learned that the two most strongly connected cities (in terms of propensity to show up in Getty Images) are LA and New York, with LA and London second.

From Michael Storper (UCLA), I learned that while film production is increasingly outsourced, creative film talent is increasingly concentrated in LA.

From Matt Kahn I learned that movie stars get no more when they sell their houses than anyone else.

I will report on non-Hollywood related issues later.

Thursday, February 25, 2010

Yesterday's lousy new home sales number and the supply effect

New homes available for sale are at their lowest level since 1971.

The data come from

Population in the US in 1971 was about 2/3 the current population. Maybe nothing is selling because there is nothing to sell. It is hard for me to see how construction doesn't make a come-back this year.

Wednesday, February 24, 2010

Today's New Home Sales number...

...was awful. But it may be a supply effect as well as a demand effect. The gap between a used home and the cost of building a new home is large, meaning that people would rather pick something up in the used market. And in the spec market, builders have not built much of anything recently, meaning that the new stuff available for sale is quite low.

Just a thought...

Tuesday, February 23, 2010

The banality of Mitch McConnell

I heard him on NPR this morning saying we need to cut taxes more. Here are all federal revenues as a share of GDP going back to 1995:

1995 0.183
1996 0.185
1997 0.190
1998 0.196
1999 0.195
2000 0.208
2001 0.198
2002 0.174
2003 0.160
2004 0.158
2005 0.175
2006 0.180
2007 0.187
2008 0.178
2009 0.148
2010 0.148

The Bush Tax cuts pushed revenue down by about 20 percent relative to GDP; the recession has pushed them down another 7 or 8 percent. The American people like their spending (any reduction in entitlements or defense spending elicits howls. And the American people are not particularly greedy about what they want from their government--relative to other OECD countries, our social safety net is pretty small. At the same time, the average tax burden in the US relative to GDP is about 3/4 of the average tax burden for the OECD.

So, Senator McConnell, if you really think taxes are too high here, what would you cut? Don't tell me waste and fraud.

The brilliance of FDR

He made us confront our problems while making us feel good about ourselves:

But here is the challenge to our democracy: In this nation I see tens of millions of its citizens—a substantial part of its whole population—who at this very moment are denied the greater part of what the very lowest standards of today call the necessities of life.

I see millions of families trying to live on incomes so meager that the pall of family disaster hangs over them day by day.

I see millions whose daily lives in city and on farm continue under conditions labeled indecent by a so-called polite society half a century ago.

I see millions denied education, recreation, and the opportunity to better their lot and the lot of their children.

I see millions lacking the means to buy the products of farm and factory and by their poverty denying work and productiveness to many other millions.

I see one-third of a nation ill-housed, ill-clad, ill-nourished.

But it is not in despair that I paint you that picture. I paint it for you in hope—because the nation, seeing and understanding the injustice in it, proposes to paint it out. We are determined to make every American citizen the subject of his country’s interest and concern; and we will never regard any faithful law-abiding group within our borders as superfluous. The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.

If I know aught of the spirit and purpose of our Nation, we will not listen to comfort, opportunism, and timidity. We will carry on.

Overwhelmingly, we of the Republic are men and women of good will; men and women who have more than warm hearts of dedication; men and women who have cool heads and willing hands of practical purpose as well. They will insist that every agency of popular government use effective instruments to carry out their will.

Government is competent when all who compose it work as trustees for the whole people. It can make constant progress when it keeps abreast of all the facts. It can obtain justified support and legitimate criticism when the people receive true information of all that government does.

If I know aught of the will of our people, they will demand that these conditions of effective government shall be created and maintained. They will demand a nation uncorrupted by cancers of injustice and, therefore, strong among the nations in its example of the will to peace.

If this is happening, the Administration is Pretty Clever

I heard a real estate investor this morning claim that as banks are making profits because of the spreads over their cost of money, regulators are forcing them to liquidate bad assets and realize the losses. If this is really going on, somebody really smart is behind the idea.

Is this growing up?

I still like to listen to records. For years, I have had a British Belt Drive Turntable--a Linn Sondek LP12. When it worked, it sounded great, but it was extremely fussy, and repairs for it were astronomically expensive.

I now have a Technics 1200Mk2. I will stipulate that it does not sound as good as a Linn, but it sounds quite good to my aging ears--and it works all the time. So instead of spending time tweaking my turntable, I am spending time with family and friends--and actually listening to music.

Tuesday, February 16, 2010

Environmental Regulation can Leave the Economy Better off (h/t Elizabeth Vivian)

From the EPA:

The direct benefits of the Clean Air Act from 1970 to 1990 include reduced incidence of a number of adverse human health effects, improvements in visibility, and avoided damage to agricultural crops. Based on the assumptions employed, the estimated economic value of these benefits ranges from $5.6 to $49.4 trillion, in 1990 dollars, with a mean, or central tendency estimate, of $22.2 trillion. These estimates do not include a number of other potentially important benefits which could not be readily quantified, such as ecosystem changes and air toxics-related human health effects. The estimates are based on the assumption that correlations between increased air pollution exposures and adverse health outcomes found by epidemiological studies indicate causal relationships between the pollutant exposures and the adverse health effects.

The direct costs of implementing the Clean Air Act from 1970 to 1990, including annual compliance expenditures in the private sector and program implementation costs in the public sector, totaled $523 billion in 1990 dollars. This point estimate of direct costs does not reflect several potentially important uncertainties, such as the degree of accuracy of private sector cost survey results, that could not be readily quantified. The estimate also does not include several potentially important indirect costs which could not be readily quantified, such as the possible adverse effects of Clean Air Act implementation on capital formation and technological innovation.

One of the foundations of Meg Whitman's gubernatorial campaign is the gutting of California's environmental laws. Anyone who remembers what LA was like before the Clean Air Act will have to wonder whether this is a good idea.

Monday, February 15, 2010

An Update on my Sunk Cost Paper with Rosenblatt and Yao

In the earlier version, we found that Loan-to-Value at origination predicted default probability, even after controlling for market-to-market (i.e., contemporaneous) LTV. We now find that the results are robust to whether we look at LTV at origination, dollar amount of the down-payment, or down-payment relative to income. This is consistent with prospect theory--borrowers show aversion to [realizing the loss] on their down-payments, even when walking away seems to make sense financially.

The paper is on SSRN.

[Thanks to Tstockmann for more correct wording on prospect theory].

Sunday, February 14, 2010

Friday, February 12, 2010

Useless (but fun) fact of the day

The densest zip code in the US is on the Upper East Side of New York, with a density of about 580 people per hectare. Metropolitan Mumbai has a density of about 400 people per hectare (h/t/ Alain Bertaud). But the UES is filled cheek-by-jowl with high-rises. Mumbai is not.

Some facts from Thad Kousser on California

I went to a very nice talk by Thad Kousser (UCSD) yesterday on whether California is "ungovernable." Some of the takeaways I got (and if I screwed any of this up, it us my fault, not Thad's):

(1) The California legislature really has gotten more polarized over the years.

(2) The people of California have not.

(3) Politically, California has changed from a North-South state (D's north and R's south) to a West-East state (D's west and R's east).

(4) For non-budget legislation, California actually is governed quite well.

(5) For budget legislation, it is not.

(6) The difference is that the budget requires 2/3 approval, whereas other types of
legislation only requires a majority.

(7) The 2/3 rule is not a Prop-13 phenomenon--it has been around since the 1930s.

Tuesday, February 09, 2010

Housing and the Macroeconomy in India

Some years ago, I wrote a paper that showed how housing construction in the United States led the business cycle. The paper included a large number of econometric specifications (detrended levels, first differences, error correction, etc.), and the finding was robust to all specifications: residential investment Granger caused GDP.

For the Jackson Hole conference two years ago, Ed Leamer did a similar exercise, and found that the results held up: indeed the title of his paper was "Housing is the Business Cycle." An interesting question, then, is whether the result holds for other countries.

For at least one other, it appears not to. One student of mine from Wisconsin, Shampa Bhattacharya, performed the exercise for India, and could not find a relationship between housing and GDP. Another student of mine from India School of Business, Katyayini Krishnamoorthy, updated Shampa's work with fresh data and found the same thing.

The difference in results may reflect the fact that Indian data has lower frequency than US data (it is annual instead of quarterly), but it was striking how they got absolutely nothing. Among other things, it means that in India housing is not an effective transmission mechanism for monetary policy. This may have something to do with the fact that housing finance in India is not well developed--a fact that may have kept that economy out of trouble over the past few years. I will be posting more about this soon.

Ugliest sentence I have seen in a long time.

I wake up this morning to an email with this following sentence:


Friday, February 05, 2010

Sunk Costs and Mortgage Default

A paper with Eric Rosenblatt and Vincent Yao. The abstract:

In this paper, we estimate default hazard functions that include standard variables along with borrowers sunk cost: i.e., down payment at loan origination. After testing large numbers of specifications, we find that after controlling for mark-to-market loan-to-value, initial combined loan to value remains an important predictor of default. We also find, contrary to Guiso, Sapienza and Zingales, that there is not a specific point at which one observes a discontinuous default probability, but that it is rather that default is smooth in mark-to-market LTV.

Wednesday, February 03, 2010

Paul Goldberger on Dubai

The architecture critic writes:

The Burj Khalifa, like most super-tall skyscrapers, looks best from afar, and, certainly, it can’t do much to mitigate the real horror of Dubai, which isn’t the fact that most of the towers look gaudy on the sky line but that they are wretched at street level. This is a city that has grown with utter hostility to the idea of the street. The main commercial thoroughfare, Sheikh Zayed Road, lined with skyscrapers, is a twelve-lane highway. It’s impossible to get anywhere here without a car, and there is no place to walk except inside a mall. The city is completing a transit system, and there are some strikingly handsome, glass-enclosed elevated stations, but it is an idealized version of a Western-style metro, dropped onto an urban plan designed solely for the automobile; it’s hard to believe that it will make much difference. The biggest group of pedestrians I saw in five days was on the promenade outside the Dubai Mall, where people gather to look across an artificial lagoon at the Burj Khalifa while watching fountains dance to Middle Eastern music. To them, the Burj is a backdrop for a show.

I couldn't say it better myself.