Sunday, March 24, 2013

Rocks and Stones

Palm Sunday. Time to dig out the trusty Jesus Christ, Superstar  CDs.

Saturday, March 23, 2013

Take Off Your Rainbow Shades

As someone who still rebels at the OU/Texas game being media-branded as "The Red River Shootout"*, please allow me this personal question.....Who the heck in the 7th level of Sportswritng Hades has promoted the name "Zona" to stand for Arizona (see Illustrated, Sports, as well as PN,ES)? Granted that the stereotype of Arizona as full of Wisconsin and Iowa retirees in their Buicks and Winnebagos is not without validity (I can still remember my first church supper in Tucson: row after row of crunchy tuna-fish casseroles and not a decent plate of fried chicken to be seen), and granted that it's hard to imagine said Pasty-Americans as victims of ethnic slurs, it remains the case that "Zonies" was the California slur for Arizona visitors. They hated our cars, but boy did they like our money. But now that California has cemented it's position as "Cyprus on the Pacific," and Like Lucy and the Football, California sports media plays Charlie Brown to yearly fantasies that the next UCLA basketball dynasty is just around the corner, perhaps it is UCLA's descent into self-parody that leaves the West Coast sports media no choice but to resort to hurling  insults to a team that they have considered an interloper ever since, oh say about 1984 (catch the ceiling banners). Never forget: the opposite of a Zonie is a Californicator.

* Amazingly, to my knowledge no hack sports "journalist"has yet despoiled the simplistic beauty and symmetry of "Florida vs. Florida State."

Friday, March 15, 2013


People want two basic things: happiness and truth. The order in which we want these things determines  the rigor of our personal constitution. Here at Wise as Serpents we believe that, in the pursuit of truth, a person will find both in Christianity. Speaking to the truth of Christianity will need to wait for another post. A recent blog post on happiness from Professor Ryan Howell at the Your Morals blog is the focus du jour.

According to Howell, in his empirical research he found five important characteristics of a happy person. I will put into my own words in the bullet points but you can read the article here.

  • Wise Management of Money
  • Not Spending Money to Store up Stuff
  • Holding on to the Good, and Forgiving the Bad
  • Sharing in Joys and Sorrows
  • Living in Community with Others

These are central themes throughout the Bible and guidance on how to live a good and righteous life. The fact that humans find fulfillment in these simple actions should not be surprising to the Christian if we have a correct view of God. We are called to live a certain way by our creator, and, of course, we flourish when we live in the manner we were designed.

I will follow up with specific verses soon. Have a great weekend!

Thursday, March 14, 2013

Is the U.S. Government Trying to Make Perfect Competition Illegal?

One of the most important models in studying economics is the model of perfect competition. We teach it in Principles of Economics, in Intermediate courses, and in Masters' and Ph.D. graduate courses.

One of the conundrums of the model of perfect competition is as follows. If all economic agents (buyers and sellers; consumers and firms) are acting as "price takers" (the core assumption of the model of perfect competition), how are prices actually set? They can't be set by the buyers and sellers because they are, by the definition above, not able to set prices. Economists close this logical loop of the perfect competition model through an idea made popular by the famous French economist Leon Walras. Economists posit the existence of a professional "auctioneer" (often called the "Walrasian Auctioneer" after Walras) who calls out prices to the buyers and sellers. The price-taking buyers and sellers announce their intended purchases/sales at that price. If supply equals demand, the auctioneer declares that to be the market price. If it doesn't, the auctioneer tries again, raising the price if it was too low (excess demand) or lowering it if it was too high (excess supply). This process (called tatonnement) continues until the market clears.

One of the problems in motivating the Walrasian process is that there are few known examples in the real world. However, for years, the single example that gets cited (or at least asserted) is the London gold auction among European banks (the morning and afternoon "London gold fixings" that you will hear quoted on cable channels). I use this example in my classes, so imagine my surprise when the Wall Street Journal revealed this morning ("U.S. Probes Gold Pricing" page 1, March 14, 2013, but WSJ articles disappear behind a pay-wall) that the U.S. Commodities Futures Trading Commission (CFTC) is investigating the London Waslrasian gold auction for "manipulation".

So what could the CFTC be thinking? I think there are at least three possibilities.

1 ) The CFTC simply doesn't know what it's talking about. I'll explore this in more detail below.

2 ) Perhaps the CFTC believes that the participants were engaging in behavior outside of the auction that would manipulate the price. For example, if auction participants were secretly colluding to coordinate their messages in the auction, that activity would be illegal if carried out in the United States, and there are numerous examples of large and small corporations that have been caught in this type of price-fixing; I assume that this would also be illegal in the U.K.. Full Disclosure: There is nothing in the WSJ article that indicates the existence of any evidence of price fixing in this illegal sense on the part of the participating banks.

3 ) Perhaps the CFTC believes that the London gold market simply has too few participants to capture Walras' idea of competitive price-taking. The late Prof. Leo Hurwicz, a winner of the Nobel Prize in Economics, provided a mathematical model that showed that when the number of participants in a Walrasian auction was small enough and they had enough "market power," they might act in what would seem to be not in their own interest in one round of a Walrasian auction in order to help themselves in future rounds. However, another Nobel Prize winner, Prof. Vernon Smith, demonstrated in his early economics experiments that small numbers of buyers and sellers may not per se be an impediment to the emergence of approximately competitive behavior. It depends, instead, on the circumstances of the economic environment and of the particular economic institution.

Let me return to point 1 ) the possibility that the CFTC may be wasting it's time (and our taxpayer money). We spend a lot of time in economics classes talking about "market failure" but we also need to talk about "government failure," of which this could be a potential example. The economic study of government decision-making is known as "public choice," and I can think of at least two public choice explanations for the CFTC getting it wrong (if indeed they are getting it wrong):

A ) The decision to pursue this case may be made by lawyers, and lawyers think about things differently than economists. In particular, lawyers often reason by analogy. From an economist's point of view, this can lead to some unwelcome economic outcomes. To an economist, one of the most infamous "reasoning by analogy" failures of the legal system was the U.S. courts' comparison of underground oil pools with wild rabbits on British manor lands. This led to the creation of wasteful common pool resource problems in the oil industry which took decades to address successfully. The reason I bring up the analogy argument is that the WSJ article is full of references to the ongoing debate over the LIBOR interest rate process. The entire article, from the CFTC point of view, seems to be about extending the LIBOR problems to London gold, by analogy. [They are both in London; they both involve big banks; ergo ......] But LIBOR was not set by an auction, it was set by averaging process, so to an economist there is no analogy there at all. Price-setting by auction and price setting by averaging are potentially as different as night and day.

B ) Another part of public choice is the belief that government bureaucracies take on a life of their own; their goal becomes self-perpetuation rather than a critical adherence to their actual mission. The WSJ says that

 "The CFTC's move is the latest sign of a once-obscure regulator flexing its muscle in the wake of the financial crisis. The agency, headed since 2009 by Gary Gensler, a former Goldman Sachs Group. Inc. executive, has played a leading role in the [LIBOR investigation]."

If you think it Twilight-Zonish that a former executive of "The Goldman-Sachs" is using his newly found government power to portray other bankers as "manipulators," then you might be a ..... oh never mind.