Welcome to California, Elliot Hirshman

San Diego State University, a place I admire a lot, just hired Elliot Hirshman as its new president, at a controversial salary. I am not exactly sure what I believe about how much public university presidents and provosts should be paid, but I do know that Elliot was an excellent hire for SDSU, and therefore for California.

Elliot was Chief Research Officer at George Washington when I was there, and I served on a university committee that he chaired.  He was and am sure still is a good leader, good listener, and problem solver.  Research service for faculty at GW improved considerably during his tenure.  

If I am reading the deal correctly...

....this is not a compromise, this is a capitulation.  I am starting to think that Cornell West's characterization of Obama was correct.

Jenny Schuetz, Elizabeth Currid-Halkett and I have a new paper that has nothing to do with the debt crisis

It is here.

Abstract:     

The art market is famous – or notorious – for auctions at Sotheby’s and Christie’s at which works by well-known artists are sold for stratospheric prices. Researchers have argued that such prices are volatile and unpredictable based on economic fundamentals, implying that at least some segment of the art market behaves irrationally. In this paper, we examine whether the broader art market, composed mostly of small galleries, is more consistent with standard economic models. In particular, we ask whether the location patterns of art galleries exhibit behavior consistent with agglomeration economies, as would be predicted for retail firms selling highly differentiated and expensive products. Using a newly developed database, we find strong evidence of agglomeration economies among Manhattan art galleries from 1970-2003. Galleries locate in highly concentrated spatial clusters, and these clusters are more likely to occur in neighborhoods with affluent households and older, more expensive housing, consistent with locating near potential consumers. We find no evidence that galleries locate in cheap, “bohemian” neighborhoods. The highest quality tier of the art market, which has been most widely studied, contains a relatively small share of gallery establishments, although these “star” galleries have a longer average lifespan than non-star galleries. Locating near other galleries also increases the longevity of firms and establishments.

Are we a 15 percent society or an 18 percent society?

Over the long term, federal revenues as a share of GDP have averaged around 18 19 percent over the past 20 years.  Currently, federal revenues as a share of GDP are about 15 percent.  Some of the difference arises from lower tax collections because of the recession, but most is the result of the Bush Tax cuts.  Obama cut taxes even more (yes, he has cut taxes--payroll tax reduction, housing tax credit, etc.).

The question is, do we want to be a 15 percent society?  I guess the Teapartiers would say yes.  But this would not just mean that we need to do things like slowly extend the retirement age and bend the cost curve on health care--it would mean that to reach long run sustainability, we would have to cut current benefit levels.

Even Paul Ryan's budget plan presumes revenues would increase to 18 19 percent of GDP--it just doesn't specify how to get there.  Personally, I think we can afford to spend even more on the sick and the elderly (and children), but we need to be willing to pay for it.  For the time being, I would be happy to return to the long-term revenue average.

If we follow the 15 percent path, we will be kicking grandmothers out of their wheelchairs.  We will be allowing children to be malnourished.  This is not demagoguery.  This is the cost of not being willing to tax ourselves at the level we have for many years taxed ourselves.

Houston Boot Camp

If you've been reading my blog or following me on Twitter, you know that over the last year I've struggled to lose the 50ish pounds I gained during my pregnancy.  For a woman that's just 5'1, I couldn't wait to drop those extra pounds and it's taken me nearly a year and a half to do it!  

A gorgeous blogging buddy from Houston invited me to participate in a boot camp, Houston Area Adventure Boot Camp, the longest-running boot camp in the Houston area.  Over the last seven years they have helped more then 5200 people achieve their fitness goals.  I immediately knew I wanted to bring my girlfriend (and workout partner since college) since she's always up for these types of adventures.

We showed up just before the class was about to start at 6:30 p.m. (although they offer morning classes too), with the Houston heat not letting up a bit.  Neither of us had done a boot camp before, so we didn't know what to expect.  Immediately, we met the awesome trainer, TJ, and two other women, who made us feel right at home.  Here we are with TJ:)

This class kicked our butt!  We did drills where we had to pick up a poker chip, run up a hill to find out what exercise corresponded to the chip, run back down the hill, ultimately doing 15-30 repetitions of 30 exercises.  OUCH!  We were sweating and panting and our heart rates were UP for the entire hour!  TJ was so encouraging and helpful and FUN!  They played hip hop music and the other people in the class were super sweet.  It's easy to make friends when you're all commiserating from running up that dang hill and doing your 50th pushup!

Just before class ended, my girlfriend became the photographer and shot some pics so I could show you.

Isn't it a pretty park where the class is held? So nice to get outside after a long day at the office.

And I LOVE that my single girl snapped a pic of the hot guy! I laughed so hard when I saw this pic on my camera! :)  Get fit and meet men- perfect for you single ladies!!

*******

If you're interested in attending a class, here's their contact info:

********

p.s. It's my friend Lily's ONE year blogging birthday!  I know she'd LOVE it if you'd stop by and say hi!

This is probably a crazy, stupid idea for getting around the debt ceiling, but...

...here goes anyway. 

Consider a 30-year Treasury Bond with a coupon of 4 percent and a par value of $100.  Treasuries pay every six months, so this produces 60 cash flows of $2 and then $100 at the end of the 30 years.

To make things easy, assume for a minute that that market is discounting 30-year bonds at 4 percent per year (or 2 percent per six months).  Suppose the US government offers investors a swap of 4 percent coupon bonds for 8 percent coupon bonds.  If we don't worry about duration issues for a moment, and use Excel notation (I don't know how to get Greek symbols in blogger), investors would be indifferent between:

PV(.02,60,2)+100/(1.02^60)

and

PV(.02,60,4X)+100X/(1.02^60).

X is the face value of the new bond, and comes out to about $58.99.  So the face value of the debt is reduced by 41 percent, while the value to investors remains constant.  Nothing of substance has changed (and actually duration risk is a little lower), but the balance sheet looks better.

I am sure I am missing some institutional thing here, or maybe my simple finance is off somehow, but still...

Don't lump everyone together, Professor Summers

In his response to Mark Thoma's "Great Divide," post, Larry Summers writes:

Second, as Keynes’ comments on the advantages of being conventionally wrong rather than unconventionally right illustrate, it is a serious mistake to overstate the insights possessed by practitioners in any field.  Anyone in mutual funds will tell you that active managers regularly outperform the market.  Only economic scientists realized they do not.  Contrary to the the implications of Thoma’s column, the best calls on the real estate bubble came from academics like Bob Shiller and Nouriel Roubini, not from any economists involved with the home building or realty industries.

While Summers' point about Bob Shiller and Nouriel Roubini is correct (and what was particularly impressive is that they explained the mechanisms that would create the destruction), he does not acknowledge that non-academic economics, such as Dean Baker and Chris Thornberg, also called the bubble.  On the other hand, lots of academic economists did not see the crisis coming (I certainly did not see the magnitude of it).


It is, moreover, not fair to lump Realtors and homebuilders together.  The Realtors' Chief Economist at the time (whose name I shall not mention) was ridiculous.  But while Dave Seiders, Chief Economist at the time with the National Association of Homebuilders, did not get it right, he did not do badly either.  I remember being impressed with NAHB at the time, because they were not being cheerleaders--they seemed to me to be playing things pretty straight down the middle.

Homer Simpson, Spock, Reaction Functions, and the Debt Ceiling

Imagine a game between Spock and Homer Simpson.  Spock's utility is maximized by saving the galaxy from destruction.  Homer Simpson's utility function is maximized by beer.  Spock gets some disutility from the amount of beer Homer Simpson drinks, because drinking makes Homer obnoxious, but it is less than the disutility he would get from the galaxy being destroyed.  Homer Simpson gets no disutility from the galaxy being destroyed, because he doesn't think it is possible.

Homer thus ties himself to the mast--he must get his beer no matter what--if he doesn't, he will allow the galaxy to be destroyed.  Homer therefore has a stronger negotiating position than Spock.  Similarly, people who think the earth is 4000 years old, that dinosaurs lived with humans, and don't believe there would be consequences to government default are in a stronger negotiating position.

The Mortgage Professor is Worried

Jack Guttentag writes:

...“If a default had the horrendous consequences you describe, and these induce Congress and the Administration to agree finally on an increase in the debt ceiling, how long would it take financial markets to return to normal?”

 Markets would never return to a state where US Government obligations are viewed as riskless. We will pay for this loss of grace forever.

 Investors in fixed-income securities are worse-case oriented, and make a major distinction between the impossible and the unlikely. The current rates that the Treasury must pay investors are based on the assumption that default is impossible. Once a default occurs, it will NEVER again be viewed as impossible. The additional cost of carrying debt on which default is possible will be paid forever....

Read the whole post.

End Tables

I told you last week that we got new living room end tables from Crate & Barrel, and I wanted to show you what they look like in the room!

Better, right?! 

Bad belt-tightening metaphors

A commonplace among politicians that drives me crazy is that "government must live within its means, just like families."

The problem is that families don't, at least within the meaning implied by the above statement.  Personal income in the United States is about $12.9 trillion.  Mortgage debt outstanding is about $10.5 trillion.  Consumer credit outstanding is about $2.4 trillion.  So the ratio of consumer debt relative to consumer income is similar to US government debt to GDP.

I am not saying we needn't worry about long term fiscal balance--we do.  As I have said before, we must, among other things, return tax revenues to at least their long-term mean as a share of GDP, and bend the cost-curve for health care--something that Obamacare actually tries to do. But bad metaphors that basically dishonestly flatter people are not helpful.

$40 Side Table

Did y'all have a great weekend?  We did!  I am so enjoying these last weeks of summer- I don't want them to end!  Let me show you an accent table I found two weekends ago.  I've been wanting a table like this for ages, and held out until I found this one at Home Goods for $40!  I actually tried to buy one I saw on One King's Lane for over $100, but it sold out too quickly!  Glad it did:)

The table is currently at home in our master sitting room.

p.s.  Here's what our previous side table looked like, which is now in my hubby's office. 

And today:

Since I am planning to re-do our bedroom and sitting room, the little silver side table will likely get relocated, perhaps to our master bath, but for now, it really beats the previous bulky table! :)  

You can buy a similar table here for $134 or from Z Gallerie for $100 or Horchow for $400!

************

Thank you to everyone who entered the Bitsy Bag Giveaway.  The winner is

Christina!

***Also, from July 25-28, 2011, you can use Coupon code "Honeywerehome" to get 30% off of any Bitsy bag:)

Caltrans needs to fix this sign

Visitors to LA get misled by this old freeway sign on the Pasadena Freeway headed south:

The problem is that it is not an interchange with the 101 and the 5--it is just an interchange with the 101, which heads south a couple of miles to the 5.  People look for the 101 South and miss it, because it is nowhere to be found on signs.



  

GIVEAWAY (Creative Fox Studio) Calling Cards

Seeing as how I am a huge lover of pretty paper things, I'm super excited to have Andrea Fox of Creative Fox Studio, a creator of wonderful and totally unique calling cards on board as a sponsor.  She is a fellow Texan, who relocated with her husband to London- (can you imagine?!). With a BFA in Graphic Design, she is pursuing her talents abroad via her Etsy shop, Creative Fox Studio. 





Not only is Andrea super creative, she's also generously GIVING AWAY calling cards to 3 readers who can each select their preferred design!  Love this giveaway- especially the "Mommy" cards because as a new mom meeting other moms, it seems we always know each other first as "James' Mom". Ha! :)

Here's a look at her designs! 

Creative Fox Studio is giving away calling cards to 3 readers who can each select their preferred design!

To enter :

• Visit Creative Fox Studio.  Then leave me a comment on this post with your favorite item.


• Become a fan of Creative Fox Studio on Facebook 


• Tweet about this giveaway.  Then leave a comment on this post.


• Facebook about this giveaway.  Then leave a comment on this post.

The WINNER will be chosen via Random.org and announced on Monday,  August 1, 2011.

Thank You for the Mention!

Wanted to send a shout out to these blogging friends who have featured Honey We're Home on their blogs!  

http://thecollinssurvivingsurburbia.blogspot.com/