End of Day Post

Whew. The day is almost over. These days are the longest since I teach two classes. The day was productive on several fronts, as I may finally be at a place where I can write down a formal model of something I've ruminated on for years. I'll know more by the end of the week as to whether that is the case. Here's some of what I was just reading.

1. Robert Schiller, author of Irrational Exhuberance has an updated edition coming out with chapters on the housing bubble. Quite timely, I'm sure he'll do very well with it given the popularity of the first edition and the current sub-prime mortgage problems. One graph from the book shows a history of home values. The current rapid increase in housing prices, starting in the mid-1990s, is the largest percentage increase on his index of any period of booming real estate in the US history, or at least since 1890. By a large margin. With each month's foreclosures exceeding the one before, no one knows where this is going to end, but a recession is nowhere near out of the realm of possibility. As the graph from InTrade Prediction Markets shows, the probability of a 2008 recession is nearing, again, a coin-flip.





2. An interesting article using competitive market theory to explain why supply-sider interdictions can inadvertently increase drug-crimes. If demand is inelastic, then a 10% increase in the price of drugs will lead to less than a 10% decrease in consumption, and an increase in total expenditure on drugs. If these are addicts, then likely it will mean income-generating crimes, such as prostitution hours extended and/or robberies of various sorts. But, if it is a competitive market, then the profits generated by eliminating a "firm" will in the longrun be replaced. The profits are competed away in the longrun by new entrants. And the way new entrants compete in illicit economies is, as the theory goes, via violence to extend market share and enforce informal contracts. Hence, drug enforcement can inadvertantly increase violence.

3. Heroes: Truth and Consequences is kicking it. The last scene gave me goosebumps. I hear they are going to kill off 2 heroes next week. On the one hand, I can see why. The narrative is difficult to tell as the ensemble grows, and we've got a lot of people to handle. My prediction is: Maya and Niki. Mark it in your books. I really like the pacing of the story, personally, and I'm going to be sad to lose the heroes. Given the decline in ratings, though, I understand they're going to try to take the stories in a slightly more adrenalin-oriented direction. Which is fine with me. I hope they don't kill off the new villains though. Sylar and Adam are excellent, and in comic books, villains remain and return regularly - which has been historically missing, for some reason, from almost every major comic book adaptation to television and movie that I can think of. It did not happen that Lex Luther was killed, but in all the Spidermans and in all the Burton-era Batmans, the major villain died. In Batman Begins, thankfully, Scarecrow did not die. And I hope that Joker does not die in the sequel. But, more to the point, I hope Sylar and Adam do not die next week on Heroes.

4. The top one percent is a revolving door according to Thomas Sowell.

5. S&P Housing Index shows a 4.5% decline in housing prices. This is a decline in consumer wealth, and therefore would predict a decline in autonomous consumer spending, which in turn would cause a leftward shift in aggregate demand, leading to a drop in output, and increase in unemployment if it takes us off the longrun equilibrium output amount. If that were to happen, then we'd ultimately have the problem of inflation dealt with, as in time as prices fell, inflation would settle a lower rate. Lots of comfort that gives to those of us with a house they can't sell, I guess.