The real Saif al-Islam Gaddafi

Here is Saif al-Islam Gaddafi, son of Libyan dictator Muammar Gaddafi, as he presents himself to the west: a civilized gentleman with a Ph.D. from the London School of Economics.

The truth is very different. Not only did he plagiarize parts of his Ph.D. dissertation, but he's also quite uncivilized. Just watch him in this video:

How many Ph.D.s go around wielding AK-47s like that?

Warren Buffett on the U.S. economy

As always, Warren Buffett—the most successful investor alive—is optimistic about the long-term future of the United States economy:

Money will always flow toward opportunity, and there is an abundance of that in America. Commentators today often talk of “great uncertainty.” But think back, for example, to December 6, 1941, October 18, 1987 and September 10, 2001. No matter how serene today may be, tomorrow is always uncertain.

Don’t let that reality spook you. Throughout my lifetime, politicians and pundits have constantly moaned about terrifying problems facing America. Yet our citizens now live an astonishing six times better than when I was born. The prophets of doom have overlooked the all-important factor that is certain: Human potential is far from exhausted, and the American system for unleashing that potential – a system that has worked wonders for over two centuries despite frequent interruptions for recessions and even a Civil War – remains alive and effective.

We are not natively smarter than we were when our country was founded nor do we work harder. But look around you and see a world beyond the dreams of any colonial citizen. Now, as in 1776, 1861, 1932 and 1941, America’s best days lie ahead.

Case-Shiller: Home prices still falling

Year-over-year home prices are down 4.1% according to the latest S&P/Case-Shiller data. Yale economist Robert Shiller predicts prices could fall 15% - 25% more.

Home prices took a big hit at the end of 2010, even as the rest of the economy gained steam.

National home prices fell 4.1% during the last three months of 2010, compared with 12 months earlier, according to the latest report from the S&P/Case-Shiller home price index, a closely watched indicator of market trends. ...

And things may get a lot worse, said Robert Shiller, a Yale economist and half of the Case-Shiller team, in a web conference after the report's release.

"There's a substantial risk of home prices falling another 15%, 20% or 25% more," he said.

The full press release is here.

Fair trade, secure borders, and racism

My thought of the day:
Nobody ever worries about losing a job to a European, a Canadian, an Australian, or a New Zealander. Nope, it's all a fear of losing a job to someone with darker skin in Mexico, China, Japan, India, or elsewhere. "Fair trade" and "secure borders" are simply codewords for racism. This type of racism is as popular on the left as it is on the right.

Shadow Stats

From Paul Krugman, Nobel-laureate in economics:

An interesting exchange between John Quiggin and Jonathan Chait on right-wing agnotology — that is, culturally-induced ignorance or doubt. ...

I mean, I see it all the time on economic statistics: point out that inflation remains fairly low, that the Fed isn’t really printing money, whatever, and you get accusations that the data are being falsified, that you yourself are cherry-picking by using the same measures you’ve always used, whatever. There really is epistemic closure: if the facts don’t support certain prejudices, that’s because They are hiding the truth, which we true believers know.

Here Paul Krugman is talking about the right wing in general, especially Tea Party types, but the paragraph on economic statistics could easily be applied to the Shadow Stats website and its cult members followers.

Housing "immunozones" getting hit

According to The New York Times, America's housing "immunozones" are continuing to suffer home price declines, even as some of the early crash cities start to recover:

The rolling real estate crash that ravaged Florida and the Southwest is delivering a new wave of distress to communities once thought to be immune — economically diversified cities where the boom was relatively restrained.

In the last year, home prices in Seattle had a bigger decline than in Las Vegas. Minneapolis dropped more than Miami, and Atlanta fared worse than Phoenix.

The bubble markets, where builders, buyers and banks ran wild, began falling first, economists say, so they are close to the end of the cycle and in some cases on their way back up. Nearly everyone else still has another season of pain.

With that in mind, here's a home price graph for my local Washington, DC housing market. The city of Washington, DC has seen median home prices fall $65,000 (15%) since the peak, and they're still sliding down slowly.

Washington, DC has been the most immune of the immunozones due to its ability to suck on the federal government's teat. What's the biggest threat to that teat? Senator Rand Paul.

Harvard law professor Alan Dershowitz on Wikileaks

How to tell if you have bad breath

I found this to be an interesting trick:

The first thing to do is determine if your breath is fresh or foul. Most people with stinky breath aren't even aware they have it, because the brain becomes acclimated to one's own personal scent. The good news is there are ways to self-diagnose. ...

Smelling your own breath in cupped hands is not the best way to check for halitosis, Katz says. Instead, lick the back of your hand, let it dry for a few seconds, and then smell the surface.

Lick, wait for hand to dry, then... UGH! OH DEAR GOD!!!

Graph of the day: Government propping up the housing market

This graph from The Wall Street Journal shows the number of new mortgages backed by the government vs. those not backed by the government.

Why do economists put price on the vertical axis?

I see over on Paul Krugman's blog that several readers are complaining about the drawing of supply and demand curves. According to them, it is wrong to put price on the vertical axis and quantity on the horizontal axis, as economists typically do:

Why do economists break the standard math rules regarding the placement of independent and dependent variables?

First, I'm not sure they do. In microeconomics, changes in production capacity shift the supply curve and changes in tastes shift the demand curve. These are effectively quantity changes that subsequently affect prices. This makes quantity the independent variable and price the dependent variable. From this perspective, price should be on the vertical axis. If you insist that price determines quantity, but not the other way around, then you obviously don't understand the effect of weather on agricultural output.

Second, my guess is that economists measure so much stuff in terms of price, that it is convenient to always have price on the same axis. Would you really prefer price on the horizontal axis like this?

Price appears on lots of economics graphs. By always putting price on the vertical axis, economists don't have to repeatedly swap which axis is the price axis from one graph to another.

Update: I decided to ask "The Google." In an old post, here's what Harvard's Greg Mankiw had to say on the issue:

On the axis question: The instructor is right that, given the way we now teach supply and demand, it makes more sense to have price on the horizontal axis. The price is viewed as the variable that determines quantity supplied and quantity demanded, and we usually put the dependent variable (which here is quantity) on the vertical axis.

So why is it switched? Here is a guess. The early economists may have been imagining that, in the very short run, a given quantity of goods was supplied to the market (an agricultural harvest, for example). The supply curve is then vertical, and the price adjusts to ensure that quantity demanded equals this exogenous quantity supplied. So, in this very short run, the price seems more like the dependent variable. Now, however, the choice of axes is based more on historical convention than logic.

I am not an historian of economic thought, so these answers may be off base.

In the same post, Mankiw also adds the input of Robert Barro:

As I recall, Hicks in Value and Capital thought in terms of demand price and supply price. The demand price is how much a person was willing to pay for an additional unit of goods (starting from some initial quantity, Q). The supply price is how much a producer would have to be paid to provide an additional unit of goods. This construction—which I think comes from Marshall—makes it natural to have P on the vertical axis and Q on the horizontal.

And finally, Wikipedia points me to this from An Introduction to Positive Economics, 7th ed. by Richard G. Lipsey:

Readers trained in other disciplines often wonder why economists plot demand curves with price on the vertical axis. The normal convention is to put the independent variable on the X axis and the dependent variable on the Y axis. This convention calls for price to be plotted on the horizontal axis and quantity on the vertical axis.

The axis reversal — now enshrined by nearly a century of usage — arose as follows. The analysis of the competitive market that we use today stems from Leon Walras, in whose theory quantity was the dependent variable. Graphical analysis in economics, however, was popularized by Alfred Marshall, in whose theory price was the dependent variable. Economists continue to use Walras' theory and Marshall's graphical representation and thus draw the diagram with the independent and dependent variables reversed — to the everlasting confusion of readers trained in other disciplines. In virtually every other graph in economics the axes are labelled conventionally, with the dependent variable on the vertical axis.

Fannie and Freddie to go bye-bye

Apparently, the Obama administration is going to propose killing off Fannie Mae and Freddie Mac:

The Obama administration will issue a proposal later this week recommending the gradual elimination of government-sponsored mortgage backers Fannie Mae and Freddie Mac, a White House official said Wednesday.

The highly-anticipated "white paper," which is expected to be released Friday, will include three different options for reducing the role government plays in the mortgage market, the official said.

While the paper would mark an important development in the debate over what to do with Fannie and Freddie, a final decision by Congress is not expected any time soon.

After being rescued by the government in 2008, Fannie and Freddie have presented a major conundrum for policymakers in Washington.

The problem is that phasing out the two publicly traded companies could raise borrowing costs for homeowners and jeopardize the fragile housing market.

At the same time, Fannie and Freddie represent a major liability for taxpayers, who are on the hook for about $150 billion in federal aid the two institutions have received.

What will we do without the government subsidizing home buying? Oh, wait, there's still the home mortgage tax deduction.

Anybody want to start the bidding on a pretty nice piece of Washington, DC real estate? It's probably not a good time to go job hunting there, though.