New deficit projections are out:

For 2009, the deficit is now projected at $1.58 trillion. There will be a $5 trillion increase in red ink over the next five years and a total of $9 trillion over 10 years.

As usual the political parties are blaming each other. It almost makes me want to go build a seastead or something.

VaR is the premier risk analysis metric used by wall street. Basically, it wraps up the risk from any kind of trade into one, easy-to-understand number. That number is the ceiling of their losses, calculated to be 99% accurate. And trained on the last three years of data.

Anyone see any problems with that? What happens the other 1%? What if the last three years weren't representative of what might happen in the next year due to one or the other being abnormal? And is having a risk metric that tells you you're safe incorrectly worse than no metric at all? I think so.

All this stuff was in a great NYTimes Magazine article earlier this month, which I missed until recently. It's well worth reading -- it's not often that you find a good magazine story about how to calculate a statistic.

From this article about different methods of calculating inflation comes this somewhat unsettling graph:



If that top line is more representative of reality, my portfolio suddenly looks a lot worse.

H/T random_skeins

patrissimo posted on Catallarchy about how (at least in part) prices of housing are high because voters want them to be:

Case 1: Housing prices. Studies have indicated that high housing prices are mostly due to regulation restricting supply. And it should be no suprise why. If most voters in a region are homeowners, then they will tend to vote for regulations and officials who will make it hard to build new homes, as this will increase the value of their homes. This is especially true if demand in the area is inelastic, perhaps due to unique features - say: LA, Silicon Valley, Manhattan and Hawaii, which means prospective buyers can’t just substitute homes in other areas.

This is an interesting effect: homeowners vote, and voters support regulation, and regulation causes houses to be more expensive which benefits homeowners. However, I think patrissimo is wrong about the reason people support building codes.

Remember that building codes are not decided by voters, or even directly by representatives elected by voters. Building codes are set by government employees, bureaucrats. If they make a decision that is really out of line from what people would accept, then maybe there would be voter backlash and changes could happen, but in general the process is pretty disconnected from the homeowner.

What is the incentive of the bureaucrats who set these codes? I'm sure there are lobbyists (who in general prefer lower costs, at a guess) and politicians who have influence, but basically the task for the civil servant in question is to minimize injury and death. They consider the cost of doing so, but not in any really market-driven way, so the costs are higher than many people might accept for themselves.

If you asked a homeowner directly, I think you'd find that mostly they are opposed to more regulation. It's incredibly annoying when you want to remodel your kitchen (which you have to do because houses are so expensive and because of the strange property tax structure in CA that it's very expensive to move) and you have to change all kinds of things to bring your house up to code.

But remember how persuasive a tragedy can be. If there's an earthquake and a bunch of people die, voters ask why -- and demand that fixes be made. We as a society have decided to impose a lot of costs to avoid tragedy, and strict building codes are one example. This may be a debatable policy, but it and not economic incentives for homeowners to put barriers in front of new construction lies at the heart of the existence of building codes.

The secret to happiness is apparently to be richer than your peers. Well, actually, it's to be healthy, and then better off than your peers.

I don't have much faith in studies that rely on reported happiness levels, but it's always interesting to see where various factors rate. This one lists them in order as health, relative income, education, and marital status (which is probably just whether you are married, and nothing about the happiness of the marriage).

Goldman Sachs has claimed that oil prices are spiking, all the way up to $105 per barrel. Can that really be accurate? It would certainly have a huge effect on the world economy.

As much as I'd like to see the world moving away from fossil fuels for a variety of reasons, a giant spike like that in the short term would be really bad.

Patrissimo posted an entry about negative effects of the minimum wage, in at least one example. The example is an interesting one, and shows some problems with the minimum wage. I used to have arguments with a friend about whether the minimum wage was a good idea or not -- she was going to business school, and claimed that increases in the minimum wage will cause losses of jobs, so it has a net harmful effect on people who would otherwise have those jobs.

It's a reasonable argument, and one supported by libertarians in general. My principal weapon in the argument was a fascinating study by a couple of Princeton guys who found that minimum wage hikes don't seem to have any real effect on employment. The obvious rebuttal is that their study is flawed, as argued by the Cato Institute, a libertarian think tank. Their argument is basically that there are lots and lots of studies that do find an effect, and so this study must be wrong, and they point out some flaws.

But (last link, I promise) there's also a great article on Slate about why all those studies are flawed. It's in the context of opposing the minimum wage on other grounds, interestingly.

Anyway, basically I believe after reading all these things that raising the minimum wage does in fact make people with minimum wage jobs as a group better off, which is what it's intended to do, and that it doesn't really cost significant numbers of jobs in the process. I do think the Slate article has a point, though, which is that minimum wage increases might not be the best or fairest way of achieving that goal.

Caveat: of course large increases will have an effect. If you set the minimum wage to be $100/hour, all kinds of bad things happen. It's just that changes in the minimum wage seem to create proportionally smaller changes in employment, so small movements have nearly negligable effects.