Jeddah - Red Sea

You guys need to see pictures of me snorkeling in the red sea! I got baked, but it was a blast.



Next I like,




And finally, because I was snorkeling and not diving, some of the money shots:



I enjoyed the Red Sea. Those are my very limited snorkeling pics, but it was quite an adventure.

Pfew!

Sometimes I'm not that organized, add to that my uncle dying and I flat out screwed up. Over the last three months I had racked up 3 different late fees on the 2 of the four credit cards that I have.

Don't do what I did and let your payments slip away from you. I remember checking on the accounts, but somehow screwing up.

BUT MOST IMPORTANTLY, remember that your credit card accounts are very negotiable. The credit card companies spend $300 to $500 just to get your business, so don't give up too easily. I wracked up $117 in late fees over the last two months. That's two to a citibank account and one to an american express account. In the American express case, I went through a rep. who couldn't help me, because I had already incurred a late fee six or seven months ago. The supervisor was happy to help me though.

In the second case, with citicard, I almost went straight to an account exec., and they were happy to waive two late fees to keep me. In the end, they'd much rather keep you than get new business, and if you're like me, you'd much rather stay than find a new card, so try to work something out and remember that you have plenty of power in the transaction.

I saved $117 in less that 20 minutes. Look, it wasn't a great spot to put myself in. And I did thank both these companies for their willingness to work with customers, but paying off late fees is not something you should consider standard fare. If you are a good customer, defend your status and work from there.

Saudi Photos

Not much to say. Going to Jeddah this weekend and hope to have fun stories when I come back. Here are some photos a friend of mine took. Photos are moderately taboo here. They don't want you taking photos of cool buildings for terrorism fears, and it's sort of immodest to take pictures of Saudis you don't know. But my friend is braver than I, and a better photographer.

The two types of traditional Saudi male garb, the white headress and the checkered red:



All dressed up with no place to go. Saudi women have to cover everything, but their eyes. Other Arab women can get away with the black abaya (cloak covering their bodies) and a wrap around their hair. And western women can usually get away with just the abaya.



Austerity:



Always and everywhere, kids are adorable.

Phone Number Dictation

One of the interesting things about traveling are the little cultural differences.

In America, we dictate a number with a certain cadence: XXX-XXX-XXXX

In Saudi it's, XXX-XX-XX-XXX

Internship

Haven't blogged about it yet, but I've got a great internship here with an investment bank called ICT Global. The company has raised capital and has prospective clients, but they are still going through the process of getting the proper licenses from the Saudi government. I'm learning a lot about valuation in emerging markets, and hopefully bolstering my skill set with some practical finance knowledge. Here's the text I've been using.

Dir'iyyah

A few days ago, Mark and Debbie (my friends and neighbors) took me to "Old Riyadh" also known as Al-Dirah. The town was founded in 1446, but reached its peak in the 18th century, until the Ottoman Empire sacked the city in 1818.

I got some great pictures:




The city wall:




Here is a giant Saudi flag. They are creating a tourist spot here. Between the flag and me, there is a valley where tradition has that Mohammad ibn Abdul Wahhab is burried. Wahhab's created a very conservative sect of Sunni Islam that still has a great influence over Saudi Arabia today. Wahhabism is linked to both the Mutawwa (religious police) and terrorism. The relationship between Saudi Arabia and conservative Islam is complex. Abdul Aziz used the Wahhabi religious fighters (Ikhwan) to consolidate his power in Saudi Arabia (1920s). Later, when they revolted accusing him of religious laxity, he got permission from the religious council to slaughter them (1930). Abdul Aziz renamed the region Saudi Arabia and appointed himself King (1932). Saudi Arabia was still a backwater fighting wars on the backs of camels, then in 1938 oil was discovered and the country was changed forever.




Here is a great picture of Debbie and me. We are inside the city with the wall behind us.

Memories of Gene

A Wonderful Slide Show of Memories of Gene:

Here is Gene's obituary.

Oil Spill Theory

My previous post on the spill lead to a little bit of thinking about oil spills. The current law is a bit strange, and I'm not sure I really understand it. It sounds like this law limits the damages that can be attained in Federal court to $75 million and that includes removal costs, damages to both public and private property and resources, lost tax revenue, and lost profits. According to this, there is still unlimited liability in state courts. Can the U.S. government sue a company in a state court? Can the state government? My guess would be that the local businesses can still sue in state court, but the taxpayers would get screwed under current law. If anybody knows more, please comment.

What I want to focus on is the Oil Spill Liability Trust Fund. Basically, a 5 cent per barrel tax on oil was created and put in a fund to clean up future oil spills. The fund can provide $1 billion dollars for oil spill cleanup. So, what the government basically created was an insurance fund paid for by oil consumers to clean up oil spills. It's still funded by taxpayers, but not by the income, rather, by their consumption of oil. So in a sense, it's a good thing. The people that benefit the post from off-shore drilling (whoever they are) are buying insurance for taxpayers as a whole. The problem is that with insurance the incentive to be diligent goes down. The driller is no longer paying the cost of the clean up. Of course, the response should be oversight. Unfortunately, the regulator of this was completely corrupted. I encourage everyone to check out Rachel Maddow document the extent of this corruption that I happened to catch at breakfast.

One response is that we need better regulators, and to the extent that is feasible, there is no doubt that would help. Unfortunately, a critique of that is that the nature of government is to get compromised by industry. Economists often call this "rent seeking." So what is another possible answer? Well, we could mandate firms buy a billion dollars of insurance. Then we don't need to worry about the government to be the oversight, we can work through the market. Let Warren Buffett (or whoever) collect premiums and audit safety as the insurer has an incentive not to make large payouts. This really just pushes the problem one stage back though, because now we have to regulate the insurer to make sure they can actually provide insurance. Otherwise, I'd be happy to sell the insurance to oil companies collecting revenues for doing nothing and declaring bankruptcy if the big spill came.

What I find interesting is that this is the exact same predicament that we are going through with the financial reform bill the Democrats proposed. Basically, we are insuring the banks against future bailouts by collecting a tax on banking. In this case, the fallout of financial failure is equivalent to an oil spill. It takes out a lot of industries just chillin in the surrounding waters. It's not clear which model is better. The first one has worked for a long time with the FDIC and member banks and deposit insurance. But it also looks really bad when the regulators look really bad. The second model works well on a small scale. I have to buy insurance for the benefit of other drivers I might hit with my car, but it's unclear if it scales all the way up. If payoffs are large and rare, collecting premiums with no intent to be able to payoff if the big one comes looks more and more appealing.

Republican Corporatism

My political views are somewhat interesting compared to my peers. I tend to care more about freedom and economic growth than most of my peers, and yet, they are all Republicans and I increasingly despise the GOP.

Paul Krugman gives a good example of why:

"In the wake of last month’s catastrophic Gulf Coast oil spill, Sen. Lisa Murkowski blocked a bill that would have raised the maximum liability for oil companies after a spill from a paltry $75 million to $10 billion. The Republican lawmaker said the bill, introduced by Sen. Robert Menendez (D-NJ), would have unfairly hurt smaller oil companies by raising the costs of oil production. The legislation is “not where we need to be right now” she said."

The backbone of the free-market response to corporate irresponsibility is that they can be sued by people for damages they caused. In fact, with immunity from these suits or a cap on them, we should expect companies to cut corners and take on a lot of risk. The whole purpose of a firm is to maximize profits, and in a competitive market even if one firm leaves money on the table another will scoop it up.

The effect of any cap on damages at all is that after some point the federal government subsidizes oil spills. We are actually incentivizing oil spills. I haven't seen a more general Republican response to this, so maybe this is a rogue Senator from Alaska under all the pressure of Alaskan oil interests. I just did a search and here are some Republicans offering a bill that appears to greatly increase the liability cap, but I don't know the specifics.

The U.S. Budget

From Harvard economist Greg Mankiw's blog. It's a good picture, because it starts to get at why cutting the budget is so difficult. A lot of people think we just need to cut out "pork," but even the anti-pork watchdogs only estimate pork at .5% percent of the budget. So what else is in "Other spending"? A whole lot of it is in stuff people think government should do transportation, energy, treasury, health and human services...

The point is the budget doesn't look very good. And all cuts are painful. Twenty-nine percent of your taxes (actually much more, unless you have a high income) go to pay your grandparents social security and medicare. Fourteen percent goes to interest payments on debt your parents accrued. It's kind of funny to me that so large a proportion of the tea party movement is older people, who get socialized medicine and social insurance payments, when forty-three percent of the budget either goes straight to old people or to interest on debts they accrued by running deficits.

And don't forget old people vote like crazy (what else do they have to do), so most of these programs are untouchable.

Softball Champs!!!

In an amazing upset, the Scorpions went on an improbable run to win the softball champion. We were the 5th seed of 8 teams. In a double elimination tournament, we won the first game and got run-ruled by the one seed. We had to win a double header against two teams we had split with earlier in the season. Then, we had to beat the #1 seed twice, a team that had already run-ruled us three times previously. They had a 13 and 1 regular season record, compared to ours of 5 and 8. If you laid me 20 to 1 odds, before the first game, I don't think I'd have taken them. Somehow we beat them, though. We hit like crazy, made less mistakes in the field and came out on top. We won the first game 30 to 25 and run-ruled them the second game 25 to 10. I finally got a chance to breakout going 7 for 7 with three doubles and 4 singles in the championship. I hit the ball pretty well and also got some breaks I hadn't gotten earlier in the season, a hard ground ball got through and two texas leaguers landed safely.

I can't really describe how much fun it was to win. We were all pretty sore and exhausted playing four games in two days, and I kind of thought losing was inevitable even when we started the last game. When we finally pulled it out, I actually teared up. It was just amazing to work hard and win something. It's probably been 8 years, since I played in a meaningful sporting event. Lots of fans showed up for both teams, which really added to it all. Someone I've never even seen before came up to me after the game and said, "Charlie, I think you might be the MVP. You had seven hits and four doubles!" (he counted one that was really a single with an error). I didn't agree, but it was really fun that people noticed I'd had a good game.

All in all, it was a great season. I made a bunch of great friends and had a really great time. We even had a party and award ceremony the next day. Woot! Go Scorpions!

Green Jobs

There's always been a lot of confusion around climate change and green jobs, not least of which is propagated by the administration, but listening to some otherwise seemingly knowledgeable business people discuss it on multiple CNBC type shows, it's apparent that the confusion is not just politically motivated obfuscation.

There are two basic narratives that tend to get argued.

1. Climate change is a wonderful opportunity to create green jobs, and creating jobs spurs economic growth. Yay!

2. Climate change is a terrible, unbearable toxic drain on our economy that will cause higher taxes that will hurt the economy.

Both views have bits of truth and bits of confusion. The best way to think about climate change is analogous to a giant meteor hurdling towards the Earth. Many scientists expect the meteor is expected to hit the Earth in about 100 years. But there's lots of problems. The meteors far away, so it's not totally clear when it will actually hit the Earth or how much damage it will due. It's not clear we even know for certain it will hit us at all. What if we there are gravitational fields we don't know about that will save us or objects we don't know about that will change its course.

So, we decide to start preparing just in case, which is pretty reasonable if you think the probability is high enough or the worst case scenario is bad enough. We get scientists and engineers to try to create new meteor stopping technologies. We employ construction workers to build some of their designs. Jobs are created. But it should be obvious that the best case scenario would be not to have to ward off the meteor attack. We'd rather have those workers doing other things, I mean, otherwise we could just sign a treaty with China to have nukes fire at each other in 100 years and spend a bunch of money trying to figure out ways to stop them.

But it should be just as obvious that the second view is wrong. The meteor IS coming. The "meteor jobs" and taxes aren't a drain on the economy; the meteor is. I understand that if you think the meteor is a low probability event or won't be that bad, you won't want to spend much stopping it, but then your argument should be about the probability of the meteor hitting, not the cost of the taxes.

There's a final argument that says. I think the meteor is coming, but I just want to let the free market decide how to stop it. It's actually possible that would work, but it could also fail. People's best strategy is to donate as little as possible, but still have the meteor stopped. So inevitably less resources go into the project, it might still be enough, but it might not. I've heard people state this argument, but I've never heard them articulate why its a good trade-off to make.

This analysis leaves open all possible views for what we should do about climate change (or meteor attacks), but there are coherent arguments and incoherent arguments, let's argue better.

Science of Nutrition or lack thereof

I keep seeing stories about salt intake on the news. It appears to be traced back to an article, "Projected Effect of Dietary Salt Reductions on Future Cardiovascular Disease" published in the New England Journal of Medicine this year. Since reading Good Calories, Bad Calories, I've increasingly come to believe that the science of nutrition is mostly junk. A lot of what we believe to be true isn't actually supported by data. That doesn't necessarily mean it's false, we just don't know. A simple example is fat or more specifically saturated fat. The fat causes heart disease hypothesis was still being debated in the 60s. Seemingly a consensus was formed, then lots of money and time was spent proving the consensus correct, then the data came back inconclusive. By the time the data is in though, the consensus is already formed and no one seems to care about the data. It's easy to explain away even large and comprehensive studies, because the effects are very hard to measure and control.

I found an article about salt by the same author as above here. It talks about the last 30 years of the salt debate and how problematic the findings have been. It's hard to imagine the study above has fixed the problems, but I don't have access to the full text so I don't know. The study says that a reduction in salt would save hundreds of thousands of lives. Here is my guess at the quick and dirty problems with that:

The study is likely doing one of two things:

1. Assuming a relationship from other studies, ie. reducing salt lowers blood pressure X amount and extrapolating from that. Thus, I know salt leads to blood pressure and blood pressure leads to deaths, so I take what I know about blood pressure in the population reduce it and my model tells me how many lives I've saved. The problem is that I'm assuming salt leads to blood pressure, which is a claim that is hard to prove especially in controlled studies.

2. More likely though, I think they are using their database to estimate the effect of salt on either blood pressure and mortality. I just don't think they could get away with the previous option. The problem with this is adequately controlling for the people with heavy salt intakes. Suppose one group of people eat McDonald's every day. Well, McDonald's is bad for you and it's high in salt, but it's not clear the salt is what's bad for you. It could be fat, trans-fat, carbs, calories, lack of nutrients, who knows. It's not hard for me to believe that processed foods are bad for people, but it is hard to imagine a large panel data correcting for the salt in processed foods or something else.

Even if salt causes high blood pressure, which causes death, it's not clear lowering salt as a public policy would actually save any lives. Suppose processed foods and fast foods have to become less salty, the makers probably aren't adding salt just for the hell of it, the foods will probably become less tasty. So what will the manufacturers do? Will they add more fat or more sugar? It's possible the foods actually become less healthy. Increasingly I'm becoming convinced that this is what happened during the "fat is bad" 70s until now. Although, I'm not sure I'm right; it's at least defensible that the push to encourage Americans to eat less fat was actually counter-productive.

I think it's actually very useful to infer what will be in studies before reading them. I will probably never follow nutrition closely enough to have a fully informed opinion. It's quite possible that this study actually has new and informative information that actually helps settle the long debate. If that is in fact the case, I need to make sure to take future big news story studies more seriously and trust the ability of the establishment to find the truth a bit more over time. If the study adds nothing new, and just repeats old mistakes, it's further evidence that nutrition is junk science. What I don't want to do, is read such studies and use whatever it says to confirm my biases. All studies have problems, so it's easy to slightly alter your hypothesis or to undermine the study, so that it seems to work in your favor.

The reason all this hits close to home is that Economics suffers from many of the same problems Nutrition does. We make inferences about complex systems with lots of theory and little data. We have lots of trouble controlling for certain effects, and have very few useful controlled experiments. All of this is worst in my field, macro. When I hold macro to the same standards I hold nutrition, it's very hard to articulate what I "know" about macro.

Update: I still haven't found the full-text of the article, but I found some slides by the first author. There are two studies cited on the slides. One is just another meta-study attacking two other meta-studies. The second, though, is more intriguing, and the full text is available. It's a somewhat controlled experiment of 412 people on both a healthy and normal diet. The study had people on both diets consume high, medium and low diets and the study shows some reduction in blood pressure. What's weird is people on healthy diets didn't get much benefit than people on the control diet. Why should that be? The study doesn't say how salt was added to the diet either, which could be important. But if the second study is robust and replicable, I'm down.

Another interesting thing from the slides is that several countries are already launching into anti-salt campaigns. The U.K., for instance, has been successful in decreasing salt over 10 years, but it didn't say, if people were dying of heart disease and stroke less than before.

LTC. Tim Platt

Lt. Colonel Tim Platt definitely deserves his own post as he received the Legion of Merit decoration today for "exceptionally meritorious conduct in the performance of outstanding services and achievements." Tim pointed out the award sounds eerily similar to Homer Simpson's award "for outstanding achievement in the field of excellence." (sidenote: Tim grew up with Simpsons creator Matt Groening, who was president of his their high school when Tim was a freshman and Matt a senior). Tim's had an amazing 30 year career that included a lot of combat in Iraq, where he lead Iraqi Army troops. He's got some great stories about the trials and tribulations of the efforts there.

Tim is officially retiring May 14th, but he's been nice enough to open his home to me when I am not at Yamama. He and Gene had a regular weekly dinner, and he's been a great friend to my aunt and my uncle. And in the short time I've known him, he's also become a great friend of mine.

When it rains...

It more or less shuts down the city, if it rains hard enough. We had one day of hard rain today, and my good buddy Tim Platt got stuck in downtown. A drive that should have taken him 30 to 45 minutes in traffic took 5 and a half hours. There is very little drainage, and especially in the low downtown areas, the flooding can be very bad.

Mankiw on the VAT

Greg Mankiw, Harvard economist and CEA Chairman under Bush, has a very good and neutral article on the Value Added Tax. In theory, many of the major tax changes that you hear about are actually all the same, but they vary in execution and compliance. For instance, Huckabee's consumption tax and Steve Forbes' flat tax are essentially the same. Under Huckabee's system, we would use tax free money to buy more expensive taxed products. Under Forbes' our wages are taxed, but the products we buy aren't. In both tax systems, savings aren't taxed. As Mankiw, explained in the article, a VAT is just a consumption tax that is spread out along the value chain.

So, how is "in theory" different than in reality:
1. Compliance - One key way is policing the compliance of those in the tax system. For instance, a large sales tax encourages black markets more than a VAT. In the former, there is a buyer and a seller that have a lot to gain by avoiding the tax and splitting the gains. In a VAT, the gain is small from avoiding tax and spread over every part of the value chain. Think of a car, who is more likely to cut an off-books deal, you and your shady dealer or you and every producer of every part in that car.

2. Change-over - The often overlooked by commentators part to this equation is that economists often show equivalence as if two systems were already in place and would remain in place. Imagine changing from our system to a Huckabee system. If your want of my contemporaries, it probably sounds fine, but if you are one of my parents', it probably doesn't. Let's say you turned 65 and retired the day the change took place. Over your whole career, your labor was taxed, and now that you are living off your savings, your labor is being taxed again! this time by taxing your future consumption. I never heard it mentioned, but Huckabee's plan was a huge one-time tax increase on older people.

3. Affect on Size of Gov't - This seems to be one of the most contentious parts of tax debates and also the part that has the least and most ambiguous evidence. Some argue that when people don't see a tax directly like the VAT, they don't fight against them as hard, so government gets bigger. In reality, government growth appears pretty unrelated to the way taxes are collected.

One final point: These tax plans are generally identified with Republicans, but as a moderate lefty, it's still quite easy for me to find an acceptable version. For a consumption or VAT tax, you'd just have a standard deduction that everyone would get back. The tax rate compared to the deduction determines how progressive the tax is. If the standard deduction is 0, and the tax rate was 20%, it wouldn't be progressive at all. If the standard deduction was $5,000 and the rate was 30%, the very poor would pay almost no taxes with some paying negative taxes. In terms of Forbes' flat tax, it just requires adding a large expemption (no income up to say $25,000 is taxed) and possibly an Earned Income Tax Credit (if you worked but made less than $15,000, the gov't pays you).

Happy May Day

I only know one person that routinely celebrates May Day, but I am sure she is dancing around the Maypole today. If anybody sees her (tiny little Filipina-American, keep your eyes peeled), please give her a pinch and a punch for the first of the month for me.