Bring on the stabilisers

[I]magine we enacted an investment tax credit, the size of which was a function of the unemployment rate. Firms would have an incentive to time their investment projects toward those periods when the economy was weakest and most needed a shot in the arm.

This is Greg Mankiw, more here. I'm all for automatic stabilisers of all sorts; note that whatever the potency of fiscal policy in stabilising the economy (and it does have an effect) automatic stabilisers are never a bad idea: at worst, they are harmless, and don't forget all their other benefits (such as alleviating hardship).

Given the current talk of a fiscal stimulus, also note that in the US (and not only) automatic stabilisers are the only type of stabilisers there is. I recall the late Wim Duisenberg (I think it was him!), first President of the ECB, putting it very nicely in a lecture: the US does not, and cannot, exercise discretionary fiscal policy to stabilise the economy - Congress simply does not have that sort of coherence. Alex Tabarrok makes a similar argument (and others) here.

Dr Datacharmer's Brain Training

The classic proof that 2 = 1 runs thus. First, let x = y = 1. Then:

x = y
x2 = xy
x2 - y2 = xy - y2
(x + y)(x - y) = y(x - y)
x + y = y
2 = 1

NB: x2 signifies x squared.

Spoilers at overcoming bias, via Chris Dillow.

Your money or your vote

Bombardini and Trebbi have a fascinating new NBER paper out looking at the market for votes (don't get arrest warrants issued though, it's all implicit: politics they call it).

The authors look at the US Congress and uncover a hump-shaped relationship between the number of votes an interest group's members represent and monetary donations by the group to the politician. In other words, it turns out that the most populous groups need not donate much to get a politician to do their bidding. More specialised concerns, on the other hand, have to make up for the shortfall in numbers with hard cash (which is in turn used to 'impress' susceptible voters):

The role played by special interest groups in shaping policy-making is hard to ignore. One simple reason is the considerable size of the amounts the special interest groups (SIGs) inject into the political system.

[...] since the probability of being (re-)elected ultimately depends on the number of votes a politician can attract, the legislator should take into account both the electoral strength of an interest group (i.e. the share of voting population it represents) and its contributing possibilities when deciding whether to support or not legislation in favor of such group.

The main contribution of the paper is to show that the number of voters represented by interest groups is an important variable in explaining the pattern of campaign contributions. The data indicate that an inverted-U shape describes the relationship between the share of voters represented by an interest group and the contributions to a legislator.

[...] we find that an additional vote costs a politician between 100 and 400 dollars depending on the district.

The theory is elegant (and convincing), and the empirics plausible. Advice to voters: with the dollar at record lows, datacharmer recommends you take the cash deal.

An economist's dad

Levitt is a veritable gas guru, a leading expert on the underappreciated field of flatus -- intestinal gas that escapes via the southern route. He admits his unusual expertise has put his three kids (one of whom is economist and "Freakonomics" co-author Steven Levitt) through expensive universities.

The article, which covers a lot of scientific knowledge on flatulence, is fun to read. I found the experiment on the potency of male vs female gases fascinating, if somewhat disturbing.

And playing amateur psychologist here, maybe it's precisely this background that gave young Steven the idea of pursuing unusual - 'freaky' - subjects in his own discipline, and most readers of this blog know all about that.

HT Odd Numbers.

Friday Special 36

Extreme Hangman (be aware, content may be disturbing)

Phenomenal images of earth as seen from space

Visualization of Who has the oil

The Iowa Effect?

For the first time, Obama is now seen by the betting markets as the most likely Democratic nominee, and the most likely next President of the United States. If you believe otherwise, there's some good money to be made:

Clinton is not (too) far behind, but what an incredible reversal of fortunes this has been:

Betfair - very unhelpfully - does not label the x-axis, but the turning points shouldn't be too hard to guess.

Edwards, described by most commentators as also having a decent shot at the nomination, is in fact less than 3% likely to be given the Democratic crown. As for the rest of the Democratic pack, the betting markets have basically written them off. Next stop New Hampshire, with Obama having a 70% probability of winning and Clinton commanding most of the remaining 30%.

The Republican race is a multi-horse one, with McCain at the driving seat and slightly ahead of Giuliani. If you found Obama's graph impressive, take a look at this:

Notably, Giuliani is the favourite amongst his Republican colleagues in a different market, the one for predicting the next President.

Before leaving this post, thanks to those who emailed me following my failure to post anything for the past week - I've just been busy with less interesting stuff. Next week doesn't look like it will be much better, but I hope to have service return to normal by next Monday.

Friday Special 35

A home with outstanding design and a small ecological footprint

We know that we are tiny, but this really does put things into perspective

New York in black and white at various times

If clicks were votes on Political Maps

Nina Conti stand-up comedy