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links for 2010-03-03

Five Things Worth Reading, Mostly Economics: March 3, 2010

1) Gary Gorton: Questions and Answers about the Financial Crisis:

All bond prices plummeted (spreads rose) during the financial crisis, not just the prices of subprime- related bonds. These price declines were due to a banking panic in which institutional investors and firms refused to renew sale and repurchase agreements (repo) – short-term, collateralized, agreements that the Fed rightly used to count as money. Collateral for repo was, to a large extent, securitized bonds. Firms were forced to sell assets as a result of the banking panic, reducing bond prices and creating losses. There is nothing mysterious or irrational about the panic. There were genuine fears about the locations of subprime risk concentrations among counterparties. This banking system (the “shadow” or “parallel” banking system) – repo based on securitization – is a genuine banking system, as large as the traditional, regulated and banking system. It is of critical importance to the economy because it is the funding basis for the traditional banking system. Without it, traditional banks will not lend and credit, which is essential for job creation, will not be created.

2) Austin Frakt: Medicare Advantage Payments Illustrated:

My post earlier today explained the difference between administrative and competitive pricing systems. The administrative pricing system I study (a lot) is that for Medicare Advantage (MA) plans.... Health care wonks know that an individual enrolled in MA costs Medicare more than (s)he would if (s)he enrolled in traditional fee for service (FFS) Medicare. MedPAC and CBO have both estimated that MA plans are paid about 12% to 14% more than FFS Medicare (depending on year). Both organizations have recommended cutting MA payments, and the House, Senate, and President’s health reform proposals would do so, though in different ways...

3) The Brads: Why DRM Doesn’t Work:

How to download an audio book from the Cleveland Public Library

4) GRAPH OF THE DAY: From Menzie Chinn:

Econbrowser: What Are These Three Numbers?

Deficit effects of the Bush 2001 tax shift (EGTRRA), the Bush 2003 tax shift (JGTRRA), and the current health care bill (PPACA).


Lindzen and “No statistically significant warming since 1995″: I discussed the ‘no statistically significant warming since 1995’ talking point on my blog recently This talking point has been around the delusionist blogosphere for some time, though with a lower profile than ‘global warming stopped in 1998’, and was put as question to Phil Jones of UEA in a BBC interview. Jones answered honestly, if a bit clumsily, that the data period since 1995 is marginally too short to derive a statistically significant trend, a response which was headlined by the Daily Mail as “Climategate U-turn as scientist at centre of row admits: There has been no global warming since 1995?” and became the talking point of the day. As has been widely noted, confusing not statistically significant’ with ‘not significant; in the ordinary sense indicates either deliberate dishonesty or ignorance of a point covered in excruciating detail in every introductory stats course. But where did this silliness come from?... I discovered the point being made (and apparently originated) by Richard Lindzen of MIT.... In a piece published on “Watts Up With That” Lindzen says ‘There has been no warming since 1997 and no statistically significant warming since 1995’. Lindzen illustrates this claim with a graph he appears to have made up for the occasion, complete with unexplained error bars.... In this piece for Quadrant he gives a variation, saying “has been no statistically significant net global warming for the last fourteen years” and “the fact that warming has ceased for the past fourteen years is acknowledged” . Note the slide from “has been no statistically significant net global warming for the last fourteen years ” to “warming has ceased”, committing the basic newbie error against which all budding stats students are warned.

Lindzen has published a couple of hundred papers in climatology, so I think we can assume he knows that the statement “there has been no statistically significant warming since 1995” means nothing more than “given the variability in the data, we need at least 15 observations to reject the null hypothesis at 95 per cent confidence”, a fact so trite as not to be worth mentioning. It is sad to see a respected scientist reduced to this kind of thing. And as far as I can tell, all this is simply to avoid admitting that he backed the wrong horse back in 1990, when he bet that he was smarter than the majority of climate scientists who thought humans were (probably) causing global warming. The data since then has supported the majority view, but instead of revising his position, Lindzen has resorted to dishonest statistical trickery.

To quote The Economist, with respect to the Daily Mail

Since I’ve advocated a more explicit use of the word “lie”, I’ll go ahead and follow my own advice: that Daily Mail headline is a lie.

But at least the Daily Mail headline writer could plead ignorance. Lindzen has no such excuse.