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Change.edu: Rebooting for the New Talent Economy
Change.edu: Rebooting for the New Talent Economy
by Andrew Rosen
Edition: Paperback
Price: $18.38
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14 of 25 people found the following review helpful
1.0 out of 5 stars A biased critique of Higher Ed and an infomercial, December 2, 2011
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This is a biased book written by the CEO of a for profit education conglomerate. Andrew S. Rosen goes much too far in conveying the decline in US Higher Ed. He states that it is a threat to our international competitiveness. He believes that as our international competitors out-educate us, their respective economies will outperform us.

Rosen's negative assessment of Higher Ed is self serving. Meanwhile, US Higher Ed still remains formidable. If the US still holds the lead in a few fields, Higher Ed is one of them. This is confirmed by many international rankings that invariably place American universities at the top. Rosen's negative assessment would be much more on target if it had been focused on the US primary education.

Additionally, the US Higher Ed offers far more options than its overseas competitors. Between liberal arts colleges, private and public research universities, and community colleges Americans have many options in higher education and lifelong learning. These services are delivered within a broad range of pricing including surprisingly cheap and effective options. People have the choice to go to a community college almost for free for the first two years and then transfer to an affordable state school for the next two as a commuter and graduate with an excellent degree at a reasonable cost.

Rosen paints a different picture to set up his only valid solution (for profit universities) for his manufactured problem (a profligate unfocused Higher Ed system). According to him all four year colleges are way overpriced country clubs that do not deliver pragmatic thinking for today's information age job market. And, for profit universities fill a gap of delivering such pragmatic education efficiently without wasting any funds on any of the country club peripherals (luxurious dorms, sports stadiums, etc...). Yet, in total contradiction with what he professes Rosen went to Duke undergrad and Yale Law school. His kids similarly attend such elite universities.

Rosen is a libertarian. For him, the competitiveness of the marketplace is the best discipline for any human endeavor especially higher education. According to him, it is in the personal interest of the executives who manage for profit universities to deliver the best product (great education with great career outcome) at the lowest possible cost. Otherwise, such institutions would not survive. By contrast, he views the traditional system propped up by Government spending as lacking any accountability and effectiveness given that tuition revenues represent only a minority of overall university revenues. He correlates this "problem" with health care as he thinks similarly that the health care crisis is the result of the customer paying only a small portion of the total cost of the service he pays. The true cost of the service being hidden by insurance and government programs.

However, even within a capitalist society there are domains best handled by the public or the non for profit sectors. And, both health care and education fall into this category. If the objective of a service provider is maximizing stockholder return, such an entity can serve its stockholder or its students (or patients). But, it can't do both. The US for profit health care system has been a disaster. It costs a lot more (volume driven medical procedures) and delivers a lot less (health outcome) than any other health care system within the OECD. And, so far there is little evidence that the for profit higher education system is not heading towards a similar train wreck.

For profit universities generate volume driven up front tuition payments ironically provided mainly by Government education programs. Also, this industry is plagued by very low graduation rates and very high loan default rates. Rosen tortures and cherry picks the data to turn a 30% graduation rate and 12% loan default rate among for profit universities into a superior performance. Rosen's argument is that for profit universities serve mainly low income students. And, that when you compare other institutions with similar student demographics the stats of the for profit universities all of a sudden look good.

For profit universities and low-income students make for the weirdest mismatch. For profit entities are ill equipped to deliver social services to the low income population. Rosen attempts to persuade that the sector's growth is a result of their providing a valuable service at an attractive price to a niche market. However, it seems more like a not adequately regulated for profit sector exploiting extraction of government subsidies (that account for a majority of tuition revenues) at the detriment of the student population it serves (low graduation rates and poor career outcome).

If for profit universities were so great don't you think middle and upper income families would have also waken up to their merits.

If you are interesting in Higher Education issues there are many superior books on the subject including Real Education: Four Simple Truths for Bringing America's Schools Back to Reality and Shakespeare, Einstein, and the Bottom Line: The Marketing of Higher Education.
Comment Comments (5) | Permalink | Most recent comment: Feb 21, 2012 9:25 AM PST


Our Idiot Brother
Our Idiot Brother
DVD ~ Paul Rudd
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2 of 2 people found the following review helpful
4.0 out of 5 stars Charming comedy, November 24, 2011
This review is from: Our Idiot Brother (DVD)
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This is a really charming comedy. Everything is good about this film. An excellent cast delivers all solid performance. Paul Rudd is very good in the lead role. And, all the female stars are fun to watch. The script is good. Directing is good. It makes for an entertaining hour and a half. However, there is nothing memorable or Oscar worthy about this movie. Six months down the road this movie will blend in with numerous not so memorable comedies you will have seen. Within the cluster of the not so memorable ones it may be among the better ones.


Levels of the Game
Levels of the Game
by John McPhee
Edition: Paperback
Price: $9.74
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6 of 9 people found the following review helpful
2.0 out of 5 stars 15-40, November 16, 2011
This review is from: Levels of the Game (Paperback)
Reading this book in 2011 was really interesting. 1968 was the year of the Big Bang for tennis with the onset of the Open era.

The whole character of this match between Ashe and Graebner feels like a period piece. Imagine at the time, being 6 foot tall was pretty tall for tennis. Nowadays, if you are not at least 6 foot you are short for this game. Back then, serve-and-volley was the dominant style of playing. Nowadays, it has completely disappeared. When is the last time you saw a guy rush the net routinely on his second serve? Well, maybe Taylor Dent a couple of years ago. That's when playing against a modern returner like Robin Soderling, Dent hardly picked up a game per set in two consecutive devastating losses. In other words, the standard style of play in 1968 is now obsolete. That's probably because 3 out of 4 of the Grand Slam tournaments were played on grass. Now, only Wimbledon is. And, they changed the quality of the grass and the pressure of the balls to slow down the game. Also back then, they did not play tie breakers. Sets could go on forever (scores like 10-8, 12-10 were not uncommon). Additionally, out of the 128 men field I think only one of them had a two-handed backhand (Cliff Drysdale who had a most formidable backhand at the time).

Despite the book historical interest, I felt like the book had a few weaknesses.

First, why politicize the game in the most meaningless way. The concept of Graebner playing conservatively like a Republican and Ashe more deliberately like a Democrat was the most vapid framework.

Second, McPhee picked up the wrong match. The 1968 US Open was among the greatest tennis tournaments of all time. The Ashe-Graebner match up was one of the dull ones compared to a cocktail of sensational match ups. The final between Ashe and Tom Okker was a far better match than Ashe-Graebner. Ashe ran into probably one of the most talented players of all time. Okker was a short, light footed, speedy, versatile, elegant Dutchman whose game most resembled Federer. Ashe barely won in 5 sets. If you wanted politics, you could get a lot more drama in the intense match between Cliff Drysdale from South Africa (in the days of the apartheid) vs Ashe. For a battle of the generations, the Pancho Gonzales - Tom Okker match must have been pretty great too. Okker won it in a tough 4 set battle. But, Gonzales must have been more than 15 years older. You never see such an age gap between pro tennis players nowadays.

In summary, this book is historically interesting. However, it could have been far more interesting.
Comment Comment (1) | Permalink | Most recent comment: Jul 31, 2014 4:05 PM PDT


Younger Next Year: Live Strong, Fit, and Sexy - Until You're 80 and Beyond
Younger Next Year: Live Strong, Fit, and Sexy - Until You're 80 and Beyond
by Chris Crowley
Edition: Paperback
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63 of 79 people found the following review helpful
1.0 out of 5 stars Pseudo science and dogma, November 11, 2011
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At the time this book was published (2004), Chris Crowley (one of the co-authors) was a 70 year old retired lawyer. He retired at 56 and became a fitness fanatic and decided to write a book about it with his primary doctor (Henry S. Lodge, M.D.). As a team, Dr. Lodge was to provide the science and Crowley the enthusiasm. Instead, Dr. Lodge provided the pseudo science and Crowley the dogma.

Dr. Lodge poses as a polymath scientist. But, he is not. He advances theories without supporting them. Much of the science he conveys is wrong. Quoting on page 43: "Worms and snails run their bodies and nervous systems with the same chemicals and hormones you're using right now as you read these words." This is way off. Worms are hermaphrodites and don't have gender related hormones (estrogen, testosterone). Worms and snails don't have the equivalent of a human brain and lack all related neurotransmitters. Also on page 43, he states: "Salmon have the same basic, physical brain you do." No, they don't. He goes on a clumsy page stating he was just referring to the "reptilian brain" that runs all our auto-pilot systems. Well, that's a very small portion of the human brain. On page 245 he states: "we survived because of our limbic brain, dinosaurs did not..." This is an absurd statement. For the record, dinosaurs lived zillions of years before humans. Dinosaurs were wiped out because a meteorite hit the Earth causing a cataclysmic climate change. Humans would not have survived this catastrophe. On page 112: "we function better... on less sleep when we are fit [exercise a lot everyday]." I doubt that. After intense sport activities you actually need much rest including sleep. But, the authors truly feel that their mandatory daily 45 minute to an hour of exercise is worth cutting an hour of your sleep to make it fit into your 50 hour workweek. This is a recipe for burn out, stress, and sport injury. At one point, he also states that people smoking a pack of cigarette a day and being 30 pound overweight had a lower mortality risk than thin sedentary people. Where did they find a representative sample of individuals who smoke a pack a day, are still 30 pound overweight, but exercise nearly an hour a day and did that long enough so one could track their mortality risk? This story does not make sense. Dr. Lodge also advances on page 53 that by 2024 they will confirm that not exercising vigorously at least 6 times a week (as he recommends) will be deemed to be as deadly as smoking two packs of cigarettes a day. That's highly unlikely. On page 68, the subject of Cytokine is far more complex and broader than Dr. Lodge indicated. Dr. Lodge theory is that every day you do not exercise vigorously certain Cytokine types cause your body to chronically decay. But, according to recent research bursts of daily exercises are not as effective as Dr. Lodge indicates. And, it does not compensate for all the sitting around we do. When sitting enzyme activity drops by up to 95% leaving more fat in the bloodstream with negative cholesterol implications.

Crowley is all about dogma. Crowley goes nuts about the 6 day thing. Quoting page 52: "Why six days [a week of intense exercise]? ... Isn't anything better than nothing? No, you silly son of a .....! It's not better than nothing! It's six days because it has to be. Don't argue." Crowley spends a lot of time reading his heart rate monitor. And, since he does he also obliges you to do the same. He reads his heart rate monitor first thing in the morning and every time before, during, and after each of his workouts. He logs the results in a daily journal. For him, it is a mandatory way to measure the intensity of his workouts. Instead get your blood pressure every 6 months (at Walgreens). Your blood pressure is a far more important measure of your cardiovascular health than your pulse rate taken 5 times a day.

Both authors discount any merit of daily activities. Yet, daily activities decrease the amount of time sitting more than the intense sport regimen promoted by the authors. Also, they overlook the need to maintain flexibility. Dr. Lodge even conveys that Yoga is somewhat dangerous. With age we lose flexibility faster than strength. The lack of flexibility impairs balance and causes one to fall.

The authors recommend The Okinawa Program : How the World's Longest-Lived People Achieve Everlasting Health--And How You Can Too as a nutritional book. They miss the point. "The Okinawa Program" is also a far superior fitness book to theirs. Just browse through its chapter 6 titled `Lean and Fit.' You will get a totally different approach on how to age well. Japanese age well simply by remaining active (gardening, walking everywhere, etc...). They don't lift weights and don't do much endurance exercise. Instead, they practice a mellow activity: Tai Chi. The latter keeps their body well toned, balanced, and flexible with far less effort than the authors program.

Besides the Okinawa Program, I also recommend as another sensible alternative the CDC exercise guidelines. They amount to half as much as "Harry's Rules."
Comment Comments (8) | Permalink | Most recent comment: May 13, 2013 8:39 AM PDT


Buy and Hedge: The 5 Iron Rules for Investing Over the Long Term (Minyanville Media)
Buy and Hedge: The 5 Iron Rules for Investing Over the Long Term (Minyanville Media)
by Jay Pestrichelli
Edition: Hardcover
Price: $20.93
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60 of 89 people found the following review helpful
2.0 out of 5 stars Misrepresenting the effectiveness and challenges of option hedging, November 5, 2011
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The authors have done a good job of explaining in a very accessible way option strategies and hedging. But, the authors have not supported their case that Buy & Hedge is superior to Buy & Hold. Also, by keeping their topic digestible to the layperson they have overlooked all the technicalities that render option hedging far more challenging than they represented.

Ok, here is how they think they support the superiority of Buy & Hedge. They stated that they conducted a study in 2010 at TD Ameritrade. They also indicated that their own record using that strategy for the past 3 years worked remarkably well during a most challenging market. At their website, they do show that from January 2008 to August 2011, their track record beat the heck out of the S&P 500. But, that is not good enough supporting evidence. They disclose nothing about the TD Ameritrade study. I suspect the vast majority of the clients are active investors and traders. And, that none were passive investors invested in a well diversified portfolio of market indizes representing various asset classes. Additionally, their own 3 year record is way too short to mean anything. And, in both cases they do not disclose any data comparing Buy & Hedge vs Buy & Hold of a well diversified portfolio of various asset classses over a relevant period of time (20 years or so would be more like it). So, based on their statements we can't tell if Buy & Hedge is such a superior strategy.

Option hedging is a lot more challenging than the author suggests. Let's go over the main hedging strategy they cover in chapter 21: Collars. You are long a stock, you buy a Put to cover your downside, and you sell a Call to give up some of the upside to finance the premium of the Put. On paper it is perfect. You achieve zero premium portfolio insurance. You have reduced the volatility of your return. And, you are bound to achieve superior risk adjusted returns just as the author suggests. Well, not so fast. The option markets have certain feature that render this strategy far less effective than it sounds. The option markets have a very strong skewness. This means that to finance the Put you have to sell a lot more of the upside than you would care to. Looking at actual data at Option Express on the S&P 100 options, at the same premium level, the downside you have to keep is typically twice as large as the upside you can keep. Let's say you buy a Put where you retain just a 10% downside risk. Typically, to finance this Put you will have to sell a Call that lets you retain only 5% upside. If your Put is at a 20% downside, the Call lets you retain just a 10% upside. Those figures are not exact, but they are representative and conservative. They are often even more skewed (Put at 20% Call at only 7% for the same premium). Essentially, this skewness combined with the natural long term upward bias of the market renders this strategy far more challenging and less effective than the authors represented.

Another challenge is that options are typically a lot more expensive than they should be. Prices of options are driven mainly by volatility. I should rephrase that to mean perceived volatility also called implied volatility. Implied volatility is often 50% higher than historical volatility. That's a problem. That means that options are way overpriced. Combined with the skewness mentioned above, this is going to render the mentioned option hedging strategies even more challenging.

In view of all of the above, the authors recommended strategies appear way out of reach for the layperson. This is true for other reasons. It is extremely time intensive. They recommend you track your portfolio closely at least twice a week. If you actually follow their recommendations of having specific Puts for every single stocks you own you will probably be engaged in your portfolio monitoring every single day (weekend probably included). Option strategies are also associated with huge cash flows in and out of the market. This is either because you exercise a Put or you are assigned one of your Calls; or it can be because of cash requirements to cover your maximum potential losses on Calls you sell. Also, option strategies result in more frequent and large taxable events (mainly short term) vs a Buy & Hold strategy.

If after all the warnings above you still feel this is a good strategy, I suggest you hire professionals to do it. You will save hours a week of time. And, you will achieve a far better performance than you could on your own at a very reasonable price. There is a mutual fund that implements exactly the main strategy mentioned by the authors (the Collars mentioned above): Gateway Fund (GATEX). GATEX is a successful mutual fund with a very long track record associated with reasonable costs (5% upfront sales load and 1% yearly operating expenses).

So, is Buy & Hedge superior to Buy & Hold? I am not so sure. I compared the risk adjusted returns of GATEX with Vanguard Balanced Index (VBINX) that is 60% equity/40% bond through broadly diversified market indizes. Depending on the time selection one can beat the other. But, over the longest time series going back to 1987 (extended the VBINX record by using longer track record of underlying Vanguard indizes funds), the VBINX was clearly superior to GATEX even on a risk adjusted basis. For the record, GATEX performance over the January 2008 to August 2011 period is not nearly as spectacular as the authors as disclosed at their website. But, GATEX performance is publicly disclosed meanwhile the authors is not. If you presume you could beat GATEX performance and replicate the authors', you may make a serious error.
Comment Comments (21) | Permalink | Most recent comment: Jul 27, 2014 5:24 AM PDT


Beyond the Keynesian Endpoint: Crushed by Credit and Deceived by Debt — How to Revive the Global Economy
Beyond the Keynesian Endpoint: Crushed by Credit and Deceived by Debt — How to Revive the Global Economy
by Anthony Crescenzi
Edition: Hardcover
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14 of 26 people found the following review helpful
2.0 out of 5 stars Misinterpreting Keynes, the Fed, and China vs the US, October 28, 2011
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The author goes on an uninterrupted and misguided rant against Keynes. Keynes advanced that economies are in a frequent state of disequilibrium. They often either overheat or contract. And, the Government should use countercyclical fiscal policies to manage those disequilibria (running Budget Surpluses when an economy overheats and Budget Deficits when it contracts). Crescenzi misinterprets Keynes by suggesting he was the first champion of running chronic Budget Deficits to fuel economic growth at all times. Yet, Keynes is just as much against the chronic structural Deficits the US has been running for decades as the author is. Nevertheless, Crescenzi restates his misinterpretation of Keynesianism ad nausea.

Crescenzi also harps relentlessly at the Fed. He calls Quantitative Easing I & II Ponzi schemes. That is an egregious and erroneous statement. QE I one was focused on buying real estate related securities to lower mortgage rates, reduce the acceleration of foreclosures, and stabilize home prices. And, QE I succeeded in some degrees on all three counts. QE II was focused on buying Treasuries to lower long term rates, put a floor under a vulnerable economy, and generate credit capacity within the Banking system. QE II succeeded on two counts out of three (credit demand is still lackluster). Crescenzi feels the resulting large balance sheet of the Fed amounts to monies will never see again in part lost to future inflation. This is highly unlikely given the excess capacity throughout the entire World economy. Also, contrary to what Crescenzi suggests the Fed's downsizing its balance sheet will be easier than he thinks. It is essentially self-liquidating as the mortgage related securities amortize and the Treasuries mature.

Crescenzi dialogue on US vs China is biased. He writes a book about the US at a time the latter's economic performance is struggling and one major rival (China) is doing much better. Next, he extrapolates the current trend into the future forever by focusing solely on all the US weaknesses (low savings rate, large Current Account Deficits, rising Debt level, slow economic growth) and the strengths of its main rival China (high savings rate, Current Account Surplus, low Debt level, faster economic growth). But, that makes for an unbalanced and biased analysis that is unlikely to hold up. There are many causal factors the author overlooks. The US is not dead yet. The US is one of the most open societies in the World. It has the most formidable university system, entrepreneurial climate, venture capital, and capital markets. It is a magnet for innovators who want to finance and implement their ideas. Meanwhile, China is a most closed society. It is incapable of tolerating open and equal communication. In an information based age this is an impairing handicap leading to a lackluster innovation record. The US with only one fifth of the population generates far more patents per year than China. While Crescenzi thinks that the banker is king (China being the largest creditor to the US). One could just as readily argue that the customer is king (the US being one of the largest customers of Chinese exports). Contrary to what Crescenzi suggests, the Chinese central bank will not readily sell their US Treasuries to earn a better return someplace else. This is because China intently keeps its currency artificially low relative to the Dollar to boost its exports.

Crescenzi avoids all the complexities of demographic issues. He acknowledges the US population is aging and its consequences it has on health care costs and fiscal constraints (Medicare and Medicaid taking over the Budget). We all agree with that. But, then he simply interjects that the US Government is badly run. It spends way too much on health care. It should instead cut health care spending and spend more on education. Again, he praises the Chinese for their fiscal frugality including no spending in health care. This is an unrealistic comparison between one of the most advanced society in the World vs one that has a living standard of a third world country where the elderly live with no safety net in miserable condition that Americans would find intolerable. Also, Crescenzi ignores the Administration Health Care Reform endeavor of extracting $500 billion in Medicare related savings over the next decade.

The book is not all bad. Crescenzi introduces the reader to some really interesting work. This includes the work of James M. Buchanan, a 92 year old economist who received the Nobel prize in 1986 for his pioneering research on public choice. Crescenzi leverages this work in elegantly explaining the pension crisis due to the undue influence of public unions on local fiscal issues and election of politicians. He also introduces the very interesting work on quantifying the fiscal multiplier of government spending on economic growth from Ilzetzki, Mendoza, and Vegh. However, Crescenzi uses this paper as an ammunition to lambast the 2009 $787 billion economic stimulus. But, the three co-authors contrary to what Crescenzi stated support this economic stimulus because the vast majority is tilted towards investments that is associated with a high fiscal multiplier. Crescenzi coverage of the Greek crisis is excellent. Greece is the poster boy for the "Beyond the Keynesian Endpoint" situation. But, Crescenzi far too readily associates the US with Greece. The US has so many assets that Greece does not have including autonomous fiscal and monetary policies, an autonomous and flexible currency, a world reserve currency, and leading capital markets. Additionally, the US is still far from the Keynesian endpoint that Greece has already crossed (when interest rates on government debt runs much higher than the long term nominal GDP growth rate of a country).

I recommend a far better book on the subject: Fault Lines: How Hidden Fractures Still Threaten the World Economy [New in Paper]


This Time Is Different: Eight Centuries of Financial Folly
This Time Is Different: Eight Centuries of Financial Folly
by Kenneth S. Rogoff
Edition: Paperback
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52 of 55 people found the following review helpful
2.0 out of 5 stars Serious methodological flaws, October 26, 2011
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On April 15, 2013, a year and a half after I had first published this review a study by Thomas Herndon, Michael Ash, and Robert Pollin from the U of Massachusetts came out and refutted the authors main thesis that once a country reaches a Debt/GDP ratio of 90% sees its economic growth contract nearly automatically. This had become a covenant of libertarians such as Paul Ryan and Europeans promoting fiscal austerity. It turns out that Reinhart and Rogoff studies were completely wrong. R&R made numerous mistakes pointed out by the U of Mass team. The main one was to exclude three years out of the New Zealand data during a high Debt/GDP period. During those three excluded years New Zealand had grown very rapidly which contradicted R&R thesis. Once you make those corrections (including a few others that were minute by comparison), there is no statistical difference in growth rate between countries with high Debt/GDP ratio vs ones with lower ones. So much for Austerity. This is a devastating blow to what we thought was a classic study on the subject. Below see my original review. Notice that I had also observed many other flaws with their work but not the one mentioned above since I never saw the data firsthand.

This book is both fascinating and flawed. Starting with the flaws:

First, the book is mistitled. It covers the last 200 years not the last 800.

Second, their crisis framework is convoluted relative to the crystal clear framework of Charles Kindleberger in Manias, Panics, and Crashes: A History of Financial Crises (Wiley Investment Classics). The latter leans on the seminal work of Irving Fisher The Debt-Deflation Theory of Great Depressions and Hyman Minsky (the credit cycle exacerbates the business cycle) that the authors completely ignore.

Third, some of their analyses are obfuscating. They baffle the reader on how frequently emerging market countries default with surprisingly low external debt levels. Later, the authors clarify that debt levels are far higher when including domestic debt; then the baffling turns into the self-evident.

Fourth, in Chapter 16, their development of a crisis index measure is weak with no predictive power. The first two graphs capturing this index (ranging from 1 to 5) over the past 100 years have the wrong y-axis (ranging from 0 to 180?) rendering the graph incomprehensible (pg. 253, 254). Two pages later, they use the correct scale (1 - 5).

Fifth, the graph on page 267 denoting the % collapse of exports during the Great Depression has the wrong sign.

Sixth, some of their conclusions are already outdated. They advance that Greece, Portugal, Italy, and Spain are all doing better than in recent years. The book came out in 2009; didn't those countries show signs of fiscal stress? Since 1800, Greece suffered external debt defaults or rescheduling in over 50% of the years.

Seventh, their argument that large Current Account Deficits (CADs) fuel housing bubbles is not supported. When they show the magnitude of the rise in housing prices over 2002 - 2006 for many countries (Fig. 15.1), it is unclear if there are any relationship between high CAD and housing Bubbles. The housing bubble was far greater in many former USSR satellites than anywhere else (unclear if they had high CADs).

Moving on to the ambivalent OK parts:

1) Their early warning indicators of banking and currency crises (Table 17.1) are interesting. They indicate that 12 month changes in real housing and stock prices are good early signals for banking crises. They mention other metrics such as CAD levels. But, those indicators are unsupported by any statistical analysis.

Moving on to the good parts:

1) Their prototype sequencing of crises represents their best work. It shows how a nation can experience in succession financial deregulation, banking crisis, currency crash, inflation spike, and ultimately default. The tipping point is when a government faces an untenable choice between defending its currency (restrictive policies) and shoring up its financial sector (expansive policies). Governments invariably abandon supporting their currency.

2) Their historical data facilitate interesting observations:

2a) Crisis related to sovereign risks are so frequent, you wonder how countries ever manage to raise debt. While developed countries have "graduated" from defaults, they have not from banking crises. Since 1800, the UK, US, and France have experienced 12, 13, and 15 episodes of banking crises. Banking crises have been frequent since the 1980s. Developed countries are prone to banking crises because financial deregulation is a causal factor. In 18 of 26 banking crises observed since 1970, the financial sector had been liberalized within the preceding 5 years.

2b) Post WWII financial crises have been severe. On average, real housing prices decline by 35% over 6 years; stocks crash by 56% over 3.5 years; unemployment rate increases by 7 percentage points; GDP contracts by 9%; and, public debt rises by 86%.

2c) The US Subprime crisis was more severe than any other post WWII financial crisis. Its housing and stock market bubbles were more pronounced. The US CAD as a % of GDP was larger. The downturn in GDP was more severe. The resulting increase in public debt was faster. The ramp up of all mentioned indicators suggested a financial crisis was imminent. The authors remark that if the US had been an emerging market relying on external debt (in foreign currency), the US dollar value would have plummeted and interest rates soared.

3) When the authors move on to the US Subprime crisis, they note how the majority of experts, including Bernanke and Greenspan, were not concerned regarding the rising US Current Account Deficit (CAD) and rising housing prices. These experts stated the CAD and home price increases were associated with a World savings glut resulting from Asian export led economies. Meanwhile others (Rubini, Krugman, and the authors) were concerned about the CAD sustainability (absorbing 2/3d of World savings), housing prices (in real term rose by 92% between 1996 and 2006 or more than 3 x the 27% increase from 1890 to 1996! See graph pg. 207) and the massive increase in US household debt (rose from a norm of 80% of personal income to 130% by 2006).

If you are interested in this subject, I also recommend Raghuram Rajan's Fault Lines: How Hidden Fractures Still Threaten the World Economy [New in Paper].


Blue Revolution: Unmaking America's Water Crisis
Blue Revolution: Unmaking America's Water Crisis
by Cynthia Barnett
Edition: Hardcover
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11 of 13 people found the following review helpful
3.0 out of 5 stars It is no Cadillac Desert., October 10, 2011
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In summary, this book is well researched and informative. However, Cynthia Barnett excludes from her investigation the national positive trend in water conservation. And, her recommendations are too vague. It is also boring, especially in comparison with Marc Reisner Cadillac Desert: The American West and Its Disappearing Water, Revised Edition that is twice as long.

Cynthia Barnett indicates that the largest user of water is electric utilities. Within our information world, technology = rising electricity consumption = water constraints. Thus, our civilization relying on information bits ultimately runs on water.

Barnett, just like Reisner did 25 years ago, confirms agriculture is the most wasteful sector with the greatest potential for water conservation. American irrigation benefits from wasteful $4.4 billion subsidies. A good deal of those are applied to rice; half of which is exported. Wasting water on exporting rice is incoherent. California is the largest agricultural state. Yet, agriculture accounts for only 4% of the State GDP and even far less of its employment.

Barnett indicates the Green Revolution is not Blue. Many alternative energies are huge water guzzlers. It takes 10 times as much water to generate power for a plug-in electric vehicle as to produce gasoline for a regular car. Ethanol consumes 20 times as much water for every mile traveled than regular gasoline. Large scale concentrating solar power (CSP) plants are very water intensive. If you want to study this issue further I recommend Robert Bryce books: Gusher of Lies: The Dangerous Delusions of "Energy Independence" and Power Hungry: The Myths of "Green" Energy and the Real Fuels of the Future that demonstrate the wasteful water and land resource footprint associated with alternative energy.

Barnett uncovers that within the US, it is in the driest cities most stressed for water that residents use the most. In Las Vegas they use 227 gallons per person per day or over 50% more than the national average of 147 gallons. This is because in Las Vegas given the hotter temperatures residents use more water to maintain lawns. Lawn is the number one crop in America. We irrigate our lawns twice as much as needed. Barnett advances that consuming so much fresh water to maintain lawn does not make sense. Similarly, the growing trend of water parks and golf courses everywhere makes little sense from a water resource standpoint. Throughout the dry Southwest and even the Great Plains we are depleting our water aquifers. This could have dire consequences for our agriculture.

Barnett travels the world to study water issues starting with the Netherlands that developed a world class dike and dams to protect the country from sea generated flooding. By comparison the U.S. is more than half a century behind. The Netherlands infrastructure would have fully prevented Katrina's destruction. She also travels to Singapore that is probably the most water efficient society. They consume 40 gallons of water per person per day or 73% less than the U.S. They treat enough wastewater to meet 30% of their freshwater need. Two thirds of the area was turned into water-storage making for a giant water cistern. Later, she goes to Perth, Australia. Perth was the equivalent of Las Vegas, as another water wasteful city with a dry climate. But, due to necessity within a decade they moved from being Las Vegas-like to becoming Singapore- like.

Barnett indicates that even some American cities and counties have followed in the water conserving footsteps of Perth and Singapore. San Antonio, TX, is another city in a dry climate that originally was very wasteful. But, due to pressing water constraints it managed to reduce its water consumption by half from 225 gallons per person per day (gpd) in the 1980s to around 115 gpd currently. Over the same period Boston has reduced its water consumption per person per day by 43%. Sarasota in Florida pretty much did the same. Monterey in California became one of the champions of water conservation with one of the lowest US consumption per capita (70 gpd). The local private water utility did it through innovative means including tiered water rates that rendered lawn very expensive. Another growing trend is the promotion of rainwater-harvesting systems in Arizona, New Mexico, Colorado, North Carolina.

Barnett speaks of the water-industrial complex just as Eisenhower mentioned the military-industrial complex over 50 years ago. Barnett indicates that regarding water policies it is the most expensive solution (water dams, reservoirs, pipelines) that wins. Water efficiency costs between $450 to $1,600 for every million gallons it saves. That is far less than any other alternative. For instance, desalination costs $15,000 per million gallons of water. Yet, during the most recent $790 billion stimulus package $billions went to expensive water management projects. Virtually no money was disbursed for water efficiency.

However, the book has mentioned weaknesses. Barnett does not flesh out the national contemporary improvement in water conservation. Between 1975 and 2005, US population has increased by 36% to 300 million. Yet according to the USGS, US water consumption has remained flat thanks to an overall 27% water conservation rate. During the same period, U.S. electricity generation has doubled. This entails a 50% water conservation rate in water per KWH generated. Agriculture has also become more water efficient. Barnett briefly recognizes that rice (the main water wasting culprit in "Cadillac Desert") is now grown with 40% less water than in the 60s. But, she does not adequately cover all the mentioned positive national water conservation trends that jump at you when studying the USGS data.

Barnett cassandra tone is still warranted. Mounting pressure on water scarcity will be tremendous. The U.S. population is expected to rise by 45% to 450 million by 2050. To keep water consumption flat this entails another 31% reduction in water consumption per capita on top of the 27% reduction we achieved between 1975 and 2005.

Barnett also remains vague on her Blue Revolution recommendations. Her main ones are to stop depleting the aquifers and stop large water projects. Based on her research, she could have been far more incisive and should have recommended: 1) eliminating agricultural water subsidies; 2) curbing rice exports; 3) abandoning ethanol; 4) discouraging electric cars; and 5) mandating higher water rates to irrigate lawns. Those suggestions entail that water be repriced upward for all sectors so to take water out of the tragedy of the commons.
Comment Comments (4) | Permalink | Most recent comment: Jul 14, 2012 11:14 AM PDT


The High-Beta Rich: How the Manic Wealthy Will Take Us to the Next Boom, Bubble, and Bust
The High-Beta Rich: How the Manic Wealthy Will Take Us to the Next Boom, Bubble, and Bust
by Robert Frank
Edition: Hardcover
46 used & new from $0.22

31 of 32 people found the following review helpful
5.0 out of 5 stars The fascinating impact of the High-Beta Plutonomy, September 30, 2011
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This is an excellent book about a little known subject: Plutonomy. The Plutonomy theory was advanced in 2005 by three Citigroup stock analysts, including Ajay Kapur mentioned in the book. Their research report was called "Plutonomy: Buying Luxury, Explaining Global Imbalances." This theory was so controversial that Citigroup removed it from its website. The main point is that the rich (typically defined as the top 1% of earners) control a very large and rising share of national consumer spending. Mark Zandi, the chief economist for Moody's Analytics uncovered that the top 5% of American earners account for 37% of consumer spending (up from 25% in 1990). This same group has also the lowest savings rate at 1.4% vs 8% for the rest of Americans. Therefore, their spending habits have a disproportionate impact on the overall economy including our savings rate and related Current Account Deficit.

Robert Frank advances the Plutonomy theory further by tying Ajay Kapur's work with the working paper of two Northwestern University economists, Jonathan A. Parker and Annette Vissing-Jorgensen titled "The Increase in Income Cyclicality of High-Income Households..." Fusing those two works, Robert Frank states that since 1982 the rich have become risk takers and gamblers. This is because starting in 1982 government policies have favored risk taking by lowering interest rates, inflation, and taxes, and deregulating the financial markets. The combination of those policies contributed to an excessive extension of real estate credit and a succession of real estate and stock market bubbles caused in part by the High-Beta Rich exploiting the mentioned government policies.

One of the most powerful insights from this book is that the High-Beta Rich are very vulnerable and associated with a rapid turnover among their ranks. Among the top 1% of American earners (income > $380,000), only half made the cut more than once over a ten-year period (pg. 217). Frank also shows two charts early in the book that compare the gains and losses in income of the top 1% in the U.S. vs all taxpayers. Before 1982, the fate of both groups was similar. Then, after 1982 the two groups diverged radically. Whether up or down, the changes for the top 1% became a high multiple vs the norm. The top 1% boosted their income a lot more during expansions. But, their loss was also far greater during contractions. This is because the High-Beta Rich have a surprisingly low savings rate and are very leveraged. Their leverage does multiply both their gains and their losses. The mentioned economists uncovered that before 1982, the top 1% had a Beta of less than 1 (meaning they took less risk than the general population and their fortune was less volatile). But, after 1982 their Beta jumped to between 2 and 3 as they took on far more risk than the general population. Their high Beta is due to a greater concentration of their wealth in volatile assets such as stocks and real estate and a greater leverage.

The High-Beta Rich volatile income causes chronic Budget Deficits at all levels. In California the top 1% of earners were paying 41% of taxes during the dot.com boom in the late 90s. Capital gains taxes accounted for a large share of tax receipts. When the dot.com Bubble burst California tax revenues tanked and it experienced chronic State Budget deficit crises in the early 2000s. However, by 2007 the top 1% of earners were accounting for an even greater share of CA State tax receipts at 48% (nearly half!). This was due to a recovery in the stock market (capital gains tax) and the housing boom (property tax). The ensuing financial crisis caused the rich income to drop by three times as much as the general population (Beta of 3). By 2011 California tax revenues cratered associated with a $26 billion budget hole. The same is true for New Jersey, New York, and Connecticut with many High-Beta Rich. It is true at the Federal level as the top 1% earners pay more than 38% of federal income taxes.

Frank states that the financial behavior of the High-Beta Rich contributes to exacerbating business cycles with more bubbles and ensuing crashes of greater magnitude and greater frequency than otherwise. Large concentration of wealth may be both a cause and effect of bubbles. Speculative asset bubbles correspond to periods of highest inequality. By 2007, the US top 1% controlled 34% of the nation's residential real estate. Between 1989 and 2007, they increased their relative exposure to real estate by 50% by quadrupling their mortgage debt level over the same period.

If you want to further study the impact of deleveraging, the best book on the subject is Irving Fisher The Debt-Deflation Theory of Great Depressions. Originally published in 1933, it also better explains the current financial crisis than most current books.
Comment Comments (2) | Permalink | Most recent comment: Dec 24, 2011 3:43 PM PST


The Beekeeper's Lament: How One Man and Half a Billion Honey Bees Help Feed America
The Beekeeper's Lament: How One Man and Half a Billion Honey Bees Help Feed America
by Hannah Nordhaus
Edition: Paperback
Price: $10.41
88 used & new from $0.93

14 of 27 people found the following review helpful
2.0 out of 5 stars A lament to the end of our civilization. Not yet., September 21, 2011
This is a well written book. John Miller, the main character in the book, is a worthwhile eccentric to write about (beekeeper, Wall Street Journal reader, marathon runner, spreadsheet fanatic, sports car and speed enthusiast, etc...). Yet, I have much reservation regarding the main theme of this book. The author gives you a sense that bee colonies have been decimated since 2005. In that same year, supposedly 33% of the nation's hives collapsed. The author indicates that bees appear on a permanent decline and that our food crops are critically vulnerable to their progressive disappearance. The author mentions that if not for the bees our harvest would be 25% lower.

The idea that the formidable US crop basket would be so vulnerable to bees that are in turn decimated by a mysterious disease, Colony Collapse Disorder (CCD), is enough to induce panic. Fortunately, a few hours researching the data at the USDA National Agricultural Statistics Service (NASS) quickly dispels this Cassandra theme.

The decline in bees is far slower than the book entails. Per NASS data, since 1986 the number of bee colonies has decreased by less than 18%. That's less than 1% per year. Additionally, the bee colonies are experiencing a robust resurgence in both 2009 and 2010. Based on current trends, bee colonies may well fully recover and reach their 1986 level again in the near future. In 2005, granted a bad year (the CCD scare) bee colonies shrank by only 5.6%. That's a lot less than the 33% the author states. For all the hype about CCD, a review of the data suggests that downturns in bee colonies appear to be cyclical. At the national level, the downturn in 2004 through 2006 pales compared to the more pronounced and lengthy downturn of 1991 to 1996. Also, any small percentage annual decrease in bee colonies is frequent given that every winter losses are severe.

The link between bees and food crops is not as deterministic as the author advances. Here I focused on California where John Miller, the main character within the book, spends half the year. This is also the region that has numerous crops that are supposedly the most dependent on bee pollination. The main one is almond. Many say that if not for bees California would not produce any almonds. After reviewing the NASS data, this is hard to believe. Looking at California almond production since the year 2000; it has a reasonably strong negative correlation and regression coefficient vs the number of California bee colonies (using honey production as the independent variable produces the same result). In other words, the data strongly contradicts the author's narrative. I understand that correlation does not mean causation. But, if California almond production is truly dependent on bee pollination alone (unlikely) then the data would indicate California has far more bee colonies than it needs to produce almonds. I studied other California crops supposedly dependent on bee pollination (strawberry and raspberry). And, the findings were directionally identical vs almond. In other words, since 2000 California the production of almonds, strawberry, and raspberry has trended strongly upward meanwhile the number of bee colonies have slowly declined over the same period.

I encourage anyone to study the insightful NASS data to give this book a much needed reality check.
Comment Comments (4) | Permalink | Most recent comment: Jun 13, 2013 5:54 PM PDT


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