We have witnessed a tragic tornado outbreak this week, one for the record books. The fatality total as of this morning now definitely appears to have topped the April 1974 Super Tornado outbreak. The question many people have been asking is why this outbreak was so deadly. As a tornado impacts researcher, the important question is whether the death toll was due to this being a meteorological outlier event, or due to heightened vulnerability. The southeastern U.S. is vulnerable to tornado casualties; meaning that controlling for the strength, timing, and tornado path characteristics, tornadoes in the Southeast kill and injure more people than tornadoes elsewhere. In my recent book on tornado impacts with Kevin Simmons, we estimated state fixed effects for twenty eight states, and constructed a casualty index based on the fixed effects from various specifications. The indexes are based on tornadoes through 2007. A higher value of the index indicates that tornadoes in the state result in more casualties, everything else equal. Here are the index values and ranks (out of 28 states) for the states with fatalities in Wednesday's outbreak:
Alabama 1.63 23
Georgia 2.65 26
Mississippi 0.91 13
Tennseessee 1.78 24
Virginia 0.72 9
The tornado outbreak struck states which historically have been vulnerable. The Southeastern vulnerability is also associated with the off-season, night time, and mobile home vulnerabilities. While we are waiting for the individual tornado paths to be identified and rated, it is hard to draw conclusions about this event. But it does not fit the standard Southeastern vulnerability, as it occurred during the prime tornado season, and during the late afternoon hours. Many of the deaths in Tuscaloosa and Birmingham appear to have been in permanent homes. It appears to have been more of a problem of multiple long track, violent (F4 or F5) tornadoes.
Many observers have been comparing this outbreak with the 1974 Super Outbreak. As a social scientist who studies tornado impacts, it seems that the more significant historical parallel is the 1925 Tri-State Tornado. The Tuscaloosa - Birmingham super cell thunderstorm had a tornado warning on it continuously for over 300 miles. It hasn't been determined yet how long this tornado was more or less continuously on the ground, but I have seen references to a 200 mile long damage path. The Tri-State Tornado had a damage path of over 200 miles, and yet stands out there seemingly as this extreme outlier event, tracking across 3 states and definitely producing F5 damage across Illinois and Indiana. Most meterologists suspect it wasn't on the ground the entire 200+ mile distance, but it clearly was on the ground for most of this length. It was definitely an outlier event, but the question is how much of an outlier - is that a 100, 500, or 1,000 year event. If we do end up with something approaching a 200 mile damage path, this would really indicate that the Tri-State Tornado was perhaps more like a 100 year event, and creates the real possibility of a similar length storm at some point in the future.
Saturday, April 30, 2011
Sunday, March 20, 2011
Watching Economic Activity
A house is being built on the vacant lot behind our yard. As an economist we analyze GDP but don't often get to observe it being created.
The housing market I think is a challenge for free market economists. It is a market where reputation should be very important - houses are an experience good, and because of their durability it may be years before you see if a house was really poorly constructed. Houses are also high value items, and so a builder could make a relatively large profit by reducing quality. In a development of even 20 modestly upscale homes, shoddy construction could yield a fairly nice profit for a developer who could then fold their company and leave no asset trail for homeowners to pursue. And yet reputation does not seem to be very important in the market - we don't see homes labeled with brand names. How many homeowners know who built the house they own? There are some national builders now, but the market is extremely decentralized and localized. This seems to be strongly at odds with our theory of markets and the role of reputation.
The small role reputation plays in homebuilding puzzles me. I don't have a satisfactory answer. I discussed this with Randy Holcombe once and he pointed out the importance of owner maintenance. If an owner doesn't maintain the house, quality will deteriorate, but it would be hard for potential buyers or others in the market to know if poor initial construction or a lack of maintenance explains the dilapidated state. This may play a role, but it seems the same argument applies with cars and we see brand names and reputation play an important role there. Indeed, auto makers will tout the resale value of cars in ads. If maintenance was an issue, builders could design minimal maintenance homes, or offer extended maintenance bundled with the initial purchase to credibly demonstrate to subsequent buyers that the home has been maintained.
I suspect (and one day would like to try to demonstrate more formally) that the existence of public sector building codes plays an important role. Home buyers know that there are building codes, and thus that the local public sector is certifying quality. This I suspect results in a lulling effect among buyers - they don't worry about who built the house they want to buy because they figure it must have passed code inspection and be well built. But building code enforcement is quite lax in many areas, and thus the public sector promise of quality may not be very reassuring. And the existence of codes probably increases the marginal cost of assuring a higher quality of construction than offered in the local building code.
Carolina Homes is building the house on the lot behind us. I hope for the new owners that they are a high quality builder. We've had one hurricane and one tropical storm in the last 3 years in Deep South Texas, so poor construction can lead to problems.
The housing market I think is a challenge for free market economists. It is a market where reputation should be very important - houses are an experience good, and because of their durability it may be years before you see if a house was really poorly constructed. Houses are also high value items, and so a builder could make a relatively large profit by reducing quality. In a development of even 20 modestly upscale homes, shoddy construction could yield a fairly nice profit for a developer who could then fold their company and leave no asset trail for homeowners to pursue. And yet reputation does not seem to be very important in the market - we don't see homes labeled with brand names. How many homeowners know who built the house they own? There are some national builders now, but the market is extremely decentralized and localized. This seems to be strongly at odds with our theory of markets and the role of reputation.
The small role reputation plays in homebuilding puzzles me. I don't have a satisfactory answer. I discussed this with Randy Holcombe once and he pointed out the importance of owner maintenance. If an owner doesn't maintain the house, quality will deteriorate, but it would be hard for potential buyers or others in the market to know if poor initial construction or a lack of maintenance explains the dilapidated state. This may play a role, but it seems the same argument applies with cars and we see brand names and reputation play an important role there. Indeed, auto makers will tout the resale value of cars in ads. If maintenance was an issue, builders could design minimal maintenance homes, or offer extended maintenance bundled with the initial purchase to credibly demonstrate to subsequent buyers that the home has been maintained.
I suspect (and one day would like to try to demonstrate more formally) that the existence of public sector building codes plays an important role. Home buyers know that there are building codes, and thus that the local public sector is certifying quality. This I suspect results in a lulling effect among buyers - they don't worry about who built the house they want to buy because they figure it must have passed code inspection and be well built. But building code enforcement is quite lax in many areas, and thus the public sector promise of quality may not be very reassuring. And the existence of codes probably increases the marginal cost of assuring a higher quality of construction than offered in the local building code.
Carolina Homes is building the house on the lot behind us. I hope for the new owners that they are a high quality builder. We've had one hurricane and one tropical storm in the last 3 years in Deep South Texas, so poor construction can lead to problems.
One on One Volume 2
Natalie and I got ourselves Tony Horton's One on One Volume 2 dvds for Valentine's Day. There are some excellent workouts in there. My favorite is probably Cardio Confusion - Mason's Choice. I like the Hummingbird yoga workout as well, since this yoga is really more like a stretch routine than the other yoga workouts.
Wednesday, December 22, 2010
More from Tony Horton
Natalie and I recently ordered Volume 1 of the One-on-One with Tony Horton workouts. We had to move a newer dvd player in the workout room to get them to play, but they are excellent. I miss having the graphics showing the amount of time left in the workout and on each exercise, but the workouts are great. Thirty-Fifteen is a real challenge, and I really like the under an hour yoga routine (although I am not bendy in any way, shape, or form).
The Michael Lewis Challenge
I recently finished Michael Lewis' book The Big Short and enjoyed it immensely. I thint it would be interesting one day to teach an economics for business class just using his books. A consistent theme in Lewis' books Liar's Poker, Moneyball, and The Big Short is that many people in the business world just don't know their business. As Lewis puts it in the preface:
This woman [Meredith Lewis] wasn't saying that Wall Street Bankers were corrupt.
She was saying that they were stupid. These people whose job it was to allocate
capital apparently didn't even know how to manage their own. (xvii)
The necessity of a division of knowledge makes it difficult to evaluate charges of ignorance. Bosses probably shouldn't understand all of the jobs which people working for their company (or their division even), and so some ignorance is consistent with a well-functioning economy. But the level of ignorance Lewis describes seems to really challenge the efficiency of markets.
What supports such ignorance? In Lewis' view, the potential of all the parties, at least the players in financial markets, to profit from the system:
What's strange and complicated about it, however, is that pretty much all the
important people on both sides of the gamble left the table rich. Steve Eisman and
Michael Burry and the young men at Cornwall Capital each made tens of millions
of dollars for themselves, of course. Greg Lippmann was paid $47 million in 2007
... But all of these people had been right; they'd been on the winning side of the bet.
Wing Chau's CDO managing business went bust, but he, too, left with tens of millions
of dollars ... Hower Hubler lost more money than any single trader in the history
of Wall Street - and yet he was permitted to keep the tens of millions he had made.
The CEOs of every major Wall Street firm ... without exception, either ran their
public corporations into bankruptcy or were saved from bankruptcy by the United
States government. They all got rich too.
What are the odds that people will make smart decisions about money if they
don't need to make smart decisions - if they can get rich making dumb decisions?
(pp.256-7)
Of course not every body in the game got rich - a lot of shareholders in Wall Street companies and other investors lost milions. If all of the regulars - the players who might be subject to government regulation - got rich regardless, then Lewis is right. A part of this is a result of the socialization of risk through government guarantees, whic clearly undermine market efficiency. More of it may be a result of players receiving bonuses when they earn profits but not negative bonuses as a result of losses. And the fact that some of the Wall Street firms were corporations with limited liability for the investors would contribute to this. The result would be an asymmetry which will lead to excessive risk taking. If Wall Street firms are collectively like the house in sports bettin or poker and can cooperate to share the risk, then all of the players can indeed profit.
Often free market economists take it for granted that there is no easy money to be made and that markets punish stupidity. Michael Lewis' book reminds us that this proposition that markets really punish stupidity requires empirical validation, and may not hold, at least in a strong fashion.
This woman [Meredith Lewis] wasn't saying that Wall Street Bankers were corrupt.
She was saying that they were stupid. These people whose job it was to allocate
capital apparently didn't even know how to manage their own. (xvii)
The necessity of a division of knowledge makes it difficult to evaluate charges of ignorance. Bosses probably shouldn't understand all of the jobs which people working for their company (or their division even), and so some ignorance is consistent with a well-functioning economy. But the level of ignorance Lewis describes seems to really challenge the efficiency of markets.
What supports such ignorance? In Lewis' view, the potential of all the parties, at least the players in financial markets, to profit from the system:
What's strange and complicated about it, however, is that pretty much all the
important people on both sides of the gamble left the table rich. Steve Eisman and
Michael Burry and the young men at Cornwall Capital each made tens of millions
of dollars for themselves, of course. Greg Lippmann was paid $47 million in 2007
... But all of these people had been right; they'd been on the winning side of the bet.
Wing Chau's CDO managing business went bust, but he, too, left with tens of millions
of dollars ... Hower Hubler lost more money than any single trader in the history
of Wall Street - and yet he was permitted to keep the tens of millions he had made.
The CEOs of every major Wall Street firm ... without exception, either ran their
public corporations into bankruptcy or were saved from bankruptcy by the United
States government. They all got rich too.
What are the odds that people will make smart decisions about money if they
don't need to make smart decisions - if they can get rich making dumb decisions?
(pp.256-7)
Of course not every body in the game got rich - a lot of shareholders in Wall Street companies and other investors lost milions. If all of the regulars - the players who might be subject to government regulation - got rich regardless, then Lewis is right. A part of this is a result of the socialization of risk through government guarantees, whic clearly undermine market efficiency. More of it may be a result of players receiving bonuses when they earn profits but not negative bonuses as a result of losses. And the fact that some of the Wall Street firms were corporations with limited liability for the investors would contribute to this. The result would be an asymmetry which will lead to excessive risk taking. If Wall Street firms are collectively like the house in sports bettin or poker and can cooperate to share the risk, then all of the players can indeed profit.
Often free market economists take it for granted that there is no easy money to be made and that markets punish stupidity. Michael Lewis' book reminds us that this proposition that markets really punish stupidity requires empirical validation, and may not hold, at least in a strong fashion.
Thursday, November 4, 2010
The Wit and Wisdom of Tony Horton
"Rome wasn't build in a day, and Wacky Jacks weren't figured out on the first work out." How does such wisdom not inspire you to do the P90-X workouts?
Professor or Teacher: Is the line being redrawn?
People sometimes think that professors are like teachers, but as I will explain to them, a professor is an expert in a field not in teaching. Traditionally the line between relying on professional educators and experts in the field for instruction has been drawn after grade 12. Several developments in higher education - increasing use of community colleges, online courses, and for-profit universities - all are leading to instructors not having freedom to develop their own course. If the instructor for a course does not choose the textbook and design the syllabus, then there is no reason that the instructor needs expertise in the field as opposed to in teaching. The rise of teaching specialists at research universities could also contribute to this shift. The reason for having experts in a field teach is an evaluation that mastery of research in a field (and perhaps an ability to conduct research) is more important than expertise in teaching. Perhaps the time has come to rethink where the line should be drawn. The proportion of the population going to college has risen steadily over the last 100 years; it may be that the percentage of attending graduate school now is around what the percentage attending college was a century ago. Perhaps expertise in the field becomes more important than expertise in teaching only for the 10 or 20 percent of the students who go the furthest in education. If so, we may easily be witnessing a transition of the first two years of college instruction or perhaps all of undergraduate education from professors to teachers.
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