“Chinese company Hybrid Kinetic Motors announced plans Thursday to construct a new green vehicle manufacturing plant in south Alabama, bringing 5,000 jobs to the state.

“Physicians will not be bullied into bankruptcy. Our system needs reform, but what’s being hammered out in Washington is not the answer.

Two weeks ago the Mayo Clinic shocked the nation when it closed the doors of one of its Arizona clinics to patients on Medicare. Just this past June President Obama himself praised Mayo as a model of medical efficiency noting that Mayo gives “the highest quality care at costs well below the national norm.” If Mayo feels compelled to walk away from this government-run program, others will surely follow. The nation must understand why.”

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how would u react to this situation?

u are playing an impunity game in a game theory study. another player, player a, has been offered $100, and is instructed to share with you, player b, however much he wants and keep the rest. he offers to share $20, and will receive notice of either your acceptance or refusal of the money. do u accept? to reiterate, he keeps his $80 regardless of whether u accept his offer or not.

if u didn’t accept the initial offer, would u accept the money if player a won’t receive notice of your acceptance or refusal?

if u did accept the initial offer, would u still accept it if player a offered u only $2?

to see why i’m asking the question, read this link.

chinese preference for sons may have led to the bubble in the US. the theory is that boys’ families have to compete for marriagiable girls w/ high savings b/c of the girl shortage, and the high savings rate led the chinese gov’t to buy US treasury bills and depress interest rates in the US. i speculated years ago that chinese girls would necessarily become a highly valuable commidity. u can’t have a huge artificial shortage of something in demand w/o consequences, but i didn’t think about it leading to a US bubble. i did figure that chinese men would outsource the problem to poorer nations by marrying women of southeast asian origin.

another bubble may be close to popping. the cost of higher ed. has been rising far faster than inflation, but w/ the recession, many potential college students may head to community colleges instead of big name ivy schools. what’s in a name?

so the proposed solution is again to outsource the problem. prestigious colleges are thinking of propping their prices up by opening more spots to rich overseas applicants who don’t mind so much about paying inflated prices. yet.

over at the aptly named overthinking it, there’s an article analyzing the economic fallout from a zombie apocalypse. it assumes that post-apocalypse survivors would figure out how to tame the insatiable hunger for brains and use zombies for work.

In fact, rather than labor, one can view zombies as inexpensive factory tools, which require no maintenance or upgrades. If a government were to permit the use of zombies in the private sector, businesses would see marked improvements in their annual production levels, GDP would gradually rise, and the economy might stabilize more quickly. (more…)

marginal revolution points to an interesting search result from google. if u do a search for unemployment rate, u get pointed to a wonderful chart of public unemployment data and they plan to put more of these charts out.

notably, madison county has 3% lower unemployment than the rest of the state. defense and gov’t work is king during war & recession. my company is currently in a hiring phase, which is completely counter-cyclical to the wider economy.

anyways, wired had a story on the trend towards greater access to vast amounts of data leading to a change in the way science is conducted. the story argued that w/ enormous amounts of data available to ppl, everyone could just mine the data for correlation and disregard the process of coming up w/ a theory to test against.

razib points out that even economists are taking note. to date, there’s been a rather large gap between economic theory and empirical results (e.g. the equation of economic death), but w/ all the data we have available today, maybe that’ll change. maybe in the future, we’ll have all the data we need to correctly value all the variables in that equation and so avoid the mess that poor correlation creates.

u read that right, zimbabwe’s currency, which at times was inflating at 230 million percent, is now worth some money. but not how u might imagine.

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peter schiff is an economist from the austrian school of thought. he delivers a few one liners on how the US is obviously not gonna pay china back.

i recently mentioned the idea of getting immigrants to buy a house for a green card. it looks like that idea is picking up steam. MR mentions a WSJ article and some other writer’s support for such a move.

the wsj even mentions that it’s been done before in vancouver:

There is a high correlation between education and incomes, and in today’s uncertain economic climate, many wealthy foreigners desire U.S. resident status just as a number in Hong Kong secured residences in Singapore and Canada before the British handover to China in 1997. They rapidly became over a quarter of Vancouver’s population, and brought in billions of dollars to buy houses and make other investments.

it should be noted that one of the wsj writers is a real estate dev whose financial interests lie w/ keeping home prices from falling further. personally, i want prices to decline further. let’s see prices drop another 20% and i’ll help bail out the country by buying a house.

but instead we’re going to take taxpayers’ money and bailout a bunch of homeowners and businesses and get nothing in return. well hell, why take my money when they can take rich foreigners’ money? these ppl won’t even be competing against me for jobs b/c they wouldn’t be citizens. there really are such things as free lunches.

this news is several days old, but still interesting if u haven’t heard about it. wired has a good story about how an equation written by a chinese guy david x. li brought down the entire investment banking industry. the equation in question is a gaussian copula function. gaussian describes the fact that the rate of housing defaults have a normal distribution, while the word copula means the equation combines to normal distributions into a single probability. it basically gives u the probability that two things will happen at once. apparently wall street investors took this equation and applied it to all sorts of credit default swaps w/o really understanding that the probability could change.

typically correlations between defaults are low. if one house in ur neighborhood goes into foreclosure, the chances another house will go bust at the same time are very low. this low number gave a warm fuzzy feeling to the quants who traded these things, and they bought and sold the securities w/o understanding the nature of the formula or the assets. they didn’t count on businesses like countrywide giving tons of subprime loans to ppl who lied on their income forms for instance. so once the bubble popped, all these formerly low probabilty occurrences became high probability occurrences. the probability went to 1 essentially and these securities became pretty much unsellable b/c there’s no way the income generated by these things would cover the cost of buying them unless the price dropped precipitously. if the banks sold these assets at the market price, they’d lose billions.

but what compounded the issue was the nature of credit default swaps. the assets these things were based on are mortgage backed securities, which are house loans. housing is a limited asset. anyone trading these has a limited revenue stream b/c there’s only a limited number of houses. but w/ cds’s, u’re really selling insurance. and u can sell insurance to an unlimited number of investors based on a single asset. so the insurance market on these assets ballooned to far far exceed the value of the underlying assets. wired says, “At the end of 2001, there was $920 billion in credit default swaps outstanding. By the end of 2007, that number had skyrocketed to more than $62 trillion.” the $62 trillion was based on $4.7 trillion of housing assets.

the funny thing is that way back in 2005, david li himself said this:

“The most dangerous part,” Mr. Li himself says of the model, “is when people believe everything coming out of it.” Investors who put too much trust in it or don’t understand all its subtleties may think they’ve eliminated their risks when they haven’t.

Much of that money is riding on Mr. Li’s idea, which he freely concedes has important flaws. For one, it merely relies on a snapshot of current credit curves, rather than taking into account the way they move. The result:Actual prices in the market often differ from what the model indicates they should be.

As with any model, forecasts investors make by using the model are only as good as the inputs. Someone asking the model to indicate how CDO prices will act in the future, for example, must first offer a guess about what will happen to the underlying credit curves – that is, to the market’s perception of the riskiness of individual bonds over several years. Trouble awaits those who blindly trust the model’s output instead of recognizing that they are making a bet based partly on what they told the model they think will happen. Mr. Li worries that “very few people understand the essence of the model.”

[The May incident] wasn’t really the fault of the model, which was designed mainly to help price the tranches, not to make predictions. True, the model had assumed the various credit curves would move in sync. But it also allowed for investors to adjust this assumption – an option that some, wittingly or not, ignored.

The credit-derivatives market has since bounced back. Some say this shows that the proliferation of hedge funds and of complex derivatives has made markets more resilient, by spreading risk.

“The events of spring 2005 might not be a true reflection of how these markets would function under stress,” says the annual report of the Bank for International Settlements, an organization that coordinates central banks’ efforts to ensure financial stability. To Stanford’s Mr. Duffie, “The question is, has the market adopted the model wholesale in a way that has overreached its appropriate use? I think it has.”

Mr. Li says that “it’s not the perfect model.” But, he adds: “There’s not a better one yet.”

holy crap.