He is the singer and songwriter for The Mr. T Experience and he wrote King Dork.  His new book, Andromeda Klein is not as great but still good.  His next book is a King Dork sequel called King Dork, Approximately.  And a film adaptation of King Dork is in development with Will Ferrell producing.

Here is the inteview. And here is Frank Portman’s blog.

Let me begin by saying that I’m with the new Keynesians on the central issue here. I believe real world markets break down. A stunning point for me is the juxtaposition between the fact that much of modern macro began by trying to incorporate micro foundations into their models, but in the end, many of the proponents of the extreme version of fresh-water economics have ignored 30 years of micro that is pretty specific on all sorts of ways that markets can fail to clear.

That said, one can argue about the role of government on many levels. I take a variety of positions on these issues. I’m a deficit hawk, but a big believer in well-timed intervention. I’m in sympathy with the comment from our treasury secretary that we need to pay serious attention to the deficit, just not this year. I sure as heck hope he means the second part, though. The long chain of budget deficits forecast by the CBO scares the heck out of me.

Today, however, I want to make two reflections on the right form of stimulus.

The first is an easy one. In talking about the purported wastefulness of direct stimulus spending, I think it is well worth noting that very few people would argue that this country has been spending too much on infrastructure. Clearing up a lot of deferred maintenance seems like a fine idea to me, and getting our transportation system back up to something approaching the quality viewed as normal in much of the developed (and developing) world a pretty good idea too. For much the same reason, I get less worked up than many about “pork-barrel” spending; sure, it would be nice to have a more transparent process, and maybe doing a little better on allocating scarce resources on the margin, but we seem so far from a sensible amount of public goods in this country that I’m doubtful that much of the spending is truly a waste.

Now to my second, and maybe less trivial point about stimulus spending. One theme that has recurred in left-of-center blog land of late is that if only we could have another round of “real” stimulus, we wouldn’t need to be doing back door stuff like cash for clunkers and the tax subsidy for home purchasers. I disagree! If one wants to stimulate economic activity at reasonable cost, this seems like a good way to go. Why? Because it is pulling exactly the right lever if you think hard about why spending has fallen in the first place.

One reason, of course, is because some people have less money. Extending unemployment insurance benefits seems a good idea in this context. State governments, many of which have mandatory budget balance mechanisms, are also in the class of entities to which  a direct cash transfer is likely to stimulate spending.

But, the bulk of the reduction in spending, by both firms and consumers, is not “we have no money to spend, or nothing worth spending it on”. Rather, they are properly exercising option value in a setting of wildly increased uncertainty. In the months after the financial meltdown, a new TV suddenly needs to meet a much higher hurdle: the question is not “do I think the flow of services from the TV over the next 8 years is more than worth the cost”, but “do I expect to derive enough value from owning this TV now instead of 3 months from now that I wouldn’t rather wait a bit, and see how the situation develops.” If things look less apocalyptic in three months, one can always buy the TV then, having foregone only a few months of HDTV heaven. On the flip side, if in three months the situation has shifted for the worse, then one has avoided being saddled with a TV/car/house/factory that does not make sense in the new environment.

If I’m waiting to buy a new house because I’m waiting to see if I get tenure, this delay is economically efficient. But, if the uncertainty is aggregate and extreme, so the we all want to exercise the option value of delay, and if one believes that markets don’t always clear, then if we all start delaying economic activity because we want to see if the future is bad, the future has a decent chance of being just that.

In such a context, a tax cut, or a check from the government, is likely to have very little effect. I’m a little more flush than I was (although I’m also guessing that my future tax liability is going to be higher), but heck, I had money to spend before anyway. If the issue is uncertainty, then the right thing to do with extra money that appears is to simply stick it in the bank.

On the other hand, if the choice is “new car today at huge discount” vs. car in 3 months at normal prices, then I may well pull the trigger even if I face a moderate degree of uncertainty. Note then, though, that cash for clunkers and the housing subsidy are particularly effective precisely to the extent that people think they will end. If I am pretty sure the program will be renewed, then the original calculation is back in effect, and waiting is probably the right thing to do.

This brings us to one of the most important points made by Lucas, Phelps, and company: economic policy based on consistently fooling people is unlikely to be a great idea. Here, the problem is to avoid the temptation to go back and re-new each program as it nears expiration. If people grow to expect this, they lose their oomph.

This has been illustrated in a paper by Megan Busse, Duncan Simester, and Florian Zettelmeyer. In the wake of 9/11, GM ran “The best deal you’ll ever get.” Precisely because it had a well-defined end date, and one that seemed credible given the extraordinary circumstances, the program was extremely effective in raising sales for GM despite the uncertainty rampant that fall. But, when GM renewed it, the effect was much smaller, probably because people no longer saw the cost of delay as being large.

Our youngest son went to a preschool in Evanston and goes halfday to a nursery school here. The kids muck about with Lego, go to a playground in both settings and the only difference is that the nursery school has an all day option which some kids in the morning class (or their parents!) take up.   Therein lies the rub.

Anyone who values the all day option uses the nursery school as daycare as both spouses work and do not have a nanny.   The parents’ are sometimes forced to drop off a child with a cold or the beginnings of flu.  On the other hand, if your child goes to preschool you must have some afternoon solution, a solution you can employ if your child is sick.  So, halfday nursery school leads to more infections than preschool, as we are finding out.

Computer scientists study game theory from the perspective of computability.

Daskalakis, working with Christos Papadimitriou of the University of California, Berkeley, and the University of Liverpool’s Paul Goldberg, has shown that for some games, the Nash equilibrium is so hard to calculate that all the computers in the world couldn’t find it in the lifetime of the universe. And in those cases, Daskalakis believes, human beings playing the game probably haven’t found it either.

Solving the n-body problem is beyond the capabilities of the world’s smartest mathematicians.  How do those rocks-for-brains planets manage to do pull it off?

Well, just to get warmed up, how about something with (almost) no economic content?

Review: Avec

The 17 year old (Brian) and I ended up at Avec (615 W. Randolph) nearly at random: a last minute decision to go see Faust at the Lyric Opera, and then a scramble to find somewhere near the Ogilvie Station that had decent reviews and would let us get to the opera early.

The place looks like a nicely equiped Finnish sauna. There is a line of tables along one side of the room, and a bar along the other. If you sit at a table with your back to the wall, a line of finely clothed posteriors that forms a rythmic backdrop above your dinner companions.

Tables are communal style, with what seems like too little room per person. But, the closeness forces a certain breaking of barriers (as do the seats at a football game) that in the end we found nice. Acoustics are pretty good, and all in all the atmosphere does a very nice job of creating that “I’m safe in my cave with my tribe” feel that is part of why we like crushing ourselves together in restuarants so much (and why any decent restaurant host/hostess groups full tables together on a quiet night).

The menu is of medium length. Sharing is strongly encouraged. The restaurant seems to have a commitment to re-introducing squeamish diners to the wonders of tripe, offal, etc, and does a good job of advancing the cause. It might be difficult for vegetarians to find a lot of variety: both I and a substantial portion of our meal were in hog heaven. To add the mandatory economic theory content to this entry, I had fun trying to convince my son that precisely because offal carries a bad connotation, we should be willing to try it: after all, why would the restaurant serve something that fought our biases if it wasn’t especially good?

The highlight of the meal was probably the veal liver. Crisp from the pan, in a soubise (I had to look it up: it’s a Bernaise sauce with lots of onion, and they were careful not to drown the dish in it) with parsnips, rapini and lemon. The acidic flavors from the lemon and onion set off the sweetness of the veal liver very nicely, the rapini and parsnips added some undertone and texture, and the liver itself was kick-ass. In many ways, like a slighlty less fatty, firmer fois gras. And, of course, without any of the guilt!

The pumpkin pizza with pheasant sausage and a pumpkin also had a lot going for it. The sausage was nicely spicy and worked very well with the pumpkin, and the roasted pumpkin seeds were terrific. We disagreed on whether the pumpkin should have been further roasted (to remove some more liquid) before it was mashed up to put on the pizza. I say yes, but I quibble. It is something I’d eat again in a minute, and I think its something one could do pretty well at home. Add smoked pork product to taste.

The amberjack with mint cured bacon, garbanzo beans, preserved lemon and olives was not a favorite. On execution, the amberjack was over-cooked. But, more fundamentally, the rest just didn’t hang together very well. The mint-cured bacon had an off-taste (perhaps picked up from the fish), and the preserved lemon was too staccato. The garbanzo beans, on the other hand, were excellent.

The restaurant does not take reservations. We were there on a miraculoulsy nice November evening, and the waiting diners seemed to be having a nice time with their drinks under the gas heaters outside. This adds to the happening feel, but probably means that I would not go there at a busy time in the winter.

Faust was, of course, a blast. Who  knew that unwed sex had such dire consequences? I’m glad that like almost everyone of my generation (and, I am told, this one), I waited.

Tomorrow, perhaps some thoughts on stimulus. On the other hand, research is going pretty well, so the opportunity cost is high…

We are officially big-time bloggers now because today we have our first guest blogger. This week Jeroen Swinkels will be shirking sharing his thoughts with us and you and we are really looking forward to it.

Jeroen is a Northwestern guy so we are keeping it in the family and he is forty-something too (albeit a tad more “something” than Sandeep and I.) In case you don’t already know, Jeroen is a game/auction/micro/evolution-theorist who teaches in the Management and Strategy department in Kellogg. I like all of his work but I am especially fond of a somewhat idiosyncratic paper he wrote with Larry Samuelson on evolution and behavioral biases and I blogged about it here before. He’s got lots of ideas on lots of subjects so he is going to be a blogging natural. So thanks Jeroen and welcome.

I have a student who is in charge of Northwestern’s Undergraduate Economics Society and he is planning an event in the Spring.  They have some money and they want to organize an activity for their membership that will be fun and economics-oriented.  Think of this as an opportunity to design an experiment involving any number of students (up to hundreds of students), but it should be fun as well as educational.  I know that our readers will have some good ideas for them.  Please share them in the comments.

Not exactly. But the story is about the same guy who I blogged about before (United Breaks Guitars):

After baggage handlers at United broke his guitar last summer and the airline refused to pay for the $1,200 repair, Mr. Carroll, a Canadian singer, created a music video titled “United Breaks Guitars” that has been viewed more than 5.8 million times. United executives met with him and promised to do better.

So how was Mr. Carroll’s most recent flight on United?

Same as usual:

This Everyman symbol of the aggrieved traveler was treated, well, like just another customer. United lost his bag.

In an interview, Mr. Carroll said that for more than an hour on Sunday, he was told he could not leave the international baggage claim area at Denver International Airport, where he had flown from Saskatchewan. He said he had been told to stay because his bag was delayed, not lost, and he had to be there to claim it when it came down the conveyor belt.

“I’m the only person pacing around this room,” Mr. Carroll said, recalling how he was caught between an order from United staff members to stay and collect his bag, and a federal customs official telling him he had to leave the baggage claim area. The bag never showed.

As we say in MBA world, Carroll has “turned a crisis into an opportunity” – he has a business speaking to customer service reps:

This latest episode provided him with fresh material for his most recent performance, which was why he was flying on United — to speak to a group of customer service executives on Tuesday (though without his best shoes and “United Breaks Guitars” CDs that were in his still missing suitcase).

Shows that are widely time-shifted are not losing money due to skipped commercials.

Against almost every expectation, nearly half of all people watching delayed shows are still slouching on their couches watching messages about movies, cars and beer. According to Nielsen, 46 percent of viewers 18 to 49 years old for all four networks taken together are watching the commercials during playback, up slightly from last year.

On net, the gain in viewership from time-shifted shows often more than compensates for the few who skip ads.

When NBC added the “The Jay Leno Show” at 10 each weeknight, it boasted that the show would be “DVR proof,” meaning that because the humor was topical, viewers were more likely to watch it live, avoiding much of the commercial-skipping that was expected to plague recorded shows.

Now being “DVR proof” looks like a disadvantage. Mr. Leno’s shows were among the few with three-day commercial ratings lower than their live ratings. Not enough people have been recording the show and playing it back to overcome the commercial-skipping being done by a percentage of its live viewers.

From the NY Times.

Three very nice Pinot Noirs, all under $25.

First, Martinborough Vineyards Russian Jack, NZ 2008: $19 from Wine Bottega in the North End of Boston.  Best wine for everyone but me.  Cherries, floral nose and very smooth.  Coconut taste at end suggests oak.  My second best.

Second, A to Z Pinot Noir, Oregon 2007:  Widely available.  But rough to begin with.  Still classic cherry.  Consensus worst of three.  But I would buy it and drink it again as it was quite good nevertheless.

Third, Soris Pere and Fils, Santenay, 2006:  $25 at Formaggio Kitchen.  Multi-layered.  Stinky barnyard and hay as well as cherry.  But tannic. My favorite, everyone else’s number two.

Overall, very good wines at this price.  Had some Vin Santo (Allegrini 1999) as well that our guests brought.  Four bottles of wine between four people at one sitting!  Didn’t feel worse for wear the next day.  Either liver is in trouble or the wines were good.  Hope it is the latter.