Thomas Sowell turns 75

Here's a happy 75th birthday to one of the great thinkers of our time - Thomas Sowell. He's had an amazing life, and written some of the most informative and provocative material out there.

I've been reading Sowell's columns for years (take some time and check out the archives when you have time - they're extremely readable, and worth the time). I sent him an email a year or so back telling him how I've used his columns over the years in my classes. In the email, I described him as "making hamburger out of the sacred cows of our time". A few days later, I received a package from the Hoover Institute containing two signed copies of his books on economics - Basic Economics: A Citizen's Guide To The Economy and Applied Economics: Thinking Beyond Stage One, along with a very gracious letter thanking me for my comments. They've become two of my favorite books, and I'd recommend them to anyone wanting to gain a solid grasp of basic economic principles without having to wade through all the math.

I recently heard him interviewed by his good friend Walter Williams on the Limbaugh show. If he's this sharp, witty, and insightful at 75, I can only imagine what he was like in his earlier years.

Here's a sample of his writing to leave you with (from his "birthday" column at Townhall) :

Three-quarters of a century!

It is hard to believe that I am that old but arithmetic is uncompromising. This means that I have lived through nearly one-third of the entire history of the United States.

The changes in my life -- and still more so in the life of the country around me and in the world at large -- have been almost unbelievable.

Most Americans did not own a telephone or a refrigerator when I was born on June 30, 1930.

...All the dark and ominous times that this country and the world have passed through and overcome in the past 75 years make it hard to despair, even in the face of growing signs of internal degeneracy today. Pessimism, yes. Despair, not yet.

In my personal life, I can remember a time when our family had no such frills as electricity, central heating, or hot running water.

Even after we left the poverty-stricken Jim Crow South and moved to a new life in Harlem, I can remember at the age of nine seeing a public library for the first time and having to have a young friend explain to me patiently what a public library was.

There is much to complain about today and to fear for the future of our children and our country. But despair? Not yet.

We have all come through too much for that.

Happy Birthday, Dr. Sowell. Long may your flag wave.

Decimalization is Coming To Options Markets (from Blogging Wall Street)

Decimalization (quoting prices in increments of $0.01) recently hit stock markets. The decrease in spreads made trading in small mispricings more profitable. This made stock markets more efficient.

Now, decimalization is starting to spread to options markets. Click here for the whole story.

Since options are incresingly used in a variety of arbitrage andrick management strategies, this can only be good news for investors.

Tip-o-the-hat to BlogginWallStreet for the link.

Oh What the Heck, Let's Talk About Kelo

Sorry, I held out as long as I could, but the stress finally got to me. Rather than go on a rant about the recent Supreme Court decision on the Kelo case, I'll just provide a few links to comments by people who are obviously a lot smarter (and funnier, and more talented, and probably better looking... than me:

from Scrappleface, the Day By Day cartoons for the last few days, and this about the Just Deserts Restuarant.

Finally, for some serious commentary, there's none better than the inestimable Steve BainBridge.

There-- I feel much better now. Time for more coffee.

Where Should My Money Go? (from the Motley Fool)

How do you decide between 401-k plans, Roth IRAs, and so on? It's a common question. Where Should My Money Go (from the online Motley Fool website) give a brief summary of the best choices. In order, they are:

1. Any plans (i.e. 401-k) where your employer matches your contribution
2. Roth IRA (if you qualify)
   
3. Employer plans where the employer doesn't match
4. Traditional IRA
   

For the logic behind these choices, click here to read the whole article.

The Trouble With Market Reporting (via Stumbling and Mumbling)

I'm always amused by financial reporters' explanations of market movements. We have a hard time dealing with the idea that stock price movements are largely unpredictable. So naturally, we look for patterns (whether they're there or not). Chris Dillow at Stumbling and Mumbling seems to share this view. He has some nice thoughts on the matter (emphasis mine):

Explaining market moves are just easy after-the-fact rationalizations. In weak macroeconomic conditions, a market fall will trigger the line: "market falls on economic fears." And a rise will invite: "market rises on interest rate hopes." It's the same macroeconomic story.

There are several clues to this pin-the-tail-on-donkey approach. One of the best is "after". It hints at causality without stating it. Why not say: "market rose today after I missed my bus"?

Paradoxically, of all the explanations the dead trees give for market moves, they never offer two of the most likely ones. You never see the stories: "market rises but it's just random noise." Or "market rises because risk aversion declines

click here for the whole post.

It reminds me of the classic coin flipping example in A Random Walk Down Wall Street. An economist made a chart that started at $50. He then flipped a coin multiple times. Each time it came up heads, he increased the stock's price by $0.01. Each time it came out heads, he decreased the stock's price by $0.01.

When he gave the chart to a technical trader (while telling him it was of a stock), the trader said it was a clear buying signal .

Alex Tabarrok and Bryan Kaplan Get Freaky

The latest Wall Street Journal Econoblog features Alex Tabarrok and Bryan Kaplan from Geroge Mason University's Economics Department. They apply economic reasoning to the decision of presidents to go to war, hidden fees in car rentals, and a novel idea for deciding whether to fire CEOs. Good stuff.

For those who aren't familiar with these two, the run a couple of excellent blogs: Alex is at Marginal Revolution and Bryan's at Econlog. Both are part of my daily reading list (and my blogroll).

Auctions or Fire Sales?

An auction is a great way to get people to reveal the values they place on things. Ebay is built on the concept, and they've been used to value IPOs.

But, here's one setting they probably aren't the best solution.

Hat tip to Division of Labour for the link.

Note: for those who don't get the reference to Coase, click here. The "Coase Theorem" is one of the most widely mentioned concepts in economics.