The Efficient Market Hypothesis and Surveillance

Back in B-School, we finance majors were taught that the Efficient Markets Hypothesis showed you can't beat the market in the long run. From Wikipedia:

Eugene Fama identified three levels of market efficiency: 

1. Weak-form efficiency
Prices of the securities instantly and fully reflect all information of the past prices. This means future price movements cannot be predicted by using past prices. It is simply to say that, past data on stock prices are of no use in predicting future stock price changes. Everything is random. In this kind of market, should simply use a "buy-and-hold" strategy. 

2. Semi-strong efficiency
Asset prices fully reflect all of the publicly available information. Therefore, only investors with additional inside information could have advantage on the market. Any price anomalies are quickly found out and the stock market adjusts. 

3. Strong-form efficiency
Asset prices fully reflect all of the public and inside information available. Therefore, no one can have advantage on the market in predicting prices since there is no data that would provide any additional value to the investors.

Most of the finance profs believed in #2, it seemed. And yet, the starting salaries for new MBAs on Wall Street were about $45,000, while run of the mill MBA jobs started at $30,000. But, the Wall Street premium had been narrowing in recent years of low prices and stagnant trading volumes and the growth of low commission mutual funds. So, the notion that Wall Street was becoming efficient and thus less inordinately profitable seemed plausible.

Then, in August 1982 that all changed when the Fed goosed the money supply and the Long Boom (mostly for Wall Street) began.

Still, perhaps it's worth taking seriously the logic of Semi-Strong Efficiency: "Therefore, only investors with additional inside information could have advantage on the market." Lots of Wall Street guys have made outsized profits over the last 31 years. Maybe some of them had inside information, just as the EMH would imply? Maybe the growth of surveillance had something to do with it?

After all, lots of Hollywood bigshots paid detective Anthony Pellicano to bribe phone company employees and cops to listen in on the phone calls of his clients' rivals and enemies. London tabloids hacked into the voicemails of celebrities routinely. How do we know this hasn't been common on Wall Street too, perhaps also using higher tech means such as back doors to telephone metadata and data mining looking for interesting patterns?

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Affirmative action and immigration

From my Taki's Magazine column:

On Monday, in America’s fifth year of a black presidency, the five Republican-appointed Supreme Court justices had an opportunity to abolish racial and ethnic preferences for violating the 14th Amendment’s requirement of “the equal protection of the laws.” They had affirmative action in their sights but were unable to pull the trigger, and so they merely sent the case back down to a lower court while recommending stricter scrutiny. ... 

Few have mentioned that the affirmative-action non-decision interacts deleteriously with the Schumer-Rubio bill that would boost immigration. The great majority of amnestied illegal aliens and new immigrants brought in under the bill, plus their descendants unto the seventh generation, would be eligible for racial or ethnic privileges.

Read the whole thing there.

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Supreme Court rules Time moves in forward direction

And now, the Airing of Grievances

The longer I live into the future, the more everybody else seems to become obsessed with the past, the farther back the better. Thus, the immigration "debate" is less a discussion of what will be best for American citizens in the future (where, I believe, we are going to spend the rest of our lives) than an opportunity for the airing of grievances from Great-Grandpa's day. 

This would make perfect sense if Time ran backwards. 

Today, a narrow 5-4 majority of the Supreme Court aroused great controversy by overturning part of the Voting Rights Act  that treats various Southern states as hotbeds of Jim Crow on the grounds that, contrary to popular opinion, 1965 is not actually approaching, it's receding into the past. According to the Republican Justices' divisive opinion, strange as it may seem from reading newspaper coverage of, say, the Ku Klux Klan besieging Oberlin College or Marco McMillian's murder in Mississippi, 1965 was actually 48 years ago. Next year, it will even be 49 years ago.

The majority opinion argued that the conventional wisdom was misinterpreting the 1976 insight of constitutional scholar and theoretical physicist Steve Miller that:

Time keeps on slippin', slippin', slippin'
Into the future  

What Dr. Miller actually meant by this is that the present moment, also known as "now," is progressing ever more into what was seen as the future from a moment in the past. Justice Alito suggested in a concurring opinion that this widespread misunderstanding was due to the fact that in 1976 both Dr. Miller and his fans were completely baked.

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"Man of Steel"

Although directed by Zack Snyder (300), this reboot of Superman feels like co-storywriter Christopher Nolan's Batmanification of Superman. 

I like the idea of Christopher Nolan -- reactionary elitist foe of disorder and mob rule, the Duke of Wellington with $100 million to blow on CGI -- more than I actually like Nolan's movies.

If Nolan made claustrophobically airless art house films, I'd no doubt be vociferously championing his mastery of airless claustrophobia. But since his movies (e.g., Inception) don't need my help, I'm left nostalgically recalling the glorious expansiveness of Richard Donner's shots of midsummer wheat country in the erratic but likable 1978 Superman that launched the era of comic book movies.

It's a cliche that Superman is optimistic in a New Dealy nothing-to-fear-but-fear-itself way, while Batman is drenched in dread of street crime, but Nolan seems to agree and thus isn't all that interested in Superman's silly but fun omnipotence. Nolan attempts to re-imagine the comic book hero as a semi-realistic space alien psychologically tormented by schoolyard bullies whom he can't punch back against because he's too strong. Whether a semi-realistic Superman is a glass half full or half empty is up to you.

Nolan isn't interested either in Lois Lane (who is played without spark by a maternal Amy Adams). That reminds me of how good Anne Hathaway was in The Dark Knight Rises as Catwoman to stand out as a woman in a Nolan film. In "Man of Steel," Lois Lane figures out quickly that Superman (the word isn't fully mentioned in the movie) is Clark Kent, but that just deprives Henry Cavill in the main role of a chance to do a little acting by playing two characters, as Christopher Reeve got to do in the original.

A big problem hanging over Superman movies right now is that Reeve's death leaves them kind of stumped about how to portray the central figure.

I suspect that in the long run, the way forward with Superman movies will eventually turn out to be to blend Reeve's tragic crippling -- a god falls to earth -- and struggle against his injury into the mythos. Over enough time, all these memories kind of blur together and the distinction between character and actor in the collective recollection gets hazy. Ultimately, somebody will figure out how to use that, but it's likely too soon at present.

(Lex Luthor is, thankfully, gone completely.)

In contrast, Nolan's nominal bad guy General Zod is teh awesome. Played by Chicago stage veteran Michael Shannon, who is the rare American actor to have the diction and stature to play Shakespeare's Coriolanus, Zod gets all the good lines. Born and bred to protect his people, this authoritarian militarist had teamed up with Superman's liberal scientist dad Jor-El (Russell Crowe -- not bad, better than Brando reading cue cards in 1978, but still overshadowed by Shannon) to try to alert the do-nothing planetary council to the mortal peril facing an imploding Krypton.

But they differ in their solutions. Like so many movies these days, Man of Steel has something or other to do with eugenics, but I can't begin to explain why Jor-El's plan for preserving Krypton's bloodlines is the nice liberal eugenic plan and Zod's is the evil racist eugenic plan. It has something to do with genetic encoding of Krypton's billions ... or something. 

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Peter Schaeffer: The history of immigration and assimilation

Peter Schaeffer writes: 

The history of assimilation can be looked at several ways, all of them revealing. 

1. Perhaps the single most important point is that mass immigration was ended around WWI. The restrictive legislation of 1917 (the literacy act), 1921, and 1924 (Johnson-Reed) ended the great wave of mass immigration. Immigration continued on a much smaller scale and the composition was shifted. Because the new laws were based on national quotas, some countries were de-facto unrestricted (the UK, Ireland, etc.) while other reached their annual quotas rather quickly. 

The immigration restrictions had several positive effects. Wages and working conditions improved for immigrants over time. Since most immigrants worked in manufacturing, wage gains in manufacturing were particularly positive. Sectoral differentiation (by accident) favored immigrants in this period. Manufacturing was booming and farming was in decline. Since the immigrant population was predominantly urban and employed in goods production, this was a plus. 

Living conditions for immigrants clearly improved after mass immigration ended. The horrific tenements slums of the 1900 period were largely empty by the 1930s. Without new massive waves of immigrants, the prior cohorts were able to move up the social ladder into better housing (among other things). 

The immigration restrictions of the WWI period clearly aided assimilation in practical ways (waves and living conditions). However, they also sent a very important message to the immigrant communities. America rejected ‘diversity’ and demanded that the immigrants embrace America rather than the other way around. There points were were well understood back then and it was widely understood that the immigration cutoff (substantial reduction actually) had accelerated assimilation. 

2. The America of the 1920s and later was vastly better suited to assimilating immigrants than our nation today. We had a booming job market, no welfare state, middle-class unions (starting in the 1930s), English imposition, disciplined education, no multiculturalism, no bilingualism, no victimization ideology, intact families, rigorous law enforcement, etc. Beyond that, ‘Americanization’ (assimilation) was a widely embraced ideal and promoted heavily. Now we have the pernicious and very dominant ideology of ‘diversity’. 

3. In spite of much more favorable circumstances, assimilation took time. Some groups assimilated much faster than others, but three generations were typically enough to achieve earnings party with old stock natives. The mythology is that one generation was sufficient. It wasn’t. Even well after WWII, ethnic differences in earnings, social status, etc. were measurable. 

The political assimilation of ‘Great Wave’ immigrants was relatively slow but did occur. In this context, I will use the Catholic vote as a proxy for ‘Great Wave’ immigrants. By some measures, 1928 marks the zenith of Catholic alienation from the political mainstream. Al Smith got 90% of the Catholic vote (apparently) and was still easily defeated by Hoover. Indeed, he failed to carry his home state of New York (he was a former governor or New York). By the time JFK was elected, Catholic support for the Democratic party had fallen markedly. He won the Catholic vote, but by a notably smaller margin than Al Smith. A poll of Fordham University students in 1960 showed that most of the Catholic students favored Nixon over Kennedy (the Jewish students at Fordham favored Kennedy). Students at other Catholic schools favored Nixon as well. 

Perhaps more relevantly, Eisenhower captured a majority of the Catholic vote in 1956. In subsequent presidential elections, Republicans were able to easily capture the Catholic vote (if they could win at all). 

It’s worth noting that in an earlier era, ethnics were polled separately and political differences by ethnicity were material. By the 1980s, this practice had essentially disappeared because ethnic voting patterns were no longer different enough to measure. 

However, voting patterns are not the most important aspect of assimilation in my opinion. The assimilation of American values is far more important. Once again, studies show that ‘Great Wave’ immigrants embraced the values of old-stock natives (personal responsibility, individual effort, hard work and education as the keys to advancement, national loyalty, limited government, etc.). Basically, ‘Anglo-conformity’ worked. 

It is wrong to suggest that Jewish Americans don’t like WASP America. More like they resent it. The American Jewish community remains (privately) obsessed with the efforts of WASPs to exclude Jews from elite society. The fact that many of these efforts were more than 100 years ago doesn’t appear to matter. Nor does the fact that even with Jewish quotas in place, Jews were vastly overrepresented at Harvard and other elite schools. 

The bigger picture, that America has been a wonderfully hospitable nation with immense opportunities for personal and professional advancement is subordinated to resentment of country club prejudice in the 1920s. As a consequence, American Jews define themselves as outsiders and vote accordingly. 

As these notes should indicate, America was once a much better place for immigrants and their families. The historic advantages of assimilation, ‘Americanization’, Anglo-conformity, immigration restrictions, and a strong economy are all gone (along with quite a few other historic virtues). It’s also true that the immigrants were better historically. They were much more likely to be skilled, educated, etc. The ‘Great Wave’ immigrants has much lower skill levels and the turn of American society against immigration was largely a consequence. Contemporary mythology emphasizes the role of nativism in the restrictions of the 1920s. Declining skill levels provides a different and more germane explanation. 

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FBI: Rodney King was right: Angelenos can all just get along!

A press release from the FBI shows the vibrant diversity and diverse vibrancy of 21st Century Los Angeles. (I'll put the names of the accused in bold.)

Twelve Los Angeles-Area Residents Accused of Attempting to Bilk Medicare of $22 Million Arrested as Part of Nationwide Crackdown  

U.S. Attorney’s Office

LOS ANGELES—Twelve Los Angeles-area residents—including California’s second-largest biller for chiropractic services, a physician’s assistant, and owners of durable medical equipment (DME) and ambulance companies—were taken into custody today in relation to seven criminal cases that allege they cumulatively submitted more than $22 million in false billings to Medicare....  

Dr. Houshang Pavehzadeh, of the Sylmar Physician Medical Group, allegedly billed Medicare more than $1.7 million for chiropractic treatments he never performed. During the scheme, which ran from 2005 through 2012, Dr. Pavehzadeh, 40, of Agoura Hills, became the second-largest Medicare biller in California for chiropractic services—even though he was not in the United States when some of the alleged services were performed. In addition to being charged with health care fraud, Pavehzadeh is charged with aggravated identity theft related to Medicare beneficiaries whose information he used to bill Medicare as a part of the scheme. When investigators tried to conduct an audit of Pavehzadeh’s claims, he falsely reported to the Los Angeles Police Department that he had been carjacked and that patient files requested by the auditors had been stolen from his car. Pavehzadeh surrendered this morning, and he is scheduled to be arraigned with other Los Angeles-area defendants this afternoon in the Roybal Federal Building. 

Nine defendants affiliated with DME companies were also charged in five separate indictments. 

Olufunke Fadojutimi, 41, of Carson, a registered nurse; Ayodeji Temitayo Fatunmbi, 41, formerly of Carson and now believed to be residing in Nigeria; and Maritza Velazquez, 40, of Las Vegas, were charged with health care fraud. The scheme allegedly revolved around Lutemi Medical Supplies, a DME company Fadojutimi owned and where Fatunmbi and Velazquez worked. According to the indictment in this case, Lutemi billed Medicare more than $8.3 million in claims, primarily for medically unnecessary power wheelchairs. Fadojutimi and Fatunmbi allegedly laundered Medicare funds in order to purchase fraudulent prescriptions for those power wheelchairs and pay illegal kickbacks to recruit Medicare beneficiaries. Fadojutimi was arrested this morning in Los Angeles, while Velazquez was arrested in Las Vegas. Fatunmbi is currently a fugitive being sought by federal authorities. 

Susanna Artsruni, 45, of North Hollywood, and Erasmus Kotey, 76, of Montebello, a licensed physician’s assistant, allegedly worked together to commit health care fraud out of a medical clinic on Vermont Avenue where they both worked. Kotey allegedly prescribed medically unnecessary DME, including power wheelchairs, for Medicare beneficiaries. Many of those power wheelchair prescriptions were then used by Artsruni’s DME company, Midvalley Medical Supply, to support fraudulent claims to Medicare. In only four months, the clinic and Midvalley billed Medicare more than $525,000 for these fraudulent claims. Artsruni has previously been convicted of health care fraud and was on pre-trial supervision at the time she allegedly laundered some of the proceeds of this fraud. Artsruni was arrested this morning, while Kotey self-surrendered. 

Three other DME cases were also charged, alleging fraudulent Medicare billing for medically unnecessary power wheelchairs that were sometimes never even delivered. In one case, Akinola Afolabi, 53, of Long Beach, the owner of Emmanuel Medical Supply, allegedly submitted more than $2.6 million in false and fraudulent billing to Medicare. In another case, Queen Anieze-Smith, 52, of Encino, and Abdul King-Garba, 47, of Westwood, the owners and operators of ITC Medical Supply, allegedly submitted more than $1.8 million in false and fraudulent billing to Medicare.

Shouldn't they have named their front operation Royal Medical Supply?

In the third case, Clement Etim Aghedo, 53, of Fontana, the owner of Ace Medical Supply Company, allegedly submitted more than $1.8 in false and fraudulent claims to Medicare. Afolabi, Anieze-Smith, and King-Garba were all arrested this morning, while Aghedo self-surrendered. 

In the seventh case brought as part of today’s takedown, three defendants affiliated with Gardena-based ProMed Medical Transportation, an ambulance company, were charged with submitting more than $5.9 million in false claims to Medicare between 2008 and 2011. ProMed’s owner, Yaroslav Proshak, 45, of Valley Village; general manager Sharetta Wallace, 35, of Inglewood; and office manager and biller Sergey Mumjian, 40, of West Hollywood, submitted claims for medically unnecessary transportation services and then created fake documentation purporting to support those claims. Proshak, Wallace, and Mumjian were arrested this morning.

This press release would make the Statue of Liberty proud.

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"How Immigration Can Hurt a Country" in theory, not just in reality

U. of Indiana economics professor Eric Rasmusen offers a theoretical model of "How Immigration Can Hurt a Country." 

Can immigration (or capital inflow) hurt the welfare of a country? Yes, if there are decreasing returns to the factor, as this little paper will explain. The idea is important, and probably is new -- at least, I couldn't fi nd it by a google search -- but an economics journal would say it is obvious, I think, so I probably will not try to publish it in a journal. I will post it on the web instead. I do hope it gets into the academic literature and the policy debates. If it is received favorably, I will tidy it up and put it into journal style, adding cites and superfluous generality, and checking my arithmetic. My target audience is trained economists even now, however. Please let me know if someone has already made the external diseconomy argument. I wouldn't be surprised if someone had done so back in the 1920's.

I've found that economic theory is a useful servant for understanding facts, but many bright people seem to view theory as the master to which their awareness of reality must be enslaved. For them, this paper might be an eye-opener.

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