Blessed by the Potato

There was a very bright, impressive meteor near Toronto on Friday night. It only lasted for a few seconds, exactly as the article described: a very bright flash of greenish/white light, and a break-up trail of flaming debris that only lasted a few seconds — it kind of looked like a sparkling firework, except trailing down towards the ground, and impossibly high up. I’m not an expert, and didn’t have any real data on it, but we were around Woodstock in the car heading towards Toronto on the 401, and it was east-north-east of us and looked to be perhaps above Toronto. From the size of the trail of debris, I wouldn’t be too surprised if a fragment survived, but from my point of view it looked like it was heading for the middle of Lake Ontario. Of course, from the comments in the Star article about it, some people from places as far away as Muskoka still thought it was north-east of them, so it might have been really high and really far away — which just makes how very bright it was that much more impressive! CP24 though says that someone in Ajax thought it was to the west of them, which might put it right over Toronto after all (maybe the commenter from Muskoka had his directions wrong?).

The blurb in the Star about it.
The bit on CTV, with a really terrible picture.
CP24’s story.

Douglas Adams used to say that the reason young boys had to wear short pants was because nature had perfected the self-healing knee, whereas science had not done particularly well on the self-healing pant knee.

My car, being 13 years old, seems to have started evolving self-healing features. There was the leak in the radiator: the guy at the shop said I’d need to replace it within a year, 3 years ago. It lost about 1 L of fluid, and hasn’t leaked since. Recently, they found a small oil leak in the engine (leaking around the camshaft). That lost just under a litre of oil, and hasn’t leaked since (though that’s only been a few weeks, and I haven’t driven the car much in that time, so maybe if I push the engine more it will leak again).

I didn’t think too much of the leaks closing up: it can happen, especially as parts expand and contract with changing temperatures (the radiator, for instance, only seems to leak in the winter). Or maybe some “gunk” stopped up whatever microscopic hole was forming.

However, this week my signal light burned out. Bulbs burn out all the time, and after ignoring it for a few days while I was busy, today I figured it was time to go to Canadian Tire and get a new bulb.

Except now, it was working again. That was just freaky — bulbs don’t usually fix themselves! So now I’ve either got the beginnings of an electrical ghost (which in an old car can be annoying and tough to trace and fix), and maybe I shouldn’t try to get another winter out of it… or my car is actually incredibly awesome and repairs itself.

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Margaret Wente is a columnist for the Globe, so she doesn’t tend to do as much research as a journalist would (which, as you know from my disdain for the quality of mass media reporting, I don’t hold in especially high esteem either). So usually I don’t bother commenting on her mistaken ideas in the columns she writes, but this week’s missive on why professor’s don’t teach hits a topic that’s close to the heart, and also contains some really questionable logic.

“[Professors] can make $125,000 a year, with a good pension and six months off each year to do as they please. Their duties include sharing their research at conferences in Italy or Mexico, whose popularity hasn’t waned despite the advent of the Internet. Meantime, what many of their students need most is remedial instruction in basic composition. But there’s no future in that.

Setting aside the fact that no professor I know gets six months off per year, or that going to a conference is a sweltering, stinking mess of networking, politicking, and shameful self-promotion that is just about the opposite of a beach vacation as the article implies… setting all the nonsense in that one paragraph aside, how can it make the remotest bit of sense to have a professor making 6 figures teach remedial composition?!

I agree that the quality of teaching in universities could stand to be improved, and that teaching should be a higher priority in universities, and that professors should be held to a higher standard of interaction with their students. But the issues that many people are hanging onto with the problems in undergraduate education are really problems in high school education. Remedial composition, seriously? A university-bound student that can’t write an essay is an issue; a university graduate who can’t an even bigger one. However, the universities can’t really be expected to do the hand-holding and remedial stuff that shouldn’t be getting through the cracks of the high school system in the first place. I’ve long believed that Ontario went the wrong way in trying to save a few bucks by eliminating grade 13. The labour of graduate students is nearly free, certainly cheaper than a certified high school teacher, but nonetheless, these general education issues that are not degree-specific should be handled in high school where they belong. It’s unfair to the students to make them pay tuition to learn what should have been covered in their basic, government-provided education; it’s unfair to society to misallocate resources so badly that people that are specialists, even world-experts in their field, might be expected to teach basics and hand-hold students that don’t even want to be there. Of course, many universities (including UofT and UWO) do have classes for things like how to do research in the library, how to write an essay, how to make a CV/resume, how to do remedial math, etc. It’s just not part of the “curriculum” — it’s up to the students to seek out the help from the various workshops. And again, it’s not high school: a university student is expected to be moderately capable and self-directing.

Beyond that, teaching is considered a little more highly than her column indicates: at both UofT and Western, every student evaluates every instructor (and TA) for every class. Those evaluations are looked at, and serious issues are dealt with. Beyond that though, the question is raised: what metric tells you it’s broken? How do you know when a professor is not doing a good job in their role as a teacher? Students will beat up a “hard” professor in those comment forms more than they will one that can’t teach! The article quotes one professor who says that his departmental head never came to watch him teach — and that is probably true for many professors. However, if the departmental heads did pay attention to teaching, and sat in on a few lectures, how would that make things any better? Professors don’t have to take “how to teach” courses, and perhaps some do need that sort of help, but departmental heads don’t take “how to evaluate adult education” either. They don’t have to take on large courseloads as part of their job. Indeed, universities are very research-oriented, and despite the masses of undergrads taking up space on campus, they’re a bit of an afterthought in the whole system. It’s just where we get the next generation of grad students from. Maybe it would be nice if professors could opt to take on more teaching loads, and get just as much compensation and job security. That would require more money though — all sorts of organizations, from government to private industry provide funds for research (and here I’m focusing on my own area of the sciences), but you can’t get salary support for offering to spend more time teaching. It’s publish-or-perish (or perhaps more exactly, land-grants-or-perish) out there, and only a change to that method of employment incentivisation will allow for a change in teaching philosophies to take hold.

I’d love to see that, personally, for a number of reasons. As I pointed out a long time ago when discussing women in science*, the typical professorial life is very hostile to making a family: long hours, an encouragement to move between cities to stay at different universities, and basically zero job security until one gets too old to bother with children. Focusing on your teaching is similar: it just doesn’t lead to making your career as a professor any better (except for the warm feeling that you helped your unappreciative bratty students).

We just don’t incentivise teaching, and maybe if we did it would make for a better university system, and at the same time might fix the “women in science” problem. If there was the option for a professor to spend 80% of their time teaching and only 20% doing research, we might get better teachers, and more women in academia.

As someone who’s thinking of going into academia, I’m also 100% in favour of Margaret Wente’s dream world of six months off every year off to do whatever I want along with a 6-figure salary and a pension, and where the classes I do teach don’t require any prep work. Sounds almost as good as being a newspaper columnist: spend 20 minutes a week hacking out a column, send it off to the editor to fix, and then sit back on the deck of the cottage and wonder if you should have done some research on researchers first. Plus the only qualifications are an undergrad degree that you can acquire while stoned!

* – I know I discussed it at some length somewhere, but I can’t find it in the blog archives to link to. Maybe it was a comment on someone else’s website?

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So I was out at a conference in Victoria, and while I’ve been to a lot of conferences before, it was the first physician-oriented scientific conference I’ve been to. I must say that the quality of the presentations is vastly different than that seen at a typical conference for scientists. The clinicians were much more confident, articulate speakers, like smooth salesmen, which stands in stark contrast to the introverted scientist reading his slides. Unfortunately, they also tended to present fairly shaky data as facts and guidance for future treatments.

For example, there were some presentations on the use of botox and acupuncture to treat chronic pain. The presentations were basically “this worked for these patients, everyone should try it.” Now, here’s the thing about research in medicine: you really need double-blind placebo-controlled studies before you can really say anything with a great deal of confidence, before you really have proof of a treatment working. When this was pointed out to one of the presenters, he countered by saying “Well, the proof is that these people keep coming back and paying for more treatments; these aren’t covered by provincial medicare. If it wasn’t working, they wouldn’t keep coming back.” A bit later in response to another question, another of these practitioners said that about 30% of the people he tried his alternative treatments on returned for more.

The thing is, there’s what’s known as the placebo effect: even if you give someone something that shouldn’t do anything to or for them, some portion of people will find some measure of effect from that treatment. The size of the placebo effect varies greatly depending on how the placebo is presented and what the placebo is acting on. The placebo effect is hard to understand, but we believe that it’s largely “mind over matter” and as such, it seems to work best on ailments that are largely in your head to begin with. If you’re sad, and a respectable looking fellow in a white lab coat hands you a pill and promises that it will make you feel less sad, you’re likely to feel less sad even if that pill is just gelatin-encased starch. Likewise with pain: from a number of studies, it seems that about 30% of people find that their pain gets about 30% better when damned near anything is tried. Pain is a complex phenomenon, but it is at least partly sensation and partly emotional, so it’s something that is easy prey for the placebo effect. Contrarily, something much more objective like a broken bone or open wound is less susceptible to the placebo effect.

So I found it rather disingenuous that when a self-selected sample of people (those who come in to a doctor’s office ready to pay for acupuncture must already believe it may work) has some measure of pain relief, that a doctor can extrapolate from that to suggest that acupuncture is a generally effective therapy for pain.

The double-blind part means that the subjects in a study must not know whether they have the real or placebo treatment: if they knew, it would really eliminate the point of the placebo. That’s blinding. Double-blinding is when the experimenter also does not know, since unconscious clues might be passed to the subjects. All important stuff in research, but let me get back to the placebo effect.

What’s interesting is that placebos are almost as effective as some FDA-approved treatments, and often with less severe side effects (though perhaps somewhat unsurprisingly, placebos also have side-effects; mind over matter cuts both ways). However, it’s generally considered unethical for a doctor to prescribe a placebo because it involves deceiving the patient.

Along with the placebo effect is the tendency for patients to lie and pretend they’re all better when a treatment is noxious. Take, for example, trepanation. Whether or not your chronic pain was cured by the medicine man drilling a hole in your head, you sure as hell were going to shut up about it or else he’d go and drill another one. I haven’t seen it reported, but I also have to wonder if there might be an under-reporting of effectiveness for some addictive treatments: could patients over-report their pain if they’re hooked on morphine, saying it isn’t working when it is in order to get an extra dose?

There was a good article about the placebo effect in Wired recently, even touching on the subtle aspects of pill design that can enhance the placebo effect.

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Since I know some of you at least haven’t picked up a calculator since high school, let’s go through a very quick simplified calculation of mortgage interest and payments. Just looking at a very simplified version of the formula, your interest per month = principal due * (yearly interest rate / 12). Like I said, very simplified. So, if you have a $400k mortgage, and your interest rate is 2%, you owe about $667 in interest every month. If your rate goes up to 3%, that’s $1000/mo. At 4%, $1333 — double what 2% was, which is pretty obvious for this simple case. At 6% you’d be paying $2000/mo in interest, and at 8% $2667/mo.

Of course, that isn’t what your mortgage payment is, since you also have to repay some of the principal that you borrowed each month so that by the end of your amortization period (whether that’s 35 years or something shorter, like a more traditional 25 year period). Let’s say that you paid an equal amount back towards the principal each month. Without interest, that’d be 400k/(25*120) = $1333/mo. Of course, you don’t pay down your principal in equal installments: mortgages are generally set up so that you have a fixed payment for the duration, part for interest, and part for principal, so that at the beginning you’re paying mostly for interest, and at the end you’re paying mostly towards principal.

At this point we could continue doing the calculations by hand, but that’s going to detract from what I’m trying to draw attention to, so let’s instead make use of an online mortgage calculator:

At 3%,

• a 25-year mortgage has payments of just under $1900
• and at 35-years, payments of $1540.

At 5%,

• a 25-year mortgage has payments of $2340
• and at 35-years, payments of $2020.

So when the rates were dropped to the bottom during this financial crisis last year, a 35-year mortgage got roughly 24% cheaper. This, to a large extent, has been what’s keeping the Toronto market afloat this year. To me, that’s crazy, because those monthly payments are only low as long as the rates are — once interest rates go back up, so too will the payments. People at large though are short-sighted and focus on the monthly payments rather than the actual cost. But what’s more bizarre is this quote from the Star’s real estate section:

“Those are very robust numbers,” said Toronto housing analyst Will Dunning. “Part of this seems to be fuelled by the fact that some buyers fear interest rates will go higher next year and are buying now rather than taking a chance on next year.”

If you fear rates will go higher next year, why rush to buy now? In Canada, you can’t “lock in” a low rate, at least, not long enough for it to really matter. While you might be able to find a lender that offers a 7- or 10-year term, for all practical purposes the longest you can lock in your rates for is 5 years. Five. Short. Years. And to lock in for that long, you often pay a premium rate, which largely factors in modest rate increases anyway. Right now you could probably get a variable-rate mortgage for less than 3%; a fixed 5-year would be over 5%. A 2% increase in rates is already factored in, and you get to start paying that right now. What is locked in?

Your principal.

The amount you actually pay for the house. 5 years from now when it’s time to get a new rate, you’ll have paid down… not very much on your 35-year mortgage. You’ll still owe about $375k of your original $400k if you had the 5% fixed rate — barely 6% of your house is paid off after 5 years. You’re still just as vulnerable to rates going up, since your principal is still virtually the same. If rates did go up, people focused on that monthly payment would probably bid less for a home, since they couldn’t afford any more (even with the low rates, we’re at the bleeding edge of affordability in Toronto) — this is why house prices generally move opposite to interest rates (as rates go up, prices come down).

Unfortunately in our world of cheap debt and rules of thumb, people mostly pay attention to this monthly figure, in the here and now, and think little of what the future might hold and how they might need to manage their risk. And we are at (or very close to) the point of maximum risk here: housing prices can’t go up forever. After all, someone has to keep buying, so everyone can’t be priced out forever. More importantly, interest rates can only go up from here. The overnight rate from the Bank of Canada is essentially zero right now, and bond yields are low — mortgages will not get any cheaper. And just as lower mortgage rates made the monthly payments lower for buyers, higher rates will make them, well, higher. Much higher.

So we return to the case of the forced savings, those unfortunate individuals (and yes, this describes some of my friends) who simply can’t manage to budget and save, so by buying property and paying down the mortgage they’re building equity, a forced savings program. However, if they’re already pushing the boundaries as it is, living hand-to-mouth, what happens if rates spike? If they don’t have the financial discipline to live as though rates were higher, and save the difference in good times, will they really (as they tell themselves they can) be able to tighten their belts and avoid foreclosure when rates really are higher? As you can see with the mortgage calculator, it doesn’t take very much change in rates at all to really affect the monthly payments you have to make. If it looks like things might get bad if we return to the ~6% rates of this decade, what about going to the 8% average rate of the last 20 years? Or spiking above 10% like in the 80’s and early 90’s? [At 8%, that 35-year mortgage goes from $1540/mo to $2841] Extending the amortization, going from a 25-year mortgage to a 35-year one can also reduce payments, as you can see above (~15%). Having the freedom to refinance into a longer amortization mortgage can be a good safety valve in the case of a temporary spike in interest rates, a problem with your job, etc. However most first-time buyers are going straight for the longest amortization they can get, so their ability to lower monthly payments has already gone straight into higher housing prices (and that price increase is probably permanent, as long as government policy allows for such ridiculously long amortizations).

The last shred of hope is that even though rates can only go up, they can take their sweet time getting there, with the example of Japan used to showcase how rates can be kept low for a very long period of time. However, the Japanese scenario is not likely to play out again here IMHO. There are a few reasons for that:

Japanese society valued having large cash savings. These deposits were psychologically sticky — the Japanese consumer, despite earning no interest on money sitting around, and having a very easy time of borrowing money, was not much interested in spending to stimulate the economy. Westerners, on the other hand, love their 0% financing car loans/leases, and get fed up with GICs that yield less than 1% after tax and look to deploy their capital elsewhere. Rates don’t have to stay low for nearly as long to have the desired effect of stimulating spending.

Japan was experiencing a bank crisis, but almost the reverse of what happened in this financial crisis: the banks were not solvent, but had plenty of liquidity, thanks to the savings of the Japanese housewives. The low rates for such a long time was their bank bailout. Because the debt markets can still demand a premium from banks to loan money (while deposits are generally the cheapest form of funding), it doesn’t matter too much to recapitalizing Western banks what the interest rate gets set at, as long as they can make their spread (unlike the Japanese in John Hempton/Bronte Capital’s example, zero rates does not translate into free funding for them).

There was competition for lending in Japan, squeezing margins. For a while, that was happening in the US, which is part of what brought on the crisis — margins no longer allowed for reasonable loss provisions, let alone profit. In Japan, the lack of a decent margin meant rates had to stay low so that the banks could be cash-flow positive, and they had to stay low for so long because everything was so inter-connected that the banks didn’t want to foreclose on heavy industry borrowers or golf courses that they actually owned themselves. In the US now, the foreclosures have happened, the bubble has burst, the write-downs are taken, and where needed, the taxpayer bailouts have been made. In the west, everyone is eager to borrow, and margins have been getting fatter as the banks use every excuse related to the crisis to hike fees (and also take advantage of the flight to safety to lower the margin paid for deposits, though the opposite happens at banks perceived as being riskier). Once we’re sure the risk of deflation is gone, it’ll back to business as usual.

Even if the Bank of Canada kept the overnight rate near zero for a long period of time, mortgage rates might still go up, since the bond markets that actually supply the funds to the banks can move independently of the central banks.

The housing market needs rates to stay at zero to stay stable; the banks probably prefer lower rates, but they’ll survive with higher ones. Inflation could loom for the rest of the economy though if rates stay too low for too long, and that is what the BoC is out to control. Low borrowing costs also tend to encourage leverage which leads to bubbles elsewhere…

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