Re: financial leverage
Short-term I would lose about 1-2% percent on the borrowed fund but in the long-term I would gain 1-2% when I lock in a long-term bond that has a coupon rate that is above the borrowed rate. I don't see how bond would be a loser if interest rates goes higher since I will locking in a bond that yield a higher coupon rate then the borrowed rate. If you plan to resell your bonds before maturity, the rising rates will cause the resell value to go down accordingly. If you plan to hold the bonds to maturity, the interest you receive will probably be a net loss in constant (inflation-adjusted) dollars, because interest rates do not rise for no reason. If rates on long term bonds rise, it will probably be in large part because of rising inflation. With our government increasing the money supply to stimulate the economy and the value of the dollar vis a vis other currencies in a sustained downward trend, both higher inflation and higher interest rates are likely in the future. ~Alypius
Re: MVT and policy portfolios
- Original Message - From: fabio guillermo rojas [EMAIL PROTECTED] To: alypius skinner [EMAIL PROTECTED] Cc: [EMAIL PROTECTED] Sent: Saturday, October 18, 2003 11:47 AM Subject: MVT and policy portfolios - people spend an inordinate time satisfying extreme voters, even after winning a party nomination They're trying to put together a winning coalition by targeting a variety of market segments. You don't see General Motors or Altria/Philip Morris targeting just the median car buyer or median cigarette smoker. ~Alypius Well, this is not a prediction of the median voter theorem. If you have N policies, the MVT would predict that the candidate would gravitate to the center of each policy. What you are suggesting is that the candidate would go to the extreme position for each policy, as defined by some subpopulation who cares about the issue. Fabio Yes, special interests--sometimes including the opinions of the rulers' own social class--are often more influential than the median voter preference. Furthermore, if a politician can put together a winning coalition--let's say one that reliably gives him about 55% of his constituents' votes-- he can usually ignore those market segments who are not part of his winning coalition. Sometimes we also see politicians neglecting part of their coalition--such as Democrats neglecting blacks or Republicans neglecting religious social conservatives--because, in a non-parliamentary system, they can be safely taken for granted. Thus, both President Bushes courted the homosexual lobby, because they knew that the Democrats would not nominate anyone the social conservatives, however unhappy, could vote for. (And I'm fairly sure, if David Duke could win the Democratic Party's presidential nomination, that he would carry the black vote in the general election.) The Democrats are enthralled to a coalition of special interests which would never allow someone acceptable to social conservatives to be nominated, just as the Republican coalition would never allow anyone to be nominated who was not acceptable to big business interests. As another example, notice how both Democrats and Republicans in Presidential elections always nominate someone whose views on abortion are to the left and the right respectively of the median voter, who, according to polls, prefers more restrictions than the Democratic nominee will endorse and fewer restrictions than the Republican nominee is willing to allow. So the two parties, rather than competing for the median voter, will compete for those market segments which would not drive away--or be driven away by--the other segments that make up the core of *either* party's coalitions. In a close election, this often means that both sides compete intensely for that segment of likely voters which is least informed, least consistent in its opinions, and most politically clueless. These people are often the kingmakers in democracies. Related to this is the question of whether there really is a median voter. Let's take 10 issues--abortion, gun control, gay rights, trade policy, tax rates, immigration, middle east policy, racial preferences, CO2/global warming policy, and SDI/star wars missile defense. What percentage of the electorate is in the middle quintile (if we could quantify these issues) on all 10? There also is the weight that each voter gives to each issue. For significant numbers of voters, abortion or support for Israel or support for Kyoto/the environment or gay rights positions or gun control or affirmative action policies will outweigh all other considerations. Much more often, even though one is not dealing with a true single issue voter, taking the right or wrong position on one issue may outweigh one's position on 2, 3, or more other issues that are a lower priority for a given voter. There is also the question of how committed an office seeker seems to be to a given issue. For example, among Republicans we often see the following tightrope being walked: the office seeker tries to be sufficiently supportive of traditional values that he endears himself to the social conservatives in his party--especially in the primaries--but not so supportive that socially liberal Republicans in the primaries (or independents in the general election) will think that he really means it. On a weighted list of issues, there may not be enough median voters to bother with. Putting together a winning coalition of market segments is probably a surer path to victory. ~Alypius
Re: Median Voter Theorem, Part Deux
- people spend an inordinate time satisfying extreme voters, even after winning a party nomination They're trying to put together a winning coalition by targeting a variety of market segments. You don't see General Motors or Altria/Philip Morris targeting just the median car buyer or median cigarette smoker. ~Alypius PS--Fabio, this reply may not appear on the list. I think Bryan has been diverting my posts to some cyberfile 13. The last half dozen or so times I attempted to post, nothing ever appeared on the list, so I've pretty much given up trying. But I can still read everyone else's messages, so you can reply to me on the list if you wish to.
Re: immigration: net gain or net drain?
Of course, if the losses from immigration restrictions are greater than you might think, the gains of weaker restrictions are also greater than you would think. When you double the number of immigrants, you will be admitting a lot of people with a lot of surplus, not just marginal immigrants. I'd like for you or someone to attempt a crude, ball park estimate for me of the net gains from immigration in a specific case. Less than 100 years ago, Kosovo was a mostly Serbian region of the Federal Republic of Yugoslavia. Then high levels of legal and illegal immigration from neighboring Albania made it a mostly Albanian region. How much better off is Yugoslavia today as a result of past immigration than it would have been if it had tightly restricted immigration? How much better off are the few remaining Serbs who have not been driven out of Kosovo or killed than they would have been if foreign immigration had been tightly restricted for the last 100 years? (Of course, one can always argue that the immigrants benefited, but how did the receiving party benefit? How was it in their best interest to open the doors?) Another example is Palestine. Now I know the natives of Palestine had no control over immigration policies in the late 19th and early 20th centuries; that was a British decision. But how much better off is the *average* Palestinian--most of whom live in the West Bank and Gaza strip--as a result of Jewish immigration? And since immigration makes their lives so much better, why is there so much unrest? A third example: American immigration to the Mexican state of Texas certainly benefited the immigrants; but as a result, half of Mexico was, a generation later, off limits to most Mexican citizens until today. How much did the average member of the receiving party benefit from allowing large scale Anglo immigration to Texas? If current immigration policies in the United States give the Democrats a permanent lock on the White House beginning in 2008, and eventually a lock on Congress as well, how much better off will the receiving party and their posterity be as a result? In California, would Cruz Bustamante be a frontrunner in the special election for governor in the absence of large scale immigration from Mexico? ~Alypius
Re: Economics and E.T.s
Well, we have reaches a level of life exactly equal to our own, and we haven't colonized anything beyond our planet. The tehnology is probably there, but the costs are high and the benefits are unclear. The same maybe true 200 years from now. (Gee, I hope this is on topic!) Anyway, a physicist said one time that any extraterrestrial visitors probably would have to live in our little corner of the Milky Way. Since the speed of light functions as an absolute speed limit, the length of time necessary for distant interplanetary travel poses logistic challenges that are probably insurmountable with any possible technology. Also, think about this: On our own planet, there are thousands, maybe millions of different forms of life, from humans to peat moss to bacteria. The overwhelming majority of species on earth are things like insects and bacteria -- not humans. If there were life elsewhere in the universe, isn't there a higher probability that's it's on the level of bacteria rather than humans? Oh, absolutely. Even if life is common, intelligent life probably isn't. It took life on earth many hundreds of millions of years to evolve an intelligent life form, and even then it was unlikely. If some disaster had not wiped out the dinosaurs, there might never have evolved a niche for primates. And if the Pleistocene ice age had not begun about 3 million years ago when the isthmus of Panama moved into its present position (which altered the oceans' thermohaline circulation in important ways) and about the time that early hominids evolved in Africa, Homo sapiens, or even erectus, might never have evolved. Our primate ancestors might have remained in the rain forest without the drying and cooling effects of the ice age. And even primates that adapt to savannah do not necessarily become intelligent--just look at baboons. And even if early Homo had evolved, in the absence of our periodic glacial episodes, his IQ probably never would have risen to a high enough level to create industrial civilization. IQ, brain size, cranial size, and the latitude at which a population probably lived during the last glacial era (circa 120,000 BC to c. 11,000 BC) are all correlated. And even now either a return to ice age conditions or, in the case of continued interglacial conditions, a gradual decline in intelligence due to unfavorable differential fertility trends, might be sufficient to end civilization. Furthermore, it is not only intelligence that makes technological civilization possible, but prehensile thumbs and bipedalism. It all has to evolve as a package. When the first humans came to the western hemisphere, why didn't they find another intelligent species already here, having evolved independently? Because the chance of intelligent life evolving anywhere, at any time, is remote. Intelligent species don't even appear to be very successful. If you look at every species of ape but man, they are marginal species. Their sparse populations eke out an existence in specialized environmental niches and do not appear to be very adaptable. Even Homo sapiens was almost extinguished following the eruption of a super-volcano about 72,000 BC. It was only with the invention of agriculture at the beginning of this interglacial that our numbers multiplied enough to give our species the (misleading?) appearance of biological security. ~Alypius
Re: HEAVEN'S DOOR AFTER A YEAR - George J. Borjas
Perhaps even more fundamentally, if the Americans who pay the immigrants didn't benefit by paying the immigrants the Americans wouldn't pay them. Obviously both parties--American and immigrant--benefit from the exchange of money for labor. Sure *some* Americans benefit--just like some Americans would benefit from invading Communist China, as I pointed out before. But do Americans in the aggregate or on average benefit? Where does this benefit show up in the economic stats? Cuban-American immigrant Borjas says we benefit to the tune of 10 billion dollars in an economy of 10 thousand billion--that's a .001% benefit to the average US citizen, and it may well be canceled out or worse by net negative externalities, which are much easier to enumerate than positive externalities, perhaps because there are more of them. ~Alypius Skinner
immigration's effect on per capita GDP
Robert Book wrote: Do any of these studies take into account the effect of immigrants on demand? It would see these people have to eat. Judging from the article below (Note carefully what Professor Borjas is saying here. Sure, those immigrants who work do raise overall GDP. But the bulk of that increase goes to the immigrants themselves, in the form of wages. The benefit to native-born Americans, after everything is taken into account, is infinitesimally small.), the effect of immigrants on demand does appear to be taken into account. What I want to know is whether the labor economists' studies take into account the cost of the immigrants' crime rates (which are above the native born average), their welfare dependency (again, above the national average), and the higher transaction costs and ethnic friction and rivalry that comes from high rates of immigration. Most immigrants also come from cultures that are more socialistic than the United States and, upon gaining citizenship, vote heavily for the more socialistic of the two major parties. (An exception here may be the relatively small East Asian/Oriental population, which seems to straddle the fence, although the large Chinese element seemed to lean toward the Democrats during Clinton's second term, when he was perceived as China-friendly, even though it may have been at the expense of US national security. Miami's Cubans are also an exception, perhaps because most Cuban refugees were from Cuba's more well-to-do classes and also tend to be vehemently anti-Communist. But exceptions are rare and relatively small.) It always struck me as odd that contemporary libertarians (although not von Mises or the objectivist Ayn Rand) are the strongest supporters of open borders, even though most of the people who would enter under such an arrangement would be hostile to libertarian political thought. ~Alypius Skinner http://www.vdare.com/pb/cc_times.htm Contra Costa Times December 4, 1999 Immigration policy stupid, evil and hurting Americans By Peter Brimelow IN AMERICA, WE have a two-party system, a Republican congressional staffer is supposed to have told a visiting group of Russian legislators some years ago. There is the stupid party. And there is the evil party. I am proud to be a member of the stupid party. He added: Periodically, the two parties get together and do something that is both stupid and evil. This is called -- bipartisanship. Our current mass immigration policy is a classic example of this fatal Washington bipartisanship. It is a stupid policy because there is absolutely no reason for it -- in particular, Americans as a whole are no better off economically because of mass immigration. It is an evil policy because it second-guesses the American people, who have shown through smaller families that they want to stabilize population size. Unfortunately, our current immigration policy is consuming the environment with urban sprawl, hurting the poor and minorities with intensified wage competition, and ultimately threatening the American nation itself -- what Abraham Lincoln called the last, best hope of earth -- with cultural and linguistic fragmentation. And, of course, the current mass immigration policy is bipartisan. Both major party leaderships have tacitly agreed to keep the subject out of politics. No single figure is more responsible for this than Sen. Spencer Abraham, R-Mich., chairman of the Senate's Immigration Subcommittee. Abraham was a key figure in sabotaging the most recent chance of reform, the Smith-Simpson immigration bill, in 1996. Ironically, this was a truly bipartisan measure, proposed by Republicans but based on the work of the Jordan Commission, headed by the former black liberal Democratic Congresswoman Barbara Jordan. She recommended almost halving immigration, in part because of its impact on the poor. The economic stupidity of current mass immigration policy is illustrated by a brilliant new book, Heaven's Door: Immigration Policy and the American Economy (Princeton University Press). The author, Professor George Borjas of Harvard University's John F. Kennedy School of Government, is widely regarded as the leading American immigration economist. And he is an immigrant, arriving here penniless from Castro's Cuba in 1962, when he was 12 years old. Borjas has every reason to favor immigration. He writes movingly about his own early experiences, and compassionately about the immigrant waves that have followed him. But, as a scholar, he recognizes what he calls accumulating evidence that immigration has costs as well as benefits. My thinking on this issue has changed substantially over the years, he admits. Professor Borjas' devastating findings: The current wave of mass immigration is not benefiting Americans overall. All of the available estimates suggest the annual net gain is astoundingly small, writes Professor Borjas, ... less than 0.1 percent of the Gross Domestic Product. Roughly: less than
US housing price trends
Around U.S., a House Is a Home but Not a Bonanza August 6, 2003 By DAVID LEONHARDT FORT WAYNE, Ind. - On a tree-filled boulevard known as Doctors' Row, the four- and five-bedroom brick Tudor homes that are the jewels of this city's housing stock were selling for about $150,000 two decades ago. At the time, some homes in the nation's most desirable suburbs, like Brookline, Mass.; Sausalito, Calif.; and Great Neck, N.Y., cost the same. Over the last 20 years, however, the nation's housing market has been cleaved in two, and the break has helped create two very different economies in one country. Homes in the areas that were already the most expensive - California and the Boston-to-Washington corridor - have often doubled or tripled in value, even after adjusting for inflation. The increases have created nest eggs for longtime owners and allowed them to borrow billions of dollars against their equity, financing new kitchens and college educations and keeping the current economic malaise from being far worse than it might have been. But while the boom has become the subject of daily conversations among the middle class and affluent in New York, San Francisco and Los Angeles, people in much of the country have little housing bounty to tap for home improvements, retirement or other needs. From Fort Wayne to Rochester to Salt Lake City, the prices of typical homes across most of the country's vast middle have risen just ahead of inflation - and more slowly than incomes. The cost of homes in the most expensive cities is now about six times that in the least expensive, up from a ratio of three to one two decades ago. Here in Fort Wayne, the homes with elegant porticoes and broad lawns on Doctors' Row sell for about $300,000 today, roughly the same as they did in the early 80's, after being adjusted for inflation. Not a single house in Fort Wayne - a small, manufacturing-heavy city halfway between Chicago and Detroit, with a jobless rate below the nation's - has sold this year for more than $800,000, according to real estate industry data. That is roughly the average price of a two-bedroom apartment in Manhattan. The real housing boom is fairly concentrated, said Mark M. Zandi, the chief economist of Economy .com, a research firm. And at the moment, it is clearly keeping the economy afloat in those areas. There is no such cushion throughout much of the nation's interior. Some economists argue that the Federal Reserve's aggressive interest rate cuts might have been more effective at ending the economic slowdown if the gains in house prices - and the potential they create for consumer spending - had been more broadly shared. Last year, Tom and Judy Auer sold the four-bedroom Fort Wayne house where they raised their three children for $107,900, or slightly less than the $34,000 they bought it for in 1974, after adjusting for inflation. Without a bonanza from the sale, the couple now live in a smaller house in Fort Wayne, relying on the pension from Mr. Auer's job as a hardware salesman at Sears, Roebuck and Social Security, which they began drawing early. Marva and Bill Herx, on the other hand, left Fort Wayne in 1998 to move to the Philadelphia suburbs for his job. When they returned last year, they had made enough profit selling their Pennsylvania house - for about 40 percent more than the purchase price - that they were able to move into a house in Fort Wayne noticeably bigger than the one they had left. The home costs in Fort Wayne have stayed pretty much the same, said Ms. Herx, who is in her 50's. In Philadelphia, we made a good profit in just four years. The dynamic is reversed for younger adults, who are struggling to afford houses on the coasts while their counterparts elsewhere in the country are taking advantage of low mortgage rates to buy bigger, better homes than in the past. All my friends in Fort Wayne have houses. I think the biggest thing in the world I own is a cellphone, said Michael Korte, a 28-year-old Fort Wayne native who works for the City Council in New York and rents a two-bedroom apartment along with his sister, brother-in-law and nephew on the Lower East Side. It blows my mind. For $102,000, Brady Gerding, a high school classmate of Mr. Korte, recently bought 27 acres of land outside of the city where he and his wife will build a house. It will be the second house owned by Mr. Gerding, who, unlike Mr. Korte, did not graduate from college. You can still live like a king in Fort Wayne for $200,000, said Linda Duesler, who has been selling houses here since 1977. And you can live pretty well for $100,000. Beyond determining many families' wealth and standard of living, the two-tier housing market has begun to create difficult questions for government officials trying to create policies that apply to the entire nation. For example, when designing pensions, it becomes very difficult to judge the ability of people to retire because their finances might be in much better shape
Re: Absolute vs. relative income level
Dear armchairs, i think there is a at least partial contradiction between the hypothesis of diminishing marginal return of income and the hypothesis that people care about consuming more than their neighbors or about earning more than their neighbors (Frank: Luxury Fever). If the latter is true than the first hypothesis is weak. What do you think about this? Steffen I don't see a contradiction. Once people have enough money for food, housing, keeping up with the Jones's, (or perhaps besting the Jones's), etc., then additional income beyond that level has less perceived value. ~Alypius
Re: broadcast spectrum rent
The spectrum leaseholders should be free of any content restrictions (other than the usual laws about fraud). That would create a market for the highest and best social use of the spectrum. I was cheering you on upto here. Banning content restrictions (which I think is a decision that should somehow be made within the viewing area, not Washington) will lead to the most profitable use of the spectrum, but that is not necessarily the highest and best social use. In fact, I think an excellent case could be made for either requiring the spectrum to be used for anything *but* television (best), or making television a government monopoly: in the latter case, with the higher boredom factor produced by bureaucratic management with no profit incentive (yes, it should fully subsidized by us longsuffering taxpayers), viewership would dwindle, much to the benefit of both individual ex-viewers and society at large. ~Alypius
stock trade patterns could predict financial earthquakes
Public release date: 14-May-2003 Contact: Denise Brehm [EMAIL PROTECTED] 617-253-2700 Massachusetts Institute of Technology http://web.mit.edu/newsoffice/www/ Stock trade patterns could help predict financial earthquakes CAMBRIDGE, Mass.--The stock market has its share of shakeups, but who would guess that large movements in this man-made system adhere to a similar pattern of predictability as earthquake magnitudes? After analyzing four years of data from the world financial markets, an interdisciplinary team comprising an economist at the Massachusetts Institute of Technology and physicists from Boston University discovered that large-scale events in the stock market adhere to distinct patterns. They believe that market analysts could use these new findings to partially predict the chance of a market crash, although prevention is not possible. The frequency of crashes such as those in 1987 and 1929 follow these patterns, said Xavier Gabaix, assistant professor of economics at MIT and lead author of the paper describing this research, which is appearing in the May 15 issue of Nature. But that doesn't mean we'll be able to predict with certainty when a change will occur or which direction the change will go. The patterns found by the scientists are power laws--which describe mathematical relationships between the frequency of large and small events. One such power law is used to forecast the chances that an earthquake of a given magnitude will occur. In short, the scientists have shown that stock markets have a mathematical elegance frequently found in natural systems. We have found that the artificial world of the financial markets follows a pattern similar to one found in our natural world, said Gabaix. Trading on the stock market has a lot of randomness, but at the end of the day you find that a pattern emerges that matches power-law patterns found empirically in data from systems as diverse as earthquakes and human language. The team also found that the actions of large market participants, like mutual funds, produce this power-law behavior when they trade stock under time pressure. We want to understand financial earthquakes in order to protect people like you and me, whose retirement is tied up in the markets, said Professor H. Eugene Stanley, director of the Center for Polymer Studies at BU and a co-author of the paper. Fortunately in Tokyo they build buildings so that they don't succumb to earthquakes. We need to do the same thing in economics. BU physicists Dr. Parameswaran Gopikrishnan and Dr. Vasiliki Plerou are also co-authors. But our research suggests that the forces that give rise to the power laws of stock market fluctuations are extremely robust, said Gabaix. So unfortunately, such crashes would be very, very hard to prevent. If you put an extremely large amount of friction--in the form of regulations--into the system, you could prevent the crashes. But moderate amounts of frictions will make no difference, he added. In any case, before we can give advice on policy, we need more research to better understand all those regularities in the stock market. When applied to a precise computer model, the power laws might allow market analysts to predict a crash, but not necessarily prevent it. We believe that the computer model presently used by most analysts undercounts the number of large, rare events. That is what we're looking at next, said Gabaix. If we combine physics methods and economic reasoning, we may be on the right track. EMERGING PATTERNS In their paper, the scientists show that--for the market as a whole and for an individual stock--the daily volume of stocks traded, number of trades and price fluctuations follow power laws. For example, the number of days when a particular stock price moves by 1 percent will be eight times the number of days when that stock moves by 2 percent, which will in turn be eight times the number of days when that stock moves by 4 percent, which will in turn be eight times the number of days that stock moves by 8 percent, and so on. The same relationship (called the inverse cubic pattern) characterizes the number of daily trades. A similar power law (the inverse half-cubic pattern) describes the number of shares traded each day. For instance, if 100,000 shares of Apple stock were traded on 512 days during a certain period, then you can predict that there would be 64 days when 400,000 shares of Apple stock were traded, and eight days when 1,600,000 shares of Apple stock were traded, and one day when 6,400,000 shares of Apple stock were traded. To understand these patterns, the scientists looked at the size of large traders, such as mutual funds with more than $100 million in assets. They found that their size also follows a power law. The number of funds that manage $1 billion is twice the number of funds with $2 billion, which in turn is twice the number of funds with $4 billion, and so on. (This pattern is called Zipf's Law, named after
Fw: Ruppert on ASPO Conference
Bush Advisor Matt Simmons Who Advised Cheney's Energy Task Force Confirms Peak Oil is Major Concern of Bush Administration Peak Oil Symptoms More Apparent Recoverable Reserves May Be Less Than Hoped Natural Gas Shortages May Appear in US This Year Hydrogen Vastly Overrated and Not Likely to Offer Solution Paris Peak Oil Conference Reveals Deepening Crisis by Michael C. Ruppert © Copyright 2003, From The Wilderness Publications, www.fromthewilderness.com. All Rights Reserved. This story may NOT be posted on any Internet web site without express written permission. Contact [EMAIL PROTECTED]. May be circulated, distributed or transmitted for non-profit purposes only. May 30, 2003, 1800 PDT, (FTW), PARIS Research presented on May 26th and 27th at the French Institute for Petroleum (IFP) by a wide variety of experts from varying and often competitive perspectives disclosed that, in the year since the first conference of the Association for the Study of Peak Oil (ASPO) supply, constraints have worsened and the realities of energy depletion are becoming more apparent. A year of violent political history centered on oil and ever-more unforgiving production results have begun to force reluctant political and economic acknowledgement of Peak Oi's threat to civilization. Yet ASPO's founder, Professor Colin Campbell, and his colleagues, retired TotalFinaElf Exploration Manager, Jean Laherrère, and Physics Professor, Kjell Aleklett, have good reason to be pleased with the second-ever ASPO conference. Two hundred people from more than twenty countries attended this year, doubling attendance for the inaugural event held last May in Uppsala, Sweden. In an acknowledgement of Peak Oi's penetration of official consciousness, the event was partially subsidized by the French Institute for Petroleum, the oil services firm Schlumberger, and the French oil giant, Total. The fact that it was held at a government institution was, according to Campbell, evidence of the fact that Peak Oil can no longer be completely ignored, even by politicians. Olivier Appert, Chairman of the IFP, bluntly acknowledged that many oil experts have concluded that world oil depletion is between five and ten per cent per year and that 60 Million barrels per day (Mbpd) of new capacity is needed to meet demand. On that basis he concluded in his opening remarks, "It is timely to reopen the debate." Appert however told the audience that he was an optimist basically because he predicted that new technologies would produce new discoveries and better recovery in the future. But quiet, official support of the conference fell far short of the political and economic mobilization the organizers believe necessary to respond to a crisis that might start grinding national economies to a halt and causing massive dislocations in short order. As one conference organizer told FTW, "The fact that several governments have asked to be kept fully informed,' or that the French government allows us to use their facilities, or that major oil companies and automakers like Daimler-Chrysler come to make presentations is a way of listening closely to what we are doing without having to publicly accept what we are saying. The political and economic ramifications of that are too drastic from their perspectives, but each hour of delay only assures that the eventual crisis will be worse once it has been acknowledged." IFP Chairman Appert's optimism was belied by experts like Laherrère, whose brutally honest graphs and plots not only mirror the truth of declining discovery and production but also establish scientifically that there are no more major significant reserves to be found. Other experts established definitively that wildly exaggerated hopes for polar or deep sea discoveries, or tar sands production are both unfounded and dangerously deceptive because of the excessive production costs and the investment required to develop what will likely prove to be disappointing yields. In the end, the most realistic and integrated analyses were delivered by political scientist and author Michael Klare and Professor Kenneth Deffeyes of Princeton, a one-time colleague of the late M. King Hubbert, whose Hubbert Curve predicted today's events with startling accuracy some six decades ago. These two conference presenters gave integrated presentations incorporating real-world current events and showed clearly that Peak Oil is here now. BBC sets the tone One of the first presentations of the conference was the screening of a new BBC documentary which aired on March 26, 2003, titled, "The War For Oil." In stark and irrefutable detail the film verified every major aspect of Peak Oil including declining production, vanishing discovery rates, smaller field sizes and increasing demand. It pointed out that worldwide production capacity was stretched to the limit and that the US would be importing seventy
Re: Cost benefit analysis
Does anyone know how often CBA is actually used in making policy? What percent of the federal budget (or state or local) has been determined by CBA?Cyril Morong I'm sure it's used frequently. It's probablyapplied something like this: "what's the minimum amount of taxpayer-funded benefits that I need to dispense to guarantee my re-election?" ~Alypius
Re: Median Voter, Welfare State and World Power
Bullshit or not? Assumption 1: There is a trade off between welfare state spending and military spending. Assumption 2: The more you spend on military, the more a gov't can project power abroad. Assumption 3: The Median European voter prefers more welfare state than Americans, who prefer more military spending. Conclusion 1: Americans per capita get more military than Europeans. Conclusion 2: Americans per capita are more able to project their millitary across the globe. Conclusion 3: Preferences for welfare state drives the power imbalance between Europe and America. Fabio Probably not bullshit, but I think it is an oversimplification. In addition to the points raised by the other posters, I would also add that the conclusion seems to assume a conflict between American and European foreign policy. Notwithstanding the EU, different European states can have different national interests in foreign affairs, and probably would not often be able to project a unified military power in foreign affairs. Thus, one cannot often speak of a European foreign policy. Europe would rarely be unified enough to match America in the projection of power. But if Europe were a unitary state, it's geographical proximity to Africa and much of Asia might give it an edge over America, and probably at lower cost. Yet more to the point, I really think Europe's preference for a welfare state over superpower status is a minor element in our disparity of force. Japan could easily be the world's number 2 superpower if it so desired, and it's welfare state is smaller than ours in the US. However, both Japanese (especially) and also European foreign policies tend to be policies of national self-interest, and self-interest does not always require the imperial projection of force. The Swiss would not necessarily be better off if they sought to dominate militarily as many other countries as possible, and we in the US are not necessarily better off either. But US foreign policy for the last century has tended to be a messianic policy motivated by the visionary ambitions of our foreign policy elites, and with the necessary sacrifices of the American taxpayers and soldiers and their families viewed as a form of noblesse oblige. Much of this messianic foreign policy ultimately derives from the original Puritan cultural heritage of the American northeast, which dominates the rest of the country in semi-imperial fashion (which is why one rarely if ever hears northeasterners talk of secession, unless of course they are speaking of preventing some other state's or region's potential secession; nor can one imagine any other region of America seeking to stop the northeast if it decided to secede! Many would say, Good riddance.). Whether the sacrifices US citizens make for the alleged good of the world are really appreciated or even desired by the rest of humanity is another question. I think many of them, especially outside western Europe, tend to feel toward the United States much the way that American Southerners feel toward northeasterners. But most of my fellow Americans seem to have difficulty understanding why the bulk of the human race does not appreciate our sacrifices on their behalf. Why do they hate us? they ask. After all, virtually everyone in the world would really like to be an American. All those millions of thirdworlders aren't lined up to get into the US just because they want to make money after all. It's because they want to share in our superior American values and culture. But since we don't quite have room for all of them in America, we can do the next best thing and bring Americanism to them, like we did in Germany and Japan and are now doing in Haiti, Yugoslavia, and Afghanistan. And Iraq is the next nation we aim to liberate and modernize. That's what nation-building is all about. What we're about to do to them is for their own good, and they should be grateful, or at least the survivors should. After all, it is well known that America is a benevolent nation which has nothing but the best interest of all the world at heart. Where would the world be if we returned to being like all those other narrow, money-grubbing countries that think of nothing but their own welfare? Enough sarcasm. Debating matters raised in the above paragraph is pointless, since one's conclusions ultimately depend on one's values--national greatness or national self-interest? In both American political parties, the national greatness school has outmaneuvered and largely banished (especially among Republicans) the national self-interest school. But now I wish to raise some questions that can be discussed on a practical rather than value system basis. Now that we have decided to substitute a policy of conquest and direct control for diplomacy and influence, for how many years, decades, or centuries will we have to occupy these lands? What will it eventually cost us? What is our ultimate goal? To acquire
book review: in defense of free capital markets
http://www.derosa-research.com/barrons.htm July 2, 2001 IN DEFENSE OF FREE CAPITAL MARKETSBy David F. DeRosaBloomberg Press, $27.95, 230 pp. Reviewed by Gene Epstein This book is the proverbial tall drink of water after a long trek through an intellectual desert. The currency and emerging-market meltdowns of the past decade have been shocking events that cry out for thoroughgoing analysis and explanation. But apart from generating a few fleeting insights on these urgent issues, mainstream economists and commentators have served up the usual wasteland of airy musings, usually punctuated by the proposal that international regulatory bodies get beefed up, possibly with said economists and commentators in charge, to curb market excesses. A pretentious work by Princeton economist Paul Krugman (The Return of Depression Economics, 1999), and the literary ravings of billionaire hedge-fund manager George Soros (Open Society: Reforming Global Capitalism, 2000) are prominent examples. Now comes In Defense of Free Capital Markets: The Case Against a New International Financial Architecture, a book that, for the sake of its sales, should have had a different title, since its unique achievement is to explain to anyone of any ideological stripe the real causes and cures of these tragic happenings. For sure, Ph.D. economist David F. DeRosa (a Yale School of Management Adjunct Professor and head of DeRosa Research Trading) lays the responsibility squarely at the feet of government; at local governments for instituting ruinous fixed exchange-rate regimes; but most especially those two governing institutions, the U.S. Treasury Department and the International Monetary Fund. His story even includes a villain or two, if (like me) you're willing to call former Treasury Secretary Robert Rubin villainous for helping to set in motion the forces that punished the innocent and rewarded the guilty. For DeRosa, the key combustible material present in Mexico's unraveling of '94, and in the subsequent crises in Asia through 1998-99, was the practice of pegging the local currency to the dollar, yen and mark, together with the policy of protecting investors from their losses. If that thesis sounds odd, then consider how these policies can lead to behavior destructive enough to lay these economies low. Although no brief sketch can do justice to DeRosa's analysis, here's one storyline: Say the Mexican peso is pegged at 3.0 to the dollar. What invariably occurs is that the returns on a dollar's worth of pesos will exceed the cost of borrowing that dollar by a wide margin. In January '94, for example, the short-term peso-denominated interest rate on Treasury bills issued by the Mexican government exceeded comparable U.S. dollar rates by more than 6%. This kind of spread not only gives rise to the "carry-trade" speculators going short dollars and long the local currency. It also motivates domestic banks and businesses to borrow heavily in dollars from foreign investors and then convert those dollars to the local currency to transact their business. What happens, then, is that pegging motivates virtually everyone to be long the local currency and short dollars -- a "bomb in the making," as DeRosa writes. For if and when the peg is abandoned, the local currency will plunge in value as the carry-trade rushes for the exits, and the dollars owed by government and business become ever more expensive to repay. Then come the U.S. Treasury and IMF to make matters worse. When the peso was devalued in 1995, pushing Mexico into default, Treasury Secretary Rubin engineered a financial bailout. The result was that foreign investors and institutions were made whole, while Mexico slid into recession. And armed with the knowledge that the U.S. Treasury or IMF would come to the rescue if trouble arose, foreign investment flowed at an accelerating pace into the economies of Southeast Asia, where exactly the same preconditions for disaster were present. Among plausible cures, DeRosa rightly favors flexible exchange rates, plus the complete abandonment of the lethal practice of no-fault capitalism. Many nonfiction books are basically padded versions of 30-page articles. But the 230 pages of In Defense of Free Capital Markets, while readable and clear, should have run 400-500. The book often covers far too much territory in too short a space, as when it tries to lay out the story of Japan's decline and fall. Its thesis would be more persuasive if placed within the context of the Austrian theory of business cycles. On the other hand, what a pleasure to read any book that one wishes were longer. Gene Epstein is Barron's economics editorE-mail comments to [EMAIL PROTECTED] UPDATE: Lively (if Not So Light) Reading on the Dismal ScienceBy Gene EpsteinJuly 9, 2000 - BarronsFormer Treasury Secretary Robert E. Rubin's
Re: Bubblemania
Thanks for the accurate data. Elsewhere, I have read that the pre-war baby bust began in the mid-1920's--before the great depression--and so could not have been entirely a result of the difficult times of the '30's. If it isn't too much trouble, can you either confirm or disconfirm this claim?~Alypius In a message dated 1/26/03 8:02:08 PM, [EMAIL PROTECTED] writes: (demographically, the boom began in 1943) The fertility rate (measured per 1000 women) in 1943 barely exceeded that of 1942 (2,718 v. 2,628), follwed by declines in 1944 (2,568) and 1945 (2,491), only a bit higher than the rates of 1941 (2,301) and 1940 (2,301). In 1946, however, the rate rose to 2,943 and thereafter remained above 3,000 through 1964 (3,208) and then again in 1965 (2,928), 1966 (2,736), 1967 (2,573), 1968 (2,477), and 1969 (2,465). I've generally heard demographers to include the years 1946-1964 in the Baby Boom, although one might arguably include 1965 or exclude 1946. The Baby Boom stands out even more starkly if one uses live birth rates per 1,000 women: the number doesn't exceed 100 until 1946, and then does so every year through 1964, after which it again falls below 100. (Source: Historical Statistics of the United States, Colonial Times to 1970, Part I, pp. 51-53.) DBL
Fw: economic projections of the IPCC
http://www.webace.com.au/~wsh/cool4.htm Issue 4 November/ December 2002 Concise and comprehensive paper by Dr Chris de Freitas pointing out myths and fallacies in the entire IPCC position. Dowloadable pdf file just over 1 Mb. CSIRO and the greenhouse game: player yes, umpire no by Bob Foster1 bclim10, 14/12/2002 1. A REPUTATION WORTH PROTECTING A review by Paul Adam in The ANZAAS Mercury (September 2002, p 5) of Fields of Discovery: Australias CSIRO by Brad Collis (Allen Unwin, 520 p) begins: The CSIRO is one of the jewels in Australias crown. It is an extraordinarily diverse and productive research organization, and the national public face of science. In many countries public statements from government scientists tend automatically to be regarded with suspicion and scepticism. In Australia CSIRO is a trusted umpire, and endorsement by the organization is a high accolade. It takes decades to earn a reputation like this. 2. CSIROS TEMPERATURE PROJECTIONS FOR AUSTRALIA CSIROs website www.dar.csiro.au/impacts/future tells us that: By 2070, annual average temperatures are increased by 1.0 to 6.0 OC over most of Australia ... because of human-caused greenhouse gas (GHG) emissions. For the inland, the new (8/5/2001) projection is an even-more-remarkable 1.0-6.8 OC cf only 0.7-3.8 OC in CSIROs last (1996) report. I promise I am not making this up: now, CSIRO has Darwin going from the present one December-February day per year over 35 OC on average, to a whopping 5-79 days by 2070. CSIRO could be quite right, of course; but no-one today has any way of knowing. Think the unthinkable: is CSIRO snowing us on future Australian warming? 3. CLIMATE CHANGE AND THE NATURAL SCIENCES 3.1 Did the Greenhouse Effect cause 20th-Century warming? In the 20th Century, 0.6 OC of global-average surface warming from all causes occurred in two episodes: from the 1920s to the mid-40s, with the balance from 1976 onward - and with a return to slightly cooler conditions in the interim. Figure 1 compares world consumption of carbon-based fuels (a good surrogate for GHG emissions) with the observed increase of globally-averaged surface temperature. Clearly, the first warming episode from the 20s largely predates the growth of human-caused GHG emissions to the atmosphere. The Great Pacific Climate Shift of 1976/77 was the climatic event of the century. This Shift coincided with an abrupt reduction in the upwelling of cold water in the eastern Pacific, as recorded by the Pacific Decadal Oscillation (PDO) Index (Figure 2) - which shows reductions during the 1920s-40s and 1977-98. The impact of the 76/77 Shift extended far beyond PDO and the Pacific; and its global influence on atmosphere and oceans is illustrated in Figure 3. Selected examples of its physical and biological influence are given in Figure 4,---Figure 5,---Figure 6,---Figure 7,---Figure 8, and Figure 9. 1. Phone (61.3) 9525 6335, fax 6345, email [EMAIL PROTECTED] Bob is a director of the Lavoisier Group www.lavoisier.com.au which is putting a contrarian view on climate change to that of the UNs IPCC. Like-minded Australian sites are www.webace.com.au/~wsh and the comprehensive www.john-daly.com. But could the renewed warming from the late 70s be the greenhouse effect? The human-caused greenhouse effect is a phenomenon of the atmosphere. GHG emissions, of which carbon dioxide (CO2) from fossil fuels is by far the most influential constituent, are supposed to trap extra heat in the lower troposphere which warms as a consequence. Instead of escaping to Space as before, some of this trapped heat should return to the earths surface causing greenhouse effect warming. Concurrently, less heat than before escapes to Space. We now have 23 years of global coverage from satellite-derived observations to supplement the weather balloon record (top graph in Figure 3), which is only adequate in the Northern Hemisphere - better over land, best over Europe and North America. There are two surprising findings. The lower troposphere is only warming a quarter as fast as is the surface, and (in the tropics, at least) more not less heat is leaving the top of the atmosphere for Space. The simplest explanation for these findings is that most of the measured surface temperature increase over the past 23 years is something other than greenhouse effect warming. During this period, the lower troposphere of the Southern Hemisphere appears not to have warmed (Figure 10---Figure 11). In fact, most warming in the lower troposphere is north of 30ON; and south of 45 OS is cooling. Therefore, any human-caused greenhouse warming (i.e. at the surface) to date, would be largely confined to the extra-tropical Northern Hemisphere. And yet, CSIRO is warning us that Australia could warm ten times as much by 2070 - from the greenhouse effect alone - as the global-average warming from all causes over
Re: FW: History shows paths to market crashes, but lessons seem forgotten
The average investor would be far better off if they did think that enormous returns could continue forever because, in a deep though less dramatic way, they DO. I suspect that a lot of people have been turned off to stock ownership for decades in spite of the fact that they are the smart long-term bet. -- People aren't always alive in the long-term! Lots of baby boomers are approaching retirement when they will begin to draw down their savings. If their savings are being decimated by a bear market at the same time, they may not have enough to last them until they die. For people who have already accumulated a nest egg and may not be young enough to start over, capital preservation is rule number one. So it may be a wise precaution for these people to move their wealth into save havens, mainly bonds. In a few years, this movement of baby boomer money into safe havens should drive down both the price of stocks and the yield on bonds. ~Alypius Skinner
FW: History shows paths to market crashes, but lessons seem forgotten
http://www.mail-archive.com/futurework@dijkstra.uwaterloo.ca/msg05751.html http://www.ardemgaz.com/tech/D4bcrashes6.html History shows paths to market crashes, but lessons seem forgotten LARRY ELLIOTT THE GUARDIAN, LONDON In the spring of 1720, when all of London was clamoring for shares in the South Sea company, Sir Isaac Newton was asked what he thought about the market. "I can calculate the motions of the heavenly bodies, but not the madness of the market," the scientist is said to have replied. Newton should have heeded his own wise words. Having sold his stock in the company at 7,000 pounds sterling, he later bought back more at 20,000 pounds sterling at the top of the boom and went down for the count with other speculators when the crash came. Little has changed in the intervening 280 years. Common to every bubble is the ingrained belief that this time things will be different, that the rise in the price of an asset is rooted this time in sound common sense rather than recklessness, stupidity and greed. Take the crash of 1929. In Devil Take the Hindmost, Edward Chancellor records how Wall Street's elite convinced themselves that the rules of economics had been rewritten and that the market could support ever-higher share prices. John Moody, founder of the credit agency that bears his name, intoned in 1927 that "no one can examine the panorama of business and finance in America during the past half-dozen years without realizing that we are living in a new era." And Yale economist Irving Fisher declared a few weeks before the October crash that stock prices had reached a "permanently high plateau." Why was this? Simple, he said. The creation of the Federal Reserve in 1913 had abolished the business cycle, and technological breakthroughs had created a "new economy" that was much more profitable than the old. As share prices continued their heady rise, traditional methods of stock market valuations were abandoned. It did not matter that many start-up companies of the late 1920s were not making any money; what counted was that some day they surely would. So share prices were justified by discounted future earnings. Investors mortgaged themselves to the hilt to buy stocks in exotic companies from brokerages houses, which proliferated in the 1920s. One analyst warned that "factories will shut ... men will be thrown out of work ... the vicious circle will get into full swing and the result will be a serious business depression" unless sounder minds were brought to bear. He was, of course, ridiculed by market experts. Sound familiar? It should, because the gravity-defying performance of stocks in London and New York is eerily redolent of 1929. And again those who warn that the stock market edifice is built on sand have so far been proved wrong. It is quite possible that they will continue to be wrong and that this time the rules really, really have been rewritten. It may be that Fed Chairman Alan Greenspan has abolished the business cycle, that Goldman Sachs' contented equity guru Abby Joseph Cohen is wiser than Irving Fisher, that Amazon.com is in a different league from RCA (the go-go stock of the 1920s). However, there are plenty of warnings there for those prepared to heed them. One is what is happening in the markets themselves. More and more money is being concentrated in a handful of stocks in the technology sector, while shares in "old industry" fall. An analysis by Peter Oppenheimer of HSBC showed that the price-earnings gap in London between the new economy stocks and the old economy stocks is the largest for any market ever. An analysis of the balance sheet of Amazon.com by Tim Congdon of London showed that liabilities were covered more than four times by holdings of cash and securities in early 1999. However, by the end of the year, high investment and trading losses meant that liabilities were higher than cash and securities. He believes that the rise in the Nasdaq index is being underpinned by firms borrowing money to buy each other's shares -- the equivalent of taking in each other's washing. Amazon.com's results, he says, give "a fascinating and alarming insight into the cost of building an Internet brand. Arguably, they also demonstrate that the high-tech element in the American stock market is now gripped by a speculative madness of a kind never before seen in the organized financial markets of a significant industrial country." Economist Robert Gordon has started to unpick the American productivity data in an attempt to put the "new paradigm" into historical perspective. "I believe that the inventions of the late 19th century and early 20th century were more fundamental creators of productivity than the electronic-Internet era of today," he said. Oppenheimer, at HSBC, estimates that share prices in the new economy imply growth rates that are unlikely to be achieved and that collectively shares are
Study disovers Swedes are less well-off than American blacks
This article can be found at several sites on the net. This link is to a left-wing site where the feedback was almost uniformly negative, but, as so often in leftist critiques, factually empty.Does anyone on the list have any comments about this story?Despite the fact that the left-liberal responses I read to this article were devoid of substance, I still think theremust be more to the story than this article says. Do you all think it is better to be black in America or white in Sweden (and why, of course)? Or doesthe answerall depend on some other factor? ~Alypius http://pub176.ezboard.com/frepnetfrm131.showMessage?topicID=141.topic Study disovers Swedes are less well-off than American blacks Study discovers Swedes are less well-off than the poorest AmericansReuters via Haaretz | 5/4/2002 | ReutersPosted on 5/4/02 3:41 PM Pacific by l33tSTOCKHOLM - Swedes, usually perceived in Europe as a comfortable, middle class lot, are poorer than African Americans, the most economically-deprived group in the United States, a Swedish study showed yesterday.The study by a retail trade lobby, published in the liberal Dagens Nyheter newspaper 19 weeks before the next general election, echoed the center-right opposition's criticism of the weak state of Sweden's economy, following decades of almost uninterrupted Social Democratic rule.The Swedish Research Institute of Trade (HUI) said it had compared official U.S. and Swedish statistics on household income, as well as gross domestic product, private consumption and retail spending per capita between 1980 and 1999.Using fixed prices and purchasing power parity adjusted data, the median household income in Sweden at the end of the 1990s was the equivalent of $26,800, compared with a median of $39,400 for U.S. households, HUI's study showed."Weak growth means that Sweden has lost greatly in prosperity compared with the United States," HUI's president, Fredrik Bergstrom, and chief economist, Robert Gidehag, said.International Monetary Fund data from 2001 show that U.S. GDP per capita in dollar terms was 56 percent higher than in Sweden, while in 1980, Swedish GDP per capita was 20 percent higher."Black people, who have the lowest income in the United States, now have a higher standard of living than an ordinary Swedish household," the HUI economists said.If Sweden were a U.S. state, it would be the poorest, measured by household gross income before taxes, Bergstrom and Gidehag said.They said they had chosen that measure for their comparison to get around the differences in taxation and welfare structures. Capital gains such as income from securities were not included.The median income of African American households was about 70 percent of the median for all U.S. households, while Swedish households earned 68 percent of the overall U.S. median level.This means that Swedes stood "below groups, which, in the Swedish debate, are usually regarded as poor and losers in the American economy," Bergstrom and Gidehag said.Between 1980 and 1999, the gross income of Sweden's poorest households increased by just over 6 percent, while the poorest in the United States enjoyed a three times higher increase, HUI said.If the trend persists, "things that are commonplace in the United States will be regarded as the utmost luxury in Sweden," the authors said. "We are not quite there yet, but the trend is clear."According to HUI figures, during the period 1998-1999, U.S. GDP per capita was 40 percent higher than in Sweden, while U.S. private consumption and retail sales per capita exceeded Swedish levels by more than 80 percent.The HUI economists attributed the much bigger difference in consumption and sales mainly to the fact that U.S. households pay themselves for education and health care, services that are tax-financed and come for free or at low user charges in Sweden.According to recent opinion polls Sweden's Social Democrats are comfortably ahead of the center-right opposition in the run-up to the September 15 elections.
Fw: Japan: Divorces and parasites upset the balance
http://lists.his.com/smartmarriages/msg00075.html Japan: Divorces and parasites upset the balance Financial Review February 21, 2000Divorces and parasites upset the balanceTokyo Observed,By Andrew CornellOne of the enduring images of Japan, even in these recessionary days, is ofperfectly good consumer goods left out on the street for the garbagecollector.Opportunistic foreigners tell tales of equipping their digs withtelevisions, stereos, fridges and washing machines dug from the dump.In Japan, while combustible, non-combustible and recyclable discards arefree, large rubbish must be paid for and put outside with a receiptattached.Such large items are called "sodai gomi", inconvenient rubbish, which isalso the nickname given to retired salarymen. Equally unkind, butcolourful, is "nureochiba" - dead wet leaves that stick to the leg - as theretired husband, deprived of work and work functions, hangs about stickingto the wife.As Japan struggles to restructure its economy, the social cost isincreasingly evident in rising unemployment, irrationally high savings dueto fears about the future, and growing numbers of homeless.Other, more subtle social changes are also occurring.Seiji Kohno is a successful, 50-something businessman who is well respectedin his electronics company. But he has also been divorced twice and, nowmarried for the third time, he has been anxious that a third divorce couldsee him without a job.It is not an idle anxiety in the rigidly codified world of corporate Japan.At his third marriage, senior company officials made it clear that anotherdivorce would simply be unacceptable.But Kohno has a deeper anxiety, "teinnen rikon", divorce after retirement.Increasing numbers of women, fed up with the personal cost of their"inconvenient large rubbish", are divorcing soon after the husband retires.Such things never used to happen in corporate Japan but now women arebecoming more independent, more confident and, frankly, fed up withfeeding, cleaning and rearing for some of the world's mostinstitutionalised chauvinists."It is not easy for a husband to try and spend time only with his wifeafter retirement, he usually has not worked on their relationships," saysretirement counsellor Hiromi Ikuta. "The husband has devoted himself to thecompany, his wife has devoted herself to the family, they have had acompletely different life."A recent survey by the Japan Association of Travel Agents showed 62 percent of men in their 50s wanted to travel with their wives for the newmillennium but only 47 per cent of women in the same age group wanted thesame thing. For couples in their 60s - prime retirement age - 75 per centof men wanted to travel with their spouses but only 53 per cent of women.Another survey showed divorces among couples who had been together morethan 35 years increased 28 percentage points in 1998. Commonly, the womensay "it is no use feeling suddenly close after having left me alone for solong".Now a growing trend is for men to maintain a secret stash of savings incase of divorce as traditionally all household finances were controlled bythe wife. Under Japanese law, a divorced wife is entitled to 30 to 50 percent of her husband's salary as alimony.The weekly magazine Shukan Hoseki recently explored the "divorce savingsplans" and found that 20,000 to 30,000 ($285 to $425) a month is common,and men go to extraordinary lengths to conceal the plans, such as forgingpay statements.Another major structural shift taking place in Japanese life, thanks inpart to the declining birth rate, in part to dissatisfaction with thetraditional life cycle of school, marriage and children, is the emergenceof "parasaito shinguru" - parasite singles.These, typically, are women who don't fancy the prospect of giving upindependence and a career to marry a salaryman and elect to stay with theirparents where they pay cheap board, if any, have few household chores andget to spend all their money.While such spendthrifts might be beneficial for Japan's weak consumption,they have raised the ire of many social commentators, and Tokyo GakugeiUniversity professor Masahiro Yamada has written a book about them."Parasite singles are a phenomenon peculiar to Japan," he says. "In the USpeople think it is shameful to depend on their parents and they can'tattract the opposite sex."As more and more Japanese are only children, they are becoming more dotedupon and Yamada says parents allow them to stay home while the motherprovides care and the father money.The parasites themselves are unrepentant. They point out that if they marrythey must give up their lifestyle while, with discrimination stillentrenched in the Japanese workforce, career prospects for a woman are notgood."It rings true to me," says one 26-year-old female office worker. "I don'tdo any housekeeping chores and my parents do everything. I pay some moneyto my parents every month but I know they save
Fw: Brains and Capital
The Clout of CapitalFriday, April 19, 2002Donald LuskinThere's an important new book that every investor should read.First published as Luskin's Ahead of the Curve column for SmartMoney.com on April 19, 2002.THE FORCE OF FINANCEReuven BrennerTexere: 2002The Force of Finance is an important new book that should cause investors to tear themselves away from their usual obsession with recession, earnings season and the accounting scandal du jour.It's one of those books that come along only once or twice in a generation one with the power to redefine the way we understand the rules of the game of global economic growth. The author of this remarkable book is Reuven Brenner, a professor of business at Montreal's McGill University. Brenner is an economist and an academic, yet he tells me he "despises academia and economists." That's because he has no time for the usualconception of economics as "the dismal science," defined by Britisheconomist Lionel Robbins as "the study of the use of scarce resources which have alternative uses." Instead, Brenner's economics is ajoyful social science, based on his proposition that "Prosperity is the result of matching brains with capital and holding both sides accountable."The Force of Finance is a celebration of the ultimate un-scarce resource brains: the unlimited creative power of human beingsto build wealth. Brenner believes that the best brains from around the world will try to migrate to those countries and those industries where they can achieve their highest potential. For Brenner, that means they will seek the most highly developed and most open financial markets they can find, trying to match their brains with capital. He should know born in Rumania in 1947 as the son of concentration camp survivors, Brenner moved his own brain first to Israel, and finally to Canada.For Brenner, America is at the top of the pyramid of global growth and global wealth because "The United States has created asociety in which anyone with talent, energy, and the ability to organize has access to financial resources. Banks, venture capitalists, underwriters, and asset-management firms do not much care who your grandfather was or whether you dropped out of college. They only want to know if they can make money by backing you." With our capital markets beckoning and our relatively open immigration policies, America attracts the crème de la crème of theworld's brains. The result is more than just material wealth. Brenner believes that as countries move closer to the American model of open capital markets they are able to harvest important social and institutional advantages, as well. The more developed and more active acountry's capital market, the larger the percentage of total resource-allocation decisions that are being made not by elitist government planners, but by informed market participants who will risk their own fortunes on making the right decisions. Brenner says, "Mercantile interests are diverse, not dogmatic." Thatmeans that everyone has a stake in stable institutions, lots of new ideas get tried out, and bad decisions quickly get diversified away or corrected. What prevents every nation from imitating the American model of free financial markets? Brenner believes that ruling elites not just monarchs, but too-powerful vested political and commercial interest, as well know that "nothing disperses power more quicklythan democratized capital markets just as nothing threatens acompany more than competitors with access to cheaper financing."Brenner shows that the elites use a bewildering variety of "mythologies, economic ones and financial ones inparticular," to justify keeping capital markets unfree. And it is for their complicity in this myth-making that Brenner damns his fellow economists. What Brenner calls "the illusion of macroeconomics asa science" has given birth to a global industry that creates, interprets and debates meaningless statistics about economic activity. "Economists transformed a self-serving political idea(a benevolent big government) into a neutral-sounding scientific debate about numbers and statistical methods. Macroeconomics thus became an obscure theory that could be taught in dictatorial regimes as well as democratic ones."Even in the United States, perched at the very top of the pyramid, the smooth functioning of free financial markets is constantly endangered by governmental abuse of groundless economic myths. One of many examples offered by Brenner is the theory of Princeton economist Paul Krugman that a perpetual rate of inflation to 2% to 4% is beneficial. Brenner despairs, "Do not ask why. Even ayearly inflation rate of 2% doubles the price level in 35 years. Yet that is not the only bewildering idea that Krugman and other economists offer today."But economic myths are not the only culprits. Any dogma that disconnects brains from capital sets back the cause of prosperity.
can economists end recessions?
(REUTERS) UPDATE 3-Argentina says to default again on World Bank debtUPDATE 3-Argentina says to default again on World Bank debt(Adds World Bank confirmation, separate bond, paragraph 6) By Brian Winter BUENOS AIRES, Argentina, Dec 13 (Reuters) - Argentina'sgovernment said it would default on more than $700 million dueto the World Bank on Friday, a second missed payment that cutsthe bankrupt country off from any aid from the bank. Argentina had already let pass a first deadline a monthago, technically defaulting and ending any hope for new loans.But Friday's missed payment, which was expected, cuts offaccess to roughly $2 billion in existing financing that hadbeen earmarked for AIDS programs, high schools and farm aid. With almost all other outside credit choked off by achaotic four-year recession, the government said it lacks thecash to pay the World Bank unless it breaks a months-longstalemate in aid talks with the International Monetary Fund. Since November, Argentina has been in a league with Iraqand Zimbabwe as a defaulter on multilateral loans. "If we reach a deal with the IMF, Argentina will startpaying its debts again," Cabinet Chief Alfredo Atanasof toldreporters. "We assume the responsibility as a country ... butwhat we are saying is the bureaucracy at the fund has promotedthe policies that put us in this situation." A World Bank spokesman confirmed Argentina had told thebank they would not be paying. Argentina's government said itwould also miss a separate payment of about $250 million due onMonday for a World Bank-guaranteed bond. Most Argentines have become used to the idea of the countrynot paying its foreign debts and financial markets shrugged offthe news. The country has been more focused lately on thethreat of food riots many believe are planned for Dec. 20 tocoincide with the anniversary of bloody protests that overthrewa previous government. The government already suspended payment in January onabout $95 billion in debt held by private-sector creditors,marking the biggest sovereign debt default in history. "They pay, they don't pay: at this point things can't getany worse so nobody cares," said Carlos Lopez, a retired autoexecutive who owns several small cafes in Buenos Aires. "As abusinessman, I get the feeling the worst of the uncertainty haspassed so this default doesn't hit me at all." RESERVES LOW Argentina has scrambled for nearly a year to get the IMF tofork out enough money to cover debts owed to multilateralbodies through 2003. But the IMF has told Argentina to makedeeper spending cuts and rally its divided politicians behindan economic plan, something Argentina has been unable to do. "We saw this coming, but what they said about the IMF waspretty tough," said Hernan Fardi, an economist for localconsultancy Maxinver. "Some say this is some kind of strategyto pressure the IMF to reach a deal, but I doubt it. I thinkthey realize it's obvious that's not going to work." The World Bank said Argentina was due to pay $830.7 millionby the close of business on Friday. This amount includes $726million in principal plus additional payments due and interest. The government argues that the penalty of not paying theWorld Bank is outweighed by the danger of handing over $3.6billion -- around a third of its foreign reserves -- owed tothe bank in interest and principal until the end of 2003.((Buenos Aires newsroom, +5411 4318-0650,[EMAIL PROTECTED]))((Xtra clients: Click on http://topnews.session.rservices.comto see Top News pages in multimedia Web format. If you cannotaccess the pages, ask your IT department to check your Internetfirewall settings. For a technical advisory, click on C9991))REUTERS*** end of story ***
is japan faking it?
Eamonn Fingleton, Is Japan Faking It? The Australian Financial Review, Friday 22 November 2002, in the Review section: For a decade now, the Western consensus has been that Japan is an economic basket case. But this is a dramatic misreading of a perennially secretive society. ... The truth is that dozens of facts contradict the gloomy consensus. Here are just a few: * Living standards increased markedly in Japan in the so-called "lost decade" of the 199Os, so much so that the Japanese people are now among the world's richest consumers. * Japan's trade has continued to expand. Its current account surpluses totalled $US987 billion in the "disastrous" 1990s. This was nearly 2.4 times the total recorded in the 1980s when Japan was already seen as the "unstoppable juggernaut" of world trade. * Although you would expect the Japanese yen to have declined sharply against, for instance, the US dollar in recent years, the reverse is the case: the yen's dollar value has increased 17 per cent since the beginning of the Tokyo financial crash. * At last count, the all-important Japanese savings rate, which has been the main driver of the country's success, was 8.7 per cent of GDP. By comparison, the rate for the US was 5.7 per cent and for Britain only 4.5 percent. ... * Japan has continued to invest heavily in its industries and infrastructure. Investment per job in manufacturing, for instance, has consistently run at about twice the rate of the US over the past decade. * ... Japan's net foreign assets have continued to mushroom. As measured by the International Monetary Fund, they nearly quadrupled in the 11 years to 2000. ... As long as Japan runs the world's largest current account surpluses, it will remain the world's largest capital exporter. ... * Japan passed the US in the early 1990s to become the world's largest foreign aid donor and, as of 1999 ,was paying out 67 per cent more in aid than the US. The UN is only the most prominent of many international bodies that depend heavily on Japanese money. (Japan accounted for nearly 20 per cent of the UN's budget in 2001). Tokyo is reaping a rich reward in terms of rising influence in everything from the International Whaling Commission to FIFA. * Corporate Japan's worldwide spending on sponsorship - from motor racing to universities - has grown by leaps and bounds. In the latter half of the 1990s, its sponsorship budget in the US alone increased by about 80 per cent In Britain, an interesting instance of recent Japanese sponsorship is the Asahi Shimbun newspaper's donation for the British Museum's Great Court. It is hard to imagine, say, the Guardian, which is roughly the Asahi's British counterpart, doing anything similar in Tokyo. In fact, the Guardian can't afford a staff correspondent there. By contrast, thanks to big increases in advertising in the past decade, not only can Japanese newspapers like the Asahi afford large bureaeus in Britain but they can undertake extensive goodwill programs. ... First, consider the claim that Japan's manufacturing industries are being driven to the wall by China. The mistake analysts make here is to assume that the Japanese economy is still highly labour-intensive. But Japan is probably the world's most capital-intensive economy at present. Capital-intensive Japanese companies supply the sophisticated components, materials and machines without which labour-intensive Chinese factories would have no exports. Japanese exports these days are not television sets and pocket calculators but rather machine tools, electricity-generating plants, railway rolling stock, broadcasting equipment, telephone switching equipment and internet routers. Capital goods industries are invisible to the consumer and thus Japan's dominance in many of them is easy to overlook. But capital goods are the ultimate fount of the world's wealth and historically the nation that dominates their manufacture - Britain in the 19th century, America in the first 75 years of the 20th century - has been ipso facto the world's leading economy. ... in many of the capital goods industries in which they are strong, Japanese companies face no significant competition from anywhere, let alone from Third World nations like China. Second, what about the claim that the Japanese economy is in the grip of a deflationary spiral? Actually, what Japan has been experiencing is similar to the persistent deflation the US experienced in the late 19th century. This was when the US went from rural backwater to the world's most powerful economy. ... Third, it is claimed that Japan has been eclipsed in high technology by a resurgent US. ... All the evidence is that Japan has greatly lengthened its lead in the past decade. ... . At last count, the title of the world's fastest computer was held by a weather-forecasting computer made by Tokyo-based NEC. By contrast, the fastest American supercomputer, an IBM-built machine
Fw: cost of subsidizing a prodigal son
In my opinion, here is another fine example of domestic political expedience triumphing over economic rationality. Of course, money isn't everything, but one also has to ask: what will we ultimately have to show for our national "investment?" And why do our politicians persist in throwing good money after bad when it is so obviously counterproductive? Might this be an example of the special interest influence we were discussing a few days ago in the "median voter" thread? ~Alypius http://www.csmonitor.com/2002/1209/p16s01-wmgn.htmlSince 1973, Israel has cost the United States about $1.6 trillion By David R. Francis | Staff writer of The Christian Science Monitor Since 1973, Israel has cost the United States about $1.6 trillion. If divided by today's population, that is more than $5,700 per person. This is an estimate by Thomas Stauffer, a consulting economist in Washington. For decades, his analyses of the Middle East scene have made him a frequent thorn in the side of the Israel lobby.For the first time in many years, Mr. Stauffer has tallied the total cost to the US of its backing of Israel in its drawn-out, violent dispute with the Palestinians. So far, he figures, the bill adds up to more than twice the cost of the Vietnam War.And now Israel wants more. In a meeting at the White House late last month, Israeli officials made a pitch for $4 billion in additional military aid to defray the rising costs of dealing with the intifada and suicide bombings. They also asked for more than $8 billion in loan guarantees to help the country's recession-bound economy.Considering Israel's deep economic troubles, Stauffer doubts the Israel bonds covered by the loan guarantees will ever be repaid. The bonds are likely to be structured so they don't pay interest until they reach maturity. If Stauffer is right, the US would end up paying both principal and interest, perhaps 10 years out.Israel's request could be part of a supplemental spending bill that's likely to be passed early next year, perhaps wrapped in with the cost of a war with Iraq.Israel is the largest recipient of US foreign aid. It is already due to get $2.04 billion in military assistance and $720 million in economic aid in fiscal 2003. It has been getting $3 billion a year for years.Adjusting the official aid to 2001 dollars in purchasing power, Israel has been given $240 billion since 1973, Stauffer reckons. In addition, the US has given Egypt $117 billion and Jordan $22 billion in foreign aid in return for signing peace treaties with Israel."Consequently, politically, if not administratively, those outlays are part of the total package of support for Israel," argues Stauffer in a lecture on the total costs of US Middle East policy, commissioned by the US Army War College, for a recent conference at the University of Maine.These foreign-aid costs are well known. Many Americans would probably say it is money well spent to support a beleagured democracy of some strategic interest. But Stauffer wonders if Americans are aware of the full bill for supporting Israel since some costs, if not hidden, are little known.One huge cost is not secret. It is the higher cost of oil and other economic damage to the US after Israel-Arab wars.In 1973, for instance, Arab nations attacked Israel in an attempt to win back territories Israel had conquered in the 1967 war. President Nixon resupplied Israel with US arms, triggering the Arab oil embargo against the US.That shortfall in oil deliveries kicked off a deep recession. The US lost $420 billion (in 2001 dollars) of output as a result, Stauffer calculates. And a boost in oil prices cost another $450 billion.Afraid that Arab nations might use their oil clout again, the US set up a Strategic Petroleum Reserve. That has since cost, conservatively, $134 billion, Stauffer reckons.Other US help includes:• US Jewish charities and organizations have remitted grants or bought Israel bonds worth $50 billion to $60 billion. Though private in origin, the money is "a net drain" on the United States economy, says Stauffer.• The US has already guaranteed $10 billion in commercial loans to Israel, and $600 billion in "housing loans." Stauffer expects the US Treasury to cover these.• The US has given $2.5 billion to support Israel's Lavi fighter and Arrow missile projects.• Israel buys discounted, serviceable "excess" US military equipment. Stauffer says these discounts amount to "several billion dollars" over recent years.• Israel uses roughly 40 percent of its $1.8 billion per year in military aid, ostensibly earmarked for purchase of US weapons, to buy Israeli-made hardware. It also has won the right to require the Defense Department or US defense contractors to buy Israeli-made equipment or subsystems, paying 50 to 60 cents
Fw: Israel, An Economic Basket Case
The social cost of the occupation by Nehemia Strasler Ha'aretz This week the parliamentary commission that investigated social disparities in Israel published a 55-page report dealing with the reasons for the increase in the socioeconomic gaps in Israel over the past 20 years. Even though the commission included all the Knesset members who describe themselves as socially oriented - from the chairman, Ran Cohen (Meretz) to the militant Amir Peretz (One Nation) - they arrived at the same conclusion as the wicked economists did years ago: The Israeli economy has exhausted its ability to raise taxes on work and to increase the transfer payments. It turns out that even though the social service budgets (education, health, housing, immigrant absorption and National Insurance Institute allowances) increased dramatically in the past 20 years (from 28 percent of the state budget 20 years ago to 54 percent today), the social gaps only became wider, with the result that Israel now finds itself in an especially bad place in terms of inequality between rich and poor. About 30 or 40 years ago, Israeli society was marked by greater equality. But the past 20 years saw a very large increase in the gaps in economic income - meaning income from work, capital and pensions. In 1979 the index that measures the level of inequality stood at 0.43, whereas in 2001, it had risen to the dangerous level of 0.53. How did this happen? l The territories. Israel invests prodigious sums in the territories, in building settlements, constructing bypass roads, maintaining the security of the settlers, and giving them benefits of various kinds and tax breaks. Obviously, if a preferred group is given surplus resources, there is no money left for the other missions. Owing to political limitations resulting from the composition of the parliamentary commission headed by MK Cohen, it did not address this central point. l The war. The situation in which the economy has found itself in the past two years precludes the renewal of growth. As a result, unemployment will increase and with it, inequality. When the state of war continues, and even gets worse, there is no chance that the economy will be able to escape the recession. In other words, the political-security situation is highly instrumental in causing the gaps in the society. l The infrastructure. Owing to the huge investments in the territories and the administration of the war, not enough money remains to invest in the physical infrastructure - highways, interchanges, sewerage, water - creating a situation in which the periphery (mainly the south of the country) lags behind, cut off from the center, adversely affecting quality of life and making it very difficult for residents there to find good jobs in the center. l Education. Not enough money remains to improve the educational level in the periphery. The farther one gets from the center, the lower the level of education. The direct connection between level of education and level of income has already been proved. l The foreign workers. The entry of large numbers of foreign workers into Israel in the mid-1990s, instead of the Palestinians, had the effect of lowering the wages of manual workers, as the foreigners were willing to work for extremely low pay. The result was that the foreign workers pushed the manual workers into the cycle of unemployment, in which they became recipients of guaranteed income payments. Instead of the state ensuring that hiring a foreign worker would be expensive and not worthwhile, the current situation is the exact opposite. Today it is 40 percent cheaper to employ a foreign worker than to employ an Israeli, and just a few days ago, the Knesset's Labor and Social Affairs Committee blocked a proposal to impose a levy on the hiring of a foreign worker, because the interests of the manpower companies (some of whose owners have close ties to government), the contractors and the farmers are stronger than all the talk about the battle against unemployment. l The ultra-Orthodox. Eighty percent of ultra-Orthodox men do not work - a dramatic increase from 50 percent in the 1980s. They live in poverty as yeshiva students at the expense of the state budget. Indeed, even if they want to do productive work they are unable to fulfill their wish, as the schools they attended did not teach them the essential subjects for earning a respectable living: neither English nor mathematics, neither history nor the sciences. When the gaps between the rich and the poor constantly increased during the past two decades, the state came up with a clever idea to salve its conscience: raising taxes on work and diverting the money to increasing the transfer payments, especially the National Insurance Institute (social security) allowances. However, it turns out that this far-fetched solution failed. Despite the high taxes that are imposed mainly on the two
James Rossi reviews Globalization and Its Discontents by Joseph Stiglitz
http://human-nature.com/nibbs/02/stiglitz.html Book Review Globalization and Its Discontents By Joseph StiglitzW.W. Norton Co., May 2002. 282pp. Reviewed by James M. Rossi. For most of the world's people, globalization has not worked out as advertised. The fall of the Iron Curtain brought great hopes for development of the Third World, but the reality has been far crueler. Poverty has increased. The global distribution of wealth has grown more unequal. War and social upheaval have intensified, infectious disease and famine have persisted, and environmental destruction threatens human welfare on a global scale. What happened? What's next? Stiglitz addresses globalization as a Nobel Prize-winning economist and Washington insider: In 1993 I left academia to serve on the Council of Economic Advisers under President Bill Clinton... From there I moved to the World Bank in 1997... I saw firsthand the devastating effect that globalization can have on developing countries, and especially the poor within those countries. I believe that globalization... can be a force for good and that it has the potential to enrich everyone in the world, especially the poor. But I also believe that if this is to be the case, the way globalization has been managed... needs to be radically rethought. Globalization and its Discontents is a concise, devastating, and relentless indictment of the global economic policies of the International Monetary Fund, World Trade Organization, and World Bank. Stiglitz singles out the IMF for most of the blame: flawed economic theories, lack of transparency and accountability to the public, and the pursuit of special corporate interests. What happened The theories which guide the IMF's policies are empirically flawed. Free market, neoclassical, and neoliberal are all essentially euphemisms for the disastrous laissez-faire economics of the late 19th century. This approach seeks to minimize the role of government -- arguing that lower wages solve problems of unemployment, and relying upon trickle-down economics to address poverty [the belief that growth and wealth will trickle down to all segments of society]. Stiglitz finds no evidence to support this belief, and considers the 'Washington Consensus' policy of free markets to be a blend of ideology and bad science: Behind the free market ideology there is a model, often attributed to Adam Smith, which argues that market forces--the profit motive--drive the economy to efficient outcomes as if by an invisible hand. One of the great achievements of modern economics is to show the sense in which, and the conditions under which, Smith's conclusion is correct. It turns out that these conditions are highly restrictive. Indeed, more recent advances in economic theory --ironically occurring precisely during the period of the most relentless pursuit of the Washington Consensus policies--have shown that whenever information is imperfect and markets incomplete, which is to say always, and especially in developing countries, then the invisible hand works most imperfectly. Significantly, there are desirable government interventions which, in principle, can improve upon the efficiency of the market. These restrictions on the conditions under which markets result in efficiency are important--many of the key activities of government can be understood as responses to the resulting market failures. Stiglitz should know. His 2001 Nobel Prize [shared with two others] was awarded for demonstrating how information affects markets. Without equal access to information between employer and employee, company and consumer, or [in the IMF's case] lender and debtor, there is no chance of "free" markets operating efficiently -- which is to say fairly [this explanation also owes much to the earlier Nobel work of Kenneth Arrow Gerard Debreu]. The IMF, WTO, and World Bank lack transparency and accountability. Without government oversight, they reach decisions without public debate and resolve trade disputes involving "uncompetitive" or "onerous" environmental, labor, and capital laws in secret tribunals -- without appeal to a nation's courts. Little wonder that thousands of activists -- who agree on little else -- brave barricades, tear gas, and slanted media coverage to protest the World Bank, IMF, and WTO wherever they meet. In East Asia's financial crisis, Russia's failed conversion to a market economy, failed development in sub-Saharan Africa, and financial meltdown in Argentina, Stiglitz argues that IMF policies contributed to a disaster. Loans came with extensive conditions that subverted the growth of democracy, hampered local economic growth, and enriched multinational corporations. To evaluate his conclusion, it's instructive to look at those cases where Third World development actually succeeded: South Asia and China
self-funding wars
Yes, in a worst-case scenario, the impending war of aggression against Iraq could be very expensive; but, unlike wars against most countries, this war could pay its way: just make the hand-picked pro-American replacement regime pay reparations (fully deserved since they have the unmitigated gall to defend themselves against foreign attack--who do they think they are?), which could be fundedwith revenue earned by oil exports. If all wars could be self-funding like this one, we'd have a lot more of them. I hear the word going around in Israel and certain US State Department circles is that Iran will be our next conquest after Iraq--do they have enough oil left to pay for a war, too? If not, maybe Iraq could pay for both wars. ~Alypius Skinner http://www.newsmax.com/showinsidecover.shtml?a=2002/12/6/152909 Friday, Dec. 6, 2002 $2 Trillion to Fight Iraq? War with Iraq could cost U.S. taxpayers almost as much as the government spent in the last budget year, nearly $2 trillion, according to an organization of academics. A study by American Academy of Arts and Sciences estimated costs would range from $99 billion to more than $1.9 trillion over a decade. The lower figure assumes a successful military, diplomatic and nation-building campaign. The higher figure accounts for a prolonged war, disruption of oil markets and a U.S. recession. Both figures assume involvement in Iraq for a decade. White House spokesman Gordon Johndroe said it was premature to comment on costs, the Associated Press reported today. "War is the last resort," he said. "We're hoping for a peaceful solution." The 1991 Persian Gulf War cost America an estimated $61 billion, though allies reimbursed all but about $7 billion. By some accounting methods, the United States might have even made a profit, according to AP. The report, titled "War With Iraq: Costs, Consequences and Alternatives," cautioned that the estimates should be "regarded as informed conjecture." American Academy of Arts and Sciences, founded in 1780 and located in Cambridge, Mass., describes itself as an international society of scientists, scholars, artists, business people and political leaders. Among its inductees in October: National Public Radio leftist Daniel Schorr and Sen. Ted Kennedy, D-Mass.
Re: U of Cal scientists question efficient market hypothesis
or seven years or so, although his performance has dropped off considerably since the bear market began in 2000 (although still doubling). Random walk theorists would say this is either impossible or blind, dumb luck. I suspect the degree of inefficiency in the markets is underestimated, although I also agree it takes either quite a bit of work or quite a bit of sophistication--more than the typical mutual fund manager possesses--to take advantage of it. ~Alypius Skinner
Fw: Median voter theorem
But perhaps third parties don't siphon off more votes because they're undercapitalized. It's hard for an upstart domestic auto company to challenge General Motors, or other established automakers. Remember DeLorean? He was a third party automaker. Democratic politics appear to be (inherently?) oligopolistic. (Funny, I just remembered that the Soviet political system was often described by western observers as an oligopoly--although they described themselves as a democracy. More support for my pet theory that differences between Communism and social democracy, while they do exist, are in many ways less striking than the parallels.) ~Alypius Skinner I've never really studied the Median Voter Theorem. Recently I read where someone claimed that the U.S. political system was designed to keep the two parties nearly identical by keeping other parties out. I assumed that the reason they Dems Reps seem so close may be because of the MVT--they want the middle guy's vote. So then I thought, suppose a third party were let into the race, does the MVT still hold w/ for 3 or more candidates? Does it weaken as more candidates are added, or do they all bunch toward the center for for any n2, where n is the number of candidates? Does anybody know of a good discussion of it online? Well look at the 1992 presidential race. You had Bob Dole, the tax-collector for the welfare state who never met a tax hike he didn't like and the architect of affirmative action, Bill second-biggest tax hike in history, and Ross let's fix what's broke by raising taxes Perot. You essentially had three mushy-moderate statist candidates running for office, and nobody openly advocating either mainstream conservatism or mainstream liberalism (if there is still such a thing). We needed Perot's brand of mushy-moderate statism like Al-Queda needs a new form of explosive. John Anderson in 1980 likewise offered fiscal conservatism and social moderation, in other words, warmed over Jimmy Carter, although since Reagan won, and would have won even had Carter gotten all of Anderson's votes (unlikely in the extreme based on exit-polling) it would seem we had two candidates rather far from the media voter. Still, most third party candidates in America (and perhaps in some of the parliamentary democracies) seem to offer platforms that are determinedly away from the median voter's squishy preferences. I think of candidates like Strom Thurmond, who probably captured the median white voter in the South, but fared poorly with most other voters. Green Party and Libertarian Party candidates, offering platforms well away from the median voter, fare even more poorly, at least in all but small local races. (I recall a bar owner in Denver, registered as a Libertarian, getting elected to the Denver Election Commission while I lived out there.) From the little I know about the MVT--and it's little indeed--it seems to assume that the candidates have no ability to influence the median voter, so as to move it more or less in one direction or the other. If so I'd have to say that it makes a more-than-heroic assumption. I think few people would have guessed that during what appeared to be the heyday of unabashed statist-liberalism and in the wake of Watergate that a strongly-conservative Republican candidate would win by a large majority in 1980. It's remarkable how quickly attitudes appeared to shift on a wide variety of issues from busing to taxes, to welfare programs to abortion to defense. While it's undoubtedly true that many people secretly agreed with Ronald Reagan's positions throughout the 1970s but feared to admit it to avoid social condemnation, it must also be true that Reagan and his supporters persuaded others who had not previously agreed, thus shifting the median voters toward the right across a spectrum of issues. By focusing on the median voter, the MVT seems to give credence to the mushy moderate's election creed--pander to me or lose when I vote for your opponent--but oftentimes, as we've seen in recent elections with Libertarians pulling votes from Republicans and Greens pulling votes from Democrats that not pandering to the extremes loses elections too. Indeed, it's not clear that the median voter theorem actually describes the process by which candidates typically win in highly-publicized elections. Presidents don't typically win by persuading all the mushy moderates, who tend to break both ways and can't generally be relied upon by a major party no matter what it does, but rather by building coalitions of voters highly-motivated by various issues. Put together a coalition of blacks, Jews, Northern WASP elites and labor union members and you can win even if you're too liberal (or too statist) for the median voter. Put together a coalition of defense hawks, right-to-bear-arms advocates, tax-cutters, budget
U of Cal scientists question efficient market hypothesis
http://www.newscientist.com/news/news.jsp?id=ns3124 Statistical physics predicts stock market gloom 11:5902December02 NewScientist.com news service A statistical physics model is predicting that the US stock market recovery suggested by recent rises will only last until spring next year, before tumbling yet further. Physicists Didier Sornette and Wei-Xing Zhou at the University of California in Los Angeles claim to have identified an "anti-bubble" in the Standard and Poor's 500 stock market index. Their model also describes a similar anti-bubble in the Japanese Nikkei index in the early 1990s, which preceded a decade of decline. However, Neil Shephard, an economist at the University of Oxford, UK, is sceptical. "Firstly, the track record of empirical prediction isn't very good and secondly, economic theory says it shouldn't work," he told New Scientist. This is because traders act on new information about the market by buying or selling shares, making it impossible to make a prediction without it affecting the outcome. But the physicists' predictions are in line with those of some others. Haydn Carrington, a dealer at spread betting firm City Index in London, also believes the US market is in a long decline, but that a short term rally is likely: "The Americans are optimistic about recovery, so that will probably happen." Herding behaviour Bubbles and anti-bubbles are traits of herding and imitative behaviour, Sornette says. Investors and traders constantly exchange opinions and information, generating a feedback loop that can drive the performance of the market. A bubble, or bull market, occurs when optimism spreads, pushing the market value artificially high. The bubble may then burst in a dramatic crash, but if not, a slow period of downwards adjustment will follow - a bear market, which Sornette calls the anti-bubble phase. An anti-bubble market has two key characteristics. The value slides inevitably downwards, but oscillates as it does so. The value of the SP 500 has been riding this rollercoaster since August 2000. Sornette says that the "up" seen now is just one of the oscillations, and that hopes of a recovery will be dashed by a "down" in mid 2003. And the trough that it sinks into may be deeper than this year's low, he says. Failure mechanisms Related Stories Pound and euro behave as if they are the same currency 5 December 2001 For more related stories search the print edition Archive Weblinks Didier Sornette, UCLA City Index Quantitative Finance SP 500 The model used to make this prediction describes "crowd" behaviour of the type Sornette expects from traders and investors. It consists of a set of three equations that describe feedback processes. He developed the equations when studying failure mechanisms in materials - the way that cracks develop and cause damage is similar to the way that information seeps through the market and changes opinion, he believes. The model requires the input of two constants: one quantifies the overall trend (down in an anti-bubble), the other the frequency of oscillation. He chose constants such that the model matched the SP data from the past few years - and then extended the model to 2004. Journal reference: Quantitative Finance (vol 2, p 468) Jenny Hogan This story is from NewScientist.com's news service - for more exclusive news and expert analysis every week subscribe to New Scientist print edition.
Re: U of Cal scientists question efficient market hypothesis
--- Alypius Skinner [EMAIL PROTECTED] wrote: A statistical physics model is predicting that the US stock market recovery suggested by recent rises will only last until spring next year, before tumbling yet further. Why would this contradict efficient markets? I originally called this message physicists discover anti-bubble; just in case that was one the two possible reasons the message did not appear on the list, I retitled it to be obviously pertinent to economics. (But I also cross-posted the first time, so maybe that was the problem.) Of course, that is not my complete answer to your question. The efficient-market proposition does not imply any absence of fluctuations, nor does it imply any limitation on the rise and fall of asset prices. It states that prices take into account public beliefs. If the expectation is that others will buy the assets at higher prices, then why would it be inefficient for the price to rise? It has always seemed to me that the greater fool theory is incompatible with market efficiency. If prices really are going up for a period of time solely on expectation that someone else will always be willing to pay prices even more unjustified by business fundamentals than the price the previous buyer paid, then it would be possible to predict that the overbid stocks will inevitably move downward by a large amount. That sort of extreme price distortion should not be possible in a highly efficient market. After all, all stock purchases are made in expectation that the price will go up in the future (which can only be because other buyers will be willing to pay more for them). If that is what you mean by an efficient market then to say that securities markets are efficient becomes a tautology rather than a theory. It seems to me that efficient markets is a micro phenomenon on specific assets at some moment ex ante, not a proposition about the whole financial market over the long term ex post. Fred Foldvary So are you saying that the market pricing of some stocks are efficient, but not the pricing of others? If the pricing of all (or nearly all) individual assets are efficient, then the market as a whole for these assets must be efficient. If a large number of securities are irrationally priced (based on business fundamentals) at any given time, then one can not speak of an efficient market, because the market average as a whole will become distorted by the large number of mispriced securities. Also, if the market (or the vast majority of its individual components, if one wishes to focus on the individual trees rather than the forest) are efficiently priced from, say, day to day, then the whole financial market over the long term must be efficient. The whole market cannot be inefficient over the long term if its individual component assets are efficiently valued at any given moment in time. Of course, an economist or historian may say, In the long run, markets will rise (or an astronmer or geologist may say, Over the long run, the markets will go to zero) for fundamental reasons without contradicting the efficient market hypothesis--but one should not be able to use a statistical analysis to correctly predict the ups and downs of market averages if the efficient market hypothesis is correct. The markets may or may not be efficient, but the term must be defined in some way that has enough objective meaning to be analyzed and tested. ~Alypius Skinner = [EMAIL PROTECTED]
Re: A Short Review of *Hard Heads, Soft Hearts*
Jacob W Braestrup wrote: Alypius Skinner wrote Thus some sort of balance must be struck between compassion for our fellow man and maintaining the incentives for temptation-prone people (who are often the same as the incompetent or semi-competent people) to resist temptation. But where do you suppose such a balance is most accurately struck? in a public market for redistribution - or a private one? my money is on te latter - jacob braestrup All government programs are a form of redistribution. For example, public police and fire protection subsidize the safety of the poor at the expense of the rich (if I may oversimplify the class structure). So the real question is whether the optimal balance would be one of no public redistribution or some public redistribution. If there were no public redistribution, there would be no need for a state, yet if a state did not exist, one would soon emerge because the stateless society would be so obviously suboptimal for an economy beyond the level of the hunter gatherer. For example, when the bloated west Roman state collapsed in western Europe, the life of the average peasant probably improved, but trade also collapsed, which made society in the aggregate poorer. This is an example of swinging from one suboptimal extreme of public redistribution to another. I would certainly argue that the current level of public redistribution is above the optimum rather than below it--probably well above. But I would not argue that the optimum is zero public redistribution. Of course, this question of whether we should have an inherently redistributionist public sector is a different question than whether the public sector should micromanage the private sector. ~Alypius Skinner
Re: A Short Review of *Hard Heads, Soft Hearts*
If there were no efficiency consequences, why not equalize incomes? The answer, I maintain, is that more able and hard-working people deserve more. I don't see why, efficiency aside, more able and hard-working people deserve more. Being more able and hard-working should be reward enough by itself. Lazy and incompetent people no doubt did not consciously decide to become lazy and incompetent, so why should they be punished for it, again if efficiency is not a consideration? And another response: This is an interesting point. Suppose we carry it a little further. Cruel and dishonest people didn't choose to be cruel and dishonest. Or, if they did at some point choose to be those things, they didn't choose to be the sort of people who would make that choice. So why should they be punished for it? Part of the answer is that people do respond to incentives in the environment. Giving people an equal share of the annual economic pie regardless of their conduct will not give them any incentive to curb their antisocial impulses. But, on the other hand, there is an argument for some degree of redistribution. There is a limit to how much people can raise their competence level in response to incentives. No one is born a blank slate. Some people have a higher potential for achievement than others, and, in the genetic lottery, some people will always be born with very limited potential. Some of these persons are obviously helpless to survive without assistance even as adults, but then there are the marginal cases--people with limited educability who will eke out a marginal existence in good times but often find themselves unable to do so in bad times. Thus some sort of balance must be struck between compassion for our fellow man and maintaining the incentives for temptation-prone people (who are often the same as the incompetent or semi-competent people) to resist temptation. The biggest problem with public aid to the poor may be that it is value neutral. Very few moral demands are made on the recipients, perhaps because morality is intimately entwined with religion, and the lawmakers and opinion shapers are generally determined to keep church and state rigidly separated, apparently even in countries that have legally established churches! There is also an exaggerated concern with not imposing moral values on welfare recipients, which is a policy guaranteed to increase abuse of taxpayer generosity. ~Alypius Skinner
The Fed's options
(COMTEX B: Mortgage market commentary--Low rates require persistent panicNov 22, 2002 (Inman News Features via COMTEX) -- The tone of financial marketsshifted suddenly this week, favoring stocks and hurting bonds and mortgages. Byyesterday, 30-year fixed rates touched 6.25 percent in the lowest-fee offerings,the high for rates in the last three months.There was nothing in new economic data to cause such an abrupt change inpsychology. A modest drop in new unemployment claims and some life-like twitchesin technology were not enough, though there is a growing sense that the Novembereconomy has been no worse than flat, and not an extension of theSeptember-October decline. For rates to stay low, panic must persist; instead,yields on ultra-safe Treasuries and mortgages rose, while rates for corporatebonds stayed the same or fell. Narrowing "credit spreads" invariably reflectsfading fear.Federal Reserve Board Chairman Allen Greenspan dropped a policy hint in anaccidental way on Tuesday, and the big change in market psychology followed.This Fed Chairman doesn't drop lint by accident. Fed Chairmen avoid making majorpolicy pronouncements in high-tension settings; instead they leak them, or slipthem in some otherwise ho-hum remarks. Tuesday's numbing venue: six droningpages on international financial risk delivered to the Council on ForeignRelations. The text is on the Fed's Web site; read it and you can all but hearthe audience struggle for wakefulness, punctuated by the plopping of faces intosoup plates.In asides from the published text of the speech, the Chairman gave starkdescriptions of the economy: "...a very major fallback in businessinvestment Nobody is doing anything, or I should say, most everybody isdoing nothing."Then, also aside from text, came an astonishing statement of possible Fedaction. The Chairman: "We would just move out on the curve, as we have in thepast. We are very far from the Fed being restricted."Moving "out on the curve" is a phrase beyond the mainstream media, hence aremark unreported and unnoticed except among professionals. It refers to the"yield curve," the graphic description of interest rates prevailing at differentmaturities.The Fed-controlled rate watched by everyone in the modern era is the Fed fundsrate, the overnight cost of money. Until Tuesday, the markets had assumed thatthe Fed's half-point rate cut two weeks ago to 1.25 percent marked the near-endof the Fed's assistance to the economy; that the Fed had shot its bolt, we wereon our own and the Fed is nearly as helpless as the Bank of Japan.To "move out on the curve" means that if the Fed runs out of above-zero Fedfunds room, it would begin to buy longer-dated instruments -- bonds -- and drivedown the whole rate structure as necessary to revive the economy.Greenspan's "as we have in the past" referred to a policy in mothballs for halfa century. >From 1942 to 1951, the Fed held the yield on long Treasury bonds to2.5 percent or less, buying bonds whenever yields threatened to rise higher. Inthe modern era, it has been axiomatic that the Fed does not manipulate long-terminterest rates. No modern Chairman has suggested that the Fed even try to do so.At best, the Fed has worked to keep long-term rates low by keeping inflationlow.This policy announcement is a big deal. In the near term, it leads to a perverseeffect in the bond market-the Fed as a potential buyer of bonds should helprates, but hurts instead. The logic: if the Fed has the power to rescue theeconomy and intends to do so, then traders and investors shouldn't buy mortgagesand bonds, and maybe should sell the ones they have and buy some stock.Will the Fed need to move "out on the curve"? Watch U.S. automakers, stockmarkets, holiday sales and the visibly sinking economies in Japan and now,Europe.Lou Barnes is a mortgage broker and nationally syndicated columnist based inBoulder, Colorado. He can be reached at [EMAIL PROTECTED].Send a Letter to the Editor for publication. Send a comment or news tip to ournewsroom. Please include the headline of the story.By Lou BarnesInman News FeaturesCopyright 2002 Lou Barnes Distributed by Inman News Features-0-INDUSTRY KEYWORD: Consumer*** end of story ***
Fw: True costs of oil and gas (3 articles)
Higher energy prices are needed now to signal the real scarcity to come. Without higher prices we will not invest in the alternative energy technologies needed for a smooth transition to the post-petroleum age. Without higher prices we will not conserve the fossil energy needed to manufacture those alternative technologies. Without higher prices, argues petroleum analyst Richard Duncan, the remaining life expectancy of industrial society may well be less than 40 years! http://biz.yahoo.com/rf/981117/bbm.html Tuesday November 17, 3:23 pm Eastern Time, 1998 Real cost of U.S. gasoline is $15.14 per gallon, report says By Tom Doggett WASHINGTON, Nov 17 (Reuters) - So you think you're getting a good deal on a tank of gasoline these days? Not so, if all the oil industry tax subsidies received from the federal and state governments and other costs that went into producing that gallon of gasoline were included in the pump price. Such external costs push the price of gasoline as high as $15.14 a gallon, according to a new report released Tuesday by the International Center for Technology Assessment. ``In reality, the external costs of using our cars are much more higher than we may realize,'' the Washington-based research group said in its report. The report examined more than 40 separate cost factors the group said it associated with gasoline production but aren't reflected by the price of gasoline at the pump. These external costs total up to $1.69 trillion per year, according to the report. The group points out that the federal government provides the oil industry with tax breaks to help U.S. companies compete with international producers, so gasoline remains cheap for American consumers. The Department of Energy is forecasting that the national price for regular unleaded gasoline will average $1.02 during the current quarter, the lowest price on record for any three-month period when adjusted for inflation. Tax subsidies don't end at the federal level, as the group said most state income taxes are based on oil firms' lower federal tax bills, which result in companies paying $123 million to $323 million less in state taxes. In addition to tax breaks, the federal government provides up to $114.6 billion in subsidies annually that support the extraction, production and use of petroleum, such as research and development and export financing. The federal government also spends up to $1.6 billion yearly on regulatory oversight, pollution cleanup and liability costs connected to the oil industry, the group said. In addition, U.S. Defense Department spending allocated to safeguard the world's petroleum resources totals $55 billion to $96 billion a year, according to the group. Copyright © 1998 Reuters Limited. All rights reserved. Republication or redistribution of Reuters content is expressly prohibited without the prior written consent of Reuters. Reuters shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon. See our Important Disclaimers and Legal Information. Questions or Comments? -- http://www.icta.org/projects/trans/rlprexsm.htm The International Center for Technology Assessment The Real Price Of Gas Executive Summary This report by the International Center for Technology Assessment (CTA) identifies and quantifies the many external costs of using motor vehicles and the internal combustion engine that are not reflected in the retail price Americans pay for gasoline. These are costs that consumers pay indirectly by way of increased taxes, insurance costs, and retail prices in other sectors. The report divides the external costs of gasoline usage into five primary areas: (1) Tax Subsidization of the Oil Industry; (2) Government Program Subsidies; (3) Protection Costs Involved in Oil Shipment and Motor Vehicle Services; (4) Environmental, Health, and Social Costs of Gasoline Usage; and (5) Other Important Externalities of Motor Vehicle Use. Together, these external costs total $558.7 billion to $1.69 trillion per year, which, when added to the retail price of gasoline, result in a per gallon price of $5.60 to $15.14. TAX SUBSIDIES The federal government provides the oil industry with numerous tax breaks designed to ensure that domestic companies can compete with international producers and that gasoline remains cheap for American consumers. Federal tax breaks that directly benefit oil companies include: the Percentage Depletion Allowance (a subsidy of $784 million to $1 billion per year), the Nonconventional Fuel Production Credit ($769 to $900 million), immediate expensing of exploration and development costs ($200 to $255 million), the Enhanced Oil Recovery Credit ($26.3 to $100 million), foreign tax credits ($1.11 to $3.4 billion), foreign income deferrals ($183 to $318 million), and
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Fw: America's Second Plutocratic Gilded Age Pt. 1
Krugman tries so hard to make his case that he ignores some other factors (perhaps even more controversial) that contribute to some of the new social developments that Krugman describes. Unfortunately, I don't have time to comment on them, but they would not in any eventcancel out the basic direction of socio-economic evolution that Krugman describes.~ams---http://www.nytimes.com/2002/10/20/magazine/20INEQUALITY.htmlThe New York Times MagazineOctober 20, 2002For RicherBy PAUL KRUGMANI. The Disappearing MiddleWhen I was a teenager growing up on Long Island, one of my favorite excursionswas a trip to see the great Gilded Age mansions of the North Shore. Thosemansions weren't just pieces of architectural history. They were monuments toa bygone social era, one in which the rich could afford the armies of servantsneeded to maintain a house the size of a European palace. By the time I sawthem, of course, that era was long past. Almost none of the Long Islandmansions were still private residences. Those that hadn't been turned intomuseums were occupied by nursing homes or private schools.For the America I grew up in -- the America of the 1950's and 1960's -- was amiddle-class society, both in reality and in feel. The vast income and wealthinequalities of the Gilded Age had disappeared. Yes, of course, there was thepoverty of the underclass -- but the conventional wisdom of the time viewedthat as a social rather than an economic problem. Yes, of course, some wealthybusinessmen and heirs to large fortunes lived far better than the averageAmerican. But they weren't rich the way the robber barons who built themansions had been rich, and there weren't that many of them. The days whenplutocrats were a force to be reckoned with in American society, economicallyor politically, seemed long past.Daily experience confirmed the sense of a fairly equal society. The economicdisparities you were conscious of were quite muted. Highly educatedprofessionals -- middle managers, college teachers, even lawyers -- oftenclaimed that they earned less than unionized blue-collar workers. Thoseconsidered very well off lived in split-levels, had a housecleaner come inonce a week and took summer vacations in Europe. But they sent their kids topublic schools and drove themselves to work, just like everyone else.But that was long ago. The middle-class America of my youth was anothercountry.We are now living in a new Gilded Age, as extravagant as the original.Mansions have made a comeback. Back in 1999 this magazine profiled ThierryDespont, the ''eminence of excess,'' an architect who specializes in designinghouses for the superrich. His creations typically range from 20,000 to 60,000square feet; houses at the upper end of his range are not much smaller thanthe White House. Needless to say, the armies of servants are back, too. So arethe yachts. Still, even J.P. Morgan didn't have a Gulfstream.As the story about Despont suggests, it's not fair to say that the fact ofwidening inequality in America has gone unreported. Yet glimpses of thelifestyles of the rich and tasteless don't necessarily add up in people'sminds to a clear picture of the tectonic shifts that have taken place in thedistribution of income and wealth in this country. My sense is that few peopleare aware of just how much the gap between the very rich and the rest haswidened over a relatively short period of time. In fact, even bringing up thesubject exposes you to charges of ''class warfare,'' the ''politics of envy''and so on. And very few people indeed are willing to talk about the profoundeffects -- economic, social and political -- of that widening gap.Yet you can't understand what's happening in America today withoutunderstanding the extent, causes and consequences of the vast increase ininequality that has taken place over the last three decades, and in particularthe astonishing concentration of income and wealth in just a few hands. Tomake sense of the current wave of corporate scandal, you need to understandhow the man in the gray flannel suit has been replaced by the imperial C.E.O.The concentration of income at the top is a key reason that the United States,for all its economic achievements, has more poverty and lower life expectancythan any other major advanced nation. Above all, the growing concentration ofwealth has reshaped our political system: it is at the root both of a generalshift to the right and of an extreme polarization of our politics.But before we get to all that, let's take a look at who gets what.II. The New Gilded Age[T]he Securities and Exchange Commission hath no fury like a woman scorned.The messy divorce proceedings of Jack Welch, the legendary former C.E.O. ofGeneral Electric, have had one unintended benefit: they have given us a peekat the perks of the corporate elite, which are normally hidden from publicview. For it turns out that when Welch retired, he was granted
Will Britain succumb to Japanese disease?
http://www.observer.co.uk/economy/story/0,1598,776295,00.html Will Britain succumb to Japanese disease? The spectre of deflation is haunting central bankers around the globe Faisal IslamSunday August 18, 2002The Observer In Waco, Texas, at President Bush's 'economic forum', the pom-poms were missing but the cheerleaders did their job nonetheless. The markets may have applauded last Wednesday's mass certification of company accounts by chief executives, but central banks around the world were refusing to budge, or announcing their reasons for doing nothing. The Bank of England, in published minutes, announced that it discussed cutting rates, but held back for fear of panicking the markets. The Federal Reserve decided to hold fire, but said it stood ready to cut if economic conditions deteriorated. But bankers on both sides of the Atlantic are keeping a careful eye on Japan - still suffering a deflationary spiral of falling prices and a rotten financial system after a decade. The much-feared 'double-dip' recession in the United States and Europe would actually be one of the more benign outcomes for the world economy compared with the really scary scenario: the world's largest economies following Japan into a sustained period of stagnation, compounded by deflation - subverting the ability of monetary policy to help boost the economy. Stephen King, chief economist at HSBC, has no illusions: 'The environment we are painting is one in which deflation provides the greatest single risk to ongoing economic stability.' He points to warning lights that are 'flashing red', such as the persistent weakness of equities and rise in corporate bond spreads. Money supply growth is still strong despite low price inflation. King puts this down to an increase in the demand for money to hold on to rather than to spend. A sharp decline in the 'velocity of money' - the extent to which the same notes and coins are circulated - supports this view. In deflationary times, holding on to cash is a sensible financial strategy. Here, the Bank of England's 'symmetrical' mandate gives equal weight to avoiding inflation and deflation. The European Central Bank, long accused of inheriting a 'deflationary bias' from the German Bundesbank, recently announced that its target of positive inflation, less than 2 per cent, should also be deemed 'symmetrical'. Deflation is essentially the painful march down a hill after an asset price bubble. As such, it is more of a worry for the US post-dotcom economy than for the UK or Europe. Mervyn King, the Deputy Governor of the Bank of England, calls this 'debt deflation', where the burden of nominal debt grows as prices fall leaving an even bigger burden of debt this kickstarts a cycle of lower demand and even lower prices. 'The phenomenon of debt deflation is one that all of us are conscious of as a conceptual problem, but no one thinks it is an immediate problem for the UK, and part of our task is to ensure it remains that way,' said King at the launch of this month's Bank Inflation Report. Price statistics are not showing overall deflation just yet. In the US the GDP deflator, a broad measure of price trends, shows that the price of all the goods and services produced in the economy rose at an annualised rate of 1.2 per cent in the second quarter of this year. 'This is somewhat below the 3.1 per cent average annualised rate since 1930, but it by no means suggests the [US] economy is on the verge of deflationary slump,' says Peter Dixon of Commerzbank. Last week, the monthly retail price index in the UK showed that inflation had gone up from 1.5 to 2 per cent, still well below the Bank of England's target of 2.5 per cent. Over the last half-decade, British inflation has been the lowest it has been at any time since the Fifties. But the overall figures mask important divergences within different sectors. In the US and in the UK healthy inflation in the service sector coexists with deflation in goods prices. On the Federal Reserve's favoured measure, second quarter services, prices were up 4.6 per cent while durable goods slumped 2.9 per cent. In the UK, figures released last week showed goods prices down 1.7 per cent and services prices up 4.5 per cent. Globalisation helps to explain this. Goods can be traded more readily than services, and are therefore more sensitive to international price competition. In ultra-competitive markets, companies completely lack pricing power. Only last week it was announced that already embattled mobile phone companies, weighed down with mountains of debt, were to face even more competition from 'Three', a new entrant in the UK. But this is not the reason that Japan fell into its deflationary spiral in 1991. In the Far East the markets marked out a path of over-investment, excess capacity and unserviceable debt to speculation and exuberant valuations in property markets that slumped. But, hey presto,
Re: (book review)The Case against Government Science
- Original Message - From: Eric Crampton [EMAIL PROTECTED] The upshot isn't that government science is entirely ineffective, it's that it displaces private science spending dollar for dollar. The question then isn't how effective government science is, it's how effective the private science foregone would have been. So if we were to look at ratios of government-financed research to privately-financed research in various countries, after adjusting for total levels of spending, do countries with proportionately greater private funding for research achieve proportionately greater practical results, equal results, or poorer results? Does anyone have any idea? ~Alypius Skinner
How the Greenspan bubble burst
http://www.observer.co.uk/economy/story/0,1598,787908,00.html How the Greenspan bubble burst William KeeganSunday September 8, 2002The Observer There was a period during the chancellorship of Nigel Lawson when some Treasury officials favoured the 'spritzer' as a drink. This is neither white wine nor water, but an uneasy combination of the two. The mystery of why officials should have been opting for this strange potion was solved when one learnt that leadership in this matter was coming from none other than the Chancellor himself. This summer, before going on holiday, I noticed that a number of Treasury officials were talking of the crime novels of Raymond Chandler. I don't know whether this was at the suggestion of the Chancellor, but it intrigued me; as I hadn't read Chandler since I was at school, I thought a return to the scene of the crime might make good holiday reading. And so it did - ideal for the necessarily brief bursts of reading that child duty by the pool allows. But for meatier stuff I took Anthony Beevor's Berlin: the Downfall, 1945 and Piers Brendon's account of the Thirties, The Dark Valley. Anything to do with the Second World War puts current problems in perspective, and reminds one why, for all its irritations, the European Union is a good thing and must be built on. But the relentless slaughter of 1944-45 described by Beevor made pretty depressing holiday reading, although it did not quite drive me to try the drink favoured in Chandler's The Long Goodbye: the 'gimlet', 'half gin and half Rose's lime juice, and nothing else'. I do not know whether this will catch on at the Treasury. Perhaps it could be mixed with a spritzer. To explain the Thirties, Brendon naturally spends a good deal of time on the Twenties. And, without wishing to push the analogies too far, one is reminded how closely the boom of the Nineties and turn of the millennium resembled the lead- up to the 1929 Crash and Depression. Brendon's section on this is replete with quotations and rationalisations that could have come straight from the Nineties. The basic belief was that it was a 'new era', and you could forget the old assumptions, rules and regulations: the stock market knew better... Which brings us to the recent apologia by the economic policymaker who was worshipped throughout the Nineties and acquired the status of financial witchdoctor, Alan Greenspan, chairman of the US Federal Reserve. Greenspan recently claimed 'it was very difficult to definitively [sic] identify a bubble until after the fact' and that, in any case, it was impossible to do anything about a bubble, even if it could be identified. This seemed to me to be a revisionist view, because I recalled friends of Greenspan telling me years ago that he was very concerned about the stock market bubble, and indeed used that term. But he would then point out that the very metaphor itself implied you could do nothing about it. You could not 'deflate' a real bubble. Real bubbles could only burst. Can it be that the boom got out of hand, and that appropriate cautionary policies were not adopted simply because policymakers were obsessed with one metaphor that told them they could do nothing? Well, not exactly: the American economist Paul Krugman has tracked down a passage in the published minutes of the Federal Open Market Committee for September 1996, at which the Fed chairman said: 'I recognise that there is a stock market bubble problem at this point.' The solution was 'the possibility of ... increasing margin requirements. I guarantee that if you want to get rid of the bubble, whatever it is, that will do it.' The timing of this statement was interesting. It was several months before Greenspan made his famous comment about 'irrational exuberance', and that comment itself was made in December 1996, when the US stock market boom of the Nineties was only in its infancy. Now anyone who has read JK Galbraith's The Great Crash will recall the central role 'margin requirements', or rather the lack of them, played in the boom of the Twenties. Bluntly, much of the feverish buying in the Twenties and the Nineties was done on easy credit, and tougher regulation of the financing of stock market activity could have done a lot to limit the damage. This is not of just historical or 'academic' importance. As British economist Christopher Dow made clear in his last work, Major Recessions , history teaches us that 'the bigger the boom, the bigger the bust'. This is a lesson that, to judge from the number of times he has referred to 'the economics of boom and bust', Gordon Brown has fully appreciated. It is abundantly clear from the gloominess of the economic news in the US that the 'bust' phase is far from over. And, given that the rest of the world relied for so long on the US role as 'importer of last resort', there is a limit to which European schadenfreude can offer consolation. For years
Global crash fears as German bank sinks
Fears that some incident or other will trigger a global crash have cropped up off and on for many years--such as the Asian currency devaluations or Greenspan's emergency bailout of that big hedge fund some years back. Are these fears more or less groundless, or is the world economy really so highly leveraged that it constantly dances on the precipice of disaster? Is the global economy really that fragile, or are the risks of catastrophe over-rated? Does anyone wish to venture an opinion? ~Alypius Skinner http://www.observer.co.uk/economy/story/0,1598,805683,00.html Global crash fears as German bank sinks Faisal Islam, economics correspondent and Will HuttonSunday October 6, 2002The Observer Stockbrokers around the world are braced for a potentially calamitous week as alarm mounts over a looming, Thirties-style global financial crisis. A leaked email about the credit-worthiness of Commerzbank, Germany's third largest bank, yesterday increased fears of the international stock market malaise exploding into a fully-fledged banking crisis. Commerzbank lost a quarter of its value last week, raising the spectre of Credit-anstalt, the Austrian bank that collapsed in 1931, sparking global depression. US stock markets have fallen for six consecutive weeks, to their lowest levels in five years. European markets have collapsed even further, wiping out nearly half of the value of European corpora tions in this year alone. Japan is struggling to put together a plan to save its banking system, riddled with bad debt after a decade of recession and falling prices. Now the German economy threatens to follow. 'There are strong parallels to the Thirties after an unsustainable "new era" boom,' says Avinash Persaud managing director for economics and research at State Street Bank. 'Then, the stock market decline was not just steep, it was long, taking three years to reach the bottom.' 'Commerzbank being affected is a sign of the severity. But in today's crisis risks have been offloaded from the banks to the markets and ultimately our pensioners, which makes the problem more difficult to deal with,' he says. The leaked email about Commerzbank was in response to an inquiry from a US investment bank about rumours of huge losses on credit derivatives, which aim to spread risk. Figures due to be published on Friday will show that a toll of stock market falls, rising joblessness and war fears is finally denting the spending habits of Americans. Economists fear that the result may be a 'double-dip' US recession, taking much of the world with it. Europe's finance Ministers, including Chancellor Gordon Brown, will meet in Luxembourg on Tuesday amid deepening concern about the stability of the financial system. Tomorrow evening, the Eurogroup of finance ministers, excluding Brown, will discuss reforming Europe-wide tax and spending rules along the lines of the British system, taking stronger account of economic difficulties. In the US, the concern is that Alan Greenspan, chairman of the US Federal Reserve, has insufficient room to cut interest rates if the economy falls into recession. 'The [Bush] Administration has two lines of action: tax relief for the rich [and] reliance on the Federal Reserve. Both are without effect,' says US economist JK Galbraith in an interview with The Observer.
Re: (book review)The Case against Government Science
- Original Message - From: [EMAIL PROTECTED] With the widespread intrusion of the federal government into the lives and business of everyone, it might be fruitful to consider a spectrum of research spanning the gamut from purely private to purely governmental rather than considering just the two extremes. David Levenstam GMU On the other hand, if there really is a trend of increasing scientific value-added as one goes from totally public to totally private research, then would it not be beneficial to all concerned--science, government, industry, consumers--to eliminate all government funding of scienfic research? I am not convinced that this is the case, but, as they say, stranger things have happened. We ought to look and see. ~Alypius Skinner
Re: (book review)The Case against Government Science
- Original Message - From: john hull [EMAIL PROTECTED] That the expense of cushy jobs for okay scientists was more than offset by the gains from getting only the best scientists to go to Bell Labs, or MIT, or wherever. Pardon my ignorance, but is MIT a private or public institution? (I thought it was public, but that is merely an assumption on my part.) For that matter, would not even private universities have enough direct or indirect government subsidy to blur the lines between government science and private science? Should only corporate science be considered private science? ~Alypius Skinner The review didn't seem to indicate that that was addressed. -jsh --- Alypius Skinner [EMAIL PROTECTED] wrote: http://www.cycad.com/cgi-bin/pinc/apr2000/books/ff_govscience.html The Case against Government Science The Economic Laws of Scientific Research Terence Kealey St. Martin's, New York, 1997 382 pp, paper ISBN 0-312-17306-7 Reviewed by Frank Forman Ayn Rand dramatized the case against government funding of science in Atlas Shrugged, but a dramatization is not evidence. The problem is that, according to standard economic theory, research is almost a perfect example of a pure public good, a good that once produced can be consumed by all without any possibility of exclusion by way of property-rights delimitation. Such goods will be underproduced in the market, since the producers can capture only the benefits of the research that they themselves use. Rational citizens, all of them, might very well empower the state to provide for the provision of research and other public goods. Not every citizen would actually benefit from each good so provided, but under a well-designed constitution, each citizen would presumably be better off as a result of constitutionally limited state provision of public goods than without it. This would mean unanimity of agreement-a social contract-and hence no initiation of force. But what about government funding of science? Nearly every scientific paper, it is true, seems to conclude with an appeal for funds for further research, but even so the case for public funding is accepted by nearly everyone except a few ideological extremists. Along comes a bombshell of a book by Terence Kealey, The Economic Laws of Scientific Research, that argues that government funding of science at best displaces private funding and in fact diverts research into less productive channels. I am surprised that this book has not gotten much more attention from the free-market community. The book is essentially a history of science and its funding, with the number of pages per century increasing up to the present. The author argues that technology drives science, even basic science, just as much as the reverse, which is awfully reminiscent of John Galt and his motor. Kealey describes the work of several engineers and other practical men turned scientists, such as Carnot, Torricelli, Joule, Pasteur, and Mendel. He argues that most new technology comes from old technology. The book is highly instructive on matters of history and greatly entertaining to read. To wit: Laissez-faire works. The historical (and contemporary) evidence is compelling: the freer the markets and the lower the taxes, the richer the country grows. But laissez-faire fails to satisfy certain human needs. It fails the politician, who craves for power; it fails the socialist, who craves to impose equality on others; it fails the businessman, who craves for security; and it fails the anally fixated, who craves for order. It also fails the idle, the greedy, and the sluttish, who crave for a political system that allows them to acquire others' wealth under the due process of law. This dreadful collection of inadequates, therefore, will coalesce on dirigisme, high taxes and a strong state (p. 260). Here are the three Laws of Funding for Civil RD, based upon comparing different countries and across time: 1.. The percentage of national GDP spent increases with national GDP per capita. 2.. Public and private funding displace each other. 3.. Public and private displacements are not equal: public funds displace more than they do themselves provide (p. 245). But it is not just the funds that are displaced; so is their effectiveness, as a rule, from projects that have a promise to become useful to those that only keep scientists busy. Furthermore, many wealthy men generously fund science and are free to choose genuine innovators and not those merely expert in filling out grant applications. Kealey describes many gentleman amateurs, the greatest being Darwin. And he compares the quality of private and public medical research in England during this century in detail, with the advantage going to the former. Kealey also
A man for all markets (interview with Galbraith)
http://www.observer.co.uk/business/story/0,6903,805309,00.html A man for all markets At 93, the scourge of contemporary economics, JK Galbraith, is on the attack. The author of The Great Crash tells William Keegan that President Bush's moves against recession are no use at all Sunday October 6, 2002The Observer Recent reports had said Galbraith looked frail, and he has certainly not been too well. But when this was being explained to me in advance, he grabbed ADVERTISEMENT the telephone and boomed: 'Keegan, I'm on the mend.' And certainly, when we spoke, his form of 93-year-old frailty seemed pretty robust. (He is 94 next week.) He began with a paean of praise for Adam Smith, who, he said, had been 'too fully captured by the right-wing'. In Galbraith's view 'much of what he said had large encouragement for the careful and intelligent Left. He was ruined to an extent by his acolytes, many of whom had never read him.' Thoughts of Smith's Theory of Moral Sentiments moved Galbraith to the ethics of the present. 'I have written a long essay, "The Economics of Innocent Fraud" about things that, for self-interest or convenience, we hail as the truth but have no particular relevance to reality.' With an eye on the Bush administration Galbraith said one minor example of this was relevant now: 'You can't stimulate an economy by reducing taxes on the rich. That is popular for what it does for those who get the money, and not for what it does for the economy.' He has always been superb at attacking 'conventional wisdom', a phrase he coined, and his current target is worship of the US Federal Reserve. America is 'having a somewhat painful recession, with no remedial action in sight of any consequence. The administration, in summary, has two lines of action: one is tax relief for the rich. The other is reliance on the Federal Reserve. It is at least consistent. Both are without effect.' This celebrated author feels his greatest achievement was not his books but his time as head of the body responsible for US price controls during the Second World War. He contrasts the success of this with the inflation that took place after the First World War, when the Fed was in charge. 'Historians never mention inflation as they did after World War One. But if - and I think this is the basic rule of all public service - if you succeed your work is forgotten.' Then came the rapier thrust: 'One of the most important things we did in those years was to set aside all reliance on central bank policy.' There will be more about the excessive reliance placed by governments and economists on central banks in the new book. 'But it will not be without admira tion for Alan Greenspan. We've never seen anything like his theatrical skills.' And European central banks? 'I've never been a close student of monetary policy in Europe, apart from the inescapable history of the Bank of England.' We returned to the present day. 'This is a very disagreeable time, and its burden is falling as usual on those least able to carry it. You pick up the newspaper any time, and on the financial pages you'll read of the constructive action some company or other is taking: in a commendable step it has just laid off 10 per cent of its workforce. There is no reflection on the discomfort that might follow from being so assigned to leisure, or what it might do if their children are going to college.' Galbraith has always written beautifully - a source of admiration and sometimes acute envy among fellow economists - and still speaks in measured, rounded sentences, choosing his words carefully, sometimes going back to substitute le mot juste. 'Being so assigned to leisure' is a classic Galbraithian use of irony, and reminded me of his book, The Affluent Society. 'Things are bad enough,' he said, 'so that I haven't noticed any great revival of interest in that book. Perhaps I should have a new edition with a new title. It could be "The Depressed Economy", and it would face the fact that only a reduced colony of booklovers could afford to buy it.' Which brought us to Galbraith's masterpiece The Great Crash, 1929. Surely there had been a revival of interest in that? 'The Great Crash has been in print since the mid-Fifties, and it still outsells all of my other books' (he has published 30). 'It has a wonderful, built-in salesmanship: any time anyone complains as to what he or she is suffering in the stock market there is someone who always says, "If you think that is bad, why don't you read Galbraith on 1929"?' This reminds him of when he used to peruse bookshops to see how his latest was doing. He noticed that one title was never on sale in the old La Guardia airport in New York. 'One night the woman in charge asked me what I was looking for. I was a little ashamed, but came out with the title, The Great Crash. She never hesitated: "That certainly is not a book
Re: WWII Germany - Olson - American South
- Original Message - From: [EMAIL PROTECTED] If I recall Mancur Olson suggests that one of the reasons that post WWII West Germany did so well is that all of Germany's special interest groups were destroyed. I'm inclined to agree although I know that Germany had tremendous manufacturing ability even at the end of the war. However, why did the South fare so poorly after the US Civil War? Olson's distributional coalitions remained intact in the US, and the South was part of the US. Within a country, why do most major industries and financiers locate in one region of a country and not in another? Why did industrialists so rarely set up shop in Southern states? Why were meatpacking, steel, and auto industries, among others, all originally concentrated in the old Union states? While most of America's cotton was grown in the South, why was most textile manufacturing done in the north? If anyone has the answer to these questions, we might understand why the post-War South was for so long impoverished. ~Alypius Skinner
When Economics Shifts From Science to Engineering
http://www.nytimes.com/2002/08/29/business/29SCEN.html When Economics Shifts From Science to EngineeringBy HAL R. VARIAN CONOMISTS think of themselves as scientists; their primary goal is to understand how the economy works. But scientific knowledge is not their only goal; as a famous economist once remarked, "The point is not to understand the world, but to change it." Economists are increasingly being called on to give advice about how to design new economic institutions. They have been consultants in the design of auctions, power exchanges, financial exchanges and a variety of other market and market-like mechanisms. In these applications, economics looks more like engineering than it does pure science. Just as a civil engineer applies principles of physics and mechanics to design bridges, economists apply principles of economic analysis to design exchange mechanisms. Al Roth, an economist at Harvard, recently described an interesting case study of "economist as engineer." In the mid-1990's, Mr. Roth worked with the National Resident Matching Program to design a new system for matching residents and hospitals. Documents that describe his experience are available at www.economics.harvard.edu/~aroth/alroth.html. As with civil engineering, economic engineering at its best involves an understanding of the historical and institutional environment, coupled with theoretical models, computational models and real-life experiments. Start with the institutional background. Each year this program matches about 20,000 medical students to hospitals. Students interview with potential employers and then submit a ranking indicating their preferences. Similarly, hospitals submit a ranking of residents. The program then uses a computer algorithm to match residents with hospitals. The clearinghouse started in the early 1950's and worked reasonably well for a while, but by the 1980's there was considerable dissatisfaction. The chief issues had to do with whether the system was fair to students, whether there were ways to "game the system" and whether there were better ways to treat married students who wanted jobs near their spouses. As it happens, there is a large theoretical literature on "matching problems" of this sort. In this literature, a match is "unstable" if there is some student and some hospital that prefer each other to their current matches. If there are no such pairs, the matching is "stable." Stability is obviously a desirable property. It turns out that in the simple cases studied in theory there are usually many stable matches. There are relatively simple algorithms that can find the "best" stable match for each side of the market, but these are typically different. So far so good there are easy ways to find good matches, at least in theory. What about gaming the system? Here the news is not so good. It turns out that there is no algorithm that cannot be manipulated in matching students and hospitals: there will always be cases in which applicants or hospitals will want to change their stated ranking to improve their prospects. But the theory only says there are some cases in which participants want to misrepresent their preferences; it does not give guidance about how often this occurs. This observation led Mr. Roth to do some computational experiments to determine just how likely such misrepresentation would be. It turned out that it was not a common problem for realistic distributions of preferences. Even though manipulation was always possible, it was not much of a problem in practice, if an appropriate algorithm was used. What about the couples problem? Here theory was even more pessimistic: there might be no stable matching if couples were involved. Still, simulations showed that this was also relatively rare. The next stage was to experiment with real-life data. Experiments are important in economics for the same reason they are important in engineering or medicine: something may work well in a controlled environment and fail miserably in real life. Some experiments are computational: applying various algorithms to actual data, to see how they would fare. This was particularly easy in this case, since the data from other years was readily available. One could also use laboratory experiments with human subjects, but that did not have a big role to play here. (In other work Mr. Roth reports subsequent experiments designed to examine various alternative matching models.) Theoretical and computational models are important in coming up with designs. But they should be subject to experiment to really test them out, since effects that aren't in the models could be critical in practice. In civil engineering these might be things like wind and snow; in economics they might be things like psychological bias and social norms. In some cases, market participants can figure out loopholes the designer never thought of. This has been a particular
Re: Why does tenure exist?
Don't federal and state workers effectively have tenure? Isn't it virtually impossible to fire a government worker covered by civil service in America? DBL It's hard to fire government employees, especially civil service employees, partly because we wanted to remove most of these jobs from the political spoils system. Another factor is that government's top management does not worry about their firms going out of business nor do they expect to maximize their own profits or careers by maximizing production or minimizing costs. They know they can better get their customers to shell out their votes and campaign donations by promising more services than by cutting costs. There is a more limited or less enthusiastic market for cost-cutting. Also, making government employees' jobs seem less secure will tend to lose them the votes of government employees, and that is a lot of votes. For education, because supply of teachers tends to exceed demand, tenure will naturally have great appeal for prospective employees. If some colleges or universities decided to eliminate tenure, by how much would they have to increase pay or costly fringe benefits to attract and keep the best talent? Private employers have occasionally tried something like tenure--it has been widely aspired to in Japan since WW2 (although only the larger employers have been able to apply it in practice) and IBM was for many years famous for the degree of employment security it offered--but the cost-pressures of a highly competitive marketplace have eroded these policies. Some business management theorists believe that lifetime employment policies were one of the secrets to the management success of Japan's better corporations. Certainly, some firms (as well as some non-profits) must find that, under the right circumstances, employment guarantees offer substantial benefits to employer as well as employee. Otherwise, such policies would be even less common than they are. Tenure-type practices seem only to be workable when the organization has ways to buffer itself from extreme swings in financial conditions. Educational institutions, in addition to government and private subsidies, may have large numbers of untenured personnel who could be sacrificed' in a financial pinch. Big corporations typically have access to generous lines of credit at favorable rates, and, in Japan, usually employ large numbers of temps who can be dismissed in hard times. (To buffer its own employees, the government can either sell bonds or raise taxes during tight periods.) When lifetime employment is viable for the hiring institution, it is a cheaper way to attract and maintain the best talent, it makes it economically feasible to invest heavily in employee training, trade secrets or other sensitive information is more secure, skilled personnel are not lost during cyclical downturns, and employees will offer less resistance to innovation, automation, and re-organization. One downside is that fear becomes a less effective motivator; but the most serious downsides are that the cost of retaining employees during cyclical downturns may not be fully compensated for during cyclical upswings, that structural adjustments may make some employees permanently superfluous, and that the cost of retaining employees during a downturn may lead to a liquidity crisis before the cycle turns up again. One area where tenure is very common is in family businesses. They can use flexible wages, minimal debt, and the option of flexibly redeployeeing personnel (family members) elsewhere during a crunch. The joint household, a fairly common institution in India and some other parts of the world (although rare in European cultures), might be viewed as an economic institution with tenure-type employment policies. Are there any studies of the economics of joint households (or communes such as those of the Hutterites)? If so, they might shed some further light on the conditions necessary for tenure systems and lifetime employment policies. ~Alypius Skinner
Stock market shock explained
http://www.nature.com/nsu/020923/020923-18.html Stock market shock explainedPhysicists model recent trading frenzy. 1 October 2002 PHILIP BALL Some lost hundreds of millions in September's twenty minute trading frenzy. © GettyImages Two physicists have an explanation for the convulsion of the stock market just ten days ago that left traders reeling and economists scratching their heads. The market was behaving like a muffled guitar string, they suggest, thanks to short-termism and technological limitations. The 20-minute trading frenzy on Friday 20 September saw one bank loose £100 million while another dealer racked up £1 million profit in three minutes. More shares changed hands than are often traded in an entire day. It began at around 10.10 am; by 10.15 the FTSE 100 index - a barometer of the market's overall health - had soared from around 3,860 to 4,060. Minutes later it plummeted to 3,755 before eventually levelling off close to its starting point. Economists struggle to understand these rare, earthquake-like anomalies that they dub, rather vaguely, turbulence. But to Sorin Solomon and Lev Muchnik of the Hebrew University of Jerusalem, Israel the event of 20 September looks more like another physical phenomenon: damped oscillation. Solomon and Muchnik have built a computer program that simulates trader-trader interactions for a wide range of different trader strategies; the model borrows ideas from the physics of colliding gas particles. They searched for a set of simple 'psychological' rules that would produce the spike seen on the 20 September. The model generates damped oscillations if there are three types of traders: random traders, who buy and sell at small random deviations from the current market price, market-maker traders who occasionally induce large price fluctuations, and inertial traders who base their orders on what they did in the previous transaction. All the traders are opportunists. "They are interested in short-term profits and anxious not to miss a trend," says Solomon. If everyone else is buying, they'll tend to buy too, leading to herding behaviour that amplifies small price fluctuations into big ones. Traders anxious not to miss a trend can cause these oscillations. © S.Solomon If prices drift too far from what the traders believe is their fundamental value, they'll slow down and eventually reverse their behaviour. This makes the prices oscillate around their fundamental value. But another process damps out these oscillations: a kind of friction produced by the way traders follow the market rather sluggishly. In the 20 September event, it seems that technological limits on how fast a transaction can be made may have slowed the market's response. Explanations like this might not be unique, but by being based on the behaviour of the market as a whole they contrast with the way that economists typically seek to pin anomalies on specific causes. Some have blamed the 20 September turmoil on trading errors made by the Swiss-owned Credit Suisse First Boston and by Deutsche Bank. A similar frenzy last year was traced to a deal by a trader for the US-based Lehman Brothers that was 100 times bigger than he'd intended. But single errors can't swing the whole market. That happens when other traders react - the effects of which conventional economic models fail to predict. © Nature News Service / Macmillan Magazines Ltd 2002
Re: charlatanism
- Original Message - From: fabio guillermo rojas [EMAIL PROTECTED] Example from my professional life: As is probably obvious, I'm not an economist - I'm a sociologist who takes economics very seriously and I sometimes use economic tools in my research. So I'm always in a position of explaining economic ideas to non-economists and I frequently find that people tend to avoid economic issues. Rodney Stark and some other sociologists have very fruitfully used supply and demand for public goods to explain the rise and fall of religious bodies. They also discuss religious entrepreneurship and the attempt to impose religious monopolies or religious cartels to fend off competition. This school has also explained the secularization of western Europe as a supply side failure. Within this genre, I regard Stark and Bainbridge's _The Future of Religion_ as a latter day classic. Since many sociologists seem to have an aversion to both religion and economics, I wonder whether their studies have adversely affected their professional reputations. (Also, I regard Stark's textbook _Sociology_ as the only introductory sociology textbook so interesting it can be read for pleasure, but I don't think it is in print anymore.) ~Alypius Skinner
Re: Nations as Corporations
born poor have some right (implied by wrong-to-prevent-them-from-moving-here) to move here. I would also like to point out the moral hazard of receiving enough poor from sending countries to reduce pressure for political and economic reform within those countries, while doing nothing for the vast hordes of poor who must remain there. One problem with open borders (in addition to differing political cultures among the immigrants, national security risks, the evolution of Quebec-style or Yugoslavia/Kosovo-style multicultural schisms, ethno-tribal rivalries, differential ethnic crime rates, and unlimited population growth) is that the immigrants will not stop coming until the standard of living or economic opportunities in the receiving nation are no better than in the poorest, most mismanaged and tyrannized nation in the rest of the world. 2. The incentive structure may give unhealthy goals too much weight. I can't think of anything specific, but it sounds like we could be setting ourselves up for a Ken Lay presidency. I'm not sure that would be a good idea. Ken Lay, Bill Clinton (Hillary in 2008), what's the difference? Lay might even be an improvement. And then there was the notorious Grant administration, or the democratically elected (twice!) Milosevitch administration in Yugoslavia. Lincoln's administration led to a civil war (any of the other three choices in the 1860 election would have avoided secession), and the FDR and LBJ administrations were policy disasters from which we may never recover. What makes you think a Board of Directors would necessarily make poorer choices? One problem with universal suffrage is that too many voters are actual or wannabe free-riders. Another problem, of course, is voter ignorance and even voter stupidity. And then there is voter apathy, which is entirely rational. One vote really doesn't make a difference. If it made a difference in one election in 100, it still would make no difference. presumably it would be found efficient to re-allow indentured servitude to pay off one's share, right? Interesting question. Technically, indentured servitude is not really involutary servitude. Under current interpretations of the 13th, 14th, or whichever amendment it was that confiscated US slaves without compensation, is indentured servitude permitted by the courts? Misha Gambarian wrote: They can just lose their voting rights, but still have right to work and live in USA. In this case I expect price of share to be very small, probably less than $10,000 - and in this case Gates can buy 6,000,000 votes and more or less make USA presidents It would probably be safer to allow one vote per shareholder, not one vote per share. From: john hull-- for example, the CEO could pursue int'l policies that would prevent India from having a strong high-tech industry as a means to get educated Indians to move to the States. It seems to me that such a scenario degrading into some of the lowest depths of mercantile excesses is too likely to be a safe choice. But all the incentives for that scenario already exist. Robin Hanson wrote: One, assuming that a CEO maximized share value of a nation, what would they do wrong or right. Do you mean what would they do to decrease or increase shareholder value, or what would they do wrong or right morally, which seems to be a question that also crops up a lot in this thread? And two, what institutions could get them to maximize share value. For a start, we could tie fluctuations in the pay of government employees (elected and unelected) to fluctuations in the GDP, perhaps using a five year moving average. Does this whole discussion of nation-as-corporation remind anyone besides me of the USSR? Was the Soviet Union's collapse fundamentally a matter of bad management rather than any dysfunctionality inherent in the corporate model? I think even competition would be possible by pitting one division against another in the same industry, with promotions going to the manager of the best performing division or profit center. The biggest shortcoming to a fully corporate model seems to be the question of how to spur innovation. The mechanics of innovation have been tackled by some business gurus, but I don't know how effective their recommendations are. Free-riding might be dealt with by worker peer groups and by closely tying worker pay to the profitability of the profit center. ~Alypius Skinner
China Will Soon Be Second Only To The US
Title: China Will Soon Be Second Only To The US http://www.koreaherald.co.kr/SITE/data/html_dir/2002/08/02/200208020048.asp China Will Soon Be Second Only To The USThe Korea Herald8-4-2 Over the coming decades, China will become a thoroughly new form of political and economic entity. Brutally competitive in both politics and world markets, innovative and resilient, China will be more dominant than any nation save America. Such a shift in the global balance of power occurs only about once every century and is comparable to the emergence of the U.S. power a century ago. The magnitude of this change is due, in part, to a radical and rapid shift in China's governance. Because of its suddenness, it is tempting to write this shift off as a fluke. But China's restructuring is permanent and will affect every aspect of its national life, as well as its global standing. The People's Republic now embodies two systems: the centralized, autocratic Communist administration, dominated by an outdated ideology and military interests, and the decentralized free-market economic regime. Whether deliberately or not, China is reorganizing itself to balance central authority and common purpose with decentralized freedom, in the same way that nimble companies balance home-office and divisional control. The result is an entirely new geopolitical model - the country as corporation. Call the new China "Chung-hua, Inc." (Chunghua translates as "China" and actually means "the prosperous center of the universe.") Like many corporations, China is moving most decision-making to the "business unit" level - semi-autonomous, self-governing economic region-states that compete fiercely against each other for capital, technology, and human resources (just as America's states do). This new, decentralized free-market regime currently encompasses only a small part of China's vast territory, and many Chinese officials still refuse to acknowledge its existence. Indeed, only seven years ago, the word "federation" was banned from the Chinese language; companies like Federal Transport or Federation Merchants were required to change their names. Today, China has the most federal governance structure of any large nation except the United States. Two broad categories of region-states exist. The first are relatively small, composed of cities and their surrounding areas, generally with a population of 5-7 million people. Some of these - Shenzhen, Shanghai, Dalian, Tianjin, Shenyang, Xiamen, Qingdao, and Suzhou - are now growing economically at a rate of 15-20 percent per year - faster than such Asian "tigers" as Malaysia, Taiwan, Thailand and Korea ever did. These smaller region-states, in turn, are propelling the growth of larger mega-regions, with populations approaching 100 million each. The mega-regions, which tend to share common dialects, ethnic identities, and histories, are becoming economic powerhouses in their own right. If they were separate nations, five of them - the Yangtze Delta, the Northeastern Tristates area (formerly known as Manchuria), the Pearl River Delta, the Beijing-Tianjin corridor, and Shandong - would rank among Asia's 10 largest economies. Regional governments have also been toughened up by the Chung-hua, Inc. ethic. Most officials are appointed, not elected. Not only are they held to targets of 7-percent annual economic growth or better (like many corporate executives), they must also improve environmental quality, build better infrastructure, and reduce local crime levels. In October 2001, a half-dozen bureaucrats were expelled from one of China's major cities for not meeting their economic growth and security targets. Local officials are often considered heroes, not oppressors. In January 2001, Bo Xhi Lai, then mayor of Dalian, was promoted to governor of Liaoning province. Thousands of women, many in tears, spontaneously came to a park to bid him farewell. During his nine-year tenure, Dalian evolved from a ramshackle port into one of the cleanest and most prosperous cities in Asia. It now has a street life more vibrant than Singapore, a layout
Re: In Praise of Pay Toilets
- Original Message - From: john hull [EMAIL PROTECTED] On reflection it has occured to me that prices may affect bathroom maintenance costs: if Mc.D's charges less for burgers and obtains more customers, then they may have more bathroom use which may require more bathroom cleaning, i.e. an increase in bathroom maintenance costs. If such were the case (it seems reasonable), then maintenance costs would enter into the profit max. problem and would therefore affect the price, right? That's not a rhetorical question; if I'm wrong please tell me. Do you include water usage in maintenance costs? Are pay toilets more common in areas of water scarcity? Are costs of water higher in Holland or Spain? Is there any strictly economic rationale that would account for pay toilets being common in some countries and rare in others? Or is the assumption here that businessmen in some countries prefer policies which are economically irrational? How would either a businessman a priori or an economist after the fact go about estimating or determining which policy was more profitable? ~Alypius Skinner
Re: In Praise of Pay Toilets
- Original Message - From: fabio guillermo rojas [EMAIL PROTECTED] 3. They aren't as profitable as you think because people can frequently use quasi-public restrooms such as fast food places, hotels, gas stations, etc. Ie, there are real competitors. Fabio Yet this is just the point. The few pay toilets that I have seen in my life were in the very places you describe as 'competitors.' Why don't McDonald's, convenience stores, etc., make their restrooms pay their own way? Why pay for the maintenance out of their profits? ~Alypius Skinner
