Wednesday, December 21, 2011
François Cluzet reminds me of Dustin Hoffman in his best roles, and Omar Sy puts together the best of Sidney Poitier and Eddie Murphy.
The paragliding scene shows the city where I and Sophie got married (Beaufort) painted on the Alpine background.
Tuesday, December 6, 2011
Buying and selling decisions in Europe are more affected by distance, resulting in a lower amount of wasteful individual item packaging and long-distance routing. European fees structures also favor local brick & mortar retailers. In the US, consumers buy an excessive amount of small-value items through e-commerce because the cost of shipping them individually across long distances is too low. Without this price subsidy, consumers would resort more frequently to local retailers, which should be able to sell for less due to bulk shipping, handling and packaging.
Monday, December 5, 2011
The two best European business schools are now located in France: HEC Paris and Insead. London Business School fell to a third place.
Of the top 36 programs 10 are in the UK, 8 in France, 4 in Spain, 3 in the Netherlands, 2 in Germany, 2 in Switzerland, 1 in Austria, 1 in Belgium, 1 in Finland, 1 in Ireland, 1 in Italy, 1 in Portugal, and 1 in Sweden.
Reforms undertaken by French business schools (Grandes écoles) years ago have clearly paid off, and there's yet momentum in the system. Among them, paying per performance, recruiting among the best in the world, teaching in many languages (with a significant share in English and French), and offering high-value alternative curricula that you cannot find in American or British business schools.
Tuesday, November 29, 2011
So what should governments do? Abandon austerity because financial markets might be shortsighted? This would only delay the day of reckoning as debt ratios would increase in the long run.
- A country which enters a period of heightened risk aversion with a large debt overhang faces only bad choices.
- Implementing credible austerity plans constitutes the lesser evil, even if this aggravates the cyclical downturn in the short.
All in all, the conclusion is that it difficult to argue that the peripheral countries in the Eurozone should abandon attempts to reduce their deficits because the results will arrive only in the long run.
Tuesday, November 22, 2011
If risk-making were a value-adding activity, Russian roulette players would contribute disproportionately to global welfare. And if government subsidies were the route to improved well-being, today’s growth problems could be solved at a stroke. Typically, this is not the way societies keep score. But it was those very misconceptions which caused the measured contribution of the financial sector to be over-estimated ahead of the crisis.
Friday, November 18, 2011
Because the printing presses in the periphery are still running at full speed, the Bundesbank has had to turn its own presses into shredding machines in order to destroy the money that has flooded in from the South. Since September, the Bundesbank has given no net credit to the German banking system; it instead borrows from it. After deducting the deposit facility, the net refinancing of credit the Bundesbank gave to German banks is now negative.
Wednesday, November 16, 2011
So much better for them, at least they are being forced to do their homework before it's not too late, and they may be the first to get out of the next wave of troubles: the slow but inevitable worldwide rise of sovereign debt nominal rates.
At the core of the current mess is the fact that countries shouldn't have ever got used to the idea that financing their excessive spending at nominal rates of 3% or less is sustainable. The carnival will end for all at some point, through financial constraints (as it's happening in Europe) or through inflationary revenues (as it will surely happen in most of the rest of the world).
I hope that in the process the last bastion of central bank independence, the European Central Bank, doesn't fall. The world will sorely need a benchmark when the tide changes.
Monday, November 14, 2011
Q: The overseas markets have been hammered by the potential collapse of European debt and accounting scandals in Asia. Why put more money in these markets?
A: It is true that as we get further away from well-regulated markets, international investing becomes a problem. I recommend buying publicly traded securities only in well-regulated markets. And the bad news about Europe is already priced into securities.
While the traditional purveyors of recorded music – the major record labels – have suffered since Napster, good music has continued to make its way to market. Independent labels account for a growing share of successful music, measured both by critical acclaim and sales. While many producers of recorded music have been made worse off by changes in technology, there is no evidence that the volume of high-quality music, or consumers, have suffered.
Sunday, November 13, 2011
What is more interesting however is how French urban infrastructure allowed me to engage in these lifestyle changes very efficiently. Not just because of generally good mass transportation systems, but also because of the way digital content is distributed in the country. My entire digital subscription comes from Orange, an obvious choice since it broadcasts most HBO series in France, besides offering an even better lineup of movies than HBO does. It offers me high-speed urban ADSL (much faster than the ADSL service that I had in the rural-like conditions of Minnesota), and in some buildings the system is being upgraded to jaw-dropping fast optical fiber.
Through the ADSL line I get three services together: high-speed Internet, unlimited domestic and international phone calls, and digital video subscription (live and on demand based on the Netflix unlimited downloads model). The three services together, including content from HBO and other English and Portuguese language channels, cost me only about US$79. I'm paying less than half the value that I was paying for lower service in the US, and don't forget that the euro is overappreciated despite the "euro crisis" chattering.
But the most important benefit is the flexibility that the service offers me. The on-demand content is excellent and we can watch it in our computers and Android phones (Apple devices not allowed - Apple policy is to enslave its users to the iTunes Shop). It means that I can for example watch the latest episode of "Boardwalk Empire" on my high-def Android screen using high-quality in-ear headphones while I ride the subway back home. By the way, I'll later post on "Boardwalk Empire" and "Game of Thrones." For now I'll just say that HBO did it again with both series.
Saturday, November 12, 2011
Friday, November 11, 2011
Other companies limited my access to senior executives. An analyst without access to executives—and the one-on-one insights that investors often pay for—can be perceived to be at a disadvantage compared to his or her peers. Goldman Sachs was fairly up front about it, a rarity in the industry. I had recently initiated coverage on the firm, so I had few established relationships I could leverage. When I told one point of contact at the company that I'd like to have more meetings with management, he told me that the firm wasn't singling me out—they treated everyone that way. When I pushed a little harder for a meeting, I received a message that we needed to "have a conversation."What is obvious is that there is no simple solution to these agency problems, as long as there is excessive concentration of financial power in financial markets. Regulation and central banks have typically reinforced concentration. I always believed that financial markets needed regulatory frameworks that promote above all competition, regional and political decentralization, and smaller scales, but since Alexander Hamilton (or maybe the Medici?) the world has taken the opposite direction. And nothing that has been done by current governments has changed this trend.
Feeling like a student being reprimanded by a teacher, I was told that the most efficient use of management's time was for the executives to generate money for the firm instead of talking to the 20 or so analysts covering the company. An analyst like me would simply have to be patient. While I could live with this—to a degree—the gatekeeper added one more point: A consideration in granting analysts meetings with management of Goldman Sachs was the analyst's standing, influence and knowledge. "In other words," the gatekeeper added, "we evaluate you."
Wednesday, November 9, 2011
"As the U.S. has moved away from the principles of economic freedom—instead promoting short-term fiscal and monetary interventionism with more federal government regulations—its leadership has declined. Some, even in the U.S., may cheer the decline, but it is not good for the world or for the U.S."
Tuesday, November 8, 2011
Thursday, October 27, 2011
Uncertainty rulesYou can vote for the best haiku here.
While the economy suffers
Tuesday, October 11, 2011
The Transformation of 1896 and the death of the third party system meant the end of America's great laissez-faire, hard-money libertarian party. The Democratic Party was no longer the party of Jefferson, Jackson, and Cleveland. With no further political embodiment for laissez-faire in existence, and with both parties offering "an echo not a choice," public interest in politics steadily declined. A power vacuum was left in American politics for the new corporate statist ideology of progressivism, which swept both parties (and created a short-lived Progressive Party) in America after 1900.
The Progressive Era of 1900–1918 fastened a welfare-warfare state on America that has set the mold for the rest of the 20th century. Statism arrived after 1900 not because of inflation or deflation, but because a unique set of conditions had destroyed the Democrats as a laissez-faire party and left a power vacuum for the triumph of the new ideology of compulsory cartelization through a partnership of big government, business, unions, technocrats, and intellectuals.
Slavery and Tariffs Are Plunder
What are these two issues? They are slavery and tariffs. These are the only two issues where, contrary to the general spirit of the republic of the United States, law has assumed the character of plunder.
Slavery is a violation, by law, of liberty. The protective tariff is a violation, by law, of property.
Its is a most remarkable fact that this double legal crime - a sorrowful inheritance of the Old World - should be the only issue which can, and perhaps will, lead to the ruin of the Union. It is indeed impossible to imagine, at the very heart of a society, a more astounding fact than this: The law has come to be an instrument of injustice. And if this fact brings terrible consequences to the United States - where only in the instance of slavery and tariffs - what must be the consequences in Europe, where the perversion of law is a principle; a system?
Monday, October 10, 2011
PS: an accessible and important interview with Sargent on the state of macroeconomics and the crisis is available here.
Saturday, October 8, 2011
We hear about how Europe is in trouble because of not being an "optimal currency area," or because of excessive debt, or because of bailouts.
Rubbish. The US, Brazil and China shouldn't qualify as optimal currency areas and won't disappear in a ground hole because of that. The Soviet Union didn't end because it wasn't an optimal currency area.
Excessive government debt is a big problem, but Japan is not burning in Third World hell because of excessive debt. The speed of debt accumulation in the US after the misadministrations of the dynamic duo Bush & Obama is probably more significant than in most European countries (hard to be sure due to skeletons in the closets here and there), but the US will not go "puff" because of debt.
Bailouts create moral hazard and injustice for sure. But bailouts are as old as the creation of the very first human government, and repeat themselves with amazing regularity throughout history. Humanity progressed everywhere despite bailouts.
So, why is Europe in trouble then? It's because of the deeply entrenched entitlement culture of its citizens. This is the real problem behind European strikes, bailouts and debt. It beats bad governance, it beats corruption, it beats silly monetary theories. It represents the rejection of Bastiat's hope:
I want not so much free trade as the spirit of free trade for my country. Free trade means a little more wealth; the spirit of free trade is a reform of the mind itself, that is to say, the source of all reforms.Europe is in trouble because it lives Bastiat's nightmare. As simple as that.
Friday, October 7, 2011
If you want to know about the real heroes of modern technological business and innovation, people who really changed the world and who made America the power it is today, then don't look for those who had time to worry about the color of computer cases. Look for people that in only 40 years multiplied single machine processing capabilities by six orders of magnitude. Learn about people like Gordon Moore, Andy Grove and Robert Noyce, among many others of equal importance but even lower popular fame.
Thursday, October 6, 2011
Now, in the name of historical correctness, let's make it clear that Jobs was much more a political motivator and a salesman than a great engineer or designer. Many of his misattributed inventions did exist much before he marketed them, and were created by other inspired technical minds, inside and mostly outside of Apple. His main skills - obviously very important ones - were the ability to capture the spirit of times, coordinate the efforts of talented designers and engineers, and discover the free lunch sitting around.
I've never been an Apple user, I never bought even 1 cent of Apple products for myself, and I'll tell you why. First, because Jobs' business model was directed to people that couldn't do it by themselves (don't take it as an offense, his is an important contribution). You cannot get a technical and business model that's more centralized, proprietary, closed, overpriced, and, why not, paranoid than the Jobs' model. So I just rejected it - doesn't match my personality and preferences - and many of my geekiest friends did the same. He was a political motivator after all, so his products have the characteristics of political cult (driven by quality, point taken), and true geeks, true engineers, true hackers, in the great old Vernian tradition of a world of unbridled innovation, would run away from Jobs like they would run from the devil. Besides, Jobs was known for his authoritarian tendencies and for questionable political judgements.
Anyway, his passing represents more than the loss of a technological and business giant. With him dies the last cycle of joyful technical innovation and free enterprise that humanity experienced. Sad and dark times those we've been living through instead.
PS: I don't say it from the perspective of somebody that has never used an Apple product. Others in my family use Apple products, and I need to deal with their qualities and weaknesses on a daily basis.
Friday, September 30, 2011
The percentage of public employees in the workforces of these [advanced] countries ranges from 6.35 percent in Singapore to 33.87 percent in Sweden. Indeed the three lowest countries, and the only ones with fewer than 10 percent public employees, are Japan, Singapore, and Taiwan. The highest countries after Sweden are Denmark (32.3 percent) and Norway (29.25 percent)... The United States is in approximately the middle, with 16.42 percent. Surprisingly, it is well ahead of Israel, Spain, Italy, Germany, France, and Portugal. The European countries with the lowest percentage of public workers are the Netherlands and Austria, but Portugal is only slightly above the Netherlands.Many get this information wrong because they tend to associate government workforce with bureaucracy and bureaucracy with GDP share of government spending. These dimensions may correlate but the correlation is far from perfect, among other reasons, due to different levels of government transfers in each economy.
Thursday, September 29, 2011
It all began with the Romantics, when Chateaubriand, great writer yet also wonderful fibber, then Lord Byron, thought they could retrieve in Greece the sources of occidental civilization. A misunderstanding for which we are now paying the price: if it is true that the Greek live on the same land as Aristotle and Pericles, there is no great continuation between the Hellenic civilization and modern Greece. The Byzantium line, from which modern Greeks proclaim they descend from, is a weak one. Mark Twain was more realistic: when visiting Athens in 1865, he admitted he had only met a few shepherds, whose sheep were grazing amid the ramshackle columns of the Parthenon. Those Greeks, actually, were a Christian tribe among others in the Ottoman Empire. Yet just as Don Quichotte dreamt that an ugly peasant girl was the love of his life, Europeans wanted all Greeks to be Hellenics. We cannot blame the Greeks for taking advantage of the situation: throughout the whole 19th century, the Greek state‘s finances were supported by the British, the French and the German.
Saturday, September 24, 2011
But President Obama also spreads disinformation according to Market Watch:
Republicans have mocked President Barack Obama for suggesting that more jobs might be available if not for the increasing use of machines such as bank ATMs. But does the president make a legitimate point?
By and large, economists and executives say no.
For one thing, there are actually more bank tellers in the U.S. now than there were five, 15 or even 25 years ago, when ATMs first became widely available. Except for a small drop after the recent recession, the number of tellers has risen gradually for the past century.
Sunday, August 21, 2011
Wednesday, August 17, 2011
What the NYT doesn't tell you is that to not "satisfy [financial] markets" is exactly what should have been done since 2008.
And isn't it refreshing to hear a politician like Merkel saying something intelligent for a change? Truth hurts, but must be dealt with. Let's call it Merkelnomics, so here it goes:
Mrs. Merkel repeated that there was “no magic wand” to solve all the problems of the euro, arguing that they must be met over time with improved fiscal discipline, competitiveness and economic growth among weaker states."No magic wand" are courageous words when said by a politician like Ms. Merkel. Unfortunately, what are a few drops of wisdom in a sea of nonsense?
Wednesday, August 10, 2011
And let's not forget that redeeming debt with fiat money is just one train stop away from not being able to redeem it even with fiat money. Ask Brazil.
Friday, August 5, 2011
But during these days of planned global monetary chaos, ask the Swiss what they've been thinking of the "theory." It isn't their fault: they have done their homework, but the burden has an insidious alien origin.
The irony is that, for once, they may be having Eurozone envy. An interpretation that won't be found neither in the WSJ nor in the FT, after all their readers may have more important things to learn, such as that Portugal and Ireland are less creditable than Venezuela and Pakistan.
Wednesday, August 3, 2011
From this simple arithmetic, there can only be two scenarios: (1) bonds are extremely overpriced or (2) America is heading to a Japanese-style lost decade.
Now, in your typical retirement portfolio you may find guaranteed-return funds that promise (yet) to pay 3% per year or more, depending on the binding rules. Under the assumption that these funds will keep their promises and remain solvent, the return over ten years accrues to at least 34%. So you have a guaranteed ten-year bonus of 4% or more over the 10-y Ts. On the other hand, guaranteed-return funds provide valuable insurance against a bonds market collapse. If it happens, then you'd be well positioned to do some bargain hunting.
No matter what happens, and unless you're planning to play short-term dice with the pros, the 3% (or more) guaranteed-return account is a clear winner.
That's why I'm saying: bye-bye bonds, see you next time!
Sunday, July 31, 2011
As it always happens in closed societies, talented artists overcome censorship through labyrinthine stories and indirect denunciation of the establishment. "A Separation" is a masterful example of the power of art to circumvent restrictions to freedom of expression.
If you like strong and realistic dramas with the most impressive direction and acting, and because of limited distribution won't have the opportunity to enjoy it on the silver screen, make sure to find a DVD copy and to watch it! Here is the trailer:
Thursday, July 28, 2011
This is the road to fiscal perdition. The looming debt downgrade only confirms what everyone knows: Congress has made so many promises to so many Americans that there is no conceivable way those promises can be kept. Tax rates might have to rise to 60%, 70%, even 80% to raise the revenues to finance these promises, but that would be economically ruinous.The same could be said about most modern western nations. History books may one day register the fact that this was the main legacy left for future generations by 20th century's fascist and socialist utopias.
Tuesday, July 26, 2011
(1) The US is being governed by two political factions that are unable, even under the most extreme circumstances, to put the nation's interests above their own partisan goals. Are you surprised? I'm not. This is the fulfillment of a trend that has started decades ago.
(2) The President is poorly equipped as a negotiator. His political strength, the reason why he got elected, is that he's a messianic politician. But messianism is normally the reason why political crises flourish. Are you surprised? Given his track history in politics, I'm not.
(3) The radicalization of the discourse among the supporters on the two sides of the aisle only proves that each faction is fully capable of energizing the cliques on their sides.
McArdle for example argued that:
Obama, meanwhile, seemed to be going out of his way to isolate Boehner from his more militant caucus members--praising Boehner's willingness to cut a deal, if only it weren't for the crazies on the far right. Perhaps this makes Obama look like a nice guy to people who don't understand the GOP intra-party dynamics, but of course, it poisons an already poisonous relationship between Boehner and the tea-partiers. If I were feeling uncharitable, I might argue that Obama seems to be willing to lower the chances of getting a deal, as long as he raises the chances that the other guys get the blame. And frankly, I'm not feeling very charitable right now.Maybe they will yet reach an agreement in time. But all of this is evidence that we're living through an unordinary political moment that may have significant global economic consequences, which won't limit themselves to the relatively simple and eminently technical negotiations regarding debt ceilings.
Sunday, July 24, 2011
The easiest way to bring a group together is to find a common enemy and blame it for the group's misery. In the long run, however, that strategy destroys the group's spirit.
Thursday, June 30, 2011
The inevitable reality that applies to all countries is that you cannot solve a deep government budgetary problem with monetary measures. You have to solve the deep government budgetary problem, period.
Comparing Greece with Argentina is however ludicrous. Argentina had a weak national currency based on a deeply flawed monetary arrangement which lacked any real backing. Greece on the other hand is full member of a monetary zone based on a solid currency, the euro, backed by a large federation of important economies. The crisis has only served to confirm the euro's strengths.
To argue that the solution to Greece is to leave the eurozone is as laughable as to argue that Arkansas would be better off by leaving the dollar monetary zone once it faces budgetary or debt refinancing difficulties. Its fiscal problems wouldn't magically go away just by adopting a new (and probably weak) currency, and many new difficulties would be created.
Saturday, June 11, 2011
With such a large overhang of Debt across so many developed countries it's likely that the financial markets regress back some way towards the controls that were commonplace for decades post WWII. The alternative if this doesn't happen is the risk of widescale Sovereign and Bank defaults across Developed markets over the next few years. So we'd argue that the next few years could be characterised by 'financial regression' as the financial system deals with the huge debt problem by pulling back from the free unfettered, free flowing cross border capital markets developed over the last 30 years.
Tuesday, June 7, 2011
Were you to move from Andoria to Earth, you would inevitably face some sort of scarcity. You would surely not be able to live wherever you wanted, even if you were extremely wealthy (think about a Bill Gates' hypothetical wish to live in the White House). Even if you could trade your place on Andoria for a place on Earth, some sort of moneyed transaction would for sure take place, unless the decision, instead of being taken by free people, would be made through central planning. I don't think, however, that Rodenberry envisioned the Federation as a totalitarian system.
Love cannot be replicated or easily replaced, so it will always be scarce (as we've seen happening in many Star Trek episodes). Death itself was not vanquished in the series, so there's scarcity of life and health.
And where there's scarcity there will be money, or some sort of quasi-money. How it's labeled doesn't really matter, as long as it serves the same functions of money, that is, a social networking tool that allocates scarce resources efficiently in a complex and decentralized economy, contemporaneously or across time. After all, money and its financial derivatives are the human invention that got the closest to working as a time machine, allowing wishes to be transferred from the present to the future (think about savings) or vice versa (think about credit).
Tuesday, May 31, 2011
Particularly worrying is the case of Brazil. After importing the worst from the antimeritocratic movement in Europe, without having ever implemented or understood the ideal of republican or confederate meritocracy, it now imports, apparently with pleasure, the worst from the antimeritocratic movement in America. It is essential to recognize that, in the case of Brazil, a country of predominantly Latin culture, if there is a chance to emulate successful countries that are culturally close, this emulation must pass through the strengthening of Brazilian meritocratic institutions. This is exactly the opposite of what governments have been doing in Brazil.
Monday, May 23, 2011
Although some have pointed to an increase in the demand for money or reserves due to flight to quality during the financial crisis, this examination of the dynamics of the Federal Reserve’s balance sheet and other factors shows that it was due to the increase in loans and securities purchased by the Federal Reserve in order to assist specific firms and sectors. ...Taylor also offers evidence that the humongous issuing of bank reserves was the cause of the inordinate fall in monetary multipliers and velocities of circulation seen in the US after the crisis, and not the contrary. As he explains:
But rather than go further in this direction it would be more appropriate for the Federal Reserve to begin to move back to monetary policy rather than what I have called here mondustrial policy. ...
[Nonetheless,] it may be difficult for the Federal Reserve to move in this direction or to exit from its current policy. It is already going down a path to purchase $700 billion more in securities backed by mortgages, credit card debt, student loans, and auto loans. It has stated that these actions are necessary because of the financial crisis. But are there no limits to increasing the size of such purchases in the future? And once the Federal Reserve owns these securities, they will be politically difficult to sell. ...
What justification is there for an independent government agency to engage in such industrial policy?
But the very severity of the panic in 2008 makes it difficult to convince people that there was not a panic-driven increase in the demand for the monetary base at that time, and I frequently hear economists and economic students sticking to [this] interpretation. ... [However,] the months since the start of QE2 are not even close to the panic observed in the fall of 2008. So it is ... difficult to argue that the Fed was responding to a panic-driven or otherwise autonomous increase in the demand for the monetary base. Much more likely is that — as in the fall of 2008 — banks simply absorbed the increased supply of the monetary base which the Fed used to finance QE2. In fact, if you look at the chart (which goes through April 2011), you can see the same inverse relationship between the money multiplier and the monetary base during QE2 as during 2008--2009
Sunday, May 22, 2011
Our findings thus reinforce recent research in economics that documents just how persistent culture is. Raquel Fernandez and Alessandra Fogli (2009) show that the fertility of the children of immigrants to America is still influenced by what is happening in their parents’ home countries; Nathan Nunn and Leonard Wantchekon (2009) argue that areas in Africa affected by the slave trade in the 19th century still show lower levels of trust; and Saumitra Jha (2008) found that Indian cities with a history of peaceful coexistence between Muslims and Hindus have had lower levels of inter-ethnic violence in the recent past. In this context, our findings are striking because they concern anti-Semitism, a trait without any direct economic benefit (and probably some harmful economic consequences over the long run), and because we document persistence over a much longer time horizon than other studies.
Thursday, May 19, 2011
It's divided in five parts, which can be watched below. Enjoy!
Partie 1 : La longue marche vers l’euro
Partie 2 : Le fonctionnement de l’euro
Partie 3 : L’euro sur l’économie européenne
Partie 4 : Quelles perspectives pour l’euro ?
Partie 5 : Sauver l’euro ?
Wednesday, May 11, 2011
Imagine a country that spends and prints trillions to patch up any problem.Then he explains, among other reasons, why so many believe that Ben Bernanke lacks intellectual credibility as monetary authority:
Now imagine another country where there is no central Treasury, meaning that bail-outs are less easy, and which has a central bank that’s mopped up liquidity over the past year, rather than engage in quantitative easing.
Why does it surprise anyone that the latter, the eurozone, has a stronger currency than the former, the US? Because of peripheral countries’ debt refinancing issues? And the potential for contagion? These are real and serious issues, but in our assessment, they should be primarily priced into the spreads of eurozone bonds, not the euro itself.
Think of it this way: in the US, Federal Reserve chairman Ben Bernanke has testified that going off the gold standard during the Great Depression helped the US recover faster than other countries. Fast forward to today: we believe Bernanke embraces a weaker currency as a monetary policy tool to help address the current state of the US economy. What many overlook is that someone must be on the other side of that trade: today it is the eurozone, which is experiencing a strong currency, despite the many challenges faced within the 17-nation bloc.He concludes by stating that, due to the monetary and fiscal policy mistakes that have yet been made, it's going to be very hard for the US to avoid high inflation in the medium to long term:
In the US, the day investors come to the reality that inflation, rather than fiscal discipline, is the path of least political resistance may be the day the bond market won’t be as forgiving. Unlike the eurozone, where consumers stopped spending and started saving a decade ago, the highly indebted US consumer may not be able to stomach higher interest rates. The large US current account deficit also makes the dollar more vulnerable to a misbehaving bond market than the eurozone.No matter what happens, one thing is clear: a financial crossroad has been created where many investors will heavily gain while many others will heavily lose.
In the medium term, we are far more concerned about risks to the US dollar than those posed by the Greek drama to the euro.
Friday, May 6, 2011
The interesting thing about QE is that, no matter how you try to explain its effects on the economy, you get to the conclusion that it's wrong. If you're one of those economists that think that printing high-powered money as if there's no future has avoided an American output collapse without creating inflationary pressures, then you need to explain the fast rate of depreciation of the dollar and the increasing price of commodities while unemployment remains high, investment low and growth anemic. If you say that it's not the dollar that is weakening, that it is the price of commodities and other currencies that are frothing, then it doesn't really matter: the monetary policy is wrong anyway for creating such frothing (no need to get into the merit of what a bubble really is as long as it is QE that is causing it).
I'm for a much simpler explanation for the monetary policy problems that we're experiencing. It's a combination of two typical problems in central banking: (a) central banks historically overestimate negative output gaps (remember the 70s!) and (b) the inflationary effects of monetary expansions can take a very long time to happen, particularly after a long period of stability and falling but yet high central bank credibility. In other words, we should never underestimate the power of denial when it comes to potential output and NAIRU calculations. On the other hand, central bank credibility has only gone down since the beginning of this crisis.
On the subject, The Economist's Buttonwood asks the gazillion dollar question on frothing asset and commodity prices:
The equity market sell-off could be ascribed to the same weak growth numbers that sparked the commodity decline. Nevertheless, it does draw attention to the contradictions inherent in this long bull-run. Central banks are holding interest rates low (and using QE) because the economy is weak. But if the economy is weak, why have equity and commodity prices done so well?
Wednesday, May 4, 2011
Meritocracy is present in several aspects of successful political and economic systems. The free market, for example, is one of the most important decentralized meritocratic institutions, a fact ignored even by economists. In it, those that offer goods or services are compensated according to the market value, and those who demand are able to acquire them if willing to pay the necessary compensation. The arrangement is meritocratic, because the decision-making power stems from the economic capacity of those who supply and demand.
Tuesday, May 3, 2011
Even if the current spike in headline inflation proves to be transitory, past experience suggests that it may well lead to a permanent increase in real hourly wages. Unless monetary policymakers in the US favour feverish boom-and-bust cycles with prolonged periods of high unemployment, they had better start paying close attention to headline inflation, like their counterparts at the ECB do.
Sunday, May 1, 2011
Examples of that: no matter how good is the virtual reality rendering in those recent movies, acting remains detached from the environment. It's the chroma key syndrome. Besides, the overuse of video game-like action sequences in contemporaneous movie making is becoming really boring, and this is from someone that is young enough to have played first-person shooter games somewhat avidly. All the tech wizardry in these movies feels a lot like those jazz fusion songs of the 80s that were probably fun to play but were not so fun to listen to.
Saturday, April 30, 2011
The irony is that here in France we will enjoy this nicely done series on one of the major over-the-air broadcast channels: France 3. Another case of heavy-handed politics stomping basic freedoms in America?
JS: It makes me very sad. Hollywood is extremely concerned about civil liberties. I can't tell you how many movies and projects have been produced about the McCarthy era. Where's the outrage for what happened here?
TA: Even though people in Hollywood are mostly liberal, I thought the real master of this town was the bottom line—TV ratings and box office ticket sales. With The Kennedys, you've got subject matter and stars who almost guarantee viewers. Doesn't that trump political or personal loyalties?
JS: One would think so. But do you think the news business only cares about the bottom line? If so, why isn't everyone in the news business emulating the Fox News Channel? Because most people who work in media have one worldview, and it doesn't care for a conservative outlook. Look, I'm an agnostic filmmaker. I don't put politics in my entertainment. Never have. I've been a journeyman doing this for 25 years. 24 was never considered a problematic show—until there was a New Yorker article by Jane Mayer that reported that I was a conservative.
Thursday, April 28, 2011
Monday, April 25, 2011
It poses some interesting macroeconomic questions. If it represents a movement towards the reduction of the American trade deficit, then we should see a rebalancing of the capital account too. It could happen through an even greater decrease in investment (probably not an interesting outcome) or an increase in saving. Where will the increased saving be coming from? If it isn't the government, then households will have to do it, otherwise investment will fall even further compared to what it is today.
Alternatively, if not matched by higher saving, this trend will have to stop at some point, or it will need to be matched by higher prices in dollar, in other words, inflation. Just extrapolating the trend (silly, I know, but this is just a baseline exercise) indicates a matching yearly inflation rate of around 23%.
It took decades for macroeconomists to see so much action in their field.
Wednesday, April 20, 2011
Saturday, April 16, 2011
Well, no need to write this article anymore. Gabriella Cordone has done an amazing job researching the monetary inconsistencies in the series, and explaining some of its economic problems in this article, a translation of the original in Italian. Quoting her:
Let’s start with the Roddenberry rule. No money in the Federation! Easy to say... not so easy to do. ...
When TNG arrived on the silver screen, the Great Bird of the Galaxy Gene Roddenberry had been deceased for several years, but apparently his rule kept following his characters; at least that seemed the intention. In Star Trek: First Contact, here comes Captain Picard again, who talks with Lily and, answering her question about the Enterprise: “How much this ship cost?” he answers “The economics of the future is somewhat different. You see, money doesn’t exist in the 24th century.” “No money? You’re telling me you’re not paid?” Lily is surprised. “The acquisition of wealth is no longer the driving force in our lives. We work to better ourselves and the rest of Humanity.” Despite Lily’s surprise (that mirrors the whole audience’s surprise), the line does not leave doubts: money does not exist and it’s not for money that you work. Picard and company are explorers and the risks they run are no different from those ran in the past by people like Amundsen or Livingston. The prestige of making a discovery exists since ages ago, the honor of being the first to know something and bring back the knowledge to the rest of humanity is drive enough for men like the Federation officers.
This is the lesson Roddenberry wanted to give, saying that in the Federation there was no money, word by word. ... What’s not clear enough, though, is the question Picard doesn’t answer: how things are done when a workforce is involved? Lily had difficulty in putting together the metal needed for building the capsule of Cochrane’s rocket, while apparently the metal needed for the Enterprise costs nothing... Let’s assume that miners do not exist and any heavy work is not done by men. But there must be - along the process of building a starship - some boring job that men have to do and they might do only for remuneration. So what, if not money?
Thursday, April 14, 2011
There's no need to say that the results were negative. Brasilia is known for being unfriendly to its dwellers. Some have called it "the soulless city," others have called it the "fantasy island." It's also called the "monumental city," many times pejoratively ("people don't enjoy living and working inside monuments" is a commonly heard complaint in Brasilia). I personally find Brasilia's monuments to vary in appearance from plain ugly to nightmarish.
As time goes, the city looks to me more and more like the ideal location for a postwar fascistic dystopia. Economist Marcos Bittencourt for example recently wrote a very good article (in Portuguese) that explains the many failures of Brasilia as a livable city. It's a personal judgment naturally, but I've been to only one city that is uglier and less urban friendly than Brasilia, and this city is São Paulo - and I've been to many places. Economist Tyler Cowen has been recently to Brasilia and summarized well how it looks like to an outsider:
Could this be the strangest city I have visited? ... It resembles an old science fiction movie and yes I like old science fiction movies.Cowen hits the bull's-eye: Brasilia looks and feels exactly like a sixties sci-fi z-movie, and ages as badly as sci-fi z-movies from the sixties do. In reality, I've always wondered why is it that very few people have realized that one of the most well-known backdrop drawings in the Star Trek explicitly paid homage to Brasilia. Compare the two pictures below: