January 2007 Archives

Some Interesting Comments

Glenn points to a U.S. News item which offers some economists predictions for the coming years labor market. Go check it out for yourself as I'm kind of lazy right now to quote any of it. I'll add that while I'm not a forecaster this outcome would follow a similar pattern to last decade. That is growth slowed following rate increases but then reaccelerated after they were absorbed. The good news is that I dont think we'll see a wave of currency crisis like we did in the late 90's. Asia has enough reserves and countries who don't aren't important enough in the world economy. It was the tech boom which overshadowed the poor performance in the rest of the economy during the late 90's.

My hope is that a tight labor market can enable some trade legislation to pass and also to ease restrictions on immigration(I have a great idea for an immigration model, but that will have to wait). The latter is possible under the current congress. The former will most likely have to wait until Republicans retake congress. Let's hope Bush pulls his head out of his ass and wins this damn war.

Surveys in general suffer from the fact that self-reported data is always seriously problematic. And that's even when asked questions with demonstrably true or false answers, such as "What is your income?" But couple surveys with the fuzzy-edged notion of "satisfaction" or "happiness", and you get this (with the added bonus of a small sample size):

South Korean gangsters get more satisfaction from their line of work than the police, according to a survey published on Tuesday in local dailies.

The article even suggests satisfaction is correlated with income (gangsters make more than the police, natch), which isn't what other places are telling us.

For more on the topic, see Wilkinson.


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Here's soemthing for people working in the International Money & finance field to read:

Jan. 29 (Bloomberg) -- The yen declined to the lowest against the dollar in more than four years after a Japanese government report showed a drop in retail sales last month.

The yen also weakened against the euro, pound and Swiss franc on concern waning spending will encourage the Bank of Japan to delay raising interest rates. Barclays Capital, Standard Chartered Bank Plc and RBC Capital Markets dropped forecasts for a 2007 yen gain last week after policy makers kept borrowing costs at 0.25 percent on Jan. 18.

``Low interest rates in Japan are encouraging people to move money out of the country,'' said Adnan Akant, head of foreign exchange in New York at money manager Fischer Francis Trees & Watts, which has $42 billion in assets. ``There is no dramatic economic activity in Japan right now, making it hard for the BOJ to raise interest rates.''

Japan's currency fell to 121.94 per dollar at 2:41 p.m. in New York from 121.54 on Jan. 26. It touched 122.19, the weakest since 122.85 on Dec. 13, 2002. It also fell to 157.96 per euro from 156.99, approaching its record low of 158.62 set on Jan. 24.

I thought the dollar was collapsing it is was the result of the CA deficit?

Bonds News

Here's a round up of news concerning bonds south of the border:

Brazil: A total of $500 million of dollar-denominated bonds maturing in 2037 were sold yesterday as the government took advantage of record-low borrowing costs. Brazil sold the 30-year bonds to yield 6.635 percent, or 1.73 percentage points above similar U.S. Treasuries. The yield on the 7 1/8 percent dollar bonds due 2037 fell to a low of 6.52 percent on Jan. 3, down from a 8.1 percent high in May 2006.


The yield on Colombia's benchmark 11 percent bond due July 2020 fell 4 basis points to 9.15 percent, according to the central bank.


The yield on Peru's benchmark 9.91 percent bond maturing May 2015 fell 5 basis points to 6.25 percent, according to Citibank Peru.

On a side note, the more time I spend with politics people the less I am impressed.

Question of the Day

Techdirt: How Much Would You Bid On eBay To Explain Market Economics To Sundance Festival Organizers?

My answer: nothing. I get some marginal benefit from seeing people get annoyed that self-satisfied movie stars pretend that they have any sort of insight on anything except, say, playing make believe in a social bubble for vast sums of money.

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FYI, trackbacks have been disabled permanently, as the cost-risks of attack and abuse now greatly outweigh the infrequent benefit of sincere use.


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This is a fairly damning piece concerning French actions in Rwanda. Read it all. It has been said that the slow profress in Iraq has hindered the Bush administration from advancing human rights. This would be a tragedy as the world is largely still a mess. The first part of the article points out that English is now the popular language in Rwanda because it is identified as resisting the slaughter. It would also be interesting to see if attitudes towards capitalism also have turned favorable as well. That is as the left likes to identify Anglo-Saxon economic policy with capitalism do the people who embrace the language of Anglo-Saxon culture also embrace capitalism. This would be a nice development.

Link via The Corner

Also, don't miss the OC Register's series on Rick Warren concerning among other things, Rwanda.


A few years ago when Real Madrid was in town to play the Galaxy, rumors that David Beckham wanted to play in Los Angeles had already made the rounds. After watching a post game interview, it was fairly obvious that it was just a matter of time. The time has arrived and David Beckham has signed to play for the L.A. Galaxy for an eye popping 248 million. Will he suceed in making America into a soccer nation? Who knows, but now is as good a time as any.

Gone In a Flash

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USB flash drives are one of the great inventions of our times. Who wants to carry around a floppy disk that while not so floppy had limited capacity. USB are easy to use and highly convenient. However, after loading a bunch of data for my discertation on one at school that took a few hours, I can no longer locate my USB drive. I can only blame myself since this the fourth one I've had over the past few years. I guess I'm just a sucker for them.

On another note about the data I'm working with, check out this description of how political parties are classified. From the Database of Political Institutions:

Right (R); Left (L); Center (C); Not applicable (0)

Our sources had little detail on party platforms and agendas with respect to economic policy. Therefore, to identify party orientation with respect to economic policy, we used the following criteria:

1) In the Handbooks, we first considered the party name, and used the following rules:

Right: for parties that are defined as conservative, Christian democratic, or right-wing.

Left: for parties that are defined as communist, socialist, social democratic, or left-wing.

Center: for parties that are defined as centrist or when party position can best be described as centrist (e.g. party advocates strengthening private enterprise in a social-liberal context). Not described as centrist if competing factions “average out” to a centrist position (e.g. a party of “right-wing Muslims and Beijing-oriented Marxists”).

0: for all those cases which do not fit into the above-mentioned category (i.e. party’s platform does not focus on economic issues, or there are competing wings).

Blank: for those cases where orientation is unknown.

2) If the orientation of a party was not immediately obvious from its name or description in the handbooks, we consulted the website: http://www.agora.stm.it/elections/parties.htm. This site provides one-word descriptions of party orientation which could be fit into the above framework. Cross-checks on parties listed in both sources showed a high degree of agreement. As this source provided no historical information, we assumed that party location on the left - right spectrum remained unchanged over time, and we recorded this party orientation for all years.

Terms on the website such as “liberal”, “progressive”, “authoritarian” or “xenophobic” were dealt with in the following way: For “liberal” we went with the European definition (right), since the website is based in Europe. We classified “progressive”, “authoritarian”, “xenophobic” as “0” (none of the above) unless we had additional information that allowed us to position the party on the left - right - spectrum (see 2).

UPDATE (KB): Bob, I feel your pain, and suggest getting one of these to hang around your neck:


Sure, it would even make a supermodel look like a dork, but most of us working in sensitive environments must wear a cow-bell ID anyway. I guess it all comes down to the marginal amount of dorkiness involved

If you can't beat 'em, pay 'em.

In an interesting move to combat hacking of MS Vista and Internet Explorer 7 VeriSign is offering aspiring hackers a bounty on flaws, with extra for working code exploiting flaws.

Given the number of days that IE 6 was open to manipulation in 2006 (284), this could actually be a tidy amount for someone willing to spend serious time.

Wacky Ideas

If I was a better blogger, I would have posted about the nutty conspiracy theory of a North American Union some have talked about. Since, I have been in a blogging mood I'll link to John Hawkins piece about this issue. I hope all those mentioned as pushing this theory got their tinfoil hats for Christmas.

Site of the Day

If Truck and Barter had a regular site of the day post, this would be it for today. I especially like the tour of Acapulco's big box retailers.

Via OC Register's Orange Punch

Tort Reform

I said many years ago that the plaintiffs' bar attitude of being able to sue anybody for anything for whatever amount of money they can convince a jury to award would bite them in the ass. This BusinessWeek article says it's happened:

The American Lawyer, an influential trade publication, recently declared an end to the era of mass-injury class actions, but the changes are far broader than that. Courthouse doors have slammed shut on a wide variety of claims. Michigan, for example, has virtually wiped out all lawsuits against drugmakers in the state. Six states have passed laws seriously restricting the kinds of asbestos suits that can be filed, and 23 now have statutes saying you can't sue the likes of McDonald's (MCD ) for making you fat. Damage limits in many states have rendered medical malpractice litigation nearly comatose.

Both federal and state courts are reinforcing the trend. In December a U.S. appeals court in New York nixed a class action accusing investment firms of manipulating the price of initial public offerings. That was a big loss for securities fraud plaintiffs' lawyers, especially in a year when the total number of shareholder suits filed was about half the level of prior years, according to statistics compiled by Stanford Law School. In 2005 the Illinois Supreme Court struck down a $10.1 billion judgment against Philip Morris (MO ), saying a state law protects the company from suits alleging that its marketing of "light" cigarettes was deceptive.

It all adds up to an extraordinary turnabout for the plaintiffs' bar, which has reveled in public-savior images of its top guns hauling Ford (F ) and Firestone into court for disintegrating tires; standing side by side with state attorneys general to extract $300 billion from cigarette makers; and trotting up courthouse steps with smoking-gun Enron documents. These days the law firm that once was the nation's most prolific filer of shareholder lawsuits is under indictment, thousands of asbestos and silicosis claims are being probed for fraud, and Vioxx litigation, once thought to be a gravy train express, is chugging in reverse. (Of 12 cases tried to verdict involving the painkiller, Merck & Co. (MRK ) has won 8.)

Even many victories are evanescent. According to a report issued by Beasley, Allen, Crow, Methvin, Portis & Miles, an Alabama personal-injury firm, the Alabama Supreme Court reversed 27 of 31 plaintiffs' verdicts during its 2004-05 session. Thomas J. Methvin of the firm asserts: "It's a tough time to be a plaintiffs' lawyer, and it's a tough time for consumers."

Of course, when plaintiffs' attorneys see a falloff in business, lawyers opposing them do, too, and in Texas both sides are feeling the pain. Surprisingly, even businesses may occasionally feel the sting of lawsuit reform. Plaintiffs' lawyers, closed out of their traditional pursuits, are working harder to drum up claims companies can bring against one another. Additionally, the conservative legal climate may be making it harder for companies that believe they have legitimate claims to get what they feel they're entitled to when they file a lawsuit.

If the plaintiffs' bar had been proactive and sought to reduce the most ridiculous, high profile cases from coming to fruition, this might not have happened. The problem is that they have no way of stopping cases without tort reform since each laywer acts as an individual agent. In other words, coordinated action would be beneficial to trial lawyers overall, but each individual acting alone makes decisions which negatively affect the whole. If I'm not mistaken I think this is called the common agent problem.

That Was a Good Idea

A couple of months ago I talked with my advisor about writing a paper examining policy volatility and its implications for growth. Somebody beat me to it:

Summary: This paper compares the pattern of macroeconomic volatility in 17 Latin American countries during episodes of high and low growth since 1970, examining in particular the role of policy volatility. Macroeconomic outcomes are distinguished from macroeconomic policies, structural reforms and reversals, shocks, and institutional constraints. Based on previous work, a composite measure of structural reforms is constructed for the 1970-2004 period. We find that outcomes and policies are more volatile in low growth episodes, while shocks (except U.S. interest rates) are similar across episodes. Fiscal policy volatility is associated with lower growth, but fiscal policy procyclicality is not. Low levels of market-oriented reforms and structural reform reversals are also associated with lower growth.
My idea stemmed from the fact that Latin American politics seems to take large swings from one extreme to another. For example, a liberal party gets elected to power and institutes reform economic growth ensues. The next election cycle a leftist wins power by running on a campaign of a more equitable distribution of income gains. The neoliberal policy reforms are reversed and slower rgwoth follows. I['m not saying this is how it definitely works, but how the idea popped into my head.

The challenge is then to sustain reforms in the long run without a reversion to failed policies of the past. One way is to avoid elections all together and have the country run by an authoritarian leader as in Chile. Another which people have argued is that the size of the coalition matters. The bigger the victory the more likely reforms can be carried out and sustained. Think along the lines of the ruling party in Singapore.

Latin America provides an interesting case because there are apparently large swings politically and this was where my focus would have been as well. The challenge of liberals south of the border is then how too sustain reforms beyond the current term.

Some Are More Equal Than Others

I'm shocked. SHOCKED! PETA -- that is, the People for the Ethical Treatment of Animals -- apparently has differing standards for which animals are worthy of those ethics. Lowest on the list? Animals raised as food stock.

In the wake of the Denver blizzards, hundreds of thousands of animals have been left stranded to die of starvation or freezing. PETA has refused (as of this writing) to do anything to help out. Not that PETA's set up as emergency relief, of course, but this appears particularly callow given the typical rhetoric that comes from these people.

Why are the suddenly stranded cattle less worthy of rescue than the chickens raised for your plate? My wild guess is that the blizzard achieves the same goal as the Holocaust on Your Plate campaign: they both hurt the sellers of meat. I know, I know, it's crazy to think a public organization has a political goal aside from it's stated altruistic vision -- and it seems to have truly caught some people off-guard -- but it seems possible in this case. As it did when there was a wish for foot-and-mouth disease.

Exchange Rates

This post by Stephen Kirchner reminds me of conversation I had a month ago with a visiting prof with a similar background to mine in trading. It went something like this:

Visiting Prof: So, are you doing any trading?

Me: No, not really but this market seems to be heading higher

Visiting Prof: Yes, but I have a dollar short here against the Euro. It's worked out well with European interest rates heading higher.

Me: Don't you find it odd that how the financial markets view currency movements is much different than how academic economists explain them?

He laughed as an acknowledgement

That'll Work


Spitzer's idea on how to boost New York's economy:

New York Governor Eliot Spitzer, in his first address to a joint session of the Legislature, asked lawmakers to strengthen the state's economy by such measures as boosting spending for transportation projects and a $2 billion bond proposal for stem-cell research.
Anyone want to bet on how effective this will be in boosting the economy? I'll take the under.

In all seriousness, upstate New York economy is pretty bad by national standards. The city of New York survives because the costs imposed by the state and local officials are small when you're employing investment bankers and lawyers. The story is different in other sectors of the economy and the rest of the state suffers. Good luck Mr. Spitzer with your program, You need it.

Wal-Mart is moving from a traditional employee scheduling program to one based on the projected traffic in the store.

NEW YORK (Reuters) - Wal-Mart Stores Inc. is moving workers to a new advanced scheduling system, building on a pilot program it tested last year that schedules hourly employees based on the number of shoppers in a store.

The usual suspects are lining up to denounce this.

"You are saying to workers who are already getting paid poorly … if you want any hours, you have to agree to work when we want you to work and to agree to a schedule that changes," said Chris Kofinis, spokesman for WakeUpWalMart.com, which has pressured Wal-Mart to improve pay and benefits.

Ah, yes, the good ol' days, I recall them well. "You'll work Monday through Thursday, Noon to 9," my boss would say. "Nothing doing," said I. "It's Monday and Wednesday Noon to five, and maybe Friday morning if my softball team loses Thursday night and I don't drink too much. Take it or leave it."

But, silliness of the WUW quote aside, I'd venture a guess that such measures are not just part of Wal-Mart looking to cut costs now, but preparing for a future where it's not so hard for states to pass labor laws so restricted in scope as to apply only to Wal-Mart.

Goodbye, Landline!


Since the average total cost per minute is extravagant (roughly a minimum of 25¢ per minute of actual talk time), today I am having our landline telephone service disconnected.

The unused monthly cell phone family plan minutes will easily cover the minimal landline use, and for no additional charge.

Many have blogged about this, but I feel nothing... no nostalgia... no concern that an era is dying... no fear that the power will go out, and six hours later my cell will go dead along with the tower's battery backup.

But what to do with that extra dollar a day?

The Dutch

It is now illegal to ride a Segway off of private property in the Netherlands. This is my favorite quote:

"It doesn't have a brake, you brake by leaning back, and that's clearly not permissible," he said.
In a country where a lot of things are allowed, this has to be one of the oddest decisions. The Netherlands and especially Amsterdam is made for such a transportation device. Considering how many times I was nearly killed there by bicycles with brakes, I would far prefer to have seen Segways rather than something I rarely saw coming at me and even more rarely did they attempt to slow down.

Help, My House Won't Sell Itself!


Kendra S. writes:

Our house has been listed for sale for more than five months. The local market is very slow now. The listing agent has the house on her Web site and occasionally holds a weekend open house. What can we do?

Great advice is given: 1) lower price, 2) check to make sure listing is correct, 3) grill and pressure agent for assistance, 4) stage the home.

I won't pretend to get into the mind of the letter-writer. For all I know, she's originally from out-of-town and unsure whether there was something she was missing in the way real-estate works around DC. Or she might really have meant to ask what they could do without lowering their asking price. But could it be possible that there is a non-trivial number of home-sellers who just don't realize that lowering price will help move their property?


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