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Economics

Contracts: Oliver Hart and Bengt Holmström

Monday, 10 October, 2016 0 Comments

The 2016 Nobel Prize in Economic Sciences has been awarded to Oliver Hart and Bengt Holmström. It was “their contributions to contract theory” that convinced the Royal Swedish Academy of Sciences:

“Modern economies are held together by innumerable contracts. The new theoretical tools created by Hart and Holmström are valuable to the understanding of real-life contracts and institutions, as well as potential pitfalls in contract design.”

Next year, the economics of productivity or the environment might get the gong. And William Baumol will be 95, we hope.


The Nobel Prize in Economics: William Baumol?

Monday, 10 October, 2016 0 Comments

This morning, the Nobel Prize in Economics will be awarded by the Royal Swedish Academy of Sciences in Stockholm. Who’ll win? The Thompson Reuters Web of Science is predicting either Olivier Blanchard, Edward Lazear or Marc Melitz, based on citation counts. But maybe the Swedes will signal a change by giving the award for environmental economics instead to William Nordhaus, Partha Dasgupta or Martin Weitzman. The favourite here, however, is William Baumol.

The 94-year-old is famous for what’s known as Baumol’s cost-disease hypothesis, which states that as manufactured goods become cheaper, people devote more of their resources to the thing that’s really scarce — human labour. Baumol In the future, especially, a lot of what people will pay for will be time spent with another human being: a nanny, a teacher, a carer, a nurse, a fitness trainer, a coach, a storyteller… Baumol is regarded as important for interpreting the productivity slowdown that’s been puzzling economists in recent times. Maybe there will always be labour-intensive industries with slow productivity growth, and those will have costs that go up rapidly relative to the others.

“There are many reasons for increased spending on health care, including an aging population, technological change, perverse incentives, supply-induced demand, and fear of malpractice litigation. The broader point is that the basic underlying problem does not entail misbehavior or incompetence but rather stems from the nature of the provision of labor-intensive services.” — William J. Baumol, The Cost Disease


FinTech WOTD: Tokenization

Tuesday, 19 July, 2016 0 Comments

FinTech? It’s a portmanteau word created from “Financial Technology.” It’s hot because it threatens to grab some power from the bloated banks and give the the entire byzantine money business a much-needed shakeup. Heard of Bitcoin? It’s the most popular FinTech cryptocurrency. Cryptocurrency? It’s a form of digital currency that uses cryptography for regulation and security. No one is really sure who “mined” it, but the open-source software underpinning it has a shady history. Heard about the Blockchain? It’s where cryptocurrency transactions get recorded. It operates like a public ledger and once data has been entered, it cannot be altered.

All this brings us to our FinTech WOTD (Word of the Day): Tokenization.

Tokenization replaces sensitive data with unique symbols. These “tokens” enable users to retain essential information about their credit cards and transactions without compromising security. Tokenization also turns complex information into short, useful codes.

If you’re still not convinced about the power of FinTech to do good, don’t forget that its advocates say it may help the underbanked to become, well, more banked. Win win.

Language note: There’s tokenization and then there’s tokenism. The latter is the policy and practice of making a superficial gesture towards members of minority groups. Adding a token employee to a workforce usually is intended to create the appearance of diversity — racial, religious, sexual — and so avert accusations of discrimination. Following the Bastille Day terror attack in Nice, Channel 4 was accused of tokenism by putting the hijab-wearing Muslim Fatima Manji in the anchor’s chair.


Own the robots, rule the world

Wednesday, 9 December, 2015 0 Comments

According to Marx, it’s simple. Ownership of the Means of Production is in the wrong hands and this has led to the class differences that bedevil the planet. Individual ability, religious or cultural factors are irrelevant to the Marxists — all that’s needed is to wrest the machines from the capitalists, give them to the proletariat and the world will be as one. The disciples of Karl Marx have been preaching this “gospel” since the mid-19th century with spectacular calamity for the masses, most recently in Venezuela.

Is there a better way? And if so, who should own the modern Means of Production? The question is increasingly urgent in a world where Google is replacing librarians and professors are being eliminated by massive online courses. As computers and robots eat up the tasks being done by humans, workers need to do something or they’ll end up doing nothing. One solution would see governments taxing the Zuckerbergs and the Musks punitively and redistributing the “take” to the workers, but that’s the Venezuela way. Better: workers own shares in tech firms, have stock options in the AI start-ups and be paid in part from the profits generated by the robotics companies.

Who says? Richard B. Freeman, who holds the Herbert Ascherman Chair in Economics at Harvard University does. Recently, Germany’s Forschungsinstitut zur Zukunft der Arbeit GmbH, better known as the Institute for the Study of Labor and abbreviated as IZA, asked Freeman for his thoughts on technology, work and capital. For the Bonn-based non-profit, Freeman wrote “Who owns the robots rules the world” and in it he argues that the best model is an American one in the form of the Employee Stock Ownership Plans introduced in 1974 and which have since energized a sector that now employs some 11 million workers.

“The EU has endorsed such schemes in its various Pepper Reports and encouraged these forms of organization, though with, at best, modest success,” notes Freeman, ruefully. The continent of Marx is not too fond of worker ownership, unless the state is the proprietor, that is. On the other side of the Atlantic, which remains Marx resistant, despite the best efforts of the elites, Freeman points out that “enough firms in the US have extended some form of ownership stake to their workers that on the order of half of American employees get some part of their pay through profit-sharing, options, or stock ownership.” This is the way forward because, “In the US, at least, people with widely different ideological and economic views find attractive the notion of spreading ownership. One can imagine governments giving preferential treatment in procurement to firms that meet some basic ’employee ownership’ financial standard.”

As we enter the age of Industry 4.0, a priority of every developed economy should be encouraging worker ownership of capital to provide income streams from the technologies changing the world of work. Otherwise, Richard B. Freeman warns: “If we don’t succeed in spreading the ownership of capital more widely, many of us will become serfs working on behalf of the owners. Who owns the robots rules the world! Let us own the robots.” Aye!

Robots at work


Capitalism vs. Socialism: Gough vs. Mason

Monday, 31 August, 2015 0 Comments

“When women protest against misogyny in India, Mason interprets this as an anti-capitalist protest. This is ahistorical nonsense; the status of women in India has been terrible since at least the Islamic invasions of the 5th century. Women were burned alive on their husband’s funeral pyres until the arrival of the (capitalist) East India Company, which banned the practice.”

That’s a snippet is from Julian Gough’s scathing review of PostCapitalism: A Guide To Our Future, by Paul Mason, the economics editor at the UK’s Channel 4 News. The Irish Times does little justice to Gough’s dismemberment of Mason’s work, however, by linking to it from its homepage via an image adorned with the text: “Paul Mason: Capitalism is at the heart of the world’s woes“. A more fitting caption would have been: “Julian Gough: Socialism is at the heart of the world’s woes”.

Paul Mason review

Here’s Gough poking fun at Mason’s grim world view: “From page one, everything bad is capitalism’s fault. Russian invasion of the Ukraine? The rise of Islamic State? ‘These are the signs that the neoliberal order has failed.’ Not signs that, say, totalitarian Russian rule might be in crisis; or that 1,000 years of brutal Sunni/Shia sectarian conflict might have caused some longterm problems in the region.”

Gough notes that Mason became a teenage member of Workers’ Power, “one of the more charming and earnest English Trotskyist outfits. (Current membership, after the last split, about 35.)… And, like all Marxists ever — including Marx — he is bitterly disappointed in the actual, non-theoretical working class. (Though, fair play to Mason, he does say Lenin was wrong to call them a labour aristocracy and try to kill them.) Mason despairs: ‘It has become impossible to imagine this working class — disorganised, in thrall to consumerism and individualism — overthrowing capitalism.'”

So what’s the solution? Simple, really. All we need is to return to the 20th century and the visions that led to millions of murdered innocents. Mason says “We need to be unashamed utopians.” Gough counters, “No, we don’t. Utopianism has never led to anything other than catastrophe, because it isn’t anchored in reality. The trouble with Paul Mason’s prescription is not that it requires a new kind of financial system; it is that it requires a new kind of human being. As ever, we, the actual workers, are not good enough for the revolution.”

Julian Gough deserves praise for swimming against the luvvy tide here. Paul Mason is a media darling and an unashamed admirer of the former Greek finance minister Yanis Varoufakis. In fact, he provided the foreword for Varoufakis’s book, The Global Minotaur: America, Europe, and the Future of the Global Economy. Greater love hath no Utopian.


Margaret Thatcher predicted Yanis Varoufakis

Tuesday, 30 June, 2015 0 Comments

It is fashionable for liberal/leftist elites, including feminists, to hate Margaret Thatcher. She was all that they are not and because she refused to play the glass-ceiling game, they despised her. The most obvious recent example of their rage is The Assassination Of Margaret Thatcher by Hilary Mantel, which was published to much acclaim last year. Gleefully, the BBC adapted it for radio.

What they cannot deny, however, is that Margaret Thatcher understood the nightmare potential of the euro and she saved Great Britain from getting entangled in its snares by voicing her concerns. This led to the “five tests” devised, allegedly in the back of a taxi, by Gordon Brown and Ed Balls in 1997 that kept the UK out of the euro for good. In The Path To Power (1995), Mrs Thatcher revealed that she had been under constant pressure since 1990 to accept the proposed EMU (Economic and Monetary Union). She wanted no part of it; she foresaw the inflation and competitiveness dangers, she knew her history and she understood human nature. Referring to EMU, she said:

“Under this, Germany and France would end up paying all the regional subventions which the poorer countries would insist upon if they were going to lose their ability to compete on the basis of a currency that reflected their economic performance. I also thought that the Germans’ anxiety about the weakening of their anti-inflation policies, entailed by moves towards a single currency and away from the Deutschmark, could be exploited in negotiations.”

Sure enough, Germany will not accept greater inflation, poorer countries are insisting on bailouts and Yanis Varoufakis knows a thing or two about exploiting his counterparts in negotiations. Those dealing with the mess now might benefit from studying this snippet from a lecture Margaret Thatcher gave at Hillsdale College in 1994:

“Sir Edward Gibbon (1737-1794), author of The Decline and Fall of the Roman Empire, wrote tellingly of the collapse of Athens, which was the birthplace of democracy. He judged that, in the end, more than they wanted freedom, the Athenians wanted security. Yet they lost everything — security, comfort, and freedom. This was because they wanted not to give to society, but for society to give to them. The freedom they were seeking was freedom from responsibility. It is no wonder, then, that they ceased to be free.”

Margaret Thatcher


Down on the wind farm

Sunday, 21 December, 2014 0 Comments

wind turbine


Connecting Myanmar

Tuesday, 15 July, 2014 0 Comments

By the way, Sweden’s Ericsson is not the only runner in the race to connect Myanmar. Norway’s Telenor has pledged $1 billion to roll out a modern telecoms infrastructure. TelenorMyanmar plans a 3G service and says it can make a profit even with monthly revenue averaging only $1 a user.

Until recently connecting to the outside world was a crime in Myanmar, and people went to prison for owning an unauthorized fax machine. When it comes to press freedom, the country still has a long way to go. Last week, five journalists were sentenced to 10 years in jail, with hard labour, for writing that the military was making chemical weapons.


Peak oil has peaked

Tuesday, 23 July, 2013 0 Comments

For those ideologues camouflaged as journalists, Edward Snowden is the new global warming and the reincarnation of Hugo Chavez all rolled into one. When the old chestnuts of the left begin to lose their credibility, along comes the latest scam artist and the likes of Der Spiegel and The Guardian would have us believe that he’s a hero, not a traitor.

In time, Snowden will join the lots of other tropes in the dustbin of history. The latest addition is what was termed “peak oil”, which was supposed to be the point in time when the maximum rate of petroleum extraction would be reached, after which the rate of production would enter terminal decline. But now comes the news that The Oil Drum, a site created by believers in “peak oil,” is shutting down on 31 July after an eight-year innings. With daily news of record-breaking US oil production, it was, clearly, impossible to maintain the fiction that the world’s oil production was peaking.

Drill, baby, drill!

The dustbin of history is very commodious.


We live like gods, and we don’t even know it

Monday, 22 July, 2013 0 Comments

“For most of our time on the planet, humans lived on the knife-edge of survival. A crop failure could mean starvation and even in good times, we worked from sun up to sundown to earn our daily bread. In 1600, a typical workman spent almost half his income on nourishment, and that food wasn’t crème brûlée with passion fruit or organically raised filet mignon, it was gruel and the occasional turnip. Send us back to ancient Greece with an AK-47, a home brewing kit, or a battery-powered vibrator, and startled peasants would worship at our feet.”

In the Los Angeles Review of Books, Tom Streithorst addresses Post-Scarcity Economics, brilliantly. “And yet we are not happy, we expected more, we were promised better,” he notes.


Intrade didn’t predict this

Tuesday, 12 March, 2013 0 Comments

“With sincere regret we must inform you that due to circumstances recently discovered we must immediately cease trading activity on www.intrade.com.” So says the grim sentence that greets visitors to the website of the celebrated online-prediction exchange. Citing Irish law — Intrade is legally domiciled in the blessed land of St. Patrick — it said that it had been obliged to close customers’ accounts. What happened? And what were the “circumstances recently discovered”?

Well, more than a million trades took place on Intrade last year, but just 52,166 this year so far, according to the site’s statistics page, which is now offline. That must have hurt and something grave must have contributed to the fall off the cliff. Bloomberg, using the “irregularities” word, goes there. Missing in action, too, is the Intrade market page on the papal conclave, which begins today. As recently as Sunday, it had been predicting the election of an Italian pontiff, with an implied probability of 47 percent. Cardinal Angelo Scola, the archbishop of Milan, was the clear favorite with an estimated 25 percent chance of white smoke, while Cardinal Peter Turkson of Ghana followed with 19 percent. Now, alas, the papal electors must get on with the job in Rome without the aid of Intrade, a very worldly enterprise that fell to Earth because of “circumstances recently discovered”.

Rome