Posts from — January 2010

Picture from http://www.jimrlong.us/

On our recent and very pleasurable trip the the United States, some of my more conservative friends who we were visiting insisted on showing us one of their new favorite movies - An American Carol. The movie is a railing if highly inconsistent criticism of any and every idea championed by liberal America anno 2008, in particular its anti-war sentiment. The main character of the movie is Michael Moore (“Malone” in the movie), who takes the role as the scrooge of 4th of july – and is visited by three ghosts, amongst them General George Patton and country singer Trace Atkins (proudly playing himself). On his way to salvation and pro-war attitudes, he is slapped in the face repeatedly by an (as always) morally righteous Bill O’Reilly (also played by himself), who warns Moore that he is abusing his freedom of speech by preaching pacifism. In particular, the film echoes conservative America by claiming that Michael Moore and his followers – by questioning the moral superiority of the United States at war [Read more →]

James Galbraith argues that falling bank stocks are a sign of good things to come with respect to the planned regulatory overhaul of the financial sector. To the extent that such regulation is intended to limit rent-seeking and moral hazard, Mr. Galbraith makes a fair point. Perhaps the Obama administration is on the right track.

However, if the same indicators apply to the health sector, skyrocketing health insurance company stocks can hardly be taken to be a sign of better and more affordable health care around the corner for most Americans.

Picture by Josh Abene

In economics, the assumption that economic actors – i.e. people – are “rational” is a common one. By “rational” we mean that people, given a ranking of their preferences, will choose whatever options they prefer the most. Ironically, our definition of “rationality” means doing whatever you feel like.

More importantly, it means that if we propose to know how “rational” economic actors will behave, we are in fact proposing that we are intimately familiar with the emotional life of every economic actor relevant to our model.

It is of course easy to assume a preference ranking when working in the abstract. Also, we can argue that by putting a price or “pseudo-price” on anything and everything, we can just assume that everyone just wants a ton of money because this can be traded in for whatever else you might want. If you ask me, such a argument only proves right those who claim economists are amongst those who “know the price of everything, but the value of nothing.”

The authors of this blog merrily receive about 82000 Norwegian kroner (NOK, €10 000) every academic year in living support for students from the Government of Norway. As we study in Estonia and do not engage in currency hedging, our standard of living (in economic terms) is subject to the NOK/EUR exchange rate. (Estonia has pegged its currency to the Euro and is most probably joining next year)

Over at Financial Times they report that Credit Suisse has made its currency predictions for the next year and betting on the strength of the krone and selling the Euro. With the budget balance and current account surplus larger than 10 percent of GDP, lowest unemployment rate in Europe and buoyant stock and housing markets Norway looks like a sure bet. It looks like we can expect a lenient new year in Tallinn.

Of course there are certain caveats to such a prediction. Foreign exchange markets are notoriously hard to predict and from what I remember investment banks tend to fare worse than just predicting the current exchange rate. Further, as a small economy, Norway would suffer under the curse of small currencies if a new financial crisis was to arise (which many are predicting). Last, the krone correlates rather well with the oil price which might / might not be a benefit for an eventual speculator.

Thanks go to Radu, a loyal evolution-revolution reader, for sharing the FT-article.

Update (May 4th, 2010): More on the Future Prospects of the Norwegian Krone (it’s still on the way up) – New article

Der Spiegel has a very interesting article on three Swedish guys who have started their own jeans brand, Noko Jeans. Noko has chosen a quite unusual country for the manufacturing of its jeans: North Korea. Apparently the People’s Republic has its own web site where it offers opportunities for foreign investors. Maybe we are actually seeing the first few steps of a softening up of North Korea and its eventual emergence as a part-taker in the global community.

For Noko the deal was closed in the same way as most early investors in China did it. Heavy drinking and socialization with the locals to build trust and making a deal with a conglomerate that really seems to make everything. They couldn’t get all that they wanted though; the jeans had to be black since blue denim jeans were considered too much of an American symbol. Some old habits die hard after all.

The authors of Evolution-Revolution are currently visiting New York as part of our January tour of the United States. A proud bastion of capitalism and free markets, Manhattan also has some fine examples of what decent government can accomplish. Try asking a New Yorker whether Central Park ought to be sold off to a real-estate developer because having it government-owned is socialism.