Category — Economics

Last week we endorsed an article on collapsing business models, but having read this must-read critique of it and the journalistic style it applies, one comes to wonder how accurate the analysis really is. When reading articles that tries to make sweeping generalizations just on the basis of a few cases or examples, we must really strive not to be swayed by what is most likely pure dramaturgy and seduction from the author.

A complex system that is very difficult to describe by a single phrase – Photo Credits

Thinking further about  this problem, business books that try to coin new phrases come to mind. Malcom Gladwell is a master of this art writing books such as “The Tipping Point” and “Outliers”.  Be careful when reading this, [Read more →]

We’ve previously endorsed the Norwegian Government Pension Fund’s  (GPF) approach to enhancing global corporate governance. Recently, NBIM – the manager of the fund – was also instructed to allocate about five percent of its portfolio into unlisted real estate. I consider this  decision quite bad for the following reasons.

Property investments are notoriously illiquid. Currently the reserves of the GPF is used to cover the domestic fiscal budget deficit. As wee have recently seen, the deficit and need for fiscal expansive policy will usually be the highest when liquidity is the lowest. Illiquidity  implies below real value prices and as such NBIM will always be selling its real estate investments when prices are the worst (this is in a longer term perspective when oil revenues are actually smaller than the budget deficit)

It was the Yale endowment fund under management by David Swensen that started advocating that long term investors such as the GPF should allocate more of its investments [Read more →]

Some recent and interesting articles, all very recommended:

An excellent article on zoophiles, animal lovers – there is more to human sexuality than I would ever have expected and somehow horses are particularly attractive

Steve Randy Waldman explains why measuring bank balance sheets (capital) is impossible

A report from Morgan Stanley on the emerging global trends of internet usage, especially mobile

Dani Rodrik on the return of industrial policy – governments can pick winners

How to make a  freestanding handstand Push-Up – my goal for the next year

Stiglitz on an agenda for reforming economics at the newly established, Soros-financed, Institute for New Economic Thinking (video)

Clay Shirky posted a very interesting article on creative destruction wrought by the emerging ICT-paradigm, in particular on the television industry. Lots of Schumpeterian economic evolution-revolution. Check it out here.

Thanks to my uncle Ashley, a loyal Evolution-Revolution reader, for sending me the link.   Picture from http://affordablehousinginstitute.org/blogs/us/2007/07/the-value-of-foreclosure.html

The following were (seriously) the top three headlines last night on the RSS feed I get from Dagens Næringsliv, Norway’s biggest business and economics newspaper:

LONG, LONG LINE OF GOOD WINES

(Lang, lang rekke med gode viner)

-

APPEALING SYRAH-WINES

(Tiltrekkende syrah-viner)

-

ABDUCTED FINANCIAL ADVISOR

(Bortførte finansrådgiver)

That last link is foreign news, of course, about a something that happened in Germany. So far, it appears we are still living the good life.

I was recently reading some older posts on Andrew Clavell’s Financial Crookery, and came across a post from early January on the decision made by Iceland’s President Ólafur Ragnar Grímsson to let the so-called Icesave bill (with which Iceland agrees to pay back Britain and the Netherlands the deposits made by its citizens that were lost by its banks) be subject to a popular referendum that it surely would not survive. It didn’t, on March 6th 93% of voters wanted it dead, compared to a diminutive 1,6% who wanted Iceland to [Read more →]

Above: “I think this is a very good death”, Lord Katsumoto tells a perplexed Tom Cruise, soon to become The Last Samurai

Like Custer at Little Bighorn, Lehman Brothers bravely removed the possibility of surviving by means of a tactical retreat in case they were befallen by a great host of hostile Indians by making use of the now infamous repo 105 contracts. Andrew Clavell, author of Financial Crookery, posted an interesting article on how and why they work here. Especially recommended for those of our readers who aren’t working with or haven’t studied a lot of finance or derivatives.

A saying goes that “acceptable unemployment is defined as the level at which the Government economist writing the report still has a job.” Certainly, it can be argued that in most countries, economists tend to be quite insulated from the consequences of the policies they propose. Apparently, this is not the case in North Korea. After a major currency reform last year failed completely, the high-level economist Pak Nam Gi, former finance director for the North Korean “Worker’s Party”, was convicted of treason for “ruining the national economy as the son of a big landlord who infiltrated the ranks of revolutionaries” and executed by firing squad.

The policy environment leading the execution of the North Korean economist, who was most likely a scapegoat, is hardly one that should be emulated. However, I can’t help but think about how the U.S. or Europe might have looked in the wake of the financial crisis if a more North Korean approach had been taken during the witch-hunt that followed it (and is still ongoing).  Could you charge Richard Fuld with treason for over-leveraging, or Eugene Fama for trying to make people think that capital markets are efficient?. Certainly one would expect the emergence of a slightly more risk-averse financial sector.

For a more realistic discussion about discretionary power being given to regulators, check out The Epicurean Dealmaker’s recent post about fire alarms, strong men, and big axes.

Thanks goes to loyal Evolution-Revolution reader and good friend Jan Petter Janssen, creator of Developing Trader, for the tip about Pak Nam Gi.

Above: “I am *this* much more awesome than all of you guys!”
Picture from unattributable.com

Attending a small rock concert this weekend (a good one, with the Estonian band Mild), I was struck by tremendous amount of unabashed ego displayed by the lead singer of the band. Now, in the case of an aspiring rock star, this is of course not a bad thing. In fact, I would argue that a big, proud, and unapologetic ego is mostly a very good thing for a most live performers, especially [Read more →]

How about a really big steel plant… right here?

A friend and fellow Technology Governance student here at the Tallinn University  of Technology shared with me two papers by Tatiana Mikhailova from Harvard’s Davis Center and Boston University’s economics department, in which she argues that spatial inefficiency caused by Soviet planning may be costing Russia more than 1,2% of their GDP annually compared to a market-based counter-factual scenario, chiefly because of higher energy costs necessitated by cold weather.

I’ve included the abstract of Mikhailova’s paper The Cost of the Cold: The Legacy of Soviet Location Policy in Russian Energy Consumption, Productivity, and Growth below:

The spatial allocation of productive resources in present day Russia is inherited from the Soviet Union. Soviet system allocated investments without regard to economic efficiency, as the result the colder regions of Russia are significantly overpopulated compared to the market-based counterfactual. This paper estimates the cost imposed on Russia by this excess exposure to cold through excess energy use and loss of productivity. We show that the inherited spatial inefficiency costs Russia above 1.2% GDP annually in extra energy consumption and construction productivity alone.

Thanks to Mihhail, a loyal Evolution-Revolution reader, for sharing the papers.