Month: June 2010

Concerning BP: very good sentences

And if we aren’t careful, we will encourage companies that have enough money for collection to leave the drilling to those that don’t.

That's from Richard Thaler and the entire column is worth reading.  Here is his wise conclusion:

We are left in a difficult place. Neither the private nor the public sector seems up to handling these kinds of problems. And we can’t simply wait for the next disaster, because, as people might say if they had to use G-rated language, stuff happens.

GMOs come to Europe, sort of

The potato, the first genetically engineered organism to be allowed in the European Union in more than a decade, was planted on 16 acres of land on the fringes of this town in southwestern Sweden, after a quarter century of bureaucratic wrangling.

Although inedible, Amflora is a kind of miracle potato on two counts: for one, there is its starch content, which makes it precious to the starch industry, a major employer in Sweden; and then there is its feisty resilience in surviving some 25 years of tests, regulations, rules, ordinances and applications for approval by both Sweden and the European Union, of which Sweden is a member.

Here is more information.  I had not know that GMOs were given partial European clearance in 2004, though they still face very stringent regulatory obstacles.

Getting tough with Germany?

Maybe I've covered too many Paul Krugman posts lately, but since he blogged Germany, and I'm now covering Germany, it's worth a quick look.  After proposing that we get tough with the Chinese, Krugman wrote:

And it’s also important to send a message to the Germans: we are not going to let them export the consequences of their obsession with austerity.

Nicely, nicely isn’t working. Time to get tough.

Yet Germany already has passed a constitutional amendment mandating a more or less balanced budget by 2016.  Germany also has EU treaty obligations (admittedly, they broke them in the past, though I suspect they view those lawless days as behind them) limiting the German fiscal deficit to three percent of gdp.

Would trade sanctions on Germany lead to a trade war with the entire EU directly, or only indirectly?

There's also a distinction between a balanced budget and the overall level of government expenditure, the latter being quite high in Germany.  The German government spends a lot of money, in various ways, putting people to work.  It's called the city of Berlin!  Plus they have stronger automatic stabilizers than does the U.S..  Deficits are not the only tool of job promotion or aggregate demand promotion.

Germany also transfers a good bit of money (or for that matter political capital) to the poorer EU nations and in that manner boosts global consumption.  Not to mention the billions the country has borrowed and spent, designed to turn the Ossis into permanent consumers, including at a global level.

Germany, unlike China, has not been engaging in currency manipulation.  In large part German exports are so high because Germany is a productive economy, with quality outputs well geared to world markets.  There are plenty of fiscally austere countries, at various points in time, which do not have Germany's track record of export success.

You can make an argument that bundling with some weaker countries has artificially lowered the value of the German currency.  But even now the Euro is stronger than the deutschmark had been and in that sense Germany gave its currency an artificial boost, the opposite of what China has been doing.

It seems that Krugman is interested in helping the U.S. through a get tough measure.  Yet the last time Germany borrowed lots of money, spent massively on consumption, on an unprecedented scale, and ran a current account deficit…well, the country still ran a significant trade surplus with the United States.  Without the fiscal deficit maybe it would have been a bigger surplus, but still how much can we expect to gain here in terms of AD?

On another front, Germany is finding itself unable to much control the fiscal policies of Greece and they have entered in a common political union with a (supposedly) binding fiscal rule.  Germany also has numerous European countries on its side in its struggle with Greece and is much larger, relative to Greece, than the United States is to Germany.  If Germany can't control the fiscal policy of Greece, how much can we control Germany?

This is one "get tough" program that is headed nowhere fast.

FDA Overreach

From the Washington Post:

The Food and Drug Administration on Friday ordered five companies that offer genome-sequencing tests to consumers, or that provide the scientific services for them, to prove the validity of such products.

The FDA said the tests, which scan a person's DNA for gene variants associated with specific diseases, are medical devices requiring the agency's approval.

The ability of genetic tests to predict diseases is currently limited; if the FDA were simply to require firms to acknowledge this point, say with a clear statement of probabilities, that would be one thing (although this task is better met by the FTC under advertising regulation).  But the FDA is brazenly overreaching in trying to regulate genetic tests as medical devices. First, there is no question that these tests are safe–safer than brushing your teeth!–and also effective in identifying genetic markers.  Thus, there is no medical reason whatsoever for regulation.

Moreover, genetic tests provide information, personal information about our bodies and our selves.  The FDA has no standing to interfere with the provision of such information.

Consider, I swab the inside of my cheek and send the sample to a firm. The idea that the FDA can rule on what the firm can and cannot tell me about my own genes is absurd–it's no different than the FDA trying to regulate what my doctor can tell me after a physical examination or what my optometrist can tell me after an eye examination (Please read the first line.  "G T A C C A…").

The idea that the FDA can regulate and control what individuals may learn about their own bodies is deeply offensive and, in my view, plainly unconstitutional.

Headlines from the Berliner Morgenpost

This is from yesterday's paper:

Running header on the World Cup and dreams of a world championship

Fight about Opel brings the governing coalition deeper into a crisis

Billing fraud in a medical clinic is only the tip of an iceberg

Günther Jauch takes over somebody's talk show

A cashier, "Emmely," who stole 1.30 Euros in "Pfandbons" has been reinstated to her job (this is by far the biggest headline and biggest story)

A new study shows how little children today know about plants and animals

Then on the right hand side there are leads to other stories:

A particular kind of truck will be allowed to drive on some streets

Half a million German children have accidents every year, whether at home or in their time outside

An item, written partly in the local dialect, about the World Cup

You should note that the Berliner Morgenpost, while not Germany's most serious newspaper, is by no means a tabloid.  There are no photos of naked or busty women and there are plenty of sentences in the passive voice.  By United States standards, it would be considered a serious newspaper. 

Berlin, of course, is the largest and capital city of the largest and most important country in the EU and Eurozone.  Keep these headlines in mind the next time you read of trouble in the Eurozone and calls for greater intra-EU cooperation or a common EU fiscal policy. 

On p.8, the third page of the Business section, there was a short and inconspicuous article on how the ECB had prevented (past tense) a dangerous chain reaction from spreading within the Eurozone.  It's much less prominent than, say, the lead business page article about how the cartel-regulating bureaucracy is changing its policies for dealing with prices and rebates for glasses manufacturers in Germany.

Sebastian Mallaby on Paul Romer

The focus of this feature article, from The Atlantic, is charter cities.  Here is one good excerpt:

Ever since the setback in Madagascar, Romer has been coy, for obvious reasons, about which governments are interested in his plan. But he remains optimistic. “I revived growth theory. I made technology work in higher ed. I am two for two, and I think the impossible can be done,” he told me cheerfully. He added that the Daewoo deal might not have been the main impetus for the coup in Madagascar; the real reasons for Ravalomanana’s downfall lay in idiosyncratic local rivalries, even if the opposition exploited sensitivities over land to incite antigovernment protests. I suggested that the fact that land concessions could trigger such emotions was still not a good sign. Romer stopped, considered, and chose his words carefully.

“Anything that involves land can be manipulated by people who want to rise up against a leader,” he began. “You have to find a place where there’s a strong enough leader with enough legitimacy to do this knowing that he’s going to get attacked. It narrows the options quite a bit. But we shouldn’t give up without trying a few more places.” In short, a disappointment with one client is no excuse for failing to pitch other ones. Any entrepreneur knows that.

My email to Ben Casnocha

He's totally ignoring the market data.  Do law partners and top investment bankers multitask?


I won't quite write "end of story" but…

Or look at the top people at [top tech conferences].  How many of them check their iPhones all the time, etc.

Lots of them.

Of course top CEOs don't multitask all the time, they multitask selectively, combined with periods of extreme focus.  Still, I would say that multitasking is passing the market test.  That point does not receive nearly enough attention and oddly it is usually not mentioned in the major polemics against multitasking.  It's one thing to think that a seventeen-year-old teenager will multitask too much; it's another thing to make the same claim about an extremely valuable executive, surrounded by assistants, time management specialists, and so on.

Here is further commentary on the entire issue.

One of my favorite David Brooks columns

Here is one excerpt:

In times like these, deficit spending to pump up the economy doesn’t make consumers feel more confident; it makes them feel more insecure because they see a political system out of control. Deficit spending doesn’t induce small businesspeople to hire and expand. It scares them because they conclude the growth isn’t real and they know big tax increases are on the horizon. It doesn’t make political leaders feel better either. Lacking faith that they can wisely cut the debt in some magically virtuous future, they see their nations careening to fiscal ruin.

Read the whole thing.  Just about every paragraph is excerpt-worthy, for instance:

Alberto Alesina of Harvard has surveyed the history of debt reduction. He’s found that, in many cases, large and decisive deficit reduction policies were followed by increases in growth, not recessions. Countries that reduced debt viewed the future with more confidence. The political leaders who ordered the painful cuts were often returned to office. As Alesina put it in a recent paper, “in several episodes, spending cuts adopted to reduce deficits have been associated with economic expansions rather than recessions.”

This was true in Europe and the U.S. in the 1990s, and in many other cases before. In a separate study, Italian economists Francesco Giavazzi and Marco Pagano looked at the way Ireland and Denmark sharply cut debt in the 1980s. Once again, lower deficits led to higher growth.

There are, of course, ways to explain these other histories.  Monetary policies, interest rates, and exchange rates were all different in many of these studied cases.  The point is not that aggressive fiscal policy is always bad.  The point is that there are plenty of coherent models where fiscal consolidation is better than fiscal expansion.  "Lack of confidence in a nation's fiscal future" is a key condition for many of those models to hold.  Is that not possibly the case today?

Does Professor Quality Matter?

That's the title of the new lead article (gated) in the Journal of Political Economy, by Scott E. Carrell and James E. West, and here is the answer:

In primary and secondary education, measures of teacher quality are often based on contemporaneous student performance on standard-ized achievement tests. In the postsecondary environment, scores on student evaluations of professors are typically used to measure teaching quality. We possess unique data that allow us to measure relative student performance in mandatory follow-on classes. We compare metrics that capture these three different notions of instructional quality and present evidence that professors who excel at promoting contemporaneous student achievement teach in ways that improve their student evaluations but harm the follow-on achievement of their students in more advanced classes.

I found this to be an impressive piece of research.  Here is one summary sentence:

The overall pattern of the results shows that students of less experienced and less qualified professors perform significantly better in the contemporaneous course being taught.  In contrast, the students of more experienced and more highly qualified introductory professors perform significantly better in the follow-on courses.

Here is an ungated version, it may or may not be exactly the same.

Purchasing power parity?

…due to the strength of the euro against the pound, hundreds of Britons living in France are now using the internet to order their food, including many French specialities, from British supermarkets.

Simon Goodenough, the director of Sterling Shopping, a delivery firm based in Brackley, Northamptonshire, says his company has 2,500 British customers in France and is running five delivery vans full of food to France each week.

…we have delivered bottles of Bergerac wine bought from Sainsbury's to a customer in Bergerac. We even have a few French customers who have now heard about what we do. They love things like curries and tacos, which they just can't get in France."

This seems to be an arbitrage opportunity:

"The savings for buying food, in particular, are amazing due to the strength of the euro. Customers tell us that for every £100 they would spend in France buying food, they save £30 buying through us, even with our 15% commission. A lot of people are using us to get things they really miss, such as bacon and sausages."

The full story is here.