Month: June 2010

Trouble in the Spanish CDS market

"Los inversores piden mayor prima por asegurar el riesgo de España a un año que a tres años."

In other words, Spain is riskier in the next year than it is three years from now, just like Greece and Portugal.  That means the market thinks things will be coming to a head.  Some very good pictures of the prices, and further commentary (in Spanish), is here.  The article also states:

En cualquier caso, este indicador significa que el mercado, ahora sí, nos sitúa en el mismo “subgrupo” que Grecia y Portugal.

I don't need to translate that one for you.

For the pointer I thank Abel.

Reversing the Decline in Fish Stocks

The stock of fish is declining worldwide at a rapid and accelerating pace.  In Can Catch Shares Prevent Fisheries Collapse? the authors survey fish stocks and find that individual transferable quotas (ITQs) do appear to work in stabilizing and even increasing stocks:

Although bioeconomic theory suggests that assigning secure
rights to fishermen may align incentives and lead to significantly
enhanced biological and economic performance, evidence to date has been
only case- or region-specific. By examining 11,135 global fisheries, we
found a strong link: By 2003, the fraction of ITQ-managed fisheries
that were collapsed was about half that of non-ITQ fisheries. This
result probably underestimates ITQ benefits, because most ITQ fisheries
are young.

The results of this analysis suggest that well designed catch shares
may prevent fishery collapse across diverse taxa and ecosystems.

One of the authors of the paper, Christopher Costello, is featured in the video below from Reason TV which covers the world wide decline in fish stocks, "capital stuffing," and the use of ITQs to solve the tragedy of the commons (FYI, all these concepts are discussed in Modern Principles).

The video mentions but does not investigate further the problem of fish and whales that travel long distances, making property rights more difficult to enforce–a good subject for classroom discussion. See also this 60 Minutes video on tuna.

Addendum: Catch-shares have recently (2009) been introduced in Cape Cod.  Here's a good primer on the costs, benefits and difficulties of implementation.  One interesting observation:

Doing away with season restrictions reduces 'derby' conditions, in which fishermen race out, even in dangerous weather, to catch as much as possible. It also eliminates seasonal market gluts, potentially increasing the prices fishermen can command for their catch.

What are markets demanding?

Paul Krugman, like many other bloggers, asks a good question:

Why, then, are Very Serious People demanding immediate fiscal

The answer is, to reassure the markets – because the markets
supposedly won’t believe in the willingness of governments to engage in
long-run fiscal reform unless they inflict pointless pain right now. To
repeat: the whole argument rests on the presumption that markets will
turn on us unless we demonstrate a willingness to suffer, even though
that suffering serves no purpose.

And the basis for this belief that this is what markets demand is …
well, actually there’s no sign that markets are demanding any such
thing. There’s Greece – but the Greek situation is very different from
that of the US or the UK. And at the moment everyone except the
overvalued euro-periphery nations is able to borrow at very low interest

Here is a short bit from today's morning news:

The euro slid 2.5 percent last week versus the greenback as
credit-default swaps on France, Austria, Belgium and Germany rose,
sending the Markit iTraxx SovX Western Europe Index of contracts on 15
governments to a record.

The French in particular are having serious and formerly unexpected problems and that is one of the two major EU countries, not Greece or Iceland. The French also don't have one of those impossible debt-gdp ratios.

In the blogosphere, discussions of market constraints are too heavily influenced by interest rates, which also "measure" an ongoing flight to safety.  (U.S. rates have fallen of late, but does that mean our fiscal position has improved?  Hardly.)  All of these austerity-promoting leaders are in constant communication with their finance ministers and departments and many of them are hearing glum, on the ground reports from relatively competent bureaucracies.  Furthermore many of these politicians seem to have the discipline to engage in a bit of worst-case thinking, rather than just looking at modal outcomes.

Call me naive, but I believe that most of these politicians would in fact prefer to spend the money and hand out goodies to favored constituencies.

What may be destroying economic recovery is not fiscal contraction, but rather lack of trust,  "Trust" is an underused word in macroeconomics.

Also, do not forget Cowen's Third Law, namely that: "All propositions about real interest rates are wrong." 

The real interest is only one indicator of where fiscal policy is at.  The point that interest rates serve multiple functions, and don't always communicate direct market information very well, comes from…John Maynard Keynes.  Let's at least keep that possibility in mind.

Employment markets in everything

Many youths toil day and night and yet cannot take home a pay packet of Rs 10, 000 per month. However, a black-faced langur Mangal Singh has landed a job which earns him a package of Rs 1.2 lakh per annum!

The langur is hired by the Employees State Insurance Corporation (ESIC) here as a 'guard' to keep common marauding monkeys at bay

Humans had failed to stop the attacks.  I enjoyed this part of the story:

The marauders had also injured several employees. Sharma said that many times, he saw these monkeys 'reading' departmental files and then tearing them into shreds but he could not help save important data.

For the pointer I thank Swetha V.V.

The economics of interchange fees

There is a new paper by Todd Zywicki, which, due to my quick trip to Trento, I have not had time to read:

Fresh off of the most substantial national liquidity crisis of the last generation and the enactment of sweeping credit card regulation in the form of the Credit CARD Act, Congress continues to deliberate, with a continuing drumbeat of support from lobbyists, a set of new regulations for credit card companies. These proposals, offered in the name of consumer protection, seek to constrain the setting of “interchange fees”– transaction charges integral to payment card systems–through a range of proposed political interventions. This article identifies both the theoretical and actual failings of such regulation. Payment cards are a secure,  inexpensive, welfare-increasing payment mechanism largely unlike any other in history. Rather than increasing consumer welfare in any meaningful sense, interchange fee legislation represents an attempt by some merchants to shift costs away from their businesses and onto card issuing banks and cardholders. In particular, bank-issued credit cards offer a dramatic improvement in the efficiency and availability of consumer credit by shifting credit risk from merchants onto banks in exchange for the cost of the interchange fee–currently averaging less than 2% of purchase value. Merchants’ efforts to cabin these fees would harm not only consumers but also the merchants themselves as commerce would depend more heavily on less-efficient paperbased payment systems. The consequence of interchange fee legislation, as Australia’s experiment with such regulation demonstrates, would be reduced access to credit, higher interest rates for consumers, and the return of the much-loathed annual fee for credit cards. Interchange fee regulation threatens to constrain credit for consumers and small businesses as the American economy begins to convalesce from a serious “credit crunch,” and should be accordingly rejected.


Chicken noodle soup has been especially vexing, he said. With only 150 calories, a single can of the condensed soup has more than a whole day’s recommended sodium for most Americans.

Here is much more, interesting throughout.  Here is one response:

Joanne L. Slavin, a committee member and nutrition professor at the University of Minnesota, told her colleagues that reducing salt in bread was difficult and warned of unintended consequences. It is an argument also made by food companies.

“Typically, sodium, sugar bounces around,” she said. “So you take sodium down in a product and then sugar a lot of times has to go up just for taste.”

More Assorted Links

1.  What economists and sociologists can learn from Akerlof and Kranton's Identity Economics; a review by Tom Slee.

2.  Everyone on TV reads the same newspaper.

3.  The Rise of the Order of Assassins.

4.  Clay Shirky: "It is our misfortune, as a historical generation, to live through the largest expansion in expressive capability in human history, a misfortune because abundance breaks more things than scarcity."

What career helps other people the most?

That's a question from Katja Grace.  Let's assume pure marginalist act utilitarianism, namely that you choose a career and get moral credit only for the net change caused by your selection.  Furthermore, I'll rule out "become a billionaire and give away all your money" or "cure cancer" by postulating that said person ends up at the 90th percentile of achievement in the specified field but no higher.

What first comes to mind is "honest General Practitioner who has read Robin Hanson on medicine."  If other countries are fair game, let's send that GP to Africa.  No matter what the locale, you help some people live and good outcomes do not require remarkable expertise.  There is a shortage of GPs in many locales, so you make specialists more productive as well.  Public health and sanitation may save more lives than medicine, but the addition of a single public health worker may well have a smaller marginal impact, given the greater importance of upfront costs in that field.

An important question is whether the said job candidate should be seen as precommitting to an honest disposition or whether we should treat the person as developing the median disposition, in the chosen career field, over time.

What do you all think?  What other career — at the margin — has the stongest positive effect on other people?

How Singapore runs a casino: bump not nudge

To discourage locals from gambling, the government collects casino entrance fees — $70 for a 24-hour period or $1,400 for a year — from all Singaporeans and permanent residents.  Almost 30,000 people, mostly recipients of public assistance or those who have filed for bankruptcy, are automatically barred from entering.

The casinos, of course, are intended for foreign tourists.  Reversing his earlier position, Mr. Lee finally backed casino gambling, saying it was vital to Singapore's future.  He said rejecting casino gambling would send the message that:

…we want to stay put, to remain the same old Singapore, a neat place and tidy place with no chewing gum.

That's from the 4 June 2010 IHT, I can't find it on-line, at least not yet.