Year: 2012

Markets in everything the culture that is Scot

by  Tyler Cowen in

In 1907, Ernest Shackleton and crew set out on the ship Nimrod to visit Antarctica and, they hoped, the South Pole. The good news was, the entire party survived the trip, thanks in part to the Rare Old Highland Whisky they brought to the frozen continent. But the expedition was forced to evacuate in 1909, some 100 miles short of the Pole they sought. And, as winter ice encroached and the men hurried home, they left behind three cases of the choice whisky.

In 2007, just about a century later, the whisky was found, intact, at the expedition’s hut at Cape Royds in Antarctica.

The stuff was made by Mackinlay & Co at the Glen Mhor distillery in 1896 or thereabouts. Mackinlay hasn’t been an active brand for a while now, but the current owner of the Mackinlay name, Whyte and Mackay, obtained a few of the precious bottles and set out to do what any right-thinking Scot would do: first, taste the whisky; and second, attempt to analyze and re-create it. The result, a product called Mackinlay’s Rare Old Highland Malt Whisky, is, as of this writing, buyable in stores.

The article is here, and the pointer is from Jodi Ettenberg, who serves up her favorite longreads of 2011 here.

Jeff Madrick, unwittingly, makes the case for fiscal austerity

by  Tyler Cowen in

There is a far better solution. And it would not require the failure of the euro. The eurozone and perhaps the entire EU must act like a unified country, ready to recognize that it must take responsibility for the drastic social effects of rapid spending cuts… A financially unified Eurozone must then issue bonds to raise the money to pay back debts but also to provide a social net for the people of nations that are cutting back their spending on social programs to meet their remaining financial commitments…This can be accompanied by demands for reforms in nations like Greece where taxes must now be collected more efficiently and unusually excessive public spending stopped.

There is more here, and of course similar advice will work for Belgium too.

Markets in everything

by  Tyler Cowen in

Squatting at a makeshift shrine with joss sticks burning beside her, Granny Leung starts bashing a manlike paper cut-out with a pair of sandals.

“I beat you little people, I’m sending you away!” chants the 76-year-old woman, one of the last practitioners in Hong Kong of the ancient Chinese ritual of “da siu yan”, or “beating the petty little people”.

Granny Leung performs her mysterious incantations in the bustling shopping district of Causeway Bay. And business is booming.

For as little as HK$50 ($6), Leung claims she can curse her customers’ enemies and reverse their bad luck by burning paper offerings and hitting paper figures with shoes.

Believers say the ritual can help to drive away evil spirits in general, or a specific nemesis such as a hated neighbour, a business competitor or a love rival.

…Each bout takes about 30 minutes, depending on how tough the villains are and how many times Leung needs to beat them until they are gone.

Another stage of the ritual involves feeding pig lard to paper tigers, which represent malignant beings, so they are full and will not bother people.

Here is more and for the pointer I thank Daniel Lippman.

Assorted links

by  Tyler Cowen

1. Tyler Brûlé visits New Zealand and Australia.

2. Wilkinson on Rogoff and growth, although Will is closer than he thinks to the view he calls nutty, in fact he seems to hold it!

3. Does the narcissism of a CEO matter?, and the paper is here.

4. Rachel Strohm on development education at SAIS.

5. Economists who are gathering information on what other economists think, and why they are doing it.

Will Karl Smith have called “The Turn?”

by  Tyler Cowen in

Karl Smith assembles some green shoots.  If indeed there is a continuing (modest) recovery, what are we to make of it?  I see a few options:

1. Government responded to the downturn with vigorous policy actions and brought recovery.

2. We were in a liquidity trap, but enough depreciation of capital and consumer durables is pulling us out of it.  As marginal rates of return rise with depreciation, spending will go up.

3. The neo-Keynesian model applies, and enough nominally sticky decisions have been reset to undo most of the initial negative AD shock.

4. The economy had a strong positive technology shock.

5. A mix of default, savings, and refinancing have led to some balance sheet repair.

6. We had a strong positive AD shock through higher global demand for our exports.

7. Banks recapitalized through playing the spread and now they are lending again to marginal borrowers, thereby spurring economic activity.

8. Recalculation has proceeded apace.

Conditional on our economy being in the recovery stage (e.g., no pending eurozone implosion), I would assign most of the weight to #2 and #3 and #5, noting that #2 can operate in a liquidity trap but does not require it.  I see a small bit of #4 and #7 and #8 apiece, and I don’t regard #1 and #6 as playing roles in the story, mostly because they are not true.

The New Old Keynesian bloggers tend to downplay the recent bits of good news.  If a real recovery were shown to be taking root, would they invoke a large dose of #2?

Haiti watch

by  Tyler Cowen in

Gambling everything, thousands of Haitians have made their way across the Americas to reach small towns in the Brazilian Amazon over the past year in a desperate search for work, including a surge of hundreds arriving in recent days amid fears that Brazil’s government could slow the influx before it overwhelms the authorities here…Companies like Fibratec, a swimming pool manufacturer in southern Santa Catarina State, have even sent managers all the way here to hire dozens of Haitians.

The excellent article is here.  Via Carl-Henri Prophete, here is another story, of an Irish billionaire working to build up Haiti:

Digicel, on the other hand, is the country’s largest employer and taxpayer. The privately held company has invested $600 million in Haiti, making it by far the country’s largest foreign investor ever, and it has democratized communications with its strategy of selling low-price cellphones and services to the masses.

Mr. O’Brien has profited extensively from Haiti, which is Digicel’s largest market and accounts for roughly one-third of its 11.1 million subscribers.

…Digicel, for instance, has put up street signs in parts of Port-au-Prince, serving as reminders of the company’s role in public life as much as guides for navigating the city.

Most mornings, people crowd around the reception desk of Digicel’s office building, not to complain about the firm’s services but to see the mayor and other city officials whose offices are on the sixth floor since the earthquake.

The company provides the space rent-free, Mayor Jean-Yves Jason said, and gave the city computers and furniture. “We have plans to build a new city hall in downtown Port-au-Prince, but we are so comfortable here it is easy to delay,” Mr. Jason joked.

The article gives some other stories of growing foreign investment in Haiti.  Here is Twitter and the Haitian earthquake response.  Also via Carl-Henri, here is a Le Monde article on the Haitian elite, and here is their excellent slide show.

I have been reading and enjoying Laurent Dubois’s new Haiti: The Aftershocks of History, one of the very best books on the history of the country.  In 1914-15, about eighty percent of the government’s revenue went to debt service.  It is one of those rare books where you can know a lot about the topic, and yet still learn something interesting on virtually every page.

The market for coffins

by  Tyler Cowen in

“Poland is the European superpower of coffin production,” says Zbigniew Lindner…

One way to claw out market share is to rely on girlie calendars of the type usually associated with car parts companies – deflating the solemnity normally associated with the trade. Another is to compete fiercely on price, particularly in the cost-conscious German market…

Now his sights are set on grabbing a larger share of the domestic market, where Polish coffin makers have until recently had a hard slog. One reason is that Poland used to have the highest death benefits in the EU – about €1,350 – which prompted people to plump for more luxurious and expensive Italian coffins. Indeed, the Italian reputation was so strong that the Polish government imported coffins from there to bury the victims of the 2010 airline disaster that killed the president and many other senior officials.

“Most Polish politicians don’t realise what kinds of companies have arisen in Poland and how well they are doing,” says Mr Lindner.

That could change following the government’s decision last year to cut the subsidy by a third – a deficit-fighting idea that has made the bereaved more cost conscious about the price of coffins.

A look at the actuarial tables shows Mr Lindner that death rates will peak by 2040, with more than 1m Germans a year dying as baby boomers shuffle off this mortal coil.

“Somebody has to make those extra coffins and I want it to be us,” he says. “I have plans to turn this into a really big company.”

The article is here, and I thank Adam Sebba for the pointer.

What kinds of movie stars marry each other?

by  Tyler Cowen in

From Gustaf Bruze:

Marital sorting on education is an important but poorly understood source of inequality. This paper analyzes a group of men and women who do not meet their spouses in school, are not sorted by education in the workplace, and whose earnings are not correlated with their years of education. Nevertheless, movie actors marry spouses with an education similar to their own. These findings suggest that male and female preferences alone induce considerable sorting on education in marriage and that men and women have very strong preferences for nonfinancial partner traits correlated with years of education.

Hat tip goes to Steve Sailer.  And here is another paper by Bruze:

US middle aged men and women are earning in the order of 30 percent of their return to schooling through improved marital outcomes.

Rehypothecation: a simple guide

by  Tyler Cowen in

From Keith Fitz-Gerald, via The Browser, here is a useful introductory article to what is likely this year’s coming hot topic.  Excerpt:

Assets in brokerage accounts can be used and re-used in such a way the credit multiples far outweigh the actual assets in the accounts. In effect, rehypothecated assets become part of a daisy chain, for lack of a better term, wherein one company’s liabilities become another’s assets.

If there is a hiccup anywhere in the chain, the effect is one of instant collateral collapse as everybody in the chain is forced to buy back, or recall, their assets. The effect is not unlike a colossal global “short” on world markets.

Imagine what happens if something goes wrong and everybody wants their $10 back, but find that there is only $1 in actual cash.

I believe this is what Federal Reserve Chairman Ben Bernanke and his counterparts at the ECB are so concerned with and why they are obsessed with liquidity. Everybody knows that too much debt caused this mess, but what they don’t realize is that it’s the use of rehypothecated assets that make collateralizing it nearly impossible barring massive injections and printing.

I would define it as “an asset used as collateral more than once, at the same time.”  And there is this:

Take the United Kingdom, for example, where there is no limit on the amount of client assets that can be rehypothecated. There, brokers have reportedly and routinely rehypothecated 100% of the value of client accounts, not just those assets pledged as collateral.

What kind of day would Arnold Kling be wishing you at this point?

Computer chess breakthroughs and imitations

by  Tyler Cowen in

This new series of articles, by Dr. Søren Riis, here, and here, and here is of general interest and does not require chess knowledge.  They are an excellent case study in innovation, IP, reverse engineering, incentives to copy, market leadership, and other currently important concepts.  Excerpt:

This program was immediately thought to be a very close derivative of Rybka because its solving of test positions was extremely similar. But, beyond the objective measures of similarity testing, Strelka had to have been a reverse-engineered Rybka derivative because, at the time, a new program of such strength and manifest similarity in its playing style could hardly have come from anywhere else. Thus a very public precedent was established: someone had reverse-engineered a closed-source program with impunity.