Communists
Here's a piece from the WSJ on the latest intervention into the market for executive compensation:
…[The] government disclosed that it had set limits on executive pay for 2008 at state-owned financial companies, the latest effort to address public concern over pay at companies controlled by the country's nominally socialist government.
Total compensation for last year was capped at 90% of the amount executives received in 2007, the Ministry of Finance said in a brief statement. For companies whose revenue fell last year, the limit was set at 80%, it said. The statement, issued late Thursday, said the new rule had been issued "recently," but didn't elaborate. A ministry spokesman declined to comment Friday.
Need I tell you that the story is about the communist party and China? Sadly, I think I do need.
Hat tip to Helen Yang.
Business arrangements I would bet against
One sugar daddy whose screen name is Sam has tried long-term
girlfriends, mistresses, prostitutes and a brief marriage. Now single,
the 39-year-old entrepreneur has found the arrangement that suits him
best: a monogamous business-associate-with-benefits deal in which he
pursues an entrepreneurial project with a young, beautiful, intelligent
woman. He provides financial backing, mentoring and networking; she
provides sex, fun and, inevitably, a bit of worshiping, all of which
make him feel virile and influential. In between vacations using his
private jet, both work hard on the project. They don’t tend to see each
other much, as he travels frequently for his work.
I don't recall seeing that arrangement anywhere in Oliver Williamson's typology of the business firm. Should I have entitled this post "What people will spend on theatre"? Does this make it sound better?
Sam runs these relationships with an explicit business plan, a set
budget, measurable goals and quarterly reviews. From the outset, the
contract has an end date. It’s a brilliant, if contrived, way to
protect his pride. The contract specifies that the romance and sex are
to end by the preset date, so there’s no break up, no rejection, no
bruised ego. She’s not dumping him; the gig’s just over.
Here is the much longer story. Here is more:
He has an almost mathematical approach to assessing relationships, and
once even computed the costs for a girlfriend, mistress, prostitute and
wife – mistresses turn out to be most expensive by the hour; wives, by
the year; girlfriends are cheapest all around. But he’s not as
calculating as he seems. In fact, he concluded there’s little
correlation between cost and quality. Still, he is relentlessly
searching for an algorithm that will predict relationships’ success.
The fable of the (cell phone) keys
Via the always-excellent www.geekpress.com, I find this report:
At North America's largest cell phone trade show, running this week in
Las Vegas, there were few new phones for the U.S. market that had a
numerical keypad instead of an alphabetic keyboard…
Old-fashioned numeric keypads
still will have a prominent place – but largely overseas. In a twist of
market dynamics, the demand for QWERTY phones is mainly a North
American phenomenon, said Ross Rubin, an analyst at NPD.
It's true QWERTY had a head start from the fact that we all learned it at a young age. Still, there is a starting over of sorts and if some alternative system were better for cell phone texting we might expect it to be evolving now. It isn't.
Peter Zumthor wins the Pritzker Prize
More information here.
My favorite things Portugal
1. Singer: Amalia Rodrigues, fado specialist. I am also a fan of Sara Tavares, especially this CD. Carmen Miranda is often thought of as Brazilian, but she was born in Portugal and I believe she grew up there as well. She was good.
2. Popular music: Nelly Furtado has Portuguese ancestry, although I believe most of the demons who inhabit the MR comments section would count her as Canadian.
3. Novelist: Jose Saramago. But I don't like them all. Blindness, The Year of the Death of Ricardo Reis, and The Double are the primary ones to read. Baltasar and Blimunda I should try again. The Stone Raft is good. Currently I am reading, and enjoying Antunes's Fado Alexandrino.
4. Philosopher: Can I count Spinoza?
5. Painter: I guess I pick Paula Rego. I can't think of a classic painter here.
6. Poet and essayist: Pessoa. I've been influenced by his work. The Book of Disquiet is his masterpiece.
7. Composer: Manuel Cardoso is the only one I can think of. He's OK.
8. Former colony: Brazil. But there's stiff competition.
9. Economist, one eighth of him: Can you guess? The eighth is from the Madeira Islands with the family name Alfonso.
The bottom line: I am worried by the gaps here, including classical music, cinema, painting, and sculpture. Yet #8 makes up for it all. I suspect that too much royal patronage is the reason why there are so many notable Portuguese explorers and so few recognized composers.
Reducing foreclosures
Here is an excellent blog post and Fed study. There is too much content for my summary to dominate clicking on the link but the bottom line is this:
This analysis suggests mortgage modifications – without principal reduction – will have limited success.
It is one of the best economics blog posts this week.
Times have changed
Remember the good old days, when economists used to write papers about how firms — most of all public utilities — would under-report profits, to minimize regulation and control? These days we have firms over-reporting profits to minimize regulation and control.
(As an aside, Wells Fargo was the most responsible of the major banks, so we shouldn't regard the profit report as a complete lie or illusion.)
We also have economists saying that banks should essentially be turned into public utilities.
And the major regulator is saying the firms shouldn't be reporting so much at all.
Times indeed have changed.
Why it’s hard to limit executive pay
Matt, Ezra, and Bob Frank, among others, have been talking about this topic. Say we taxed rich bankers at 95 percent above a certain income level. Salary income would be converted into capital gains. We don't want to tax capital gains at 95 percent or even 50 percent. Plus taxing unrealized capital gains — if you desire that the earners cough up the money now — involves other problems.
Of course some firms and sectors cannot equitize pay in this fashion. A big implicit tax is then placed on such sectors.
You could work very hard to develop a tax code that will cover exactly the people you wish, at the margins you wish. You could work very hard and still fail.
Looking for "longer-term incentives" is a sounder approach than trying to force "much smaller incentives."
Why was Michael Jordan’s shot so flat?
File this one under: "Questions I still wonder about." I can think of a few options:
1. Michael Jordan wasn't a very good shooter. (True at first, but it is hard to maintain this hypothesis over the course of his career.)
2. Jordan was weak on one dimension of shooting ability, but he compensated along other dimensions. He could have been a better shot, if only he had learned proper arc from Mark (and Brent) Price.
3. Jordan's flat shot was part and parcel of an efficient combination of talents. Perhaps the flat shot gave him a quicker release or different angles at the basket or a greater ability to shoot while moving or all of those. Check out "The Shot" at 2:20 here.
Maybe his flat shot, when combined with his other talents, gave him an advantage. Since few other players have had the complementary talents as Jordan did, they haven't had an incentive to develop or stick with flat jump shots.
Jordan had a good three-point shot under pressure but when he was open his long-range shooting was unreliable. That combination is consistent with this hypothesis. Here is a short Yahoo discussion.
In my heart of hearts, I believe #3 is the answer.
Questions: Can any feature of the U.S. economy be said to be akin to Jordan's flat jumper? Any feature of your personal cognitive profile?
The Ricardian case against YouTube
I love being reminded of the history of economic thought:
It seems safe to assume that YouTube’s traffic will continue to grow,
with no clear ceiling in sight. Since the majority of Google’s costs
for the service are pure variable costs of bandwidth and storage, and
since they’ve already reached the point at which no greater economies
of scale remain, the costs of the business will continue to grow on a
linear basis. Unfortunately, far more user-generated content than
professional content makes its way onto the site, which means that
while costs grow linearly, non-monetizable content is growing
geometrically as compared against the monetizable content that YouTube
really wants and needs to survive. This means less and less of
YouTube’s library will be revenue-contributing, while the costs of
delivering that library will continue to grow.
The article is interesting through and the hat tip goes to Andrew Sullivan.
Assorted links
1. Fred Astaire
3. Critical vs. Amazon rankings of composers; which are under- and over-valued? Take Brahms and Tchaikovsky out of the over-hyped category and the resulting lists are pretty good ones.
5. Summer movies to look forward to (or dread).
OS
Erika Eiffel and Eija-Riitta Eklöf Berliner-Mauer; not my thing personally but I say "why not?" Compare it to the many people who have no love in their lives at all. Video here.
If you are tempted to snicker, first think long and hard about all the money, time and effort you put into listening to music.
Respecting the elephant
I would not go so far as some who would insist that a Hindu is not the person to ask about Hinduism, as Harvard professor Roman Jakobson notoriously objected to Nabokov's bid for chairmanship of the Russian literature department: "I do respect very much the elephant, but would you give him the chair of zoology?"
That is from Wendy Doniger's new and noteworthy The Hindus: An Alternative History. Here is a favorable Michael Dirda review of the book. Read the Wikipedia section on "Criticism" of Wendy Doniger, some of it from fundamentalist Hindus. Here is a defense of Doniger.
Sentences to scare you
“This is an opportunity to forge an alliance between Main Street, Wall
Street and K Street,” said Steven A. Baffico, an executive at
BlackRock, referring to the Washington address of many lobbying firms.
That's about the new plan to possibly allow small investors to participate in buying up "legacy assets" through mutual funds. My fear, of course, is that the government ends up committed to particular outcomes for those "little guys." There are more than those three streets!
Testosterone and economic behavior: some new results
The story starts off with this:
Women given testosterone for a month were no more likely than women not receiving the hormone to engage in risky financial decisions, according to researchers in Sweden. The findings could suggest that women are a safer pair of hands on the stock-market trading floor than men – or throw into doubt earlier findings about the effect of the hormone on men.
A spate of recent studies have found correlations between testosterone levels and risky behaviour in men, including one that found that male securities traders with more testosterone in their saliva made riskier financial decisions.
But now a team led by Magnus Johannesson, an economist at the Stockholm School of Economics, has found no such effects in a group of 200 post-menopausal women. The women were administered testosterone, oestrogen or a placebo for four weeks and asked to play a series of economic games that measure the player's propensity to take risks, their trust and their willingness to share resources.
One researcher notes:
"I'm relatively pessimistic of finding an effect in men," Johannesson says. He writes in the paper that it is possible that previously published links between testosterone and risk-taking are "spurious". Studies that do not find a correlation between sex hormone levels and economic behaviour may simply have a harder time getting published. "Negative correlation results don't get published," he says.
The original research is here. I would simply urge caution in interpreting results from this area. We're not yet in a "safe zone" of knowing what replicable results look like.