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Showing posts from November, 2008

Leigh Caldwell in Observer/Courvoisier The Future 500

The Observer today published its selection of 500 UK rising stars for 2009.
I'm very happy to have been selected in the Business category, along with 70 other businesspeople including Amanda Zuydervelt of Stylebible, Carl Jewitt of Ernst & Young, Jay Bregman of eCourier, Luke Ashworth of Netbasic, Sokratis Papafloratis of Trusted Places, Tom Critchlow of Distilled, Simon Campbell of ViaPost, Richard Alvin of Clearsight, Duncan Cheatle of the Supper Club, Carol Brown of Thomson Bethune, Elizabeth Harrin of Spire Healthcare/A Girl's Guide to Project Management, Edward Mellett of WikiJob and Darren Fell of Crunch.
Some interesting people from the other categories are:
Art and Design: Alex Fleetwood of Hide and Seek, theatre director Annette Mees, Renato Benedetti of McDowell+Benedetti, sports artist Keith Fearon Drinks: Richard Bigg of Cantaloupe Fashion and Retail: Tamsin Lejeune of the Ethical Fashion Forum Food: Liz Jarman of Sainsbury's Media: Stefan Lewandowski of Odadeo, J…

Best quality in the comments!

If you have time, try reading not only this post from Mark Thoma at Economist's View, but all the comments below it. It's rare for a blog to have so many comments and of such consistent high quality. They genuinely add a major contribution to the discussion, and hardly any of them are sniping at each other.

Crisis to end on March 7th 2009

Just in case you think I've gone mad, this is Myron Scholes' prediction, not mine. He made it at a speech to Chicago Graduate School of Business in June, which I forgot to write up at the time.
He was referring to the credit crisis rather than the economic downturn, but even then it was pretty clear that recession was on the way. So let's keep an eye on the calendar and if he's right, he's due our congratulations.
Unfortunately he slightly spoiled the effect later in the presentation by referring to the prediction as March 9th 2009. So we need to allow error bars of a few days in measuring the end.
Oh for the days when such a prediction from an esteemed (though a little less than before LTCM went under) Nobel prize winner would be self-fulfilling. Now, maybe if Warren Buffett said the same thing, it would be...

Extreme times require extreme blog postings

Like this one (from CalculatedRisk) inspired by this one (from Nouriel Roubini, but that's not too surprising). Or how about Mish's Global Economic Analysis and ECRI Leading Indicators Fall to Lowest Level Ever from Big Picture?
On the other hand, Paul Krugman and Greg Mankiw separately quote more sanguine texts from Keynes. And there's lots of good stuff on Economist's View, Freakonomics and Econbrowser.
Incidentally, Austan Goolsbee will be a member of both the new Economic Recovery Advisory Board and the Council of Economic Advisers. Seems to be a good choice but I have been hearing growing calls for more people from the private sector. Academic economists have lots of value - and probably should take the leadership positions - but maybe it would do no harm to have some commercial experience on board too.
Maybe there are few businesspeople out there who are capable of dealing with the concepts and abstractions involved. Maybe Intellectual Business will make a differenc…

Steve Waldman on transparency

Thanks to Dani Rodrik for pointing out this thoughtful and original analysis on transparency by Steve Waldman. Intellectual Business is making some proposals on the subject which go further than Steve is willing to, but he has given an excellent and quirky example of how to analyse the potential gains or losses from transparency.

Fiscal salesmanship

Greg Mankiw links to John Taylor's article in the Wall Street Journal looking for alliterative proposals (or predictions) for the expected US fiscal rescue package.
Shame the S has already gone, as I wanted to propose self-fulfilling: successful or squandered. Taylor's article takes the Milton Friedman viewpoint that a temporary stimulus does not work, because people base their spending on expectations of permanent income and will just put a temporary rebate in their savings account. Robert Lucas goes even further and says that even a permanent change does not work because people adjust their spending in accordance with their expectations of future government borrowing.
Both of these are respectable (indeed Nobel prize-winning) economists. But consensus generally allows that a Keynesian stimulus did work in the 1930s and does still work, sometimes, or to some extent. Certainly policymakers still indulge in them from time to time. So why is this, one of the most important questio…

Preventing a global slump

Martin Wolf posted a few weeks ago his five steps to preventing a global slump. I wrote the following response which I am just getting around to posting.

Roubini’s paper from 8th February makes an intriguing point. In his list of reasons why the Fed cannot save us this time, the final one is that the entire system is in “a crisis of financial globalisation and securitisation” and so a recession cannot be prevented within the current framework. The implication is that quantitative policy actions will not solve the problem, but systemic reform or qualitative changes are required.

While the actions proposed by Sachs and Wolf seem reasonable and well thought out, it is unclear that they will be convincing to market participants. This argument is borne out when we look at the situation from the angle of behaviour and incentives instead of just the figures.

Decision-making behaviour is in theory guided by what people believe the future will hold, not what happened in the past. Of course if the…

Credibility check

One of my themes in the last few weeks has been the credibility of UK fiscal policy and how it can be rescued now that the rules of the last ten years have been clearly broken.
If your husband has an affair, before you believe his assurances of renewed fidelity, he needs to give you a good reason to think it will be different next time. If this is his second or third sin (after those drunken incidents in the 1970s and early 90s) he needs to be extra convincing. Alistair Darling is in the same position.
So how will today's announcements go down? Will anyone believe them? There are five criteria it has to meet to be credible.
The first step is that it must have content - there needs to be something concrete to actually believe. Something simple that nobody can forget. "I will never see that woman again" is a good one, and "We will reduce borrowing every year and eliminate it by 2015" comes in a reasonable second place. Marks: 4/5
The second is to make it plausible. I…

What if VAT is cut?

One of the main expectations from this afternoon's pre-budget report is of a temporary cut in the rate of VAT. If true, what effects will this have?

Creating extra work for accountants and software developers. This would be the first change in VAT since 1991, and the economy is a lot more complex and automated than it was then. My own programmers are on standby to update and check all our clients' systems if the change goes ahead. We are hoping to have a few days' or weeks' notice of the change so that we have time to do this. Accountants, similarly, will have some extra work to check that their clients have changed the rate they apply and correctly dealt with invoices which might straddle the effective date of the change.Administrative overhead for retailers. There will be work for retailers in changing prices - and particularly in reconsidering non-granular price points such as £1.99 or £5. Many retailers may not reduce prices but will increase profit margins instead.…

Pre-budget report: predictions

I have carried out a brief survey of some of the main UK broadsheets and their predictions about the pre-budget report. A consensus is emerging today (Monday) but Sunday's papers are a bit more diverse:


NewspaperPredictionRecommendationBBC (Nick Robinson)
Friday 21st1% of GDP (£15bn) fiscal boost: deferring tax rises on cars, small business and income tax; tax cuts for the lower paid; bring forward government spendingBBC (Robert Peston)
Friday 21stDeferred VAT rise to 22.5% in a couple of yearsObserver
Sunday 23rdVAT reduced to 15%Big tax cuts on low paid, rises on high earners; extra tax on bonusesSunday Times
Sunday 23rd2.5% VAT cut; extend £120 income tax rebate; defer road tax and corporation tax rises; three months grace on repossessions; increase public capital spending; expand SFLGSIncrease support for manufacturingSunday Telegraph
Sunday 23rd2.5% VAT cut; reduce empty buildings taxFT
Monday 24thIncome tax increase to 45% over £150,000; public spending cuts outside education and h…

How people lead people

This article is about how people lead people, but starts out with a more fundamental question: Why do people lead people? Indeed why do leaders exist?

To answer this we must go further back and ask why there are even any groups of people to be led. The simple answer is that is what works. Specialisation of roles emerged long before Henry Ford and Adam Smith - as soon as hunter-gatherers settled in villages and discovered agriculture, there were some people out in the fields digging, some people making tools or clothes, some raising children and others inventing the wheel.

Specialised roles are more efficient because people have different talents and, with practice, can get good at one thing. They can use the tools appropriate to the job and stay in one place to carry it out. And when you have specialised roles, you need a team. Whoever is making the clothes still needs food to eat, and if they are not growing it themselves they must cooperate with someone who is.

So groups of cooperating…

Bounded rationality and agency

I have been working recently on an exploration of bounded rationality. This post from Robert Peston gives an interesting example of the insidious overlaps between this and other problems in economic theory - in this case the agency problem.

Barclays management preferred to accept a private £2.8bn investment from the Qatar and Abu Dhabi states, rather than take UK taxpayers' money, to the apparent detriment of existing shareholders. Peston suggests (in an earlier post which he links to in this one) that the reason may be that top Barclays management want to preserve their freedom to pay big salaries and bonuses to themselves (and each other).

Without addressing the accuracy of this suggestion, as I have no data either way, economic theory does shed some light on how this could happen. Assume for now that the facts are as Robert Peston says.

Classical theory says that firms act in their own interest (equivalently, the interests of their shareholders). In this case, that would mean taki…

Another efficient markets hypothesis

While I was slightly distracted watching an election, Tim Harford posted a few days ago about the efficient markets hypothesis.

Although efficient markets is an appealing idea and can be proved in a world of 'homo economicus', the world has not been demonstrated convincingly to behave as the theory predicts.

A suggestion as to why this may be. The traditional hypothesis says that markets are influenced only by news, which by definition is unpredictable. The apparent phenomenon of 'sentiment' seems to contradict this - sentiment surely drives the market (in both directions) beyond whatever rational level is implied by news events.

I would suggest a modification to the hypothesis: instead of being driven just by unpredictable news, markets are driven by a sentiment which is also unpredictable.

Chaos theory gives us one plausible explanation for how this could arise; the interactions between thousands of interdependent agents who influence each other in ways too complex to be…

The call

It seems it is not too presumptuous now to celebrate:

Iowa: ObamaNew Mexico: ObamaPennsylvania: ObanaOhio: ObamaVirginia: ObamaColorado: Obama
Congratulations to President Barack Obama - the next leader of the most influential, unusual, innovative, and democratic nation humanity has had.

Election 2008 Voting and Drinking Instructions

VOTING INSTRUCTIONS (US citizens only):

1. Go to the polling booth
2. Vote

DRINKING INSTRUCTIONS (everyone else - Americans also allowed):

Obtain one bottle of Kentucky bourbon (try and find one with a red neck). If you don't drink bourbon (you elitist), a bottle of "Mac"allan will do; if you don't like whisky at all, you can drink cachaca as it is made from sugar (Mc)cane.

You then need six bottles of champagne or Cava (preferably with blue labels and not "too European"). Make paper caps for them, marked: Virginia, Pennsylvania, Ohio, Florida, Missouri, North Carolina. If you feel especially confident (and thirsty) you can add bottles for Georgia, Indiana and North Dakota (if you're an Obama fan) or Colorado, New Mexico and New Hampshire (if you're a McCain fan). These are known as the 'swig states'.

Whenever a swig state is declared officially - or if the result is called by the TV channel you're watching - it's time to have a drink. I…