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Showing posts from 2009

Heidegger versus God

Found by Google Alerts on a blog called "Christians in Context":
Let me sketch one point this book defends. Heidegger argued that modern technology in its very essence is radically differentiated from pre-modern technology. He calls pre-modern technology technique, and goes on to explore what this newly-arrived word 'technology' actually signifies. To risk oversimplification, here is what technology means: it is the interpenetrating of knowing and making, the co-penetration of science and art, which for the modern world means that our science is inescapably 'folded' not just toward increasing information (i.e. describing the world, its causalities, etc) but also increasing power over the world.I never knew this was in Heidegger - but a followup search shows me that it's a phrase commonly ascribed to him (presumably in translation). Anyway, it perfectly encapsulates why I named this blog.

My first reading of the paragraph above was that it is entirely posit…

The economics zeitgeist, 27 December 2009

Image
This week's word cloud from the economics blogs. I generate a new cloud every Sunday, so please subscribe using the RSS or email box on the right and you'll get a message every week with the new cloud.

The words moving up and down the chart are listed here.

I summarise around four hundred blogs through their RSS feeds. Thanks in particular to the Palgrave Econolog who have an excellent database of economics blogs; I have also added a number of blogs that are not on their list. Contact me if you'd like to make sure yours is included too.

I use Wordle to generate the image, the ROME RSS reader to download the RSS feeds, and Java software from Inon to process the data.

You can also see the Java version in the Wordle gallery.

If anyone would like a copy of the underlying data used to generate these clouds, or if you would like to see a version with consistent colour and typeface to make week-to-week comparison easier, please get in touch.

Old Bridge Inn pictures

If you get the email version of this blog you might not have seen the pictures with yesterday's review of the Old Bridge Inn. Do go back and have a look at them if not.

Christmas at the Old Bridge

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I spent Christmas Day with family at the Old Bridge Inn in Aviemore, in the most beautiful, spectacular snowfall I've ever seen in this country.

Aviemore is a mountainside town on the River Spey (home of many of Scotland's malt whiskies) with skiing and snowboarding in the Cairngorm mountains in winter, and rafting in summer. I haven't been joining in the all-action activities (my comparative advantage is definitely in the intellectual rather than physical factor of production, which reminds us that comparative advantage can accrue purely from an inability in one attribute with no compensating capability in another).

But if I can't ski, I can at least appreciate beauty. The whole landscape is covered with a thick, pristine blanket of snow, the sky is blue and the sunlight makes the world shine like a diamond.




Best of all is the Old Bridge Inn. A warm corner in the midst of the snow, with lovely, comfortable rooms, a log fire in the bar, amazing cooking from Stevie Mats…

Odd accounting from the Telegraph

From this article (h/t Marginal Revolution):
The top 100 authors dominate sales. As The Bookseller has explained, some 100,000 titles are published every year, but these authors account for £1 in every £6 spent on books and a fifth of revenue. What does the Telegraph think is the difference between "revenue" and "£ spent on books"?

$800 billion = $800 billion. Coincidence?

Scott Sumner thinks it's just a coincidence that the increase in excess bank reserves in the US is almost exactly the same as the amount of the government's discretionary fiscal stimulus - $800 billion.

And yet, the increase in the Bank of England's balance sheet through quantitative easing so far - £180 billion or so - is also the same as the UK government's budget deficit this year. Doesn't it make you wonder?

Now it's true that there is no necessary link between the two. In "normal" times, government borrowing and central bank easing are not necessarily correlated - quite the reverse, in many cases. Public borrowing is generally inflationary; so a monetary authority with a constant inflation target is likely to counteract that by raising interest rates or otherwise reducing the money supply.

However, now is different. Inflation and growth are exactly what we need, and the fiscal and monetary authorities are acting together to try to create them.

Yo…

My BBC World/News 24 items today

I was on BBC World this morning to discuss the latest UK GDP figures and why the UK is the last major economy still in recession (hoping to get a clip to upload later). Here is a summary of my views, some of which I got across in the interview. Any of these could be an article in themselves, but there isn't much time to discuss them on an hourly business news update!

Our recession has been worse mainly because we are dependent on the financial sector. We did very well out of this before the recession, but having reached a higher peak we had further to fall.However, employment figures have been relatively very healthy, meaning that the pain of the recession has been less than it could have been. Also, fiscal and monetary action have mitigated the risk of a deeper depression.We are now gradually edging out of recession but there is a risk that tax rises and government spending cuts will put a brake on growth. To combat this, continued aggressive monetary policy is needed. Because int…

The economics zeitgeist, 20 December 2009

Image
This week's word cloud from the economics blogs. I generate a new cloud every Sunday, so please subscribe using the RSS or email box on the right and you'll get a message every week with the new cloud.

The words moving up and down the chart are listed here. Key words this week: policy and banks up, Fed back up after a fall last week, inflation up 340 places and Bernanke up 415. Falls in sales, emissions and spending. But the most poignant entry on the list is a new name at position 272: Samuelson.

I summarise around four hundred blogs through their RSS feeds. Thanks in particular to the Palgrave Econolog who have an excellent database of economics blogs; I have also added a number of blogs that are not on their list. Contact me if you'd like to make sure yours is included too.

I use Wordle to generate the image, the ROME RSS reader to download the RSS feeds, and Java software from Inon to process the data.

You can also see the Java version in the Wordle gallery.

If anyone wou…

What I said on the radio

They asked me about November's record budget deficit of £20.3 billion, about which George Osborne has said that "Gordon Brown is maxing out the nation's credit card".

My response, briefly:

Sometimes it's appropriate to run up your credit card to tide yourself over a problem - the recession definitely qualifies. Government spending is a pretty mainstream response to help mitigate an economic downturn.Spending cuts and tax rises might make a small difference, but the thing that will really cover the debt is economic growth. The UK's tax take is especially countercyclical and will rise sharply when GDP growth and profitability return.The return of VAT to 17.5% in twelve days will make some impact in itself (raising about £12 billion), but might be more valuable as a credibility device: the government showing investors and markets that they are serious about getting the deficit under control.If you're interested, the recording is here.

Radio Five this afternoon

I'm on Radio Five Live at 5.45 today talking about the public sector borrowing requirement, whether it's a necessary response to the recession, and how the country is going to pay it back.

Update later when I listen back to what I end up saying...

Red wine, blue wine

Just a link for Thursday.

From the Daily Telegraph, wine tastes better in blue- or red-lit rooms. At least in Germany. [Original paper here is quite well-written and reveals some interesting details]

According to the newspaper reports, the psychologist who ran the study (Dr Daniel Oberfeld-Twistel) thinks the explanation is that the light puts people in a better mood. But the paper cites another study showing that in fMRI tests:
Whenever colors and odors were presented together that subjectively constituted a good match in the eyes of the observer, activity in the orbitofrontal cortex and in the insular cortex was observedNow we all know to be cynical about fMRI tests, but it seems reasonable to draw the very broad conclusion that there is some cognitive basis for this effect. I am inclined to believe that - like most behavioural wine effects - it originates in a self-fulfilling calculation of the expected "value" of the wine and is a cognitive rather than a mood effect. Inde…

Taxes versus mandatory offsets

Consumerology reports a study by David Hardisty, Eric Johnson and Elke Weber at Columbia which randomly offered participants various choices between different pricing options for airline tickets. The main distinction was between a surcharge described as a "carbon tax" and an identical charge described as a "carbon offset".

The tax was unpopular - no real surprise. But when people were asked if they supported making the carbon offset mandatory - which is of course exactly equivalent - the response was highly favourable (around 2 points more positive on a scale from -3 to +3).

Not only was the "mandatory offset" more popular, but it was regarded identically by Democrats and Republicans. The tax, on the other hand, was strongly disliked by Republicans while Democrats made no distinction between taxes and mandatory offsets. Thus the entire effect appears to be due to Republicans' attitudes to tax.

This is an example of a well-known cognitive bias called &…

Sentences to ponder, Samuelson edition

From Mario Rizzo in ThinkMarkets, objecting to Samuelson's mathematical formalisation of economics:
I believe that the profession has, because of the formalistic direction in which it has traveled, more than its share of idiot savants.
Perhaps that's so. I guess Rizzo would prefer to adopt the model of some other social sciences, which are quite satisfied with ordinary idiots.

The significance of Paul Samuelson

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The screenshot on the left - taken within a few hours of the announcement of his death - illustrates quite simply the huge impact Paul Samuelson made on the economics profession throughout the last seventy years.

As his New York Times obituary says, he was never as well known by the public as Keynes or Friedman - and had less direct political impact - but he almost forged a whole profession with his establishment of mathematical analysis as the way to do economics [Update: my mistake, the observation was actually in this Justin Fox article]

This interview with Conor Clarke reveals that his incisiveness and charm was unimpaired right up to this summer. Read it for a flavour of his ideas and personality, but read the obit to learn the scope of his influence. [Update: Marginal Revolution links to another excellent interview, this one from John Cassidy]

(A curious side note: both of these items mention in passing, but with some admiration, that Samuelson became wealthy from his textbook. T…

The economics zeitgeist, 13 December 2009

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This week's word cloud from the economics blogs. I generate a new cloud every Sunday, so please subscribe using the RSS or email box on the right and you'll get a message every week with the new cloud.

The words moving up and down the chart are listed here. Key words this week: climate, oil, debt, Copenhagen and deficit up; big falls in Fed, interest, credit and demand.

I summarise around four hundred blogs through their RSS feeds. Thanks in particular to the Palgrave Econolog who have an excellent database of economics blogs; I have also added a number of blogs that are not on their list. Contact me if you'd like to make sure yours is included too.

I use Wordle to generate the image, the ROME RSS reader to download the RSS feeds, and Java software from Inon to process the data.

You can also see the Java version in the Wordle gallery.

If anyone would like a copy of the underlying data used to generate these clouds, or if you would like to see a version with consistent colour …

Behavioural finance working group: part 1

The lack of postings in recent days has been partly due to attending a conference: "Behavioural perspectives on the financial crisis" at Cass Business School (no relation to Cass Sunstein).

It turned out not to be quite as billed. An interesting selection of short research presentations but barely any mention of the crisis at all.

Highlights of the first day included:

Addressing the psychology of financial markets: a good qualitative insight from David Tuckett, a psychologist from UCL, into the psychological factors which affect finance. He identified a very intriguing difference between finance markets and other markets: which I'd express as saying that finance markets have no referent. Other markets involve real assets which are traded, and which provide real and direct utility. Financial markets provide no direct utility feedback from a purchase - investors hold an asset whose only utility is from its (unpredictable) future value. Thus emotional factors take the place …

Facebook Pecha Kucha

I presented a mini-Pecha Kucha at the Association for Qualitative Research last night.

Great fun and lots of interesting people. I hadn't done a Pecha Kucha before, though it turns out my last BRX presentation was similar in style to a few of the presentations on the night.

You can download my slides here - though I'd be fascinated to hear if it makes any sense whatsoever to you without the narrative.

There should be a video of the event at some point soon for my three diehard fans to watch online.

The economics zeitgeist, 6 December 2009

Image
This week's word cloud from the economics blogs. I generate a new cloud every Sunday, so please subscribe using the RSS or email box on the right and you'll get a message every week with the new cloud.

The words moving up and down the chart are listed here. Key words this week: people, jobsunemployment, pay and Bernanke up; energy, data and markets down.

I summarise around four hundred blogs through their RSS feeds. Thanks in particular to the Palgrave Econolog who have an excellent database of economics blogs; I have also added a number of blogs that are not on their list. Contact me if you'd like to make sure yours is included too.

I use Wordle to generate the image, the ROME RSS reader to download the RSS feeds, and Java software from Inon to process the data.

You can also see the Java version in the Wordle gallery.

If anyone would like a copy of the underlying data used to generate these clouds, or if you would like to see a version with consistent colour and typeface t…

Behavioural economics links

Notes and some videos on what sounds like a brilliant course at Edge last year on behavioural economics, with Thaler, Kahneman and Mullainathan as speakers - and just look at the attendees!

Thoughts from Felix Salmon (also click through to the more detailed Wine Economics article he references) about one of my favourite subjects: how cognitive biases influence our willingness-to-pay for wine.

Useful comments from Charles Goodhart in the FT about the money multiplier - I suggest you read this as preparation for an article I'm writing on self-fulfilling expectations and the money supply.

Mark Thoma's link to Paul de Grauwe's paper, "Top-down versus bottom-up macroeconomics" [PDF] which says some powerful things about limitations on knowledge and the consequences for rational expectations theory.

And Steve Randy Waldman's Interfluidity blog has moved - updated link in the right-hand column and here.

Bankers' bonuses: two solutions

What issue has such purchase on the public imagination that it - at least in the UK - just keeps coming back, again and again, as people's top concern about the financial crisis and the recession?

Of course, it's the bonuses paid to bank employees.

The psychology of this conversation is revealing. Nobody really notices if RBS makes £6 billion in profits. But when one RBS employee gets a $10 million bonus - that's about 1/1000th of the amount - suddenly it's a big deal. We can relate much better to (relatively) small numbers with people attached to them than we do to huge figures.

Clearly the government has a political problem: it doesn't want to be seen to be allowing high bonuses to be paid when the public has paid for the banks to be rescued.

But it also has a commercial problem: the rescue is a sunk cost, and the bonuses are part of the bank's strategy to incentivise future behaviour. If RBS doesn't pay any bonuses, perhaps their top people will leave an…

Applications of behavioural economics part 1a: anchoring

In the East End of Glasgow, as you head from the Tollbooth towards Celtic Park, you'll come across a curiosity out of the 19th century. The Barras is a huge flea market - the biggest in Europe - where everything from second-hand clothes and books to discount electronics and records of doubtful provenance are sold.

And the people selling them are some of the most effective salespeople in the country.

Let's wait by the stall of a chap called Glasgow Harry (why he's called Glasgow Harry when he works in Glasgow is another story). We're among forty or fifty people waiting expectantly for the show to start.

Harry pulls out a radio cassette player (this was quite a few years ago) and starts the pitch. "Now who wants one of these wee stoaters?" [You'll have to imagine the Glaswegian accent] "Latest Japanese technology, double cassette deck, AM/FM, lasts about forty hours on the battery." Elucidation of many more features follows.

And now the key moment...w…

The "Feck the French" strategy

Ireland has a problem. It is at risk of getting into some terrible debt.

Its fiscal deficit has soared this year to about 14% of GDP, more than almost any other country, and on current path its debt is forecast to reach 126% of GDP by 2016.

This is mainly due to a collapse of over a tenth in Irish GDP during the recession - which, under the informal definition, qualifies as a full depression in Ireland. What is to be done?

The government is willing to take fairly drastic steps to cut its deficit, even though the economic recovery is still tentative (as a very export-oriented economy, Ireland can afford countercyclical fiscal policy better than most nations). But can the government carry its citizens with it?

An Economist article last week offers a clue.

Take a look at the chart at the top of the article. Ireland's figures look bad, but it has an advantage: it starts from a reasonable public debt position. On this projection, in 2011 Irish public debt will be 96% of GDP while other …

The economics zeitgeist, 29 November 2009

Image
This week's word cloud from the economics blogs. I generate a new cloud every Sunday, so please subscribe using the RSS or email box on the right and you'll get a message every week with the new cloud.

The words moving up and down the chart are listed here. Key words this week: Dubai, gold and percent (for some reason).

I summarise around four hundred blogs through their RSS feeds. Thanks in particular to the Palgrave Econolog who have an excellent database of economics blogs; I have also added a number of blogs that are not on their list. Contact me if you'd like to make sure yours is included too.

I use Wordle to generate the image, the ROME RSS reader to download the RSS feeds, and Java software from Inon to process the data.

You can also see the Java version in the Wordle gallery.

If anyone would like a copy of the underlying data used to generate these clouds, or if you would like to see a version with consistent colour and typeface to make week-to-week comparison easier…

What's the difference between short-term and long-term?

[Fairly long post: scroll to the bottom for a one-paragraph summary]

I've been interested in this debate for many years. It takes several different forms, but the simplest statement is: stockmarket investors are too focused on short-term returns at the expense of the long-term investment that builds real economic capital.

I first heard this argument deployed against "asset strippers" such as Hanson, a UK conglomerate prominent in the 1980s. Since then it's been used to describe stockmarket traders, company shareholders in general, financial institutions of all kinds, and US and UK companies who supposedly focus greedily on quarterly earnings, unlike the more virtuous French, German and Japanese firms who are willing to take the long view.

The first problem with the argument is this: long-term returns are just a string of several short-term returns in a row. For example, £1,000 invested over 20 years to return £5,000 is equivalent to an annual return of 8.3%. But at any…

Tories: Are you sure you understand that word "elected"?

There's a cute article in the Evening Standard today about the Conservative plans to bring in US-style elected police chiefs.

Whatever the merits of the idea, there's a very odd statement from shadow home secretary Chris Grayling.
"We envisage the Mayor of London being the elected police commissioner."Now this could mean that they expect the current Mayor of London (Boris Johnson) to also run for the post of police commissioner, and just happen to win. But it doesn't mean that.

It might even mean that they expect the Mayor of London to be the temporary holder of the police commissioner role until an election can be held - though it would be a very strange way to say it. But it doesn't mean that, either.

What it means is that the Mayor of London has at some point in the past been elected; and that he will become police commissioner by virtue of his position.

I don't really think that is what anyone thinks they meant by "elected police commissioner"…

The economics zeitgeist, 22 November 2009

Image
This week's word cloud from the economics blogs. I generate a new cloud every Sunday, so please subscribe using the RSS or email box on the right and you'll get a message every week with the new cloud.
The words moving up and down the chart are listed here.
I summarise around four hundred blogs through their RSS feeds. Thanks in particular to the Palgrave Econolog who have an excellent database of economics blogs; I have also added a number of blogs that are not on their list. Contact me if you'd like to make sure yours is included too.

[For some reason, Dean Baker's blog this week crashed my code, so I've taken it out of the feed temporarily. Proposals as to why this might be are very welcome.]

I use Wordle to generate the image, the ROME RSS reader to download the RSS feeds, and Java software from Inon to process the data.
You can also see the Java version in the Wordle gallery.

If anyone would like a copy of the underlying data used to generate these clouds, or if you…

Holding out for a hero - Microsoft?

Media owners are salivating over the idea that Microsoft is going to save them in a hugely expensive attempt to compete with Google. "Microsoft makes move to cut out Google" in the FT: "Microsoft are doing exactly the right thing and asking exactly the right questions," Richard Titus, chief executive of Associated Northcliffe Digital.
"Any competition to Google is a good thing," one UK publisher said.
Tom Curley, chief executive of the Associated Press, said last month that Microsoft was willing to accept “principles” such as favouring AP stories in search results over others that regurgitate its news, or helping it track its content. “We are only going to work with those who use our principles,” he added. “We stand at an enviable moment where Microsoft and Google have decided to go to war,” he said. You can smell the desperation of people whose business model has been overthrown - not by any underhand behaviour or cheating from Google, but by a world where i…

Practical applications of behavioural economics

I'm starting a series on how to use the principles of behavioural economics in the real world of business.
It will be structured around a series of individual cognitive biases, and for each bias I will outline: Examples and stories to demonstrate how it worksThe cognitive theory of why it worksA toolkit showing how to implement it in practiceFirst up, this weekend, will be anchoring. Come back tomorrow to see some examples of this from our clients and other companies.
And if you'd like to be featured in this series - and in a forthcoming book on the same subject - please email me to share your stories of cognitive bias or behavioural economics in the business world. If you are writing about a specific business, please mention whether you're happy for their name to be used in this blog and/or in the book.

Does QE cause deflation?

In the leader column of City AM today, Allister Heath argues that quantitative easing should be stopped because it will lead to inflation. Set aside for a moment the fact that this is the whole point of it. Is he right that it will actually succeed in causing inflation?
Scott Sumner (consistent with mainstream monetary theory) points out that an increase in the money supply is only inflationary if it is expected to be permanent.
And is QE a permanent increase? Not necessarily. On the contrary: QE in isolation makes the money supply smaller.
Under QE, the Bank of England has issued £200 billion of new currency and used it to buy bonds (mostly gilts) in the private market. (The Federal Reserve has done something similar, with a higher proportion of corporate and mortgage-backed bonds.)
So there's now £200 billion more sterling than there used to be - it's fair to say the money supply is bigger. What will happen next year - or in five years time, or thirty years when all the bonds ha…

The economics zeitgeist, 15 November 2009

Image
This week's word cloud from the economics blogs. I generate a new cloud every Sunday, so please subscribe using the RSS or email box on the right and you'll get a message every week with the new cloud.
The words moving up and down the chart are listed here.
I summarise around four hundred blogs through their RSS feeds. Thanks in particular to the Palgrave Econolog who have an excellent database of economics blogs; I have also added a number of blogs that are not on their list. Contact me if you'd like to make sure yours is included too.

I use Wordle to generate the image, the ROME RSS reader to download the RSS feeds, and Java software from Inon to process the data.
You can also see the Java version in the Wordle gallery.

If anyone would like a copy of the underlying data used to generate these clouds, or if you would like to see a version with consistent colour and typeface to make week-to-week comparison easier, please get in touch.

Can we build a theory of expectations?

If Scott Sumner and Paul Krugman agree on something, it must be true. I think most of us would accept that as an axiom of economic sociology.
Accordingly (see here and here), we can take as read the idea that expectations of inflation and aggregate demand strongly influence actual inflation and aggregate demand.
There's nothing really controversial about this: the idea of multiple equilibria is well established. If people expect deflation and recession, they will try to save more, spend little and invest less - and deflation and recession will result. If people expect inflation or growth, they will spend more quickly and invest in the hope of protecting their assets and capturing a share of that growth; and as a result, the expectation will be fulfilled.
Or as it's caricatured by a self-help motto you've probably seen: if you think you can, or if you think you can't, you're right.
Presumably we want to have more growth rather than less, and (mild) inflation rather than…

Psychology of sticky prices

Do we implicitly extrapolate, unconsciously, from how we make a single trade to how we behave in markets generally?
We have a basic need to fix the price of a transaction for long enough for the trade to complete. If I agree to buy this beer from you for £3.40, and by the time it's finished pouring, the price might be £3.75 (or indeed £2.90) neither of us is likely to buy or sell much beer. For a transaction of this kind to work, the terms should be known in advance to both parties and remain the same for the duration of the trade.
And with our minds' amazing capacity to extrapolate, it's not such a big leap from there to the expectation that prices will remain stable over a slightly longer period of time (an hour, a day, a month, a year?)
Whatever learning mechanism creates this stability of expectations over the duration of a single transaction can surely be fooled into expecting the same thing for a bit longer.
This is reinforced by the tentative and exploratory nature of p…

Amazon's behavioural pricing

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I'm studying behavioural pricing as part of my response to the forthcoming OFT market study, and Amazon has an interesting history of this.
Whether or not they still offer personalised prices to different customers for the same product (probably not, as they were shot down for it last time), their pricing strategy is still fascinating. Take a look at this screenshot:

Because I have a ton of books in my 'Saved for later' list, I get a message like this nearly every time I visit the Amazon checkout. Often the same book moves up or down by £1 or 50p several times over the course of a few weeks.
The only plausible explanations for this are that Amazon either: has an incredibly sophisticated demand management process and knows exactly when people will pay more or less for a bookor, is testing different prices to measure the overall demand curve (or my personal one, which is even more interesting).Either way, it's fascinating to watch one of the most sophisticated behavioural ma…

The economics zeitgeist, 8 November 2009

Image
This week's word cloud from the economics blogs. I generate a new cloud every Sunday, so please subscribe using the RSS or email box on the right and you'll get a message every week with the new cloud.
The words moving up and down the chart are listed here.
I summarise around four hundred blogs through their RSS feeds. Thanks in particular to the Palgrave Econolog who have an excellent database of economics blogs; I have also added a number of blogs that are not on their list. Contact me if you'd like to make sure yours is included too.

I use Wordle to generate the image, the ROME RSS reader to download the RSS feeds, and Java software from Inon to process the data.
You can also see the Java version in the Wordle gallery.

If anyone would like a copy of the underlying data used to generate these clouds, or if you would like to see a version with consistent colour and typeface to make week-to-week comparison easier, please get in touch.