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Showing posts from May, 2009

The economics zeitgeist, 31 May 2009

Image
This is a word cloud from all economics blog postings in the last week. I generate this every Sunday so please subscribe using the links on the right if you'd like to be notified each time it is published.

It has been constructed from a list of economics RSS feeds from the Palgrave Econolog and other sources, and uses 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.
Update: Analysis now available.

Surprise article on CVM

The psychology and economics of pricing and value allow you to serve your client’s interests and your own by ensuring they perceive the highest possible value in what you offer. Want to have more people upgrade from your £5 to your £9 bottle of wine? Just put a £15 bottle on the same shelf and about half will switch to the £9 option. The best thing about this is that in tests, consumers reported that the same wine actually tasted better when they had spent more money on it.
Behavioural economics research provides a range of around 20 such cognitive biases – ways that people can be guided to perceive more value in the products and services they buy. The big question is how to take advantage of this research to increase sales.

Customer value management
Customer value management (CVM) is the business process of analysing a client, understanding what they value most and designing your offer to match it.
Most professional firms, consultancies and modern service-based businesses base their pric…

Live blogging The Apprentice series 5: episode 10

Today's economic lessons? Market research and historical data of all kinds are of critical importance in certain sectors which are relatively high-volume and predictable - especially those where there is no arbitrage opportunity and therefore where predictability is a stable equilibrium.A range of different price options is necessary for maximising revenue.Frequent calls to action help combat cognitive inertia, which stops people buying things even when they want them.It's hard to optimise for more than one goal at once: public image, winning the task, surviving the boardroom and winning the whole series are different - and often incompatible - objectives (and now that Newsnight's on, we can see Julie Kirkbride MP selling out her own husband to save her own political skin - Alan Sugar would be proud).
Do join me next week - for five exciting and excruciating interviews with the remaining candidates. In the meantime, please subscribe by filling in your email address at the to…

Zeitgeist analysis, 24 May 2009

Bank is jumping back up the rankings in this week's word cloud, up from number 29 to number 15. And financial is up seven places to 11.
Apart from that, no major moves at the top. US moves up from 4 to 3, market is up slightly and government down one (reinforcing last week's move, but still slightly too early for the Randians to declare victory).
But the biggest move of the week is a new entry, representative at number 44. I spent some time trying to figure out why this is - there is not a lot of news about representative agents or bank representatives. But what there is, is a listing of all US Representatives and their fax numbers, in a not-very-Internet-savvy (or economics-savvy) Ron Paul campaign to abolish the Federal Reserve.
UK readers may remember when faxyourmp.com became popular - about eight years ago. After at least a hundred thousand faxes in three years, they gradually switched to email - and their successor site, writetothem.com (to which one of my companies donates…

The economics zeitgeist, 24 May 2009

Image
This is a word cloud from all economics blog postings in the last week. I generate this every Sunday so please subscribe using the links on the right if you'd like to be notified each time it is published.

It has been constructed from a list of economics RSS feeds from the Palgrave Econolog and other sources, and uses 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.
Update: Analysis of this week's moves here.

Eeyore vs Pangloss

missmarketcrash has been busy analysing the perception-driven world of economics and the contest between optimists and pessimists - or is it pessimists and optimists?

I am firmly on the optimists' team but I have a feeling she has a sneaking affection for the opposition. The bad boys always get the girls.

Anyway here are some results from my economics zeitgeist data from the last three months - showing that bloggers at least are more positive than negative. And according to miss's search data, much more positive than the general public.

20090222
pessimism: 7
optimism: 11

20090301
pessimism: 4
optimism: 16

20090308
pessimism: 14
optimism: 13

20090315
pessimism: 12
optimism: 15

20090322
pessimism: 6
optimism: 16

20090329
pessimism: 5
optimism: 29

20090405
pessimism: 3
optimism: 9

20090412
pessimism: 11
optimism: 23

20090419
pessimism: 5
optimism: 30

20090426
pessimism: 5
optimism: 28

20090503
pessimism: 6
optimism: 28

20090510
pessimism: 1
optimism: 25

20090517
pessimism: 7
optimism: 25

Pigovian taxes and government credibility

Most economists are inclined to agree with Greg Mankiw that a high tax on carbon, reflecting the best estimate of its social cost, is the best way to mitigate the effects of carbon emissions. [Edit:In this posting I consider a carbon tax to be roughly equivalent to cap-and-trade - of course there are differences but my point applies to both mechanisms]
In theory, this should encourage the right mix of reduced growth in consumption, development of energy-efficient technology, and compensation to those affected by climate change. Economic theory says that the market will respond in the most efficient way to a tax which fully reflects the external costs of the activity (known as a Pigovian tax after economist Arthur Cecil Pigou who was an early proponent of the concept).
In particular, it should not be necessary for the government to subsidise research into green technologies - they might pick the wrong ones, and they will probably end up wasting more money than the market would if left to…

Private productivity and public debt

Robert Peston, famous among his blog commenters as the BBC's banking editor (with a sideline in other businesses) has come up with his most creative definition yet of a "business" - the UK government.
He points out, in a surprisingly sanguine article, that UK government debt has been put on negative watch by Standard and Poor's. As he says, it's not that big a deal - I suppose the surprise is that it didn't happen earlier. As the UK is likely to be one of the world's top ten debtors in the next few years, with about £1 trillion of public debt (still less than Citigroup or RBS, incidentally, and much lower than the Japanese, US or Italian governments), it is only natural that people would keep an eye on the figures.
S&P have said that the downgrade might happen if the next government does not come up with a credible plan to put the debt on a long-term downward trend. Seems fair - and everyone expects the next Chancellor, whoever it might be, to do exactl…

Live blogging The Apprentice series 5: episode 9

Economics lessons from this week's episode? Flexibility in pricing creates economic value. If something is worth less to a client than your cost base will bear, they (and you) won't benefit from it unless you can bring down the costs. And if you can also capture some of the higher value to clients who do derive more value, you can reduce overall costs by sharing the fixed costs.Being competitive on price is important, but not critical - even in a commodity marketOperational problems can usually be solved if you have the right product and price pointIf you want a sustainable, predictable business you need to keep the granularity of your sales smaller than your measurement time horizon (or your working capital)

The usual courtesy for later viewers: a blank space.










Stop scrolling now if you haven't seen the show - jump down to the bottom and read upwards.

















10:30 Another show over: and just three more until we know this year's apprentice. I would love to see the story of what ha…

Can corruption be a public good?

I'm reading Dani Rodrik's "One Economics, Many Recipes" which sheds interesting light on the understanding of developing-country growth and its causes.

Chapter one focuses on the idea that there are basic principles behind economic development (indeed, economic activity in general): property rights, sound money, fiscal solvency, and market-oriented incentives. The exact policies which result in these outcomes are not necessarily those from the standard (Washington Consensus) list: privatisation, tariff reduction, etc. Instead, the universal principles need to be achieved with policies that are tailored to the country in question.

There's one point he makes in passing which struck me as fundamental. From p38 (of the 2007 edition):
"...policy changes at the outset have been typically modest...[South Korea's] military government led by Park Chung Hee that took power in 1961 did not have strong views on economic reform, except that it regarded economic developm…

Zeitgeist analysis, 17 May 2009

For some reason this week's economics zeitgeist has year and percent as big risers, up to number 3 and 6 respectively. But puttings those aside, the movements at the top of the chart are reasonably tame: US and market are up four and five places, with government down two - market is clearly beating government this week but I don't think laissez-faire can declare victory just yet.

Bank and banks are both down plenty from last week's heights, 26 and 34 places respectively. Oil on the other hand is up 280 places (with energy up 72, climate up 250, emissions up 485 and gas up 377) presumably because of the proposed Waxman-Markey cap-and-trade bill. Oil has been rising consistently over the last three months, incidentally - likely because of expected rises in demand with the end of the recession. The FT's Lex column agrees with me that the fall in oil prices has been more important than fiscal stimulus in triggering recovery in the industrialised countries.

Trade is up 218 p…

The economics zeitgeist, 17 May 2009

Image
This is a word cloud from all economics blog postings in the last week. I generate this every Sunday so please subscribe using the links on the right if you'd like to be notified each time it is published.

It has been constructed from a list of economics RSS feeds from the Palgrave Econolog and other sources, and uses 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.
Update: Analysis of this week's moves is here.

Ascent and Exchange: reviewing two books

My review of two books - The Ascent of Money and A Splendid Exchange - is up at Culture Wars today - Ascent and Exchange.

Do go and read it on Culture Wars, but I'll post the text here as well after the weekend. A couple of excerpts:

When they set out to write these texts, neither author must have expected to create an especially political book. But for the first time in decades, opinions about the detailed management of the economy are intensely political, and any book, article or quotation on financial matters in the last few years is likely to be re-read in that light.

Bernstein’s other argument is a little more controversial, and therefore more interesting. He portrays nearly every major development in world history as the result of trade, competition over trade profits, or protection against trade. Early chapters cover the expansion of Islam across the Middle East, North Africa and South Asia; the middle of the book explores European exploration and colonisation of key locations…

Bonuses again

Robert Peston reveals a report by MPs on bankers' bonuses. Of course they are calling for reform. But what should that reform look like?

Here are a couple of odd things about such bonuses:
Behavioural economic theory indicates that it's not so much the absolute amount of money that acts as the reward, but the relative amount - if I get £5m to your £3m, it's just the same as me getting £500k and you £300k. The 'reward' seems to be the ego boost of being at the top of the tree.But unfortunately it's also not the amount of money that has led to the risk-taking behaviour. Even if banks had only paid their employees 1/10 of the bonuses, they would still have acted the same way.So how to change behaviour, if that's what we want to do?

Certainly tying bonuses to long-term results instead of short-term is one option. But for motivational purposes, people should still receive performance bonuses relatively quickly, as this is how their mental association between action…