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Showing posts from July, 2010

Ending the land cycle - or the mortgage cycle

Martin Wolf has an intriguing proposal to "end the land cycle" - by which he means: make sure that any future rise in the value of land goes to society rather than the individual landowner.

This argument has three parts. First, he makes a moral case that increases in land value are largely a function of external effects - increasing population density and infrastructure investments - and therefore why should the current occupier of the land capture all the benefits? Second, a practical case that the current system has stymied productive new development - because it's easier and cheaper for landowners to get a return by reducing the competitive supply of new housing (through the planning system) than by investing in new infrastructure which benefits everyone.

Third, the current system of land ownership through debt is one big casino: buyers borrow money in order to put a bet on the Ponzi game continuing. When it does not, the losses are shoved onto two groups of people wh…

The economics zeitgeist, 25 July 2010

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.

High-speed recovery in the UK

The UK grew at an unexpectedly strong 1.1% rate in the second quarter, according to the ONS.

Unexpected to the consensus of economists, that is - some of us are not so surprised. It has seemed clear - anecdotally, but from a wide range of conversations - that the economy has been fairly strong in the last few months - and with unexpectedly low growth in Q1, a rebound was already likely to show up the Q2 figures.

This means that over the last year, the economy has grown by 1.6% - including a quarter of negative growth in 2009 Q3. If this quarter's rate is sustained - which it probably won't be - we will have almost 3% growth from October 2009 to September 2010. Even if it falls back to 0.7%, we will still have achieved a 2.5% growth rate.

Despite George Osborne's sheepish attempts to take the credit - you can just tell that he knows better - this is a clear vindication of the last government's policies. Or rather, as Chris Dillow hints, it vindicates the last government…

Rational expectations - is it real?

One of the big divisions in macroeconomics is the idea of rational expectations theory. This is the proposition that people behave as if they have a perfect prediction of the economy's future path, and therefore they collectively fulfil that prediction. This idea is used by some to claim that government borrowing cannot boost the economy because people will reduce spending to pay the future taxes they expect to incur; and by others to propose that price or NGDP level targeting must work, because people will act as if the target will be met and therefore - in a self-fulfilling equilibrium - the target will be met!
While there must be some truth in the idea, there are three main points where it may fail: Psychologically, people do not act consistently with their rational prediction of the future. People are often over or underconfident even when they make an accurate prediction of future outcomes.Often there is no single stable future path to the economy. Economic growth is dependent …

Behavioural economists against nudging

George Loewenstein and Peter Ubel have betrayed the behavioural economics creed by suggesting that "the field has its limits" and "insights from behavioral economics are unlikely to have a major impact on health care costs".

Surely they know that it's the job of all card-carrying behavioural acolytes to promote "the behavioural economics revolution"? The New York Times has bought into it, university courses are covering "Behavioral Economics, a revolution which began c.1960", the Harvard Business Review has told us "How Behavioural Economics can Help Cure the Healthcare Crisis" and journals are promoting "the behavioural revolution" which began in the late 1980s.

I know you won't quibble over the fact that this revolution is supposed to have taken place - depending on who you read - anywhere between 1950 and 2005. Or whether the revolution is in behavioural science, economics or finance. It's our job to tell peopl…

The economics zeitgeist, 18 July 2010

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.

Foxconn and the suicides

You have probably heard about the recent suicide of a tenth worker at Foxconn, the manufacturer of iPhones and some other Apple products.

When I heard this story (not long after the report of the ninth suicide) my immediate thought was: OK, how significant is this? How many people actually work there?

Now it turns out that was exactly the right thought. They have about 800,000 employees. Ten suicides therefore, sad as it is, is 1.25 suicides per 100,000 of population. This would place Foxconn among the lowest-ranked countries in the world for suicides - lower than any developed nation and less than a twentieth of the rate in Japan or Lithuania. Typical rates in most countries are about 10, meaning a Foxconn employee is eight times less likely to commit suicide than in Europe or America.

Most strikingly, non-Foxconn employees in China are eleven times more likely to kill themselves than Foxconn employees!

Looking into it further, there are some details which slightly modify this argume…

Five things I'm thinking right now

I found a meme from some game designer friends and acquaintances who have posted "Five things I'm thinking right now": Alice, Dan, Kim and dwlt [Update: Also Ian, Matt, Ben and Hilary]. I've deliberately not read their lists yet, so as not to bias my own thoughts.

Another three hours of TV tonight - all entertaining enough, some of it informative, and I can even justify half of it for work. But it is cognitively poisonous. It consumes the energy of attention that could have been channelled into some long-term objective. Thinking is quite hard work, and my curiosity means that silence calls me into thought. Therefore, I resist silence. TV, or even background music, occupies that curiosity with minor mental stimulations which prevent me having to actually think. They make life comfortable, but not constructive. In fact, I believe that TV, like twitter or Facebook, is literally addictive in exactly the same cognitive sense that cigarettes or alcohol are.
I could have been…

The economics zeitgeist, 11 July 2010

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.

How much management does the NHS need?

Andrew Lansley (he's the health secretary, in case you haven't learned all the names yet) is playing an old political trick on TV this morning. He claims to have found £1 billion of "bureaucracy" to cut - money which will be redirected to the "front line".

Of course everybody would support that...wouldn't they?

But what if he decided to fire 30,000 essential support staff and shift their workload onto hard-pressed GPs? Doesn't that sound like a terrible idea?

Of course it might be exactly the same thing. It's all in the framing. Frank Luntz wrote a revealing - and cynical - book, Words That Work, about how he and the politicians he advises control voter's emotional responses with the language they choose. "Bureaucracy" is a classic choice of word for conservatives; while those on the left might choose "public investment", "social spending", "public healthcare" or "efficiency improvements" to …

Vodafone's Catch-22 price plan

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Called Vodafone today because they've just charged me £250 on one of my handsets. They mentioned a new price plan which is available now that my contract period is finished. £20/month for 900 minutes and an infinite number of texts. Pretty good considering that I just paid £250 for 900 minutes and a distinctly finite number of texts. So I asked to switch plans.

Should they have told me about this option - costing less than a tenth of what I was paying - without me having to ask for it? An interesting question, for a company claiming to provide the highest quality customer service of all the British mobile networks, but that's not what this post is about.

This post is about me remembering that my work mobile is on an old contract too, costing me about about £65 for much less than 900 minutes. So I asked to have that one switched to the £20/month deal too. And so the paradox started.

I haven't changed plans for about ten years on this one. I don't use it enough for the p…

The economics zeitgeist, 4 July 2010

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.

Trust, news and the efficient markets hypothesis

I presented this paper today at the conference of the Cass Behavioural Finance Working Group.

In summary, it replaces the concept of "news" or "information" in the Efficient Markets Hypothesis with a model of beliefs, reflecting the idea that nobody in a market has objective, indisputable knowledge about anything, only beliefs of different levels of confidence.

Slides here; will tell you more later.