Sunday, 30 January 2011

The economics zeitgeist, 30 January 2011

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


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.

Sunday, 23 January 2011

The economics zeitgeist, 23 January 2011


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


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.

Tuesday, 18 January 2011

The CRIMBITS countries

Jim O'Neill at Goldmans has graciously decided to admit four, no doubt very grateful, new countries into the BRIC category.

Brazil, Russia, India and China have done quite well over the nine years since the BRICs were invented. The caveat is Russia, which remains highly dependent on oil and gas prices, and has institutions which are, shall we say, not fully trusted by everyone. But the other three have been firmly endorsed by events as serious players - well beyond the traditional emerging markets category.

The lucky new candidates are South Korea, Turkey, Mexico and Indonesia.

I am slightly surprised to see South Korea in here, as it's already an OECD member, with GDP per capita on a par with several European countries (though not quite caught up with any of the Western European EU members). It is ranked around 32nd in the world in GDP per capita - depending on exchange rates - higher than any of the original BRICs (Russia at 54 is the highest of those). But I guess if it helps O'Neill market his investment funds, it's a good candidate.

The other three seem quite good choices - with fairly large populations, per capita GDP in the middle ranks but growing fast, and well located to be influential in their regions.

But the most important question now is: what is the correct acronym for the new grouping? BRIC was very catchy, and that is surely a major reason for the perception of these economies as a group of similar characteristics. It is harder to come up with a good abbreviation for eight countries, but I'm going to have a go.

We could just add four letters to the end of BRIC - BRICMIST, for example, or BRICMITS. The latter sounds like a plural, which is good - the PIIGS acronym for dodgy European sovereign debt worked quite well because it sounds natural to refer to a group as "they" if it ends with an S. Of course, the idea of "pigs" is not bad at conveying the impression of greedy overborrowing. Does BRICMITS have the same clarity? I'm imagining someone catching a brick in a baseball glove, and I don't really see that as a compelling image.

So if we allow the original BRICs to be broken up and reconstituted, we have more options.

STRIMBIC trips of the tongue but I'm unsure what it means. BITSCRIM sounds like a programming methodology; TICBRIMS isn't bad, though it sounds like the noise a time bomb might make; and SMIRCBIT just makes me think of Vladimir Putin. When I'm playing Scrabble I just rearrange the letters at random until I find something that looks convincing. RIMBICTS, BRIMTICS, STRICBIM, CRIBMIST, CRITBISM, MRBITICS, TIMBRISC, TRIMBICS, BRITCISM (like normal criticism, but done by a British person), CRIMBIST, BRICTISM. I like that last one - it might describe a philosophy of guided state capitalism combined with gangsterism, heavy industry and mining, and a gradual military buildup.

But I think I've hit on the right answer.

CRIMBITS combines an impression of criminality (you all know which of the eight countries I'm talking about - though now that I think of it, more than one of them would fit); with the idea that these are bits of the world economy, several of them on the Pacific rim, and with the convenience of that S at the end. The lucky three billion citizens of those countries will be overjoyed to know that they can now officially call themselves Crimbits. Spread the word!

Update: Alan Beattie at the FT obviously didn't get the memo. How dare he come up with his own version of my joke.

Sunday, 16 January 2011

The economics zeitgeist, 16 January 2011



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


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.

Thursday, 13 January 2011

Ben behaving oddly

Ben Goldacre (@bengoldacre) does some amazing work combatting folk mythologies in favour of science and real data. He has tens of thousands of readers and twitter followers who - mostly - agree with his philosophy. They spread the message at skeptics meetings, atheist book-signings and the pages of the Guardian.

He is a leader in showing how to expose and falsify unsubstantiated claims - not just those of homeopaths, fake-medicine enthusiasts and psychics, but also those of journalists, pharmaceutical companies and anyone at all who makes public claims.

So what happened today? Goldacre made the following assertion on twitter this evening:



What's the difference between this and a homeopath who doesn't need evidence because he "just believes" that his medicines work? Not much.


What's especially notable is that dozens or hundreds of his followers - science aficionados all, I would have thought - replied with their own stories about which particular prices they think might have gone up this year. Fuel, houses, food, DIY products - it's amazing that we can still afford to buy anything at all. Only a few lonely souls asked whether this personal anecdote can really be used to 


To be fair to him, Goldacre replied to me on this:


True. But any one person's "just reckoning" is inferior to the carefully calibrated (and openly published, and peer reviewed) inflation measure engineered by the ONS statisticians whose job it is to work out these figures. While technically there's nothing intellectually invalid about his claim, it's still a strange one to make.

The subject of inflation is certainly complex. Different inflation rates certainly apply to different people. Some economists argue that inflation is always lower than reported, because it can't take into account substitution effects (when some products get more expensive, people automatically stop buying as many of them). Scott Sumner doesn't believe in inflation at all, and thinks we should just measure total cash spent in the economy instead of trying to work out the average price of all products. So it's absolutely valid to raise questions about the use of a single aggregate measure across the whole economy.

But disagreeing with established data, which has the consensus of hundreds of professional economists, and a widely tested, peer-reviewed theory, behind it - on the basis of your feelings about personal experience - should automatically make any scientist wary. Economics may not be physics, but it's still more scientific than anyone's feelings. Even Ben Goldacre's.

Answering the wrong question

Michael Shuman at Curious Capitalist asks a bizarre question: Is the iPhone bad for the American economy?

His careful analysis shows that the iPhone has a finely balanced effect on the US trade deficit. It makes a negative impact if the internal components exported from America are valued at their manufacturing cost, and the assembled iPhones coming back from China are valued at full price. But if you count the design and assembly expertise as a US export, the impact is positive.

Fascinating. But completely irrelevant to the question he asks.

To see this, simply ask if the iPhone is bad for the British economy? Or how about this: is copper bad for the British economy?

Whether a product is made, mined, designed or assembled in a country is almost irrelevant to whether it's a good thing. Our lives are very much better with copper in them, even though there's a big trade deficit in copper for most countries outside of Chile.

And for the same reason, of course the iPhone is good for the American economy. The billions of dollars Americans have volunteered to spend on them is quite enough evidence for that.

Tuesday, 11 January 2011

An unbiased call for tax breaks

While I would love it if this idea came true, doesn't it sound a little like special pleading? Tax breaks on market research, proposed by...three companies which spend money on market research. Oh but wait - they also have the support of "accountancy groups near Henley-on-Thames". Hmm. Don't accountancy groups also make money right now from the existing tax breaks on technological research and development? Why yes.

Is market research a good thing? Yes, just like jobs and apple pie - not famously the subject of a lot of tax breaks.

There is one good argument though, not clearly made by the article: research has a positive externality. Research allows us to test more innovations, and innovations by one party - whether successful or not - tell the rest of us something about what to try in the future. That's a good thing - but only if (like the patent system) people have to disclose the results of their research. Maybe we should offer tax breaks on disclosure of market research. Into new products only. Still interested, brands?

Sunday, 9 January 2011

The economics zeitgeist, 9 January 2011

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


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.

Thursday, 6 January 2011

Goldman, Facebook and pricing psychology

Goldman Sachs this week invested in Facebook at the - some say ridiculous - price of $50 billion.

Let's imagine for a moment that the price does not reflect the company's fundamentals. Could it still be rational for Goldman to have done this? We certainly don't associate that particular bank with being taken in by market euphoria.

Certainly they will make money by providing services to Facebook and other investors [FT, may require subscription]. But they could probably have got the same deal at a lower valuation if they really wanted to. This article in the New York Times suggests they don't really care if the value's too high, because they will make their money back by exploiting small investors anyway.

But they may well care. Indeed, there's a reason they might prefer to pay too much for their stake: it will influence future investors to pay more for the shares. We see in many product markets that the customers don't have any clear idea of the "value" of the product - because it is not directly comparable with anything else. Well, the same applies to shares.

Nobody has any real benchmark for the value of Facebook - a profit multiple is the most likely formula, but Facebook's future profits are much less certain even than its current profits, which are pretty vague already. Revenue multipliers are industry-specific and are just an inferior substitute for profit multiples, used for companies with losses or volatile profits.

So how best to decide whether to pay out good money for your Facebook shares? Well, you could do two things:
  • compare it to Ebay and Google (which seems to be the default position in the reporting of this deal, although it makes no sense for anything except Mark Zuckerberg's ego contest with Page and Brin)
  • compare it to the expert valuation done by those clever people at Goldman
What we see is Goldman using one of the most powerful effects in influencing valuations: anchoring.

If Facebook floats at a value of $45 billion, investors will probably jump at it. A 10% discount to the price negotiated by those übersmart Goldman sharks? Great deal!

If it's $75 billion, then that's only a 50% premium to Goldman's private round - still a pretty good price considering there will now be a public market in which to offload your stake.

And if it reaches $150 billion, well, Goldman will be long out of it by then.

So by agreeing a ridiculous price for the stock, Goldman has increased the value of its own stake - though not by quite enough to compensate for the extra money it paid. The real return comes from its increased fee for handling the IPO. Goldman's purchase has substantially increased the value Mark Zuckerberg and the other Facebook investors can expect for their stakes. You can bet it will be well rewarded with a generous IPO fee of - let's say - 6.5%. And if they succeed in pushing up the value of the IPO, that 6.5% will be worth a lot more than it otherwise would be.

So - like an art dealer who bids for a couple of his own paintings to increase the value of the others being auctioned off alongside them - Goldman will come out of this pretty well. And at worst, they can offload their 1% to some grateful clients currently oversubscribing the $2 billion Facebook fund that Goldman is setting up...

Sunday, 2 January 2011

The economics zeitgeist, 2 January 2011

This week's word cloud from the economics blogs. I generate a new one every Sunday, so please subscribe using RSS or the 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. "Happy", "new" and "year" unusually prominent this week...and "Christmas" down 445 places to number 537 for some reason! I wonder what could explain that.

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.

Saturday, 1 January 2011

New year: good news

Given the low political chances of any effective climate change reform coming out of Congress in the next few years, I was pleased (and surprised) to see this projection from the US Department of Energy:
...the level of carbon dioxide emissions in the United States will remain below the rate of 2005 for the next 15 years even if no new restrictions are imposed.
That's stunning. And gives us hope that ordinary supply and demand might do at least part of what politicians can't seem to: reducing demand by increasing the price of carbon.