Knowing and Making

Thank goodness we have economics blogs to explain Ben Bernanke to us. On Wednesday, I read at Scott Sumner's blog that: ...there are lots of simple answers (massive QE...etc.) But...for some reason our monetary authorities don’t see it this way. They view all these ideas as exceedingly risky.... Scott is outraged that the Fed refuses to do more monetary stimulus to reduce unemployment because they are worried about inflation. But it seems that other people live in a different world. On Thursday, I read at FT Alphaville that: The current wisdom appears to be that more quantitative easing (QE) would be a good thing...Bernanke only has one playbook, which he has so far followed almost religiously. The final solution in that playbook involves helicopters and money. So, no, he will not stop printing - it's the only idea he possesses. Alphaville is concerned that the Fed is increasing monetary stimulus to reduce unemployment, and thinks they should worry about inflation. ...

This can't be right, can it? An FT article about Sony's record-breaking $250 million settlement with Michael Jackson's estate says: Unlike other headline-grabbing deals with artists from Madonna to Robbie Williams, it will not offer Sony any future revenues, such as those generated from merchandising and touring . I had not expected Michael Jackson to be doing any more touring in the circumstances. But - unless the cadaver is to be carried around Europe like some kind of medieval saint's relics - there is  an explanation. And that explanation can only be this: Jackson donated his body, before he died, to Gunther von Hagens' Body Worlds (Körperwelten)  exhibition. You want more evidence? Remember the famous O2 Centre concerts Jackson was about to perform when his death was announced? In July and August 2009? Just look at this little snippet. "The Mirror of Time" indeed...

I had a nice email from the FT today in response to this previous item (posted with permission): Hi Leigh Sorry to hear about your recent FT.com subscription problems. I thought I might try and explain a couple of the oddities you encountered in your renewal process. When we moved to a 'metered' access model for FT.com in November 2007, we upgraded all of our long-standing customers, like yourself, to the newly-created 'Premium' service level. We did this so that you wouldn't lose access to parts of the site, like Lex, that had been included in your old subscription package. Naturally, we kept you on the same 'old' rate. By the time your subscription fell due for renewal, your 'old' rate had fallen considerably behind the £25.99 a month we charge new 'Premium' subscribers, and even behind the £17.50 we charge new 'Standard' subscribers. Fortunately, you have a long history as a customer of the Financial Times and therefore qualify f...

I finally got fed up of not being able to read FT articles after my debit card expired, so I went in to update the details. I'm not a huge fan of paying for content online - actually I'm not a huge fan of paying for anything, as both a Scot and an economist - and if I have to, I would prefer to pay per article. But the FT is both high quality, and its content is sufficiently important to this blog, that it's worth the subscription. My recollection of the price was around £6.99 a month [ I have now checked this - it was £6.25, dropping to £6.12 with the VAT cut last December ], so I was a little surprised to see this: They've upgraded me to a premium subscription by default, I thought - sneaky. I don't think I need a premium account - from memory it gives access to stock data or something else that I don't use. Easy, I thought - I'll go and change it back to a regular sub again. So click on 'Change or upgrade access level' and this is what you ...

Do you know who the most popular blogger in the world is? No, not me (thanks for asking). Not Paul Krugman, Dave Winer, Perez Hilton or Cory Doctorow. In fact, I had never heard of him, and I suspect most of my readers won't have either. His name's Han Han and his blog in China has accumulated 306 million visits. Oh, and that's just one of his careers. He's also a racing driver. And he gets away with (literally) giving the finger to senior Communist Party officials. This FT article has some further amazing facts about him. It seems that he is so popular the Party would find it difficult to close him down. In turn, he doesn't step too far out of line. But the whole story is very revealing of the evolving dynamic of speech in China.

A perceptive article by Tony Jackson in the FT illustrates two theoretical points I'll be developing in more detail over the next few weeks. First, he equivocates about the efficient markets hypothesis (EMH): When we make a killing in a rising market, we dwell on our own smartness rather than the irrationality of prices having been too low. This is a key point to understand in markets - especially illiquid ones such as property. Some commodities tend to exhibit long-term bear and bull markets. Residential property in the UK showed a consistent rising trend from the early 1990s until 2007. It's hard to argue, even having seen subsequent falls, that this obeyed the "random walk" theory of the pure EMH. Instead, it's more convincing to posit that there was a "correct" efficient value - perhaps the 2004 or 2005 price? - and that most people from the mid-90s onwards could see that the correct value was higher than the current price. However, natural caution,...

Chrystia Freeland at the FT thinks it might, and I agree. It's a rather unsophisticated application of the theory but - like fiscal and monetary tools - if the situation is extreme enough that a simplistic approach will work, take the simplistic approach.

I was very pleased to see the FT's leader today, " Maths and markets ". It robustly defends mathematicians from responsibility for the financial crisis (an odd assertion of Lord Turner's). Not only that, but it also points to an interesting behavioural question: But financial mathematics has been underfunded, given its economic importance, and both private and public sectors must commission more research in the field. For instance, we need to know more about the way human psychology affects market models – and about the scenarios in which models break down. The need to blend psychology and mathematics is not often recognised, and it's good to see the FT coming around to it. I absolutely agree with this, needless to say - both Intellectual Business and Inon continue to work on mathematical modelling of human decision-making and working out its consequences at the market and macroeconomic level. That sentence does contain a subtle kicker at the end: " the sc...

The Wall Street Journal today says that the UK government "...has already spent £600 billion on its financial bailout" This is simply misleading. The government has made a lot of liquidity available in exchange for other assets  through several Bank of England schemes. It has barely spent anything at all; even if you include the bank recapitalisations, which are also in exchange for equity, the figure is around 5% of the number quoted. While this kind of stuff is to be expected from the Daily Mail and other tabloids, I am pretty surprised at it in the Wall Street Journal . I'm glad that the FT  still maintains a standard of reporting that allows us to rely on its interpretations as well as its raw facts.

From the FT:  Acrimony dashes Doha hopes : Normally, the closing session of the forum displays ritualistic expectation that the trade round will be completed in the coming year, but there was little such optimism in 2009. From the BBC:  Ministers promise 2009 trade deal Trade ministers from 24 countries have pledged that they will agree a new world trade deal by the end of 2009...most of these talks in previous years ended with similarly optimistic statements Huh?

I plan to write a lot more about this in the coming weeks. But for now I want to respond to Andrew Gowers ' and Andy Burnham 's debate in the FT. Reading either article in isolation, you might be convinced. On the one hand by Gowers' assertion that extending copyright creates no economic incentive to create new work, and incurs administrative costs out of proportion with the benefit to the owners. On the other, by Burnham's sympathetic picture of retired vegan musicians losing their sole income and seeing their work abused in foie gras advertisements. Maybe I'm betraying my inclination in this argument. But despite broadly agreeing with Gowers on this, I do understand the political logic and compassionate aspect of Burnham's position. Economically it's a tricky issue, and Burnham is actually on the side of economic orthodoxy. Economists tend to consider that property rights are an incentive for people to create, husband and market their assets. They also ass...