Knowing and Making

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-...

[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%. B...

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 com...

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 clo...

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 wh...

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 works The cognitive theory of why it works A toolkit showing how to implement it in practice First 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.

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 ...