Monday, 31 October 2011

Occupy Montreal!

The Google works in strange and mysterious ways.

It has come to my attention that the fine folks over at Occupy Montreal have taken time out from their busy schedules of occupying and demanding things to pay a visit to IPE Journal: they have even linked to my whimsical scribblings on their blog. I am humbled. 

In particular, they are using this blog - no doubt after extensive research - as an authoritative guide to the Tobin Tax, or as it is known in French-Canadian, the "Tax Tobin:"

"Now, the propositions 
It was agreed that the Sunday event will be moved to the are between the tai chi sculptures, so campers occupying that area will be removed only for the event. “This is instead of asking the police to close the street. It’s easier”. 
Because temperatures are expected to go as low as 5°C, the assembly accepted to move the meeting to the Square Victoria metro (entrance on Rue Saint-Jaques). 
Saturday march at 3pm will go to the offices of the minister of Quebec, making stops whenever a bank gets on the way – to protest. It was suggested to support the Tax Tobin. A conversation went long, trying to understand what the tax tobin is all about; however, the amendment to “wait until tomorrow so people can inform themselves of what this tax is all about” was accepted. A decision will be made today at 11:30am. 
A child cries in the background."


Wednesday, 26 October 2011

Occupy Wheat Board!

I walk by the local franchise of the Occupy Wall Street movement on my way to and from work every day. It's got me thinking a little about the implicit and explicit assumptions that political movements make about the social value of some economic activities over others. For instance, it is fairly obvious that the OWS brigade is furious about bailouts for the wealthy financiers on Wall Street and beyond. This is very, very understandable.

But what do they think about bailouts for Canadian wheat farmers?


As a general rule I try to keep away from commenting on all things related to the domestic politics of my home country, Canada - it's a poor career move and I usually don't know what I'm talking about anyway. That said, there has been quite a kerfuffle around here lately because the Conservative majority government has recently decided to ditch the Canadian Wheat Board's (CWB) monopsony over a huge chunk of the Canadian wheat market.

Before going any further, it will be helpful to understand what the CWB is: for starters, watch this awesome video (alternatively: the CWB's Wikipedia page or, if you're really sadistic, the CWB Act). In a nutshell: wheat and barley farmers are required to sell their stuff to the CWB, who in turn aggregates it and sells it in the market. In exchange, theoretically, the CWB provides economies of scale in the market and in marketing, resulting in a better deal for farmers. Also, there is no opt-out: it is illegal to sell your wheat any other way. Farmers who think they can compete in the wheat market on their own have to lump it. I should also add that the CWB only applies to wheat farmers in Western Canada - farmers elsewhere can do as they please.

Crucially, the CWB guarantees a minimum price to farmers for their wheat to protect against volatility. Since the CWB is backed 100% by the Government of Canada, in effect it is the taxpayer who guarantees the farmers the price of their wheat. The CWB is also entitled to carry out financial activities, like issuing bonds, debentures or other debt instruments to fund its activities. Any losses on those securities are - you guessed it - covered by the Government and paid for by the taxpayer.

So for various reasons the Government wants to ditch the CWB. The wheat farmers who benefit from the CWB are naturally upset by this, as are the employees of the CWB itself. The political opposition, as is their wont, are strongly opposed.

Here's a though experiment: what would happen if we replaced the words "Canadian Wheat Board" with "Big Banks" - what would happen then? Hmmmm. Let's review the parallels:
  • The big banks are directly protected against loss by the taxpayer via deposit insurance; the wheat farmers are directly protected against loss by the taxpayer through minimum price guarantees.
  • If there is a credit drought, the Central Bank lowers rates to make credit cheap again; if there is a flood of credit, the Central Bank raises rates to protect Bank profits from erosion by inflation. If there is an actual drought or flood affecting wheat farmers, they are bailed out by emergency funds set aside by the CWB.
  • Big banks can raise capital more cheaply because they are Too Big To Fail; the CWB can raise capital more cheaply because they are Too Wheatey To Fail and any losses are covered by the taxpayer.
  • Big banks are heavily supervised by independent agencies and extensive regulations; the CWB is... er... um...
Okay, so the parallels aren't perfect. But you get the idea: Heads and the banker/farmer wins; Tails and the taxpayer loses. Unless of course you're a Western Canadian wheat farmer who could actually be more competitive on your own, in which case everybody loses, except the CWB.


Which, I should stress, may still be the best possible outcome. It could well be that there are valid arguments for why the existence of the CWB is good for Canadians. But fundamentally my point is this: if you're prepared to defend the bailouts and implicit taxpayer subsidy of our big banks, you had better be prepared to explain why the role of finance in society serves such a critical economic function that it can be no other way. Similarly, if you're going to defend the bailouts and explicit taxpayer subsidy of the CWB, you had better be prepared to do the same.

I'm all ears.

On the other hand, if you hate bailouts, if bailouts make you angry - man oh man, go ahead and Occupy Wall Street, Occupy Wheat Board, hell, Occupy Grandma's House!

But, for the love of God, be consistent.*


(*your humble blogger accepts that expecting rationality from partisans and protesters is akin to expecting rationality from YouTube comments, but, what the hell - a man can dream can't he?)

Thursday, 22 September 2011

Why I am not a political strategist

This letter to Fed Chairman Ben Bernanke is a curious thing. In it, senior Republican politicians ask Ben Bernanke to reconsider doing that thing they think he’s thinking of doing (he didn’t). I readily admit to being completely baffled by the underlying logic.
Now, I understand the political argument that additional quantitative easing, if it works, helps Obama win re-election. Republicans don’t want that. But that puts them in the position of politicians who are both a) meddling with the independence of the central bank, and b) hoping to profit from the misery of Americans. That seems a risky thing to put down in writing.
So that’s the cynical view. On other hand, if the Republicans actually believe that QE is bad for the American economy, then why write the letter? If they are correct, QE will fail and Republicans will ultimately benefit at the polls. Senior Republicans can still position themselves against monetary easing in a very loud and public way. But that is a very different kettle of pike from using your political power to try to influence the decision-making of an independent central bank. Why take that unnecessary risk?
Even if we set aside the shaky economics - is a weak US dollar really bad for the economy guys? really? - and incredibly short-sighted nature of this kind political opportunism, I fail to see where the upside is for Republicans. If someone can think of a good answer, do let me know…

Wednesday, 14 September 2011

You know, some days I really impress myself with... er, myself

In July 2010 I wondered aloud where the recovery was possibly going to come from. Recent months have provided the answer - it wasn't coming after all. 

I really wish I'd put my money where my mouth was.

Monday, 5 September 2011

The iPhone & iPad: Apple's Model T

"In 1909 I announced one morning, without any previous warning, that in the future we were going to be the "Model T," and that the chassis would be exactly the same for all cars, and I remarked: 'Any customer can have a car painted any color that he wants so long as it is black.' I cannot say that any one agreed with me."
- Henry Ford, automotive badass

When it comes to mobile telephony I am, by all accounts, a Luddite. And so it is only after great delay and prolonged mockery by my peers that I am finally looking into buying a smartphone.  But which one? An iPhone, a Blackberry, an Android phone, or one of the myriad of other options? Decisions, decisions.

While it may be that, worldwide, Android phones have the largest (and growing) market share, in North America and certainly among my friends and colleagues it is the iPhone that is dominant. Which is precisely my problem with the clever little device: everyone's bloody got one. The contrarian in me does not want to join the priesthood of the Mac. Besides, they are all exactly the same!

It is this last point which got me thinking about the Model T analogy. In 1913 Ford was nearly half of the car industry, while about 300 firms made up the other half. As we all now know, most of those other firms disappeared very quickly thereafter. Ford managed its dominance by creating a single product - the Model T - that was high quality and cheap. It managed the latter by completely integrating the production process, including the standardization of precision parts to a point where they were interchangeable - a novelty in the industry at the time. 

In much the same way, Apple has managed to dominate selected tech markets by focusing on creating a single product that is far superior to its rivals. The most obvious example is the iPod, which has blown all other mp3 players out of the water. Have you tried looking for rival mp3 players in the recent past? New models from rival companies simply don't exist. Everyone else gave up long ago. Much like Ford's integrated manufacturing process, Apple has dominated the market by creating an integrated in-house user experience by linking the iPod device to its iTunes media player and online store. They have built upon and expanded this business model with their iPhone and now iPad.  

The iModel-T approach seems to be working. In early August Apple briefly surpassed Exxon as the largest firm in the world, measured by market capitalization. In addition, the computer giant HP recently announced it was abandoning smartphones and tablet computing, effectively ceding the battle to Apple and choosing to focus on other business ventures with a more promising future. 

In a world where consumers are paralyzed by the paradox of choice, Apple makes life so much easier by riding to the rescue with a single, easy to use product. There are, however, key differences between the iPhone and Ford's flagship automobile of the early 1900s. For starters, the iPhone doesn't just come in black, but white as well(!) Secondly, unlike the Model T, the iPhone is very, very sexy. For Will Wilkinson, this beauty alone justifies the fact that Steve Jobs and the Apple team have become filthy, stinking, swimming-pool-full-of-Benjamins rich:

"The average American's life is not overfull with gracefully sleek design, to say the least, and in many ways our standards of living have not improved upon that of our parents. But Apple under Mr Jobs has offered the mass market dazzling technical progress with the sort of tastefully luxurious sheen usually reserved for the seriously well-to-do. For this many of us are grateful."

Will's quote illustrates another key difference between the iPhone and the Model T: whereas Henry Ford gambled that consumers would forgive the Model T's ugliness in exchange for paying less for a single, reliable product, Apple has succeeded in convincing consumers to shell out a premium for a beautiful one. 

Unfortunately for Apple, in my case it is precisely this cost premium that motivates my stubborn search for a more reasonably priced, Android-powered alternative. 

Monday, 29 August 2011

Not cool

Much of Asia, particularly Southeast Asia, is a humid place. Very humid. The kind of humidity that doesn't so much hit you like a brick wall when you walk outside, but instead creeps up on you all sneaky-like. One minute you're strolling along the street and the next minute (and it literally is the very next minute) your clothes are shifting like tectonic plates on the liquid layer of sweat that is suddenly coating your entire body. It is pretty gross.

It is therefore no wonder that the wealthier parts of the region are quite fond of their air conditioning. For a visitor not accustomed to the weather it can be a life saver. But for reasons that escape my understanding this fondness for AC has reached levels that, to my eyes, seem batshit crazy. I say that because in many cities in Asia, street-side shops, retailers and large shopping malls seem determined to blast as much AC into the atmosphere as possible.

The Economist has been reporting on this all summer in the context of Japan's energy crisis, but, as they rightly point out, wasting AC is not a particularly Japanese affliction. Last summer I was in Singapore and experienced this first hand: I would be walking along the sidewalk outside of a the entrance to a shopping mall and feel a blast of cold air, even though I was 10-15 feet from the entrance. Why? Because the mall had no doors of course. This, in 30 degree celcius weather and a hundred percent humidity. 

In another instance, the drug store across the street from my hotel had its automatic sliding doors locked open, their role replaced by a curtain of air conditioning that was flowing down from a 2-meter long AC unit mounted just inside the entrance. The mind boggles.

What is the reason behind this wastefulness? Is it an attempt to show off affluence? A tragically misguided attempt to correct global warming? Is it, as The Economist speculates, "culture?" I have no idea. But just know that for every energy efficient light bulb you install, every window you close, every programmable thermostat you install, there are businesses out there steadily undermining your efforts to reduce energy waste. And then some.   

Wednesday, 10 August 2011

There Follows A Rant

George Jonas appears to fall into the category of people who spend too much time writing and not enough time reading. I can’t find any other explanation for the absolutely gobsmacking combination of poor writing, intellectual laziness, and fear-mongering that is his op-ed piece in the National Post today.
Here’s a fun game, boys and girls: try counting the number of metaphors in this shambolic excuse for piece of writing. Go ahead! don’t be shy. I counted over ten. Check out this one paragraph:
“No one resisted it, liberal or conservative, Democrat or Republican. Ronald Reagan added $1.9-trillion to the national debt; George W. Bush dwarfed it by adding $6.1-trillion with his bold foray into the democracy-export business, while Barack Obama added his $2.4-trillion before finishing the first lap of his presidential run. Printing money is an addiction. Deficit is a drug, and death seemed not to impede Keynes’ abilities as a pusher. I doubt if the Tea Party’s provisions will end his long posthumous run — or ours.”
If the Muddled Metaphor Index is a guide, things are looking very bad indeed.
If that game doesn’t pose enough of a challenge, see if you can count the many examples of fallacious thinking found in this piece. Because the argument is so incoherent it is hard to say exactly, but it appears as though Mr. Jonas is attempting to blame Keynesian economics for the fall in financial markets, the euro-crisis, rioting in London, and the entire Arab Spring. That’s quite a claim, so you would expect it to be backed up by some strong arguments and clear analytical thinking.

You would expect wrong.  The fact of the matter is that of Keynes’ economics ol’ Georgey-boy does not appear to have a sweet clue. He probably has not read anything written by Keynes other than the singular quote around which he pivots his article. The extent of his rigorous research is revealed in this passage:

“A Marxist-trained scholar I knew encountered Keynes for the first time when he came to Canada in the mid-1950s.... He remained unimpressed by Von Mises and Hayak [check yo’ spelling, G-money - dh], but Keynes transported him in ecstasy. “Imagine the elegant simplicity,” he told me. “Lord Keynes discovered that if we deny ourselves things we live poorly, and if we deny ourselves nothing, we live well.”

“Are you sure that’s all there is to it?” I asked.
“Yes, yes.”
Seriously George? You asked some random Marxist scholar to summarize Keynes in a single sentence and used that as the premise for your analysis? That is breathtaking intellectual laziness. It is no wonder this piece makes no sense.
But I’m willing to bet this little anecdotal gem was included just so that Jonas could segue into a sentence that begins: “In Soviet-style Keynesian countries...” That is nonsense. Keynes was fiercely opposed to state-controlled economies and his thinking reflected that - his General Theory was precisely an attempt to find an alternative to both communism and the economic ruin of the 1930s. The same holds true for Mr. Jonas' examples of government spending over the years, many of which are not examples of Keynesian economics in any way, shape or form.
But detailing these errors by quoting Keynes’ actual writings would be a waste of time: Mr. Jonas clearly does not care whether our economic problems were caused by Keynesian economics, a perversion thereof, or a whole complex range of other factors. He clearly does not care for accuracy of any kind – this is an ideological tirade within which history, facts and logic have no part to play. Frankly, I’m surprised that he did not somehow weave in a reference to Hitler and Islamo-fascists, for good measure. 
This kind of writing poisons the discourse and makes us dumber. I really hope that the next time Mr. Jonas decides to write an opinion piece on a topic about which he is completely ignorant, he would do the world a favour, step away from his e-typewriter, and go read a bloody book.

Monday, 8 August 2011

Let's Review

  1. U.S. Congress threatens to not make good on U.S. debt
  2. S&P downgrades U.S. debt
  3. Market actors respond by panicking and buying more U.S. debt 
These three phrases speak volumes about our current political and economic environment, not to mention the role and relevance of institutions like legislatures, central banks, and credit rating agencies in shaping market outcomes.
Disturbing? Yes. Inconsistent? Not in the least.

Friday, 29 July 2011

"Policy Failure on a Massive Scale"

I'm about to head off on a blissful long weekend in the woods, and thank God. Civilization has been a real drag for the last little while. I've noticed that even the tone of even more usually reserved commentators has changed to hand-waving and yelling from the rooftops. Take Ryan Avent's post from yesterday on The Economist's Free Exchange blog, which pretty much sums up everything I feel about the situation right now:

"MAYBE everything will turn out all right. One shouldn't forget that possibility. As each day passes, however, frustration grows. Leaders in America and Europe are dallying with failure on an epic scale. They are constrained by dysfunctional institutions, it's true. In Europe, the architecture of the currency union is far too underdeveloped to weather a crisis of the current magnitude. In America, the creaking machinery of the legislature is ill suited to settlement of big questions on a short time frame amid divided government. But it's no longer sufficient to blame inadequate policy responses on institutions alone. America and Europe are flailing because their leaders are failing. They seem to be too small for the tasks at hand, too petty, and too myopic.

Again, it's not like the correct policy path is incredibly complicated. Here, I'll sum it up in three quick steps:
  1. Don't cause a major crisis.
  2. Do spend more and tax less for the next year or so.
  3. Do spend less and tax more after that.
See? That's really easy!"
He's not kidding - it is really easy. Look, the New York Times has even laid out it for you in this awesome little interactive graph. Go ahead, time yourself: see how long it takes YOU to solve the deficit.
Have a lovely weekend. 

Thursday, 28 July 2011

Recommended Debt Ceiling Reading

- James Surowiecki on why we should smash the debt ceiling.

- Why there was never going to be a surplus. A sample:
"Basically, in the grip of careless enthusiasm about the economic future, we borrowed $3 trillion from bond markets and handed it out to citizens in rough proportion to how rich they already were. In the middle of a recovery. This is not a useful thing for the government to do."

- If you haven't seen it already, this interview with Larry Summers is superb, and I found his contrast between working for Obama and Clinton very interesting.

- Oh look, here is Larry again!

Tuesday, 26 July 2011

Friends Don't Let Friends Publish Rambling Op-Eds

One of the reasons I'm back to blogging is that it is highly therapeutic; it provides me an outlet to vent when venting is a better alternative to hair-pulling, gnashing of teeth, wailing, or similar types of activities that annoy my co-workers deeply.

For instance, take today's op-ed in the FT by Alan Greenspan. Now, I'm not a compulsive, Krugman-esque Greenspan-basher like some (Paul Krugman, for instance). But I defy anyone to read this and come away with any understanding of what the former Federal Reserve Chairman is trying to say. Here's my effort:
  1. Capital buffers have a cost as well as a benefit.
  2. The general public are foolish sheep.
  3. Private actors make risk decisions; public actors clean up the mess when they get it wrong.
  4. Private actors got it wrong; financial calamity ensued.
  5. Public actors, regrettably, intervened to clean up the mess; moral hazard ensued.
  6. Sufficient capital buffers would, by definition, have prevented financial calamity and, by extension, the spike in moral hazard.
  7. Public actors are therefore encouraging bigger capital buffers.
  8. Bigger capital buffers are bad.
  9. A debate will occur.


To step away from snarkiness for a moment, there are some very valid points in this piece (particularly about the negative side-effects of higher capital buffers on wealth creation). But taken as a whole, it is an incoherent mess. Not to mention his blithe disregard for the increasingly frequency of financial crises and the enormously negative wealth effects associated with those, too. I am left scratching my head at the FT editors who let this one slip through the cracks. 

Actually, on second thought, maybe they've deliberately done the world a service.

And Now Back To Our Regularly Scheduled Programming....

Let's face it: from a political economy point of view it is basically a blogger's wet dream out there right now: the Arab world just vom-chucked all over its autocrats, the Eurozone's leadership are engaged in a Guinness World Record-seeking attempt to kick the biggest can ever down the road and the political representatives of the United States are holding the global economy hostage while they debate whether they should pay for things they've already agreed to pay for. How can I resist? 

Intermission is over. Get back to your seats. 

Game on.