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Economics – Holiday Reading.

December 23, 2016 Leave a comment

I will be disappearing for a couple of weeks to the beach where there is no internet access. Therefore here are some books that might be worthwhile reading over the festive season – reviews are from amazon.com. I will be back again on 10th January – have a great xmas and new year.

makers-and-takersMakers and Takers: The Rise of Finance and the Fall of American Business by Rana Foroohar

Eight years on from the biggest market meltdown since the Great Depression, the key lessons of the crisis of 2008 still remain unlearned—and our financial system is just as vulnerable as ever. Many of us know that our government failed to fix the banking system after the subprime mortgage crisis. But what few of us realize is how the misguided financial practices and philosophies that nearly toppled the global financial system have come to infiltrate ALL American businesses, putting us on a collision course for another cataclysmic meltdown.

 

 

Circus Maximus: The Economic Gamble Behind Hosting the Olympics and the World Cup by Andrew Zimbalist

Circus Maximus.jpgThe numbers are staggering: China spent $40 billion to host the 2008 Summer Olympic Games in Beijing and Russia spent $50 billion for the 2014 Sochi Winter Games. Brazil’s total expenditures are thought to have been as much as $20 billion for the World Cup this summer and Qatar, which will be the site of the 2022 World Cup, is estimating that it will spend $200 billion. How did we get here? And is it worth it? Both the Olympics and the World Cup are touted as major economic boons for the countries that host them, and the competition is fierce to win hosting rights. Developing countries especially see the events as a chance to stand in the world’s spotlight. This book is also reviewed here by Michael Cameron on his blog Sex, Drugs and Economics.

 

 

Global Inequality: A New Approach for the Age of Globalization by Branko Milanovic

Global Inequality.jpgThis is a scholarly book about global inequality, that is, ‘income inequality among citizens of the world’. It is, as Milanovic explains, ‘the sum of all national inequalities plus the sum of all gaps in mean incomes among countries’.

In his study, Milanovic focusses on the Kuznets hypothesis – that in industrialized countries, inequality will initially increase and then decrease, resulting in an inverted U-shaped curve. In recent times, inequality seems to be rising when all the factors indicate that it should have followed the Kuznets curve. Milanovic explains why the projected pattern did not materialise. One can point to ‘the hollowing of the middle class and the rising political importance of the rich’, but there are other factors. Milanovic explains the phenomenon through the historical data of the Kuznets curve in countries across the world.

This is a learned, but dry and technical treatise on a subject that seems to evade comprehension even by renowned economists and political scientists. That is not to say that Milanovic is a boring writer. This book will be appealing to economic and political science students, but the general reader may find Milanovic’s 2011 book, ‘The Haves and the Have-nots’ more interesting and palatable.

Categories: Financial Markets, Inequality, Sport Tags:

Inequality: What can be done? review by Thomas Piketty in NYR

October 31, 2015 Leave a comment

Inequality what can be doneI recently read another piece from the New York Review of Books – a review by Thomas Piketty (‘Capital in the Twenty-first Century’ fame) of the new book ‘Inequality: What can be done?’ by Anthony Atkinson. He is innovative in his ideas and shows that alternatives still exist. He proposes the following:

  • Universal family benefits by progressive taxation policies
  • Guaranteed public sector jobs as a minimum wage for the unemployed
  • Democratisation of access to property via an innovative national savings system with guaranteed returns for depositors
  • Inheritance for all with a capital endowment at age18 financed by an estate tax

1908’s – UK and US income tax rate reductions

Atkinson does mention the reduction in income tax rates that were instigated by the Thatcher government. The top marginal rate was reduced to 40% – the rate was 83% when Thatcher’s conservative government first came to power in 1979. A conservative MP got quite excited by this and is reported to have said ‘he did not have enough zeroes on his calculator’ to measure the size of his tax cut that he helped to endorse. This break with a half-century of progressive tax policy in the UK was Thatcherism’s distinctive accomplishment. Across the Atlantic US President Ronald Reagan was also in a tax cutting mood and reduced the top marginal tax rate to 28%. Succeeding governments in the UK under Tony Blair (Labour) and in the US under Bill Clinton (Democrats) didn’t change the tax policy that was left by both the Conservatives and the Republicans respectively. This lowering of the top marginal income tax rates contributed to the increase in inequality since the 1980’s.

A more progressive tax rate

Atkinson proposes top rates of income tax in the UK of 55% for annual income above 100,000  and 65% for annual income above £200,000, as well as a hike in the cap on contributions to national insurance. This will allow for a significant expansion of the UK social security and income redistribution system – family benefits and unemployment benefits. According to Atkinson if these taxes were implemented the level of inequality would be reduced significantly.

New rights for those with fewest rights

Atkinson proposes include guaranteed minimum-wage public jobs for the unemployed, new rights for organized labour, public regulation of technological change, and democratisation of access to capital. Piketty alludes to two of Atkinson’s innovative suggestions:

  1. The establishment of a national savings program allowing each depositor to receive a guaranteed return on her capital. Given the drastic inequality of access to fair financial returns, particularly as a consequence of the scale of the investment with which one begins (a situation that has in all likelihood been aggravated by the financial deregulation of the last few decades), this proposal is particularly sound
  1. The establishment an “inheritance for all” program. This would take the form of a capital endowment assigned to each young citizen as he or she reached adulthood, at the age of eighteen. All such endowments would be financed by estate taxes and a more progressive tax structure. He calls for a far-reaching reform of the system of inheritance taxation, and especially for greater progressivity with regard to the larger estates. (He proposes an upper rate of 65 percent, as with the income tax.) These reforms would make it possible to finance a capital endowment on the order of £10,000 per young adult.

A Wealth Tax

He also proposes a progressive tax system on real estate and eventually on net wealth. Stamp duty, which is a tax on real estate transactions, would be implemented as follows:

  • 0% tax if property worth less than 125,000
  • 1% tax if property worth between £125,000 and £250,000
  • 3% tax if property between £250,000 and £500,000
  • 5% tax between one and two million pounds (a new rate introduced in 2011)
  • 7% tax on properties worth more than two million pounds (introduced in 2012)

Many have called into question the financing of the British welfare state (especially the National Health Service) through taxes. This was seen as an unacceptable form of competition by those countries where the cost of the welfare state rested on employers. A substantial proportion of the British left at the time saw in Europe and its obsession with “pure and perfect” competition a force that was hostile to social justice and the politics of equality.

Categories: Inequality, Unemployment Tags: , ,

Interview with Shamubeel Eaqub – Generation Rent

June 8, 2015 Leave a comment

bwbtextcoverwebhighresgeneration-rentawBelow is a link to an interview with Shamubeel Eaqub on National Radio’s Sunday Morning programme. NZ Institute of Economic Research principal economist on the the country’s evolving rental market, the basis of his new book ‘Generation Rent – Rethinking New Zealand’s Priorities’.

House prices may boom or bust but the long-term trend is clear: for more New Zealanders than ever, home ownership is out of reach. Incomes simply have not kept pace with skyrocketing property prices.‘Generation Rent’ calls into question priorities at the heart of New Zealand’s identity.

In this BWB Text, Shamubeel and Selena Eaqub investigate how we ended up here, and what can be done to ensure all New Zealanders – home owners and renters alike – live in affordable and secure housing.

RNZ Interview – Shamubeel Eaqub

Categories: Inequality Tags: ,

High-Frequency Trading (HFT) – Speed Kills

March 29, 2015 Leave a comment

Flash CrashJames Surowiecki (writer in the New Yorker) wrote a very informative review (in the New York Review of Books) of Michael Lewis’ book ‘Flash Boys’ about the rise of high-frequency trading (HFT) on Wall Street. As the name suggests, high-frequency traders buy and sell in large volumes and at an extraordinary fast pace, trading thousands of times a second. The decisions of the trader are driven by complex algorithms which are designed to follow a defined set of instructions in order to generate profits at a speed and frequency that is impossible for a human trader. The defined sets of rules are based on timing, price, quantity or any mathematical model.

It is estimated that 70% of trading in US stocks is done using. Lewis notes that:

By the summer of 2013, the world’s financial markets were designed to maximize the number of collisions between ordinary investors and high-frequency traders – at the expense of ordinary investors, and for the benefit of high-frequency traders, exchanges, Wall Street banks, and online brokerage firms.

Advocates of HFT will tell you that HFT provides liquidity and this means that the market has a lot of buyers and sellers which suggests that you can make trades without moving the price too much. A liquid market means that people will be more likely to invest. However there are those that worry about the liquidity of HFT as it could be illusory as it could disappear very quickly if stock prices collapse. Andrew Haldane of the Bank of England put it – the fear about this liquidity is that ‘in wartime, it disappears’. Furthermore, HFT has also produced huge swings in stock prices. On 6th May 2010 – know as the ‘Flash Crash of 2.45pm’ – the DJIA fell 9% in 5 minutes but then recovered most of that loss in the subsequent few minutes. But what is most worrying is that nobody can agree what happened because nobody had any control over it. It seems that we are writing things (algorithms) that we can no longer read. We should be worried about HFT as it reduces the amount of the quantity of real and valuable information in the stock market system. It make the system as a whole less stable and more risky. And it devotes an enormous amount of resources to an arms race that is of dubious value.

HFT and the real economy

A recent study of the commodity market found that up to 70% of all price movements in those markets didn’t correlate to events in the global economy. The price movements were driven by algorithms reacting to internal action in the market. This not only makes the market dumber but also a lot more unstable as humans find it impossible to oversee it – e.g Flash Crash of 2.45pm. If HFT traders add liquidity to the market then when the market crashed on 6th May they should have stepped in by buying falling prices of stocks. Turmoil in the markets is nothing new but the speed that it happens today makes trading harder to control raising systemic risk. Some companies will go to get great lengths to improve the speed of trades. In July 2010 a one-inch cable was completed to send a signal from Chicago to New Jersey at a cost of US$300 million. The improvements brought down the estimated roundtrip time of the signal from 13.1 milliseconds to 12.98 milliseconds. But when you are an algorithm 0.3 milliseconds is a long time. The billions of dollars that have been put into HFT over the last 6 years have only had a small impact on the ordinary investor. HFT looks like an arms race as it consumes an enormous amount of resource but generates very little social value and damages the market in the process.

Economics – Holiday reading

December 22, 2014 Leave a comment

I will be disappearing for a couple of weeks to the beach where there is no internet access. Therefore here are some books that might be worthwhile reading over the festive season – reviews are from Amazon.com. I will be back again on 5th Januray – have a great xmas and new year.

Flash Boys: A Wall Street Revolt
by Michael Lewis
Flash Boys is about a small group of Wall Street guys who figure out that the U.S. stock market has been rigged for the benefit of insiders and that, post–financial crisis, the markets have become not more free but less, and more controlled by the big Wall Street banks. Working at different firms, they come to this realization separately; but after they discover one another, the flash boys band together and set out to reform the financial markets. This they do by creating an exchange in which high-frequency trading—source of the most intractable problems—will have no advantage whatsoever.

GDP: A Brief but Affectionate History
by Diane Coyle
Why did the size of the U.S. economy increase by 3 percent on one day in mid-2013–or Ghana’s balloon by 60 percent overnight in 2010? Why did the U.K. financial industry show its fastest expansion ever at the end of 2008–just as the world’s financial system went into meltdown? And why was Greece’s chief statistician charged with treason in 2013 for apparently doing nothing more than trying to accurately report the size of his country’s economy? The answers to all these questions lie in the way we define and measure national economies around the world: Gross Domestic Product. This entertaining and informative book tells the story of GDP, making sense of a statistic that appears constantly in the news, business, and politics, and that seems to rule our lives–but that hardly anyone actually understands.

How to Speak Money: What the Money People Say–And What It Really Means
By John Lanchester
To those who don’t speak it, the language of money can seem impenetrable and its ideas too complex to grasp. In How to Speak Money, John Lanchester — author of the New York Times best-selling book on the financial crisis, I.O.U.—bridges the gap between the money people and the rest of us. With characteristic wit and candor, Lanchester reveals how the world of finance really works: from the terms and conditions of your personal checking account to the evasions of bankers appearing in front of Congress. As Lanchester writes, we need to understand what the money people are talking about so that those who speak the language don’t just write the rules for themselves.

Why Nudge?: The Politics of Libertarian Paternalism
by Cass R. Sunstein
Based on a series of pathbreaking lectures given at Yale University in 2012, this powerful, thought-provoking work by national best-selling author Cass R. Sunstein combines legal theory with behavioral economics to make a fresh argument about the legitimate scope of government, bearing on obesity, smoking, distracted driving, health care, food safety, and other highly volatile, high-profile public issues.

Categories: Uncategorized Tags:

How to Speak Money – a new book from John Lanchester

September 14, 2014 Leave a comment

Will Self called John Lanchester’s previous book on money and banking – the bestselling ‘Whoops!’ – as ‘the routemap to the crazed world of contemporary finance we’ve all been waiting for’. If ‘Whoops!’ was the routemap, then his new book ‘How to Speak Money’ is the phrasebook. It shows you that it’s possible to learn to speak the language of money. Possible, desirable and perhaps even necessary if we’re to avoid feelings of complete helplessness and bafflement when confronted with the big financial forces that shape our lives.

Diane Coyle – Keynote Address

July 3, 2014 Leave a comment

GDP CoyleJust attending the New Zealand Association of Economists 55th Annual Conference and it was great to hear Diane Coyle present as one of the Keynote speakers. I was originally alerted to her work by Geoff Riley – an economics teacher at Eton College and co-founder of the Tutor2u website – while I was on a Fellowship. He recommended her book ‘The Soulful Science’ back in 2007. The book aims to show how the discipline of economics has changed over the last decade and brings together economic growth and human behaviour.

Her talk was based on the research into her new book GDP: A Brief but Affectionate History. She goes right back to the Domesday Book which was a manuscript record of how much each landholder in England and Wales had in land and livestock, and what it was worth. This was completed in 1086 on orders of William the Conqueror. Further mentions of Adam Smith and Karl Marx and what they tended to focus on as an economic indicator. Interesting to note that Holland has included prostitution in its GDP calculations and that the Italian statistical body recently announced that it will include prostitution, drug trafficking, and alcohol-and-tobacco in its calculation of GDP. However Italy is just complying with international accounting standards and reporting illegal economically productive activity is required under European Union rules. But as it is part of the informal economy how do you actually measure drug deals, prostitution etc and therefore its contribution to a country’s GDP?

There is also the intangible economy – how do you measure the output of Vodafone v Skype? Also how are sustainability, variety and innovation measured? If her talk was anything to go by her book seems well worth it.

Categories: Growth Tags:

Diane Coyle in Auckland

June 30, 2014 Leave a comment

NZAE ConfThis year the annual conference of the New Zealand Association of Economisst takes place at the Auckland University of Technology from the 2nd – 4th July. One of the keynote speakers is Diane Coyle from the UK who runs the consultancy Enlightenment Economics. She also has a great website called ‘The Enlightened Economist’ in which she reviews economics and business books. She is the author of several books, including recently:

GDP: A Brief and Affectionate History (Princeton University Press, 2014 forthcoming),
The Economics of Enough (Princeton University Press 2011)
The Soulful Science (2007),

She also edited ‘What’s the Use of Economics: Teaching the Dismal Science after the Crisis’ self-questions economics by economists of a discipline that did not anticipate the crisis and has barely changed since despite its self-evident shortcomings.She was previously Economics Editor of The Independent and before that worked at the Treasury and in the private sector as an economist. She has a PhD from Harvard.

Below is a link to the conference website:

NZAE Annual Conference

Categories: Eco Events Tags:

Flash Boys – Michael Lewis’ new book

April 6, 2014 Leave a comment

Here is a video from a PBS interview with Michael Lewis talking about his new book “Flash Boys: A Wall Street Revolt.” Much of the stock market trading that occurs today is done with computer servers, completing hundreds of millions of orders in a system known as high-frequency trading. Author Michael Lewis has made this practice the subject of his latest book.

Click below to view an adaptation from The New York Times magazine.
The Wolf Hunters of Wall Street

Diane Coyle in Auckland

January 24, 2014 Leave a comment

NZAE ConfThis year the annual conference of the New Zealand Association of Economisst takes place at the Auckland University of Technology from the 2nd – 4th July. One of the keynote speakers is Diane Coyle from the UK who runs the consultancy Enlightenment Economics. She also has a great website called ‘The Enlightened Economist’ in which she reviews economics and business books. She is the author of several books, including recently:

GDP: A Brief and Affectionate History (Princeton University Press, 2014 forthcoming),
The Economics of Enough (Princeton University Press 2011)
The Soulful Science (2007),

She also edited ‘What’s the Use of Economics: Teaching the Dismal Science after the Crisis’ self-questions economics by economists of a discipline that did not anticipate the crisis and has barely changed since despite its self-evident shortcomings.She was previously Economics Editor of The Independent and before that worked at the Treasury and in the private sector as an economist. She has a PhD from Harvard.

Below is a link to the conference website:

NZAE Annual Conference

Categories: Eco Events Tags:

Smarter Spending

January 21, 2014 1 comment

Happy MoneyA recently released book that I read in the holidays entitled “Happy Money” provides new research into the science of spending. The authors (Liz Dunn and Mike Norton) explain how you can get more happiness for your money by following five principles:

1. Buy Experiences

Owning material things from expensive homes to luxurious cars turn out to provide less happiness than holidays, concerts and special occasions.

An exercise that they suggest is to think of purchases you’ve made to increase your happiness. Consider one purchase that was a tangible object that you could keep – iPhone, clothes etc. Then think of a purchase you made that gave you a life experience – holiday, concert or a meal out. Remembering the experience brings to mind friends and family, sights etc. Which of these purchases made you happier?

2. Make it a Treat

For residents in a city with famous tourist sites there is the inclination to never visit them as they are always there. When something is always there people are less likely to appreciate it. However limiting our access to something may renew our capacity for pleasure. Rather than giving up something completely the authors advocate turning our favourite things into treats – afternoon Cappuccino. This also applies to driving a luxury car – research has shown that driving a luxury car provides no more happiness than an economy model.

3. Buy Time

By getting other people to do those dreaded tasks money can transform the way we spend our time, freeing us to pursue our passions. A lot of people fail to use their money to buy themselves a happier time. When people focus on thier time rather than their money, they act like scientists of happiness, choosing activities that promote well-being. For companies this principle entails thinking about compensation in a broader way, rewarding employees not only with money, but with time.

4. Pay Now, Consume Later

Today with the availability of credit access to goods is instantaneous. However by putting this powerful principle in reverse – paying first and taking delivery later – you can buy more happiness as delaying consumption allows spenders to reap the pleasures of anticipation without a short period of happiness. Holidays provide more happiness before they actually occur. Research shows that waiting for something – a chocolate – makes it taste better when we get it.

5. Invest in Others

Bill Gates and Warren Buffet pledged the majority of their wealth to charity and they are very happy with that decision. New research shows that spending on others provides a bigger happiness boost than spending on yourself. Investing in others can make individuals feel healthier and wealthier.

Categories: Behavioural Economics Tags:

A2 – Developing Economies and the Global Financial Crisis.

August 13, 2012 Leave a comment

Just completing the Unit 6 of the A2 course and updating my notes on the current issue of debt hangover from the Global Financial Crisis. The FT recently reported that there are worrying signs of private sector credit in emerging economies.

Turkey Brazil Russia – private sector credit in year to April 2012 up 20%.
China – private sector credit in year to April 2012 up 15%.
Poland – private sector credit to GDP 49%

This is seen as inevitable if an economy is going to grow but there needs to be investment in capital which will ultimately increase a country’s productive capacity and long-term development. However a lot of this borrowing has gone into consumer goods rather than capital infrastructure projects. This is especially worrying in Brazil as the transport system needs a major overhaul if it is going to cope with the demands of the Olympic Games in 2016. According to the FT misdirected credit can produce two damaging consequences:

1. When too much money is directed into the housing market bubbles can occur – subprime for instance and more recently China.
2. Poor credit allocation can harm economic growth, both in the short and in the long term.

Although China and Brazil has loosened monetary policy this needs to be accompanied by a process that ensures it is directed to where it is most needed. Jeffrey Sachs in his book “End of Poverty” talked about how a country needs six major kinds of capital:

1. Human capital: health, nutrition, and skills needed for each person to be economically productive

2. Business capital: the machinery, facilities, motorized transport used in agriculture, industry, and services

3. Infrastructure: roads, power, water and sanitation, airports and seaports, and telecommunications systems, that are critical in-puts into business productivity

4. Natural capital: arable land, healthy soils, biodiversity, and well-functioning ecosystems that provide the environmental services needed by human society

5. Public institutional capital: the commercial law, judicial systems, government services and policing that underpin the peaceful and prosperous division of labor

6. Knowledge capital: the scientific and technological know-how that raises productivity in business output and the promotion of physical and natural capital

Figure 1 shows the basic mechanics of saving, capital accumulation, and growth. We start on the left-hand side with a typical household. The household divides its income into consumption, taxation, and household savings. The government, in turn, divides its tax revenues into current spending and government investment. The economy’s capital stock is raised by both household savings and by government investment. A higher capital stock leads to economic growth, which in turn raises household income through the feedback arrow from growth to income. We show in the figure that population growth and depreciation also negatively affect the accumulation of capital. In a “normal” economy, things proceed smoothly toward rising incomes, as household savings and government investments are able to keep ahead of depreciation and population growth.
Source: The End of Poverty: How we can make it happen in our lifetime by Jeffrey Sachs (2005).

The Fear Index – if you’re a Wall Street algorithm and you’re five microseconds behind, you’re a loser.

March 22, 2012 2 comments

Robert Harris’ latest book, “The Fear Index,” stars a hedge fund driven by an algorithm run wild. In researching his book he went to observe a hedge fund in London. Basically it was a room full of computers and in the course of 20 minutes he watched one computer made $1.5m by itself. The interview below with Paul Solman of PBS is quite revealing when you consider the lengths that some will go to get a competitive edge on their opponents. In the book they develop an algorithm that can predict the markets by analysing the incidence of fear-related words on the Internet, trends on Facebook, Twitter, the sense of a mood. Although Harris thought that this was original he subsequently found out it has been going on for sometime. Bloomberg News feeds are digitalized and go straight into the machine, and buzzwords are picked out, “panic, rumor, fear, slump.” A few milliseconds could be the difference between success and failure in the markets.

The extent that these traders will go to in extreme. In the U.S., high-frequency firms represent only 2 percent of the 20,000 or so trading firms operating today. But they now account for nearly three-quarters of all trades. And the average time a stock investment is held these days is 22 seconds. If time is money, microseconds are now millions. In a recent TED talk on cutting-edge technology, tech whiz Kevin Slavin wowed the audience by describing buildings now being hollowed out in Lower Manhattan. Why? So that high-frequency trading firms can move in and get as close as possible to New York’s point of entry for the Internet at a so-called carrier hotel in Tribeca. You can view his complete TED Talk by clicking here. A great quote that he made was as follows:

Just to give you a sense of what microseconds are, it takes you 500,000 microseconds just to click a mouse. But if you’re a Wall Street algorithm and you’re five microseconds behind, you’re a loser.

Keynes 1926 pamphlet could have been written today.

February 28, 2012 Leave a comment

Diane Coyle runs a blog called “The Enlightened Economist” which is very good for reviews of recently published economics books. One of her recent posts talked of the republished 1926 pamphlet by John Maynard Keynes – ‘The End of Laissez Faire’. Though Keynes states that an economy should be free of government intervention he suggests that government can play a constructive role in protecting individuals from the worst harms of capitalism’s cycles, especially concerns about levels of unemployment. Diane Coyle produces a quote (see below) from the book which is ironically similar to what is the anti-capitalist sentiment today. She also suggests that we need to go beyond the state versus market debate and recongize that the two type of systems need to work together to alleviate problems such unemployment, externalities, uncertainty, well-being etc.

“Many of the greatest economic evils of our time are the fruits of risk, uncertainty, and ignorance. It is because particular individuals, fortunate in situation or in abilities, are able to take advantage of uncertainty and ignorance, and also because for the same reason big business is often a lottery, that great inequalities of wealth come about; and these same factors are also the cause of the unemployment of labour, or the disappointment of reasonable business expectations, and of the impairment of efficiency and production. Yet the cure lies outside the operations of individuals; it may even be to the interest of individuals to aggravate the disease.”

He then goes on to say

“I believe that the cure for these things is partly to be sought in the deliberate control of the currency and of credit by a central institution, and partly in the collection and dissemination on a great scale of data relating to the business situation, including the full publicity, by law if necessary, of all business facts which it is useful to know. These measures would involve society in exercising directive intelligence through some appropriate organ of action over many of the inner intricacies of private business, yet it would leave private initiative and enterprise unhindered. Even if these measures prove insufficient, nevertheless, they will furnish us with better knowledge than we have now for taking the next step.”

Holiday reading

December 23, 2011 Leave a comment

Here are some books that might be of interest for the holiday period. I am off to the beach and out of internet range for 3 weeks. Will resume normal service on 15th January. Have a merry xmas and a happy new year.
————————————————————————————————————————

This Time Is Different: Eight Centuries of Financial Folly by Carmen M. Reinhart & Kenneth Rogoff

This Time Is Different presents a comprehensive look at the varieties of financial crises, and guides us through eight astonishing centuries of government defaults, banking panics, and inflationary spikes–from medieval currency debasements to today’s subprime catastrophe.

The Darwin Economy: Liberty, Competition, and the Common Good by Robert H. Frank

Who was the greater economist–Adam Smith or Charles Darwin? The question seems absurd. Darwin, after all, was a naturalist, not an economist. But Robert Frank, New York Times economics columnist and best-selling author of The Economic Naturalist, predicts that within the next century Darwin will unseat Smith as the intellectual founder of economics.

The Price of Civilization: Economics and Ethics After the Fall by Jeffrey Sachs

The world economy remains in a precarious state after the recent global recession – where quick fixes were implemented instead of sustainable solutions to systemic problems. Jeffrey Sachs argues powerfully for a new co-operative, common-sense political economy, one that stresses practical partnership between government and the private sector, demands competence in both arenas and occasionally insists on carefully chosen public and private sacrifices. In this new era of global capitalism, Sachs believes that we have to forget partisanship and solve these enormous problems together, clinically and holistically, just as one would approach the eradication of a disease.

TED Talk – Inequality by ‘Spirit Level’ author

November 4, 2011 1 comment

Here is a TED Talk by Richard Wilkinson who is the co-author of “The Spirit Level – Why More Equal Societies Almost Always Do Better”. The books focuses on how inequality in a country is conducive to unhealthier, unhappier, greater obesity, higher crime rates etc. However critics have said it lacks substantive data – can we say that because New Zealand has a bigger income gap than Greece that it has greater social problems? Richard Wilkinson goes through a lot of the graphs and data that he mentions in the book.

Categories: Inequality Tags: ,

Tim Harford aka “Undercover Economist” in Wellington, NZ

June 28, 2011 Leave a comment

Tim Harford is currently in Wellington attending the New Zealand Association of Economists annual conference. He will present the McMillan Lecture, on Wednesday 29 June, drawing from his work as The Undercover Economist on the economic motivations of everyday behaviour. In his new book ‘Adapt‘ Tim Harford argues that the process of innovation is bogged down in the sheer complexity of the modern world.

Good ideas are suffocated by bureaucracy while bad practices and dangerous errors flourish in dysfunctional markets. To find solutions to some of the big problems – climate change, financial instability, global poverty – we must go back to basics, examining the circumstances in which ingenuity has broken through in the past, and then considering how to replicate them.

The starting point is evolution. Harford cites compelling statistical evidence that the way companies have risen and fallen throughout history neatly resembles Darwinian selection. Clusters of bankruptcies occur amid periods of relative stability in a pattern that can be accurately mapped, albeit on a different time scale, on to patterns of extinction in the fossil record. Computer models that simulate how the fittest species mutations survive can also accurately predict likely survival rates for new businesses in the marketplace. This is a bit of an ego blow to swaggering executives who think their tremendous commercial acumen is what has saved them from ruin and earned them their fat bonuses. Luck and timing are just as important, if not more so. Guardian Weekly

Below: Tim Harford launches his book at the RSA

Categories: Behavioural Economics Tags:

Scorecasting – loss aversion and home field advantage

May 12, 2011 Leave a comment

Just finished reading the book Scorecasting by University of Chicago behavioural economist Tobis Moskowitz and Sports Illustrated writer Jon Werheim. Although predominately based on the main sports in the US it does make for interesting analysis of the behaviour of players and officials during certain periods of a competitive game. They mention the fact that the strike zone in baseball gets smaller when there are two strikes on the batter. The strike zone is smallest when there are two strikes and no balls and largest when there are three balls and no strikes. However there were two areas that were particular interesting:

1. When golfers try to make a birdie they are less successful than when they line up the extact same putt for par.

Researchers found that professional golfers display a more aggressive behaviour on par versus birdie putts. When they missed birdie putts they tended to leave the ball short of the hole. Tiger Woods said that “Anytime you make big par putts., I think it’s more important to make those than birdie putts. You don’t ever want to drop a shot. The psychological difference between dropping a shot and making a birdie, I just think it’s bigger to make a par putt.” Why should golfers behave in this way as it is your final round total that counts and does it matter how you get there? According to the authors it is all about Loss Aversion and when they are threatened with the dropping of a shot they tend to try harder

2. What is driving the home field advantage? – for example from the Spanish Premier League La Liga

Three Spanish economists, all soccer fanatics, studied the behaviour of officials’ conduct during home games. They looked at 750 matches from the premier league in Spain and found that:
* when the home was winning referees shortened the extra time on average by 2 mins
* when the home team was losing referees added to the extra time on average by 4 minutes
* when the score was level the average injury time was correct – around 3 minutes.
* when a team was ahead by 2 goals or more there was no bias at all. Adding additional time to a game that has a clear favourite is unlikely to change the outcome and therefore accrue much benefit, so why risk the potential cost of being told off by superiors for playing too much time.

When 3 points were introduced for a win, injury time increased notably.

The researchers also found the exact same injury time bias, in favour of the home team, exists in the English Premier League (remember the post on Fergie Time), Italian Serie A league, the German Bundesliga, the Scottish league, and even MLS in the US.

Categories: Behavioural Economics, Sport Tags:

Holiday Reading

April 15, 2011 Leave a comment

Now that the Term has come to a close here in New Zealand below are some books that may take your interest for the holiday period. I am also on holiday and will be out of internet range till Saturday 23rd April – I’ll be back on deck then.

Griftopia by Matt Taibbi
He is a writer for Rolling Stone and talks about the unravelling of the US economy with special mention of Goldman Sachs.

The Spirit Level by Richard Wilkinson and Kate Pickett
The books focuses on how inequality in a country is conducive to unhealthier, unhappier, greater obesity, higher crime rates etc. However critics have said it lacks substantive data – can we say that because New Zealand has a bigger income gap than Greece that it has greater social problems?

Scorecasting: The Hidden Influences Behind How Sports Are Played and Games Are Won
by Tobias J. Moskowitz
Tobias J. Moskowitz
Much like the highly successful Freakonomics it looks into some of the preconceptions surrounding sport, using statistics and other empirical evidence to reach some interesting conclusions.

Fergie Time – Behavioural Economics and Sport

March 23, 2011 1 comment

A recently published book entitled “Scorecasting: The Hidden Influences Behind How Sports Are Played And Game Are Won” is, I am informed, an absorbing read on the behavioural economics of sport. Recently reviewed in The Economist, the book uses sport to test economic theories about decision-making. The objectives of those in sport is easily measurable and the results of each game is extremely clear – win, draw, loss. They discuss home advantage and discovered that the home team win:
– 54% of games in Major-league Baseball
– 60% of cricket
– 63% English Premier League
– 69% in American College Basketball

Fergie Time
Research shows that referees are more likely to favour the home team with penalties and yellow and red cards. Furthermore, if the home team is winning there is less stoppage time added on but quite the contrary if the home team is losing – that is they add more stoppage time. The added or reduced time at Old Trafford when Man Utd are trailing/drawing or winning is know as Fergie Time – named after Alex Ferguson the manager at Manchester Utd.

But the authors of the book suggest that referees are not biased but they tend to rely on crowdsourcing, picking up the mood of the crowd when making their decision. Economists refer to this as Anchoring which refers to people’s propensity to be exceedingly infuenced by external factors (eg. the crowd). But when a home crowd is taken away there is a different set of results. Becasue of crowd violence 21 games in the Italian League where played to empty stadiums. In these games the home bias declined by:
– 23% on fouls called
– 26% for yellow cards
– 70% for red cards

This was more prevalent in soccer as they are many more decisions to be made by the referee than in other sports.

Loss Aversion and Golf
The authors also look at golf and found that players tend to care more about saving par rather than, a similar-sized gain, making a birdie. This doesn’t make sense as it is the number of strokes over the course of 18 holes is what counts.

Categories: Behavioural Economics, Sport Tags:
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