Truck and Barter

Birthdays

Adam Smith, from whose writings the name Truck and Barter was culled, was born today in 1723. John Maynard Keynes, the exotic blend of free thinker, liberal, and political pragmatist was born today in 1883.

Let's extrapolate the trend from these two data points: Will another great economist be born on June 5, 2043? Seems silly, no? How many other predictions do we make from only two widely spaced historical observations?

Random Stuff

You never know what you'll find going through the referrals:

How does regulation affect the pron industry? Check out Agoraphilia to discover the possibilities(thanks to Mahalanobis).

Also from Mahalanobis, is an entry talking about how Austrians have Yen based loans and mortgages. I find this fantastic and, hence, sent an email for clarification. It seems counter-intuitive for Austrians to get Yen based loans when they have the Euro.

You should check the whole blog, especially since he has similar interests to Ian's.

The Calico Cat mentions Truck&Barter; as a great blog while lamenting the Jessica Cutler controversy. Michael doesn't mention this blog's attempt to appeal to the same crowd. What is interesting is this post on the right's favorite slot jockey. From what people tell me, hiring a dominatrix isn't necessairly about sex, so would there be a real controversy?

Edit: I changed the credit from Kevin to Ian for the post concerning, well you figure it out.

Slovakia's Economic Reforms

This morning, while watching the market absorb the latest employment numbers, I perused some recent issues of Institutional Investor. The February edition talked about some of the reforms coming out of Slovakia recently. The list is fairly impressive. From what it says in the article, other countries in the region have taken notice and Slovakia's actions may drive reforms in the region. The results have been good so far:

An economic turnaround is now evident. In 2002, GDP grew by 4.4 percent--twice the rate of that in the Czech Re public--and expanded by an estimated 4 percent in 2003. In 2002, Slovakia drew $3.7 billion in foreign direct investment--six times more than Hungary. From 1998 to the end of 2003, foreign investment totaled an estimated $9.3 billion. A hefty share of this investment is going into auto manufacturing, an industry in which Slovakia is emerging as the regional powerhouse, much to the chagrin of Czechs, Hungarians and Poles (see box, page 70). "Slovakia is becoming the biggest recipient of FDI per capita in the region," says Nora Szentivanyi, a London-based economist for J.P. Morgan Europe.

Continue reading "Slovakia's Economic Reforms"

Google IPO

A CBS MarketWatch article points out the weariness that fund managers have about the Google IPO. Much of it sounds like snivelling that they have lost their advantage over retail investors:

They don't like the sounds of getting in at a price they can't make money off of. They fear the price they'd be receiving isn't much of a discount than what retail buyers would get.

It's akin to bypassing the high mark-ups you'd get from Pottery Barn, Saks or any retail outlet for that matter. Where's the value for such middlemen retailers? If Google were a new brand of wildly popular jeans sold at the same price to both consumers and retailers, then retailers might opt to buy cheaper imitations or jean jackets they can offload to consumers at higher prices.

In like vein, fund managers are finding alternative investments to play the positive sentiment surrounding the IPO.

To be sure, some fund managers expect the Google IPO to be the top of the Internet market. They'd look to short most Net shares. But I would argue that Google planned its IPO well.

I would say that Google planned its IPO well to extract as much money out of the market as possible. Initial trading of the stock is likely to be down which is contrary to how most internet stocks traded in the late nineties. The reason is simple; who is left to buy at that price? If the hesitency of fund managers to participate is widespread, it is conceivable that it may open lower than expected and institutions may jump in at that point. I think that's unlikely to happen and that individuals are likely to bid up the IPO price. There is something in the market called 'natural selling' which means that there is always somebody out there holding a stock who needs to paint the garage or pay for their daughters wedding. This phenomenom is why in slow markets, it seams stocks like to drift down. I find this much more common in smaller stocks who don't have much coverage. So, if you're planning to participate, I recommend a low ball bid.

Efficiency Wage

Here is some anecdotal evidence of the efficiency wage. This is, for those not familiar, when a company pays a higher than market clearing in return for a greater effort from its employees. From this article in LZ-NET.de:

One analyst at Deutsche Bank in the USA is quoted as having said that "it's better to be an employee at Costco, than a shareholder." But if one takes a closer look at the economic indicators for both companies it becomes clear that the analysts are actually wearing blinkers. Despite paying higher wage costs, Costco is much higher on productivity. Sam's Club turnover of USD 35 billion is achieved by 102,000 employees, whilst Costco's USD 34 billion is achieved by only a fraction of that number, 68,000 employees. Costco's productivity per square meter is 54 per cent higher than that of Sam's Club, its productivity per employee is 45 per cent higher, while its profits are almost 24 per cent higher.

Before you start saying "we're all Keynesians now", a couple of things need to be pointed out. First, Costco formerly went after a higher end clientele, not everybody could join. The result of this discrimantion is that the company has a substantial higher per check out ticket than its competitors. Second, Costco may pay a higher wage, but their workers may be higher skilled as well. In reality, each companies workers may be receiving the same pay rate for the amount of skill they have. This is different from saying that you could pay the the Sam's Club employee the same as Costco and get the same level of productivity. Costco, by paying more, attracts and retains better employees. The article tries to point this out:

Wages and fluctuation

Employees like Costco not only for its good wages but also for its generous healthcare benefits. They are not only highly motivated and productive, they are also loyal. The fluctuation rate is only 6 per cent, compared to Sam's 21 per cent. Even Wal-Mart knows that a change of staff costs 2,500 dollars per person, and this then adds up to USD 50 million each year.

The reaction of the Wall Street analysts to the figures published by Costco's were not primarily aimed at penalising a company for stepping outside of the ranks of wage cutters, it was all about the interests of the Costco shareholders.

Their numbers don't seem right. 21% turnover of 1.4 million workers at $2,500 per employee would mean that this costs them $735 million a year. If they had a 6% turnover, it would be $210 million a year for a savings of $525 million. As this PDF points out, Costco does achieve a higher level of profit per employee. For Wal-Mart to achieve the same level of profit, they would need to cut the number of employee and raise the remaining one's pruductivity. Is that possible with their current workforce? I don't know and it is beyond the scope of this post. However, as I write this, Bloomberg is flashing across the bottom of the screen that the company is planning to raise the starting wage.

Enron Traders and Me

I am glad I was never an Enron energy trader. After listening to these clips from the company's trading desk phone records, my actions and words during that time may not be much different. My hesitation would probably come when the decision to break the law was made; yeah, I do have some ethics. What the conversations capture is an attitude which fairly accurately reflects my own.

"Burn, baby, burn" is something that I muttered a couple of times. For option traders like me, who always have disaster protection or are long volatility, those days, when the world seams to be coming to an end, are the ultimate thrill. Andreline takes over, but it doesn't manifest itself in physical activity, although sometimes it could.

One morning, I was waiting for my boss to get into the office when the phone rang. He was arrested that morning for driving on a suspended license( this was the result of not paying a parking ticket of all things). The reason he was pulled over in the first place was markets overnight were down hard and he ran a stop sign coming into work. The andreline flowing through his blood had fired him up.

Typically, the physical outburst during trading are by those who have the wrong positions. The voices by the Enron traders are those of people confident and in control. Comments like "burn, baby, burn" are just a release of nervous energy and, well, of course you're make jokes and laugh as you make in a day what most people make in a year(some people make multiples more than that, others less, it just depends on how big you are and for whom you trade). The guys sound like assholes and they probably are. The comments horrify many people; how could they be so mean? Maybe they are taking pleasure in other people's pain, I never did even while making plenty of jokes that would make it seam like it.

News from the ROK

A couple of items from the East Asian Peninsula:

Hyundai is perhaps the hottest car maker out there. Fifteen to twenty years ago, they were very cheap and not well built. Times have changed, the article points out that they have high customer satisfaction with their quality. Of course, they are building a plant here in the U.S.. Also, Hyundai, Kia motors is the seventh largest carmaker in the world.

South Korea is experiencing what many here have called a jobless recovery. I had seen a better article the other day which captured this for the economy as a whole, but this will illustrate the point in one of the country's sectors:

According to the central bank, the elasticity of employment for manufacturers, or ``the increase rate of job offerings for each 1 percentage point in economic growth,’’ stood at –0.18 in 2003.

It means that manufacturing jobs fell by 0.18 percent each time when the economy grows by 1 percent. In other words, labor productivity has increased but an economic growth would not automatically lead to creation of additional jobs, a BOK economist said.

The figure has been below zero for three consecutive years with -0.29 in 2001 and –0.08 in 2002.

South Korea, as many other countries have as well, is experiencing a decline in manufacturing employment. What's impressive about the article is that a journalist actually used the word "elasticity."

Edit: It should be noted that the trend here in the U.S. has appearantly stopped for the time being(via Instapundit). Korea has experienced strong GDP growth during this period, 2002's was above 6.0%(I would find the exact firgures, but the European exchanges are opening down to flattish and I have no idea why right now).

Not having to do with South Korea, but Powerline blogged the Miss Universe Pageant last night. If you didn't see it, there's a surpise upset.

Ladies Night at Corner Solution

Over at Corner Solution, fellow GMU Economics grad student William Butterfield notes that a New Jersey judge has ruled that the narrow commercial benefits of price discrimination in the form of "Ladies Night" "do[es] not override the 'important social policy objective of eradicating discrimination."

Mr.Butterfield aptly replies that "This is obvious judicial lunacy," and supplies us with a short discussion of the clear social benefits of such discrimination.

Classified Work

I'll be working in a classified environment for at least the next few days--possibly part of next week--and won't be checking email or posting except in the evenings, or if sleeping baby permits, the very early mornings.

This reminds me that yesterday, Businesspundit linked to a Forbes top 10 list of jobs that won't be outsorced offshore. The list is rather silly, including CEO's and surgeons.

Not included on the list were the jobs guaranteed not to be outsourced offshore --military positions in and out of warfighting specialties.

However, working in the military is not just a career move, it is a lifestyle choice not usually among the top picks of Forbes readers. (I'd make a terrible military officer--I can't even lead and inspire a team of bloggers! I just let them do what they want!)

Also, any job, like mine, that requires U.S. citizenship, or a security clearance, will not be performed for 1/10th the cost and 1/9th the productivity elsewhere on the planet--even if economic profits are to be had by doing so.

Our federal government sets and enforces rules meant to restrict the flow of information and technology outside the country, and I won't even give the appearance of violating those rules.

Bill Jamiseon on the Iraqi Economy

If I were to ask you, "Just how badly is the Iraqi economy doing?" you'd rightly condemn the inherent bias in my question.

Similarly if Bill Jamiseon of the Scotsman asks us , "How will Iraq’s economy be run after June 30? And does it stand a fighting chance?" we know we're in for a rough ride.

After recounting the nominal change in central government control, the attacks on, and the defense and rebuilding of Iraq's oil industry, the enactment of the central bank law, the attempt ease the foreign debt burden racked up by Saddam, the massive amount of private and government funds creating new jobs rebuilding after more than a decade of infrastructure neglect, and noting that the Economist predicts that GDP will grow 60% this year and 25% the next, he still insists that the road to recovery is "invisible to many".

If he wants a few micro level anecdotes--from Iraqis and visible to Iraqis--, he should read Omar, who questions his media's insistence that unemployment is rife, and talks about the amazing increase in real total compensation for some.

We are told by Mr. Jamiseon:

Even assuming that the formidable security and political problems can be overcome, rebuilding Iraq’s economy will not be easy.

Question: Why should the basic rules of Iraqi economic expansion, progress, and prosperity be any different than those that apply to the US, India, Chile, or Afghanistan? Remember, Mr. Jamiseon already controlled for security and political problems affecting the economy, and he still thinks there's a huge problem that needs to be understood and solved by someone. Does this imply that specific cultural factors or economic rules make ordinary Iraqis less likely to succeed economically?

I can't say that living under a brutal fascist dictatorship leaves entrepreneurial energies intact--as such a government winds up torturing, maiming, wearing down, killing, or exiling the best and brightest--but it sure seems like a good assumption that the vast mass of Iraqis want themselves to succeed economically, and don't have extraordinary cultural barriers.

How about the rules of economic order? The day is fast approaching when Iraq will be a relatively free country politically and economically. This political-economic order is precisely what a lot of Americans now mean by the term "democracy". The rules of the economic order are favorable in a democratic Iraq, although not all the requirements for economic expansion are in place.

Adam Smith once wrote:

Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things

. Under the CPA, Iraq has had easy taxes and tolerable justice, but little peace; it looks like this 2/3 solution will continue under the new government. And to that extent, I agree that Iraq's economy will have difficulties.

But I for one do not want to have the CPA or any other organization be in charge of "rebuilding" the Iraqi economy, when political leaders should be doing their best to secure a long-term peace (which might mean short-term urban warfare).

An economy is best run when command and control of resources is in the hands of a diverse group of people with specific knowledge of effective consumer demand and low-cost supply conditions. This is true regardless of whether an economy is being "rebuilt" or "built from scratch". Having a previously existing infrastructure presents more challenges and options, but it is not a categorically different kind of economic development.

We are also told:

The picture painted in the Iraq investor road show section of the CPA website is almost laughable in its optimism, with headings such as "Iraq’s economy should recover quickly" and "Iraq’s economy has already started to rebound".

Unless Mr. Jamiseon is accusing the CPA of blatantly lying, and has sources to back up his pessimism, wouldn't you think the CPA members--being in Iraq and dealing with Iraqis all day long--would actually know better?

Besides, are incomes in Iraq visibly higher today than under Saddam? Yes, they are. I won't refer to anecdotes and pictures showing refurbishing and construction. Instead I refer you to question 24 of this poll of Iraqis conducted by the Pan Arab Research Center--"Has there been an increase or a decrease in the family income compared to that of before the war?". The results: 5% of Iraqis have had their income increase a lot, and 36% somewhat, while 43% say it's the same and 12% say it has decreased somewhat and 4% say it has decreased a lot.

Looks to me like the Iraqi economy has already improved. Hope dawned a long time ago...

UPDATE: Here aresome results of an Oxford Research International of Oxford poll of 2700 Iraqis conducted in March.

Under "Ratings of Specific Living Conditions", we find out that 40%+ of people think schools, household basics, crime protection, medical care, clean water, security, electricity, and jobs (39%) have improved since before the war, while less than ~20% think they've gotten worse (25% for jobs and 26% for security). In every category, we find that ~70%+ of people expect all of these to improve over the next year.

T&B; Takes Cues from Wonkette-ish Area of Blogistan

The Calico Cat has some really interesting thoughts about the market for blogs.

It even kindly mentions this humble corner of the econ-focused part of the blog world. At issue for T&B; is that scandals and ribald sites such as the Jessica Cutler/Washingtonienne "event" (personally, I consider it a silly cry for attention from someone who has yet to find a modicum of respect for herself, but "skin" does, sadly, sell) generates a great deal more hits than, say, a more niche player like T&B.; (Oh, if only more of the world concerned itself with economics and economics education...).

But don't let it be said that we here at T&B; can't learn by example (ok, well, I can only speak for myself, but the rest of the crew appears able in numerous areas well beyond my own meager skills). In that vein, I'd like to point you to one of the more interesting applications of economic analysis I've seen recently: The Economics of Ecstasy. (NB: PDF file, large.)

As the title might imply, it's an economic analysis of the dynamics surrounding orgasms, both honest and...the When Harry Met Sally variety. It's an interesting paper, not simply for the subject at hand. Here's Slate's take on it: The Economics of Faking Orgasm:

The obvious reason to fake is to please your partner. But what about a woman who doesn't particularly care about her partner? Might she still fake? Mialon concocts a scenario—though a contrived one—where the answer is yes. Suppose Adam is very insecure and always suspects Eve of faking. Suppose the one thing Eve really hates is having a partner who's always wrong. Then since Adam always thinks she's faking, she has to fake to make him right. Eve's fakery reinforces Adam's skepticism and Adam's skepticism reinforces Eve's fakery, so we have what economists call equilibrium.

Fair warning however -- especially for Mr. Antler -- the analysis is largely centered around a game-theoretic construct. Signalling games, to be precise.

Orgasms, sex games, and econometrics. The dismal science no more?

Credit Rating Agencies

I was reading this past winter's The International Economy and read an article called, "Das empire strikes back: German banks have had enough of Standard and Poor's and other agencies, and they're not going to take it any more." I cringed reading this(no link since the article isn't available on the mag's site):

For more than a decade, bankers, industry executives and politicians on the Continent have complained about Europe's humiliating dependence on the almighty U.S.-regulated rating oligopoly. Now, the revolt against America's unchecked rating power is pressuring politicians to push the European Union towards regulating the global rating trio. There is a groundswell of support for establishing a European rating agency. But all this is easier said than done.

As European companies move from borrowing money from their banks to tapping the world's capital markets directly--by issuing bonds, medium-term notes, or commercial paper--their securities need to be rated. But there is a problem: Europe doesn't have a major rating agency that would take into account the special characteristics of European accounting or the prevailing differences in financial ratios as they evolved in a bank-based financial system.

Finally, this problem is becoming political. Proposals by the European Parliament's Committee on Economic and Monetary Affairs to establish a European Registration Authority for rating agencies under the auspices of the Committee of European Securities Regulators (CESR) may be far ahead of the curve. They point to "a European nightmare--that unchecked American rating agencies become the Continent's boss men." EU parliamentarians are looking for ways to contain American rating power by putting global rating giants like Standard & Poor's, Moody's, and Fitch under some kind of new EU regulation. So far the Brussels Commission--with the British government keeping a watchful eye on the stakes for London as a global financial center--is playing for time. But the German government, faced with a domestic revolt against damaging rating decisions by Standard & Poor's, is under mounting pressure to control what is perceived as an excessive level of American rating power.

Then I found it amusing. Why does everything have to be humiliating? Overall, it's a pretty good read; the Germans may have an issue or two, but what if they regulate the agencies to irrelavency? For all the sniping from Europe when Worldcom, Enron and so forth happened, European business is more convoluted and the relationship between them and government is cosier. What if they mandate an unsound business practice because it's a local common practice? Of course, when they say American firms don't understand Europe, they have a point; large companies inevitably get bailed out in some form or another, so why bother with ratings at all. If you click below, the guarantees going to the Landesbanks merely turn from explicit into implicit, in my opinion.

edit: A visitor posted an interesting comment, click to read.

Continue reading "Credit Rating Agencies"

Volvo Slightly More Popular in France

In France, the registration of Volvo automobiles increased 33% in 2004Q1 over the previous year, even as total sales dropped 2.8%. Granted, only 2,735 of 506,884 new registrations were for Volvos--a 0.5% market share! 87.3% of Volvos sold were diesel powered. The thread attached to the above article informs me that in France, diesel costs far less than regular gasoline due to inequitable taxation.

Aaliyah Changes Places on the Balance Sheet

To those Law and Economics types out there, I thought this might be of interest: Aaliyah's Record Label Gets Its Day in NY Court

A Manhattan judge has ruled that rhythm and blues singer Aaliyah, who was killed in a 2001 plane crash while filming a music video in the Bahamas, was an "asset" of her record company rather than an employee, freeing the company to sue for negligence in her death.

I'm assuming that this is based on the nature of a contractual relationship that defined Aaliyah more as a component of an overall production system than as an employee directed and tasked by the recording company (the difference between a record deal and being a sound engineer, I suppose). Though it does raise interesting issues. Does a company have a right to the income stream from an employees future productivity they way they do an asset? In situations where this sort of relationship exists (such as football players, as noted in the article), does the company have the right to prevent the actual person from engaging in behavior that could damage the productivity of the asset, such as smoking, drinking, etc.?