Gettin’ down with the dismal science
As rare as it is to get any two economists to agree, the chances are even slimmer of hearing three Nobel economics laureates concur.
And so it was that each of the award winning economists — Eric Maskin (2007), Michael Spence (2001) and Robert Merton(1997) — all had their own take on the legacy of three years of financial and economic crises when they spoke to a conference organised by Pioneer Investments in London last week.
To be fair, they broadly coagulated around the inevitability of greater regulation of banking and finance and also on the enormity of China’s now imposing position in world economic affairs.
If anyone needed a reminder that Christmas and NewYear holidays are almost here, Societe Generale has provided it. Analyst Dylan Grice has picked up the mantle of the departed James Montier to offer a seasonal reading list for those with a fixation about investment and economics.
True, some people might prefer to immerse themselves in a rollicking sea tale from Patrick O'Brian or a good old Sookie Stackhouse vampire mystery. But we know that Reuters blogs' readers are a discriminating lot with a keen understanding of and passion for finance. So here is Dylan's list of six must-reads:
1. Manias, Panics and Crashes, by Charles P. Kindleberger;
2. The Essays of Warren Buffet, edited by Richard Cunningham;
3. Reminiscences of a Stock Operator, by Edwin Lefevre;
4. Fooled by Randomness, by Nassim Taleb;
5. The Case against the Fed, by Murray Rothbard;
6. Judgement under Uncertainty: Heuristics and Biases, eds Kahneman, Slovic and
Paul Samuelson, 1970 winner of the Nobel Prize for economics, died this week at the age of 94. His work is widely being hailed as helping set the agenda for contemporary economists and even for turning economics from being dry theory into something that can actually solve problems.
His obituary in the New York Times is here.
You can read appreciations from the Wall Street Journal’s blog, including the thoughs of Larry Summers (Samuelson’s nephew), Ben Bernanke and a raft of well-known economists.
It may end up sounding like a famous ball-point pen maker, but an argument is being made that Goldman Sach's famous marketing device, the BRICs, should really be the BICs. Does Russia really deserve to be a BRIC, asks Anders Åslund, senior fellow at the Peterson Institute for International Economics, in an article for Foreign Policy.
Åslund, who is also co-author with Andrew Kuchins of "The Russian Balance Sheet", reckons the Russia of Putin and Medvedev is just not worthy of inclusion alongside Brazil, India and China in the list of blue-chip economic powerhouses. He writes:
The country's economic performance has plummeted to such a dismal level that one must ask whether it is entitled to have any say at all on the global economy, compared with the other, more functional members of its cohort.
Hard to imagine with financial markets still buoyant and newspapers full of tales of bonus greed, but there is still the possibility that captialism will end. At least there is according to prestigious investment consultants Watson Wyatt in their latest study called “Extreme Risks“.
The firm listed the demise of the system of private ownership as one of 15 threats to investors and the global economy that probably won’t happen but which it reckons are worth worrying about anyway. The idea behind the report is that such things as climate change, the break up of the euro zone and war are always worth being included in an investment risk management process.
As for the future of capitalism:
In our view, the most likely scenario is moving along from one end of a spectrum where market is king (minimum regulation) towards the other end, where we could see more onerous regulations and government intervention in, and control of, the economy. The extreme risk, however, is the demise of the capitalist system and the end of the market as the primary means of resource allocation.
An interesting post on ING’s new eZonomics blog points the reader to a new study on older workers and health. The findings — as reported in The Lancet — don’t at first glance look terribly surprising:
A poor work environment and health complaints before retirement were associated with a steeper yearly increase in the prevalence of suboptimum health while still in work, and a greater retirement-related improvement; however, people with a combination of high occupational grade, low demands, and high satisfaction at work showed no such retirement-related improvement.
In simple terms, this is saying that if a worker is happy, their health is better. Anyone who has ever had a bad job could have told them that! But the study, of course takes it further.
Interesting dilemmas facing G20 countries as their finance ministers and central bankers get together on the golf ball strewn Scottish coast ( a meeting in St Andrews we will be Live Blogging on MacroScope, by the way).
First, you have the Brazilians who are worried about hot money and have already slapped a tax on foreign investments in domestic bonds and stocks in order to cool down capital inflows. They want the G20 to take action against what their central bank chief calls “imbalance- and bubble-building”.
Next you have the Americans and other big economies who know that the huge amounts of stimulus they have put into the world economy have to be removed eventually. They are not ready to do it yet, but expect the G20 countries to discuss how they are going to “sequence” the great unwinding.
A new exhibit called Economica: Women and the Global Economy is offering up an online look at how half the world’s population is making it through the current economic turbulence, in which, it says, women are “uniquely impacted”.
Presented by the web-based International Museum of Women, it consists of a series of slide shows looking at issues ranging from the impact of the U.S. mortgage crisis on families to survivng in Egyot with a shortage of bread to Middle East businesswomen redefining roles.
It also looks at credit for women in Latin America, growing debt in India and “Womb Economics”, which questions whether women are paying for China’s economic prosperity with policies that encourage abortion.
Britain's pound has long been the whipping boy of notoriously fickle currency markets, but there are worrying signs that it's not just hedge funds and speculators who have lost faith in sterling. Reuters FX columnist Neal Kimberley neatly illustrated yesterday just how poor sentiment toward sterling in the dealing rooms has become and the graphic below (on the sharp buildup of speculative 'short' positsions seen in U.S. Commodity Futures Trading Commission data) shows how deeply that negative view has become entrenched.
While the pound's inexorable grind down to parity with the euro captures the popular headlines, the Bank of England's index of sterling against a trade-weighted basket of world currencies shows that weakness is pervasive. The index has lost more than a quarter of its value in little over two years -- by far the worst of the G4 (dollar, euro, sterling and yen) currencies over the financial crisis. The dollar's equivalent index has shed only about a third of the pound's losses since mid-2007, while the euro's has jumped about 10% and the yen's approximately 20% over that period.
There's no shortage of negatives -- Britain's deep recession, recent housing bust, near zero interest rates and money printing, soaring government budget deficit (forecast at more than 12% pf GDP next year, it's the highest of the G20) and looming general election in early 2010. In the relative world of currency traders, not all of these are necessarily bad for the pound -- the country is emerging tentatively from recession, the dominant financial services sector is recovering rapidly and short-term interest rates (3-month Libor at least) do offer better returns than the dollar, yen, Swiss franc or Canadian dollar.