Various teaching links

1. Opponents of capitalism tell you that the market system promotes greed. selfishness and rapacious behaviour by firms.  Proponents say no: its the opposite as firms have to understand what consumers want. A view from Tim Harford's great book Fifty Things that Made the Modern Economy" http://amzn.eu/aWaeGcn. about the founder of Selfridges, Mr. Selfridge

"He saw that female customers offered profitable opportunities that other retailers were bungling, and made a point of trying to understand what they wanted. One of his quietly revolutionary moves: Selfridge’s featured a ladies’ lavatory. Strange as it may sound to modern ears, this was a facility London’s shopkeepers had hitherto neglected to provide. Selfridge saw, as other men apparently had not, that women might want to stay in town all day, without having to use an insalubrious public convenience or retreat to a respectable hotel for tea whenever they wanted to relieve themselves. "

File as well under innovation.

2.  Via Tim Taylor, this is a very good review:§ "Immigrants, Productivity, and Labor Markets," by Giovanni Peri

3.  Do our banks still need fixing? yes they very much do says Martin Sandbu. 

 Some points

"

A rather worrying consensus emerged in a recent conference held by the Centre for Economic Policy Research, in which top names from the economics profession (their presentation materials are available on the conference web page) assessed the state of the financial system 10 years after the crisis.

The consensus was that we still fall far short from what would be a safe financial system."

For as John Vickers pointed out, “the general . . . opinion among economists outside the financial sector is that banks should be required to have at least twice as much equity capital . . . as the prevailing regulatory settlement”, but “regulators, not just banks, [think] that reform since 2008 has got us to about the right place”.

Martin Wolf sums up the economists’ consensus in a recent op-ed, where he advocates equity requirements four to five times higher than today’s rules.

..... Vickers has strongly criticised the Bank of England for its judgment that the required push for more equity funding in banks is largely completed. (To be fair, the BoE is also adding requirements for non-equity funding that can be “bailed in” to bear losses in a crisis.) Across the Atlantic, the US Treasury has plans under way to weaken rather than strengthen capital requirements — plans that, in William Cline’s analysis, could cost the US economy $2.7tn in increased risks over 10 years

 Vickers and Tucker are critical of equity measures (something for intangible reserachers to bear in mind) 

Second, the way it [equity] is constructed means the inherent instability of measured bank equity is unstable in just the wrong way. Paul Tucker, the former BoE deputy governor, has explained this in a rather chilling, if technical, speech. Before the crisis, he says, “‘common equity’ was measured without adjustments for items recorded by accountants as assets but which don’t — can’t — help in a crisis”, such as “goodwill” (the assumed extra value acquired when assets are taken over for more than their prior accounting value) or future tax credits.

That means improvements in regulations made to sound impressive — Vickers highlights BoE governor Mark Carney’s point that equity requirements are 10 times higher than before the crisis — are true only because of how absurdly low the requirements were then.

Here's a key calculation: 

In Tucker’s calculation, “when tangible common equity is measured in a way that is more fit for purpose, the minimum risk-asset ratio requirement was about 1 per cent” and even less when not discounting supposedly safe assets with low risk-weights (which has its own problems). Consequently, the ability of banks today to have assets 25-30 times as large as the equity intended to absorb losses on them is only 10 times stricter than before the crisis because they could then get away with gearing up their own (their shareholders’) money by three-digit multiples. Vickers is surely right that “10 times better than hopelessly lax is not a useful measure”.

 4. Related, here is Catherine Mann on how the wrong type of lending distorts growth.
Catherine L. Mann (OECD) Slides

Various teaching links

1.  FTMBA students. We just did imperfect information in class. From the excellent Tim Taylor here is a very informative post:Imperfect Information: Is It For or Against Free Markets? 

Much relates to the growing importance of imperfect information in markets, a subject taken up in my forthcoming book, on  6th December 2017 “Capitalism Without Capital”, Princeton University Press, http://press.princeton.edu/titles/11086.html. 





2.  For ESB students: this document is useful on OECD Compendium of Productivity Indicators 2017
Methodological chapter DOI:http://dx.doi.org/10.1787/pdtvy-2017-9-en . 
is very useful on capital services, MFP, service sector price indices etc.

3. What are economists for?  Chris Snyder explains. 

4. When we do price discrimination we shall look at why firms do better by reducing the quality of their goods.  Here's an example from Tesla.

Energy use and technical progress

If you wanted an example of technical change in action, look no further than the fall in energy use per unit of GDP.  The idea that somehow we will need more and more energy to get out more and more GDP is just not right.





Fromthe Economist, https://www.economist.com/blogs/dailychart/2011/01/energy_use

Refugees: Evening Discussion @Imperial

I’m speaking tonight at a student-led evening on Refugees at Imperial. To prepare, I read “Refuge” by Alexander Betts and Paul Collier.  Here are some thoughts.

1.       The book differentiates refugees from economic migrants. It argues we owe a duty of rescue to refugees, but not economic migrants.

2.       A lot of focus is on Syrian refugees.  Despite all the huffing and puffing, almost all of them are in countries very close to Syria and very few are in Northern Europe (p.viii, amost 50% in Turkey, 11% in Jordan, 18% in Syria: contrast with 0.2% in France, same for the UK, Spain, honourable mention to Sweden with 1.9%, Germany 7.9%). 

3.       Should refugees have a right to come to, say the UK?  The fact is that N Europe has a well developed welfare state.  To the extent that refugees put strain on it, their rights clash with current residents’ rights.  So not clear.

4.       There is a terrifying chapter explaining the nightmare around the Schengen agreement.  Here’s my take.

a.       The architects of Schengen realised that the agreement was only as strong as its weakest border.  There is no border force, the EU volunteer Frontex is useless (p.66 on Christmas they all go home and leave the border unguarded).

b.      So for example countries like Portugal, Malta and Hungary, who sell passports in return for investment promises can undermine the system (Hungary, 360K Euro).

c.       So came the Dublin Regulation: an asylum-seeker has to be either sent back or given haven in the first country in the Schengen where they arrive (p.64).  This solves the weak link problem: you accept ‘em, you keep ‘em.

d.      All this did was promote lack of registration: refugees would arrive, not be processed by country A and sent on their way to country B. Where would they like to go?  The UK with a free labour market is very attractive, hence the Jungle.

e.      In August 2015, Mrs. Merkel decided to let refugees into Germany. This turned everyone into a economic migrant and simply encouraged other countries to pass refugees through to Germany. 

f.        When that fell apart due to political worries, the Germans simply paid the Turks to keep them and promised visa free travel.

5.       P.188 sets out the four big ideas in the book

a.       Ethical duty to rescue displaced

b.      Best place for them is where they can get to easily, which is basically near to their past homes.  If that is a relatively poor country, rich countries should help out financially.

c.       In those areas, refugees currently live in camps and often cannot work, this must be changed so they can contribute

d.      If they work they can then, if they return to their original homes, bring skills and experience to help recovery.

Why regulation is hard

http://marginalrevolution.com/marginalrevolution/2017/04/the-spirit-of-the-law.html