Ireland's banking crisis

1. Michael Lewis, of Liar's Poker fame writes and tells you that Morgan Kelly saw it all.

2. Morgan Kelly,  professor of economics at University College Dublin, writes .  (HT, my student Jerry Teahan)

Various links

1  Supply and demand.  For those who doubt that supply reponds to market prices, read about the low supply of housing with very strong rent control in San Fransico.

2. A regulation parable: what if supermarkets were run like state schools?  From Don Bourdreau, via Greg Mankiw.

3. The excellent Evan Davis opines on intangibles:

We're less clear and that's because we've moved towards the intangible sectors more than other developed economies. We are a huge net exporter of business and commercial services: insurance and finance, surveying, architecture, legal services, advertising, university education.
Is that a good thing?
The service sector raises a number of problems. Here's the nub of it: old industries – manufacturing industries – had lots of good reasons to disperse geographically. You had shipbuilding in Sunderland, steel in South Wales and coal scattered around the country. The new industries are brainy industries and so-called knowledge workers tend to like to be near other people who are the same. Think of the City or Hollywood. People cluster. This means you have winning regions, such as London and Cambridge, and losing regions. The people who want to be top lawyers in Sunderland are hoovered up by London.

Various links

1. Via Tyler Cowan, markets in everything: Osama Bin Laden example.

2. Who is more brilliant on the history of innovation than Joel Mokyr?  Note here the interesting non-use of patents.  The Rate and Direction of Invention in the British Industrial Revolution: Incentives and Institutions.

3. The use of discount rates to calculate pension liabilities: good example of discounting for lecture 3 on costs.

4. Tim Harford very good links on AV.  I particularly liked this one by Dennis Leech. He says

"I will be voting in the referendum for AV because, while it is flawed, it is better than First Past The Post for two good reasons. First, it rules out the possibility of an unpopular extremist being elected due to the vote being divided among the main parties. Second, it frees voters to express their true preferences without having to think about voting tactically. Voters can vote for the candidate they prefer, rather than for the candidate they think is most likely to keep out the one they least prefer, in the knowledge that second preference votes will count if his or her preferred candidate is eliminated before the last round of counting."

Demand for oil and concert tickets

1. The price elasticity of demand for oil: is pretty inelastic. goo.gl/Et060.

2. Price discrimination: Ticketmaster to do its own touting.

www.npr.org/blogs/money/2011/04/20/135568378/ticketmaster-to-scalp-its-own-tickets
 

Are the experts wrong?

A recent crop where experts might be wrong.....

1. On the small matter of world poverty and hunger, here.
2. On high speed rail links in the UK, Henry Overman as wise as ever.

And two papers are last week's Royal Economic Society Conference Economics of Religion Session:

3. Anti-Semitism: the most amazing correlation I have ever seen by Voitlander and Voth.
My take on the paper. There are many expert analyses of 1930s anti-Semitism based on variation in the treatment of Jews (expulsion, violence, voting etc.) across German cities in the 1930s (there was quite a lot of variation).  The analyses postulate causation via isolation of the city, fraction rural workers, fraction Protestant etc.  What do Voitlander and Voth do?  They look at the correlation with, wait for it, cross-city variation in the persecution of Jews during the Black Death, 1348-50, when in some cities Jews were blamed for the Plague and expelled or burnt.  Amazingly, there is a very strong correlation.

Update: a link here.

4.Another nice paper on occupational choice presented there too by Maristella Botticini†and Zvi Eckstein.






 



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Science and innovation in just one picture

I’m addressing the Cambridge Science Festival this Wednesday, in the company of Dr Evan Harris and Dr David Cleevely, chaired by Tim Radford from the Guardian.  The theme of the evening is science funding and policy and I’m the economist on the panel.  The organisers have let me have 4 slides, which are here.  But having put them together it stuck me that quite of lot of science and innovation facts and policy can be put into one picture (which is the final slide in fact): here it is.

A Virgin Upper Class Cabin (B747, November 2009)

Source: http://commons.wikimedia.org/wiki/File:Virgin_Atlantic_Airways_Boeing_747-400_Upper_class_nose_cabin.jpg

The picture is of one of the versions of Virgin’s Upper Class Cabin.  Now, I think most people would agree Virgin’s upper class is an innovation.  But where’s the science?  Where’s the R&D tax credit that helped here?  What does this tell us about policy?

Actually, there is some science here.  Its not widely known, but Virgin owns some patents that you can see in this picture.  Even so, they are surprising.  One of the patents they own is not the seat mechanism, which you would think is the main “scientific” bit of the seats, but it’s the layout of the seats that enables them to get more (very valuable ) seats into the space than their competitiors.

But if you asked most people about what’s new in this picture, they wouldn’t immediately even think of the science.  Rather, it’s the cool design of the cabin, the hip marketing, the training of the funky staff.  Join this with the software that lets you reserve the seat and preview the flight before even get onto the plane and you can see why this is innovation in one picture.  Firms are not just developing new knowledge from science, but new knowledge from a whole range of other investment in intangibles: design, reputation, staff knowledge, software, new business processes.  The work we have done in developing the UK innovation index shows that, in 2008, spending on R&D was only 12% of all spending on all intangibles (£16bn out of £137bn).

What does this say about policy?  A lot of policy is fixated on the science base: universities, large scientific apparatus like the Hadron Collider, and R&D tax credits (which are only for scientific research).  Some of those policies, like support for competitively determined university research money via research councils) is very valuable and was rightly defended in the October spending review.  But innovation is wider than this and therefore affected by a host of other policies.  New firms bring new ideas to the marketplace (Virgin was only able to enter the market when entry regulations were relaxed).  Immigration of firms, entrepreneurs and scientists brings new ideas to a country.  The internet brings new information and products at the click of a mouse.   In making innovation policy, let’s not forget the broader picture.

The Ozzard of Wiz: or Market Definition

Daughter 1, aged 8, reports that the 4 year olds wanted to do the Wizard of Oz for school.  They phone the performing rights people, she says, who refuse on the basis that it would be too close to the centre of London.  Quote "Honestly Dad, some people are idiots.  Who really thinks that people in London would not go to a play in order to come and see some infants at a School doing it instead".  So now the kids are doing The Ozzard of Wiz.

Good thing her Dad was on the Competition Commission for eight years.  The gal understands market definition.

The Irish Bail Out Disaster

Assorted links.

1. Barry Eichengreen on the disaster that is the Irish bail-out, via Brad de Long.

2. Martin Wolf on the future of the Euro.  The lesson: like the minimum wage, there is always another margin of adjustment.

Do incentives matter? Evidence from the Rolling Stones.

For those who doubt the central economic assumption that agents react to incentives you need look no futher than this extract from an article about the Rolling Stones (as reported in Greg Mankiw's excellent blog)

The Stones are famously tax-averse. I broach the subject with Keith [Richards] in Camp X-Ray, as he calls his backstage lair. There is incense in the air and Ronnie Wood drifts in and out--it is, in other words, a perfect venue for such a discussion. "The whole business thing is predicated a lot on the tax laws," says Keith, Marlboro in one hand, vodka and juice in the other. "It's why we rehearse in Canada and not in the U.S. A lot of our astute moves have been basically keeping up with tax laws, where to go, where not to put it. Whether to sit on it or not. We left England because we'd be paying 98 cents on the dollar. We left, and they lost out. No taxes at all. I don't want to screw anybody out of anything, least of all the governments that I work with. We put 30% in holding until we sort it out." No wonder Keith chooses to live not in London, or even New York City, but in Weston, Conn.


More great insights into the economics of the Rolling Stones and the music industry are here.

Why Economic Growth is Still the Big Question and How to See It

The spending cuts dialogue seems to have moved today away from the numerator (the deficit) to the denominator (GDP).  Hooray.  Let’s not forget that growth can really help us get out of the mess we are in.

But its often hard to put over the sheer power of economic growth in a way that persuades people, who have iPhones, cars, flatscreens etc, just how remarkable modern economic growth is.  One very good method is set out in John Nye’s short piece.

http://www.econlib.org/library/Enc/StandardsofLivingandModernEconomicGrowth.html

Here are some facts on the table.  He starts by observing

1. the average American’s annual income in 2000 was five times higher than thatin 1890 and
2. 12 times higher than in the 1850s.

How best to bring this to life?  Consider the following table.  To see how much more an American worker can buy today, compare the number of hours she would have had to work to obtain various items in 1895 versus 2000.  Have a look at the bicycle row.  Today the worker needs to work 7.2 hours to earn it.  Back then, they needed to work 260 hours.  No wonder bikes sit rusting in the back garden or sell for nothing on eBay.  And, going back further in time, I’ve always been struck how in the dramatisations of Jane Austin there are so few possessions in people’s houses.   The final column compares the prices charged in the Montgomery Ward catalog with prices today, both expressed as a multiple of the average hourly wage, to give an index of productivity of making the goods consumed back in 1895 has multiplied.

Multiplication of Productivity 1895–2000: Time Needed for an Average Worker to Earn the Purchase Price of Various Commodities

Source: Montgomery Ward catalogue, table in http://www.econlib.org/library/Enc/StandardsofLivingandModernEconomicGrowth.html

For even more fascinating stuff on this, see the great Brad de Long here.