Published on the 1st of January, 2009
First published Business Life magazine, January 2008
Are you keeping your new year’s resolutions? If not, perhaps you should turn to economics for help.
That might seem like a strange piece of advice, because the staple of economic models, “rational economic man”, does not suffer from a nicotine habit, nor impulsively grab chocolate bars at the supermarket checkout. If the vice is worth the health cost, he indulges it; if it is not, he does not. Rational economic man needs no resolutions. Read the rest of this entry »
Published on the 7th of December, 2008
FT Magazine, 6 December 2008
Bob Annibale’s corner office, high up in one of London’s few real skyscrapers, overlooks the Thames and the Millennium Dome from one window, Greenwich Park and the Royal Observatory from another. It is the kind of enviable perch you’d expect Citigroup’s senior treasury risk manager to enjoy. But that is the job Annibale left three years ago; now he is Citi’s “global director of microfinance”… Read the rest of this entry »
Published on the 1st of December, 2008
First published in Business Life magazine, December 2007
It will not have escaped your notice that Christmas is upon us. And for gift-giving advice, why not turn to an economist?
That seems a strange recommendation, and it becomes even stranger when you consider that by far the most notorious Yuletide contribution from economists is a research paper titled “The Deadweight Loss of Christmas”, which was published in a respected economic journal back in 1993.
The author is Joel Waldfogel, described in print not long ago as a “slightly balding imp” by one of his fellow economists. But while his ongoing research into the economics of gift-giving tends to be seen as an example of the limitations of the dismal science, I believe that Professor Waldfogel’s work has been utterly misunderstood. Read the rest of this entry »
Published on the 28th of October, 2008
From BBC Online.
Is a stock market bubble a medical condition?
You might well have thought so, had you taken a walk around a trading floor and looked at the behaviour of traders at the height of the dotcom bubble in 2000.
“They were displaying classic symptoms of mania,” says John Coates, recalling his time as the manager of a New York trading floor.
“They were overconfident, they had racing thoughts, they had diminished need for sleep and heightened sexual appetite.”
But Dr Coates no longer works on Wall Street.
He is now one of a small but growing number of “neuroeconomists” - researchers who study the brain, hormones and nervous system in search of an explanation of our behaviour as investors and shoppers.
Neuroeconomics is a new discipline that fuses economics and neuroscience, and its practitioners are people who think that everyday phrases such as “impulse buy”, “business brain” and “bull market” are more than just figures of speech. Read the rest of this entry »
Published on the 22nd of October, 2008
The idea that ordinary people have a tendency to be caught up in investment manias is a powerful one, thanks in part to Charles Mackay, author in 1841 of the evergreen book Extraordinary Popular Delusions and the Madness of Crowds. Mackay’s most memorable example was the notorious Dutch tulip bubble of 1637, in which–absurdity!–tulip bulbs changed hands for the price of a house.
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Published on the 19th of October, 2008
First published: Business Life Magazine, August 2008
You’ll all have heard the old proverb, “Give a man a fish and you feed him for a day. Teach him how to fish and you feed him for a lifetime.” But what happens if you give him a mobile phone?
The economist Robert Jensen has been trying to find out. For over a decade, development types have been debating the idea that new technologies such as mobile phones and email might prove to be important tools for helping poor countries grow richer. It all sounds plausible enough, but the challenge has been to prove it. After all, the sceptical case – that the priority for economic development has to be basics such as vaccines, schools, roads and electricity – is fairly persuasive.
Jensen studied Kerala, in India, whose 400 miles of coastal waters provides the livelihood for a million fishermen, and whose beaches host over 100 local fish markets. In the mid-1990s, this was an industry characterised by waste and shocking uncertainty for buyers and sellers alike.
A detailed data-set collected by Jensen tells the story. One Tuesday in January 1997, for example, fishermen were arriving at the Bagdara market to find that buyers had already purchased all the fish they could possibly want. The excess fish had to be dumped or given away for free, since they were perishable. But within 10 miles, at the markets both north and south of Bagdara, fish were scarce and prices were high; buyers were giving up and going home in disgust.
Buyers and sellers were not able to meet up because they had no way of finding each other. And the next week, exactly the same thing happened – except that the gluts and shortages were located at different markets, the result of the whimsy of the mackerel shoals.
Jensen – who collected his data each week for years – was able to see clearly what happened when the mobile phone masts came to Kerala, erected one at a time along the coast. Although they were not aimed at fishermen, the signals ranged many miles out to sea, allowing fishing boats to call the markets and find the best prices.
If I were to show you the graph of fish prices, you would instantly be able to point to the moment at which the masts were switched on in each region. The graph, which has been jumping around like the ECG of a patient with a heart-attack, sudden flatlines as the prices across different markets equalise. At that point, prices fall but fishing boat profits rise, and spoilage of fish becomes a thing of the past.
When Jensen’s research was published late last year, it was a minor triumph for economic analysis: the moment at which the stories about the magic of technology became something more than fishermen’s tall tales.
Published on the 19th of October, 2008
Comparisons between today’s financial crisis and the 1930s are looking less strained by the day. So what better to lighten the tension than to revive everybody’s favourite Depression-era board game, Monopoly? Read the rest of this entry »
Published on the 18th of October, 2008
FT Magazine, 18 October 2008
In the car on the way to the Lake District, my friend Mark calls. He’s a doctor.
I tell him that I’m planning on going for a leisurely swim in one of the lakes.
“Be careful not to die,” he says helpfully. Read the rest of this entry »
Published on the 14th of October, 2008
The Financial Times, 14 October 2008
The Nobel economics prize was awarded yesterday to Paul Krugman, one of the great popularisers of economic ideas and a trenchant critic of the Bush administration. However, the prize was awarded for work done almost three decades ago in developing what is known as “new trade theory” and “new economic geography”.
Earlier trade theories suggested that a country would trade with partners that were different - rich would trade with poor, and capital-intensive would trade with labour-intensive. In practice, rich countries tend to trade with other rich countries. Read the rest of this entry »
Published on the 13th of October, 2008
I read this light-hearted essay on the Today program on the morning of 13th October.
Someone recently grumbled to me that, given the appalling state of the world’s financial system, nobody should be awarded today’s Nobel memorial prize for economics. That’s a little harsh: some economists did warn us of trouble on the horizon.
Still, Nobel-watchers think that this will not be the year that the prize is given to a man called Eugene Fama. Fama, a Professor at the University of Chicago and a long-time contender for the prize, is best known as the man who believes that financial markets are efficient. The timing would seem awkward.
I think that’s a shame. The belief that financial markets are efficient sounds like some Thatcherite creed, but it means something quite different: that the price of shares today reflects everything we currently know about their value. There are no obvious bargains, no easy forecasts, no get-rich-quick schemes.
Read the rest of this entry »
