Attention Economy


Thursday, March 31, 2016

Home Prices and Real Estate Bubbles – A Global Perspective

Canada’s Housing Market – Are Prices in Bubble Territory?

Interesting new research –
Speculative Fever: Investor Contagion in the Housing Bubble by Patrick Bayer, Kyle Mangum, & James W. Roberts; NBER Working Paper No. 22065; Issued in March 2016
Abstract
Historical anecdotes of new investors being drawn into a booming asset market, only to suffer when the market turns, abound. While the role of investor contagion in asset bubbles has been explored extensively in the theoretical literature, causal empirical evidence on the topic is virtually non-existent. This paper studies the recent boom and bust in the U.S. housing market, establishing that many novice investors entered the market as a direct result of observing investing activity of multiple forms in their own neighborhoods and that these “infected” investors performed poorly relative to other investors along several dimensions.


The Economist offers the latest global update:
“GLOBALISATION has created a handful of metropolises that attract people, capital and ideas from all over the world, almost irrespective of how their national economy is doing. House prices in such places, unsurprisingly, outpace the national average. In our latest round-up of global housing, we find that prices have risen in 20 of the 26 countries we track over the past year, at an (unweighted) average pace of 5.1% after adjusting for inflation. Prices in pre-eminent cities in these countries, however, have risen by 8.3% on average.”

The Moral Case for Globalization

American economists fall into the trap of evaluating every theory solely on the basis of outcomes in the US. The greatest achievement of the past 25 years has to be the rise of the global middle class (driven by China’s economic reemergence).

Steven R. Weisman makes the case for considering the pros and cons of international trade from a global perspective rather than from a purely American perspective:
Weisman observes:
“The moral case for globalization rests on the proposition that the system has raised the living standards of billions of people, including some of the world's poorest citizens. With due respect to Thomas Piketty for highlighting the issue of inequality, the evidence suggests that on a global basis, economic inequality is declining, even as it increases within rich nations. Those in the bottom third of the world’s population except for the very poor, who earn as little as $1.25 a day, have become significantly better off, as demonstrated by Branko Milanovic, the former lead economist at the World Bank’s Development Group.”

Related:
We’re Experiencing the Greatest Reshuffling of Income Since the Industrial Revolution by Branko Milanovic

Also, see:

Wednesday, March 30, 2016

The End of an Era – Mark Mobius Retires from Franklin Templeton

Anybody who has followed emerging markets for a while will be familiar with the work of Mark Mobius, the longtime head of the Templeton Emerging Markets Investment Trust. During a long career, his push to make emerging market assets an integral part of the portfolios of Western investors has been much appreciated.

His latest post on Brazil is a good read:

Massive Grade Inflation at US universities - Fatal Flaw in US Higher Education System

Massive grade inflation at US universities:
Stuart Rojstaczer and Christopher Healy have updated their long-term study of grade inflation at American universities with fresh data -
http://www.gradeinflation.com
Stuart Rojstaczer notes:
“During this era, which has yet to end, student course evaluations of classes became mandatory, students became increasingly career focused, and tuition rises dramatically outpaced increases in family income. When you treat a student as a customer, the customer is, of course, always right.  If a student and parent of that student want a high grade, you give it to them.  Professors faced a new and more personal exigency with respect to grading: to keep their leadership happy (and to help ensure their tenure and promotion) they had to focus on keeping students happy.  It’s not surprising that grades have gone up during this era.  I call this period of grade inflation the “student as consumer era” or the “consumer era” for short…
In the Vietnam era, grades rose partly to keep male students from flunking out (and ending up being drafted into war).  But the consumer era is different.  It’s about helping students look good on paper, helping them to “succeed.”  It’s about creating more and more A students.  As the chart below (updated from our 2012 paper) indicates, B replaced C as the most common grade and Ds and Fs became less common in the Vietnam era.  The consumer era, in contrast, isn’t lifting all boats.  Ds and Fs have not declined significantly on average, but A has replaced B as the most common grade.  As of 2013, A was the most common grade by far and was close to becoming the majority grade at private schools.  America’s professors and college administrators have been promoting a fiction that college students routinely study long and hard, participate actively in class, write impressive papers, and ace their tests.  The truth is that, for a variety of reasons, professors today commonly make no distinctions between mediocre and excellent student performance and are doing so from Harvard to CSU-San Bernardino.”

Related:



Was Australia "Settled" or "Invaded"?...Words do Matter

University of New South Wales takes a bold stance:
http://www.bbc.com/news/world-australia-35922858

Evolution of US Higher Education System

A series from The Atlantic:

The Absurdity of College Admissions

Where College Admissions Went Wrong

The Commodification of Higher Education
http://www.theatlantic.com/education/archive/2016/03/the-commodification-of-higher-education/475947/

Hedge Funds and Sovereign Debt Defaults

Argentina sets a dangerous precedent:

Background:
http://vivekjayakumar.blogspot.com/2014/09/debt-restructuring-emerging-markets-and.html

Tuesday, March 29, 2016

PBS Frontline – Saudi Arabia Uncovered [Must Watch]

Extraordinary report from America’s best news magazine show 
http://www.pbs.org/wgbh/frontline/film/saudi-arabia-uncovered/

Yellen’s Economic Outlook

An interesting speech by Fed Chair Janet Yellen

Yellen notes –
“The proviso that policy will evolve as needed is especially pertinent today in light of global economic and financial developments since December, which at times have included significant changes in oil prices, interest rates, and stock values. So far, these developments have not materially altered the Committee’s baseline--or most likely-- outlook for economic activity and inflation over the medium term. Specifically, we continue to expect further labor market improvement and a return of inflation to our 2 percent objective over the next two or three years, consistent with data over recent months. But this is not to say that global developments since the turn of the year have been inconsequential. In part, the baseline outlook for real activity and inflation is little changed because investors responded to those developments by marking down their expectations for the future path of the federal funds rate, thereby putting downward pressure on longer-term interest rates and cushioning the adverse effects on economic activity. In addition, global developments have increased the risks associated with that outlook. In light of these considerations, the Committee decided to leave the stance of policy unchanged in both January and March.”

Monday, March 28, 2016

Financialization versus R&D

JAMES SUROWIECKI’s excellent piece highlights the threat posed to the American economy by the corporate focus on financialization rather on actual innovation:
“Valeant used to be a small drugmaker, struggling to stay afloat by doing what pharmaceutical companies typically do: invest heavily in R. & D. in order to discover new drugs. But Pearson, who took over in 2008, scrapped that approach. He argued that returns on R. & D. were too low and too uncertain; it made more sense to buy companies that already had products on the market, then slash costs and raise prices. So Valeant became a serial acquirer, doing more than a hundred transactions between 2008 and 2015. It invested almost nothing in its core business; R. & D. spending fell to just three per cent of sales. It was ruthless about bringing down costs, sometimes laying off more than half the workforce of a company it acquired. And though Martin Shkreli may be the public face of drug-price gouging, Valeant was the real pioneer. A 2015 analysis looked at drugs whose price had risen between three hundred per cent and twelve hundred per cent in the previous two years; of the nineteen whose prices had risen fastest, half belonged to Valeant.”

China’s Economic Transformation

Two long time China watchers – Stephen Roach and Justin Yifu Lin – offer interesting perspectives on China’s economic challenges:

Sunday, March 27, 2016

Trade Balance and International Economics: A Simple but Important Lesson

The Trade Deficit Isn’t a Scorecard, and Cutting It Won’t Make America Great Again
An insightful piece from Neil Irwin – something every economics major should read:

Related:
http://vivekjayakumar.blogspot.com/2016/03/tackling-widespread-misconceptions.html

Germany versus ECB – Never Ending Monetary Policy Battles

Interesting commentary from Dr. Michael Ivanovitch:
“The German government appointee to the ECB's Council is now saying "yes, but …" The "yes" is an apparently grudging admission that the ECB has "to do something" to get inflation back up in the target range, but Germany considers that interest rate cuts, asset purchases and other extraordinary monetary policy instruments are going "too far."
At a closer look, it turns out that asset purchases are for Germans the main part of that alleged policy overkill.”

Weekend Readings 3/27

History Lesson – Surveillance and Political Repression
Cato Institute offers an interesting new timeline – American Big Brother: A Century of Political Surveillance and Repression

Australia's growing economic dependence on China:

Saturday, March 26, 2016

Some Interesting Advice for Equity Investors



Related:
US corporate profits update:
http://www.bloomberg.com/news/articles/2016-03-25/behind-u-s-gdp-data-is-reason-for-recession-worry-weak-profits

How Humans Can Corrupt Even Artificial Intelligence

Microsoft’s Tay – Corrupted by Twitter Users

The Daily Show on the Tay debacle

Irrationality and Investor Behavior

An excellent read:
Why We Think We’re Better Investors Than We Are by GARY BELSKY
The average investor is highly delusional about his/her ability –
““Nearly two-thirds rated their financial sophistication as advanced,” said Mirtha Kastrapeli, a senior research analyst at State Street. “This seemed a little optimistic, so in our 2014 study, The Folklore of Finance, we ran a financial literacy exam. The average score was just 61 percent, barely a passing grade. This disconnect between actual and perceived financial sophistication, she explains, is evidence of how widespread the overconfidence bias is.””

Sunday, March 20, 2016

Tackling Widespread Misconceptions Regarding International Trade

Kevin D. Williamson of National Review wisely notes:
“The populist Right’s descent into Trumpism has been accompanied by another chorus of that great daft stupid hymn of American political economy: “We Don’t Make Things Here Anymore.” That is completely untrue, of course: As measured by the Industrial Production Index, we’re producing four times as much today as we did in 1960. Our exports have been flirting with record levels for a while, and we export many times more than what we did in the 1950s or 1960s. The largest markets for our exports are also the countries from which we take most of our imports: Canada, Mexico, and China. This is no surprise. 
Question: Would you rather your grandchildren worked in a Boeing factory, or in a flip-flop factory? Would you rather be a midlevel employee at a textile mill, or at Apple? Of course there is some wage at which working in a flip-flop factory is attractive, but the median American would-be flip-flop engineer’s next-best option is a lot more attractive than that of his counterpart in Wenzhou, and, so, that’s that.”
----------

A great note on a common misconception regarding trade from Daniel Ikenson:
“A noxious fallacy that perpetuates confusion and fuels antipathy toward trade and trade agreements is that trade is a competition played between national teams where the objective is to obtain a trade surplus.  Under this “Us versus Them” portrayal, exports are Team America’s points; imports are the foreign team’s points; the trade account is the scoreboard; and, since the scoreboard shows a deficit, the United States is losing at trade.
But trade is not a team sport. Trade is conducted by billions of individuals, each seeking to obtain value by exchanging some of their specialized output (monetized in the form of salaries or wages) for some of the specialized output of others. The purpose of trade policy is not to secure a trade surplus, but to facilitate this process of specialization and exchange and, ultimately, to produce economic growth.”

A Reality Check on NAFTA

Antidumping Duties – An Insidious Form of Protectionism

Economist Mark Perry on Misconceptions Regarding Trade Deficits:

As usual, Scott Sumner offers a useful corrective to the media hysteria regarding US-China trade:
http://econlog.econlib.org/archives/2016/03/is_china_trade.html

The Trade-Balance Creed: Debunking the Belief that Imports and Trade Deficits Are a “Drag on Growth”
http://object.cato.org/sites/cato.org/files/pubs/pdf/tpa-045.pdf

Economics Department [Grad School] Rankings

US News and World Report Rankings

Econ PhD Programs – Research Output Rankings:

UK Economics Department Rankings
http://www.theguardian.com/education/ng-interactive/2015/may/25/university-guide-2016-league-table-for-economics

---
OTHER RANKINGS -

Full-Time MBA Ranking – North America

Masters in Economics Rankings – North America

Masters in Information Systems Management – North America

Masters in Marketing – North America
http://www.best-masters.com/ranking-master-marketing-in-north-america.html

Masters in Financial Markets – Global Rankings
Masters in Corporate Finance – North America

Masters in Accounting – North America

Masters in HR – North America

Saturday, March 19, 2016

Should Legislative Laws Have an Expiration Date?

A fantastic piece from Reason magazine:
“In an open marketplace, a business that doesn't evolve to offer better goods and services at ever-more-affordable prices simply won't survive. That reality is particularly well-understood in places like Silicon Valley, which has been shaped by a folk understanding of Moore's Law, named for Intel co-founder Gordon Moore, who first observed in the 1970s that the number of transistors that fit on a computer chip doubles every two years, yielding cheaper and more powerful computers at a rapid rate. The result is a world in constant motion where risk taking is rewarded almost above all else….
But while virtually all industries are engaged in a constant race to meet consumer needs, there's one sector where no such impetus need be present. "Governments never tear up any old law; they stay on the books seemingly forever," Thierer says. As a result, taxpayers at the federal, state, and local levels end up getting the same or worse services at higher and higher prices—exactly the opposite of what happens in the private sector.”

Friday, March 18, 2016

Weekend Reading – 3/18/16

Mr. Gelernter, a professor of computer science at Yale, ruminates on humans, consciousness and artificial intelligence in an excellent Saturday essay for the WSJ:
“Most scientists and philosophers identify human thought with rationality, reasoning, logic. Even if they see emotion as important, they rarely see it as central—and even if they do that, they seldom grasp the remarkably simple way that it relates to rational thought and the mind at large. Filling in this gap in our knowledge is dangerous: It moves us a step closer to superhuman robots. But learning is our fate. It’s impossible to stop. Our best bet is to discover all that we can and to move forward with our eyes wide open.

Adam Davidson’s excellent piece on rentier states and modern economies –
“Many economists and political scientists now think that the United States economy has shifted, over the past few decades, toward one in which a higher proportion of the economy comes from so-called rents: Wall Street’s maneuvering through the regulatory process, ‘‘free-trade’’ deals whose thousands of pages of rules wind up proscribing winners and losers. The left, right and center of the economics profession all agree that reducing rent-seeking behavior, and improving overall growth, is essential if we want to ‘‘make America great again.’’
But this descent into a rentier economy would only accelerate with a mentality like Trump’s in the White House. The native-born population of the United States is aging rapidly; without immigrants the nation would quickly face a disastrous level of debt. Middle-class workers may be struggling now in a changing economy, but a clampdown on global trade would only make that worse. Any health care reform that revolved around the president’s ability to ‘‘deal’’ would inherently be one more prone to corruption.”


American Media and the Rise of Trump
Der Spiegel observes:
“Lots of American media outlets, especially large TV stations, have viewed Trump so far as entertainment. No word is too dirty to be put on the air somewhere, and Trump has a screen presence unlike any other candidate. Former Republican House speaker Newt Gingrich described the mechanics of this election to the hosts of "Fox & Friends," a show on the arch-conservative Fox News channel thusly: "Donald Trump gets up in the morning, tweets to the entire planet at no cost, picks up the phone, calls you, has a great conversation for about eight minutes, which would have cost him a ton in commercial money, and meanwhile his opponents are all out there trying to raise the money to run an ad." Of the show, which long offered Trump a regular platform, Gingrich said: "You could say that Trump is the candidate 'Fox & Friends' invented."
A power dynamic of superiority and subordination has emerged with Trump and some journalists that should not exist in a democracy.”


Kevin D. Williamson’s controversial take on the American working-class angst [published in conservative magazine National Review]
http://www.nationalreview.com/article/432876/donald-trump-white-working-class-dysfunction-real-opportunity-needed-not-trump

History of the World Wide Web

The Web Turned 25 Today:

Educational Quality and Human Capital

Common Core and the US Education System
A great special report on attempts to reform the US K-12 education system [from Fortune]:
http://fortune.com/common-core-standards/

Knowledge capital, growth, and the East Asian miracle
http://hanushek.stanford.edu/sites/default/files/publications/Hanushek%2BWoessmann%202016%20Science%20351%286271%29.pdf

Harvard economist Claudia Goldin on Human Capital
http://scholar.harvard.edu/files/goldin/files/goldin_humancapital.pdf

Thursday, March 17, 2016

The Complicated Economics of Education, Gender and the Pay Gap

An interesting piece in the Washington Post
https://www.washingtonpost.com/news/wonk/wp/2016/01/06/why-indian-american-women-make-more-money-than-white-guys/

Technological Progress and Society

Insightful commentary on a very important topic:
https://lareviewofbooks.org/review/automating-the-professions-utopian-pipe-dream-or-dystopian-nightmare
Related: http://www.theguardian.com/technology/2016/mar/19/robot-based-economy-san-francisco

[Update] Driverless Cars and Privacy in the Future
http://www.theatlantic.com/technology/archive/2016/03/self-driving-cars-and-the-looming-privacy-apocalypse/474600/

Facts versus Data
“Michael P. Lynch is a philosopher of truth. His fascinating new book, “The Internet of Us: Knowing More and Understanding Less in the Age of Big Data,” begins with a thought experiment: “Imagine a society where smartphones are miniaturized and hooked directly into a person’s brain.” As thought experiments go, this one isn’t much of a stretch. (“Eventually, you’ll have an implant,” Google’s Larry Page has promised, “where if you think about a fact it will just tell you the answer.”) Now imagine that, after living with these implants for generations, people grow to rely on them, to know what they know and forget how people used to learn—by observation, inquiry, and reason. Then picture this: overnight, an environmental disaster destroys so much of the planet’s electronic-communications grid that everyone’s implant crashes. It would be, Lynch says, as if the whole world had suddenly gone blind. There would be no immediate basis on which to establish the truth of a fact. No one would really know anything anymore, because no one would know how to know. I Google, therefore I am not.
Lynch thinks we are frighteningly close to this point: blind to proof, no longer able to know. After all, we’re already no longer able to agree about how to know.”

Related:
Where Computers Defeat Humans, and Where They Can’t By ANDREW McAFEE and ERIK BRYNJOLFSSON
http://www.nytimes.com/2016/03/16/opinion/where-computers-defeat-humans-and-where-they-cant.html

Billion Dollar Startups

Immigrants and the US economy
http://nfap.com/wp-content/uploads/2016/03/Immigrants-and-Billion-Dollar-Startups.NFAP-Policy-Brief.March-2016.pdf

WSJ summary
http://blogs.wsj.com/digits/2016/03/17/study-immigrants-founded-51-of-u-s-billion-dollar-startups
"“A new non-partisan study on entrepreneurship gives some credence to the tech industry’s stance that American innovation benefits from robust immigration.
The study from the National Foundation for American Policy, a non-partisan think tank based in Arlington, Va., shows that immigrants started more than half of the current crop of U.S.-based startups valued at $1 billion or more.
These 44 companies, the study says, are collectively valued at $168 billion and create an average of roughly 760 jobs per company in the U.S. The study also estimates that immigrants make up over 70% of key management or product development positions at these companies.”

Wednesday, March 16, 2016

The Fed Gets Realistic About Future Rate Hikes

Fed rate projections revised down:
“The median of Fed officials’ projections, known as the “dot plot,” saw the federal funds rate at 1.875 percent at the end of 2017, compared with 2.375 percent forecast in December. The end-2018 level fell to 3 percent, from 3.25 percent, with the longer-run projection at 3.25 percent, down from 3.5 percent.”
Market Reaction:



Modeling the Consequences of Economic Inequality

A group of European Physicists consider the following question - When does inequality freeze an economy?  

Non-technical summary of the research findings:
“The researchers found another interesting effect -- a “trickle up” flow of wealth quite different from the usual “trickle down” picture of supply-side economics. In an economy with appreciable inequality, capital tends to flow from those with less to those with more, generating a cascade of transactions along the way. Hence, policy interventions aiming to spur economic activity should work better if they inject money into the system at the lower end, rather than from the top.
This fits with the argument that quantitative easing -- in which central banks purchase securities -- may ultimately be misguided. Such a policy is supposed to encourage spending by propping up the prices of stocks and bonds, which tends to boost wealth only at the top end of the distribution. Central bankers might have a more powerful and beneficial effect if they instead injected money directly into the accounts of citizens, who could then use it to pay down debts or spend as they like.”

Tuesday, March 15, 2016

We are Living in the Internet Age


I am not sure why potential mates meeting in college has declined.


Basic Income and Economic Inequality Debate

Yale Economist and Nobel Laureate Robert Shiller - How Wage Insurance Could Ease Economic Inequality

Debate on Basic Income
Finland’s Universal Basic Income Plan – an interesting economic experiment:

A Plan in Case Robots Take the Jobs: Give Everyone a Paycheck
“But for the sake of argument, imagine that within two or three decades we’ll have morphed into the Robotic States of America.
In Robot America, most manual laborers will have been replaced by herculean bots. Truck drivers, cabbies, delivery workers and airline pilots will have been superseded by vehicles that do it all. Doctors, lawyers, business executives and even technology columnists for The New York Times will have seen their ranks thinned by charming, attractive, all-knowing algorithms.
How will society function after humanity has been made redundant? Technologists and economists have been grappling with this fear for decades, but in the last few years, one idea has gained widespread interest — including from some of the very technologists who are now building the bot-ruled future.
Their plan is known as “universal basic income,” or U.B.I., and it goes like this: As the jobs dry up because of the spread of artificial intelligence, why not just give everyone a paycheck?”

Monday, March 14, 2016

The Myth of the Rational Voter

One of my all-time favorite books is “The Myth of the Rational Voter” by Bryan Caplan [published in 2007].
Caplan’s take on recent US political developments:

Related:
http://vivekjayakumar.blogspot.com/2016/02/the-dangers-of-economically-illiterate.html

Share Buybacks and US Equity Prices

US equity markets largely driven by share buyback programs of corporations:
http://www.bloomberg.com/news/articles/2016-03-14/there-s-only-one-buyer-keeping-the-s-p-500-s-bull-market-alive

Saturday, March 12, 2016

Disaffected Americans and Politics

University of Chicago economist Luigi Zingales on Crony Capitalism
http://www.nytimes.com/2016/02/23/opinion/campaign-stops/donald-trump-crony-capitalist.html

An insightful piece from British journalist and political commentator Simon Heffer –
“Automation threw millions of Americans out of manufacturing and into service industries, if they went into any work at all. The education system fails many of them. With 70 per cent still not holding a passport, their country remains one that understands less about the world than it ought, and learns few lessons from the rest of it. There are pockets of sweetness and light, yet much of America appears to be in a dark and recriminatory cul-de-sac. It sounded ridiculous for Hillary Clinton, on Super Tuesday, to call again for more “love and kindness” in America, but she had a point. It seems more the inclination of many Americans to look first for their enemies rather than their friends.
An American friend talked to me of his country having some sort of collective nervous breakdown. It is tempting to cite that to explain the rise of Donald Trump, but it would be wrong. Many Americans who would like him to win know exactly what they are doing, as do others who, in a different way, wish to break the system by choosing Bernie Sanders. There is a widespread view that the usual solutions will not suffice to put America back on track, and that without some degree of desperate measures the decline of America will become even steeper. The greatest fear of all seems to be fear of the future.”

Related:
Trump: The Great Orange-Haired Unintended Consequence by Marilynne Robinson (Pulitzer Prize winning American novelist) on the Trump Phenomenon (insightful analysis for the intelligent reader):
“Trump and the others are the product of the souring of the party system. Someone should point out, in these days when the constitution is so constantly and pietistically invoked, that political parties are not mentioned in the constitution, and that the prescient founders warned emphatically against them for reasons that should be clear to us now.”

Humans versus Artificial Intelligence

Google's AlphaGo beats Go master Lee Se-dol – A landmark moment?

Related:
In the Age of Google DeepMind, Do the Young Go Prodigies of Asia Have a Future? BY DAWN CHAN
“If the Go community’s more fraught reactions exemplify our collective anxiety that A.I. will gradually render humans useless in an unending succession of fields, perhaps Asia’s Go academies will be a test case. What happens when machines—and not just quick number-crunching machines like I.B.M.’s chess-playing Deep Blue, which beat the grand master Garry Kasparov in 1997, but actual learning machines—become superior at skills that we think demand creativity, insight, and uniquely human intuition? Will we continue to see entire early childhoods spent perfecting such skills, or is the world of specialized Go dojangs nearing its end? Already, some the schools’ graduates quit Go each year, catching up on high-school coursework and then finding alternate careers, whether selling insurance or working in tourism. Will this fate become more common?”

Friday, March 11, 2016

The Future of Africa

Interesting graphics -
http://s.telegraph.co.uk/graphics/projects/Africa-in-100-years/index.html

International Economic Development - The Big Picture View

Georgetown economist Steven Radelet’s THE GREAT SURGE: THE ASCENT OF THE DEVELOPING WORLD is an important new book on international economic development


Rethinking Principles of Economics

Economist David Colander offers his views on reforming introductory economics here:
http://www.palgrave-journals.com/eej/journal/v42/n2/pdf/eej201557a.pdf