Big Data Little Impact

While researching what to do with all those Twitter shares I bought*, I came across this interesting article in the New Yorker (pronounced NuYoikah) about how relatively little impact digital goods and services (i.e. apps, email, social media, games, storage, etc.) have on GDP.

Which makes sense when you think about it; the way the online world works means that, to quote the article's author, James Surowiecki; "free has been more the rule online than the exception". Twitter, Google, Facebook, Snapchat et al charge nowt while consumers happily do their best impression of the Cookie Monster omnomnom-ing their way through free data and information.

Even taking into account that GDP is not a perfect measurement of a nation's economic well-being it seems that a model may well need to be developed to better capture the impact the digital economy is having.

For further reading I thought this memo from Dr. Michael Mandel gave a good overview of the subject and some useful figures.










*= Seriously, guys, if any of you bought  those, sell them before the most popular hashtag on Twitter is #BurstTechBubble2.0 (see Forbes article for reasons why).

Waking Shark II: The Re-Sharkening

A "war game " styled drill was carried out across London today to see how well the City would deal with a shark cyber attack on a number of international and domestic financial institutions' computer systems....and it had the best name ever: Waking Shark II. If the Syfy channel don't come knocking for a spinoff I will eat my hat.

Details of the exercise are available here from Reuters.

Whoever came up with" Waking Shark II" deserves the 2014 Nobel Prize for Economics...or, failing that, the 2014 Nobel Prize for Naming Stuff (it's real trust me).

Details of the exercise won't be published until December 2013 and the results could be interesting considering some of the points raised by IT experts and highlighted here by Warick Ashford of Computer Weekly.


P.S. As sharks never sleep surely they're never waking but constantly awake ? The world of finance poses more intriguing questions than I ever thought possible...

Irish Government to Liquidate with Extreme Prejudice

Well, something interesting appears to be happening.

The Irish Government is to propose liquidating the IBRC, formerly Ned Stark's winter fund Anglo Irish Bank, with rumours that emergency legislation is to be brought before the Seanad and Dáil this evening as Governor of the Irish Central Bank presents this proposal to the ECB.

The main point of this is to cease the annual €3.1bn payment of interest on the €28bn promissory note used to bail out the world's most evil bank (excluding all the Swiss ones). A more long term bond will come into play and payments will be made back more gradually over a longer period of time.

RTE have the story here. With additional reports from Bloomberg and Reuters.

Minister Noonan is expected to make a speech in the Dáil at 9pm this evening.

This still poses several questions:

• How long has this been Plan B for the government after their initial proposal to park the interest for 15 years was shot down ?
• Were the ECB expecting this ?
• Will this have any effect on Irish bonds ?
• What kind of timeline on interest payments can we now expect ?
• What's a Magdalene laundry ?

Put on the popcorn, get out your beer hat things are gonna get interesting*.




*= by which I mean unclear, confusing and technical.

Estonian Soap Opera

Doubt you guys missed this...but still worth marking.

An opera has been written about the Twitter (sigh) feud between that the bearded Keynesian; Paul Krugman, and the always-dapper President of Estonia; Toomas Hendrik Ilves.


FT blog has the story here.



My favourite is President Ilves' sick burn at Krugman on his Nobel Prize, saying: "Guess a Nobel in trade means you can pontificate on fiscal matters...".


This story really raises some interesting issues: What are these people doing on bloody Twitter ? Has Estonian Opera run out of ideas ? Will Krugman be welcome at Talinn's world famous Christmas markets next year ? Should it be mandatory for presidents' of nations to wear bow ties ?

I wish the 16 minute opera well but for me the best economics-influenced music is across the sea from Estonia in Sweden.


PS. All Twitter/economics/opera puns are welcome. Could not think of any good ones for this article's headline.

Albert Hirschman (1915-2012)

Whilst reading the fantastic Crooked Timber blog (check it out people), I came across the sad news that Albert Hirschman had died.

He was an economist in my "must read more about them later" box and his passing has been the unfortunate reminder to investigate more closely his work, particularly that on unbalanced growth strategy.

Foreign Policy Obituary here.

Paul Krugman article on Hirschman here.

Patently Obvious: The Knowledge Economy

Are you Irish ?

Yes ? Good for you.


Are you hedging all your bets on an Irish recovery coming from exporting pharmaceuticals to the sick, bald, and impotent of the world ?

Well then, you probably shouldn't click on this link.

Agh!

Ok, it's not that bad really. Exports are still breaking records, in a good way, and certain factors (as always) have to be taken into account. What the Citi graph does highlight however, is that Ireland's reliance on pharmaceutical exports must not discount the effect the "patent cliff" will have on the market for medicines and other pharmaceutical goods in the near future.



Also, happy Tuesday everyone:Why Not Start Your Weekend on Wednesday ?

Neanderthal-nomics

I could try and explain my absence but I don't want to and, lets face it, you don't want to hear it.

What you are interested in however is fantasizing about how you can become a regular John A. Rockefeller without putting in nearly as much effort as the great captain of industry.

Luckily for you back in 1966 Marshall Sahlins discovered a way to do this...  become a Cave Man.

All is revealed in this link giving background to Sahlins' presentation, with further reading available here.

What's the deal with Optimization Theory ?

Like most people, Professor Avinash Dixit, likes to watch Seinfeld. Unlike most people, the Princeton Professor of Economics has applied an episode to option value theory, specifically Elaine evaluating if her date is "spongeworthy".

Link here.

Cool.

This is taken from Economic Inquiry and you can see in the notes that a Ricardo Guzmán is credited for the "abstract suggestion".

Now I'm off to apply Neo-Walrasian General Equilibrium Theory to the Soup Nazi......

Who is Ben Bernanke's Bank Manager ?

Happy New Year !!!


I thought this piece by John Saft of Reuters was rather cool, particularly as it had me imagining the Chairman of the Fed walking in to his bank manager's office, all sweaty and nervous, looking for some sweet sweet remortgaging.

Mr. Saft does raise some pretty thought-provoking points in his article but I really don't know if it can be so closely evaluated with the policies Mr. Bernanke advocates, this is a personal matter after all. Maybe he just had to get a rockin' new powerboat in the January Sales and this was the quickest way to do it ? At least that's what I like to think....

Eurozone Leaders: get your frickin' act together

The normal response to the question "do Eurozone leaders finally get it?" is "of course not.. are you serious ? What the hell is wrong with you?!"

Luckily for us Professor Charles Wyplosz has a more eloquent and thought-out answer at the lovely www.voxeu.org website.Although the conclusion is in the main title: not yet.

Link available here.

Nobel Prize for Economics : Sargent and Sims

This is the real start of the awards season people with Thomas Sargent and Christopher Sims winning the prize this year.


The Marginal Revolution blog has a very easy to follow of explanation of what it is these chaps have done to win a prize that so pisses off physicists, chemists and other "real" scientists the world over. Check it out here.

And for all you "real" scientists out there, please enjoy Dilbert cartoon

Oh right, the blog...Sorry about that.

Having taken a career break from the blog (i.e. I got a career) I thought I would try and get things moving back here before you go off and hang out with those no-goodniks over at the Irish Economy blog.

So here are a few things I came across recently that may be of interest:

The first is taken from Paul Krugman's blog in which he cites a paper by Muller, Mendelsohn, and Nordhaus who use the example of air pollution* and how this side-effect of production affects society and how this does (or doesn't) impact on policy makers and potential contradictions in their ideology.

They find that in a purely monetary sense the cost to society is huge with a number of industries inflicting more damage in the form of air pollution than the value-added by these industries at market prices. The argument, Krugman explains, is as follows "consumers are paying much too low a price for coal-generated electricity, because the price they pay does not take account of the very large external costs associated with generation. If consumers did have to pay the full cost, they would use much less electricity from coal — maybe none, but that would depend on the alternatives."

Ah. So we tax them then to make up for this disparity and offset the detrimental impact of air pollution. A response to such a market failure is required but this will be shot down by those who think Adam Smith was a leftie-pinko interventionist. 

An interesting examination of how one's ideology and need to be right can hinder them from doing what is most efficient. Not necessarily a trait only found in conservatives though...

Secondly Yoram Bauman, PhD., is the (sigh) Stand Up Economist. Moreover, he is not dreadful, in fact he's actually pretty good. Unlike that bloke at Guy's Econometrics blog who changes the lyrics of popular songs to econometrics terms...Bleugh.

Check out the Bauman's explanation of the Greg Mankiw's 10 Principles of Economics here. I especially like his footnote joke. I mean, seriously some of the footnotes in my old macro book were straight out of the Third Policeman.


* = always the staple for discussing external costs to society, just like cakes are always the example used when discussing diminishing marginal utility.

Millionaires Demand to Pay More

Check out this video.

The 200-strong Patriotic Millionaires for Fiscal Strength group (catchy name) is demanding that President Obama raise their taxes.

This will surely take off across the world, right ?... Right ?!

David Cottle asks "Are These Havens Really the Safest Places to Go"?

David Cottle in the Wall Street Journal looks at the so-called safe havens of the bond markets (i.e.US, Swiss, Japanese and German bonds) and wonders why in times of downturn these bonds are perceived as being less risky despite their connection to the global downturn (Germany's funding of it's Eurozone partners bailouts) or their own endogenous problems ( US debt, Japan's stagnant economy).

Cottle highlights a report by UBS which concludes that, to some extent at least, this may be investors from these safe havens coming home to roost by investing back in domestic bonds after having invested abroad during times of global growth.

Article here.

Brady Bonds to the rescue ?

Alright, everybody come back out from behind their couches. Morgan Kelly's buggered off for another four months so we can all get back to reading less scary and more constructive  opinion pieces. Like this one by Barry Eichengreen.

The Berkley professor discusses using a system of financial instruments and regulations similar to the Brady Bonds of the 1980s to deal with Greece and the increasing likelihood that it is facing default. Eichengreen cites a plan devised by two veterans of the Brady Bonds: Gary Evans and  Peter Allen. He also points out that another veteran of the Brady Bonds was a certain Mr. Trichet...

Mohamed A. El-Erian: How Risky is the Global Economy?

Rather than just stretching his arms as wide as possible and saying "about this much" Mohamed A. El-Erian discusses four potential risks that the weakened global economy still faces. These are:

• The world as a whole has yet to deal fully with the economic consequences of unrest in the Middle East and the tragedies in Japan.
• The debt crisis in the EU's periphery.
• Housing in the US is weakening again.
• The increasingly visible fiscal predicament in the US: having used fiscal spending aggressively to avoid a depression, the US must now commit to a credible medium-term path of fiscal consolidation

It is not a pessimistic or alarmist view and makes for interesting reading. It would however have been helpful for El-Erian to include his opinions on what could be done to counter these risks.

This Project Syndicate article is taken from a lecture Mr. El-Erian gave at Princeton.

Wall Street Journal's Top 25 Economics Blogs

Hi apologies on my absence from the blogosphere.

As I'm sure you were all freaking out over my disappearance, I vow to make sure that you guys won't ever be left staring blankly at The False Economist homepage, refreshing it every fifteen seconds for days on end again.

So please enjoy a veritable cornucopia of other economics blogs as rated by Wall Street Journal.

List available here.

World Bank Report : Conflict, Security and Development

A report out today by the World Bank has urged a rethink on what aid spending should target. According to the report, there should be more focus on the justice system, policing and ensuring political stability, rather than on  health and education.

Is this a new take on "trickle-down" economics ? Or is it reasonable to suggest that money spent on developing health and education systems in failed or failing states is a waste of money ?

Report is available here.

BBC background article available here.

Patrick Honohan Suggests GNP-Linked Bonds

Governor of the Central Bank, Patrick Honohan, has proposed a new risk-sharing idea to deal with Ireland's seemingly unsustainable debt repayments. To put it very simply: when Ireland's GNP increases it should pay more and when the country's growth falls it should pay less back.

Apart from being a good idea, although one that will require many conditions and qualifiers to have a chance of being even reviewed by Ireland's partners, it also highlights Ireland's need to find a way to manage its huge debts.

FT article by Honohan here.

Wall Street Journal  article disccuses it here.

Wayne Rooney curses at cameras AND explains the Ricardian/Malthusian theory of rent economic rents

In the Financial Times, British economist John Kay dicusses that age-old question asked by people who don't "get" sport: Why do modern footballers get paid so much compared to their predecessors ?

In answering he applies the concept of economic rent* to the problem. This issue was  first discussed 250 years ago by James Anderson, a Scottish farmer and economist who put forward his ideas about economic rent in An Enquiry into the Nature of the Corn Laws in 1777. He stated that "it is not the rent of the land that determines the price of its produce, but it is the price of that produce which determines the rent of the land". Seemingly a paradox exists, but, Kay explains, Anderson found that:

"The demand for corn determined how much land had to be cultivated: the worst land that needed to be brought into production to satisfy that demand would earn only the cost of production, and better land would earn rents that measured the value of their superiority. Who benefited from these earnings was a political issue" 

These ideas would go on to form the Malthusian/Ricardian theory of rent although it is believed that Ricardo and others were not aware of Anderson's theories.

So why does Rooney earn relatively more than the great Stan Matthews ? Basically as demand for footballers increase, lower quality footballers are brought in, squads expanded, youth players paid more etc., to meet the demands of the public. The superior footballers (Rooney and to a lesser extent, Titus Bramble) will be able to dictate higher relative wages, although the extent of these is down to the negotiating skills of their agents.

At least, that's my understanding of it....

The other major reason is of course the huge increases in profits generated by clubs compared to the 1950s and the obvious impact this will have on the players.

Kay's article is available here.
Background to the Ricardian/ Malthusian theory of rent available here.
 

* = The excess payment for goods and services beyond the amount needed to bring the required factors of production into a production process and sustain supply.