Irish Times: The Psychology of Selling

The brilliant Mr. Patrick Freyne (ex-TV reviewer for the Sunday Tribune) has an article in the Irish Times on behavioural economics and the logical fallacies we, as consumers, fall for again and again. Read it here.

Daniel Gros: Flawed Economics of the Competitiveness Pact

The Director of the Centre for European Policy (CEPS), Daniel Gros, has written a short article examining the logic behind the so-called Competitiveness Pact, a joint proposal from France and Germany to improve the Euro Area's competitiveness. The Pact led to a number of alternative proposals being offered, most notably one by the Presidents of the Commission and European Council.

The Pact will be debated at the European Council held on  24-25 March and we can expect sparks to fly over contentious issues such as the harmonisation of corporate tax rates and the retirement age. There are also calls for Wage Indexation to be abolished  (this is where social welfare and other payments are calculated based on the average wage as opposed to inflation or price levels)

In his piece, Gros states that there are two underlying hypotheses which provide the basis for the Competitiveness Pact:

1. If we fix (relative?) wages no external imbalances can arise since relative costs determine export performance.
2. Higher productivity always means more ‘competitiveness’, and is thus always useful to reduce divergences.

These are not necessarily true, argues Gros and so the logic behind the Pact is flawed.


Read it at the Eurointelligence website here.
The Franco-German Competitiveness Pact is available here.
And some background on the issue is available on the Euractiv news website here.

Happy Maths Day!

Such a shame it only comes once a year....

Here's a video by Professor Mark Thomas of the University of Oregon, who very kindly put up all his excellent introductory econometrics lectures on Youtube. Like every other econometrics lecturer in the world he has his own take on notation but the lectures are quite accessible and a great first step in learning more about what economics is based on.

NB. Lecture starts at the 12 minute mark.

Reading for the Weekend

There has been some really interesting articles this week (most from the FT but never mind):

•  Wolfgang Munchau thinks Merkel is living in a parallel universe.
• Colm McCarthy and Martin Wolf have both given great overviews on Ireland and what needs to be done with it's insurmountable debt.
• Crazy old  Axel Weber left the Bundesbank thus taking his hat out of the ECB ring and his name off the Merkels' Christmas card list. He then wrote an article opposing any plans to allow the European Stability Mechanism to purchase bonds and calling for the Stability and Growth Pact to be strengthened. Reinforcing the stereotype that most Germans think that all economic crises can be prevented by fiscal discipline alone.
• John Plender on the Credit Bubble's Comeback
• Roubini and Bremmer tell us that our G20 world has become G-Zero.

So, as you while away the hours this weekend, waiting to see who gets the position of being told what to do by the IMF and the Commission, and wondering which member of Vampire Weekend does Dylan Haskins look like, check out some of these articles, they give a flavour of the interesting times we live in.....
 

NOTE: For any of the FT articles, follow the link, you'll hit a paywall but the title of the article will appear above your address bar, just google the title of the article and click on the first link you come across and you'll be past the paywall.

Finance 101

Former UK Chancellor, Alistair Darling, has a short piece in Prospect Magazine (in addition to an interview with Prospect's editor) highlighting the lack of "financial literacy" in society. He calls for the basic concepts of finance to be taught at secondary level and for older people to have the opportunity to learn about the basic concepts of finance as well.

Furthermore, he notes that this is not just a problem for laypeople, senior board members of banks and other financial institutions appeared to be in the dark at times over the financial instruments they used and the strategies they followed. This is a defining feature in what caused the global financial crisis; the over-reliance on complex instruments and models by those who rarely, if ever, understood them.

Darling makes several good points, especially about the need for more clarity in the language used regarding finance. However, I would love to see him in the future expand on these issues. As a former Chancellor he would have a unique insight in to just how out of touch some of these people were and how relevant this was to the global financial crisis.

Article (including interview) available here

Dismal Scientists

The Economist asked some economists who they thought were the most important economists in the world today. Economist.

I'm ashamed to say I didn't know several of the names mentioned. I blame their PR guys rather than my academic skills...

Check it out here.

Tackling Future Food Crises in 8 Simple Steps

Olivier de Schutter, the UN Special Rapporteur on the right to food, wrote this great piece on steps G20 nations should take to break the cycle of shocks to the world-supply of food. Its a response to the measures suggested by the President of the World Bank, Robert Zoellick

Read it here at the brilliant Project Syndicate blog