The president-elect of the United States will be inaugurated against a very tough economic and political background. there's no need to debate the part about the economy because its effects are felt almost universally now. All that's being debated is whether the auto industry in the US should be supported with tax payers money or not. Still, with the very well-chosen team at the Treasury and the advisors at hand, I am confident that the new administration will steer the economy excellently.
To my mind, the more precarious situation is the one regarding the two wars in Afghanistan and Iraq. There are no prizes for guessing that here too, one is going far better than the other. Indeed, Iraq is momentarily stable and the big decisions only relate to the draw down date for the US troops. regarding Afghanistan, I think that the administration will have to consider its options more clearly and redefine the theory of engagement because the Taliban are not only resurgent but the neigbourhood has became less stable with the attacks on Mumbai by terrorists earlier this month.
I do not have ready answers for Obama but as I have stated on this blog severally and more specifically here, the main objective in Afghanistan ought to be to beat the Taliban. This task is difficult enough on its own without conflating it unnecessarily with the fight to eradicate opium poppy. As this story in the Guardian states, there's already corruption and the beneficiaries of the drugs trade are the more influential politicians and large farmers. Clearly, it is the economic imperative that leads the villagers to prefer opium poppy in spite of the lack of rain. It suggests that the fight is not about the eradication of plants though the fear and loathing of the Taleban is more widespread.
Monday, December 22, 2008
Thursday, December 18, 2008
Breaking the Cartel of Steel
This story in the Times of London reports that the Competition Council in France conducted a three year inquiry and determined that a number of firms in the steel industry had colluded to set prices and raise barriers for entry to potential rivals. As has been monotonously stated on this blog, one of the clearest justifications for regulatory policy is in the quest to enhance industry competition. Adam sage's story reports that the Competition Council has levied a record fine of €575 million on 11 firms.
Again, while I am convinced that light regulation is important, the story suggests that there was a finding that this was an elaborate price fixing and barrier raising cartel. I applaud the Competition Council of France because price fixing and lessening of competition is without doubt harmful to competitors and to consumers of steel products. What I am less clear about is the manner in which the size of the fine is determined. It is unclear what assumptions are employed in reaching the fine and the apportionment across the colluding firms. I am also unsure that this is indeed the largest fine in real terms because the comparisons being made are all in nominal terms.
Finally, the mere evidence that the managers of the firms met is insufficient reason to assume that a cartel is in place but the other evidence involving market sharing, price fixing and other collusion in punishing members who do not adhere to the agreements demonstrates the nefarious effects of this cartel. This is one instance in which the use of the word cartel is not a smear word for a dominant set of corporations.
Again, while I am convinced that light regulation is important, the story suggests that there was a finding that this was an elaborate price fixing and barrier raising cartel. I applaud the Competition Council of France because price fixing and lessening of competition is without doubt harmful to competitors and to consumers of steel products. What I am less clear about is the manner in which the size of the fine is determined. It is unclear what assumptions are employed in reaching the fine and the apportionment across the colluding firms. I am also unsure that this is indeed the largest fine in real terms because the comparisons being made are all in nominal terms.
Finally, the mere evidence that the managers of the firms met is insufficient reason to assume that a cartel is in place but the other evidence involving market sharing, price fixing and other collusion in punishing members who do not adhere to the agreements demonstrates the nefarious effects of this cartel. This is one instance in which the use of the word cartel is not a smear word for a dominant set of corporations.
Wednesday, December 17, 2008
Why Vodafone Should Keep England Sponsorship
Nobody doubts the view that the recession has now extended to the real economy and that corporations outside the main financial service providers are faced with the need to make decisions on funding cuts. This places sports teams in a difficult situation as corporate sponsorship is essential for most sports. Among others, the Jamie Jackson reports in the Guardian that England cricket team suffered from the withdrawal of sponsorship by Vodafone, its main sponsor.
In spite of the argument presented on this blog here questioning the real benefits of corporate sponsorship following the decision by GM and Tiger woods to mutually agree to an end to a sponsorship deal, it is clear that Vodafone should retain the deal in a restructured form. The tenor of the blog post was that the structure of the sponsorship deals makes it difficult to ensure that both sides get real value. Taking forward that argument, I think that the corporations that are throwing aside sponsorships are being short sighted. These deals may be expensive in light of the financial strictures today but economic recovery is definite in the medium term.
For that reason, this is the best situation to renegotiate the sponsorship deals with the knowledge that the economy would recover. If I were to advise Vodafone or the corporations with businesses, it would be that they would look to reduce the absolute sponsorship size and lock in a longer term contract. In that way, Vodafone would get a better deal over the long term rather than wait for the economic upturn before coming back to the table when the England team may have more interested sponsors. To my mind, a sponsorship deal involving the England cricket could be sufficiently adjusted downwards to make it lucrative in the longer term.
In spite of the argument presented on this blog here questioning the real benefits of corporate sponsorship following the decision by GM and Tiger woods to mutually agree to an end to a sponsorship deal, it is clear that Vodafone should retain the deal in a restructured form. The tenor of the blog post was that the structure of the sponsorship deals makes it difficult to ensure that both sides get real value. Taking forward that argument, I think that the corporations that are throwing aside sponsorships are being short sighted. These deals may be expensive in light of the financial strictures today but economic recovery is definite in the medium term.
For that reason, this is the best situation to renegotiate the sponsorship deals with the knowledge that the economy would recover. If I were to advise Vodafone or the corporations with businesses, it would be that they would look to reduce the absolute sponsorship size and lock in a longer term contract. In that way, Vodafone would get a better deal over the long term rather than wait for the economic upturn before coming back to the table when the England team may have more interested sponsors. To my mind, a sponsorship deal involving the England cricket could be sufficiently adjusted downwards to make it lucrative in the longer term.
Quote of the Day
"The market economy promotes diversification when the future is uncertain and there are differences of view. This is one of its fundamental strengths. But the market economy does not achieve enough diversification when the future is uncertain and there is commonality of view. This is one of its fundamental weaknesses". John Kay
Tuesday, December 16, 2008
Classifying the UN Membership
One just has to attend international meetings with lots at stake such as the Ministerial meetings of the WTO or negotiations regarding the reduction in greenhouse gas emissions as took place last week to see the absurdity in the manner that the countries are conventionally classified. This absurdity is most evident in intuitive classifications such as developing countries and developed countries. Taken a step further, one finds very quickly that countries with very different development and welfare circumstances are classified together.
Michael Levi, writing in the Slate Magazine here addresses this issue of the problem with classification of country’s during the climate negotiations held recently in Poland. The very rough ways of classifying countries through a single metric such as the nominal GDP per capita or an income threshold results in classifying Singapore, China and Togo together. Given the concessions that are required, it is easy to see why countries such as India, China and Brazil are insisting on a classification that is patently absurd but whose results ensure that they would have to make fewer reductions to carbon emissions.
Throwing away useless mantras such as developing country solidarity and all the rest, I am clear that an algorithm considering the industrial base, population size, per capita incomes adjusted for purchasing power parity, infrastructure base and levels of poverty would yield an imperfect but better classification system. Such an algorithm is not too difficult to draw and would probably lead to a more useful result than is suggested by the very arbitrary classification that the larger countries such as India, Brazil and China are gaming so clearly. In all, it shows that the United Nations or the WTO ought to invest in developing a new mechanism for classifying its broad and diverse member base. A competition would yield a more efficient outcome so that the negotiations may then concentrate on the matter at hand as opposed to the politics of classification.
Michael Levi, writing in the Slate Magazine here addresses this issue of the problem with classification of country’s during the climate negotiations held recently in Poland. The very rough ways of classifying countries through a single metric such as the nominal GDP per capita or an income threshold results in classifying Singapore, China and Togo together. Given the concessions that are required, it is easy to see why countries such as India, China and Brazil are insisting on a classification that is patently absurd but whose results ensure that they would have to make fewer reductions to carbon emissions.
Throwing away useless mantras such as developing country solidarity and all the rest, I am clear that an algorithm considering the industrial base, population size, per capita incomes adjusted for purchasing power parity, infrastructure base and levels of poverty would yield an imperfect but better classification system. Such an algorithm is not too difficult to draw and would probably lead to a more useful result than is suggested by the very arbitrary classification that the larger countries such as India, Brazil and China are gaming so clearly. In all, it shows that the United Nations or the WTO ought to invest in developing a new mechanism for classifying its broad and diverse member base. A competition would yield a more efficient outcome so that the negotiations may then concentrate on the matter at hand as opposed to the politics of classification.
Monday, December 15, 2008
Should Children Fire Uzi's at Gun Shows?
This blog has featured some of the ideological arguments for gun control. One notices that policy debates arise soon after a tragedy has taken place with both sides of the divide stating even more loudly why any tragedy would not have happened had there been less freedom with gun purchase or with stronger gun control policies. As reported here by AP in the Boston Herald, the recriminations are back following the indictments after the death of a child at a gun show.
Looking at the sad incident at a gun show during which a child suffered fatal injuries while firing an Uzi, I have to state my view that this debate is taking on the same tired lines. It is clear here that there's no direct and clear culpability as this was a self-inflicted wound albeit aided by very poor supervision. To my mind though, I favour freedom and parental responsibility but worry that a child should be allowed to fire an Uzi at a gun show. the court case and the acrimony merely ensure that a proper discussion for gun control and regulation will not occur.
Admittedly, the law in Massachusetts allows children to fire shot guns or rifles with parental consent. I create the distinction that an Uzi would probably require more careful handling than the other two and to allow any 8 year old to take shots does not betray sufficient care. It is also surprising that a law enforcement officer is attached to a corporation that sponsored the show.
Looking at the sad incident at a gun show during which a child suffered fatal injuries while firing an Uzi, I have to state my view that this debate is taking on the same tired lines. It is clear here that there's no direct and clear culpability as this was a self-inflicted wound albeit aided by very poor supervision. To my mind though, I favour freedom and parental responsibility but worry that a child should be allowed to fire an Uzi at a gun show. the court case and the acrimony merely ensure that a proper discussion for gun control and regulation will not occur.
Admittedly, the law in Massachusetts allows children to fire shot guns or rifles with parental consent. I create the distinction that an Uzi would probably require more careful handling than the other two and to allow any 8 year old to take shots does not betray sufficient care. It is also surprising that a law enforcement officer is attached to a corporation that sponsored the show.
Sunday, December 07, 2008
Krugman Gives Detroit 3 Small Chance
Commenting on the ongoing debate to inject public money into the Detroit three, I have had objections that fall into two categories. First, it is neither clear that public money should be given to the three corporations in spite of the claim that they can all be brought back to profitability. The second and more important is that there are options related to bankruptcy that the firms should resort in order to be allowed to reorganize.
The Washington Post covers Paul Krugman's comments made in Stockholm during the week preceding the award of the Nobel prizes. As he states, the forces of economic geography and structure of US economy suggests that the three firms may cease to exist despite the bailout plan. The idea of a bailout may be politically popular, but it is clearly unsound.
Update: A post on Paul Krugman's blog made a correction to this report. The Nobel Laureate did not state that the three automakers are doomed to failure.he appears to have spoken of its as a probability and not necessarily as a definitive declaration. That is an important distinction.
The Washington Post covers Paul Krugman's comments made in Stockholm during the week preceding the award of the Nobel prizes. As he states, the forces of economic geography and structure of US economy suggests that the three firms may cease to exist despite the bailout plan. The idea of a bailout may be politically popular, but it is clearly unsound.
Update: A post on Paul Krugman's blog made a correction to this report. The Nobel Laureate did not state that the three automakers are doomed to failure.he appears to have spoken of its as a probability and not necessarily as a definitive declaration. That is an important distinction.
Tuesday, December 02, 2008
Economics for Pirates
In the recent weeks, Somali pirates, operating off the East African coast have been in the public limelight for taking over not only a large oil tanker destined for the US but also for the successful negotiations for ransom for a number of ships in their control.
Needless to state, perceptive economists such as Peter Leeson in this interview in the Scientific American magazine, not only see similarities between these pirates and the pirates of yore but also state categorically that piracy is a form of employment. One ought not to be surprised therefore that the total number of piracy incidents on the east coast of Africa have risen this year as the pirates have been able to extract ransom from the owners of the ships that they have held. This interview published in the Scientific American Magazine uses economic theory appearing in a book to explain the facts that obtain.
Taking just two examples from the dozens of ships that have been taken over by these buccaneers, one involved a Ukrainian ship carrying tanks and other heavy weapons as reported by NYT here and the other was the oil tanker carrying nearly a million barrels of crude petroleum. As economic theory would predict, the activity is based on expectations of profit even when it is clear that the pirates can neither offload the battle tanks reportedly held in the former ship nor refine the crude petroleum held in the latter. All they understand is that the ship has valued property whose release the owners will be anxious to negotiate for.
Now that the book by Peter Leeson is out, I expect that law enforcers and cargo shippers will read it carefully. perhaps the best day for sea pirates on the East african coast are now because they will ultimately face the same fate as their predecessors three centuries ago.
Needless to state, perceptive economists such as Peter Leeson in this interview in the Scientific American magazine, not only see similarities between these pirates and the pirates of yore but also state categorically that piracy is a form of employment. One ought not to be surprised therefore that the total number of piracy incidents on the east coast of Africa have risen this year as the pirates have been able to extract ransom from the owners of the ships that they have held. This interview published in the Scientific American Magazine uses economic theory appearing in a book to explain the facts that obtain.
Taking just two examples from the dozens of ships that have been taken over by these buccaneers, one involved a Ukrainian ship carrying tanks and other heavy weapons as reported by NYT here and the other was the oil tanker carrying nearly a million barrels of crude petroleum. As economic theory would predict, the activity is based on expectations of profit even when it is clear that the pirates can neither offload the battle tanks reportedly held in the former ship nor refine the crude petroleum held in the latter. All they understand is that the ship has valued property whose release the owners will be anxious to negotiate for.
Now that the book by Peter Leeson is out, I expect that law enforcers and cargo shippers will read it carefully. perhaps the best day for sea pirates on the East african coast are now because they will ultimately face the same fate as their predecessors three centuries ago.
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