The Real Lesson of the Excel Error

As reiterated by this NYT article by Robert Pollin and Michael Ash, the main debate that animates commentators is the relationship between national debt and GDP growth. This discourse has arisen from an error that on an Excel sheet during the publication of the paper under reference in the article. My view is that the paper looked a bit too neat in determining the threshold at which debt begins to constrain further growth and provided ammunition to ideologues to justify sharp reductions in debt and to counter-punch against those economists who considered a Keynesian approach as a solution.

To my mind, this state of affairs reflects the state of affairs in academia today and more particularly in economics. To be clear, the discipline of economics integrates quantitative tools impressively and provides meaning to phenomenon that would not be tractable. However, that supremely capable economists made this error and that the paper was then taken as a holy grail in the effect of the nexus between debt and economic growth is cause to pause and contemplate. This is because while the quantitative tools are sufficiently developed, it is worrying that it took a couple of years for the error to be discovered and for an explanation to issue. This merely highlights my concern that too much of economic reasoning is suspended whenever a paper is issued that claims to find a connection that answers a topical policy issue.

To my mind, the lesson is that all professionals economists must be as suspicious as they are impressed with the tools that they deploy. The whole profession suffers when errors are that easily missed and that verification is not performed before the studies are given prominence.  

Apple Shares Still A Good Deal

The punditry is full of alarmist messages that Apple has lost its mojo due to the perception that the companies corporation's growth has reached its zenith. I am prepared to state that while I have only reviewed the summary of the statements made by Apple, it is clear that most of the pundits are either ignorant or deliberately distorting the picture.

To start with, an amazing run of nearly a decade of quarter after quarter of increasing profit levels is statistically rare and would be expected to come to an end sometime during the corporation's lifetime. because of that superior accomplishment, it is annoying that this end in growth rate of profits is being read as marking an end to the corporation's dominance based on a fall in share prices.

Added to the above, one would think that Apple released a product that performed poorly when the release of the iPhone in late 2012 went really well and is still the gadget to beat in the smart phone category. It is true that the targets set by financial analysts were not met neither set nor endorsed by the management of Apple. Financial analysts are perfectly entitled to setting sales, market share and revenue targets as they judge fit but are not allowed to reverse themselves when those targets are not met by suggesting that the firm is doing poorly.

So while the share price has fallen, I am certain that those who are selling away are not making a good decision based on the results of a quarter in which revenues were high but profits dropped. To my mind, this is perfect illustration of the poor link between equity values and the performance of a corporation.  As Cassie Slane states here, the share price is lower than it was a decade ago. This is perhaps the moment to buy into Apple. 

John Kay Makes Sense of Money

"The transition from the world in which money is valuable because it is valuable to one in which money is valuable because it is money could happen only because centuries of experience had established confidence that such money would be accepted. There are two commodities-paper money and gold- whose price permanently exceeds fundamental value. But only two. But with gold looking as volatile as Bitcoin, perhaps only one." John Kay  

Big Data is Big But is Not Everything

I still consider myself a keen student of statistics and the use of quantitative approaches to understanding reality or events. For that reason, I am particularly keen to read and understand the claims being made by the "Big Data" movement that digitization of transactions and availability of high powered chips makes it possible today to obtain large data sets for analysis. The claim proceeds to state that big data is now the future and that the availability of information will make all of us very smart and create a deeper understanding of commercial, social and other transactions of life.

Like all claims that come with conventional wisdom, I am suspicious of the unquestioned exuberance over the possibilities created by "Big data". And yet the strength of this narrative is such that few people question it especially as it is now the loudly proclaimed by governments and large management and business firms that are leaders in providing policy and business advise.

David Brooks, writing in the NYT here, provides an incisive view of the "Big Data" movement and dissects the claims being made about it. He raises two important points, the first being that there are certain areas of individual life in which subjective preferences are still dominant and so it is important for "Big data" enthusiasts to be alert to the limits of this movement. To my mind, the most important refutation in the article is the push back against the claim that the surfeit of data obviates the need to create theories because correlations and other statistical techniques will reveal connections between variables.

This preposterous claim by the "Big Data" fundamentalists that theory is obsolete is rightly questioned by the author. In addition, Nate Silver, who himself is a very creative and competent statistician, tackles the claim in this book. Those who make the claim that the mere existence of large troves of data makes theory building unnecessary are overstating the case because any attempt to review and determine the degree of connection between two variables means that a theory exists about their connection. of significance too is that prediction and establishing linkages between phenomenon is not poor because of the absence of data but because of the inability of most professionals to distinguish between the signals and noise. In other words, a spurious connection may exists but unless a plausible theory is used to examine the claim, then big data will find all manner of connections that are just noises.  

Just because more data will be conveniently available does not mean that statistical ken will develop in proportion to it. Indeed, my guess and expectation is that the supply of poor statistical reasoning will rise. Society will still need to find good quantitative thinkers among the volume of "Big Data" crowd. 

Book Review: How the West Was Lost

I am not a tough grader of books because producing a sensible piece of work is very very difficult but found that the author here could have done better with her categories. The title of the book is so far removed from its content because it concentrates on some of the real economic policies blunders of successive US administrations but to add examples from Uk once in a while does not constitute what is known as "The West". I have no doubt about the author's credentials at all but would be cautious when the solutions proposed involved protectionism and closing up into a north American alliance.

Also startling for me is the neo-Malthusian argument that the world is running out of energy, land and food on account of growing populations. Now, this is an argument that is not only set against the grain of history but also requires far more sophistication to pull off than merely stating that it requires 9 kilogrammes of grain to produce an equivalent weight of beef and therefore that the world is doomed. On the same path is the argument made without evidence that conflict around resources such as water will shortly be normal without evidence for it.

In conclusion, I agree that david Ricardo's theory of comparative advantage has been questioned several times but just because China is a "Volume Maximizer" is not evidence that comparative advantage is obsolete. As it is, the simple mathematics of comparative advantage show that no country could hold an absolute advantage in every product imaginable. More recently China's labour costs have been rising and this alone means that Ms Moyo may need to update her arguments. Similarly, the fact that the US is close to being self sufficient in energy undercuts the argument that reliance upon energy imports harms its economy.  

Finally, I find that the book is a very good polemical work but ignores countries that have managed economies very well. In the entire publication, i am surprised that Canada was hardly mentioned except towards the end in the suggestion that the US should go into a North American alliance with its neighbor. In the end, the book puts up a lot of information on the misallocation of resources in the US but does not provide evidence to me that the US, leave alone the West, is really lost.

Is Tiger's Comeback Complete Now?

Its not too difficult to notice that whenever a professional is accused of an indiscretion, then his achievements also become questionable. Tiger Woods is a perfect example of this phenomenon in action. I have stated that the details of his personal life apart, Tiger Woods remains an exceptionally accomplished golfer with a skills set that does not evaporate merely because he has suffered from the difficulties of his personal life. Soon after the events were exposed, this golfer took a long break and upon his return, the uninformed pundits and commercial sponsors assumed that his best days were over and that his professional targets would not be met because he was past his best.

As stated here and here, I have always maintained that this view was completely mistaken and that Tiger Woods still had sufficient time and capability to meet the grand objective of matching the record of 18 majors. Having enjoyed the peace that may come from media focus on his main competitors and the new boys on the block, this athlete has gradually and steadily worked his way back to second in the worldwide rankings. Lorne Rubinstein's piece assesses the steady climb up the ranks and reiterates my belief that Tiger Woods has the goal of 18 majors well within reach. iInterestingly, he adds that it is even possible that Tiger Woods' skill set has improved over time and that he is one tournament away from regaining number 1.

  

How are Locks and Software Alike?

In the early days after I started writing up pieces on this blog, I regularly mentioned my admiration for Bruce Schneier the writer of this blog, that security analysts with really unique view of security. He distills principles for security advice from both economics and technology and delivers very useful insights on what the causes and fixes for poor security both in the real and virtual worlds are. To my mind, two factors that he stresses again and again are that secrecy is not equal to more security and that there's a lot of security theatre which does not pass a cost-effectiveness test but it helps agencies and software makers to look busy and concerned. 

As required, inspiration for this blog post has occurred from my reading of the supremely interesting series of pieces on lock picking by Tom Vanderbilt on Slate Magazine. In the latest piece, the author discusses why it is virtually impossible to make a absolutely safe lock. Curiously, the conclusion is very similar to Bruce Schneier's two principles which asks for understanding that software and general security requires trade offs and also that notwithstanding the claims by lock makers, secrecy does not make a lock any safer from individuals intent on breaking it. 

Essentially, the series of articles by Tom Vanderbilt merely confirm the assertion by Bruce Schneier that principles of good security are important and that society would be better served if the principles were applied more generally. For general consumers of products such as anti-virus software and home owners, security requires trade offs and is an arms race of sorts. There is no absolute instrument to ensure that all households and all people are safe in all activities. Society would be much better if this fact was understood more broadly. 

Christina Romer Explains the Minimum Wage

Christina Romer presents a most coherent piece in the NYT that explains the effects of a minimum wage in terms of distribution effects. Apart from showing that the quest to improve income for poorer workers may be valid, the article shows that the distributional effects makes the overall effects more complicated than is immediately apparent. To start with, it is clear that the enhancement of wages may not all be appropriated by the poorest workers because some of the raise will be taken by younger workers who are residents of higher income households. In effect, as argued, raising the minimum wage in the US would also result in gains for those who work in minimum wage jobs but are not necessarily the most indigent workers in the US.

Equally profound is that the income gains may be real but that because poorer workers do not work on a full time basis, the policy change will not result in substantial economic effect relative to the US economy. Added to this point is that the consumption patterns of the lower income individuals suggest that most of that gain in establishments that employ the very individuals who are on a minimum wage. Understandably therefore, the price rise based on higher wages paid is absorbed disproportionately by this increase. Christina alludes to studies that show that a  minimum wage policy may have a negligible effect on overall employment but this possibly compensated for by the gains in productivity caused by the lower labour turnover.

In all, the analysis shows that the policy intent of the minimum wage policy is clear and perhaps morally defensible but the effect of instituting it is not necessarily positive for the people it is expected to assist. To my mind, the author states convincingly that by raising the minimum wage, the administration has left on the table more feasible alternatives.

Sotomayor on Mercy

The Quality of mercy: "It blesseth him that gives and him that takes". Sonia Sotomayor, in , My Beloved World. Page 204. 

Debating the Limits to Money Transactions

One of the most frustrating arguments that libertarians face is the seemingly sensible claim that society should proscribe certain things especially because there is unequal access to them or that their consumption and distribution may offend morality. Among the most erudite scholars posing this question is Michael Sandel in his book published last year called, What Money Cant Buy: The Moral Limits of Markets. reading that book last year, I deferred to the author's depth in the inquiry but was also frustrated with the view that moral categories must be imposed on all irrespective of the fact that no harm is caused in allowing a poorer person to sell a kidney to a wealthier person in need of it. It is true that in creating a price on organs, society accepts that there will be unequal access will occur.

In an article in late December, John Kay illustrates the absurdity of imposing uniformity by alluding to his payment of €12 to purchase the right to priority boarding on a flight. My view is that paying for kidneys does not of necessity put society on  a slippery path towards slavery because in the latter case, no contracts are willingly executed. there are certainly limits to what money can buy but most democratic societies are hardly close to the limits. As a libertarian, it is clear to me that few markets would survive for a long time if they were completely repugnant to free participants. Thus a market for kidneys and other organs is not the worst thing that could afflict society today. that some markets are not available today is due to lack of innovation and respect for individual freedom and not because of the possibility of exploitation of the powerless or fear of exceeding moral limits.    

Farmers Must Sell Quinoa

I am always amazed at the one-sided analysis that some journalists adopt in the discussion of trade in goods and especially in agricultural and food items. Joanna Blythman of the Guardian wrote a story on the fact that the global demand for a Peruvian crop known as quinoa is raising prices for the product worldwide. A a supporter of enterprise and trade, I think that this is an unequivocally good thing. However,  the journalist, without stating any other numbers, simply states that the price of quinoa has led to a threefold increase in its price and thereby affected its affordability for Peru's poor people. She attributes the rise in price to the expansion in demand in Europe among health conscious people.

That some households may face difficulty and hunger because the prices of quinoa have risen is not to be taken lightly. However, it is clear that other farmers have gained substantially due to the rise in demand for this crop. Any analysis that fails to account for both the effect on sellers and buyers tells on a part of the story and looks suspiciously reductionist. This blogger would state without equivocation that a big part of the solution in world hunger is not about who consumes what but rather that poorer farmers are affected by inadequate demand for the products that they produce. Peru's quinoa farmers should not have to accept the perverse option of low prices just so that everybody can afford that grain. Indeed, the conclusion fro Joanna that the solution to undernourishment is for all food to be grown a home has little connection to the solution for hunger. Do not blame vegetarians for higher preference for quinoa.

Isn't Armstrong's Apology Enough?

When I learned that Lance Armstrong would be having a discussion with Oprah Winfrey, I worried that there would be cynics who would accuse him of trying to use Oprah's profile to wipe out his alleged transgressions. And yet even before that interview was broadcast, it became clear that he would neither find forgiveness nor any understanding from a section of viewers whose minds were made up. And yet I thought that the published commentaries such as this about the discussion with Oprah were dominated by the unproven view that the confessor was not entirely contrite.

Tim Black's article in Spiked-online reflects the fact that the responses to Armstrong are that he did not react in the way that the apologies industry expected him to. To my mind, here is the illustration of the fact that an apology is often demanded for misdemeanor and yet it is never enough. So yes, this man made many grave errors and was very deceitful and unkind to many people but dispassionate people must detest the fact that there are people who seem to enjoy kicking him while he is down. To me, this episode proves that those in positions of power and leadership should be more circumspect and less vulnerable to hubris. And that includes  journalists, warriors for morality and the rest of us. This is not the moment to be fastidious because Armstrong has given his apology. To me, that is acceptable and enough. 

More Abuse of Evolution to Explain Social Behavior

During a friendly discussion with a a friend with whom I attended college a while ago, I argued that it can be stated unequivocally that the degree of scientific literacy on the part of the public has risen remarkably both in the place of my residence and in world populations at large. Implicit in my argument was that the sheer number of articles being published that address scientific principles has most definitely raised the appreciation of science.

Looking through this article by dDan Slater in the NYT and an early blog post here leads me to consider that I may have made my point with more confidence than is warranted. To begin with, the NYT article states that while some evidence for evolution is sound, it is often wound together with other theories to explain human behavior in ways that are not defensible. As the story states, Charles Darwin too extrapolated from evolution to explain the reproductive choices of male and female human beings in ways that are not defensible and amount to pure speculation. As Slater argues, behavioral scientists pick up sensible but unproven hypothesis and assumptions then proceed to gather evidence as proof of those assumptions. As he continues, many scientists have beguin to dispute the theories that have emerged from speculation dressed up as science.

This situation is highlighted by the blog post that I refer to in the preceding paragraph. Back then, I was arguing that many students of economicssts are dressing up their theories in evolutionary language. tThere is very little evidence that evolution supplied humanity with pre-programmed behavior and it is time for a push-back against these interesting hypotheses and they must headers to article be called out for what they are- entertaining guesses.   

France's Moment To Think Clearly

Readers of this blog may recall this blog post last year in which I discussed the ridiculous policy idea by the new government in France. In a move whose motive is clear but whose logic is just absurd, the government of France initiated to tax citizens for overtime tax. At that same time, there were discussions on further tax policy measures intended to raise the marginal tax rates on individuals whose income passed a certain threshold. Unbelievable as it is, the idea by President Hollande is to raise the marginal tax rates to 75%.

Gerard Depardieu, a very famous and wealthy citizen of France announced that he would take residence in Belgium but denied here that this was driven by this increment in the marginal tax rates. During the last weekend, the same actor received a Russian passport from none other than Vladimir Putin of Russia in an obvious rebuff to the French government.

To my mind, the government of France ought to be take to some reflection if a citizen who has paid substantial taxes over decades is suddenly showing preference for Citizenship in Russia. And I am sure that the differences between France and Russia do not rest with marginal tax rates and so perhaps Depardieu is right that calculations on tax liability is not the reason at all for this change. In spite of that, France's government should consider why a leading citizen is so happy to become Putin's buddy. Part of the answer is that both political and economic freedoms matter and citizenship can be cheapened with poor economic thinking manifest in ridiculously high and oppressive tax rates.  

Update: I have to state that the government of France was stopped from raising the marginal tax rate to 75% by a court decision. For that reason, the rise has not occurred but it is clear that the administration is determined to raise it and will maneuver around the court's decision. 

Using UAVs Against Animal Poachers

http://www.freeelephantpictures.com/wallpaper/eliph02-2Elephants-MomNBaby.jpg.html

Large mammals such as elephants and rhinos face the risk of extinction because of demand for their horns. This demand has persisted in spite of international  treaties banning the trade in these and other animal trophies. In a number of blog posts such as this I have made the claim that policy based on the need to conserve species such as the elephant have failed to work because the ivory from elephants and rhino are so valuable that a small number of poachers and networks of crime are able to harvest them and illegally appropriate large financial gains. In parts of east Africa, the poachers have continued to utilize high powered weapons to kills elephants in order to meet the large demand for ivory in south eastern Asia generally and in China in particular.  

The claim of this blogger is that while treaties are useful for an coordinated approach to a problem that transcends borders, it is unlikely to be useful because of the strong financial incentives. To my mind, the solution must involve both a market approach and a technological approach. An article in the Scientific American discussed a high end technological approach that includes use of Unmanned Aerial Vehicles (UAVs) for surveillance of vast parks in order to alert rangers to the existence of poachers. This innovative use of technology is a welcome addition to the quest to detect and deter poachers. It is too early to tell how effective this new approach will be but it cannot be the silver bullet to ending poaching. It is still possible that the assignment of property rights on the endangered animals would ensure that a more comprehensive set of approaches are invented to reduce the high premium that poachers extract from illegal trade. 

Will Information Be Free?

"The information revolution did not make information free. What it did was transfer the money from producers of information to the owners of the technologies that deliver it to their audience." Eduardo Porter, in, The Price of Everything; The True Cost of Living. p. 141. 

Is Africa Really Taking Off?

I am a keen student of economic development and transformation and therefore tries to figure out time and again where the growth of regions and nations will come from. Four years ago, it became clear that the world economy could not run entirely on US and European strength as the economic crisis devastated large firms. This also led to unemployment that has hardly been wound down in the US and a majority of European countries. This episode led analysts to look elsewhere and the rise of the BRICs became even more salient. Apart from that, it is clear that the new economic story is that sub-Saharan African nations have been leading in growth with six nations being among the top 10 fastest growing economies in the world in the last decade.

The business and economics press has understandably been stating that a continent once considered completely hopeless seems to have found its feet with impressive GDP growth rates ranging from 5-10% annually for most of these countries in Africa. Writing in Slate Magazine here, Francis Njubi Nesbitt  reiterates the story of emerging Africa and isolates a select number of countries that have done dine very well over the period being reviewed. It is no doubt that everyone is glad to applaud the progress made and to consider that Africa seems to be confounding the pundits. To my mind, it is at such moments that scholars and analysts should be cautious and circumspect.I state four main reasons below.

First, it is clear that the nations of the continent have benefited substantially from the commodities export boom that coincided with this period. It is clear that this is not the exclusive factor alone that has not driven the growth but it is worth stating that the momentum from higher commodity prices has been helpful. For that reason, there is need to be cautious because commodity booms do not last and increased expansion of prospecting for natural resources or expanded acreage in agriculture will reduce returns over the medium term. Except for the countries with a broad economic base (few in Africa have attained this), this growth momentum is still at risk.

Secondly, looking at the historical record, many African nations have had spurts of growth of this nature before. The main problem is that only Mauritius and Botswana have managed medium growth rates for more than one decade. As the report by the Commission on Growth and Development confirms, attaining high rates of growth on its own is difficult though momentarily possible but keeping high growth rates for a long period is historically rare throughout the world. It is not clear to me that the growth for many of these countries has a sufficiently diverse base to ensure that transformation will continue to occur. Credit to the economic managers of sub-Saharan Africa for getting growth up but I see no fundamental reasons that it will endures for throughout the entire set of individual nations.

The third factor straddles the nature of governments and how these will affect the required reforms in African nations. Bearing in mind that many sub-Saharan countries are not fully developed as democracies, there remains a big risk that their full development will continue. This is a critical factor because Ghana and South Africa are exceptions as structured democracies while most of Africa remains in a that half-way place between democracy and autocratic regimes. tThe nature of government remains a big political risk for most of these nations and the stability of regimes is not a given yet.

Finally, my assessment is that the growth that has taken place in sub-Saharan Africa proves that economic reforms undertaken in the mid-1990s and early part of this century were needed. A second phase of deregulation and economic reform to generate efficiency is required to keep the growth momentum going. tThis means that the benefits generated by reforms of one decade ago will be exhausted and will need to be buttressed by a set of reforms including trade liberalization, reduction of tariffs, competition policy enforcement,  increased transparency and public sector reforms. Given the nature of politicians that rule the continent today and the fact that growth has happened, it probably will take another crisis for the second gear of reforms to be engaged. For a continent led by populist leaders, making these bold and politically risky refroms will cause significant discomfort.

Looking at these four reasons, one urges a more incisive diagnosis of sub-Saharan Africa. It is too early to make the claim that the nations of this continent have emerged as future powers. oOf concern to me is the hubris of the leadership, disdain for different views and the talking up of the whole continent by both international and local press. The continent is not out of the woods yet and is certainly not at the same level as Asia. There's more work for its people to do. pPerhaps the savvy leaders should start with some reading of the Growth Commission's Report.    

Harnessing the Skills of Autistic Persons

A couple of days ago, i was arguing with a colleague whether the rise in the number of recorded cases for almost many non-communicable diseases was caused by better surveillance or a real epidemic at hand. As time went by, we both had to accept that it probably differs by the type of illness and that there is perhaps no single answer. Reading this article in the NYT has reminded me of that argument but on this occasion,  pleasantly so.

In short, the piece goes through the very creative way in which a danish parent deployed the photographic memory and mathematical abilities of an autistic child to establish a niche in business services. Forming a corporation that selects for the skills that autistic individuals have and thereby creating an significant advantage in using them in software and other businesses that develop high-end technology, is just very creative. as the story reveals, this is not only a considerable advantage but one that is sound business strategy. I tip my heart for Mr. Sonne.     

Policeman Helps Homeless Man

I am the first to admit the the internet is among the most interesting creations of the human mind. That notwithstanding, I am less sanguine about the fact that all that it contains is necessarily of value or worthy of review. And yet what that means is that individuals ought to be a lot more discrete about what we appreciate and try to circulate by any means that the internet allows. I am glad to flag and mention the photo that has been spread profusely on the internet because it captured a policeman in New York showing uncharacteristic kindness to an unshod and homeless man. the background to the picture is covered here by David Goodman of the NYT.

I fully understand the cynicism expressed by people who think that this possibly a plan for this young officer to gain personal fame and perhaps set himself up for other opportunities. To my mind, the guy helped beyond the strict call of his duty and in the most effective way for the person in need. So all the cynics should hold their breath and use it to preach some good. The young officer's kindness stands out in my view because it illustrates that there are people who face hard times even in the world's most prosperous county.

Being Patient With Coaches With Poor Record

I have written a few blog posts here about sports franchises but never ventured into trying to understand how teams and franchises determine who to hire as coach or manager. Just recently, Chelsea Football Club dismissed a coach before the end of his contract in a way that did not make sense to many dispassionate observers. It confirmed my hunch that many soccer clubs in Europe engage in a revolving door of appointment and dismissal of coaches with little for what they expect to change. In the case of the soccer club that I mentioned above, it is a sign of the fact that the owner of the club considers it a project for prestige and does not consider the severance pay that he has made in having appointed and parted ways with nine coaches over a similar number of years as perhaps wasteful.

While it is known that North American sports franchises tend to be more commercially savvy, this article suggests that a good number of them dismiss coaches just by reviewing the recent performance. together with the academic article that involves statistical analyses, it becomes clear that most of these changes make no sense because most of the replacements do not do much better and that these abrupt and frequent changes represent poor use of scarce resources