Questioning Property Appraisals

It is a good idea to consider the opinions of professionals who have studied and taken some time to understand an industry or portions of it. However, this general advise does not mean that every industry is based on the fact that practitioners will always provide value. Reading this article on the valuation of commercial property has led me to ask whether the industry is based on any objective criteria. As the article states, a study was undertake and discovered that the valuations were error prone one way or the other by up to 40%. Impliedly therefore, many firms that trusted some of the reports presented by commercial property appraisals that were not very useful because of the margins of error. 

This leads me to ask that with such large margins of error, is commercial property valuation really a profession? As the story states, the findings of the study may be taken with caution because the market is depressed and that may have contributed to the differential in the realized and estimated values. Irrespective of that salient fact, I am convinced that appraisals should be conducted differently in order to avoid the impression created by valuers that their valuations and completely solid. I see no perfect solution except that valuations or appraisals should include numbers within a range. This may be difficult because some appraisers may base their fees on the value of the property. 

As expected, the industry practitioners resort to the fact that a number of firms are responsible for improper appraisal because of the competition for fees. In my view, it matters not because there is equal incentive for the better appraisers to achieve better results for the same price. One can only see a change when the demand side of this service gets more serious in asking what the value of an appraisal is.

Harvard Responds to Monopoly Publishers

Reading this article by Ian Sample of the Guardian reminded me of a conversation that I held with a professional economist who studies competition policy. I asked about his most recent research area and he mentioned to me that like many other micro-economists, he was concerned about the cost of academic journals in the discipline. In his view, many of them received the input of working professionals at low cost and then charged well above the marginal price. Going ahead,  he asserted that this state of affairs would only get worse because the main journals in the subject of economics were each a monopoly in its area and therefore had no incentive to charge as close to the margin as possible.  

Coming down several years later, it seems that the market power of major academic journals has persisted and that the academic institutions are reacting to the overall cost in addition to the relentless rise in prices every year. Harvard University's Librarian, has issued a memorandum to its staff suggesting that they ought to reconsider and possibly cut their relationships with leading publishers of academic journals. It takes the power of a a top university with other clout of its own to bring his issue to the fore. 

In my view, the fact that universities and scholars contribute most of the content alone does not mean that the pricing policy by publishers must favor them. The really interesting part for a student of economics is the realization that these institutions are using their understanding of their contribution to journals to try and bargain for lower costs. I also think that it is not enough to merely withhold association with the publishers. It would be a far more interesting point if they brought to fruition the idea of open access to academic knowledge. this would force a tactical response from the publishers and the competition would without lead to a reduction of the price of knowledge towards the margin.    

  

Formula 1 and Freedom Indices

People with more than a casual interest in sports have probably encountered arguments or wondered whether athletes from autocratic governments differ from others in performance across sports disciplines. More recently, I have come to consider whether the Formula 1 franchise has been expanding its races towards in a way that reflects interest in the style of political management or not. In the last decade, Formula 1 has grown in terms of demand for races across the Asian continent and this culminated in bringing in new races in Bahrain, China and India. 

It is noteworthy that the hosting of a Formula 1 race requires investments in top level infrastructure in addition to being able to attract substantial corporate sponsorship. The three new entrants into the Formula 1 races have different political economy indicators even if they share attributes that make then attractive places. To start with, India is a large and growing economy and an unqualified democracy.  China is at this moment in time, the most sought after investment destination and one that would be attractive to the owners of the Formula 1 franchise because of this fact that global corporations are chasing its large market. Bahrain, is a smaller country whose citizens are not politically free at all but is a nation whose rulers have a lot of public money to pour into the construction of a state of the art race track. 

A couple of weeks back, the Grand prix race in Bahrain was held with visible agitation from its population. Whereas all the technical requirements were in place, the demonstrations that occurred during the weekend of the race led to the loss of a life in addition to disturbances that did concern some teams. To my mind, the Formula 1 is a private business and its owner(s) are perfectly entitled to seek partnerships for hosting races wherever they can. That notwithstanding, I think that Formula 1 should begin to carefully survey indices that measure the degree of political and economic freedom as it chases the next set of partners for hosting races. When a business of this stature begins to expand aggressively towards the most repressive regimes in the world, it is time for its owners to take some time and think clearly and ensure that they are sure that this expansion model will remain valid. 

US Dollar Replaces Zimbabwean Dollar

In my reckoning, few countries have a more opinionated, if wrongheaded leader that the African nation of Zimbabwe. Robert Mugabe has led this country since it independence from Britain and his record for the first decade was decent but it is clear that his endurance in leadership has probably outlived its utility. Not only is the political scene characterized by necessarily toxic relationship to the Zimbabweans with different political views, but the intransigence in economic policy led to a disaster evident in the high rates of inflation and the collapse of that local currency.

And yet, given the human ingenuity and liberalized currency policy of the United States, the Zimbabwean Dollar has been replaced by the US currency as the effective currency. This happened because citizens of the country realized that harsh political rhetoric from the leadership is one thing but that the need to anchor their income to a stable currency was prudent. As Lydia Polgreen of the NYT covers in detail, all transactions have shifted to US dollars and the Zimbabwean dollar has all but disappeared. This has in turn had the effect that finding change for small transactions is difficult because of the absence of Us coins in that country. This relative shortage of coins reflects the fact that coins are more difficult to transport across long distances and also that seignorage allows paper currency to carry its value over long distances.     The lesson here is that money may be a store of value but it is also a commodity subject to demand. Just ask Zimbabweans.

Students Of Law Need Econ 101 More Than Deans

It is altogether sensible to posit that individuals pursue education with a view to improving their future income. This rule of thumb holds pretty well for a majority of people but it is not immutable. Many people pursuing education understand that attending college is definitely useful for raising the prospects for one's income. And yet as expected, the demand for education has to reckon with the supply of places by universities whose managers understand that certain courses have greater demand and price them accordingly.

In this pithy article in the Slate Magazine, Reynolds Holding applies fundamental economics reasoning to law schools and concludes that many of the deans have maintained an upwards price adjustment in real tierms despite the evidence that many graduates are often unable to pay for education loans due to a reduction in demand for graduates from law schools. His point is right but I am clear that it is not for the law deans to make an adjustment because they are seeking to maximize revenues and will price at the margin. Instead, this article ought to be read more keenly by the students entering law schools who ought to understand that given the employment situation and expected wages, education in law at prevailing rates may not be a good deal. It is clear that it is the students of law who are "irrationally exuberant". The law deans are merely providing supply due to existing demand. iIt matters less for the moment that the demand is based on an inaccurate assessment of expected incomes.   

Did Facebook Price Instagram Correctly?

Journalist covering technology reported late last week that Facebook acquired a fast-growing but not well-known application known as Instagram. That Facebook would make an acquisition of a photo sharing application was not as surprising as the price that was paid for the new firm. It was surprising because not only was the firm very small but had virtually no revenues yet. It appeared to me that the value ascribed to the firm by Facebook was on the higher side.  

Writing in the Guardian, John Naughton writes about the difficulty of valuation of technology firms and gives examples of valuations that brought acquiring corporations to grief. The gist of the article though is that there is an emerging bubble for technology firms. I am cautious in declaring that there is a definite bubble but the salient feature here is that valuation of firms is a matter of intelligent guesses filled with hopes of future performance. The valuations are not to be taken much too seriously and so the answer to title question of this post is unlikely to be answered with certainty.

Busting Collusion Over Books

I did not record it on this blog but it occurred to me that the tough bargain that Apple reached with the publishers on e-books was potentially troublesome. At the time, the idea was that publishers wanted an alternative that ensured that they maintained control of the cost of e-books in the quest to break the perceived  stranglehold on the market by Amazon. Notwithstanding my admiration for Apple, I support the enquiry by the US Department of Justice with the claim that Apple and the publishers colluded to fix prices and thereby raise their revenues in way that was harmful to buyers.

Brian Balker of the Guardian provides the background together with details of the claim by the US Government here. In spite of my reluctance to support government intervention against businesses, I think that this has sufficient justification. To start with, Amazon had placed most publishers in a place where they were the prices of e-books were moving towards marginal cost. The agreement that forms the justification for this suit ensured that publishers maintained the bizarre pricing that made no sense to anyone else but the few publishers. Since then, even Amazon has had to be more cautious in pricing books because it could have been isolated since the iPad gave substantial power to Apple. 

Latin American Leaders Start Assessment of Drugs War

For a whole generation, the world has concentrated on a law and order approach to the control and eradication of production and transportation of narcotics and other drugs. It is clear that this so-called war has been fought with public support and hard military responses but has not yielded acceptable results. The state of affairs in Latin America alone today's shows that there is need to accept that the approach has been unsuccessful. It is encouraging that in spite of the fact that the public in many countries are not naturally drawn to legalization and regulation, it is possible to form a persuasive case that the "War on Drugs" has failed.

Jamie Doward captures the frustrations of Otto Perez Mollina of Guatemala who hopes to convince his colleagues at an upcoming summit to consider a new approach. To my mind, this conversation is required even if the results of the discussion would be difficult to sell as apolitical decision. I applaud this because many other leaders in the neighborhood have been making similar declarations in light of the toll on human life. the political risks to the leaders attending the conference are real but there is no greater evidence than four decades of a well-articulated approach that has created insecurity and militarized drug trade and production.  This fresh approach alerts one to the idea that ideology is sometimes responsible for demonstrably poor public policy.

  

Who Needs a Financial Products Agency?

It is very clear to any keen observer that financial engineering does not necessarily result in products with social value. In many cases, those who work actively to design sophisticated financial products are not always certain of their real effects on markets or other products. Staring from this realization, it is unsurprising to me that many well-intentioned people are keen to ensure that financial engineering is limited to producing products with proven social value. Gretchen Morgenson of the NYT presents that same argument and features the paper by Eric Posner and E. Glen Weyl of the University of Chicago. The two professors state that there is a distinction between the real economy and the financial services industry and this may justify regulation of the latter and not the former.

The summary of their proposal contained in this paper is that the creation of a Financial Products Agency is necessary o ensure that there is adequate testing of the social value of new products before release to the market. To my mind, the reasoning about the distinction between real markets and the financial services industry is impeccable but the proposal for creating an agency for determining social value is less convincing. Indeed, I think that it is a very bad idea that is incapable of putting to effect. My reason for this skepticism is that the determination of social value would be difficult to determine because market participants would not define it in the same way. In addition, placing a regulatory committee to determine what social value a product would have is a very nebulous endeavor that would introduce subjectivity to these decisions.   

The only way for society to ensure that socially useful products continue to thrive is to communicate to institutions that generate these solutions that they will bear the costs of any failures. It is not necessary to require clairvoyance on the part of an agency or body.   

Tiger Woods Finally Wins PGA Tournament

Its surely been long and arduous, mixed with some disappointment but Tiger Woods finally won after more than two years. reports of his personal indiscretions notwithstanding, my view in several blog posts here, here and here has been that the skill level required of a golfer of such calibre remains with one for a considerable period. It was really just a metter of time before Tiger won resoundingly again, as happened over the weekend at the Arnold Palmer Invitational in Florida.

While the tenor of the CNN story is more measured and neutral, I think that many people had unwisely written off this athlete. All the naysayers and his competitors and former colleagues who have been critical played to the nature of sports journalism. The defining nature is to highlight momentary difficulty and try to show who is in decline against new entrants to the game. I am glad that Tiger is back and that he is doing his best where he has been among the best. he has time yet to make history. May this guy continue to prosper as his work ethic shows that he deserves it.     

Minimum Alcohol Pricing Policy

In my view, one of the paradoxes in the control of substances harmful to health and with adverse effects is the differential policy options taken in respect of alcohol, tobacco and narcotics. Many times, sensible policy dialogue is carried out as if it is a given that narcotics are more harmful relative to alcohol. More importantly, it is often unacknowledged that price mechanism could be used as part of policy for alcohol and health policy. As this article in the Guardian states, the government of the United Kingdom is considering the introduction of a minimum price policy for alcoholic beverages in order to reduce binge consumption and effects on other people.

The details state that the policy would establish a price floor of 40 pence for every unit of alcohol and that this would reduce crimes and accidents. Understandably, the retailers argue that this policy would affect income groups differently because it would raise the costs of consumption disproportionately for poorer individuals. As described in the story, this effect would almost certainly be the case. To my mind, it is also the lower income people who are most vulnerable to the adverse effects of alcohol consumption.

Should We be Freed From Passwords?

It took me a while to realize that security in the Internet and related gadgets in use today is an arms race that will keep security consultants perpetually at work. This stance came to me after reading the analytical model that Bruce Schneier adopts to discussions on security. That notwithstanding, I was impressed with the idea expressed in this article by Randall Stross of the NYT. It correctly identifies that most people use very sloppy passwords by not giving much thought to it in addition to the fact that really strong passwords will be difficult to remember. In recognition of this human weakness, the Defense Advanced Research Projects Agency (DARPA) has commenced thinking to go beyond passwords as known today.

This project seeks to design a mechanism that allows for use of a a connected device by detection of an individuals' user signature, which he calls "Cognitive Signature". This means that access and use of computers and devices will be left to software that has the ability to detect the individual's unique interaction pattern with the keyboard. "Keystroke Dynamics" are actions that are undertaken repeatedly and therefore not subject to deliberate thought. I sense that they would build a profile which will authenticate the user of the device. 

This is without doubt an extremely clever approach as the tests show that it is very difficult to consciously bypass. This will raise the threshold for those who would breach security but it also means that it will be difficult to log in people who are authorized to share a machine unless their "Keystroke Dynamics" is embedded in the system. Unlike Randall Stross who speaks of the password free environment as providing a near perfect environment,  I remain less sanguine. The requirement for simplicity of systems is part of the reason why securing computer systems remains difficult. I do not see how this password-free system makes it disappear. 

Did Goldman Sachs Forget Obliquity?

My memory fails me in nailing where I read this comment but in discussions about Goldman Sachs, many people I know refer to the firm as the indisputable creator of millionaires every year. Being this great millionaire creation machine, it is clear that the professionals in there work extremely hard and provide value to their clients in order to retain them. And yet since the publication of this article in the NYT by an executive in the firm, the reputation of this firm stands in the balance. 

Greg Smith is without doubt an accomplished person and probably a millionaire as well but chose to state clearly why he felt that he cannot continue to work in the firm. His claims have understandably been denied by the firm but it is also clear that dispassionate commentaries should consider that he left on his own terms and is therefore unlikely to be an employees lashing back because of dismissal for poor performance.  The letter is clear that the ethos of the firm has changed from being marginally helpful to clients to the direct pursuit of opportunities to bill clients. That the letter specifically mentions the president and the CEO as particularly responsible for the sharp turn towards making money by all means and leaving clients to their own devices is telling. 

I am unsure that this state of affairs is merely about "moral bankruptcy" or obsession with billing clients only. I think that Goldman Sachs is far too large, influential and remains highly regarded by its clients probably too loyal to be damaged severely by George Smith's claim. That notwithstanding, it is still a measure of deep failure on the part of Goldman Sachs that a twelve year blameless staffer leaves with the thinking that the firm is lying to its client and providing professional services of dubious value. In my book, that is failure and this firm ought to get its executives to think seriously about what its very highly selected and capable workers think about it. Remember that the its external critics may be envious or ignorants but Greg Smith clearly falls in a different category. 

And my advise to Goldman Sachs' leadership: Please find this book and read it thoroughly. That expenditure will not be wasted. In addition, it is best for the firm's employees to learn some etiquette because denigrating clients by use of rude names is not classy.

Airlines Getting Top Class Menus for Paying Fliers

In my view, air travel in economy class is burdensome and uncomfortable because of poor air circulation, cramped seating space and terrible food. I have sought a simple model of economics to explain this fact and sometimes conclude that space and air circulation are real problems but that food is a less genuine challenge but driven by the need to save funds since most travelers will not eat much anyway. I have had in mind that it is possible to vastly improve the quality of airline food but that it is not feasible immediately because of the conditions of its preparation, packaging and storage. As a result, I have often confirmed to myself that the incentive to create better food would not yield much advantage due to the thin margins that exist for this industry.

Reading this article in the NYT, I have confirmed a few of my hunches and also been vastly educated on some very brave assumptions that I made earlier. For instance, it appears that food changes taste dramatically with elevation and this may part of the problem in perceiving food quality in the air as less sumptuous. The taste buds and the nose, which are important for detection of flavor are changed substantially when a plane cruises miles high. And so this shows that it is not for want of effort but that one should not anticipate that dining in a plane will be as pleasurable as it is in one's kitchen or favorite restaurants.

That notwithstanding, selected airlines are attempting to improve the experience of business class passengers by consulting highly-regarded chefs to design menus for their airlines. The business case for this attempt is clear as there is a quest to improve the experience of the higher paying fliers. and so one sees competition among airlines in Europe and the United States in securing the services of top chefs to improve the food and beverage service. It is noteworthy that the economy class and domestic fliers are not going to partake of the same pleasures. The signal to the latter is clearly that an upgrade gets you eat from a menu designed by Gordon Ramsay. Payment for the activation of a discerning palate is available on the ground and coming to the air too.

I do not begrudge business class travellers at all. If only similar dedication was placed on solving the other problems of the freshness of cabin air and the more leg room.

Cities and Building

"Successful cities must build in order to accommodate the rising demand for space, but that does not mean that building creates success." Edward Glaeser in, The Triumph of The City. P.53

Cato Institute's Moment of Trial

It has always been in my mind that think tanks generally provide a good ground for developing thinking and generating new policy ideas in society. Holding this truth asnd self-evident, I have always argued that there is a solid correlation between the number and quality of think tanks in a polity and the quality of life of citizens. Taking this idea further, I have maintained that the variety in quality of the think tanks is in many respects a measure of the fact that larger economies have surpluses and firms that may contribute towards the support of dispassionate thinking and idea generation.

I have posted a number of pieces on this blog such as this, this and this in which I mused on a number of issues pertinent to think tanks. Following a single visit years ago, I acquired and have often maintained enormous respect for the Cato Institute as the example of an ideas institution with rigorous analysis and a wide range of policy interests. Added to the fact that it is well-endowed with intellectual and financial resources, it remained in my eyes the libertarian's think tank. And yet it is clear that this think tank is about to go through an internal civil war that would leave its credibility in tatters and with a major loss of its secure financial base if a takeover that is being proposed by the Koch brothers is successful. 

David Weigel's article narrates about the sudden change that the institution would undergo if the composition of its Board of Directors changed as desired by leading financial supporters. It impresses me that the structure itself mirrors that of a corporation but the assertiveness of the new members is undesirable because it is specifically calculated to ensure that research and policy prescriptions take a predetermined political shape. The lesson of this event is that no individual should place political interests ahead of a working and respected institution and that when all this is done, Cato will not be the same again. It is impressive that the staff is clearly aware that this shift will affect their work adversely and are supportive of the president. May reason prevail.

Population Control for Dartmoor Ponies

It is not often that one encounters a problem related to the need to control animal populations in the world today. It is more frequently reported that a certain species of animal is faced with extinction all on account of human activity or demand for products of that animal. Tracy McVeigh of the Guardian reports here that the Dartmoor ponies in the UK have been over breeding and the authorities have designed a mechanism for birth control among the female animals in order to control their numbers. This is an elaborate system driven by a solution based on biology to reduce fertility and maintain numbers. It would be interesting to see how it works over the period of its implementation.

No doubt this approach will have some effect but my concern is that the story does not mention whether this was considered the most cost effective means for the identified problem. As I stated in a blog post a while ago, Australia had the same problem with its camel population and chose to shoot them from the air.  In both cases, my concern was that a solution was predetermined and there is no information whether the alternatives were chosen on the basis of cost effectiveness or merely because these were the methods that were most attractive to the decision makers. The question remains whether there may have been better solutions that were not considered.

   

Lessons From a New Copier

I was trying to figure out how to use the new copier in a certain corner of the office where I work when I noted that machine makers have a sense of humour. On the left hand corner of the surface of the plate is a warning stating that it is illegal to use this copier for generating photocopies of bank notes, cash, passports, certificates, securities and stamps. Having seen this, I rubbed my eyes and asked myself why this warning was necessary.

Thinking about it, it is clear to me that this item sells in various parts of the world and it may well be that in some countries, making copies of currency is forbidden. Now, the manufacturers of this machine seem to consider it their duty to warn users that making these copies would be criminal activity. I think that this manufacturer is being very kind to its customers but is merely reacting to the need to issue too many warnings in order to forestall any vexatious litigation.

To my mind, some managers considered that since the machine could be used to make forgeries, it may be in their interest to ensure that no person may claim that the machine facilitated criminal action. I am sure that this is not the way to go because people should understand that in purchasing a machine, the maker has in mind that it would be used for lawful purposes only. And that's why I was amused that a manufacturer of this machine assumes the responsibility for this warning. I would have thought that anybody who is capable of using this complicated gadget should know that copying currency may be a crime. The notice would be more accurate if its added that copying the following items with intent to use them as original is forbidden. 

Can Citizenship Be a Commodity?

Whereas many students of economics attribute little value to the issue of identity, it is a fact that professional political scientists and other people think that it is an important factor in political organization. The evidence for this is seen in the tendency for most decisions in public affairs to find interpretation from the standpoint of identity at macro or micro-levels. In a word, identity is real for most people and no wonder countries are organized in an exclusive sense with citizens recognized and the others labelled as foreigners.

There is a small degree of migration across countries with people prepared to take risks and uproot their families in pursuit of employment or security in other parts of the world. So what one sees is a real demand through legal and illegal means for entry into safer and more open countries with prosperous firms that may provide employment.

Mathew Yglesias of Slate Magazine writes about the Island of St Kitts and Nevis which offers citizenship for sale at the sum of US$ 250,000 per person. The article goes on to state that this steep price has not failed to attract takers and further that this market-based approach may serve the United States much better as an element of immigration policy. Needless to state, I am totally in agreement because if the demand for a product is high, then the real value could be captured by using a market mechanism both to ensure its distribution and also to make price act as the rationing mechanism. As Yglesias states, there is scope for tweaking the mechanism to ensure that there is diversity but that does not take away the validity of using the market to ensure that immigrants pay for the right of residency or settlement. To my mind, it matters not if other countries adopt the same policy because the market will ensure that each country's residency charge is adjusted according to the demand for settlement. Over time, that price would correlate highly with democracy and openness and would point to what conditions people prefer to live under.    

Apple Stock Reflects Value of its Products

In my view, Farhad Manjoo's articles in the Slate mMagazine have been reliable sources of information on technology. His latest piece involves the analysis on Apple and specifically its stock performance over time. bBased on the numbers in this article, the Apple stock has risen by more than 32% since the death of Steve Jobs  some months ago. The author identifies clear drivers of the stock price as being a good set of high margin products such as the iPad, iPhone and the Macintosh computers. All this is uncontroversial and the dominance of Apple in these markets suggest that its profits are guaranteed for a while. Indeed, Farhad goes on a limb and states, tongue in cheek perhaps, that he would recommend a buy for anyone with money to invest.

I agree that Apple stock is a great buy but I am less inclined to believe that any savvy person should consider the  P/E ratio in making that decision. My reason is that it is true that Apple's P/E ratio is still lower than that of other comparable firms but that should not lead to the conclusion that Apple's numbers should match those. It may just be that the other firms are now due for a downward adjustment. tThis change would still make Apple a good buy in relative terms and not necessarily because it would rise further. In other words, the P/E is a guide yes, but it does not tell one whether it is Apple that will rise or others with a lower ratio that will be coming down. Apple is a good buy because its management makes fine products with a higher margin that its competitors and which satisfy its buyers. With these factors established, the P/E ratio is a red herring.

 

  

Lamy Muses on Free Trade and Food Security

Observers of the goings-on in the arena for international trade sometimes carry different views about the reason for the failure to complete the Doha Round. To my mind though, it is clear that one of the reasons that I discount is the claim that the WTO has not had truly capable leadership. In many respects, Pascal Lamy and his colleagues in Geneva are faced with the political problems that depress the possibility for substantial freeing of trade. 

One sees further evidence of the thought leadership and clear understanding of the fine but clear distinctions between the political and economic barriers to liberalization among countries. Addressing a policy audience during the Economist Conference early this month, Pascal Lamy ably dissects the issue of food security and the potential of trade to ease price shocks and shortages. The most poignant points in my mind is that very little food is traded across borders to begin with and further that governments are wont to respond to shocks by cutting off the movement of food across borders and thereby exacerbating that problem of supply and prices. Having observed that most food exports come from a ridiculously small number of countries, he unequivocally states that international trade in food is necessary to diversify sources by increasing competition and ensuring that supply comes from the most efficient producers. 

This is a very succinct summary of the state of agriculture products in world trade and good primer for introducing thinking around the benefits of trade. There is an obvious paradox that while the vast majority of the world's households derive livelihoods from agriculture, the proportion of their production that is traded stands at 7%. It cannot be difficult to figure out that the reason is the absence of free trade around agriculture. An old profession that is yet to be substantially freed from political encumbrances. 

Largest Embassy May Be White Elephant

Reading this article reminded me of an old blog post here on the US Embassy building in Baghdad. At the time, the tenor of the post was that this was the most expensive and expansive embassy building in the world at the time. At the time, the overall costs could have been attributed to the need to fortify the grounds that hold the building together with the residences of the embassy stuff. To my  mind then, it was also a testament to the fact that the US foresaw a continuing role for it in that country for the foreseeable future.

Five years hence, it is clear that the combat mission is being drawn down with the result that the compound now looks unwieldy. It illustrates that telling the course of war and US engagement in the future was not accurate at that time. At the same time, the concerns for safety of workers means that the embassy compound is a fort that does not predispose embassy staff to meeting with Iraqi's. So without looking at the vast expense, this embassy building risks becoming a white elephant. As one official asks, "what prompted the designers to build it in such scale?"

General Uhm's Five Star Lecture on Development

The one area in which I concede to state involvement is the provision of security within institution run by constitution. I have noted with amazement the fact that in the US in particular, military leaders often find lucrative positions in directorships in corporations ostensibly to provide strategic views and insights. Today, I have just watched the clip by Peter Von Uhm, the Chief of Defense of The Netherlands and confirmed my view that some military leaders are indeed deep thinkers with an understanding of what their contribution to stability and peace is.

In the very incisive presentation, he alludes to his family's history as the motivation for his choice for military life and how the gun, while seen as a simple instrument of violence and conflict, qualifies as a peace builder when used in a controlled and legally regulated manner. He walks his listeners through historical data on conflicts and human suffering and how the world has become increasingly safe over the last few centuries and attributes this to democratic control of military and violence through states. As if that were not enough, he ties the story together with growth and development by stating the empirical fact that stability and trade beget further peace because trade and exchange make conflict unduly expensive. In this way, trade and peace are self-reinforcing. This would be fantastic teaching aid for a class on economics and development. 

Five star presentation from a five star general.   

Stopping The Gold Thieves

Reading through this article on the rise of burglaries and robberies that affects South Asians resident in the United Kingdom just got me thinking about the burdens of  wealth and the advantages of fiat money. That story highlights the rise of thefts among families from south asia who are known to keep substantial amounts of gold as savings.  This form of saving is attributed to the preference by these families to save through precious metals with a known record for keeping its value over generations.

It is unsurprising that when the owners of commodities in great demand may face the risk of theft especially when the price of gold has appreciated remarkably in recent times. To a thinking robber, it is probably less risky to steak jewelry from a family house than attempt a bank robbery or other goods. In addition, the package would be valuable and yet manageable both in terms of ease of hiding and the ability to convert the items into cash with minimum risk of detection. However, I am unsurprised that the owners of the property are unable to find either safe boxes in banks or  to insure their property. This does not make sense to me especially since the vulnerability to theft and conversion of gold would lead to equally ingenious ways for ensuring its safety. Thinking about the fact that a family that claims to live modestly owned that much gold suggests that a bank would offer to keep the property for a fee. In my sympathy for the loss of property keenly acquired over generations, I think a fee-based repository for the jewelry is missing from the market. In my estimation, it will not be long before it is available. This would be a good problem for a crowd sourcing solution.  

Business Leaders Dont Need Medals From State

I have never quite understood why people who work in difficult situations in commercial enterprises think so highly of gifts of recognition awarded by states and their agencies. This idea came back forcefully to me when I read that a former CEO of the Royal bank of Scotland has had a Knighthood recalled because of ostensible mismanagement of the firm in which he was head. Patrick Wintour of the Guardian writes that Fred Goodwin had the Knighthood recalled and the decision as communicated to him by by a committee of five officers of the State in the U.K.

To my mind, I think that irrespective of the demonstrated incompetence that Goodwin had exhibited, it surprises me that everyone seems to think that this affects his reputation adversely. My contention is that the state should not be giving the marks of ostentation to business people and imagine that they are very highly valued unless they were sold. I would like to find out how much Fred Goodwin would pay for the Knighthood if it were sold to him because then it would reflect objective value. Since the state used tax payers money to call Fred to a meeting and awarded a medal made out of the funds of other tax payers, I do not think that Fred should really mind giving it back.

Now, I hope that medal could be auctioned to the highest bidder and the money dedicated to better public purposes. the state has no reason to appease entrepreneurs who go into a business and excel because their reward should come from their enterprises. As it stands, I am unsure whether the recall means that the decision to award the medal was wrong in the first place and who is to take responsibility for that. 

Africa's Tweet Data Means Nothing

It is a well-known that due to the availability of digital technology, there is a surfeit of data that represent human behaviour than ever. And yet the availability of vast amounts of data does not mean that it is necessarily more accessible or comprehensible. For instance, Portland, a firm that tracks technology uses has presented the results of its research in a chart appearing in image on this post and appearing on this datablog by Simon Rogers of the Guardian. The chart presents data on the the volume of Twitter messages sent within African countries. As is possible the image looks neat but I am certain that the chart tells the casual observer virtually nothing except that it was prepared by a person who does not understand the data that was collected.

To start with, there is a diversity of countries in Africa and so presentation of the absolute numbers is useful. However, there are number of school boy errors that emerge from that presentation. First, the placement of the data side by side invites comparisons among countries and creates the ranking system that the developers of the charts displays. This ranking is not possible because of the differences in population among these countries. Second, given the failure to account for the populations differences that are truly vast, the data cannot provide information that the heading of the chart purports. This second error may not be the fault of the data collectors but I suspect that the Guardian's data editors would spot this. The volume of messages are definitely provided by a different number of people in each country.  

Professors Experiment With College Education

I keep wondering how different education will be supplied and consumed in a couple of decades when digitization will be more mature. My wondering was in part reflected in this blog post in which I linked to an article about the MIT having introduced an e-learning course for which certification would be provided to participants. To my mind, the MIT may have been experimenting with a system which would then be varied and then used to inform the methods for delivering university-level education in the future. And the provision of certificates was the institution's way of ensuring that it has sufficient takers to allow for the experiment to yield meaningful results while assessing demand.

Sebastian Thrun, a professor from MIT learned from the huge demand for the free course on artificial intelligence and opted to convert that into a business opportunity. As MSNBC reports, the business will provide online education through video instruction with the teacher's time used in helping students to solve problems. This model is not a radical invention as the Khan Academy has a comparable model except that the latter is provided for open participation and with points accumulation as the evidence of accomplishment.

I am quite surprised that Sebastian Thrun resigned from MIT and is becoming a competitor in the provision of education services. It is difficult to assess the prospects of the new business but my view is that the demand that was expressed could follow the new business and this experiment means that soon, the top schools may have to consider taking the competition to their former employees. The MIT should consider taking over Udacity.  One cannot say anymore that technology is not changing education.  

Blackberry's Wrong Call

Soon after the election of president Obama in November 2008, the press made reports about the fact that he would have to let go of his Blackberry device because it was not approved communication device for the US president. At the time, I stated on this posted a blog post stating that Research In Motion, the makers of the Blackberry set of devices, ought to have taken the opportunity to assert that its systems were quite robust and that the security features could be comparable to considered alternatives. In my view then, their failure to pitch in here may have been a chance lost for high-powered marketing irrespective of whether the challenge was taken up or not.

Three years later, it is clear that Blackberry has had a difficult time and has lost a lot of ground to its competitors in that smart phone market. Its struggle in that market has culminated in the the resignation of its leadership team and replacement of the Chief eExecutive Officer. Juliette Garside of the Guardian reports that the slide in market share and the share price prompted the changes in management as the firm struggled to provide new gadgets.

While I still think that the firm will continue to provide its gadgets in spite of the lower market share, its new management will be required to make tough choices with no guarantee of success. To my mind, this episode illustrates the fact that the technology industry is not only dynamic but that it is difficult to tell what clients will buy in the future in addition to executing business plans perfectly.

The iPad as a Textbook

A couple of months ago, I stated in this post that Steve Jobs of Apple had stated to his biographer that information technology had not demonstrated revolutionary value for education. My interpretation is that he foresaw that the one area where this could happen would be to digitize textbooks and thereby undercut the huge rents that go to publishers every year.  It appears that the corporation has taken this further by attempting to build on the success of the iPad to deliver textbooks and other applications for young learners. Cecilia Kang of the Washington Post reports on the business approach taken by Apple in introducing a number of new approaches to delivering an interesting learning experience for learners.

There is a definite concern about the possible lock-in effect that would result from widespread adoption of the iPad and related software from Apple. Even assuming that this will be successful, one has to consider whether the quest to break the hold that textbook publishers have on education is worth breaking in exchange for the possibility of better education outcomes. I am inclined to believe that the delivery of education would be improved substantially and it is less likely that Apple would dominate for long since other manufacturers of tablet computers would be able to provide the same textbooks on their platforms.  An additional advantage is that the use of iPads and other tablets will call for innovative ways of delivering lessons. 

Politicians Take on Banning Pyjamas In Public

One of the paradoxes about the United States is that it is a nation that is truly given to respecting individual freedom and yet one also finds petty bureaucrats who try to limit choices in ridiculous ways. An MSNBC story covers the story in Louisiana where a state official is making proposals to stop people from wearing pajama pants in public. Now, one just wonders why such a ridiculous idea should be given any consideration. Wearing pyjamas in public is unsightly but I think that it is silly to put forth legislation to ban this and then have to fund the enforcement of that law.

To my mind, several cities have attempted to ban the appearance of individuals in public but I am unsure that the numbers of people engaged in this and the cost of enforcement make it even worthy of considering. My advise is for this guy to find soem other more important issues to dedicate his regulatory creativity on. Just look the other way when one person walks past you in the street. they are suppossed to live in a free country!

Diet Industry Under Pressure

If there is a trend in the globe today, it is that people question legitimately whether all financial institutions and instruments have any social value besides ensuring commissions and revenue for those who generate them. And while I understand that there are firms and individuals who are culpable for destroying value and harming clients, I am still clear that there are equally lucrative industries that are based on unverifiable myths. Reading this article a couple of days ago, it occurred to me that the slimming and dieting industry is one that sells products, books and services that do not only have dubious value but occasionally built on unsubstantiated scientific claims. 

Speaking of the weight loss "industry", I think that the use of celebrities to endorse products is not in itself objectionable. What I find ridiculous is that people are made to believe that a thirty day special programme would in itself lead to permanent shedding of unwanted weight. It is no surprise that a good proportion of those who successfully shed weight while on the plans do end up accumulating it all over again. In many instances, people take on diets based entirely on perceptions on what ideal weight should be and the preponderance of weight loss regimes suggests that this in itself is an industry that feeds its anxious clients incomplete information. Perhaps all firms in the industry should take pay based on their success rates. 

The reasonable response should be public education to ensure that individuals are able to make decisions based on evidence. That aside, there is need to deemphasize the idea that there is an epidemic obesity as I think that intervention by government will affect individual freedoms.

 

Economics of Income for Clergy

Some of the literature available suggests that the major determinants of a person's income would be a combination of skills level, scarcity of the skills and therefore the amount of competition available and perhaps the degree of specialization. Brian Palmer's article in Slate Magazine compares the nominal incomes of individuals who provide religious services in the United States. I am surprised by the revelation not only because I have never considered this issue but also because the piece reveals interesting differences in the institutional organization of the various faiths.

Clearly, judging from the income reported, it appears that it is more financially rewarding to be a Rabbi. In trying to explain the reason for this, it is notable that Rabbi's tend to have more training and are comparatively likely to have made higher investment in their professional life on account of the longer training duration. On the other hand it is also clear that due to their numbers, Christian churches are in competition with one another and this inevitably drives compensation for pastors towards the marginal wage. It would be useful to determine the standard deviation across wages for all professionals providing religious services in addition to finding out which specific faith has the highest inequality within its professional cadre. My guess would be that the protestant Christian churches would have the highest inequality because the pastors of the mega-churches are in a different league and are a minority.

To my mind, it can be stated respectfully that the provision of religious services across monotheistic religions is amenable to analysis through basic tools of price theory. This labour market shows sensitivity to the amount of skill and the professionals therein are also able to supplement income by taking up other employment. Finally, it is clear that competition with the distinct faiths affects the income for individual pastors.  

Are Nigerian Protests Justifiable?

This year started on a very difficult note for the government of Nigeria generally and for the president in particular. Not only is the country faced with a problem of armed groups attacking civilians ostensibly to enforce religious homogeneity, the government made a critical but unpopular decision in economic policy. The latter decision involved the suspension of subsidies on petroleum with the immediate result that prices went up substantially. To my mind though, it is most surprising that the public demonstrations throughout the major cities have been organized to try and force the government to reverse the economic policy while the press that I refer to has not reported equally public campaigns for government action to respond to the loss of lives from cowardly armed groups.

This blogger will say no more than that no government that is legitimately elected should succumb to political pressure emanating from groups driven by an ideology that holds no respect for life. Indeed, the government's feeble response to the bombings and murders is the main point of weakness that I see. Regarding the suspension of subsidies, it may well be that the timing is unfortunate but it is clearly sensible economic policy. Reading this story, it is evident that the protests that issued on account of rising fuel prices causes difficulty to some citizens but I am certain that the incidence of the benefits of a subsidy on petroleum fuel is taken by the car owners and middle class people. The claim that this resultant price hike harms the poorest is demonstrably untrue because the owners of vehicles in this country are unlikely to be the indigent. Besides my regret in the damage to property and the risks faced by law enforcement officers, I think that this is an urban middle class bawling for subsidies at the expense of poorer Nigerians.

The moral of the story: there is never a right time to pull back subsidies even if in most cases, abolishing subsidies is the right economic policy. 

Truth About Japanese Economy

Judging from the surfeit of press and other commentary on Japan, one would get the erroneous impression that following the joint collapse of Japanese financial institutions and property markets in the late 1990's, that economy has remained perpetually in limbo.  In this article, Eamon Fingleton provides proper perspective to the issue through reminders that perception is starkly different from reality. While I have never visited Japan, most of what I watch shows that the citizens of that country enjoy a very high standard of living.

While it is true that Japanese corporations that dominated financial and technology markets ceded their position to other corporations, the economic adjustment within Japan did not cause a collapse. True, the rate of growth has not been high, but Japanese incomes have kept an upward creep and in some areas, the quality of technology and other services available within Japan are the enviable standards. While being cautious about Eamon's claims, it is still relevant to mention that Japan's early growth was sufficiently sound to ensure that the painful adjustments due to the property and bank crashes did not devastate its citizens. in short, Japan may not have caught up with the United States but its standards of living are still high and other fast growing countries would accomplish a lot by just getting to where Japan is. 

I am less sanguine about the argument that the citizens took a conscious decision to keep very low population growth. It is clear that the demographic position as it exists would soon have adverse effects on the growth of that country. It may well be that its economic policies were mostly sound but the desire to maintain strict racial homogeneity may be attractive social and cultural policy but is surely disastrous economic policy. Its time for Japan to review that because this is perhaps its most pressing policy failure today.     

Sports Organizations and Corruption

The title of this blog post came to me as I read this article and tried to relate it to other instances where strong evidence of corruption in international sport has been revealed. It addresses the disclosure that an official of a boxing institution was curiously present in the front during the contest between Amir Khan and Lamont Peterson some weeks ago. Khan's team alleges that this official may have adversely influenced the judges.

To be honest, notwithstanding my reference to to FIFA in this post, I am generally suspicious of conspiracy theories. However, it is clear that the incentives for improper behavior are clearly available in lucrative sports disciplines. It seems that officials at the boxing match under reference acted in a less than transparent manner and this has called to question the decision of the fight.

I agree now that incentives for corruption in private bodies is high and that the international sports organizations should be a lot more transparent in their financial and contractual affairs. Granted that a majority of them are private organizations and therefore subject to scrutiny by their membership alone, I am inclined to the belief that their monopoly status adds to the opacity.  

Why Expensive Musical Instruments Do Not Sound Better

There are several ways in which conventional wisdom and expert opinion is very sensible advice but my reading of Freakonomics has led me to agree that what is the consensus and unquestioned wisdom is frequently plainly wrong and based on no evidence. Ian Sample of the Guardian writes about the results of a modest experiment with persuasive results that tested the claim that antique musical instruments (specifically violins) have a superior sound to more modern versions. Granted that there are limitations to the experiment principally related to the blindfolding of the players together with the small sample of the instruments, I am persuaded that its results are valid.

What the results show is that the instruments that are highly valued as having been created by a master such as Antonio Stradivari do not produce superior sound that it detectable to expert players. As the story states, these unique instruments are very highly valued by collectors and performers and are the prices are often justified on account of their superior quality of sound. What the results imply is that the less valuable instruments are probably not inferior in this respect. To my mind, the value of the Stradivarius instrument is most probably based on their rarity and scarcity. In addition, most of the owners of these antique instruments are very capable musicians whose skill may give the impression that that quality of performance is produced by the rare instrument. Instead, its just that the skill is the real magic.

These findings trace the continuing realization that most claims such as the superior taste of expensive wines, performance of maestros and now the sound quality of antique musical instruments, sometimes fails when subjected to randomized testing.  

Technology and Education: MIT Takes A Dip

It is possible that I have not searched diligently enough but I have not seen any publication with a coherent view for how education in general and learning will be affected by the rise of the new tools and ideas from the digital field. The closest I came to how much the Internet and related tools will affect education was in the Biography of Steve Jobs in addition to the report by MacArthur Foundation on The Future of Learning Institutions in a Digital Age. The former states that Steve Jobs thinks that the major effect of technology would be in digitization of text books and learning materials. The advantage here would be that updates would be regular, less costly and that the parents and the public sector would take the initiative away from publishers.  I thought then that that was not really profound but that Jobs was being uncharacteristically real in the possible effects on education from technology. The latter publication was more sanguine but also profound in stating that most learning will involve de-centered teaching and with young learners getting skills from diverse places and methods.

I accidentally encountered this piece by Tamar Lewin of the NYT in which it is reported that the MIT has introduced an e-learning course for which it will be possible to gain certification and credentials. This new development is a step forward because open courses have been offered by leading universities in the world but many have not had certificates and my interpretation was that this would eventually lead to the death of certificates and "credentialism". My reading of this is that universities may be responding still to the heavy demand for certificates as evidence of proficiency.  What is profound is that the costs of acquiring good quality education are tending towards zero. This is worthy of keeping a keen eye upon.    

Contrasting Income Growth for Africa and Asia

Keen observers of the growth trajectories of countries cannot help noticing that apart from the larger economies in Asia, sub-saharan africa has registered unprecedented growth levels in the last decade. The argument is relevant because one of the major problems that the latter region has had is the inability to hold on to an upward growth momentum for meaningful periods of time. Instead, Africa's example has been fluctuations of growth rates that coincide with commodity price changes. The summary of this experience from the mid-1970s is that dependence of petroleum and agriculture-based commodities is not a reliable path to growth and improvement of welfare. 

And that's why the contention is that it is yet not possible to state with confidence that sub-saharan Africa has overcome the mix of economic and political problems that it faces. That brings me to this fascinating article in the East African which makes the credible and well-based claim that the countries in the eastern region of africa will be leaders in overall growth in the coming two decades. It is an article worthy of reading because it is based on a complicated but sensible method for assessment of the complexity of an economy and concludes that the countries of the region under reference have economies that are more complex and diverse in production than is warranted by the incomes today. 

The author of the article concentrates on a list of manufacturing firms to illustrate the claim derived from the index of complexity. it is less clear to me that all these firms confer a comparative advantage to the region because it is unlikely that all are able to compete internationally. My view is that given the fact that manufacturing industry is a smaller proportion of the overall GDP of these countries, there is scope for growth but not necessarily for all existing firms. A final point that is worthy of note is that in spite of the prediction that the region will lead in GDP growth, it will still fall behind India and China in respect of per capita income growth. I think the reason is that this region has a large and youthful population and is expected to maintain strong moderately population growth for a few more decades.  

Apple's Effect on Competition in E-Book Market

This blogger has maintained in posts including this that the book publishing industry has chosen to go the way of music producers by burying their heads in the sand. iIn particular, I am of the view that it is preposterous to sell digital copies of books at the same cost as the paper version. For a while Amazon seemed to be acting in the interest of the reading public by ensuring that new publications were available at lower cost in digital format and thereby ensuring that the gains from digitization broke the existing model of book publication and pricing.

Indeed, there was a danger that Amazon could have used its market power to depress the margins for publishers. And then came Apple with a deal for the publishers for an agency model for digital books on the iPad. This gave greater power to the publishers as they were able to apply new clout to ensure that books were sold through an agency model with retailers keeping 30% of the sale price. The effect of this is that prices of books not only went up but that the odd fact of digital books going at higher costs became real again.

Juliette Garside reports on the effort by antitrust officials in Europe who are questioning the new arrangement. Their main claim, with which I am in agreement, is that the agency model has placed consumers at a disadvantage in the sense that books have gone up by a margin of up to 50%. To my mind, there is no price war anymore as the publishers are back in the driving seat, with Apple's help, and are dictating costs and seeking uniform prices again. Like most windy antitrust cases, this will probably go on for long but on this score, i am confident that the bureaucrats are on the side of the consumers.   

Ode to Christopher Hitchens

While 2011 may have been a year of confusion and economic difficulty in Europe, nothing beats the very interesting outcomes for a number of despots. I am certain that nobody would have guessed that Muammar Gaddafi, Zine Abidine Ben Ali and Hosni Mubarak are no longer leaders and some barely alive. And one would think that the troubles facing Syria's Bashar Assad and Khalifa's of Bahrain would be enough for the year and yet another strong arm leader, Kim Jong Il,  with no respect for life and political opinions has passed on in North Korea.

And yet to be philosophical about it, the latter passed on on the same date as Christopher Hitchens, an unapologetic advocate for reason and vociferous defender of the right to free expression. There is no better way to tie all this together than to refer to this fantastic piece by Hitchens on life in North Korea. In there, he talks about his visit to North Korea and the experience with the effects of aggressive ideology and the use of conflict to organize all society. Most interesting is the fact that the separation of the Koreas and the racist nationalism of the North exists side by side with the fact that the average citizen of this totalitarian regime is six inches shorter than those of south Korea. I agree as well with the statement that nothing is more totalitarian that "racist nationalism". 

Champagne or Wine for Consumption Growth

Many times, economists and business people use the movement of inventory and other consumption indicators as proxies for the state of the economy. Consumer sentiment is a reliable one but it is often not possible to conveniently aggregate all consumption in even the smaller economies, leave alone one as large and complicated as the US. Writing in the NYT here, Adam Davidson explores the simple ways in which consumption of certain items reflect the recovery of sustained lack of confidence in the United States today.

As the article states, the trend in consumption of some items are far better indicators of the improved economic conditions than others. To my mind, it is sensible that the rising purchase of high cost wines may not be a representative of the whole economy because this good is primarily consumed by high income individuals whose consumption is not affected much because they have not had a squeeze on incomes. This merely shows that tracking the sales volumes of high cost wines is not the most useful way to assess the state of national consumption. It turns out that lipstick and nail polish sales go in different directions and that the latter has lost the predictive ability perhaps because of a structural change in the industry and consumption. It turns out that while sales volumes of high cost wines is not useful, the most consistent predictor is the consumption of champagne. And with the figures suggesting that consumption champagne going up, US citizens are popping corks for the right reasons. The world needs the US citizens to pop the champagne corks.

Intelligence and Creativity

"Intelligence is not enough for creativity. So intelligent people defend the position given them by their intelligence  by claiming that creativity is not a learnable skill but an inborn talent-which they cannot be expected to acquire".  Edward De Bono in, Think! Before Its Too Late. p. 25

Tiger Wins Again

I have stated here and here before that the general view among sports commentators that Tiger Woods is unlikely to regain imperious form and win golf tournaments had to be wrong. As the Guardian reports, Tiger's performance at the Chevron World Challenge tournament shows that this player still maintains the skill set that has enabled him to retain the admiration of dispassionate sports fans.  In my view, while one win does not mean that the player will continue to do so, it merely states that the bets against Tiger winning a major again must shift decisively because this player has time, history and skill on his side.

It is understandable that there are the questions about what the strength of the field was, but a number of those on the list were far ahead of him and yet he won. Skeptics must be allowed their say but many professional golfers would like to take away the Chevron Challenge prize while only a select few do.

Watch the guy.   

Is Facebook Like a City?

To be honest, I have not figured out exactly how the leading enterprises in the social media industry will be able to convert the large user-base into a revenue model. I am certain that the answer is out there but unlike a majority of people who are enthusiastic about the rise of these new industries, I do not mind being educated on how that will happen. I would be ready to bet that it will be very hard and that at best, only a handful will succeed in finding and executing that revenue plan.

To me, the most obvious value in social media today is that they represent a platform for rich and real time data that is subject to interesting analysis. That idea resurfaced as I was going through this original take on Facebook by Wabi-Sabi and Ikeda at the Foundation for Economic Education (FEE). I am sure that these two are not the first to compare that formidable network to a real-life phenomena but I find their comparison to the growth of cities really interesting. Going on a  limb, one could say that the linkages between people on Facebook would be parallel to how cities grew and that those links are in turn measures of prosperity in the way that cities represent dense networks for economic activity. 

Walmart Cashing Checks Now

Because of my enduring fascination with how retail markets generate value within economies, I am an unqualified admirer of businesses such as Amazon and Walmart. Indeed, my admiration of these two is most evident in the fact that they remain the most cited business institutions on this blog. Of the two, I am especially enamored with the creativity of the Walmart as mentioned here, among other spots on this blog. It has gone beyond its classical business model of low cost retail products and logistics to ensuring that it plays a role in competing against banks in reducing the banking charges that greatly irk many low-income earners.

Andrew Martin and Stephanie Clifford file a piece in the NYT detailing how Walmart utilized customer feedback on their real costs of banking charges. this information was directed towards ensuring that the check cashing costs offered by Walmart are sufficiently competitive to ensure that its share is growing in that area. In my view, the retailer has responded well in not only demonstrating that the fees are not close to the marginal costs as they should be, but also that the competition is adding value by saving money for clients who may save it or use it to acquire more groceries.

To my mind, the move by Walmart in providing an alternative avenue for check cashing is demonstrably useful but also highlights the inefficiencies in the banking charges. The high degree of automation in the financial services industry makes me to think that Walmart may still have a margin even after lowering the costs. Predictably, the banking institutions against whom this new move presents a rising threat respond in a manner that betrays their callousness by asking for Walmart to be regulated too. This posture is baffling to me because one would expect that they would instead ask to be released from regulations in order to be able to compete even further. instead, the argument for regulation in the piece is one that would raise Walmart's costs as opposed to a response that would reduce the banking institution's costs and ensure that costs would stay low. Walmart is beating these banks at their game.           

Umberto Eco on Simple Things

"Its only publishers and some journalists who believe that people want simple things. People are tired of simple things. They want to be challenged. " Umberto Eco

NBA and Players Reach Tentative Agreement

This has been a turbulent year for the sports franchises based in the United states because of negotiations regarding the sharing of revenue between players and the team owners. The NFL reached an agreement in which players ceded a portion of future revenues in order to end the lock-out. On the other hand the NBA season has been delayed by months and there was the remote possibility that the season would be cancelled altogether due to the great chasm that could not be bridged.

It seems now that the team owners and the players union have reached an agreement and the season is due to start with the first matches scheduled on Christmas day. As this article in the Guardian states, the full details of the settlement are not out yet but the detectable anxiety to get an agreement going in order to redeem the the season in shortened form is a major factor. To my mind, it is clear again that the brinkmanship on the part of the owners seems to have led to capitulation by the players. When the full details of the agreement are released, it is almost certain that it is the players who will have yielded more ground. 

Reviewing Rugby World Cup 2011

Many sports fans are today aware of the fact that statistical analysis of sports events has become common. This often manifests itself in the application of statistical techniques to purchase players and even in choice of play during set pieces during play. the one place in which the reasoning with data is more overt and subject to clear assessments is in the development of predictive models for ranking teams in a tournament.

A couple of articles written by Eoin O'Connell here and here in Significance Magazine presents a clear narrative on the author's reasoning about the pools, the form teams, and determinants of qualification towards the finals. This model is fascinating because his predictions correctly names seven of eight teams that qualify from the pool stages. While the predictor model is narrated, it is easy to see how the logic of the model worked and how it turned out where results did not go as predicted. Going towards the semi-finals and finals, the second piece states clearly that New Zealand team has the advantage of form and superior performance during the pool that makes the team less likely to lose. the model proves correct though the Wales replaced Ireland as the other finalist. The narrative is impressive as it highlights a systematic and approach to analysis of the games with data used to strengthen the stories. What one concludes is that home advantage and team form is a hugely powerful predictor of the outcome.

NBA Players Union in Good Hands

This year has seen some titanic battles and negotiations pitting players unions against team owners in the major sports franchises in the United States. It started with the NFL Players union against the owners which I blogged about here and here. I maintain my conclusion in this post that the players seem to have conceded far too much.

Since then, the comparable parties in the National Basketball Association have also been in discussions that have led to the cancellation of the first twenty games of the season. I was pleasantly surprised to find that the NBA Players Union have added Kevin Murphy of University of Chicago to their team as an advisor. Reading this perceptive interview on the issue shows that the players are really in good hands. To start with, the guy understands the economics of the teams and understands that his duty is not to push for any result but rather to help the negotiating teams to understand the implications of any position that they take. Whatever the outcomes, I am certain that the players will receive exceptional advice.      

What Do Governments Need Most?

I have often engaged in intense discussions about the value of entrepreneurship skills and whether these can apply in diverse industries and sectors. To my mind, a very capable entrepreneur could run other institutions in either the public or third sector. In spite of that, it is clear that people with such diverse skills are few and far between. 

Looking at the story about Andrew Flanagan who runs a children's charity in the UK leads me to the view that it is indeed possible to find people who can cross from private sector firms and into social and policy entrepreneurship.  As Randeep Ramesh of the Guardian states, there are universal principles and good sense that allow for managerial efficiency to lead to improvements. These changes may include staffing, operational issues and financial management. The most profound one though is the very perceptive reasoning that charities should not seek to supplant or supplement government in provision of public services. Flanagan argues correctly that instead, these charities should see themselves as think tanks that generate and test new ideas that may be recommended for wider implementation. 

Implicit in that profound and correct finding is the fact that citizens should require that failure in the provision of public services is sometimes as much a failure of good ideas than the absence of material resources. 

How Real Capitalists See the World

While a disproportionate number of people are occupied with the Occupy Wall Street protests, it is amazing that the numerous good things that come from principled capitalism are altogether ignored. Leaving aside the predictable views of some of those supporting and opposed to the Occupy Wall Street protests in New York and the rest of the world, I came across this short but really good NYT story about what real capitalists can and often do to benefit society.

Worthy of reading for oneself, I find it profound for the reason that it highlights the exceptional degree of generosity from Robert and Dorothy King. Having built their own enterprise and made substantial sums, they have opted to make a donation of US$ 150 million to Stanford University to establish the Stanford Institute for Innovation in Developing Economies. Its purpose is to study the creation of programmes and businesses through which a large difference could be made.

To my mind, this gift is profound for a couple of reasons, including the fact that it is an expression of generosity at a particularly difficult moment when many people may be anxious about the possibility of a second recession and its possible effects on further erosion of their wealth. Equally important is the fact that as the political hacks are looking for people to blame and make some political mileage from the ongoing controversy, this family has demonstrated that real capitalists go ahead with their work, support what hey can and leave everyone to judge the result. there's no better way to defend capitalism. As I said in an earlier post, this couple makes me shout, "Capitalism Rocks".    


  

Rolex Dials Tiger's Number

Tiger Woods has been a subject in this blog post in two related ways. The first is when I questioned whether endorsements by celebrities really do improve sales while the second was the belief expressed here and here that Tiger Woods would regain his high ranking and be a dominant player again. At the time when the conventional wisdom holds that Tiger's days are all gone, a sponsor no less prestigious than Rolex has appointed Tiger Woods as a spokesman.

In addition to relating the story behind the creation of the unique brand, Slate magazine's Seth Davidson interrogates this decision and concludes that this firm is sure that Tiger is momentarily at a disadvantage but will regain his form in the future. Trust a corporation that is organized in a different way to understand that Tiger is still a class act in his game. A good bet that will pay off.  

Polemics of Demography and Fear

I stated in this last blog post  that I would not put up a link to all those lamentations that the world is overcrowded o account of unverified claim that the there are now 7 billion living souls. One must accept that in the same world where the costs of circulating ideas has fallen much more than the population has risen, people are bound to find all sorts of preposterous connections and cause alarm. Reading this piece in the NYT, I had to renege on my light promise not to link to these pieces. 

Taking without question that the human population has reached a new record, a number of institutions are trying to tie their neo-Malthusian argument to environmental conservation. Among the arguments is that the levels of greenhouse gases being produced on a per person are so high that every new birth adds to the warming of the planet and therefore to almost certain environmental catastrophe.   

Such campaigns may be well-timed but that does not imply that the claims are sensible. As contrarian voices quoted in the piece mention, family size reduction cannot be the solution to global warming and environmental conservation.fertility rates are higher among poorer populations in South Asia and sub-Saharan Africa but it is these populations that also generate the lowest levels of carbon pollution per person.So yes, I want spotted owls and polar bears to survive but it makes no sense to me to claim that birthing families are responsible for my never seeing a live one. That is not the real trade-off.