As I said yesterday, there are some really great blog posts that I missed last december. Check them out if they interest you  

Damien, this one’s for you: Michael Spence blogs about our misconceptions concerning exchange-rates. “The focus on currencies as a cause of the West’s economic woes, while not entirely misplaced, has been excessive. Developing countries have learned over time that real income growth and employment expansion are driven by productivity gains, not exchange-rate movements. This, in turn, requires public and private investment in tangible assets, physical and telecommunications infrastructure, human capital and skills, and the knowledge and technology base of the economy“. Find it here

David Smith looks at the only two options: a green economy or a growth stop. “A study by London-based consultancy Trucost has shown that the world’s top 3,000 public companies are responsible for a third of all global environmental damage“. Find it here

Another green article: Manana Kochladze wants to green the European Investment Bank. “The EU’s goals therefore embody an inherent contradiction – energy security versus climate-change prevention – which makes it difficult for the EIB to clean up its energy portfolio“. In this article she solves this contradiction convincingly. Find it here

Qfinance published this great article on China, although this quote really struck me: “An Italian bank can borrow money from the ECB at 1.5% which it can then use to buy Italian government bonds, which have virtually zero risk capital weighting, and which generate a return for the bank of say 6.6% or higher. With returns of five percent available for no effort, why lend?“ Find it here

Henry Mitzberg asks himself who can fix the US economy. I can’t agree more with the next statement: “Above all, what the American economy needs now are managers who know and care about their businesses. Armies of MBAs who have been trained to manage everything in general but nothing in particular are part of the problem, not the solution. So are economists who study clouds without ever getting wet.” Find it here

Looking back at the last few months of 2011 it seems like we missed some great blog posts. Therefore, before starting a new series of ‘this week on other blogs’, we look back a little bit.

Posted in November 2011, Joseph E. Stiglitz analyses the crisis. One observation that is becoming more and more clear is that the cheap borrowing to banks is restoring profits (as these banks make easy money from lending to bonds of safe countries) while lending to economic actors remains low. “Fixing the financial sector was necessary for economic recovery, but far from sufficient. To understand what needs to be done, we have to understand the economy’s problems before the crisis hit”. Find it here

Posted a few months ago, but still relevant: Kenneth Rogoff talks about the kind of crisis we are in and the consequences this diagnoses has for a possible cure. “Many commentators have argued that fiscal stimulus has largely failed not because it was misguided, but because it was not large enough to fight a “Great Recession.” But, in a “Great Contraction,” problem number one is too much debt”. Find it here

Great reads! So, what is next? Well:

1: As there are still many great posts left from december, we’ll list them in an extra post tomorrow;

2: Sometime next week there will be a special post on blogs about bankers. This includes a ‘Best of Luyendijk’ and some really disturbing blogs;

3: This Sunday the new series starts! 

(originally posten: November 10, 2011)

What really winds me up is the persistence of the shock and joy and exclamations of bemusement when meeting someone you know from elsewhere randomly in a distant city. Because it’s not so random and it’s very likely that you’ll meet someone you know on holiday.

First, you are not as unique as you may think.

Second, your threshold for stopping to chat with someone is lower. So, including school, college and university acquaintances we are talking about at least 250 people — all going on about 3 holidays per year, mostly to popular destinations. Friends also tend to have similar tastes, going to similar places.

Third, once you are there it is more likely that you’ll go to the same place (Louvre, La Rambla, Kreuzberg, Times Sq, The Pantheon, Camden)

Fourth, not only will you go to similar places in similar towns, but you’ll be eating and drinking at mostly the same places. Filtered courtesy of TripAdvisor, Lonely Planet, Rough Guide, the Google PageRank of guides to the towns, and popular recommendations from like-minded people.

We are not the only ones to make the mistake of drawing conclusions about the world from our relatively small, privileged group of friends. Academics are also guilty of this as Craig Calhoun shows in his piece The class consciousness of frequent flyers: Towards a critique of actual existing cosmopolitanism (PDF). The world may appear to be getting smaller to you, but empirically it’s not really getting that much smaller.

I leave you with one of the epigrams of the paper above:

Some claim that the world is gradually becoming united, that it will grow into a brotherly community as distances shrink and ideas are transmitted through the air. Alas, you must not believe that men can be united in this way.

- Fyodor Dostoevsky, Brothers Kamarov (1880)

Skill biased technical change has been a hot topic of debate within labour economics over the past few decades. The central questions being – Is technological progress in the work pace biased toward a specific type of worker at the expense of other types? For sure technology is often thought of as beneficial to everybody… however, several labour economists have found evidence to suggest that on the whole technical change in the workplace favours high skilled workers by complementing their role and therefore significantly increasing their productivity relative to lower skilled workers for whom new technology acts as a replacement, or substitution for their labour. Of course if this story is true then it presents a problem for lower skilled workers in terms of their reduced relative productivity, and therefore their reduced relative wage, causing wage inequality …

Consider taxi drivers, barbers etc…. hardly any new technological improvements have come to market and been adopted since the professions began (perhaps satnavs are an exception) therefore the productivity of these lower skilled professions has remained roughly constant throughout the past 30-40 years. Whereas financiers and stockbrokers have seen the invention and constant improvement of computers and their systems which are able to measure minute movements from moment to moment of stock prices in order to manipulate any inefficiencies in the markets to make a profit… this technology is complimentary to high skilled labour. Whereas historically a trader may have had a team of staff charged with finding information, creating models on paper etc… he now just needs one computer with some good software and it’s a one man show!

Robert J. Shiller writes about a big change in economics. More and more, the rationality axiom is being replaced with more empirically based alternatives. “The economics axioms challenged by neuroscience: Under Samuelson’s guidance, generations of economists have based their research not on any physical structure underlying thought and behavior, but only on the assumption of rationality”. Find it here 

Kenneth Rogoff blogs about capitalism and its problems, looking at its biggest problems. “It is ironic that modern capitalist societies engage in public campaigns to urge individuals to be more attentive to their health, while fostering an economic ecosystem that seduces many consumers into an extremely unhealthy diet”. Find it here

Dani Rodrik is the guy who tells you to take economics seriously. “Instead of communicating the full panoply of perspectives that their discipline offers, they (economists) display excessive confidence in particular remedies – often those that best accord with their own personal ideologies“. Find it here

“What a genius plan” I thought to myself… With Dave Cameron and his Conservative party staunchly committed to austerity, the only way to save Christmas without committing political suicide by “u-turning” would be to send out cheques to some 6 million Britons in the form of a tax rebate! Because this cash is unexpected consumers won’t have factored it into their spending plans and, given the time of year, they will feel it is free money and feel compelled to spend it! Artificially inflating the economy through the crucial Christmas quarter… Of course it is also a lot harder to criticise a government who has been so kind as to inflate our bank balances at this crucial time of year!

Photo credits: Vaguely Artistic

There is a lot of talk about bonds at the moment. Bond auctions, yields on bonds and common Eurozone bonds. But what is a bond?

Very simply put, issuing bonds is a way of borrowing money. The difference is that you are borrowing in the capital markets, not from anyone in particular. The issuing is done through auction which determines the interest rate you have to pay (more people wanting your debt = lower interest rates). So the issuer of the bond (a government or corporation) borrows money from investors. Put differently, a bond is an asset which is a claim on someone debt.In the case of bonds the amount borrowed is called the face value, the interest rate is called coupon, and the time the debt has to be payed back is its maturity.

Example: If a company, say the Bluth Frozen Banana Stand, wants to move into ice cream and needs to build an ice cream factory it can issue bonds. It doesn’t have to happen with auctions, it’s still a bond if you just happen to know some investors. So, say you need 1,000,000 USD, but investors don’t really trust you because of the negative press you’ve been getting. That means you are going to have to give investors higher interest, so you issue ten bonds with a face value of 100,000 USD and a coupon of 20% with a maturity of 10 years. So, for ten years the investors will receive 20,000 USD annually and at the end they will receive the 100,000 USD. If you don’t default, that is.

This video at investopedia explains it well.

As a shareholder you also have a right to dividends, which is the money set aside to owners decide upon in the AGM — i.e. the money left from profits after tax and setting aside for re-investment. So, you own a 100 out of 1,000 shares in a company. It has 10,000 USD left after taxes and money set aside for re-investment. Thus, there is a dividend of 10 USD per share, which means you will get a 1,000 USD for owning your shares.

Now, dividends are no longer as important as they used to be in terms of share ownership. Now it’s all about the asset price inflation (speculation!) and shareholder maximisation. For in-depth look see this special issue in Economy and Society.

Protests against tarsands outside RBC AGM; that's who hold the power (photo credit: Rainforest Action Network)

Zucotti park during OWS, Day 16 (Photo credits: David Shankbone)

Agency is often mistakenly seen as merely free will. It is not that far off the mark, but it is and can be so much  more than that.

One way to view it (as Knafo does) is to see it as the ability to relate to structures. In more conventional sociological terms it is the ability of social actors to make independent choices. Agency (and structure) is parallel but not equal to subjectivity (and object).

I find agency to be very positive, as a driving force for change (epistimologically speaking) creating praxis and as an enabling force can be used to increase agency. Viewed in terms of agency, the human beings part of Occupy Wall Street can be said to use their agency against injustice.

Now, you can dedicate a life of research to issues related to agency, but I recommend reading up a little bit as it opens up an understanding of change. Be wary of psychological reductionism though!