The Economist Analysis

Don't you ever get the feeling that we learn more by reading newspapers and books and blogs and by discussing world affairs and economics with friends than by going to class? I feel I have learned micro by reading The Undercover Economist, and development by reading The Elusive Quest for Growth. But most of all, I think I have learned most from reading The Economist.

This is why I have a new idea for a Master's class. It would be called The Economist Analysis. Everyweek, required reading would consist of The Economist, and every class would start with a 10 minute quiz on world affairs or any part of that week's edition, with multiple choice and short answers questions. It would count as 20% of the grade.

Another part of the grade would be for each student to write an Economics Focus type column on a new working paper on any branch of economics he would find interesting. This would ba accompanied by a 5 minutes (strongly enforced) presentation and a discussion. (This part could be subsituted by an article that would fit in the International Section for MIA students). This would be worth 30% of the grade.

Then another requirment would be to choose an article and question its objectivity by reading about the topic in all sources available and discussing alternative point of views and determine if The Economist is biased. This would consist of a 2 page paper and a 5 minutes presentation, again followed by discussion. This would also be worth 30% of the grade.

5% of the grade would be attributed to contribution to comments on Free Exchange (the other blogs for the other sections). Another assignment would be to write a Letter to the Editor. Content and style would be taken into account and it would count for 5% as well. The final 10% of the grade would evaluate class participation, rigourously.

The Economist Analysis

Required reading: The Economist
Grading:

• Quiz (20%)
• Economics Focus column (30%)
• Objectivity Analysis (30%)
• Free Exchange comments (5%)
• Letter to the Editor (5%)
• Participation (10%)

You know you've been in Geneva too long when...

• You notice how dirty French cars are;
• You live alone in a studio and have a cleaning lady;
• You don't think it unusual that you have never met a Swiss who does hard manual labour like road-digging;
• You don't question why it takes 12-18 months and costs more than a million francs to build a modest residential house;
• You think Swiss advertising is dynamic, clever and subtle.
• You think it's economically wasteful to have more than one brand of a product in a store;
• You try to defend cartel based economics to a visitor;
• You think it's fair that you can only wash clothes once a month;
• You wonder why anyone would want to shop outside of working hours;
• You understand why Chinese food should cost more than normal food;
• You think it's OK for a Chinese restaurant to be run by a Swiss and staffed by Spaniards and Portuguese;
• You think Thursday night shopping is really convenient;
• You think it's cool to drink expensive imported American beers;
• You prefer fizzy mineral water to tap water;
• You don't mind paying SFr.20 for a paperback book;
• You become interested in the myriad of insurance offerings.

Our favourite economists

I asked the department’s students who were their favourite economists. To no surprise, the internationalist Paul Krugman is the most popular, being the favourite of 5 students among the 28 who took the survey.

In second position come the Nobel Prize winning George Akerlof, who described the market for lemons, and Keynes, whose modern equivalent is now desperately awaited by the looming world economic crisis, with 2 votes each. Four students also chose among the great economists of all time, choosing Adam Smith, Ricardo, Schumpeter and F.A. von Hayek, hereby stating their support for free trade, creative destruction and free market capitalism.

Nobel Prize winners Milton Friedman and Bob Solow both got a vote, and so did Central Banker Paul Volcker, who is now advising Obama. Rogoff, Blanchard and Eichengreen got one vote each, and so did the always too vague Dani Rodrik.

Two HEI economists also made the list: Richard Baldwin and Sebastian Weber, for his grahical intuition. Pompeu Fabra professors Jaume Ventura and Jordi Gali seem to be highly appreciated by macro students, and so is Daron Acemoglu, who came up with the settler mortality instrument. I chose Edward Miguel and his buddy world authority Ray Fisman also got a vote for being a nerd. Last but not least, Scott Taylor, who explained the economics of Easter Island, also made the list.

Basically, we like those to whom we get exposed to in class and generally, macro people like macro guys and micro people like micro guys. But above all, I would say we are quite heterogenous in our tastes.

An economy without cash

When I was taking the Macro 1 class I was convinced that monetary policy was a joke. How can these bankers really think they have any impact whatsoever on the real economy? My suggestion was then to keep the money supply fixed. “No!” I was told by my classmate, “money supply growth must equal GDP growth”.

So what would happen under a fixed money supply? Well, a 5% GDP growth should be accompanied by a 5% decrease in prices, automatically. In other words, shifting prices would ensure market clearing. Now imagine an oil price shock. As an oil importer, you let your currency depreciate (no inflation targeting whatsoever, which would make your currency appreciate instead). So the oil shock is offset by your exports boom.

So with this fixed money supply and shifting prices, you can say bye bye to the inflation monster, as you don’t care about prices that change constantly. Now the question is how can people adapt to this? My solution is to drop cash altogether. Only debit cards and mobile phones and voice signatures. Then prices can become any fraction of any amount. With sustained GDP growth, a beer could become as cheap as 20 cents, while a phone call could be 0.0001 cent.

The Economist had already predicted the end of the cash era, but not the end of monetary policy.

Which countries are double landlocked?

44 countries are landlocked. Being landlocked prevents access to the ocean which, in turn, allows for trade with most of the countries in the world. The landlocked dummy is always significant in all trade gravity equation, so it is a big deal (not just a superficial aspect of a country), even with today's technology.

For example the weighted world average of GDP per capita is approximately $18,000. Of the world's landlocked countries, only two (Switzerland and Austria) have higher GDPs per capita than this average. The weighted average of all landlocked countries is under $4000!

Two countries in the world are double landlocked, which means that they are surrounded only by other landlocked countries: Lichtenstein and... guess which is the other one?

So next time you run a gravity regression, make sure you include that double landlocked dummy.

Luxury lifestyle seekers

I was at this conference on the role of the WTO Secretariat and one of the panellists noted that the quality of the staff there was higher than ever, as PhDs were required for most jobs. Then a deputy to the director general made the comment that him and his work buddies had been selected by him among 80 other candidates, in a clear and transparent contest, and not by political appointment. Then it was mentioned that there was only 8 researchers at the WTO, and still it was able to produce high quality research (no puppets).

I don’t know if all of this is true. Living in Geneva for the last 3 years, almost not a day goes by without hearing someone complaining about the corruption and incompetence of the UN organizations staff, but also about the inefficiency and the uselessness of these offices. Crazy insider stories of the manipulation, the sexual abuse, the appointment of friends, the fake ads in The Economist etc… come out every day. Not so much about the WTO, but especially about the ILO, UNCTAD, WIPO and, worst of all, the Human Rights Council.

I am an internationalist. I don’t want to get rid of these organizations, but I would like them to be less of a waste. Many people talk about reform, but it is most of the time about very general things, like the mission an organization should have, how the security council should be enlarged, how a UN small army should be created. And what’s so funny about these articles is that they always mention how impossible it will be because of China and Russia, or because of conflicting neighbours. One very disappointing report of this kind is the one that came out this week in The Economist, “Who runs the world?”

But what about the inner workings of these organizations, like employment policies or employee benefits? Why don’t diplomats have to pay parking tickets? Get rid of that rule, right now. Isn’t it all about hiring the right employees and then getting their incentives right?

It is such a golden ticket to land a job at the UN in Geneva as you get a relatively higher salary then in the private sector with no taxes, an incredible retirement plan and a standard of living way above the local population. Just look at the jewels the UNCTAD ladies are wearing or the cars the ILO gangsters are driving. But who gets attracted by these organizations? Candid, educated and honest idealists, yes, but also these gangsters (or snakes), because they are interested in the lifestyle, and not in saving the world. And who ends up spending their career there? The snakes, because the good ones have either been fed up by this rotten system or have not gotten the job, which was instead given to a friend by a corrupt boss.

So, yes, first things first, abolish the privileges, abolish the tax free shop. Many snakes will opt for other careers. And no more life time contracts, just simple 4 year contracts, renewable twice. So snakes won’t eternalise there either and won’t be attracted that much anymore. One other way to get rid of the luxury lifestyle seekers was to move the UN Geneva office to Nigeria, as only idealists would move there. But then again, this may be the most corrupt country in the world, so corruption could infest the offices there too. But does the local level of corruption affect the level of corruption inside the office? Is the UN in New York less corrupt then the UN in Geneva? This is an interesting paper idea.

Coming back to the WTO, is the Doha round dead because countries can’t agree or because the WTO twists the incentives of the negotiators? Are the countries’ representatives at the WTO lifestyle seekers snakes completely disconnected with their country’s government trade objective? One panellist was saying that they were representatives of the WTO to their own country, like promoting the free trade global public good to your own national government. If only he wasn’t lying.

Being green by going blue

The SIG (Services Industriels de Genève) grossly overestimated my electricity bill, so when they measured my real consumption they started to refund me, and I guess the thing will go on for quite a while. I consumed 854 kWh in one year (I live in a 3 pièces with my girlfriend), they estimated 1876 kWh, which is probably based on the consumption of the previous environmentally-unconscious occupants of my flat. I consume blue "Vitale Bleu" electricity, which has a very low CO2 emission factor, 0.0124 (the emission factor converts kWh into CO2 emissions). This means that I contribute to the production of 10.8 kg of CO2. If I were to offset these emissions paying $36 per tonne, it would cost me $0.36. That is, nothing. Had I been on brown electricity (the SIG calls it "Initial"), with an emission factor of 0.4, I would have emitted 350.6 kg of CO2, with an implied offsetting cost of $12.6.
My blue electricity cost 219 CHF in one year. How much would I have spent hade I been on the brown? 216 CHF. I saved 3 CHF – less than the cost of a coffee – by emitting 32 times more CO2. Notice that if had consumed like the previous occupants (1876 kWh), I would have spent 470 CHF on blue and 464 CHF on brown electricity, with a saving of two coffees, and 727 more kg of CO2 in the atmosphere. And if I were to offset my emissions, I would end up paying $9 more for the brown electricity than for the blue.
The message is clear: if you are purchasing brown electricity, switch to blue! You drastically reduce your carbon footprint at basically zero cost, irrespective of how much you consume.
SIG also offer a third type of electricity, "Vitale Vert". They claim it comes from green hydro and has at least 2.5 per cent of renewable content (photovoltaic and biomass). Had I been on green electricity, my annual bill would have been 267 CHF, 47 CHF (or 21 per cent) more expensive. Unfortunately, I do not know the emission factor. Let's assume the CO2 content is proportional to the price, so that the green has an emission factor 21 per cent lower than the blue. In this case, my CO2 emissions would have been 8.58 kg (compared to 10.8 with blue). A big difference in percentage terms, but small in absolute terms due to the low baseline. However, SIG claims that choosing the green electricity "can contribute to the development of solar electricity generation, to feed a fund for ecological upgrading and encourage research in the field of new renewables". So I guess that my cost of funding research on non-hydro renewables would be 47 CHF.
Finally, the SIG offers mixed strategies for the game theorists among us: "Offre Découverte" (20 per cent green, 80 per cent blue) and "Offre Horizon" (40 per cent green, 60 per cent blue). Using the assumptions made above, with the "découverte" I would have spent 230 CHF and emitted 10.4 kg; with the "initial" I would have spent 239 CHF and emitted 9.95 kg.
In all cases, for low ranges of consumption like mine – and probably yours – the (absolute) differences between blue, green and convex combinations of the two are negligible.
Overall message: if you are on brown, switch to blue; if you are on blue, switch to green or mixed offers if you want to support R&D in renewables such as photovoltaic and biomass.
As Paul Krugman sometimes puts it, I've reported, you decide.