The great myths of monetary economics

Rigotnomics has been pushing central banks to adopt negative interest rates. Finally, "The Swedish Riksbank last week took the unusual step for a central bank of breaching the zero bound when it set a small negative deposit rate." The whole FT article is worth reading.

Google, competition and confusion

I think people are confused on the effects google has on competition. The latest case is from, not by accident, Italy, where the Federation of Newspapers Editors is accusing Google through its Google News of "abuse of dominant position", as reported by the FT. Why? They claim that, since Google has a 90% market share for internet searches, if one newspaper opts out from Google News, they are excluded from the core search engine. Google replies that its core search engine cannot exclude content from its core search engine, which I tend to believe.
Beside this non-existent problem then, the confusion is on the part of the Italian Regulators who claims that Google News "made it harder for newspapers to attract readers and advertisers directly to their own sites". How is it possible? I don't know. Google news put all the headlines together: it makes easier for readers to select their preferred news; thus, if possible, it increases the chance for people to reach certain content and related advertising on the newspapers.
I suspect that the real problem is competition per sè: by putting all the newspapers together, people may recognize which ones are doing proper information and can easily compare quality, thus making the work of newspapers harder. More competition, not less.

A farewell to the pint glass?

I read here that the Home Office in the UK wants to substitute the pint glass with a shatter-proof plastic pint "in an attempt to stop glasses being used as weapons". Of course, the Pubs' association in the UK is protesting for two obvious reasons: first, it penalizes pubs where those things don't happen, where customers will be forced to drink from plastic; it will add extra costs because pubs will have to buy this "new fancy" glass (whose design has been already commissioned to a guy enthusiastic about the idea) and replace the old ones.
Now, this policy sounds a bit strange, and may be interpreted as "yet again, the Nanny State comes in". Instead of all this costly policy, why don't they simply introduce a scheme of refundable deposit for each pint you order? The more incidents happen in a pub, the higher the deposit required. It sounds like a simple pigouvian tax and I know this policy is often adopted in places where people tend to steal their pints. Would it also induce people who tend to get drunk and violent to stop using glasses as weapons?

Charter museums

Looted treasures should be restored to their country of origin. The Vatican and British (among others) museums should reconsider their entire collections. Among the many reasons given by the UK for not returning the cultural heritage has been the improper funds, corrupt governments and inadequate museums to host the art.
Obviously these are all fake reasons, as the British still refuse to return those marbles to Greece.
One recent article examined most of the arguments made by Westerners for their continued detention of looted/stolen African artefacts and found them woefully lacking in logic, morality or legal foundations. It recalls the British seized more than 3000 artefacts during their nefarious invasion of Benin in 1879.
So here's an idea. After Paul Romer's charter cities, here come the charter museums. Return the treasures to their origin countries but have the Western country fully manage and fund the new modern museums in Lagos and Cotonou (and in all the other cities where traesures belong).
Wouldn't this be possible?

Me, poor illiterate woman, do not want rights

"Tens of thousands of people in Mali's capital, Bamako, have been protesting against a new law which gives women equal rights in marriage. "We have to stick to the Koran," Ms Dembele told the BBC's Focus on Africa programme. "A man must protect his wife, a wife must obey her husband." "It's a tiny minority of women here that wants this new law - the intellectuals. The poor and illiterate women of this country - the real Muslims - are against it," she added."

Is this democracy? Is this Appenzeller? I have no idea. Whole article here.

Malaysian contraband (part 2)

A short note that reveals the effect of various restrictive trade policies and migrant networks on Malaysian smuggling.

The failure of conditional aid (again)

"After the recent coup earlier this year many international bodies including the World Bank and the US government suspended conservation and development aid to [Madagascar]. Conservation International believes that this has weakened environmental governance in the country and provided the right conditions for [lemur butchering] to occur."

Here's the BBC article.

Cause and defect

An article about instrumental variables in The Economist. Here.

When (serious) economists take control

Simeon Djankov, the newly appointed minister of finance of Bulgaria, has some easy solutions to fix the country's finances:

"It is easy for me to force expense cuts – I simply won’t sign these files (gestures toward a pile of files on his desk), which various ministries sent and asked me to cover their costs. For example, the Road Infrastructure Agency wants BGN 109 000. I will not endorse this order. There are 300 files like that. Take the foreign ministry. This year they decided that Bulgaria would sponsor humanitarian aid to developing countries. They wanted to allocate EUR 50 000 to Sri Lanka, Bangladesh, India and another 20 or so countries. 50 000 is nothing for a huge country like India, whereas Bulgaria is small. I denied all these requests. The finance ministry wanted to sponsor two conferences costing 350 000 each in Finland and Luxembourg. I am checking into who had this outrageous idea. If I reject all the requests I’ll save around BGN 200 million."

And to obtain more cash: "revenues can be drawn from two main sources: Customs and energy...I started visiting regional Customs inspectorates. I was in Rousse, Northern Bulgaria [where they intercepted contraband right then] The contraband was worth 1 million. Customs is losing around half a billion euro each year. Over the four months left we can get 150-200 million from there. I’ll visit all regional Customs offices."

On energy taxes: "We need to find out where the profit of companies like Bulgarian Energy Holding is going. Their gross income is 5.1 billion, but the profit before taxes is 105 million i.e. profit margin of 2%. The world average for such energy companies is 20%. They are losing 18% - in other words, the sum of 900 million has disappeared!"

Let's see how long he lasts in government...hopefully a full term!

In other news, a Chicago PhD, member of the Pigou club, apparently wants to govern California.

Easterly on trade and development

Easterly has a recent paper co-authored with Ariell Reshef which highlights the importance of strategic exports. I particularly appreciate the policy implications, which are counter intuitive enough to be entertaining:

"Economic development is strongly correlated with success at exporting manufactures. Manufacturing exports are dominated by a few "big hits". The per capita value of the top 3 product-destination export flows has a remarkably high correlation with income per capita (0.81 in logs). These findings do not support a "picking winners" policy for export development; the power law characterization implies that the chance of picking a winner diminishes exponentially with the degree of success."

Countercyclical Assets: McDonald's

This graph compares the performance of McDonald's corporation vs. the S&P 500 index (the market), since January 2007.



No wonder, right? True, a menu at McDonald's still remains the most affordable meal for the majority of the population, that's why it can only perform positively in a recession. But as Daniel Gross, explains, the story is not only about being "lucky"; there is also smart management behind it. As an example, while Sturbucks was suffering, McDonald's introduced the new McCafè line, which has apparently been a success.
In general, the company has done a lot to meet customers' demand: adaptation to local tastes and more information released with every meal may explain why they had so much success in France in recent years. All in all, there remain challenges ahead, but their dynamic and proactive business model seems to be payin off very well.

A behavioral economics solution to the crisis

"It seems so obvious to us that the 'only' realistic way for a swift economic recovery is through a thorough, in-depth, rebranding scheme – starting with the redesign of the iconic US Dollar – it's the 'only' pragmatic way to add some realistic stimulation into our lives!"
This is from the Dollar ReDe$ign Project. My favourites are below.

But still, I would prefer a NAFTA currency...maybe in 10 years?

Cap and Dividend

If only it were this easy: Captain Dividend

Dictatorship and growth volatility

An interesting graph from this paper.

Is Geneva less safe?

On the 16th of July, a Saudi tourist was violently mugged near the Central Station. He remained in coma for ten days. According to the Saudi consulate, the Police in Geneva did not take the case seriously up until it was found that money was taken from its account through the stolen credit card. Now that the story has been reported on Al Arabyia, the powerful broadcast in the Arab World, the The Geneva minister in charge of the police Laurent Moutinot, is taking initiatives, although he defensively claims that "Geneva is not the Bronx". Better late than never? We at Rigotnomics already acknowledged that there is a problem in Geneva about crime. Maybe the image of the city won't suffer too much, but authorities should recognize that serious action is needed because the general perception is that the city is not as safe as it used to be. The story is reported here.

Skateistan

Finally an NGO that doesn't just write useless reports and organize conferences. Check their website here. Order a tshirt here. Video is 30 secs!

Tyler Cowen's economy

I cannot say I fully grasp Tyler Cowen's book. If I did, I would be lying in the same way french people lie when they say they were absolutely amazed by David Lynch's Mulholland Drive. But there is still something that gets me to read more of his work. After an unequal but promising Discover your inner economist and the postive reviews that were coming out, I got excited about Create your own economy. I was looking for insights on where society and the economy were heading...what I found was an ode to autistics and facebook and philosophical thoughts about extra-terrestrial life. I didn't find the book's fil conducteur...

To describe Tyler's work as behavioral economics does not make much sense to me...He is more like a philospher who happens to know about economics (as when describing the Alchian-Allen theorem or this Schelling article). The impression that I get is that he just writes about everything he knows, as if he was collecting knowlegde from all fields around him and organizing this eclectic mix in books, creating his own economy.

AGOA in Madagascar

USTR threatens to revoke its AGOA deal with Madagascar if its government doesn't fix its rule of law. The thing is AGOA benefits the private textile sector, not the government, so, as Estearly puts it, why punish private individuals instead of the government? Development assitance is a failure because of such ill-designed policies.

In the mean time, Madagascar's two presidents are having talks with Madagascar's only two ex-presidents to discuss the fate of the island. They've got the whole island, in their hands.

Doing business in Nairobi

We got this message about one of our RDB loans:

Dear investors,

Mary who is the owner of Vinste Tours wanted to use the loan to purchase a new car which was also to be used as the security of the loan. The supplier was to deliver the vehicle from the port to her institutions. The vehicle is yet to be delivered but we assure you we will disburse the money as soon as the vehicle is delivered.

Kind regards,
Growthafrica Capital

At the port...hum...I wonder why it's taking so long...maybe someone is waiting for a little something for the week-end? Oh no, right, the rearview mirrors are not up to Kenyan norms.

is this Geneva?

is this happening in Geneva??? Can be Geneva the new Seattle?? Is this because of the crisis??? Is this because of the EuroPirates?? is this because of the technorebels??? Why some people say: "the banks at the bottom of the lake, the people in the city"???? What is CAPITALISME??? In Geneva everyone has some capital, even the punkies.. what exactly is the capital of capitalists?? and which the community of communists??? and which society of the socialists??? At least I know Calvinus of the Calvinists...

How to fight obesity...NOT!

According to the Telegraph the Food Standard Agency, undertaking a series of initiatives to fight obesity in the UK, has recommended food and drinks companies to reduce the size of their products, especially the ones with high caloric content. For example, the Mars Bar of 58 grams should be sold also in 50 grams. Cans of Coke (and other sodas), should be sold in the 250 ml version instead. Of course, the initiative did not get much appreciation.
"Forcing" food companies to change their products does not seem the right policy. If sizes are smaller, you may end up buying more of the same, with the perverse effect of having more calories after. The Economist explains that a fat tax may not be the right policy either, but the article misses the point completely (very disappointing from them, makes me think about renewing the subscription...). First, one of the study mentioned shows that the long term effects of a pigouvian tax are positive in the long run. Second, if people are price inelastic at high level of addiction, it does not mean that a pigouvian tax is ineffective. "Less addicted" people will end up consuming less of it (which is good for their health and the health care system), but it also means that complementary policy are needed. Education and information help fostering new social norms. Third, if poor people spend a high budget on junk food, it's not a matter of revealed preference : junk food in fact apparently kills people, and if fresh fruits cannot be afforded because their price it's too expensive compared to a cheesburger, it's because their market price is distorted by other policies which we all know about...the argument of fairness "and so it's better to leave things as they are" in this case sounds extremely intellectually dishonest.

Social Capital and Trust: New Evidence from China

For all of you loving survey data on trust:

"The five most trustworthy groups, according to a survey by the Research Center of the Xiaokang Magazine, are farmers, religious workers, sex workers, soldiers and students."

What an amazing combination of groups! You will be interested to know that "people like scientists and teachers were ranked way below [together with] government functionaries." So considering that a big chunk of students (who are ranked under the trustworthy ones), will later on be teachers, scientists and functionaries and therefore fall behind, the only truly trustworthy ones are farmers, religious workers, sex workers and soldiers.

I presume the acclaimed representativeness of the survey is not warranted. The alternative is that China is really different to most of the rest of the world or I should seriously reconsider my career?

The entire article is here.

The Never Ending Story: Constitutional Changes to Prolong Presidencies

Probably the most obvious indication of non democratic countries is when it comes to so called referendums on a constitutional change to allow a president to remain in power: Niger being the latest case.

While elections themselves say little about how democratic the structures of a country are, such a step makes clear that the political ruling class is truly an elite which has no interest in using the potential benefits from democratic structures for economic growth but misuses them for their own purpose.

Did anyone ever consider using a dummy for such a (request for) constitutional change rather than the naive democracy dummy in a growth regression? Seems promising to me...clearly one needs to use settler mortality or some winds as instrument...

Measuring growth from outer space

Economists have already been using electricity consumption data to estimate the size of the shadow economy. Now two of them go even further by using satellite data on lights at night to estimate economic growth. The results look promising.

Monthly Update: High Loan Growth at the Rigotnomics Development Bank (07/2009)

Since it is still another 2 months to the next Quarterly Report, here is an update on the RDB's balance sheet data.

The number of loans has increased strongly since last month. Tanzania is now also part of the RDB's portfolio. As always you find all active loans on the RDB investment map.

If you have not done so yet and want to have your "share in development" join the RDB by making a deposit or increase your impact by raising your share with the RDB!

For those who love the numbers, here are the figures at a glance (in euros):