"When the regulation is in favour of the workmen, it is always just and equitable...

"When the regulation, therefore, is in favour of the workmen, it is always just and equitable; but it is sometimes otherwise when in favour of the masters."

who said that??? you will be surprised

Iceland's economic gangsters

Thorvaldur Gylfason, writing on VoxEU, helps us understand what happened in Iceland:

• Two Icelandic brothers who produced TV dinners for export became bank shareholders, and went on to buy themselves a yacht that used to belong to Giorgio Armani.

• Another bank owner bought himself a penthouse in Manhattan, but – this is actually in the SIC report – the bank “forgot” to ask for collateral.

• At a small dinner party for favoured bank clients on the Riviera, where Tina Turner stood for the music, the main course was sprinkled with – you couldn’t possibly have guessed this one – gold flakes.

• And then there was the dinner party in Reykjavik where singer George Michael had been scheduled to land on the glass roof in a roaring helicopter, but to the great embarrassment of the bank’s director of entertainment the plan fell through.

• One of the bank owners, the afore-mentioned Mr. Guðmundsson, declared bankruptcy in 2009 to the tune of $750 million, of which $500 million is owed to the bank he owned and directed. Not even Texas has seen a personal bankruptcy of such proportions.

UBS on overvalued teams and World Cup predictions

In order to understand the distinction between a team’s sporting successes and the market value of its players (the sum of estimated transfer values of the individual players), UBS’ wealth management research has tried to calculate the ’fair value’ of the world’s top 100 national teams. By ’fair’ they mean the price a team should have, if we only consider variables related to its sporting quality, like previous successes, current ranking, and the average age.

England has the most overvalued squad, followed by France, Argentina and Spain. In contrast, the US, Greece, Paraguay and Mexico have the most undervalued, or ’quality-for-money’ teams. As UBS warns us, “whether or not this will help the US to defeat England in their group stage clash is a different question though”.
As for clubs, the talk about German efficiency...

In 2006, UBS had correctly predicted Italy would win the Cup. This year, it says Brazil is most likely to win, with a likelihood of 22%. More World Cup predictions and advice on how to invest in Africa in their investor’s guide.

Esther Dulfo wins the medal

Esther Duflo just won the John Bates Clark Medal (the baby Nobel). She's the one who brought randomized experiments into mainstream development economics. Check out a summary of her research here.

Do football players choose to play where taxes are lower?

Last November we blogged about the possible repeal of Spain's "Beckham's law", a flat 25% tax rate on the super wealthy. Real Madrid and other spanish teams were complaining against the repeal, arguing they would lose this locational advantage to attract talent. But do tax rates really determine where players choose to play? Apparently, yes. A new paper by Emmanuel Saez says it matters a lot, and it even translates into significant effects in the performance of football clubs across countries.

By the way, Saez is last year's Clark Medalist. This year's winner is to be announced later today, with Esther Duflo, a randomista, being the clear favourite.

Cocoa smuggling from Ghana to Cote d’Ivoire

Ghanaian cocoa farmers can only sell their crop to the Cocoa Marketing Board, at a fixed price, which “ensures that cocoa farmers receive some healthy income irrespective of world market prices”. But in Cote d’Ivoire, merchants are now paying 160 CHF for a 64kg bag of cocoa while the Ghanaian government purchases it at 113 CHF. That’s a 42% premium (source), an incentive big enough for Ghanaian cocoa farmers to sell illegally to the Ivorian market. Plus, if they sell to smugglers they get “special gifts”.

Anas Aremeyaw Anas, a Ghanaian journalist recently went undercover and got on tape the bribing of border officials by cocoa smugglers (check his amazing YouTube video). The government reacted by increasing its buying price and arresting the corrupt border agents. Will it work?

A 2008 paper shows that a recent boom in cocoa exports was due to a reversal in price incentives to smuggle to Cote d’Ivoire and not due to productivity gains. An older IMF paper suggested that the long-term gap between potential and actual outputs, “the missing cocoa”, could be explained by smuggling to Cote d’Ivoire. In the last years, tons exported went down as the price went up...

So why the export board? It shifts rents from farmers to government, acting as an export tax, whose proceeds are supposed to go in infrastructure, fertilizer, insecticide, and equipment investment…and it creates smuggling and tax evasion...Would it be better to let farmers sell to who they want and tax their income? If the government was a benevolent economist, what would he do?

Corruption and fiscal deficits in rich countries

This is from Daniel Kaufman's new work summarized by himself here and by the Wall Street Journal here.

Bond girls econometrics

From barking up the wrong tree:

A quantitative content analysis of 20 James Bond films assessed portrayals of 195 female characters. Key findings include a trend of more sexual activity and greater harm to females over time, but few significant across-time differences in demographic characteristics of Bond women. Sexual activity is predicted by race, attractiveness, size of role, and aggressive behaviors. Being a target of weapons is predicted by size of role, sexual activity, and weapon use, while being harmed is predicted principally by role. End-of-film mortality is predicted by sexual activity, ethical status (good vs. bad), and attempting to kill Bond. This identification of a link between sexuality and violent behavior is noted as a contribution to the media and sex roles literatures. 

Source: "Shaken and Stirred: A Content Analysis of Women’s Portrayals in James Bond Film" from the journal "Sex Roles", 2009

Wikileaks

Wikileaks is a must for all fans of investigative journalism. The recent and probably most famous publication is the following:

"WikiLeaks has released a classified US military video depicting the indiscriminate slaying of over a dozen people in the Iraqi suburb of New Baghdad -- including two Reuters news staff. Reuters has been trying to obtain the video through the Freedom of Information Act, without success since the time of the attack."

Others include publications on private and government financial flows in relation to Iceland or a report which was not made public by the German economic ministry since its results were not deemed appropriate.: The responsible minister is member of the LIBERAL party!

Tea smuggling into Pakistan

Pakistan's tea imports have registered a massive decline in recent years, slumping from 127,000 tons in 2004/05 to 90,000 tons in fiscal 2008/09. Did people start cutting on their tea diet?

Most likely not. Afghanistan, a country of 25 million people, imports over 84,000 tons of black tea, while Pakistan, a country of nearly 170 million, imports 86,000 tons. As Kabul charges around 2% duty on tea imports, while Pakistan charges around 39%, tea is probably imported to Afghanistan and then smuggled in Pakistan. (Source: The News)

The fairness of hell

"Recent work has also tentatively proposed that certain religious institutions, beliefs, and rituals may have coevolved with the norms that support large-scale societies and broad exchange. Intersocietal competition may have favored those religious systems that galvanize prosocial behavior in broader communities, perhaps using both supernatural incentives (for example, hell) and recurrent rituals that intensify group solidarity."

This is part of a brand new article, published in Science, that uses field behavioral experiments to explore the relationship of market, religion, community size and the evolution of fairness and punishments.

Smuggling into Gaza

The Gaza strip is under siege and trade is completely restricted. But goods are flowing in. The Economist explains how:

The tunnels that snake under Gaza’s border with Egypt have multiplied so fast that supply sometimes exceeds demand. So stiff is commercial competition that tunnel-diggers complain that their work is no longer profitable... Israel officially allows Gaza to import only 73 of more than 4,000 items that are available in the strip... Cement, which cost 300 Israeli shekels ($80) a sack two years ago, has dropped almost tenfold in price... Flashy 4x4 vehicles can actually drive through tunnels built from shipping containers... A car-dealer bringing in a new Hyundai saloon through the tunnels stands to make a profit of $13,000... The petrol pumped into Gaza by underground pipes and hoses from Egypt costs a third of what it does in Ramallah, the Palestinians’ West Bank capital, where Israel supplies it... Imports travel faster through the tunnels than via Israel’s thickets of bureaucracy.

Is Larry Summers leaving the Obama administration?

Larry Summers, the National Economic Council director, could be leaving his job rather sooner than later, and Greg Mankiw seems to be worrying about it. There seems to be many reasons for this, the main one being an ego problem. Since the beginning, Summers had been on a quest for power within the US government. He wanted the Fed Chairman's job (which he didn't get), he asked to play golf with the president, he desired Cabinet status and sought a personal car and driver...And the administration had to accommodate to all his little needs and desires...
His leaving might therefore be a good thing. He didn't seem to be  contributing in any way to the quality of economic analysis and advising at the White House, probbaly because he was too concerned about being the most powerful and was not even listening to Romer and Goolsbee. Even if this is extremely unlikely, Greg Mankiw should replace him. What they need is a balanced analyst, not an opiniated egocentric provocator.

RDB Quarterly Report

We have just released our fourth Quarterly Report at the RDB. Problems with Ebony continue, and a Ugandan partner is giving us another headache. The figure below shows our expected cash flow (columns) vs. actual cash flow (red line includes interest).  But we got our first full loan repayment, and with the economic recovery things could get back in order. Click here to view the Report.

The spatial distribution of burgers

ht: weather sealed (via economix)

The renminbi is not undervalued

Jim O’Neill, chief economist at Goldman Sachs writes in the FT: 

...the real story since the worst of the crisis is not China’s recovering exports but China’s strong imports... This is seen not just in Chinese data, but in those from many other important trading nations... Germany’s trade with China is showing such strong growth that by spring next year it might exceed that with France. China last year reported a current account surplus of 5.8% of GDP, significantly lower than apparently assumed by many people in Washington. In 2010, it could be closer to 3% – incidentally below the 4% level deemed as “equilibrium” by the Peterson Institute for International Economics.

Which brings me to the exchange rate. I have spent a lot of my career working on exchange rate models and am familiar with all the pitfalls. We have developed ours over the years at Goldman Sachs, including for the renminbi. At the moment, rather oddly, our model suggests that the renminbi is very close to the price that it should be. This has not always been the case. The model used to suggest the currency was undervalued by about 20%, but it has moved by that degree in the past five years.

ht: Tyler Cowen

Why are economists more prominent than historians?

Ezra Klein writes:

Economists had managed a remarkable balancing act between making the guts of their work totally incomprehensible — and thus forbiddingly impressive — to the outside world while continuing to offer reasonably straightforward conclusions. The basic form of an academic economics paper is a couple of comprehensible paragraphs at the beginning and a couple of comprehensible paragraphs at the end, with a bunch of really-hard-to-follow math or statistical analysis in the middle. An academic history paper, on the other hand, is often an uninterrupted cascade of semi-comprehensible jargon that neither impresses a lay reader nor offers any clear conclusions.