Who is more colonial?

Country 1: human populated then about 500 years ago foreigners came lured by nice things like silver, farmland, natural human spreading, curiosity, as well as wanting to impose their religion on the natives. The foreigners dominated the natives and most died (disease, hunger) or were killed. All were treated badly. About 250 years later the colonisers decided they were the victims (partly true but rather exagerated) of their mother country and fought for and won their independence. Today about 85% of the country has its ethnic origins from the 'settlers' and under 2% from the original population.

Country 2: Uninhabited islands. Then about 500 years ago a few kerfuffles started over them. Eventually about 200 years ago a bunch of farmers settled there and stayed there to this day. There are now about 3500 people, most of which have origins with the original settlers. They have a small town and basically run themselves although they are nominally controlled by the government of the country they came from. They are strongly supportive of and happy with this set up. The only problem is that there is a big country next door (well, about 300km across the water) with about 40 million people. They feel that because it is 'close' to them, they should own it. They did invade it once but thankfully the 'home country' of the islanders came to the rescue. Now the big country is making threatening noises again - saying they want to take them over. They are trying to make life difficult for the islanders, taking away their livelihoods by blocking ports for their boats and encouraging other countries to do the same. That country is country 1.

Let's give these two countries names: Country 1, we will call the the Silver Country, or perhaps, Argentina. Country 2, we will call the Falkland Islands. Just for fun.

HERE is what a letter might look like to the Falkland Islanders if the UK Government decides to sell them out.

Good business in religion

This is a photo of a wonderful machine in St Stephen's Cathedral, Vienna. If you put 2 euro into it and listen at the telephone it will give you the history of the cathedral. 

I suppose the funds help to maintain the cathedral - and there is definitely maintenance happening - continually since 1147. Might as well maintain it, I suppose, since people some how got tricked into building this instead of better living spaces, sewerage systems... A good thing to maintain their legacy.

The building is certainly beautiful and impressive and definitely increased my utility today, so here is a little thanks - in the middle of everyone grumbling how bad life is these day - to the people who lived really shitty lives building this about 900 years ago.

But if you don't want to pay 2 euro to the church, I recommend skimming the wikipedia page before going there. Donate it to them instead.

I nearly accidentally bought a homeless man hot food

or: Confessions of an atheist economist.

There I was earlier walking to the supermarket after a day largely spent working when I noticed that the homeless man who lives near me was settling down in his usual evening spot. I sometimes chat with him and give him some money. Apparently one of his ancestors - I think Andrew Jackson - came from Australia and is on a US banknote. I couldn't verify although wikipedia doesn't mention any Australian links to Jackson. 

In any case, I decided that I would bring him back some hot food from the shop. What an idiot! How did I even have this reflex after so many years? What makes me to qualified to decide on his behalf that what would be best for him was some hot food? Maybe he had already eaten. Maybe not. But what does it matter? If he judges he wants a beer* then who am I to say that his happiness is best served by something else I judge to be best for him?  That and I have changed his consumption bundle given by his budget constraint and brought him onto a lower indifference curve with less utility than if I had given him cash. If you see what I mean.

This being, I decided to give him cash on the way back. And then I made my second mistake. Not of an economist but of an out and proud atheist. He was asleep (or at least curled up) so I left him money inside the only heavy book that he keeps near his bed: his bible. Foooooool! He is going to wake up in the morning and see money in his bible. A miracle for which he will no doubt thank some non-existent entity playing with his mind. God does indeed work in mysterious ways. 

*On the way back, I had some nice Leffe that I would have happily shared with him.

More on Christmas (and other) gifts

I have already ranted once about how gifts, done in the sloppy way we do them, reduce the happiness in the world, and encourage over-consumption - often on credit - as people feel socially, emotionally or morally obliged to purchase presents devoid of real meaning. It is nicely captured in the News Thump article "sale of 'any old shit' expected to treble as men start Christmas shopping". I think this goes for other occasions too and, in general, economists hate gifts (HT: MCO) because of their happiness-reducing quality.

There is always the argument that it is the 'thought that counts'. I would argue that the thought is worth considerably less when it is a habit (like at Christmas or birthday) and, in any case, I have probably received at least as many presents that show that someone hasn't listened or doesn't know me as well as they should, as nicer ones. 

So how did presents I received fair? Well, I probably received some presents that not only reduced happiness for humanity (as I value them less that the cost) but that actually reduced my own happiness all told. I received, for example, some tea. Which is nice. Only, I had to bring it back to America with me. It's all very civilised on this side of the pond these days; I can even get Twinings here. So my total package was tea plus extra stuff to carry with me. I dislike carrying lots of stuff whilst travelling, and I'd say there was a net loss to my happiness there. That is pretty impressive as, on an emotional basis, you have to wonder who was giving whom the gift in that case. I received a shirt. Also nice. A Marks and Spencer shirt at that. And as we all know, you don't get better than M&S in the shirt domain. Only, I noticed at some point, it was not the kind of M&S shirt I wear. I wear the amazing 2" longer M&S shirts ('for the gentleman of length' - my slogan, not theirs, but if anyone from M&S is reading, you can have it in exchange for a lifetime supply of them :)  )

In the end, my favourite presents were from people who didn't give me any presents, resulting in a net gain in happiness for the world. I reckon the only time you will increase happiness from giving is if you give occasionally, unexpectedly and being pretty sure the receiver will be happy with both the gift and the emotions behind the gift. 

As a post-script, I might rant about what effect xmas is having on kids with all these presents. I saw a lot of children over these holidays and I can't help wondering if we are storing up an even bigger credit-driven consumption boom in the future. Need to read up on that one but some of the signs seem worrying to me...

More Latin American Imperialism

As people and countries become wealthier they can afford to reveal their true underlying identity. That can be restraint and friendliness or it can be bullying. In a truly imperialistic fashion, Cristina Fernandez has managed to convince her Mercosur neighbours that they should not allow boats that fly the Falklands flag to dock. Her toddler-like attitude is a bit like Britain's silly stance during the Cod Wars - except that Britain never intended to colonise Iceland. She feels that islands of under 5,000 people are taking the resources of her mighty country and is crying over it. According to her, this some how makes it a 'global cause'.  

It is indeed a global cause. She is suggesting her large country has the right to bully previously uninhabited (by humans) islands of under 5,000 inhabitants into becoming a part of her country. This should concern everyone. Thankfully the British Government is slightly more mature and believes that people have the right to decide who rules them and so will not just hand them over. Rather it says that any discussions must include Falkland Islanders themselves. Cristina Fernandez seems to feel she has the right to destroy their livelihoods and treat them as pawns in a game - probably to distract from a series of disastrous economic policies she overseen. 

For some reason, Cristina Fernandez seems to think that Falklanders do deserve to be treated like pawns because they do not have indigenous rights. This is an interesting idea coming from the President of a country which is about 85% of European descent and who are not therefore indigenous. In addition, Argentina was, unlike the Falklands, inhabited by humans when her own ancestors colonised it. That surely gives Falklanders as much, if not more, claim over Argentina, than Argentina has over the Falklands. 

The Falkland Islanders deserve protection from Argentina's imperialism unless they decide otherwise. It looks like those two aircraft carriers might be needed to defend innocent people after all. Perhaps they should be paid for by cutting aid for Argentina and other countries which are choosing to support its disgraceful stance. After all, if governments are choosing to put effort into destroying other peoples' lives rather than improve lives in their own country, maybe donor resources could also be better used.

HERE is my last blog about it.

My new pension plan

I recently pulled my pension out of emerging markets. I am creating a very small part of potential difficulties there and I do feel a bit guilty. It is not what I wanted to do and I held off as long as I felt I could - I gave the politicians as big a chance as possible but in the end I lost my nerve. I feel extra guilty when I read a blog on what might be the consequences on, for example, Turkey. I hope that the latest deal is sufficient but we'll see. I am a strong pro-European and I think that Britain deciding to sit this one out is short-cited and shoots itself in the foot.

Anyway, I digress. Here is a photo of the genesis of my new pension plan. I fully intend to purchase wines from emerging markets to help compensate*.

*I like Argentinian wines despite the Government's bullying attitude towards the little Falklands.

Company bonuses at Christmas time

Some companies give their employees gift  at Christmas. What a nice idea! It is a little bonus and with gift vouchers you can go out and buy something nice for yourself without any feeling of guilt. You can treat yourself to that little something that you wouldn't normally permit yourself to have. How nice!

At the risk of being bah-humbug: No. Not nice. Stupid for so many reasons.

1. This is how we got ourselves into the current mess. We treat vouchers differently from cash due to mental accounting - money from different sources and in different forms is treated differently from a psychological point of view (I even have a paper on it). We need to be saving more, not consuming more. The same thing happens with credit - we treat credit more like a gift or someone else's money and consume more. The last thing that should be happening now is encouraging more of this consumption behaviour.

2. Gift vouchers are inefficient. You can't do what you want with them. It is possible to save them but then you either have to sell them (for less than their face value on average) or you have to cut on other expenditure meaning they change your consumption habits to something you would not have naturally chosen. A really good form of gift voucher does exist. You can exchange it in lots of shops and you can save it easily. It is called money. The French Government gives money at Christmas, which is more sensible than vouchers but should not be given with the message that this is to buy loads of unwanted Christmas presents.

3. Even presents are dumb. On average, when you give a gift, the recipient values it less than  you paid for it. That is shocking! When you buy something, you must value it at least the amount you pay for it - and probably more. When you give someone a present you are probably reducing the amount of happiness in the world (compared with if you'd given cash or if you'd bought yourself something). I think there is a good reason for this - presents become devoid of a large part of what is supposed to be the personal and nice side when they are given at times they are expected like Christmas. In addition, the pressure means that, quite frankly, you are more likely to buy a crappy present. I much prefer to both give and receive presents randomly and unexpectedly - knowing that someone has thought of me when they didn't have to (so the gift is not expected) and more likely to be something I actually like. It's a sort of consumerism with thought and emotion rather than en masse and under pressure.

A public service announcement from an Economist. Or a counter-intuitive way to make yours and others' lives happier.

(HT: KG)

Latin American imperialism

You receive a letter from your Government: "Hello, we regret to inform you that effective tomorrow you will be a North Korean citizen. In addition, the area of land where you were born, where you now live and where many of your ancestors were born is now the sovereign territory of North Korea. Their army will shortly move into bases close to where you live, you will be required to learn your new local language and the administration will very slowly taken over by theirs. Apologies for the inconvenience. Kind regards, Your soon-to-be-former-Government."

Yes, the new Community of Latin American and Caribbean States has decided Argentina's claim to the Falklands is legitimate. Watch this new Latin American imperialism. It is not trying to survive against an evil mighty Britain; It is trying to viciously and aggressively dominate and occupy a small group of islands with a population of under 5,000 people who are almost entirely of British origin (there were no humans there previously) and who just want to live their lives. In this respect, Falkland Islanders have more right to be there than Argentina does to exist as a country.

Those people, many of whom have been there for many generations, deserve to keep their identity. The British government never has the right to sell them out and it has a duty to afford them full protection against any form of aggression.

Bankruptcy and self-realising expectations

It took just minutes after American Airlines Chapter 11 bankruptcy announcement for me to receive this offer from Expedia. Capitalism is wonderfully responsive.

Chapter 11 bankruptcy should allow a firm to restructure and continue to operating. The aim is to prevent the firm from ceasing to exist. In theory, the business should be unaffected from the point of view from the customer, so there should be no need to have any special offers. The risk though is that Chapter 11 might create fear. If I think that the firm might disappear and I'll lose my flight, I won't buy the ticket or else, I will need a special offer like this one. Worse, if I think that you think that the firm might go bankrupt then I know you won't buy flights so the firm is more likely to go bankrupt so I won't buy it. Worse still, if I think that you think that I think (even if I don't think) then I know you won't buy the ticket so I won't buy it either. (Read that sentence over again.) It is self-realising expectations. It is why I might need a high interest rate to lend to Spain. Or why banks might not lend to each other resulting in bankruptcy due to liquidity constraints.

I should buy some of these deals. But I have not...

Why (younger) aid workers should have their pensions in emerging markets and why I lost my nerve

Until yesterday, all of my pension funds were in emerging markets. I had 50% in emerging market stocks and 50% in bonds.  Since my job is to improve developing economies, I should have my money where my mouth is. Alternatively, I should have incentives to put in effort, give good advice, produce good studies, focus most on relevant things etc. If my pension depends on developing countries developing then my incentives to to behave like this are best. It is in some ways equivalent to employees being partly paid in shares from their company that they can't sell for some set time. There is another reason why we should have our money in these places. We are supposed to care about these countries and they need financial resources to help them grow and develop. Aid workers who genuinely care enough to put their own money are more likely to be attracted to the field if pensions are in emerging economies whilst others will be put off.

It is good economics for other reason to. Firstly, imagine developing countries all become rich. Safe bonds and soaring stock markets. Sure, the market will go up and down but I can take that - I am fairly young - I will still have an amazing pension. Great! Except that, well, I work in development. If they all become rich, I might be out of a job. But I would have a great pension. Alternatively, if developing countries begin to behave like American or European politicians (ahem) they might just stay poor. Forever. In this case, I will have a very crappy pension. On the happy side though, my knowledge and skills will be in high demand and I will have a job for life! Great stuff! In fact, my strategy is the best in hedging bets.

There's another reason why emerging markets are best. I need my pension in young places. To be fair, this includes the US and excludes Russia but it is not a bad approximation. Why do I need this? Well, if I save it all in aging Europe, either I pull it out when everyone else does and the market all goes down. I lose my money. Alternatively, the market stays strong but I am buying goods with all that saved cash. Only there are few young folk to make it all so output is low. Result: prices rise and the real value of my pension goes down. Rather, I need it in a place where not everyone will pull their money out at the same time or that lots of old people are buying stuff. Brazil, India, South Africa, Turkey are good bets. And, until yesterday, I was betting that way.

But yesterday, I lost my nerve. I have finally crossed over whatever percentage barrier I had for the chances of an enormous crisis. I think it is still less than 50% but then I'm risk averse and anyway, it is approaching that threshold. If European banks fail to provide liquidity to emerging markets, stock markets will go down and government debts might become more risky. In an awful self-realising expectations way, I just pulled my money out of emerging markets. Until Europe sorts itself out, I see no safe haven...

(All judgements here are obviously personal.)

Price discrimination

I popped into Potbelly for a bacon sandwich this morning and had the following conversation with a staff:

Me:  Are there free refills on fountain drinks?
Her: Yes.

Then I took a photo of this sign:

Friday links

Are back?

1/ Malawi risks becoming a fragile state. I've been warning about this for a while...

2/ Pope goes to Benin. Can't Christianity and Islam just leave followers of traditional religions alone? It is so far from obvious to me that replacing one set of really very bizarre beliefs with another set is some how a good thing.


3/ Richard Branson on business doing good things. I agree with a lot of things he says but he talks about doing good for the environment but his staff don't seem to be well trained in this respect.

4/ How humans communicate through smell (gated)

5/ How our brains turn women into objects

6/ Why economic models are always wrong

7/ Lots of articles on the science of happiness

8/ Evidence-based treatment for the devout. Or How to cure the religious.

9/ La Turquie se pose en anti modèle grec

10/ Great graphs on deleveraging (HT: MM)