Friday, December 23, 2011

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.

Saturday, December 10, 2011

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.

Friday, December 2, 2011

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.)