Thursday, May 29, 2014

The demise of the bond market

The most obvious examples are governments. Greece, which returned to markets by issuing €3bn in five-year bonds in April, could have raised much more but its aim was to create benchmarks and rebuild its yield curve – the availability of a range of bonds with different maturities. 
Like Ferrari, Greece’s debt agency knows its interests lie in helping the resale market; the country’s future financing needs are considerable, to say the least. Companies looking to raise debt over a number of years think similarly.

Wednesday, May 28, 2014

Machines vs Routine Tasks

Brad DeLong reviews Summers on Piketty and returns to his theme.

"Think of it this way: Humans used to have five ways of creating economic value: through backs, through fingers, through routine control, through smiles, and through creative insight:

  1. Strong backs (usually those bathed in the steroid testosterone) could do the heavy lifting. 
  2. Nimble fingers could do the fine manipulating. 
  3. Cybernetic control loops could keep the lifting and manipulating on their proper tracks. 
  4. Smiles--in fact, an entire universe of human social interactions--could keep us as a group all pulling in roughly the same direction, playing positive-sum rather than negative-sum economic games, and could also provide the personal services from which we derive so much of our human well-being. 
  5. Genuine creative insight could think up new ways of doing things and new things to do that would be useful: luxurious or convenient, and over the course of time could transform conveniences into necessities, luxuries into conveniences, and invent yet new dimensions of luxury."

His thesis that backs, fingers and brains are increasingly substitutes rather than compliments for machines.  In some ways this is an evolution of routine tasks.  As machines become more sophisticated, what is defined as routine becomes increasingly broad. 

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Tuesday, May 20, 2014

Keynes, possibility for our grandchildren

Elizabeth Kolbert: Discusses Economic possibilities in The New Yorker there is a nice overview of some of the reasons why the leisure has not arrived.  

"Joseph Stiglitz, of Columbia University, by contrast, takes a constructivist approach. People’s choices, he argues, are molded by society and, over time, become self-reinforcing. We “learn how to consume by consuming,” he writes, and how to “enjoy leisure by enjoying leisure.”"

Sunday, May 18, 2014

Noahpinion: Entrepreneurship and the pricing of uncertainty

Noahpinion: Entrepreneurship and the pricing of uncertainty:

"Uncertainty", also called "Knightian uncertainty", is like risk, but not quite the same. Risk is when you can calculate the probability of gains and losses, like when you play roulette or blackjack. Uncertainty is when you don't know the odds. Frank Knight observed that entrepreneurship involves a lot more uncertainty than risk. When you start a new business, you don't really know how to calculate the odds that your idea will succeed - whether personal computer users will embrace a graphical user interface, whether people will want to post their pictures on a social network, etc."

This is similar to a theme of my research that says that speculation is in part an attempt to deal with uncertainty. Knight argues that entrepreneurship is not about risk (as this can be quantified and insured or hedged away).  As such, the wealth of the technology entrepreneurs is a return for taking a gamble when the odds are completely unknown. As Noah Smith says, people do not like uncertainty.  They at least want to know the odds.

Smith argues that the return to uncertainty is overpriced.  He cites the discussion by Felix Salmon and Gideon Lewis-Klaus' book No Exit.  However, can this be the way to look at it?  The risk or odds are unknown. If you want to think of it this way, there should be a balance of supply and demand and, with supply of potential entrepreneurs increasing, the price should fall.  This is not the return that comes from success but the probability of being successful.  The same amount of success could be spread over more entrepreneurs but it is not clear that the amount of success is fixed.  In other places it is argued that the more the supply of entrepreneurs, the more the chances of new and successful ideas.

Saturday, May 17, 2014

A natural experiement

This gives a very good overview of a natural experiment.

British and French educational legacies in Africa | vox: "While the choice of colony was not random, the exact location of the border – up to some distance – was. In the partitioning process colonisers drew borders without accurate knowledge of the terrain, disregarding local circumstances and cutting through homogeneous geographic, cultural and ethnic entities. Thus, the drawing of borders provides a situation of a quasi-ideal natural experiment, where, by historical accident, individuals with otherwise identical background found themselves randomly divided into two groups: one subjected to French policies and another ruled by Britain."

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Wednesday, May 14, 2014

Wipe out rentiers with cheap money -

Martin Woof says Wipe out rentiers with cheap money -  Is this a counter to the Piketty thesis?  May it suggest some way that r will be lower than g?

"This policy, however unpopular with some, is better than the available alternatives. Keynes even had a phrase for it – the “euthanasia of the rentier”. In a world of abundant savings, the available returns ought to be low; this is a consequence of market forces to which central banks are responding."

It would be consistent with a story that said with large blocks of inherited wealth seeking investment returns, the returns may fall; it would not counter the accusation that larger blocks of wealth have attractive investment opportunities that are not open to most.

Sunday, May 11, 2014

Hedge funds, fortunes and merit | FT Alphaville

Hedge funds, fortunes and merit | FT Alphaville: "Small and young hedge funds are nimble, their managers are focused, and they can concentrate their capital in a small number of good ideas without moving prices or attracting attention. One study by Barclays found that funds under two year’s old, and managing less than $100m typically make better investment returns than their larger older peers."

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Friday, May 09, 2014

What Timothy Geithner Really Thinks

Geithner explains how the "bail out" has made money.

"He paused and looked out at a crowd that, it’s safe to say, probably did not fully appreciate how intense the anger around the financial bailouts had been and how close the country was to the precipice of a full-on depression. “We are going to earn, all in, a couple hundred billion dollars,” Geithner said. And six years after the bailouts, the too-big-to-fail banks and the insurance giant A.I.G. have since repaid the money they took from the government. Even the rescues of Fannie Mae and Freddie Mac, the mortgage-lending companies that once had to borrow $187.5 billion, have turned profitable. “Much of the dominant view about the strategy,” Geithner said, “is the inverse of the truth."

The Fed is filling a market failure.  The myopia and high-level of risk aversion mean that the government is the only institution that can provide liquidity to the system in exchange for assets that have value but are not valued at present.  The demand for liquidity is so great that additional liquidity must be provided.

Thursday, May 08, 2014

Nobel economist Gary Becker showed that Mike Milken was history’s greatest feminist - Quartz

Nobel economist Gary Becker showed that Mike Milken was history’s greatest feminist - Quartz: "Gary Becker, who passed away this week, was a man who changed the field of economics. Before Becker, economics was the study of buying and selling things. But Becker realized that economics was really about tradeoffs, and that there are a lot of tradeoffs in the world that don’t involve money—or don’t only involve money. (For example, instead of writing this article, right now, I could be learning hip-hop dancing or starting a biotech company.)"

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Tuesday, May 06, 2014

About that AstraZeneca bid defence … | FT Alphaville

FT Alphaville:  

"According to Eroom’s Law, the number of drugs you can get to market per $1bn of R&D spending halves about every nine years and has done since 1950. Spiralling R&D costs and a failure rate at Phase I trials of about 90 per cent mean the economics at the sharp end of that law don’t make much sense, even for the biotechs. Better to leave the really experimental stuff to university spinouts and single-punt MBOs. Then, if their success looks plausible, the bigger pharma companies can in-licence, partner and acquire outright to lever scale on their own specialisms in areas such as imaginative trial design and patent evergreening."


Friday, May 02, 2014

Chromebooks: Not much room for competition

Chromebooks: Not much room for competition.  Its all about price.

"Major laptop makers are paying attention and are adding Chromebooks to their product lines. They require basically the same production methods as their Windows laptops, so it's a low-cost effort to build them. The Chromebook doesn't require big hardware, so the component inventory is not too heavy."

Product life cycle and perfect competition.

Win-Vector Blog » Learn Logistic Regression (and beyond)

Win-Vector Blog » Learn Logistic Regression (and beyond):

 " Logistic regression is often a winning method and we will use this article to discuss logistic regression a bit deeper. By the end of this writeup you should be able to use standard tools to perform a logistic regression and know some of the limitations you will want to work beyond."

Lovely overview