The bigger the gubmnt budget, the greater is the incentive for various vested interests to use scarce resources for lobbying. This is doubly inefficient:
Lobbying is effective because people, including politicians, respond to incentives. But the problem is not lobbying per se. The problem is that big gubmnt, with its big budgets, creates more of an incentive for special interests to engage in lobbying. From this [via MA]:
For all intents and purposes, big government in Washington has created a niche market for insiders who learn the specialized skill of transferring money from those who earned it to those with political pull. It's the same across the Western world...
Washington is rich because government is big and the beneficiaries of this system are enjoying their status as America’s new gilded class. It’s even gotten to the point where children and other family members also put their hands in the cookie jar.
The column continues with numerous examples of how relatives of politicians are able to use their connections to enhance their own wealth.
The solution? Smaller gubmnt. That would reduce the payoffs to lobbying and hence reduce the extent of cronyism.
This question causes heated discussion among those who do not understand the corporate compensation and bonus system. It heated up even more with the recent announcement that the Royal Bank of Scotland, having been bailed out in 2008 by the UK gubmnt and despite still losing boatloads of money, paid bonuses of £576 million to its staff. [from various sources, including this and this]
The bonus pot - down 15% on 2012 - includes a £237 million payout shared among its investment bankers.
The taxpayer-backed lender, which is just over 80% owned by the Government, saw losses widen significantly from £5.3 billion in 2012 after taking a £3.8 billion provision for a string of scandal-related charges and a £4.8 billion hit for the creation of an internal "bad bank".
Ordinarily, one might think a bonus is a reward for excellent performance, and it just doesn't seem right to reward people who are losing money hand-over-fist.
But the evolution of compensation packages has given a very different meaning to bonuses in large corporations.
It is extremely difficult to cut someone's baseline salary when a corporation is performing poorly. It hurts people's sense of self; it is worse than a slap in the face.
As a result, compensation packages in many [most?] large corporations include lower base salaries coupled with flexible bonus packages. When the firm does well, the bonuses are higher; but when the firm does poorly, the bonuses are much lower.
And that is what happened at RBS. The bonus package was smaller than it had been in the past. It was not a case that the employees and executives were being rewarded for poor behaviour. Rather, they had their overall compensation packages cut via smaller bonuses to reflect the reality that the firm had additional losses.
I don't know how they obtained the data necessary for this study, but the conclusions should not be surprising no matter how disappointing/disgusting they are. SEC employees have inside information, and apparently they use it to their advantage.
Goodbye SAC Capital. Hello SEC Capital.A new study released by Rajgopal of Emory and White of Georgia State confirms what most have long known: SEC employees are immaculate stock pickers and "that a hedge portfolio that goes long on SEC employees’ buys and short on SEC employees’ sells earns positive and economically significant abnormal returns of (i) about 4% per year for all securities in general; and (ii) about 8.5% in U.S. common stocks in particular." But those wily regulators are tricky indeed: instead of frontrunning good news and outperforming on the upside, the "abnormal returns stem not from the buys but from the sale of stock ahead of a decline in stock prices." In other words, in a market in which hedge funds have given up on shorting stock, the best outperformer is none other than the very entity that is supposed to regulate and root out illicit market activity!From the study's summary:We use a new data set obtained via a Freedom of Information Act request to investigate the trading strategies of the employees of the Securities and Exchange Commission (SEC). We find that a hedge portfolio that goes long on SEC employees’ buys and short on SEC employees’ sells earns positive and economically significant abnormal returns of (i) about 4% per year for all securities in general; and (ii) about 8.5% in U.S. common stocks in particular. The abnormal returns stem not from the buys but from the sale of stock ahead of a decline in stock prices. We find that at least some of these SEC employee trading profits are information based, as they tend to divest (i) in the run-up to SEC enforcement actions; and (ii) in the interim period between a corporate insider’s paper-based filing of the sale of restricted stock with the SEC and the appearance of the electronic record of such sale online on EDGAR. These results raise questions about potential rent seeking activities of the regulator’s employees.
No foolin'. Public-spirited gubmnt employees just getting a little for themselves while they do good.
For more details and a partial explanation, see this in WaPo.
Some months ago, MA sent me this link, summarizing research that indicates UK youth are less numerate and literate than seniors in the UK and than youth in many other OECD countries.
Research by the respected Organisation for Economic Co-operation and Development (OECD) found that 16- to 24-year-olds lag close to the bottom of global league tables in literacy and numeracy.
According to figures, England is ranked 22nd out of 24 western countries in terms of literacy and 21st for numeracy – being outperformed by nations such as Estonia, Poland and Slovakia.
In a damning conclusion, it was also revealed that levels of basic skills had effectively worsened over the last 40 years, with recent school leavers registering lower scores in tests than their parents’ or grandparents’ generation.
England was the only country in the developed world in which adults aged 55-to-65 performed better in literacy and numeracy than those aged 16-to-24.
If the trend I have experienced at the university level in Canada is common, we are facing similar problems in Canada. Students entering university, on average, do not read or write as well as they did 45 years ago, and their basic math skills are slipping. The top 10% or so are still excellent students, well-trained and very capable. But those in the bottom quartile of university students are often seriously lacking in basic skills.
Here are two general examples from my more recent experiences:
Call it what you want, but students really do need more training in fundamentals.
This is both shocking and not-so-surprising. Shocking that smart, educated people can write things like this; not-so-surprising because I have seen so much on university campuses that is consistent with these results [via MA].
Prof. Monika Schwarz-Friesel of the Technical University of Berlin ... [studied] 10 years’ worth of hate mail–14,000 letters, emails, and faxes in all–sent to the Central Council of Jews in Germany and the Israeli embassy in Berlin. In an interview published in Haaretz yesterday, she said she fully expected to discover that most of it came from right-wing extremists. But in fact, right-wing extremists accounted for a mere 3 percent, while over 60 percent came from educated members of “the social mainstream – professors, Ph.Ds, lawyers, priests, university and high-school students,” she said. Nor were there any significant differences between right-wing extremists’ letters and those of the educated mainstream, Schwarz-Friesel said: “The difference is only in the style and the rhetoric, but the ideas are the same.”
To be clear, these letters weren’t just criticizing Israel’s treatment of the Palestinians; we’re talking about classic anti-Semitism–as evident from the samples Haaretz cited:
I don't always agree with Israeli policy, and I definitely have questions about the advisability of continued expansion of west-bank settlements. But to write things like those quoted above, or to blame Israel for "apartheid" when it is a far more open and democratic society than its Arab neighbours is incomprehensible.
Now that the US and The West have been shown to have made more empty threats and promises, Putin will likely be emboldened to go further. To get a good grasp of the situation check out this post at Outside the Beltway. The maps, like this one, are quite informative.
Be sure to read the comments, too.
It is really hard to believe the US is so far behind Canada, Australia, New Zealand, et al. when it comes to currency types and materials.
The US was quite avant garde when it brought out the Susan B Anthony $1 coin. If they had stuck with that and stopped printing the $1 bill, they'd be way ahead of the game.
In the controversy about whether the U.S. penny should stay or go,most women want pennies to stick around, but men want to get rid of them. In the latest Investor Pulse survey from Spectrem Group’s Millionaire Corner (www.millionairecorner.com), 57 percent of women believe the United States should keep the copper coin, while 62 percent of men think the U.S. should get rid of it entirely. ...
Only 14 percent of respondents think the U.S. should get rid of dollar bills, with men again more likely to say they’d like to see them go (20 percent of men versus just 6 percent of women).
I really wonder if people in the US understand that the costs of these decisions [to keep the penny and the $1 bill] are likely well over $100m/year. Per year! That's a pretty high opportunity cost to bear for the sake of those traditions.
Addendum: After I had written the above, Jabber posted this photo on FaceBook:
You can buy 100 plastic pennies for $3.49 for your kids to play with; or you can just give them a dollar's worth of pennies. Duh.
As Jabber pointed out, if you can't make even plastic replicas of your currency for less than the face value of your currency, it is probably time to reconsider whether keeping that currency makes any sense.
Eventually the U.S. will accede to Russia's demand that Crimea and the Eastern Ukraine be hived off and essentially given to Russia. The U.S. and Nato will sign an agreement, and, a la Neville Chamberlain, will declare "Peace in our Time".
This does not look good. Verbal condemnations and false red lines only encourage bullies.
AFP reports that the Russians have crossed into Ukraine’s Crimean peninsula. Ukraine is accusing Russia of “armed invasion.”
“Thirteen Russian aircraft landed at the airport of Gvardeyskoye (near Simferopol) with 150 people in each one,” Sergiy Kunitsyn, the Ukrainian president’s special representive in Crimea, told the local ATR television channel, adding the air space had been closed. It was not immediately clear if Russia had the right to use the base or send additional troops there under its agreements with Ukraine.
This follows reports that Russian troops have been on the streets in Crimea, and follows by a day reports that unidentified, masked, professional gunmen had seized the parliament building in Simferopol, Crimea’s capital, and raised the Russian flag.
Why not? They know that the US will huff and puff and condemn them but not risk a head-on confrontation.
The Russians should remember, though, that the US usually pays/supports insurgents to fight the battles. They may bluster in public but they will also resist expansion by the Russians, using many very different methods.
I have just been watching the Chicago Cubs play a spring season game against the California Angels. As of the time I changed the channel, the Cubs were losing 13-1 after 5 innings.
It reminds of the time I started watching the Cubs on a semi-regular basis. I was in theological seminary in Chicago, and all the Cubs home games were televised on WGN-TV, so I had the games on while I was studying.
That was the worst year in the history of the Chicago Cubs. They won only 59 games and lost 103. Often there would be no more than a few thousand people at a game.
The only good thing that happened that year was that they traded to get Canadian Fergie Jenkins from the Phillies.... a steal.
It is interesting to read how people from other countries perceive the United States and its culture(s). It gives us insight into ourselves, into the US, and into the cultures of the visitors.
Here are two examples [just to be clear, everything below other than my brief comments in brackets is from the two bulletted and linked items]:
With the help of Google Translate (and an ability to interpret completely random sentence structure), an American can find out what kind of advice the Japanese give to their own countrymen on how to handle the peculiarities of American culture. Here are some things tolook out for if you are visiting America from Japan. THERE IS A THING CALLED “DINNER PLATES.” AND WHAT GOES ON THEM IS A MIGHTY DISAPPOINTMENT.
2. BEWARE ROUGH AREAS WHERE THE CLOTHES DEMAND ATTENTION
3. BUT YOU’LL BE PLEASANTLY SURPRISED BY AMERICAN TRAFFIC PATTERNS.
4. NOBODY IS IMPRESSED BY HOW MUCH YOU CAN DRINK. IN FACT, SHAME ON YOU.
5. THEY HAVE FREE TIME ALL WEEK LONG!
6. KNOWING HOW TO USE SARCASM IS A MUST TO COMMUNICATE WITH AN AMERICAN.
7. THEY TEND TO HORSE LAUGH, EVEN THE WOMEN. IT’S HOW THEY SHOW THEY’RE HONEST.
8. YOU WON’T BE GETTING YOUR GROCERIES ANYTIME SOON, SO CHECKOUT LINES ARE A GREAT PLACE TO MAKE FRIENDS.
9. THEIR VENDING MACHINES ARE RIDICULOUSLY LIMITED AND DISHONEST.
10. BUT DARN IT ALL, THEY’RE SO WEIRDLY OPTIMISTIC YOU JUST CAN’T STAY IRRITATED AT THEM.
1. ON GIVING GIFTS TO AMERICANS
2. ON TALKING TO AMERICAN WOMEN
3. ON SOCIALIZING WITH AMERICANS
4. ON AMERICAN OPTIMISM
We just set another record for cold temperatures here in London, Ontario. The temperature got down to -26C overnight (nearly -20F), breaking a 125-year-old record.
We laugh and moan and worry about it here in London.
But look at the forecast facing my friends in Regina, SK for tonight: the forecast low is -41C (about -43F) and the forecast low windchill is -58C (which is like -73F or something). ARRRGGGHHHH.
Reminder: In temperatures, C = Canadian, F = Foreign.
Spring training games begin today!
Friends and regular readers of EclectEcon have noticed that up until a few days ago, my blog postings and Facebook activity seemed considerably diminished. Aside from a few "likes" and "shares" I didn't post much on Facebook; in fact I didn't even keep up with all the status updates. And the blog postings were generally rare and brief.
They're right. A month ago, we went to Houston to visit our son and his family. While we were there, we both noticed some symptoms of illness (and are grateful that our granddaughters don't seem to have caught this), especially tiredness. Since our return we have both been quite ill. We had symptoms that seemed like H1N1 flu initially, but according to our family physician, this viral flu (whatever it was) morphed into a bacterial infection. The first bout of antibiotics didn't do the job, so she prescribed some stronger ones.
We seem to have improved health now, but it has been an exhausting period. Ms. Eclectic has a persistent cough, I have clogged eustachian tubes, and we are both tired almost all the time. Really tired. There have been times when I wanted to post things, but just didn't have the energy to think about them deeply enough or to search for appropriate links. We have rarely left our home, and every time we do we go out, we have been extremely exhausted afterward. We managed to get out to do some shopping yesterday, but are done-in now.
We seem to be on the mend, though. Apologies to all whose emails have gone unanswered or been answered with terse remarks.
And to all my friends on Facebook, please do not comment on this. I want people to know, which is why I'm posting this, and I appreciate your implied well-wishes. Thanks.
P.S.: may the person who invented "peel and push" blister packs for medication burn in hell.
Suppose Russia and Putin decide to continue the proclamation that the "unrest" in Ukraine is mostly vandalism and illegal activities all designed to overthrow the properly elected gubmnt. Will Russia invade the Ukraine?
Who is going to stop them?
Whether the invasion will actually occur, or how likely it is to occur, is already probably well-known by the CIA and other intelligence groups. They surely have satellite photos of troup and equipment movements. But so what? What are they going to do about it? Take it to the UN? Sure.
Will the Ukraine be like another Hungary or Czechoslovakia? Or will it turn into another puppet war with Russia supporting, arming, and re-arming the eastern, Russian-speaking Ukraine and the west (i.e. the US, primarily) supporting, arming, and re-arming the rebels? I am far from alone in suggesting that Russia might launch an invasion. See this.
Or will the Ukraine split, as I mentioned in my previous post? If so, can the split be done somewhat/comparatively peaceably?
Addendum: For more see the current issue of The Economist.
While politicians in Kiev are scared to mention federalisation because of its separatist undertones, in reality it is already happening. The biggest danger for Ukraine’s integrity is not federalisation, but that Russian interferes and exploits it. That could involve an attempt to annex Crimea, carelessly given to Soviet Ukraine by Nikita Khrushchev in 1954. Over the weekend 20,000 people were out on the streets in Crimea, welcoming back riot police from Kiev as heroes. Russian armoured vehicles have already been spotted around Sevastopol, home to the large Russian naval base.
From Foreign Policy Alerts:
This is hardly surprising. It will take a lot to heal the rifts, if that is even possible.
Top News: Ukraine's interim President Olexander Turchynov warned of the threat of separatism after the ousting of President Viktor Yanukovych.
There remains significant opposition to the new government in Ukraine's eastern, Russian-speaking regions.
For decades Keynesian-type economists and the promoters of big gubmnt have argued that injections of spending by the gubmnt into the spending stream lead to additional rounds of spending, economic growth, and more jobs. I actually used to teach this stuff myself back in the late 1960s and early 1970s, having been raised on Keynesian macroeconomic models.
But by the mid-1970s I had doubts. The models didn't seem to be predicting very well. And by the 1980s I would teach the models only to show how ridiculous their assumptions were. And I always said, "If you want more spending during downturns of the business cycle, then you should also strongly and vocally support gubmnt spending cuts during upticks in the cycle; but that rarely happens."
The Great Recession of 2007-10 has, unfortunately, reignited interest in using gubmnt spending to alleviate the severe problems faced during recessions. Scott Sumner at EconLog puts this nonsense to rest (I hope), linking to this comment by Mark Sadowski:
[R]egressing RGDP growth on CAB change for the non-Euro Area countries, we find the R-squared value is 0.0% (you can’t make this stuff up) with a slope coefficient of 0.05 ...
Or, in plain English, when countries each have a unique monetary policy, THE FISCAL MULTIPLIER IS ZERO! [EE: read the full link to see the entire flow of the argument; this is just the summary.]
That's right. Injecting spending into the economy in countries that have unique monetary policies in general adds nothing to RGDP [real gross domestic product], and hence does nothing to create jobs.
Addendum: Given that increased gubmnt intervention seems to reduce overall RGDP (see pre-Thatcher UK, pre-Pinochet Chile, Venezuela, Argentina, the USSR, China, etc.), there is a very strong case to be made that the long-run Keynesian multiplier for gubmnt spending is often negative.
In no particular order:
via Political Calculations, this is such a wonderful spoof (of both curling and David Attenborough). Note that he opted to refer to the UK 3rd as the alpha female, not their skip; an egregious error.