That was one of one of the messages I tried to put over to audiences of the top US radio show, “Morning Edition”. Apparently you can listen to it here.
This morning I am in Amsterdam, promoting the Dutch version of “The Logic of Life“. The most disturbing thing about this is that my publishers are claiming that I am “the Jeremy Clarkson of economics”. I don’t know what’s worse: being compared to Clarkson or the knowledge that he’s a star in the Netherlands.
Nevertheless, nice to be here. Sadly I will not get time to visit the Aalsmeer Flower Auction, written up brilliantly in John McMillan’s “Reinventing the Bazaar“, one of my favourite economics books.
Today’s “More or Less” asks “Has global warming stopped?”, as well investigating how global temperatures are measured. Also breakfast cereal and the sex of your new baby; which town has the most pubs in Britain; and can Hillary win?
4.30pm BST, Radio 4 – or thereafter streaming from the website.
If markets are efficient, you will never make profitable trades as a result of reading the Financial Times. Efficient markets move quickly and respond to any new headlines – disappointing earnings, a cut in interest rates, a fraud or a safety incident. Markets will sometimes overreact, drifting backwards after a lurch, or underreact, taking time to digest the true impact of the new information – but overreactions and underreactions should balance out. And when no news is available, the prices of an efficient market won’t change much.
But do markets really react efficiently to news? It would be easy to tell if it were easy to identify all genuine news. Sadly, it is not. Yet two inventive new academic papers claim to have solved the problem of identifying news, in two very different contexts. The studies could not be more unalike. One looks second-by-second at trading data from one of the world’s most active financial exchanges. The other analyses market information that is more than two centuries old.
Karen Croxson and J. James Reade of Oxford University studied the Betfair exchange, a sports betting site that supports many more trades than the London Stock Exchange. Betfair allows punters to bet on football games, and the market stays open throughout the match. Croxson and Reade studied how the price of different bets varied as goals were scored during English league games.
The remainder of this column can be read here. Please post comments below.
The law of comparative advantage suggests people should use their talent, but we’re also told “do what you love”. What if I have no talent for what I love? Is it worth time and effort pursuing a dream career I’m no good at?
Your letter is intelligent, but it is also opaque: you do not reveal what your dream career is. Still, a lack of facts has never been an obstacle to economic analysis, so this is no time for methodological scruples. The principle of comparative advantage states that you should focus on what you do best, relative to the standard set by everybody else. You can do accounts and use the money to hire a cook, or do cooking and use the money to hire an accountant; the correct choice depends not just on whether you are a good bean-sheller and a poor bean-counter, but on whether the world is full of better cooks and worse accountants.
There is no conflict between this principle and the idea that you should “do what you love”. Being good at a job means you will earn more; enjoying a job means you will not mind earning less. Decide whether you prefer money or fun.
But what if you are incapable of doing any job you enjoy? Well, your career is not the be all and end all. Economist Andrew Oswald believes we work too hard and under-invest in friendships. So if my career advice is depressing, ignore it and talk to your friends instead.
Questions to firstname.lastname@example.org
Tim Leunig and Nick Crafts report:
‘Had well-intentioned planners implemented green belts in 1800, then Britain would not have been able to gain the “agglomeration economies” that so benefited the Victorian economy: we would not have become the workshop of the world.’
‘So too today: high-skill cities such as Oxford and Cambridge have the potential to be a centre of high-wage agglomeration cities, just like Liverpool and Manchester a century ago. But unlike Liverpool and Manchester a century ago, their growth is constrained by highly restrictive planning laws.’
That is the press release (.doc), which has a couple of pages of detail. The paper does not seem to be available online yet.
My second response to Dan Ariely is on video here.
I wrote about the dilemma of passwords here: they must be impossible to remember, change frequently and never be written down. Now a kind fellow called Sean Gilbertson has sent me a pamphlet on his “Cryptogic” system. He suggests combining a fixed password section (eg TimFT) with a variable password. For instance an Amazon password might be 3TimFT3 because Amazon has three syllables and three vowels, while an eBay password would be 2TimFT2 because eBay has two syllables and two vowels. Pick your own simple rule for deriving a variable password.
It’s a nice enough system, and does deal with the important problem of using different passwords for different sites – which was the original question! Still doesn’t help much with the requirement to change passwords constantly, alas…
Dan Ariely responds to my comments, this time on video; I won’t even try to pre-empt what he says or how he says it – but don’t miss it.
The FT has a report on Global Brands today; meanwhile, the NBER tells me about this research from economist Gary Richardson:
In medieval Europe, manufacturers sold durable goods to anonymous consumers in distant markets, this essay argues, by making products with conspicuous characteristics. Examples of these unique, observable traits included cloth of distinctive colors, fabric with
unmistakable weaves, and pewter that resonated at a particular pitch.
These attributes identified merchandise because consumers could observe them readily, but counterfeiters could copy them only at great cost, if at all. Conspicuous characteristics fulfilled many of the functions that patents, trademarks, and brand names do today.
The words that referred to products with conspicuous characteristics served as brand names in the Middle Ages. Data drawn from an array of industries corroborates this conjecture. The abundance of evidence suggests that conspicuous characteristics played a key role in the expansion of manufacturing before the Industrial Revolution.