Monthly Archives: March 2009

Michael Peel has an excellent, long, feature on West African oil up at Granta:

The story of west African oil has fascinated and disturbed me during the almost eight years I’ve known it. Three years spent as the Financial Times correspondent in Nigeria came particularly to inform the way I saw the energy industry and its role in the wider world. I find it hard now to look at anything connected with crude – whether the rawness of a Niger Delta slick, or the neatness of a Royal Dutch Shell filling station forecourt – without thinking of how it has moulded Africa’s Leviathan and some of its neighbours. For me, the logos of Shell, Chevron and ExxonMobil evoke images of the great pluming orange gas flares that cast a sickly nocturnal glow over run-down villages, where people drink from stagnant pools. The barrels of oil whose price underpins City economic forecasts are what armed young Delta militants – determined, deluded or drunk, or all three at once – siphon from pipelines to fund a black market stretching across continents. Even in an age of often unrestrained realpolitik, it is hard to imagine a dirtier business in which so many of us in the rich world are so intimately and knowingly complicit.

Read the whole thing – brilliantly written.

Flick through any copy of the Financial Times and you’ll see a lot of chaps in suits. There’s a reason for this: there are many more men than women in the boardrooms of the world’s great companies. Explanations range from the politically correct (women are held back by the oppressive patriarchy) to the sexist (women aren’t up to the job).

Untangling this is difficult, but economists have tackled it with relish, in the process finding evidence to support almost any prejudice. One famous study conducted by Claudia Goldin and Cecilia Rouse looked at what happened when the leading, male-dominated, US orchestras introduced blind auditions for new members. Goldin and Rouse found that blind auditions went a long way towards correcting the gender imbalance. Maybe those pretty little things weren’t such awful musicians after all.

Other studies suggest a different explanation for male-dominated boardrooms: women may avoid intense competition, and cope badly if forced to compete. These studies are intriguing, but usually based on rather artificial experiments, or special cases – such as tennis tournaments. Last April, my colleague Lucy Kellaway wrote: “Men want power enough to hang on to it and women don’t want it enough to make them let go.” I am not sure of that, but I can certainly point to studies that support Lucy.

The remainder of the article can be read here. Please post comments below.

I am an economist, as is my boyfriend. We started dating as students, but after four years we broke up for a couple of months because of differences in our ways of thinking. We always supported each other professionally, but things changed. I got a job in a multinational organisation, but he didn’t like me travelling, going out for business dinners, or even spending time at the office.

His father was head of the family, while his mother stayed at home; both my parents worked. (We live in Paraguay, which is quite chauvinistic.) Probably, he thinks women have to stay at home, yet he fell in love with me because of my aspirations. I’ve said that maybe he needs to marry a woman who wants to be a housewife. I gave him another chance, as I love him. Should I be patient?
L.E.

Dear L.E.,

The economist Betsey Stevenson has discovered that in US states that liberalised divorce laws, couples became less willing to support each other through expensive courses. That makes sense: easy divorce raised the spectre of being dumped once hubby had spent your money and acquired his law degree.

Your own situation is the reverse. Your boyfriend supported you while you built up your human capital, but now spurns the payoff. You are right to be suspicious, I think. Your boyfriend wrongly thought that you would change; you face a similar disappointment.

There is another, more calculating, explanation. Roland Fryer, an economist fascinated by the causes of African-American under-achievement, theorises that some people find professional qualifications disturbing because they allow a credible exit from any relationship. You’ve given yourself that option; your boyfriend has given you reason to use it.

Questions to economist@ft.com

It took me longer than it should have done – and an informative conversation with a public-spirited economist – to reflect that Tim Geithner’s toxic asset purchase plan will not do anything to reveal realistic prices of toxic assets. Leave aside the possibility of collusion, or the certainty that banks will offload only the worst possible assets ig the auction rules allow it.

Rather, the basic objection is very simple. With the Treasury taking most of the downside risk, bidders have an incentive to overpay. After all, would you play roulette if I offered to make good 90 per cent of any losses? What would your poker strategy be if you kept half your winnings but I bankrolled most of any losses? There seems to be little point in this auction; if this is the best the Treasury can do to promote price discovery I think we need to consider entirely different approaches. It not that I’m complaining about the subsidy – although that is always galling – but that the subsidy comes in a form that undermines the whole point of the auction.

(Jeff Sachs covered some of this ground in an op-ed yesterday that did not appear in the UK print edition of the FT.)

Update: One would expect the banks selling toxic assets to receive most of the subsidy, although if the auction is not competitive, bidding institutions will also scoop some.

Prize money of $3,500 is up for grabs from the Fraser Institute.

Entries can be in one of two formats: An essay of 500-600 words, or a one minute video essay uploaded online. Entries must cover the following points:

  1. A clear thesis statement describing what issue you think should be measured;
  2. Why, using facts and a logical argument, the issue should be measured; and
  3. How you would measure it, if you had sufficient resources and access to relevant data.

More here.

Stefan Szymanski, Playbooks and Checkbooks. I’ve blurbed this as “a deft mix of sports, history and accessible economic ideas”.

David Gardner, Last Chance. David is chief leader writer for the FT so I get to enjoy his incisive expertise on the middle east on a daily basis. The book is going to be excellent, I’m quite sure.

Africa’s Turn, by Edward Miguel and others. Thought-provoking optimism on Africa, but I prefered Economic Gangsters.

Thomas Ricks, The Gamble. I’m learning a lot from this, and it is enviably well-reported.

As so often, the Sage of Omaha put it best: “Nothing sedates rationality like large doses of effortless money.” These days, it is hard to disagree. Warren Buffett’s warning now looks less like a mere aphorism and more like a sharp summary of the latest research in behavioral economics. Our stone-age brains just don’t seem to be able to cope with digital-age credit products…

Continued at Forbes.com.

One of the least important but most enjoyable pieces of research reported in “The Logic of Life”, now available on video.
Further reading here.

The news that Cambridge university is to demand A* rather than A grades at A-level has provoked yet another frenzy of concern about grade inflation – the name normally given to the process by which C grades become B grades and then A grades and, before you know it, all shall have prizes.

Grade inflation, like real inflation, seems widespread, afflicting not just UK schools but the Ivy League. Stuart Rojstaczer, who maintains GradeInflation.com, reckons that grades at US private universities have risen from an average of 2.3 out of 4.0 in the 1930s to 3.3 today. That rate of inflation, by itself, would be manageable – 22-year-olds do not need to compare grades with 92-year-olds. (Grade hyperinflation would be another matter entirely: students would have to take examinations, be awarded marks and then apply for jobs or university places within a matter of hours, before their grades were devalued.)

Alas, grade inflation is a misnomer. True grade inflation would mean each grade was equally devalued, with A grades superseded by AA, AAA and AAAA as new labels for superlative performance became necessary. One hundred per cent would become 110 per cent.

Yet examiners are reluctant to award 110 per cent and there are no AAAA grades. What we see is not inflation but a classic price distortion. Eventually all students will get A grades and they will be meaningless. A* grades are a small, belated step in the right direction.

Grade distortion is a serious affair. Students and their teachers are forced to switch to grey market transactions denominated in alternative currencies: the letter of recommendation, for example. Like most alternative currencies, these are a hassle.

Grade distortions, like price distortions, destroy information and oblige people to look in strange places for some signal amid the noise. Students are judged not on their strongest subjects – A grade, of course – but on whether they also picked up A grades in their weakest. When excellence cannot be displayed, plaudits go instead to those who deliver pat answers without stumbling – politicians in training, presumably.

The obvious solution to grade distortion is to ration grades so that no matter whether standards are high or low, only the better students can receive the top grades. Unfortunately, like any competitive system, such policies can create ill-feeling towards high-flyers, and even sabotage.

If grade rationing is unacceptable, perhaps grade distortion should be replaced with true grade inflation, freeing grades from the worldly confines of a maximum 100 per cent or A*. As long as everyone understands the game, what harm if the typical student of tomorrow is awarded an AAA grade? The rating agencies might even find a new line of business here – handing out an AAA for nicely packaged dross is something they should be able to master.

“Useless tosser” is a popular epithet for cricket captains with a knack for losing the coin toss and thus allowing their opponents to decide whether to bat or to bowl first. Winning the toss is not always an advantage but, depending on the weather conditions, it can give the winner a significant edge.

Language barriers have prevented the phrase “useless tosser” from crossing the Atlantic, but the problem is familiar. When an American football game goes into overtime, it is a distinct advantage to win the coin toss. The coaches know it: when they win, they almost invariably choose to receive possession of the ball. In 2008, lucky callers won 10 overtime games and unlucky ones only four.

The very existence of the coin toss is an admission of defeat – that there is something irreducibly unbalanced about these games, some advantage that cannot be divided but can only be surrendered to the gods of chance. Chess players cannot both play “grey” – one must play white. Cricket teams cannot bowl simultaneously.

The remainder of the article can be read here. Please post comments below.

The Undercover Economist: a guide

Publishing schedule: Excerpts from "The Undercover Economist" and "Dear Economist", Tim's weekly columns for the FT Magazine, are published on this blog on Saturday mornings.
More about Tim: Tim also writes editorials for the FT, presents Radio 4's More or Less and is the author of "The Undercover Economist" and "The Logic of Life".
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