PSA: Comedy Competition for Financial Professionals

Apparently Thomson Reuters is hosting a comedy event for Wall Street professionals in mid-November at the Gotham Comedy Club in NYC. As practicioners of the 'dismal science' one wouldn't expect a lot of economists to be involved. However, considering how indispensible a sense of humor can be during rough times, one might expect that the past few years have produced their fair share of comedians on The Street. Particularly with layoffs up, and trading and deal activity down, it is possible that a few of the participants will have had a little extra time to brush up on routines as well. Good thing, as it is likely that quite a few people in the Financial Capital of the World could use a laugh or two at the present time.

Lawsuit of the Week Part 2

On the American Bar Association's blog ABAJournal commenters are buzzing about last week's ruling in New York that a negligence suit against a 4-year-old in the death of an 87-year-old woman can proceed. The New York Times published some of the details as well. For those who don't want to follow the links, a quick summary from the Times piece:

April 2009, Juliet Breitman and Jacob Kohn, who were both 4, were racing their bicycles, under the supervision of their mothers, Dana Breitman and Rachel Kohn, on the sidewalk of a building on East 52nd Street. At some point in the race, they struck an 87-year-old woman named Claire Menagh, who was walking in front of the building and, according to the complaint, was “seriously and severely injured,” suffering a hip fracture that required surgery. She died three months later of unrelated causes.

Lawsuit of the Week

Over at Concurring Opinions one can find at great write-up on Nic Cage's foreclosure lawsuit along with some almost fantastical details from the briefs. Among our favorites:

- [Cage] set off on a spending binge of epic proportions, and by July, 2008, Cage owned 15 palatial homes around the world; four yachts (one for the Caribbean, one for the Mediterranean, one for Newport Beach and one for Rhode Island); an island in the Bahamas; a Gulfstream jet; and millions of dollars in jewelry and art.

- Cage rejected [the advice of the defendant] and continued his compulsive spending. As a result, in 2007 Cage’s shopping spree entailed the purchase of three additional residences at a total cost of more than $33,000,000; the purchase of 22 automobiles (including 9 Rolls Royces); 12 purchases of expensive jewelry; and 47 purchases of artwork and exotic items.

- Cage also spent huge sums taking his sizeable entourage on costly vacations and threw enormous, Gatsby-scale parties at his residences.

- The pinnacle of Cage’s spending spree came with his quixotic acquisitions of Midford Castle in England:

and Schloss Neidstein in Bavaria:

The Economics of Sports Contracts

After the New York Yankees were unceremoniously dumped from the playoffs by recent whipping boy Texas, all baseball talk in the Big Apple shifted to the other passion of fans in the off-season; contract negotiations. This offseason the discussion is centered on Mr. Yankee himself, Derek Jeter. The folks over at Freakonomics came up with some interesting analysis as only economists can. Mr. Dubner's posting can be viewed in its entirety here.

Kagan's First Vote

We would like to begin this post by noting what it is most certainly not. Namely it is neither an endorsement nor a repudiation of the death penalty. That is one can of worms that we have been happy to avoid in our slightly longer than one year of existence, and intend to keep it that way for now. However, avoiding the death penalty discussion doesn't mean we have to leave the sometimes tortured logic surrounding such cases alone. In one example, which saw party lines toed with gusto on both sides, the dissent, which included Justice Kagan's first vote, wanted to hold up an execution at the eleventh hour because the foreign-made drugs being used might be too dangerous. In this case, foreign-made means England, not necessarily known for its defective drugs, and unsafe drugs mean drugs that are intended to end someone's life.

Most developed countries in the world abhor the death penalty, and view it is a barbaric form of punishment. Many Americans dislike it, and it is not an option in many states. Some of the nations that the US regularly calls out for human rights abuses are among the few states joining the US on the list of death penalty nations. Then again some people think that it is the best possible deterrent there is, that it is the ultimate form of retribution. There is clearly a lot of disagreement on the topic. However, one thing I think all parties can agree on is that the death penalty is going nowhere fast if the best opponents can come up with is that the British-made drugs used to carry out such sentences are unsafe.

Is G20 Conference Doomed from the Start?

At the G20 pre-meeting last week the world's economic powers discussed the skeleton of a plan which could ultimately guide everything from nations' domestic open market operations to much broader trade interactions between states. Brokered by US Treasury Secretary Tim Geithner, the plan faced an uphill battle with the likes of Germany and China among those initially voicing concerns. There was also broad-based caution over an agreement which lists among its somewhat aspirational but potentially massively impactful goals such concepts as evening out excessive trade imbalances and guarding against excessive currency volatility. It further hands the responsibility for monitoring these goals to the oft-maligned IMF.

However, despite Geithner's ability to overcome the initial concerns of some of the parties, hurdles remain. For example, there is the small matter of there not being an agreed upon global measure of 'imbalances.' For as often as the concept is thrown around by politicians, there is actually no great way to define it nor is it clear that imbalances are actually bad. Indeed, they are necessarily a function of growth in at least some economies. Is it correct, or even possible to stifle such market forces? John Cochrane of the Wall St. Journal addresses some of these potentially fatal flaws and more here.

UPDATE: As perhaps anticipated, Geithner's plan is likely to be dead on arrival when the G20 summit commences in Seoul. German and Chinese resistence in the face of US economic policy has put the final nail in the coffin, although what was noted to be a potentially flawed plan above was likely doomed even before statements from the detractors last week.

Updated 11.7.10.

Some Thoughts on Ethanol

Frequent readers might have noted a few references to Gregg Easterbrook in the past. We are big fans of both his weekly Tuesday Morning Quarterback effort on ESPN.com as well as his slightly more academic postings on Reuters.com. Mr. Easterbrook's most recent post on the latter site provides some food for thought on ethanol, which is not nearly the solution that some people think it is. Indeed, Easterbrook goes so far as to say that the EPA's recent increase in ethanol allowance is akin to a 'stealth tax' on American consumers. The complete posting can be found here.

Krugman on Government Spending; Warner on Krugman

Most amateur economists know of some of the theories of Paul Krugman, or at least have heard his name as he is one of the biggest modern day proponents of the currently in vogue Keynesian system of economics. In fact, as one of the doctrine's strongest adherents, he believes that the US government's biggest mistake with stimulus spending was that there wasn't enough of it. Though many believe that Mr. Krugman is now more a political idealist and celebrity newspaper columnist than a research-driven economist, he is no doubt intelligent and has a knack for presenting his ideas in a very clear way that most people can understand. I, for one, would almost certainly never say that I wanted to shut him up.

However, certain pundits across the pond have said just that in response to Krugman's recent thoughts on Britain's austerity measures. Krugman, who was predictably highly critical of the recently elected Conservative party's budget cuts, received a fairly negative response from at least one British columnist, who named a recent article, 'Will someone please shut Krugman up.' Columnist Jeremy Warner defends his critique of Krugman by saying:

Could the US Run Out of Money?

The US could never run out of money, at least according to one independent candidate for US Senate in Connecticut. In fact, to back up his supposition, Warren Mosler is offering $100 million of his own money to put toward paying down the federal budget deficit if any if any sitting Congressman or Senator can prove him wrong. Though it is not entirely clear, it seems that Mosler believes that simply printing money is the solution to problems ranging from future social security insolvency to our tremendous debt to China.

It seems highly doubtful that Mosler will ever be forced to make good on the bet. In addition to the the fact that it is unlikely that a lawmaker would validate Mosler by going toe to toe with him, he is technically correct. Of course the government could print more money. Indeed it has done so during the current recession, and has plans to fire up the printing presses again before the year is over. Therefore, the country will never 'run out' of money. However, to suggest that printing money is a panacea for the ills of the American economy without consequence is foolish at best.

The End of the 'Age of Optimism?'

In an excellent piece in The Financial Times Weekend Edition, foreign affairs columnist Gideon Rachman queries whether the world has exited what he terms the 'Age of Optimism', a period which began around the beginning of the 1990's. This puts its commencement around the time of several notable events which marked the expansion of democracy, including the fall of the Berlin wall and the break-up of the Soviet Union. In Rachman's words, it was marked by five specific elements:

1. A faith in the onward march of democracy

2. A faith in the triumph of markets over the state

3. A belief in the transforming power of technology

4. A theory of “democratic peace,” or the belief that in a world in which democracy and capitalism were on the rise, the risk of conflict inevitably diminished

5. A faith that in the last resort the US military could defeat any power on earth.

What is a Pelican Worth?

The nightly reports on top shots and bottom kills have ended. The politicians have left. The minds of most Americans have shifted to other things; unemployment, buying groceries, Monday Night Football. However, the heavy lifting in the process to return the Gulf to normal in the wake of this year's oil spill is just beginning. One aspect of the story that has relevance for both the legal and economics interests of Blawgconomics is the evaluation of clean up costs.

In addition to a moral obligation to do so, BP faces a legal obligation to return the Gulf to its previous state. Just what it will cost it to do so will be in part determined by biologists' estimates of the damage caused by the company, followed by no small amount of negotiation and potentially, a few court dates. USA Today had a great piece on this process last week, which you can find here.

The Legitimate Motives of the Legitimate French Strikers

With some of the photos and video coming out of France this past week, it would be easy to dismiss the current and widespread strikes in the country as the work of 'thugs,' to borrow a term from the French government. It is indeed apparent from some of the images being beamed around the world that many of the 'protestors' are involved merely for the thrill of burning things, tipping over cars and scrapping with the police.

It has also been observed that many of the protestors, both among the peaceful and the radical, are on the younger side, including many students. Many of these same observers feel that it is absurd that 17 and 18 year olds should be able to paralyze a nation in an attempt to derail reforms which won't impact them for another 40+ years. If reports are to be believed, even grade school aged children have involved, which lends an even more farcical element to the situation.

However, beyond the anarchists and those who might, in reality, be protesting nothing more than going to class for the afternoon, there could be more than meets the eye to the current situation in France. For example, one commentator suggests that among folks who are actually gathering peacefully and purposefully, one thread of solidarity is a general dissatisfaction with the government and how it has handled the reforms. Therefore rather than merely dismiss the protests as the work of anarchists, lazy students and socialists, perhaps the situation is worth a more exploratory look.

To Spend or Not to Spend....

Very simply, but quite appropriately in the context, Keynesian economics can be described as the rejection of the neoclassical idea that employment and business cycles could be left entirely to the invisible hand coupled with the adoption of the concept that timely government spending and monetary policy could ease economies through the more extreme fluctuations that would naturally occur in their absence. Such notions heavily influenced economic policy in most of the capitalist powers from around the time of Keynes' death in the mid-1940's until the 70's, when economists (particularly those of the Milton Friedman led Chicago School) began to reject the idea that governments had the ability to control business cycles to the extent Keynes had advocated for.

Despite a period of dormancy, Keynesian economics is once again very much in vogue, at least among decision makers in Washington. This is not surprising as Chief Recession Buster and Fed Chair Ben Bernanke, an astute student of the Great Depression, is well-versed in Keynesian policies. Indeed, the seeds of many of Keynes' hypotheses were planted in certain failed economic policies of the Roosevelt administration including spending cuts that, in retrospect, are viewed as having prolonged the pain of the time. Keynesian notions that government spending can be an effective tool in battling recession also have a natural and captive audience in the party controlling both the White House and the Congress currently. Finally, many of the oft-cited and 'popular' economists of today, including Krugman, Stiglitz and Mankiw, have advocated for Keynesian policies in the past.

Debunking the Myth of 'Inflation' and Thatcherian Musings...

John Kemp's piece on the impossibility of creating a true measure of inflation in a world where no two people (or families) purchase the same exact goods at the same exact time all of the time is well worth a read. His main purpose is to paint a cautionary picture for a central bank which is seemingly becoming ever more obsessed with stimulating inflationary pressures in the economy.

After explaining that 'inflation' is different for everyone, Kemp goes on to explain the various measures of inflation that the Federal Reserve has utilized in the past, emphasizing that they often paint ambiguous if not completely incompatible pictures. This supports his broader argument that the impossibility of true measurement makes manipulation risky at best, possibly devastating at worst. As he undoubtedly does a much better job with his effort than I could with a similar attempt, I will let him take it from here.

To emphasize his point that there is no such thing as inflation for a society, merely only the totality of all of the inflations of its individual members, Mr. Kemp introduces his piece with an oft-quoted and nearly as oft-villified statement by Margaret Thatcher. This particular quote states the idea that there is no such thing as society, only individuals. This idea formed the underpinning of a broader statement Prime Minister Thatcher wanted to make on self-accountability and reliance.

Particularly in the political environment in the US today, such notions have a certain relevance that makes further exploration of them worthy. Here is a blog post which does just that, looking at the roots of Thatcher's ideals in the economic philosophies of Friedrich Hayek.

The Surprise Economic Benefit of a True Feel Good Story

By now, most people who keep regular contact with any of the internet, television, radios or other humans will have heard all about 'los 33,' the Chilean miners who suffered through a collapse and built their own (pre-war party break) Lord of the Flies-esque underground society. Undoubtedly they will know of the former professional soccer player and the jokester who kept spirits up. They have probably heard the story of the miner who had both his mistress and his angry wife waiting when he finally made it to the surface, a story which manages to put a smile on readers' faces if not those of the parties involved. Maybe readers have even heard of the bank accounts that have been put together for the miners, the offers to travel to soccer stadia around Europe and even an offer to attend the New York Marathon for 'the runner.'

Though things were pretty rough for the 33, they all survived in good physical condition and are none the worse for the wear with celebrity and riches at hand. Maybe some of this was to be expected, particularly after it became apparent that this was the rare international feel-good story for a world weary of terror threats, war, disease and civil unrest. However, in addition to the benefits the miners themselves are enjoying, some perhaps unexpected peripheral benefits of the situation are being realized as well.

In one such story, purchases of Chilean wine in the UK have apparently increased 23% year on year as the safe rescue of the group has stimulated celebratory sales. This is more than just a footnote, as wine makes up nearly 2% of the nation's exports. Though sales had been up generally, it does appear that customers have been demanding productos de Chile in larger quantities than in the past, and suppliers are obliging with targeted marketing, sales and promotions. The miner story rightfully produced smiles when it came to a storybook conclusion. Apparently it continues to do so, though if your author's memory of Chilean wine serves him well, some of these smiles may be a little redder now than they were at the outset...

Meet the 'Elvis' of Hedge Funds

For anyone interested in the often quirky world of hedge fund managers, Reuters has a nice piece on the 'Elvis of Hedge Funds,' activist Pershing Square Capital Management's Bill Ackman. At turns describing both the views of those who see him as the living embodiment of some of Oliver Stone's more unsavory characters and his forays into charity, the article provides much more insight than one typically finds on hedgies. The full version can be found here.

England Set to Cut Defense Spending; Provide Model for the US?

Conservative politicians in the US, particularly during a recession, like to talk about things like reducing government and spending, not just as talking points or possibilities, but almost as self-evident panaceas. They equally lean on the idea of a strong military and its accompanied spending requirements without ever addressing the seeming paradox between two such cherished legs of the platform. However, after coming to power in the most recent election and during the midst of their own economic issues, their cousins in Britain are finding themselves addressing just such a disconnect with real action. However unlikely it may in reality be, such action could provide a future model for the US.

It has been noted on this page many times that the current combination of unemployment, trade deficits, budget deficits and currency problems is not indefinitely sustainable. It is true that the reserve status of the dollar and the idea that the Chinese are smart enough to not sell off all of their dollar assets overnight provide some measure of protection. However, America will ultimately need to start producing a lot more of something that other nations will buy while reducing spending at home to avoid a whole host of future problems.

There is no easy solution for production, however the spending cuts could be accomplished in part at every level of government. Everyone has heard of all of the waste from Washington right down to the local level. Cutting some of this out would be helpful, but more chunks are needed to alleviate the dire state facing the nation today, some of which could come from the defense budget. This may seem counterintuitive while wars are being fought on two fronts. However, even with some cutbacks, we would still be spending many multiples more than all of our nearest rivals. Additionally, even with cuts across the pond, the English have made an 'ironclad' committment to continue fighting alongside the US in current engagements, suggesting that we could continue to fulfill our commitments to the Iraqi and Afghan people even with reductions.

The battles of tomorrow are more likely to be fought between trade representatives and central banks than in the deserts and mountains of far away lands, particularly with a war-weary public. Additionally, America is increasingly beholden to the very countries which are seen as future threats. Therefore the state of the economy is no less than a national security issue. If funds can be taken from the conventional tools of war without coming even close to crippling their capabilities while increasing the flexibility to fight on the financially-driven fronts of the future, it is a change that should be made without hesitation.

UPDATE: As anticipated, Defense is not the only ministry facing tough cuts. Perhaps another example for a US government full of redundancies to follow...

In Midst of Recession, Washington Stands Alone

Many citizens will be comforted to hear that, even in the midst of the worst economic environment since the Great Depression, there were some places in America which were shielded from the worst of the malaise. Less will be comforted to hear that first among them was Washington, DC. Details can be found here courtesy of The Washington Times.

Big Problems for Small Businesses?

It turns out that year 2012 isn't shaping up to be problematic merely from the prospective of the 'End is Near' crowd. In addition to the potential specter of impending doom, it seems that changes in tax reporting are set to create huge problems less than two years hence as well. At least according to Reuters, a little-noticed or discussed add-on to the health care bill (add-ons to the health care bill are also known as those small shocks all Americans, including the lawmakers who didn't get around to reading the bill, will receive from time to time until we all know 'what's in the bill.' But I digress...) could cause large problems for small business owners. This is due to the new requirement, meant to fill a gap in tax filing, to report small purchases from vendors via the 1099 form.

Blawgconomics agrees that the tax code leaves much to be desired. However, penalizing small businesses with increasing and increasingly complicated filing burdens doesn't seem quite the best way to remedy this much larger problem. There are signs that lawmakers could push to change this portion of the law before its provisions go into effect. Otherwise, some small business owners might be wishing the Doom in 2012 folks had been correct all along right around the time April 15, 2013 rolls around...

IEA October Oil Market Report

Back when oil prices were yo-yoing month to month like a see-saw manned by children on a sugar high we got in the habit of posting the International Energy Agency's regular Oil Market Report. Things have settled down, relatively at least, of late. However, some may still find some of the details on the global supply and demand of black gold interesting nonetheless. Without futher ado and for your viewing pleasure, October's report...

The Week Ahead...

The folks at Reuters put together a weekly preview of the stories that are anticipated to impact US markets every Monday. We are going to make an effort to post it on a regular basis. This week, items in focus include the G20 summit, earnings season, and the upcoming US mid-term elections. The full report can be found here. They have also released a look at themes that could impact the broader global markets over the week. Predictably the G20 remains in focus, while broader central bank actions also catch the eye. The five themes anticipated to impact trading globally can be found here.

The List: The World's Best Stockpickers

If I were to write a post claiming that successful stockpickers no longer exist, it wouldn't be a stretch to think that some loyal readers out there would nod along with all-too-knowing looks in their eyes. They might even wonder how the converse could even be possible, particularly as at least a few of them have spent the past few years watching their 401(k)s blow up and their  brokerage accounts decline in Maverick-ian 4g negative dives.

At least some of them, or if not, a neighbor, family member or friend, might even read such a story while in the midst of a full-blown battle against the forces of unemployment. At the very least, there would be some reminisces of days past when gaining 5 or 6% per annum in a trading account was something that you kept quiet about not out of the year 2010 embarassment of outpacing less fortunate friends, but the embarassment of 2000 when that meant you were falling further and further behind them.

However, though such an article would have some traction with many readers, it apparently would not be true. Yes, despite the sometimes overwhelming evidence to the contrary, some successful stockpickers do still exist. The folks over at Bloomberg were kind enough to compile a list of who, at least in their minds, leads the ranks. The list, as well as methodology and some quotes, can be found here.

I trust that those who are interested enough to follow the link also have a quantum of market savvy, or at least have watched enough news over the past few years that the name of the top firm won't necessarily be a surprise. Nonetheless, I will throw a 'spoiler alert' on and say only that the firm in the top spot bears the initials G and S and has produced what seems like half of the high-ranking economic officials in the past few White Houses.

Public Service Announcement: SCOTUS Audio

While it is sometimes fun to listen to policiticians and pundits rant on about everything under the sun, we at Blawgconomics have found after considered analysis that it is even more fun to decide things for oneself. Though technology makes the former almost inevitable, it also makes the latter more possible than it has ever been. In just one example of many, the Supreme Court posts audio of oral arguments on its website. Even the most recent appeals are available, allowing one to keep up with the topics du jour in much the same way as new justice Elena Kagan does.

Music as a Metaphor for Social Welfare Systems

While it is true that American tax dollars are spent on music programs in schools, and there might be performing arts centers or city orchestras which receive a slight funding boost from their respective local coffers, the federal government does not typically set aside funds for 20-somethings to globetrot in an attempt to increase fandom, and as a result, album sales and downloads.

Indeed there would likely be enough public uproar to establish a congressional sub-committee if it were someday discovered that Jack and Meg White, for example, were able to leave Detroit behind for international stardom on the back of government subsidies (that such a hearing would almost inevitably cost the taxpayer more than the initial handout is another topic for another day). Most politicians spend most of their time attempting to get re-elected, and while doing so would rather discuss local pork barrel projects with voters than explain why tax dollars were spent on kids with tattoos in tight jeans. So, of course, they build bridges instead.

Additionally, and more practically, there is already a well-established market for musical talent whereby bands with potential can contract with labels who obtain studio time, organize tours, and assist with procuring everything from equipment to, well, just about anything so long as the band makes them money. The system is similar in the UK, where for all of the empire-losing they seem to do, they still manage to produce some fine musicians. Though sometimes a band or musician might fall through the cracks, the members of the general public seem satisfied with this arrangement, especially in a world where iTunes and MySpace have made it easier than ever for them to discover new talent.

Because of the prevalence of this model in the States, some Americans might be surprised to hear that this system is not necessarily emblematic of the global approach. In many places, in addition to the record label system, the government does provide assistance to up and coming talent. For example in Sweden, bands are annually able to apply for a piece of a pie worth a few million USD. This can be utilized for various items, such as studio time and touring expenses, with the ultimate goal being the export, both culturally and economically, of Swedish music. And Sweden is far from alone; other countries which actively encourage, and financially support, rising popular musicians include Australia, Canada, Scotland, New Zealand and Sweden's Nordic neighbor Denmark among others. A non-exhaustive list of successful bands from the past few years that have benefited from such arrangements includes The Hives, The Knife, Arcade Fire and Wolfmother among many other Pitchfork darlings

There are many motivations for these governments to support such cultural spending. One is a sort of new-age Panda Diplomacy, the creation of good relations via the medium of cultural awareness. Another, as mentioned above, is economic. With the ability of consumers to go home immediately after a concert and download the songs they just heard, it has never been easier to increase sales, and therefore profits, for bands in foreign lands. There is also the protection of local culture. Any American who has spent time abroad, particularly in parts of Europe, will know that local radio stations can sometimes fool you into thinking you have never even left the States. Many politicians in places that aren't America feel a need to develop the type of cultural identity that can be formed most easily around music. Other explanations include national pride in a global brand and a more liberal attitude toward spending tax revenues for cultural purposes in more liberal countries.

So, what does all of this matter? Perhaps it doesn't unless you are a Scandinavian musician or of the age/mentality where you are attending music festivals on a regular basis and therefore benefiting from these modern day trailblazers. Even if you aren't, however, the contrast is systems can nonetheless serve as a case study in different approaches to social welfare.

Under the American system, it is clear that the market does the work. Deep-pocketed record executives find the poor talent, the talent makes music the public buys, the execs and bands get rich, and everyone goes home happy. Meanwhile, under the alternate approach, the government, at least in part, funds musicians from taxpayer dollars. This makes more sense where income tax rates are higher as folks have less disposable income to spend on things like albums and, therefore, rather than become upset by government expenditure, might even expect the national government to provide funding for such things. This is more likely to be applicable in places like Scandinavia where tax rates can be as high as 50%. Such a set up would just not be prudent in America, where, for all of the bluster, tax rates remain relatively low.

Without, for purposes of this particular article, passing judgment on either system, the above paragraph does seem to encapsulate different levels of, or perhaps approaches to, social welfare perfectly; tax more and provide more, including niceties like cultural experiences, or tax less and provide less, allowing individuals to choose what their money goes to. Though some tea-partiers might disagree, many of the countries noted above for their subsidization and high tax rates also boast some of the happiest populations on earth. Perhaps then the best way to wrap this up then is to merely say chacun ses goûts...

Eliminate the Dime, Too

We at Blawgconomics have been trying for some time to sneak the work of Gregg Easterbrook into a posting. Unfortunately, a discussion of the tactics of football coaches on fourth down doesn't typically lend itself to legal or economics analysis (though Mr. Easterbrook could likely make an economic connection between the safety of punting and the safety of job security, but I digress).

Probably best known for his Tuesday Morning Quarterback column on ESPN.com, Easterbrook also contributes to Reuters.com (a link can be found on this page under 'Editor's Picks'). We appreciate his style, which combines a tell-it-how-it-is, common sense approach with humor and the numbers to back it up. Luckily, one snippet from his latest TMQ is both an enjoyable example of his style and a relevant topic for a law and economics blog. Hope you enjoy it as much as we do:

Eliminate the Dime, Too:

The U.S. Treasury is seeking to save $100 million per year by removing nickel from the nickel; nickel lobbyists are fighting this in Congress. The International Zinc Association is lobbying to maintain the existence of the penny, which is mostly zinc. If the United States, at a time of record mega-deficits, can't even get rid of pennies because members of Congress fear the loss of donations from the zinc lobby, how will fiscal sense ever be established?

The quarter is the smallest unit of currency that bears meaning in modern society: pennies, nickels and dimes merely clog the national pocket, at a cost to taxpayers. Pennies mean so little they possess negative value: we should bury them in landfills! Instead, the Mint is subsidized with tax dollars to produce more of a worthless item, in order to avoid offending interest groups. Isn't this modern government waste in a nutshell?

As noted by many readers, including Deirdre O'Connell of Toronto, Canada has eliminated both the penny and the dollar bill. The dollar, the most-exchanged unit of currency, in Canada is a coin, which saves mint money by lasting longer than a paper dollar. When the United States trails Canada in anything, even sensible currency, it's time to act.

Zinc postscript: "Zinc is natural," the zinc lobby reminds, making it sound like something your kids should swallow. Of course zinc, atomic number 30, the first element in group 12, is natural. Arsenic is natural, too. Want some arsenic? TMQ contends that dangerous substances, or suspicious food additives, should be marketed with the slogan: Made with elements from nature's own periodic table.

Demographic Shift Creates Issues for Military Relationship

A recent article in The New York Times is worth a read for anyone interested in the complex, and sometimes precarious, relationship between the US and China. Though at the highest levels of government, there may be gamesmanship on things like trade, currency and foreign affairs, there is clear evidence of a mutual respect between China's top diplomats and government officials and their American counterparts.

However, with China's government and military increasingly being staffed by individuals who have grown up in a country which sees America as an obstacle rather than an inspiration or something to strive for, attitudes seem to be shifting. How this will play out is anyone's guess, but the article's author Michael Wines has some thoughts. Unfortunately his suggested solution of greater international exposure for young Chinese officers seems a tenuous one, but perhaps it is a start.

Nobel Economic Prizes Announced

Two Americans, including President Obama's latest nominee to the Federal Reserve Board, shared the 2010 Nobel economics prize with a British Cypriot. The trio was lauded for its work in the area of search theory, in particular how it applies to employment markets. Search theory, greatly oversimplified, is the idea that supply and demand don't always match up as neatly as the lines in Macro 101 suggest they might due to external factors, or 'frictions.'

Applied to the labor market of today, the inference is that, even when our economy starts to recover, frictions may make it difficult for the supply and demand sides of the market to match up. In other words, even if 10 employers need the 10 workers who are looking for jobs, reality might get in the way.

The award is certainly timely, even if none of the quotes from the winners provide much insight into how to alleviate some of the 'frictions' that seem to exist in today's job market. In any case, it is certainly less controversial than the award for peace, this year or last for that matter...

Analysis on the Funeral Protester Case

In the latest Snippets column we made reference to a case which has made its way to the Supreme Court. The case pins the First Amendment rights of protesters against the privacy rights of families. More specifically, a small church, made almost exclusively of family members of the pastor, is using the funerals of soldiers to claim that God is punishing the US for the homosexuality of some of its citizens.

While most people would find such a protest deplorable on its face, it is also true that First Amendment cases that make their way to the Supreme Court don't typically engender a boatload of sympathy on the facts. Indeed it is almost necessarily the most uncomfortable situations created by the most unsavory of characters which require the protective cloak of the First Amendment in the first place. Discussing this, and summarizing some of the directions the Court may choose to go after hearing oral arguments, is an excellent piece by Abigail Field. It can be found here.

The Political Underpinning of Tax Theory

There is no mistaking Professor Gregory Mankiw's political leanings (he advised both Presidents Reagan and the second Bush). Indeed the fruits of his pen can often be seen as more or less subtle justifications for certain Republican policies, something that he was accused of with regularity during the Bush years. As a result, he can rankle some. Much the same could be said of Professor Paul Krugman on the other end of the spectrum, though he likewise spent time on Reagan's advisory council. Indeed the author of 'The Conscience of a Liberal,' though he is a Nobel Prize winner, is identified with liberal punditry more than the dismal science in some quarters.

Despite political differences, the two could almost be mistaken for each other in a lot of ways. Aside from both spending time in the Reagan White House, both are adament free-trade advocates and have both been described as Keynesians, or sometimes New Keynesians, especially in Mankiw's case. Both spent time at MIT finishing Ph.D.s; both write for The New York Times. Both have written some of the best-known economic texts used at universities around the world. However, reflecting the views of the parties they are often identified with, indeed almost as standard bearers, they are diametrically opposed when it comes to tax policy. In particular, and in a timely manner with the expiration of the Bush tax cuts on the horizon, they find little common ground when it comes to taxes for the rich.

As aggressively as the Voice of the Liberal advocates for letting the wealthy pay their 'fair share,' Mankiw advocates for the type of trickle down policies made famous right around the time he was putting in his first shift on a presidential advisory committee. For anyone unfamiliar on unclear on what typical Republicans and Democrats think about taxation policy, both have written pieces summarizing some of their views in the aforementioned New York Times recently that do as good a job of expressing the opinions of either side as I have ever seen. Krugman's may be found here, while Mankiw's can be found here. I would be interested to see what readers think of either or both in the comments section.

Porsche Considering a Return to Formula One

However one slices it, whether it is the costs to run a team, the sponsorship dollars, the merchandising or the endorsements among many other factors, auto racing is big business. In the US, NASCAR is the reigning champ when it comes to winning the hearts and minds of the spectating public. However, nearly everywhere else in the world, from Asia to South America to Europe, people follow open-wheel racing much more rabidly. In its highest form, Formula One, the stakes are tremendous as the prestige of brands and the affections of consumers are at stake as much as points and trophies.

Porsche has not been a part of this world for some time; since the 1960s as a constructor and the '90s as an engine provider. However, with some of the costs of ownership set to decline with changing engine standards in the coming season, that may well change. Porsche, a part of the Volkswagen group, intends to make a final decision on the subject by early 2011.

Using Incentives to Power the Green Revolution

While the tea-stained mood of the nation seems to suggest that folks aren't taking too kindly to taxes and government spending in almost any form, it is also true that, next to prostitution, tax collecting might be the world's second oldest profession. And so long as governments exist, taxes, like prostitution, will continue to be a fact of life. It is also true that, while debate rages over global warming, with allegations of cover-ups, and conspiracies held up by an underpinning of poltical gamesmanship, anything that can be done to lessen dependence on foreign energy sources is probably a very good thing.

With these two facts firmly established, one logical conclusion could be that, if taxes are to be collected anyway, and if energy independence is a positive, the government should do what it can to incentivize citizens to become more green. In many ways, some more subtle than others, it does. One of the more recent developments, and one that has a great relevance to many citizens of the auto-centric US, is strong incentive schemes for hybrid cars.

In The New York Times this weekend there is a solid article outlining some of the incentives for the latest technological leap in the history of clean vehicles; mass produced pure electrics. The articles focuses on the first to market Nissan Leaf, however with other names scrambling to produce their own versions of electric-only vehicles, incentive schemes such as the ones outlined (which, in combination, appear to take anywhere from 30-40% off of the retail price of the Leaf) will become more widely discussed.

The List: The 20 Smartest Athletes in America

Too often, athletes are only newsworthy for actions off of the field when those actions are antisocial, criminal, or even psychopathic. Whether they are arrested with a guitar case full of guns, conspiring to kill pregnant girlfriends, cheating on their wives with twenty porn stars and escorts or running dogfighing rings (in just a few of the more colorful incidents of recent years) it is mostly the negative which gets splashed across the headlines.

Therefore it is always refreshing to see athletes mentioned in a positive light. A few weeks back, The Sporting News did just that with a piece on some very smart athletes. Though the mag undoubtedly missed a few along the way (and we would be interested to see the results were a more international sample set selected from) the athletes on this list, which includes a few amateur economists and legal hopefuls, deserve some attention.

The Future of Finance

For anyone interested in what the future of finance could look like, this piece on the Reuters website paints an interesting picture. The five-pager on Singapore discusses both the liberalization of a country which many Americans know only as the place where they cane people and the investments in infrastructure that the government is making to attract capital. At a time when the world's banking powers are in recovery mode, such changes have made the island state a hotspot for new investment.

Unemployment Numbers Getting Worse

The folks over at Gallup have put together some interesting statistics on both un- and under-employment in chart form with accompanying analysis. Both may be found here. According to the group, unemployment may have burst back through the psychologically important 10% level during the past few weeks to 10.1%, a sharp increase from the 9.3% level which has been the most quoted number for August. Underemployment also remains high, though this broader measure increased less dramatically to 18.8% from 18.6% last month.

The List: The World's Most Powerful Women

First Lady Michelle Obama moved 39 spots to gain the top spot on Forbes' annual list of the world's most powerful women. This year's list focuses on some abstract notions such as 'creativity' more than in previous years, perhaps explaining why Lady Gaga comes in at #6. However, traditional factors such as wealth and influence are not abandoned completely, as evidenced by the strong showing from the corporate and political worlds. In addition to the two aforementioned ladies, all three women sitting on the US Supreme Court, power pols Hillary Clinton and Angela Merkel, and top executives such as Irene Rosenfeld and Indra Nooyi are featured among 91 additional stars. All in all a very solid list and a very impressive collection of individuals.

Snippets...

Welcome to Snippets, Blawgconomics' semi-regular attempt at covering a lot of topics from the worlds of law, economics and politics in a little time. Some would call this lazy; economists prefer the term 'efficient.'

- President Obama, perhaps due to a lack of support on a comprehensive renewable energy bill from his buddies in Congress, decided to take matters into his own hands. Setting an example for all Americans, the Obama family has decided to Go Green at The White House, as a plan to put solar panels on the roof was announced. Obama is not the first president to tap into sun power in the nation's capital as President Bush previously placed a few panels on a maintenance building, and President Carter famously placed the first set of panels on the actual White House in the late 70's. However, there are none currently on The White House itself as President Reagan had Carter's removed in 1986. While we at Blawgconomics applaud the effort, we would be more impressed if the Environmentalist-in-Chief lent his support to certain other solar initiatives...

- Chalk this one up to some sad and perverse version of the old maxim 'I disapprove of what you say, but I will fight to the death your right to say it': The Supreme Court is set to decide whether First Amendment rights allow anti-gay protestors to ruin the private funerals of US soldiers.

- Interesting poll results from Rasmussen suggest that electing a multi-racial President wasn't the key to peace and harmony after all.

- SocGen 'rogue trader' Jerome Kerviel received his sentence for cheating the French bank's controls and losing nearly $5 billion in a series of increasingly aggressive trades. For his troubles, which he claims were facilitated by his superiors, he has received three years hard time, two years suspended, and a mandate for restitution. In other words, he owes the bank almost $5 billion. Though nobody seriously thinks that he will pay back even a cent of that money, the judgment does essentially exonerate the bank and takes certain tax penalties off of its books. Though this is entirely speculation, it wouldn't be surprising in today's world if the verdict was at least partially motivated by the politics of the situation.

- Think of it as the old prisoner's dilemma, but instead of a token prize in a first year economics class, it is the fate of the developed world in the balance...The IMF has warned that, if countries continue to keep up with the Joneses on currency movements, the nascent global recovery will likely fail. The problem of course is that no one wants to be the one holding the overvalued currency in the trade balance version of musical chairs. Developing...

- It seems as if some of the Greek austerity measures are working. This is especially important as it appears that the previous government apparently did as poor a job with record keeping as it did with the actual economy. Let's hope the Spaniards (and others) are taking notice...

- Perhaps concerned that the world's largest economies are trying to print one way tickets straight from Deflationaryfearville to Exportbliss City in a plan that has about a 90% chance of failing, rich people are buying gold.

- It appears that even the people who decide who the smartest people in the world are aren't immune to the vagaries of the financial markets. The Nobel Foundation, which manages the fortune left by dynamite inventor and prize namesake Alfred Nobel, has been losing money in the equity markets. As a result, the committee which awards the prize has frozen the value of the award since 2001. Though the amount is nominally the same, due to inflation, this year's prize is the lowest in real terms since 1999. However, as the prize money is still in the neighborhood of $1.4 million, I am sure nobody is complaining.

- The history of US foreign relations is a complicated one where for every highly-touted success story, there seem to be some dark chapters. Even among some of the darkest, a recently uncovered one stands out.

- The ownership group of the Boston Red Sox baseball club has successfully bid for control of the Liverpool football club in England. Though the notoriously tribal Liverpudlians haven't taken too kindly to the current crop of Yanks running the team, the new owners are hoping that clearing up the current debt turmoil facing the club and renewing a storied tradition of winning can help bridge the ocean-sized gap.

- And finally, in a story to keep an eye on which becomes more interesting the more The White House denies it, rumors around DC suggest that presidential advisors are considering the merits of a Clinton for Biden swap in 2012...

Vault Services Provide Golden Opportunity for Bankers

In a world of black box trading, derivatives, flash crashes and people causing a credit crisis by creating assets they don't really understand out of other assets they don't understand at all, it can almost make one feel nostalgic to hear about bankers doing what used to be known as banking. In some cases, that could be taking deposits and loaning that money back to people to buy homes or finance businesses. Sometimes it could mean holding on to something dear, like family heirlooms in a safety deposit box. And, at times, it might mean holding on to something very dear, like tons and tons of gold.

JP Morgan is one firm cashing in on the recent rise in gold, not by investing or creating derivatives, but by vaulting services. At times, vaulting is not viewed as a very profitable business as banks typically only receive a percentage of assets under protection. When gold is not that expensive, it is just not that lucrative to take up the space to store it. Indeed, JP Morgan, despite holding gold for certain clients, including ETFs, for some time, actually shut down a vault in the 90's when prices were lower. Other historic vaults have apparently been put to alternative uses, such as steakhouses. However, as the price of gold (as well as other precious metals) continues to rise, the margins that banks with vaulting services gain by storing those metals are increasing to the point where many banks are seeing green in gold.

It is this potential for relatively passive income that has caused JP Morgan to dust the cobwebs off of its aforementioned and currently empty underground storage area in New York. It hopes to attract some of the 30,000 tons of gold (1/6th of the world's supply) currently held by private investors. Although ETFs backed by the metal have provided a floor for prices with consistent buying, it is estimated by many that it is private investors who have really increased purchasing over the past few years. These so-called gold bugs have been piling into the commodity as an inflation hedge, likely a smart strategy so long as the reserve currency of the world continues to be printed as quickly as if the end result weren't worth the paper it was printed on.

Who Says Money Can't Buy Friends?

In a show of its financial clout, China has come to an understanding with Greece whereby it will purchase an undisclosed (and perhaps to be determined) amount of Greek bonds when the fiscally imperiled state resumes issuance.

Many see the situation as China's attempt to deflect recent criticisms over trade imbalances and the related issue of currency manipulation. However, with its coffers overflowing, it is a very logical move for China not only to diversify by investing in other nations, but to take a chance now and then on securities yielding more than its currently-favored US Treasury securities. Any future Greek sovereign issue will certainly fit that bill.

Some see every move the Chinese make as gamesmanship, or as strategic. While some element of the former exists, the latter is certainly in play. However, it is not any nefarious notion of strategy that is behind moves like this one; rather it is good plain simple investment strategy. If it wins a few friends and deflects a few criticisms along the way, so be it.

The Death of the American Dream? Not on My Watch...

This weekend in The Financial Times' Life & Arts section, one can find author Adam Haslett's interesting piece on preppy style, and his belief that it reflects a perhaps peculiarly American worldview. That worldview, in Haslett's opinion, is one that espouses the inviolable truism of upward mobility; not necessarily a lack of class structure, but an undying faith that hard work can help one to break the shackles of whatever circumstances one was born into to make one's own mark on the world.

This has been defined in a few simple words by countless authors, immigrants, citizens and politicians alike as 'the American Dream,' a phrase which both represents infinite past successes and hopefully informs countless future examples. According to Haslett, it is the 'aspirational identification with the rich and leisured' that leads people of every class to wear the preppy clothing that WASPs have long been known for, but it is the 'illusion of classlessness (through upward mobility) that underwrites Americans' famous capacity for optimism.' Therefore, wearing preppy clothes merely reflects a belief that hard work will one day place the wearer side by side with other risers in places where such clothing is de riguer, namely richly manicured golf courses and immaculate tennis courts; it really only should be a matter of time.

In the same article, Haslett contrasts this idyllic vision of America, represented by polo shirts and frayed chinos, with the fact that it has never actually been further from reality for average Americans. Quoting Timothy Noah of Slate Magazine, Haslett points out that 'the class elevator began stalling decades ago,' as the US currently has the greatest income inequality in the developed world. He points out a fact which may be surprising to some, that socially democratic nations such as Denmark and Sweden are now better qualified than the original nation of dreams to claim that imminent rise is possible, as a citizen of the middle class in such European states has a far better chance of elevating his or her status than counterparts in the United States.

Though Haslett points this out to emphasize his point, a recent poll has found that at least some average Americans are catching on to the notion of inequality. Among a few statistics pointing to a general mistrust of politicians combined with a blanket lack of faith that either party is better than the other, an ABC News/Yahoo! News poll released about two weeks ago represented that only about half of Americans still believe in the American Dream. Additionally, over 40% believe that it is more a thing of the past. Maybe Haslett's thesis is incorrect then. Maybe his counterfactual is actually the reality. Perhaps Americans have given up hope. Perhaps preppy fashion is very simply that, a fashion choice...

I, for one, think not. Though his thesis is perhaps a bit overblown, there is something to be said for presumptuous dressing, yes, but far more critically the inherent beliefs that lead to doing so. Therefore, though I would question the extent that preppy dressing reflects a belief in the ability to rise, I would not argue with the validity of the statement nor the belief system that, to whatever extent Haslett's thesis is true, it represents. I count myself among the 50% of Americans who still believe.

However, maybe this is simply reflective of my age. In another interesting Life & Arts piece, though from last week, Francesco Guerrera notes that one's view of the original Wall Street film is instructive; if you view it as a cautionary tale, you are catching director Oliver Stone's point, whereas if you sense it as a rags to riches story, you are trying to see the American Dream in it. Though I can certainly identify that Gekko is a 'bad guy,' I place myself firmly in the latter camp as I was always impressed by Bud Fox, his work ethic and his drive to reach the top. Morally stumbling along the way was simply a representation of his fallibility, particularly when faced with the specter of disappointing an idol.

Guerrara notes that the youth of today, perhaps with worldviews shaped more formatively by financial crises, Enrons, Tycos and the like are more likely to be in the former category. This, of course, is why many believe that the long-anticipated sequel will be so widely understood by the filmgoing public; rather than ambiguity surrounding whether certain characters wear white or black hats, today's well-informed (and perhaps more cynical) audience is savvy enough to tell the difference, and are therefore wearing the correct lenses to grasp Stone's vision.

Enough on metaphors and allegories however (at least for this post...). The fact remains that, of a presumably representative sample set, around 50% of Americans still believe that there is a dream with their name on it. In the midst of 'The Great Recession,' and a time of 10% unemployment, famously unpopular politicians and horribly unpopular wars, one could argue that isn't really that bad. Indeed, if the American Dream didn't exist, one of the hot buttons of the day, immigration policy, would no longer exist; presumably if that belief in obtaining what is currently unattainable didn't exist, nobody would risk life and limb to chase it. So what if 1% of Americans own 25% of the nation's wealth? If you want a piece of that apple pie, go and get it...

Obama to Stimulate the New Race to Space

Blawgconomics might be the first to criticize politicians for boneheaded decisions, but that doesn't mean that we won't take every opportunity to applaud good choices. The fact that we have about a 50 to 1 ratio to work with clearly reflects more on the state of politics than any malice on our part, but that is a topic for another day perhaps.

With that backdrop, we were very happy to see that President Obama is planning on signing a new budget for NASA which includes some serious incentives for private companies to get involved in Low Earth Orbit commercial ventures. This ability of the Boeings of the world to bid on contracts to, for example, take astronauts to space stations and into orbit would allow NASA to focus on planetary and deep-space exploration, putting the billions of dollars in the agency's budget to more efficient use.

Though appropriation will need to wait until lawmakers return from, in many cases foolhardedly, begging for votes, the President's signature should stimulate a strong private market for efficient space travel, and therefore open up more possibilities for the space program (though Dan Brown might be mortified to read about this development). With the country facing record deficits and with the space program otherwise flagging, that can only be a good thing for space afficionados.

Using Incentives to Battle HIV/AIDS in DC

As an amateur economist, it is music to Blawgconomics' ears when creative incentive schemes are used for the public good, particularly when it takes a de minimus amount of government dollars to accomplish the stated goal. Your author believes he has stumbled on just such a plan taking shape in the previous of the cities on his whistlestop tour of life, Washington, DC.

The nation's capital is wonderful in so many ways. Whether one is most affected by the grandeur of the Washington Monument, the stately demeanor of the White House, or the quiet beauty of cherry blossoms in the basin during those crisp morning of the springtime, there is much to like. Of course there is additionally the blessing of free access to some of the best museums and archives in the world, some of the best schools in the nation, top-notch sports and entertainment (well, okay, maybe top-notch is a bit of an overindulgence)...nonetheless, there is clearly a lot to like about the nation's capital.

As a major city with a large population of people below the poverty line, there are also many problems. Statistics are unnecessary to tell part of the tale; a simple walk through some areas does more to tell the story of the city's crime, homelessness and drug use than numbers ever could. Nonetheless, not all of the problems of city life appear right on the surface; not all are as obvious as a homeless man walking down the street, or a user passed out in a park. Therefore, some statistics are helpful, and among them one there is one is additionally highly impactful; 3%. As in it has been concluded that 3% of the city's inhabitants have HIV/AIDS. That number is incredibly 300% times that of the level considered to be a general epidemic.

How to combat this problem is something that has stumped a lot of folks with a lot more knowledge than your author on the subject. However, despite a lack of expertise, I can see a lot of merit to a first-of-its-kind plan that is being rolled out next Tuesday. Under the plan, people who are waiting to take care of normal business at the DMV will have the opportunity to receive a free HIV test. Additionally, Family and Medical Counseling Service (their website is under construction, but a quick Google search can show you the many other works the group is involved in), the nonprofit offering the testing, will give all participants a $15 credit to defray the costs of that DMV visit. In the worst case scenario, counseling and medical attention will also be offered.

Though there could be some downsides and holes in the plan as some people won't want to be tested in a public place, or subjected to public attention if tests came back positive, it is certainly a creative approach to a serious problem. And, if it helps even a few people learn their status, it could be the first positive step in lowering an alarming statistic that would otherwise continue to rise.

Flying for Fun?

Many people dislike flying. Whether it is the costs, the almost inevitable cases of the sniffles, the cramps or the modern state of security that is most annoying is certainly up for debate. However, few would deny, at least among those who fly in the sections I do, that air travel has some downsides. Some of the problems associated with air travel are inevitable, and so impossible for airlines to impact. As shared problems, they do little to impact the bottom lines of companies.

However, there are things companies can do to improve the overall experience and get a leg up on the competition. Therefore, anything a company can do to improve the in-flight experience should be commended by passengers and shareholders alike, particularly at moderate price points. It could be Jet Blue's use of live television, or British Airways' extensive movie selection, an extra sandwich on a long-haul, or even a simple smile from a crewmember. Or, it could be a song and dance routine to rival what you see at most college football game halftime shows.

Cebu Pacific recently took the latter approach, as cabin staff went through a regular safety demonstration on the ground only to replay the demo while dancing to the beats of Lady Gaga and Katy Perry while in flight. A novel approach if nothing else. And, though not impossible, it is hard to think of any scenario on most American flights where a safety demonstration would in spontaneous applause (though I would certainly appreciate any examples in the comments). The curious can view the song and dance below.