Tag: Free exchange
Countdown for Tesla
Patrick Foulis joins host Simon Long to take a look at the financial gymnastics keeping Elon Musk’s business empire afloat. Also: the shadow economies that need a fuse of transparency and private equity’s socialist secret
The pound is one of the world’s worst-performing currencies in the past year
RARELY do people compare the British pound to the Nigerian naira, Azerbaijani manat or Malawian kwacha. But these are special times. Following the Brexit vote, investors dumped sterling. Some are worried about the possibility of a «hard» Brexit. Others are simply baffled by the government’s xenophobic and divisive rhetoric.
One question which people have not really explored is, what assets precisely are investors selling? After all, British stockmarkets are on the up (in pound terms, at least). And Britain’s government-bond prices are still very high (though in recent days they have fallen a little). Both of those phenomena suggest that money is flowing into British assets, not out of them.
We cannot be sure, but one likely explanation is that foreigners are selling cash holdings (instead of assets). The rise in the stockmarket, meanwhile, may be mainly due to the actions of domestic investors. The FTSE pays lots of dollar-denominated dividends so is increasingly attractive to British investors as the pound falls.
Anyway, so the pound is falling. How bad is the drop? To the right is a chart of a year-to-date change against the…Continue reading
What Walmart's pay-rise experiment says about the future of low-wage work
IT HAS been a long time since the economy really worked well for most American workers. Those without a college degree have found themselves losing relative economic ground since the early 1980s, and nearly all workers have had a rough time of things—facing stagnant pay, for example—since the beginning of this century. It would be really great if workers, and those with less education especially, could find ways to earn more. In an intriguing piece published over the weekend, Neil Irwin, of the New York Times, suggests that Walmart, the massive discount retailer, may have found an answer: pay workers more and you get better workers. It sounds fantastic, a win-win for everyone, and why has it taken firms so long to discover this possibility? Yet the solution might not be as simple as all that.
Mr Irwin notes that Walmart has long been one of the most aggressive and influential cost-cutters in the American economy: credited, in some studies, with single-handedly depressing pay…Continue reading
Will the Fed greet the next president with a recession?
IT WAS just a few months into the presidency of Barack Obama that America crept out of the Great Recession and into the current expansion. With just three months to go in his second term, Mr Obama seems likely to pass that expansion on to his successor. But what are they odds that she will make it through a four-year term without a brush with economic contraction? The Wall Street Journal polled 59 economists to get their view. They reckon there is a 60% chance of recession striking within the next four years. Is that a reasonable estimate? Let’s consider a few facts about expansions and recessions.
1) This expansion is getting up there in years, by American standards… The recovery began in June of 2009, which means that we are currently in its 88 month. According to NBER, which maintains a list of historical recessions going back to the mid-19th century, the current expansion is the fourth longest on record. The third longest, at 92 months, was the…Continue reading
There is more than one kind of economic mess to be in
HERE is a funny little story about the history of economics. John Maynard Keynes called his landmark economics text «The General Theory of Employment, Interest and Money». The «general theory» in the title was doing double duty. It modestly suggested a comparability between Keynes and Albert Einstein, a genius whose work revolutionised his field. It was also meant to convey that this was the big—one might say macro—idea shaping how employment, interest, and so on all work. Keynes’s peers, while impressed by the book, weren’t quite sure about its generality. John Hicks helped to turn Keynes’s great work into the models that would form the basis of macroeconomics textbooks, and shape policy thinking, for decades to come. Yet he also needled Keynes, writing that the great man’s economics provided a novel way of thinking about depressions but not much else:
[I]t is not the General Theory. We may call it, if we like, Mr. Keynes’ special theory. The General Theory…Continue reading
Flash Crash Bang Wallop
Philip Coggan joins host Simon Long to explain what’s next for the pound in the light of the latest flash crash in its value. Also: Ryan Avent delves into the work that won the latest Economics Nobel prize and Patrick Foulis lays out why Elon Musk’s finances might be as combustible as his rockets
Brexit is making Britons poorer, and meaner
THESE are exciting times for Britain’s currency, and not in a good way. On the eve of the vote on whether to leave the European Union, back in June, a pound bought you $1.48. Sterling has since declined by more than 16% against the dollar, to $1.22. Nearly half of the drop has occurred in the last week or so, as the Conservative government has outlined plans for a “hard” Brexit: one which shoves Britain right out of the single market in exchange for the ability to do more harm to itself by reducing migration.
In a piece for the Wall Street Journal, Greg Ip (a friend and former colleague of this blogger) does a nice job explaining the links between Brexit and a tumbling pound. Markets anticipate that it will become more costly for British firms to sell goods and services to Europe. Europeans will consequently buy fewer of them, and therefore fewer pounds, leading to a weaker currency. That is, cheap sterling is part of the adjustment to a loss in British competitiveness: the mechanism by which Britons come to spend less on foreign goodies (now…Continue reading
Oliver Hart and Bengt Holmstrom win the Nobel prize for economic sciences
SUPPOSE that you and I are interested in opening a lemonade stand together. We agree that I will bring the materials we need (cups, stand and so forth) while you will make the lemonade. I’ll do the pouring while you mind the cashbox and at the end we will split the proceeds fairly. A doubt niggles, though. I am worried you might, at the end, try to hog the contents of the cashbox. We therefore decide to draw up a contract (common practice in the lemonade-stand industry) dictating that the returns to our operation must be split evenly. But then you start to worry: much of the success of our stand will depend on the quality of the lemonade, over which I have no control. What if I decide to slack off and piggyback on your lemonade-brewing genius, knowing that after you pour your sweat into the lemonade (not literally), the split is still an even 50-50? We therefore set to haggling over language in the contract setting out precisely how each of us should do our respective jobs.
Contracts play a critical role in the operation of the modern economy. They set out who is allowed to do what with the land they own, the people they employ and the songs they store on their smartphones….Continue reading