By B.P.T., on October 14th, 2010
At 8:30 AM EDT, the U.S. government will release its weekly Jobless Claims report. The consensus is that there were 443,000 new jobless claims last week, which would would be 2,000 less than last week’s number as employment figures in the U.S. continue to show gradual improvement.
Also at 8:30 AM EDT, the Producer Price Index for September will be released. The consensus is that the index increased 0.1% over last month, and increased 0.1% when food and energy are excluded.
Also at 8:30 AM EDT, the International Trade report for August will be released. The consensus is a deficit of $44.3 billion, which would be an increase of $0.5 billion from July.
At 10:30 AM EDT, the weekly Energy Information Administration Natural Gas Report will be released, giving an update on natural gas inventories in the United States.
At 11:00 AM EDT, the weekly Energy Information Administration Petroleum Status Report will be released, giving investors an update on oil inventories in the United States.
At 4:30 PM EDT, the Federal Reserve will release its Money Supply report, showing the amount of liquidity available in the U.S. economy.
Also at 4:30 PM EDT, the Federal Reserve will release its Balance Sheet report, showing the amount of liquidity the Fed has injected into the economy by adding or removing reserves.
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By Winton Bates, on October 13th, 2010
 This post continues the discussion in some previous posts about understanding teenage drug use. In the first post Ruth, a nurse who has worked in psych wards and prisons, illustrated the nature of the problem by telling the sad story of a man who has been suffering from drug induced psychosis (DIP) over a long period following an incident just before his 18th birthday. In the second post we explored whether viewing drug taking as a rational choice helped us to understand the problem. I concluded that it tended to put the problem back into the too hard basket.
I think the best way to try to understand complex issues is to begin by asking naive questions that help to define the problem. (The down-side of this approach is that it reveals my ignorance.) What kind of problem is this? Is it primarily genetic/neurological, psychological, sociological or economic?
Some papers suggest that genetics and neurology may be important. DIP is linked to childhood experience of attention deficit/ hyperactivity disorder and a family history of psychiatric illness. Ruth’s response on the basis of her experience in psych wards is that there is no family history of mental illness for the great majority of those with DIP.
I think there are also problems with both psychological and sociological explanations of why some teenagers are take the risks associated with drug use. It is reasonably clear that psychological issues e.g. self esteem are often involved. Yet, some kids who get involved seem to popular among their peers and achieve to a high level academically or on the sporting field.
Similarly, while incidence of drug abuse is higher among some socio-economic groups, some kids don’t adopt the culture of the socio-economic groups to which they belong. In any case, it isn’t very enlightening to answer questions about why individuals behave the way by saying, ‘Well, how would you expect someone with that cultural or environmental background to behave’. If we are attempting to explain individual behaviour we need to recognize that individuals make choices.
 That brings us back to economics. The field of economics that seems to me to be most relevant is identity economics, which has recently developed by George Akerlof and Rachel Kranton (who have recently written a book about it). The basic idea is that individuals gain satisfaction when their actions conform to the norms and ideals of their identity as well as from their consumption of goods and services. Identity can be considered as an objective social category (e.g. gender, race, social class, age group) but in this instance I think it makes more sense to view it as a subjective identification with a particular group (e.g. insiders or outsiders; conformists or non-conformists) or with a particular set of attitudes. (I have previously written about identity economics in different contexts, here and here.) So, if you want to understand why people behave the way the do it may help to know how this behaviour relates to the way they think of themselves. Kids who engage in particularly risky thrill-seeking or escapist behaviour possibly obtain some satisfaction from thinking of themselves as the kinds of people who do that kind of thing.
By B.P.T., on October 13th, 2010
The Mortgage Bankers’ Association purchase index was released at 7:00 AM EDT, and there was a week to week decrease of 8.5% in the Purchase Index and a week to week increase of 21% in the Refinance Index as housing demand remains weak, and record low interest rates are causing people to refinance their existing mortgages.
At 8:30 AM EDT, the monthly Import and Export Prices index for September will be released, providing some data that can be used to monitor the threat of inflation.
At 2:00 PM EDT, the Treasury budget for September will be released. The consensus is a deficit of $32 billion, which is larger than the historical average, but less than last September.
At 4:10 PM EDT, Ben Bernanke will discuss business innovation at a Cleveland Federal Reserve event in Pittsburgh.
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By B.P.T., on October 13th, 2010
By Bron Suchecki, on October 12th, 2010
Professor Keen presents a dramatic analogy in his recent article on his speech at the American Monetary Institute’s 2010 conference: “banks are effectively debt pushers, and trying to control bank lending at the source is like trying to control the spread of illegal drugs by directly controlling the drug pushers. While ever there are drug users who want the drugs, then there will be a profit to be made by selling drugs, and drug pushers will always find ways around direct controls.”
The comments were a response to the American Monetary Institute’s campaign to establish a 100% reserve banking system. While Professor Keen is ambivalent about the proposal, he feels that the issue “is not how money is created, but how it is used. If it’s used to finance productive investment, then generally speaking all will be well; but if it’s used to finance speculation on asset prices, then it will lead to financial crises”.
He therefore feels reforms need to be focused on modifying borrower behavior rather than trying to regulate lenders. His article is worth a read for his proposed reforms and the civil and mostly intelligent debate of them that follows in the comments section. 
By Ajay Shah, on October 12th, 2010
Akbar’s transport of ice
In the ferocious height of the Delhi summer, Akbar setup a mechanism whereby horses started out with ice in Kashmir and rode south. The ice was handed from one horse to another, keeping it constantly on the move. In the end, what reached him was a few kilos of ice.
(I’m unable to recollect where I read this, and google doesn’t seem to have heard about it. Please do tell me if you know something about this.)
The Indian ice trade
In 1833, merchants figured out that it was profitable to transport ice from the US to India. The existing technical skills enabled the production of low-grade ice in Calcutta for six weeks of the year at a price of 4p per pound. Transport by sea made possible perfect Boston ice, available round the year, at a price of 3p per pound. Ships would start out with 150 tons of ice and reach Calcutta with 2 tons of ice.
`Ice houses’ were built to store ice. The ice houses in Bombay and Calcutta no longer exist, but the ice house in Madras, built in 1841, still exists [location].
In 1878, manufacturing of ice began with the formation of the Bengal Ice Company, and this transport of ice from America dwindled away. By 1882 — a short four years later — it had ended. In 1904, there was an ice plant in Peshawar.
Sources: Better than Hooghly slush by Jayakrishnan Nair, in Pragati, June 2010.
The world’s largest refinery on the coast of Jamnagar
India’s biggest company, Reliance Industries, runs the world’s largest refinery off the coast of Jamnagar. Crude oil is imported here, products are made, and re-exported. Here’s my interpretation of what’s going on. The natural place to put a refinery is in the Persian Gulf, but the political risk in that region is too great, given that the fixed assets in question amount to Rs.2.3 trillion.
What’s the most efficient way out? To transport crude oil on the shortest possible hop from the Middle East to a place with political stability. That takes you to the coast of Gujarat.
A new trade: Alaskan water
I just read a story by Sambit Saha in the Telegraph about a new frontier in trade. A firm named True Alaska Bottling has obtained rights to transport 11.34 billion litres of water (i.e. 11.34 million tonnes) out of a lake in Sitka, Alaska. This will be transported to a plant near Bombay, which will be run by a firm named S2C Global, thus yielding bottled water to be sold in India and in the Middle East.
This seems to me to reflect an extension of the themes above. If you want to deliver product into the Middle East, it is better to build a factory in India given political stability and low labour cost. In this sense, it’s a bit like Reliance. And, it reminds me of the old ice trade; except that this time we’re transporting water.
By B.P.T., on October 12th, 2010
At 7:45 AM EDT, the weekly ICSC-Goldman Store Sales report will be released, giving an update on the health of the consumer through this analysis of retail sales.
At 8:55 AM EDT, the weekly Redbook report will be released, giving us more information about consumer spending.
At 2:15 PM EDT, the FOMC Meeting Minutes will be released, which will provide insight into how the Federal Reserve board governors and bank presidents view the economy.
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By Bron Suchecki, on October 11th, 2010
UK financial writer Dominic Frisby argues “that both metals [gold and silver] are still in a bull-market phase. Any mania is yet to come.” In support, he notes that in 1980 gold bullion went from $400 to $873 an ounce in only 36 trading days, with silver trading from $16 to $50 in 37 days. The current market is not exhibiting those sort of price moves.
He also proposes looking at the value of the US gold reserves compared to money on issue as an indicator of a bubble – “in 1980 … the market value of the 260 million ounces of gold held by the USA in Fort Knox came in at $221bn, yet only some $160bn of paper money was in issue” so if “the market value of the gold held in Fort Knox once again exceeds the number of US dollars the US authorities have issued, then gold will be in bubble territory once again, in that it will be trading at levels above its intrinsic value”.
Dominic closes his article with his definition of a bubble that I think may explain why a lot of financial commentators are consistently negative on gold: “A bubble is a bull market in which you don’t have a position”. However, I doubt we will see many of them change their view and buy gold, because these days the internet means all their previous statements are recorded and easily searchable and I can’t see them admitting they were wrong. 
By Ajay Shah, on October 11th, 2010
C. J. Chivers has a story in the New York Times from Uzbekistan which links up to an idea that I have often thought would be a great step forward for India: the interior of every police station in the country should be blanketed with video cameras giving feeds out to the Net. As Robert Kaplan says, underdevelopment is where the police are more dangerous than the criminals. If we think surveillance cameras are important in public places, they are triply important to watch the interiors of police stations. On a related note, see this harrowing story about a journalist in Pakistan. Do we do similarly?
A fascinating fact about insurgencies: while a diverse array of weapons can be in fray, ammunition is quite well standardised. Writing about the guns used by the Taliban, C. J. Chivers points out on the New York Times blog, `for the 24 rifles and machine guns in the locker, produced in multiple nations over many decades, only three types of cartridges are required to feed them‘.
Shobhana Subramanian in the Financial Express on C. B. Bhave. And, Sandeep Singh has a story in the Hindustan Times about Mr. Bhave coming through fine on one attack on him.
Ashok Desai reviews a book in Business World. Also see.
Auditor and Audit Committee Independence in India by Jayati Sarkar and Subrata Sarkar.
Developments on MCX:
- John J. Lothian is a respected observer of the global securities business. He has written a piece about Financial Technologies Group titled You gotta earn it.
- Mobis Philipose in Mint.
- Deepshikha Sikarwar in the Economic Times.
- A story by Deepika D. Thapliyal on NDTV.
An editorial in Business World on the MoF Working Group on Foreign Investment.
Learn R in Bombay.
Gautam Bhardwaj in the Indian Express on using the NPS to solve the problems of EPFO.
Sunil Jain on the difficulties of the data reported by the Indian statistical system.
An editorial in the Business Standard about developments on private container train companies, which reminds me of the conflicts between DoT and private telecom companies in the early 1990s.
Mobis Philipose worries about the apparent turnover numbers that we’re seeing.
An editorial in the Mint on the latest attempt to keep FMC separate from mainstream financial regulation.
Jan Sjunnesson Rao in Education World on the damage that the Right to Education Act is causing.
The Economics of Foodgrain Management in India by Kaushik Basu, DEA Working Paper, September 2010.
A recent paper by Guido Heineck and Bernd Sussmuth finds that the blight of communism runs deep: Using data from the German Socio-Economic Panel, we find that despite twenty years of reunification East Germans are still characterized by a persistent level of social distrust. In comparison to West Germans, they are also less inclined to see others as fair or helpful..
A great interview with Condoleezza Rice on Spiegel Online about the halcyon days of 1989.
The last practical connection with World War I just died away. The legacy of that war, of course, remains with us; everything that came after was attenuated.
David Sanger in the New York Times; Jaswant Singh and Jeffrey N. Wasserstrom on Project Syndicate, on Engaging China. Also see these threats being made against Norway.
Mick Meenan in the New York Times about kabbadi going places.
A great story about the innovative logistics of the Italian army in Ethiopia in 1938.
Greg Mankiw on the high marginal tax rates which are hobbling labour supply in many countries.
China’s Charter 08 is a brilliant and well-crafted document, worthy of a Nobel Peace Prize.
Norman MacLean wrote a great article in Lapham’s Quarterly about his 1928 experiences with violinist, watercolorist, chess player, and physicist: Albert Michelson. They don’t make men like that these days.
Randall Stross in the New York Times on the making of Steve Jobs.
Brad DeLong on Who can replace Larry Summers?.
A great article by Michael Heilemann on binarybonsai: George Lucas Stole Chewbacca, But It’s Okay, which made me think about how copyright, patents and `intellectual property’ fit uneasily into the creative process. As he says: Chewbacca didn’t spring to life out of nowhere, fully formed when Lucas saw his dog in the passenger seat of his car. That’s the soundbite. A single step. The reality is complex and human. From vague names floating around, the kernel of an idea, changing purposes and roles of characters, major restructuring, the design hopping from person to person, scrapping the existing concept and going down a different path, seeing existing things in a different light and having to conform a range of ideas to complement and enrich one another.. Everything is a remix.
At the frontiers of computing is `cloud computing’, where users rent equipment, e.g. by the hour. Amazon’s tariff card for such rental is bad news for developers who built knowledge on Microsoft technologies.
John Taylor has a story about Japanese currency manipulation. Recent research shows that the role of the Yen in global currency arrangements has been waning, and this episode of currency trading by the BoJ will exacerbate this trend.
By Winton Bates, on October 11th, 2010
 In his book, ‘A Theory of Justice’, John Rawls considered what principles of justice would be agreed upon by all behind a veil of ignorance in which no one knows their place in society – their wealth, their class position or social status, their intelligence, strength, state of health etc. One of the principles that Rawls argued would be agreed upon is the ‘difference principle’ – that social and economic inequalities should exist only insofar as they benefit the least well off members of society.  I think the veil of ignorance thought experiment is useful to consider public policy issues from a perspective that is broader than my own perceived interests. When I do this thought experiment, however, I don’t endorse the difference principle (sometimes referred to as the maximin principle). The principle I come up with is to maximize the opportunities of any person chosen at random, subject to provision of a safety net to protect the well-being of the least well off members of society. I expect that some critics would say, however, that I get this outcome because I am not doing the thought experiment properly.
A study undertaken by Hörisch Hannah a couple of years ago does not seem to have the same potential for personal bias to influence the results obtained. Hannah implemented the Rawlsian veil of ignorance in a laboratory experiment using variants of the dictator game (see: ‘Is the veil of ignorance only a concept about risk? An experiment’, Munich Discussion Paper No 2007-4). In the first experiment, one player, the dictator, decides how much of the pie will be received by the other player, given an efficiency loss of 50 percent for units that are transferred from the dictator to the receiver. The veil of ignorance is implemented by requiring each player to decide how much to give to the other player before being assigned the role of dictator or receiver (with equal probability). The second experiment is the same as the first except that the role of receiver is not actually assigned to a person so the outcome can be interpreted as a self-interested response to risk.
Only a minority of subjects opted for the maximin principle under either experiment. The vast majority of male participants perceived the veil of ignorance as introducing only risk. Among women participants, however, impartial social preferences were a second significant motivation that induces stronger concern for equality.
Although I think the results of the study are extremely interesting, they can hardly be presumed to reflect universal values. The study is quite small, with only 167 participants (all university students). There may be potential for bias because about two-thirds of respondents have studied some economics. It would be interesting to see results for similar studies, for people of different ages and backgrounds in different countries.
It would also be interesting to know whether there is any link between the values that people display when they play this game and their political views. Are the views of individual voters strongly influenced by principles that they support irrespective of their own perceived interests? If so, then perhaps politicians are whistling the wrong tune (or whistling to the wrong dog) when they are seen all the time to be responding to rent-seeking by narrow interest groups.
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