Most investors and analysts seem to have concluded that inflation is not a serious problem, and that long-term interest rates will stay low for a considerable period of time. (The 10-year Treasury rate is now at 4.696%.) Writing in Financial Times (9/21), Joachim Fels, managing director and chief global fixed income strategist at Morgan Stanley, argues that such thinking is incorrect.
Economics & Finance
Inefficient Efficiencies
Instapundit links to a FastCompany article about Walmart’s pushing of the use of high-efficiency compact fluorescent lightbulbs (CFLs) as a means of cutting energy consumption. I like CFLs and use them in my home. Walmart’s effort represents an honest attempt to try to reduce energy consumption.
To bad this effort and all other efforts to reduce energy consumption via greater efficiency will never, ever work.
Virtue is not just its own Reward
I ran into something rather puzzling when I was looking into some of the things that determine the success or failure of countries. I know Fukuyama did a whole book on the subject, but it was not especially satisfying. It seemed to back into its conclusions without offering much empirical support.
I do think that Fukuyama was onto something, though. There is a paper, available online, by Bo Rothstein that approaches issues of trust from the direction of game theory. Start with the famous “prisoner’s dilemma,” in which two prisoners are being interrogated separately. If both remain silent, there will not be enough evidence to convict either, and they will both go free. However, the one who confesses first will receive a light sentence and the other will bear the greater punishment. This problem has two equilibrium points: one confesses and takes the intermediate reward (or less punishment), or neither confesses and both collect the reward of going free. In essence, countries can reach several equilibrium points in how the citizens of each country treat each other. Rothstein points out that we often act against our rational self-interest. For example, we refrain from stealing even when there is no chance of being detected. We will even give up some value for the opportunity to punish someone who we feel has cheated us, which makes no monetary sense. If we expect that we will be cheated, however, we will take the opportunity to cheat ourselves. We can reach a stable equilibrium of either trusting and acting on trust, or mistrusting and acting on that mistrust.
Measuring trust is not an easy thing, so I chose a close substitute. I figured that the index of perceived corruption by Transparency International was a reasonable estimate of trustworthiness. This assumes that the perception is accurate, and gives an idea of the degree of trust in that society. In Transparency’s corruption index, 10 is angelic and anything below 5 indicates a problem. As a measure of prosperity, I used per capita GDP, according to the CIA Factbook.
The correlation? 90%! You can’t get a much tighter correlation in real life.
The figures and more thoughts are on the jump page.
An Interview
A portrait of a marriage as much as an interview – the Friedmans discuss history & economics.
Actually, I’ve got a sweet anecdote about the romantic nature of economics. One of my husband’s friends got a Ph.D. in Eco (I think Savings chaired it) and then, later, went to law school. He was working for the state regulatory board when he wrote the regulations for the telephone company (I think). By then his first marriage had dissolved. A woman economist was given his work to study. She said she read it closely, going again and again over it, fastening post-its, marking passages. Then she was introduced to him and found him as lucid as his prose. She had fallen in love with him for his regulatory philosophy and the beauty of his writing. They’ve been married for a dozen years or more; their smiles are caught in one of the more charming pictures from my daughter’s wedding last month. I tell this story every semester to my freshman writing students, but I’m not sure if they believe me. It is, however, true.
Quote of the Day
Among many activists, regulators and legislators, there is a pervasive myth that a little overregulation never hurt anyone. But a “little” here and a “little” there add up. The reality is that regulation exacts societal costs whose magnitude is almost unimaginable.
According to the Competitive Enterprise Institute, U.S. regulatory costs in 2005 were $1.13 trillion, equal to almost half of all of the government’s discretionary, entitlement and interest spending, and much larger than the sum of all corporate pretax profits — $874 billion. Much of the expenditure on regulation is ill-spent on the most expensive cures that do the least good.
-Henry I. Miller, Investor’s Business Daily op-ed page, July 11