Worth reading.
Economics & Finance
Defining Wealth
The Christmas before last my son got a case of the flu he couldn’t shake. He had been running a fever for 8 days when he suddenly turned a bright pink all over as if he had just stepped out of a sauna. Then he developed itchy welts on his skin. Diphenhydramine (Benadryl) applied topically took the welts down so I knew the welts resulted from some kind of allergic reaction, but I couldn’t guess as to what, so off to the doctor’s we went.
The doctor looked at him and diagnosed strep throat. A $15 antibiotic and an over-the-counter cream for the itch and in a couple of days he was right as rain.
The pink skin and welts came from an interesting side effect of infection from the streptococcal bacteria that cause strep throat. The bacteria shed a protein called an endotoxin that has two effects on the body. First, it causes a dilation of the capillaries which causes a body wide blush. Second, the protein sticks to tissues in the body, especially the skin, which causes the body’s immune system to attack its own tissues. You might know of these effects under their historical name.
Scarlet fever.
Abandonment of the Euro Becomes Conceivable
From FT.com:
The under-fire euro fell further on Wednesday, slumping to an eight-month low against the US dollar amid rumblings over the long-term future of the eurozone.
The fresh selling was prompted by a report claiming that Hans Eichel, the German finance minister, and Axel Weber, the president of the Bundesbank, were present at a meeting at which the possible break-up of European Monetary Union was discussed.
The German Bundestag is also said to have commissioned a report on the legal repercussions of a country wishing to leave the EMU.
Germany’s finance ministry labelled the talk “absurd”, while Mr Eichel and Mr Weber issued a statement saying the euro was a “unique success story”. But the damage had been done.
Of course there are pro forma denials, but it looks like the French and Dutch referendum results have allowed the German govt to raise the obvious questions about why the Bundesbank should continue to support Europe’s weaker economies. The bigger question is why Germany went along with the Euro scheme in the first place. But having done it, and finding the going perhaps harder than they anticipated, the German pols and finance bureaucrats may now be looking for a place to get off the train.
Although most currency analysts regard the break-up of the eurozone as an extremely faint prospect, they said the potentially disastrous repercussions of such an event mean it could not be totally ignored.
Tony Norfield, global head of forex strategy at ABN Amro, put the probability of a splintering of the eurozone at “5 per cent or less”.
“Our view is that EMU will not break up. That will be way down the line as the last resort because of the political capital eveyone has got invested in it,” he said.
Nevertheless Mr Norfield added that if a break-up was to occur, it would be a “disaster” for the euro.
When people start talking like this it means that the odds of the events they are trying to dismiss are now high enough to be undismissable. This doesn’t mean Euro abandonment is a certainty, only that the odds of it are increasing. Look for more such talk in Germany and elsewhere.
If the Euro falls apart it won’t happen suddenly, just as Euro introduction was planned over an extended period. Governments are usually slow and deliberate about such major policy changes. Nonetheless, EMU failure would be like a giant fish hook ripped from the guts of the European political class: painful, messy and very interesting to watch. And it just became more likely.
How Things Fit – Microeconomics and the OODA Loop
It occurred to me that we tend to see the same economic thinkers
associated with each other. Sometimes it is because of membership in a
particular school of thought (Chicago, Austrian, Neo-Classical), sometimes
due to the political implications of their economics, other times as a
result of direct citation and elaboration of each other’s work. Often the
connection is unclear but the association is strong. In these cases, it
might be that the writers were describing different aspects or phases of
related economic processes. As a practical man of business, I was
interested in seeing what long-dead economist actually owned me, and I was
pretty sure it wasn’t Keynes. It turned out that I am in thrall to more
congenial proprietors, and some of what they say is of immediate interest in
understanding what is going on around me and what I’m doing about it. These
thinkers can be arranged in a sequential format to help describe economic
decision-making.
Col. John R. Boyd (USAF) developed a model of the decision cycle in war.
It is called the Boyd Cycle or the OODA Loop, for Observation,
Orientation, Decision, and Action.
Market Response
USA Today reports that college students have responded to massive technology sector layoffs by studying something besides Computer Science. This apparently comes as a surprise to the author, but not to the Chicago Boyz.
The article also points out that while the low-level tech jobs have been sent offshore to India, there is still a need for experienced people with both technology and business skills (business systems analysts, project leaders, etc.). The problem, which the author misses, is that the offshored jobs used to be the entry points into technology careers. Most of the accomplished techies I’ve met have spent time on the help desk, doing network maintenance, testing software, grinding out code, or doing some other necessary but “low-level” jobs. With these jobs scarce, there is no chance of getting the experience that the market wants. The pipeline is cut off.
We all know that HR’s ideal candidate is 22 years old with 15 years of industry experience. Good luck finding one.