Tuesday, June 30, 2009
What a rip off! That means that if you are one of five clogging sisters, who are all now married with kids and living in different states, winning the "million dollar contest" means getting annual five thousand dollar checks until 2049. And who knows what the value of the dollar will be at that time?
What if you are an unemployed farmer from Kentucky, with a gift for Country music, and you choose the annuity's present value when you win? How much would you take home?Well, assuming five percent interest, we can use our simple present value formula (right): if i=.05, n=40, and C=1,000,000 then our present value is $428,977.16. Deduct federal income tax (my unemployed friend, you are now a high earner and get to pay 35% like the rest of the fat cats) and state income tax (6% in Kentucky) and you are left with $253,096 a mear quarter of the purported prize.
I don't have a favorite yet, but I'm hoping some more high quality acts will be found in the next cities' auditions for the Las Vegas showdown (read hoping David Hasselhoff will say something insane to praise a mediocre act). Regardless, I hope whoever wins isn't too disappointed by the real value of their prize. Shame on NBC for being so stingy!
"The European Union has the toughest screening process of airlines in the world: More than 160 are on its current black list, meaning that they are not allowed to fly into or out of EU countries."
Notably absent from his post is any mention of the Air France disaster, the largest plane crash in 2009 in terms of fatalities. I'm reasonably certain that Air France is not blacklisted by the European Union.
Sunday, June 28, 2009
Wednesday, June 24, 2009
I spent the morning railing on FDR - not the first time I've done that - but this article paints Reagan in that same light... an overrated President who is wildly popular even though his policies largely hurt the average American. I'm not sure where he belongs, but this article suggests in 20 more years, if we can get through the aftermath of the Bush years, we'll see Reaganomics get a scholarly treatment akin to the Keynesian ideas of the 1930s.
“In Europe, the high cost of fuel pushes consumers to buy fuel-efficient vehicles,” Close said. “In the U.S., it’s the government trying to convince people this is the sort of technology they need. The big question is whether they will succeed.”
The government can force people to like small cars by making it prohibitively expensive to own big ones. Why do we waste our time with subsidies and fuel standards? Unreal.
"Exploring and colonizing Mars can bring us new scientific understanding of climate change, of how planet-wide processes can make a warm and wet world into a barren landscape. By exploring and understanding Mars, we may gain key insights into the past and future of our own world."
Is this nothing more than a plea to return to the final frontier, or is there merit behind the idea of colonizing Mars to learn about climate change? I'm reasonably certain it's the former. Right?
I still have my final tomorrow but essentially this is it. A lot of interesting stuff, most of it much more interesting than what I've blogged about. I'm going to try to write up a decent synthesis of all this info while I'm in California... we'll see what happens.
Today's most interesting snippet: according to my professor, no euro zone state has deposit insurance akin to the FDIC. This is because the banking sector is so highly regulated that deposit insurance is unnecessary. (I've been unable to verify this fact yet)
I can't imagine this is an optimal situation for anyone. Too much money spent on regulators, who may well make a mistake at some point anyway, and too little room for banks and citizens to profit. One of the biggest things holding back investment and innovation in Italy is the difficulty of securing a loan; easier credit would result in more defaults, but also more growth.
Next: 90% of Italian companies are family-owned. From Molteni to Circi, Versace and everything in between, nearly every business is passed from father to son, and even bears the family name.
Oh, and there are only 294 companies listed on the Italian stock exchange. Wow.
It's been a great ride. Final tomorrow, synthesis in the future, and retirement to a villa on the countryside in 40 years.
I'm pretty sure Tyler already addressed this in the Times - here is the article from May. Here is MR. I don't want to simply re-post old things from a better blog than this one, but I think Tyler's point is worth repeating and will need to be repeated over and over for the next couple of years. The Constitution explicitly makes the legislative the most powerful branch, and though it is often easier to defer decision-making powers to the executive branch, I think the Iraqi invasion underscores the need for it to be difficult to make substantial policy decisions.
Personally, I think it's time for the judicial branch to re-assert its authority. Since Jackson, the executive branch is constantly trying to expand. Ever since FDR nearly subsumed the Supreme Court, I think the balance of power has shifted too far away from the court system, and I think the recent expansion of executive power needs to be cut down by the courts. This is unlikely, at best, but I do believe it's what America needs.
Tuesday, June 23, 2009
"Governments historically have proven singularly inept at making design decisions, as any number of jokes and real-life stories about Soviet-style economies make clear." Absolutely dripping with Masonomics, one of the things I have missed most while in Italy.
"Once an agency like the EU's competition directorate asserts authority over the features included in a dominant firm's products, there is no easy stopping point short of complete control of all significant business decisions. Once government opens this door, rival businesses (which don't want the leading firm's bundle competing with their products) learn that complaining to government can be a less costly way to gain market share than investing in better products, packaging or marketing."
Sounds like the EU needs to watch Cartoon Wars.
Monday, June 22, 2009
That's from this article on Bloomberg about the fall of Toyota. Well, okay, the fall hasn't happened yet, but it's possible on the horizon based on how closely Toyota Motor Corporation has followed General Motors for the past decade or more.
Factories, of course, make no sense as government investments, because they are capital intensive. If you are a government and really want to stimulate employment, you should invest in labor-intensive industries such as agriculture and tourism, which are the two industries that currently dominate the Southern Italian economy.
George Mason moment of the day: we were complaining about the inefficiency of bureaucracy and without knowing it, my professor described Parkinson's Law. "Work expands to fill the time provided." What an excellent little book - look it up, it takes about a half hour to read the whole thing. Funny throughout.
My last thought: The opportunity cost of doing business in Southern Italy is simply too high. With labor costs standard throughout the country (as discussed in earlier posts), bureaucracy costs as high there as anywhere else, terrible infrastructure, competition from the underground economy, and guaranteed interaction with the mafia if you turn a profit, there's simply no reason to go further from the heart of the EU and do business in the South of Italy. The problems are so vast, I can't even begin to suggest a solution.
I'm not sure where economics factors into any of this, I just felt like mentioning that these are two places you must visit at some point in your life.
Thursday, June 18, 2009
"Cake goes to those groups who have trade unions representing them."
Another interesting note: Italy pays about 5% of GDP each year as interest on its national debt. The debt is expected to grow to about 120% of GDP by the end of 2010, which puts it at close to double American debt. However, Italy actually has a primary balance surplus. Primary balance is the revenues less expenditures, excluding interest on national debt. That won't happen this year with the recession, but most years this has been the saving grace of the government that allows it to continue borrowing. However, until Italy gets the actual budget into surplus, it will not be able to pay down its debt, making it the American homeowner borrowing from one credit card to pay for another.
Tuesday, June 16, 2009
Anyone have an explanation for why WSJ remains one of the only newspapers where you have to pay to read their online content? They can't be making that much revenue from a paid subscription, and online content is vastly cheaper than home delivery of a paper anyway, so shouldn't they encourage people to go online?
Anyway, the point of this post was to talk about this article. Here's the concluding line:
"Although there is no profit now in complaining that Israel should have struck during the Bush years, the missed opportunity is palpable."
The entire article brings to mind two important questions in my mind. How close were we to an Israel-instigated theater in the Middle East during the Bush years? Also, is Obama's approach to the Middle East more or less likely to maintain the status quo (and as an aside, is this beneficial)?
Here's a quote I found really interesting from one of the few "let the election stand" articles I've read:
"Before the Iranian election, the Obama administration had fallen for the same illusion as many of its predecessors — the illusion that Iranian politics is primarily about personalities and finding the right personality to deal with. That is not how Iranian politics works."
You can read the rest of the article here. I don't think even Obama himself knows how he will handle this situation, but it's yet another twist in the ongoing US/Iran saga and yet another test for the young American President.
Monday, June 15, 2009
It's interesting to me to learn about the Italian economy and gov't, because I naturally think of the current state of affairs in Italy as some sort of an equilibrium. After all, this system has evolved over time to its current form, therefore it must be in balance somehow.
However, one look at the system and you see it's completely unsustainable in the long-term. We think we have problems with social security in America, but in Italy, "dependent workers" are promised 80% of their salary from their last three years upon retiring (62 for women, 65 for men). Forecasts for the Italian population are worse than forecasts for the American equivalent - aka their population is aging to a greater extent than our own. Oh, and did I mention that their history of fiscal irresponsibility is far worse than ours? Their budget defecit, as a percentage of GDP, is expected to go over 110%, likely higher, by the end of the next two years (which is assumed to be the end of the recession). They have absolutely no room to spend their way out of this mess.
One way that the Italians could fix this, in theory, is to tap into the black/grey economy, which represents 15-25% of GDP, depending on who is estimating. However, the concept of equilibrium returns here. Italians have this "you scratch my back, I'll scratch yours" philosophy which maintains the economic situation. The government has no flexibility to attack the black market because everyone has a vested interest in extending the current conditions.
It was also interesting to hear my professor talk about the "dependent employees" as victims today, because they do not have the flexibility to evade taxes of the self-employed or owners of SMEs. They have been villanized in every other class session, but today his portrayal almost made me feel sorry for them (okay, not really, but take today independently and you would've felt bad for these guys). They are the equivalents of the workers in the airline industry 5-6 years ago, or GM employees in the last year. Powerful unions have put them in an unsustainable equilibrium, and it seems eventual that they will get screwed out of generous pension/healthcare when the money runs out, and they will be left with nothing. Are the Italians concerned? I don't think many of them even realize it's coming.
Other things: To try to collect a little tax revenue, Berlusconi has issued candones, or decrees that allow you to pay only 10% of previously unpaid taxes in exchange for forgiveness of all prior debts. Interestingly, the centre-left is against these policies, because it knows that these encourage tax evasion in the long-term. However, Berlusconi needs money, and he'll take it however he can get it. The backwards nature of the parties and their policies is just comical.
Direct quotes from class: How is it that Berlusconi can have so many supporters? Manipulation of Information. I haven't even mentioned the story of Alitalia's privatization, it's too long for this already ridiculous post, but I might put it up tomorrow. Needless to say, it's a pathetic story.
"Normally you don't fight for new rights. You fight to retain old ones." This one resonated with me and I'm not sure why - definitely the subject of a future post.
Thanks for reading, if you didn't get lost in that whole mess. There's a lot here but what it basically comes down to is, Italy is screwed in the not-too-distant future, but there's no desire on their part to face that problem. I suppose there's some question in my mind of whether the whole global system is facing collapse eventually, and whether in that case it's better to be Italy and fall first, or America and hold on until the bitter end. Hmmmm...
Friday, June 12, 2009
Under the current norm it is not in the interest of authors to send their data sets to strangers who ask for them. Their work has been verified under peer review, and published, which means that their arguments are sound and the data supports their conclusions. An additional reviewer can add no marginal credibility to the work, but can tear it apart if he discovers different results in the process of replication.
However, if that norm is adjusted to where Levy believes the field is moving, that eventually only replicable work will be trusted, then it will be in the interest of authors to provide their data sets to others. Failure to do so will bring the author's credibility into question.
Thursday, June 11, 2009
So it was very timely to read this article in The Economist about changes in the supply of electricity for Italian citizens. The last paragraph is very telling.
Here is one reason - they aren't going away anytime soon.
Gorbachev's talk embodied some other reasons - replacing the two superpower system with one superpower clearly has failed. It's not a model for international success and whether US influence keeps declining, EU influence increases, Russian influence returns or someone else (China? India?) appears, we are going to be looking at a very different international community by the middle of my lifetime.
I read today that Putin seems likely to run for President again in the next election, when he would be eligible. How do you view his grip on power there and what's the right way to handle it? I've become awfully curious lately... we'll see what Obama ends up doing.
Wednesday, June 10, 2009
The natural rate of unemployment here is much higher than in America, sitting at 7%. That's a pretty abysmal number and it reflects the difficulty of getting a first job because of the "easy to hire, difficult to fire" philosophy.
The activity rate in Italy is also among the worst of developed nations, sitting between 50 and 60%. The women and the youth here get very discouraged from working when they see brothers, fathers, husbands, etc. who cannot find jobs, and they pull themselves out of the employment pool. In addition, the Italian labor laws make it very costly to hire part-time workers, so part-time employment is rare in this country.
Basically, Italy is not a good place to be a worker, unless you land the equivalent of the job at GM five years ago with the full health benefits and the lifetime pensions. I guess the Italians better hope their government doesn't need a bailout anytime soon...
I did want to mention one line from Paul that really has been resonating with me: 2 Corinthians (8:15). "As it is written, He that gathered much had nothing over; and he that gathered little had no lack." (King James)
We are discussing Paul as arguing in many ways for a new world in the wake of Jesus's death. The covenant of Yahweh with the Children of Israel has been fulfilled with the death and resurrection, and the world and the law that governs it has been fundamentally changed. If you read Paul as trying to describe some kind of new society, I think this line could define how to live a happy life.
It rings with the environmentalism Zach preaches to me, it rings with the "work to live" rather than "live to work" philosophy I've seen here in Italy. I have realized upon examination of the books I've really enjoyed reading that I am incredibly interested in how to create a world where everyone is happy, everything works, etc. Basically, I am looking for utopia, and I think this line from Paul (and technically he is quoting Exodus) would be one of my founding principles.
Tuesday, June 9, 2009
1. The United States is always held as the beacon of the free-market economy to the rest of the world, and it's amazing to see how many people take the recent events (especially the collapse of GM) as a sign that the market doesn't work.
While I agree that a total unregulated market is probably too... scary? ... for most people to accept, I can't accept GM as a case of market failure. There was far too much regulation involved in the shaping of GM (CAFE standards, powerful unions) for me to say this is purely a case of market failure. In many ways, regulation caused a lot of these problems, and it irks me to hear regulation being called for as the answer.
That being said, maybe the US is just at an inflection point in terms of regulation. Perhaps there are gains to be made from more regulation and gains to be made from less regulation. I'm going to meditate on that one for a few days.
2. It's interesting to me to see Germany and France trying to separate from the EU, exactly as many economists would predict. Germany especially interests me in their handling of the Opel situation. Blocking Fiat seems silly to me, still; it was widely admitted that Fiat's long-term plan was vastly superior to the Magna plan, but Magna saved more German jobs in the short term so Merkel brokered that deal.
In light of the criticism of the US and the market economy, I wonder where the EU will go. Germany and France, according to Erlanger and the Times, want more independence, and EU membership probably is holding them back from some potential growth. However, are they going to head toward a more market-based economy? Will they simply try to be independent but maintain their socialist/mixed economy (whatever you want to call it) philosophy? This situation has definitely piqued my curiosity and I'll be watching it for the next decade.
First: We learned about the Italian equivalent of the minimum wage, the gabbie salariali. Essentially, instead of one federally mandated wage (along with some states that legislate over top), they have a "wage chart" that crosses years of experience and education level. So picture a 5x5 chart for each industry with wages in each box. You find the spot for a BA with 5-10 years of experience (assuming those are your qualifications) for the industry in which you work and that is your minimum wage.
It's an interesting idea, more virtuous than a unified wage in my opinion. It also comes from the "same work, same wage" doctrine implemented here in the 1960s. In its current form, it functions as the absolute wage definition in the (backward) South, which has a lower cost of living, and sets benchmarks for the North which are exceeded.
Second: The Partita Iva Army. Essentially, Italian labor laws make it "easy to hire, difficult to fire." It's also costly to have employees, due to the hundreds of state programs that must be paid into on a per-worker basis. Many Italian citizens, in the struggle to find jobs, essentially create their own contracting firms. These citizens are then hired on short-term contracts by companies in Italy... this helps the companies keep their costs down and escape a lot of the labor regulation.
I have to run now but that's a very interesting phenomenon, predicted by mainstream economics, and I plan on exploring it further in the future. Ciao!
Monday, June 8, 2009
76% of Italians own their own home.
Remarkable? Maybe not, but I learned this immediately after a disucssion on the Italian banking system. My professor has suggested that it is nearly impossible to get a mortgage unless you hvae a down payment of 50% or more. The Italian banking system is ridiculously conservative. Although this has kept them relatively immune from the global crisis, it essentially also keeps their economy stagnant at best.
Lots of other good stuff but those two figures together are absolutely stunning. Might post about Milan later today.
Thursday, June 4, 2009
Waiting in lines sucks. Getting low quality service sucks. Paying what turns out to be a higher cost for all of this sucks. Constant embezzlement sucks. No merit-based advancement sucks.
But the reality of my time in Italy so far is that life doesn't suck. I live in a culture that just seems to have lower stress, in general. The food is better. Naps (siesta) are part of the culture for everyone. There's never a need to eat McDonald's because the pace of life is just a little slower.
The only straw I can clutch is my hatred of the bus system here, particularly the 19 bus. It does the night run between the guys' and girls' apartments, and to go out we take the 8 bus to a stop that's about halfway between our two apartments. Getting the girls home via the 19 bus generally requires us to sit at a stop for a half hour or more late at night, though.
Basically, what I'm trying to figure out is: am I enjoying the Italian culture (really, the European way of life) because it truly makes me (and people) happier, or am I enjoying the fact that I'm on vacation so I have no job but can still spend money without really thinking about it? I'm leaning toward option B - rationally I must be just romanticizing life here - but part of me thinks there's some merit to option A. I'll get back to this in a more coherent way in a later post.
We also talked about the decline of the family in Italy and State's ability, or inability, to fill the void.
According to my professor, Italians pay 43% of their income in taxes. I'm guessing that isn't a flat income tax but I need to ask him where that figure came from. Does it include the EU VATs? Capital gains taxes? In any event, it justifies their high expectations for government to provide an array of services.
Lastly, we had a little discussion on why there aren't high ethical standards in Italy. Everyone here double parks, drives like an idiot, etc. Essentially, they all have skeletons in their closet. So when it comes out that a politician was embezzling money, the reaction is generally to allow the person without sin to cast the first stone. Punishment by voting isn't a big part of Italian culture and that excaberates the problems of poorly run government-provided services.
And on that note, I'm off to Milan!
Wednesday, June 3, 2009
Today was mostly a lesson on Sylvio Berlusconi, current Prime Minister of Italy. Wikipedia (hate to link there but it's okay) covers much of the basics from class that I don't care to repeat.
He is very popular here in Italy for reasons that seem beyond my professor. He was friends with G.W. Bush but Obama has yet to meet him - that sums up a lot of his politics for me.
Much of his popularity comes from the fact that he controls so much of the media. His private company, Fininvest, broke the Italian government monopoly on TV (which was great for the Italian people, who realized a huge increase in quality and variety of programming). However, he still controls that company, which owns 3 of the 7 TV stations. In addition, as PM, he essentially has control of the 3 state-operated stations. So in total he controls 6 of the 7 major channels in Italy.
Two other thoughts on him: First, Italians apparently write off the fact that he does a lot of seemingly questionable things with much younger women because he maintains the appeal of the Italian lover. Second, Italians apparently like the fact that he is rich and still controls his company, because they think it makes him less likely to steal from the government.
Tuesday, June 2, 2009
Monday, June 1, 2009
I think my English has gotten a little worse from spending time around non-native speakers - I find myself regularly skipping articles ("the" has fallen out of my vocabulary) and even my writing has slipped a little bit.
One interesting thing - our discussion of the Opel/Magna merger. Essentially it was brokered by Merkel, Obama, and Putin (Russian capital is financing the merger). My professor calls this an example of a mixed economy. To me, it's simply the wrong people getting involved.
Compared with the totality of knowledge which is continually utilized in the evolution of a dynamic civilization, the difference between the knowledge that the wisest and that which the most ignorant individual can deliberately employ is comparatively insignificant. ~Fredrich Hayek in The Constitution of Liberty