Stupid Germans and the surpluses

Talk to any German these days about economic policy, and they will soon share with you a sense of outrage that the world is conspiring against their hyper-competitive exports. The German press never talks economics - it talks business. And what's good for business is good for a country as a whole, right? So if Germany has big surpluses, it reflects highly competitive firms. The other - like Mrs. Lagarde of France - are just envious. One COULD actually make some arguments that make sense of the German pleasure in trade surpluses. An ageing country should accumulate assets; some of these should be held abroad. The strongest argument AGAINST piling up trade surpluses is that all those shiny Audis and machine tools sold to the rest of the world buy very few things that will make Germans richer, either today or tomorrow. Michael Lewis has a brilliant book called "Short" about the financial crisis. One of the recurrent themes is how the bubble in subprime really got inflated because of the superabundance of stupid German money. His latest piece on Bloomberg gives you a flavor:

The proprietary trading business turns in part on one’s ability to find the fool -- to find people willing to take the stupid side of the smart bets you are placing. One of the side effects of our seemingly endless financial crisis is to wash a lot of fools, many of them German, out of the game.

If you export lots and import little, you have to export capital, by definition - you are lending to the rest of the world. For whatever reason, German banks - many of them state-owned - have a singular ability to populate financial markets with klutzes who cannot tell garbage from fine food. The trade surpluses which should translate into a huge foreign capital stock, ready to pay the pensions of ageing Germans, instead have a habit of going up in smoke every time a Nasdaq/subprime/bond bubble bursts. The welfare implications of that are not very hard to figure out... and you won't read in the German press about it. So either the country fixes its financial system (beloved 3 pillars and all), or it should use some of those shiny cars at home.

Is history "fate"? The strike in Barcelona

Just this Tuesday, I was teaching the Comin, Easterly and Gong paper on whether today's riches were determined by technological development in the year 1,000 BC in the "Rise of the Global Economy" class in the ITFD. Today is the day of the general strike in Spain. By some strange accident, I was reading Orwell's "Homage to Catalonia" in the last few weeks, and - just as I was arguing in class - history really doesn't have to be spell "fate". Barcelona, the hothouse of Anarchist sentiment in the early days of the civil war, was remarkably genteel and tranquil today. Traffic flowed easily, taxis were available - with a bit of an effort - and a few posters apart, the university was quiet. Only a plume of dark smoke hanging over the Placa Universidad indicated some trouble (a police car had been torched, it turned out). In general, people seem to accept the changes to labor laws with a sense of frustrated resignation. Bizarrely, the people most likely to benefit - i.e. the young, university students, etc. - are more violently opposed than the rest. So the deeply ingrained instinct to start building barricades that Orwell describes somehow got mislaid... so big shocks - decades of Franco rule - really can change the cultural outlook and social fabric. Which reminds me of a paper I should have on the syllabus, one in the sequence of beautiful Acemoglu et al papers on institutions and economic growth. This one is on the impact of the French Revolution, and it's co-authored by our new UPF colleague Davide Cantoni...

congratulations

It's a tough job market out there. That's why it is very nice to see that our students are doing well, despite the headwinds. Clara Sofía Gómez Botero (ITFD 09-10) just got appointed as advisor to the Colombian Deputy Minister for Housing. I am particularly pleased since Clara and her team showed a lot of feel for the policy process in developing countries like Colombia as part of their policy memorandum exercise (which focused on social insurance and indirect labor costs). Good luck to you!

Euro redivivus...

or dead cat bounce? The Euro has surged since touching a recent low of below 1.20 to the dollar. After relentless news headlines hammering the common currency, and all the pundits claiming that parity was next, the market decided to turn a corner. Apparently, the upcoming double-dip in the US is even worse than all the "EU can't compete" sneers of our Anglo-Saxon friends. But make no mistake - purchasing power parity is still a long way off, and probably closer to 1.10 or so. That's true if you look at the Big Mac Index or more sophisticated measures, which the Economist just updated today. OANDA updates the Big Mac Index every day [and cites the exchange rate the other way around, i.e. you get 0.78€ per $]. Introduced by the Economist, it simply uses the ratio of Big Mac prices in different countries as an exchange rate forecast. It actually does pretty well, over relatively long time horizons. Elsewhere, Orley Ashenfelter and co-authors have used Big Mac prices to calculate ppp-adjusted wages. So, what does this mean for the exchange rate? In the short term, there is no way to tell. It's darn easy to tell really pessimistic stories about the US economic outlook (making monetary easing more likely than tightening), or do the same for Euro (another failed bond auction, anyone?). Over the medium term, I expect those Big Macs to do well at forecasting.

Damn good writing...

for the five-minute-creative-reboot; but who will fix my umlauts?

http://www.newyorker.com/humor/2010/07/05/100705sh_shouts_ephron

One hell of a clever investor - Antonio Salazar

Bloomberg has calculated that, relative to the size of the economy, Portugal has the largest quantity of gold of any country. Apparently, this is the fruit of dictator Antonio Salazar stockpiling the stuff, received in no small part in exchange for things like tungsten (very useful for making armor-piercing tank rounds - I wonder where they used those between 1939 and 1945?). How you go from that to a headline like "Gold Makes Dead Portuguese Dictator Top Investor - Bloomberg" I will never know. Well, it's summer, and I suppose it beats Nessie...

interest

Well, it's always nice to be asked... especially if it's a sign that you are known for something. Well, almost always. Recently, I found this in my inbox:

from: NN

to: jvoth@crei.cat

date: Sat, Dec 5, 2009 at 18:13

subject: Bubble Help!

Dear Sir,

I am a member of an Irish University and my Economics thesis is on the link between irrationality and bubbles in the financial market, was wondering would you have any journal recommendations or articles which could help me within this topic.

Thank you
NN

Yes, absolutely. As a matter of fact, since I work in the area, it'll be more efficient if I write the thesis for you, and send you a draft next week.

I also enjoyed this one:

from: NN

to: jvoth@crei.cat

date: Tue, Apr 6, 2010 at 00:28

subject: about your paper "How the West Invented Fertility Restriction"

Dear Professor Voth,

I am UBC PhD and have some questions about your paper "How the West Invented Fertility Restriction". As i have not encountered this topic before, if you have some spare time, I would be thankful to have your ideas on these:

1) It seems that European Marriage Pattern is a puzzle that there has been many researches trying to solve the puzzle. Is there any surveys or texts you can introduce me that summrizes different ideas about this subject?

2) In your paper, you have brought some evidence that fertility restrictions through late marriage was voluntary in old days. Are there any counter arguments in the litrature? Does any other researcher interprets this fertility restrictions through late marriage, in another way?

3) And if there are any useful references for this subject.

Bests,
NN

This is after my co-author gave a presentation at UBC. The paper has 4.5 pages of references; we also spend a lot of time on possible counterarguments... Reading? A paper? You gotta be kidding. Let's write to the authors instead, and get some personalized feedback on unique questions.

Hmmm. Maybe I can magically transfor my career by trying this:

Dear Jean Tirole/Philip Aghion/Elhanan Helpman/Robert Barro,

I am a member of UPF's economics department. I would like to publish a brilliant paper. Please send me your most outstanding articles (unpublished), so that I can put my name on them and submit them to the AER.

best,

Joachim Voth

Don't get me wrong - I love to hear from students interested in my research. I just hope that the level of interest is a touch above "help me with my homework, pls"...