Where Ricardian Equivalence actually holds

Germany is likely the only country in the world where Ricardian equivalence — the theory that the government cannot stimulate private consumption by cutting taxes because rational actors know that taxes will eventually have to rise again and therefore put aside savings — actually holds true.

As for reasons behind Germany’s obsession with savings? Other than the demographic pressures and a cultural of frugality?

History plays a role:

Whereas the Anglo-Saxon world is characterized by what one could call pragmatic optimism, Germans instinctively think about the long term, and they aren’t disposed toward cheerfulness. Whereas America’s recent history teaches hope, Germans see in their history the need to be cautious: In the last 100 years, Germans have experienced two currency reforms and the rise and demise of three regimes.

A distinctly German view on economic activity and the role of trade:

It’s an economic model that traces back to the beginning of the postwar period, when booming exports were the backbone of the Wirtschaftswunder, or economic miracle — the period of strong growth in the 1950s that transformed the destroyed country into a major world economic power. When Germans saw Volkswagens on roads all over the world, it wasn’t only a source of income, but proof that the country was once again an accepted member of the international community. Add Germany’s traditional obsession with engineering and its distaste for the service sector, and it may become clearer why the country is prone to mercantilism.

How government sees its place in macro-economic policy-making:

Germany simply does not have a tradition of macroeconomic policy, at least not in the American sense of managing aggregate demand. Contemporary German economics has its roots in Ordnungspolitik, a unique school of thought that emerged in the 1940s and for which there is no English translation. Ordnungspolitik accepts that government intervention is necessary for the economy to function properly, but the role it assigns to the state is fundamentally different than in the Anglo-Saxon tradition. Whereas most American macroeconomists believe in discretionary intervention in the way of countercyclical monetary and fiscal policy, German economists encourage the government to only alter the framework within which economic agents interact.

And as for Germans’ infamous fear of inflation?

By staking such a hard line, [Germany’s central bankers] managed to claim more influence for themselves in the West German political order. Germany’s contemporary fear of inflation is the product of an invented history — one that the mythmakers themselves came to believe.

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More obsessions over happiness and parenting

We’ve traded nutrition for looks when it comes to supermarket foods in the last half-century.
The future of carbon omissions rests on how urbanization is managed in the emerging Asia, and China in particular.
Things are enjoyable when they connect us to pleasures we already possess.
A piece on snobbery wanders into the realm of soccer, and ultimately the French, which is well-versed in both subjects.
Why a new global reserve currency is not that easy to come by.
Quite like this style guide, does answer some nagging questions on grammar.
Another piece on the relationship between happiness and parenting in a pretty short time frame. This one compares momentary happiness to nostalgic purposefulness. Enhanced by Zemanta

In Bruges


Flemish art has a pretty religious slant and violent undercurrent to it. This one, Last Judgement, visited by Colin Farrell and Brandon Gleeson in In Bruges, by Hieronymus Bosch.


The Judgment of Cambyses, story from Herodotus where the corrupt judge Sisamnes, guilty of taking a bribe, was taken and skinned.  His son takes his place as the judge, with his father’s skin draped over the chair.  Charming tale.

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From Ghent, Belgium

– The city has some serious history. Some of the buildings are close to 900 years old. Buildings rightly expose the histories behind them, e.g. drawings depicting medieval torture methods such as chopping off prisoners limbs, which the Belgians incidentally later took to the Congo, and which later spread to other parts of Africa.

– It’s not a city many non-Europeans might have heard of, but the place is bustling. Schools are out, and many people are vacationing. That, combined with the summer sale – which the Belgians formally announce and market (July 1-7 in case you are interested), has the shopping streets jam packed.

– The whole city is on construction. One of the large pleins is completely squared off for renovation, almost every single church in the city has some part of it worked on, every second or third houses you see around the city centre has a painter or scaffolding in front of it. Quick round-up of the skyline totals at least 20 cranes. Apparently much of the city’s sewage and phone line system’s getting a makeover. The city is very old and beautiful, but some parts do need some serious work. Infrastructure, gentrification or fiscal stimulus, the construction sector’s keeping a lot of people employed.

– Ghent has a castle smack in the middle of it. A real, gigantuan castle.

– Housing looks much more spacious than the NL, with houses in the city center with built-in garages. Prices are much lower too. There are also a lot if for rent and for sale signs all around the city. In comparison, the Dutch housing market has all but frozen up in the last half year in anticipation of less favorable changes in mortgage interest subsidies.

– Ghent is for the most part, Dutch speaking. In my limited interaction with the service industry however, a high proportion of those are French-speaking. Perhaps better economies and better pay up north?

– I’ve come to look at dogs as a sort of rough barometer on the general prosperity and economic well-being of a place. Friendly, submissive and diverse breeds of dogs tend to signal more well-adjusted and comfortable communities, which most Dutch cities are. Aggressive and few breeds-dominated ones usually come with places with more unresolved social issues. Vienna and its subways filled with punks and their muzzled pit bulls, and certain districts of Berlin with the skinheads and their German shepherds come to mind. Ghent sits somewhere in between.

On driving habits

I’m taking a short break away from the Lowlands, which gives me a good chance to reflect on the driving habits of my current compatriots.

There’s no doubt that the crowdedness of the country contributes to the overall feeling of aggression on the road. Behaviours such as tailgating, switching lanes with no signaling, not keeping to the right, relatively frequent use of the middle finger, all adds up to a pretty harrowing experience.

Taking into account the prevalance of biking as a serious mode of tranportaion in the country, perhaps this should not e a surprise.

Compared to the 2 cars per family (if not more) of more spacious lands, most Dutch families, when possible with work, make do with one car. That means a large portion of drivers on the road use cars only very occasionally.

I think of it this way: all those times much of North America spends on the road, driving to and from work, to the grocery store, going to movies, picking up kids from school; the average Dutch spends that time honing his ability to tackle various obstacles placed in front of his bike.

It would seem to me that as trivial as driving might be as a task, there is something to be said about practice. In my two years here, I have witnessed some truly mind-boggling driving behaviors that I can only attribute to time substituted on the bikes. In all fairness though, I’m also only on the road on the weekends too, so the sample is probably slanted towards the more amateurish set of weekend drivers. Alas, irony strikes as cloggie land mandates very expensive driving schools (around three thousand euros). And perhaps recognizing a rather unfortunate deficiency in manners, there are now discussion on driving exam touch-up when people renew their driving licences.

Fathers wanted but not necessary, and other links for the long weekend

FT– It is quite clear that an isolated discussion of the need to reduce fiscal deficits will not work.

oecd.org– Since 1990, the number of people worldwide living in absolute poverty has fallen by about half a billion. What’s changed? In large part, China.

spiked-online.com– If growth scepticism were to be summed up in one phrase, it is “I’m in favour of economic growth, but…”’.

WSJ– Danone is among a vanguard of Western multinationals staking much of their future on the world’s poor.

thegreenskeptic.com– Drive 100 miles and you need to charge up, and there is currently very little infrastructure to support electric vehicle charging.

Voxeu– Do buyers discriminate based on race?

eurointelligence.com– If excessive austerity is imposed on Spain, the result will be even more miserable than for Korea, with at least as bad international impact.

NY Times– Ireland is pinning nearly all its hopes on an export revival to lift the economy.

blogs.telegraph.co.uk– Ambrose Evans-Pritchard says the Fed is slowly losing its marbles.

tnr.com– “Is this revolution a creature of globalization, or does global capitalism owe some of its energy and resilience to global English in all its manifestations?”

theatlantic.com– A paternal contribution may not be as essential as we think.

telegraph.co.uk– Women’s bodies have become so associated with sex that now a mothers’ magazine has called breast-feeding ‘creepy’.

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Post-crisis Greece

businessweek.com– Many Greeks view the state with a combination of a sense of entitlement, mistrust, and dislike similar to that of teenagers vis-à-vis their parents.

US Federal Reserve– “It is not the wolf at the door but the termites in the walls that require attention. The sooner the house’s structure is strengthened, the better.”

FT– It is time to recognise that Greece is not just suffering from a liquidity crisis; it is facing an insolvency crisis too.

blogs.ft.com– The eurozone’s most vulnerable economies are getting little benefit from the euro’s fall because they are too inflexible and uncompetitive.

standpointmag.co.uk– The least bad option would be for the German bloc to leave EMU. Germany’s banks might still have to be recapitalised, but it would be less costly than trying to “rescue” Greece.

The Economist– Rich countries with their greying populations should be saving whereas younger, fast-growing developing countries should be borrowing heavily. But in fact it is the other way round.

NY Times– Austrian banks slowly recover from a sharp economic downturn and tries to pay down a pile of private-sector debt.

marketwatch.com– We’re still living in a fantasyland. Most people have no idea what’s really going on in the economy.

WSJ– Hayek understood that the opposite of top-down collectivism was not selfishness and egotism. A free modern society is all about cooperation.

Newsweek– We may be reaching the limits of economics. The disconnect between theory and reality seems ominous.

newyorker.com– Financial illiteracy isn’t new, but the consequences have become more severe, because people now have to take so much responsibility for their financial lives.

cjr.org– Rolling Stone made a virtue of the fact that it is not wedded to the news cycle in order to produce journalism that helped drive it.

seedmagazine.com– No animal spends more of its allotted time on earth fussing over sex than homo sapiens.

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Unworkable compromises

Modest salaries, high taxes, but high level of social safety net: that was the social contract stricken between the governments and their peoples across post-war European lands, in various forms. The welfare manifests itself in various forms: high level of labour market protection, unemployment benefits, guaranteed pension, subsidized housing and education, etc.

With greying populations and a fiscal trend that can only predict more costs and less tax revenues, the most logical thing for governments to do would’ve been to save more and borrow less.  Growth does not seem to be an option.

But that is hardly an attractive option with voters with their own interests to protect.  Voting with their ages and the social contract they still believe they are entitled to, working-class Europeans bought into their politicians’ utopian vision that they can live better without actually making things better.

Spain is now grappling with the highest unemployment level of Europe. And many people have no savings.  After all, why bother with financial literacy and savings when you can never be sacked from your job, are supposedly guaranteed a pension, and are entitled to live forever in subsidized housing?  And the perverse incentives of paternalistic policies is hardly unique to Spain, so you can betcha that this story of broken promises will only be repeated in more versions than one in the coming years.

In Greece, the trouble seems to be compounded with a troublesome political past (as recent as the 80s):

The Greek crisis reminds us that while Greece is a part of Western Europe, it is also a place where hammers and sickles and “F—- the Police” decorate the city walls; where references to civil wars and world wars and postwar American meddling come up in daily conversation; where immigrants fleeing violence and economic plunder scramble atop the life raft of Greece’s fragile European shores, only to fester in homogenous Athens. It is also a country that in some ways still mirrors the lands across the Mediterranean—the countries of North Africa and the Middle East that continue to be strangled by Third World ways and won’t simply acclimate to the rules of the West as one might have hoped.

A all-too-speedy embrace of American-style materialism without paying its dues:

“Greece had the mentality of the nouveau riche. We borrowed, and we spent.” The nation hungered for new status symbols. A 2008 Nielsen report found that, of all the countries in the world, Greece cared most about designer labels, trampling Hong Kong (the runner-up) in its taste for brand names.

And an even more profligate vote-buying arrangement:

Stereotypes of Greek people as lazy and sun-stroked may have roots in the public sector: For decades politicians plied poor citizens with cushy jobs and pensions in exchange for votes. The 2004-09 conservative New Democracy government added over 85,000 public-sector jobs in its tenure; the public sector accounts for 40 percent of Greece’s GDP and 15 percent of the active workforce. The government isn’t even sure how many people it employs. As Jens Bastian, an ELIAMEP economist, explains, “Every Greek has a relative who works as a civil servant in the public sector, excluding the military and police. Reducing employment levels in the public sector immediately becomes a very touchy, family affair.”

Little India in the middle of New Jersey

Hilarious account on the growth in Indian immigration in a small New Jersey town, which experienced the same kind of demographic and population shift that countless other towns and cities must have gone through in North America.

In the 11 years I lived in Manhattan’s Chelsea district, that area transformed from a place with gangs and hookers to a place with gays and transvestite hookers to a place with artists and no hookers to a place with rich families and, I’m guessing, mistresses who live a lot like hookers.

And what successful assimilation looks like, tongue in cheek.

[I]f you look at the current Facebook photos of students at my old high school, J.P. Stevens, which would be very creepy of you, you’ll see that, while the population seems at least half Indian, a lot of them look like the Italian Guidos I grew up with in the 1980s: gold chains, gelled hair, unbuttoned shirts. In fact, they are called Guindians. Their assimilation is so wonderfully American that if the Statue of Liberty could shed a tear, she would. Because of the amount of cologne they wear.

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An end to the pursuit of happiness, and more

weblogs.hitwise.com– Since it forced users to register in order to view its content, the Times has lost market share.

The Economist– The future for blogs may be special-interest publishing.

themoneyillusion.com– If you disagree with someone, their views will always seems simplistic.

NY Times– Media organizations can file all the briefs they want about protecting their work product from free-riders and insurgent hordes of digital pilot fish, but once they break their own rules and start feeding on one another, the game is over.

niemanlab.org– Blogging, uploading photos, editing Wikipedia entries — these are all symptoms of the surplus put to use. And they should be celebrated as such.

blogs.ft.com– Japanese executives seem to have had more difficulties handling relations with their Chinese workers than western competitors.

hollywoodreporter.com– Congress has driven a stake through the heart of movie boxoffice futures trading.

Reuters– Reducing deficits while at the same time accelerating economic growth: is it a chimera, or does it actually exist?

Business Insider– The pain of austerity will be far higher in European than it would be in the US, which makes the European austerity vs. U.S. stimulus divide just perverse.

econospeak.blogspot.com– Unless one is in a world of uniformly small, highly open economies, aggressive Keynesianism can be justified one country at a time. But the US is not one of those.

spiegel.de– The G-20 is now threatening to become a club of members that blame each other for their problems.

theatlantic.com– Instead of asking parents and non-parents whether they are happy right now, we might ask whether they are becoming more like the people they want to be.

NY Times– Iceland’s capital elect itself a former comedian.

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All truth, all the time, and other readings for Monday morning

Business Insider– Spain faces a confluence of events in July, whereby it will need to finance 21.7 billion euros within a single month.

time.com– To the extent that China is using Africa as an experiment — to try out ideas of how it might be in the world — its African adventure is worthy of close study.

WSJ– Cluelessness is all too common in our expert-mediated world.

ivanhoff.com– The difference between a great value investor and a good value investor is that the former knows how to time its entry properly.

footballpolemics.wordpress.com– Through group play, 2010 is indisputably the lowest scoring World Cup in history.

VoxEU.org– Hard industrial policies should be replaced by soft industrial policies in developing countries, where collaboration is the key.

psyfitec.com– We need more and better quantitative modeling to improve the models, not less. But along with this we need better management and understanding of what these models mean.

Infectious Greed– The startup financing landscape has been transformed: a combination of ease of entry, lower capital requirements, failing incumbent VC firms, and general fervor has driv…

gigaom.com– When Facebook launched its Open Graph protocol in April, blanketing the web with “like” and “recommend” buttons, it seemed obvious that one of the company’s goals was to…

blogs.discovermagazine.com– Touching rough sandpaper makes social interactions seem more adversarial, and when sitting on a hard chair, negotiators take tougher stances but if they sit on a soft on…

esquire.com– What could possibly go wrong with all truth, all the time? Creepiness, for starters.

Wired– The act of public confession may help reinvigorate the prefrontal cortex, a part of the brain that is gravely weakened by alcohol abuse.

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The ultimate Englishman

From an obituary of Norman Macrae, whom was the deputy editor of The Economist for 23 years.

For all his interest in the rest of the world, he was a very English figure.  His ideas were rooted in the English liberalism of the 19th century – a liberalism that celebrated the individual over the collective, progress over reaction, free thought over superstition.

And on his championship of limited governance and individual freedom:

His 1975 survey on America’s 200th birthday, in which he chastises the Democrats for flirting with the Fabian cult of government expertise, conservatives for flirting with religious extremism, and business for underinvesting in innovation, might easily be a portrait of Barack Obama’s America. Big government has been on the march for much of the past decade. The Beijing consensus celebrates the alliance of big government and big companies. Much of the public sector has resisted the power of vouchers and internal markets.

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Peak lumber, personality differences in the brains, and more for the weekend

Sweet spot for China’s blue-collar revolution
english.caing.com– Recent spate of worker strikes at factories in China, what does it mean for the rest of the world?
iPhone economics and lower barriers to entry
O’Reilly Radar– The App Store created a marketplace that anyone with the appropriate skills can enter. Can it last?
Forget peak oil, peak lumber is coming
Minyanville– The mountain pine beetle is ravaging Canadian forests, leading a long-term bull market in lumber.
When anyone can be a published author
salon.com– Will readers have to flounder in an ocean of slush before the new gatekeepers appear to rescue them?

Finance & Economics
Public sees a future full of promise and peril
pewresearch.org– In the public’s view, the next 40 years promises to be an era of technological progress.
Trichet explains why Soros is wrong about the Euro
cnbc.com– Reforming the real economy in each country in the euro zone is what is needed, according to Trichet.
Sterling is the star
Credit Write Downs– The budget credibility, the lower gilt issuance and reduced risk of a downgrade is helped sterling recover.
Europe: Adrift amid the rift
FT– Economic and financial crisis in the eurozone has exposed deep and long-standing divisions between the two largest European economies.
Fed watch: China, day one
Economists’ View– While China appears willing to adjust the parity rate, changes are likely to be more window dressing than anything else.

The rest
Personality shows up in brain structure
pagingdrgupta.blogs.cnn.com– Personality differences are now being explored biologically in the brain.
Words of the future
thenational.ae– As ebooks increase in popularity, typesetters are working hard to design the ideal fonts for on-screen reading.
Working on a (temp) dream
inthesetimes.com– Welcome to the freelance economy, where workers are atomized, badly compensated and strangely optimistic.
Beating China, India turns world’s top spam source
hindustantimes.com– The top country where spam servers are located is India, accounting for 16.9%, Brazil 8.7%.

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Content flooding in from every direction

Excess content flooding affects not only the online news sphere, but also the book publishing and academic publishing industries, now that self-publishing tools are so readily available.

Bowker, a company that tracks industry statistics, calculated that, in 2009 alone, new titles published outside of “traditional publishing and classification definitions” numbered 764,448. Yes, you read that right: upward of three-quarters of a million books in a single year. Not all of those books were intended for a general readership, but if, say, two-thirds of them were, you could just barely manage to read the first page of every single one of them in the course of year — provided you also gave up eating, sleeping and bathing. (I calculate about one page per minute; your mileage may, of course, vary.) And this is the situation even in the days before we’ve come close to hitting the crest of the new, technology-driven self-publishing boom.

At the same time, libraries are straining under the burden of paying for an explosion of journals.

From 1978 to 2001, libraries at the University of California at Los Angeles, for example, saw their subscription costs alone climb by 1,300 percent.

The amount of material one must read to conduct a reasonable review of a topic keeps growing. Younger scholars can’t ignore any of it—they never know when a reviewer or an interviewer might have written something disregarded—and so they waste precious months reviewing a pool of articles that may lead nowhere.

The content problem isn’t going away.

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