Thursday, January 20, 2011

Animal agriculture

The world’s smallest farmer is not human: it’s a “social amoeba”, Dictyostelium discoideum, that seeds new land with bacteria, which it then eats. It joins ants, termites and humans on the list of creatures that practice agriculture.

Read more.

In an earlier post I mentioned ( here) the work of Nick Lane of University College London and Bill Martin of the University of Dusseldorf who showed that “cells could not become complex until they could produce sufficient energy. This obstacle was overcome when a cell engulfed some bacteria and started using them as power generators – the first mitochondria.”

In other terms the simplest forms of life did invent specialization and production, as well as farming, or in still other terms, economic activity.

An interesting consequence: do we really need the “homo economicus” hypothesis to explain human economics? Darwin explained that humans are just one kind of animals. Now this new work explains that human economics is just one kind of animal economics, and of very primitive animals at that. Shouldn't economic textbooks start with an analysis of “natural economics” instead of the traditional human utility function?

Tuesday, January 18, 2011

More Education Would Not Reduce Unemployment Nor Income Inequality

The Atlantic presents a summary of Lawrence Mishel’s new paper.

A good read here .

Monday, January 17, 2011

Breaking Up Is Good to Do

I much liked this post by Parag Khanna in Foreign Policy (January 13).


“Southern Sudan is just the beginning. The word may soon have 300 independent, sovereign nations … and that’s just fine.”

“The entropy afflicting the post-colonial world will not stop anytime soon. States like Congo, Nigeria, and Pakistan, which are internally diffuse and often intentionally unevenly developed, will soon be too large to manage themselves. It is less likely that they will gather the competence, capacity, and will to become equitable modern states than that they will continue to inspire resistance to the legacies of centralized misrule.”

This is precisely the theme I developed in my book, The Second Twentieth Century (Hoover Press, 2006). Due to the extraordinary new abundance of information, market expands everywhere while hierarchies, states included, tend to contract. The optimal state size is shrinking, or at least not increasing, at a time when population is growing. Then, the smallest states can prosper when global markets expand, due to much reduced transaction-information costs. And, I added, shrinking states have no reason to go at war with each other.

I look forward to reading Khanna's new book.

Big Banks Increase Market Share

The top five U.S. commercial and investment banks now represent 13.3% of all U.S. financial firms’ assets, up from 11.8% three years earlier, when the financial crisis hit, writes Mark Whitehouse in Real Time Economics .

Size can be good, especially when allowing for political leverage.

“Banks can use a lot of debt – as opposed to equity, or capital – in large part because it allows them to play heads-I-win-tails-you-lose game with taxpayers. In good times, leverage boosts returns for banks’ shareholders. In bad times, it makes a bank’s failure so potentially destructive that taxpayers have no choice but to bail it out. The bigger and more levered the bank, the more urgent the bailout.

It comes as little surprise that banks have been pushing to keep capital requirements low, despite an increasing number of economic papers suggesting that capital requirements as high as 50% would be a net benefit for the economy.”

A lesson especially relevant for Europe and European banks too.

Saturday, January 15, 2011

The Coming Greek Default

I wrote in May last year here that I didn’t see how Greece could avoid a default, or in more polite terms, a restructuring, to get out of its present predicament. A position also held by Martin Feldstein here .

The Economist (January 13, 2011) now states:

“A Greek default would be the first by a rich country since 1948. It would be shocking but feasible. Restructuring by several poorer ones, from Uruguay to Belize, provide a legal case history for how to do it. (…) The lawyers think that Greek restructuring could be completed in six months. It must be done eventually. It could be better not to delay.”

Read more here on the legal aspects of such a move.

Beyond the legal angle, a Greek default has important consequences for European banks saddled with too much Greek debts, but also for other troubled European economies, and thus for the future of the euro.

If Greece manages to stay in the eurozone after restructuring, further problems can be expected in the near future and the recovery of the Greek economy will remain dubious, requiring more transfers from Germany and France and protracted recessions in the debtor countries.

If Greece exits from the euro without too much disruption, other countries could follow the lead, with an uncertain effect on the value of the euro and thus on the cost of the exit for the latecomers. A fall of the euro would reduce the cost of exit while a rise relative to dollar and yuan would make it higher.

My bet is that, anyway, the return to national currencies will be a competitive process even though a concerted dismantling of the euro would be economically more appropriate.

Wednesday, January 12, 2011

The German Dilemma

From Otmar Issing, former chief economist of the ECB, in the Financial Times (January 11, 2011):

“My conclusion at the start of 2011 is a somber one. We have not yet reached the moment of truth for Emu. It has merely been postponed.”

Although proposals that Emu should be expanded into a “transfer union” are “wrong”, he said, the current loose system for policing fiscal rules call into question its very survival. But on the other hand “trying to create political union through the back door of the common currency … would be setting up a system under which bad policies would be subsidized on a quasi-automatic basis.”

My comment: the euro itself provides incentives for national governments to run large deficits. Both because the common monetary policy cannot fit adequately diverse national stabilization needs (thus pushing governments toward the use of fiscal policy), and because the suppression of intra European exchanges rates eliminates exchange risk premiums and thus reduces the cost of borrowing.

It is thus quite unlikely that these governments would consent to eliminate the only macroeconomic policy instrument still at their disposal by adopting a strict new version of the defunct stability pact.

On the other hand Germany is both reluctant to become a “transfer state” taxing its citizens in order to subsidize other Europeans (and thus to reduce the need for their governments to borrow more) and to the perspective of returning to flexible intra European exchanges rates that would strengthen the Deutsche Mark and jeopardize the current German export competitiveness in Southern Europe.

But the German policy makers can’t have it both ways. They are caught on the horns of a dilemma. That's why they procrastinate.

Tuesday, January 11, 2011

The Not-So-Great Islamist Menace?

“Terrorist plots against Europe are on the decline, statistics show, and the majority are not coming from Muslims” writes Dan Gardner in The Vancouver Sun, January 10, 2011.


“If someone mentioned terrorism in Europe, you would probably have an idea about the size of the threat and who’s responsible.

It’s big, you would think. And growing. As for who’s responsible, that’s obvious. It’s Muslims. Or if you’re a little more careful with your language, it’s radical Muslims, or “Islamists.” (…)

So the danger is big and growing, and Islamists are the source. Right?

Wrong actually.”


“The European Union’s Terrorism Situation and Trend Report 2010 states that in 2009 there were “294 failed, foiled, or successfully executed attacks” in six European countries. This was down almost one-third from the total inn 2008 and down by almost one-half from the total in 2007.

So in most of Europe, there was no terrorism. And where there was terrorism, the trend line pointed down.

As for who’s responsible, forget Islamists. The overwhelming majority of the attacks – 237 of 294 – were carried out by separatist groups, such as the Basque ETA. A further 40 terrorists schemes were pinned on leftist and/or anarchist terrorists. Rightists were responsible for four attacks. Single-issue groups were behind two attacks, while responsibility for a further 10 was not clear.

Islamists? They were behind a grand total od one attack. Yes, one. Out of 294 attacks. In a population of half a billion people. To put that in perspective, the same number of attacks was committed by the Comité d’Action Viticole, a French group that wants to stop the importation of foreign wine.”

Read more.

Of course, as noted by Gardner, Europe has major problems with the integration of its Muslim populations and the threat of Islamist terrorism is real. Moreover, some threats are presumably not heard of because they have been accommodated by negotiation and concessions beforehand. Nevertheless, the wrong perception of known facts is striking.

Wednesday, January 5, 2011

Brain and the Value of Everything

Neurons in the amygdala, the region of the brain associated with fear, play a role as careful shoppers in evaluating objects, a new study published in The Journal of Neuroscience shows.

Read more in Discovery News.

Saturday, January 1, 2011

New Year’s Resolutions

Cut down your own drinking? Eat less and exercise more? New Year’s resolutions aren’t what they used to be, according to The Guardian:

“… research published in the past year has suggested that living a healthier lifestyle isn’t quite so straightforward – and we needn’t be quite so abstemious, either. There are plenty of less obvious, even counterintuitive, ways we can extend our lives and improve our health this year.”

For example:

… “be slightly overweight, don’t exercise too much and stop peeling your fruit and veg.”

Keep reading .