purchasing power parity

102 results back to index


pages: 159 words: 45,073

GDP: A Brief but Affectionate History by Diane Coyle

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

Asian financial crisis, Berlin Wall, big-box store, Bretton Woods, BRICs, clean water, computer age, conceptual framework, crowdsourcing, Diane Coyle, double entry bookkeeping, en.wikipedia.org, Erik Brynjolfsson, Fall of the Berlin Wall, falling living standards, financial intermediation, global supply chain, happiness index / gross national happiness, income inequality, income per capita, informal economy, John von Neumann, Kevin Kelly, Long Term Capital Management, mutually assured destruction, Nathan Meyer Rothschild: antibiotics, new economy, Occupy movement, purchasing power parity, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, Silicon Valley, Simon Kuznets, The Wealth of Nations by Adam Smith, Thorstein Veblen, University of East Anglia, working-age population

What is needed is a conversion rate that takes account of these substantial differences in purchasing power when nontraded goods and services are taken into account. It did not take long for this problem to become clear as statisticians and economists constructed GDP figures for more and more countries in the 1950s and 1960s. The solution was to construct “purchasing power parity” (PPP) exchange rates, which use data on all prices in the economy to adjust the actual exchange rate to one that reflects living standards more realistically. These rates are applied to convert GDP for every country into PPP dollars in the tables of international comparisons. The idea of purchasing power parity dates back to the early twentieth century and Colin Clark was the first person to try to calculate PPP conversion rates, in 1940. Further work continued alongside the development of national accounts after the war. The OEEC published the first PPP-adjusted GDP figures in 1954, based on the work of Milton Gilbert and Irving Kravis.

There is no question but that economists will continue to use the World Bank data on GDP converted at purchasing power parity, on its methodology. Few people have either the expertise or the time to do anything else. The comparisons do provide useful information. But the large margin of uncertainty around this information should never be forgotten. WHAT DID THE INTERNATIONAL COMPARISONS SHOW? It would be easy to apply hindsight and superimpose what economists know now about international patterns of GDP growth over the decades since 1945 onto this description of how the raw material for those comparisons came to be assembled. But even as late as the mid-1970s, GDP data were available on a comparable basis, adjusted for purchasing power parity, for only a small number of countries. In the 1950s, when the economic theory of growth was in its early stages, the figures were available for just a few of the most developed economies.

See also fiscal policy; government role in economy; monetary policy Portugal, 71 potential growth rate, 82–83 poverty: in Africa, 31–33, 72, 93; globalization and, 93–94; measures of, 31–33; PPP and perception of, 51 PPP. See purchasing power parity price indexes: chain-weighted, 33–34; hedonic measurement in, 35, 88–90; and inflation measurement, 31; for real GDP calculation, 31 prices, influence of technological innovation on, 35, 87–90 privatization, 66 production and productivity: boundary on, 38, 105–6, 131; as GDP measure, 25, 26t, 126–31; measurement issues concerning, 28–29, 37–39; postwar, production and productivity 44–45; in public-sector services, 85; puzzles of, 38, 81–82, 105–6, 126–31; qualitative improvement as factor in measuring, 34–35; technological influences on, 44–45, 81–82, 94; valuation of, 38 production boundary, 38, 105–6, 131. See also labor, productive vs. unproductive purchasing habits, 37 purchasing power parity (PPP), 49–55 quality, as factor in output measurement, 35 R&D.

 

pages: 296 words: 87,299

Portfolios of the poor: how the world's poor live on $2 a day by Daryl Collins, Jonathan Morduch, Stuart Rutherford

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

Cass Sunstein, clean water, failed state, financial innovation, financial intermediation, income per capita, informal economy, job automation, M-Pesa, mental accounting, microcredit, moral hazard, profit motive, purchasing power parity, RAND corporation, randomized controlled trial, The Fortune at the Bottom of the Pyramid, transaction costs

See net present value “obligatory” lending and borrowing, 50–51 O’Donahue, Ted, 255n.13 Pakistan, 120 Participatory Wealth Ranking (PWR) manual, 262n.10 Patole, Meenal, 252nn.6–7, 257n.7, 261n.5 Pauly, Mark, 253n.22 Peru, 249n.17 Philippines, the, 120, 123, 183, 249n.17, 256n.22 poor, the: assumptions that can mislead regarding, 12–13, 17; commonalties across households, 15–17, 31, 46–47, 49, 100–1; definition of, 1, 5, 7, 190, 195–97; festivals, spending on, 254n.7; financial and nonfinancial challenges facing, 174–75, 184; as a market, 62; number of, 1; opportunities that could assist, 177–80 portfolios: complexity of, reasons for, 19–20; diversification of, prices and, 151–53; examples of, 34, 211–41; extant knowledge of, 14; of funeral coverage in South Africa, example of, 81; informal transactions as dominant in, 53 (see also informal financial sector); large cash flows as common feature of, 31 (see also short-term cash-flow management); methodology for study of the functioning of (see methodology); opportunities for improvement of, 177–80; partial solutions from different sources, perspective on, 67; prices understood through, 21–23 (see also prices); savings as common feature of, 46–47 (see also savings); of transactions and relationships, 49–52. See also financial diaries PPP. See purchasing power parity exchange rates Prahalad, C. K., 62, 251n.12, 256n.2 prices: the complex derivation of, 134–36; context of, diversification of poor households’ portfolios and, 151–53; discounting of, social relations and, 141–44; microfinance interest rates, 279 INDEX prices (cont.) 132–34, 144–45; in “poorworld” banking, interest rates seen as a fee, 136–37; puzzles regarding, portfolio approach reveals, 21–23; from the saver’s perspective, 145–49; sensitivity to interest rates, study of, 257n.4; stated vs. actual, term of the loan and, 137–41; unreliability of informal service providers regarding, 152–53 Proctor and Gamble, 62 pro-poor insurers, 207 purchasing power parity (PPP) exchange rates, conversion factors and use of, 5–7, 248n.6 Qubeka, Nomthumzi, 261n.6 Rabin, Matthew, 255n.13 Ramuse, Zanele, 261n.6 RAND, Family Life Surveys, 261n.2 reciprocity: in burial societies, 77; in lending and borrowing, 50, 54, 208; in savings clubs, 118–19 regulated financial companies (South Africa), 77 Reille, Xavier, 260n.3 “relationship” banking, 250n.9.

. ∞ press.princeton.edu Printed in the United States of America 1 3 5 7 9 10 8 6 4 2 Contents List of Tables vii List of Figures ix Chapter One The Portfolios of the Poor 1 Chapter Two The Daily Grind 28 Chapter Three Dealing with Risk 65 Chapter Four Building Blocks: Creating Usefully Large Sums 95 Chapter Five The Price of Money 132 Chapter Six Rethinking Microfinance: The Grameen II Diaries 154 Chapter Seven Better Portfolios 174 v CONTENTS Appendix 1 The Story behind the Portfolios 185 Appendix 2 A Selection of Portfolios Acknowledgments Notes 243 247 Bibliography 265 Index vi 273 211 Tables Table 1.1 Purchasing Power Parity Comparisons Table 1.2 Hamid and Khadeja’s Closing Balance Sheet, November 2000 Table 2.1 Year-End Financial Asset Values and Annual Cash Flows through Financial Instruments for Median Households Table 2.2 Portfolio Summary for Subir and Mumtaz over the Research Year Table 2.3 Annual Income of the Median Diary Households Table 2.4 Regular versus Irregular Income Households, South Africa Table 2.5 One-on-One Interest-Free Borrowing and Lending Table 3.1 Most Frequent Events Causing a Financial Emergency, by Country Table 3.2 Stages in Holding a Funeral, South Africa Table 3.3 Thembeka’s Portfolio of Funeral Coverage Table 3.4 Sources and Uses of Funds for Xoliswa’s Mother’s Funeral Table 3.5 Sources and Uses of Funds for Thembi’s Brother’s Funeral Table 4.1 Nomsa’s Typical Monthly Budget Table 4.2 Lump Sums from a Single Instrument Spent in the Research Year, by Country vii 6 9 33 34 38 45 50 68 76 81 83 85 99 102 L I S T O F TA B L E S Table 4.3 Types of Instruments Used to Form Lump Sums Table 4.4 Primary Use of 298 Large Sums Table 4.5 Primary Use of 194 Large Sums Used for Opportunities Table 4.6 Where Large Sums Were Formed Table 6.1 Grameen II Diaries: Total Disbursed Value of Loans, by Source Table 6.2 Grameen II Diaries: Number and Disbursed Value of Microfinance Loans, by Use Category Table A1.1 Areas in Which Financial Diaries Households Resided Table A1.2 Average PPP Dollar Per Capita Daily Incomes for Selected Diary Households Table A1.3 Microfinancial Instruments, Services, and Devices Table A2.1–15 Sample Portfolios: Financial Net Worth at the Start and End of the Research Year viii 102 103 108 112 165 166 191 198 206 213 Figures Figure 2.1 Income-earning categories of financial diaries households Figure 2.2 Incomes of two Indian occupational groups, aggregated monthly Figure 2.3 Revenues and inventory expenses of a South African small businesswoman Figure 4.1 Cash-flow schematic for Nomsa’s saving-up club Figure 4.2 Cash-flow schematic for Nomsa’s RoSCA Figure 5.1 Monthly internal rate of return Figure 5.2 Accumulating savings with bank interest rate Figure 5.3 Accumulating savings with ASCA interest rate Figure A1.1 Margin of error in reported cash flows, South Africa ix 37 39 41 115 117 139 146 147 209 This page intentionally left blank This page intentionally left blank Chapter One THE PORTFOLIOS OF THE POOR P ublic awareness of global inequality has been heightened by outraged citizens’ groups, journalists, politicians, international organizations, and pop stars.

They are adjusted to capture the fact that the cost of living varies between countries; that is, a dollar goes farther in Delhi, Dhaka, or Johannesburg than it does in New York. The standard “market” exchange rates used at the bank or airport to convert between dollars and rupees, takas, or rand do not always adequately capture that fact. So adjustments are made by the UN using a set of conversion factors known as “purchasing power parity” (PPP) exchange rates. The PPP-adjusted dollars attempt to account for the greater purchasing power in the countries we study than market rates would imply. Calculating the PPP conversion factors has been a major research project in itself, housed at the World Bank International Comparison Program, and the numbers continue to be refined.6 5 CHAPTER ONE In our context, one limitation of the PPP factors is that they are based on lists of goods and services meant to reflect the consumption patterns of the entire population of each country, rich and poor.

 

pages: 337 words: 89,075

Understanding Asset Allocation: An Intuitive Approach to Maximizing Your Portfolio by Victor A. Canto

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

accounting loophole / creative accounting, airline deregulation, Andrei Shleifer, asset allocation, Bretton Woods, buy low sell high, capital asset pricing model, commodity trading advisor, corporate governance, discounted cash flows, diversification, diversified portfolio, fixed income, frictionless, high net worth, index fund, inflation targeting, invisible hand, law of one price, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, market bubble, merger arbitrage, new economy, passive investing, price mechanism, purchasing power parity, risk tolerance, risk-adjusted returns, risk/return, Ronald Reagan, shareholder value, Sharpe ratio, short selling, statistical arbitrage, the market place, transaction costs, Y2K, yield curve

See also benchmarks; indexing active management and, xx, 166-168, 180-182, 252-255 hedge funds, 235-239 reasons for, 164-166 size cycles active versus passive management during, 170-172, 175, 271-272 equal-weighted versus cap-weighted indexes, 175-180 performance of asset classes, 16-18 UNDERSTANDING ASSET ALLOCATION performance indicators, CEM (capitalized earnings model) and, 96-100 periodic table of asset returns, 6-11, 46 Phillips curve, 98 portable-alpha strategy, 256-257, 260-264, 269-270 portfolio volatility. See volatility portfolios, 3, 253 positive incentives, 81 PPP (purchasing power parity), 57, 97 free trade and, 185-187 violations, 191-192 price earnings ratio. See P/E ratio price rule, 90 price-rule targeting, 48-49 probabilities investor convictions calculations, 129-132, 137-142, 275-281 LJE quantitative model, 134-136 probability density function, 129 purchasing power parity. See PPP pure-alpha strategy, 256-257, 260-264, 269-270 Q-R qualitative method, investor convictions calculations, 132-137 quantitative method. See empirical method Reagan, Ronald, 55, 73-74, 76-77, 83, 90, 95 real GDP growth rate, 95-100 real interest rates, equity/fixed-income cycles and, 53-54 real rates-of-return, 190-192 regional companies, 190 regional factor, 191 regional stock indices, location effect and, 198-202 regulatory fixed costs, 184-185 residual risk, 3 Resolution Trust Corporation, 76 retirement planning, asset allocation and, 3-4 return-delivery vehicles, tax-rate changes and, 69-70 capital gains, 76-79 debt financing, 73-76 incentive structure effects, 70-73, 80-84 reward-to-risk ratio (hedge funds), 228-230 risk, systematic risk, 113 risk measurement, 2-3, 19-21.

Add to that low and steady inflation and there was little uncertainty during the mid- and late 1990s. When the corporate scandals broke, and the stock market bubble popped, uncertainty crept back in and value stocks reigned once again. The Location Cycles Before I get into location cycles, I need to make some assumptions about exchange rates. In the long run (by this, I mean the economy will approach its equilibrium in the long run), purchasing power parity (PPP) will be restored. PPP is the point at which exchange rates have adjusted based on the purchasing power of currencies.7 If the world we live in were frictionless, all adjustments would be instantaneous. This is, unfortunately, not the case. Shocks give rise to temporary disturbances that push economies away from old equilibriums and into new ones. There are adjustment costs to this process, meaning it can take some time for the economy to reach its new equilibrium.

The valuation of the short-term fixed-income instrument is captured in the following equation (TB denotes the short-term fixed-income instrument— that is, three-month T-bills—and s the short-term yields): Equation 5: TB = 1/(1 + s) As before, the short-term yields conform to the Fisher equation. The modified CEM’s equity-valuation formula (see Equation 2) also applies to foreign equities—with one caveat: If one uses foreign interest rates and inflation rates, the model’s results are denominated in foreign currencies. Hence, to translate these returns to domestic returns, one needs to know whether purchasing power parity (PPP)—the point at which exchange rates have adjusted based on the currencies’ purchasing power—holds or not. If PPP holds, the differential inflation rate between two countries matches exchange-rate fluctuations. If (on the other hand) PPP does not hold, real rates of return for the two countries match the exchange-rate fluctuations.2 We previously established a link between inflation and real GDP growth rates and the relative valuation of equities and fixed-income instruments.

 

pages: 935 words: 267,358

Capital in the Twenty-First Century by Thomas Piketty

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

accounting loophole / creative accounting, Asian financial crisis, banking crisis, banks create money, Berlin Wall, Branko Milanovic, British Empire, capital controls, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, central bank independence, collapse of Lehman Brothers, conceptual framework, corporate governance, correlation coefficient, David Ricardo: comparative advantage, demographic transition, distributed generation, diversification, diversified portfolio, European colonialism, eurozone crisis, Fall of the Berlin Wall, financial intermediation, full employment, German hyperinflation, Gini coefficient, high net worth, Honoré de Balzac, immigration reform, income inequality, income per capita, index card, inflation targeting, informal economy, invention of the steam engine, invisible hand, joint-stock company, Joseph Schumpeter, market bubble, means of production, mortgage debt, mortgage tax deduction, new economy, New Urbanism, offshore financial centre, open economy, pension reform, purchasing power parity, race to the bottom, randomized controlled trial, refrigerator car, regulatory arbitrage, rent control, rent-seeking, Robert Gordon, Ronald Reagan, Simon Kuznets, sovereign wealth fund, Steve Jobs, The Nature of the Firm, the payments system, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, trade liberalization, very high income, We are the 99%

I used this parity rather than the exchange rate to convert American GDP to euros in Table 1.1, and I did the same for the other countries listed. In other words, we compare the GDP of different countries on the basis of the actual purchasing power of their citizens, who generally spend their income at home rather than abroad.25 FIGURE 1.4. Exchange rate and purchasing power parity: euro/dollar In 2012, 1 euro was worth $1.30 according to current exchange rate, but $1.20 in purchasing power parity. Sources and series: see piketty.pse.ens.fr/capital21c. The other advantage of using purchasing power parities is that they are more stable than exchange rates. Indeed, exchange rates reflect not only the supply and demand for the goods and services of different countries but also sudden changes in the investment strategies of international investors and volatile estimates of the political and/or financial stability of this or that country, to say nothing of unpredictable changes in monetary policy.

This is chiefly a result of the fact that the prices of goods and services that cannot be traded internationally are lower, because these are usually relatively labor intensive and involve relatively unskilled labor (a relatively abundant factor of production in less developed countries), as opposed to skilled labor and capital (which are relatively scarce in less developed countries).28 Broadly speaking, the poorer a country is, the greater the correction: in 2012, the correction coefficient was 1.6 in China and 2.5 in India.29 At this moment, the euro is worth 8 Chinese yuan on the foreign exchange market but only 5 yuan in purchasing power parity. The gap is shrinking as China develops and revalues the yuan (see Figure 1.5). Some writers, including Angus Maddison, argue that the gap is not as small as it might appear and that official international statistics underestimate Chinese GDP.30 Because of the uncertainties surrounding exchange rates and purchasing power parities, the average per capita monthly incomes discussed earlier (150–250 euros for the poorest countries, 600–800 euros for middling countries, and 2,500–3,000 euros for the richest countries) should be treated as approximations rather than mathematical certainties. For example, the share of the rich countries (European Union, United States, Canada, and Japan) in global income was 46 percent in 2012 if we use purchasing power parity but 57 percent if we use current exchange rates.31 The “truth” probably lies somewhere between these two figures and is probably closer to the first.

For example, global inequality would be markedly higher if we used current exchange rates rather than purchasing power parities, as I have done thus far. To understand what these terms mean, first consider the euro/dollar exchange rate. In 2012, a euro was worth about $1.30 on the foreign exchange market. A European with an income of 1,000 euros per month could go to his or her bank and exchange that amount for $1,300. If that person then took that money to the United States to spend, his or her purchasing power would be $1,300. But according to the official International Comparison Program (ICP), European prices are about 10 percent higher than American prices, so that if this same European spent the same money in Europe, his or her purchasing power would be closer to an American income of $1,200. Thus we say that $1.20 has “purchasing power parity” with 1 euro. I used this parity rather than the exchange rate to convert American GDP to euros in Table 1.1, and I did the same for the other countries listed.

 

Culture and Prosperity: The Truth About Markets - Why Some Nations Are Rich but Most Remain Poor by John Kay

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

Albert Einstein, Asian financial crisis, Barry Marshall: ulcers, Berlin Wall, Big bang: deregulation of the City of London, California gold rush, complexity theory, computer age, constrained optimization, corporate governance, corporate social responsibility, correlation does not imply causation, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, Donald Trump, double entry bookkeeping, double helix, Edward Lloyd's coffeehouse, equity premium, Ernest Rutherford, European colonialism, experimental economics, Exxon Valdez, failed state, financial innovation, Francis Fukuyama: the end of history, George Akerlof, George Gilder, greed is good, haute couture, illegal immigration, income inequality, invention of the telephone, invention of the wheel, invisible hand, John Nash: game theory, John von Neumann, Kevin Kelly, knowledge economy, labour market flexibility, late capitalism, Long Term Capital Management, loss aversion, Mahatma Gandhi, market bubble, market clearing, market fundamentalism, means of production, Menlo Park, Mikhail Gorbachev, money: store of value / unit of account / medium of exchange, moral hazard, Naomi Klein, Nash equilibrium, new economy, oil shale / tar sands, oil shock, pets.com, popular electronics, price discrimination, price mechanism, prisoner's dilemma, profit maximization, purchasing power parity, QWERTY keyboard, Ralph Nader, RAND corporation, random walk, rent-seeking, risk tolerance, road to serfdom, Ronald Coase, Ronald Reagan, second-price auction, shareholder value, Silicon Valley, Simon Kuznets, South Sea Bubble, Steve Jobs, telemarketer, The Chicago School, The Death and Life of Great American Cities, The Market for Lemons, The Nature of the Firm, The Predators' Ball, The Wealth of Nations by Adam Smith, Thorstein Veblen, total factor productivity, transaction costs, tulip mania, urban decay, Washington Consensus, women in the workforce, yield curve, yield management

But market exchange rates are subject to large short-term fluctuations, and in 2001 the value of the euro was extremely low, so the rankings by purchasing power parity (PPP) in Table 4.7 are a better overall guide to the underlying levels of productivity in the various countries. However measured, Norway has much the highest productivity of any country in the world. It combines large and profitable oil extraction with an efficient industrial sector. The range of productivity among the remaining countries at market exchange rates finds Japan at the top ($43 per hour) and Australia at the bottom ($23 per hour), but the less misleading purchasing power parity basis discloses a narrower range, from Belgium's $46 per hour to around $30 per hour in the still emerging Hong Kong and Singapore. Average output of about $40 per hour is what a productive modern economy with current technology can expect to achieve.

We buy and sell different currencies in foreign exchange markets; we exchange money at different dates in money markets. In chapter 4, I described how comparisons between countries could be made using either market exchange rates or purchasing power parities, which compare the cost ofbuying the same bundle of goods in different countries. If it costs less than a dollar in another country to buy goods that cost a dollar in the United States, then people will tend to do exactly that. Market exchange rates cannot therefore vary by too much, or for too long, from purchasing power parity. And they do not. The numbers in Table 4.8 show the cost of buying in dollars, in other countries, the goods that would have cost you one dollar in the United States. Most of them are not very different from one dollar. And if, in 2001, you had looked at the data in Table 4.8 and bought the currencies with figures below one and sold those above it, most of your trades would have made money.

The more distant comparisons are in space and time, the more strained they become. Nathan Rothschild, probably the richest man in the world in 1836, died despite the best medical attention money could buy. The infection that killed him could today be cured by antibiotics available even to Sicelo for a few coins. 10 Isn't Sicelo, alive, better off than Nathan Rothschild, dead? Despite these difficulties, international agencies make estimates of "purchasing power parity" (PPP), the cost of maintaining a given material standard of living in different countries. 11 These comparisons suggest that international disparities in material living standards are less wide than international disparities in productivity. Services and property are generally cheaper in poor countries than in rich countries. Services and property are also cheaper in Australia and North America than in Europe or Japan.

 

pages: 561 words: 87,892

Losing Control: The Emerging Threats to Western Prosperity by Stephen D. King

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

Admiral Zheng, asset-backed security, barriers to entry, Berlin Wall, Bernie Madoff, Bretton Woods, BRICs, British Empire, capital controls, Celtic Tiger, central bank independence, collateralized debt obligation, corporate governance, credit crunch, crony capitalism, currency manipulation / currency intervention, currency peg, David Ricardo: comparative advantage, demographic dividend, demographic transition, Deng Xiaoping, Diane Coyle, Fall of the Berlin Wall, financial deregulation, financial innovation, Francis Fukuyama: the end of history, full employment, George Akerlof, German hyperinflation, Gini coefficient, hiring and firing, income inequality, income per capita, inflation targeting, invisible hand, Isaac Newton, knowledge economy, labour market flexibility, labour mobility, low skilled workers, market clearing, Martin Wolf, Mexican peso crisis / tequila crisis, Naomi Klein, new economy, Ponzi scheme, price mechanism, price stability, purchasing power parity, rent-seeking, reserve currency, rising living standards, Ronald Reagan, savings glut, Silicon Valley, Simon Kuznets, sovereign wealth fund, spice trade, statistical model, technology bubble, The Great Moderation, The Market for Lemons, The Wealth of Nations by Adam Smith, Thomas Malthus, trade route, transaction costs, Washington Consensus, women in the workforce, working-age population, Y2K, Yom Kippur War

There are many different ways of assessing the size of economies. On the most conservative estimates, which merely measure the size of each economy in dollars, low- and medium-income economies (which include all the emerging markets) are, collectively, about the same size as the US economy. If we pretend that the identical product should have the same cost across different countries and geographies (using either formal purchasing power parity calculations or The Economist’s Big Mac index), the emerging economies are, collectively, about twice the size of the US.10 The emerging economies have come a long way since the 1970s, a result of rapid economic growth year-in, year-out. Yet they still have a long way to go. Per-capita incomes are in some cases only a tiny fraction of those in the US or in the developed world more generally.

As we have seen, in modern economic history China is the first economy to be both poor in per-capita terms but large in terms of its global influence. China’s expansion has, to date, been very commodity-intensive. China is now the second-biggest energy consumer in the world, behind the US but ahead of the European Union. In 1980 it was an economic minnow, with its national income only 7 per cent of America’s in dollar terms and only 9 per cent using purchasing power parity. Already, China’s expansion has had a huge impact on demand for basic materials. In the early years of the new millennium, China absolutely dominated the consumption of metals, accounting for almost all the increase in global demand for tin and nickel and more than all the increase in global demand for lead and zinc. For aluminium and copper, China accounted for around half of the increase in global consumption.

As noted in Chapter 1, simple back-of-the-envelope calculations suggest that, at current growth rates, China would be attempting to consume the equivalent of all of the world’s current oil production by the middle of the twenty-first century. As the IMF explained in the September 2006 World Economic Outlook, ‘historical patterns suggest that consumption of metals typically grows together with income until about $15,000–$20,000 per capita (in purchasing power parity adjusted dollars) as countries go through a period of industrialization and infrastructure building … So far, China has generally tracked the patterns of Japan and Korea during their initial development phase.’11 Meanwhile, like other countries before it, China’s economic success is prompting a shift to protein-based diets, which will have a major long-term effect on the demand for grain.

 

pages: 283 words: 73,093

Social Democratic America by Lane Kenworthy

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

affirmative action, Affordable Care Act / Obamacare, barriers to entry, Celtic Tiger, centre right, clean water, collective bargaining, corporate governance, David Brooks, desegregation, Edward Glaeser, full employment, Gini coefficient, hiring and firing, Home mortgage interest deduction, illegal immigration, income inequality, invisible hand, labor-force participation, manufacturing employment, market bubble, minimum wage unemployment, new economy, postindustrial economy, purchasing power parity, race to the bottom, rent-seeking, rising living standards, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, school choice, shareholder value, sharing economy, Skype, Steve Jobs, too big to fail, Tyler Cowen: Great Stagnation, union organizing, universal basic income, War on Poverty, working poor, zero day

Boarini and Mira d’Ercole create a summary measure of deprivation by averaging, for each country, the shares of the population reporting deprivation in each of these seven areas. FIGURE 3.2 Low-end household incomes and material deprivation P10 household income: posttransfer-posttax income of households at the tenth percentile of the income distribution. Measured in 2005 or as close to that year as possible. Incomes are adjusted for household size (the numbers shown here are for a household with three persons) and converted into US dollars using purchasing power parities (PPPs). Data sources: Luxembourg Income Study, www.lisdatacenter.org, series DPI; OECD, stats. oecd.org. Material deprivation rate: share of households experiencing one or more of the following: inability to adequately heat home, constrained food choices, overcrowding, poor environmental conditions (e.g., noise, pollution), arrears in payment of utility bills, arrears in mortgage or rent payment, difficulty in making ends meet.

The actual years vary somewhat depending on the country. Household incomes are posttransfer-posttax, adjusted for household size (the amounts shown are for a household with four persons). The income data are averages for households in the lower half of the income distribution. Household incomes and GDP per capita are adjusted for inflation using the CPI and converted to US dollars using purchasing power parities. “Asl” is Australia; “Aus” is Austria. Ireland and Norway are omitted; both would be far off the plot in the upper-right corner. Data sources: OECD, stats.oecd.org; Luxembourg Income Study, www.lisdatacenter.org. What are the prospects for earnings going forward? Household earnings can rise in two ways: higher wages and more employment. From the 1940s through the mid- to late-1970s, much of the growth in household incomes for working-age Americans came from rising wages.52 But as figure 3.7 shows, since the late 1970s inflation-adjusted wages in the bottom half have barely budged.

From the 1940s through the mid- to late-1970s, much of the growth in household incomes for working-age Americans came from rising wages.52 But as figure 3.7 shows, since the late 1970s inflation-adjusted wages in the bottom half have barely budged. FIGURE 3.6 Change in lower-half households’ earnings and net government transfers, 1979–2005 Earnings and net transfers are adjusted for inflation using the CPI and converted to US dollars using purchasing power parities. Data source: Luxembourg Income Study, www.lisdatacenter.org. FIGURE 3.7 Wages Hourly wage at the fiftieth (median) and tenth percentiles of the wage distribution. 2011 dollars; inflation adjustment is via the CPI-U-RS. Data source: Lawrence Mishel et al., The State of Working America, stateofworkingamerica.org, “Hourly wages of all workers, by wage percentile,” using Current Population Survey (CPS) data.

 

pages: 209 words: 80,086

The Global Auction: The Broken Promises of Education, Jobs, and Incomes by Phillip Brown, Hugh Lauder, David Ashton

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

affirmative action, barriers to entry, Branko Milanovic, BRICs, business process, business process outsourcing, call centre, collective bargaining, corporate governance, credit crunch, David Ricardo: comparative advantage, deindustrialization, deskilling, Frederick Winslow Taylor, full employment, future of work, glass ceiling, global supply chain, immigration reform, income inequality, industrial robot, job automation, Joseph Schumpeter, knowledge economy, knowledge worker, labour market flexibility, low skilled workers, manufacturing employment, market bubble, market design, neoliberal agenda, new economy, pensions crisis, post-industrial society, profit maximization, purchasing power parity, QWERTY keyboard, race to the bottom, Richard Florida, Ronald Reagan, shareholder value, Silicon Valley, sovereign wealth fund, stem cell, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, Thomas L Friedman, trade liberalization, transaction costs, trickle-down economics, winner-take-all economy, working poor

Indeed, an overall decline in global economic inequalities is the flip side of widening social inequalities in affluent economies.41 Nevertheless, various attempts have been made to assess the growth of a global middle class, which depends on how the middle is defined, such as by income level preferred by economists or occupation preferred by sociologists. Invariably, studies attempting to assess the growth of the global middle class treat the world as a single country and use income data ranging somewhere between the rich and poor. High Skills, Low Wages 129 These definitions are also based on purchasing power parity (PPP) that offers a better indication of what you can buy with your dollars in different countries; a far lower level of income is required in China to achieve purchasing parity with people living in the United States. Given wildly different definitions of middle-class income, it is unsurprising there is little agreement about the size of the global class.42 Maurizio Bussolo and colleagues at the World Bank define the global middle class as those living between the per capita incomes of Brazil and Italy.43 Using this definition, they calculate that it will expand from 7.6 percent in 2000 to 16.1 percent in 2030, which includes over a billion people in emerging economies able to buy cars, enjoy international tourism, and demand world-class products and quality higher education.44 Figure 8.4 reveals the dominant role of the Chinese economy in explaining the rise of this new class.

Williamson, (2007) Dragons at Your Door: How Chinese Cost Innovation Is Disrupting Global Competition (Boston, Mass.: Harvard Business School Press, 2007), 2. Ibid., 89. Ibid., 14. See Manjeet Kripalani and Josey Pullyenthuruthel, “India: Good Help Is Hard to Find,” Business Week, February 14, 2005. Notes to Pages 50–59 171 19. World Bank, Global Economic Prospects. Managing the Next Wave of Globalization (Washington, D.C.: World Bank, 2007), 41. These figures are based on a measure of purchasing power parity (PPP). 20. UNCTAD, World Investment Report, 2006, 92. 21. This is based on figures for 2002; see Dieter Ernst, Why Is Chip Design Moving to Asia? http://www.eastwestcenter.org/research/research-projects/?class_ call=view&resproj_ID=182 22. Accenture, “The Kindest Cuts: The Vital Role of Cost Optimization in High Performance Financial Services,” The Point, 9, no. 2 (2009): 3. 23. China Today, “Chinese Cities and Provinces”; based on 2005 data from the Ministry of Construction. http://www.chinatoday.com/city/a.htm 24.

See also knowledge wars; knowledge workers 194 labor arbitrage, 97, 99, 106–7, 111, 159 Index Brazil, 182n43 China, 2, 130 corporate profits, 110 downward mobility, 138 emerging economies, 130–31 erosion of benefits, 121–22 financial crash of 2008, 6 global, 128–29, 130, 131 Nike, 102 global poverty, 182n43 globalization, 47–48 growth of, 18 income inequalities, 9, 118–19, 120 income stagnation, 5 Obama, Barack, 3, 23, 27, 147 OECD (Organisation for Economic Co-operation and Development), 31, 35, 91, 109, 149, 168n2 office management, 72, 127 India, 2, 30, 34, 130 Italy, 130, 182n43 mechanical Taylorism, 81 offshoring, 109, 152 offshoring, 8, 46, 51–52, 55–56, 60, 73, 75, 77–78, 90–93, 99, 107–11, 119, 129, 152, 170–71n2, 180n17 Ohmae, Kenichi, 104–5 opportunity bargain, 132 opportunity gap, 141 opportunity bargain American Dream, 27, 132 oasis operations, 64 opportunity trap, 143 politics of more, 186n16 positional conflict, 134 bidding wars, 183–84n22 corporate profits, 124 credentials, 184–85n2 prosperity, 2 purchasing power parity (PPP), 129, 131 development of, 4–6 digital Taylorism, 65, 155 quality-cost revolution, 59 salaries, 118–19, 120 soft currencies, 140–41 economy of hope, 148–49, 164 education and, 4–6, 27–28 and the global auction, 132 war for talent, 84, 91, 96–97 Mills, C. Wright, 83 globalization, 99 government, 25, 27, 154–57 minimum wage, 160 minorities, 118, 119, 138 The Mismanagement of Talent, 143 high-skill, low-wage workforce, 13–14, 112, 147 human capital, 132, 152 mobility, 23, 138, 146 modernization, 157 income inequalities, 151–52 innovation, 65 modular corporation, 76–79, 99–100, 102–3, 174n33 Morgan Stanley, 43 knowledge economy, 25 knowledge wars, 23, 164 middle class, 132 Motorola, 42, 54 Muzio, Daniel, 85 nationalism, 4 neoliberalism, 6, 14–15, 24, 98, 151–52, 164 Nanjing Automotive, 42 nanotechnology program, 44–46 new untouchables, 114 opportunity trap, 12, 133, 135–36 path dependency, 185n5 A Nation at Risk, 27–28 national debt, 150–51, 154 National Health Service, 122 National Science Foundation, 38 nationalism, 4, 151 Nature, 145–46 political policy, 149 productivity, 163–64 prosperity, 152 remaking of, 154–57, 163–64 renewal of, 13–14 shareholders, 98 neoliberalism, 4–6, 12, 14–15, 23–24, 30, 35, 98, 149–52, 158, 160, 164 New Deal, 125 new untouchables, 114 niche skills, 154 social conflict, 13, 146 social justice, 152 transnational companies, 98 war for talent, 90, 96 winner-takes-all, 160 Index 195 opportunity gap, 133–35, 141 opportunity trap, 12, 131–33, 135–38, 141–44, 146 purchasing power parity (PPP), 59, 129, 131 purists’ tactics, 143 O’Reilly, Charles, 97 outsourcing, 8, 56, 60, 103–4, 115 over-the-counter (OTC), 73 Oxford University, 134 quality standards, 103, 105 quality-cost revolution, 8, 46, 49–64, 103, 105, 170–71n2 R&D (research and development), 36, 39–40, 196 paper chase, 139, 162 patents, 45, 58 paternalism, 19 path dependency, 63, 185n5 42–45, 44, 52–53, 56–57, 99, 101, 107–8, 153, 157, 163 race to the bottom, 112, 159 racism, 89, 117–18, 133 pensions, 7, 25, 114, 121–22, 180n25 permanent employability, 142 Reagan, Ronald, 4, 24, 125 real estate, 148 personal capital, 140, 142–43 personal freedom, 135–36, 156 Peterson, Peter, 180n25 recessions, 4, 24, 31, 38, 47, 89, 103, 106, 111, 117–18, 121, 144, 148, 151, 169n24 re-engineering, 73, 77 Pfeffer, Jeffrey, 97 pharmaceutical industry, 56–57 Reich, Robert, 15, 20 resentment, 34 Philippines, 92–93 platform architecture, 76–77, 174–75n34 players’ tactics, 143–44 Retirement USA, 121 return on investment (ROI), 149, 160 reverse auction, 6–8, 55, 104–5, 114, 119, Poland, 35 political policy, 149 121, 137, 157, 159 reverse engineering, 41–42 politics of more, 186n16 populism, 13 portfolio careers, 79 The Revolt of the Elites, 161 Ricardo, David, 20 Rifkin, Jeremy, 163 positional conflict, 134 positional goods, 136 riots, 10, 41, 47 The Rise of the Meritocracy, 133 post-industrial society, 18 poverty, 10, 47, 133–34, 163, 178n21, 182n43 PPP (purchasing power parity), 129, 131 Ritalin, 145–46 Roach, Stephen, 111, 178n21 ROI (return on investment), 149 Prasad, G.

 

The Haves and the Have-Nots by Branko Milanovic

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

Berlin Wall, Branko Milanovic, colonial rule, crony capitalism, David Ricardo: comparative advantage, deglobalization, Deng Xiaoping, Fall of the Berlin Wall, financial deregulation, full employment, Gini coefficient, high net worth, illegal immigration, income inequality, income per capita, Joseph Schumpeter, means of production, open borders, Plutocrats, plutocrats, purchasing power parity, Simon Kuznets, very high income, Washington Consensus

See Citizenship Plato Poland Political parties Poor education and global inequality and government spending and investment and redistribution and social arrangements and taxation and Poor countries globalization and migration from technology and trade and Portugal Poverty alleviation of PPP. See Purchasing power parity dollars Prices Pride and Prejudice (Austen) Principles of Political Economy (Ricardo) Private property Production of goods Proletariat Provence Purchasing power parity (PPP) dollars Rawls, John Reagan, Ronald Reciprocity Redistribution beneficiaries of fiscal interpersonal inequality and justice and middle class and poor and voting and Rentiers Republican Party, Republicans Ricardo, David Rich investment and savings and social arrangements and Rich countries, migration to Rockefeller, John D.

This is the same thing as saying that to each haircut in China, to each meal eaten in a cafeteria in Hunan, we attach not their actual prices but international prices—thereby valuing each haircut in China the same as a similar haircut in the United States. The end product is that the Chinese and American GDPs per capita will now be expressed neither in yuan nor in U.S. dollars, but in what is called PPP (purchasing power parity) dollars, an imaginary currency that in principle has the same purchasing power in China and the United States. The same calculation is, of course, performed for each and every other country that participates in the International Comparison Project: When we say $PPP 1, we mean that a unit of such imaginary currency can buy the same basket of goods in India as in China as in France, Argentina, or Zambia.

This was estimated by Branko Milanovic, Peter Lindert, and Jeffrey Williamson in “Preindustrial Inequality” (Economic Journal, forthcoming; previous version published as Measuring Ancient Inequality, National Bureau of Economic Research Working Paper 13550 [National Bureau of Economic Research, October 2007]) to have amounted to a GDP per capita in 1990 international prices of $PPP 633 (PPP stands for “purchasing power parity”; see Essay II). Angus Maddison’s estimate is somewhat lower, $PPP 570 (Contours of the World Economy, 1-2003 AD [Oxford: Oxford University Press, 2007], chap. 1). 6 This is simply given as an example. The Colosseum was built under Titus, more than one hundred years after Crassus died. 7 According to the New York Times obituary from 1937 and Wikipedia. Alan Nevins says the amount did not exceed $900 million (Study in Power: John D.

 

Falling Behind: Explaining the Development Gap Between Latin America and the United States by Francis Fukuyama

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

Andrei Shleifer, Atahualpa, barriers to entry, Berlin Wall, British Empire, business climate, Cass Sunstein, central bank independence, collective bargaining, colonial rule, conceptual framework, crony capitalism, European colonialism, Fall of the Berlin Wall, first-past-the-post, Francis Fukuyama: the end of history, Francisco Pizarro, Hernando de Soto, income inequality, income per capita, labour market flexibility, land reform, land tenure, Monroe Doctrine, moral hazard, New Urbanism, oil shock, open economy, purchasing power parity, rent-seeking, Ronald Reagan, The Wealth of Nations by Adam Smith, total factor productivity, trade liberalization, transaction costs, upwardly mobile, Washington Consensus

Countries in the upper right portion—that is, countries 142 The Politics of Underdevelopment in Latin America Number of Regime Changes 8 Panama 7 6 5 Ecuador Argentina Bolivia Brazil Dominican Republic Paraguay Peru 4 Venezuela El Salvador 3 Colombia Guatemala 2 Costa Rica Uruguay 1 Nicaragua 0 0 Chile 2000 Mexico 4000 6000 8000 10000 Average Annual per Capita Income ($) figure 6.4 Per Capita Income and Regime Change in Latin America, 1940–1970. Note: Income per capita expressed in 1996 purchasing power parity dollars. Sources: Data elaborated from the Penn World Table, http://pwt.econ.upenn.edu/php_site/pwt_index.php; and the Third World Government Stability database, http://colfa.utsa.edu/govstability. Number of Regime Changes 8 7 6 Argentina Panama 5 4 Bolivia 3 2 Nicaragua El Salvador Dominican Republic Peru Ecuador Brazil Guatemala Chile Mexico 1 Colombia 0 0 2000 4000 Costa Rica Uruguay Venezuela 6000 8000 10000 Average Annual per Capita Income ($) figure 6.5 Per Capita Income and Regime Change in Latin America, 1970–2000. Note: Income per capita expressed in 1996 purchasing power parity dollars. Sources: Data elaborated from the Penn World Table, http://pwt.econ.upenn.edu/php_site/pwt_index.php; and the Third World Government Stability database, http://colfa.utsa.edu/ govstability.

Of course, such 170 Institutional Factors in Latin America’s Development Log PPP GDP Per Capita in 2000 Constant USD 12 11 10 ARG CHL CRI URY BRA DOMPAN COL VEN PER SLV PRY GUY GTM NIC ECUJAM HND BOL MEX 9 8 HTI 7 6 5 0 1 2 3 4 5 6 7 8 1990 – 2003 Average Constraints on the Executive Index (Polity IV) Log PPP GDP Per Capita in Constant 2000 USD figure 7.4 Log Gross Domestic Product (GDP) Per Capita (2004 Purchasing Power Parity) vs. Constraints on the Executive. Source: Polity IV Project on Political Regime Characteristics and Transitions, 1800–2004, Center for Global Policy, George Mason University and Center for International Development and Conflict Management, University of Maryland (dynamic dataset by subscription). 12 11 10 PAN PER JAM 9 CHL URY ARG MEX BRA VEN ECU DOM COL BOL 8 7 6 5 0 5 10 15 20 25 Number of Procedures to Create a Business figure 7.5 Log Gross Domestic Product (GDP) Per Capita (2004 Purchasing Power Parity) vs. Number of Procedures Needed to Create a Business. Source: Simeon Djankov, Rafael La Porta, Florencio López-de-Silanes, and Andrei Shleifer, “The Regulation of Entry,” in Quarterly Journal of Economics 117 (2002): 1–37.

In addition, as indicated in table 4.3, teachers with 15 years of experience in primary schools in Brazil receive salaries that are less than half table 4.3 South Korea Spain United States OECD Thailand Argentina Chile Malaysia Colombia Mexico Brazil Enrollment in Secondary Education and Public Primary School Teacher Salaries, 1995–1998 % Net Enrollment in Secondary Education, 1995 Public Primary School Teacher Salary ($), 1998 96 94 89 nd nd 59 55 nd 50 46 19 39,921 29,590 33,973 28,441 15,759 9,442 15,233 10,876 nd 12,450 6,451 Notes: nd = no data available The salary is for a teacher with 15 years experience, in U.S. dollars, expressed as per the purchasing power parity (better known by its acronym in English, PPP). The enrollment figure shows enrollment as a percentage of the secondary school–age population. OECD = Organisation for Economic Co-operation and Development. Source: Partnership for Educational Revitalization in the Americas, Lagging Behind: A Report Card on Education in Latin America, 2001 (Washington, DC: Inter-American Dialogue, 2001), pp. 29, 42, based on UNESCO and OECD data.

 

pages: 221 words: 55,901

The Globalization of Inequality by François Bourguignon

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

Berlin Wall, Branko Milanovic, Capital in the Twenty-First Century by Thomas Piketty, collective bargaining, Credit Default Swap, deglobalization, deindustrialization, Doha Development Round, Edward Glaeser, European colonialism, Fall of the Berlin Wall, financial deregulation, financial intermediation, gender pay gap, Gini coefficient, income inequality, income per capita, labor-force participation, minimum wage unemployment, offshore financial centre, open economy, purchasing power parity, race to the bottom, Robert Gordon, Simon Kuznets, structural adjustment programs, The Spirit Level, too big to fail, very high income, Washington Consensus

However, since the prices, in dollars, for the same goods differ from one country to another, the numbers this would give us would not be truly comparable in terms of purchasing power; $100 does not buy the same volume of goods in New York that it does in Delhi when converted into rupees. We therefore need to adjust official exchange rates so that the conversion into dollars takes into account differences in the price of the same bundle of goods in various countries. International price comparisons make it possible to fine-­tune indicators of “purchasing power parity,” which in turn enable us to express standard of living in different countries in dollars and the purchasing power of a dollar in the United States in a given year. This adjustment is smaller for developed countries than for developing countries because prices are relatively similar and not too far from prices in the United States in the former. It may be sizable for developing countries, especially the poorest ones.

It uses estimates ofGDP per person provided by Angus Maddison (in Monitoring lhe world Eronomy. Paris: OECD Development Centre. 1995). The recent data represent an update of the article by Fran'JOis Bourguignon. 'A Turning Point in Global Inequality ... and Beyond; in Rm arcb ()1J ResfXJnrihility. Reji«lions on Our Common FUlUrt. ed. Wilhem Krull (Leipzig: CEP Euro paische Verlagsanstalp. 2011). The indexes of purchasing power parity that Angus Maddison used for the historical data referenced the year 1990. The data for the recent period usc purcha.singpower parity data based on price statistics that were collected in 2005. which sometimes resulted in significant revisions to the parity indexes. Thisexplains much of the discontinuity between the two series in 1990. Ciln higher than the poorest 10%; by 1980, this number would be three times larger.

Ciln higher than the poorest 10%; by 1980, this number would be three times larger. The Gini coefficient in 1820 was around 0.5, similar to a relatively unequal country today. By 1980 it was 0.66, higher than any existing level of national inequality. The second striking point that this graph shows is a sharp d ecline beginning in 1990 (the "recent period " in fig- 28 Chapter 1 ure 1). Changes in datasets and purchasing power parity measurements resulted in a change in the estimation of global inequality—hence the discontinuity in the series shown in figure 1. Nonetheless, in relation to the historical series, the drop in inequality is both undeniable and sizable. In the last twenty years, the Gini coefficient and even the relative gap between the two extreme deciles decreased almost as much as they had increased since 1900. The turn of the millennium therefore marks a watershed moment in the evolution of global inequality.15 There has also been a parallel reversal in terms of absolute poverty.

 

pages: 892 words: 91,000

Valuation: Measuring and Managing the Value of Companies by Tim Koller, McKinsey, Company Inc., Marc Goedhart, David Wessels, Barbara Schwimmer, Franziska Manoury

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

air freight, barriers to entry, Basel III, BRICs, business climate, business process, capital asset pricing model, capital controls, cloud computing, compound rate of return, conceptual framework, corporate governance, corporate social responsibility, credit crunch, Credit Default Swap, discounted cash flows, distributed generation, diversified portfolio, energy security, equity premium, index fund, iterative process, Long Term Capital Management, market bubble, market friction, meta analysis, meta-analysis, new economy, p-value, performance metric, Ponzi scheme, price anchoring, purchasing power parity, quantitative easing, risk/return, Robert Shiller, Robert Shiller, shareholder value, six sigma, sovereign wealth fund, speech recognition, technology bubble, time value of money, too big to fail, transaction costs, transfer pricing, value at risk, yield curve, zero-coupon bond

Global CAPM The disagreement between investors about the return and risk of international investments disappears if purchasing power parity (PPP) holds across all currencies. In that case, changes in exchange rates perfectly match differences in inflation between currencies:2 ( Xt = Xt−1 where 1 + iA 1 + iB ) Xt = exchange rate of currency B expressed in units of currency A at time t iA , iB = inflation rate for currency A, B As a result, the expected return and risk in real terms for any asset will be the same for all investors, regardless of their domestic currency. In this 2 Technically, this is so-called relative purchasing power parity, referring to changes in prices and exchange rates. Absolute purchasing power parity requires that prices be the same across currencies (see, for example, Brealey et al., Principles of Corporate Finance, chap. 27). 496 CROSS-BORDER VALUATION example, any appreciation of the U.S. dollar relative to the euro would make the nominal bond return for U.S. investors lower.

In most of those years, the value of those assets would have been within 20 percent of the original investment measured in U.S. dollars, as purchasing power parity kept the currency rate in line with inflation differences over the long term. Nevertheless, there would be significant deviations in other years. For example, at the end of 2013, the Brazilian assets would have been worth approximately $175 million. To some extent, such deviations may be specific to the exchange rate with the U.S. dollar—which itself could be undervalued in terms of PPP with other currencies. For a more balanced view, the so-called real effective exchange rate (REER) reflects the purchasing power of the Brazilian currency versus an index of foreign currencies with more dampened deviations from PPP, at least for the past 20 years (see Exhibit 23.5). Analysis of purchasing power parity indicates that in general, currencies INCORPORATING FOREIGN-CURRENCY RISK IN THE VALUATION 505 Brazilian Inflation-Adjusted Exchange Rates EXHIBIT 23.5 Real exchange rate (RER) index and real effective exchange rate (REER) index, 2000 = 100 160 RER to U.S. $ 140 REER 120 100 80 60 20% 35% Average RER 1964–2016 40 20 0 1964 68 72 76 80 84 88 92 96 2000 04 08 12 14 Source: World Bank, MGM Consultants, Bank for International Settlements.

It becomes all the more important that forecasts be based on an integrated set of economic and monetary assumptions of future inflation, interest rates, exchange rates, and cost of capital (see Chapter 23 for more details). For instance, make sure that the same inflation rates underlie the financial projections and cost of capital estimates for the company. Exchange rates are one parameter that deserves special attention. Although exchange rates converge to purchasing power parity (PPP) in the long run,3 3 For an overview, see A. M. Taylor and M. P. Taylor, “The Purchasing Power Parity Debate,” Journal of Economic Perspectives 18, no. 4 (Fall 2004): 135–158. 708 EMERGING MARKETS EXHIBIT 31.1 ConsuCo: Key Historical Financial Indicators reais, million 2004 2005 2006 2007 2008 Invested capital Current operating assets Current operating liabilities Net operating working capital 4,769 (2,650) 2,119 4,833 (2,953) 1,880 5,194 (3,596) 1,598 5,936 (4,051) 1,885 6,133 (4,304) 1,829 Net property, plant, and equipment Other net operating assets Operating invested capital (excluding goodwill) 6,322 3,427 11,868 5,517 3,683 11,080 6,059 5,006 12,662 6,886 5,258 14,028 7,059 5,756 14,645 Goodwill plus cumulative goodwill written off Operating invested capital (including goodwill) 2,067 13,935 2,104 13,184 1,940 14,602 2,221 16,249 2,319 16,964 Excess marketable securities Other nonoperating assets Total investor funds 1,326 818 16,079 2,061 652 15,897 1,434 449 16,485 1,094 451 17,795 1,807 518 19,289 Total interest-bearing debt and operating leases Other nonoperating liabilities Adjusted equity Total investor funds 8,299 1,318 6,462 16,079 7,662 1,538 6,697 15,897 8,127 1,728 6,630 16,485 8,965 1,737 7,093 17,795 9,664 1,774 7,851 19,289 NOPLAT Sales Cost of goods sold Other operating costs EBITDA 17,950 (12,702) (3,864) 1,384 19,162 (13,483) (4,119) 1,560 19,829 (14,233) (4,349) 1,247 21,290 (15,321) (4,523) 1,447 25,762 (18,971) (4,933) 1,858 Depreciation and amortization Adjusted EBITA (498) 886 (631) 929 (442) 805 (447) 1,000 (588) 1,269 Cash taxes NOPLAT (43) 844 (207) 722 (324) 481 (179) 821 (329) 940 Nominal indicators, % Sales growth Adjusted EBITA/sales NOPLAT/sales Invested capital (excluding goodwill)/sales Invested capital (including goodwill)/sales ROIC (excluding goodwill) ROIC (including goodwill) 16.3 4.9 4.7 58 69 7.1 6.1 6.8 4.8 3.8 64 74 6.5 5.5 3.5 4.1 2.4 66 76 3.8 3.3 7.4 4.7 3.9 57 66 5.9 5.1 21.0 4.9 3.6 54 62 6.4 5.5 Approximate real indicators, % Sales growth (inflation-adjusted) Gross profit/sales EBITDA/sales Sales/store (reais million) Sales/square meter (reais thousand) 1.4 29.2 7.7 32.7 15.8 0.1 29.6 8.1 32.5 15.0 –3.1 28.2 6.3 31.9 14.4 3.0 28.0 6.8 31.3 13.5 16.8 26.4 7.2 35.2 15.5 Key financial ratios FORECASTING CASH FLOWS 709 EXHIBIT 31.2 Economic and Monetary Assumptions % 2006 2007 2008 2009E 2010E ... 2014E Real GDP growth Brazil United States 4.0 2.7 5.7 2.1 5.1 0.4 –0.7 –2.7 3.5 1.5 ... ... 3.7 2.1 Inflation (consumer prices) Brazil United States 4.2 3.2 3.6 2.9 5.7 3.8 4.8 –0.4 4.1 1.7 ... ... 4.5 2.2 Source: International Monetary Fund World Economic Outlook.

 

pages: 306 words: 78,893

After the New Economy: The Binge . . . And the Hangover That Won't Go Away by Doug Henwood

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

accounting loophole / creative accounting, affirmative action, Asian financial crisis, barriers to entry, borderless world, Branko Milanovic, Bretton Woods, capital controls, corporate governance, correlation coefficient, credit crunch, deindustrialization, dematerialisation, deskilling, ending welfare as we know it, feminist movement, full employment, gender pay gap, George Gilder, glass ceiling, Gordon Gekko, greed is good, half of the world's population has never made a phone call, income inequality, indoor plumbing, Internet Archive, job satisfaction, joint-stock company, Kevin Kelly, labor-force participation, liquidationism / Banker’s doctrine / the Treasury view, manufacturing employment, means of production, minimum wage unemployment, Naomi Klein, new economy, occupational segregation, pets.com, profit maximization, purchasing power parity, race to the bottom, Ralph Nader, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, Silicon Valley, Simon Kuznets, statistical model, structural adjustment programs, Telecommunications Act of 1996, telemarketer, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, total factor productivity, union organizing, War on Poverty, women in the workforce, working poor, Y2K

Ireland Sweden Denmark Spain UK Japan Hong Kong Singapore Taiwan Portugal Korea Thailand GDP per hour worked 0 200 400 600 800 1,000 1,200 1,400 1,600 +71% +80% +72% +63% +20% 9-+60% D +66% ^ +76% ^ +111% w +94% i +180% g +155% ON +262% +53% +229% _+?9% 0 5 10 15 20 25 30 35 Work hours per person are the number of paid hours worked in a national economy for the entire year divided by the population. GDP per hours worked is expressed in international dollars—converted at so-called purchasing power parity (PPP) exchange rates, which attempt to equalize buying power across borders, rather than depending on volatile market rates of exchang—divided by the total number of hours worked. Numbers at the right of the second graph show the real change betweeen 1 973 and 1 996. Source: Crafts 1999. The mysticism begins with defining output. In many economic fables, the commodity chosen for illustration is the nonexistent widget—things typically produced in quantity, one indistinguishable from another.

Urdike the Luxembourg Income Study (of which more in a bit), which makes an effort to massage national data into an internationally comparable form, Milanovic had to take what was on offer. Price levels also vary around the world—and within countries, too; an income of $20,000 would mean very different things in Manhattan and rural Mississippi, as would $20,000 converted at market exchange rates into Russian rubles. 131 Milanovic uses purchasing power parity (PPP) exchange rates, which attempt to equalize buying power across borders, ignoring the distortions frequently introduced by financial market fashions.^^ PPP rates typically boost the incomes of poor regions compared to market rates, since prices are generally lower in poorer countries than in rich ones (the same effect is responsible for the differences in buying power between Manhattan and rural Mississippi).

But the rapid growth in average incomes of over 1.2 billion Chinese has the effect of lowering world income inequality. 4 Globalization 1. Quoted in Engardio et al. (2003). 2. The report and supporting data can be gotten from <wv^rw.foreignpoUcy.com/issue^an-feb_2003/data.zip> and <www.atkearney.com/main.taf?site=l&a=5&b=4&c=l&d=64> (visited February 26, 2003). 3.The controversy is very nicely reviewed for the nonspecialist by Laura Secor (2003). 4. These measures use so-called purchasing power parity (PPP) exchange rates rather than market rates; PPP techniques attempt to estimate the actual living standards that money incomes can buy, which are often quite different from what happens on foreign exchange markets. 5. The precise measure used for labor costs is relative unit labor costs (RULC), the cost per unit of output valued in a common currency. What's measured is not the absolute level of costs, but the changes over time in each country's costs relative to all other members.

 

pages: 374 words: 114,660

The Great Escape: Health, Wealth, and the Origins of Inequality by Angus Deaton

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

Admiral Zheng, agricultural Revolution, Branko Milanovic, BRICs, British Empire, call centre, clean water, colonial exploitation, Columbian Exchange, declining real wages, Downton Abbey, financial innovation, germ theory of disease, Gini coefficient, illegal immigration, income inequality, invention of agriculture, invisible hand, John Snow's cholera map, knowledge economy, Louis Pasteur, low skilled workers, new economy, purchasing power parity, randomized controlled trial, rent-seeking, rising living standards, Ronald Reagan, Simon Kuznets, Steve Jobs, Steven Pinker, structural adjustment programs, The Spirit Level, too big to fail, trade route, very high income, War on Poverty

See also global poverty; incomes poverty lines: absolute, 183–84; global, 220, 223–24, 249, 256; in India, 223, 248, 254–55, 256–57; national, 220, 248–49; relative, 184; in United States, 181–84, 185–86, 197, 256–57; of World Bank, 223, 248–49 poverty reduction: in China, 44, 46, 247, 250–51, 253; economic growth and, 41–42, 273, 312; global, 44–46, 45f, 167, 247, 249–51; government programs, 184–85, 186, 306; in India, 44, 46, 247, 250, 253–55; recommended strategies for, 312–13, 318–19, 321–22, 323–24. See also foreign aid PPP. See purchasing power parity exchange rates prehistory: agriculture in, 78–80; hunter-gatherers, 73–79; life expectancies in, 77, 79, 80 President’s Emergency Plan for AIDS Relief (PEPFAR), 307, 309 Preston, Samuel, 29, 41, 98, 106–7 prices: commodity, 286–87, 297–98; of drugs, 319, 320; as incentives, 246. See also purchasing power parity Princeton University, 98 Pritchett, Lant, 167, 310 progress: inequality and, xiii, 1, 4–6, 10–11; knowledge and inventions, 9–11, 41; measuring, 15–16; technological, 327–28. See also medical innovations public health: aid programs, 309, 311–12; campaigns, 86, 93, 95–96, 97–98, 115, 120; in cities, 94–95, 100; factors in, 91; politics and, 97–98.

In fact, according to the latest estimate, the price level in India is only about 40 percent of the price level in the United States, so that, if we take a typical bundle of things people buy, the bundle in India costs only 40 percent of what it costs in the United States. Put another way, prices would be the same in both places if the exchange rate were 20 rupees to the dollar, not 50 rupees. This “correct” exchange rate, the one that would make a dollar worth the same in both places, is called, appropriately enough, the purchasing power parity exchange rate or, for short, the PPP exchange rate. The PPP rate is the exchange rate from dollars into rupees that would give the same purchasing power in both places. If the price level is lower in Delhi than in New York, as it is in most poor countries, the PPP rate will be lower than the foreign exchange rate. How do we know these numbers? There is no market in which currencies are converted at PPP rates, so there is no alternative but to go and find out what the prices are.

Ronald Dworkin, 2000, Sovereign virtue, Harvard University Press, p. 6. Quoted in Thomas Nagel, 2005, “The problem of global justice,” Philosophy and Public Affairs 33(2): 113–47, p. 120. CHAPTER SEVEN: HOW TO HELP THOSE LEFT BEHIND 1. These numbers and calculations are from the World Bank’s website for poverty calculations, http://iresearch.worldbank.org/PovcalNet/index.htm?3. 2. Angus Deaton and Olivier Dupriez, 2011, “Purchasing power parity exchange rates for the global poor,” American Economic Journal: Applied Economics 3(2): 137–66. 3. http://www.givingwhatwecan.org/. 4. Richard Attenborough, “17p to save a child’s life,” The Observer, March 4, 2000, http://www.guardian.co.uk/world/2000/mar/05/mozambique.theobserver. 5. Smith, 1767, Theory of moral sentiments, p. 213. 6. David Hume, 1912 [1777], An enquiry concerning the principles of morals, Project Gutenberg edition, part I (originally published in 1751). 7.

 

pages: 386 words: 122,595

Naked Economics: Undressing the Dismal Science (Fully Revised and Updated) by Charles Wheelan

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

affirmative action, Albert Einstein, Andrei Shleifer, barriers to entry, Berlin Wall, Bernie Madoff, Bretton Woods, capital controls, Cass Sunstein, central bank independence, clean water, collapse of Lehman Brothers, congestion charging, Credit Default Swap, crony capitalism, currency manipulation / currency intervention, Daniel Kahneman / Amos Tversky, David Brooks, demographic transition, diversified portfolio, Doha Development Round, Exxon Valdez, financial innovation, floating exchange rates, George Akerlof, Gini coefficient, Gordon Gekko, greed is good, happiness index / gross national happiness, Hernando de Soto, income inequality, index fund, interest rate swap, invisible hand, job automation, Joseph Schumpeter, Kenneth Rogoff, libertarian paternalism, low skilled workers, lump of labour, Malacca Straits, market bubble, microcredit, money: store of value / unit of account / medium of exchange, Network effects, new economy, open economy, presumed consent, price discrimination, price stability, principal–agent problem, profit maximization, profit motive, purchasing power parity, race to the bottom, RAND corporation, random walk, rent control, Richard Thaler, rising living standards, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, school vouchers, Silicon Valley, Silicon Valley startup, South China Sea, Steve Jobs, The Market for Lemons, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, transaction costs, transcontinental railway, trickle-down economics, urban sprawl, Washington Consensus, Yogi Berra, young professional

It turned out that my guide book was old; the Chinese currency had been steadily losing value ever since publication. I had swapped my $100 for the Chinese equivalent of about $13.50. Purchasing power parity is a helpful concept. It is the tool used by official agencies to make comparisons across countries. For example, when the CIA or the United Nations gathers data on per capita income in other countries and converts that figure into dollars, they often use PPP, as it presents the most accurate snapshot of a nation’s standard of living. If someone earns 10,000 Jordanian dinars a year, how many dollars would a person need in the United States to achieve a comparable standard of living? In the long run, basic economic logic suggests that exchange rates should roughly align with purchasing power parity. If $100 can be exchanged for enough pesos to buy significantly more stuff in Mexico, who would want the $100?

In theory, rational people would continue to sell dollars for pesos until there was no longer any economic advantage in doing so; at that point, $100 in the United States would buy roughly the same goods and services as $100 worth of pesos in Mexico—which is also the point at which the exchange rate would reach purchasing power parity. Here is the strange thing: Official exchange rates—the rate at which you can actually trade one currency for another—deviate widely and for long stretches from what PPP would predict. If purchasing power parity makes economic sense, why is it often a poor predictor of exchange rates in practice? The answer lies in the crucial distinction between goods and services that are tradable, meaning that they can be traded internationally, and those that are not tradable, which are (logically enough) called nontradable.

So, in theory, we ought to be willing to exchange $1 for however many yen or pesos or rubles would purchase roughly the same amount of stuff in the relevant country. If a bundle of everyday goods costs $25 in the United States, and a comparable bundle of goods costs 750 rubles in Russia, then we would expect $25 to be worth roughly 750 rubles (and $1 should be worth roughly 30 rubles). This is the theory of purchasing power parity, or PPP. By the same logic, if the value of the ruble is losing 10 percent of its purchasing power within Russia every year while the U.S. dollar is holding its value, we would expect the ruble to lose value relative to the U.S. dollar (or depreciate) at the same rate. This isn’t advanced math; if one currency buys less stuff than it used to, then anyone trading for that currency is going to demand more of it to compensate for the diminished purchasing power.* I learned this lesson once—the hard way.

 

pages: 524 words: 143,993

The Shifts and the Shocks: What We've Learned--And Have Still to Learn--From the Financial Crisis by Martin Wolf

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

air freight, anti-communist, Asian financial crisis, asset allocation, asset-backed security, balance sheet recession, bank run, banking crisis, banks create money, Basel III, Ben Bernanke: helicopter money, Berlin Wall, Black Swan, bonus culture, Bretton Woods, call centre, capital asset pricing model, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, debt deflation, deglobalization, Deng Xiaoping, diversification, double entry bookkeeping, en.wikipedia.org, Erik Brynjolfsson, Eugene Fama: efficient market hypothesis, eurozone crisis, Fall of the Berlin Wall, fiat currency, financial deregulation, financial innovation, financial repression, floating exchange rates, forward guidance, Fractional reserve banking, full employment, global rebalancing, global reserve currency, Growth in a Time of Debt, Hyman Minsky, income inequality, inflation targeting, invisible hand, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, labour mobility, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, margin call, market bubble, market clearing, market fragmentation, Martin Wolf, Mexican peso crisis / tequila crisis, moral hazard, mortgage debt, new economy, North Sea oil, Northern Rock, open economy, paradox of thrift, price stability, private sector deleveraging, purchasing power parity, pushing on a string, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, reserve currency, Richard Feynman, Richard Feynman, risk-adjusted returns, risk/return, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, Second Machine Age, secular stagnation, shareholder value, short selling, sovereign wealth fund, special drawing rights, The Chicago School, The Great Moderation, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, The Wealth of Nations by Adam Smith, too big to fail, Tyler Cowen: Great Stagnation, very high income, winner-take-all economy

Figure 49 shows that the US fully recovered its long-term trend level and rate of growth of GDP per head at purchasing power parity (which was 1.9 per cent a year from 1870 to 2007) after the Great Depression and the Second World War. Since the 2007–09 crisis, however, it has been below that rate. Figure 50 shows that the UK did far better than recover its growth trend after its desperately poor interwar performance. Trend growth of the UK’s GDP per head was a mere 1 per cent a year from 1870 to 1950. From 1950 to 2007, it jumped to 2.3 per cent. Since 2007, the growth rate has looked more like the pre-Second World War trend. This had not changed by 2014, despite the recovery, since productivity growth remained worryingly absent. Figure 49. US GDP per Head (purchasing power parity, at 1990 Geary Khamis dollars) Source: Maddison project and the Conference Board Figure 50.

Between 2007 and 2012, the gross domestic product of the high-income countries, in aggregate, rose by 2.4 per cent, in real terms, according to the International Monetary Fund, with that of the US rising by 2.9 per cent and that of the Eurozone falling by 1.3 per cent. Over the same period, the real GDP of the emerging countries grew by 31 per cent and those of India and China by 39 and 56 per cent respectively. Such a speedy transformation in relative economic weight among important countries has no precedent. It is plausible that China’s economy already is the biggest in the world, at purchasing power parity, in the middle of this decade, and will be the biggest in market prices by the early part of the next decade. The crisis has accelerated the world economy towards this profound transition. The coincidence of a huge financial and economic crisis with a prior transformation in relative economic power also occurred in the 1930s. The rise of the US as a great economic power in the early twentieth century and the overwhelming strength of its balance of payments after the First World War helped cause both the scale of the global economic crisis and the ineffectiveness of the response in the 1930s.

US GDP per Head (purchasing power parity, at 1990 Geary Khamis dollars) Source: Maddison project and the Conference Board Figure 50. UK GDP per Head (purchasing power parity, at 1990 Geary Khamis dollars) Source: Maddison project and the Conference Board Thus, even when financial crises cause huge recessions, financial crises need not leave permanent marks on the level of output, even though it will take a substantial number of years to return to the prior trend. But to achieve such a positive result would require fiscal and monetary policies of the type risked during the Second World War: huge fiscal deficits combined with monetary policies aimed at keeping both short- and long-term interest rates extremely low. That is beyond anybody’s peacetime imagination, just as it was during the 1930s. As a result, it now looks as though crisis-hit economies might never regain pre-crisis trend levels of output or even their pre-crisis rates of economic growth.

 

pages: 370 words: 112,602

Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty by Abhijit Banerjee, Esther Duflo

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

Albert Einstein, Andrei Shleifer, business process, business process outsourcing, call centre, Cass Sunstein, charter city, clean water, collapse of Lehman Brothers, congestion charging, demographic transition, diversified portfolio, experimental subject, hiring and firing, land tenure, low skilled workers, M-Pesa, microcredit, moral hazard, purchasing power parity, randomized controlled trial, Richard Thaler, school vouchers, Silicon Valley, The Fortune at the Bottom of the Pyramid, Thomas Malthus, urban planning

Notes Foreword 1 Throughout the book, we use the collective “we” whenever at least one of us was present in an interview. 2 The key reference we follow for our definition of poverty is Angus Deaton and Olivier Dupriez, “Purchasing Power Parity for the Global Poor,” American Economic Journal: Applied Economics, forthcoming. How do we know how much prices need to be adjusted to reflect the cost of living? The ICP project, led by the World Bank, has collected a comprehensive set of price data in 2005. Deaton and Dupriez have used those to calculate the cost of a basket of goods typically consumed by the poor in all the poor countries for which they have data. They do the exercise using the Indian rupee as the benchmark and use a price index in India compared to the United States to convert this poverty line into dollars, adjusted for the purchasing power parity. They propose the 16-rupee poverty line as the average of the poverty line of fifty countries where the vast majority of the poor live, weighted by the number of poor in those countries.

They propose the 16-rupee poverty line as the average of the poverty line of fifty countries where the vast majority of the poor live, weighted by the number of poor in those countries. They then use the exchange rate, adjusted for the price index between India and the United States, to convert the 16 rupees into a figure in dollars, which comes to 99 cents. Throughout this book, we present all prices in local currency and in 2005 Purchasing Power Parity–adjusted dollars (which we will note as “USD PPP”), using Deaton and Dupriez’s numbers. In this way, the price of anything mentioned in the book is directly scalable to the standard of living of the poor (for example, if something costs 3 USD PPP, it is roughly three times the poverty line). Chapter 1 1 United Nations, Department of Economic and Social Affairs, The Millennium Development Goals Report (2010). 2 Pratham Annual Status of Education Report 2005: Final Edition, available at http://scripts.mit.edu/~varun_ag/readinggroup/images/1/14/ASER.pdf. 3 Deborah Small, George Loewenstein, and Paul Slovic, “Sympathy and Callousness: The Impact of Deliberative Thought on Donations to Identifiable and Statistical Victims,” Organizational Behavior and Human Decision Processes 102 (2007): 143–153. 4 Jeffrey Sachs, The End of Poverty: Economic Possibilities for Our Time (New York: Penguin Press, 2005). 5 William Easterly, The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good (Oxford: Oxford University Press, 2006); and William Easterly, The Elusive Quest for Growth: Economists’ Adventures and Misadventures in the Tropics (Cambridge: MIT Press, 2001). 6 Dambisa Moyo, Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa (London: Allen Lane, 2009). 7 Everywhere in the book, whenever we present an amount in a country’s local currency, we give the equivalent amount in dollars, adjusted for the cost of living (see Endnote 1 in the Foreword).

Chapter 1 1 United Nations, Department of Economic and Social Affairs, The Millennium Development Goals Report (2010). 2 Pratham Annual Status of Education Report 2005: Final Edition, available at http://scripts.mit.edu/~varun_ag/readinggroup/images/1/14/ASER.pdf. 3 Deborah Small, George Loewenstein, and Paul Slovic, “Sympathy and Callousness: The Impact of Deliberative Thought on Donations to Identifiable and Statistical Victims,” Organizational Behavior and Human Decision Processes 102 (2007): 143–153. 4 Jeffrey Sachs, The End of Poverty: Economic Possibilities for Our Time (New York: Penguin Press, 2005). 5 William Easterly, The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good (Oxford: Oxford University Press, 2006); and William Easterly, The Elusive Quest for Growth: Economists’ Adventures and Misadventures in the Tropics (Cambridge: MIT Press, 2001). 6 Dambisa Moyo, Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa (London: Allen Lane, 2009). 7 Everywhere in the book, whenever we present an amount in a country’s local currency, we give the equivalent amount in dollars, adjusted for the cost of living (see Endnote 1 in the Foreword). This is denoted by USD PPP (USD at purchasing power parity). 8 Todd Moss, Gunilla Pettersson, and Nicolas van de Walle, “An Aid-Institutions Paradox? A Review Essay on Aid Dependency and State Building in Sub-Saharan Africa,” Working Paper No. 74, Center for Global Development (January 2006). Still, eleven countries out of forty-six received more than 10 percent of their budget in aid, and eleven got more than 20 percent. 9 Peter Singer, “Famine, Affluence, and Morality,” Philosophy and Public Affairs 1 (3) (1972): 229–243. 10 Amartya Sen, Development as Freedom (New York: Knopf, 1999). 11 Nicholas D.

 

pages: 523 words: 111,615

The Economics of Enough: How to Run the Economy as if the Future Matters by Diane Coyle

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

accounting loophole / creative accounting, affirmative action, bank run, banking crisis, Berlin Wall, bonus culture, Branko Milanovic, BRICs, call centre, Cass Sunstein, central bank independence, collapse of Lehman Brothers, conceptual framework, corporate governance, correlation does not imply causation, Credit Default Swap, deindustrialization, demographic transition, Diane Coyle, disintermediation, Edward Glaeser, Eugene Fama: efficient market hypothesis, experimental economics, Fall of the Berlin Wall, Financial Instability Hypothesis, Francis Fukuyama: the end of history, George Akerlof, Gini coefficient, global supply chain, Gordon Gekko, greed is good, happiness index / gross national happiness, Hyman Minsky, If something cannot go on forever, it will stop, illegal immigration, income inequality, income per capita, invisible hand, Jane Jacobs, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, labour market flexibility, low skilled workers, market bubble, market design, market fundamentalism, megacity, Network effects, new economy, night-watchman state, Northern Rock, oil shock, principal–agent problem, profit motive, purchasing power parity, railway mania, rising living standards, Ronald Reagan, Silicon Valley, South Sea Bubble, Steven Pinker, The Design of Experiments, The Fortune at the Bottom of the Pyramid, The Market for Lemons, The Myth of the Rational Market, The Spirit Level, transaction costs, transfer pricing, tulip mania, ultimatum game, University of East Anglia, web application, web of trust, winner-take-all economy, World Values Survey

Besides, as Steven Pinker has written: “When psychologists say ‘most people’ they usually mean ‘most of the two dozen sophomores who filled out a questionnaire for beer money.’ ” Pinker (2008). 5 List (2008). 6 Haidt (2006). 7 Trivers (1971). 8 Dawkins (1976). 9 Pinker (2008). 10 De Waal (2008), 18. 11 Ibid., 162. 12 Sigmund et al. (2002). 13 Hume (1739). 14 Sala-i-Martin (2002a, b). 15 Heshmati (2006). 16 Milanovic (2005). 17 Bourguignon and Coyle (2003). 18 Milanovic (2005). 19 These updated figures convert local currencies to dollars (so they can be compared) at purchasing power parity exchange rates, which differ significantly from earlier estimates, and the effect is to reduce the figures in “PPP dollars” for incomes in countries such as India and China. So whereas earlier figures suggested global income distribution had changed little in the late twentieth century, they now point to increasing inequality. This doesn’t mean the massive gains in income and reductions in poverty in these Asian economies are illusory.

., 127–28 Calculus of Consent, The: Logical Foundations of Constitutional Democracy (Buchanan and Tullock), 242 call centers, 131, 133, 161 Cameron, David, 288 capitalism: China and, 234; communism and, 96, 182–83, 209–13, 218, 226, 230, 239–40; community and, 27, 51, 65, 117–18, 137, 141, 152–54; cultural effects of, 25–29, 230–38; current crisis of, 6–9; democracy and, 230–38; Engels on, 14; fairness and, 134, 137, 149; growth and, 268, 275, 290, 293, 297; happiness and, 25–29, 33, 45, 53–54; historical perspective on, 3, 6, 14; institutions and, 240; market failure and, 226–30; Marx on, 14; measurement and, 182; mercantile economy and, 27–28; nutrition and, 10; profit–oriented, 18; Protestant work ethic and, 13–14; protests against, 211–13; rethinking meaning of, 9; social effects of, 25–26; values and, 209–13, 218, 226, 230–32, 235–36; well-being and, 137–39 carbon prices, 70–71 celebrities, 33 charitable giving, 33, 141 Checkpoint Charlie, 147 China, 161, 262, 280; capitalism and, 234; carbon emissions and, 63; changed demographic structure of, 90; convergence and, 122; declining population in, 98; energy use in, 63, 65; global manufacturing and, 149; inequality and, 125–26; Mao and, 10; middle class of, 125–26; as next major power, 94; one–child policy and, 95–96; population growth and, 95–96; purchasing power parity (PPP) and, 306n19; rise in wealth of, 81, 122–23, 125, 212; savings and, 87, 94, 100, 108; wage penalties and, 133; World Bank influence and, 163 cities, 308n29; face-to-face contact and, 165–68; size and, 165–66; structural changes in, 165–70; urban clustering and, 166 City of London, 147, 221 Clemens, Michael, 81 climate change, 5–7, 17, 24, 90, 238; carbon prices and, 70–71; Copenhagen summit and, 62, 64–65, 68, 162, 292; domestic dissent and, 66–71; future and, 75–83; geological history and, 69; global warming and, 57, 64, 66, 68; greenhouse gases and, 23, 29, 35, 59, 61–63, 68, 70–71, 83; Himalayan glaciers and, 66–67; incandescent light bulbs and, 59–60; InterAcademy Council and, 66–67; Intergovernmental Panel on Climate Change (IPCC) and, 59, 66–69, 82, 297; Kyoto Protocol and, 62–64; lack of consensus on, 66–71; Montreal Protocol and, 59; policy dilemma of, 58–62; policy recommendations for, 267, 280, 297; politics and, 62–65; social welfare and, 71–75; technology and, 59–60, 198 Coachella Value Music Festival, 197 Cobb, John, 36 Coca Cola, 150 coherence, 49 Cold War, 93, 112, 147, 209, 213, 239, 252 Collier, Paul, 77–78, 80, 82 Commerzbank, 87 Commission on the Measurement of Economic Performance and Social Progress, 37–38 communism: Berlin Wall and, 182, 226, 239; capitalism and, 96, 182–83, 209–13, 218, 226, 230, 239–40; Cold War and, 93, 112, 147, 209, 213, 239, 252; fall of, 209–13, 226, 239–40, 252; Iron Curtain and, 183, 239, 252; Leipzig marches and, 239; one-child policy and, 95–96; Velvet Revolution and, 239 community: civic engagement and, 140–41; globalization and, 148–49; intangible assets and, 149–52, 157, 161 (see also trust); public service and, 295; Putnam on, 140–41, 152–54 commuting, 45–47 Company of Strangers, The (Seabright), 148–49, 213–14 comprehensive wealth, 81–82, 202–3, 208, 271–73 consumerism, 22, 34, 45, 138 consumption: conspicuous, 11, 22, 45, 236; consumerism and, 22, 34, 45, 138; cutting, 61; downgrading status of, 11; downshifting and, 11, 55; Easterlin Paradox and, 39–44; global per capita, 72; of goods and services, 7, 10, 24, 35–36, 40, 82, 99, 161, 188, 191, 198, 214, 218, 228–29, 282; green lifestyle and, 55, 61, 76, 289, 293; growth and, 280, 295; happiness and, 22, 29, 40, 45; hedonic treadmill and, 40; increasing affluence and, 12; institutions and, 254, 263; Kyoto Protocol and, 63–64; measurement and, 181–82, 198; missing markets and, 229; natural resources and, 8–12, 58, 60, 79–82, 102, 112, 181–82; nature and, 58–61, 71–76, 79, 82; posterity and, 86, 104–5, 112–13; reduction of, 105; Slow Movement and, 27; trends in, 138; trilemma of, 13–14, 230–36, 275; values and, 229, 236 convergence, 5, 122 Copenhagen summit, 62, 64–65, 68, 162, 292 Crackberry, 205 Crafts, Nicholas, 156–57 credit cards, 2, 21, 136, 138, 283 Csikszentmilhalyi, Mihaly, 45–49 Cultural Contradictions of Capitalism, The (Bell), 230, 235–36 Czechoslovakia, 239 Daly, Herman, 36 Damon, William, 48 Dasgupta, Partha, 61, 73, 77–78, 80, 82 David, Paul, 156 Dawkins, Richard, 118 debit cards, 2 decentralization, 7, 159, 218, 246, 255, 275, 291 defense budgets, 93 democracy, 2, 8, 16, 312n19; capitalism and, 230–38; culture and, 230–38; fairness and, 141; growth and, 268–69, 285–89, 296–97; institutions and, 242–43, 251–52, 262; nature and, 61, 66, 68; posterity and, 106; trust and, 175; values and, 230–35 Denmark, 125 Dickens, Charles, 131 Diener, Ed, 48, 49 Discourse on the Origin and Basis of Inequality among Men (Rousseau), 114 distribution, 29, 306n22; Asian influence and, 123; bifurcation of social norms and, 231–32; consumerism and, 22, 34, 45, 138; Easterlin Paradox and, 39–44; fairness and, 115–16, 123–27, 134, 136; food and, 10, 34; of goods and services, 7, 10, 24, 35–36, 40, 82, 99, 161, 188, 191, 198, 214, 218, 228–29, 282; income, 34, 116, 123–27, 134, 278; inequality and, 123 (see also inequality); institutions and, 253; measurement and, 181, 191–99, 202; paradox of prosperity and, 174; policy recommendations for, 276, 278; posterity and, 87, 94; trust and, 151, 171; unequal countries and, 124–30; values and, 226 Dorling, Danny, 224, 307n58, 308n34 Douglas, Michael, 221 downshifting, 11, 55 downsizing, 175, 246, 255 drugs, 44, 46, 137–38, 168–69, 191, 302n47 Easterlin, Richard, 39 Easterlin Paradox, 39–44 eBay, 198 Economics of Ecosystems and Biodiversity project, The (TEEB), 78–79 economies of scale, 253–58 Economy of Enough, 233; building blocks for, 12–17; first ten steps for, 294–98; growth and, 182; happiness and, 24; institutions and, 250–51, 258, 261–63; living standards and, 13, 65, 78–79, 106, 113, 136, 139, 151, 162, 190, 194, 267; Manifesto of, 18, 267–98; measurement and, 182, 186–88, 201–7; nature and, 59, 84; Ostrom on, 250–51; posterity and, 17, 85–113; values and, 217, 233–34, 238; Western consumers and, 22 (see also consumption) Edinburgh University, 221 efficiency, 2, 7; evidence–based policy and, 233–34; fairness and, 126; Fama hypothesis and, 221–22; happiness and, 9, 29–30, 61; institutions and, 245–46, 254–55, 261; limits to, 13; nature and, 61–62, 69, 82; network effects and, 253, 258; productivity and, 13 (see also productivity); trilemma of, 13–14, 230–36, 275; trust and, 158–59; values and, 210, 215–16, 221–35 Ehrlich, Paul, 70 e-mail, 252, 291 “End of History, The” (Fukuyama), 239 Engels, Friedrich, 14 Enlightenment, 7 Enron, 145 environmentalists.

See also markets goodwill, 150 Google, 195, 291 Gore, Al, 60, 74 governance: definition of, 16; growth and, 270, 275, 288, 292; institutions and, 242, 247, 255–58, 261–62; measurement and, 183, 186; sense of, 18; technology and, 17; trust and, 151, 162–65, 173–77; values and, 211, 217, 238; wider crisis of, 255–58 government: bailouts and, 1, 88, 91, 99–100, 145; communism and, 96, 182–83, 209–13, 218, 226, 230, 239–40; debt and, 3–4, 11, 84–86, 89–94, 98–105, 108, 150, 248, 271, 275, 286–87, 294; decentralization and, 246; defining, 15–16, 269; distrust of, 150, 157, 162, 172, 175–76, 247; failure of, 183, 240–44, 257; fairness and, 121, 123, 131, 136; first ten steps for, 294–98; growing challenge to authority and, 245–46; growth and, 268–72, 275–89, 293–97; happiness and, 22–26, 29–32, 38–40, 43–45, 50–54; higher social spending and, 243–44; influence of over social norms, 280–84; infrastructure spending and, 93; institutions and, 240–63; interest groups and, 242–43, 285; Intergovernmental Panel on Climate Change (IPCC) and, 59, 66–69, 82, 297; intrusive regulatory practices and, 244; market control and, 14–15; measurement and, 182–88, 191, 193, 196, 202–3, 206; nature and, 58–62, 65–71, 82–84; New Public Management and, 245–47; OECD countries and, 4, 11, 38, 52, 60, 68, 87, 93–94, 97–99, 112, 125–26, 160, 171, 201, 212, 243–44, 246, 273–74, 281, 283, 287, 291, 293; online access of, 287–88; as organizing economy, 218–19; police service and, 5, 35, 163, 193, 200, 247; policy and, 2 (see also policy); posterity and, 85–95, 98–113; as shareholder, 88; stimulus packages and, 91, 100–103, 111; values and, 14, 210–11, 215–20, 225–26, 229–30, 234 government debt, 3–4, 84, 150, 248; cradle-to-grave social systems and, 104; credibility and, 101; default on, 110–12; deficit spending and, 101, 203, 287; demographic implosion and, 95–100; Gross on, 287; higher retirement age and, 106–7; importance of, 100–104; increased saving and, 105–6; legacy of, 90–92; less leisure and, 106–7; migration and, 108–9; policy for, 104–12, 271, 275, 286–87, 294; posterity and, 85–86, 90–94, 98–100, 105, 108; productivity improvements and, 107–8; reduced consumption and, 105–6; retirement age and, 98; as social issue, 113; Stein’s Law and, 104; as time bomb, 104 Great Crash, 28 Great Depression, 3, 28, 35, 61, 82, 109, 150, 208, 281 Greece, 3, 260, 276, 287, 295 greed, 248; bankers and, 277–78; fairness and, 129; happiness and, 26, 34, 54; high salaries and, 130, 143–44, 193, 223, 277–78, 286, 296; option pricing theory and, 222; policy recommendations for, 277–79; posterity and, 88; trust and, 150; values and, 221–23 Green, Stephen, 279 greenhouse gases, 23, 29, 35, 59, 61–63, 68, 70–71, 83 green lifestyle, 55, 61, 76, 289, 293 Greenspan, Alan, 129 Gross, Bill, 287 gross domestic product (GDP), 10, 12; Easterlin Paradox and, 39–44; fairness and, 127; growth and, 270, 274, 281, 294; happiness and, 22–23, 28, 32–42, 51–53; logarithm of, 41–42; measurement and, 41–42, 187–91, 198, 201–8; nature and, 56–60, 75–76, 80–82; policy recommendations for, 270, 274, 281, 294; posterity and, 91–94, 98–99, 103, 108, 111; trust and, 157, 160; values and, 212, 218, 232 Gross National Happiness, 36, 40 growth: antigrowth alternative and, 39–44; capitalism and, 268, 275, 290, 293, 297; Commission on the Measurement of Economic Performance and Social Progress and, 37–38; community and, 27, 51, 65, 117–18, 137, 141, 152–54; comprehensive wealth and, 81–82, 202–3, 208, 271–73; consequences of inequality and, 135–36; consumption and, 280, 295; cultural suspicion of capitalist, 26–29; democracy and, 268–69, 285–89, 296–97; downgrading consumption and, 11; fairness and, 114–16, 121, 125, 127, 133–37; governance and, 270, 275, 288, 292; government and, 268–72, 275–89, 293–97; gross domestic product (GDP) and, 270, 274, 281, 294; happiness and, 9–12, 22–29, 32–44, 51–53; increasing affluence and, 12; Industrial Revolution and, 27, 149, 290, 297; of information, 205, 291; innovation and, 201–7, 271–73, 281, 290–92; institutions and, 258, 261, 263; limits to, 13, 190, 231; Manifesto of Enough and, 267–98; measurement and, 181–85, 188–90, 194, 201–5, 208; mercantile economy and, 27–28; morals and, 275–76, 279, 293, 295, 297; nature and, 56–59, 62–66, 69–72, 76, 79–82; new conventional wisdom on, 23–24; paradox of prosperity and, 174; as policy goal, 22; politics and, 33; population, 29, 63, 70, 81, 89, 95–96, 108, 168; posterity and, 90, 95, 97, 99, 102, 105–8, 111; productivity and, 189–90, 194, 199–201, 206–7 (see also productivity); public goods and, 185–86, 190, 199, 211, 229, 249, 261; statistics and, 270–74, 290–94; sustainability and, 240, 244, 248 (see also sustainability); trust and, 152–56, 160, 174; values and, 13, 210–13, 222, 231–36; welfare and, 9–12 Groysberg, Boris, 143 Gutenberg press, 7 Haidt, Jonathan, 45–49, 117 Haldane, Andrew, 174 Hall, Peter, 140–41 Hamilton, Kirk, 81 handcrafting, 11, 55 happiness: absorbing work and, 10, 48–49; anomie and, 48, 51; anxiety and, 1, 25, 47–48, 136–38, 149, 174; capitalism and, 25–29, 33, 45, 53–54; charitable giving and, 33; choice and, 10–11; coherence and, 49; Commission on the Measurement of Economic Performance and Social Progress and, 37–38; commuting and, 45–47; conflict in relationships and, 47; consumer electronics and, 36–37; consumption and, 22, 29, 45; as correct guide for life, 29–32; cultural suspicion of growth and, 26–29; Easterlin Paradox and, 39–44; efficiency and, 9, 29–30, 61; emotional response to, 21; fairness and, 53; formula for, 46; freedom and, 10, 13, 26, 42–44, 50–53; globalization and, 24; government and, 22–26, 29–32, 38–40, 43–45, 50–54; gross domestic product (GDP) and, 22–23, 28, 32–42, 51–53; Gross National Happiness and, 36; growth and, 9–12, 22–29, 32–44, 51–53; health issues and, 24, 33–38, 42–43, 48, 50; Human Development Index (HDI) and, 36; inequality and, 25, 36, 42, 44, 53; innovation and, 37; lack of control and, 47; literacy and, 36; measurement and, 35–39; mercantile economy and, 27–28; morals and, 22, 26, 30, 34, 43, 48–49; more money and, 56; movement of, 10; nature and, 56–59, 75–76, 80–84; new conventional wisdom on, 23–24; noise and, 47; philosophy and, 21, 27, 31–32, 49–50; politics and, 22–30, 33, 43–44, 50–54; productivity and, 27, 38, 42, 51; psychology of, 44–50; religion and, 32–33, 43, 50; sense of flow and, 48–49, 51; shame and, 47; Slow Movement and, 27–28, 205; social engagement and, 10; social welfare and, 25–26, 30–32, 35, 39–42, 50–53; statistics and, 35–42, 51–52; technology and, 24–25, 35–37, 44, 53–54; unemployment and, 56; utiltariansim and, 31–32; volunteering and, 46–49 Happiness: Lessons from a New Science (Layard), 39 Happy Planet Index, 36 Harvard, 100 Hayek, Friedrich von, 215–16 health care, 4–5, 11; fairness and, 137–43; happiness and, 24, 33–38, 42–43, 48, 50; institutions and, 247, 252–53; measurement and, 181, 188–93, 200, 207; Obama administration and, 285; policy reform and, 285, 290, 293; politics and, 269; posterity and, 89, 93–94, 97–99, 103, 106, 111–13; trust and, 172 hedonic treadmill, 40 Henderson, David, 68 Himalayan glaciers, 66–67 hippies, 27 Hirsch, Fred, 190, 213 Hobbes, Thomas, 114 HSBC, 279 Hugo, Victor, 131 human capital, 81, 203–4, 282 Human Development Index (HDI), 36 Hume, David, 120 Hungary, 239 hybrid cars, 61 hyperinflation, 110–11 Idea of Justice, The (Sen), 43 illegal downloading, 196–97 incandescent light bulbs, 59–60 income. See distribution Inconvenient Truth, An (Gore), 60 Index of Sustainable Economic Welfare (ISEW), 36 India, 212; emerging middle class of, 125; fairness and, 122–26, 133; inequality and, 125–26; nature and, 63, 65, 81; posterity and, 108; purchasing power parity (PPP) and, 306n19; Satyam and, 146; trust and, 146, 149, 163, 172; wage penalties and, 133; World Bank influence and, 163 Industrial Revolution, 27, 149, 290, 297 inequality, 4–5, 11, 17, 84, 306n19, 308n34; Bush and, 127–28; consequences for growth, 135–36; decline in trust and, 139–44; dramatic increase in, 126–27, 131; extraction ratio for, 124; fairness and, 114–16, 122–43; fractal character of, 134; Gini coefficient and, 126; globalization and, 122–24, 127, 131, 155; happiness and, 25, 36, 42, 44, 53; high salaries and, 130, 143–44, 193, 223, 277–78, 286, 296; historical perspective on, 126–27; institutions and, 116, 127–31, 141; measurement of, 126; policy recommendations for, 267, 276, 295–97; poverty and, 43, 55–56, 100, 125, 128, 138, 142, 168–69, 261, 267; reduction of, 276–77; Republican administrations and, 127–28; social corrosiveness of, 139–44; structural causes of, 131–35; superstar effect and, 134; taxes and, 115–16, 123, 127–28, 131, 135–36; trends in, 125–30; unequal countries and, 124–30; United Kingdom and, 125–30; United States and, 122, 125–31, 135, 276; values and, 223–24, 234–36; well-being and, 137–43; within/between countries, 123–24 inflation, 37, 43, 61, 89, 102–5, 110–11, 189, 281, 305n17 information and communication technology (ICT), 6–7, 15, 17; data explosion and, 205, 291; decreased cost of, 254; fairness and, 133; happiness and, 24–25; institutional impacts of, 252–53; structural effects of, 194–98; trust and, 156–60, 165–67, 174 innovation, 6–7, 12; consumer electronics and, 36–37; fairness and, 121, 134; growth and, 271–73, 281, 290–92; happiness and, 37; institutions and, 244, 258, 263, 290–91; measurement and, 183, 196, 201–8, 273–74; musicians and, 195; nature and, 69–70, 81; policy recommendations for, 290–91; posterity and, 102; statistics and, 201–7; trust and, 157; values and, 210, 216, 220, 236 In Praise of Slowness, 27 institutions, 18; anomie and, 48, 51; balance and, 12–17; blindness of to financial crises, 87–88; broad framework for, 249–52; capitalism and, 240; consumption and, 254, 263; decentralization and, 246; democracy and, 242–43, 251–52, 262; downsizing and, 175, 246, 255; economies of scale and, 253–58; efficiency and, 245–46, 254–55, 261; extinction crisis and, 288; face-to-face contact and, 7, 147, 165–68; failures of, 240–44, 257, 262–63, 267, 289–90; fall of communism and, 226, 239–40, 252; freedom and, 244, 262; globalization and, 244; governance and, 242, 247, 255–58, 261–62; government and, 240–63; growth and, 258, 261, 263; health care and, 247, 252–53; high salaries and, 130, 143–44, 193, 223, 277–78, 286, 296; impact of new technologies and, 252–54; importance of, 261–63; inequality and, 116, 127–31, 141; innovation and, 244, 258, 263, 290–91; legitimacy and, 8, 16, 50, 66, 68–69, 162–63, 213, 226, 269, 274, 292, 296–97; managerialism and, 259; morals and, 254; nature and, 66–69, 82–84; New Public Management and, 245–47; outsourcing and, 159, 161, 175, 219, 287; policy recommendations for, 269, 284–91; politics and, 239–48, 251, 256–63; pollution and, 15, 35, 228; productivity and, 244–47, 257, 263; public choice theory and, 242–43; public deliberation and, 258–60; reform and, 245–48, 256, 285, 288–91, 296–97; responsibility to posterity and, 296; shareholders and, 145, 248, 257–58, 277; statistics and, 245; technology and, 244–46, 251–54, 257–63 (see also technology); values and, 240–42, 246–47, 258–60 intangible assets: measurement and, 199–201, 204–6; satellite accounts and, 38, 81, 204–6, 271; social capital and, 149–52, 157, 161, 199–201 InterAcademy Council, 66–67 interbank market, 1–2 Intergovernmental Panel on Climate Change (IPCC), 59, 66–69, 82, 297 International Monetary Fund (IMF), 90, 101–3, 111, 162–64, 176, 211, 287, 297 International Price Comparison, 124 International Telecommunications Union, 219 Internet, 155, 195, 245, 260, 273, 287–89, 291, 296 invisible hand, 209 iPods, 195 Ipsos Mori poll, 66, 247 Ireland, 172 Iron Curtain, 183, 239, 252 Italy, 95, 97–98, 146, 152 Jackson, Michael, 198 Japan, 42; debt of, 102; equal income distribution in, 125; fairness and, 125–26, 140–41; inequality and, 126; lost decade of, 102; posterity and, 91–92, 95, 97–98, 102; savings rates in, 280; trust and, 169, 175; voter turnout and, 175 Jazz Age, 127 Jefferson, Thomas, 184, 253–54 Johns, Helen, 41 Johnson, Simon, 256–57 Johnson, Steven, 187 Justice (Sandel), 237 Kahneman, Daniel, 215 Kamarck, Elaine, 247–48 Kay, John, 139, 245–46, 257 Kennedy School of Government, 247 Keynes, John Maynard, 101, 183–84, 190 Kleinwort, Dresdner, 87 knowledge economy, 191 Kobayashi, Keiichiro, 102 Korea, 126 Krugman, Paul, 100–103, 127–29, 232, 282 Kyoto Protocol, 62–64 labor: absorbing work and, 10, 48–49; call centers and, 131, 133, 161; creativity and, 166–68, 205–7; downsizing and, 175, 246, 255; global cities and, 165–70; globalization and, 131, 149 (see also globalization); human capital and, 81, 203–4, 282; measurement and, 189–99; migration and, 108–10, 172; outsourcing and, 159, 161, 175, 219, 287; pensions and, 4, 25, 85–86, 90, 92–100, 103–7, 111–13, 174–76, 191, 203, 243, 269–71, 275, 280, 286, 289–90, 293; Protestant work ethic and, 13–14, 236; retirement age and, 94, 97–99, 106–7, 112; skilled, 132–33, 159, 166–67, 276; specialization and, 160–61; technology and, 131–33; unemployment and, 3, 10, 43, 51, 56, 89, 107, 169, 207, 212–13, 243; unions and, 15, 51, 224, 249; unskilled, 132–33, 158, 172, 193; well-being and, 137–39; Whitehall Studies and, 139 lack of control, 47, 138–39 Lawson, Neal, 26 Layard, Richard, 31, 39–40, 43 Lehman Brothers, 1, 85, 87–88, 145, 211, 275–76 Leipzig marches, 239 Leviathan (Hobbes), 114 light bulbs, 59–61 Linux, 205 Lipsky, John, 102, 111 List, John, 117 literacy, 36 Live Nation, 197 living standards, 78–79, 106, 113, 136, 151, 162, 190, 194, 267 lobbyists, 15, 71, 247, 257, 276, 285, 289, 296 Lolapaloozza, 197 Louis Vuitton, 150 Luxury Fever (Frank), 40 Mackenzie, Donald, 221 Madonna, 194 Malthusianism, 95 Mama Group, 197 managerial competence, 2, 16, 150, 209, 259 Manzi, Jim, 231–32 Mao Zedong, 10 markets: asymmetric information and, 17, 186, 214, 219–20, 229, 248, 254, 262–63; black, 225; boom–bust cycles and, 4, 22, 28, 93, 102, 106–9, 136–37, 145, 147, 213, 222–23, 233, 277, 280, 283; capitalism and, 182, 230–38 (see also capitalism); culture and, 230–38; declining population and, 86, 89–90, 95–99, 103, 113; democracy and, 230–38; deregulation and, 7, 212; evidence–based policy and, 233–34; exchange advantage and, 214; externalities and, 15, 70, 80, 211, 228–29, 249, 254; failures of, 226–30, 240–44, 257, 262–63, 267, 289–90; Fama hypothesis and, 221–22; flaws of, 215–16; fractal character of, 134; free market model and, 14, 121, 129, 182–83, 210–11, 218–24, 232, 240, 243, 251; fundamentalism for, 213; gift economy and, 205–7; interbank, 1–2; international trade and, 110, 148, 159, 163; invisible hand and, 209; mathematical models of, 214; merits of, 211–17; missing, 229; moral, 210, 213, 220–25, 230–33; music, 194–98; network effects and, 253, 258; options, 222; as organizing economy, 218; performativity and, 224–25; Protestant work ethic and, 13–14, 236; public choice theory and, 220, 242–45; public domain and, 196; rational calculation and, 214–15; satellite accounts and, 81; shorting of, 86; social, 217–20; stability issues and, 2–4, 25, 70, 101, 124, 135, 140–41, 174, 176, 218, 296; trilemma of, 230–38; values and, 209–10 (see also values); winner take all, 134 Marx, Karl, 14, 28, 131, 221 McDonalds, 27 McKitrick, Ross, 68 Mean Fiddler Group, 197 Measuring Australia’s Progress, 274 measurement: asymmetric information and, 17, 186, 214, 219–20, 229, 248, 254, 262–63; Australian model and, 271, 274; balance and, 12–17; bankers and, 193, 200; capitalism and, 182; challenges of, 188–93; consumption and, 181–82, 198; distribution and, 191–99; evidence–based policy and, 233–34; GDP, 10 (see also gross domestic product [GDP]); Gini coefficient and, 126; governance and, 183, 186; government and, 182–88, 191, 193, 196, 202–3, 206; growth and, 181–85, 188–90, 194, 201–5, 208; happiness and, 35–39; health issues and, 181, 188–93, 200, 207; hedonic techniques and, 274; importance of, 184–85, 187–89; of inequality, 126; innovation and, 183, 196, 201–8, 273–74; intangible assets and, 199–201, 204–6; labor and, 189–99; less publication of, 271–72; living standards and, 13, 65, 78–79, 106, 113, 136, 139, 151, 162, 190, 194, 267; Measuring Progress exercise and, 294; policy recommendations for, 270–74; politics and, 182–84, 191, 193, 203, 208; productivity and, 189–90, 194, 199–201, 206–7; resources for, 294; social capital and, 154; statistics and, 187–89, 198–208; technology and, 181–85, 188–91, 194–201, 204–6; time constraints and, 204–7; trust and, 152–57; uncertainty of accuracy and, 273; unmeasurable entities and, 187; values and, 209, 212–13, 224 Medicare, 93–94 Meek, James, 26 metrification, 184 Metropolitan Museum of Art symposium, 100–101 Mexico, 226 Microsoft, 253, 258 migration, 108–10, 172 Milanovic, Branko, 123–24 Mill, John Stuart, 31–32 Minsky, Hyman, 226 monopolies, 196, 245, 252, 254 Montreal Protocol, 59 Moore’s Law, 156 morals: bankers and, 90, 277–78; criticism of poor and, 142; fairness and, 116–20, 127, 131, 142, 144; greed and, 221 (see also greed); growth and, 275–76, 279, 293, 295, 297; happiness and, 22, 26, 30, 34, 43, 48–49; institutions and, 254; nature and, 55, 70–72, 76, 78; performativity and, 224–25; posterity and, 90; trust and, 149, 174; values and, 185, 210, 213, 220–25, 230–33 MP3 players, 195 music, 11, 194–98, 204, 208, 229, 254 nature: Brundtlandt Report and, 77; carbon prices and, 70–71; climate change and, 57–84 (see also climate change); consumption and, 58–61, 71–76, 79, 82; Copenhagen summit and, 62, 64–65, 68, 162, 292; democracy and, 61, 66, 68; efficiency and, 61–62, 69, 82; environmentalists and, 29, 55–59, 69–70, 99; freedom and, 79; future and, 75–83; global warming and, 57, 64, 66, 68; government and, 58–62, 65–71, 82–84; greenhouse gases and, 23, 29, 35, 59, 61–63, 68, 70–71, 83; green lifestyle and, 55, 61, 76, 289, 293; gross domestic product (GDP) and, 56–60, 75–76, 80–82; growth and, 56–59, 62–66, 69–72, 76, 79–82; happiness and, 56–59, 75–76, 80–84; health issues and, 81; hybrid cars and, 61; innovation and, 69–70, 81; institutions and, 66–69, 82–84; InterAcademy Council and, 66–67; Intergovernmental Panel on Climate Change (IPCC) and, 59, 66–69, 82, 297; Kyoto Protocol and, 62–64; light bulbs and, 59–61; Montreal Protocol and, 59; morals and, 55, 70–72, 76, 78; natural capital and, 79–81, 151, 271, 273; philosophy and, 69–70; plastic and, 61; politics and, 57–71, 75, 77, 82–84; population issues and, 99; productivity and, 78, 82; satellite accounts and, 81; self-interest and, 65; squandered natural wealth and, 181–82; statistics and, 66, 81–82; stewardship and, 78, 80; technology and, 69–72, 76–77, 80, 84; TEEB project and, 78–79 network effects, 253, 258 New Deal, 129 New Economics Foundation, 36 New Public Management theory, 245–47 Newton, Isaac, 214–15 Niger, 122 Nobel Prize, 18, 60, 102, 215, 220, 236, 250, 261 noise, 47 No Logo (Wolf), 34 Nordhaus, William, 37, 70, 73, 156 North, Douglass, 261 Northern Rock, 1, 146 Obama, Barack, 62–63, 87, 173, 260, 285, 288 Oberholzer-Gee, Felix, 197 obesity, 137–38, 279 Office for National Statistics, 274 Olson, Mancur, 242 opinion formers, 61 option pricing theory, 222 Orchestra of the Age of Enlightenment, 194 Organization for Economic Cooperation and Development (OECD), 4, 11, 201, 305n11; happiness and, 38, 52; inequality in, 125–26; nature and, 60, 68; policy recommendations for, 273–74, 281, 283, 287, 291, 293; posterity and, 87, 93–94, 97–99, 112; trust and, 160, 171; values and, 212, 243–44, 246 organized crime, 277 Ormerod, Paul, 41 Orwell, George, 56 Ostrom, Elinor, 17, 220, 250–51, 261–63 Pakistan, 81, 226 Paradox of Choice, The (Schwartz), 10–11, 40 Parmalat, 146 partisanship, 2, 16, 101, 128, 269, 285 Peake, Mervyn, 9 pensions, 4, 25, 243; burden of, 92–95; Chinese savings and, 94; measurement and, 191, 203; policy recommendations for, 269–71, 275, 280, 286, 289–90, 293; posterity and, 85–86, 90–100, 103–7, 111–13; retirement age and, 92, 97–99, 106–7, 112; trust and, 174–76 performativity, 224–25 Persson, Torsten, 136 Pew surveys, 140 philanthropy, 33 philosophy, 16; fairness and, 114–15, 123; freedom and, 237; happiness and, 21, 27, 31–32, 49–50; nature and, 69–70; utilitarian, 31–32, 78, 237; values and, 237–39 Pickett, Kate, 137–40 Piereson, James, 183 Piketty, Thomas, 127, 129 Pimco, 287 Pinch (Willetts), 98–99 Pinker, Steven, 118, 305n4 Poland, 239 police service, 5, 35, 163, 193, 200, 247 policy: Commission on the Measurement of Economic Performance and Social Progress and, 37–38; deregulation and, 7, 212; errors in standard, 8; evidence–based, 233–34; first ten steps for, 294–98; future and, 75–83, 291–98; Intergovernmental Panel on Climate Change (IPCC) and, 59, 66–69, 82, 297; legitimacy and, 8, 16, 50, 66, 68–69, 162–63, 213, 226, 269, 274, 292, 296–97; measurement and, 187–89; OECD countries and, 4, 11, 38, 52, 60, 68, 87, 93–94, 97–99, 112, 125–26, 160, 171, 201, 212, 243–44, 246, 273–74, 281, 283, 287, 291, 293; population growth and, 95–100; practical recommendations for, 269–91; reform and, 8, 82–83, 85 (see also reform); stability issues and, 2–4, 25, 70, 101, 124, 135, 140–41, 174, 176, 218, 296; stimulus packages and, 91, 100–103, 111; sustainability and, 57 (see also sustainability); tradition and, 9; transparency and, 83, 164, 288, 296; trilemma of, 13–14, 230–36, 275; World Forum on Statistics, Knowledge, and Policy and, 38 political correctness, 173, 231 political economy, 27–28 pollution, 15, 35, 228 Population Bomb, The (Ehrlich), 70 population issues: aging, 4, 95–100, 106, 109, 206, 267, 280, 287, 296; baby boomers and, 4, 106, 109; declining population and, 86, 89–90, 95–99, 103, 113; demographic implosion and, 95–100; environmentalists and, 99; global cities and, 165–70; Malthusianism and, 95; migration and, 108–10; one-child policy and, 95–96; posterity and, 89–90, 94–95, 105–6, 109, 112–13; retirement age and, 94, 97–99, 106–7, 112 Porter, Roy, 184 Portugal, 126, 287 posterity, 298; aging population and, 89–90, 94–95, 105–6, 109, 112–13; bankers and, 85–91, 94, 99–102; consumption and, 86, 104–6, 112–13; current generation’s debt to, 90–92, 112–13; declining population and, 86, 89–90, 95–99, 103, 113; default and, 110–12; democracy and, 106; demographic implosion and, 95–100; freedom of investors and, 108; globalization and, 108; government and, 84–95, 98–113; gross domestic product (GDP) and, 91–94, 98–99, 103, 108, 111; growth and, 90, 95, 97, 99, 102, 105–8, 111; health issues and, 89, 93–94, 97–99, 103, 106, 111–13; higher retirement age and, 94–98, 106–7, 112; innovation and, 102; institutional responsibility and, 296; less leisure and, 106–7; Medicare and, 93–94; migration and, 108–9; morals and, 90; pensions and, 85–86, 90, 92–100, 103–7, 111–13; politics and, 86–94, 98, 101–8, 111–13; poverty and, 100; productivity and, 88, 97–99, 102, 105–8, 112; public debt and, 85–86; reform and, 85–86, 98, 111–12; savings and, 86–87, 94, 98, 100–101, 105–8, 112; Social Security and, 93–94; social welfare and, 85, 100, 112; sustainability and, 79 (see also sustainability); taxpayer burden and, 85–91, 94, 99, 103–5; technology and, 107; welfare burden and, 92–95 poverty, 261, 267; desire to spend and, 55–56; fairness and, 125, 128, 138, 142; happiness and, 43; posterity and, 100; trust and, 168–69 printing press, 7 productivity, 16; balance and, 268, 271, 273–76, 281, 287; bureaucratic obstacles to, 285–86; Commission on the Measurement of Economic Performance and Social Progress and, 37–38; fairness and, 131, 135; globalization and, 131 (see also globalization); governance and, 173–77; happiness and, 27, 38, 42, 51; improvements in, 107–8; institutions and, 244–47, 257, 263; measurement and, 189–90, 194, 199–201, 206–7; nature and, 78, 82; posterity and, 88, 97–99, 102, 105–8, 112; public services and, 257; Soviet method and, 246; technology and, 107–8, 157–59, 268; trilemma of, 13–14, 230–36, 275; trust and, 156–59, 162, 166–67, 170, 174 property rights, 80, 174, 195–96, 261 Protestant work ethic, 13–14, 236 psychology: altruism and, 118–22; anomie and, 48, 51; anxiety and, 1, 25, 47–48, 136–38, 149, 174; behavioral economics and, 116–17, 121, 282; choice and, 10–11; coherence and, 49; commuting and, 47; conflict in relationships and, 47; Easterlin Paradox and, 39–44; face-to-face contact and, 7, 147, 165–68; freedom and, 237 (see also freedom); game theory and, 116–18, 121–22; gift economy and, 205–7; greed and, 26, 34, 54, 88, 129, 150, 221–23, 248, 277–79; happiness and, 9–12, 44–50 (see also happiness); lack of control and, 47; noise and, 47; paradox of prosperity and, 174; positive, 9–10, 49–50, 303n51; public choice theory and, 220, 242–45; rational choice theory and, 214–15; shame and, 47; Slow Movement and, 27–28, 205; thrift education and, 283–84, 294–95; well-being and, 137–43 Ptolemy, 274 public choice theory, 220, 242–45 Public Domain, The (Boyle), 196 public goods, 185–86, 190, 199, 211, 229, 249, 261 purchasing power parity (PPP), 306n19 Putnam, Robert, 140–41, 152–54 Quiet Coup, The (Johnson), 256–57 Radio Corporation of America (RCA), 195 Rajan, Raghuram, 136 Rank, Robert, 40 rational choice theory, 214–15 Rawls, John, 31 Reagan, Ronald, 93, 121, 127, 211, 240, 243, 247–48 recession, 9, 11–12, 275; happiness and, 22, 24, 41, 54; nature and, 55–56, 66; plethora of books following, 55; posterity and, 85, 88, 91–93, 100–101, 108, 110; recovery from, 3, 103; trust and, 182; values and, 209–10, 213, 222 reciprocal altruism, 118–22 reform, 8; benchmark for, 218; bankers and, 277–79; bonus taxes and, 278; collective assent to, 269; courage needed for, 203; first ten steps for, 294–98; health care, 285; improving statistics and, 271; institutions and, 245–48, 256, 285, 288–91, 296–97; nature and, 82–85; New Public Management and, 245–46; politics and, 287–88; posterity and, 98, 111–12; public sector, 288–90; trust and, 162–64, 176–77; values and, 218, 233, 275–78, 295 Reinhardt, Carmen, 111 religion, 10; happiness and, 32–33, 43, 50; nature and, 76, 78; Protestant work ethic and, 13–14, 236; trust and, 147 Renaissance, 7 retirement age, 94, 97–99, 106–7, 112 revalorization, 275 Road to Wigan Pier, The (Orwell), 56 Rodrik, Dani, 136 Rogoff, Kenneth, 111 Romantic Economist, The (Bronk), 28 Romanticism, 27 Rothschilds, 147 Rousseau, Jean–Jacques, 114 Royal Bank of Scotland, 146 runs, 1 Ruskin, John, 27–28 Russia, 97–98, 123; Cold War and, 93, 112, 147, 209, 213, 239; Iron Curtain and, 183, 239, 252; production targets and, 246; as Soviet Union, 228, 246 Saez, Emmanuel, 127, 129 salaries: high, 130, 143–44, 193, 223, 277–78, 286, 296; measurement and, 191–99; paradox of, 193; superstar effect and, 134; technology and, 2, 89 Sandel, Michael, 224–25, 237 Sarkozy, Nicolas, 37, 202, 274 satellite accounts, 38, 81, 204–6, 271 Satyam, 146 savings, 1, 280–82, 293; China and, 87, 94, 100, 108; necessary increasing of, 105–6; negative, 105; policy recommendations for, 280–84; posterity and, 86–87, 94, 98, 100–101, 105, 108, 112; thrift education and, 283–84, 294–95 savings clubs, 283 Schumpeter, Joseph, 14 Schwartz, Barry, 10–11, 40 Seabright, Paul, 148–49, 170, 213–14, 228 self-interest: fairness and, 114–22; greed and, 26, 34, 54, 88, 129, 150, 221–23, 248, 277–79; moral sentiments and, 119–20, 142, 221; nature and, 65; reciprocal altruism and, 118–22; values and, 214, 221 Selfish Gene, The (Dawkins), 118 Sen, Amartya, 18, 37, 43, 82, 202, 237, 274, 310n25 shame, 47 shareholders, 88, 145, 248, 257–58, 277 Silicon Valley, 166 Simon, Herbert, 249–50, 254, 261, 270 Simon, Julian, 70 Singapore, 126 Sloan School, 256 Slow Food, 27 Slow Movement, 27–28, 205 smart cards, 252–53 Smith, Adam, 119–20, 209, 221, 255 Smith, Vernon, 215 social capital, 8, 12, 17; definition of, 152–53; fairness and, 116, 121, 139–43; intangible assets and, 149–52, 157, 161, 199–201; measurement of, 154, 185; policy recommendations for, 267, 271, 273, 276; Putnam on, 152–54; trust and, 5, 151–57, 168–74, 177; values and, 223–25, 231, 257 social justice, 31, 43, 53, 65, 123, 164, 224, 237, 286 Social Limits to Growth, The (Hirsch), 190, 231 social markets, 217–20 social networks, 260, 270, 288–89 Social Security, 93–94 social welfare.

 

pages: 1,205 words: 308,891

Bourgeois Dignity: Why Economics Can't Explain the Modern World by Deirdre N. McCloskey

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

Admiral Zheng, agricultural Revolution, Albert Einstein, BRICs, British Empire, butterfly effect, Carmen Reinhart, clockwork universe, computer age, Corn Laws, dark matter, David Ricardo: comparative advantage, Donald Trump, Edward Lorenz: Chaos theory, European colonialism, experimental economics, financial innovation, Fractional reserve banking, full employment, George Akerlof, germ theory of disease, Gini coefficient, greed is good, Howard Zinn, income per capita, interchangeable parts, invention of agriculture, invention of air conditioning, invention of writing, invisible hand, Isaac Newton, James Watt: steam engine, John Maynard Keynes: technological unemployment, John Snow's cholera map, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, means of production, Naomi Klein, New Economic Geography, New Urbanism, purchasing power parity, rent-seeking, road to serfdom, Robert Gordon, Ronald Coase, Ronald Reagan, Scientific racism, Scramble for Africa, Shenzhen was a fishing village, Simon Kuznets, Slavoj Žižek, spinning jenny, Steven Pinker, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, total factor productivity, transaction costs, tulip mania, union organizing, Upton Sinclair, urban renewal, V2 rocket, very high income, working poor, World Values Survey, Yogi Berra

Economic historians agree on a factor of ten or so since the eighteenth century: for example, Easterlin 1995 (2004), p. 84. 3. The "bottom billion" is Paul Collier's phrase (Collier 2007). The Norwegian ratio to average entire-world gross national income per capita in 2006 (at purchasing power parity: adjusting for the cost of living) was 5.4 (according to World Bank 2008, pp. 8, 161). And relative to the average of low income countries by World-Bank definitions the ratio was 27, that is, $137 a day compared with the low-income average of $5 a day (World Bank 2008, p. 10). 4. Maddison 2006, p. 615. 5. Collier 2007, pp. 3, x. 6. Again the figures are at (U.S.A.) purchasing-power parity, from World Bank 2008. 7. Abbing 2003. 8. Hedda is a fiction—though in truth I have plenty of such cousins at Dimelsvik. 9. McCloskey and Klamer 1995. 10. A full defense of this and the other categories of virtues is given in McCloskey 2006a, especially pp. 151-194. 11.

. $3 a day, West Germany in 1989 versus East German, Norway now versus Norway in 1800) and the justice (democracy, anti-colonialism, a free press, the end of lynching, equality for women, independence for the Irish Republic). In every half-century if not in every single decade the within-country equality of distribution has improved, and never has it much worsened. Eagleton’s ancestors and mine in mad Ireland were dirt poor. In real comfort they stood hat in hand far below their Anglo-Irish masters. Look at us now. In 2002 Ireland’s GDP per capita in purchasing-power-parity dollars was third in the world, just ahead of the U.S.’s, where many of the once-Irish then lived.40 Look at your own ancestors compared your present condition. You are much better off, and have much more scope to pursue Bildung. Admittedly you don’t own a 75-foot yacht. Too bad. But being an adult person of sense who reads books and thinks for herself, you know that such pleasures of the rich and famous exceed yours only a little in actual human value—there’s the truth in happiness studies, that is, the truth that pot-of-pleasure happiness has sharply diminishing marginal utility.

But is the average British person worse off now than when Britain ruled the waves? By no means. British income per head boomed after losing colonies in 1783 and 1947, and stagnated in 1902-1914 after expensively keeping the Boer Republics in the Empire. Nowadays, after the tragic loss of maps painted red, British real national income per capita is higher than ever, and is among the 217 very highest in the world — in 2007 a little bit above, adjusted to purchasing power parity, that of France, Germany, Italy; though a good deal below its former and terribly exploited colonies Hong Kong, Singapore, Ireland, and the United States. Did the acquisition of Empire, then, cause spurts in British growth? By no means. Indeed, as I said, at the climax of imperial pretension, in the 1890s and 1900s, holding sway to the east and west of Suez, the growth of British real income per head notably slowed.

 

The Age of Turbulence: Adventures in a New World (Hardback) - Common by Alan Greenspan

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

air freight, airline deregulation, Albert Einstein, asset-backed security, bank run, Berlin Wall, Bretton Woods, business process, call centre, capital controls, central bank independence, collateralized debt obligation, collective bargaining, conceptual framework, Corn Laws, corporate governance, correlation coefficient, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cuban missile crisis, currency peg, Deng Xiaoping, Dissolution of the Soviet Union, Doha Development Round, double entry bookkeeping, equity premium, everywhere but in the productivity statistics, Fall of the Berlin Wall, fiat currency, financial innovation, financial intermediation, full employment, Gini coefficient, Hernando de Soto, income inequality, income per capita, invisible hand, Joseph Schumpeter, labor-force participation, labour market flexibility, laissez-faire capitalism, land reform, Long Term Capital Management, Mahatma Gandhi, manufacturing employment, market bubble, means of production, Mikhail Gorbachev, moral hazard, mortgage debt, new economy, North Sea oil, oil shock, open economy, pets.com, Potemkin village, price mechanism, price stability, Productivity paradox, profit maximization, purchasing power parity, random walk, reserve currency, risk tolerance, Ronald Reagan, shareholder value, short selling, Silicon Valley, special economic zone, the payments system, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, total factor productivity, trade liberalization, trade route, transaction costs, transcontinental railway, urban renewal, working-age population, Y2K

I recognize that poverty rates are notoriously hard to quantify, but according to the World Bank, the number of people living on less than $1 per day, a commonly used extreme-poverty threshold, has fallen dramatically from 1,247 million in 1990 to 986 million in 2004. In addition, since 1970, the infant mortality rate has declined by more than half, school enrollment rates have risen steadily, and literacy rates are up.* *Figures on world poverty rates are from t h e World Bank and a 2002 study by Columbia University economist Xavier Sala-i-Martin. T h e $l-per-day threshold is measured in 1985 dollars on a purchasing power parity basis. Economists use purchasing power parity as an alternative to market exchange rates w h e n gauging and comparing o u t p u t s and incomes across 259 More ebooks visit: http://www.ccebook.cn ccebook-orginal english ebooks This file was collected by ccebook.cn form the internet, the author keeps the copyright. THE AGE OF T U R B U L E N C E While, from a global perspective, wealth and the overall quality of life have risen, that success has not been uniform across regions or countries.

I first set foot in China in 1994, long after the reforms had begun. I've 295 More ebooks visit: http://www.ccebook.cn ccebook-orginal english ebooks This file was collected by ccebook.cn form the internet, the author keeps the copyright. T H E AGE OF T U R B U L E N C E been back several times. Like all visitors, I've been impressed and often amazed by the changes from visit to visit. The Chinese economy measured by purchasing power parity has become the second largest behind that of the United States. China has also emerged as the world's largest consumer of commodities generally the second-largest consumer of oil, and the largest steel producer, and has evolved from the bicycle economy of the 1980s into a country that produced more than seven million motor vehicles in 2006, with planned facilities to reach far beyond that.

The well-established principle of not putting all your eggs in one basket holds for global finance as well as for the private household. If and when foreigners' appetite for U.S. assets slackens, it will be reflected in lessened demand for U.S. currency and thus a lower foreign-exchange value of the dollar.+ A lower dollar, of course, will discourage importers and encourage *To facilitate comparisons, all nondollar currencies are converted to dollars on t h e basis of market exchange rates. Purchasing power parities (PPPs), t h e major alternative means of converting, are ill-suited for dealing with cross-border flows of saving and investment. For t h e world as a whole, saving must equal investment, irrespective of t h e currency of record. For t h e years 2003—2005, t h e absolute value of t h e statistical discrepancy between world saving and investment was $330 billion annually converting with PPPs, b u t only $66 billion employing market exchange rates, tl am disregarding t h e fact t h a t n o t all claims against U.S. residents are in dollars, and not all dollar claims, such as Eurodollars, are against U.S. residents.

 

pages: 421 words: 125,417

Common Wealth: Economics for a Crowded Planet by Jeffrey Sachs

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

agricultural Revolution, air freight, back-to-the-land, British Empire, business process, carbon footprint, clean water, colonial rule, corporate social responsibility, correlation does not imply causation, demographic transition, Diane Coyle, Edward Glaeser, energy security, failed state, Gini coefficient, Haber-Bosch Process, income inequality, income per capita, intermodal, invention of agriculture, invention of the steam engine, invisible hand, Joseph Schumpeter, knowledge worker, labor-force participation, labour mobility, low skilled workers, microcredit, oil shale / tar sands, peak oil, profit maximization, profit motive, purchasing power parity, road to serfdom, Ronald Reagan, Simon Kuznets, Skype, statistical model, The Wealth of Nations by Adam Smith, Thomas Malthus, trade route, transaction costs, unemployed young men, War on Poverty, women in the workforce, working-age population

Of course, this scenario is highly optimistic in that it assumes the world avoids any prolonged crisis, that the United States grows at the historical average, and that all other countries achieve convergent growth. Figure 2.2(a): The Convergence of Global Income per Capita through 2050 Source: Calculated using data from World Bank (2007) Note: Vertical axis on logarithmic scale. Income is measured in purchasing power parity (PPP) to adjust for difference in price levels across countries. More People and Higher Incomes Not only will most of the world be richer, but there will be a lot more people around enjoying those higher incomes. The world’s population continues to grow rapidly, even though the proportional rate of population growth (each year’s increase relative to the size of the global population) has declined.

China, the recipient of about $60 billion in aid from all donors since 1980, has already graduated from grants and subsidized loans from the World Bank because it has become too rich to need them. Any new credits come at market terms. Here is a rule of thumb: an economy can generally graduate from the need for aid when the national income has reached around $4,000 per person, measured at purchasing power parity (PPP) or roughly $1,000 at market prices. China’s income in 2003, for example, had reached $5,000 per person (PPP). This graduation point compares with current incomes in sub-Saharan Africa of roughly $1,400 per person (PPP). Africa needs, roughly, to triple its per capita income per person to graduate from aid. At a 7 percent per annum per capita growth rate, Africa would triple its per capita income in sixteen years.

GATT General Agreement on Tariffs and Trade GDP gross domestic product GEF global environmental facility GFATM Global Fund to Fight AIDS, Tuberculosis and Malaria GNP gross national product GROCC Global Roundtable on Climate Change GWP gross world product HDI Human Development Index HIPPO habitat destruction, invasive species, pollution, population increase, and overharvesting ICPD International Conference on Population and Development IMF International Monetary Fund I= P × A × T or I-PAT equation: Environmental impact = population × per capita income × the environmental impact per dollar of income IPCC Intergovernmental Panel on Climate Change MDGs Millennium Development Goals MENA Middle East and North Africa MVP Millennium Village Project N2O nitrous oxide NGO nongovernmental organization NRR net reproduction rate PAI Population Action International ppm parts per million PPP purchasing power parity PPPs public private partnerships R & D research and development RD & D research, development, and demonstration TFR total fertility rate UN United Nations UNCCD United Nations Convention to Combat Desertification UNDP United Nations Development Program UNEP United Nations Environment Program UNFCCC United Nations Framework Convention on Climate Change UNFPA United Nations Population Fund (formerly UN Fund for Population Activities) UNICEF United Nations Children’s Fund USAID United States Agency for International Development WHO World Health Organization WTO World Trade Organization Notes CHAPTER 1: COMMON CHALLENGES, COMMON WEALTH 4 social insurance and transfer schemes: Peter Lindert, Growing Public: Social Spending and Economic Growth since the Eighteenth Century, vol. 1 (New York: Cambridge University Press, 2004). 10 “For peace is a process”: John F.

 

pages: 504 words: 139,137

Efficiently Inefficient: How Smart Money Invests and Market Prices Are Determined by Lasse Heje Pedersen

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

algorithmic trading, Andrei Shleifer, asset allocation, backtesting, bank run, banking crisis, barriers to entry, Black-Scholes formula, Brownian motion, buy low sell high, capital asset pricing model, commodity trading advisor, conceptual framework, corporate governance, credit crunch, Credit Default Swap, currency peg, David Ricardo: comparative advantage, declining real wages, discounted cash flows, diversification, diversified portfolio, Emanuel Derman, equity premium, Eugene Fama: efficient market hypothesis, fixed income, Flash crash, floating exchange rates, frictionless, frictionless market, Gordon Gekko, implied volatility, index arbitrage, index fund, interest rate swap, late capitalism, law of one price, Long Term Capital Management, margin call, market clearing, market design, market friction, merger arbitrage, mortgage debt, New Journalism, paper trading, passive investing, price discovery process, price stability, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, random walk, Renaissance Technologies, Richard Thaler, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, shareholder value, Sharpe ratio, short selling, sovereign wealth fund, statistical arbitrage, statistical model, systematic trading, technology bubble, time value of money, total factor productivity, transaction costs, value at risk, Vanguard fund, yield curve, zero-coupon bond

., the carry—and the currency appreciation (plus a small adjustment that disappears with continuous compounding). Empirically, exchange rate changes over time are hard to predict, and therefore the foreign interest rate gives a simple measure of the expected short-run return of the currency.10 This idea forms the basis of the currency carry trade, as discussed further below. To get an idea of the long-run return of a currency, note that purchasing power parity (PPP) holds approximately in the long run. That is, while the real price of a car is not exactly the same in different countries, the prices tend to converge in the long run. This happens more quickly for items that are easy to ship, like an iPhone, and more slowly for goods that are hard to ship. The convergence may not happen at all for goods that are associated with significant service costs if the labor costs differ persistently across countries.

In other words, if you can value each of the stocks, just add up their value to get the fundamental value of the index and compare it to the overall price. One simple measure is the price-to-book ratio for the overall market (or other valuation ratios). Hence, one macro value trade is to buy “cheap” equity indices in countries with low price-to-book ratios while shorting equity indices with high ones. • Currency value trade: For currencies, one measure of value can be derived using purchasing power parity (PPP). PPP says that goods should cost the same in all countries. Hence, if a burger (or a diversified basket of goods) costs more in euros than in US$, then the euro should fall in value going forward, resulting in a short-euro value bet.4 A simpler way to trade on currency value is to trade on long-term reversal, betting that currencies that have experienced large real appreciation (over five years, say) will eventually see a partial reversal of this move

See also strategic asset allocation political events: global macro developments and, 199–200; Soros on importance of, 204 portfolio, replicating, 234–35, 237, 239–40 portfolio construction, 54–57; Ainslie on, 110; Asness on, 133, 160; Chanos on, 131; components of, 167; in event-driven investment, 292; in fundamental quantitative investing, 144–45; industry-neutral, 144; in merger arbitrage, 303–4; in quantitative investing, 133. See also asset allocation portfolio insurance, trends and, 212 portfolio optimization, 56–57; Asness on, 164; Harding on, 229 portfolio rebalance rule, 47–48, 50. See also rebalancing of portfolio portfolio sort, as predictive regression, 51–53 position limits, 55, 60 post–earnings-announcement drift, 41 PPP. See purchasing power parity (PPP) predatory trading, 83–84 predictive regression, 50–53 preferred habitat theory, 249 present value model. See dividend discount model price. See market price price-dividend ratio, 176–78 price manipulation, 108, 123 price surplus, 178, 178n6, 179 price-to-book (P/B) value, 99, 104, 139; for overall market, 197 pricing period, of floating exchange ratio stock deal, 301, 302f prime brokers (PBs), 25f, 26; of cash instruments, 80; hedge fund balance sheet and, 76; margin call from, 79; of OTC derivatives, 80; predatory trading by, 84; profit earned by, 78–79 Prince, Chuck, 201 private equity, 293; illiquidity of investments in, 170.

 

pages: 268 words: 89,761

Unhealthy societies: the afflictions of inequality by Richard G. Wilkinson

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

attribution theory, clean water, correlation coefficient, experimental subject, full employment, fundamental attribution error, Gini coefficient, income inequality, income per capita, Indoor air pollution, invisible hand, land reform, means of production, purchasing power parity, rising living standards, upwardly mobile

In order to get a clearer idea of whether health really is responsive to rising living standards among the rich countries on the flat part of figure 3.1, let us move from cross-sectional data to look at changes over time. Figure 3.2 shows the relationship between percentage changes in GNPpc and changes in life expectancy over the twenty years 1970–90 among the rich market countries belonging to the Organisation for Economic Cooperation and Development (OECD). Among these countries it is possible to compare GNPpc at purchasing power parities rather than according to the vagaries of changing exchange rates between currencies. This means that pounds, francs, yen, etc. are converted into dollars according to the comparative cost of the same basket of goods in each country. In other words, the changes in GNPpc shown in figure 3.2 are more accurate reflections of changes in real purchasing power in each country. The twenty-year span over which change is measured means that comparisons are less likely to be upset by unknown lag periods between changes in GNPpc and life expectancy.

Such a change would do nothing to improve the ordering of countries or to produce anything like the smooth gradient seen in figure 5.1. As the points in figure 5.2 are whole countries, there is no possibility that the lack of a clear gradient has something to do with problems of sampling error or random variation. Nor could it be that the international data are more influenced by national differences in culture than by differences in the standard of living. The GNP figures used are converted at purchasing power parities rather than at the rather arbitrary currency exchange rates. This Income distribution and health 75 means that they give a more accurate reflection at least of comparative differences in purchasing power. If a much stronger relationship was merely hidden by cultural differences between countries, then that should have been revealed by the correlations of changes over time between 1970 and 1990 (see figure 3.2, p. 37) unless cultures changed radically in different directions during the period.

They go through the possible sources of this remarkable achievement, looking for changes in Japanese diet, smoking and other behavioural factors affecting health, in health services and preventative health policies. None of these provides a plausible explanation. Although Japanese diets are healthier than many Western diets, they did not change during this period in ways that might explain the health improvement. Although Japanese economic growth has of course been rapid, not only have we seen that increases in GNPpc are not so important in the developed world but, on the basis of purchasing power parities used to compare living standards more accurately, Japanese GNPpc was only 15 per cent higher than the British in 1990—still considerably less than the United States and a number of Western European countries. It is not just since 1970 that the Japanese experience has testified to the health importance of narrowing income distribution. There is also some fragmentary data which shows an earlier association between narrowing income differences and the rapid improvements in life expectancy in Japan (Wilkinson 1992).

 

pages: 287 words: 44,739

Guide to business modelling by John Tennent, Graham Friend, Economist Group

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

correlation coefficient, discounted cash flows, double entry bookkeeping, iterative process, purchasing power parity, RAND corporation, shareholder value, the market place, time value of money

Many modellers, however, simply make an assumption for the average exchange rate for the first year and develop a forecast for the subsequent years. The initial assumption acts as the seed. Behaviour As with all the variables in this chapter there is no consensus among economists about the determinants of exchange-rate movements. Furthermore, many economies and groups of economies actively manage their exchange rates. A simple theory of exchange rates is purchasing power parity (ppp), which argues that exchange rates move to ensure that the relative purchasing power of one currency against another remains constant. Exchange rates, therefore, are assumed to move in response to differential movements in inflation rates between the respective economies. If one country is experiencing more rapid inflation than another country, the cost of a basket of goods in the country with the higher rate of inflation will increase faster than the cost of the same goods in the other country.

140–41 capital gains tax 258 cars 131 cash 198, 202 deficits 157 surpluses 154, 157 cash breakeven point 146 cash flow 13, 33, 60, 130, 130, 136, 141, 172, 189 adjusting 153 anticipated 151 cumulative project cash flow 152 and equity value 186 forecasts 70 free (FCF) 163, 173, 173, 180 net 146 operational 147, 152 projected 257 short time intervals 180 sign convention 176 statements 156, 157, 159, 161, 169 tax and 127, 174 timing 164, 176–7, 177 cash flow cycle 140, 140, 141, 141, 202, 202 causative techniques 85 cell comments 251–2 chart wizard button 53 check boxes 223–4 circular references 159, 211 COC see cost of capital coefficients 97, 100, 103 collinearity 105 colour scheme 67 column consistency 210 column widths 69 company acquisitions 146 company law 70 company valuation model 190–92 competition 4, 15, 257 compounding 182 computers crash 36, 39 purchase 131 CONCATENATE function 44–5, 50, 263–4 conceptual errors 206 conditional formatting 52–3 Consolidate box 37–8, 38 consumers credit 78 expenditure 14 spending patterns 88 consumption proportion 131 INDEX control toolbox 222 convertibles 149, 155 corporate decision-making 13 corporate planning pyramid 12–13, 12 corporation tax 163, 164, 167, 172, 174, 258 cost of capital (COC) 204, 205 costs 147, 172, 173, 257 capital 60, 117 drivers of 123–7 fixed 122–3, 122, 123 inflexible 125, 125 operating see operating costs COUNT IF function 47, 48, 48, 264 covenants 156 CPM see Critical Path Method credit agencies 151 credit controllers 123, 123 creditor days 145, 202 creditors 145, 145, 147 critical factors 15, 16, 17, 23, 29 Critical Path Method (CPM) 11 currency 14, 46, 46, 80, 168 current liabilities 147 customer segmentation 112–13, 113, 114 cyclical component 89 D data assumptions 6, 7 collection 6, 7, 8, 22–3, 24 labels 38, 54 scenarios 61 warehousing 8 data collection manager 9 data screens 240, 240, 241 DATA VALIDATION function 53 DCF analysis see discounted cash flow analysis de minimus rule 128 debentures 148 debt 147, 150, 151, 155, 157, 204 bad 160–63 doubtful 160–61 funders 155 funding 152 instruments 157, 157 net 155 debt to equity ratios 155–6, 156, 190 debtor days 142, 162, 202 debtors 142–3, 147, 160, 161 debugging see testing and debugging decision-making analysis 1 273 INDEX choice 2 corporate 13 implementation 2 defining the outputs 12–18 alignment with the business’s overall objectives 12–13 business model output checklist 18 creating an output template 16, 17 defining the outputs required to answer the question 13–14 establish the basics 14 model outputs and corporate decisionmaking 13 real versus nominal forecasts 14 specify the time frame and period length 13–14 identifying the critical factors that determine the outputs 15 running a workshop 17–18 demand 75, 107, 108 demand curve 87 downward-sloping 86, 87 demographic shifts 18 dependencies 258 dependency ranking 242–4 depreciation 33, 34, 46, 118, 128, 129, 187, 203 other depreciation methods 131 reducing balance 130, 130, 137, 137 straight line 129–30, 130, 132, 136, 136 development log 35, 38 dialog boxes 252 discount factor 191 discount rates 45, 180, 183 discounted cash flow analysis 172, 181, 185, 188 company valuation example 190–92 EBITDA exit multiples 189 growth rate models 188–9 terminal values 188 valuation range 190 discounted cash flow theory 179–82 discounted cash flows 34, 182–3 discounting 182 distribution 117, 133–4 divide by zero 51 dividend cover 204 dividends 147, 180 documenting the model documentation outside the model contents of a typical user’s guide 255 continuing user support 255 fit for the purpose 253 good document form design 253–4, 254 structure 254 training material 255 user’s documentation 254 documentation within the model 251–3 cell comments 251–2 dialog boxes 252 macro comments 252–3, 253 specific help software 252 text boxes 252 need for documentation 250 when to document 250 where to document 250–51 Du Pont 11, 199 dynamic effects 59 dynamic links the CONCATENATE function 44 multiple models 36–7 E earnings per share 204 EBITDA (earnings before interest, tax, depreciation and amortisation), multiples 187–8, 189, 190, 192, 203, 257 economic added value (EVA) 204 economy of scale 119, 120, 120, 175, 176, 200 Edit Links box 37, 37 endogenous variables 22 enterprise value (EV) 186, 188 environmental risk 249 equity 147, 150, 151, 155, 157, 204 equity value 186 Excel Scenario Manager 248 exchange rates 15, 53, 70, 150, 167, 168, 258 behaviour 80–81 definition and uses 80 modelling approach 81–3 seed 80 exit options 257 exit screens 239–40 exogenous variables 22 EXP function 264 extrapolation techniques 85 eyeball lines 55 F FIFO (first in first out) basis 139 file folder structure 36, 36 file-naming convention 35 finance calculations 34 financial performance 18 FIND 210–11 firm value 186 fixed asset turnover 201 274 fixed assets see under capital expenditure and working capital fixed costs see under operating costs fonts 67 for and next loops 234–6 FORECAST function 95, 95, 96 forecasting, revenue see revenue forecasting forecasts 13 nominal 14 real 14 foreign exchange calculations 167–70 generic approach to modelling foreign exchange gains and losses 168 modelling foreign exchange gains and losses on overseas financing 169–70, 170, 171 modelling foreign exchange gains and losses on overseas revenue and costs 169 principles of foreign exchange accounting 167–8 format painter 50–51 formatting 67–9 colours 67 column widths 69 fonts 67 lines 67, 68 macros 218–19 number styles 68 Forms toolbar 221–5 formula bar 41, 41 formulae, deconstructing complex 208–9, 209 free cash flow (FCF) 163, 173, 173, 180, 186, 191, 205 free-form development 32 FREEZE PANES command 229–30, 230 funding see modelling funding issues G Gantt chart 10, 11 GDP see gross domestic product gearing 155, 156, 190, 245 GO TO function 53 GOAL SEEK function 242–4 goal statement 18 Gordon Growth Model 189, 190, 192 graphs 53–8, 60, 261–2, 262 eyeball lines 55 fixed cost 122, 122 improving the appearance of 54 market value 129, 129 one graph suits all 55–8, 56 triangulation 126 variable costs 119, 119 INDEX gridlines 54 gross additions/connections 88, 93, 97, 97, 98, 98, 104 gross domestic product (GDP) 15, 76, 84, 189 behaviour 71–2 definition and uses 70–71 modelling approach 72–4 seed 71 group sheet function 39 growth 205, 258 GROWTH function 106 growth rate 45, 71, 72, 74, 74, 75 H hard coding 38, 60 hedging techniques 150 HELP function 51 hiding information 69 hyperlinks 226–7, 227 I IF function 45–6, 47, 51, 65, 73, 74, 77, 120, 145, 211, 223, 264 implementation 2, 6, 7, 9 income distribution 15 levels 15 INDEX function 46, 101, 103, 103, 104, 108, 264–5 inflation 14, 15, 53, 70, 75, 132, 258 inflation rate behaviour 75–6 definition and uses 75 modelling approach 76–7 seed 75 inflexible costs see under operating costs information, hiding 69 input sheets 59–65, 60, 61, 72, 72 input timelines 29, 29, 30, 31 inputs additional 29 alternative 22 analysis 23, 24 extreme 213 inflation 76, 76 seed 19 strategic 30 uncertainty/impact 23–4, 23, 25 validation 66 variables 6, 7 interest 147, 156, 180 interest calculations 157 interest costs 131 INDEX interest income and charges alternative approaches to modelling interest income 159–60, 159, 160 interest rate assumptions 158 issues in modelling interest income and charges 158 modelling interest income and circular references 158–9 interest rates 14, 15, 53 assumptions 158 base see base interest rates interface sheets 36 internal rate of return (IRR) 13, 172, 183–5, 183, 184, 245, 257 more than one 184–5, 185 investment commencement of 258 investment funding 203 net 157 overseas 150–51 reinvestment ratio 203 investment control 149 investor measures dividend cover 204 earnings per share 204 IRR see internal rate of return IRR function 265 ISDATE function 240 ISERROR function 46, 51, 211, 213, 265 ISSER function 265 J J curve 146, 146, 152, 154 joint ownership 149 judgmental techniques 85 L land residual value 132 leases 149 operating (rents) 147 LEN function 265 lending rates 152 leverage 155 lines, in formatting 67–8, 68 LINEST function 100–101, 101, 102, 103, 104, 108, 266 list box 224, 225 LN function 266 loans 149, 152, 156 losses 163, 165, 168 M macroeconomic factors 15, 70–84 275 base interest rates 78–80 exchange rates 80–83 gross domestic product 70–75 inflation rate 75–7 other macroeconomic variables 84 population 83–4 macroeconomic forecasts 8 macroeconomics 70 macros 216–21 calculation 233, 233 comments 252–3, 253 editing the macro code 218 macros for repeated tasks 218–21 creating a personalised toolbar 221 formatting macros 218–19 personal macros 218 protecting the model 219–21 Monte Carlo 245, 246 multiplication tables 234–6, 234, 235 print macro 231, 231 recording simple 216 running the macro 218 viewing macro code 216–17, 217 manual code review 208 market growth 15 market liberalisation 18 market size 15 market value 129, 129, 130, 132 mathematical operations 209–10 MAX function 45, 125, 135, 179, 196, 266 mean square error (MSE) 99 media 19 microeconomic variables 15 microeconomics 70 Microsoft Excel 2, 4, 37, 40, 50, 51, 53, 90, 106, 180, 183, 210, 216, 218, 227, 234, 235, 236, 237, 239 milestones 10, 258 MIN function 45, 139, 154, 196, 266–7 mission statement 18 mobile telecommunications industry bottom-down/top-up forecasting 88 critical factors 15, 16 decomposition of revenue 86 penetration 105, 106, 107, 109, 111, 111 product cycle life 106, 107 regression analysis 97, 106 segmentation 112 third-generation mobile data services 88 total revenue 115, 116 MOD function 50, 125, 134 model developer 9 model development process management 32–9 276 best practice in model development avoiding some common pitfalls 39 the basics of quality control 35–8 the model development process create workings pages for all main sections and develop calculations 33 develop the user interfaces and conduct user testing 34 set up output and input templates 33 test and debug 33 transfer results to output pages 33 a model development project plan 34 establishing a modelling charter 34 using material from the modeller’s library 34 populate input templates with base or test data 33 styles of development 32 free-form development 32 model layout 59–60, 59 model outputs 13, 17, 259–62 model ownership 35 modeller’s toolbox 40–58 naming sheets 40 range names 40–44 useful features conditional formatting 52–3 divide by zero 51 format painter 51–2 macros for repeated tasks 218–21 one graph suits all 55–8 shortcut keys 50–51 using graphs 53–5 useful functions AND and OR 46–7 AVERAGE 50 CONCATENATE 44–5 MIN, MAX or IF statements 45–6 MOD 50 OFFSET 49–50, 49 SUM IF and COUNT IF 47–9, 48 modelling funding issues 146–57 cost of funding 151–2 debt to equity ratios 155–6, 156 funding strips 152–4 identifying the cash flow to be funded 147 operating environment 150–51 project control 149–50 putting the funding cost back in the model 156–7 balance sheet 157 cash flow statement 157 profit and loss account 156–7, 157 INDEX time periods 154–5, 154 types of funding 147–9 weighted average cost of capital 152 modularisation 63 Monte Carlo analysis 245–8 moving average 90, 91, 92 MSE see mean square error multiplicative model 96 multiple models and dynamic links 36–7 multiple regression 85, 87, 101–4, 102, 103, 104, 105 N naming sheets 40 navigation see under spreadsheet applications NCF see net cash flow net book value 130, 138, 139, 140, 140 net cash flow (NCF) 182 net debt 155 net operating profit after tax 204 net present value (NPV) 13, 172, 179, 182, 183, 184, 184, 189, 190, 194, 242, 243, 245, 257 nominal forecasts 14 NPV see net present value NPV function 267 number styles 68–9 numbers for an output 4 negative 4 within a formula 4 O OFFSET function 49–50, 49, 57, 119, 125, 134, 135, 138, 224, 248, 267 operating costs 29, 31, 60, 117–27, 161 completeness of operating costs 117, 117–18 cost behaviour 118 drivers of costs 123–7 inflation 126–7 inflexible costs 125, 125 tax 127 triangulation 126, 126 fixed costs 122–3, 122, 123, 125, 126, 200 variable costs 118–22 operating environment 19, 149, 150–51 operating profit 186 operational risk 248, 249 options 148 OR function 46–7, 267–8 ordinary shares 148 output sheets 33, 60, 63, 63, 64, 248 output template 16, 17, 18 277 INDEX outputs 6, 7, 23, 29 presenting model 259–62 overdrafts 149 overheads, allocated 175 overseas investments 150–51 P P/E ratios 186–7, 188 packaging 117 payback 172, 177–9, 245, 257 payroll cost 126, 203 PBT see profit before tax PED see price elasticity of demand penetration 105, 106, 107–12, 109, 114, 115 total 114 period ends 14 period length 14 PERT (Performance Evaluation and Review Technique) 10–11 PEST analysis 21 plant residual value 131–2 utilisation 258 PLC see product life cycle population 70 behaviour 83 definition and uses 83 growth 15 modelling approach 83–4 seed 83 post-project review 6, 7 PPP see purchasing power parity preference shares 148 prepayments 141, 141, 142 present value 182 price elasticity of demand (PED) 86–7, 87, 115 prices constant 14 fall in 4 print ranges 231 probability models 19 product life cycle (PLC) 106, 107, 107, 189 product prices 53 profit and loss 33, 60, 164, 257 profit and loss account 129, 141, 143, 156–7, 157, 161, 162, 163, 167, 169, 173 profit before tax (PBT) 181 profit flow 172 profit margin 199–200 profits 14 operating 186 programming techniques with Visual Basic 232–6 project appraisal and company valuation 172–92 conventions for setting out the cash flows 176–7 sign convention 176 timing 176–7, 177 discounted cash flow theory 179–82 calculating the discount rate 180 calculating the WACC 181 dicounted cash flow decision rule 182 discount rate 180 risk premium 179 short time intervals 180 time value of money 179 discounting cash flows in practice 182–3 evaluating companies 185–92 techniques for valuing companies 186–8 using DCF analysis in practice to value companies 188–92 identifying the relevant project cash flows 172–6 the cash effect of change 174–5 dealing with allocated overheads 175 group versus project 176 relevant costs and capital expenditure 174 relevant revenues 174 relevant taxes 174, 174 internal rate of return 183–5, 183, 184 more than one IRR 184–5, 184 payback 177–9 project appraisal and valuation techniques 172 project control 149–50 project manager 8, 9, 10 Project Plan see under business modelling process property space requirement 123, 124, 124 utilisation of 258 protecting the model see under spreadsheet applications purchase, timing of 132 purchase cost 131 purchase tax 127 purchasing power parity (PPP) 80, 81 R R2 value 97, 98, 102 radio (option) buttons 222–3, 223 range names 4, 40–44, 158, 159, 164, 191 accessing the named inputs and rows 44 common range names 43–4 defining several individual names 42, 42 278 naming one cell 41 naming one cell where the cell name is displayed to the left of reference value 41, 41 naming several values at once 42–3, 42 naming whole rows 43 range test the model 212–13 RANK function 268 ratios 60 the Du Pont pyramid of ratios 199–203 balance sheet management 201–2 further analysis 202–3 percentage of sales measures 201 profit margin and asset turnover 199–201 external analysis 194 internal analysis 194–5 internal ratio analysis 195 interpreting 196–7 average 196 high and low values 196 rank 196 useful ratios to calculate return on average capital employed (ROACE) 198 return on equity (ROE) 199 return on net assets (RONA) 197–8, 198, 199, 200, 201, 204 real forecasts 14 recalculation 69 reducing balance 130, 130 regression equation 98, 98 regression techniques see under revenue forecasting regulatory environment 70 rents 147 replicating actual results 212 report style 259 research agencies 8, 70 residual (“disturbance”) component 89 residual value 132 retail price index 75 return on average capital employed (ROACE) 198 return on capital employed (ROCE) 242, 243, 245, 257 return on equity (ROE) 199 return on net assets (RONA) 197–8, 198, 199, 200, 201, 204 return on sales (ROS) 257 revenue 14, 30, 53, 60, 64, 117, 147, 172, 173 decomposition 86 derivation of 29 total 86, 115–16, 116 INDEX revenue forecasting 14, 85–116 approaches to bottom-up versus top-down forecasting 87–8 classification of forecasting methodologies 85 decomposition of revenue 86 price elasticity of demand 86–7, 87 time frame 88 long-term forecasting 105–11 fitting a product life cycle curve 107–11 the product life cycle 107, 107 regression techniques 96–105 estimating the coefficients 97–9, 97, 98 forecasting using the TREND function 100, 100 limitations of regression analysis 105 the LINEST function 100–101, 101 multiple regression 101–4, 102, 103, 104, 105 regression analysis 96–7 the TREND function 99, 100 segmentation 112–16 business segment 114–15, 114, 115 consumer segment 112–13, 113, 114 mix effects 116 total revenue 115–16, 116 time series analysis 85, 87, 88–96 additive and multiplicative models 89–90, 90 components of a time series 89 estimating the trend and seasonal factors manually 91–4, 92, 93, 94 estimating the trend using the built-in moving average function 90–91, 91 forecasting using the trend, seasonal factors and the additive model 94–5, 95 limitations of time series analysis 96 the multiplicative model 96 time series data 88, 89 revenue multiples 188 revenue tax 163 ripple effect 51 risk 149, 150, 151, 155 assumption 248, 249 commercial 257 environmental 249 operational 248, 249 premium 179 ROACE see return on average capital employed ROCE see return on capital employed ROE see return on equity RONA see return on net assets INDEX ROS see return on sales ROUND function 154, 268 rounding 65–6, 65, 66, 259 ROUNDOWN function 268 ROUNDUP function 123, 133, 268 row consistency 210 rows versus columns 261, 261 S sales forecast 55 tax 127, 163–4 saving the model regularly 36 scenario development 25–31 scenario planning benefits 20 the development of 20 stage 1: identifying high impact, highly uncertain inputs 20, 21–4 stage 2: identify alternative development paths for key inputs 20, 25–6, 25–6 stage 3: select the three or four most informative scenarios 20, 26–8, 27 stage 4: develop the scenario stories 20, 28–30 stage 5: develop the business strategy 20, 30 scenarios 20 scheduling 258 scroll bars 225, 225 seasonal component 89 seasonal factors 89–90, 90, 91, 93, 94, 94, 96 seed 19, 60, 62, 71, 75, 78, 80, 83 segmentation see under revenue forecasting sensitivity analysis 147, 241–2, 241 shareholder value 193–5, 194, 199 ratio analysis 194–5 short period rate 180 shortcut keys 50–51 sign convention 66, 176 simple modified exponential trend curve 108 SIN function 268–9 SINE curve 71, 76 SMART goals 9 social trends 70 socio-economic shifts 18 specific help software 252 spin buttons 225 splash screens 237–9, 238 spreadsheet applications appearance consistency 229 freezing the screens 229–30, 230 placement of macro buttons 230 279 removing the gridlines 230 simple layout 229 basic programming techniques with Visual Basic 232–6 Forms toolbar 221–5 navigation attaching a macro to a button 228–9, 229 basic navigation 226 creating a menu using Visual Basic 227–8, 227, 228 hyperlinks 226–7, 227 recording simple macros 216 viewing macro code 216–17, 217 printing 231 creating a print macro 231, 231 setting print ranges 231 protecting the model 219–21 spreadsheet functions 263–70 spreadsheets 2, 11 advantages and disadvantages of using 3 and model ownership 35 see also input sheets; output sheets; working sheets start of trade 133, 258 stock 143–4, 144, 202 stock days 143, 144, 202 strategic plan 12, 18, 31 style and outline 59–69 alternative model layout 63–4 formatting 67–9 colours 67 column width 69 fonts 67 lines 67–8, 68 number styles 68–9 making the model intelligible 64 making range names work 64–5, 64 model layout 59–60 recalculation 69 retaining consistent logic by having the same formulae every year 65 rounding to invisible 65–6, 65, 66 sheet layout: inputs 60–61, 60, 61 sheet layout: outputs 63, 63 sheet layout: working 61–2 sign convention 66 some things to avoid, recalculation 69 things to avoid, hiding information 69 sum of the digits 131 SUM function 269 SUM IF function 47–8, 48, 269 supply chain 176 280 SWOT (strengths, weaknesses, opportunities and threats) analysis 257 synergy 176 T tables of data 259–61, 260 tactical plans 18 tasks 10 tax shield on financing 181 taxation 33, 34, 127, 173, 258 the challenges of modelling taxation 163 forms of taxation 163–4, 163 generic approach to corporation taxation workings 164–5, 165, 166–7 technical errors 206 technical obsolescence 131 technological change 70 templates 11, 13, 16, 17, 33 terminal value 14, 189, 258 testing and debugging 33, 34, 206–15 the importance of 206 testing strategy 207–15 step 1: eliminate technical and conceptual flaws 208–12, 214 step 2: range test the model 212–13, 215 step 3: stress test the model 213, 215 step 4: user testing 214, 215 types of errors conceptual errors 206 technical errors 206 user errors 206 text boxes 252 third-party forecasts 70 tick box 43, 43 time frame 13–14, 88 time periods 154–5, 154 time series analysis see under revenue forecasting time value of money 179 top-down forecasting 87–8 total revenue 86, 115–16, 116 trace error button 51 transport trends 15 trend curves, exponential, Gompertz and Logistic 108 TREND function 99, 100, 101, 105, 269 trend see under revenue forecasting trendline 55 regression 98 triangulation 126, 126 U uncertainty, scenario planning and model inputs 19–24 INDEX business model input checklist 24 defining the inputs 19 examining different approaches to uncertainty 19 scenario-based forecasting approach 20 stages of a scenario-based forecasting approach 20, 20 stage 1: identifying high impact, highly uncertain inputs 21–4 analyse variables according to uncertainty and impact 23–4, 23 identify all the variables that influence the business 21–2, 21 identifying the relationships between variables 22 review the data collection requirements 22–3 understanding the nature of uncertainty 19 uncertainty/impact matrix 23–4, 23, 24, 25, 29 units 14 upper asymptote 107, 108, 108 urbanisation 15 useful economic life 131 users documentation 254 errors 206 interfaces 34 support, continuing 255 testing 214 using the model 241–9 dependency ranking 242–4 displaying the assumption dataset on the output sheet 248 Excel Scenario Manager 248 GOAL SEEK 242–4 Monte Carlo analysis 245–8 risk and its management 248–9 sensitivity analysis 241–2 V valuation 60 see also project appraisal and company valuation valuation approaches see project appraisal and company valuation valuation range 190 value-added tax 127 variable costs see under operating costs variables 21–2, 21 dependent 96 endogenous 22 exogenous 22 281 INDEX independent (explanatory) 96–7, 100 uncertainty/impact 23–4, 23 variance analyses 13 version control 35 versions of the model, retaining 35–6 vertical analysis 201 vision statement 18 Visual Basic 216, 232–6 Visual Basic Editor 216–17, 217, 218, 240 VLOOKUP function 121, 122, 269–70 W WACC see weighted average cost of capital warrants 148 warranty 118 weighted average cost of capital (WACC) 152, 167, 180, 181, 190 wind-farm operators critical factors for 15, 16 develop the scenario stories 28–30, 29 Gantt chart 10, 11 impact/uncertainty matrix 23–4, 23 input timelines 29, 29 output template 17 potential input development paths 25–6, 25–6 revenue model 29–30 strategic inputs 30 variables influencing 21, 22 withholding tax 258 working capital see under capital expenditure and working capital working capital turnover 201–2 working sheets 60–5 workshops 17–18 writing and presenting the business plan key issues to address in a business plan 256 presenting the model outputs 259–62 graphs 261, 262 rounding 259 rows versus columns 261 tables of data 259–60 report style 259 typical content of a business plan document assumptions 257–8 commercial risk 257 economic 258 executive summary 257 financial 257 manning 258 market 257 milestones 258 safety, health and environment 258 sensitivity 258 strategic importance 257 taxes 258 technical 258 Z zero, set all inputs to 211 zero book value 136

140–41 capital gains tax 258 cars 131 cash 198, 202 deficits 157 surpluses 154, 157 cash breakeven point 146 cash flow 13, 33, 60, 130, 130, 136, 141, 172, 189 adjusting 153 anticipated 151 cumulative project cash flow 152 and equity value 186 forecasts 70 free (FCF) 163, 173, 173, 180 net 146 operational 147, 152 projected 257 short time intervals 180 sign convention 176 statements 156, 157, 159, 161, 169 tax and 127, 174 timing 164, 176–7, 177 cash flow cycle 140, 140, 141, 141, 202, 202 causative techniques 85 cell comments 251–2 chart wizard button 53 check boxes 223–4 circular references 159, 211 COC see cost of capital coefficients 97, 100, 103 collinearity 105 colour scheme 67 column consistency 210 column widths 69 company acquisitions 146 company law 70 company valuation model 190–92 competition 4, 15, 257 compounding 182 computers crash 36, 39 purchase 131 CONCATENATE function 44–5, 50, 263–4 conceptual errors 206 conditional formatting 52–3 Consolidate box 37–8, 38 consumers credit 78 expenditure 14 spending patterns 88 consumption proportion 131 INDEX control toolbox 222 convertibles 149, 155 corporate decision-making 13 corporate planning pyramid 12–13, 12 corporation tax 163, 164, 167, 172, 174, 258 cost of capital (COC) 204, 205 costs 147, 172, 173, 257 capital 60, 117 drivers of 123–7 fixed 122–3, 122, 123 inflexible 125, 125 operating see operating costs COUNT IF function 47, 48, 48, 264 covenants 156 CPM see Critical Path Method credit agencies 151 credit controllers 123, 123 creditor days 145, 202 creditors 145, 145, 147 critical factors 15, 16, 17, 23, 29 Critical Path Method (CPM) 11 currency 14, 46, 46, 80, 168 current liabilities 147 customer segmentation 112–13, 113, 114 cyclical component 89 D data assumptions 6, 7 collection 6, 7, 8, 22–3, 24 labels 38, 54 scenarios 61 warehousing 8 data collection manager 9 data screens 240, 240, 241 DATA VALIDATION function 53 DCF analysis see discounted cash flow analysis de minimus rule 128 debentures 148 debt 147, 150, 151, 155, 157, 204 bad 160–63 doubtful 160–61 funders 155 funding 152 instruments 157, 157 net 155 debt to equity ratios 155–6, 156, 190 debtor days 142, 162, 202 debtors 142–3, 147, 160, 161 debugging see testing and debugging decision-making analysis 1 273 INDEX choice 2 corporate 13 implementation 2 defining the outputs 12–18 alignment with the business’s overall objectives 12–13 business model output checklist 18 creating an output template 16, 17 defining the outputs required to answer the question 13–14 establish the basics 14 model outputs and corporate decisionmaking 13 real versus nominal forecasts 14 specify the time frame and period length 13–14 identifying the critical factors that determine the outputs 15 running a workshop 17–18 demand 75, 107, 108 demand curve 87 downward-sloping 86, 87 demographic shifts 18 dependencies 258 dependency ranking 242–4 depreciation 33, 34, 46, 118, 128, 129, 187, 203 other depreciation methods 131 reducing balance 130, 130, 137, 137 straight line 129–30, 130, 132, 136, 136 development log 35, 38 dialog boxes 252 discount factor 191 discount rates 45, 180, 183 discounted cash flow analysis 172, 181, 185, 188 company valuation example 190–92 EBITDA exit multiples 189 growth rate models 188–9 terminal values 188 valuation range 190 discounted cash flow theory 179–82 discounted cash flows 34, 182–3 discounting 182 distribution 117, 133–4 divide by zero 51 dividend cover 204 dividends 147, 180 documenting the model documentation outside the model contents of a typical user’s guide 255 continuing user support 255 fit for the purpose 253 good document form design 253–4, 254 structure 254 training material 255 user’s documentation 254 documentation within the model 251–3 cell comments 251–2 dialog boxes 252 macro comments 252–3, 253 specific help software 252 text boxes 252 need for documentation 250 when to document 250 where to document 250–51 Du Pont 11, 199 dynamic effects 59 dynamic links the CONCATENATE function 44 multiple models 36–7 E earnings per share 204 EBITDA (earnings before interest, tax, depreciation and amortisation), multiples 187–8, 189, 190, 192, 203, 257 economic added value (EVA) 204 economy of scale 119, 120, 120, 175, 176, 200 Edit Links box 37, 37 endogenous variables 22 enterprise value (EV) 186, 188 environmental risk 249 equity 147, 150, 151, 155, 157, 204 equity value 186 Excel Scenario Manager 248 exchange rates 15, 53, 70, 150, 167, 168, 258 behaviour 80–81 definition and uses 80 modelling approach 81–3 seed 80 exit options 257 exit screens 239–40 exogenous variables 22 EXP function 264 extrapolation techniques 85 eyeball lines 55 F FIFO (first in first out) basis 139 file folder structure 36, 36 file-naming convention 35 finance calculations 34 financial performance 18 FIND 210–11 firm value 186 fixed asset turnover 201 274 fixed assets see under capital expenditure and working capital fixed costs see under operating costs fonts 67 for and next loops 234–6 FORECAST function 95, 95, 96 forecasting, revenue see revenue forecasting forecasts 13 nominal 14 real 14 foreign exchange calculations 167–70 generic approach to modelling foreign exchange gains and losses 168 modelling foreign exchange gains and losses on overseas financing 169–70, 170, 171 modelling foreign exchange gains and losses on overseas revenue and costs 169 principles of foreign exchange accounting 167–8 format painter 50–51 formatting 67–9 colours 67 column widths 69 fonts 67 lines 67, 68 macros 218–19 number styles 68 Forms toolbar 221–5 formula bar 41, 41 formulae, deconstructing complex 208–9, 209 free cash flow (FCF) 163, 173, 173, 180, 186, 191, 205 free-form development 32 FREEZE PANES command 229–30, 230 funding see modelling funding issues G Gantt chart 10, 11 GDP see gross domestic product gearing 155, 156, 190, 245 GO TO function 53 GOAL SEEK function 242–4 goal statement 18 Gordon Growth Model 189, 190, 192 graphs 53–8, 60, 261–2, 262 eyeball lines 55 fixed cost 122, 122 improving the appearance of 54 market value 129, 129 one graph suits all 55–8, 56 triangulation 126 variable costs 119, 119 INDEX gridlines 54 gross additions/connections 88, 93, 97, 97, 98, 98, 104 gross domestic product (GDP) 15, 76, 84, 189 behaviour 71–2 definition and uses 70–71 modelling approach 72–4 seed 71 group sheet function 39 growth 205, 258 GROWTH function 106 growth rate 45, 71, 72, 74, 74, 75 H hard coding 38, 60 hedging techniques 150 HELP function 51 hiding information 69 hyperlinks 226–7, 227 I IF function 45–6, 47, 51, 65, 73, 74, 77, 120, 145, 211, 223, 264 implementation 2, 6, 7, 9 income distribution 15 levels 15 INDEX function 46, 101, 103, 103, 104, 108, 264–5 inflation 14, 15, 53, 70, 75, 132, 258 inflation rate behaviour 75–6 definition and uses 75 modelling approach 76–7 seed 75 inflexible costs see under operating costs information, hiding 69 input sheets 59–65, 60, 61, 72, 72 input timelines 29, 29, 30, 31 inputs additional 29 alternative 22 analysis 23, 24 extreme 213 inflation 76, 76 seed 19 strategic 30 uncertainty/impact 23–4, 23, 25 validation 66 variables 6, 7 interest 147, 156, 180 interest calculations 157 interest costs 131 INDEX interest income and charges alternative approaches to modelling interest income 159–60, 159, 160 interest rate assumptions 158 issues in modelling interest income and charges 158 modelling interest income and circular references 158–9 interest rates 14, 15, 53 assumptions 158 base see base interest rates interface sheets 36 internal rate of return (IRR) 13, 172, 183–5, 183, 184, 245, 257 more than one 184–5, 185 investment commencement of 258 investment funding 203 net 157 overseas 150–51 reinvestment ratio 203 investment control 149 investor measures dividend cover 204 earnings per share 204 IRR see internal rate of return IRR function 265 ISDATE function 240 ISERROR function 46, 51, 211, 213, 265 ISSER function 265 J J curve 146, 146, 152, 154 joint ownership 149 judgmental techniques 85 L land residual value 132 leases 149 operating (rents) 147 LEN function 265 lending rates 152 leverage 155 lines, in formatting 67–8, 68 LINEST function 100–101, 101, 102, 103, 104, 108, 266 list box 224, 225 LN function 266 loans 149, 152, 156 losses 163, 165, 168 M macroeconomic factors 15, 70–84 275 base interest rates 78–80 exchange rates 80–83 gross domestic product 70–75 inflation rate 75–7 other macroeconomic variables 84 population 83–4 macroeconomic forecasts 8 macroeconomics 70 macros 216–21 calculation 233, 233 comments 252–3, 253 editing the macro code 218 macros for repeated tasks 218–21 creating a personalised toolbar 221 formatting macros 218–19 personal macros 218 protecting the model 219–21 Monte Carlo 245, 246 multiplication tables 234–6, 234, 235 print macro 231, 231 recording simple 216 running the macro 218 viewing macro code 216–17, 217 manual code review 208 market growth 15 market liberalisation 18 market size 15 market value 129, 129, 130, 132 mathematical operations 209–10 MAX function 45, 125, 135, 179, 196, 266 mean square error (MSE) 99 media 19 microeconomic variables 15 microeconomics 70 Microsoft Excel 2, 4, 37, 40, 50, 51, 53, 90, 106, 180, 183, 210, 216, 218, 227, 234, 235, 236, 237, 239 milestones 10, 258 MIN function 45, 139, 154, 196, 266–7 mission statement 18 mobile telecommunications industry bottom-down/top-up forecasting 88 critical factors 15, 16 decomposition of revenue 86 penetration 105, 106, 107, 109, 111, 111 product cycle life 106, 107 regression analysis 97, 106 segmentation 112 third-generation mobile data services 88 total revenue 115, 116 MOD function 50, 125, 134 model developer 9 model development process management 32–9 276 best practice in model development avoiding some common pitfalls 39 the basics of quality control 35–8 the model development process create workings pages for all main sections and develop calculations 33 develop the user interfaces and conduct user testing 34 set up output and input templates 33 test and debug 33 transfer results to output pages 33 a model development project plan 34 establishing a modelling charter 34 using material from the modeller’s library 34 populate input templates with base or test data 33 styles of development 32 free-form development 32 model layout 59–60, 59 model outputs 13, 17, 259–62 model ownership 35 modeller’s toolbox 40–58 naming sheets 40 range names 40–44 useful features conditional formatting 52–3 divide by zero 51 format painter 51–2 macros for repeated tasks 218–21 one graph suits all 55–8 shortcut keys 50–51 using graphs 53–5 useful functions AND and OR 46–7 AVERAGE 50 CONCATENATE 44–5 MIN, MAX or IF statements 45–6 MOD 50 OFFSET 49–50, 49 SUM IF and COUNT IF 47–9, 48 modelling funding issues 146–57 cost of funding 151–2 debt to equity ratios 155–6, 156 funding strips 152–4 identifying the cash flow to be funded 147 operating environment 150–51 project control 149–50 putting the funding cost back in the model 156–7 balance sheet 157 cash flow statement 157 profit and loss account 156–7, 157 INDEX time periods 154–5, 154 types of funding 147–9 weighted average cost of capital 152 modularisation 63 Monte Carlo analysis 245–8 moving average 90, 91, 92 MSE see mean square error multiplicative model 96 multiple models and dynamic links 36–7 multiple regression 85, 87, 101–4, 102, 103, 104, 105 N naming sheets 40 navigation see under spreadsheet applications NCF see net cash flow net book value 130, 138, 139, 140, 140 net cash flow (NCF) 182 net debt 155 net operating profit after tax 204 net present value (NPV) 13, 172, 179, 182, 183, 184, 184, 189, 190, 194, 242, 243, 245, 257 nominal forecasts 14 NPV see net present value NPV function 267 number styles 68–9 numbers for an output 4 negative 4 within a formula 4 O OFFSET function 49–50, 49, 57, 119, 125, 134, 135, 138, 224, 248, 267 operating costs 29, 31, 60, 117–27, 161 completeness of operating costs 117, 117–18 cost behaviour 118 drivers of costs 123–7 inflation 126–7 inflexible costs 125, 125 tax 127 triangulation 126, 126 fixed costs 122–3, 122, 123, 125, 126, 200 variable costs 118–22 operating environment 19, 149, 150–51 operating profit 186 operational risk 248, 249 options 148 OR function 46–7, 267–8 ordinary shares 148 output sheets 33, 60, 63, 63, 64, 248 output template 16, 17, 18 277 INDEX outputs 6, 7, 23, 29 presenting model 259–62 overdrafts 149 overheads, allocated 175 overseas investments 150–51 P P/E ratios 186–7, 188 packaging 117 payback 172, 177–9, 245, 257 payroll cost 126, 203 PBT see profit before tax PED see price elasticity of demand penetration 105, 106, 107–12, 109, 114, 115 total 114 period ends 14 period length 14 PERT (Performance Evaluation and Review Technique) 10–11 PEST analysis 21 plant residual value 131–2 utilisation 258 PLC see product life cycle population 70 behaviour 83 definition and uses 83 growth 15 modelling approach 83–4 seed 83 post-project review 6, 7 PPP see purchasing power parity preference shares 148 prepayments 141, 141, 142 present value 182 price elasticity of demand (PED) 86–7, 87, 115 prices constant 14 fall in 4 print ranges 231 probability models 19 product life cycle (PLC) 106, 107, 107, 189 product prices 53 profit and loss 33, 60, 164, 257 profit and loss account 129, 141, 143, 156–7, 157, 161, 162, 163, 167, 169, 173 profit before tax (PBT) 181 profit flow 172 profit margin 199–200 profits 14 operating 186 programming techniques with Visual Basic 232–6 project appraisal and company valuation 172–92 conventions for setting out the cash flows 176–7 sign convention 176 timing 176–7, 177 discounted cash flow theory 179–82 calculating the discount rate 180 calculating the WACC 181 dicounted cash flow decision rule 182 discount rate 180 risk premium 179 short time intervals 180 time value of money 179 discounting cash flows in practice 182–3 evaluating companies 185–92 techniques for valuing companies 186–8 using DCF analysis in practice to value companies 188–92 identifying the relevant project cash flows 172–6 the cash effect of change 174–5 dealing with allocated overheads 175 group versus project 176 relevant costs and capital expenditure 174 relevant revenues 174 relevant taxes 174, 174 internal rate of return 183–5, 183, 184 more than one IRR 184–5, 184 payback 177–9 project appraisal and valuation techniques 172 project control 149–50 project manager 8, 9, 10 Project Plan see under business modelling process property space requirement 123, 124, 124 utilisation of 258 protecting the model see under spreadsheet applications purchase, timing of 132 purchase cost 131 purchase tax 127 purchasing power parity (PPP) 80, 81 R R2 value 97, 98, 102 radio (option) buttons 222–3, 223 range names 4, 40–44, 158, 159, 164, 191 accessing the named inputs and rows 44 common range names 43–4 defining several individual names 42, 42 278 naming one cell 41 naming one cell where the cell name is displayed to the left of reference value 41, 41 naming several values at once 42–3, 42 naming whole rows 43 range test the model 212–13 RANK function 268 ratios 60 the Du Pont pyramid of ratios 199–203 balance sheet management 201–2 further analysis 202–3 percentage of sales measures 201 profit margin and asset turnover 199–201 external analysis 194 internal analysis 194–5 internal ratio analysis 195 interpreting 196–7 average 196 high and low values 196 rank 196 useful ratios to calculate return on average capital employed (ROACE) 198 return on equity (ROE) 199 return on net assets (RONA) 197–8, 198, 199, 200, 201, 204 real forecasts 14 recalculation 69 reducing balance 130, 130 regression equation 98, 98 regression techniques see under revenue forecasting regulatory environment 70 rents 147 replicating actual results 212 report style 259 research agencies 8, 70 residual (“disturbance”) component 89 residual value 132 retail price index 75 return on average capital employed (ROACE) 198 return on capital employed (ROCE) 242, 243, 245, 257 return on equity (ROE) 199 return on net assets (RONA) 197–8, 198, 199, 200, 201, 204 return on sales (ROS) 257 revenue 14, 30, 53, 60, 64, 117, 147, 172, 173 decomposition 86 derivation of 29 total 86, 115–16, 116 INDEX revenue forecasting 14, 85–116 approaches to bottom-up versus top-down forecasting 87–8 classification of forecasting methodologies 85 decomposition of revenue 86 price elasticity of demand 86–7, 87 time frame 88 long-term forecasting 105–11 fitting a product life cycle curve 107–11 the product life cycle 107, 107 regression techniques 96–105 estimating the coefficients 97–9, 97, 98 forecasting using the TREND function 100, 100 limitations of regression analysis 105 the LINEST function 100–101, 101 multiple regression 101–4, 102, 103, 104, 105 regression analysis 96–7 the TREND function 99, 100 segmentation 112–16 business segment 114–15, 114, 115 consumer segment 112–13, 113, 114 mix effects 116 total revenue 115–16, 116 time series analysis 85, 87, 88–96 additive and multiplicative models 89–90, 90 components of a time series 89 estimating the trend and seasonal factors manually 91–4, 92, 93, 94 estimating the trend using the built-in moving average function 90–91, 91 forecasting using the trend, seasonal factors and the additive model 94–5, 95 limitations of time series analysis 96 the multiplicative model 96 time series data 88, 89 revenue multiples 188 revenue tax 163 ripple effect 51 risk 149, 150, 151, 155 assumption 248, 249 commercial 257 environmental 249 operational 248, 249 premium 179 ROACE see return on average capital employed ROCE see return on capital employed ROE see return on equity RONA see return on net assets INDEX ROS see return on sales ROUND function 154, 268 rounding 65–6, 65, 66, 259 ROUNDOWN function 268 ROUNDUP function 123, 133, 268 row consistency 210 rows versus columns 261, 261 S sales forecast 55 tax 127, 163–4 saving the model regularly 36 scenario development 25–31 scenario planning benefits 20 the development of 20 stage 1: identifying high impact, highly uncertain inputs 20, 21–4 stage 2: identify alternative development paths for key inputs 20, 25–6, 25–6 stage 3: select the three or four most informative scenarios 20, 26–8, 27 stage 4: develop the scenario stories 20, 28–30 stage 5: develop the business strategy 20, 30 scenarios 20 scheduling 258 scroll bars 225, 225 seasonal component 89 seasonal factors 89–90, 90, 91, 93, 94, 94, 96 seed 19, 60, 62, 71, 75, 78, 80, 83 segmentation see under revenue forecasting sensitivity analysis 147, 241–2, 241 shareholder value 193–5, 194, 199 ratio analysis 194–5 short period rate 180 shortcut keys 50–51 sign convention 66, 176 simple modified exponential trend curve 108 SIN function 268–9 SINE curve 71, 76 SMART goals 9 social trends 70 socio-economic shifts 18 specific help software 252 spin buttons 225 splash screens 237–9, 238 spreadsheet applications appearance consistency 229 freezing the screens 229–30, 230 placement of macro buttons 230 279 removing the gridlines 230 simple layout 229 basic programming techniques with Visual Basic 232–6 Forms toolbar 221–5 navigation attaching a macro to a button 228–9, 229 basic navigation 226 creating a menu using Visual Basic 227–8, 227, 228 hyperlinks 226–7, 227 recording simple macros 216 viewing macro code 216–17, 217 printing 231 creating a print macro 231, 231 setting print ranges 231 protecting the model 219–21 spreadsheet functions 263–70 spreadsheets 2, 11 advantages and disadvantages of using 3 and model ownership 35 see also input sheets; output sheets; working sheets start of trade 133, 258 stock 143–4, 144, 202 stock days 143, 144, 202 strategic plan 12, 18, 31 style and outline 59–69 alternative model layout 63–4 formatting 67–9 colours 67 column width 69 fonts 67 lines 67–8, 68 number styles 68–9 making the model intelligible 64 making range names work 64–5, 64 model layout 59–60 recalculation 69 retaining consistent logic by having the same formulae every year 65 rounding to invisible 65–6, 65, 66 sheet layout: inputs 60–61, 60, 61 sheet layout: outputs 63, 63 sheet layout: working 61–2 sign convention 66 some things to avoid, recalculation 69 things to avoid, hiding information 69 sum of the digits 131 SUM function 269 SUM IF function 47–8, 48, 269 supply chain 176 280 SWOT (strengths, weaknesses, opportunities and threats) analysis 257 synergy 176 T tables of data 259–61, 260 tactical plans 18 tasks 10 tax shield on financing 181 taxation 33, 34, 127, 173, 258 the challenges of modelling taxation 163 forms of taxation 163–4, 163 generic approach to corporation taxation workings 164–5, 165, 166–7 technical errors 206 technical obsolescence 131 technological change 70 templates 11, 13, 16, 17, 33 terminal value 14, 189, 258 testing and debugging 33, 34, 206–15 the importance of 206 testing strategy 207–15 step 1: eliminate technical and conceptual flaws 208–12, 214 step 2: range test the model 212–13, 215 step 3: stress test the model 213, 215 step 4: user testing 214, 215 types of errors conceptual errors 206 technical errors 206 user errors 206 text boxes 252 third-party forecasts 70 tick box 43, 43 time frame 13–14, 88 time periods 154–5, 154 time series analysis see under revenue forecasting time value of money 179 top-down forecasting 87–8 total revenue 86, 115–16, 116 trace error button 51 transport trends 15 trend curves, exponential, Gompertz and Logistic 108 TREND function 99, 100, 101, 105, 269 trend see under revenue forecasting trendline 55 regression 98 triangulation 126, 126 U uncertainty, scenario planning and model inputs 19–24 INDEX business model input checklist 24 defining the inputs 19 examining different approaches to uncertainty 19 scenario-based forecasting approach 20 stages of a scenario-based forecasting approach 20, 20 stage 1: identifying high impact, highly uncertain inputs 21–4 analyse variables according to uncertainty and impact 23–4, 23 identify all the variables that influence the business 21–2, 21 identifying the relationships between variables 22 review the data collection requirements 22–3 understanding the nature of uncertainty 19 uncertainty/impact matrix 23–4, 23, 24, 25, 29 units 14 upper asymptote 107, 108, 108 urbanisation 15 useful economic life 131 users documentation 254 errors 206 interfaces 34 support, continuing 255 testing 214 using the model 241–9 dependency ranking 242–4 displaying the assumption dataset on the output sheet 248 Excel Scenario Manager 248 GOAL SEEK 242–4 Monte Carlo analysis 245–8 risk and its management 248–9 sensitivity analysis 241–2 V valuation 60 see also project appraisal and company valuation valuation approaches see project appraisal and company valuation valuation range 190 value-added tax 127 variable costs see under operating costs variables 21–2, 21 dependent 96 endogenous 22 exogenous 22 281 INDEX independent (explanatory) 96–7, 100 uncertainty/impact 23–4, 23 variance analyses 13 version control 35 versions of the model, retaining 35–6 vertical analysis 201 vision statement 18 Visual Basic 216, 232–6 Visual Basic Editor 216–17, 217, 218, 240 VLOOKUP function 121, 122, 269–70 W WACC see weighted average cost of capital warrants 148 warranty 118 weighted average cost of capital (WACC) 152, 167, 180, 181, 190 wind-farm operators critical factors for 15, 16 develop the scenario stories 28–30, 29 Gantt chart 10, 11 impact/uncertainty matrix 23–4, 23 input timelines 29, 29 output template 17 potential input development paths 25–6, 25–6 revenue model 29–30 strategic inputs 30 variables influencing 21, 22 withholding tax 258 working capital see under capital expenditure and working capital working capital turnover 201–2 working sheets 60–5 workshops 17–18 writing and presenting the business plan key issues to address in a business plan 256 presenting the model outputs 259–62 graphs 261, 262 rounding 259 rows versus columns 261 tables of data 259–60 report style 259 typical content of a business plan document assumptions 257–8 commercial risk 257 economic 258 executive summary 257 financial 257 manning 258 market 257 milestones 258 safety, health and environment 258 sensitivity 258 strategic importance 257 taxes 258 technical 258 Z zero, set all inputs to 211 zero book value 136

 

pages: 397 words: 112,034

What's Next?: Unconventional Wisdom on the Future of the World Economy by David Hale, Lyric Hughes Hale

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

affirmative action, Asian financial crisis, asset-backed security, bank run, banking crisis, Basel III, Berlin Wall, Black Swan, Bretton Woods, capital controls, Cass Sunstein, central bank independence, cognitive bias, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, corporate social responsibility, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, debt deflation, declining real wages, deindustrialization, diversification, energy security, Erik Brynjolfsson, Fall of the Berlin Wall, financial innovation, floating exchange rates, full employment, Gini coefficient, global reserve currency, global village, high net worth, Home mortgage interest deduction, housing crisis, index fund, inflation targeting, invisible hand, Just-in-time delivery, Kenneth Rogoff, labour market flexibility, labour mobility, Long Term Capital Management, Mahatma Gandhi, Martin Wolf, Mexican peso crisis / tequila crisis, Mikhail Gorbachev, money: store of value / unit of account / medium of exchange, mortgage tax deduction, Network effects, new economy, Nicholas Carr, oil shale / tar sands, oil shock, open economy, passive investing, payday loans, peak oil, Ponzi scheme, post-oil, price stability, private sector deleveraging, purchasing power parity, quantitative easing, race to the bottom, regulatory arbitrage, rent-seeking, reserve currency, Richard Thaler, risk/return, Robert Shiller, Robert Shiller, Ronald Reagan, sovereign wealth fund, special drawing rights, technology bubble, The Great Moderation, Thomas Kuhn: the structure of scientific revolutions, Tobin tax, too big to fail, total factor productivity, trade liberalization, Washington Consensus, women in the workforce, yield curve

Figure 5.6 European Monetary Union Real Effective Exchange Rate Index (BIS), Adjusted by Relative Consumer Prices Source: Thomson Reuters This risk is further underlined by Figure 5.7, which shows relative hourly labor costs around the world, as surveyed annually by the US Bureau of Labor Statistics (updated using current exchange rates). This “absolute” measure of competitiveness or purchasing power parity does not depend on any expectation of mean reversion, but rather on the concept that an hour of manufacturing labor should cost about the same in advanced economies with access to similar technology and managerial know-how. On this basis, the euro appeared to be overvalued by 26 percent against the dollar and by 34 percent against the pound in the third quarter of 2010. Even if the euro weakened substantially from this level, which seemed a reasonable expectation, the lagged effects of currency overvaluation should continue to be seen in European industrial production statistics at least until the end of 2011.

There is little doubt that ambitious new Asian centers would like to attract as much international financial business as possible. (High concentrations of such business boosts land values, and the elites in these societies usually own much of the land.) Quite apart from the city-states (Singapore, Hong Kong, Dubai, Qatar, Bahrain), the big player in the background is China—more specifically Shanghai. China is by far the world’s largest creditor nation, and its national output, measured at purchasing power parity, was about $8.5 trillion in 2009 compared with the United States’ $14 trillion. (See Table 17.1.) No one can predict exactly what will happen to different countries’ output by 2020 or 2030, but there has to be a possibility that—if the trend growth differential of the 2000s (that is, about 6 percent a year, with 8 to 9 percent growth in China compared to 2.5 percent in the United States) persists—China’s GDP will catch up with US GDP by 2020.

See National Action Party (PAN) Panama, 48, 49–50 paper barrels, 197–198 paradigm shift, 204–205 Parsi, Trita, 216 Party of the Democratic Revolution (PRD), 29, 45 payroll taxes, xvii, 261–262 Paz, Octavio, 35 peak oil, 180–181 Pelosi, Nancy, 11 Pemex, xix, 40–41 Peru, 8, 48, 49, 51–52 Petrobras, 41–42 police force, Mexican, xix, 43 political reform, in Mexico, xix politics: in Australia, xxiv, 150; in Brazil, 33; in Iran, xxvi, 203–218; in Japan, xxi–xxii, 102–114; in Mexico, 29, 31, 32, 34–38, 43–45; in South Africa, 128; in US, 5–6, 269–270; in Zimbabwe, 125 pound sterling, 153–154, 161 power supply problems, in Southern Africa, 124–125, 131 PRD. See Party of the Democratic Revolution (PRD) PRI. See Institutional Revolutionary Party (PRI) productivity gains, xvi, 4 productivity lags, in Canada, 26 Project Kuwait, 184 protectionism, 24–25, 27 public debt, xxvii–xxviii, 81; global financial crisis and, 256–257; US, 5–6. See also fiscal deficits purchasing power parity, 245 Qajars, 206 quantitative easing, xvii, 7–8, 24, 96–97, 173 rand, 136, 137 rating agencies, 267, 268 rational choice theory, 286 reading skills, 293 real estate market: Australia, 143–145; Canadian, 16–17, 19–20 reality, perceptions of, 298–300 regional economic communities (RECs), 121–122 regulatory reform, 120 Rengo, 112 renminbi (RMB), 163–164 Republican Party, xvii, 6, 12–13, 63, 269–270 Reserve Bank of Australia, 144, 146–147 reserve currency, xxiv; alternative, 158; decline of British pound as, 153–154; euro as, 158–160; requirements for, 156–158; RMB as, 163–164; synthetic currency as, 161–163; US dollar as, 153–165 residential construction, 4 resource nationalism, 185 Ricardian equivalence, 71 Rich, Frank, 299 risk assessment, 276–277 RMB.

 

pages: 261 words: 86,905

How to Speak Money: What the Money People Say--And What It Really Means by John Lanchester

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

asset allocation, Basel III, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Swan, blood diamonds, Bretton Woods, BRICs, Capital in the Twenty-First Century by Thomas Piketty, Celtic Tiger, central bank independence, collapse of Lehman Brothers, collective bargaining, credit crunch, Credit Default Swap, crony capitalism, Dava Sobel, David Graeber, disintermediation, double entry bookkeeping, en.wikipedia.org, estate planning, financial innovation, Flash crash, forward guidance, Gini coefficient, global reserve currency, high net worth, High speed trading, hindsight bias, income inequality, inflation targeting, interest rate swap, Isaac Newton, Jaron Lanier, joint-stock company, joint-stock limited liability company, Kodak vs Instagram, liquidity trap, London Interbank Offered Rate, London Whale, loss aversion, margin call, McJob, means of production, microcredit, money: store of value / unit of account / medium of exchange, moral hazard, neoliberal agenda, New Urbanism, Nick Leeson, Nikolai Kondratiev, Nixon shock, Northern Rock, offshore financial centre, oil shock, open economy, paradox of thrift, Plutocrats, plutocrats, Ponzi scheme, purchasing power parity, pushing on a string, quantitative easing, random walk, rent-seeking, reserve currency, Richard Feynman, Richard Feynman, road to serfdom, Ronald Reagan, Satoshi Nakamoto, security theater, shareholder value, Silicon Valley, six sigma, South Sea Bubble, sovereign wealth fund, Steve Jobs, The Chicago School, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, trickle-down economics, Washington Consensus, working poor, yield curve

Big Mac index The Economist’s attempt to answer the question of how expensive it is to live in different countries. Since currencies, living costs, food, rents, wages, and many other factors vary so much from place to place, how can you reliably compare the cost of living? The magazine’s answer: by using the price of something that is in essence the same everywhere, the Big Mac. In economics, the thing they’re trying to measure is called purchasing power parity, or PPP, i.e., how much you can buy in different places with a given amount of money. (That might sound an easy thing to measure, but establishing agreed figures for PPP in fact involves a huge international survey in which thousands of economists fan out all over the world collecting and collating data.) There used to be something called the Mars bar index, which tried to do something similar with the effect of inflation in the UK, but one of the problems with it is that Mars bars (unlike Big Macs) have changed size over time.21 See if, without looking at it, you can guess the most and least expensive countries in the world.

It is a measure of how rich the country’s citizens are on average—though it is a very very rough measure of that, since a country’s wealth is often very unevenly distributed. Also, a country’s population could be rising sharply so that its GDP in total is going up even as each individual citizen is becoming poorer. The list of countries in order of total GDP and GDP per capita is interestingly different. Data are from the IMF for 2012, adjusted for purchasing power parity (which is why it’s different from the G8 list above): GDP per capita GDP total 1. Qatar 1. EU 2. Luxembourg 2. USA 3. Singapore 3. China 4. Norway 4. Japan 5. Brunei 5. Germany 6. Hong Kong 6. France 7. United States 7. UK 8. United Arab Emirates 8. Brazil 9. Switzerland 9. Russia 10. Canada 10. Italy 11. Australia 11. India 12. Austria 12.

Still, the United States had very rocky banks before Glass-Steagall was brought in, and has had very rocky banks since Glass-Steagall was repealed, so maybe it’s right to draw the obvious conclusion—that the period when Glass-Stegall was in force was safer for banks. GDP world The total GDP of the world—so that would be all the economic activity on Earth—is $71,830 billion, or $71.83 trillion. This is according to the CIA, so it must be true.41 Note that the number adjusted for purchasing power parity is $83,120 billion. Planetary GDP per capita is $12,700, the unemployment rate is 8 percent, the employment balance is 35.3 percent work in agriculture, 22.7 percent in industry, and 42 percent in everything else, or, in economist-speak, “services.” The world’s total burden of debt, government and personal and corporate all added together, is 313 percent, or $223.3 trillion. That means our planet has the equivalent of a mortgage three times its income.

 

pages: 361 words: 97,787

The Curse of Cash by Kenneth S Rogoff

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

Andrei Shleifer, Asian financial crisis, bank run, Ben Bernanke: helicopter money, Berlin Wall, bitcoin, blockchain, Bretton Woods, capital controls, Carmen Reinhart, cashless society, central bank independence, cryptocurrency, debt deflation, distributed ledger, Edward Snowden, ethereum blockchain, eurozone crisis, Fall of the Berlin Wall, fiat currency, financial intermediation, financial repression, forward guidance, frictionless, full employment, George Akerlof, German hyperinflation, illegal immigration, inflation targeting, informal economy, interest rate swap, Isaac Newton, Johann Wolfgang von Goethe, Kenneth Rogoff, labor-force participation, large denomination, liquidity trap, money: store of value / unit of account / medium of exchange, moral hazard, moveable type in China, New Economic Geography, offshore financial centre, oil shock, open economy, payday loans, price stability, purchasing power parity, quantitative easing, RAND corporation, RFID, savings glut, secular stagnation, seigniorage, The Great Moderation, the payments system, transaction costs, unbanked and underbanked, unconventional monetary instruments, underbanked, unorthodox policies, Y2K, yield curve

Table 4.1 gives estimates of “cash on person,” with figures adjusted to US dollars by purchasing power parity exchange rates.13 The table confirms that Austria and Germany are cash-intensive countries, whereas France is more similar to the United States. The figure includes only cash on person and not cash on property. Assuming similar ratios of the two for Austria and Germany as for the United States, then total cash balances would be, say, $500–600 worth of euros in Germany, and $285–340 in France, hardly enough to explain per capita currency holdings (and remember the survey is only counting adults). Table 4.1: Average cash balances in wallet Australia Austria Canada France Germany Netherlands United States Mean 59 148 64 70 123 51 74 Median 32 114 38 30 94 28 37 Note: Values are converted to US dollars by purchasing power parity–adjusted exchange rates.

The authors report making significant efforts to harmonize their approaches to gathering and analyzing data so as to make the results as comparable as possible (understanding that there are some differences across countries in the year of the survey). Although the diary survey design is similar across countries, and the process of harmonization thoughtful, the reader must recognize that precise comparisons are still difficult, and diary surveys that require meticulous detail from participants have many limitations to begin with. 13. Purchasing power parity exchange rates aim to translate nominal quantities in different currencies into a common denominator, taking account of the different price structures in each economy. The idea here, for example, is to better be able to compare the true purchasing power consumers in different countries are carrying around in their wallets or purses. 14. The 2008 survey is documented in ECB (2011). 15.

 

pages: 344 words: 93,858

The Post-American World: Release 2.0 by Fareed Zakaria

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

affirmative action, agricultural Revolution, airport security, anti-communist, Asian financial crisis, battle of ideas, Berlin Wall, Bretton Woods, BRICs, British Empire, call centre, capital controls, central bank independence, centre right, collapse of Lehman Brothers, conceptual framework, Credit Default Swap, currency manipulation / currency intervention, delayed gratification, Deng Xiaoping, double entry bookkeeping, failed state, Fall of the Berlin Wall, financial innovation, global reserve currency, global supply chain, illegal immigration, interest rate derivative, knowledge economy, Mahatma Gandhi, Martin Wolf, mutually assured destruction, new economy, oil shock, open economy, out of africa, postindustrial economy, purchasing power parity, race to the bottom, reserve currency, Ronald Reagan, Silicon Valley, Silicon Valley startup, South China Sea, Steven Pinker, The Great Moderation, Thomas L Friedman, Thomas Malthus, trade route, Washington Consensus, working-age population, young professional

Over the last two decades, about two billion people have entered the world of markets and trade—a world that was, until recently, the province of a small club of Western countries.* The expansion was spurred by the movement of Western capital to Asia and across the globe. As a result, between 1990 and 2010, the global economy grew from $22.1 trillion to $62 trillion, and global trade increased 267 percent. The so-called emerging markets have accounted for over half of this global growth, and they now account for over 47 percent of the world economy measured at purchasing power parity (or over 33 percent at market exchange rates). Increasingly, the growth of newcomers is being powered by their own markets, not simply by exports to the West—which means that this is not an ephemeral phenomenon. Nor is it one that is easily derailed. The financial panics, recessions, and debt crises that have left much of the industrialized world dazed for the last three years were unable to halt, or even significantly slow, the ongoing expansion elsewhere.

“Tip,” 179, 284 Opium Wars, 81 Organization of American States (OAS), 268 Organization of Petroleum Exporting Countries (OPEC), 30 Orissa, 155 Ottoman Empire, 67, 68, 73, 75, 82, 84, 85, 117–18 outsourcing, 27–28, 50, 148, 203 “Pacific Century,” 245 Pakistan, 12, 13, 14, 145, 159, 165, 166, 172, 176, 241, 260, 263, 264, 271 Palestinians, 6, 246 Pampers diapers, 105 Parsley crisis (2002), 239–41 Patriots Alliance, 135 Patten, Christopher, 248–49 “peaceful rise,” 119–20, 127–36 peasants, 65–66, 100, 106, 112 Pei, Minxin, 106, 110 pensions, 212 Perejil Island, 239–41 Perry, William, 265 Pershing missiles, 251 Persian Gulf, 32 Peru, 26 Peter I, Emperor of Russia, 83–84 petrochemicals, 32 Pew Global Attitudes Survey, 59, 122, 166, 226 Philippines, 11, 28, 133 Philosophical Dictionary (Voltaire), 123 Pilhofer, Aron, 220 Pines, Burton, 235 Pinker, Steven, 9 Pitt, William, 82 Pizarro, Francisco, 80 platinum, 131 Plaza Accord meetings, 282 plutonium, 176 polar ice caps, 33 political parties, 59, 154, 156–62, 178, 179–80, 235, 255, 276–77, 278, 279, 283 “political risk,” 19 Poos, Jacques, 245 population growth, 22, 31, 32–33, 50–51, 66, 80, 100, 112, 144, 145, 148, 178–83, 191, 213–16, 236–37 Portugal, 69, 79, 80, 116, 151 “positive supply shocks,” 20 post-American world: anti-Americanism and, 13, 35, 39, 42, 60, 166, 241, 245, 251–55, 274, 283 asymmetry in, 142–44, 269–72 cultural change in, 1–5, 16, 39, 41, 62–99, 126–27 economic conditions in, 6–61, 93, 94, 97, 197–99, 241–43, 255 future trends for, 1–5, 94–99, 199–203, 204, 239–85 legitimacy in, 243–50, 273–75 multilateralism in, 246–55, 267–69 nationalism in, 34–42, 101, 134–35, 143, 145, 158–59, 180–83, 192, 274 power shift in, 20, 22–23, 29, 34–42, 47–49, 51–54, 93–94, 99, 127–28, 137–44, 241–42, 259, 266–67 “rise of the rest” in, xii, 1–5, 47, 55–56, 65, 96–97, 99, 101, 199, 219–22, 242, 257–59, 263, 267–69, 285 strategic approach to, 142–44, 255–75 unipolar vs. multipolar order of, 1–5, 39, 52–53, 233, 241–42, 243–50, 264–65, 266–69, 274–75 U.S. global role in, xii, 4, 48–61, 117, 120, 142–44, 182–83, 223–26, 235–85 see also globalization postindustrial economies, 151, 200, 204 poverty, 3, 22, 65–66, 100, 102, 106, 111, 113–14, 117, 121, 146, 149, 150, 155–58, 169, 177 Powell, Colin, 240 Pratt School of Engineering, 205 Premji, Azim, 155 price levels, 21, 30, 67, 70, 128 private property, 73, 150 private sector, 148–53, 160–61 privatization, 107, 110, 150–51, 152, 153, 222 Procter & Gamble, 105, 151 product development, 202–3 productivity, 21, 30, 33, 50, 71–72, 160, 200, 212, 281, 282, 283 profit, 72, 80, 128, 200, 203 Protestantism, 81, 97–98, 125, 262 Prussia, 191 Pudong financial district, 102–3 Punjab, 180 purchasing power parity (PPP), 18n, 21, 66n, 113n, 148n, 198n qi (energy), 126 Qienlong, Emperor of China, 69 Qing dynasty, 63–64, 81 quotas, 109 Raffles, Stamford, 185 Rajasthan, 180 Ramo, Joshua Cooper, 142–43 Ranbaxy, 153 Ratner, Ely, 38 Rattner, Steven, 230 Reagan, Ronald, 168, 251, 284 real estate, 43, 85, 152, 217, 218, 225 recessions, 25, 227, 232 regional governments, 145, 161, 178–83 regional powers, 257–63 Reisen, Helmut, 281 Reliance Industries, 149, 153 religion, 15–16, 74, 76, 80, 81, 87, 98, 122–25, 127, 169, 171, 172, 213, 262, 278 Renaissance, 68 Report of Phihihu (Frederick II), 124 Republican Party, 59, 235, 276–77, 278, 280–81 reserve currency, 267 “responsible stakeholders,” 257 retail sector, 203 Revolutionary War, U.S., 194 Rhine River, 77 Ricci, Matteo, 124–25 Rice, Condoleezza, 252–53 Richie, Donald, 92 Rig Veda, 171 Rise of the Great Nations, The, 120 Rivoli, Pietra, 203 Roach, Steven, 282 Roberts, J.

* A note on terminology: For such a straightforward idea, gross domestic product (GDP) is a surprisingly complicated measurement. Although tradable items like iPhones or Nikes cost roughly the same from one country to the next, goods that can’t flow across borders—such as haircuts in Beijing—cost less in developing economies. So the same income goes much further in India than in Britain. To account for this, many economists use a measure of GDP called purchasing power parity (PPP), which substantially inflates the incomes of developing countries. Proponents say this better reflects quality of life. Still, when it comes to the stuff of raw national power, measuring GDP at market exchange rates makes more sense. You can’t buy an aircraft carrier, fund a UN peacekeeping mission, announce corporate earnings, or give foreign aid with dollars measured in PPP. This is why, in general, throughout this book I will calculate GDP using market exchange rates.

 

Affluenza: When Too Much Is Never Enough by Clive Hamilton, Richard Denniss

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

call centre, delayed gratification, experimental subject, full employment, impulse control, Mahatma Gandhi, McMansion, Naomi Klein, Own Your Own Home, Post-materialism, post-materialism, purchasing power parity, Thorstein Veblen, trickle-down economics, wage slave

Nearly half of highincome households are dissatisfied with their incomes, while four out of five in the lowest income group are dissatisfied. 62 HOW MUCH IS ENOUGH? TABLE 2: Attitudes to needs, by income group—‘You cannot afford to buy everything you really need’ Country Total (%) Lowest income group (%) United Kingdom Australia United States 61 62 50 79 79 63 Highest income group (%) GDP per person in 2000 (US$ PPP) 46 47 33 23 509 25 693 34 142 Note: PPP denotes purchasing power parity. Australians and Britons appear, however, to be much more dissatisfied with their incomes than Americans, and this is the case at both the high and the low ends of the scale. Overall, half of Americans say they cannot afford to buy everything they really need, compared with six in ten Britons and Australians. Nearly half the wealthiest households in the United Kingdom and Australia say their incomes are inadequate, whereas only one-third of wealthy Americans take that view.

The average disposable income for the poorest 20 per cent of families was $28 800 a year. This group is dominated by welfare recipients and includes a disproportionate share of single parents. 3 Hamilton, Overconsumption in Australia, op. cit. 4 Holbrook, op. cit. 5 Clive Hamilton, Overconsumption in Britain: a culture of middle-class complaint?, Discussion paper no. 57, The Australia Institute, Canberra, 200 ENDNOTES 6 7 8 9 10 11 2003. GDP is measured by purchasing power parity—that is, taking account of differences in exchange rates and differences in the purchasing power of domestic currencies in each country. Strictly speaking, equivalised household incomes would be better, that is, incomes adjusted for household size. It should be noted that the US survey was conducted in 1995 and the results might differ if it were repeated today. There has been a decade of luxury fever since that time, so it would be reasonable to assume that more Americans feel that their incomes are inadequate.

 

pages: 193 words: 63,618

The Fair Trade Scandal: Marketing Poverty to Benefit the Rich by Ndongo Sylla

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

British Empire, carbon footprint, corporate social responsibility, David Ricardo: comparative advantage, deglobalization, Doha Development Round, Food sovereignty, global value chain, illegal immigration, income inequality, income per capita, invisible hand, Joseph Schumpeter, labour mobility, land reform, market fundamentalism, means of production, Mont Pelerin Society, Naomi Klein, non-tariff barriers, offshore financial centre, open economy, Plutocrats, plutocrats, price mechanism, purchasing power parity, Ronald Reagan, Scientific racism, structural adjustment programs, The Wealth of Nations by Adam Smith, trade liberalization, transaction costs, transatlantic slave trade, trickle-down economics, Washington Consensus

In this increasingly complex world, the domestic fight for self-determination of the people and for better control of economic processes is, in my view, the cornerstone on which the poorest countries will have to build themselves up, as young nations aspiring to have their say in the global concert of nations. 152 Sylla T02779 01 text 152 28/11/2013 13:04 Annexes Table A1  Productivity statistics according to development level GDP per capita GDP per capita, PPP* Agricultural value (current 2008 $) (constant 2005 $) added per worker (constant 2000 $) Low-income countries Lower middle income Upper middle income 490 2,220 8,389 1,114 4,427 13,052 285 609 3,681 Note: PPP = * Purchasing Power Parity. Source: Development Indicators of the World Bank (2010a). Table A2  Transfair USA’s revenue compared to additional FT income transferred from USA (in thousand $) Licence fees Total revenue Total additional FT FT premium Receipts income from USA transferred* 2001 307 686 5,679 344 5,335 2002 474 1,114 8,121 518 7,603 2003 933 1,665 15,919 1,017 14,902 2004 1,895 2,748 26,624 2,061 24,563 2005 2,932 4,209 14,818 2,858 11,960 2006 4,521 5,570 17,770 4,037 13,733 2007 4,961 7,665 19,870 6,091 13,779 2008 5,757 9,270 34,671 10,811 23,860 2009 6,881 10,008 48,209 13,778 34,431 Note: * Additional income created by the positive differential between FT prices and market prices.

., 33, 64, 67; Keynesianism, 42, 74, 141; euthanasia of the rentier, 157(n2) Kiribati, 135 Klein, Naomi, 78 Korea, the Republic of, 155(n1) Kraft Jacobs Suchard, 21 175 Sylla T02779 02 index 175 28/11/2013 13:04 the fair trade scandal Label-Step, 47 Labour, child labour, 51, 69, 79, 80, 113, 158(n7); division of labour, 63, 64, 65, 75; family labour, 51, 91, 94–5; forced labour, 71, 75, 80; hired labour, 43, 48, 49, 50, 51, 52, 94, 95, 112, 123, 129, 137, 160(n4), 161(n5); labour power, 76, 88, 98, 140, 148; labour supply, 9, 94–5; see also wage Lao People’s Democratic Republic, 135 Latin America, 9, 13, 15, 24, 37, 38, 42, 49, 74, 80, 107, 112, 115, 116, 117, 122, 129, 130, 131, 133, 135, 136, 137, 138, 139, 148, 154, 155(n1), 159(n23), 161(n14), 162(n22) Latin American and Caribbean Network of Smallholder Fair Trade Producers, 107 Latouche, Serge, 82–3 Least developed countries, see developing countries Lesotho, 135 Liberalism, 63, 67, 68, 74; neoliberal critique, 1, 59, 68–74, 84, 126, 146, 156(n4); neoliberalism, 3, 4, 6, 7, 41–3, 56, 59, 72, 120, 139–45, 146, 151, 162(n26), 163(n1) Liberia, 135 List, Friedrich, 8, 25; see also Protectionism Logistics Performance Index, 89, 137 Lomé Convention 155(n2) Low Income Food Deficit Countries, 135 Luxembourg, 162(n29) Madagascar, 135 Magnusson, Lars, 63–8, 71 Malawi, 134, 135 Malaysia, 155(n1) Maldives, 135 Mali, 134, 135 Market Access Overall Trade Restrictiveness Index, 30 Mars, 21 Marx, Karl, 60, 62, 75, 87, 157(n3) Marxist (tradition), 75, 76, 82, 157(n11) Mauritania, 135 Max Havelaar (novel), 39 Max Havelaar (label), 6, 39–40, 44–5, 130, 139, 157(n4), see also Fairtrade Max Havelaar (labelling initiatives), France, 46, 127, 156(n9), 158(n10), 159(n23), 160(n25), 161(n6); Switzerland, 127 McDonald’s, 77, 78, 79 Mexico, 3, 38, 79, 98, 114, 118, 131, 132, 133, 134, 136, 137, 139, 155(n1), 157 (n4), 159(n20), 161(n17) Mercantilism, 64–7 Microfinance, 1 Middle East, 15, 49 Mill, John Stuart, 65 Millennium development goal(s), see Development Mises (von), Ludwig, 42 Mohan, Sushil, 101–2 Monde (Le), 159(n19) Mont Pelerin Society, 42 Mozambique, 135 Multatuli, see Max Havelaar (novel) Multinationals, 19, 21, 41, 47, 53, 55, 56, 77–81, 140, 147, 149, 157(n13), 158(n5), 160(n26) Myers, Norman, 23, see also hamburger connection Nadel, Henri, 76 National sovereignty, 33, 64, 152 Neoclassical economics, 4, 11; 42, 65, 66, 72, 74, 82, 94–5, 140; general equilibrium theory, 99; gravity models, 162(n20) Neoliberalism, see liberalism Nepal, 135 Nestlé, 21, 78 Netherlands, 3, 20, 38, 39, 40, 54, 160 (n26), 162(n29); Groningen, 70; Kerkrade, 36 Network of European World Shops (the), 44, 46 New York, 157(n3) New York Times (the) 159 (n15) NGO, 3, 36, 38, 46, 47, 50, 53, 116, 117, 138 Nicaragua, 133, 134 Niche, 38, 70, 77 Niger, 135 Nigeria, 21 Nokia, 85–6, 125 Non-tariff barriers, 26–7, 30, 90 176 Sylla T02779 02 index 176 28/11/2013 13:04 index North America, 24, 35, 40, 44, 53, 136 North American Free Trade Agreement (NAFTA), 136 North-North relations, 31, 54, 80, 108 North-South relations, 1, 16–33, 34, 35, 40, 41, 43–4, 61–2, 73, 80, 87, 90, 97, 105–9, 126, 135, 140–5, 147, 148, 149, 163(n2), see also dependency theory Norway, 28, 162(n29) Oceania, 9, 24, 129, 131, 154 Organic production, 9, 53–5, 79, 92, 96, 112, 115, 160(n1) Organisation for Economic Co-operation and Development (OECD), 28–9; OECD countries, 10, 15, 21, 28, 29, 30, 42, 131, 144 Overall Trade Restrictiveness Index, see Market Access Overall Trade Restrictiveness Index Oxfam, 30, 32, 36, 38, 72, 122 Pakistan, 36 Palestine, 35 Panama, 134 Papua New Guinea, 134 Penson, Jonathan, 138 Peru, 114, 133, 134, 159(n20), 160(n26) Philippines, the, 155(n1) Pitt, William, 8 Polanyi, Karl, 75, 140 Popper, Karl, 42, 58–60 Portugal, 23, 65 Poverty, 2, 7, 10, 11, 33, 35, 36, 40, 58, 62, 68, 79, 84, 85–6, 95, 97–100, 103, 105, 109, 113, 114, 119, 122, 125, 131, 132, 137, 142, 143, 144, 145, 147, 148 Prebisch, Raúl, 17, 38 Price volatility, 17–18, 66, 86, 109 Primary product dependency, 10, 16, 90, 121, 132–8, 140–1, 147 Primary product financialisation, 17–8 Problem of induction, 110 Producer organisations, 3, 80, 98, 118–19, 157(n3), 159 (n16); certification, 45, 48, 49, 51, 91, 109, 111; 159(n20), 160(n4); selection bias, 81, 116–17, 132–9, 159(n23), 160(n26); shortcomings of the Fairtrade model, 97, 107–9, 138, 142–3, 162(n25); statistics, 51–3, 123–4, 130–1, 132–4, 161(n11) Producer support Estimate, 28–9; see also OECD Productive theory, 64–5, 75 Protectionism, 5, 25–33, 63, 67–8, 71–2, 145; infant industries protection, 25, 32, 37, 66, 67; see also free trade Puerto Rico, 35 Purchasing Power Parity, 153 Quinoa, 54, 159(n15) Rainforest Alliance, 53–6 Reagan, Ronald, 42 Ricardo, David, 65–7 Rist, Gilbert, 34 Rodrik, Dani, 73–4 Roozen, Nico, 3, 38–43, 54, 70, 87–8, 98, 139, 158(n4), 163(n1) Rowntree, Joseph, 72, Ruben, Ruerd, 113–17, 160(n27) Rugmark, 47 Rwanda, 134, 135, 138, Sachs, Jeffrey, 162(n23) Sao Tomé and Principe, 134, 135 Saint Lucia, 91, 134 Saint-Vincent and the Grenadines, 91, 134 Sales Exchange for Refugee Rehabilitation and Vocation (SERRV), 35–6 Samoa, 135 Samsung, 85–6, 125 Sara Lee, 70 Schumpeter, Joseph A., 63, 156(n3) Second World War, 35, 42 Selection bias, see producer organisations SELFHELP Crafts (shops), see Ten Thousand Villages Senegal, 134, 135 Sharif, Mohammed, 94–5 Sidwell, Marc, 68–73 Sierra Leone, 135 Singapore, 155(n1) Singer, Hans, 17; see also Structuralist school Slavery, 60–2, 75 177 Sylla T02779 02 index 177 28/11/2013 13:04 the fair trade scandal Slavery footprint, 156(n2) Smith, Adam, 8, 63–8, 75–6, 156(n3) Smith, Alastair M., 132, 156(n4) Smithsonian Migratory Bird Center, Bird-friendly Coffee programme, 54 Social capital, 101, 117, 119 Solidaridad, 3, 38–9, 114; see also Roozen Solomon Islands, 135 Somalia, 135 SOS Wereldhandel; see Fair Trade Organisatie Spaghetti bowl, 27 South Africa, 136, 137, 159(n20), 162(n21) South South relations, 80, 149, 163(n2) Sri Lanka, 134 STABEX, see Export earnings stabilisation system Starbucks, 77, 78, 150; Coffee and farmer equity practices, 55 Stigler, Georges, 42 Stiglitz, Joseph E. and Charlton, Andrew, 31–3, 66 Structural adjustment policies, 17, 18, 42 Structuralist school, 37–8 Sudan, 135 Sugar, 16, 27, 30, 36, 60–2, 80, 85, 90 Sustainable Agriculture Network, 53 Sustainability, 4, 24, 34, 47, 50, 53, 55, 56, 57, 70, 79, 113, 138, 142, 149–50, 158(n5) Sustainable development, 4, 34, 47, 55, 70, 82, 83, 156(n2), 163(n1) Sustainable Fair Trade Management System, 45; see also World Fair Trade Organization Sweden, 63, 162(n29) Switzerland, 53, 127, 128 System for Minerals (Sysmin), 155(n2) Taiwan, 155(n1) Tanzania, United Republic of, 134, 135 Tariff escalation, 26–8, 30 Tariff peaks, 30 Tax havens, 157(n13) Tea, 40, 49, 52, 53, 54, 56, 80, 130, 133, 134, 136 Ten Thousand Villages, 35–6 Thailand, 155(n1) Thatcher, Margaret, 42 Third Worldism, 36–40, 120 Times (the), 160(n2) Timor Leste, 135 Togo, 134, 135, 155(n2) Torrens, Robert, 65 Trade not aid (slogan), 38, 40, 126 Trade structure, 9, 10, 133–8, 141, 154, 163(n2); see also Developing countries Traders, 20, 44, 49, 86, 106, 116–17, 140 Transfair USA, additional income transferred, 125, 128, 130–1, 153; 161(n9), 161(n11); budget and licensee fees, 127–8, 153; exit from Fairtrade, 161(n13); name change, 161(n9); sales, 161(n10) Tribune (La), 159(n18) Truman, Harry, 34, 35 Turkey, 155(n1) Tuvalu, 135 UCIRI (Union de Comunidades Indigenas de la Region del Istmo), 98, 157(n4) Uganda, 134, 135, 138 Un Comtrade, 20, 134 Underdevelopment, see development Unequal exchange, 1–2, 16–22, 25, 37, 62, 76, 120, 132, 133; unequal ecological exchange, 22–4 United Nations, 10, 144, 155(n4) United Nations Conference on Trade and Development (UNCTAD), 9, 10, 13, 14, 16, 20–1, 38, 133, 134, 135, 154, 162(n19), 162(n21), 163(n2) United Kingdom, 8, 25, 31, 32, 36, 46, 53, 56–7, 60–2, 64–9, 71, 127, 128, 132 United States, 16, 20, 22, 23, 25, 27, 29, 31, 32, 35, 36, 42, 46, 53, 54, 61, 63, 67, 71, 79, 90, 125, 127, 128, 130, 131, 132, 136, 156(n2), 158(n8), 158(n9); American System, 26, 67; United States Agency for International Development (USAID), 138; see also Transfair USA UTZ Certified, 54, 55, 56, 70 Van der Hoff, Frans, 3, 38–43, 87–9, 98, 139, 158(n4), 158(n5), 162(n26), 163(n1) 178 Sylla T02779 02 index 178 28/11/2013 13:04 index Vanuatu, 135 Vent for surplus theory, 65 Vertical integration, 19–21, 41 Vietnam, 74 Wage, 79, 80, 158(n7), 160(n26), 160(n27), 161(n5); minimum wage, 51, 95, 98; reservation wage, 94–5; wage employment, 19, 72, 94, 123–4, 128, 131, 133, 137, 142, 162(n22) Wal-Mart, 78, 79 Washington Consensus, 73 Wealth of Nations, see Smith, Adam West Indies, 60–2, Williams, Eric, 60–2 Williamson, Jeffrey G., 162(n27) World Bank, 17, 31, 42; development indicators, 9, 10–12, 15, 30, 89, 131, 137, 153, 161(n7, n14, n17) World Fair Trade Organization, 44–5, 46, 80, 151 World-system theory, 76 World Trade Organization, 26, 28, 29, 31–3, 74, 144, 155(n3) Yemen, 135 Zambia, 135 179 Sylla T02779 02 index 179 28/11/2013 13:04 Sylla T02779 02 index 180 28/11/2013 13:04

 

pages: 423 words: 149,033

The fortune at the bottom of the pyramid by C. K. Prahalad

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

barriers to entry, business process, call centre, cashless society, clean water, collective bargaining, corporate social responsibility, deskilling, disintermediation, farmers can use mobile phones to check market prices, financial intermediation, Hernando de Soto, hiring and firing, income inequality, late fees, Mahatma Gandhi, market fragmentation, microcredit, new economy, profit motive, purchasing power parity, rent-seeking, shareholder value, The Fortune at the Bottom of the Pyramid, time value of money, transaction costs, working poor

It is to illustrate that the typical pictures of poverty mask the fact that the very poor represent resilient entrepreneurs and value-conscious consumers. What is needed is a better approach to help the poor, an approach that involves partnering with them to innovate and achieve sustainable win–win scenarios where the poor are actively engaged and, at the same time, the companies providing products 3 The Fortune at the Bottom of the Pyramid 4 Purchasing power parity in U.S. dollars Population in millions > $20,000 Tier 1 75 – 100 $1,500 – $20,000 Tiers 2–3 1,500 – 1,750 $1,500 Tier 4 4,000 < $1,500 Tier 5 Figure 1.1 The economic pyramid. Source: C. K. Prahalad and Stuart Hart, 2002. The Fortune at the Bottom of the Pyramid, Strategy+ Business, Issue 26, 2002. Reprinted with permission from strategy + business, the award-winning management quarterly published by Booz Allen Hamilton. www.strategy-business.com.

Within these markets, the BOP represents a major opportunity. Take China as an example. With a population of 1.2 billion and an average per capita gross domestic product (GDP) of US $1,000, China currently represents a $1.2 trillion economy. However, the U.S. dollar equivalent is not a good measure of the demand for goods and services produced and consumed in China. If we convert the GDP-based figure into its dollar purchasing power parity (PPP), China is already a $5.0 trillion economy, making it the second largest economy behind the United States in PPP terms. Similarly, the Indian economy is worth about $3.0 trillion in PPP terms. If we take nine countries—China, India, Brazil, Mexico, Russia, Indonesia, Turkey, South Africa, and Thailand—collectively they are home to about 3 billion people, representing 70 percent of the developing world population.

(HLL), India, 13, 193–198, 213 Arogya (Health) Day, 199 background, 193–194 challenges, 202–203 competition, 201 dealer evaluation, 197 gender considerations, 196 goals, 194 implementation approach, 194–198 i-Shakti, 200 leveraging government relationships in site selection, 195–196 leveraging know-how globally, 203 local organization and process, 196–198 long-term vision, 202 marketing Anapurna salt through, 198–200 newsletters, 200 Project Iodine, 200 promotional video, 200 sales and margins, 200 Shaki dealer, 196–197 Shakti Day, 199–200 Shakti Family Packs, 199 399 Shakti Pracharani, 197–198 site selection, 195–196 stimulating demand through education, 199–200 stimulating demand through linkages, 199 year 2002 results, 201 year 2003 performance, 201–202 Promoters, Patrimonio Hoy project, 156–157 Promotions, Casas Bahia, 136 Public-private partnerships (PPPs), 215–220 Pukka adatiyas, 324 Pundiselvi, Ms., 308–309 Purchasing power parity (PPP), 10–12, 218 R Rahmathulah, Lakshmi, 283 Rail distribution, salt, 191–192 Rajendra, Anuja, 385–386 Rao, Sachin, 357, 382 Ravikumar, P. H., 302 Reeder, Kate, 239, 383 Reliance, 28, 50, 116 Reserve Bank of India (RBI), 290–292 Rural Development Initiative, Bank of Madura (India), 299–301 Rural income distribution, 111–112 Rural poor, access to distribution, 13 Rural sales promoters (RSPs), 195 S Salespersons, Casas Bahia: compensation for, 143 training, 135 Salt farming, 175 Salt market, 175–179 diverse tastes/cultural variations, and demand for salt in India, 176 iodized salt, 177 players in, 179–181 Samsung, 50 Samyojaks, 339–340 defined, 335 subversion of, toward competitive entry, 354–355 Sanchalak, 70 400 SANGAM, 193 Sarawathi, Ms., 309 Savings, Mexican society, 150–151 Seaweed, as iodine source, 174 Self-help groups (SHGs), 58–61, 100, 107, 288 evolution of, 74 and ICICI Bank: affiliations, 307–308 bank loans, 308–309 dedication to, 310–311 first monthly meeting, 305 monthly meetings, 305–306 positive effects of, 311 reports of business enterprise progress, 307 scaling, 302–304 identities at, 107 maturation model, 73–74 Service of Credit Protection (SPC), 123 Sethi, P.

 

pages: 363 words: 28,546

Portfolio Design: A Modern Approach to Asset Allocation by R. Marston

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

asset allocation, Bretton Woods, capital asset pricing model, capital controls, carried interest, commodity trading advisor, correlation coefficient, diversification, diversified portfolio, equity premium, Eugene Fama: efficient market hypothesis, family office, financial innovation, fixed income, German hyperinflation, high net worth, hiring and firing, housing crisis, income per capita, index fund, inventory management, Long Term Capital Management, mortgage debt, passive investing, purchasing power parity, risk-adjusted returns, Robert Shiller, Robert Shiller, Ronald Reagan, Sharpe ratio, Silicon Valley, superstar cities, transaction costs, Vanguard fund

., 222 Pioneering Portfolio Management, 204 Plaza Accord, 81 portfolio constraint, real estate, 259–260 portfolios alternative investment, 262–264 bonds in, 290–291, 309–310 commodities, 245–249 estimating returns, 155–159 examples, 159–162 expansion, 145–147 gold, 249–251 growth and value, 69–71 hedge funds, 186–187 high net worth, 264–266 real estate, 218 rebalancing, 319 stocks in, 290–291, 309–310 ultra-high net worth, 266–269 PPP. See purchasing power parity premium method, 155–159 price-earnings ratio (p-e), 31–32, 107 private equity, 191 key features, 211 proportional rule, 291 purchasing power parity (PPP), 100 Q qualified purchasers, 168 R real estate, 213–214 asset allocation, 258–262 direct ownership, 220–223 diversification gains, 219 portfolio constraint, 259–260 real estate capital, 214 real estate investment trusts (REIT), 4, 214–220 real house appreciation, 224–226 real returns, 15, 17, 25–27 compound, 35 rebalancing defined, 320–321 down economy, 323–324 portfolios, 319 up economy, 321–323 recessions, 6 effects on bonds, 7 effects on stocks, 7 Reinganum, Marc R., 49 REIT.

P1: a/b c06 P2: c/d QC: e/f JWBT412-Marston T1: g December 8, 2010 17:41 Printer: Courier Westford 100 PORTFOLIO DESIGN Irving Kravis and his colleagues at the University of Pennsylvania developed a methodology for measuring the cost of living across countries.4 This methodology, which has since been adopted by the World Bank and other international agencies, deflated gross national income using the cost of a common market basket to produce GNI adjusted for purchasing power parity or PPP. The results follow a consistent pattern. Less developed countries have lower costs of living than industrial countries. So the GNI adjusted for PPP of the less developed countries tends to be larger than the unadjusted GNI. In the case of the industrialized countries, the reverse is true. The GNI adjusted for PPP of these countries tends to be smaller than unadjusted GNI. Figure 6.3 presents the GNI per capita of the six largest emerging market economies using two measures of national income.

 

pages: 437 words: 115,594

The Great Surge: The Ascent of the Developing World by Steven Radelet

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

Admiral Zheng, agricultural Revolution, Asian financial crisis, bank run, Berlin Wall, Branko Milanovic, business climate, business process, call centre, Capital in the Twenty-First Century by Thomas Piketty, clean water, colonial rule, demographic dividend, Deng Xiaoping, Dissolution of the Soviet Union, Doha Development Round, Erik Brynjolfsson, European colonialism, F. W. de Klerk, failed state, Francis Fukuyama: the end of history, Gini coefficient, global supply chain, income inequality, income per capita, invention of the steam engine, James Watt: steam engine, John Snow's cholera map, Joseph Schumpeter, land reform, low skilled workers, M-Pesa, megacity, Mikhail Gorbachev, oil shock, out of africa, purchasing power parity, race to the bottom, randomized controlled trial, Robert Gordon, Second Machine Age, secular stagnation, Simon Kuznets, South China Sea, special economic zone, Steven Pinker, The Wealth of Nations by Adam Smith, Thomas Malthus, trade route, women in the workforce, working poor

We are in the early stages of a new age of global prosperity in which, with many setbacks and challenges along the way, extreme poverty will continue to decline, incomes in developing countries will grow, health and education will improve, and democracy and basic freedoms will expand—haltingly, unevenly, but unrelentingly. * * * I. Consumption of $1.25 a day is the World Bank’s definition of “extreme” poverty, with all figures in purchasing power parity terms and adjusted for inflation, as described in chapter 2. II. This figure was calculated as a simple (unweighted) average, counting each country the same. A weighted average yields a higher growth rate due to the impact of China and a few other fast-growing countries with large populations. III. In RCTs, two groups of people are randomly selected from a population. One group (the treatment group) receives the product, policy, program, or action that is being studied (e.g., a new malaria medication, or free school lunches), and the other group (the control group) does not.

The figures are adjusted in two ways. First, they are corrected for inflation over time within countries by using the prices in a set base year. (That is, the data are measured in “constant” prices, or “real” terms.) Most of the data are measured in 2005 prices, although the Bourguignon and Morrisson data mentioned earlier are measured in constant 1985 prices. Second, the estimates are based on purchasing power parity (PPP) prices, sometimes called international prices. PPP prices account for the differences in price levels across countries. Anyone who travels knows that the cost of living varies widely across countries, and that the prices of the same goods can be very different. Fruits, vegetables, haircuts, and taxi rides are cheap in Tanzania, but expensive in Switzerland, so $1 converted at the local exchange rate goes a lot further in Dar es Salaam than it does in Zurich.

For discussions on this topic, see Kishore Mahbubani, The Great Convergence: Asia, the West, and the Logic of One World (New York: PublicAffairs, 2013); Charles Kenny, The Upside of Down: Why the Rise of the Rest Is Good for the West (New York: Basic Books, 2014); Smart Power 2.0: America’s Global Strategy (Washington, DC: US Global Leadership Coalition, 2012), www.usglc.org/downloads/2012/12/USGLC-Smart-Power-Brochure.pdf. 10. The global economy shares are from the World Bank’s World Development Indicators and include all low- and middle-income countries, and are calculated based on GDP in purchasing power parity prices. The trade shares are from Constantine Michalopoulos and Francis Ng, “Trends in Developing Country Trade 1980–2010,” policy research working paper 6334, World Bank, Development Research Group, Trade and Integration Team, Washington, DC, January 2013, http://elibrary.worldbank.org/doi/pdf/10.1596/1813-9450-6334. TWO: BREAKTHROUGH FROM THE BOTTOM 1. Thomas Hobbes, Leviathan, or The Matter, Forme and Power of a Common Wealth Ecclesiasticall and Civil, chap. 13.

 

Making Globalization Work by Joseph E. Stiglitz

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

affirmative action, Andrei Shleifer, Asian financial crisis, banking crisis, barriers to entry, Berlin Wall, business process, capital controls, central bank independence, corporate governance, corporate social responsibility, currency manipulation / currency intervention, Doha Development Round, Exxon Valdez, Fall of the Berlin Wall, Firefox, full employment, Gini coefficient, global reserve currency, happiness index / gross national happiness, illegal immigration, income inequality, income per capita, incomplete markets, Indoor air pollution, informal economy, inventory management, invisible hand, Kenneth Rogoff, low skilled workers, manufacturing employment, market fundamentalism, Martin Wolf, microcredit, moral hazard, North Sea oil, offshore financial centre, oil rush, open borders, open economy, price stability, profit maximization, purchasing power parity, quantitative trading / quantitative finance, race to the bottom, reserve currency, rising living standards, risk tolerance, Silicon Valley, special drawing rights, statistical model, the market place, The Wealth of Nations by Adam Smith, Thomas L Friedman, trade liberalization, trickle-down economics, union organizing, Washington Consensus

Inequality is measured by the Gini coefficient, one of the standard measures. 3. Even the $2-a-day standard is less than a fifth of the poverty standard used in the United States and western Europe. 4. Shaohua Chen and Martin Ravallion, "How Have the World's Poorest Fared since the Early 1980s?," World Bank Development Research Group, World Bank Policy Research Working Paper 3341, June 2004. The $1-a-day standard actually is defined as $1.08 in 1993 "real" (or purchasing power parity) dollars; the $2-a-day standard is defined as $2.15. China's poverty reduction has been truly remarkable. At the $1-a-day standard, the number in poverty has fallen from 634 million to 212 million—more people have been brought out of absolute poverty than the total number living in Europe or America. 10. 11. 12. 13. 14. 295 The Voices of the Poor project was undertaken while I was chief economist of the World Bank as part of the preparation for the decennial report on poverty (World Development Report 2000/2001: Attacking Poverty).

Moreover, as we shall see later, the lopsided investor protection—foreigners were provided better protections than domestic investors—put into jeopardy environmental and other regulations. 302 NOTES TO PAGES 65-68 8. See Instituto Nacional Estadistica Geograffa e Informatica, "Personal ocupado en la industria maquiladora de exportation segun tipo de ocupaciOn"; available at www.inegi.gob.mx/est/contenidosiespanol/rutinas/ept.asp?t=emp75&c= 1811. ' 9. In 1993, Mexico's per capita PPP (purchasing power parity) income was 3.6 times that of China; by 2003, the ratio was cut in half, to 1.8. China had a distinct wage advantage over Mexico—wages are one-eighth of those in Mexico. But over the period of NAFTA, China's wages have increased, while Mexico's wages have stagnated. Thus, China's relative success must be based on other factors. 10. Some simple models—where there are no transportation costs and where everyone has access to the same knowledge (technology)—predict that there will be complete factor price equalization.

Complicated technical provisions (rules of origins, which detail how much of the "value added" in the good have to be produced within the country) seem partially responsible, highlighting the importance of the fine details within a trade agreement. 38. I have, accordingly, dubbed the proposal the "EBP" initiative—opening up markets to everything but what you produce. 44. 45. 46. 47. 48. 49. 39. OECD, Agricultural Policies in OECD Countries: Monitoring and Evaluation (Paris: OECD, 2005). 40. In 2004, OECD subsidies were $279 billion, including water subsidies and other indirect subsidies. See ibid. 41. In purchasing power parity, the farmer's income is somewhat higher, between $1,100 and $1,200. 42. The International Cotton Advisory Committee (ICAC), an association of fortyone cotton-producing, -consuming, and -trading countries formed in 1939, estimates that the elimination of American cotton subsidies would raise the global price by between 15 percent and 26 percent. Oxfam estimates the losses 50. 307 to Africa at $301 million a year, with the bulk of these losses ($191 million a year) happening to eight West African countries.

 

pages: 515 words: 142,354

The Euro: How a Common Currency Threatens the Future of Europe by Joseph E. Stiglitz, Alex Hyde-White

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

bank run, banking crisis, barriers to entry, battle of ideas, Berlin Wall, Bretton Woods, capital controls, Carmen Reinhart, cashless society, central bank independence, centre right, cognitive dissonance, collapse of Lehman Brothers, collective bargaining, corporate governance, correlation does not imply causation, credit crunch, Credit Default Swap, currency peg, dark matter, David Ricardo: comparative advantage, disintermediation, diversified portfolio, eurozone crisis, Fall of the Berlin Wall, fiat currency, financial innovation, full employment, George Akerlof, Gini coefficient, global supply chain, Growth in a Time of Debt, housing crisis, income inequality, incomplete markets, inflation targeting, investor state dispute settlement, invisible hand, Kenneth Rogoff, knowledge economy, labour market flexibility, labour mobility, manufacturing employment, market bubble, market friction, market fundamentalism, Martin Wolf, Mexican peso crisis / tequila crisis, moral hazard, mortgage debt, neoliberal agenda, new economy, open economy, paradox of thrift, pension reform, pensions crisis, price stability, profit maximization, purchasing power parity, quantitative easing, race to the bottom, risk-adjusted returns, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, secular stagnation, Silicon Valley, sovereign wealth fund, the payments system, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, transfer pricing, trickle-down economics, Washington Consensus, working-age population

What concerns me is that the economic framework of the eurozone is being used to push for a particular set of views concerning the economy and society—and these perspectives are effectively being imposed on the crisis countries.12 WHY THE EUROPEAN PROJECT IS SO IMPORTANT It is not in the interest of Europe—or the world—to have a country on Europe’s periphery alienated from its neighbors, especially now, when geopolitical instability is already so evident. The neighboring Middle East is in turmoil; the West is attempting to contain a newly aggressive Russia; and China, already the world’s largest source of savings, the largest trading country, and the largest overall economy (in terms of purchasing power parity), is confronting the West with new economic and strategic realities. This is no time for European disunity and economic weakness. I would argue even more strongly that all people have an interest in the success of the European project. Europe was the source of the Enlightenment, which resulted in the increases in living standards that have marked the last two centuries. The Enlightenment, in turn, gave rise to modern science and technology.

., “Macroeconomic Priorities,” American Economic Review 93, no. 1 (2003): 1–14; the quote appears on p. 1. 3 With every country’s currency pegged to gold, the value of each currency relative to the other was also fixed. 4 Bryan uttered this phrase in his July 9, 1896, speech at the Democratic National Convention in Chicago. 5 See Barry Eichengreen, Golden Fetters: The Gold Standard and the Great Depression, 1919–1939 (New York: Oxford University Press, 1992). 6 The equivalent value for US and China GDPs are $17.9 trillion and $11.0 trillion, respectively. (In purchasing power parity, PPP, a standard way of making cross-country comparisons, the EU was about 1.0 percent smaller than China, but 7.0 percent larger than the United States.) Because of varying exchange rates (the value of the euro relative to the dollar varied during 2015 alone from 1.06 to 1.13), the relative size (at current exchange rates) varies. In 2014, the EU was actually the largest economic block—the fall largely reflects the changing exchange rate, which fell by some 17 percent. 7 Formally known as the Treaty on European Union. 8 Not surprisingly, many other economists and political scientists have found the euro crisis similarly fascinating, and a large literature has grown up trying to understand it, approaching the subject from many different perspectives—as a financial crisis, a political crisis, and an economic crisis.

Still more complicated issues arise when comparing GDP across countries, because the market basket of goods consumed in different countries differs and different goods cost different amounts in different countries. In this book, we focus on the effect of the euro on growth, and we assess growth by using each country’s own price deflator. When comparing levels of GDP to take account of differences in prices of different goods in different countries, a standard approach is to calculate real PPP (purchasing power parity) GDP, discussed briefly in note 6 in the preface. It compares incomes using a standardized basket of goods. 4 GDP in 2015 for the 13 countries that had adopted the euro as of January 1, 2007, was merely 0.6 percent above that in 2007. Figures were actual, with the exception of Belgium and Luxembourg, as reported by the IMF. 5 Graph shows the largest contractions over 2007–2015. For countries with multiple contractions within 2007–2015, I took the time-weighted average.

 

pages: 1,088 words: 228,743

Expected Returns: An Investor's Guide to Harvesting Market Rewards by Antti Ilmanen

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

Andrei Shleifer, asset allocation, asset-backed security, availability heuristic, backtesting, balance sheet recession, bank run, banking crisis, barriers to entry, Bernie Madoff, Black Swan, Bretton Woods, buy low sell high, capital asset pricing model, capital controls, Carmen Reinhart, central bank independence, collateralized debt obligation, commodity trading advisor, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, debt deflation, deglobalization, delta neutral, demand response, discounted cash flows, disintermediation, diversification, diversified portfolio, dividend-yielding stocks, equity premium, Eugene Fama: efficient market hypothesis, fiat currency, financial deregulation, financial innovation, financial intermediation, fixed income, Flash crash, framing effect, frictionless, frictionless market, George Akerlof, global reserve currency, Google Earth, high net worth, hindsight bias, Hyman Minsky, implied volatility, income inequality, incomplete markets, index fund, inflation targeting, interest rate swap, invisible hand, Kenneth Rogoff, laissez-faire capitalism, law of one price, Long Term Capital Management, loss aversion, margin call, market bubble, market clearing, market friction, market fundamentalism, market microstructure, mental accounting, merger arbitrage, mittelstand, moral hazard, New Journalism, oil shock, p-value, passive investing, performance metric, Ponzi scheme, prediction markets, price anchoring, price stability, principal–agent problem, private sector deleveraging, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, random walk, reserve currency, Richard Thaler, risk tolerance, risk-adjusted returns, risk/return, riskless arbitrage, Robert Shiller, Robert Shiller, savings glut, Sharpe ratio, short selling, sovereign wealth fund, statistical arbitrage, statistical model, stochastic volatility, systematic trading, The Great Moderation, The Myth of the Rational Market, too big to fail, transaction costs, tulip mania, value at risk, volatility arbitrage, volatility smile, working-age population, Y2K, yield curve, zero-coupon bond

Formal theoretical models have had little success in explaining, let alone predicting, exchange rate movements. Thus, systematic currency-trading models tend to be purely atheoretical or only loosely guided by formal models. Many such models amount to combining carry with other indicators. Candidates for additional indicators include• Carry plus value. One could proxy E(ΔS) with some expected normalization toward a “fair value” exchange rate that can be estimated based on purchasing power parity (PPP) or other valuation models. Or one could use valuation filters that rule out carry trading when it conflicts with extreme mispricing signals. • Carry plus momentum. Exchange rates tend to trend, or at least they used to; trend-following strategies within the G10 have become much less profitable during the past decade. One could add a trend-following signal as a proxy for E(ΔS). Using stop-loss rules can serve the same purpose as using trend-following models

Proximate determinants from order flows are much better than any fundamental determinants at explaining FX changes. However, over time, various predictability patterns (potentially related to time-varying ex ante FX premia) have been documented, and certain indicators are able to contemporaneously explain FX moves. Inflation differentials across countries influence exchange rate changes, but purchasing power parity holds only approximately and even then only in the very long run. Relative interest rates (levels and changes, short and long, nominal and real) have some impact on exchange rates, perhaps because they are proxies for monetary policy or economic growth. Productivity and real-growth differences, terms of trade, and current account and/or capital flow developments also matter. Yet, many of these statistical relations are weak and are hardly stable over time or across countries.

Unlike other commodities, gold can perform well even under deflationary conditions; empirically, inflation uncertainty or disagreement predicts future gold returns better than the inflation level does. Currencies. High inflation also undermines currencies in the short term because they lose their international purchasing power. As an exception, if the central bank is sufficiently credible that markets view any rise in inflation as temporary and expect it to trigger policy tightening, higher inflation may result in short-term currency appreciation. Purchasing power parity does not hold in the short term but works reasonably well over long horizons. In the case of hyperinflation, in particular, exchange rate changes tend to offset persistent cross-country inflation differentials. Deflation—topical and scary It is important to distinguish between disinflation (which typically helps risky assets) and deflation (which can be destructive). We do not have much data on deflationary environments but what we have looks scary (the U.S. in the 1930s, Japan more recently).

 

pages: 337 words: 103,273

The Great Disruption: Why the Climate Crisis Will Bring on the End of Shopping and the Birth of a New World by Paul Gilding

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

airport security, Albert Einstein, BRICs, carbon footprint, clean water, cleantech, Climategate, corporate social responsibility, decarbonisation, energy security, Exxon Valdez, failed state, fear of failure, income inequality, Joseph Schumpeter, market fundamentalism, Naomi Klein, new economy, nuclear winter, oil shock, peak oil, Ponzi scheme, purchasing power parity, Ronald Reagan, shareholder value, The Spirit Level, The Wealth of Nations by Adam Smith, union organizing, University of East Anglia

It reminds me of a quote favored by my late father-in-law, Max Grosvenor: “Hell hath no fury like a vested interest masquerading as a moral principle.”3 That aside, though, my more considered response is to go back to the core argument as to what’s wrong with our current economic system. Quantitative economic growth is, let’s be clear, very effective at improving the quality of life and life satisfaction of the poor. Countless studies have shown that, using a measure of purchasing power parity, going from an income per annum of $0 per capita up to around $10,000 to $15,000 per capita delivers a dramatic and sustained improvement in quality of life. This means it works up to a family income of around $60,000, then any further average improvement stops. So I am not arguing that quantitative economic growth doesn’t work for the poor; it most certainly does. The problem is that the system that currently delivers this assumes, and in fact depends on, the rich getting richer in order for the poor to be less poor.

Available at http://www.treasury.gov.au/lowpollutionfuture/. 3. Dominic Wilson and Anna Stupnytska, “The N-11: More Than an Acronym,” Goldman Sachs, Global Economics Paper No. 153, 2007. Available at http://www.goldmansachs.com. 4. John Hawksworth, “The World in 2050: How Big Will the Major Emerging Market Economies Get and How Can the OECD Compete?” PwC, 2006. Available at http://www.pwc.com. PwC’s figures are based on purchasing power parity (PPP), where amounts are adjusted to take account of how many goods or services one unit of currency buys. For example, $1 at market exchange rates buys a lot more in China than it does in the United States and slightly less in Scandinavia than it does in the United States. PPP is a useful measure for our purposes, since it has been closely linked with consumption and thus ecosystem demands.

 

pages: 257 words: 94,168

Oil Panic and the Global Crisis: Predictions and Myths by Steven M. Gorelick

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

California gold rush, carbon footprint, energy security, energy transition, flex fuel, income per capita, invention of the telephone, meta analysis, meta-analysis, North Sea oil, oil shale / tar sands, oil shock, peak oil, price stability, profit motive, purchasing power parity, RAND corporation, statistical model, Thomas Malthus

Energy Policy (in press: doi:10.1016/j. enpol.2009.01.041). Energy Information Administration reporting of Oil and Gas Journal value (January 2008); BP Statistical Review (2008); www.opec.org/home/basket.aspx The average price of OPEC oil in 2008 was $95 per barrel. This gave a total value of OPEC reserves of about $87 trillion. The gross world product in 2008 was $69 trillion (IMF estimate in purchasing power parity, ppp). www.imf.org/ external/pubs/ft/weo/2008/01/pdf/tables.pdf Reported here are data from the US Energy Information Administration. The EIA does not include in its OAPEC oil production statistics Egypt, Syria, and Bahrain (the non-OPEC members). Note that Middle Eastern OPEC countries are low-cost producers at $2 per barrel. Shafiq (2009) estimated finding and development costs of Iraq’s oil at $1.50–2.25 per barrel.

“Circum-Arctic Resource Appraisal: Estimates of Undiscovered Oil and Gas North of the Arctic Circle,” USGS Fact Sheet 2008–3049; “90 Billion Barrels of Oil and 1,670 Trillion Cubic Feet of Natural Gas Assessed in the Arctic,” US Geological Society News Release, July 23, 2008. Consumption data from EIA; population data from Economic Research Service, USDA. Income approximated as per capita GDP; GDP based on GDP Purchasing Power Parity (PPP) is $6,200 per capita in China versus $41,500 per capita in the US. EIA 2008 and BP Statistical Review of World Energy, June 2008. The Russian Federation was formed in December 1991, and 1992 is the first full year for comparison. However, in 1985 the Russian Federation, before dissolution of the USSR, consumed about half of the oil it consumed in 2007. Note: 1980 Russia GDP was estimated as 41 percent of FSU GDP in 1980; 41 percent is the five-year average value of Russian versus FSU GDP from 1985–1989.

 

pages: 385 words: 111,807

A Pelican Introduction Economics: A User's Guide by Ha-Joon Chang

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

Affordable Care Act / Obamacare, Albert Einstein, Asian financial crisis, asset-backed security, bank run, banking crisis, banks create money, Berlin Wall, bilateral investment treaty, borderless world, Bretton Woods, British Empire, call centre, capital controls, central bank independence, collateralized debt obligation, colonial rule, Corn Laws, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, discovery of the americas, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, Fall of the Berlin Wall, falling living standards, financial deregulation, financial innovation, Francis Fukuyama: the end of history, Frederick Winslow Taylor, full employment, George Akerlof, Gini coefficient, global value chain, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, Haber-Bosch Process, happiness index / gross national happiness, high net worth, income inequality, income per capita, interchangeable parts, interest rate swap, inventory management, invisible hand, Isaac Newton, James Watt: steam engine, Johann Wolfgang von Goethe, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, knowledge economy, laissez-faire capitalism, land reform, manufacturing employment, Mark Zuckerberg, market clearing, market fundamentalism, Martin Wolf, means of production, Mexican peso crisis / tequila crisis, Northern Rock, obamacare, offshore financial centre, oil shock, open borders, post-industrial society, precariat, principal–agent problem, profit maximization, profit motive, purchasing power parity, quantitative easing, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, savings glut, Scramble for Africa, shareholder value, Silicon Valley, Simon Kuznets, sovereign wealth fund, spinning jenny, structural adjustment programs, The Great Moderation, The Market for Lemons, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, trade liberalization, transaction costs, transfer pricing, trickle-down economics, Washington Consensus, working-age population, World Values Survey

In this case, $5,000 per capita income will be a relatively accurate description of the standard of living in Country B but will be completely misleading for Country A. To use a more technical term, you would say that the average income is a more accurate indicator of the living standard for a country with a more equal distribution of income. (More on this in Chapter 9.) Adjusting for different price levels: purchasing power parity One important adjustment that is often made to the GNI (or GDP) figures is that for different price levels in different countries. The market exchange rate between the Danish krone and the Mexican peso may be around one krone to 2.2 pesos, but with 2.2 pesos you can buy more goods and services in Mexico than you can with one krone in Denmark (I will explain shortly why). So the official exchange rate between the Danish krone and the Mexican peso under-estimates the actual living standards in Mexico.

The problem is that market exchange rates are largely determined by the supply and demand for internationally traded goods and services, such as the Galaxy phones or international banking services, while what a sum of money can buy in a particular country is determined by the prices of all goods and services, including those that are not internationally traded, such as eating out or taking a taxi.1 To deal with this problem, economists have come up with the idea of an ‘international dollar’. Based on the notion of purchasing power parity (PPP) – that is, measuring the value of a currency according to how much of a common set of goods and services (known as the ‘consumption basket’) it can buy in different countries – this fictitious currency allows us to convert incomes of different countries into a common measure of living standards. The result of the conversion is that PPP incomes of countries with expensive service-sector workers (the rich countries, excluding a few with a lot of cheap immigrant labour, such as the US and Singapore) are significantly lower than their market-exchange-rate incomes, while those of countries with cheap service workers (the poor countries) tend to become much higher than their market-exchange-rate incomes.* Sticking to the Denmark–Mexico comparison above, Danish PPP per capita income in 2010 is around 30 per cent lower than its market-exchange-rate income ($40,140 vs. $58,980), while the Mexican PPP per capita income is around 60 per cent higher than its market-exchange-rate income ($15,010 vs. $9,330).

 

pages: 305 words: 89,103

Scarcity: The True Cost of Not Having Enough by Sendhil Mullainathan

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

American Society of Civil Engineers: Report Card, Andrei Shleifer, Cass Sunstein, clean water, computer vision, delayed gratification, double entry bookkeeping, Exxon Valdez, fault tolerance, happiness index / gross national happiness, impulse control, indoor plumbing, inventory management, knowledge worker, late fees, linear programming, mental accounting, microcredit, p-value, payday loans, purchasing power parity, randomized controlled trial, Report Card for America’s Infrastructure, Richard Thaler, Saturday Night Live, Walter Mischel, Yogi Berra

This is perfectly valid for some uses, such as how much Alex should value the rupees. But in some cases this can be misleading because exchange rates do not account for price differences between countries. For example, a rupee goes further in India because many things are also cheaper there. In trying to assess income differences across countries, most economists adjust not only for exchange rates but also for purchasing power parity—a measure of price differences. Since this book is not intended to be a careful cross-country comparison of incomes, for ease of reading we simply use nominal exchange rates. But the reader should keep this distinction in mind. Imagine you have spent the day shopping: This is a slightly updated (for inflation) version of Tversky and Kahneman’s famous “jacket-calculator” problem; A. Tversky and D.

a little over $2: In this book when we report dollar equivalents, we simply convert using prevailing exchange rates. Yet many experts feel this can paint a misleading impression because people in different countries also face different prices. So the vendor, for example, will also have lower prices for food and other items. As a result, her income in nominal dollar terms does not adequately reflect her purchasing power. Economists have suggested using purchasing power parity instead of nominal exchange rates. In the case of India, this would result in an income that is roughly 2.5 times higher for the vendor. An initial scarcity is compounded by behaviors that magnify it: Economists and especially development economists have focused on what they call poverty traps—the notion that those who begin poor will stay poor. A commonly discussed mechanism is a lucrative investment opportunity that requires a fixed amount of capital.

 

pages: 370 words: 97,138

Beyond: Our Future in Space by Chris Impey

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

3D printing, Admiral Zheng, Albert Einstein, Alfred Russel Wallace, Berlin Wall, Buckminster Fuller, butterfly effect, California gold rush, carbon-based life, Colonization of Mars, cosmic abundance, crowdsourcing, cuban missile crisis, dark matter, discovery of DNA, Doomsday Clock, Edward Snowden, Elon Musk, Eratosthenes, Haight Ashbury, Hyperloop, I think there is a world market for maybe five computers, Isaac Newton, Jeff Bezos, John von Neumann, Kickstarter, life extension, Mahatma Gandhi, Mars Rover, mutually assured destruction, Oculus Rift, operation paperclip, out of africa, Peter H. Diamandis: Planetary Resources, phenotype, purchasing power parity, RAND corporation, Ray Kurzweil, RFID, Richard Feynman, Richard Feynman, Richard Feynman: Challenger O-ring, risk tolerance, Search for Extraterrestrial Intelligence, Searching for Interstellar Communications, Silicon Valley, skunkworks, Skype, Stephen Hawking, Steven Pinker, supervolcano, technological singularity, telepresence, telerobotics, the medium is the message, the scientific method, theory of mind, V2 rocket, wikimedia commons, X Prize, Yogi Berra

That means it has the capacity to make even greater strides in space. Figure 32. China is the third nation to land a wheeled rover on the Moon, after the Soviet Union and the United States. The Jade Rabbit, or Yutu, rover reached the Moon in December 2013. It has a plutonium-powered nuclear reactor. China is a rapidly emerging superpower, with a GDP per capita (scaled to purchasing-power parity) that will exceed that of the United States in about five years. The purchasing-power-parity comparison makes sense, since goods and services are cheaper in China and they get a lot more bang for their yuan. Chinese spending in space matches the growth rate of the economy, which has been averaging 10 percent per year for the past two decades. It makes a dramatic contrast with Europe and the United States, where inflation-corrected spending has been flat or declining over the past two decades.2 China’s rank of eighth in the space league is misleading.

 

pages: 376 words: 109,092

Paper Promises by Philip Coggan

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

accounting loophole / creative accounting, balance sheet recession, bank run, banking crisis, barriers to entry, Berlin Wall, Bernie Madoff, Black Swan, Bretton Woods, British Empire, call centre, capital controls, Carmen Reinhart, carried interest, Celtic Tiger, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, debt deflation, delayed gratification, diversified portfolio, eurozone crisis, Fall of the Berlin Wall, falling living standards, fear of failure, financial innovation, financial repression, fixed income, floating exchange rates, full employment, German hyperinflation, global reserve currency, hiring and firing, Hyman Minsky, income inequality, inflation targeting, Isaac Newton, joint-stock company, Kenneth Rogoff, labour market flexibility, Long Term Capital Management, manufacturing employment, market bubble, market clearing, Martin Wolf, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Nick Leeson, Northern Rock, oil shale / tar sands, paradox of thrift, peak oil, pension reform, Plutocrats, plutocrats, Ponzi scheme, price stability, principal–agent problem, purchasing power parity, quantitative easing, QWERTY keyboard, railway mania, regulatory arbitrage, reserve currency, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, short selling, South Sea Bubble, sovereign wealth fund, special drawing rights, The Chicago School, The Great Moderation, The Wealth of Nations by Adam Smith, time value of money, too big to fail, trade route, tulip mania, value at risk, Washington Consensus, women in the workforce

The US could run repeated deficits without triggering the kind of crisis that would have occurred under Bretton Woods. Inflation For investors, it makes sense for inflation to be a determining factor in currency markets. Inflation reduces the purchasing power of a currency; so investors should avoid currencies with high inflation rates. Roughly speaking, economists think that, over the long run, exchange rates will move in line with relative inflation rates, a concept known as purchasing-power parity (PPP). If country A’s inflation rate was 5 per cent higher than that of country B, its currency would decline by around 5 per cent a year. It has never worked quite as simply as that. At the extremes, PPP proved roughly right. Countries with very high inflation, such as several in Latin America in the 1970s and 80s, did see their exchange rates decline significantly. But for the main currencies, the dollar, yen, Deutschmark or sterling, relative inflation rates were often a very poor guide to exchange-rate movements.

leverage leveraged buyout Lewis, Michael Liberal Democrat party (UK) Liberal Party (UK) life expectancy life-cycle theory Little Dorrit lire Live 8 concert Lloyd George, David Lombard Odier Lombard Street Research London School of Economics Long Term Capital Management longevity Louis XIV, King of France Louis XV, King of France Louvre accord Lucas, Robert Lucullus, Roman general Luxembourg Macaulay, Thomas McCarthy, Cormac Macdonald, James MacDonald, Ramsay McKinsey McNamara, Robert Madoff, Bernie Malthusian trap Mandelson, Peter Marais, Matthieu Marco Polo Mares, Arnaud Marks & Spencer Marshall, George Marshall Aid Marshalsea Prison Mauro, Paolo May, Sir George means/media of exchange Medicaid Medicare Mellon, Andrew mercantilism Merchant of Venice, The Meriwether, John Merkel, Angela Merton, Robert Mexico Mill, John Stuart Milne-Bailey, Walter Minsky, Hyman Mises, Ludwig von Mississippi Project Mitterrand, Francois Mobutu, Joseph Mongols monetarism monetary policy monetary targets money markets money supply Moody’s Moore’s Law moral hazard Morgan Stanley Morgenthau, Henry Morrison, Herbert mortgages mortgage-backed bonds Multilateral Debt Relief Initiative Napier, Russell Napoleon, emperor of France Napoleonic Wars Nasser, president of Egypt National Association of Home Builders National Association of Realtors National Association of Security Dealers Netherlands New Century New Hampshire New Jersey Newton, Sir Isaac New York Times New Zealand Nixon, Richard Norman, Montagu North Carolina Northern Ireland Northern Rock North Korea North Rhine Westphalia, Germany Norway Obama, Barack odious debt Odysseus OECD d’Orléans, duc Ottoman Empire output gap Overstone, Lord overvalued currency owner-equivalent rent Papandreou, George paper money paradox of thrift Paris club Passfield, Lord (Sidney Webb) Paulson, Hank pawnbroking pension age pension funds pensions Pepin the Short Perot, Ross Perry, Rick Persians Peter Pan Philip II, King of Spain Philip IV, King of France PIGS countries PIMCO Plaza accord Poland Ponzi, Charles Ponzi scheme population growth populism portfolio insurance Portugal pound Prasad, Eswar precious metals Price-earnings ratio primary surplus Prince, Chuck principal-agent problem printing money private equity property market protectionism Protestant work ethic public choice theory public-sector workers purchasing power parity pyramid schemes Quaintance, Lee quantitative easing (QE) Quincy, Josiah railway mania Rajan, Raghuram Rand, Ayn Reagan, Ronald real bills theory real interest rates Record, Neil Reformation, the Reichsbank Reichsmark Reid, Jim Reinhart, Carmen renminbi Rentenmark rentiers reparations Republican Party reserve currency retail price index retirement revaluation Revolutionary War Ridley, Matt Roberts, Russell Rogoff, Kenneth Romanovs Roosevelt, Franklin D.

 

pages: 368 words: 32,950

How the City Really Works: The Definitive Guide to Money and Investing in London's Square Mile by Alexander Davidson

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

accounting loophole / creative accounting, algorithmic trading, asset allocation, asset-backed security, bank run, banking crisis, barriers to entry, Big bang: deregulation of the City of London, capital asset pricing model, central bank independence, corporate governance, Credit Default Swap, dematerialisation, discounted cash flows, diversified portfolio, double entry bookkeeping, Edward Lloyd's coffeehouse, Elliott wave, Exxon Valdez, forensic accounting, global reserve currency, high net worth, index fund, inflation targeting, interest rate derivative, interest rate swap, London Interbank Offered Rate, Long Term Capital Management, margin call, market fundamentalism, Nick Leeson, North Sea oil, Northern Rock, pension reform, Piper Alpha, price stability, purchasing power parity, Real Time Gross Settlement, reserve currency, shareholder value, short selling, The Wealth of Nations by Adam Smith, transaction costs, value at risk, yield curve, zero-coupon bond

In early 2006, for example, there was major dollar repatriation related to a tax window by the United States government allowing US companies to repatriate profits made abroad at a very low tax rate. ‘This is partly why the dollar started to lose ground,’ says Furness. ‘When there is movement in one direction, the hedge funds and momentum players get involved, and the movement becomes exaggerated.’ Purchasing power parity (PPP) says that exchange rates will converge to a level at which purchasing power is the same internationally, so countering inflation. It is the oldest theory of how exchange rates are formed but, according to Furness, it rarely works in the short term. _________________________________________ FOREIGN EXCHANGE 119  Economists say that an imbalance between exchange rates and inflation is driven by speculative capital flows seeking to make money from currency differentials and can last a while, but PPP works better over the long term.

Index 419 fraud 204 9/11 terrorist attacks 31, 218, 242, 243, 254, 257 Abbey National 22 ABN AMRO 103 accounting and governance 232–38 scandals 232 Accounting Standards Board (ASB) 236 administration 17 Allianz 207 Alternative Investment Market (AIM) 44–45, 131, 183, 238 Amaranth Advisors 170 analysts 172–78 fundamental 172–74 others 177–78 Spitzer impact 174–75 technical 175–77 anti-fraud agencies Assets Recovery Agency 211–13 City of London Police 209 Financial Services Authority 208 Financial Crime and Intelligence Division 208 Insurance Fraud Bureau 209 Insurance Fraud Investigators Group 209 International Association of Insurance Fraud Agencies 207, 210, 218 National Criminal Intelligence Service 210 Serious Fraud Office 213–15 Serious Organised Crime Agency 210–11 asset finance 24–25 Association of Investment Companies 167 backwardation 101 bad debt, collection of 26–28 Banco Santander Central Hispano 22 Bank for International Settlements (BIS) 17, 27, 85, 98, 114 bank guarantee 23 Bank of Credit and Commerce International (BCCI) 10, 214 Bank of England 6, 10–17 Court of the 11 credit risk warning 98 framework for sterling money markets 81 Governor 11, 13, 14 history 10, 15–16 Inflation Report 14 inflation targeting 12–13 interest rates and 12 international liaison 17 lender of last resort 15–17 Market Abuse Directive (MAD) 16 monetary policy and 12–15 Monetary Policy Committee (MPC) 13–14 Open-market operations 15, 82 repo rate 12, 15 role 11–12 RTGS (Real Time Gross Settlement) 143 statutory immunity 11 supervisory role 11 Bank of England Act 1988 11, 12 Bank of England Quarterly Model (BEQM) 14 Banking Act 1933 see Glass-Steagall Act banks commercial 5 investment 5 Barclays Bank 20 Barings 11, 15, 68, 186, 299 Barlow Clowes case 214 Barron’s 99 base rate see repo rate Basel Committee for Banking Supervision (BCBS) 27–28 ____________________________________________________ INDEX 303 Basel I 27 Basel II 27–28, 56 Bear Stearns 95, 97 BearingPoint 97 bill of exchange 26 Bingham, Lord Justice 10–11 Blue Arrow trial 214 BNP Paribas 145, 150 bond issues see credit products book runners 51, 92 Borsa Italiana 8, 139 bps 90 British Bankers’ Association 20, 96, 97 building societies 22–23 demutualisation 22 Building Societies Association 22 Capital Asset Pricing Model (CAPM) see discounted cash flow analysis capital gains tax 73, 75, 163, 168 capital raising markets 42–46 mergers and acquisitions (M&A) 56–58 see also flotation, bond issues Capital Requirements Directive 28, 94 central securities depository (CSD) 145 international (ICSD) 145 Central Warrants Trading Service 73 Chancellor of the Exchequer 12, 13, 229 Chicago Mercantile Exchange 65 Citigroup 136, 145, 150 City of London 4–9 Big Bang 7 definition 4 employment in 8–9 financial markets 5 geography 4–5 history 6–7 services offered 4 world leader 5–6 clearing 140, 141–42 Clearing House Automated Payment System (CHAPS) 143 Clearstream Banking Luxembourg 92, 145 commercial banking 5, 18–28 bad loans and capital adequacy 26–28 banking cards 21 building societies 22–23 credit collection 25–26 finance raising 23–25 history 18–19 overdrafts 23 role today 19–21 commodities market 99–109 exchange-traded commodities 101  fluctuations 100 futures 100 hard commodities energy 102 non-ferrous metals 102–04 precious metal 104–06 soft commodities cocoa 107 coffee 106 sugar 107 Companies Act 2006 204, 223, 236 conflict of interests 7 consolidation 138–39 Consumer Price Index (CPI) 13 contango 101 Continuous Linked Settlement (CLS) 119 corporate governance 223–38 best practice 231 Cadbury Code 224 Combined Code 43, 225 compliance 230 definition 223 Directors’ Remuneration Report Regulations 226 EU developments 230 European auditing rules 234–35 Greenbury Committee 224–25 Higgs and Smith reports 227 International Financial Reporting Standards (IFRS) 237–38 Listing Rules 228–29 Model Code 229 Myners Report 229 OECD Principles 226 operating and financial review (OFR) 235– 36 revised Combined Code 227–28 Sarbanes–Oxley Act 233–34 Turnbull Report 225 credit cards 21 zero-per-cent cards 21 credit collection 25–26 factoring and invoice discounting 26 trade finance 25–26 credit derivatives 96–97 back office issues 97 credit default swap (CDS) 96–97 credit products asset-backed securities 94 bonds 90–91 collateralised debt obligations 94–95 collateralised loan obligation 95 covered bonds 93 equity convertibles 93 international debt securities 92–93  304 INDEX ____________________________________________________ junk bonds 91 zero-coupon bonds 93 credit rating agencies 91 Credit Suisse 5, 136, 193 CREST system 141, 142–44 dark liquidity pools 138 Debt Management Office 82, 86 Department of Trade and Industry (DTI) 235, 251, 282 derivatives 60–77 asset classes 60 bilateral settlement 66 cash and 60–61 central counterparty clearing 65–66 contracts for difference 76–77, 129 covered warrants 72–73 futures 71–72 hedging and speculation 67 on-exchange vs OTC derivatives 63–65 options 69–71 Black-Scholes model 70 call option 70 equity option 70–71 index options 71 put option 70 problems and fraud 67–68 retail investors and 69–77 spread betting 73–75 transactions forward (future) 61–62 option 62 spot 61 swap 62–63 useful websites 75 Deutsche Bank 136 Deutsche Börse 64, 138 discounted cash flow analysis (DCF) 39 dividend 29 domestic financial services complaint and compensation 279–80 financial advisors 277–78 Insurance Mediation Directive 278–79 investments with life insurance 275–76 life insurance term 275 whole-of-life 274–75 NEWICOB 279 property and mortgages 273–74 protection products 275 savings products 276–77 Dow theory 175 easyJet 67 EDX London 66 Egg 20, 21 Elliott Wave Theory 176 Enron 67, 114, 186, 232, 233 enterprise investment schemes 167–68 Equiduct 133–34, 137 Equitable Life 282 equities 29–35 market indices 32–33 market influencers 40–41 nominee accounts 31 shares 29–32 stockbrokers 33–34 valuation 35–41 equity transparency 64 Eurex 64, 65 Euro Overnight Index Average (EURONIA) 85 euro, the 17, 115 Eurobond 6, 92 Euroclear Bank 92, 146, 148–49 Euronext.liffe 5, 60, 65, 71 European Central Bank (ECB) 16, 17, 84, 148 European Central Counterparty (EuroCCP) 136 European Code of Conduct 146–47, 150 European Exchange Rate Mechanism 114 European Harmonised Index of Consumer Prices 13 European Union Capital Requirements Directive 199 Market Abuse Directive (MAD) 16, 196 Market in Financial Instruments Directive (MiFID) 64, 197–99 Money Laundering Directive 219 Prospectus Directive 196–97 Transparency Directive 197 exchange controls 6 expectation theory 172 Exxon Valdez 250 factoring see credit collection Factors and Discounters Association 26 Fair & Clear Group 145–46 Federal Deposit Insurance Corporation 17 Federation of European Securities Exchanges 137 Fighting Fraud Together 200–01 finance, raising 23–25 asset 24–25 committed 23 project finance 24 recourse loan 24 syndicated loan 23–24 uncommitted 23 Financial Action Task Force on Money Laundering (FATF) 217–18 financial communications 179–89 ____________________________________________________ INDEX 305 advertising 189 corporate information flow 185 primary information providers (PIPs) 185 investor relations 183–84 journalists 185–89 public relations 179–183 black PR’ 182–83 tipsters 187–89 City Slickers case 188–89 Financial Ombudsman Service (FOS) 165, 279–80 financial ratios 36–39 dividend cover 37 earnings per share (EPS) 36 EBITDA 38 enterprise multiple 38 gearing 38 net asset value (NAV) 38 price/earnings (P/E) 37 price-to-sales ratio 37 return on capital employed (ROCE) 38 see also discounted cash flow analysis Financial Reporting Council (FRC) 224, 228, 234, 236 Financial Services Act 1986 191–92 Financial Services Action Plan 8, 195 Financial Services and Markets Act 2001 192 Financial Services and Markets Tribunal 94 Financial Services Authority (FSA) 5, 8, 31, 44, 67, 94, 97, 103, 171, 189, 192–99 competition review 132 insurance industry 240 money laundering and 219 objectives 192 regulatory role 192–95 powers 193 principles-based 194–95 Financial Services Compensation Scheme (FSCS) 17, 165, 280 Financial Services Modernisation Act 19 financial services regulation 190–99 see also Financial Services Authority Financial Times 9, 298 First Direct 20 flipping 53 flotation beauty parade 51 book build 52 early secondary market trading 53 grey market 52, 74 initial public offering (IPO) 47–53 pre-marketing 51–52 pricing 52–53 specialist types of share issue accelerated book build 54  bought deal 54 deeply discounted rights issue 55 introduction 55 placing 55 placing and open offer 55 rights issues 54–55 underwriting 52 foreign exchange 109–120 brokers 113 dealers 113 default risk 119 electronic trading 117 exchange rate 115 ICAP Knowledge Centre 120 investors 113–14 transaction types derivatives 116–17 spot market 115–16 Foreign Exchange Joint Standing Committee 112 forward rate agreement 85 fraud 200–15 advanced fee frauds 204–05 boiler rooms 201–04 Regulation S 202 future regulation 215 identity theft 205–06 insurance fraud 206–08 see also anti-fraud agencies Fraud Act 2006 200 FTSE 100 32, 36, 58, 122, 189, 227, 233 FTSE 250 32, 122 FTSE All-Share Index 32, 122 FTSE Group 131 FTSE SmallCap Index 32 FTSE Sterling Corporate Bond Index 33 Futures and Options Association 131 Generally Accepted Accounting Principles (GAAP) 237, 257 gilts 33, 86–88 Giovanni Group 146 Glass-Steagall Act 7, 19 Global Bond Market Forum 64 Goldman Sachs 136 government bonds see gilts Guinness case 214 Halifax Bank 20 hedge funds 8, 77, 97, 156–57 derivatives-based arbitrage 156 fixed-income arbitrage 157 Hemscott 35 HM Revenue and Customs 55, 211 HSBC 20, 103 Hurricane Hugo 250  306 INDEX ____________________________________________________ Hurricane Katrina 2, 67, 242 ICE Futures 5, 66, 102 Individual Capital Adequacy Standards (ICAS) 244 inflation 12–14 cost-push 12 definition 12 demand-pull 12 quarterly Inflation Report 14 initial public offering (IPO) 47–53 institutional investors 155–58 fund managers 155–56 hedge fund managers 156–57 insurance companies 157 pension funds 158 insurance industry London and 240 market 239–40 protection and indemnity associations 241 reform 245 regulation 243 contingent commissions 243 contract certainty 243 ICAS and Solvency II 244–45 types 240–41 underwriting process 241–42 see also Lloyd’s of London, reinsurance Intercontinental Exchange 5 interest equalisation tax 6 interest rate products debt securities 82–83, 92–93 bill of exchange 83 certificate of deposit 83 debt instrument 83 euro bill 82 floating rate note 83 local authority bill 83 T-bills 82 derivatives 85 forward rate agreements (FRAs) 85–86 government bonds (gilts) 86–89 money markets 81–82 repos 84 International Financial Reporting Standards (IFRS) 58, 86, 173, 237–38 International Financial Services London (IFSL) 5, 64, 86, 92, 112 International Monetary Fund 17 International Securities Exchange 138 International Swap Dealers Association 63 International Swaps and Derivatives Association 63 International Underwriting Association (IUA) 240 investment banking 5, 47–59 mergers and acquisitions (M&A) 56–58 see also capital raising investment companies 164–69 real estate 169 split capital 166–67 venture capital 167–68 investment funds 159–64 charges 163 investment strategy 164 fund of funds scheme 164 manager-of-managers scheme 164 open-ended investment companies (OEICs) 159 selection criteria 163 total expense ratio (TER) 164 unit trusts 159 Investment Management Association 156 Investment Management Regulatory Organisation 11 Johnson Matthey Bankers Limited 15–16 Joint Money Laundering Steering Group 221 KAS Bank 145 LCH.Clearnet Limited 66, 140 letter of credit (LOC) 23, 25–26 liability-driven investment 158 Listing Rules 43, 167, 173, 225, 228–29 Lloyd’s of London 8, 246–59 capital backing 249 chain of security 252–255 Central Fund 253 Corporation of Lloyd’s 248–49, 253 Equitas Reinsurance Ltd 251, 252, 255–56 Franchise Performance Directorate 256 future 258–59 Hardship Committee 251 history 246–47, 250–52 international licenses 258 Lioncover 252, 256 Member’s Agent Pooling Arrangement (MAPA) 249, 251 Names 248, one-year accounting 257 regulation 257 solvency ratio 255 syndicate capacity 249–50 syndicates 27 loans 23–24 recourse loan 24 syndicated loan 23–24 London Interbank Offered Rate (LIBOR) 74, 76 ____________________________________________________ INDEX 307 London Stock Exchange (LSE) 7, 8, 22, 29, 32, 64 Alternative Investment Market (AIM) 32 Main Market 42–43, 55 statistics 41 trading facilities 122–27 market makers 125–27 SETSmm 122, 123, 124 SETSqx 124 Stock Exchange Electronic Trading Service (SETS) 122–25 TradElect 124–25 users 127–29 Louvre Accord 114 Markets in Financial Instruments Directive (MiFID) 64, 121, 124, 125, 130, 144, 197–99, 277 best execution policy 130–31 Maxwell, Robert 186, 214, 282 mergers and acquisitions 56–58 current speculation 57–58 disclosure and regulation 58–59 Panel on Takeovers and Mergers 57 ‘white knight’ 57 ‘white squire’ 57 Merrill Lynch 136, 174, 186, 254 money laundering 216–22 Egmont Group 218 hawala system 217 know your client (KYC) 217, 218 size of the problem 222 three stages of laundering 216 Morgan Stanley 5, 136 multilateral trading facilities Chi-X 134–35, 141 Project Turquoise 136, 141 Munich Re 207 Nasdaq 124, 138 National Strategy for Financial Capability 269 National Westminster Bank 20 Nationwide Building Society 221 net operating cash flow (NOCF) see discounted cash flow analysis New York Federal Reserve Bank (Fed) 16 Nomads 45 normal market share (NMS) 132–33 Northern Rock 16 Nymex Europe 102 NYSE Euronext 124, 138, 145 options see derivatives Oxera 52  Parmalat 67, 232 pensions alternatively secured pension 290 annuities 288–89 occupational pension final salary scheme 285–86 money purchase scheme 286 personal account 287 personal pension self-invested personal pension 288 stakeholder pension 288 state pension 283 unsecured pension 289–90 Pensions Act 2007 283 phishing 200 Piper Alpha oil disaster 250 PLUS Markets Group 32, 45–46 as alternative to LSE 45–46, 131–33 deal with OMX 132 relationship to Ofex 46 pooled investments exchange-traded funds (ETF) 169 hedge funds 169–71 see also investment companies, investment funds post-trade services 140–50 clearing 140, 141–42 safekeeping and custody 143–44 registrar services 144 settlement 140, 142–43 real-time process 142 Proceeds of Crime Act 2003 (POCA) 211, 219, 220–21 Professional Securities Market 43–44 Prudential 20 purchasing power parity 118–19 reinsurance 260–68 cat bonds 264–65 dispute resolution 268 doctrines 263 financial reinsurance 263–64 incurred but not reported (IBNR) claims insurance securitisation 265 non-proportional 261 offshore requirements 267 proportional 261 Reinsurance Directive 266–67 retrocession 262 types of contract facultative 262 treaty 262 retail banking 20 retail investors 151–155 Retail Prices Index (RPI) 13, 87 264  308 INDEX ____________________________________________________ Retail Service Provider (RSP) network Reuters 35 Royal Bank of Scotland 20, 79, 221 73 Sarbanes–Oxley Act 233–34 securities 5, 29 Securities and Futures Authority 11 self-regulatory organisations (SROs) 192 Serious Crime Bill 213 settlement 11, 31, 140, 142–43 shareholder, rights of 29 shares investment in 29–32 nominee accounts 31 valuation 35–39 ratios 36–39 see also flotation short selling 31–32, 73, 100, 157 Society for Worldwide Interbank Financial Telecommunications (SWIFT) 119 Solvency II 244–245 Soros, George 114, 115 Specialist Fund Market 44 ‘square mile’ 4 stamp duty 72, 75, 166 Sterling Overnight Index Average (SONIA) 85 Stock Exchange Automated Quotation System (SEAQ) 7, 121, 126 Stock Exchange Electronic Trading Service (SETS) see Lloyd’s of London stock market 29–33 stockbrokers 33–34 advisory 33 discretionary 33–34 execution-only 34 stocks see shares sub-prime mortgage crisis 16, 89, 94, 274 superequivalence 43 suspicious activity reports (SARs) 212, 219–22 swaps market 7 interest rates 56 swaptions 68 systematic internalisers (SI) 137–38 Target2-Securities 147–48, 150 The Times 35, 53, 291 share price tables 36–37, 40 tip sheets 33 trading platforms, electronic 80, 97, 113, 117 tranche trading 123 Treasury Select Committee 14 trend theory 175–76 UBS Warburg 103, 136 UK Listing Authority 44 Undertakings for Collective Investments in Transferable Securities (UCITS) 156 United Capital Asset Management 95 value at risk (VAR) virtual banks 20 virt-x 140 67–68 weighted-average cost of capital (WACC) see discounted cash flow analysis wholesale banking 20 wholesale markets 78–80 banks 78–79 interdealer brokers 79–80 investors 79 Woolwich Bank 20 WorldCom 67, 232 Index of Advertisers Aberdeen Asset Management PLC xiii–xv Birkbeck University of London xl–xlii BPP xliv–xlvi Brewin Dolphin Investment Banking 48–50 Cass Business School xxi–xxiv Cater Allen Private Bank 180–81 CB Richard Ellis Ltd 270–71 CDP xlviii–l Charles Schwab UK Ltd lvi–lviii City Jet Ltd x–xii The City of London inside front cover EBS Dealing Resource International 110–11 Edelman xx ESCP-EAP European School of Management vi ICAS (The Inst. of Chartered Accountants of Scotland) xxx JP Morgan Asset Management 160–62 London Business School xvi–xviii London City Airport vii–viii Morgan Lewis xxix Securities & Investments Institute ii The Share Centre 30, 152–54 Smithfield Bar and Grill lii–liv TD Waterhouse xxxii–xxxiv University of East London xxxvi–xxxviii

 

pages: 207 words: 86,639

The New Economics: A Bigger Picture by David Boyle, Andrew Simms

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

Asian financial crisis, back-to-the-land, banking crisis, Bernie Madoff, Big bang: deregulation of the City of London, Bonfire of the Vanities, Bretton Woods, capital controls, carbon footprint, clean water, collateralized debt obligation, colonial rule, Community Supported Agriculture, congestion charging, corporate social responsibility, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, delayed gratification, deskilling, en.wikipedia.org, energy transition, financial deregulation, financial innovation, full employment, garden city movement, happiness index / gross national happiness, if you build it, they will come, income inequality, informal economy, Jane Jacobs, land reform, loss aversion, microcredit, Mikhail Gorbachev, mortgage debt, neoliberal agenda, new economy, North Sea oil, Northern Rock, offshore financial centre, oil shock, peak oil, pensions crisis, profit motive, purchasing power parity, quantitative easing, Ronald Reagan, seigniorage, Simon Kuznets, sovereign wealth fund, special drawing rights, The Wealth of Nations by Adam Smith, Thomas L Friedman, too big to fail, trickle-down economics, Washington Consensus, working-age population

Recent research at the World Bank, released at the end of 2007, suggests that income inequality and absolute poverty in the world are very much worse than anybody thought.8 The problem with World Bank estimates of absolute poverty (living on less than $1 a day) is that they relied on calculations of what the equivalent of a US dollar was in some of the most impoverished economies in the world, a formula known as ‘purchasing power parity’. The latest World Bank research suggests that this was extremely inaccurate and that the 1.2 billion people living on $1 a day may be very much higher. Poverty, though, is not escaped by earning just over $1 or $2 a day, as we will see below. The World Bank estimates that the number of people in absolute poverty will have halved by 2015. But even this improvement, if it comes about, will have taken 82 THE NEW ECONOMICS place during a period of unprecedented economic growth in the wealthier countries – not to mention India and China – and may well not be sustained during a period of rising food and energy prices.

(John Kenneth) 41, 51 gambling 14–15, 152 Gandhi, Mohandas (Mahatma) 18, 19, 21, 110, 112 Gates, Bill 141 Gates, Jeff 141–2 GDP (gross domestic product) 10, 32, 36–40, 42, 43, 54, 79 alternatives to 40–2, 43 bad measure of success 10, 37, 55, 78 INDEX global 141 UK 4 see also growth genetically modified crops see GM crops Germany 33, 50, 58 Gladwell, Malcolm 68 Global Barter Clubs 57, 58 global commons 113, 148 global currencies 56, 61, 120, 147–8 global greenback 61 global warming 3, 3–4, 115, 155 see also climate change globalization 8, 28, 143, 153 see also interdependence GM (genetically modified) crops 91, 117, 119, 140–1 Goetz, Stephan 124 gold standard 8, 143 Good Life, The (BBC sitcom) 69 goods, local 19, 109, 110 Goodwin, Fred 142 government borrowing 37–8, 49–50, 58, 62, 141 governments 2, 28, 116, 129, 158 creating money 58–9, 62, 90 propping up banking system 6, 7 Graham, Benjamin 120 Grameen Bank 26, 143–4, 153 Great Barrington (Massachusetts) 57, 151–2, 153 Great Depression 3, 36, 57 green bonds 157 green collar jobs 106, 157 Green Consumer Guide, The (Elkington and Hailes, 1988) 26, 69, 72 green economics 23, 100, 117 green energy 26, 97, 102–3, 114, 156, 157 Green New Deal 156–8 green taxation 153 greenhouse gas emissions 3–4, 115, 148 gross domestic product see GDP Gross National Happiness 43 growth 2, 11, 12–13, 23, 36–7, 38–40, 42, 43 185 bad measure of success 10, 158 maximizing 25 and poverty 4, 39–40, 81–2 and progress 39, 78 wealth defined in terms of 32 and well-being 4–5 see also GDP guilds 80, 80–1 happiness 12, 18, 29, 41, 43, 45–6 Happy Planet Index 32–3, 34, 43 Hard Times (Dickens, 1854) 36 HBOS 7 health 46, 72, 78, 96, 115, 129 health costs 117 healthcare 13, 33, 44 hedge funds 5, 7, 97, 120 Helsinki (Finland) 102 HIV/AIDS 70, 111, 135, 148 Honduras 139, 141 house prices 36, 46, 79, 83, 91, 126–7, 151 London 53, 54, 91 see also mortgages Howard, Ebenezer 105, 158 HSBC 5 human interaction 67–8, 74 human needs 20, 24, 67, 86 human rights 110–11, 116, 147 ill-health 35, 38, 46 ‘illth’ 29, 35 IMF (International Monetary Fund) 27, 82, 91, 135–6, 139, 143, 147, 147–8 incomes 24, 37, 43, 44, 78, 79, 81 and happiness 45–6 inequalities 37, 81, 82, 142 of poorest 4, 81, 82, 112, 142 Index of Sustainable Economic Welfare see ISEW India 82, 91, 110, 119, 136, 139–40, 153 indigenous knowledge 82, 117 inequality 4, 81–2, 96, 112–13, 116 inflation 8, 22, 58, 90 information technology 58, 59, 115 186 THE NEW ECONOMICS intellectual property 82, 91, 110, 113, 116, 117 interdependence 111–20, 135–8 Keynes on 19, 109, 110, 115, 143 see also globalization interest 8, 11, 11–12, 58, 77, 157 interest rates 144, 144–5 interest-free money 43, 73, 84, 90 intergenerational equity 25, 117 international bankruptcy 147 International Monetary Fund see IMF investment 14, 45, 53, 60, 104, 118, 137–8 ethical 26, 69–70, 74, 154 involvement 71, 75, 128–30 Iraq 49, 60, 136 ISEW (Index of Sustainable Economic Welfare) 40–1, 43, 78 Islamic banking 58, 90, 146 islands, small 31–2, 33–4 Italy 33, 119–20, 138 Ithaca hours currency 57, 58 It’s a Wonderful Life (film, Capra, 1946) 38 Jacobs, Jane 56, 110, 126 Jaffe, Bernie 126 Japan 26, 50, 91, 113, 119, 128 Jefferson, Thomas 18, 20 Jersey 52, 53 Jones, Allan 103 Jubilee Debt campaign 137 junk bonds 1, 142–3 just-in-time 123–4, 155 Keynes, John Maynard 2, 13–14, 15, 17, 21, 37, 55 on interdependence 19, 109, 110, 115, 143 international currency 61, 120 on local production 19, 109, 110 on ‘practical men’ as ‘slaves of some defunct economist’ 10, 35, 67, 87, 159 Keynesian economics 8, 18, 22, 27, 28 Kinney, Jill 130 Knowsley (Merseyside) 104 Kropotkin, Peter 18 Krugman, Paul 52 land 19, 82, 96 land tax 43 landfill 97, 98, 100, 107 Layard, Richard 41 Lehigh Hospital (Pennsylvania) 129 Letchworth Garden City (Hertfordshire) 105 lets (local exchange and trading systems) 57 liberalism 18, 19, 27 Lietaer, Bernard 56, 61, 120 life 19, 29, 55, 69, 86, 91 need for meaning 42, 75 life expectancy 31, 32–3, 82 life poverty 82–3 life satisfaction 31, 33, 41, 42 Lima (Peru) 130–1 Linton, Michael 57, 58 Living Economy, The (Ekins, 1986) 24–5 LM3 (Local Money 3) 60, 104–5 loans see debt Local Alchemy programme 152–3 local circulation of money 103–5, 107, 124, 151–2 local currencies 26, 56, 57, 58, 59, 60, 151–2, 153 local economies 26, 81, 85, 86, 105–7, 118, 124, 133 local exchange and trading systems (lets) 57 local food 2, 118, 119–20, 151 local governments 6, 44, 60 local life 4, 81, 158 Local Money 3 see LM3 local production 109, 116, 118 local savings schemes 61 local shops 75, 82–3, 104, 124, 124–5, 126, 151 supermarkets and 80, 105, 125 local wealth 14, 53–4 localization 155–6, 159 London 52, 53, 61, 97, 102, 103 house prices 53, 54, 91 traffic speed 65–6 INDEX London Underground 147 Lutzenberger, Jose 26 Macmillan Cancer Care 88–9 McRobie, George 22, 24 mainstream 4–5, 26, 154, 159–60 see also economics Malawi 135–6, 137 Malaysia 51 Manchester United 155 manipulated debt 139–41 markets 10, 12, 51, 70, 158 financial 1–2, 52, 53, 55, 138, 154–5 free 22, 85, 112–13 new economics and 67, 72–5, 85 Marsh Farm estate (Luton) 104–5, 152–3 Maslow, Abraham 67 materialism 12, 46–7 Max-Neef, Manfred 24 Maxwell, Robert 143 MDGs (Millennium Development Goals) 39, 136 Mead, Margaret 129 meaning, need for 42, 75 measurement problem 36–40 measuring 12, 42, 55, 85 success 2, 8, 10, 43, 44, 55, 154, 156, 158 value 10, 15, 29, 53, 59, 115 wealth 32, 37–40, 53–4 well-being 4, 18, 32–3, 34, 43 mechanics, Cuban 95–6, 97 medieval economics 78–80, 80–1 mega-rich 120, 141, 142 mental health 4, 35, 36, 46, 68, 83 Merck 99 micro-credit 26, 143–4, 145, 146, 151, 153 Milkin, Michael 142 Millennium Development Goals see MDGs minimum wage 92 misery, of UK young people 35–6 Mishan, E.J. 40 Mogridge, Martin 65–6, 74 Mondragon (Spain), cooperatives 153 money 8, 11, 13, 18, 27, 29, 36, 95 187 as a bad measure 10, 15, 18, 53, 59, 90, 143, 154 creating 7, 56–7, 58–9, 84, 90, 120, 138, 147 designed for money markets 53 economics and 25, 127 externalities 35 and life 55, 86, 154, 159 local circulation 103–5, 107, 124, 151–2 means to an end 15 new economics view 15, 59–60, 89 new ways of organizing 56–60 re-using 103–5 replacing with well-being 42 slowing down 51–2, 60 too little 57 types of 14–15, 57, 59, 120 and value 10, 15, 53, 59 and wealth 15, 19, 32, 38, 78 and well-being 18, 21, 81 see also GDP; growth; price; trickle down money flows 26, 50–2, 60, 103–5, 107, 124, 136–8 money markets 1–2, 52, 53, 55, 138, 154–5 money poverty 81–2 money system 7–8, 50–6, 60 monopolies 8, 20, 83, 84–6, 89–90, 125–6, 133, 146 Monsanto 85, 140 moral philosophy 12, 19, 72–3 morality 8, 18, 28, 74, 115 economics and 12, 19, 22 Morris, William 18, 78, 151 mortgages 1, 4, 5–6, 6, 7, 46, 91 working to pay 46, 68, 73, 77–8, 79, 81, 83, 84, 89, 126–7, 140 see also house prices motivations 4–5, 11, 67–9, 70, 71, 72, 73, 75 multinationals 14, 61, 84–5, 90, 137–8, 139, 143 multiple currencies 58, 59–60, 60, 90 multiplier effect 103–5 Murdoch, Rupert 52 188 THE NEW ECONOMICS Myers, Norman 117 Nanumaea (Tuvalu) 34 national accounting 37–8, 38–9 national debt 49–50, 83, 84, 139, 141 national grid 102, 106 National Health Service see NHS natural capital 3, 99 natural resources 22, 40, 43, 84, 97–8 needs 20, 24, 25, 67, 75, 86 basic 25, 89, 91–2, 115 nef (the new economics foundation) 24, 26, 45, 71, 104, 131–2, 145 Local Alchemy programme 152–3 see also Happy Planet Index; LM3 ‘neo-liberal’ policies 8, 27–8 Nether Wallop (Hampshire) 80, 81 The Netherlands 58, 106, 138 New Century 5 New Deal for Communities 152 New Deal (US) 157 new economics 2–3, 9–10, 18–19, 28–9, 59, 153–4, 159–60 Cuba as object lesson 96–7 history of 9–10, 18–19, 21–7 and the mainstream 26 as new definition of wealth 15 principles 35, 157–8 new economics foundation see nef New York City 52, 128 News Corporation 52 NHS (National Health Service) 87, 114, 131 Northern Rock 6 Nottingham 35 Nu-Spaarpas experiment 106 Obama, Barack 154, 157 obsolescence, built-in 98, 100, 101 odious debt 146 offshore assets 136–7 offshore financial centres 52–3, 61 oil 3, 96, 115, 117, 155 Oil Legacy Fund 157 orchards 111, 112, 115, 124 organic food 26 Ostrom, Elinor 127 out-of-town retailing 75, 80, 123, 132 overconsumption 32, 40, 44, 113 Owen, Robert 57 ownership 11, 46, 60, 91, 118, 156 paid work 87–9, 92 palm oil 112 Partners in Health 130–1 peak oil 3, 96, 117, 155 Pearce, David 25–6, 98, 115 Peasants’ Revolt (1381) 18 pensions 7, 44, 61, 73, 155 people, as assets 15, 57–8, 128–9, 130, 131 permit trading 45, 117–18, 148 personal carbon allowances 45, 117–18 personal debt 7, 36, 83–4, 91, 140, 141 Petrini, Carlo 119–20 Pettifor, Ann 135, 137 philanthropy 130, 133 policy makers 28, 35, 73, 87, 90 assumptions of 67, 68, 73, 128 Keynes on 10, 35, 67, 87, 159 political agenda 42–7 politicians 11, 54, 159 politics, new 159 pollution 10, 35, 37, 40, 98, 112, 114 by GM genes 91, 117, 119 poor 29, 145–6 Porritt, Jonathon 23 post-autistic economics 9–10, 71–2 poverty 4, 23, 35, 79–80, 81–2, 127 economic system and 13–14, 18, 29, 81–2, 154 interdependence leading to 111–15 reduction 39–40, 51–2, 61, 116, 124–5 poverty gap 4, 52–3, 78, 82 power 10, 12, 25, 28, 53, 141–2 corporate 20, 28, 85 monopoly power 83, 89–90, 125–6, 146 power relationships 29, 114 price 10, 67, 72, 73, 115, 153 Price, Andrew 132 INDEX prices 80, 156, 158 Pritchard, Alison 23 product life cycle 97–8, 101 professionals 130, 132, 133, 159 profits 12, 13, 99 progress 36, 37–8, 39, 43, 44, 77–8, 81–2, 84 Proudhon, Pierre-Joseph 120 psychology, economics and 67–8, 71, 72–3 public goods 148 public sector commissioning 131–2, 133 public services 45, 74, 127–32, 158 public transport 66, 74 ‘purchasing power parity’ 81 Putnam, Robert 126–7, 127–8 189 retirement 46, 73 see also pensions rewarded work 88 rewards 7, 8, 11, 25, 92, 141, 142 roads 66, 115 Robertson, James 17, 22, 23, 55, 145 Rockefeller, John D. 28 Roman Catholic church 19, 21, 117 Roosevelt, Eleanor 96 Roosevelt, Franklin Delano 157 Rotterdam (The Netherlands) 106 rubbish 97–105 Rupasingha, Anil 124 Rushey Green surgery (London) 131 Ruskin, John 17–18, 18, 29, 35, 78, 81 Russia 110 qoin system 58 rainforests 4, 10, 111, 112 ‘rational man’ assumption 10, 71 RBS 142 re-use 97, 99, 100–5 Reagan, Ronald 22, 27 real money, generating 120 ‘real’ wealth 2, 32, 36–40 reciprocity 44, 128, 128–30, 133 see also co-production recycling 97, 98, 100–1, 105–6, 106–7 redistribution 19, 27, 52, 96 regeneration 27, 104, 105, 107, 116, 124, 128 regional currencies 58, 59, 60 regulation 129, 156 competition 85, 113, 125, 126, 133 financial sector 53, 85, 157 relationships 4, 69, 83, 128–30 remittances 137 Rendell, Matt 33 renewable energy 26, 97, 102, 102–3, 114, 156, 157 repair 97, 98, 101, 105, 107 resources 32, 43, 97–8, 99, 100–1, 114, 158 local 25, 115 natural 22, 40, 43, 84, 97–8 St Louis (Missouri) 131 Samoa 34 Sane (South African New Economics) 58 saving seeds 91, 117, 119, 141 savings 7, 46, 73, 90, 157 schools 131 Schor, Juliet 83 Schumacher, E.F.

 

pages: 417 words: 109,367

The End of Doom: Environmental Renewal in the Twenty-First Century by Ronald Bailey

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

3D printing, additive manufacturing, agricultural Revolution, Albert Einstein, autonomous vehicles, Cass Sunstein, Climatic Research Unit, Commodity Super-Cycle, conceptual framework, corporate governance, credit crunch, David Attenborough, decarbonisation, dematerialisation, demographic transition, diversified portfolio, double helix, energy security, failed state, financial independence, Gary Taubes, hydraulic fracturing, income inequality, invisible hand, knowledge economy, meta analysis, meta-analysis, Naomi Klein, oil shale / tar sands, oil shock, pattern recognition, peak oil, phenotype, planetary scale, price stability, profit motive, purchasing power parity, race to the bottom, RAND corporation, rent-seeking, Stewart Brand, Tesla Model S, trade liberalization, University of East Anglia, uranium enrichment, women in the workforce, yield curve

Educating children to meet the productive challenges of growing economies also becomes more expensive and time consuming. Thailand’s experience over the past thirty years exemplifies this process. During that time, female literacy rose to 90 percent; 50 percent of the workforce is now female; and fertility fell from 6 children per woman in the 1960s to 1.5 today. Although Thailand is classified as only moderately free on the economic freedom index, its gross domestic product (GDP) grew in terms of purchasing power parity from just over $1,000 per capita in 1960 to over $8,500 per capita in 2012. Back in 1968, Garrett Hardin declared, “There is no prosperous population in the world today that has, and has had for some time, a growth rate of zero.” That’s no longer true. Japan is now experiencing a fall in its population due largely to reduced fertility, as are Germany, Russia, Italy, Poland, and some 20 other countries and territories.

When can we expect this beneficial dynamic to take hold in other countries? Recent data suggests that sulfur dioxide emissions even from rapidly industrializing China may have peaked in 2006 and have begun declining. Earlier studies cite evidence for a pollution turning point at which people begin to demand reductions in sulfur dioxide emissions when their per capita annual incomes reach a threshold of around $10,000 (purchasing power parity). The researchers in that study concluded, “One important lesson here is that it is possible to reduce emissions that are by-products of a modern economy, without sacrificing long-term growth.” In the face of the overwhelming evidence to the contrary, why do so many Americans still believe that air pollution is getting worse? When crime rates fall, mayors, police chiefs, and district attorneys are eager to spread the news and take the credit.

 

pages: 350 words: 103,988

Reinventing the Bazaar: A Natural History of Markets by John McMillan

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

accounting loophole / creative accounting, Albert Einstein, Andrei Shleifer, Anton Chekhov, Asian financial crisis, congestion charging, corporate governance, crony capitalism, Dava Sobel, Deng Xiaoping, experimental economics, experimental subject, fear of failure, first-price auction, frictionless, frictionless market, George Akerlof, George Gilder, global village, Hernando de Soto, I think there is a world market for maybe five computers, income inequality, income per capita, informal economy, invisible hand, Isaac Newton, job-hopping, John Harrison: Longitude, John von Neumann, land reform, lone genius, manufacturing employment, market clearing, market design, market friction, market microstructure, means of production, Network effects, new economy, offshore financial centre, pez dispenser, pre–internet, price mechanism, profit maximization, profit motive, proxy bid, purchasing power parity, Ronald Coase, Ronald Reagan, sealed-bid auction, second-price auction, Silicon Valley, spectrum auction, Stewart Brand, The Market for Lemons, The Nature of the Firm, The Wealth of Nations by Adam Smith, trade liberalization, transaction costs, War on Poverty, Xiaogang Anhui farmers, yield management

The child labor, the sweat shops, the environmental problems will not go away until extreme poverty disappears. The gap between rich and poor countries is vast. In China, the average income is about one-tenth that in the United States. In India it is one-fourteenth. In Tanzania, to take an extreme case, it is one-sixtieth. A typical American spends in less than a week what a Tanzanian must eke out over a whole year. (These comparisons are done in purchasing-power-parity terms, which take account of the cross-country variations in the cost of living; without such an adjustment, the disparities would be still bigger.)2 The world’s millionaires number seven million, according to the firm Gemini Consulting. Millionaires therefore make up just over one-thousandth of the world’s population. Their assets total $25 trillion.3 Most of those earning less than $2 per day are in Africa and Asia; most of the millionaires are in Western Europe and North America.

On state firm reforms, see Groves et al. (1994, 1995). 14. Shirk (1993, p. 334). 15. Skidelsky (1996, p. 142), Boycko, Shleifer, and Vishny (1995, p. 5). 16. U.S. General Accounting Office (2000, p. 10). 17. The quote is from Zhou (1996, p. 106). Chapter Sixteen. Antipoverty Warriors 1. Economist, June 23, 2001, p. 13. The Shiva quote is from www.gn.apc. org/resurgence/articles/mander.htm, accessed September 26, 2001. 2. World Bank purchasing-power-parity data for 1999, www.worldbank. org/data/databytopic/GNPPC.pdf. 3. The data on millionaires, for 1999, are at www.gemcon.com/fs/wealth2000.htm. The number of the poor, an estimate for 1998, is reported at www.worldbank.org/poverty/data/trends/income.htm. 4. Data from Temple (1999) and Pritchett and Summers (1996). The Goh Chok Tong quote is from the Economist, August 22, 1992, p. 25. 5.

 

pages: 790 words: 150,875

Civilization: The West and the Rest by Niall Ferguson

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

Admiral Zheng, agricultural Revolution, Albert Einstein, Andrei Shleifer, Atahualpa, Ayatollah Khomeini, Berlin Wall, BRICs, British Empire, clean water, collective bargaining, colonial rule, conceptual framework, Copley Medal, corporate governance, credit crunch, David Ricardo: comparative advantage, Dean Kamen, delayed gratification, Deng Xiaoping, discovery of the americas, Dissolution of the Soviet Union, European colonialism, Fall of the Berlin Wall, Francisco Pizarro, full employment, Hans Lippershey, haute couture, Hernando de Soto, income inequality, invention of movable type, invisible hand, Isaac Newton, James Hargreaves, James Watt: steam engine, John Harrison: Longitude, joint-stock company, Joseph Schumpeter, land reform, land tenure, Louis Pasteur, Mahatma Gandhi, market bubble, Martin Wolf, means of production, megacity, Mikhail Gorbachev, new economy, probability theory / Blaise Pascal / Pierre de Fermat, profit maximization, purchasing power parity, quantitative easing, rent-seeking, reserve currency, road to serfdom, Ronald Reagan, savings glut, Scramble for Africa, Silicon Valley, South China Sea, sovereign wealth fund, special economic zone, spice trade, spinning jenny, Steve Jobs, Steven Pinker, The Great Moderation, the market place, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, Thorstein Veblen, total factor productivity, trade route, transaction costs, transatlantic slave trade, transatlantic slave trade, upwardly mobile, uranium enrichment, wage slave, Washington Consensus, women in the workforce, World Values Survey

Despite the painful interruption of the Great Depression, the United States suffered nothing so devastating as China’s wretched twentieth-century ordeal of revolution, civil war, Japanese invasion, more revolution, man-made famine and yet more (‘cultural’) revolution. In 1968 the average American was thirty-three times richer than the average Chinese, using figures calculated on the basis of purchasing-power parity (allowing for the different costs of living in the two countries). Calculated in current dollar terms the differential at its peak was more like seventy to one. The Great Divergence manifested itself in various ways. In 1500 the world’s ten biggest cities had nearly all been in the East, with Beijing by far the biggest (more than ten times the size of wretched little London). In 1900 the biggest cities were nearly all in the West, with London more than four times the size of Tokyo, Asia’s largest conurbation.

See Fernández-Armesto, Millennium; Goody, Capitalism and Modernity and Eurasian Miracle; Wong, China Transformed. 13. McNeill, Rise of the West. See also Darwin, After Tamerlane. 14. Based on data in Maddison, World Economy. The historic figures for global output (gross domestic product) must be treated with even more caution than those for population because of the heroic assumptions Maddison had to make to construct his estimates, and also because he elected to calculate GDP in terms of purchasing-power parity to allow for the much lower prices of non-traded goods in relatively poor countries. 15. Details in Fogel, Escape from Hunger, tables 1.2, 1.4. 16. Figures from Chandler, Urban Growth. 17. Calculated in terms of current dollars, from the World Bank’s World Development Indicators online database. 18. For an illuminating discussion, see Scruton, The West and the Rest. 19. See e.g.

 

pages: 462 words: 150,129

The Rational Optimist: How Prosperity Evolves by Matt Ridley

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

23andMe, agricultural Revolution, air freight, back-to-the-land, banking crisis, barriers to entry, Bernie Madoff, British Empire, call centre, carbon footprint, charter city, clean water, cloud computing, cognitive dissonance, collateralized debt obligation, colonial exploitation, colonial rule, Corn Laws, credit crunch, David Ricardo: comparative advantage, decarbonisation, dematerialisation, demographic dividend, demographic transition, double entry bookkeeping, Edward Glaeser, en.wikipedia.org, everywhere but in the productivity statistics, falling living standards, feminist movement, financial innovation, Flynn Effect, food miles, Gordon Gekko, greed is good, Hans Rosling, happiness index / gross national happiness, haute cuisine, Hernando de Soto, income inequality, income per capita, Indoor air pollution, informal economy, invention of agriculture, invisible hand, James Hargreaves, James Watt: steam engine, Jane Jacobs, John Nash: game theory, joint-stock limited liability company, Joseph Schumpeter, Kevin Kelly, knowledge worker, Kula ring, Mark Zuckerberg, meta analysis, meta-analysis, mutually assured destruction, Naomi Klein, Northern Rock, nuclear winter, oil shale / tar sands, out of africa, packet switching, patent troll, Pax Mongolica, Peter Thiel, phenotype, Plutocrats, plutocrats, Ponzi scheme, Productivity paradox, profit motive, purchasing power parity, race to the bottom, Ray Kurzweil, rent-seeking, rising living standards, Silicon Valley, spice trade, spinning jenny, stem cell, Steve Jobs, Steven Pinker, Stewart Brand, supervolcano, technological singularity, The Wealth of Nations by Adam Smith, Thorstein Veblen, trade route, transaction costs, ultimatum game, upwardly mobile, urban sprawl, Vernor Vinge, wage slave, working poor, working-age population, Y2K, Yogi Berra

The reason for these rosy assumptions about wealth is that the only way the world can get that hot is by getting very rich through emitting lots of carbon dioxide. Many economists think these futures, wonderful as they sound, are unrealistic. In one IPCC future, world population reaches fifteen billion by 2100, nearly double what demographers expect. In another, the poorest countries grow their per capita income four times as fast as Japan grew in the twentieth century. All the futures use market exchange rates instead of purchasing power parities for GDP, further exaggerating warming. In other words, the highend projections have pretty wild assumptions, so the 4°C warming, let alone the unlikely 6°C, will only happen if it is also accompanied by truly astonishing increases in human prosperity. And if it is possible to get so prosperous, then the warming cannot have been doing much economic harm along the way. To this some economists such as Martin Weitzman reply that even if the risk of catastrophe is vanishingly small, the cost would be so great that the normal rules of economics do not apply: so long as there is some possibility of a huge disaster, the world should take all steps to avoid it.

p. 332 ‘Note that this is true even if climate change itself cuts wealth by Stern’s 20 per cent by 2100: that would mean the world becoming ‘only’ 2–10 times as rich.’ See http://sciencepolicy.colorado.edu/prometheus/archives/climate_change/001165a_comment_on_ipcc_wo.html. p. 332 ‘the Prince of Wales said in 2009’. http://www.spectator.co.uk/politics/all/5186108/the-spectators-notes.thtml. p. 332 ‘All the futures use market exchange rates instead of purchasing power parities for GDP, further exaggerating warming.’ Castles, I. and Henderson, D. 2003. Economics, emissions scenarios and the work of the IPCC. Energy and Environment 14:422–3. See also Maddison. A. 2007. Contours of the World Economy. Oxford University Press. pp. 332–3 ‘The trouble with this reasoning is that it applies to all risks, not just climate change.’ http://cowles.econ.yale.edu/P/cd/d16b/d1686.pdf; and http://www.economics.harvard.edu/faculty/weitzman/files/ReactionsCritique.pdf.

 

pages: 421 words: 120,332

The World in 2050: Four Forces Shaping Civilization's Northern Future by Laurence C. Smith

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

Bretton Woods, BRICs, clean water, Climategate, colonial rule, deglobalization, demographic transition, Deng Xiaoping, energy security, flex fuel, global supply chain, Google Earth, guest worker program, Hans Island, hydrogen economy, ice-free Arctic, informal economy, invention of agriculture, invisible hand, land tenure, Martin Wolf, megacity, Mikhail Gorbachev, New Urbanism, oil shale / tar sands, oil shock, peak oil, purchasing power parity, Ronald Reagan, Ronald Reagan: Tear down this wall, side project, Silicon Valley, smart grid, sovereign wealth fund, special economic zone, The Wealth of Nations by Adam Smith, Thomas Malthus, trade liberalization, trade route, UNCLOS, UNCLOS, urban planning, Washington Consensus, Y2K

., “Ranking Port Cities with High Exposure and Vulnerability to Climate Extremes: Exposure Estimates,” OECD Environment Working Papers, no. 1 (OECD Publishing, 2008), 62 pp., DOI:10.1787/011766488208. See also J. P. Ericson et al., “Effective Sea-Level Rise and Deltas: Causes of Change and Human Dimension Implications,” Global and Planetary Change 50 (2006): 63-82. 264 Monetary amounts are in international 2001 U.S. dollars using purchasing power parities. Ibid. 265 Short for “Water Global Assessment and Prognosis.” See Center for Environmental Systems Research, http://www.usf.uni-kassel.de/cesr/. 266 The climate-change component of this particular simulation is from the HadCM3 circulation model assuming a B2 SRES scenario. For more on other, nonclimatic assumptions, see Alcamo, M. Flörke, and M. Marker, “Future Long-term Changes in Global Water Resources Driven by Socio-economic and Climatic Changes,” Hydrological Sciences 52, no. 2 (2007): 247-275. 267 P.

Bulte, “The Resource Curse Revisited and Revised: A Tale of Paradoxes and Red Herrings,” Journal of Environmental Economics and Management 55, no. 3 (2008): 248-264. 536 The bulk of the Arctic economy is based on commodity exports. Public services comprise 20%-40% GDP, transportation accounts for some 5%-12%, with tourism and retail significant only in particular areas. In 2001 the total Arctic economy was U.S. $230 billion (in purchasing power parity), with Arctic defined as all of Alaska (USA); Yukon, NWT, Nunavut, Nunavik, and Labrador (Canada); Greenland and the Faroe Islands (Denmark); Iceland; Nordland, Troms, Finnmark, and Svalbard (Norway); Västerbotten and Norrbotten (Sweden); Oulu and Lapland (Finland); and the republics of Karelia, Komi, and Sakha; the oblasts of Arkhangelsk, Murmansk, Tyumen, Kamchatka, and Magadan; the autonomous okrugs of Nenets, Khanty-Mansii, Yamal-Nenets, Krasnoyarsk Krai, Taimyr, Evenk, Koryak, and Chukchi (Russian Federation).

 

pages: 520 words: 129,887

Power Hungry: The Myths of "Green" Energy and the Real Fuels of the Future by Robert Bryce

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

Bernie Madoff, carbon footprint, cleantech, collateralized debt obligation, correlation does not imply causation, Credit Default Swap, credit default swaps / collateralized debt obligations, decarbonisation, Deng Xiaoping, en.wikipedia.org, energy security, energy transition, flex fuel, greed is good, Hernando de Soto, hydraulic fracturing, hydrogen economy, Indoor air pollution, Isaac Newton, James Watt: steam engine, Menlo Park, new economy, offshore financial centre, oil shale / tar sands, oil shock, peak oil, Ponzi scheme, purchasing power parity, RAND corporation, Ronald Reagan, Silicon Valley, smart grid, Stewart Brand, Thomas L Friedman, uranium enrichment, Whole Earth Catalog

Much of it can be explained simply by the fact that consumers, engineers, and entrepreneurs are always working to do things more efficiently, not because it is better for the environment, necessarily, but because it saves them money and increases profits. In other words, it’s just good business. FIGURE 22 Change in Energy Intensity of Major World Economies, 1980 to 2006 Source: Energy Information Administration, “World Energy Intensity—Total Primary Energy Consumption Per Dollar of Gross Domestic Product Using Purchasing Power Parities, 1980–2006,” http://www.eia.doe.gov/pub/international/iealf/tablee1p.xls. Now let’s look at one of the most important energy metrics: per-capita energy consumption. From 1980 through 2006, the average per-capita energy consumption in the United States fell by 2.5 percent. That decline was greater than in any other developed country in the world except for Switzerland and Denmark, which saw their per-capita energy use fall by 4.3 percent and 4.2 percent, respectively.8 During that same time period, per-capita energy use in major European countries rose significantly.

aid=820. 2 House Energy and Commerce Committee, American Clean Energy and Security Act, 2009, http://energycommerce.house.gov/Press_111/20090515/hr2454.pdf. 3 Energy Information Administration, “World Carbon Intensity—World Carbon Dioxide Emissions from the Consumption and Flaring of Fossil Fuels Per Thousand Dollars of Gross Domestic Product Using Market Exchange Rates, 1980–2006,” http://www.eia.doe.gov/pub/international/iealf/tableh1gco2.xls. 4 Energy Information Administration, “World Energy Intensity—Total Primary Energy Consumption Per Dollar of Gross Domestic Product Using Purchasing Power Parities, 1980–2006,” http://www.eia.doe.gov/pub/international/iealf/tablee1p.xls. Note that energy intensity fell faster in about seventeen countries not listed here, including Chad, Guam, Laos, and Afghanistan. 5 Energy Information Administration, Table 1.7, “Primary Energy Consumption Per Real Dollar of Gross Domestic Product,” Monthly Energy Review, May 2009, http://www.eia.doe.gov/emeu/mer/pdf/pages/sec1_16.pdf. 6 Energy Information Administration, Table 1.7, “Primary Energy Consumption Per Real Dollar of Gross Domestic Product,” http://www.eia.doe.gov/emeu/mer/pdf/pages/sec1_16.pdf. 7 The U.S. population in 1980 was 227.7 million.

 

pages: 349 words: 134,041

Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives by Satyajit Das

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

accounting loophole / creative accounting, Albert Einstein, Asian financial crisis, asset-backed security, Black Swan, Black-Scholes formula, Bretton Woods, BRICs, Brownian motion, business process, buy low sell high, call centre, capital asset pricing model, collateralized debt obligation, complexity theory, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, cuban missile crisis, currency peg, disintermediation, diversification, diversified portfolio, Eugene Fama: efficient market hypothesis, financial innovation, fixed income, Haight Ashbury, high net worth, implied volatility, index arbitrage, index card, index fund, interest rate derivative, interest rate swap, Isaac Newton, job satisfaction, locking in a profit, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, Marshall McLuhan, mass affluent, merger arbitrage, Mexican peso crisis / tequila crisis, moral hazard, mutually assured destruction, new economy, New Journalism, Nick Leeson, offshore financial centre, oil shock, Parkinson's law, placebo effect, Ponzi scheme, purchasing power parity, quantitative trading / quantitative finance, random walk, regulatory arbitrage, risk-adjusted returns, risk/return, shareholder value, short selling, South Sea Bubble, statistical model, technology bubble, the medium is the message, time value of money, too big to fail, transaction costs, value at risk, Vanguard fund, volatility smile, yield curve, Yogi Berra, zero-coupon bond

This was the currency risk confronting Disney. The company had decided to hedge the currency risk. They were worried that the yen was going to depreciate. It was not clear why they thought this. Between 1982 and mid-1985, the yen/dollar exchange rate had traded in a modest range of $1/¥230 to $1/¥257 (about 12%). Since the end of 1984, the yen had weakened a little from ¥246 to ¥250. A theory called purchasing power parity says that relative inflation rates are an indicator of future exchange rates. The currency of a country with high inflation rates (US) will tend to depreciate relative to a country with low inflation rates (Japan). Japanese inflation was very low, about half US inflation. Disney did not seem to have noticed this. Disney was probably hedging for different reasons. The yen royalties from Tokyo Disneyland was worth around ¥8,000 million or $32 million.

However, the text is different. 6 ‘What Worries Warren’ (3 March 2003) Fortune. 13_INDEX.QXD 17/2/06 4:44 pm Page 325 Index accounting rules 139, 221, 228, 257 Accounting Standards Board 33 accrual accounting 139 active fund management 111 actuaries 107–10, 205, 289 Advance Corporation Tax 242 agency business 123–4, 129 agency theory 117 airline profits 140–1 Alaska 319 Allen, Woody 20 Allied Irish Bank 143 Allied Lyons 98 alternative investment strategies 112, 308 American Express 291 analysts, role of 62–4 anchor effect 136 Anderson, Rolf 92–4 annuities 204–5 ANZ Bank 277 Aquinas, Thomas 137 arbitrage 33, 38–40, 99, 114, 137–8, 171–2, 245–8, 253–5, 290, 293–6 arbitration 307 Argentina 45 arithmophobia 177 ‘armpit theory’ 303 Armstrong World Industries 274 arrears assets 225 Ashanti Goldfields 97–8, 114 Asian financial crisis (1997) 4, 9, 44–5, 115, 144, 166, 172, 207, 235, 245, 252, 310, 319 asset consultants 115–17, 281 ‘asset growth’ strategy 255 asset swaps 230–2 assets under management (AUM) 113–4, 117 assignment of loans 267–8 AT&T 275 attribution of earnings 148 auditors 144 Australia 222–4, 254–5, 261–2 back office functions 65–6 back-to-back loans 35, 40 backwardation 96 Banca Popolare di Intra 298 Bank of America 298, 303 Bank of International Settlements 50–1, 281 Bank of Japan 220 Bankers’ Trust (BT) 59, 72, 101–2, 149, 217–18, 232, 268–71, 298, 301, 319 banking regulations 155, 159, 162, 164, 281, 286, 288 banking services 34; see also commercial banks; investment banks bankruptcy 276–7 Banque Paribas 37–8, 232 Barclays Bank 121–2, 297–8 13_INDEX.QXD 17/2/06 326 4:44 pm Page 326 Index Baring, Peter 151 Baring Brothers 51, 143, 151–2, 155 ‘Basel 2’ proposal 159 basis risk 28, 42, 274 Bear Stearns 173 bearer eurodollar collateralized securities (BECS) 231–3 ‘behavioural finance’ 136 Berkshire Hathaway 19 Bermudan options 205, 227 Bernstein, Peter 167 binomial option pricing model 196 Bismarck, Otto von 108 Black, Fischer 22, 42, 160, 185, 189–90, 193, 195, 197, 209, 215 Black–Scholes formula for option pricing 22, 185, 194–5 Black–Scholes–Merton model 160, 189–93, 196–7 ‘black swan’ hypothesis 130 Blair, Tony 223 Bogle, John 116 Bohr, Niels 122 Bond, Sir John 148 ‘bond floor’ concept 251–4 bonding 75–6, 168, 181 bonuses 146–51, 244, 262, 284–5 Brady Commission 203 brand awareness and brand equity 124, 236 Brazil 302 Bretton Woods system 33 bribery 80, 303 British Sky Broadcasting (BSB) 247–8 Brittain, Alfred 72 broad index secured trust offerings (BISTROs) 284–5 brokers 69, 309 Brown, Robert 161 bubbles 210, 310, 319 Buconero 299 Buffet, Warren 12, 19–20, 50, 110–11, 136, 173, 246, 316 business process reorganization 72 business risk 159 Business Week 130 buy-backs 249 ‘call’ options 25, 90, 99, 101, 131, 190, 196 callable bonds 227–9, 256 capital asset pricing model (CAPM) 111 capital flow 30 capital guarantees 257–8 capital structure arbitrage 296 Capote, Truman 87 carbon trading 320 ‘carry cost’ model 188 ‘carry’ trades 131–3, 171 cash accounting 139 catastrophe bonds 212, 320 caveat emptor principle 27, 272 Cayman Islands 233–4 Cazenove (company) 152 CDO2 292 Cemex 249–50 chaos theory 209, 312 Chase Manhattan Bank 143, 299 Chicago Board Options Exchange 195 Chicago Board of Trade (CBOT) 25–6, 34 chief risk officers 177 China 23–5, 276, 302–4 China Club, Hong Kong 318 Chinese walls 249, 261, 280 chrematophobia 177 Citibank and Citigroup 37–8, 43, 71, 79, 94, 134–5, 149, 174, 238–9 Citron, Robert 124–5, 212–17 client relationships 58–9 Clinton, Bill 223 Coats, Craig 168–9 collateral requirements 215–16 collateralized bond obligations (CBOs) 282 collateralized debt obligations (CDOs) 45, 282–99 13_INDEX.QXD 17/2/06 4:44 pm Page 327 Index collateralized fund obligations (CFOs) 292 collateralized loan obligations (CLOs) 283–5, 288 commercial banks 265–7 commoditization 236 commodity collateralized obligations (CCOs) 292 commodity prices 304 Commonwealth Bank of Australia 255 compliance officers 65 computer systems 54, 155, 197–8 concentration risk 271, 287 conferences with clients 59 confidence levels 164 confidentiality 226 Conseco 279–80 contagion crises 291 contango 96 contingent conversion convertibles (co-cos) 257 contingent payment convertibles (co-pays) 257 Continental Illinois 34 ‘convergence’ trading 170 convertible bonds 250–60 correlations 163–6, 294–5; see also default correlations corruption 303 CORVUS 297 Cox, John 196–7 credit cycle 291 credit default swaps (CDSs) 271–84, 293, 299 credit derivatives 129, 150, 265–72, 282, 295, 299–300 Credit Derivatives Market Practices Committee 273, 275, 280–1 credit models 294, 296 credit ratings 256–7, 270, 287–8, 297–8, 304 credit reserves 140 credit risk 158, 265–74, 281–95, 299 327 credit spreads 114, 172–5, 296 Credit Suisse 70, 106, 167 credit trading 293–5 CRH Capital 309 critical events 164–6 Croesus 137 cross-ruffing 142 cubic splines 189 currency options 98, 218, 319 custom repackaged asset vehicles (CRAVEs) 233 daily earning at risk (DEAR) concept 160 Daiwa Bank 142 Daiwa Europe 277 Danish Oil and Natural Gas 296 data scrubbing 142 dealers, work of 87–8, 124–8, 133, 167, 206, 229–37, 262, 295–6; see also traders ‘death swap’ strategy 110 decentralization 72 decision-making, scientific 182 default correlations 270–1 defaults 277–9, 287, 291, 293, 296, 299 DEFCON scale 156–7 ‘Delta 1’ options 243 delta hedging 42, 200 Deming, W.E. 98, 101 Denmark 38 deregulation, financial 34 derivatives trading 5–6, 12–14, 18–72, 79, 88–9, 99–115, 123–31, 139–41, 150, 153, 155, 175, 184–9, 206–8, 211–14, 217–19, 230, 233, 257, 262–3, 307, 316, 319–20; see also equity derivatives Derman, Emmanuel 185, 198–9 Deutsche Bank 70, 104, 150, 247–8, 274, 277 devaluations 80–1, 89, 203–4, 319 13_INDEX.QXD 17/2/06 4:44 pm Page 328 328 Index dilution of share capital 241 DINKs 313 Disney Corporation 91–8 diversification 72, 110–11, 166, 299 dividend yield 243 ‘Dr Evil’ trade 135 dollar premium 35 downsizing 73 Drexel Burnham Lambert (DBL) 282 dual currency bonds 220–3; see also reverse dual currency bonds earthquakes, bonds linked to 212 efficient markets hypothesis 22, 31, 111, 203 electronic trading 126–30, 134 ‘embeddos’ 218 emerging markets 3–4, 44, 115, 132–3, 142, 212, 226, 297 Enron 54, 142, 250, 298 enterprise risk management (ERM) 176 equity capital management 249 equity collateralized obligations (ECOs) 292 equity derivatives 241–2, 246–9, 257–62 equity index 137–8 equity investment, retail market in 258–9 equity investors’ risk 286–8 equity options 253–4 equity swaps 247–8 euro currency 171, 206, 237 European Bank for Reconstruction and Development 297 European currency units 93 European Union 247–8 Exchange Rate Mechanism, European 204 exchangeable bonds 260 expatriate postings 81–2 expert witnesses 310–12 extrapolation 189, 205 extreme value theory 166 fads of management science 72–4 ‘fairway bonds’ 225 Fama, Eugene 22, 111, 194 ‘fat tail’ events 163–4 Federal Accounting Standards Board 266 Federal Home Loans Bank 213 Federal National Mortgage Association 213 Federal Reserve Bank 20, 173 Federal Reserve Board 132 ‘Ferraris’ 232 financial engineering 228, 230, 233, 249–50, 262, 269 Financial Services Authority (FSA), Japan 106, 238 Financial Services Authority (FSA), UK 15, 135 firewalls 235–6 firing of staff 84–5 First Interstate Ltd 34–5 ‘flat’ organizations 72 ‘flat’ positions 159 floaters 231–2; see also inverse floaters ‘flow’ trading 60–1, 129 Ford Motors 282, 296 forecasting 135–6, 190 forward contracts 24–33, 90, 97, 124, 131, 188 fugu fish 239 fund management 109–17, 286, 300 futures see forward contracts Galbraith, John Kenneth 121 gamma risk 200–2, 294 Gauss, Carl Friedrich 160–2 General Motors 279, 296 General Reinsurance 20 geometric Brownian motion (GBM) 161 Ghana 98 Gibson Greeting Cards 44 Glass-Steagall Act 34 gold borrowings 132 13_INDEX.QXD 17/2/06 4:44 pm Page 329 Index gold sales 97, 137 Goldman Sachs 34, 71, 93, 150, 173, 185 ‘golfing holiday bonds’ 224 Greenspan, Alan 6, 9, 19–21, 29, 43, 47, 50, 53, 62, 132, 159, 170, 215, 223, 308 Greenwich NatWest 298 Gross, Bill 19 Guangdong International Trust and Investment Corporation (GITIC) 276–7 guaranteed annuity option (GAO) contracts 204–5 Gutenfreund, John 168–9 gyosei shido 106 Haghani, Victor 168 Hamanaka, Yasuo 142 Hamburgische Landesbank 297 Hammersmith and Fulham, London Borough of 66–7 ‘hara-kiri’ swaps 39 Hartley, L.P. 163 Hawkins, Greg 168 ‘heaven and hell’ bonds 218 hedge funds 44, 88–9, 113–14, 167, 170–5, 200–2, 206, 253–4, 262–3, 282, 292, 296, 300, 308–9 hedge ratio 264 hedging 24–8, 31, 38–42, 60, 87–100, 184, 195–200, 205–7, 214, 221, 229, 252, 269, 281, 293–4, 310 Heisenberg, Werner 122 ‘hell bonds’ 218 Herman, Clement (‘Crem’) 45–9, 77, 84, 309 Herodotus 137, 178 high net worth individuals (HNWIs) 237–8, 286 Hilibrand, Lawrence 168 Hill Samuel 231–2 329 The Hitchhiker’s Guide to the Galaxy 189 Homer, Sidney 184 Hong Kong 9, 303–4 ‘hot tubbing’ 311–12 HSBC Bank 148 HSH Nordbank 297–8 Hudson, Kevin 102 Hufschmid, Hans 77–8 IBM 36, 218, 260 ICI 34 Iguchi, Toshihude 142 incubators 309 independent valuation 142 indexed currency option notes (ICONs) 218 India 302 Indonesia 5, 9, 19, 26, 55, 80–2, 105, 146, 219–20, 252, 305 initial public offerings 33, 64, 261 inside information and insider trading 133, 241, 248–9 insurance companies 107–10, 117, 119, 150, 192–3, 204–5, 221, 223, 282, 286, 300; see also reinsurance companies insurance law 272 Intel 260 intellectual property in financial products 226 Intercontinental Hotels Group (IHG) 285–6 International Accounting Standards 33 International Securities Market Association 106 International Swap Dealers Association (ISDA) 273, 275, 279, 281 Internet stock and the Internet boom 64, 112, 259, 261, 310, 319 interpolation of interest rates 141–2, 189 inverse floaters 46–51, 213–16, 225, 232–3 13_INDEX.QXD 17/2/06 4:44 pm Page 330 330 Index investment banks 34–8, 62, 64, 67, 71, 127–8, 172, 198, 206, 216–17, 234, 265–7, 298, 309 investment managers 43–4 investment styles 111–14 irrational decisions 136 Italy 106–7 Ito’s Lemma 194 Japan 39, 43, 82–3, 92, 94, 98–9, 101, 106, 132, 142, 145–6, 157, 212, 217–25, 228, 269–70 Jensen, Michael 117 Jett, Joseph 143 JP Morgan (company) 72, 150, 152, 160, 162, 249–50, 268–9, 284–5, 299; see also Morgan Guaranty junk bonds 231, 279, 282, 291, 296–7 JWM Associates 175 Kahneman, Daniel 136 Kaplanis, Costas 174 Kassouf, Sheen 253 Kaufman, Henry 62 Kerkorian, Kirk 296 Keynes, J.M. 167, 175, 198 Keynesianism 5 Kidder Peabody 143 Kleinwort Benson 40 Korea 9, 226, 278 Kozeny, Viktor 121 Krasker, William 168 Kreiger, Andy 319 Kyoto Protocol 320 Lavin, Jack 102 law of large numbers 192 Leeson, Nick 51, 131, 143, 151 legal opinions 47, 219–20, 235, 273–4 Leibowitz, Martin 184 Leland, Hayne 42, 202 Lend Lease Corporation 261–2 leptokurtic conditions 163 leverage 31–2, 48–50, 54, 99, 102–3, 114, 131–2, 171–5, 213–14, 247, 270–3, 291, 295, 305, 308 Lewis, Kenneth 303 Lewis, Michael 77–8 life insurance 204–5 Lintner, John 111 liquidity options 175 liquidity risk 158, 173 litigation 297–8 Ljunggren, Bernt 38–40 London Inter-Bank Offered Rate (LIBOR) 6, 37 ‘long first coupon’ strategy 39 Long Term Capital Management (LTCM) 44, 51, 62, 77–8, 84, 114, 166–75, 187, 206, 210, 215–18, 263–4, 309–10 Long Term Credit Bank of Japan 94 LOR (company) 202 Louisiana Purchase 319 low exercise price options (LEPOs) 261 Maastricht Treaty and criteria 106–7 McLuhan, Marshall 134 McNamara, Robert 182 macro-economic indicators, derivatives linked to 319 Mahathir Mohammed 31 Malaysia 9 management consultants 72–3 Manchester United 152 mandatory convertibles 255 Marakanond, Rerngchai 302 margin calls 97–8, 175 ‘market neutral’ investment strategy 114 market risk 158, 173, 265 marketable eurodollar collateralized securities (MECS) 232 Markowitz, Harry 110 mark-to-market accounting 10, 100, 139–41, 145, 150, 174, 215–16, 228, 244, 266, 292, 295, 298 Marx, Groucho 24, 57, 67, 117, 308 13_INDEX.QXD 17/2/06 4:44 pm Page 331 Index mathematics applied to financial instruments 209–10; see also ‘quants’ matrix structures 72 Meckling, Herbert 117 Melamed, Leo 34, 211 merchant banks 38 Meriwether, John 167–9, 172–5 Merrill Lynch 124, 150, 217, 232 Merton, Robert 22, 42, 168–70, 175, 185, 189–90, 193–7, 210 Messier, Marie 247 Metallgesellschaft 95–7 Mexico 44 mezzanine finance 285–8, 291–7 MG Refining and Marketing 95–8, 114 Microsoft 53 Mill, Stuart 130 Miller, Merton 22, 101, 194 Milliken, Michael 282 Ministry of Finance, Japan 222 misogyny 75–7 mis-selling 238, 297–8 Mitchell, Edison 70 Mitchell & Butler 275–6 models financial 42–3, 141–2, 163–4, 173–5, 181–4, 189, 198–9, 205–10 of business processes 73–5 see also credit models Modest, David 168 momentum investment 111 monetization 260–1 monopolies in financial trading 124 moral hazard 151, 280, 291 Morgan Guaranty 37–8, 221, 232 Morgan Stanley 76, 150 mortgage-backed securities (MBSs) 282–3 Moscow, City of 277 moves of staff between firms 150, 244 Mozer, Paul 169 Mullins, David 168–70 multi-skilling 73 331 Mumbai 3 Murdoch, Rupert 247 Nabisco 220 Napoleon 113 NASDAQ index 64, 112 Nash, Ogden 306 National Australia Bank 144, 178 National Rifle Association 29 NatWest Bank 144–5, 198 Niederhoffer, Victor 130 ‘Nero’ 7, 31, 45–9, 60, 77, 82–3, 88–9, 110, 118–19, 125, 128, 292 NERVA 297 New Zealand 319 Newman, Frank 104 news, financial 133–4 News Corporation 247 Newton, Isaac 162, 210 Nippon Credit Bank 106, 271 Nixon, Richard 33 Nomura Securities 218 normal distribution 160–3, 193, 199 Northern Electric 248 O’Brien, John 202 Occam, William 188 off-balance sheet transactions 32–3, 99, 234, 273, 282 ‘offsites’ 74–5 oil prices 30, 33, 89–90, 95–7 ‘omitted variable’ bias 209–10 operational risk 158, 176 opinion shopping 47 options 9, 21–2, 25–6, 32, 42, 90, 98, 124, 197, 229 pricing 185, 189–98, 202 Orange County 16, 44, 50, 124–57, 212–17, 232–3 orphan subsidiaries 234 over-the-counter (OTC) market 26, 34, 53, 95, 124, 126 overvaluation 64 13_INDEX.QXD 17/2/06 4:44 pm Page 332 332 Index ‘overwhelming force’ strategy 134–5 Owen, Martin 145 ownership, ‘legal’ and ‘economic’ 247 parallel loans 35 pari-mutuel auction system 319 Parkinson’s Law 136 Parmalat 250, 298–9 Partnoy, Frank 87 pension funds 43, 108–10, 115, 204–5, 255 People’s Bank of China (PBOC) 276–7 Peters’ Principle 71 petrodollars 71 Pétrus (restaurant) 121 Philippines, the 9 phobophobia 177 Piga, Gustavo 106 PIMCO 19 Plaza Accord 38, 94, 99, 220 plutophobia 177 pollution quotas 320 ‘portable alpha’ strategy 115 portfolio insurance 112, 202–3, 294 power reverse dual currency (PRDC) bonds 226–30 PowerPoint 75 preferred exchangeable resettable listed shares (PERLS) 255 presentations of business models 75 to clients 57, 185 prime brokerage 309 Prince, Charles 238 privatization 205 privity of contract 273 Proctor & Gamble (P&G) 44, 101–4, 155, 298, 301 product disclosure statements (PDSs) 48–9 profit smoothing 140 ‘programme’ issuers 234–5 proprietary (‘prop’) trading 60, 62, 64, 130, 174, 254 publicly available information (PAI) 277 ‘puff’ effect 148 purchasing power parity theory 92 ‘put’ options 90, 131, 256 ‘quants’ 183–9, 198, 208, 294 Raabe, Matthew 217 Ramsay, Gordon 121 range notes 225 real estate 91, 219 regulatory arbitrage 33 reinsurance companies 288–9 ‘relative value’ trading 131, 170–1, 310 Reliance Insurance 91–2 repackaging (‘repack’) business 230–6, 282, 290 replication in option pricing 195–9, 202 dynamic 200 research provided to clients 58, 62–4, 184 reserves, use of 140 reset preference shares 254–7 restructuring of loans 279–81 retail equity products 258–9 reverse convertibles 258–9 reverse dual currency bonds 223–30 ‘revolver’ loans 284–5 risk, financial, types of 158 risk adjusted return on capital (RAROC) 268, 290 risk conservation principle 229–30 risk management 65, 153–79, 184, 187, 201, 267 risk models 163–4, 173–5 riskless portfolios 196–7 RJ Reynolds (company) 220–1 rogue traders 176, 313–16 Rosenfield, Eric 168 Ross, Stephen 196–7, 202 Roth, Don 38 Rothschild, Mayer Amshel 267 Royal Bank of Scotland 298 Rubinstein, Mark 42, 196–7 13_INDEX.QXD 17/2/06 4:44 pm Page 333 Index Rumsfeld, Donald 12, 134, 306 Rusnak, John 143 Russia 45, 80, 166, 172–3, 274, 302 sales staff 55–60, 64–5, 125, 129, 217 Salomon Brothers 20, 36, 54, 62, 167–9, 174, 184 Sandor, Richard 34 Sanford, Charles 72, 269 Sanford, Eugene 269 Schieffelin, Allison 76 Scholes, Myron 22, 42, 168–71, 175, 185, 189–90, 193–7, 263–4 Seagram Group 247 Securities and Exchange Commission, US 64, 304 Securities and Futures Authority, UK 249 securitization 282–90 ‘security design’ 254–7 self-regulation 155 sex discrimination 76 share options 250–1 Sharpe, William 111 short selling 30–1, 114 Singapore 9 single-tranche CDOs 293–4, 299 ‘Sisters of Perpetual Ecstasy’ 234 SITCOMs 313 Six Continents (6C) 275–6 ‘smile’ effect 145 ‘snake’ currency system 203 ‘softing’ arrangements 117 Solon 137 Soros, George 44, 130, 253, 318–19 South Sea Bubble 210 special purpose asset repackaging companies (SPARCs) 233 special purpose vehicles (SPVs) 231–4, 282–6, 290, 293 speculation 29–31, 42, 67, 87, 108, 130 ‘spinning’ 64 333 Spitzer, Eliot 64 spread 41, 103; see also credit spreads stack hedges 96 Stamenson, Michael 124–5 standard deviation 161, 193, 195, 199 Steinberg, Sol 91 stock market booms 258, 260 stock market crashes 42–3, 168, 203, 257, 259, 319 straddles or strangles 131 strategy in banking 70 stress testing 164–6 stripping of convertible bonds 253–4 structured investment products 44, 112, 115, 118, 128, 211–39, 298 structured note asset packages (SNAPs) 233 Stuart SC 18, 307, 316–18 Styblo Bleder, Tanya 153 Suharto, Thojib 81–2 Sumitomo Corporation 100, 142 Sun Tzu 61 Svensk Exportkredit (SEK) 38–9 swaps 5–10, 26, 35–40, 107, 188, 211; see also equity swaps ‘swaptions’ 205–6 Swiss Bank Corporation (SBC) 248–9 Swiss banks 108, 305 ‘Swiss cheese theory’ 176 synthetic securitization 284–5, 288–90 systemic risk 151 Takeover Panel 248–9 Taleb, Nassim 130, 136, 167 target redemption notes 225–6 tax and tax credits 171, 242–7, 260–3 Taylor, Frederick 98, 101 team-building exercises 76 team moves 149 technical analysis 60–1, 135 television programmes about money 53, 62–3 Thailand 9, 80, 302–5 13_INDEX.QXD 17/2/06 4:44 pm Page 334 334 Index Thatcher, Margaret 205 Thorp, Edward 253 tobashi trades 105–7 Tokyo Disneyland 92, 212 top managers 72–3 total return swaps 246–8, 269 tracking error 138 traders in financial products 59–65, 129–31, 135–6, 140, 148, 151, 168, 185–6, 198; see also dealers trading limits 42, 157, 201 trading rooms 53–4, 64, 68, 75–7, 184–7, 208 Trafalgar House 248 tranching 286–9, 292, 296 transparency 26, 117, 126, 129–30, 310 Treynor, Jack 111 trust investment enhanced return securities (TIERS) 216, 233 trust obligation participating securities (TOPS) 232 TXU Europe 279 UBS Global Asset Management 110, 150, 263–4, 274 uncertainty principle 122–3 unique selling propositions 118 unit trusts 109 university education 187 unspecified fund obligations (UFOs) 292 ‘upfronting’ of income 139, 151 Valéry, Paul 163 valuation 64, 142–6 value at risk (VAR) concept 160–7, 173 value investing 111 Vanguard 116 vanity bonds 230 variance 161 Vietnam War 182, 195 Virgin Islands 233–4 Vivendi 247–8 volatility of bond prices 197 of interest rates 144–5 of share prices 161–8, 172–5, 192–3, 199 Volcker, Paul 20, 33 ‘warehouses’ 40–2, 139 warrants arbitrage 99–101 weather, bonds linked to 212, 320 Weatherstone, Dennis 72, 268 Weil, Gotscal & Manges 298 Weill, Sandy 174 Westdeutsche Genosenschafts Zentralbank 143 Westminster Group 34–5 Westpac 261–2 Wheat, Allen 70, 72, 106, 167 Wojniflower, Albert 62 World Bank 4, 36, 38 World Food Programme 320 Worldcom 250, 298 Wriston, Walter 71 WTI (West Texas Intermediate) contracts 28–30 yield curves 103, 188–9, 213, 215 yield enhancement 112, 213, 269 ‘yield hogs’ 43 zaiteku 98–101, 104–5 zero coupon bonds 221–2, 257–8

 

pages: 482 words: 117,962

Exceptional People: How Migration Shaped Our World and Will Define Our Future by Ian Goldin, Geoffrey Cameron, Meera Balarajan

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

Admiral Zheng, agricultural Revolution, barriers to entry, Berlin Wall, Branko Milanovic, British Empire, conceptual framework, demographic transition, Deng Xiaoping, failed state, Fall of the Berlin Wall, Gini coefficient, global supply chain, guest worker program, illegal immigration, income inequality, income per capita, job automation, Joseph Schumpeter, knowledge economy, labor-force participation, labour mobility, Lao Tzu, life extension, low skilled workers, low-wage service sector, Malacca Straits, microcredit, Network effects, new economy, New Urbanism, open borders, out of africa, price mechanism, purchasing power parity, Richard Florida, Silicon Valley, Silicon Valley startup, Skype, spice trade, trade route, transaction costs, transatlantic slave trade, transatlantic slave trade, women in the workforce, working-age population

It assumes that, all else remaining unchanged (economists' heroic “ceteris paribus” assumption), individuals want to seek their highest utility, or well-being, and typically this involves pursuing higher wages.11 Migration is a way to invest one's “human capital”: people will assume the financial and psychological costs of migration in order to achieve the greatest return on their skills.12 According to this approach, migration flows between two countries are the product of aggregated individual moves undertaken in response to individual cost/benefit calculations of this sort.13 On the surface, the neoclassical approach is appealing. After all, most migration is from developing countries to developed countries, where wages are much higher. The current wage differential between Organisation for Economic Cooperation and Development (OECD) countries and nearby low-wage countries creates pressure for migration that mirrors historical movement from low-wage to high-wage areas.14 Unadjusted for purchasing power parity (PPP), wages in Japan are about $13.32 an hour, whereas in Vietnam, they are 13 cents an hour.15 A low-skilled construction laborer in the United States will work less than 4 minutes to make enough to buy a kilogram (2.2 pounds) of flour, whereas a Mexican laborer at home will have to work for more than an hour.16 A worker moving to the United States could increase his or her earnings (adjusted for PPP) from $17,000 per year to $37,989 per year through migration—with no extra training.17 Wage differentials offer powerful incentives for cross-border migration to better-paying labor markets.

World Migration 2008: Managing Labour Mobility in the Evolving Global Economy. Geneva: IOM, p. 533. 152. Ghosh, 2006: 57. 153. This paragraph draws on IOM, 2008: 152–153. 154. Michael A. Clemens, Claudio E. Montenegro, and Lant Pritchett. 2009. “The Place Premium: Wage Differences for Identical Workers across the US Border,” Harvard Kennedy School Faculty Research Working Paper Series RWP 09–004. 155. Purchasing power parity adjusted US dollars. 156. Clemens, Montenegro, and Pritchett, 2009: 2–3. 157. Rosalia Sciortino and Sureeporn Punpuing. 2009. International Migration in Thailand 2009. Geneva: IOM. 158. Irina Ivakhnyuk. 2009. “Russian Migration Policy in the Soviet and PostSoviet Periods and Its Impact on Human Development in the Region,” UNDP Human Development Report 2009 Background Paper 14, p. 34. 159.

 

pages: 413 words: 119,379

The Looting Machine: Warlords, Oligarchs, Corporations, Smugglers, and the Theft of Africa's Wealth by Tom Burgis

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

Berlin Wall, blood diamonds, BRICs, British Empire, central bank independence, clean water, colonial rule, corporate social responsibility, crony capitalism, Deng Xiaoping, Donald Trump, F. W. de Klerk, Gini coefficient, Livingstone, I presume, McMansion, megacity, offshore financial centre, oil shock, open economy, purchasing power parity, rolodex, Ronald Reagan, Silicon Valley, South China Sea, sovereign wealth fund, structural adjustment programs, trade route, transfer pricing, upwardly mobile, urban planning, Washington Consensus, WikiLeaks

See, for example, Alexandre Neto, ‘Government Uses Military in Mass Forced Evictions’, Maka Angola, 5 February 2013, http://makaangola.org/maka-antigo/2013/02/05/aparato-de-guerra​-usado-nas-demolicoes-em-​cacuaco/?lang=en. 25. Rosa Palavera, interview with author, Luanda, June 2012. 26. Paulo Moreira (Portuguese PhD student living in Chicala to study the Angolan government’s slum policies), interview with author, Luanda, June 2012. 27. The World Bank data for 2009 put 43 per cent of Angolans below the international poverty line of $1.25 a day, adjusted for purchasing power parity. World Development Indicators, World Bank, http://data.worldbank.org/indicator/SI.POV.DDAY. 28. Delta Imobiliária’s role as the estate agent for Kilamba and other Chinese-built housing developments is confirmed in a 28 August 2013 press release by Sonip, the real estate arm of Sonangol, titled ‘Lista de beneficiários de habitações na centralidade do Kilamba atendimento de 02 a 06 de setembro de 2013’.

UN Development Programme, Human Development Indicators 2013, https://data.undp.org/dataset/​Table-1-Human-Development-I​ndex-and-its-components/wxub-qc5k. The non-African countries in the bottom ten were Qatar, Kuwait and Oman, all significant oil and gas producers, Bhutan, where fuel and minerals account for half of exports, and Turkey. 5. The GDP per head numbers are for 2012 and calculated by the World Bank using purchasing power parity at current international dollar prices. The living standards ranking is the United Nations Development Programme’s Human Development Index for 2012. 6. The US Department of Justice enumerated the assets as part of an attempt to confiscate what it said were Teodorin Obiang’s profits of corruption (‘Second Vice President of Equatorial Guinea Agrees to Relinquish More Than $30 Million of Assets Purchased with Corruption Proceeds’, 10 October 2014, www.justice.gov/opa/pr/second-vice-president-equatorial-guinea-agrees-relinquish-more-30-million-assets-purchased).

 

Stocks for the Long Run, 4th Edition: The Definitive Guide to Financial Market Returns & Long Term Investment Strategies by Jeremy J. Siegel

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

asset allocation, backtesting, Black-Scholes formula, Bretton Woods, buy low sell high, California gold rush, capital asset pricing model, cognitive dissonance, compound rate of return, correlation coefficient, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, dividend-yielding stocks, equity premium, Eugene Fama: efficient market hypothesis, fixed income, German hyperinflation, implied volatility, index arbitrage, index fund, Isaac Newton, joint-stock company, Long Term Capital Management, loss aversion, market bubble, mental accounting, new economy, oil shock, passive investing, prediction markets, price anchoring, price stability, purchasing power parity, random walk, Richard Thaler, risk tolerance, risk/return, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, short selling, South Sea Bubble, technology bubble, The Great Moderation, The Wisdom of Crowds, transaction costs, tulip mania, Vanguard fund

Thus investors’ dollar returns were higher if they owned British stocks without hedging them than their dollar returns if they owned British stocks and paid to hedge them. Furthermore, for investors with long-term horizons, hedging currency risk in foreign stock markets is not important. In fact, there is some evidence that in the long run, currency hedges might actually increase the volatility of dollar returns.9 In the long run, exchange-rate movements are determined primarily by differences in inflation between countries, a phenomenon called purchasing power parity. Since equities are claims on real assets, their long-term returns have compensated investors for changes in inflation and thus protected investors from exchange-rate risk. Therefore, it is not worth the cost for long-term stock investors to hedge their currency risk. Sector Diversification Although the returns between foreign and U.S. stocks might be increasingly correlated, the returns between international industrial sectors are not becoming more correlated.

., 290 Procter & Gamble, 59i, 62, 144, 176i, 177 Proctor, William, 65n Producer price index (PPI), 244–245 Profits: ratio to national income, market valuation and, 115–116, 116i (See also Earnings) Program traders, 255 Programmed trading, 258 Prospect theory, 322–323, 328–330 Public capital, in global markets, 177–178 Purchasing managers index (PMI), 243 Purchasing power, growth of, 11–12, 11i Purchasing power parity, 173 Puts, 264 in-the-money, 266 out-of-the-money, 266 Quality of earnings, 108–109 Quantum Chemical Corp., 48 Quest Communications, 64 Ramaswamy, Krishna, 145 Random walk, 29, 29i, 291–292 A Random Walk Down Wall Street (Malkiel), 303 Raskob, John J., 3–5 Rational theory of consumer choice, 322 Reagan, Ronald, 274 Real returns, 112 annual, in United States, 20 on fixed-income assets, 14–16, 15i total, growth of, 11–12, 11i Rebalancing, of fundamentally weighted portfolios, 355 Regulation Q, 8 Reported earnings, 102–104 Representative bias, 326 Research Affiliates, 356 Index Reserve accounts, 195–196 Residual risk, 140 Resistance level, 294 Retained earnings, 98 Return biases, in stock indexes, 46–47 Returns: arithmetic, 22 buy-and-hold, 215 effects of costs on, 350 from 1802-1870, 21–22 from 1802-present, 5–7, 6i excess, 215 for fixed-income assets, standard deviation of, 30 geometric, 22 long-term, 12–14, 13i from market peaks, 27, 28i mean reversion of, 13 measurement of, 23–24 predicting using trend lines, 41–42 real (see Real returns) realistic expectations for, 360–361 short-term, 14 on stocks and bonds, correlation between, 30–32, 31i switching, 214–215, 215i taxes and (see Taxes) time horizons and, 361 total, defined, 5 Revenue Act of 1913, 74 Review of Economic Statistics, 81 Rexall Drug, 62 Rhea, Charles, 290 Richardson, Scott, 108n Richardson Merrell, 60i, 62 Risk: in defined benefit plans, 106–107 diversifiable (residual), 140 holding period and, 24–27, 25i, 26i local, 169 measurement of, 23–24 standard measures of, 28–30, 29i 377 Risk (Cont.): to stockholders, lowering of by employee stock options, 105 Ritter, Jay, 310n RJ Reynolds Tobacco Co., 60i, 62 RJR Nabisco, 62 Roberts, Harry, 291, 292 Roche, 177 Roosevelt, Franklin D., 193, 227, 232 Ross, Stephen A., 18n Royal Bank of Scotland, 175 Royal Dutch Petroleum, 55, 56i, 183 Royal Dutch Shell, 183 Ruane, Cunniff, and Goldfarb, 346 Russell 1000, 45, 46i Russell 2000, 45, 46i Russell 3000, 45 Russell 2000 Index, 142n Russell indexes, 342 Russian default on bonds, 88 S.

 

pages: 145 words: 43,599

Hawai'I Becalmed: Economic Lessons of the 1990s by Christopher Grandy

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

Bretton Woods, business climate, dark matter, inventory management, Long Term Capital Management, market bubble, Maui Hawaii, minimum wage unemployment, open economy, purchasing power parity, Silicon Valley, Telecommunications Act of 1996

We fail to recognize the dangers of policies framed in the appealing language of “family” or “local business” or “tradition.” We may value policies promoted to advance each of these concepts. But such policies also 108 Figure 34 Hawai‘i Becalmed Per Capita Gross Product 1999 (unless indicated otherwise) Source: All but Hawai‘i and Guam from U.S. Central Intelligence Agency, The World Fact Book 2000, http://www.odci.gov/cia/publications/factbook/index.html. GDP calculations by purchasing power parity. Hawai‘i from DBEDT. Guam from http://www.admin.gov.gu/commerce/guam_income_indicators.htm come with costs that we should recognize. Only if we weigh both the benefits and costs will we make wise decisions. In my view some of the policy implications of enjoying the benefits of an export-oriented economy—and some of the lessons of the 1990s— include the following. First, Hawai‘i must resist protectionist policies.

 

pages: 239 words: 45,926

As the Future Catches You: How Genomics & Other Forces Are Changing Your Work, Health & Wealth by Juan Enriquez

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

Albert Einstein, Berlin Wall, bioinformatics, borderless world, British Empire, Buckminster Fuller, double helix, global village, half of the world's population has never made a phone call, Howard Rheingold, Jeff Bezos, Joseph Schumpeter, Kevin Kelly, knowledge economy, more computing power than Apollo, new economy, personalized medicine, purchasing power parity, Ray Kurzweil, Richard Feynman, Richard Feynman, Search for Extraterrestrial Intelligence, SETI@home, Silicon Valley, spice trade, stem cell

Department of Education, National Center for Education Statistics (NCES), Pursuing Excellence: A Study of U.S. Twelfth-Grade Mathematics and Science Achievement in International Context, NCES 98–049 (Washington, D.C.: U.S. Government Printing Office, 1998). 9. The Big Mac Index reflects the cost of purchasing this hamburger at McDonald’s restaurants throughout the world. It was created in 1986 by The Economist to look at purchasing-power parity. These figures are calculated by Reforma: www.reforma.com/flashes/negocios/big_mac/. Some of the actual differences between countries may be even larger than they appear in these numbers because the average manufacturing wage is divided by the cost of a Big Mac, and a burger costs $2.09 in the United States and $1.10 in India. Chapter III: The New Rich … and the New Poor 1. The U.S.

 

pages: 165 words: 45,129

The Economics of Inequality by Thomas Piketty, Arthur Goldhammer

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

affirmative action, Capital in the Twenty-First Century by Thomas Piketty, collective bargaining, conceptual framework, deindustrialization, Gini coefficient, income inequality, low skilled workers, means of production, moral hazard, purchasing power parity, Simon Kuznets, The Bell Curve by Richard Herrnstein and Charles Murray, very high income, working-age population

For example, the hourly wage of an American worker increased by a factor of eleven between 1870 and 1990, for an average rate of increase of about 2 percent per year (Duménil and Lévy, 1996, chap. 15), which is approximately the same as in France if we take the decrease in annual hours of work into account. This 10:1 ratio between 1990 and 1870 is approximately equivalent to, or slightly less than, the ratio of the average income of a Western citizen in 1990 to that of a Chinese or Indian citizen, using the best available estimates of purchasing power parity (Drèze and Sen, 1995, p. 213). The gaps in GDP per capita, which are often four to five times greater, don’t actually make much sense, because they are expressed in terms of official exchange rates with the advanced economies, and these rates are a very poor gauge of actual differences in purchasing power. A 10:1 gap between the average standard of living in the wealthiest countries and that in the poorest countries probably comes closer to reality.

 

pages: 237 words: 50,758

Obliquity: Why Our Goals Are Best Achieved Indirectly by John Kay

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

Andrew Wiles, Asian financial crisis, Berlin Wall, bonus culture, British Empire, business process, Cass Sunstein, computer age, credit crunch, Daniel Kahneman / Amos Tversky, discounted cash flows, discovery of penicillin, diversification, Donald Trump, Fall of the Berlin Wall, financial innovation, Gordon Gekko, greed is good, invention of the telephone, invisible hand, Jane Jacobs, Long Term Capital Management, Louis Pasteur, market fundamentalism, Nash equilibrium, pattern recognition, purchasing power parity, RAND corporation, regulatory arbitrage, shareholder value, Simon Singh, Steve Jobs, The Death and Life of Great American Cities, The Predators' Ball, The Wealth of Nations by Adam Smith, ultimatum game, urban planning, value at risk

Lord Kelvin’s lecture on “Electrical Units of Measurement,” 1883, reproduced in Popular Lectures and Addresses (London: Macmillan, 1891) vol. 1, p. 73. 6 United Nations Development Programme, Human Development Report (New York: Palgrave Macmillan, various years). Available at http://hdr.undp.org. 7 Derived from the United Nations Human Development Index Web site.L is life expectancy at birth. R is adult literacy rate (percent). E is gross enrollment index (combined primary, secondary and tertiary gross enrollment). G is GDP per capita at purchasing power parity. 8 Aristotle, Nicomachean Ethics (Cambridge: Cambridge University Press, 2000), 1, 4. 9 J. A. Kay, Jeremy Edwards, and Colin P. Mayer, The Economic Analysis of Accounting Profitability (Oxford: Oxford University Press, 1987). 10 Isaiah Berlin, I., Four Essays on Liberty (London: Oxford University Press, 1969) and Isaiah Berlin, “My Intellectual Path,” New York Review of Books XLV, no. 8 (1998). 11 Berlin, Four Essays on Liberty. 12 Gardner, New Oxford Book of English Verse, p. v. 13 Jonathan Lopez, The Man Who Made Vermeers: Unvarnishing the Legend of Master Forger Han van Meegeren (New York: Mariner Books, 2008). 14 Matthew Cullerne Brown, Art Under Stalin (Oxford: Phaidon Press, 1991); Berthold Hinz, Art in the Third Reich (Oxford: Blackwell, 1980).

 

Global Financial Crisis by Noah Berlatsky

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

accounting loophole / creative accounting, asset-backed security, banking crisis, Bretton Woods, capital controls, Celtic Tiger, centre right, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, deindustrialization, Doha Development Round, energy security, eurozone crisis, financial innovation, Food sovereignty, George Akerlof, Gordon Gekko, housing crisis, illegal immigration, income inequality, market bubble, market fundamentalism, moral hazard, new economy, Northern Rock, purchasing power parity, quantitative easing, race to the bottom, regulatory arbitrage, reserve currency, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, South China Sea, structural adjustment programs, too big to fail, trade liberalization, transfer pricing, working poor

In light of what he dubbed a “crisis of brutal proportions,” the president knowingly pointed to “hardships” and “worries” and massaged the soul of the nation with therapeutic platitudes. But that was the extent of it, because Sarkozy knows that the Jan. 29 [2009] demonstrations did not reach critical 111 The Global Financial Crisis mass by a long shot. The motley alliance of protesting professors, nurses, steel workers and students lacked a shared list of economic and political demands. Their banners made a case for wage increases, purchasing power parity or the repeal of tax reforms for the rich. At the same time, however, the protests revealed a deep-seated malaise that penetrates deeply into the conservative electorate of the governing UMP [Union for a Popular Movement, a center-right political party]. The overwhelming majority of the French are plagued by fears of unemployment, lower incomes and shrinking savings. The galloping decline in the economy has further damaged the president’s standing.

 

pages: 190 words: 61,970

Life You Can Save: Acting Now to End World Poverty by Peter Singer

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

accounting loophole / creative accounting, Branko Milanovic, Cass Sunstein, clean water, experimental economics, illegal immigration, Martin Wolf, microcredit, Peter Singer: altruism, pre–internet, purchasing power parity, randomized controlled trial, Richard Thaler, Silicon Valley, Thomas Malthus, ultimatum game, union organizing

Arthur Brooks, “The Poor Give More,” www.CondeNastPortfolio.com, March 2008, citing the 2000 Social Capital Community Benchmark Survey, www.portfolio.com/news-markets/national-news/portfolio/2008/02/19/ Poor-Give-More-to-Charity 15. Ibid. 16. “Rich” is defined here in accordance with the definition given by Branko Milanovic and mentioned in the previous chapter. The figures are also from Milanovic, Worlds Apart: Measuring International and Global Inequality (Princeton, N.J.: Princeton University Press, 2005), p. 132. 17. According to OECD purchasing power parity figures, in 2006 the U.S. GDP was 36 percent of the OECD total. See http:// lysander.sourceoecd.org/vl=3923031/cl=l4/nw=l/rpsv/figures _2007/en/page4.htm. 18. Allowing for inflation since the report of the UN task force in 2007 would bring the figures down to seven times the estimated total amount required, and eighteen times the shortfall. 19. Buddha, Dhammapada, sec. 9, stanza 118, inT Byrom, ed., Dhammapada: The Sayings of the Buddha (Boston: Shambhala, 1993), cited by Jonathan Haidt, The Happiness Hypothesis (New York: Basic Books, 2006), chapter 8.

 

pages: 234 words: 63,149

Every Nation for Itself: Winners and Losers in a G-Zero World by Ian Bremmer

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

airport security, banking crisis, barriers to entry, Berlin Wall, blood diamonds, Bretton Woods, BRICs, capital controls, clean water, Deng Xiaoping, Doha Development Round, energy security, European colonialism, failed state, global rebalancing, global supply chain, income inequality, informal economy, Julian Assange, labour mobility, Martin Wolf, Mikhail Gorbachev, mutually assured destruction, Nixon shock, nuclear winter, purchasing power parity, reserve currency, Ronald Reagan, smart grid, South China Sea, sovereign wealth fund, special economic zone, Stuxnet, trade route, uranium enrichment, Washington Consensus, WikiLeaks, Yom Kippur War

,” Federal Reserve Bank of Cleveland, August 1, 2003, https://www.clevelandfed.org/Research/commentary/2003/0801.pdf. 37. Forecasts of the arc of China’s rise vary greatly. It will become the world’s largest economy by 2050 (per HSBC), 2040 (Deutsche Bank), 2030 (IIE, World Bank), 2027 (Goldman Sachs), or 2020 (Citi, PwC). Recently, the IMF declared that China will prevail as soon as 2016 (if we assess with purchasing power parity). Citibank’s 2015 trading nation prediction: http://www.cnbc.com/id/43506564. HSBC, 2050: http://cnbusinessnews.com/hsbc-china-to-become-worlds-largest-economy-by-2050/. Deutsche Bank Research, 2040: https://www.dbresearch.com/PROD/DBR_INTERNET_EN-PROD/PROD0000000000230537.pdf. IIE, 2030: http://www.ndtv.com/article/business/china-set-to-beat-us-as-no-1-economy-by-2030-44912. World Bank, 2030: http://www.reuters.com/article/2011/03/23/worldbank-idUSH9E7EL00H20110323.

 

pages: 309 words: 78,361

Plenitude: The New Economics of True Wealth by Juliet B. Schor

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

Asian financial crisis, big-box store, business climate, carbon footprint, cleantech, Community Supported Agriculture, credit crunch, Daniel Kahneman / Amos Tversky, decarbonisation, dematerialisation, demographic transition, deskilling, Edward Glaeser, en.wikipedia.org, Gini coefficient, global village, income inequality, income per capita, Isaac Newton, Joseph Schumpeter, knowledge economy, life extension, McMansion, new economy, peak oil, pink-collar, post-industrial society, prediction markets, purchasing power parity, ride hailing / ride sharing, Robert Shiller, Robert Shiller, sharing economy, Simon Kuznets, single-payer health, smart grid, The Chicago School, Thomas L Friedman, Thomas Malthus, too big to fail, transaction costs, Zipcar

Global Footprint Network 2009 data tables. 61 the world first reached its limits in 1986 . . . 40 percent above biocapacity: A summary of overshoot can be found at the Global Footprint Network site (www.footprintnetwork.org). 62 Between 1961 and 2005, the U.S. footprint has risen: Changes in per-person footprints from 1961 are from Ewing et al. (2008), appendix table 7. Per capita incomes, corrected for purchasing power parity, are from Organization for Economic Cooperation and Development (2008). 63 Privatization . . . threatens equitable solutions: Barlow (2002). 63 the number of people living in water-stressed areas may increase dramatically: Bates et al. (2008), figure 3.3 and p. 45. 63 The water footprint shows how much: Water footprints are from Hoekstra and Chapagain (2007). 64 2,000 liters of water to produce one T-shirt: Global averages for products and water footprint data are from Hoekstra and Chapagain (2007), table 2 (p. 41) and table 3 (p. 42) respectively. 65 Now we’ve got twin crises: Thomas L.

 

pages: 236 words: 67,953

Brave New World of Work by Ulrich Beck

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

affirmative action, Asian financial crisis, Berlin Wall, collective bargaining, conceptual framework, Fall of the Berlin Wall, feminist movement, full employment, future of work, hiring and firing, illegal immigration, income inequality, informal economy, job automation, knowledge worker, labour market flexibility, labour mobility, low skilled workers, McJob, means of production, mini-job, postnationalism / post nation state, profit maximization, purchasing power parity, rising living standards, Silicon Valley, working poor, working-age population

In other words, not many capitalisms but the American way of capitalism sets the goals and standards by which other countries have to orientate themselves and be measured. All the more important is it to ask what effects and side-effects this far from modern, indeed rather archaic, ideology of the free market has unleashed in its civil-religious land of origin. How sustainable is the thesis of a ‘jobs miracle’ there? What are its darker sides? Worrying signs in paradise In the mid-1990s, per capita GDP in the United States – measured in 1991 purchasing power parity – was a fifth higher than in Germany; while the proportion of the population in gainful employment was a good 10 per cent higher, at about 48 per cent compared with 43 per cent. Hourly productivity, however, was a tenth lower in the United States than in Germany, and there was a strikingly low rate of productivity increase per person employed. Whereas GDP per head of the economically active population doubled between 1970 and 1994 in Japan and rose by two-thirds in West Germany, it increased by only a fifth or so in the United States.

 

pages: 293 words: 81,183

Doing Good Better: How Effective Altruism Can Help You Make a Difference by William MacAskill

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

barriers to entry, Black Swan, Branko Milanovic, Cal Newport, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, clean water, corporate social responsibility, correlation does not imply causation, Daniel Kahneman / Amos Tversky, David Brooks, effective altruism, en.wikipedia.org, experimental subject, follow your passion, food miles, immigration reform, income inequality, index fund, Isaac Newton, job automation, job satisfaction, labour mobility, Lean Startup, M-Pesa, meta analysis, meta-analysis, microcredit, Nate Silver, Peter Singer: altruism, purchasing power parity, quantitative trading / quantitative finance, randomized controlled trial, self-driving car, Skype, Stanislav Petrov, Steve Jobs, Steve Wozniak, Steven Pinker, The Wealth of Nations by Adam Smith, universal basic income, women in the workforce

THREE “aid is malignant”: Dambisa Moyo, Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa (New York: Farrar, Straus and Giroux, 2009), 47. “So there we have it”: Ibid. wrote a book: William Easterly, The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good (New York: Penguin, 2006). “The other tragedy”: Easterly, The White Man’s Burden, 4. The total annual economic output of the world is $87 trillion: World GDP for 2013 was $87.25 trillion in terms of purchasing power parity, and $74.31 trillion in nominal terms. Central Intelligence Agency, The World Factbook, 2014, https://www.cia.gov/library/publications/the-world-factbook/geos/xx.html. the United States spends about $800 billion on social security: Congressional Budget Office, “Monthly Budget Review—Summary for Fiscal Year 2013,” November 7, 2013, https://www.cbo.gov/sites/default/files/44716-%20MBR_FY2013_0.pdf.

 

pages: 859 words: 204,092

When China Rules the World: The End of the Western World and the Rise of the Middle Kingdom by Martin Jacques

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

Admiral Zheng, Asian financial crisis, Berlin Wall, Bretton Woods, BRICs, British Empire, credit crunch, Dava Sobel, deindustrialization, Deng Xiaoping, deskilling, discovery of the americas, Doha Development Round, energy security, European colonialism, failed state, Fall of the Berlin Wall, Francis Fukuyama: the end of history, global reserve currency, global supply chain, illegal immigration, income per capita, invention of gunpowder, James Watt: steam engine, joint-stock company, Kenneth Rogoff, land reform, land tenure, Malacca Straits, Martin Wolf, Naomi Klein, new economy, New Urbanism, open economy, pension reform, price stability, purchasing power parity, reserve currency, rising living standards, Ronald Reagan, Scramble for Africa, Silicon Valley, South China Sea, sovereign wealth fund, special drawing rights, special economic zone, spinning jenny, Spread Networks laid a new fibre optics cable between New York and Chicago, the scientific method, Thomas L Friedman, trade liberalization, urban planning, Washington Consensus, Xiaogang Anhui farmers

Although foreign multinationals dominate the country’s exports, home-grown Chinese firms like Haier, Konka, TCL, Huawei and Galanz have done well in such sectors as domestic appliances, television and telecommunications. Encouraged by the ‘Go Global’ campaign initiated by the government, the larger Chinese firms have begun to invest abroad and establish overseas subsidiaries.37 China has made astounding economic progress, but its transformation is far from complete. It remains a work in progress. Although it is already the world’s second largest economy in terms of GDP (measured by purchasing power parity), this is primarily a consequence of population size rather than economic sophistication. Can China fulfil its enormous potential and become an economic superpower? HOW SUSTAINABLE IS CHINA’S ECONOMIC GROWTH? At the centre of any discussion about China’s future role in the world - let alone talk of a Chinese century - lies the country’s economic prospects. A commitment to a growth rate of around 10 per cent remains fundamental to the government’s strategy.

Desai, ‘India and China’, pp. 2, 8, 10, 12; Martin Wolf, ‘On the Move: Asia’s Giants Take Different Routes in Pursuit of Economic Greatness’, Financial Times, 23 February 2005. 91 . Simon Long, ‘India and China: The Tiger in Front’, survey, The Economist, 5 March 2005, p. 10; Shell, Shell Global Scenarios to 2025, pp. 137-43; David Pilling, ‘India Hits Bottleneck on Way to Prosperity’, Financial Times, 24 September 2008. 92 . Measured in terms of GDP exchange rates. It is over twice as large measured by GDP purchasing power parity; The Economist, The World in 2007 (London: 2006), pp. 106-7. 93 . Gideon Rachman, ‘Welcome to the Nuclear Club, India’, Financial Times, 22 September 2008. 94 . Jo Johnson and Edward Luce, ‘Delhi Nuclear Deal Signals US Shift’, Financial Times, 2 August 2007. 95 . Garver, Protracted Contest, pp. 376-7. 96 . Charles Grant, ‘India’s Role in the New World Order’, Centre for European Reform Briefing Note (September 2008). 97 .

 

pages: 261 words: 103,244

Economists and the Powerful by Norbert Haring, Norbert H. Ring, Niall Douglas

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

accounting loophole / creative accounting, Affordable Care Act / Obamacare, Albert Einstein, asset allocation, bank run, barriers to entry, Basel III, Bernie Madoff, British Empire, central bank independence, collective bargaining, commodity trading advisor, corporate governance, credit crunch, Credit Default Swap, David Ricardo: comparative advantage, diversified portfolio, financial deregulation, George Akerlof, illegal immigration, income inequality, inflation targeting, Jean Tirole, job satisfaction, Joseph Schumpeter, knowledge worker, labour market flexibility, law of one price, Long Term Capital Management, low skilled workers, market bubble, market clearing, market fundamentalism, means of production, minimum wage unemployment, moral hazard, new economy, obamacare, open economy, pension reform, Ponzi scheme, price stability, principal–agent problem, profit maximization, purchasing power parity, Renaissance Technologies, rolodex, Sergey Aleynikov, shareholder value, short selling, Steve Jobs, The Chicago School, the payments system, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, ultimatum game, union organizing, working-age population, World Values Survey

The rich and wealthy benefit most from this way of measuring the economic success of a nation, since it de-emphasizes the gains of the mass of low-income people relative to those of a minority of rich people. As far as nations are concerned, it benefits nations that champion the policies favored by this approach, with the US being foremost among these. If you leave out city-states like Luxembourg and small oil-rich countries like Norway, then the US is first in terms of GDP (purchasing power parity adjusted, i.e. for costs of living) per citizen or per worker. This is a beneficial status, as a large and consistently fast-growing economy attracts large sums of international capital. It enables the receiving nation to consume more than it produces and to receive credit at very favorable interest rates, especially when that country’s currency is also the world’s reserve 30 ECONOMISTS AND THE POWERFUL currency.

 

pages: 279 words: 87,910

How Much Is Enough?: Money and the Good Life by Robert Skidelsky, Edward Skidelsky

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

banking crisis, Bertrand Russell: In Praise of Idleness, Bonfire of the Vanities, call centre, David Ricardo: comparative advantage, death of newspapers, financial innovation, Francis Fukuyama: the end of history, full employment, happiness index / gross national happiness, income inequality, income per capita, informal economy, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, lump of labour, market clearing, market fundamentalism, profit motive, purchasing power parity, Ralph Waldo Emerson, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, Tobin tax, union organizing, University of East Anglia, wage slave, World Values Survey

Like most economists, Keynes assumed diminishing returns to capital—each additional piece of capital would produce less output than the last—with capital saturation setting in. Further growth of GDP would come to depend largely on improvements in the quality not quantity of capital, physical and human, that is, on technical progress. Growth of GDP per head would require technical progress to outstrip population growth. * These figures are calculated according to purchasing power parity, which is a measure of what money can buy in different countries. * Households spend more time shopping, because of the increased distance and size of shops and the growth of self-service shopping. More time is also spent on childcare, which reflects changing attitudes towards child-rearing, exemplified by the phrase “quality time.” In contrast, the time devoted to domestic chores such as cooking and cleaning has shrunk with the help of labor-saving devices.

 

pages: 471 words: 109,267

The Verdict: Did Labour Change Britain? by Polly Toynbee, David Walker

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

banking crisis, Big bang: deregulation of the City of London, call centre, central bank independence, congestion charging, Corn Laws, Credit Default Swap, decarbonisation, deglobalization, deindustrialization, Etonian, failed state, first-past-the-post, Frank Gehry, gender pay gap, Gini coefficient, high net worth, hiring and firing, illegal immigration, income inequality, knowledge economy, labour market flexibility, market bubble, millennium bug, North Sea oil, Northern Rock, offshore financial centre, pension reform, Plutocrats, plutocrats, Ponzi scheme, profit maximization, purchasing power parity, shareholder value, Skype, smart meter, stem cell, The Spirit Level, too big to fail, University of East Anglia, working-age population, Y2K

Averaged over the Labour years, annual growth in GDP per capita was 1.6 per cent. The 1948–98 average had been 2.2 per cent. Labour bucked no trend. The recent past now looks like an eighteen-year cycle, gathering momentum after Black Wednesday in 1992 and ending as the economy started growing again in 2010. The UK outpaced rivals during the bubble, but the recession pushed it back down the rankings. Even then, measured in purchasing-power parity, UK living standards per capita were still higher in 2010 than in Germany, France, Italy and Japan. Labour’s tenure was a game of two halves. Towards the end of the first, in late 2006, the OECD praised the UK as ‘the Goldilocks economy’. Like the little bear’s porridge, it was neither too hot nor too cold. A month later, would-be president Nicolas Sarkozy came to London to canvass votes from the French diaspora, many in the City, and spoke enviously of the Anglo-Saxon model of capitalism.

 

pages: 364 words: 104,697

Were You Born on the Wrong Continent? by Thomas Geoghegan

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

Albert Einstein, American Society of Civil Engineers: Report Card, banking crisis, Berlin Wall, collective bargaining, corporate governance, cross-subsidies, dark matter, David Brooks, declining real wages, deindustrialization, ending welfare as we know it, facts on the ground, Gini coefficient, haute cuisine, income inequality, John Maynard Keynes: Economic Possibilities for our Grandchildren, knowledge economy, knowledge worker, labour market flexibility, laissez-faire capitalism, low skilled workers, Martin Wolf, McJob, minimum wage unemployment, mittelstand, offshore financial centre, payday loans, pensions crisis, Plutocrats, plutocrats, purchasing power parity, Ralph Waldo Emerson, Robert Gordon, Ronald Reagan: Tear down this wall, Saturday Night Live, Silicon Valley, The Wealth of Nations by Adam Smith, Thorstein Veblen, union organizing, Wolfgang Streeck, women in the workforce

Here are three examples of ways that some of the public policy books we buy at the airports are wrong:1. “The World Is Flat”—or, the country with the lowest labor cost “wins.” But if it were a flat world, Germany should be toast. Look below at this chart from The State of Working America 2008/2009. Because it’s difficult to denominate labor costs in different currencies, the chart below just fixes the U.S. labor cost at 100 in purchasing power parity. Percent of labor force in manufacturing Hourly compensation U.S. 11.3 100 Germany 22.0 131 In currency rates, the cost difference is even greater: 153 for Germany v. 100 for U.S. At “153” or even “131,” Germany should be in a receivership. For forty years, that’s what we’ve been expecting. Yet right now it’s arguably the most competitive country in the world—yes, I know, China has now edged it out in export sales, but China has 1.2 billion people while Germany has 80 million or so.

 

pages: 276 words: 82,603

Birth of the Euro by Otmar Issing

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

accounting loophole / creative accounting, Bretton Woods, business climate, capital controls, central bank independence, currency peg, financial innovation, floating exchange rates, full employment, inflation targeting, labour market flexibility, labour mobility, market fundamentalism, moral hazard, oil shock, open economy, price anchoring, price stability, purchasing power parity, reserve currency, Y2K, yield curve

The result is a corresponding increase in prices that affects the overall development of prices in the economy and leads to higher (national) inflation. Prices can therefore be expected to rise faster in countries that are in the process of catching up. Nonetheless, empirical studies show that this effect has been limited in EMU in its current composition.15 14 15 The name originates from two papers that were published in the same year: B. Balassa, ‘The purchasing-power parity doctrine: a reappraisal’, Journal of Political Economy, 72 (1964); P. A. Samuelson, ‘Theoretical notes on trade problems’, Review of Economics and Statistics, 46 (1964). ECB, ‘Inflation differentials in a monetary union’, Monthly Bulletin, October 1999. 212 • The central bank and monetary policy in EMU euro area (12 countries) United States (14 MSAs) United States (4 census regions) 7 7 6 6 5 5 4 4 Stage I of EMU 3 Stage II of EMU Stage III of EMU 3 1 1 0 0 19 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 2 90 2 Sources: Eurostat, US Bureau of Labor Statistics and ECB calculations. 1 Data up to February 2005.

 

pages: 363 words: 101,082

Earth Wars: The Battle for Global Resources by Geoff Hiscock

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

Admiral Zheng, Asian financial crisis, Bakken shale, Bernie Madoff, BRICs, butterfly effect, clean water, cleantech, corporate governance, demographic dividend, Deng Xiaoping, Edward Lorenz: Chaos theory, energy security, energy transition, eurozone crisis, Exxon Valdez, flex fuel, global rebalancing, global supply chain, hydraulic fracturing, Long Term Capital Management, Malacca Straits, Masdar, megacity, Menlo Park, Mohammed Bouazizi, new economy, oil shale / tar sands, oil shock, Panamax, purchasing power parity, Ralph Waldo Emerson, RAND corporation, Shenzhen was a fishing village, Silicon Valley, smart grid, South China Sea, sovereign wealth fund, special economic zone, spice trade, trade route, uranium enrichment, urban decay, working-age population, Yom Kippur War

In 2000, the city of Shenzhen—by then its population swollen past 10 million people—marked Deng’s role as a “great planner and contributor” to its development, unveiling a 6 m bronze statue in Lianhua (Lotus) Mountain park that shows Deng in a purposeful pose. Today, Shenzhen’s economic zone has expanded to take in the container port of Yantian and it forms part of the powerful Pearl River Delta region with Guangzhou and Hong Kong. China’s gross domestic product overtook that of Japan midway through 2010 for it to become the world’s No. 2 economy, though per capita income, even on the basis of purchasing power parity, is only about one-fifth of Japan’s. According to the International Monetary Fund, U.S. nominal gross domestic product in 2010 was $14.5 trillion, compared with $5.88 trillion for China and $5.46 trillion for Japan. Brazil and India ranked seventh and ninth, with GDP of $2.1 trillion and $1.6 trillion, respectively. Japan will continue to be an economy of immense size over the next four decades, even as its population declines.

 

pages: 309 words: 91,581

The Great Divergence: America's Growing Inequality Crisis and What We Can Do About It by Timothy Noah

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

autonomous vehicles, blue-collar work, Bonfire of the Vanities, Branko Milanovic, call centre, collective bargaining, computer age, corporate governance, Credit Default Swap, David Ricardo: comparative advantage, Deng Xiaoping, Erik Brynjolfsson, feminist movement, Frank Levy and Richard Murnane: The New Division of Labor, Gini coefficient, income inequality, industrial robot, invisible hand, job automation, Joseph Schumpeter, low skilled workers, lump of labour, manufacturing employment, moral hazard, oil shock, pattern recognition, performance metric, positional goods, post-industrial society, postindustrial economy, purchasing power parity, refrigerator car, rent control, Richard Feynman, Richard Feynman, Ronald Reagan, shareholder value, Silicon Valley, Simon Kuznets, Stephen Hawking, Steve Jobs, The Spirit Level, too big to fail, trickle-down economics, Tyler Cowen: Great Stagnation, union organizing, upwardly mobile, very high income, War on Poverty, We are the 99%, women in the workforce, Works Progress Administration, Yom Kippur War

Wayne M. Morrison, “China’s Economic Conditions” (Washington: Congressional Research Service, 2011), 1–5, 11; Ronald E. Kutscher, “Historical Trends, 1950–92, and Current Uncertainties,” Monthly Labor Review, Nov. 1993, 5; “Country Comparison: Exports,” CIA World Factbook, at https://www.cia.gov/library/publications/the-world-factbook/rankorder/2078rank.html; and “Country Comparison: GDP (Purchasing Power Parity),” at https://www.cia.gov/library/publications/the-world-factbook/rankorder/2001rank.html?countryName=China&countryCode=ch&regionCode=eas&rank=3#ch. 2. “World Development Indicators” July 2011, at http://data.worldbank.org/data-catalog/world-development-indicators. 3. Morrison, “China’s Economic Conditions,” 16–18. China’s growing inequality problem is severe, but not in ways that shed any light on U.S. inequality.

 

pages: 354 words: 26,550

High-Frequency Trading: A Practical Guide to Algorithmic Strategies and Trading Systems by Irene Aldridge

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

algorithmic trading, asset allocation, asset-backed security, automated trading system, backtesting, Black Swan, Brownian motion, business process, capital asset pricing model, centralized clearinghouse, collapse of Lehman Brothers, collateralized debt obligation, collective bargaining, diversification, equity premium, fault tolerance, financial intermediation, fixed income, high net worth, implied volatility, index arbitrage, interest rate swap, inventory management, law of one price, Long Term Capital Management, Louis Bachelier, margin call, market friction, market microstructure, martingale, New Journalism, p-value, paper trading, performance metric, profit motive, purchasing power parity, quantitative trading / quantitative finance, random walk, Renaissance Technologies, risk tolerance, risk-adjusted returns, risk/return, Sharpe ratio, short selling, Small Order Execution System, statistical arbitrage, statistical model, stochastic process, stochastic volatility, systematic trading, trade route, transaction costs, value at risk, yield curve

As all U.S. inflation announcements occur at 8:30 A . M . EST, we define 8 A . M . to 9 A . M . as the trading window and download all of the quotes and trades recorded during that time. We partition the data further into 5-minute, 1-minute, 30-second, and 15-second blocks. We then measure the impact of the announcement on the corresponding 5-minute, 1-minute, 30-second, and 15-second returns of USD/CAD spot. According to the purchasing power parity (PPP), a spot exchange rate between domestic and foreign currencies is the ratio of the domestic and foreign inflation rates. When the U.S. inflation rate changes, the deviation disturbs the PPP equilibrium and the USD-based exchange rates adjust to new levels. When the U.S. inflation rate rises, USD/CAD is expected to increase instantaneously, and vice versa. To keep matters simple, in this example we will consider the inflation news in the same fashion as it is announced, ignoring the market’s pre-announcement adjustment to expectations of inflation figures.

 

pages: 320 words: 96,006

The End of Men: And the Rise of Women by Hanna Rosin

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

affirmative action, call centre, cognitive dissonance, David Brooks, delayed gratification, edge city, facts on the ground, financial independence, hiring and firing, housing crisis, income inequality, informal economy, job satisfaction, low skilled workers, manufacturing employment, meta analysis, meta-analysis, new economy, New Urbanism, Northern Rock, postindustrial economy, purchasing power parity, Results Only Work Environment, Silicon Valley, Steven Pinker, union organizing, upwardly mobile, women in the workforce, young professional

THE GOLD MISSES ASIAN WOMEN TAKE OVER THE WORLD These rules were enshrined: Rosa Kim, “The Legacy of Institutionalized Gender Inequality in South Korea: The Family Law,” Boston College Third World Law Journal 14, no. 1 (1994): 145–162. Park Chung-hee began to rebuild Korea’s economy: See Sung-Hee Jwa, The Evolution of Large Corporations in Korea (Cheltenham, UK: Elgar, 2002). thirteenth-largest economy in the world: “GDP (Purchasing Power Parity),” CIA World Factbook. https://www.cia.gov/library/publications/the-world-factbook/rankorder/2001rank.html. private “cram” schools: Margaret Warner, “In Hypercompetitive South Korea, Pressures Mount on Young Pupils,” PBS NewsHour, January 21, 2011. http://www.pbs.org/newshour/bb/education/jan-june11/koreaschools_01-21.html. Korea climbed into the top five international rankings: “PISA 2009 Results: What Students Know and Can Do,” OECD Program for International Student Assessment. http://www.oecd.org/dataoecd/10/61/48852548.pdf.

 

pages: 355 words: 63

The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics by William R. Easterly

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

Andrei Shleifer, business climate, Carmen Reinhart, central bank independence, clean water, colonial rule, correlation does not imply causation, financial repression, Gini coefficient, Hernando de Soto, income inequality, income per capita, inflation targeting, interchangeable parts, inventory management, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Rogoff, large denomination, manufacturing employment, Network effects, New Urbanism, open economy, Productivity paradox, purchasing power parity, rent-seeking, Ronald Reagan, Silicon Valley, Simon Kuznets, The Wealth of Nations by Adam Smith, Thomas Malthus, total factor productivity, trade liberalization, urban sprawl, Watson beat the top human players on Jeopardy!, Yogi Berra, Yom Kippur War

The EBRD’s chief economist, Nicholas Stern, strongly denied any use of the HarrodDomar model in EBRD business, these quotations notwithstanding. 45. The Soviets’ own linear growth-investment relation fell apart. In the 1960s, 1970s, and 1980s, growth rates were falling even though investment rates kept rising. Easterly and Fischer 1995. 46. I am using data in domestic prices for investment, since overseas development assistance is not purchasing power adjusted.When I put all the data together I will be forced to mix purchasing power parity and domestic price data. The data on overseas development assistance are from the OECD. 47. These results are like those of Blomstrom, Lipsey, and Zejan 1996, who found with five-year periods that investment was a function of lagged growth, but growth was not a function of lagged investment. 48. These calculations are done with Summers and Heston 1991 data at international prices for both output and investment.

 

pages: 267 words: 79,905

Creating Unequal Futures?: Rethinking Poverty, Inequality and Disadvantage by Ruth Fincher, Peter Saunders

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

barriers to entry, ending welfare as we know it, financial independence, full employment, Gini coefficient, income inequality, income per capita, labour market flexibility, labour mobility, low skilled workers, low-wage service sector, marginal employment, minimum wage unemployment, New Urbanism, open economy, pink-collar, positional goods, purchasing power parity, shareholder value, The Bell Curve by Richard Herrnstein and Charles Murray, urban planning, urban renewal, very high income, women in the workforce, working poor, working-age population

As such, it is more a measure of inequality than of poverty. Table 4.2 shows an alternative way of looking at the situation. This time a ‘real poverty line’ is used (Bradbury and Jäntii, 1999b). This is based on the US official poverty line which is set at the cost of a basket of basic goods. The various national income levels are made comparable by converting them into US dollars using Purchasing Power Parities (PPPs). Using this kind of measure, poverty would fall if poor 103 PDF OUTPUT c: ALLEN & UNWIN r: DP2\BP4401W\MAIN p: (02) 6232 5991 f: (02) 6232 4995 36 DAGLISH STREET CURTIN ACT 2605 103 CREATING UNEQUAL FUTURES? Table 4.2 Child poverty rates: ‘real poverty line’ Country Year Rate Rank Russia Slovakia Poland Hungary Czech Republic Ireland Spain Israel Italy United Kingdom Australia United States France Germany Netherlands Canada Belgium Austria Denmark Taiwan Sweden Norway Finland Switzerland Luxembourg 1995 1992 1994 1989 1992 1992 1990 1992 1994 1995 1995 1994 1987 1994 1991 1994 1982 1987 1995 1992 1991 1992 1994 1992 1995 98.0 95.2 90.9 90.6 85.1 54.4 47.3 45.3 38.1 28.6 20.7 18.5 17.3 12.4 10.0 9.0 7.9 5.4 4.6 4.3 3.7 2.8 2.6 1.6 1.1 (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17) (18) (19) (20) (21) (22) (23) (24) (25) Source: Bradbury and Jäntii 1999b, Table 2 people’s income rose in real terms, even if rich people’s income rose even faster.

 

pages: 350 words: 100,822

Limits to Growth: The 30-Year Update by Donella H. Meadows, Jörgen Randers, Dennis L. Meadows

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

agricultural Revolution, Buckminster Fuller, clean water, Climatic Research Unit, conceptual framework, dematerialisation, demographic transition, financial independence, game design, income per capita, informal economy, means of production, new economy, purchasing power parity, Ralph Waldo Emerson, Ronald Reagan, University of East Anglia, urban sprawl, Whole Earth Review

It measures the average achievement in a country in three basic dimensions of human development: • A long and healthy life, as measured by life expectancy at birth • Knowledge, as measured by the adult literacy rate (with two-thirds weight) and the combined primary, secondary and tertiary gross enrolment rate (with one-third weight) • A decent standard of living, as measured by GDP per capita (in PPP-$, Purchasing Power Parity US dollars)' The UNDP calculates the HDI as the arithmetric average of three indices (the life expectancy index, the education index, and the GDP index)-one for each of the three factors listed in the quote above. The life expectancy and education indices increase linearly with life expectancy, literacy, and school enrollment. The GDP index also increases when the GDP per capita increases.

 

pages: 383 words: 81,118

Matchmakers: The New Economics of Multisided Platforms by David S. Evans, Richard Schmalensee

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

Airbnb, big-box store, business process, cashless society, Deng Xiaoping, if you build it, they will come, Internet Archive, invention of movable type, invention of the printing press, invention of the telegraph, invention of the telephone, Jean Tirole, Lyft, M-Pesa, market friction, market microstructure, mobile money, multi-sided market, Network effects, Productivity paradox, profit maximization, purchasing power parity, ride hailing / ride sharing, sharing economy, Silicon Valley, Snapchat, Steve Jobs, Tim Cook: Apple, transaction costs, two-sided market, Uber for X, Victor Gruen, winner-take-all economy

Luke Dormehl, “Starbucks Mobile App Payments Now Represent 16% of All Starbucks Transactions,” Fast Company, January 23, 2015, http://www.fastcompany.com/3041353/fast-feed/starbucks-mobile-app-payments-now-represent-16-of-all-starbucks-transactions. Chapter 11 1. World Bank, “GDP per Capita, PPP (Current International $),” http://data.worldbank.org/indicator/NY.GDP.PCAP.PP.CD?page=1 (data for 2006). This is GDP converted to US dollars using purchasing power parity exchange rates. 2. Kenya ranked 120 of 121 countries based on paved roads as percent of total roads and 145 of 165 countries based on gasoline consumption per capita. World Bank, “Roads Paved (% of Total Roads),” http://data.worldbank.org/indicator/IS.ROD.PAVE.ZS (data for 2011); World Bank, “Gasoline Fuel Consumption per Capita (Kg of Oil Equivalent),” http://data.worldbank.org/indicator/IS.ROD.SGAS.PC (data for 2011). 3.

 

pages: 375 words: 88,306

The Sharing Economy: The End of Employment and the Rise of Crowd-Based Capitalism by Arun Sundararajan

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

3D printing, additive manufacturing, Airbnb, Amazon Mechanical Turk, autonomous vehicles, barriers to entry, bitcoin, blockchain, Burning Man, call centre, collaborative consumption, collaborative economy, collective bargaining, corporate social responsibility, cryptocurrency, David Graeber, distributed ledger, employer provided health coverage, Erik Brynjolfsson, ethereum blockchain, Frank Levy and Richard Murnane: The New Division of Labor, future of work, George Akerlof, gig economy, housing crisis, Howard Rheingold, Internet of things, inventory management, invisible hand, job automation, job-hopping, Kickstarter, knowledge worker, Kula ring, Lyft, megacity, minimum wage unemployment, moral hazard, Network effects, new economy, Oculus Rift, pattern recognition, peer-to-peer lending, profit motive, purchasing power parity, race to the bottom, recommendation engine, regulatory arbitrage, rent control, Richard Florida, ride hailing / ride sharing, Robert Gordon, Ronald Coase, Second Machine Age, self-driving car, sharing economy, Silicon Valley, smart contracts, Snapchat, social software, supply-chain management, TaskRabbit, The Nature of the Firm, total factor productivity, transaction costs, transportation-network company, two-sided market, Uber and Lyft, Uber for X, universal basic income, Zipcar

New designers, programmers, and writers on these platforms also gain insight into wage rates for colleagues at different points in their career (for example, a young scribe will quickly learn the going rate for US-based proofreaders, editors, and writers, and how experience and compensation line up). As a result, workers breaking into the industry can set rates in accordance with industry standards in the country from which their demand originates, and workers in lower purchasing-power parity countries might end up realizing their skills are worth more than they thought. In this way, decreased information asymmetry across providers may counteract some of the negative impacts of increased global competition, although whether it will negate them entirely in the long run remains an open question.21 New Generalists For most of the past 500 years, and specifically since the advent of industrialization, we have observed progressively greater specialization in our economies.

 

pages: 471 words: 97,152

Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism by George A. Akerlof, Robert J. Shiller

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

affirmative action, Andrei Shleifer, asset-backed security, bank run, banking crisis, collateralized debt obligation, conceptual framework, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, Deng Xiaoping, Donald Trump, Edward Glaeser, en.wikipedia.org, experimental subject, financial innovation, full employment, George Akerlof, housing crisis, Hyman Minsky, income per capita, inflation targeting, invisible hand, Isaac Newton, Jane Jacobs, Jean Tirole, job satisfaction, Joseph Schumpeter, Long Term Capital Management, loss aversion, market bubble, market clearing, mental accounting, Mikhail Gorbachev, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, new economy, New Urbanism, Plutocrats, plutocrats, price stability, profit maximization, purchasing power parity, random walk, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Reagan, South Sea Bubble, The Chicago School, The Death and Life of Great American Cities, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, tulip mania, working-age population, Y2K, Yom Kippur War

This conforms to people’s stated preference for nondeclining consumption at a zero rate of interest, and it weights utility at different ages on a one-for-one basis. Our choice to exclude home equity capital assumes that retirees should not have to leave their homes for financial reasons, or to reverse-mortgage them, as they get older. 15. Communication from Gary Burtless, table titled “Fraction of Non-Earnings Income by Source, by Income Quintile for Population 65 and Older.” 16. Aaron and Reischauer (1999, p. 174). 17. Not adjusting for purchasing power parity, GDP per capita in Luxembourg is 897 times that in Burundi (Central Intelligence Agency 2008). 18. There is in fact, as has long been known, a strong historical connection (in terms of correlation across countries) between national savings rates and national economic growth rates (see, for example, Modigliani 1970 and Carroll and Weil 1994). 19. See http://ask-us.cpf.gov.sg/?prof=mem. 20.

 

pages: 416 words: 118,592

A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing by Burton G. Malkiel

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

accounting loophole / creative accounting, Albert Einstein, asset allocation, asset-backed security, backtesting, Bernie Madoff, BRICs, capital asset pricing model, compound rate of return, correlation coefficient, Credit Default Swap, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, Elliott wave, Eugene Fama: efficient market hypothesis, experimental subject, feminist movement, financial innovation, fixed income, framing effect, hindsight bias, Home mortgage interest deduction, index fund, invisible hand, Isaac Newton, Long Term Capital Management, loss aversion, margin call, market bubble, mortgage tax deduction, new economy, Own Your Own Home, passive investing, pets.com, Ponzi scheme, price stability, profit maximization, publish or perish, purchasing power parity, RAND corporation, random walk, Richard Thaler, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, short selling, Silicon Valley, South Sea Bubble, The Myth of the Rational Market, The Wisdom of Crowds, transaction costs, Vanguard fund, zero-coupon bond

First, none of the shares traded in the local Chinese stock markets in Shanghai and Shenzhen get counted, because these shares are available only to Chinese citizens (with minor exceptions). Only the freely tradable shares of Chinese companies listed in Hong Kong or New York are counted in the index. A second reason China gets underweighted is that the Chinese government owns a huge portion of the shares of many companies, and those shares are not counted in the float. As a result, China gets only about 2 percent of the weight in the world indexes, whereas, adjusted for purchasing-power parity, China’s GDP is about 13 percent of the world’s GDP and is growing rapidly. Hence, I believe that investors need to put more China into their portfolios than is available in general world or emerging-market index funds. I am, however, true to my indexing beliefs and think the best way to do it is to buy a broad-based index fund of Chinese companies. Three of them that trade on the New York Stock Exchange are YAO (an index fund representing all Chinese companies available to international investors), HAO (a small-capitalization index fund that contains more entrepreneurial companies and ones with less government ownership), and TAO (a Chinese real estate fund).

 

pages: 651 words: 135,818

China into Africa: trade, aid, and influence by Robert I. Rotberg

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

barriers to entry, BRICs, colonial rule, corporate governance, Deng Xiaoping, energy security, European colonialism, failed state, global supply chain, global value chain, income inequality, Khartoum Gordon, labour market flexibility, land reform, megacity, microcredit, offshore financial centre, out of africa, profit maximization, purchasing power parity, RAND corporation, Scramble for Africa, South China Sea, special economic zone, structural adjustment programs, trade route, Washington Consensus

(Any changes in these factors may also have a potentially negative impact on China’s engagement with the two continents.) High Economic Growth Rate China’s high economic growth rate of over 9 percent annually has been sustained for nearly three decades. China is the world leader in this regard, out-performing all other major economies; it is now the fourth-largest economy in terms of US dollars and the second-largest in terms of purchasing power parity. Its economic development has been accompanied by an even higher growth rate in its foreign trade, contributing more to a global trade increase than any 03-7561-4 ch3.qxd 9/16/08 4:08 PM Page 58 58 wenran jiang other major economy since the 1990s. China is now the third-largest trading nation after Germany and the United States in terms of export volumes. Trade volumes between China and Africa and between China and Latin America are the fastest growing among China’s regional partners around the world.

 

pages: 443 words: 112,800

The Third Industrial Revolution: How Lateral Power Is Transforming Energy, the Economy, and the World by Jeremy Rifkin

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

3D printing, additive manufacturing, Albert Einstein, barriers to entry, borderless world, carbon footprint, centre right, collaborative consumption, collaborative economy, Community Supported Agriculture, corporate governance, decarbonisation, distributed generation, en.wikipedia.org, energy security, energy transition, global supply chain, hydrogen economy, income inequality, informal economy, invisible hand, Isaac Newton, job automation, knowledge economy, manufacturing employment, marginal employment, Martin Wolf, Masdar, megacity, Mikhail Gorbachev, new economy, oil shale / tar sands, oil shock, open borders, peak oil, Ponzi scheme, post-oil, purchasing power parity, Ray Kurzweil, Ronald Reagan, Silicon Valley, Simon Kuznets, Skype, smart grid, smart meter, Spread Networks laid a new fibre optics cable between New York and Chicago, supply-chain management, the market place, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, transaction costs, trickle-down economics, urban planning, urban renewal, Yom Kippur War, Zipcar

The Official Web-site of the Association of Southeast Asian Nations. 15 January 2007 (date of declaration). Retrieved from http://www.aseansec.org/19319.htm. 10. ASEAN Plan of Action for Energy Cooperation (APAEC) 2010–2015. (2010, November 8). Asean Centre for Energy. Retrieved April 19, 2011, from http://www.aseanenergy.org/index.php/about/work-programmes. 11.Ibid. 12.Ibid. 13.Ibid. 14.Country Comparison: GDP (Purchasing Power Parity). (n.d.). Central Intelligence Agency. Retrieved from https://www.cia.gov/library/publications/the-world-factbook/rankorder/2001rank.html. 15.African Union in a Nutshell. (n.d.). African Union. Retrieved from http://www.africa-union.org/root/au/AboutAu/au_in_a_nutshell_en.htm. 16.Access to Electricity. (2009). World Energy Outlook. Retrieved from http://www.worldenergyoutlook.com/electricity.asp. 17.Africa-EU Energy Partnership.

 

pages: 566 words: 144,072

In the Graveyard of Empires: America's War in Afghanistan by Seth G. Jones

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

business climate, clean water, colonial rule, cuban missile crisis, failed state, friendly fire, invisible hand, Khyber Pass, Mikhail Gorbachev, Murray Gell-Mann, open borders, purchasing power parity, RAND corporation, Ronald Reagan, trade route

Bush, Address to a Joint Session of Congress and the American People, United States Capitol, Washington, DC, September 20, 2001 (Washington, DC: White House Press Office, 2001). 7. David M. Walker, Global War on Terrorism: Observations on Funding, Costs, and Future Commitments (Washington, DC: U.S. Government Accountability Office, 2006), p. 7. 8. Central Intelligence Agency, CIA World Factbook 2007 (Washington, DC: Central Intelligence Agency, 2006). Figures were in purchasing-power parity. Only 27 out of 229 countries had a gross domestic product over $430 billion. 9. Transcript of Combatant Status Review Tribunal Hearing for ISN 10024 (Khalid Sheikh Muhammad), March 10, 2007, U.S. Naval Base Guantánamo Bay, Cuba, pp. 17–18. 10. On the overthrow of the Taliban regime, see Gary Schroen, First In: An Insider’s Account of How the CIA Spearheaded the War on Terror in Afghanistan (New York: Ballantine Books, 2005); Stephen Biddle, Afghanistan and the Future of Warfare: Implications for Army and Defense Policy (Carlisle, PA: Strategic Studies Institute, U.S.

 

pages: 481 words: 120,693

Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else by Chrystia Freeland

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

Albert Einstein, algorithmic trading, banking crisis, barriers to entry, Basel III, battle of ideas, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, Branko Milanovic, Bretton Woods, BRICs, business climate, call centre, carried interest, Cass Sunstein, Clayton Christensen, collapse of Lehman Brothers, conceptual framework, corporate governance, credit crunch, Credit Default Swap, crony capitalism, Deng Xiaoping, don't be evil, double helix, energy security, estate planning, experimental subject, financial deregulation, financial innovation, Flash crash, Frank Gehry, Gini coefficient, global village, Goldman Sachs: Vampire Squid, Gordon Gekko, Guggenheim Bilbao, haute couture, high net worth, income inequality, invention of the steam engine, job automation, joint-stock company, Joseph Schumpeter, knowledge economy, knowledge worker, linear programming, London Whale, low skilled workers, manufacturing employment, Mark Zuckerberg, Martin Wolf, Mikhail Gorbachev, Moneyball by Michael Lewis explains big data, NetJets, new economy, Occupy movement, open economy, Peter Thiel, place-making, Plutocrats, plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, postindustrial economy, Potemkin village, profit motive, purchasing power parity, race to the bottom, rent-seeking, Rod Stewart played at Stephen Schwarzman birthday party, Ronald Reagan, self-driving car, short selling, Silicon Valley, Silicon Valley startup, Simon Kuznets, Solar eclipse in 1919, sovereign wealth fund, stem cell, Steve Jobs, The Spirit Level, The Wealth of Nations by Adam Smith, Tony Hsieh, too big to fail, trade route, trickle-down economics, Tyler Cowen: Great Stagnation, wage slave, Washington Consensus, winner-take-all economy

In fact, according to calculations by Branko Milanovic, the richest man who ever lived isn’t a Russian oligarch, but he does owe much of his fortune to the great wave of liberalization that swept the world when Soviet communism collapsed. Comparing income across history is hard. The conversion tools we use to make comparisons across geographies today—currency exchange rates or the more subtle measure of purchasing power parity—are ineffective when the goods we consume—horses vs. private jets or personal scribes vs. iPads—are so different. Milanovic gets around this mismatch by turning to Adam Smith. His yardstick of wealth was how much of our compatriots’ work we can buy: “A person must be rich or poor according to the quantity of labor which he can command.” Among today’s billionaires, Milanovic’s calculations favor the rich man in a poor country—he can employ more of his less well-paid compatriots.

 

pages: 511 words: 148,310

Winning the War on War: The Decline of Armed Conflict Worldwide by Joshua S. Goldstein

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

Albert Einstein, Ayatollah Khomeini, Bartolomé de las Casas, Berlin Wall, Black Swan, colonial rule, cuban missile crisis, Doomsday Clock, failed state, immigration reform, income inequality, invention of writing, invisible hand, land reform, microcredit, Mikhail Gorbachev, purchasing power parity, RAND corporation, Steven Pinker, Tobin tax, unemployed young men, Winter of Discontent, Y2K

Wright cites Nickerson 1934 and Ayres 1919, which says nothing about civilian deaths (see p. 119). 257 On this basis: Nickerson 1934: 110–11. 257 Lower than the range cited by most: Lacina and Gleditsch 2005: 146. 257 Lower than the historical: Wright 1942/1965: 245 258 Hasty conclusions: Sollenberg 2006: 1; Sollenberg, personal communication, 2008. 258 Book on civilians: Downes 2008: 1. 258 Respected epidemiologists: Murray et al. 2002: 348. 258 Tabulated civilian: Eckhardt 1992: 254, 255, 90, 91. 258 The 20th century itself: Eckhardt 1992: 254. 258 Strange idea: Slim 2008: 71. 258–59 Some wars kill: Wedgwood 1938: 516; Rabb ed. 1981; Wright 1942/1965: 244. 259 In African conflicts: Lacina and Gleditsch 2005: 159; Human Security Centre 2005: 128, 129. 259 Healthy life lost: Ghobarah, Huth, and Russett 2004. 259 Smart bombs: Slim 2008: 58. 259 Single errant missile: Chivers and Nordland 2010. 260 Seventeen thousand web pages: Accessed at google.com 6/28/10. 260 World’s most deadly: Coghlan et al. 2006: 44. 260–61 It all started: Coghlan et al. 2006; for earlier survey results see Roberts et al. 2003; for later results see Coghlan et al. n.d. 261 Embedded as truths: Kristof 2010a, b, c; Coghlan et al. n.d.: 13. 261 Extrapolating the results: Human Security Report Project 2009: 36–48; Spielmann 2010. 261 All of sub-Saharan Africa: Coghlan et al. 2006: 49. 262 Same GDP number for sub-Saharan: World Bank data; purchasing power parity adjusted. Accessed 6/28/10 at siteresources.worldbank.org/DATASTATISTICS/Resources/GNIPC.pdf. 262 Surveys show a drop: From about 65 to 43 deaths per thousand population. 263 Half the rate during the war: Coghlan et al. n.d.: 13. 263 Vancouver group recalculated: Human Security Report Project 2009: 45; the Vancouver researchers did not try to reestimate the first two IRC surveys, before 2001, which they considered too unreliable. 263 Remains Unchanged: Polgreen 2008a. 263 Peer review: Pedersen 2009: 21. 263 Belgian researchers: Lambert and Lohlé-Tart 2008. 263 Korean War: Human Security Report Project 2009: 26–27. 264 Has since killed: Rummel 1997: 377; see also economic data from World Bank and CIA World Factbook. 264 Clinton: BBC News 2009c. 265 John Holmes: Gettleman 2010a. 265 NGO pitched the results: Oxfam International 2010. 265 Completely different story: Harvard Humanitarian Initiative 2010: 7, 8. 265 Of all these cases: Harvard Humanitarian Initiative 2010: 13, 19. 266 But what about the far larger: Harvard Humanitarian Initiative 2010: 18–20. 266 Normalization of rape: Harvard Humanitarian Initiative 2010: 2. 266 Previous reports considered: Arieff 2009: 18; UN Security Council 2008: 8; Human Rights Watch 2009: 15. 267 Rape capital: BBC News 2010b. 267 Population Fund: UNFPA 2008; UN News Service 2010a. 267 South Kivu in 2008: Human Rights Watch 2009: 14. 267 15–20 million people: World Bank 2005: 11. 267 U.S. crime statistics: U.S.

 

pages: 543 words: 147,357

Them And Us: Politics, Greed And Inequality - Why We Need A Fair Society by Will Hutton

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

Andrei Shleifer, asset-backed security, bank run, banking crisis, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Bretton Woods, capital controls, carbon footprint, Carmen Reinhart, Cass Sunstein, centre right, choice architecture, cloud computing, collective bargaining, conceptual framework, Corn Laws, corporate governance, credit crunch, Credit Default Swap, debt deflation, decarbonisation, Deng Xiaoping, discovery of DNA, discovery of the americas, discrete time, diversification, double helix, Edward Glaeser, financial deregulation, financial innovation, financial intermediation, first-past-the-post, floating exchange rates, Francis Fukuyama: the end of history, Frank Levy and Richard Murnane: The New Division of Labor, full employment, George Akerlof, Gini coefficient, global supply chain, Growth in a Time of Debt, Hyman Minsky, I think there is a world market for maybe five computers, income inequality, inflation targeting, interest rate swap, invisible hand, Isaac Newton, James Dyson, James Watt: steam engine, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, knowledge worker, labour market flexibility, Long Term Capital Management, Louis Pasteur, low-wage service sector, mandelbrot fractal, margin call, market fundamentalism, Martin Wolf, means of production, Mikhail Gorbachev, millennium bug, moral hazard, mortgage debt, new economy, Northern Rock, offshore financial centre, open economy, Plutocrats, plutocrats, price discrimination, private sector deleveraging, purchasing power parity, quantitative easing, race to the bottom, railway mania, random walk, rent-seeking, reserve currency, Richard Thaler, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, Rory Sutherland, shareholder value, short selling, Silicon Valley, Skype, South Sea Bubble, Steve Jobs, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, the scientific method, The Wealth of Nations by Adam Smith, too big to fail, unpaid internship, value at risk, Washington Consensus, working poor, éminence grise

Europe, the United States and Canada made up 17 per cent of the global population in 2003; by 2050, their share will be only 12 per cent (far less than it was in 1700), with Europeans reduced to 6 per cent. By then, the West will account for around 30 per cent of global output – a level that corresponds to Europe’s share in the eighteenth century and down from 68 per cent in 1950 and 47 per cent in 2003 (adjusted to reflect purchasing power parity).24 Europe will likely be a bigger loser than the United States, on account of the latter’s for-midable innovation ecosystem: the majority of the next century’s general purpose technologies will still be invented there. Nevertheless, the United States will increasingly be challenged by Asia. The bald fact remains that the next fifty years will see the largest shift in power and population for two centuries.

 

pages: 393 words: 115,263

Planet Ponzi by Mitch Feierstein

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

Affordable Care Act / Obamacare, Albert Einstein, Asian financial crisis, asset-backed security, bank run, banking crisis, barriers to entry, Bernie Madoff, centre right, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, disintermediation, diversification, Donald Trump, energy security, eurozone crisis, financial innovation, financial intermediation, Flash crash, floating exchange rates, frictionless, frictionless market, high net worth, High speed trading, illegal immigration, income inequality, interest rate swap, invention of agriculture, Long Term Capital Management, moral hazard, mortgage debt, Northern Rock, obamacare, offshore financial centre, oil shock, pensions crisis, Plutocrats, plutocrats, Ponzi scheme, price anchoring, price stability, purchasing power parity, quantitative easing, risk tolerance, Robert Shiller, Robert Shiller, Ronald Reagan, too big to fail, trickle-down economics, value at risk, yield curve

There’s no way any American should find these results acceptable. Then there’s the cost. The extraordinary, eye-watering, economy-destroying cost. No economy in the world spends on health care the way America does. We spend over twice what the British, Japanese, Italians, and Australians do per capita, and almost exactly twice what the French do. (The figures shown in figure 3.4 are based on purchasing power parity, a way to remove any distortions arising from constantly moving market exchange rates.) Figure 3.4: Healthcare spending per capita, selected countries Source: OECD (figures for 2009 or most recent year available). Defenders of US health care like to point out that ours is a private sector system, true to the red-as-blood nature of American capitalism. Yet if you look only at public spending on health care, we still outspend all those other countries I’ve just mentioned.

 

pages: 478 words: 126,416

Other People's Money: Masters of the Universe or Servants of the People? by John Kay

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

Affordable Care Act / Obamacare, asset-backed security, bank run, banking crisis, Basel III, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Swan, Bonfire of the Vanities, bonus culture, Bretton Woods, call centre, capital asset pricing model, Capital in the Twenty-First Century by Thomas Piketty, cognitive dissonance, corporate governance, Credit Default Swap, cross-subsidies, dematerialisation, diversification, diversified portfolio, Edward Lloyd's coffeehouse, Elon Musk, Eugene Fama: efficient market hypothesis, eurozone crisis, financial innovation, financial intermediation, fixed income, Flash crash, forward guidance, Fractional reserve banking, full employment, George Akerlof, German hyperinflation, Goldman Sachs: Vampire Squid, Growth in a Time of Debt, income inequality, index fund, inflation targeting, interest rate derivative, interest rate swap, invention of the wheel, Irish property bubble, Isaac Newton, London Whale, Long Term Capital Management, loose coupling, low cost carrier, M-Pesa, market design, millennium bug, mittelstand, moral hazard, mortgage debt, new economy, Nick Leeson, Northern Rock, obamacare, Occupy movement, offshore financial centre, oil shock, passive investing, peer-to-peer lending, performance metric, Peter Thiel, Piper Alpha, Ponzi scheme, price mechanism, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, railway mania, Ralph Waldo Emerson, random walk, regulatory arbitrage, Renaissance Technologies, rent control, Richard Feynman, risk tolerance, road to serfdom, Robert Shiller, Robert Shiller, Ronald Reagan, Schrödinger's Cat, shareholder value, Silicon Valley, Simon Kuznets, South Sea Bubble, sovereign wealth fund, Spread Networks laid a new fibre optics cable between New York and Chicago, Steve Jobs, Steve Wozniak, The Great Moderation, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Tobin tax, too big to fail, transaction costs, tulip mania, Upton Sinclair, Vanguard fund, Washington Consensus, We are the 99%, Yom Kippur War

The US figure is lower, reflecting in part the lower level of house prices and the tax deductibility of interest but also a higher level of mortgage debt relative to property values, a legacy of the indiscriminate lending that preceded the global financial crisis. The USA is the only country in which direct holdings of securities by individuals form a large proportion of household assets; in the other three countries, most long-term savings are channelled through intermediaries. Fig. 6: Household wealth1 by asset category, end of 2012 (US $000 per capita at purchasing power parity) * Includes land Source: OECD, author’s calculations While in the USA long-term savings products in the investment channel are almost ten times assets in the deposit channel, in Germany the two figures are nearly equal, with Britain and France somewhere in between. Consumer debt is much higher in the USA than elsewhere: British households owe much less, while levels of consumer debt in France and Germany are negligible.

 

pages: 385 words: 128,358

Inside the House of Money: Top Hedge Fund Traders on Profiting in a Global Market by Steven Drobny

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

Albert Einstein, asset allocation, Berlin Wall, Bonfire of the Vanities, Bretton Woods, buy low sell high, capital controls, central bank independence, Chance favours the prepared mind, commodity trading advisor, corporate governance, correlation coefficient, Credit Default Swap, diversification, diversified portfolio, family office, fixed income, glass ceiling, high batting average, implied volatility, index fund, inflation targeting, interest rate derivative, inventory management, Long Term Capital Management, margin call, market bubble, Maui Hawaii, Mexican peso crisis / tequila crisis, moral hazard, new economy, Nick Leeson, oil shale / tar sands, oil shock, out of africa, paper trading, Peter Thiel, price anchoring, purchasing power parity, reserve currency, risk tolerance, risk-adjusted returns, risk/return, rolodex, Sharpe ratio, short selling, Silicon Valley, The Wisdom of Crowds, too big to fail, transaction costs, value at risk, yield curve, zero-coupon bond

Traveling is important and a serendipitous way of acquiring information that you can’t get from reading. Just walking around a city, looking at the level of construction, looking at what people are doing in stores, talking to people in hotels, trying to get a feeling of what kind of people are coming to visit, where they are coming from. Are locals bullish or bearish on their own market? How has their perception changed over time? We look at the price levels and do anecdotal purchasing power parity studies. None of these things necessarily has an immediate impact on things. We’re not necessarily going to make money from those observations, but often it gives you a good pulse, especially when you come back to a place over and over again and see how things change. I’ve been going to Eastern Europe and Latin America for the past 20 years. I have people who work with me who have been traveling consistently to, or have been living in,Asia for the last 15 years.

 

pages: 497 words: 144,283

Connectography: Mapping the Future of Global Civilization by Parag Khanna

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

1919 Motor Transport Corps convoy, 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, 3D printing, 9 dash line, additive manufacturing, Admiral Zheng, affirmative action, agricultural Revolution, Airbnb, Albert Einstein, amateurs talk tactics, professionals talk logistics, Amazon Mechanical Turk, Asian financial crisis, asset allocation, autonomous vehicles, banking crisis, Basel III, Berlin Wall, bitcoin, Black Swan, blockchain, borderless world, Boycotts of Israel, Branko Milanovic, BRICs, British Empire, business intelligence, call centre, capital controls, charter city, clean water, cloud computing, collateralized debt obligation, complexity theory, corporate governance, corporate social responsibility, credit crunch, crony capitalism, crowdsourcing, cryptocurrency, cuban missile crisis, data is the new oil, David Ricardo: comparative advantage, deglobalization, deindustrialization, dematerialisation, Deng Xiaoping, Detroit bankruptcy, diversification, Doha Development Round, edge city, Edward Snowden, Elon Musk, energy security, ethereum blockchain, European colonialism, eurozone crisis, failed state, Fall of the Berlin Wall, family office, Ferguson, Missouri, financial innovation, financial repression, forward guidance, global supply chain, global value chain, global village, Google Earth, Hernando de Soto, high net worth, Hyperloop, ice-free Arctic, if you build it, they will come, illegal immigration, income inequality, income per capita, industrial robot, informal economy, Infrastructure as a Service, interest rate swap, Internet of things, Isaac Newton, Jane Jacobs, Jaron Lanier, John von Neumann, Julian Assange, Just-in-time delivery, Kevin Kelly, Khyber Pass, Kibera, Kickstarter, labour market flexibility, labour mobility, LNG terminal, low cost carrier, manufacturing employment, mass affluent, megacity, Mercator projection, microcredit, mittelstand, Monroe Doctrine, mutually assured destruction, New Economic Geography, new economy, New Urbanism, offshore financial centre, oil rush, oil shale / tar sands, oil shock, openstreetmap, out of africa, Panamax, Peace of Westphalia, peak oil, Peter Thiel, Plutocrats, plutocrats, post-oil, post-Panamax, private military company, purchasing power parity, QWERTY keyboard, race to the bottom, Rana Plaza, rent-seeking, reserve currency, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Coase, Scramble for Africa, Second Machine Age, sharing economy, Shenzhen was a fishing village, Silicon Valley, Silicon Valley startup, six sigma, Skype, smart cities, Smart Cities: Big Data, Civic Hackers, and the Quest for a New Utopia, South China Sea, South Sea Bubble, sovereign wealth fund, special economic zone, spice trade, Stuxnet, supply-chain management, sustainable-tourism, TaskRabbit, telepresence, the built environment, Tim Cook: Apple, trade route, transaction costs, UNCLOS, uranium enrichment, urban planning, urban sprawl, WikiLeaks, young professional, zero day

McKinsey Global Institute research suggests that from now until 2025 one-third of world growth will come from the key Western capitals and emerging market megacities, one-third from the heavily populous middleweight cities of emerging markets, and one-third from small cities and rural areas in developing countries. Because prices for goods are so much lower in second- and third-tier cities of China and India, they have hundreds of millions of citizens who have become sizable aggregate consumers well before reaching the $8,000 per capita GDP (in purchasing power parity terms) projected as the baseline beyond which consumption takes off. No wonder companies target high-growth cities as their main product destinations, while investors look at municipal debt as a key metric of national economic health. There are far more functional cities in the world today than there are viable states. Indeed, cities are often the islands of governance and order in far weaker states where they extract whatever rents they can from the surrounding country while also being indifferent to it.

 

How I Became a Quant: Insights From 25 of Wall Street's Elite by Richard R. Lindsey, Barry Schachter

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

Albert Einstein, algorithmic trading, Andrew Wiles, Antoine Gombaud: Chevalier de Méré, asset allocation, asset-backed security, backtesting, bank run, banking crisis, Black-Scholes formula, Bonfire of the Vanities, Bretton Woods, Brownian motion, business process, buy low sell high, capital asset pricing model, centre right, collateralized debt obligation, corporate governance, correlation coefficient, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, discounted cash flows, disintermediation, diversification, Emanuel Derman, en.wikipedia.org, Eugene Fama: efficient market hypothesis, financial innovation, fixed income, full employment, George Akerlof, Gordon Gekko, hiring and firing, implied volatility, index fund, interest rate derivative, interest rate swap, John von Neumann, linear programming, Loma Prieta earthquake, Long Term Capital Management, margin call, market friction, market microstructure, martingale, merger arbitrage, Nick Leeson, P = NP, pattern recognition, pensions crisis, performance metric, prediction markets, profit maximization, purchasing power parity, quantitative trading / quantitative finance, QWERTY keyboard, RAND corporation, random walk, Ray Kurzweil, Richard Feynman, Richard Feynman, Richard Stallman, risk-adjusted returns, risk/return, shareholder value, Sharpe ratio, short selling, Silicon Valley, six sigma, sorting algorithm, statistical arbitrage, statistical model, stem cell, Steven Levy, stochastic process, systematic trading, technology bubble, The Great Moderation, the scientific method, too big to fail, trade route, transaction costs, transfer pricing, value at risk, volatility smile, Wiener process, yield curve, young professional

The firm was, of course, eminently capable of delivering on its end of the bargain. I, on the other hand, muddled along, testing model after model to little effect, all the while trying to make sense of my surroundings. I was to discover that graduate school had prepared me in a decidedly tangential manner for what I was to encounter. The foreign exchange markets, which I had studied extensively in the context of purchasing power parity, uncovered interest rate parity, and geometric JWPR007-Lindsey April 30, 2007 18:3 Andrew B. Weisman 189 Brownian motion, were almost unrecognizable to me. I frequently felt lost in a world of rapid-fire economic and political developments, blaring broker boxes, and arcane market nomenclature. It was as if I had embarked on a career as a professional pugilist armed with an extensive knowledge of anatomy and the basic instruction set that I must strike my opponent firmly about the head and abdomen while avoiding same.

 

pages: 566 words: 163,322

The Rise and Fall of Nations: Forces of Change in the Post-Crisis World by Ruchir Sharma

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

3D printing, Asian financial crisis, backtesting, bank run, banking crisis, Berlin Wall, Bernie Sanders, BRICs, business climate, business process, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, centre right, colonial rule, Commodity Super-Cycle, corporate governance, crony capitalism, currency peg, dark matter, debt deflation, deglobalization, deindustrialization, demographic dividend, demographic transition, Deng Xiaoping, Doha Development Round, Donald Trump, Edward Glaeser, Elon Musk, eurozone crisis, failed state, Fall of the Berlin Wall, falling living standards, Francis Fukuyama: the end of history, Freestyle chess, Gini coefficient, hiring and firing, income inequality, indoor plumbing, industrial robot, inflation targeting, Internet of things, Jeff Bezos, job automation, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, labor-force participation, Malacca Straits, Mark Zuckerberg, market bubble, megacity, Mexican peso crisis / tequila crisis, mittelstand, moral hazard, New Economic Geography, North Sea oil, oil rush, oil shale / tar sands, oil shock, pattern recognition, Peter Thiel, pets.com, Plutocrats, plutocrats, Ponzi scheme, price stability, Productivity paradox, purchasing power parity, quantitative easing, Ralph Waldo Emerson, random walk, rent-seeking, reserve currency, Ronald Coase, Ronald Reagan, savings glut, secular stagnation, Shenzhen was a fishing village, Silicon Valley, Silicon Valley startup, Simon Kuznets, smart cities, Snapchat, South China Sea, sovereign wealth fund, special economic zone, spectrum auction, Steve Jobs, The Wisdom of Crowds, Thomas Malthus, total factor productivity, trade liberalization, trade route, tulip mania, Tyler Cowen: Great Stagnation, unorthodox policies, Washington Consensus, WikiLeaks, women in the workforce, working-age population

In the top developed economies today, investment as a share of GDP averages barely 20 percent, ranging from 17 percent in Italy to 20 percent in the United States and 26 percent in Australia. The share of investment that goes to manufacturing also tends to decline as a nation grows richer; the manufacturing share of GDP typically rises steadily before peaking somewhere between 20 and 35 percent, when the nation’s average per capita income reaches about $10,000 in purchasing power–parity terms. That natural decline, however, does not mean factories are not important to richer countries. As a nation develops, investment and manufacturing both account for a shrinking share of the economy, but they both continue to play an outsize role in driving growth. Manufacturing now accounts for less than 18 percent of global GDP, down from more than 24 percent in 1980, but it remains a key driver of innovation.

 

pages: 868 words: 147,152

How Asia Works by Joe Studwell

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

affirmative action, anti-communist, Asian financial crisis, bank run, banking crisis, barriers to entry, borderless world, Bretton Woods, British Empire, call centre, capital controls, central bank independence, collective bargaining, crony capitalism, cross-subsidies, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, demographic dividend, Deng Xiaoping, failed state, financial deregulation, financial repression, Gini coefficient, glass ceiling, income inequality, income per capita, industrial robot, Joseph Schumpeter, land reform, land tenure, large denomination, market fragmentation, non-tariff barriers, offshore financial centre, oil shock, open economy, passive investing, purchasing power parity, rent control, rent-seeking, Ronald Coase, South China Sea, The Wealth of Nations by Adam Smith, urban sprawl, Washington Consensus, working-age population

See, for instance, Angus Maddison, Explaining the Economic Performance of Nations, 1820–1989 (Canberra: Australian National University, 1993) p. 117. 12. All data for Cuba are from the United Nations HDI, 2009. Cuba’s gross school enrolment rate as a percentage was 100.8 (gross enrolment can exceed 100 because of re-enrolment of children who drop out of school). The GDP per capita figure for that year was USD6,876 at purchasing power parity (PPP). Many Cuban doctors have gone to Venezuela, which is able to pay them with oil revenues. 13. On Taiwan’s education system, see Wade, Governing the Market, pp. 64 and 190. A National Youth Commission survey in 1983 showed that one-quarter of all Taiwanese graduates since 1960 were engineers. Engineers were earning 11 per cent more on average than law graduates. 14. See David Landes, ‘Japan and Europe: Contrasts in Industrialization’, in William W.

 

pages: 537 words: 144,318

The Invisible Hands: Top Hedge Fund Traders on Bubbles, Crashes, and Real Money by Steven Drobny

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

Albert Einstein, Asian financial crisis, asset allocation, asset-backed security, backtesting, banking crisis, Bernie Madoff, Black Swan, Bretton Woods, BRICs, British Empire, business process, capital asset pricing model, capital controls, central bank independence, collateralized debt obligation, Commodity Super-Cycle, commodity trading advisor, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, debt deflation, diversification, diversified portfolio, equity premium, family office, fiat currency, fixed income, follow your passion, full employment, Hyman Minsky, implied volatility, index fund, inflation targeting, interest rate swap, inventory management, invisible hand, London Interbank Offered Rate, Long Term Capital Management, market bubble, market fundamentalism, market microstructure, moral hazard, North Sea oil, open economy, peak oil, pension reform, Ponzi scheme, prediction markets, price discovery process, price stability, private sector deleveraging, profit motive, purchasing power parity, quantitative easing, random walk, reserve currency, risk tolerance, risk-adjusted returns, risk/return, savings glut, Sharpe ratio, short selling, sovereign wealth fund, special drawing rights, statistical arbitrage, stochastic volatility, The Great Moderation, time value of money, too big to fail, transaction costs, unbiased observer, value at risk, Vanguard fund, yield curve

Human Development Index (HDI) The United Nations Human Development Index (HDI) is a statistical measure that gauges a country’s level of human development in three principal areas: (1) life expectancy at birth; (2) knowledge and education, as measured by the adult literacy rating and enrollments at various levels of formal education; and (3) standard of living, measured principally by GDP per capita at purchasing power parity (PPP). While there is a strong correlation between having a high HDI score and a prosperous economy, the UN points out that the HDI accounts for more than income or productivity. SOURCE: United Nations Development Program. Corruption Perceptions Index (CPI) Since 1995, Transparency International has published an annual Corruption Perceptions Index ordering the countries of the world according to “the degree to which corruption is perceived to exist among public officials and politicians.”

 

The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good by William Easterly

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

airport security, anti-communist, Asian financial crisis, bank run, banking crisis, Bretton Woods, British Empire, call centre, clean water, colonial exploitation, colonial rule, Edward Glaeser, European colonialism, failed state, farmers can use mobile phones to check market prices, George Akerlof, Hernando de Soto, income inequality, income per capita, Indoor air pollution, invisible hand, Kenneth Rogoff, laissez-faire capitalism, land reform, land tenure, microcredit, moral hazard, Naomi Klein, purchasing power parity, randomized controlled trial, Ronald Reagan, Scramble for Africa, structural adjustment programs, The Fortune at the Bottom of the Pyramid, the scientific method, The Wealth of Nations by Adam Smith, transaction costs, War on Poverty, Xiaogang Anhui farmers

., 1976, p. 70. 39.See Peter Bauer, Economic Analysis and Policy in Underdeveloped Countries, Durham, N.C.: Duke University Press, 1957; and Bauer, Dissent on Development, Cambridge: Harvard University Press, 1971. 40.Speech by Gordon Brown at a DFID/UNDP seminar, “Words into Action in 2005,” January 26, 2005, Lancaster House, London. 41.Multiplying their respective 2003 growth rates by their 2002 Purchasing Power Parity (PPP) GDP in current U.S. dollars. Source: Global Development Network Growth database. 42.http://news.bbc.co.uk/1/shared/spl/hi/picture_gallery/04/africa_ethiopian_ wood_collector/html/7.stm. 43.This quotation makes up the last line of Peter Bauer’s classic Dissent on Development, 1971. 44.http://www.astdhpphe.org/infect/guinea.html. 45.Demographic and Health Surveys data for 2003, http://www.measuredhs. com/countries/country.cfm?

 

pages: 456 words: 123,534

The Dawn of Innovation: The First American Industrial Revolution by Charles R. Morris

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

air freight, British Empire, business process, California gold rush, clean water, colonial exploitation, computer age, Dava Sobel, en.wikipedia.org, glass ceiling, hiring and firing, if you build it, they will come, interchangeable parts, Isaac Newton, Jacquard loom, Jacquard loom, James Hargreaves, James Watt: steam engine, John Harrison: Longitude, joint-stock company, lone genius, manufacturing employment, new economy, New Urbanism, On the Economy of Machinery and Manufactures, purchasing power parity, QWERTY keyboard, refrigerator car, Robert Gordon, spinning jenny, Stephen Hawking, The Wealth of Nations by Adam Smith, trade route, transcontinental railway, traveling salesman

CHAPTER NINE Catching Up to the Hyperpower A Reprise? THE RAPID GROWTH OF THE CHINESE ECONOMY IS ONE OF THE MOST portentous phenomena in the world today.1 Chart 9.1 shows the data comparing the total economic output of China and the United States from 1980 through 2011, and projected through 2017, as compiled by the International Monetary Fund (IMF). Some comments on the data. The comparison is measured in “purchasing power parity” dollars (ppp$). Official dollar/RMB exchange rates do not fully capture the pricing differences between China and the United States, especially in labor-intensive services, which are typically very cheap in a low-wage country. Using ppp$ inflates Chinese output by about 50 percent over currency market values. No one would claim that ppp calculations are accurate, but most analysts accept that they provide a better fit to reality.

 

pages: 580 words: 168,476

The Price of Inequality: How Today's Divided Society Endangers Our Future by Joseph E. Stiglitz

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

affirmative action, Affordable Care Act / Obamacare, airline deregulation, Andrei Shleifer, banking crisis, barriers to entry, Basel III, battle of ideas, Berlin Wall, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, collapse of Lehman Brothers, collective bargaining, colonial rule, corporate governance, Credit Default Swap, Daniel Kahneman / Amos Tversky, Dava Sobel, declining real wages, deskilling, Exxon Valdez, Fall of the Berlin Wall, financial deregulation, financial innovation, Flash crash, framing effect, full employment, George Akerlof, Gini coefficient, income inequality, income per capita, indoor plumbing, inflation targeting, invisible hand, John Harrison: Longitude, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Rogoff, labour market flexibility, London Interbank Offered Rate, lone genius, low skilled workers, Mark Zuckerberg, market bubble, market fundamentalism, medical bankruptcy, microcredit, moral hazard, mortgage tax deduction, obamacare, offshore financial centre, paper trading, patent troll, payday loans, price stability, profit maximization, profit motive, purchasing power parity, race to the bottom, rent-seeking, reserve currency, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, shareholder value, short selling, Silicon Valley, Simon Kuznets, spectrum auction, Steve Jobs, technology bubble, The Chicago School, The Fortune at the Bottom of the Pyramid, The Myth of the Rational Market, The Spirit Level, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transaction costs, trickle-down economics, ultimatum game, uranium enrichment, very high income, We are the 99%, women in the workforce

., how many euros trade for a dollar), living may be cheaper in one country than in another. (The difference can depend, of course, on what one spends one’s money on. Someone having to buy health care in the United States has a much lower standard of living that a comparably sick person in France.) Economists refer to the comparisons attempting to make (albeit imperfect) adjustments for cost of living as PPP (purchasing power parity) comparisons. For instance, in terms of official exchange rates, per capita GDP in 2010 in the United States was more than 10 times that in China; adjusting for PPP, it is 6 times that in China. See World Bank Indicators database, available at http://databank.worldbank.org/ddp/home.do?Step=12&id=4&CNO=2 (accessed March 26, 2012). 72. See Janet Currie of Princeton University, “Inequality at Birth: Some Causes and Consequences,” and the discussion of her work in chapter 1. 73.

 

pages: 651 words: 180,162

Antifragile: Things That Gain From Disorder by Nassim Nicholas Taleb

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

Air France Flight 447, Andrei Shleifer, banking crisis, Benoit Mandelbrot, Berlin Wall, Black Swan, credit crunch, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, discrete time, double entry bookkeeping, Emanuel Derman, epigenetics, financial independence, Flash crash, Gary Taubes, Gini coefficient, Henri Poincaré, high net worth, Ignaz Semmelweis: hand washing, informal economy, invention of the wheel, invisible hand, Isaac Newton, James Hargreaves, Jane Jacobs, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, knowledge economy, Lao Tzu, Long Term Capital Management, loss aversion, Louis Pasteur, mandelbrot fractal, meta analysis, meta-analysis, microbiome, moral hazard, mouse model, Norbert Wiener, pattern recognition, placebo effect, Ponzi scheme, principal–agent problem, purchasing power parity, quantitative trading / quantitative finance, Ralph Nader, random walk, Ray Kurzweil, rent control, Republic of Letters, Ronald Reagan, Rory Sutherland, Silicon Valley, six sigma, spinning jenny, statistical model, Steve Jobs, Steven Pinker, Stewart Brand, stochastic process, stochastic volatility, The Great Moderation, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, transaction costs, urban planning, Yogi Berra, Zipf's Law

We will look at the confabulations committed by historians of economic thought, medicine, technology, and other fields that tend to systematically downgrade practitioners and fall into the green lumber fallacy. 1 The halo effect is largely the opposite of domain dependence. 2 At first I thought that economic theories were not necessary to understand short-term movements in exchange rates, but it turned out that the same limitation applied to long-term movements as well. Many economists toying with foreign exchange have used the notion of “purchasing power parity” to try to predict exchange rates on the basis that in the long run “equilibrium” prices cannot diverge too much and currency rates need to adjust so a pound of ham will eventually need to carry a similar price in London and Newark, New Jersey. Put under scrutiny, there seems to be no operational validity to this theory—currencies that get expensive tend to get even more expensive, and most Fat Tonys in fact made fortunes following the inverse rule.

 

pages: 708 words: 196,859

Lords of Finance: The Bankers Who Broke the World by Liaquat Ahamed

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

Albert Einstein, anti-communist, bank run, banking crisis, Bretton Woods, British Empire, capital controls, central bank independence, centre right, credit crunch, currency manipulation / currency intervention, Etonian, full employment, German hyperinflation, index card, invisible hand, Lao Tzu, large denomination, Long Term Capital Management, margin call, market bubble, Mexican peso crisis / tequila crisis, mobile money, moral hazard, new economy, open economy, Plutocrats, plutocrats, price stability, purchasing power parity, pushing on a string, rolodex, the market place

In December 1923, Keynes published a short monograph, A Tract on Monetary Reform, much of which had already appeared as a series of articles in the Manchester Guardian during 1922 and early 1923—his first systematic attempt to unravel the sources and consequences of the chronic monetary instability that plagued the postwar world. Like his earlier book, A Tract was a strange hybrid, this time a half-theoretical treatise—with sections on “The Theory of Purchasing Power Parity” and “The Forward Market in Exchanges” and half pamphlet for the laity. It was, however, very different in tone from The Economic Consequences. That had been an angry, passionate work, written in the heat of debate and controversy. This one had a lighter touch, a “tentative almost diffident tone,” as if the author himself were searching for the answer to the quest for monetary stability.

 

pages: 843 words: 223,858

The Rise of the Network Society by Manuel Castells

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

Apple II, Asian financial crisis, barriers to entry, Big bang: deregulation of the City of London, borderless world, British Empire, capital controls, complexity theory, computer age, Credit Default Swap, declining real wages, deindustrialization, delayed gratification, dematerialisation, deskilling, disintermediation, double helix, Douglas Engelbart, edge city, experimental subject, financial deregulation, financial independence, floating exchange rates, future of work, global village, Hacker Ethic, hiring and firing, Howard Rheingold, illegal immigration, income inequality, industrial robot, informal economy, information retrieval, intermodal, invention of the steam engine, invention of the telephone, inventory management, James Watt: steam engine, job automation, job-hopping, knowledge economy, knowledge worker, labor-force participation, labour market flexibility, labour mobility, laissez-faire capitalism, low skilled workers, manufacturing employment, Marshall McLuhan, means of production, megacity, Menlo Park, new economy, New Urbanism, offshore financial centre, oil shock, open economy, packet switching, planetary scale, popular electronics, post-industrial society, postindustrial economy, prediction markets, Productivity paradox, profit maximization, purchasing power parity, RAND corporation, Robert Gordon, Silicon Valley, Silicon Valley startup, social software, South China Sea, South of Market, San Francisco, special economic zone, spinning jenny, statistical model, Steve Jobs, Steve Wozniak, Ted Nelson, the built environment, the medium is the message, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, total factor productivity, trade liberalization, transaction costs, urban renewal, urban sprawl

c Or earliest years available, i.e. 1961 for Australia, Greece and Ireland; 1962 for Japan, the United Kingdom and New Zealand; 1964 for Spain; 1965 for France and Sweden; 1966 for Canada and Norway; and 1970 for Belgium and The Netherlands. d Or latest available year, i.e. 1991 for Norway and Switzerland; 1992 for Italy, Australia, Austria, Belgium, Ireland, New Zealand, Portugal and Sweden; and 1994 for the United States, Western Germany and Denmark. e Western Germany. f Aggregates were calculated on the basis of 1992 GDP for the business sector expressed in 1992 purchasing power parities. g Mainland business sector (i.e. excluding shipping as well as crude petroleum and gas extraction). Overall, there was a moderate rate of growth of productivity for the 1870–1950 period (never surpassing 2 percent for any country or subperiod, except for Canada), a high rate of growth during the 1950–73 period (always over 2 percent, except for the UK) with Japan leading the charge; and a low growth rate in 1973–93 (very low for the US and Canada), always below 2 percent in total factor productivity, except for Italy in the 1970s.

 

pages: 1,152 words: 266,246

Why the West Rules--For Now: The Patterns of History, and What They Reveal About the Future by Ian Morris

Amazon: amazon.comamazon.co.ukamazon.deamazon.fr

Admiral Zheng, agricultural Revolution, Albert Einstein, anti-communist, Arthur Eddington, Atahualpa, Berlin Wall, British Empire, Columbian Exchange, conceptual framework, cuban missile crisis, defense in depth, demographic transition, Deng Xiaoping, discovery of the americas, Doomsday Clock, en.wikipedia.org, falling living standards, Flynn Effect, Francisco Pizarro, global village, hiring and firing, indoor plumbing, invention of agriculture, Isaac Newton, James Watt: steam engine, knowledge economy, market bubble, Menlo Park, Mikhail Gorbachev, mutually assured destruction, New Journalism, out of africa, Peter Thiel, phenotype, pink-collar, place-making, purchasing power parity, RAND corporation, Ray Kurzweil, Ronald Reagan, Scientific racism, Silicon Valley, Sinatra Doctrine, South China Sea, special economic zone, Steve Jobs, Steve Wozniak, Steven Pinker, strong AI, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas L Friedman, Thomas Malthus, trade route, upwardly mobile, wage slave, washing machines reduced drudgery

*It is not clear how much impact this actually had. In 1974, the average birth rate had been 4.2 children per woman. By 1980, when the policy got properly established, this had fallen to 2.2. The decline then slowed, taking another fifteen years to fall to 1.0 per woman. China’s population will probably peak around 2015. *A Soviet car. *All figures are in US dollars at 2000 values, adjusted to reflect purchasing power parity. *If we assume instead that the balance will shift, positing less dramatic changes in one trait of course just means imagining even more breathtaking transformations in another. *In the end, Pistorius missed qualifying by seven-tenths of a second. *Named after the geneticist Robert Carlson. *The obvious example is the United States’ rise to power, fueled by moving millions of Europeans and enslaved Africans across the Atlantic and smaller but significant numbers of Chinese and Japanese across the Pacific.