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Showing posts from May, 2012

Facebook's IPO

Facebook's IPO was eagerly awaited and was one of the largest ever.  However, things have turned sour very quickly, with its stock down 29% since it debut two weeks ago and a series of legal cases being brought by investors who claim that Facebook and its advisers did not disclose pertinent performance data prior to the float.  In a previous post , I suggested that the high flotation price of Facebook was not justified by its profits.  So why did investors believe the hype?  Or were they conned?  Notably, Zuckerberg and several other leading investors cashed out before Facebook stock plummeted - Zuckerberg sold 30.2 million shares when the price was still above $37. Facebook's IPO has been dubbed the worst-performing IPO of the last decade.  This is another worrying development for the IPO market, which has been drying up over the past decade or more - see Ritter et al's recent working paper on the decline of the US IPO market and my post on the Kay Review.  This

Hayek on the Euro

I have just been reading a 1976 pamphlet by F. A. Hayek, who won the Nobel Prize for economics in 1974.  In this pamphlet, entitled Choice in Currency , Hayek suggests an interesting alternative to monetary union. He writes as follows: At this moment it seems that the best thing we could wish governments to do is for, say, all the members of the European Economic Community, or, better still, all the governments of the Atlantic Community, to bind themselves mutually not to place any restrictions on the free use within their territories of one another’s – or any other – currencies, including their purchase and sale at any price the parties decide upon, or on their use as accounting units in which to keep books.   This, and not a utopian European Monetary Unit, seems to me now both the practicable and desirable arrangement to aim at.   To make the scheme effective it would be important, for reasons I state later, also to provide that banks in one country be free to establish branches

Feldstein and Peston on the Euro Project

Over at Project Syndicate , Professor Martin Feldstein (Harvard) provides a very concise history and diagnosis of the problems facing Europe today.  I would also recommend Robert Peston's BBC2 documentary entitled The Great Euro Crash .  You can watch it on iPlayer .    Schuman and Monnet, the grand architects of the Euro Project, saw the EU as an antidote to the decades of war and strife that had ravaged Europe.  The sad irony today is that the pursuit of ever closer union may create disharmony, resulting in the unwinding of the great Euro Project.  The long-run effects of this process may not be pretty with ethnic and nationalistic strife all too real a possibility.        

Who Invests during Bubbles?

Gareth Campbell and I have just had a paper entitled “ Dispelling the Myth of the NaïveInvestor during the British Railway Mania, 1845-46 ” published in Business History Review .  In the article, we present extensive evidence that investors during the Railway Mania, recently described by the Economist as the greatest bubble in history, were not naïve or irrational.   Our paper is one of the first serious attempts to look at who invests during asset price bubbles.   Our paper , of course, raises questions as to whether investors during other bubble episodes were naïve, inexperienced, and irrational.   Here is the abstract: Anecdotal evidence from the British Railway Mania and other historical financial bubbles suggests that many investors during such episodes are naive, thus contributing to the asset price boom.   Using extensive investor records, we find that very few investors during the Railway Mania can be categorized as such.   Although some interpretations of the Ma

Teenage Mums and Poverty

In a recent paper in the  Journal of Economics Perspectives , Philip Levine and Melissa Kearney use some novel techniques and data on miscarriages to ask whether teenage mums have children because they are poor or are they poor because they have children (their paper is available here  and you can read Slate's coverage here ).  Interestingly, their evidence seems to indicate that teenage girls have children because they live in impoverished circumstances with poor future prospects.  This, of course, raises questions about the future prospects of the offspring of teenage mothers.  What role can public policy play in dealing with this issue?  Does rising inequality and reduced social mobility make it harder for poor teenagers to escape the poverty trap?   

Northern Irish House Prices

In my first academic post (economics lecturer at the University of Ulster), I taught an Econ101 module from 1997 to 1999.  As part of the assessment for this module, I had an essay question which went as follows - what explains the large increase in Northern Ireland house prices over the past decade?  Little was I to know that house prices would keep on rising until 2007.  By some measures, the Northern Irish property bubble is one of the largest property bubbles in history.  We therefore shouldn't be surprised by the news today that house prices are now at or below their 2005 levels and that sales are less than one third of their peak levels.  Anyone who has tried to sell a house will realise just how bad the market is at present, which may suggest that house prices will fall further. Clive Walker , one of my soon-to-be former PhD students, has been doing some really nice work on the role of the media during the housing market bubble.  In his thesis, he finds that media cove

Worldwide Economics Research Rankings

For a number of years, Tilburg University has been publishing a list of the top economics departments around the globe -  click here .  Their ranking is based on the number of publications a department has in a select list of top journals.  The great thing is that one can change the journal selection and see how this affects the rankings.  Chris Colvin, wanting to see how good Queen's University Belfast is at economic history, ranked departments based on economic history journals.  To his surprise (and mine), we do very well.  We are in the premier league in terms of economic history, and we are not that far behind Harvard and other top universities.  A few more key signings (apologies for the football metaphor) and we will be close to the top.  Thankfully, we have been recruiting in this area of late so we are moving up the league!  Click here to learn more about economic history at Queen's.

Taxpayers and Northern Rock

The National Audit Office has just published a report on the Northern Rock .  The NAO estimates that the ultimate cost  to taxpayers of bailing out the Northern Rock will be £2 billion.  That comes to £67 for each of the 29.7 million taxpayers in the UK.  Of course, this cost ignores other "taxes" such as the higher inflation due to quantitative easing. £67 doesn't sound like much, but Northern Rock was a small bank compared to RBS, Lloyds-TSB and HBOS, the three big banks which failed in 2008.  In terms of deposits, these three banks, taken as a whole, were 27 times larger than Northern Rock.        

Bank Runs in Greece

Deposit withdrawals in Greece have been substantial over the past two years.  However, the failure of Greece's politicians to form a coalition government has resulted in deposit withdrawals accelerating - click here and here for more on this.  Depositors are rightly concerned about the exit of Greece from the euro and the subsequent devaluation of their deposits.  The puzzle for me and many others is why are there so many deposits still remaining in the Greek banking system.  One reason is that the Greek banking system is being kept alive by massive injections of money from the ECB.  Will the ECB continue to support the Greek banking system in the face of a mass withdrawal of deposits?  I doubt that there is the political will in Germany for this as the Bundesbank already has a huge exposure to Greece (as well as Spain and Italy) through the ECB's internal Target 2 system.

Free Speech

As an academic, I am a supporter of free speech and the right to express our ideas even if other people don't like them.  In the UK, section 5 of the 1986 Public Order Act outlaws 'insulting words or behaviour'.  But who decides what is insulting?  If someone says (as they occasionally do) that I am to the right of Genghis Khan, I feel insulted.  Should I therefore dial 999 (911 for US readers)?  If someone criticises my paper at a conference in the UK and they use insulting words whilst doing so, should I report them to the police?     Reform Section 5 , a new pressure group set up by  bunch of secular, libertarian, and Christian think-tanks / lobbying groups, highlights some of the ridiculous arrests and cases that have come before the courts as a result of section 5.  See the video below, where David Davis MP explains the reasons for setting up Reform Section 5.    My favourite novel is George Orwell's 1984 .  Orwell was so prescient - the world he describes

The Next 100 Years

Daron Acemoglu has an interesting working paper entitled “The World our Grandchildren Will Inherit: The Rights Revolution and Beyond”.  In it he surveys the 10 most important economic and social trends of the past century and asks what the future holds for these trends.  The 10 trends are: 1. The rights revolution – the increase in civil and political rights of citizens.  According to Acemoglu, this is the most fundamental right as it underpins the other trends. 2. The sweep of technology 3. Unrelenting economic growth 4. Uneven economic growth 5. The transformation of work and wages 6. The health revolution 7. Technology without borders 8. War and peace 9. Counter-Enlightenment in politics 10. Population explosion, resources and the environment At the centre of Acemoglu’s paper is the idea that technological change is at the root of economic growth, and that technological change is shaped by political institutions.  Societies which are pluralistic and have


After a five-month hiatus, the EuroZone crisis is back.  Spanish banks have been bailed out, the French have just elected an anti-austerity president, and the general election in Greece has witnessed the further empowerment of anti-austerity political parties.  If a credible coalition cannot be formed, Greece will once again go to the ballot box, and it is predicted that the vote for the anti-austerity parties will increase.  This will leave the German government and Greece's international creditors with three choices.  First, they can back down on their austerity stipulations, but this creates a huge moral hazard in that other periphery EU members will want to do the same.  Second, they can permit Greece to leave the euro.  The problem with this is that there will be substantial costs involved with fighting the subsequent contagion.  Third, they can create some sort of deal which buys more time.  This, however, is only likely if the EU and its banks are unprepared for a huge defa

Farewell Northern Bank

The Northern Bank name is disappearing from Northern Irish banking after nearly 188 years ( click here for details).  The bank is being rebranded as 'Danske Bank', the Danish bank which has owned the Northern Bank since 2005.  The Northern Bank, made infamous by the 2004 heist, was where I opened my first bank account, and my family have banked with the Northern for several generations.  I am therefore sad that the Northern will be no more. The Northern Banking Company, which evolved out of a Belfast banking partnership, commenced in 1824.  Despite the two other Belfast-based banks merging with large English banks in 1917 (the Ulster Bank was taken over by the Westminster Bank and the Belfast Bank was taken over by the Midland), the Northern remained independent until its 1965 takeover by the Midland Bank.  In 1970, the Belfast Bank and Northern Bank were amalgamated.  The Midland subsequently sold the Northern in 1988 to National Australia Bank. Why is the Northern n

European Income Inequality

The standard view on income inequality is that the US is a much more unequal society than Europe.  However, once we consider Europe as a single entity (i.e., United States of Europe) rather than individual countries, income inequality is much greater in Europe.  Given that there is effectively a single labour market in the EU, it probably makes sense to think of European income inequality in this manner.  You can read more on this over at Slate . 

Pension Deficits

What effect has quantitative easing had on pension deficits of large UK companies?  A recent study has suggested that the final-salary pension shortfall of the top 350 companies in the UK has quadrupled over the past year from £20 billion to £80 billion.  The authors of the report suggest that this increase is largely due to falling gilt yields, arising from the fact that the Bank of England has bought a third of the gilt market through quantitative easing.  But this report ignores the impact of quantitative easing on equities and other real assets held by pension funds.  As highlighted in an earlier post, quantitative easing may have helped sustain returns on real assets.   Incidentally, Ronan Gallagher, one of my colleagues, has done a lot of really nice work on pension deficits of large firms.  Click here and here .

King's Speech

Sir Mervyn King gave a speech live on Radio 4 yesterday evening.  You can listen to it or read the transcript here .  This was the first peacetime talk on radio by a Governor of the Bank of England since Montagu Norman's 1939 talk on the Great Depression.  King admitted that the Bank of England could have done more to prevent the recent banking crisis.  In his speech, he stated that "with the benefit of hindsight, we should have shouted from the rooftops that a system had been built in which banks were too important to fail, that banks had grown too quickly and borrowed too much, and that so-called 'light-touch' regulation hadn't prevented any of this."  As someone who has studied Norman's papers at the Bank of England, I suspect that if he had been Governor in the run up to 2008, he would have done more to prevent the crisis occurring.  However, it is probably harsh to criticise King on this point as he was simply operating within the new instituti

Well-being in Northern Ireland

A recent ONS survey of well-being in the UK has produced some interesting findings.  Northern Irish people are ‘happier’ than people from other parts of the UK on nearly every measure of subjective well-being ( click here for the details).  This is despite the fact that using standard economic measures of well-being, such as GVA per capita, Northern Ireland is the worst region in the UK apart from Wales.  This is also despite the continuing legacy of the ‘troubles’.  So why is subjective well-being so high in Northern Ireland compared to other parts of the UK?  Is there something different about our culture compared to the rest of the UK?   Is Northern Ireland a less congested and more pleasant place to live?  Is Northern Ireland more egalitarian and less socially divided than other parts of the UK?