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Showing posts from June, 2012

The Dangers of Quantitative Easing

The Bank for International Settlements (the bank for central banks) has recently published its 2011 annual report - it is available here .  In it, the BIS warn of the dangers to the UK economy of continued low interest rates and quantitative easing.  You can read the Daily Telegraph's coverage of the report here .


My 2012 Corporate Finance class graduate on Monday morning.  I really enjoyed teaching this class so it will be great to see them do the graduation walk.  I am delighted that many of them have done well in the job market.  Clare Bamber is to be congratulated for graduating top of her year group.   In the US, there is usually a graduation speech given by a faculty member or valedictorian.  You can read about a recently-delivered subversive graduation speech here . 

Inaugural QUCEH Workshop

The Queen's University Centre for Economic History has its inaugural workshop today.  The centre exists to promote economic history research at Queen's and to nurture young academics and graduate students who have an interest in economic history and the long-run development of the economy.  The programme for the workshop can be viewed here .

Anna Jacobson Schwartz

Last week, I was re-reading Gayer, Rostow and Schwartz's The Growth and Fluctuation of the British Economy 1790-1850 .  Just after I had finished, I heard the sad news that Anna Jacobson Schwartz had passed away aged 96.  Schwartz worked daily in her NBER office up until very recently and was highly critical of the the Fed's actions and expansion during the financial crisis.  I had the privilege of meeting Anna Schwartz in the mid-1990s - she was a gracious scholar who was very keen to talk to a young PhD student from Queen's University.  I was amazed by her intellectual sharpness and her humility - the two things all great scholars should possess.  You can read obits here and here .     

Central Banking 101

Click here for a great two-minute cartoon (hat-tip Chris Colvin), which explains what a central bank is and what it does.  

Deficit Financing and the Next Generation

This year's Reith lectures are being given by Prof. Niall Ferguson of Harvard.  Ferguson argues in his lectures that young voters should welcome austerity as they will have to repay the huge debts being amassed by present-day governments.  It is well-known that whenever a government finances its expenditure via bond issues, it shifts some of the cost of the expenditure unto future generations.  This makes perfect economic sense if future generations benefit from the expenditure.  For example, traditionally democracies have amassed huge debts to fight wars.  If the country is victorious in the war, current and future generations will both benefit.  The war debt finance helps shift some of the cost of defending the nation unto future generations.   The late Earl Thompson has an interesting theoretical piece on why democratic governments should run peacetime deficits - they compensate the current generation for investments they make in the future generation.  Thompson suggests

Marital Status of CEOs

A recent NBER working paper by Roussanov and Savor argues that the marital status of a CEO affects corporate behaviour.  They find that young and single CEOs are associated with aggressive investment policies and higher stock return volatility.  Here is the abstract of the paper: Relative wealth concerns can affect risk-taking behavior, as the payoff to a marginal dollar of wealth depends on the wealth of others. We develop a model where status concerns arise endogenously due to competition in the marriage market and lead to greater risk-taking for unmarried individuals. We evaluate empirically the importance of this effect in a high-stakes setting by studying corporate CEOs. We find that single CEOs, who are more likely to exhibit status concerns, are associated with firms that exhibit higher stock return volatility and pursue more aggressive investment policies. This effect is weaker for older CEOs. Our results hold both when we estimate the impact of marital status directly a

Extending the Marriage Franchise

I am a big fan of Douglas Allen's work.  Allen's  The Institutional Revolution is a major contribution to economic history and the role of institutions in economic development, and his paper in Explorations in Economic History on the evolution of the British aristocracy is really illuminating.   Allen also works on social institutions such as marriage and the family.  I have just come across a really insightful   paper  of his on the law and economics of marriage, which asks whether the marriage franchise should be extended to same-sex couples.  As this issue has generated a lot of heat recently without providing much insight, Allen's paper is most welcome.  It is also welcome given that the British government's consultation into same-sex marriage has just closed - click here for the details.  The Cameron government intends to legalise same-sex marriage - it would do well to read Allen's paper before making such a radical and historic institutional change.

Elinor Ostrom

Elinor Ostrom, the winner of the 2009 Nobel Prize in Economics, passed away yesterday.  The Indiana University obit is here (hat tip - Graham Brownlow).  Ostrom's Nobel Prize lecture is available here . In the video clip below, Ostrom gives a short talk on how humans can use natural resources in a sustainable way. 

UK Pension Performance

A new report by the OECD has found that the performance of British pension companies over the past decade has been nearly the worst in the developed world (Spain and the US are just below the UK).  You can read the Daily Telegraph's coverage of this report  here .  The poor performance of pension companies is all the more worrying as so many companies have switched away from a final-salary scheme, shifting the risk of pension under-performance unto employees. Indeed, the disappearing equity premium may have accelerated the switch away from final-salary schemes.     

Ulster Bank's Property Loans

Until the recent crisis, the Ulster Bank has had a long (176 years) and successful history.  In a previous post , I talked about the losses incurred by the Ulster Bank as a result of lending to property developers and house buyers.  In an FT interview over the weekend, Philip Hampton, the chairman of RBS, stated that the RBS board was extremely concerned about the Ulster Bank's loan impairment of £12 billion.  This is the issue which has "most troubled" the RBS board, which says a lot!  The bank pioneered the 100% mortgage in Ireland and lent heavily to Irish property developers.  With one out of ten Irish mortgages in arrears of at least three months, the Ulster Bank now faces huge losses on its residential mortgages. What should the RBS board do about its Ulster Bank problem?  As it is unlikely that RBS will be able to sell the bank, they may decide to go down the route of the Northern Bank , and rebrand the bank.  However, with the revival of Henri Hippo, it seem

Gresham's Law in Politics

Footnotes are always worth reading.  I recently came across a footnote in one of Hayek’s writings where he quotes Aristophanes, the Greek satirist and dramatist.  The quote suggests that Gresham’s Law (i.e., bad money drives out good) operates in politics as well as money.  Although Gresham’s Law may be wrong in the monetary arena (see Robert Mundell’s piece on this), casual  observation  would appear to support the notion that bad politicians drive out good! The quote from Aristophanes is as follows: Oftentimes we have reflected on a similar abuse In the choice of men for office, and of coins for common use, For our old and standard pieces, valued and approved and tried, Here among the Grecian nations, and in all the world besides, Recognised in every realm for trusty stamp and pure assay, Are rejected and abandoned for the thrash of yesterday, For a vile adulterated issue, drossy, counterfeit and base, Which the traffic of the city passes current in their place. 

I, Pencil

Although I have heard this story many times, I have just read L. E. Read's original short essay ( I, Pencil ) for the first time (hat tip to Graham Brownlow). You can get a free pdf or audio copy  here .   Read's short story is the autobiography of the humble pencil, and is a powerful illustration of Adam Smith's Invisible Hand - the power of the market to co-ordinate the economic activities of thousands of different people across the globe. The market is something which we too often take for granted. Too often it is wrongly maligned. We should contemplate its wonder and be thankful for the benefits it bestows on us - from the humble pencil to the iPhone.  Too often we talk about market failures, but not enough about market successes.  We should also be careful not to undermine the power of the market through unnecessary meddling.