In last week's Economist, the Free Exchange column explored the issue of social mobility across generations. In other words, how much are differences in income in one generation attributable to the previous generation and earlier generations? In other words, how much of the income of the readers of this blog is determined by the income of their parents, grandparents etc.? Greg Clark and Neil Cummins have used rare surnames to measure social mobility rates over the long run (i.e., 200 years plus). They find that social mobility is low in the long run as 70-80% of economic advantage appears to be transmitted from one generation to the next. Click here for an overview of this fascinating research. However, the ultimate question is how much of this economic advantage is down to nature and how much is down to nurture?
As an undergraduate, I was taught about the failure of Herstatt Bank in 1974 and Herstatt risk. This bank was only the 35th largest bank in Germany at the time so why would anyone be interested in studying its failure? Herstatt failed because of its involvement in risky foreign exchange business. When it closed its doors on 26 June 1974, counterparty banks (mainly in New York) had not received dollars due to them because of time-zone differences - this is known as settlement risk. The cross-jurisdictional implications of its failure resulted in the Bank for International Settlements setting up the Basel Committee on Banking Supervision and Herstatt's failure was a key reason for the establishment of real-time gross settlements systems, which ensures that payments between two banks are executed in real time. The Bank of England's Ben Norman has an interesting post on Herstatt over at the Bank's new blog ( Bank Underground ). As well as giving an excellent overview of