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Tag: Economics

The Monster

I was asked recently by a friend about my thoughts on the “Occupy Wall Street” movement. While people a heck of a lot smarter and more articulate than me have weighed in, most of it has been focused on finger-pointing (who’s to blame) and judgment (do they actually stand for anything, “its the Tea Party of the Left”).

JohnSteinbeck_TheGrapesOfWrathAs corny as it sounds, my first thought after hearing about “Occupy Wall Street” wasn’t about right or wrong or even really about politics: it was about John Steinbeck and his book The Grapes of Wrath . It’s a book I read long ago in high school, but it was one which left a very deep impression on me. While I can’t even remember the main plot (other than that it dealt with a family of Great Depression and Dust Bowl-afflicted farmers who were forced to flee Oklahoma towards California), what I do remember was a very tragic description of the utter confusion and helplessness that gripped the people of that era (from Chapter 5):

“It’s not us, it’s the bank. A bank isn’t like a man. Or an owner with fifty thousand acres, he isn’t like a man either. That’s the monster.”

“Sure,” cried the tenant men, “but it’s our land. We measured it and broke it up. We were born on it, and we got killed on it, died on it. Even if it’s no good, it’s still ours. That’s what makes it ours—being born on it, working it, dying on it. That makes ownership, not a paper with numbers on it.”

“We’re sorry. It’s not us. It’s the monster. The bank isn’t like a man.”

“Yes, but the bank is only made of men.”

“No, you’re wrong there—quite wrong there. The bank is something else than men. It happens that every man in a bank hates what the bank does, and yet the bank does it. The bank is something more than men, I tell you. It’s the monster. Men made it, but they can’t control it.

And therein lies the best description of the tragedy of the Great Depression, and of every economic crisis that I have ever read. The many un- and under-employed people in the US are clearly under a lot of stress. And, like with the farmers in Steinbeck’s novel, its completely understandable that they want to blame somebody. And, so they are going to point to the most obvious culprits: “the 1%”, the bankers and financiers who work on “Wall Street”.


But, I think Steinbeck understood this is not really about the individuals. Obviously, there was a lot of wrongdoing that happened on the part of the banks which led to our current economic “malaise.” But I think for the most part, the “1%” aren’t interested in seeing their fellow citizen unemployed and on the street. Even if you don’t believe in their compassion, their greed alone guarantees that they’d prefer to see the whole economy growing with everyone employed and productive, and their desire to avoid harassment alone guarantees they’d love to find a solution which ends the protests and the finger-pointing. They may not be suffering as much as those in the “99%”, but I’m pretty sure they are just as confused and hopeful that a solution comes about.

The real problem – Steinbeck’s “monster” – is the political and economic system people have created but can’t control. Our lives are driven so much by economic forces and institutions which are intertwined with one another on a global level that people can’t understand why they or their friends and family are unemployed, why food and gas prices are so expensive, why the national debt is so high, etc.

Now, a complicated system that we don’t have control of is not always a bad thing. After all, what is a democracy supposed to be but a political system that nobody can control? What is the point of a strong judiciary but to be a legal authority that legislators/executives cannot overthrow? Furthermore, its important for anyone who wants to change the system for the better to remember that the same global economic system which is causing so much grief today is more responsible than any other force for creating many of the scientific and technological advancements which make our lives better and for lifting (and continuing to lift) millions out of poverty such as those who live in countries like China and India.

But, its hard not to sympathize with the idea that the system has failed on its promise. What else am I (or anyone else) supposed to think in a world where corporate profits can go up while unemployment stays stubbornly near 10%, where bankers can get paid bonuses only a short while after their industry was bailed out with taxpayer money, and where the government seems completely unable to do more than bicker about an artificial debt ceiling?

But anyone with even a small understanding of economics knows this is not about a person or even a group of people. To use Steinbeck’s words, the problem is more than a man, it really is a monster. While we may not be able to kill it, letting it rampage is not a viable option either — the “Occupy Wall Street” protests are a testament to that. Their frustration is real and legitimate, and until politicians across both sides of the aisle and individuals across both ends of the income spectrum come together to find a way to “tame the monster’s rampage”, we’re going to see a lot more finger-pointing and anger.

(Image credit – Wikipedia)

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Much Ado About Microcredit

Another month, another paper.

This month’s paper from Science is not the usual traditional science fare I’ve tended to blog about. I heard about this on the Science magazine podcast (yes, I subscribe to it). In it, two economists basically find a way to run a randomized clinical trial to see what microfinance does!

PicturingMicrofinanceImageFor those of you who don’t know what microfinance is, the idea is actually pretty simple. In many developing countries, the banking system is underdeveloped. And, even if a mature banking system were to exist, banks themselves typically do not lend small amounts of money to small businesses/families who don’t have much by the way of credit history. Enter microfinance. The idea is that you can do a lot to help people in developing countries by providing their smallest businesses, especially those run by women who are traditionally excluded from their local economies, with small (or “micro” :-)) loans. Organizations like Kiva have sprung up to pursue this sort of work, and the 2006 Nobel Peace Prize was even awarded to a man, Muhammad Yunus, because of his role in microfinance.

But, does it work at building communities and improving economies? If you’re a scientist, to answer that question conclusively, you need a controlled experiment. So, the authors of the study worked with a for-profit microfinance organization in the Philippines, First Macro Bank (FMB), to do a double-blinded randomized trial. Using a computer program, they automatically categorized a series of microcredit applicants by their creditworthiness. Obviously credit-worthy and obviously credit-unworthy applicants (combined, 26% of applicants) were taken care of quickly. For the 74% of applicants that the program considered “marginal” (not obviously one way or the other), they were randomly assigned to two groups: a control group that did not receive a microloan, and a treatment group who would receive a microloan. Following the “treatment”, the participants in the experiment were then surveyed by along on a number of economic and lifestyle metrics, and their results compared.

How was this double-blinded? Neither the applicants nor the FMB employees who interfaced with were aware that this was an experiment. The surveyors were not even aware this was an experiment or that FMB was involved.

Why focus on “marginal” applicants? A couple of reasons: first, the most likely changes to microfinance policy will impact these applicants the most, so they are the most relevant group to study. Secondly, you want to try to make apples-to-apples comparisons. Rejecting some obviously credit-worthy (or credit-unworthy) individuals may have raised red flags that some sort of algorithmic flaw or artificial experiment was happening. To really understand the impact of microfinance, you need to start on even footing in a realistic setting (esp. not comparing obviously credit-worthy individuals with so-so- credit-worthy individuals)

So, what did the researchers find? They found a lot of interesting things, actually – many of which will require us to re-think the advantages of microfinance. The data is presented in a lot of boring tables so, unlike most of my science paper posts, I’m not going to cut and paste figures, but I will summarize the statistically significant findings:

  1. Receiving microfinance increases amount of borrowing. The “treatment group” had, on average, 9% more loans from institutions (rather than friends/family) than the control group (excluding the microloan itself, of course)
  2. Microfinance does not seem to go towards aggressive hiring. The “treatment group” had, on average, 0.273 fewer paid employees than the control group. Whether or not this reflected the original size of the businesses is beyond me, but I am willing to give the researchers the benefit of the doubt for now.
  3. Microfinance does not seem to have a major impact on subjective measures of quality of life except elevated stress levels of male microfinance recipients. Most of the subjective quality of life measures showed no statistically significant differences except that one.
  4. Receiving microfinance reduces likelihood of getting non-health insurance by 7.9%
  5. There don’t appear to be significantly different or larger impacts of microfinance on women vs. men.

So, when’s all said and done, what does it all mean? First, it appears that instead of leading to aggressive business expansion as it is widely believed, microfinance itself actually seems to have a small, but slightly negative impact on employment at those businesses. While I don’t have a perfect explanation, combining all the observations above would suggest that the main impact of microfinance is not business expansion so much as risk management: entrepreneurs who received microloans seemed more willing to consolidate their business activities (i.e., firing “extra” workers who might have been “spare capacity”), avoid buying insurance, and reach out to other banks for more loans — very different than the story that we usually hear from the typical microfinance supporter.

The fundamental unknowns of this well-crafted study, though, are around whether or not these findings are that useful. While the researchers did an admirable job controlling for extraneous factors to reach a certain conclusion for a certain set of people in the Philippines, its not necessarily obvious that the study’s findings hold true in another country/culture. These studies were also conducted a few months after receipt of the microfinance — it is possible that the impacts on businesses and local communities need more time to manifest. Finally, the data collected from the study does almost too good of a job stripping out selection bias. Microfinance organizations today can be fairly selective, picking only the best entrepreneurs or potentially coaching/forcing the entrepreneurs to allocate their resources differently than the mostly hands-off approach that was taken here.

All in all, an interesting paper, and something worth reading and thinking about by anyone who works in/with microfinance organizations.

(Image credit)

Paper: Karlan et al., “Microcredit in Theory and Practice: Using Randomized Clinical Scoring for Impact Evaluation.” Science 332 (Jun 2011) – doi: 10.1126/science.1200138


Making Macro Manageable


On the advice of one of the members of the little investment club I am a part of, I picked up David Moss’s book A Concise Guide to Macroeconomics. I wasn’t expecting much, having taken a few introductory economics courses in college and being a casual economics aficionado, but I gave it a shot.

And, I think that the subtitle “What Managers, Executives, and Students Need to Know” is simultaneously very appropriate and a dramatic underselling of the book. Moss’s writing style and his very direct, conclusion-oriented (as opposed to “scholarly”) overview of basic macroeconomics makes the book not only accessible to people who need a working understanding of economics but not the extra academic theory, but also a great reference.

Now, if you’re an economic genius, or have even just taken basic economics, then you’re not going to learn anything earthshattering from the book, but what you may get out of it which could be just as valuable is a different way of thinking through or of explaining macroeconomic concepts.

Case in point: I had never thought of “the job of a pension system is to divide national output between active workers and retirees.” While this is a simple and obviously true statement, Moss uses that underlying “framework” to explain why moving existing Social Security/pension plans to an IRA (stock-based) retirement system is unlikely to fundamentally solve anything:

Although all of us are accustomed to thinking that we can sell our financial assets for cash at a moment’s notice and then use the cash to buy goods and services, this obviously wouldn’t work if everyone tried to do it at once. If a large number of senior citizens liquidated their financial assets at the same time, in order to buy needed goods and services, they would soon find that the proceeds were much smaller than they had expected. Simply giving the elderly more pieces of paper – more stocks and bonds – does not guarantee that there will be more output for them to consume in the future …

The key question from a macroeconomic standpoint, therefore, is not whether the senior citizens of tomorrow have IRAs or traditional Social Security benefits, but whether they (or others) reduced their consumption to prepare for their eventual retirement. Unless savings are increased today, the division of output between active workers and retirees will be no less onerous tomorrow, regardless of whether we have a fully funded pension system based on individual accounts or a traditional pay-as-you-go system based on payroll taxes …

The amount of output a country produces is its ultimate budget constraint, regardless of how many stocks or bonds or Social Security cards may be floating around. Unless its output grows, a country cannot give more to its retirees without giving less to its workers.

Maybe you didn’t hear anything new there – and if so, pat yourself on the back as you are far smarter than I am – but I was blown away by the simplicity of Moss’s explanation of what is a very complicated problem. Mind you, he doesn’t have an answer to out-of-control entitlement programs like the one the US has, but being able to break this down only pages after explaining the different things that make up and affect GDP (national economic output) was impressive to me. And the cool thing is that Moss does this several times, explaining, for instance, why boosting monetary supply (i.e. when the Federal Reserve cuts interest rates) may have a certain effect on the exchange rate in the short-term but a different one in the long-term and how an “unsustainable current account deficit” (i.e. huge trade deficits) might look like a “high degree of investor confidence” at first.

If you’re interested in macroeconomics casually or as a business-person who needs a better grasp of it in his or her job, I’d highly recommend the book.


Ed Glaeser Advice on Storytime for Kids

Ed Glaeser was an economics professor of mine in college. He proudly called his class “boot camp” for economists and noted that while his class reviews always said that his class was “too difficult and too fast”, he never planned to change it.

When I found out that he wrote a piece for the New York Time’s Economix blog on how to stir in economics lessons to childhood fairy tales, I was intrigued:

“If you are an economics-minded parent of young children, like me, then you may also have spent long hours wondering how to teach economics to your toddlers. Luckily, much-loved children stories can be made far more delightful with a healthy dose of supply-and-demand charts. Many such tales already include their own hidden economic messages that only need to be exposed to bring edification and enjoyment to the under-5 set.”


The Three Little Pigs,” for example, is more than just a story about the value of better building materials. Like a whole host of fairy tales (“The Ant and the Grasshopper,” or “The Goose with the Golden Egg”), it teaches that sensible investment can yield high returns.”

He gives  few other examples which led me to wonder, why is Glaeser so interested in fairy tales? Apparently, its because his first paper was on Cinderella:

“The first thing I ever published in an academic journal was “The Cinderella Paradox Resolved,” which purported to make sense of the odd fact that Cinderella’s parents invested in only two of their three siblings, despite the fact that standard economics pushes toward more equitable arrangements.

The story itself explains this fact with “The Wicked Stepmother Hypothesis,” a reasonable but excessively straightforward explanation of the decision to ignore Cinderella. I offered a distinctly less plausible explanation. The marriage market in Cinderella’s country was a tournament, where marrying the prince carried high rewards and everyone else was a mouse, pumpkin, etc.

In a first-past-the-post race, it often makes sense to lavish investment on only one or two competitors, which makes the stepmother’s behavior entirely rational. Of course, the stepmother did choose to back the wrong horse, but that just makes her unwise, not wicked.

As I explain this logic to my children, they respond with the glazed and distinctly annoyed looks that conveys to me their inner joy. I am sure that you will get the same reaction.”

So, do I take advice from Glaeser on how to raise my kids? On the one hand, he is an intelligent, wealthy, well-dressed man (always wore 3-piece suits if my memory serves me), who smokes a cigar. On the other hand, he was giving our class a lecture on the Slutsky Equation while his wife was in labor (probably with one of the kids who had to listen to this “re-telling” of Cinderella)…

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Dilbert does subprime

If you’ve ever wondered just how the decision-making process which caused countless (supposedly) intelligent financial analysts to buy into securitized subprime mortgages and then cause the global economy to tank, a recent Dilbert might just have the answer:


I think “it’s called math” and “I feel all savvy” pretty much wrap it up.

The logic behind securitization is basically just as Dogbert explained (buy up a lot of bad mortgages/cows and expect at least some of them to make it). The cartoon does leave out one (very dangerous) assumption which, if true, almost makes the whole scheme make sense (but just almost): mainly that the price of cows/homes is always increasing – so much so that even if one sick cow dies, you can still make a fair amount selling the carcass. That this entire scheme depended on being able to sell dead cows (foreclosed homes/re-financed mortgages) for more than they were originally worth is still mindboggling to me.

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You know your economy is in trouble when…

  1. There is a “black market” that evolves to sell currency (b/c they don’t trust the fiat or official currency values)
  2. That black market is being carried out in the Classified ads of your country’s newspapers

In the classifieds on the web of the daily Iceland newspaper Mbl, you find hard currency for sale (US dollar, Danish kroner, and Euro) ranging from USD 300 to USD 12000. With the breakdown of the official exchange rates, the market has emerged.

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Playing with Monopoly

imageWith the recent challenges to Google’s purchase of Doubleclick, Microsoft’s endless courtship of Yahoo, and the filing of more papers in the upcoming Intel/AMD case, the question of “why should the government break up monopolies?” becomes much more relevant.

This is a question that very few people ask, even though it is oftentimes taken for granted that the government should indeed engage in anti-trust activity.

The logic behind modern anti-trust efforts goes back to the era of the railroad, steel, and oil trusts of the Gilded Age, when massive and abusive firms engaged in collusion and anti-competitive behavior to fix prices and prevent new entrants from entering into the marketplace. As any economist will be quick to point out, one of the secrets to the success behind a market economy is competition – whether it be workers competing with workers to be more productive or firms competing with firms to deliver better and cheaper products to their customers. When you remove competition, there is no longer any pressing reason to guarantee quality or cost.

So – we should regulate all monopolies, right? Unfortunately, it’s not that simple. The logic that competition is always good is greatly oversimplified, as it glosses over 2 key things:

  1. It’s very difficult to determine what is a monopoly and what isn’t.
  2. Technology-driven industries oftentimes require large players to deliver value to the customer.

What’s a Monopoly?


While we would all love monopolies to have clear and distinguishable characteristics – maybe an evil looking man dressed in all black laughing sinisterly as his diabolic plans destroy a pre-school? – the fact of the matter is that it is very difficult for an economist/businessperson to really tell what counts as a monopoly and what doesn’t, for four key reasons:

  1. Many of the complaints and lawsuits brought against “monopolies” are brought on by competitors. Who is trying to sue Intel? AMD. Who complained loudly about Microsoft’s bundling of Internet Explorer into Windows? Netscape.
  2. “Market share” has no meaning. In a sense, there are a lot of monopolies out there. Orson Scott Card has a 100% market share in books pertaining to the Ender’s Game series. McDonald’s has a 100% market share in Big Macs. This may seem like I’m just playing with semantics, but this is actually a fairly serious problem in the business world. I would even venture that a majority of growth strategy consulting projects are due to the client being unable to correctly define the relevant market and relevant market share.
  3. What’s “monopoly-like” may just be good business. Some have argued that Microsoft and Intel are monopolies in that they are bullies to their customers, aggressively pushing PC manufacturers to only purchase from them. But, what is harder to discern is how this is any different from a company that offers aggressive volume discounts? Or that hires the best-trained negotiators? Or that knows how to produce the best products and demands a high price for them? Sure, Google is probably “forcing” its customers to pay more to advertise on Google, but if Google’s services and reach are the best, what’s wrong with that?
  4. “Victims” of monopolies may just be lousy at managing their business. AMD may argue that Intel’s monopoly power is hurting their bottom line, but at the end of the day, Intel isn’t directly to blame for AMD’s product roadmap mishaps, or its disastrous acquisition of ATI. Google isn’t directly to blame for Microsoft’s inability to compete online.

Big can be good?

This may come as a shock, but there are certain cases where large monolithic entities are actually good for the consumer. Most of these lie around technological innovation. Here are a few examples:

  • Semiconductors – The digital revolution would not have been possible without the fast, power-efficient, and tiny chips which act as their brains. What is not oftentimes understood, however, is the immense cost and time required to build new chips. It takes massive companies with huge budgets to build tomorrow’s chips. It’s for this reason that most chip companies don’t run their own manufacturing centers and are steadily slowing down their R&D/product roadmaps as it becomes increasingly costly to design and build out chips.
  • Pharmaceuticals – Just as with semiconductors, it is very costly, time-consuming, and risky to do drug development. Few of today’s biotech startups can actually even bring a drug to market — oftentimes hoping to stay alive just long enough to partner with or be bought by a larger company with the money and experience to jump through the necessary hoops to take a drug from benchside to bedside.
  • Software platforms – Everybody has a bone to pick with Microsoft’s shoddy Windows product line. But what few people recognize is how much the software industry benefited from the role that Microsoft played early on in the computer revolution. By quickly becoming the dominant operating system, Microsoft’s products made it easier for software companies to reach wide audiences. Instead of designing 20 versions of every application/game to run on 20 OS’s, Microsoft made it easy to only have to design one. This, of course, isn’t saying that we need a OS monopoly right now to build a software industry, but it is fair to say that Microsoft’s early “monopoly” was a boon to the technology industry.

The problem with today’s anti-trust rules and regulations is that they are legal rules and regulations, not economic ones. In that way, while they may protect against many of the abuses of the Gilded Age (by preventing firms from getting 64.585% market share and preventing them from monopolistic action 1 through 27), they also unfortunately act as deterrents to innovation and good business practice.

Instead, regulators need to try to take a broader, more holistic view of anti-trust. Instead of market share litmus tests and paying attention to sob stories from the Netscapes of the world, regulators need to really focus on first, determining if the offender in question is acting harmfully anticompetitive at all, and second if there is credible economic value in the institutions they seek to regulate.

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Windfall Profit Taxes and Windmills


Gas prices are going up. Believe me, my wallet is well aware of this as I not only live in the Bay Area, but my weekly commute is over 200 miles.

Not surprisingly, there has been a lot of steam generated by politicians about taxing the so-called “windfall profits” of oil companies. While I can’t argue with advocating for the development of alternative energy sources, the entire notion that one can point at Exxon’s $40.6 billion net income and declare that oil companies make “too much money” is to me about as ridiculous as Don Quixote’s battle against windmills.

There are three reasons as to why you can’t just point at the amount of money Exxon makes (or for that matter, a pharmaceutical company or a telecommunications company or any company) and immediately jump to the conclusion that profits are too high and hence must be taxed:

  1. Large profit doesn’t necessarily mean a high profit margin
  2. A high profit margin doesn’t necessarily mean the company is doing well
  3. Taxation on profits is not going to reduce prices

The first reason is basically stating the question how much is too much profit? Is $1 million too much? How about $1 billion? Or $10 billion? Or how about Exxon’s $40.6 billion? The reason why this is a trick question with no answer, is because the sheer amount of profit a company makes is no indication of how much it is profiting from every sale. For example, if two poker players end the night having won $50, but the first player started with $10 and the second player started with $100, who would you say is the better poker player? Probably the former, because he had less to work with. On a similar level, you can’t just point at $40.6 billion and immediately say that profits are excessive. They certainly aren’t excessive if Exxon had to sell $1 trillion worth of gas to make that profit, as that would mean Exxon was only making 4 cents on every dollar — and what would be the point of regulating/taxing that?

But, let’s say you’re smarter than the average politician/bear, and you point out that Exxon has a profit margin of 10% (Exxon’s sales in 2007 were $405 billion), and that is simply too high when people around the country are struggling to pay their energy bills. This then takes us to the second reason, which is basically questioning how difficult is it to make that profit? Let’s say there are two poker players who both started with $100, and both ended the night having won $50 — in this case, both players have the same “profit margin” (50%). However, let’s say one player played at a table full of children who don’t know how to play, and the other played at a table full of World Series of Poker champions. Now, given this setup, it should be obvious who the better player is. You are likely to say that the player who made a 50% margin playing the table full of WSOP champions is the better player and that his profit margin was very difficult-to-get and probably not excessive. On the other hand, we would be ashamed of the player who basically stole candy from babies and would think that money was not well-deserved.

Translating this back to the world of windfall profits, the takeaway message is that the profit margin that a business earns is no indication of “windfall” profits because the profit margin does not reflect how “difficult” it was to earn the profit (and so doesn’t reflect the profits necessary for an industry to continue to invest in it). The pharmaceutical industry is a perfect example of this, and a perennial whipping boy of politicians who seem to not comprehend that it is not only extremely unlikely for a particular investment to make it from the lab to a patient, it takes a very long time and is also extremely expensive. Companies in the oil industry are in a similar boat in that significant upfront investments (e.g. Exxon needs to hire workers and buy equipment before it starts drilling) with no guarantee of success (e.g. what if Exxon drills where there is no oil?). Now, to be clear, this argument doesn’t mean that it’s impossible to earn “windfall profits”, but it does mean that different industries have different standards of profitability to determine how well a company is doing.

And lastly, even if we find an example of a company that is making excessive profits by an industry-specific definition, people should understand that a tax on profits is unlikely to result in a cut in prices. The reason is pretty basic — there are three levers a company can use to raise profits — it can raise prices, it can try to sell more things, or it can try to lower costs. If we assume that companies usually aim to maximize profits, which is typically a decent assumption, then a tax on profits will simply encourage the company to either:

  1. raise prices
  2. sell more things
  3. lower its cost structure (maybe by firing some workers or outsourcing more stuff)
  4. some combination of the above

#1 is especially likely if the item being sold is something which is a necessity to the buyer or something which the buyer would buy the same amount of with little regard for price (which allows the seller to “get away” with charging more). Typical examples of this are things like food, oil, and healthcare — typical targets of movements to tax windfall profits. What this means is even if the tax were 100% efficient (no overhead costs for collecting it and overseeing it, no impact on the quantity of product provided) and it was completely refunded back to the consumer, at best you are saving the consumer a few percent of the original price, as they are forced to bear the brunt of the tax in price hikes.

Of course, hoping the politicians will listen is much the same as telling Don Quixote not to bother attacking windmills.

Image credit

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Citizen’s arrest


The New York Times has a fascinating article about the impact of tough economic times on police tips (hat tip: Marginal Revolutions):

Cities and towns from Detroit to Omaha to Beaufort County, N.C., all report increases of 25 percent or more in the first quarter, with tipsters telling operators they need the money.

Are we sure it’s not a rise in crime?

Some coordinators suggest that rising crime rates might be driving up the number of tips. But in Jackson, Tenn., Sgt. Mike Johnson said his call volume had gone from 2-3 a day to 8-9. He theorized that rising crime there was not a factor because the program advertises steadily regardless of trends. “People just need money,” Sergeant Johnson said.

Jim Cogan, director of the Silicon Valley Crime Stoppers program in California, said most of the rewards offered by his program used to go unclaimed. But with large numbers of foreclosures and heavy job losses, Mr. Cogan said, “now we’re seeing rewards get picked up right away and our tipsters being frustrated when tips aren’t available as quickly as they need the money.”

Sounds like this could be quite lucrative, doesn’t it?

Some people have made a cottage industry of calling in tips. Although repeat callers do not give their names, operators recognize their voices.

We have people out there that, realistically, this could be their job,” said Sgt. Zachary Self, who answers Crime Stoppers calls for the Macon Police Department.

“Two or three arrests per week, you could make $700, $750 per week,” Sergeant Self said. “You could make better than a minimum-wage job.”


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Make Money off of the Uninsured

How much do the uninsured cost the American healthcare system? This is a question with great practical relevance, as without a clear understanding of the health needs of the uninsured and the cost of providing care for those needs, it’s impossible to make a policy which successfully addresses the issues facing them.

Now, I personally was under the impression that the uninsured pose a major burden to the healthcare system. After all, we’re talking about a fairly large number of individuals who cannot afford health care (and hence need to be subsidized by the American taxpayer). Much to my surprise, the blog Healthcare Economist quotes from a paper from the Journal of Health Economics that finds that the uninsured in net might not actually be a burden on doctors’ wallets at all (hat tip: A. Phan)

The majority of physicians actually make money, on net on their uninsured patients12-14% of physicians found their uninsured patients patients more than twice as profitable as their insured patients; that is the net payments from the uninsured were more than twice the expected payments from the insured patients.

The reason? Apparently (although, as a consultant, I shouldn’t be surprised by this), insured patients are able to extract bargain prices for medical equipment/drug suppliers as a result of insurance companies being able to bargain for prices. Uninsured patients, on the other hand, have to pay the full list price, because they lack the scale (or, in other words, the bargaining power) to negotiate lower prices.

But, even more interesting, is that if the higher prices are ignored, the study concluded that

Even our most conservative estimates suggest that uncompensated care amounts to only 0.8% of revenues, or at most $3.2 billion nationally


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Marriage Prediction Market

File this under the list of things which are probably practical but also somewhat offensive and not easily implementable but fun to discuss anywaysmarriage futures.

Prediction markets allow the application of market forces to make general predictions. Take the example of the Bush v. Kerry election — InTrade allowed individuals to buy and sell what are essentially “shares” (in a stocks sense) of Bush or Kerry winning the election. The basic idea is that the stock will pay out $10 if Bush wins, and $0 if Kerry wins, but that the shares cost money to buy. Thanks to investors buying and selling, the price of the “share” will thus fluctuate depending on what the market thinks is the actual probability of Bush or Kerry winning. If it is priced at $5, then the market believes there’s a 50% chance that Bush will win. If it is priced at $9.90, then the market believes that there’s a 99% chance that Bush will win.

These markets have been applied by InTrade to make (fairly accurate) predictions on political events and have even been applied by companies such as Hewlett Packard to improve forecasting and product development.

A quick look will show that these can be applied to just about anything — maybe even predicting how long a marriage will last? I’m not quite sure how this would work — but the gist of the idea I got is that for a new couple about to get married, friends and loved ones would implement a prediction market, whereby an appreciating asset (say money in a bank, or a bond, or a stock or annuity or something) would pay off after 50 years or at the divorce proceeding. People would then buy/sell the asset. For simplicity’s sake, lets say the asset is currently worth $10, and will be appreciate by $1 every year. If the going price is $15, then the “market” believes the marriage will only last 5 years. If the going price is $40, then the market believes that the marriage will last 30 years.

Now if the market is run anonymously, then this would be an effective way to communicate to an engaged (or thinking about it) couple on what everyone believes is the prospects of their marriage without having to tell them on a personal basis. This can help inform friends/loved ones (how nice of a gift to buy) as well as the couple themselves (should they get married).

What becomes interesting are the theoretical implications — will people who are shorting try to sabotage the marriage? Will people who have them in the long haul try to force the couple to stay together?

Would anyone be dorky enough and have friends open enough to do this?

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Sex and Finance — on Craigslist, no less!

From an email forwarded by my co-worker S. Friedman comes the first part: a young, misguided damsel in distress asking Craigslist for some help:

What am I doing wrong?

Okay, I’m tired of beating around the bush. I’m a beautiful (spectacularly beautiful) 25 year old girl. I’m articulate and classy. I’m not from New York. I’m looking to get married to a guy who makes at least half a million a year. I know how that sounds, but keep in mind that a million a year is middle class in New York City, so I don’t think I’m overreaching at all.

Are there any guys who make 500K or more on this board? Any wives? Could you send me some tips? I dated a business man who makes  average around 200 – 250. But that’s where I seem to hit a roadblock. 250,000 won’t get me to central park west. I know a woman in my yoga class who was married to an investment banker and lives in Tribeca, and she’s not as pretty as I am, nor is she a great genius. So what is she doing right? How do I get to her level?

Here are my questions specifically:

  • Where do you single rich men hang out? Give me specifics- bars, restaurants, gyms
  • What are you looking for in a mate? Be honest guys, you won’t hurt my feelings
  • Is there an age range I should be targeting (I’m 25)?
  • Why are some of the women living lavish lifestyles on the upper east side so plain? I’ve seen really ‘plain jane’ boring types who have nothing to offer married to incredibly wealthy guys. I’ve seen drop dead gorgeous girls in singles bars in the east village. What’s the story there?
  • Jobs I should look out for? Everyone knows – lawyer, investment banker, doctor. How much do those guys really make? And where do they hang out? Where do the hedge fund guys hang out?
  • How you decide marriage vs. just a girlfriend? I am looking for MARRIAGE ONLY

Please hold your insults – I’m putting myself out there in an honest way. Most beautiful women are superficial; at least I’m being up front about it. I wouldn’t be searching for these kind of guys if I wasn’t able to match them – in looks, culture, sophistication, and keeping a nice home and hearth.

Wow… But, the proposed answer is even more wow (and blends in a little accounting and efficient market theory)

Dear Pers-431649184:
I read your posting with great interest and have thought meaningfully about your dilemma. I offer the following analysis of your predicament. Firstly, I’m not wasting your time, I qualify as a guy who fits your bill; that is I make more than $500K per year. That said here’s how I see it.

Your offer, from the prospective of a guy like me, is plain and simple a cr@ppy business deal. Here’s why. Cutting through all the B.S., what you suggest is a simple trade: you bring your looks to the party and I bring my money. Fine, simple. But here’s the rub, your looks will fade and my money will likely continue into perpetuity…in fact, it is very likely that my income increases but it is an absolute certainty that you won’t be getting any more beautiful!

So, in economic terms you are a depreciating asset and I am an earning asset. Not only are you a depreciating asset, your depreciation accelerates! Let me explain, you’re 25 now and will likely stay pretty hot for the next 5 years, but less so each year. Then the fade begins in earnest. By 35 stick a fork in you!

So in Wall Street terms, we would call you a trading position, not a buy and hold…hence the rub…marriage. It doesn’t make good business sense to “buy you” (which is what you’re asking) so I’d rather lease. In case you think I’m being cruel, I would say the following. If my money were to go away, so would you, so when your beauty fades I need an out. It’s as simple as that. So a deal that makes sense is dating, not marriage.

Separately, I was taught early in my career about efficient markets. So, I wonder why a girl as “articulate, classy and spectacularly beautiful” as you has been unable to find your sugar daddy. I find it hard to believe that if you are as gorgeous as you say you are that the $500K hasn’t found you, if not only for a tryout.

By the way, you could always find a way to make your own money and then we wouldn’t need to have this difficult conversation.

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A Business Way to Look at "the Surge"

If you were to ask a Democrat about the success of President Bush’s “surge” in US troops, she’d (probably) tell you the Surge was a failure. If you ask a Republican, she’d (probably) tell you the Surge was a success. Both sides can cite valid statistics which seem to tell contradictory messages. Yes, civilian casualties are down without an enormous increase in soldier death, and yes, some progress has been made in training and in other areas. But, at the same time, there seems to be no significant improvement in the prospect that the violence will one day end, nor does there seem to be much improvement in the prospect that the Iraqi government will soon be able to take over the security and finances of the country.

How do you determine which side is right?

First, you have to ask yourself what constitutes success. Lets just say (since this seems to be the general consensus) that the end goal of the War in Iraq is a stable Iraqi government. If one exists, then the War was a success. If one doesn’t, then the War was a failure. Therefore, the Surge is a success if it contributes towards establishing a stable Iraqi government, and the surge is a failure if it is not contributing (and a particularly bad failure if it is making it less likely) to that goal.

So, is the Surge a success? How do you find out? You could ask the politicians to debate, or you could ask a political expert/pundit — but, generally, pundits and politicians seem more interested in sounding right rather than being right.

Luckily, there is an easier and more impartial way to determine this. Every government running a deficit issues government bonds. These bonds, for those who don’t know, pay an interest rate to whoever is willing to loan the government money. After a bond is sold, the interest rate is effectively set in stone. If the payor of the bond suddenly seems much less likely to pay off the loan, the value of the bond drops (because the interest rate isn’t going to move, who wants to hold onto a bond that pays the same but is a lot less likely to pay out?). If the payor of the bond suddenly seems more likely, the value of the bond increases (more people would love to get their hands on that bond).

So, one way to tell if the Surge was a success or a failure is to check the price of Iraqi government bonds before the Surge and after. If the price drops, the Surge has been deemed by the market to have not contributed to stabilizing the Iraqi government. If the price goes up, the market perceives that it has.

Why is this true? It’s the profit motive of the investors involved. Yes, an investor may be Republican or Democrat, but if a bond is worth more than it should, then someone is going to sell. If a bond is worth less than it should, then people are going to buy (and bid up its price) — and you can count on this aggregate group of investors doing their best and spending their time and effort on figuring out the right answer.

And this is precisely what a paper by Michael Greenstone seeks to do. From the abstract:

“This paper shows how data from world financial markets can be used to shed light on the central question of whether the Surge has increased or diminished the prospect of today’s Iraq surviving into the future. In particular, I examine the price of Iraqi state bonds, which the Iraqi government is currently servicing, on world financial markets. After the Surge, there is a sharp decline in the price of those bonds, relative to alternative bonds. The decline signaled a 40% increase in the market’s expectation that Iraq will default. This finding suggests that to date the Surge is failing to pave the way toward a stable Iraq and may in fact be undermining it.”

This is the essence behind prediction markets, which use the profit motive coupled with human knowledge and reasoning to aggregate the collective wisdom of many people. This isn’t to say that these markets are necessarily correct or that they can pinpoint exactly what will happen (the answer above is a risk assessment), but this is about as unbiased and accurate a method as any to figuring this out.

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Communicating Answers

How should a company choose what to invest in?

The most logical means of evaluating an investment would be to perform a basic cost-benefit analysis on each investment relative to the others. This is no small task, as with each investment, there is always an element of risk that is difficult to gauge (i.e. maybe sales will jump by 100%, or maybe they’ll tank). There are also more strategic and less concrete benefits and costs which are difficult to assess the value of (i.e. Public Relations, worker morale, etc.)

But let’s say we knew exactly what the benefits in each year would be (i.e. investment A will pay off $10M in two years, $4M in three years, $100M in four years, etc.).How would you evaluate the business choice?

What an economist or a financial accountant will probably tell you is to use some form of Time Value of Money/Discounted Cash Flow analysis to assess the value of each benefit and compare it to the value of the associated costs. That may sound like gobbly-gook, but, the principle of Time Value of Money refers to the fact that a dollar today is worth more than a dollar tomorrow, because that dollar today can be put in a bank or some other type of investment vehicle and be worth more than a dollar tomorrow. So, Discounted Cash Flow analysis really is just converting all the costs and benefits to “today dollars” so that we can actually add them up and compare them (in much the same way you can’t compare apples and oranges, you can’t compare today dollars with tomorrow dollars because they’re not the same).

This analysis explains why a company that can always deliver $100 of profit year after year isn’t necessarily worth an infinite amount of money (because next year’s $100 isn’t worth as much as this year’s, and the following year’s is worth even less, and so on and so on) and is, to my understanding, the dominant form of analysis used by consultants and accountants in assessing the value of business propositions.

One common variation of this analysis used by finance types is the Internal Rate of Return (IRR), which performs the exact same Discounted Cash Flow analysis above but summarizes it up in one value which is basically the interest rate a bank would have to be willing to pay in order to make the costs and the benefits exactly the same. So, a good investment will have a higher IRR because it takes a much higher interest rate at a bank to make someone not want to invest in the opportunity.

To my surprise, however, I learned in training that there are whole groups of firms who do not use either method in evaluating business/investment prospects, but use the much more crude and less technically valid Cash Payback Period. The Cash Payback Period makes no specific allowances for the Time Value of Money (the idea that the value of a dollar tomorrow is less by a factor related to bank interest rates) and is simply the period of time required for a firm to earn enough revenue to pay back the initial investment. This technique thus biases the firm towards investments which provide a quick and high cashflow and away from potentially more profitable investments which are slow to return cash (i.e. most Research & Development ventures).

So, big question, why would anybody use this? One possible reason is that smaller firms may value early cash flow a great deal. But, a caveat to this benefit is that the Time Value of Money analysis factors in a “penalty” for future cash flows. In today’s world, certainly no bank or venture capitalist is going to begrudge you a few extra years to earn a much higher return, right?

The more “accepted” reason, however, seems to be that Cash Payback Period is much easier to calculate and understand. Never mind that it is less accurate (and in some cases not accurate at all), it’s much easier to explain how “in four years, we recoup all costs” than it is to explain “if we discount future cash streams at an annual rate of 12% then the present discounted value of the investment becomes…”

What this means is that for any professional involved in a “consulting role” (i.e. doctors, lawyers, wedding planners, etc.), being correct is not enough. You also have to communicate in terms that the client can understand.

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What Do you Do with an MBA?

Signaling is a concept from economics which makes the vast majority of higher schooling seem irrelevant. Why else do financial services firms oftentimes seek physics and math students (often with negligible background in business or finance)? Why else are pre-medical students required to endure class after class of essentially zero relevance to their profession of choice? Economists would argue that such “illogical” market behaviors are due to firms recognizing that not only are the most useful skills taught on-the-job or in job-specific training by firms and specialized professional schools (i.e. medical school’s latter clinical years), but that the best indicator of future success and productivity comes from demonstration of intelligence and perseverance in the face of mental adversity.

Whether or not this is socially useful or even true is another question, but signaling seems to help explain the widespread prevalence and demand for individuals with M.B.A’s. Today’s corporate boardrooms are full of proud MBA-holding executives. Promotions, at a wide range of firms including (surprise surprise) consulting firms, are usually contingent on earning an MBA. Yet, the training involved seems to be widely disparaged as holding very little real utility – at a training session today about core business frameworks, the manager leading the session even made a joke about how the new staff ought to ignore those silly b-school interns “who think they know everything when they really don’t know anything.”

While the statement was certainly made in jest, it appears to be a widespread idea — yes, those individuals who had little financial background will learn some things like financial accounting and the coursework touches on some business basics like benchmarking strategies and cost accounting, but it’s widely perceived that an MBA only gives you two things:

  1. Three letters which somehow increase your salary despite the wide range of program / candidate quality
  2. Networking opportunities

Make no mistake — the benefit from #2 can be quite substantial and quite relevant. But, its hard to believe that the value of the MBA comes from the coursework or even the networking. Instead, it’s much more logical that, like one’s choice of college, the real value in the MBA comes from the signal: the difficulty of getting in (especially when the school is a well-regarded business school), the likelihood that one has had previous experience in business, and the fact that one is dedicated (b-school is expensive and time-consuming).

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To the Right… to the Right…

For Lisa:

A Ec10 (Intro Ec) student asks Greg Mankiw, “Does Econ Make People More Conservative?”

The student asks:

My school offers two main elective history courses for seniors: Government and Economics. Due to scheduling limitations, not many kids are able to take both. I’ve noticed something interesting as the year has progressed. The students who are taking the government course are increasingly endorsing leftist ideologies while the economics students are becoming increasingly right wing. For instance, my school’s paper recently ran an editorial that ‘complained’ that too many of Lawrenceville’s finest were going into investment banking, and not into seemingly ‘socially beneficial’ careers. What is your view on government intervention on economic equality and the like? Do all economics students show republican (or right of center) tendencies?

To my surprise, Mankiw actually says “I believe the answer is, to some degree, yes.” (I thought he would reject it immediately and point to the fact that there are tons of economists who are left-leaning).

But, he does outline three reasons:

First, in some cases, students start off with utopian views of public policy, where a benevolent government can fix all problems. One of the first lessons of economics is that life is full of tradeoffs. That insight, completely absorbed, makes many utopian visions less attractive. Once you recognize, for example, that there is a tradeoff between equality and efficiency, as economist Arthur Okun famously noted, many public policy decisions become harder.

Second, some of the striking insights of economics make one more respectful of the market as a mechanism for coordinating a society. Because market participants are motivated by self-interest, a person might naturally be suspect of market-based societies. But after learning about the gains from trade, the invisible hand, and the efficiency of market equilibrium, one starts to approach the market with a degree of admiration and, indeed, awe.

Third, the study of actual public policy makes students recognize that political reality often deviates from their idealistic hopes. Much income redistribution, for example, is aimed not toward the needy but toward those with political clout.

And of course:

Nonetheless, studying economics does not by itself determine one’s political ideology. I know good economists who are distinctly right of center and good economists who are distinctly left of center. In my department at Harvard, I would guess that Democrats outnumber Republicans among the faculty (although there is surely more political balance in the economics department than in most other departments at the university).

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Money Can’t Buy You Happiness (Sorta)

An interesting Wall Street Journal article reports some basic commonsense about how money doesn’t equate to happiness:

Yes, if you live in poverty, more money can bolster your happiness. “But once you’re safe and warm and fed, it makes surprisingly little difference,” says David Schkade, professor of management at the University of California at San Diego. “Once you get to the lower-middle class, then it takes a lot of income to make a difference. Income does matter, just not as much as people think.”

In fact, as one would expect, getting and staying rich kinda sucks:

Five professors [including Alan Kreuger, someone’s work I find fascinating] analyzed data for 374 workers who were asked every 25 minutes during the workday about the intensity of various feelings. Those with higher incomes didn’t report being any happier, but they were more likely to say they were anxious or angry [all this published in June 30 article of Science]. The five professors also studied government data detailing how folks divvy up their waking hours. They found that people with higher incomes tend to spend more time working, commuting and engaging in obligatory nonwork activities, such as maintaining their homes. All of these are associated with lower happiness.

So what should you do?
a. Keep your commute short:

While we often adjust amazingly well to life’s hardships, commuting is an exception. “You can’t adapt to commuting, because it’s entirely unpredictable,” says Daniel Gilbert, author of “Stumbling on Happiness” and a psychology professor at Harvard University. “Driving in traffic is a different kind of hell every day.”

b. Its funny. I was talking about this with Eric the other day, about how some grad students don’t really fret about being poor because they have so little spare time that its not like they could use the extra money. Of course, that runs into the fundamental paradox that if you have poor, overworked people, it seems the best way to make them happy is to make them work more — so they care less about being poor. Anyways, the article recommends that you cut the time you work, even if it means taking less pay. Any economist worth his or her salt, however, will say that only applies to individuals who are not operating at the point that their budget constraint intersects their indifference curve for salary versus leisure.

c. Use your leisure time wisely.

Passive activities like watching television usually don’t make folks as happy as eating. A good meal, in turn, doesn’t rank quite as highly as active leisure activities, such as socializing with friends.

d. And this wasn’t in the article, but have more sex. From the abstract to an NBER study on “Money, Sex, and Happiness: An Empirical Study” (272 kb of fun):

This paper studies the links between income, sexual behavior and reported happiness. It uses recent data on a random sample of 16,000 adult Americans. The paper finds that sexual activity enters strongly positively in happiness equations. Greater income does not buy more sex, nor more sexual partners. The typical American has sexual intercourse 2-3 times a month. Married people have more sex than those who are single, divorced, widowed or separated. Sexual activity appears to have greater effects on the happiness of highly educated people than those with low levels of education. The happiness-maximizing number of sexual partners in the previous year is calculated to be 1 [I wonder how they calculated that]. Highly educated females tend to have fewer sexual partners. Homosexuality has no statistically significant effect on happiness. Our conclusions are based on pooled cross-section equations in which it is not possible to correct for the endogeneity of sexual activity. The statistical results should be treated cautiously.

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How Inflation Brought Down a Government

I think this is a great piece on how not being smart with your own money supply can cause untold pain and suffering not only to the people that you’ve just seignoraged into poverty, but to yourself — when said people revolt and break away and turn you over to NATO forces. I’ve also underlined, bolded, and italicized a sentence which explains exactly what 9 digit inflation (in a single month) actually means.

Inflation Nation
Steve H. Hanke is a professor of Applied Economics at the Johns Hopkins University in Baltimore.
On Sunday, voters in Montenegro turned out in record numbers and gave a collective “thumbs down” to their republic’s loose union with Serbia. Although the final curtain has not yet been drawn on this Balkan drama, when it is, what remains of the former Yugoslavia will disappear, and, after 88 years, Montenegro will once again be independent.

Montenegro’s drive for independence is as much a story about money as it is about Balkan politics. Unfortunately, the money side of the story has tumbled down what George Orwell called a “memory hole.”

So what’s the story? From 1971 through 1991, Yugoslavia’s annualized inflation rate was 76%. Only Zaire and Brazil topped that dreadful performance. But things got worse — much worse. In early 1991, the federal government of Prime Minister Ante Markovic discovered that, late in 1990, the Serbian parliament, which was controlled by Slobodan Milosevic, had secretly ordered the Serbian National Bank (a regional central bank) to issue $1.4 billion in credits to Slobo’s friends. That illegal plunder equaled more than half of all the new money the National Bank of Yugoslavia had planned to create in 1991. Besides lining the pockets of a good many Serbian communists, it sabotaged the Markovic government’s teetering plans for economic reform. It also fanned the flames of nationalism in Yugoslavia and hardened the resolve of the leaders in Croatia and Slovenia to break away from the Socialist Federal Republic of Yugoslavia.

Without the Croats and Slovenes to fleece, Milosevic turned on his “own” people. Starting in 1992 and lasting 24 months, what was left of Yugoslavia endured the second-highest and second-longest hyperinflation in world history, peaking in January 1994 when prices increased by 313,000,000% in one month. In all, there were 14 maxi-devaluations during the hyperinflation, with each of the final three exceeding 99.9%, completely wiping out the dinar’s value in November ’93, December ’93 and January ’94.

Only Hungary, in 1946, recorded a higher rate, and only the Soviet Union suffered hyperinflation longer, for 26 months in the early 1920s. Even Weimar Germany’s much-recounted hyperinflation of 1922-23 was far less virulent than the repeated decimation of the Yugoslav dinar. For a sense of its impact on the local population, imagine the value of your bank accounts in dollars and then move the decimal point 22 places to the left. Then try to buy something.

Yugoslavia’s monetary orgy finally came to an end when the Topcider mint ran out of capacity. The hyperinflation was transforming 500-billion-dinar bills into small change before the ink had dried. But Milosevic’s monetary mischief was nothing new. The old Serbian kings were notorious coin-clippers. As long ago as the early 14th century, King Milutin minted imitation Venetian silver coins at Novo Brdo and Prizren, located in what is now Kosovo. These fakes contained only seven-eighths as much silver as the real things. Venice banned the fakes, and, in his “Divine Comedy,” Dante denounced “the King of Rascia” as a counterfeiter.

In 1999, President Milo Djukanovic (now prime minister) decided he wanted Montenegro independent and out from under Serbia’s political yoke. I counseled that he play the currency card. Over the decades, the Yugoslav dinar had been completely discredited. For most Yugoslavs, the mighty deutsche mark was the unofficial coin of the realm. That was the reality. In addition, I repeated the great Austrian economist Ludwig von Mises’s argument that sound money “was devised as an instrument for the protection of civil liberties against despotic inroads on the part of governments. Ideologically it belongs in the same class with political constitutions and bills of rights.”

Mr. Djukanovic knew that the deutsche mark was his trump card, one that would pave the way for reestablishing Montenegro’s sovereignty. On Nov. 2, 1999, he boldly announced that Montenegro was dumping the Yugoslav dinar and officially adopting the deutsche mark as its national currency (the DM was subsequently replaced by the euro in January 2002). There were no International Monetary Fund bureaucrats to contend with (at the time, Yugoslavia had no formal relations with the IMF and Montenegro was part of the rump Yugoslavia). Civil servants from Washington had not yet located Podgorica, and the NGO invasions weren’t even a glimmer in any planner’s eye. Furthermore, the so-called experts in Brussels hadn’t yet issued their bizarre 2000 edict on the euro, which stated that “it should be made clear that any unilateral adoption of the single currency by means of ‘euroisation’ would run counter to the underlying economic reasoning of [the European Monetary Union].” Mr. Djukanovic had room to maneuver and coolly play his card. By doing so, the die was cast for Sunday’s election.

This appeared in the Wall Street Journal, May 24, 2006

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