Here's my Top 10 links from around the Internet at 10:00 am today in association with NZ Mint.
Bernard will be back with his version tomorrow.
As always, we welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz.
See all previous Top 10s here.
1. An economist who saves lives
Few economists could honestly describe themselves as life-savers.
Professor Al Roth from Stanford University in the United States doesn't describe himself that way either.
But he is, or so says Richard Knight at the BBC.
His application of a kind of mathematics developed as a thought-experiment 50 years ago is keeping hundreds - perhaps thousands - of people alive.
Al Roth was awarded the 2012 Nobel Memorial Prize in Economic Sciences this week. He shared it with Lloyd Shapley, the man behind that half-a-century-old thought experiment.
The story starts in 1962 when Lloyd Shapley and the late David Gale published a paper in which they demonstrated how an algorithm - a step-by-step calculation - could solve what they described as the "stable marriage problem".
What sounds a little like a slightly out-of-control economists' party, with a bit of the swinging 60s about it, has turned out to be astonishingly useful. This idea of a "matching algorithm" is the mathematical underpinning of Al Roth's later, life-saving work.
"I started to think about how it might be applied to actual marketplaces," he says. Among his ideas was the thought that perhaps he could create an exchange for one unusual but important product - human kidneys.
2. The cost of defending your currency
How much did Hong Kong spend defending its currency peg limit? The answer is NZ$730 mln. Not sure over what period that was but it might have been just a few days. That's ok if you are either rich or using other people's money. Bit of a worry if its your own, though. And there are reports emerging of investors betting against the central bank.
Hong Kong’s de facto central bank stepped in for the first time since 2009 to prevent the city’s currency from rising against the U.S. dollar after it touched the upper limit of a range that triggers an intervention.
The Hong Kong Monetary Authority said it bought $603 million at HK$7.75 per dollar, which is the so-called strong side of the permitted convertibility range of HK$7.75 to HK$7.85 that obligates intervention. The move, announced in an e-mailed statement yesterday, was confirmed by spokeswoman Rhonda Lam who said the HKMA acted during New York trading hours.
“Funds continue to flow into Hong Kong given the monetary easing in the U.S. and Europe,” said Kenix Lai, a currency analyst at Bank of East Asia Ltd. in Hong Kong. “That’s evident by the rising stock market and property prices. I expect HKMA will still have to intervene in the near term as capital inflows continue.”
3. Critical analysis
Tim Colebatch of the Melbourne Age has done a very nice profile on FT columnist Martin Wolf. Wolf has a cult following these days, and appears almost as influential in EU economic policy as some insiders - they certainly notice his opinion.
Martin Wolf has not got every call right in the global financial crisis, but it's hard to think of a significant one he's got wrong. In an uncertain world, he is now probably the most trusted commentator on the global economy.
When Europe's leaders decided their top priority should be to cut deficits, he warned this would condemn the European Union to a long recession, making deficits bigger, not smaller. Each time leaders declared they had found the solution to its problems, he shredded their PR bluff with relentless logic.
If governments, banks and companies all pursued contractionary policies at once, he asked, where would the growth come from?
4. Fiscal stimulus works
Christina Romer has published a spirited but wide-eyed defence of Keynsian stimulus as practiced by the Obama administration - she just wishes it had "that extra, Rooseveltian kick". Maybe this is only an issue now because of the US election, but it is a useful contribution none-the-less:
After listening to Representative Paul Ryan in the vice-presidential debate, you might think that careful evaluation [of fiscal stimulus] isn’t needed. In his view, we spent $800 billion on the stimulus, yet unemployment still rose to 10 percent - so obviously it wasn’t helpful.
To understand what’s wrong with that reasoning, think of someone who’s been in a terrible accident and has massive internal bleeding. After lifesaving surgery, the patient still feels rotten. But we shouldn’t conclude from this lingering pain that the surgery was useless - because without it, the patient would have died.
5. A game played by the elites
Howard Davies has identified the real issue that will sink the work by Brussells to contruct a European banking union.
Non-Europeans, in particular, may find the entire topic impenetrably abstruse. But it illustrates a simple point: Europe is trying to achieve a stronger federal model that responds to the weaknesses revealed by the eurozone crisis. But it is doing so without addressing the crucial need to bring its citizens along. Indeed, the devices that the EU is adopting are designed specifically to avoid having to consult them.
The proposed construction of a banking union reveals this fundamental flaw at the heart of the European project today. It is difficult to be optimistic about the success of an initiative built on such flimsy legal foundations, and lacking democratic legitimacy. Europe’s banks and their customers deserve better.
6. 'Something for nothing'
Eric Crampton makes a useful point about NZ labour costs.
Of course wages are going to be pretty stagnant when legislation loads a pile of non-wage labour cost growth onto employers by statute but onto employees by tax incidence.
Prefer that you get more of your pay as wages rather than other considerations? Stop lobbying for more holidays and stop imagining that a pretty decent proportion of employer-side Kiwisaver contributions don't come out of your own pocket.
7. Immigration politics
Of all the economic forces buffeting the middle class these days, immigration might seem the easiest to explain: poor immigrants pour illegally into the country seeking work, the conventional wisdom goes, they competed with more expensive local workers, displacing them from their jobs and undercutting their wages.
Unions wail, WinstonFirst whines, Shearer sulks, arguing for 'import protection' just like some throwback ceos who want exchange rate controls. The media can always find someone at the margin being affected, but annecotal evidence drives really poor public policy. The NYTimes has been looking at the issue from an American perspective: it's probably a very similar story here.
This understanding of immigration helped propel a vast increase in the Border Patrol’s budget over the last two decades to stop immigrants on their way in. It was the rationale for proposals to build a long, tall fence along the southern border. President Obama, who in 2008 said he would push for a law that would grant many of these immigrants legal access to jobs in the United States, instead deported a record number of immigrants working here illegally.
But this explanation of the impact of immigration is mostly wrong.
For years, economists have been poring through job market statistics looking for evidence that immigrants undercut less-educated Americans in the labor market. The most recent empirical studies conclude that the impact is slight: they confirm earlier findings that immigration on the whole has not led to fewer jobs for American workers. More significantly, they suggest that immigrants have had, at most, a small negative impact on the wages of Americans who compete with them most directly, those with a high school degree or less.
Meanwhile, the research has found that immigrants - including the poor, uneducated ones coming from south of the border - have a big positive impact on the economy over the long run, bolstering the profitability of American firms, reducing the prices of some products and services by providing employers with a new labor source and creating more opportunities for investment and jobs.
8. Never mind the facts
No, I'm not defending investment bankers, but it does look a bit like the Greg Smith "Muppets" smear was just that - a shameless smear designed to sell books. His problem is that his about-to-be-published book doesn't back up his charges. Still, the cynical will still believe it. Is it just another 'constructed narrative'?
Even the New York Times who published the original accusations seems quite embarrassed:
When Greg Smith resigned in March as an executive director and vice president of Goldman Sachs with an Op-Ed page article in The New York Times, he leveled some sweeping charges: Goldman’s culture was “toxic and destructive”; the firm promoted “morally bankrupt people”; and - most devastating to any professional organization - Goldman Sachs bankers were “ripping their clients off.”
Mr. Smith’s letter clearly hit a popular nerve, coming as it did during a devastating financial crisis in which Goldman emerged as the rich, arrogant and unfeeling perpetrator of much of the financial wreckage still afflicting Americans. And it’s hard to quarrel with Mr. Smith’s overriding message: Wall Street should put clients interests’ first or risk oblivion. Indeed, that was Goldman Sachs’s own credo, “Our clients’ interests always come first.”
But stripped of its incendiary conclusions, Mr. Smith’s manifesto was curiously short on facts. Other than the now-infamous reference to muppets - “I have seen five different managing directors refer to their own clients as ‘muppets,’ sometimes over internal e-mail” - there were no examples of a toxic culture at work, no actual names of morally bankrupt people and no examples of a client getting ripped off. Mr. Smith declined to elaborate after the article was published, heightening suspense and no doubt fueling the literary bidding that reached a reported $1.5 million for a book that would deliver the goods.
9. Savers beware
The international smart money is apparently betting on a rate cut in New Zealand, and the consequent gains in bond prices. Will new Governor Wheeler deliver on Thursday?
Pacific Investment Management Co., manager of the world’s biggest bond fund, has boosted holdings in Australia and New Zealand as it expects policy makers to cut interest rates to combat currency gains and weaker world growth.
Decisions in larger developed economies to keep policy rates close to zero and engage in currency market intervention have helped push the Australian and New Zealand dollars higher, according to Scott Mather, head of global portfolio management at Pimco, which oversees $1.8 trillion in assets. The Newport Beach, California-based company’s holdings in the region are at the highest levels “in a very long time,” he said at a briefing in Auckland.
“Rates will continue to fall in this region, in Australia and New Zealand,” Mather said in a conference call from Auckland. “It’s partially the reflection of weak global growth and partially in response to an abnormal amount of currency strength relative to what history would tell you we should have.”
10. Obituary: Stanford Ovshinsky
Stanford Ovshinsky, a self-taught American physicist who designed the battery now used in hybrid cars, has died aged 89 from prostate cancer. More from Reuters.
The electronics field of ovonics was named after Mr Ovshinsky, who owned over 200 patents and has been described as a "[Thomas] Edison of our age". He introduced the idea of "glass transistors" in 1968, which paved the way for modern flat-screen monitors. The firm he founded specialises in manufacturing the nickel-metal hydride batteries he designed, which are still used in hybrid vehicles, and also produces large thin, flexible sheets of solar panelling also invented by Mr Ovshinsky.
He received various honorary degrees and awards but had no formal education after high school. He claimed to have taught himself science by using the public libraries of Ohio where he grew up.
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