The proprietary trading business turns in part on one’s ability to find the fool -- to find people willing to take the stupid side of the smart bets you are placing. One of the side effects of our seemingly endless financial crisis is to wash a lot of fools, many of them German, out of the game.If you export lots and import little, you have to export capital, by definition - you are lending to the rest of the world. For whatever reason, German banks - many of them state-owned - have a singular ability to populate financial markets with klutzes who cannot tell garbage from fine food. The trade surpluses which should translate into a huge foreign capital stock, ready to pay the pensions of ageing Germans, instead have a habit of going up in smoke every time a Nasdaq/subprime/bond bubble bursts. The welfare implications of that are not very hard to figure out... and you won't read in the German press about it. So either the country fixes its financial system (beloved 3 pillars and all), or it should use some of those shiny cars at home.
Thursday, 30 September 2010
Talk to any German these days about economic policy, and they will soon share with you a sense of outrage that the world is conspiring against their hyper-competitive exports. The German press never talks economics - it talks business. And what's good for business is good for a country as a whole, right? So if Germany has big surpluses, it reflects highly competitive firms. The other - like Mrs. Lagarde of France - are just envious. One COULD actually make some arguments that make sense of the German pleasure in trade surpluses. An ageing country should accumulate assets; some of these should be held abroad. The strongest argument AGAINST piling up trade surpluses is that all those shiny Audis and machine tools sold to the rest of the world buy very few things that will make Germans richer, either today or tomorrow. Michael Lewis has a brilliant book called "Short" about the financial crisis. One of the recurrent themes is how the bubble in subprime really got inflated because of the superabundance of stupid German money. His latest piece on Bloomberg gives you a flavor:
Wednesday, 29 September 2010
Just this Tuesday, I was teaching the Comin, Easterly and Gong paper on whether today's riches were determined by technological development in the year 1,000 BC in the "Rise of the Global Economy" class in the ITFD. Today is the day of the general strike in Spain. By some strange accident, I was reading Orwell's "Homage to Catalonia" in the last few weeks, and - just as I was arguing in class - history really doesn't have to be spell "fate". Barcelona, the hothouse of Anarchist sentiment in the early days of the civil war, was remarkably genteel and tranquil today. Traffic flowed easily, taxis were available - with a bit of an effort - and a few posters apart, the university was quiet. Only a plume of dark smoke hanging over the Placa Universidad indicated some trouble (a police car had been torched, it turned out). In general, people seem to accept the changes to labor laws with a sense of frustrated resignation. Bizarrely, the people most likely to benefit - i.e. the young, university students, etc. - are more violently opposed than the rest. So the deeply ingrained instinct to start building barricades that Orwell describes somehow got mislaid... so big shocks - decades of Franco rule - really can change the cultural outlook and social fabric. Which reminds me of a paper I should have on the syllabus, one in the sequence of beautiful Acemoglu et al papers on institutions and economic growth. This one is on the impact of the French Revolution, and it's co-authored by our new UPF colleague Davide Cantoni...