Club Troppo

A perfectly good player. Meets grandmaster rated opponent. Things end happily, for everyone except the perfectly good player. A very nice combination.

White to play S Zagrebelny vs A Ponyi 16. ? See game for solution.

I needn’t tell Troppo readers that a few days of heady excitement are afoot in Canberra. Personally I doubt that the PM will go, but Swan might be in serious trouble.

A lot of argy-bargy has gone on about whether a “smoking gun” email, allegedly in the Coalition’s possession, is genuine. A lot of people have pointed out that it’s pretty easy to forge an email — after all, it’s just a bunch of text.

Enter the noble and mysterious art of cryptography. In particular, enter the mature but rarely-used technology of digital signatures.

Some Technical Talk

Digital signature schemes combine the two great pillars of modern cryptography: one-way hash functions and dual-key encryption.

A hash function turns any document into a fixed-length string. The clever part about hash functions is that they aren’t reversible. You can’t take the generated hash and run it backwards to get the original document. Hashes are widely used to store passwords or to check the integrity of downloads.

Dual-key encryption means that every person gets a private key, and they distribute a public key. If you possess the private key you can read items encrypted with the public key, which ensures that only the intended reader will see it. Alternatively, if you encrypt an item with your private key, people can ensure that it was you who did it by applying your public key.

In a digital signature scheme, these two things are combined. First, the system generates a hash for the document being signed. Then, it encrypts that hash with the sender’s private key.

At the other end, the receiver decrypts the signature with the public key, then computes the document hash themselves. If the received hash is the same as their own calculation, they know that the document was sent by the person claimed.

Some Practical Consequences

Digital signatures (and a related technology, HMACs, which I won’t discuss here) can quickly settle the question of who said what and when. If the sender’s private key is secure, the digital signature cannot be forged, cannot be reneged and cannot be refuted. It is, in actual fact, more reliable than a paper signature.

If the Federal government used digital signatures, it would be trivial to establish whether the Opposition possessed the genuine article. HMACs would further make it possible to determine, given a collection of correspondence, whether any items are missing from that collection.

Support for digital signatures is built into every modern email client and server. I reckon that the government could do worse than to roll out digital signature infrastructure throughout government. For centuries we’ve been relied on the integrity of the paper trail; it would be nice if the e-trail was as trustworthy.

Behavioral Assumptions and Management Ability: A Tentative Test
Date: 2009-06
By: Benito Arruñada
Xosé H. Vázquez

The paper explores the consequences that relying on different behavioral assumptions in training managers may have on their future performance. We argue that training with an emphasis on the standard assumptions used in economics (rationality and self-interest) leads future managers to rely excessively on rational and explicit safeguarding, crowding out instinctive contractual heuristics and signaling a bad type to potential partners. In contrast, human assumptions used in management theories, because of their diverse, implicit and even contradictory nature, do not conflict with the innate set of cooperative tools and may provide a good training ground for such tools. We present tentative confirmatory evidence by examining how the weight given to behavioral assumptions in the core courses of the top 100 business schools influences the average salaries of their MBA graduates. Controlling for the average quality of their students and some other schools characteristics, average salaries are significantly greater for those schools whose core MBA courses contain a higher proportion of management courses as opposed to courses based on economics or technical disciplines.

British Airways chair Willie Walsh has asked the company’s 40,000 employees to work unpaid for a month to save the company and their jobs.

The airline made a £401 million loss for the year ending in March. This seems to be due primarily to higher fuel prices, but partly to declining revenue. Total passengers seem to have fallen only slightly, but the number of business class and first class tickets fell by 13%, so it’s through the reduction in business trips that the global recession has stung.

According to a company spin doctor who spoke to the Guardian, some unspecified number of staff has taken the suggestion up. But it’s hard to imagine that a significant number of workers would do this off their own bat; if it happens at all, it will be through a collective agreement. Here the prospects don’t look good either: last week they asked ground crew to accept a pay cut or face voluntary redundancies, and the staff voted six to one against the deal.

Radio presenters yesterday were asking experts and callers for their opinions or interpretations, but it’s hard to provide either unless the question is clearly framed. There are a couple of quite distinct issues involved. (Continued)

Are you appalled by McMansions, $4000 barbeques and luxury four wheel drives that never leave the bitumen? Does Clive Hamilton’s book Affluenza strike a chord with you? Do you dream of downshifting to simpler lifestyle but feel you can’t afford it? If so, you could be a PoMa — a post materialist consumer.

PoMas are appalled by consumerism and overconsumption. They believe that happiness comes from relationships with friends and family rather than relationships with things. And they can’t understand why other people get so excited about big screen televisions, luxury cars or huge houses with ensuites and games rooms. PoMas place more value on experiences than on things. They try to live simply and get anxious about the impact their lifestyle has on the environment.

But at the same time, PoMas never seem to have enough money. It’s not that they’re low paid — PoMas are often senior public servants, teachers or professionals — it’s that the money just doesn’t go far enough. Despite living in modest houses, dressing cheaply, cycling to work and avoiding big televisions and home entertainment systems, PoMas are never able to feel financially relaxed.

(Continued)

Complexity has been something that thoughtful souls have worried about regarding consumers.  For a couple of decades policy makers’ first instinct in dealing with problems in the consumer market has been better disclosure.  It can’t do any harm and may do some good.  Once you’ve got disclosure then consumers can make their own decisions.  Except that’s not what we do.  When I buy a ticket with Jetstar, I don’t read the 2,474 word contract that defines our legal relationship (my word count software vouches for that number) – and lets them take my children hostage if I don’t do what I’m asked when they’re doing the safety demonstration.

God knows how many words the licences of the software packages are that we agree to every day with nary a care.  In fact considering, as I’ve been doing, government’s attempts to embrace Web 2.0, you quickly realise that there are two economies: that part of the economy where people just agree to whatever terms appear before them and get on with their lives – consumers and small firms.  And that part that doesn’t – which is large firms and governments. It sounds easy for government to do what you or I can do and load up a YouTube video.  But their legal department gets to the clause that says that the poster of the video grants to YouTube an unlimited indemnity for damages, and that’s the end of the gig (for several weeks or months while their lawyers and YouTube’s lawyers see if they can haggle out an agreement).

As a consumer, reading what you’re agreeing to is a recipe for a very low pace of living and I don’t know anyone who does it.

In any event in a well received recent speech, a senior Treasury official (for whom I can independently vouch) quoted an article showing that us consumers have it easy.

[C]onsider an investor conducting due diligence on a set of financial claims: RMBS, ABS CDOs and CDO². How many pages of documentation would a diligent investor need to read to understand these products? For simpler products, this is just about feasible for example, around 200 pages, on average, for an RMBS investor. But an investor in a CDO² would need to read in excess of 1 billion pages to understand fully the ingredients ['billion' is not a misprint]“.

We have seen this kind of complexity before. One thing that tames it is standards.  Thus this intriguing article about the way in which standardised reporting and the publication of data in some format that enables manipulation and thus analysis over a wide field. Unfortunately however this remedy is very far from universally applicable and I’m not sure what it’s relevance is in disclosure.  In general, commerce, like life, evolves by a process according to which things that used to be deliberate, become automatic.  As ever, Hayek was someone who thought about this earlier than most economists, though philosophers had thought about it before him. The head quote of  the first chapter of Hayek’s Constitution of Liberty quoted Whitehead thus.

Civilistion advances by extending the number of important operations which we can perform without thinking about them. Operations of thought are like cavalry charges in a battle – they are strictly limited in number, they require fresh horses, and must only be made at decisive moments.

People who bought CDO²s decided not to make a cavalry charge and just assume that all was well.  Much like I do with Jetstar.  In this case they made a mistake, for which we’re all paying.

Paul Krugman has an article on the need to stay the course –

Paul Krugman makes a few telling points against the proposition that Obamas fiscal package now needs to be gradually pulled back.

1. The Fed is raising the monetary base: does this risk a resurgence of inflation? The monetary base nearly doubled in the period 1929 to 1939 but prices fell 19 per cent. The same thing happened when Japans monetary base increased by 85%: deflation continued apace. Surplus reserves can be taken out as quickly as they were added once the recovery is well on course.
2. The rise in government borrowing is simply offsetting the plunge in private borrowing. Total borrowing is down, not up, and it is not affecting foreign debt. This has been forcing down short term interest rates.
3. One reason for the recent rise in long term interest rates reflects increased confidence that the depression can be avoided (producing a more normal spread between long and short interest rates).
4. But the interest rate rise also reflects a degree of misplaced confidence in a quick recovery. Unemployment is still too high and its way too soon to declare victory. When this fact is realized, long term rates will be bound to fall back a little.

Krugman backs the claim of another Nobel prize winner, Robert Lucas.

Lucas argues that we need to be concerned about inflation and interest rates in the future, but right now the recession is the more immediate problem.

Krugmans view also agrees with The Economist, that a sudden fit of fiscal austerity would be a mistake —even counter-productive. Instead of slashing their deficits now, the rich worlds governments need to promise credibly that that they will do so once their economies are stronger.

This is exactly what the Rudd and Obama Government have done by nominating a reasonably plausible long term scenario.

In the meantime, there is ample proof that total employee incomes will, as a result of the fiscal package, increase over the next 10 years by $100 billion and the higher incomes should then deliver an extra $23 billion of tax revenue into government coffers (as reported by Swan). In other words, our ultimate debt levels may actually turn out to be smaller than they now are. (Our fiscal stimulus will still provide a stimulus even if encourages saving. Treasurys analysis indicates that people need some time to get back to their normal (optimal) levels of saving.

Add too that the Rudd Government is merely following the Howard principle of balancing the budget over the economic cycle and that our overall debt levels (net worth) will be small relative to other countries.

Some people may not like, for ideological reasons, the big government style of this government but the Government has got the policy about right.

"Australia has very few anarcho-capitalist bloggers like Paul Staines of Guido Falkes [sic] fame, reformed raver libertarians with an eye for scandal (and another on the latest market moves)" writes Christian Kerr. Instead of breaking stories, he says Australia’s political bloggers serve up analysis and talk … "Endless talk."

For those who don’t know already, Guido Fawkes not only blogs on the news — he makes it. It was Fawkes who revealed that Labour blogger Derek Draper was getting anti-Tory dirt direct from No 10. The revelations resulted in the resignation of a Downing Street staffer, Damian McBride.

Talk and analysis may not be as exciting as getting a senior political adviser sacked, but putting facts in context can be important. Some of Australia’s best economic bloggers look to columnists like Paul Krugman for inspiration. Like Krugman they try to make sense of events rather than just report them. As the Washington Monthly’s Nicholas Confessore writes:

The tax cut, Bush’s Social Security plan, Enron, the energy crisis, and Harken–all Krugman hobbyhorses–were widely covered in the media. But he has been the only prominent columnist to attempt to weave all of them into a single, continuing narrative about the Bush administration’s policies, wealth inequality, corporate profiteering, and the ascendancy of crony capitalism.

With economic stories, the data doesn’t always speak for itself. Sometimes there’s an opportunity for a conceptual scoop — a striking new way of making sense of what’s going on. A graph, a metaphor or a bit of historical context can transform lifeless data in a compelling story. In the rush to report the news, this is something newspapers often fail to do. For example, at the Columbia Journalism Review Liza Featherstone explains how the Wall Street Journal is trying too hard to cover the news and in the process:

… the paper has failed to explicate the big questions—what happened and why—ceding the role of authoritative explainer and investigator to, ironically, The New York Times, which has a business staff one-seventh the size of the Journal’s. With all the focus on the factual scoop at the new Journal, says one reporter of his managers, “I don’t think they realize the value of the conceptual scoop, which is so important in business news. When you present a new idea and back it up with numbers and the reader says, ‘Holy crap, I didn’t know that before.’”

Some of the most interesting blogging in Australia today is coming from writers like Andrew Leigh. An academic economist, Leigh loves data. His best posts not only give you the numbers, but make you as excited about them as he is.

In the wake of the global financial crisis, economics is at the centre of politics. So even though econo-bloggers like John Quiggin, Peter Martin, Nicholas Gruen, Joshua Gans and Andrew Leigh aren’t getting anyone sacked, they’re well worth reading.

Update: At Core Economics, Joshua Gans responds by drawing up a list of his most influential posts.

The “rainforest alliance-certified, decaff and soy brigade” at Larvatus Prodeo have a few things to say about Kerr’s column. In the comments thread Mark writes:

Ive never heard of the blogger cited – but as Mick said, he seems to trade in Westminster gossip. Why is that necessarily of higher quality than analysis of climate change policy here, Quiggins stuff on the economy, the excellent posts on feminism at many, many places, the great litbloggers, etc, etc?

Great litbloggers? Christian Kerr is the Richard Reid of Australian political reporting. Why would he be interested in great litbloggers?

HT: Kieran Healy’s Weblog