Club Troppo

Well folks, some of you may not be chess fiends. But tonight and for the next two nights even you may be intrigued to pop in and watch world championship blitz tourney. Players have 3 minutes plus 2 seconds per move each. So they’ve got to get a wriggle on. And they are stupendously good. Watching it’s just amazing how many things they can keep in their head at any one time as they race through the games. 14 tonight. 14 tomorrow night. 10 on Thursday night.

Here are the players. And their ratings (I presume) are their blitz ratings. So enjoy. The official website is in Russian but translated seamlessly by Google if you want.  I’m watching the live cam right now and the players are being announced – how amazing.

And you can watch the games live.  They should be up on this amazing site, where you can look at all the latest big tourneys. For normal tourneys where players get two hours for forty moves, it also displays computer analysis alongside the live game which enables you to figure out who’s winning, why and what the best continuations are (in the opinion of Stockfish which is a fairly seriously good computer program.)  But I’ve not verified how it works for this tourney – though it’s there so it should work fine. If not, check out the page of the official site for live games.

Enjoy!  It’s an amazing world. We’re an amazing species. Don’t let anyone give you that crap about how chimps are just like us.  They’re not.  Trust me.

There is growing recognition that the dispersion of credit risk by banks to a broader and more diverse group of investors, rather than warehousing such risk on their balance sheets, has helped to make the banking and overall financial system more resilient.

The IMF, 2006 (pdf). HT @Crabbometer.

Don’t diss economies of scale in finance. Well I do actually. There’s lots of evidence that, beyond a certain modest size, dis-economies of scale come to dominate economies of scale. And now it looks like those areas of finance that are not simple commodities that anyone can do, are best done by small firms. Why? Because they’ve got the local knowledge and they can learn – something larger organisations find harder.

In a very recent survey of the literature over the last fifteen years or so, Walter observes that while scale economies could be expected from the fixed costs of information and management systems the empirical evidence suggests that, at least with large firms, economies of scale do not outweigh diseconomies of scale such as “disproportionate increases in administrative overheads, management of complexity, agency problems and other cost factors”.

The studies are not conclusive owing to methodological difficulties but Walter (2009, p. 597-9) reports as follows:

Cost estimation has uniformly found that economies of scale are achieved with increases in size among small commercial banks (below $100 million in asset size), while a few studies have shown that they may also exist in banks in the $100 million to $5 billion range. However, there is limited evidence to date of scale economies in the case of banks larger than $5 billion, and although there has been some recent scattered evidence of scale-related cost gains for banks up to $25 billion in asset size, there is none such for very large banks (exceeding $25 billion). Some studies have found the relationship between size and average costs to be U-shaped, suggesting that small banks can benefit from economies of scale as they grow bigger, but that large banks seem to suffer from diseconomies of scale and higher average costs due to factors like complexity as they increase in size. The inability of empirical research to find significant economies of scale among large financial services firms is also true of the larger insurance companies and broker-dealers.

Walter goes on to observe (p. 599) that “like economies of scale, cost-related scope economies should be directly observable in costs of financial services suppliers and in aggregate performance measures. But empirical studies have generally failed to find significant cost-economies of scope in the banking, insurance or securities industries”.

The literature on mergers indicates that they are often a general response to a major economic shock, but that on average shareholders in the acquiring company do not receive improved share value. Transitional and transactional costs can often outweigh the expected real economic benefits, and further that the expected benefits are overstated in that management have different drivers to shareholders.

By contrast to the absence of cost based economies of scope being available to fund the diversification and growth of financial conglomerates, Walter (2009, p. 599-600) cites some evidence of revenue based economies of scope which arise from the advantages of being able to ‘cross-sell’ more than one financial product to the same customer. As he observes this is most likely to be at the retail level. But while this certainly lowers costs for the incumbent firm it is far from clear that the influence a financial firm will have on a customer in ‘cross-selling’ products to a client should be regarded as of wider benefit to the society. Indeed one would have greater confidence in the outcome of a customer’s choice if it were made in response to the advice of an expert fiduciary, which is directly at odds with cross-selling.

In the meantime, I great deal of finance is commoditised, which is to say it’s just based on routines that anyone can be trained to follow. By contrast the main area where some skill is required is business lending. And here’s a very recent paper which suggests that small is beautiful when it comes to small business lending. (Continued)

Under the wonderful post title “Copyright Infringement And A Medieval Apple Pie”, the blogger Jane Smith (not her real name, one would guess) has documented the history of an online copyright infringement. Hardly unusual, you would think, indeed the internet is supposed to be not only rife with plagiarism, but host to vociferous defenders of the practice.

However the person committing the infraction, one Judith Griggs, has been subjected to the modern equivalent of the mediaeval punishment of being thrown into stocks and pummelled with garbage in the town square. In this case it was a viral and vicious Facebook and Twitter campaign accompanied by calls for a “Googlebombing”, which Wikipedia defines as “practices intended to influence the ranking of particular pages in results returned by the Google search engine”.

Judith Griggs did seem somewhat unbelievably naïve and self serving in her attitude, pretty irritating one might say, but not perhaps entirely deserving of the massive backlash against her. Fortunately for the offending author, after venting their collective spleens, bloggers, commenters, twitterers and the like eased up, and the general discourse turned into something humorous.

What I found interesting however was that the whole campaign was not only the opposite of the open source community stereotype of borrowings, mashups and samplings, but despite frequent invocations of the law of copyright by the hunting pack, there seems to have been only one person who actually threatened legal action. All the rest was entirely the old fashioned coercion of social opprobrium and shame, which writers like Thomas Scheff,* (who is an intellectual descendant of Norbert Elias) find so fundamental to social control.
*Scheff, Thomas J. 2000. Shame and the Social Bond: A Sociological Theory. Sociological Theory 18, no. 1 (March): 84 – 99. doi:10.1111/0735-2751.00089.

It’s wrong to tell children that Santa Claus is real, argues Edward Feser:

Parents who do this certainly mean well, but they do not do well, because lying is always wrong. Not always gravely wrong, to be sure, but still wrong. That is bad enough. But there is also the bad lesson that children are apt to derive from this practice, even if the parents do not intend to teach it – namely, the immoral principle that lying is acceptable if it leads to good consequences. There is also the damage done to a child’s trust in his parents’ word. “What else might they be lying about? What about all this religion stuff?”

Some people might think Feser’s insistence on honesty is a little harsh. But it’s nothing compared with the way some French Catholics reacted to Santa in the 1950s. Here’s a news report that appeared in the Milwaukee Journal on December 24, 1951:

(Continued)

As Jason Kuznicki writes at Cato@Liberty, there’s "a game lately played in the bookish corners of the left side of American politics" that you might call the "We Know Hayek Better Than You" game. It sounded fun, so I thought I’d have a go.

Many self-styled classical liberals pay lip service to freedom, but what they’re really interested in is cutting taxes and deregulating business. At the same time, many claim to be inspired by the Austrian economist Friedrich Hayek.

So what did Hayek have to say about the size of government? Surprisingly he argued that size isn’t the issue. The important thing is not that governments cut spending, but that they don’t engage in activities that are incompatible with free markets and competition.

(Continued)

Troppo co-host Nicholas Gruen made an impressively well-groomed appearance on Alan Kohler’s Inside Business program on ABC TV this morning.

Nicholas canvassed a really interesting idea I don’t immediately recall his having yet ventilated here at Troppo.  It’s the concept of portable mortgage insurance to replace the current government guarantee of the Big 4 Banks.  The lenders would pay something for the insurance and it would cover bank and non-bank lenders alike.

Together with banning or capping exit fees at a low rate (although Nicholas suggested that this might be a mixed blessing),  this would certainly enhance competition in the home loan market by assisting the redevelopment of viable non-bank lenders in the wake of the Big 4 having taken advantage of the GFC to obliterate or absorb Aussie Home Loans etc.

However, I can’t help wondering whether it would be enough.  The banks have achieved a level of maket dominance that may prove difficult to overcome.  They seem to be elevating the techniques of the Claytons (unprovable) cartel to an art form.

One of the advantages of being a self-confessed economics nincompoop is that I can unblushingly canvas ideas that may well be extraordinarily stupid, if only so the economic gurus can gently explain to me why they’re silly.

(Continued)

The thought hadn’t occurred to me until I read this.

The Impact of Income Distribution on the Length of Retirement

By: Dean Baker
David Rosnick

Social Security has made it possible for the vast majority of workers to enjoy a period of retirement in at least modest comfort without relying on their children for support. The average length of retirement has increased consistently since the program was started in 1937. However, the increase in the normal retirement age from 65 to 67 that is being phased in over the years 2003 to 2022 largely offsets the increase in life expectancy. As a result, workers who work long enough to collect their full benefits will see little gain in the expected length of their retirement over this period. These gains have gone overwhelmingly to workers in the top half of the income distribution. Consequently, the increase in retirement age will offset the gains in retirement lengths for the bottom half — even if there is no further inequality in improvements in life expectancy. If such inequality in improvements persist, then the bottom half of workers born in 1973 will have retirements no longer than those born in 1937.

Well I’m still in favour of increasing the retirement age. But I don’t know what to do about this. What could be done without messing with basic norms of ‘equality’ before the law, which is to say how can we improve substantive equality without mucking up procedural equity – without mucking up the idea of treating people of like age similarly. If we made the pension dependent on health, that creates moral hazard – there would be clinics to get you in really bad shape for your medical to qualify for the pension.

What Australia needs is a "genuine grassroots free market advocacy organisaiton [sic]", writes Tim Andrews. And he’s convinced he’s the man to make it happen.

Andrews is currently in the US equipping himself with the training and experience he’ll need to create an Australian small-government movement. And to get things rolling he’s taking part in the Koch Associate Program a "for professionals who are passionate about free-market ideas, and want to become more effective at advancing liberty throughout their careers." As Tim explains:

… whilst many don’t know the name Koch, it is not only the largest private company in the world (revenue exceeding $100 billion USD a year), it also funds pretty much the entire small government movement.

That’s not much of an exaggeration. The Koch Brothers, David and Charles, have donated millions of dollars to libertarian causes. Forbes calls them "The secret billionaires behind the politics machine" and it’s common, even in libertarian circles, to refer to the Koch-funded network as the ‘Kochtopus‘.

(Continued)

I was browsing in borders and came upon American Essays of the Century (ie the last one) edited by Joyce Carol Oates. Which was very tempting. I would have bought it if it wasn’t $45 too. But I read the essay below – full as it is of what are now cliches of the civil rights movement. I don’t think I’d read it through before, but I’m glad I did – and so too will you – if you do.

Letter from a Birmingham Jail [King, Jr.]

16 April 1963

My Dear Fellow Clergymen,

While confined here in the Birmingham city jail, I came across your recent statement calling my present activities “unwise and untimely.” Seldom do I pause to answer criticism of my work and ideas. If I sought to answer all the criticisms that cross my desk, my secretaries would have little time for anything other than such correspondence in the course of the day, and I would have no time for constructive work. But since I feel that you are men of genuine good will and that your criticisms are sincerely set forth, I want to try to answer your statement in what I hope will be patient and reasonable terms.

I think I should indicate why I am here in Birmingham, since you have been influenced by the view which argues against “outsiders coming in.” I have the honor of serving as president of the Southern Christian Leadership Conference, an organization operating in every southern state, with headquarters in Atlanta, Georgia. We have some eighty five affiliated organizations across the South, and one of them is the Alabama Christian Movement for Human Rights. Frequently we share staff, educational and financial resources with our affiliates. Several months ago the affiliate here in Birmingham asked us to be on call to engage in a nonviolent direct action program if such were deemed necessary. We readily consented, and when the hour came we lived up to our promise. So I, along with several members of my staff, am here because I was invited here. I am here because I have organizational ties here.

But more basically, I am in Birmingham because injustice is here. Just as the prophets of the eighth century B.C. left their villages and carried their “thus saith the Lord” far beyond the boundaries of their home towns, and just as the Apostle Paul left his village of Tarsus and carried the gospel of Jesus Christ to the far corners of the Greco Roman world, so am I compelled to carry the gospel of freedom beyond my own home town. Like Paul, I must constantly respond to the Macedonian call for aid.

Moreover, I am cognizant of the interrelatedness of all communities and states. I cannot sit idly by in Atlanta and not be concerned about what happens in Birmingham. Injustice anywhere is a threat to justice everywhere. We are caught in an inescapable network of mutuality, tied in a single garment of destiny. Whatever affects one directly, affects all indirectly. Never again can we afford to live with the narrow, provincial “outside agitator” idea. Anyone who lives inside the United States can never be considered an outsider anywhere within its bounds.

You deplore the demonstrations taking place in Birmingham. But your statement, I am sorry to say, fails to express a similar concern for the conditions that brought about the demonstrations. (Continued)