I Like Big Ruts And I Cannot Lie

From FT.com 

Looks nice, but .51 is a pretty bad Gini coefficient. Being somewhere under thirty is rare and looks like a Europe only club, but a goal every nation should have… IN MY HUMBLE ASS OPINION.

This article sat right next to one on Brazil’s bear market experiencing poor growth. If you pay attention to Europe then this already appeared to be a likely outcome. Loss is something every major emerging market experienced in the last month, the news had all of BRIC at the brink of of a new stone age. I still expect Brazil to come flying out the gate(On the back of Petrobras, sugar, coffee, and a stable real) in about 2 years, when the crisis in the west is over. I’ll be sitting on this post as proof, my documented, “I told you so”

Putin Sworn in as Russian President…

Again. Like, for a third fucking time.

For those not in the loop, you kept seeing Putin with his shirt off when he wasn’t president because he went from president to prime minister(Over some bullshit technicality that doesn’t mean much to a BAWSE). Now he’s president again, and if he cares to make the land west of the Ural mountains fruitful for his oligarch buds then it’s necessary that he does something about the Caucasus region and the Central Asian population. By do something, I don’t mean cave in to the demands of racist assholes(a considerable chunk of protesters the media talks about), I’m talking about providing real opportunities to for a decent living. The Kremlin could do a lot better than put Russia’s fate in the hands of an old and dying population. Migrants and people of the Caucasus have stayed put in Russia at a time when many young people with skills took flight, along with Russia’s once impressive FDI.

None of this may matter outside of Russia, because the media’s approach to Moscow after the Arab Spring and OWS has been a delirious one. Massively exaggerated protest numbers, failure to point out xenophobic elements in the opposition, every piece is Russia just being an overall pain in the ass for democracy. We don’t want the opposition to vanish, it needs to exist because Putin is no angel, but  this is the route NYT and FP will take the majority of the time instead of providing substantial coverage detailing what is actually going on. Where are the stories on guys like Doku Umarov? What’s going on with Russia and the WTO? Customs agreements with the Stans? What will Russia’s relationship with Germany and France look like without Merkel and Sarkozy?  How’s the ruble performing? They were talking about replacing the dollar with the ruble(bullshit, I know) when making energy transactions at one point. It’s been almost three years since I used to read about Russia regularly, and the current state of their economy is a complete mystery to me now. Part of this is because no one outside of experts buried under sites I don’t frequent cared to talk about it since 2009, and I’m not digging that deep anymore. Lets hope the journalists, politicos and wonks do a better job talking Russia for Putin’s third term — that’s just about the only way to make next couple of years bearable.

I’m also gonna come out and say us young folks really need to stop fetishizing this dude like he isn’t a monster. At least until the next photo-op.

Latin America and Foreign Direct Investment

I was just going to make this ECLAC report a link in the upcoming LINKS post, but I can’t trust you to click a seventy page pdf can I? There’s some interesting stuff in here, so it wouldn’t hurt to share. Before we go any further, it’s important to know what FDI is. Now that we have that covered, lets get to the meat of this post.

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Oil & Transparency

Stopped by Evan Lieberman’s blog and stumbled upon a working paper  by the International Budget Partnership has brought up the question of transparency among extractive industries. His paper holds that there is no link between transparency and mineral/oil wealth in democracies, but there is an issue of transparency within autocracies. In this paper he drops this little nugget of information — In 2009 petroleum counted for fourteen percent of the world’s trade. That’s an extremely large number for the majority of the world to be completely clueless about. In years of record profit we go, “wow, this is proof that oil is bad” if this is the case I think it’s time to know how/why, exactly.

Let’s find some real information to do the talking and the data we have on oil’s causal effect on democracies and autocracies alike may be misleading (Haaber and Menaldo 2011). We need to make claims based on newer, bigger, badder, bolder and nacho cheesier data sets, which I’m sure is on the way(minus some of those adjectives). This information should be the first step in true transparency, in a world where one can feel comfortable about fourteen percent of its trade. Maybe with the correct information we can create policy that adjusts the approach institutions, democratic or not, take with oil. Could transparency in the international trade be the answer to removing the resource curse? I don’t see why it wouldn’t.  Attempts at finding a way around the transparency issue are already starting to surface (Gelb and Mejerowicz 2011), but I would consider the suggestion in that paper to be nothing more than an unfeasible pipe dream. It still serves as a good example of people trying to find a solution to the problem.

Thinking off the top of my head would be increasing the barriers of entry when it comes to trading resources. Why wait until gross human rights abuse to start sanctioning the oil trade of an autocracy? A high standard of accountability and transparency should be the norms before you toss your barrels out to sea, before the firms that are private or state use their technology to begin extraction on foreign soil or offshore. Are we really so needy for the black stuff at a time where we are definitely not at peak oil, and we are getting more and more use out of extraction sites than ever before? Raising the barriers of entry, and making transparency the norm would make newly resource rich nations like Uganda and Angola think twice about corruption. Chances are, until they get their operation off the ground, they are more likely to need and accept conditional loans (that call for certain freedoms, and developmental goals, blah blah). In the event a state meets all of its requirements to enter the market, the increased capital is a very nice incentive to remain transparent, at least in the oil trade. The international community should be more than capable of enforcement, as developing nations often lack the technological prowess to make continued oil exploration and extraction an economical decision – assistance is often needed to turn a profit.

Just something to think about, and just because I’m blogging it, doesn’t mean I speak with certainty. This blog needs/is many an exercise in throat clearing. Note that I haven’t exactly said what these barriers of entry would be. The reason why is because I have no earthly idea.

Oil Can Be Cool As Hell

As long as nobody dies for the profits…

On a more serious and disappointing note, I have another hastily written entry to share. A couple of things drove me to make this post. People bitching about gas prices(observed FROM MY BIKE), an FT article on young American bros putting handlebars before cars, and Argentina’s recent decision to nationalize their oil. All three of these items are good news to me, and I am in no way in league with big oil. I don’t even use vegetable oil.

The rise in oil prices mean resource nationalist countries that love(are smart enough) to use their nation’s energy to fuel social spending has a couple megabucks on the way. I’m cool with this because I just happen to be fond of socialist programs that are almost certainly propped up by liquid gold. one example of this would be Venezuela’s improved education system that has them sitting with a relatively high Education Development Index(EDI) score in comparison to its neighbors. Now one could argue that energy prices are too volatile to rest a nation’s future on, but what is stable? disequilibrium is a constant in capitalism, trotting along with vicious cycles, booms and busts- all depending upon who you ask(not horrible monsters). Shit that literally came from your piece of earth isn’t a completely bad thing to hang your hardhat on. I say go for it, enjoy your finite but nowhere near close to finished natural fossil based money machine while you can.

In the case of Americans turning away from cars- how is this not a great thing? I don’t know anyone who would interpret this as a negative outside of automobile companies, but oh well. I lived in NY, DC and now in LA(I feel like I lived a full life by saying this but I’m just a first year grad with the emotional maturity of a feral child), and at this stage in my life, a car is nothing but a status symbol, not a necessity. Public transportation works just fine, and I think a reasonable system is something every town or city with big aspirations should invest in. I also lived in a sort of small college town that had a bus and personal rapid transit system that also operated smoothly(assuming the rapid transit system was working). Cars were only truly needed at night when the PRT was down.

Argentina’s story is the most interesting of the three because as far as I know, it’s pretty unique. There’s always some level of backlash when a country decides to nationalize their oil/gas, and these cries are usually heard from morbidly obese pigs/private entities who fed on oil long enough. The claim is investment is no longer desirable if Argentina plans to sell the majority of the oil at home and at door buster prices, and this is true if that’s actually the case. I seriously doubt this though. What I’m wondering is just what percent of this oil will be sold on the cheap to keep domestic firms competitive. If it’s just a drop in the bucket, then clearly the likes of Spain are overreacting. If not, and Argentina manages to go through with this- will there be any measurement of just how successful this move was? Only time will tell. I’m glad I blogged about this, otherwise I may end up forgetting to check it out in the future.

It has come to my attention(in the form of a tweet), in the middle of writing this – that prices have experienced a bit of a drop in the past couple days. This doesn’t really change what I said since none of its validity is dependent upon constantly rising prices in the now. Just something to keep in mind. Btw, I wrote this on the way home from the beach and on my iPhone, heh.

Ken Rogoff Sits Court Side Crying About the Political Economy of Superstars

It looks like my itty-bitty hiatus has had absolutely no effect at all on the blogosphere. This helps, because we can all pretend leaving a picture of a bird drowning itself in a chocolate fountain is a normal last post to see for about a week. I know, again with the fountain bird, but I’m still not over it. I’m also not over Harvard economist Ken Rogoff’s piece on Lin and other star wages vs that of CEOS – that managed to slip under people’s radars. I saw it on Greg Mankiw’s blog, who quoted a good chunk of it. The funny part is I don’t know if it was in support of that bullshit or what.

What amazes me is the public’s blasé acceptance of the salaries of sports stars, compared to its low regard for superstars in business and finance. Half of all NBA players’ annual salaries exceed $2 million, more than five times the threshold for the top 1% of household incomes in the United States. Because long-time superstars like Kobe Bryant earn upwards of $25 million a year, the average annual NBA salary is more than $5 million. Indeed, Lin’s salary, at $800,000, is the NBA’s “minimum wage” for a second-season player. Presumably, Lin will soon be earning much more, and fans will applaud.

Yet many of these same fans would almost surely argue that CEOs of Fortune 500 companies, whose median compensation is around $10 million, are ridiculously overpaid. If a star basketball player reacts a split-second faster than his competitors, no one has a problem with his earning more for every game than five factory workers do in a year. But if, say, a financial trader or a corporate executive is paid a fortune for being a shade faster than competitors, the public suspects that he or she is undeserving or, worse, a thief.

I’m considering myself a little bit rusty blogging wise, as well as struggling to find a good reason to blog at length on any subject, so I’m just going to share a few thoughts with no real self editorial process behind them.

People accept superstar athlete salaries because they perform highly specialized and entertaining functions((slam dunks, duh) that generates money hand over fist for some franchises) not just any geek off the street can do. The NBA not only requires a high level of skill, but it’s extremely important to be physically gifted as well. When the NBA finally gets its hands on draft prospects one of the first steps is to measure their height, wingspan, vertical, upper body strength, etc. Players that fail to meet the physical expectations of the NBA often end up across the Atlantic because they fail to excel at this elite stage versus those who are physically imposing. Guys like Duke’s Jon Scheyer, decide not to even bother fighting this sobering reality, and go straight to over seas to hoop. When players are physically gifted and skilled at an elite level, scary things like Kevin Durant and Lebron James happen. Two players that consistently perform and amaze with rarely seen(among other players) displays of athleticism. If you just want to see skills without the physical gifts, check out the WNBA. A complete snooze fest in comparison, that makes nowhere near the amount of money as its parent company.

CEOs on the other hand are not gifted. The average person is aware of this and holds them in low regard for several more reasons. Their performance doesn’t require the same amount of freak specialization as the NBA, nor is it entertaining to watch a CEO decide to ship jobs over to India in order to cut costs. Their performance can be boiled down to the profit margin, and in some cases it requires business practices the American people are not so fond of, to remain in the black. CEOs are also believed to be inheriting most of their success by being granted a large amount of resources to succeed since birth, thanks to wealthy parents. There are tons of former engineering majors with advanced degrees chomping at the bit to be the CEO somewhere, and they just might do it as they climb the ladder of high paying positions. The average tenure of a CEO is about six years, CEO superstars seem to be much more expendable than the NBA’s. Lebron is not expendable, he had the NBA on its knees for an entire year and summer. The NBA is lucky that there is a cap when it comes to its superstar talent. We also know NBA salaries are the result of labor disputes with ownership. Considering how much money each side has spent making their case with lawyers, economists, gypsies, etc, I’m willing to assume that Lin’s 800k is somehow a reasonable number in the grand scheme of things. These salaries are handed out to about 450 players on any given year, with the average NBA career lasting less than five years. Many players came from poverty before essentially winning the lottery that is being drafted into the NBA. By the way, sixty percent of these players will end up bankrupt. Many CEOs came from positions where they were already handsomely rewarded, even if they were a consistent fuck up.

Rogoff ignores much of this and decides to ask if the reason behind a superstar’s pay is his/her role as a role model. In jaw dropping and painful fashion, he cherry picks some of the worst examples of role models in sporting history. Kind of pathetic for a Harvard economist, in my opinion. Well, Mike Vick doesn’t fuck me to death with extra charges every time I require certain services, unlike some CEOs. The reality is, in the minds of many, the CEO should claim personal responsibility for every bit of annoyance and pain brought to the public sphere by firms. Is this the case? No, more often than not we will read some Rolling Stone story about the golden parachutes some Goldman Sachs doucher received. We will read about the revolving doors of CEOs and their links to the government, but Rogoff has the nerve to say there’s a sports lobby equally as powerful as the one on Wall Street. As far as the city stadium situation goes, that’s on the owners, not the players.

There’s obviously a ton of good and bad I’m leaving out, but we’re all about brevity in this camp. To put it simply, the only superstars outside of sports and entertainment I’m willing to appreciate are behind non-profit firms. The rest can fuck off, as far as garnering my appreciation – as if they even give a shit after making decisions that exploit large swathes of people.

C’mon, Greg!

Greg Mankiw made a post today, where he claims that the CBO says federal workers are overpaid compared to their private sector counterparts. The problem here is, the CBO never actually says that. What Mankiw links is pretty much a straight up info dump that looks pretty objective to me. I don’t know why Mankiw decided to be intellectually dishonest about it. He has the right to process the information however he wants, from blog posts to printing it out and ollying over it. My issue is him lying about the position of the CBO. I could keep my mouth shut and wait for a blog actually dedicated to being anti-mankiw to post on this, but instead I’m just going to dip a toe in before sprinting back out.

COMPARING THE COMPENSATION OF FEDERAL AND PRIVATE-SECTOR EMPLOYEES

It’s clear that federal employees do get paid more than private sector employees, but what part of this info dump says this means they’re overpaid? I would argue that the private sector is underpaid. Private sector employees get paid by an entity that has profits to look after, first and foremost. Federal agencies have budgets like everyone else, but the bottom line is not the profit. Exploitation isn’t part of the formula to success, results are. This isn’t to say private firms should operate more like federal agencies. I couldn’t realistically ask that of a completely different beast. What the federal government represents to me in this case, is something of a sweet spot in compensation. The wages and benefits of government workers allow better health, longer life expectancy, and an improved education for their children. That’s not overpaid to me, that’s the American dream. I don’t have any data to prove this, but feel free to agree.