Archives For Economics

Graduates of the Class of 2012 began their baccalaureate studies at the worst time during our nation’s economic history since the Great Depression. Today marks the 4th anniversary of the bankruptcy of Lehman Brothers, the largest bankruptcy in American history – and by some measures the start of the 2008 recession.

The collapse of Lehman is when unemployment in the economy really started to rise, and when global credit markets began to seize.

You can see how this selection of stock market indices began to collapse after the fall of Lehman brothers. Graduates of the class of 2009 had one of the toughest job markets ever. At the height of the recession there were 6.1 million job seekers for every posted opening in America, things are better today but the ratio is 3.5 million to one (WSJ).

Four years on, the job situation in America is still tough. People are working harder for less money, and there is a great deal of uncertainty going forward. The Federal Reserve has started a third round of Quantitate Easing this week, seeking to drive corporate borrowing. But with ultra low interest rates, and record levels of cash on corporate balance sheets, I’m fearful that this will just lay a stronger foundation for inflation in the future. Our economy might already be falling off of a fiscal cliff.

If the Fed wanted to spur economic growth why not lend directly to State and Municipal governments for capital projects? 

To make matters worse, there has been little meaningful reform in the financial sector. Dodd-Frank lacked provisions similar to Glass-Steagall, and it has yet to be fully implemented. The nation’s banking sector has become even more concentrated as banks failed or merged, and they fought hard to prevent over regulation. Last May Rolling Stone published a sacthing article about Wall Street’s fight to end regulation.

Mark Zandi, the Chief Economist of Moody’s Analytics, predicts that unemployment will still be at 6.6% in four years (according to NPR). This past financial crisis was especially hard hitting because it was a financial and real estate driven binge that took nearly a decade to fully form.

It’s no surprise then, that it will seemingly take a decade to return to our pre-crash normal. Until we do thoughFor all those job seekers out there, you just need to find ways to make yourself indispensable.

Can you patent round corners?

Google was unaware that you could, according to David Lawee, vice president for corporate development at Google. In an interview with Bloomberg David made it clear that Google was not aggressive enough with their patent strategy.

Apple’s victory over Samsung and Google sets a disturbing precedent. I fail to see how their patent, Design patent ‘305. Rounded square icons on the home screen interface, is non obvious or new. Look at the Blackberry below, don’t those home icons look rounded?

Consider the apparel industry, which has had a historically loose approach to intelectual property. There is currently a pending lawsuit over the design of yoga pants, which just seems ridiculous.

I believe that this is the approach which should be taken in application of patent law. It’s important to note that patents serve to encourage innovation, and are a necessary part of our economy. But when patents are given out blindly, and lawsuits are considered part of doing business, doesn’t this hurt innovation more than someone copying your rounded corners?

Open does not conflict with making money, according to Venture Capitalist Fred Wilson, by many accounts the top VC in NYC.

To me, Samsung’s official statement says it all:

Today’s verdict should not be viewed as a win for Apple, but as a loss for the American consumer. It will lead to fewer choices, less innovation, and potentially higher prices. It is unfortunate that patent law can be manipulated to give one company a monopoly over rectangles with rounded corners, or technology that is being improved every day by Samsung and other companies.

 

Preparing for Travel

September 13, 2012 — Leave a comment

Packing to leave your home for nine months can be a bit daunting. I’ve been gathering items from clothes to deodorant in order to get ready for Sri Lanka.

I just purchased a pair of linen trousers, to help deal with the heat. I ordered them from BananaRepublic.com, and just got them in the mail. Turns out they were made in Sri Lanka.

Globalization provides for some wacky things. An American packing to travel to Sri Lanka orders clothes from an American company made in Sri Lanka.

Maybe I should return them and buy them there?

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I just read a phenomenal blog post by Renee DiResta about an interesting (albeit qualitative) study powered by Google’s auto-complete feature. She went State by state and saw what the Google search results indicated people thought of a particular state. She then compiled the top terms into an interactive map and compared some results with hard data.

Renee’s post leads me to questions whether people’s expectations are fueling the reality we see. There has been extensive academic research into how beliefs shape a person’s view of reality; so I have to believe that Google suggesting results has an impact on people’s searches – thus influencing their beliefs.

Take a look at this search result

Search results on 8/20/2012

Say I was offered a job in New Jersey, and I lived out of state. The first thing I’d find out about the state is that it is very expensive, and this Google search is true according to the hard data. Before the internet I doubt many people would look at cost of living statistics when considering moving, but now with the internet we have access to nearly unlimited data.

Infographic via Renee DiResta 

The questions that remains to be seen is how this data is leveraged, and whether it will truly help people to get a better sense of their world.
I’ve written previously about the power of data behind search terms, and I keep finding great examples of how people are leveraging Google Search data to improve their view of the world. If you haven’t seen it yet, Google has set up a Flu Tracker, which this year predicted a flu outbreak earlier than the CDC (Source). Brilliant.

Economics of Happiness

August 7, 2012 — 4 Comments

“Textbooks describe economics as the study of the allocation of scarce resources.  That definition may indeed be the “what,” but it certainly is not the ‘why.'”

-Ben Bernanke

On Monday Ben Bernanke, Chairman of the Federal Reserve, gave a speech about economic measurements. This speech was unusual because he was not focusing on indicators such as GDP, inflation, and unemployment rates; the Chairman instead took a philosophical approach and questioned the relevancy of these traditional statistics to happiness.

Before I continue, it is important to note that the Federal reserve focuses on the aforementioned numbers because our Central Bank has a dual mandate – to keep inflation within a standard range while maximizing employment. (note that the European Central Bank does not have a dual mandate, and focuses exclusively on inflation).

Bernanke details a number of other economic indicators which might be able to guide the Federal Reserve towards making more informed economic decisions: How secure do Americans feel in their jobs? How confident are they in their future job prospects? How prepared are families for financial shocks?

This is an interesting and exciting development, and I firmly believe that our economy could use more detailed and thoughtful economic analysis. The amount of data available to Economists today is mind-boggling. Innovative Central Banks, such as Israel’s, have been utilizing Google Search Results to inform their decision making. According to a paper by Google Chief Economist, Hal Varian, adding Google Trends to traditional indicators leads to an 18% improvement in predictions for ‘Motor vehicles and Parts’ and a 12% improvement for ‘New Housing Starts’.

The Federal Reserve works in a deliberate fashion, but I’m excited for the potential of leveraging the vast amounts of data produced by internet users to improve economic decision making.