Tyler Cowen's Blog, page 381

Malaysia (Africa) fact of the day

Malaysia was the third biggest investor in Africa in 2011, the latest year for which data is available, behind France and the United States, pushing China and India into fourth and fifth positions.

There is also the stock rather than the flow:

France and the United States also have the largest historical stock of investments in Africa, with Britain in third place and Malaysia in fourth, followed by South Africa, China and India.

Note that much of the Malaysian FDI went to Mauritius and also that FDI is not the only measure of foreign economic involvement.  The article is here, hat tip goes to @viewfromthecave.

A simple point about capital controls

John Dizard writes:

Capital controls turn into trade controls, as the locals attempt to find ways to turn hard assets or non-banking services into foreign exchange. At some price, for example, you can buy a boat in Cyprus with post-haircut, capital-controlled local deposits, sail it to Lebanon, and then sell it for real, usable money. The same with antiques, jewellery, or anything else you can think of. Even capital goods such as fork lifts can be motored off in the middle of the night.

Here is a long Cardiff Garcia post on capital controls, excellent throughout.  From Garcia, there is also this:

Reinhardt, Rogoff and Maduff did a meta-analysis in 2011 on prior studies of capital controls. The only uncontroversially (though mildly) successful use of controls on outflows they found was Malaysia in the aftermath of the Asian financial crisis. Even then, the controls were accompanied by aggressive counter-cyclical spending, bans on short-selling the currency and trading it offshore, and defending the ringgit against speculators by fixing it to the dollar.

Australian free rider markets in everything

From the excellent and apparently inexhaustible Mark Thorson:

A poster telling customers they’ll be charged $5 for browsing if they don’t purchase anything has been put up at Celiac Supplies in the Brisbane suburb of Coorparoo, Reddit user BarrettFox reported.

Owner of the gluten free produce store, Georgina, says she resorted to putting up the sign after spending hours each week giving advice to people who leave empty-handed.

About 60 people a week would go into the store, ask questions and then buy the same or similar product at a supermarket chain or online.

“I’ve had a gut full of working and not getting paid,” Georgina, who didn’t want her surname published, told AAP.

The full article is here.  The store owner comments:

“I can tell straight away who are the rat bags who are going to come in here and pick my brain and disappear,” she said.

Cypriot vending machine markets in everything?

I don’t think this is a joke, and it is only a plan, and not a mainstream business project, in any case my apologies if I have been tricked by an early April Fool’s joke:

Upon examination of the marketplace and many discussions with Justin O’Connell (TDV Newsletter & Gold Silver Bitcoin), as well as another key strategic partner of ours, I have decided to move forward with what I believe could be the next multi-billion dollar business venture: Bitcoin ATM.

But that isn’t all. It is wholly our intention at Bitcoin ATM to put the company in the right position to open its very first ATM in Cyprus. If we did this now, and we are moving quickly to make this so, we would be the only functioning ATM on the island.

That is from “The Dollar Vigilante,” hat tip goes to Mike K.

Assorted links

1. Bryan Caplan defends the marriage premium.

2. Rethinking the water fountain (there is no great stagnation).

3. Markets in almost nothing?

4. Blood monitoring implant tells your smart phone when you are about to have a heart attack.

5. When do budget rules work?

Mexico’s economy: current prospects and history

That is a new MRUniversity course, taught by University of Oklahoma Professor Robin Grier (with a small number of guest videos from me, too).  It is absolutely excellent and I recommend it highly.  The course outline is this:

1 An Overview of the Mexican Economy

2 Colonial Legacies: Obstacles to Growth after Independence


3 Development Strategies


4 Social Issues


5 Land & Agriculture


6 The Debt Crisis of the 1980s


7 The State Retreats: Reform in the 1980s & 1990s


8 The Peso Crisis

9 NAFTA & the Mexican Economy

The early videos are now on-line and new videos will be appearing regularly.  You can view them on your own or register sign up for email updates at the link.  You can check out our other courses at the home page of MRUniversity.com.

What to look for in the Cyprus deal

1. Output on the island could easily decline by 25% or more, and I don’t think that will involve much subsequent mean-reversion.  There will be a deflationary shock, an uncertainty shock, an “austerity shock,” a credit contraction shock, and a few other negative shocks as well.  The Cypriot government will not be fiscally well situated to support the safety net or automatic stabilizers.

2. It’s never a good sign when a deal is structured so that no one has to vote on it.  (Correction: various European legislatures may be voting on it, but no one in Cyprus.)

3. The deal itself still doesn’t cough up all the money, but rather relies on subsequent tax increases and privatizations to come up with at least another billion euros.  Believe it or not, the numbers don’t add up.

4. “This was not a good weekend for Russian billionaires.”

5. I wonder if the two main banks even have the money they claim they do.  Who tells the truth going into a deal like this?

6. Capital controls in Iceland are expected to remain in place at least through 2015, which would make seven years (and counting).  That is a better run country with lots of fish and aluminum smelting.  You can expect the same or longer from Cyprus, and that’s assuming this deal can last that long, which I doubt.

7. ELA assistance is now, all the more obviously, contingent rather than certain.  Who would keep their money in the “good bank” which is being folded into Bank of Cyprus?  Why would anyone do this?  Given a shrinking economy, surely this bank cannot afford to pay very much to retain deposits, since rates of return on domestic assets will be negative and capital controls will limit or prevent investments in foreign assets.

8. The capital controls will have to be strict.  What will the price of a Cypriot euro be, relative to a German euro?  50%?  I call this Cyprus leaving the euro but keeping the word “euro” to save face.  And yet they fail to reap most of the advantages of leaving the euro, such as having an independent monetary policy.

9. Given that the nation is uh…corrupt, and the account holders are very often money launderers (duh), how effectively will those capital controls be enforced?  Won’t the banks end up drained, one way or another?  Of course remittances will need to be sent abroad to purchase “essential services,” right?  Who picks up the tab for the total collapse of all the banks?  Won’t the euros that are left depart Cyprus altogether?

10. Next up may be Slovenia…

Addendum: A summary of the deal is here.  And here are some very good comments.  Here are more details on capital controls.

Academics on Corporate Boards Increase Profits

Francis, Hasan and Wu have produced a paper with important results!

Directors from academia served on the boards of more than one third of S&P 1,500 firms over the 1998-2006 period. This paper investigates the effects of academic directors on corporate governance and firm performance. We find that companies with directors from academia are associated with higher performance. In addition, we find that professors without administrative jobs drive the positive relation between academic directors and firm performance. We also show that professors’ educational backgrounds affect the identified relationship. For example, academic directors with business-related degrees have the most positive impacts on firm performance among all the academic fields considered in our regressions. Furthermore, we show that academic directors play an important governance role through their monitoring and advising functions. Specifically, we find that the presence of academic directors is associated with higher acquisition performance, higher number of patents, higher stock price informativeness, lower discretionary accruals, lower CEO compensation, and higher CEO turnover-performance sensitivity. Overall, our results provide supportive evidence that academic directors are effective monitors and valuable advisors, and that firms benefit from academic directors.

CEO’s of large firms interested in increasing their profits should click here (and ignore the bit about lower CEO compensation).

Hat tip: Professor Bainbridge.

Are driverless cars illegal?

Here is a long, 99-page article (pdf) by Bryant Walker Smith suggesting the answer might be “yes.”

My argument is less subtle than those in the footnotes of the paper.  Try running a driverless car in Fairfax City, or Alabama for that matter, while sleeping in the back seat with your feet up.  See what happens when you drive by an alert policeman.  (By the way, if you are asleep will your driverless car respond to the police siren and pull over?)

Let’s say you sit at the wheel while the software drives, you still are pulled over, and given a ticket for “reckless driving.”  You show up in court and the judge asks you what regulatory inspection or safety process your equipment has been through.  I am not saying you will always lose the case or indeed always will be pulled over, but your vehicle is no longer a reliable source of hassle-free transportation, no matter what statutory arguments you may make on your behalf.

There are different notions of the word “legal,” but from a practical point of view what the police will let you get away with is surely relevant.  It seems to me that your protected sphere here is quite small.

For the pointer I thank Jerry Brito.

The evolution of Russian holiday mobility

Recently Ms Loftus has seen more requests like the last one – clients with, as she puts it, “jurisdictional issues”. For a small but growing number of elite Russians, travel opportunities are increasingly limited. The trend was epitomised by the US Magnitsky act, which late last year imposed a US visa blacklist and asset freezes on roughly 60 Russians suspected of human rights violations. Its open-ended wording leaves open the possibility that the list of names will lengthen. The EU looks set to eventually pass similar legislation.

Meanwhile, the uncertain fate of Cyprus, once the favourite playground of Russia’s wealthy for its unbeatable combination of sea, sand and flexible approach to financial services regulation, may yet strike another holiday destination off the list.

In Soviet times, only the elite could travel. Today, it is the reverse: almost anyone in Russia can afford a week or two in Turkey or Egypt, but in some cases the foreign holiday dreams of the rich and powerful have been clipped, leaving them with few options.

And:

Then, there was the mysterious caller who asked for “a holiday in a non-Interpol country” on behalf of his boss, who he would not name.

I wonder how good a trip that could be?  (I very much enjoyed Taiwan, but have never visited Kiribati.)  The full FT story is here.