lifestyle leader

As discussed below, the spectre of protectionism was haunting us early in 2009. In Britain, we suddenly saw shades of populist xenophobia from Gordon Brown (pray tell us, Gord, what exactly constitutes a British worker? shall we ask the BNP?). In the USA there was the noxious "Buy American" clause, the auto-bailout, and some other hilarious examples. India banned Chinese toys for six months. But the most gregarious example of all comes from China itself: the undervaluation of the yuan, and its consequences for everyone else, is probably the biggest protectionist story of the year.


Pay czars! Wait, Pay czars?

Taking the long view, capitalism has been a resounding success for humanity. It is the single biggest poverty-killer in history. But as we have seen, the free market is a fragile thing, and prone to excesses. These excesses produce backlash, and the backlash can be severe.

We need only ask John Maynard Keynes, a first-hand observer of how bad the backlash can be. An astute observer of history and human psychology, Keynes had the following to say about pre-WWI Europe:

The power to become habituated to his surroundings is a marked characteristic of mankind. Very few of us realize with conviction the intensely unusual, unstable, complicated, unreliable, temporary nature of the economic organization by which Western Europe has lived for the last half century. We assume some of the most peculiar and temporary of our late advantages as natural, permanent, and to be depended on, and we lay our plans accordingly.

Those advantages collapsed spectacularly in 1914. We spent the next seven decades sorting out the mess. Now, I'm not suggesting that pay czars and supertaxes are the first steps towards a return to communism or fascism or whatever - not by a long shot. But try to remember how unlikely those things would have seemed a couple of years ago. Things change in a hurry.

The lesson that I take from all of this is as follows: the liberal market economy is a fragile social experiment - it is not a naturally occurring phenomenon. We need to keep this message in the back of our minds as we take stock of recent events. This little project of ours requires safeguarding, not hysterics. So let's tone down the ideology and tone down the populism and instead focus on pragmatic ways to keep it going a little longer.

Lessons from the NYT's food critic - a great article about restaurant etiquette and what it reveals about human nature.

For those who are interested in some lighter reading material on ketchup economics:

Malcolm Gladwell has this great history of ketchup and mustard which explores why the ketchup market is dominated by one brand (Heinz), but the mustard market isn't. It includes some really interesting stuff on how we understand and experience "taste."

(No puns this time!)

Alex Tabarrok points to yet another study suggesting that, in addition to being more successful in their careers, taller people tend to be happier. According to the abstract, the vertically-endowed

...evaluate their lives more favorably, and... are more likely to report a
range of positive emotions such as enjoyment and happiness. They are also less
likely to report a range of negative experiences, like sadness, and physical
pain, though they are more likely to experience stress and anger, and if they
are women, to worry. These findings cannot be attributed to different
demographic or ethnic characteristics of taller people, but are almost entirely
explained by the positive association between height and both income and
education, both of which are positively linked to better lives.

(He also links to an article which discusses the idea of taxing tall people for this very same reason. I do not like this idea one bit.)

Note that all the measures here are relative. This does not mean that tall people are happy, just happier. Except when they are seated in small vehicles, of course.

Does this apply to societies, as well as people? Are countries full of tall people happier and more economically successful than those full of shorter people? Should the poorest countries of the world invest in growth-steroids for their children?

I'm guessing no. The effects of "tallness" are most likely dependent upon your immediate surroundings. You might be happier because you are taller than your neighbour, but how tall you are relative to someone living half-way across the world has no effect. (The same applies to income, by the way). Therefore being 5-foot-9 in Bolivia might result in higher levels of happiness than being the same height and living in the Netherlands.

Also, at what point does the curve of happiness drop off and the effect of constantly knocking one's head on doorframes result in a perma-frown?

It has been a very busy week for news, even if it hasn't been busy on the blog. A quick review:

- Protests in Iran: This is what can happen when you insult a large portion of your population with blatant electoral fraud. You might not have thought a couple of weeks ago that Iran was about to provide a lesson in Civil Society 101 for the rest of the world, but this week's protests have been impressive. You need more than a little courage to take to the streets in largely non-violent protests facing riot police, tear gas and gunfire.
(UPDATE: The BBC has some shocking raw footage of just how ugly this thing is getting)

- The white paper on US financial regulatory reform was released this week. I have no intention of actually reading the thing, but Felix Salmon does point to an interesting tidbit: the policy wonks have inserted legislation forcing opt-out, rather than opt-in, retirement plans for corporate employees. This is a nod to the lessons of behavioural economics, which have shown that people will resort to the default, even on important decisions like saving for their retirement. If successful, this legislation will make retirement plans the default option, and Americans are therefore more likely to save. Score one point for the nanny state!

- The BRIC Summit. Brazil, Russia, India and China had their inaugural summit this week, and most reviews suggest it mainly produced rhetoric and little of substance (just for fun, let's compare this to the G8 in early July, shall we?). Some of the rhetoric on the US dollar did seem to have an impact, however. President Hu's 4-point plan was pretty high-level, but certainly hit on the main issues.
It remains to be seen if this summit is a one-off deal or if it will evolve into something with teeth. The first G-somethings were born out of shared economic interest in the 1970s; it's less clear to me that the BRICs have enough similarities (aside from export-led growth) to produce anything more than statements and photo-ops. But I'm holding off judgment for now.

The Browser has brought my attention to a very interesting article from The Economist which explores the differences in professional backgrounds for political leaders around the world.

Some findings:
Lawyers dominate democracies, Africa is full of military veterans (quelle surprise), Egypt likes academics; Brazil, doctors; and South Korea, civil servants. What caught my attention, however, was the predominance of engineer-politicians in China. Many of the top dogs, including the Prime Minister, President and previous President, were trained as engineers. Here is The Economist's explanation for why this might be:

The presence of so many engineer-politicians in China goes hand in hand with a certain way of thinking. An engineer’s job, at least in theory, is to ensure things work, that the bridge stays up or the dam holds. The process by which projects get built is usually secondary. That also seems true of Chinese politics, in which government often rides roughshod over critics. Engineers are supposed to focus on the long term; buildings have no merit if they will collapse after a few years. So it is understandable that an authoritarian country like China, where development is the priority and spending on infrastructure is colossal, should push engineers to the top.

Can anyone think of any other possible reasons?

This passage reminded me of another area of work dominated by engineers: terrorism. I noticed this trend and mentioned it to an undergraduate professor of mine who specialized in political thought in the Middle East. He confirmed that, yes, this was quite common: engineers and doctors make good terrorists because they are "do-ers" and less likely to argue about theology/ideology. Instead, it's all about putting ideas into practice. Sure enough, the al-Qaeda recruitment handbook recommends recruiting among the non-religious, particularly at colleges/universities, for precisely this reason.

So obviously I'm not suggesting that all terrorists are engineers, or that all engineers are terrorists, or even that all Chinese politicians are terrorists. Disclaimers aside, however, the parallel between terrorist groups and China's leadership is an interesting idea to play with. In both cases there is a strong ideological/theological foundation which the academics can quibble over, and, when it comes to getting things done, they turn to the engineers.

Just in time for Easter: a history of eggs

The Ascent of Stan, or: why you will end up as lame as your parents.

An interesting parallel between the impact of oxygen and intelligence on our planet.

And as someone who regularly has objects flung in his direction as the result of a groan-worthy pun, I particularly enjoyed this artice.

A frequent criticism leveled against the liberal/progressive camp is that they approach policy in an arrogantly paternalistic way: the liberal elites have decided what new government programs will be good for you and if only you were smart enough to vote the elites into office the world would be a better place. This is the nanny state that has introduced annoying speed limits, forced you to pay taxes for things like "education," and banished smokers to Siberia.

Well here's an interesting review of an alternative idea: libertarian paternalism. What's the difference?

To make us choose what is good for us, they avoid fines, compulsion, and prohibition in favor of “nudges” – institutional arrangements that we could, in principle, easily override, but that, given our tendency to rely on [our gut], we end up going along with.

This approach builds on the idea that we often don't spend the time to think important decisions through and instead go with our basic emotional reaction. This can often lead to unfortunate results. But to make a suggestive nudge is not the same thing as making the decision for you:

As long as choice engineering tricks us into making choices that our own more deliberate self would make, they say, manipulation is justifiable. Well-chosen nudges have been shown to be extremely effective in altering choices that make a substantive difference to the lives of many (say, enrollment in pension plans).

This is certainly true. But by now the alarm bells are ringing. My brief exposure to behavioural economics and psychology tells me that by aiming to create more rational decisions, rather than emotional ones, you've created a false dichotomy. In fact, our emotions - our gut - play a fundamental role in decision-making; studies have found that people who have suffered accidents which leave them without functioning "emotion-rich" parts of their brain have difficulty making simple, seemingly-rational decisions like whether or not to go grocery shopping.

Moreover, as the author points out, such nudging still suffers from the same problem as liberal paternalism: the "right" decision has been pre-determined by the nudgers. What if there is a range of right decisions to choose from, depending on individual preferences? And since ultimately people's rational preferences are plastic, and change over time, this does not strike me as being a particularly libertarian approach at all.

In fact, this concept of "nudging" is used all the time in marketing - making the decision to buy one product easier by placing it next to a crappy one. Is this how we want our politicians shaping policy? I'm not convinced. Read the rest of the article as it raises some other excellent points.

-Robert Mugabe declares, "Let them eat cake!"

-Ukraine has all but abandoned compliance with the conditions of its $16.5bn IMF standby facility. According to the FT, Ukraine has sent letters to a number of countries (US, Russia, China, EU, Japan) requesting emergency loans to plug a revenue shortfall. Kiev's unwillingness to balance the 2009 budget and cut deficit spending alarmed an IMF delegation last week, who warned of "serious problems" in Ukraine's economy. It is unclear how this visit will affect further disbursements of IMF funds.

-In a VoxEu article, Jeffry Frieden looks at the difficult balancing act policymakers must navigate in building domestic support for international cooperation in response to the worsening economic crisis.

-Ahead of the Treasury Secretary's official announcement tomorrow, the NYT is reporting that Timothy Geithner prevailed over top administration aids calling for stricter conditions in the second banking bailout. Geithner was reportedly concerned that too much government intervention would discourage private investors from participating and increase the cost to taxpayers in the long run.

-Jonah Lehrer at the great science blog The Frontal Cortex asks: why can't Federer beat Nadal? Conventional wisdom is that tennis is a young man's game and 28 is the apex of every great career. As Federer hits that wall (he turns 28 in August), his decline is all but inevitable. But Lehrer points to the post-30 performance of great athletes in sports like basketball or track and field as proof that the body doesn't necessarily decay in our late 20's. So what's unique about tennis? Lehrer echoes my own observation following Federer's post-Aussie tear fest: its mental.

So what happens to tennis stars? Why can Federer no longer defeat Nadal? I'm guessing performance anxiety. I think tennis, perhaps more than any other sport, is a game of self-confidence. Unforced errors are inevitable - the margin for error when hitting a ball that fast with a metal racket is simply too small. The question is how you deal with these mistakes. Players with swagger - say, the Federer of 2006-2007 or the Nadal of now - brush off their errors and come back with an ace. With age, however, comes the nagging tremors of self-doubt. When I watch the Federer of 2009 I see a player who no longer knows he's the best - his face occasionally betrays anxiety and insecurity. The end result is a dangerous form of self-consciousness, as Federer starts thinking too much about his serve, or that backhand whip shot, or his forehand down the line. Why aren't his shots going in? Why is his serve 5 mph slower? Why can't he beat this annoying young Spaniard in the capri pants?

The problem with such reflections is that tennis needs to be played on auto-pilot. Once you start thinking about your shots - and I think Federer is especially self-conscious when playing against Nadal - you lose the necessary fluidity and grace. These deliberate thoughts - the by-product of age-related insecurity - interfere with the trained movements of our muscles, so that we start regressing on the court. When players worry about not hitting a shot in, they're bound to hit it out. Federer doesn't need a new trainer: he needs a shrink.

Its not easy being Davos Man. Last year's master of the universe is this year's public enemy #1. Breaking the financial architecture, plunging the world into depression, mega-bonuses and ornate office furniture amid rising unemployment and home foreclosures; that's a lot to live down. Its no wonder the mood was so dismal on Mount Olympus last week.

A comment over at Free Exchange about how the market psychology that led to inflated asset prices during the boom might also apply to the downturn. In other words, we can overshoot on the way down as well. This points to the inherent difficulty in seeing beyond the immediate trend to predict future events.

The article includes optimistic prognostications about the length of the downturn from James Surowiecki and economist heavyweight Kenneth Rogoff. Nice to see that my prediction of a couple months back is still in good company. Here's Rogoff: