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November 10, 2009

ICA Newsletter – Week 6 Term 1

Internation Current Affairs Society

Meetings every Wednesday at 2pm in S0.18
Live at 5pm on RaW 1251AM every Friday

Below are the topics we'll be discussing at our weekly meeting. Come along for lively informal discussions on these issues and more.


IRANIAN PROTESTS FLARED BY STUDENT ACTIVIST

An Iranian maths student has publicly criticised the country’s supreme leader, Ayatollah Ali Khamenei, in a twenty minute long tirade, even going so far as to call the leader an idiot. The student’s speech has helped stoke the fires of dissention in Iran, which has been prevalent since the controversial re-election of Mahmoud Ahmadinejad. Iranian state media only reported the protest after claims by opposition supporters that he had been arrested, something which is common for those who oppose the Iranian regime.

There are also claims of torture and widespread police brutality against protesters. Until recently protesters had not openly criticised the supreme leader, and so this could be a sign that his absolute rule is weakening, likely due to his controversial support for Ahmadinejad in the election. Will anything come of these protests? Or is regime change impossible in Iran?


RUSSIAN GOVERNMENT ADMITS POLICE CORRUPTION

The Russian government has admitted to the severe corruption of police forces across the country. A video has appeared online showing a Russian police officer shooting three people in a Moscow supermarket, apparently acting with impunity.

Police officers regularly accept bribes and act like criminal gangs in some areas of the country. Now a senior policeman has made a personal request to Vladimir Putin to tackle the problem, before it gets any worse. How could the problem have gotten so bad? And will anything be done to solve it?


FORT HOOD SHOOTINGS

Maj Hasan, a soldier at the US military base of Ford Hood, in Texas, has shot dead 13 people. It has been revealed that the soldier was in contact with a radical Muslim cleric, and that this was known by US military authorities. However, such accusations should not be made lightly, as many fear that Muslim Americans may be targeted if the shooter is shown to have acted based on faith, as opposed to as a lone gunman. What will this mean for US attitudes to Muslim soldiers in the army?



March 25, 2008

Nature of the firm: A historical example.

Listening to this Podcast today I heard of a fascinating historical fact, cited from the paper by Chenung (1983): ‘The Contractual Nature of the Firm’, Journal of Law and Economics.

In old China (few hundred years ago) people use to transport things via the Yangtze River, using labourers (coolies) to pull the barge up the river. These barges were large, and so needed 10-15 people. These group of men acted like independent firms.

However there was a moral hazard problem. When pulling a barge with 14 other men it’s in your best interest to shirk, and only pretend that you are pulling the barge. The other men wouldn’t notice that you are shirking, the barged is still being pulled.

To counter this problem these ‘firms’ would hire a 16th man, who would typically be paid more then the others. His job was to monitor everyone else’s work and whip them if he saw anyone shirking. Just the presence of having him there got rid of the moral hazard problem, thus he didn’t even need to whip people normally.

What we saw hence, merely as a result of free market competition, was a situation where the typically transportation firm consisted of a hierarchical structure. One where at the bottom was 15 low-paid labourers who did all the work, and at the top was a well-paid manager who didn’t actually do anything, except perhaps once in a while use his whip to discipline his subordinates.


February 11, 2008

John Gray on nationalised industries.

Reading the Adam Smith Institute’s blog came accross this quote from the philosopher John Gray:

We should junk the idea that state services should always be run as businesses; this has left public services struggling with debt and fixated on targets. It would be better to hive off some functions from the state altogether while accepting that others should be managed on non-market lines. We should be ready to give back autonomy to institutions. Devolving power has become the catchword of the hour for the opposition parties, but it involves more than giving schools and hospitals more discretion to decide their budgets. It means leaving them free to manage themselves whether or not the result is efficient.

Its that second sentance, in bold, that caught my attention. In the last couple of decades we have seem many nationalised industries turn into quasi public firms with market elements (e.g. rail industry). The result has been for firms to lack the accountability of either the marketplace or parliment.


February 10, 2008

Poverty Trap.

On our friday radio one of the issues we discussed was the poverty trap. In particular was cited one example of a man with a physical disability. He was given benefits in compensation of it. But after he did some event (I think it was a walk) to raise money for a charity the government decided he wasnt disabled anymore and so took away his benefits. This is the case of the poverty trap. Another lucid example if given today in Greg Mankiw’s blog:

the poverty trap is still very much a reality in the U.S. A woman called me out of the blue last week and told me her self-sufficiency counselor had suggested she get in touch with me. She had moved from a $25,000 a year job to a $35,000 a year job, and suddenly she couldn’t make ends meet any more. I told her I didn’t know what I could do for her, but agreed to meet with her. She showed me all her pay stubs etc. She really did come out behind by several hundred dollars a month. She lost free health insurance and instead had to pay $230 a month for her employer-provided health insurance. Her rent associated with her section 8 voucher went up by 30% of the income gain (which is the rule). She lost the ($280 a month) subsidized child care voucher she had for after-school care for her child. She lost around $1600 a year of the EITC. She paid payroll tax on the additional income. Finally, the new job was in Boston, and she lived in a suburb. So now she has $300 a month of additional gas and parking charges. She asked me if she should go back to earning $25,000.


January 11, 2008

New Hampshire and the Stock market.

The result New-Hampshire election results seems to imply quite a criticism of the efficiency of the stock market. In particular it affirms Keynes’s speculation that they were controlled by ‘animal spirits’.

What is in-trade?
The in-trade website is basically a political betting website. There are bonds that pay out, say, $100 if Clinton wins the 2008 election and $0 if she doesn’t. These bonds are then traded among market players (with there typically being a volume of thousands in each market). Therefore if the market price for this bond is $23 then this implies that the market believes that Clinton will win the 2008 election with a probability of 23%.

Total Predictive Failure:
In the new Hampshire elections McCain won for the republicans and Clinton won for the democrats. But looking at the history of in-trade market prices for the ‘McCain to win New Hampshire’ and ‘Clinton to win New Hampshire’ shows that these totally shocked the market.
A little more then a month ago the market predicted McCain to win the election with a probability little more then zero. While a week ago the market was clueless over whether Clinton or Obama would win (hence giving them both a 50% rating), and then totally misinterpret the Iowa result and thus leading them to place nearly a zero probability on her winning just days before she won.

McCain’s price history:
McCain
Clinton’s price history:
Clinton

January 06, 2008

MP political diversity.

Browsing on the Internet I found a cluster diagram on Public Whip which spatially displays MPs political locations with respect to how they vote, and this is done for the 1997, 2001, and 2005 parliments.

Below is the diagram for the 2005 parliment. A red dot represents a labour MP, blue for conservative, etc. If two MPs always voted the same way then their dots would be on the same point. Thus the greater the distance between the two MPs, the more different they are.

Parliment 2005


December 30, 2007

Homework assignment for economists.

The following is from Greg Mankiw’s blog:

China, the world’s biggest grain producer, will tax exports of wheat, corn and rice to increase domestic supply and control rising food prices. Exporters of wheat will start paying a 20 percent tax on Jan. 1, while the tax for corn and rice was set at 5 percent, the Finance Ministry said.

Draw the graph that describes the market for grain in an exporting country. Use your graph to answer the following questions.

1) How does an export tax affect domestic grain prices?
2) How does it affect the welfare of domestic consumers?
3) How does it affect the welfare of domestic producers?
4) How does it affect government revenue?
5) What happens to total welfare in China, as measured by the sum of consumer surplus, producer surplus, and tax revenue?


November 21, 2007

Northern Rock: am I missing something?

Many of the front pages of the front pages of yesterday’s newspapers had the following headline: of yesterday’s newspapers had the following headline:

‘Taxpayers could face a multimillion-pound bill for the rescue of Northern Rock, after Alistair Darling refused to give a guarantee that the £24 billion Bank of England loan will ever be fully repaid.’

But what is the big deal?

Northern Rock had a bank run. This meant they lacked the liquidity to give all their depositors their money back. However this doesn’t mean that they didn’t have the assets. The loans that Northern Rock held are still good. Thus then government lent the bank this money in order to provide them with this liquidity, and then when the loans mature the bank will have the money in order to pay their government loan back. No problem

The only circumstance in which the loan couldn’t be paid back was if there was mass defaulting on loans. This could happen if there was a severe recession in the economy or if there was a severe drop in house prices (thus causing people to have negative equity on their homes). Most economists appear to predict a slowdown in growth in coming years; hence the first scenario won’t happen. In the US average house prices has recently fallen by 8%; thus the second scenario is a possibility.

But surely if there is going to be a massive bursting of the house-price bubble this would make a more interesting headline then noting that the government’s loan won’t be paid back?

Indeed what if this ‘giveaway’? In practice all it really will mean is that a lot of government money is, instead of being spent by the government, is being given to the Northern Rock depositors (i.e. a large group of randomly chosen people) so they can spend it instead.


October 31, 2007

Project for New American Century.

Today in the ICA meeting a member told us about the Project for a New American Century. It’s a think tank (set up in 1997) that aims to significantly increase US military spending and intervention in the world so to ensure US interests are promoted. On its foundation a statement of principles was a collection of signed supporters, below are a few of its signatories:

Jeb Bush: Governor of Florida (1999-2007) and George Bush’s brother.
Donald Rumsfeld: Secretary of Defense (1975-1977, 2001-2006).
Paul Wolfewitz: Deputy Secretary of Defence (2001-2005), President of World Bank (2005-2007).
Dick Chaney: Vice President (2001-).
Dan Quayle: Vice President (1989-1993).
Zalmay Khalilzad: Ambassador; Afghanistan (2003-2005), Iraq (2005-2007), UN (2007-).
Steve Forbes: CEO Forbes Inc (publishes Forbes magazine).


October 29, 2007

Two Americas?

America
The two maps here shows which states would have voted which way in the 2004 presidential elections. The first shows if only the votes of poor voters were counted, and the second if only rich people were counted; with blue signifying democrats. What we see is one of class warfare, the poor votes democrats and the rich votes republicans. However reading the newspapers gives the impression that America is fundamentally divided, since the 1960s, between liberal Vs Conservative line, such as in: Abortion, Gay marriages, War on terror, etc. Short term policies designed to divide the working classes so that the elite can control the economic agenda.

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