Saturday, September 29, 2012

To Encourage Biking, Cities Lose the Helmets

by Elisabeth Rosenthal

New York Times

September 29, 2012

One spectacular Sunday in Paris last month, I decided to skip museums and shopping to partake of something even more captivating for an environment reporter: Vélib, arguably the most successful bike-sharing program in the world. In their short lives, Europe’s bike-sharing systems have delivered myriad benefits, notably reducing traffic and its carbon emissions. A number of American cities — including New York, where a bike-sharing program is to open next year — want to replicate that success.

So I bought a day pass online for about $2, entered my login information at one of the hundreds of docking stations that are scattered every few blocks around the city and selected one of Vélib’s nearly 20,000 stodgy gray bikes, with their basic gears, upright handlebars and practical baskets.

Then I did something extraordinary, something I’ve not done in a quarter-century of regular bike riding in the United States: I rode off without a helmet.

I rode all day at a modest clip, on both sides of the Seine, in the Latin Quarter, past the Louvre and along the Champs-Élysées, feeling exhilarated, not fearful. And I had tons of bareheaded bicycling company amid the Parisian traffic. One common denominator of successful bike programs around the world — from Paris to Barcelona to Guangzhou — is that almost no one wears a helmet, and there is no pressure to do so.

In the United States the notion that bike helmets promote health and safety by preventing head injuries is taken as pretty near God’s truth. Un-helmeted cyclists are regarded as irresponsible, like people who smoke. Cities are aggressive in helmet promotion.

But many European health experts have taken a very different view: Yes, there are studies that show that if you fall off a bicycle at a certain speed and hit your head, a helmet can reduce your risk of serious head injury. But such falls off bikes are rare — exceedingly so in mature urban cycling systems.

On the other hand, many researchers say, if you force or pressure people to wear helmets, you discourage them from riding bicycles. That means more obesity, heart disease and diabetes. And — Catch-22 — a result is fewer ordinary cyclists on the road, which makes it harder to develop a safe bicycling network. The safest biking cities are places like Amsterdam and Copenhagen, where middle-aged commuters are mainstay riders and the fraction of adults in helmets is minuscule.


Friday, September 28, 2012

Don’t Blame Trade for Climate Change

by Daniel Akst

Wall Street Journal
September 28, 2012

Could limiting trade, perhaps through emissions tariffs, combat global warming? Some people think so, since Western nations typically import items that produce significant greenhouse emissions in developing countries.

But two European climate change experts are doubtful such tariffs would do much good. In fact, in a new paper, they suggest that, absent international trade, developing nations such as China might emit even more greenhouse gases than they already do.

Looking at trade between the United States and China, it’s clear that carbon emissions embodied in imports from China far exceed those embodied in exports to that country, but mainly this is due to the size of the U.S. trade deficit. The authors figure that only about 20 percent of carbon transfers from China are attributable to China’s manufacturing emphasis on more polluting goods. And climate tariffs would have an impact only that portion of China’s exports to the U.S., the researchers report.


Read the Paper

Monday, September 24, 2012

Democracy’s Burning Ships

by Luigi Zingales

Project Syndicate
September 24, 2012

Since the late 1970’s, the academic diffusion of game theory has led macroeconomists to emphasize the importance of “commitment,” a strategy that aims to enhance long-term economic outcomes by restricting policymakers’ discretion. The idea seems counterintuitive: How can less produce more?

While not historically accurate, one of the best examples of a strategic commitment is provided by the legend of Hernán Cortés, according to which, in his quest to conquer Mexico, he decided to burn the ships that had brought his expedition from Spain. At first, this might seem like a crazy move: Why intentionally destroy the only possible way out in case of defeat? Cortes allegedly did it to motivate his troops. With no escape route, soldiers were highly motivated to win. Alexander the Great is said to have done something similar when conquering Persia.

To produce its benefit, a commitment strategy should be credible – that is, it cannot be reversed quickly. In this sense, Cortés’s strategy was perfect: in case of defeat, the Spanish would have no time to rebuild the burned ships. To work properly, a commitment strategy should also be costly in case of failure: had Cortés lost, no Spanish soldier would have escaped alive. It is precisely this cost that helped motivate his soldiers.

The problem is that we are bound to hear about only the successful historical examples of such a strategy. Had Cortés’s strategy failed, he would have gone down in history – if he was remembered at all – as an arrogant fool who thought that he could defeat a great empire.


Friday, September 14, 2012

Trade facilitation matters!

by Gary Clyde Hufbauer, Martin Vieiro and John S.Wilson


September 14, 2012

Economists celebrate trade not only because they love watching ships cross the Pacific and cargo planes land at Paris Charles-de-Gaulle but also because increased trade demonstrably raises income and improves living standards. This column argues that a powerful way to boost trade is by focusing on trade facilitation, i.e. improving both hard infrastructure like ports and railways, and soft infrastructure such as shipping logistics.

Once upon a time, most economists thought that tariffs, quotas and exchange controls were the alphas and omegas of trade policy. Hence their consensus recommendations: slash tariffs, eliminate quotas, float the exchange rate and commerce would blossom. Not quite so! It turns out that trade costs decisively separate countries that participate fully in the world economy and countries that are marginalised. Perhaps the biggest new idea is that trade transaction costs are not simply a matter of geography and fate. Targeted policies – grouped under the label of trade facilitation – can sharply cut the burden even for landlocked countries. Singapore takes first place in trade facilitation rankings, not only because of a fantastic natural port but also because of superb governance. More surprising, perhaps, is that landlocked Austria ranks 11th, entirely owing to government emphasis on quality infrastructure and efficient border management.

Even the international politics of trade facilitation are positive. The potential gains from trade facilitation are so large and 'self-balanced' that it has been one of the brighter spots of the otherwise dim Doha Round of negotiations at the WTO. Even 'narrow' investments in trade facilitation lead to enormous rates of return. Helble et al. (2009) estimate that every dollar spent in aid-for-trade recipient countries on reforming trade policy and regulation (e.g. customs clearance, technical barriers, etc.) increases the country’s trade by $697 dollars annually.

While agreement on trade facilitation tops the list of any potential 'early harvest' package, Brazil, South Africa, and India have led a push against this proposal, arguing that any deal on trade facilitation must be coupled with an agreement on agriculture reform. Most recently, support is gathering for a stand-alone trade facilitation agreement outside the auspices of the WTO.


Thursday, September 13, 2012

The Stunning Triumph of Cost-Benefit Analysis

by Cass R. Sunstein


September 13, 2012

It is not exactly news that we live in an era of polarized politics. But Republicans and Democrats have come to agree on one issue: the essential need for cost- benefit analysis in the regulatory process.

In fact, cost-benefit analysis has become part of the informal constitution of the U.S. regulatory state. This is an extraordinary development.

To understand the point, a little history is in order.

When Ronald Reagan became president in 1981, he was greatly concerned about excessive regulation. He was also aware that the federal bureaucracy was large, decentralized and sprawling. He was the boss, but he had limited tools by which to oversee federal rulemaking.

As one of his very early actions, Reagan issued an executive order with two essential components. First, he told executive agencies that to the extent permitted by law, they must not issue a regulation unless the potential benefits to society “exceed the potential costs to society.” Second, he directed the Office of Management and Budget to oversee a process to ensure compliance with the cost-benefit requirement (among others) and to promote consistency with the president’s goals. The Office of Information and Regulatory Affairs, within OMB, soon assumed that responsibility.

At the time, both the cost-benefit requirement and the OIRA process were exceptionally controversial, especially among Democrats and groups on the left. Some activists argued that the result would be to undermine important public protections, designed to safeguard health, safety and the environment.


Wednesday, September 12, 2012

Investing in Good Governance

by Lucian A. Bebchuk

New York Times

September 12, 2012

Can investors generally beat the market by concentrating their portfolios on companies that practice good corporate governance? There is evidence that good-governance features included in standard governance indexes do improve the performance of companies – but that their significance is already reflected in market prices.

In a well-known study issued a decade ago, Paul Gompers, Joy Ishii and Andrew Metrick identified a trading strategy that would have produced abnormally high returns in the 1990s. The strategy was based on an index, the G-Index, consisting of 24 governance provisions that weaken shareholder rights.

In a subsequent study, Alma Cohen, Allen Ferrell and I showed that, among the 24 provisions, only six – including staggered boards, poison pills and supermajority requirements – really mattered. As a result, we constructed an E-Index based on these six “entrenching” provisions.

Those studies showed that buying shares in the 1990s of companies that scored well on the governance indexes and shorting companies that scored poorly would have beaten the market. The correlation between governance and stock returns has attracted interest from researchers, and the G-Index and E-Index have subsequently been used in hundreds of studies by financial economists.

In a recent study that will be published by The Journal of Financial Economics, Alma Cohen, Charles Wang and I document that the correlation between governance and stock returns in the 1990s did not persist in later years. This correlation disappeared because markets learned to distinguish between good-governance and poor-governance firms (as defined by the governance indexes) and to price the difference into stock values.


Read the Paper

Saturday, September 8, 2012

Μεταχρονολογημένης επιταγής εγκώμιον

του Γιώργου Προκοπάκη

8 Σεπτεμβρίου 2012

Στην ελληνική οικονομία συνέβαινε μια παγκόσμια πρωτοτυπία (τουλάχιστον ως προς την έκτασή της). Επί χρόνια η αγορά ζούσε με ένα σημαντικό μέρος του τζίρου της σε μεταχρονολογημένες επιταγές. Η χρηματοδότηση της ρευστότητας γινόταν:

1. Από τις τράπεζες με το πιστωτικό όριο που έδινε κάθε τράπεζα στον επιχειρηματία πελάτη της – ουσιαστικά κυλιόμενα και ανακυκλούμενα δάνεια.

2. Από την ίδια την αγορά, η οποία αποδεχόμενη τις μεταχρονολογημένες επιταγές των δραστηριοποιούμενων στο πλαίσιό της, παρείχε ουσιαστικά το ισοδύναμο των κεφαλαίων κίνησης.

Η αγορά η ίδια λοιπόν παρείχε το «φθηνό χρήμα» στους επιχειρηματίες που ξεπερνούσε τις δυνατότητες των τραπεζών ή αρνιόταν να παράσχει το τραπεζικό σύστημα. Εκτιμήσεις ανεβάζουν τις δύο γραμμές χρηματοδότησης σε περίπου €30 δισ την κάθε μία, μέχρι τις αρχές της κρίσης. Δηλαδή, η αγορά, με τα επίπεδα φερεγγυότητας στα οποία είχε ισορροπήσει, είχε φτιάξει εκ των ενόντων ένα δεύτερο σύστημα βραχυχρόνιων χορηγήσεων. Ας θυμηθούμε πως κάθε τόσο έβγαινε στις εφημερίδες η είδηση ότι «οι ακάλυπτες επιταγές έφτασαν το τάδε ποσόν». Το ποσό αυτό μέχρι το 2009 ήταν της τάξεως των €100 με €150 εκατ. Τα «κόκκινα δάνεια» μέσα στην ίδια την αγορά ήταν μόλις μισό τοις εκατό! Ο μόνος λόγος που οι τράπεζες δεν ζήλευαν τις επιδόσεις της ίδιας της αγοράς, ήταν οι εγγυήσεις που έπαιρναν από τους πελάτες τους και οι οποίες κάτι άξιζαν. Το ενδιαφέρον βέβαια είναι πως, οι μεν χορηγήσεις των τραπεζών καταγράφονταν, έστω διαχεόμενες, στα βιβλία των τραπεζών. Το σύστημα χορηγήσεων με τις μεταχρονολογημένες επιταγές, υπήρχε, κινούσε (σε κάποιο βαθμό) την οικονομία, αλλά δεν καταγραφόταν πουθενά. Κι όμως ήταν καθημερινή πρακτική. Είναι χαρακτηριστικό πως η ελληνική νομοθεσία δεν αναγνωρίζει την έννοια «μεταχρονολόγηση» στις επιταγές. Αν πήγαινε όμως κάποιος να εισπράξει μια μεταχρονολογημένη επιταγή πριν την ώρα της, η ίδια η τράπεζα, παρανομούσα, τον έδιωχνε! Κυρίως, γιατί μετείχε σ’ αυτό το σύστημα παρα-χορηγήσεων «σπάζοντας» στο 80% τις επιταγές πελατών της. Ισορροπία του συστήματος!


Friday, September 7, 2012

The Crisis of Capitalist Democracy

with Judge Richard A. Posner

Elmhurst College
The Democracy Forum

September 6, 2012

Richard Allen Posner is a judge on the U.S. Court of Appeals, Seventh Circuit; a senior lecturer at the University of Chicago Law School; and the author of nearly 40 books on an astonishing array of topics, including economics, jurisprudence, aging, terrorism, literature, plagiarism and sex. The Journal of Legal Studies calls him the most cited legal scholar of the last century. He now turns what The New York Times calls his "indefatigable intellect" to the ongoing economic crisis and the efforts of the "cumbersome, clotted, competence-challenged" American system of government to respond to it. A Democracy Forum Lecture.

Thursday, September 6, 2012

Bargain bosses: American chief executives are not overpaid

September 8, 2012

The idea that American bosses are obscenely overpaid is conventional wisdom, and not just among the true believers at the Democratic convention. The New York Times complains of “fat paychecks [awarded] to chief executives who, by many measures, don’t deserve them.” Forbes, hardly the in-house journal of Occupy Wall Street, frets that CEO pay is “gravity-defying”. An issue in April gave warning that “our report on executive compensation will only fuel the outrage over corporate greed.”

This orthodoxy rests on three propositions: that CEO pay just keeps on going up; that it is not tied to performance; and that boards are not doing their job of holding fat cats’ paws to the fire. These propositions in turn rest on a bigger argument: that CEOs are using their political power to rig the system, and that an efficient market for talent would produce very different results.

Steven Kaplan of Chicago’s Booth School of Business has been poking holes in this orthodoxy for years. He has now gathered his research together in a new paper (“Executive Compensation and Corporate Governance in the US: Perceptions, Facts and Challenges”).

His argument is well-grounded and intricate. He distinguishes, for example, between “estimated” and “realised” pay. Estimated pay is the estimated value of the CEO’s pay, including stock options, when the board does the hiring. Realised pay is what the CEO actually makes when he exercises his options. There is a big difference. It is now impossible to talk sensibly about this subject without first grappling with Mr Kaplan.


Read the Paper

Ending the Financial Arms Race

by Kenneth Rogoff

Project Syndicate

September 6, 2012

People often ask if regulators and legislators have fixed the flaws in the financial system that took the world to the brink of a second Great Depression. The short answer is no.

Yes, the chances of an immediate repeat of the acute financial meltdown of 2008 are much reduced by the fact that most investors, regulators, consumers, and even politicians will remember their financial near-death experience for quite some time. As a result, it could take a while for recklessness to hit full throttle again.

But, otherwise, little has fundamentally changed. Legislation and regulation produced in the wake of the crisis have mostly served as a patch to preserve the status quo. Politicians and regulators have neither the political courage nor the intellectual conviction needed to return to a much clearer and more straightforward system.

In his recent speech to the annual, elite central-banking conference in Jackson Hole, Wyoming, the Bank of England’s Andy Haldane made a forceful plea for a return to simplicity in banking regulation. Haldane rightly complained that banking regulation has evolved from a small number of very specific guidelines to mind-numbingly complicated statistical algorithms for measuring risk and capital adequacy.