Gross domestic product contracted 0.04 per cent in the three months ending on September 30 compared with the previous quarter as weakness in the industrial sector spread to Brazil’s once vibrant consumer.

Read the FT article

From the outside and with very little knowledge of the company, I just wonder whether it makes any sense to have all those executives in cities so far apart from each other. Do they have a strategy for choosing, or did the locations just “happen” historically?

Source: FastCompany (which has a brilliant article about Lenovo)

The last blog post before this one started to balloon into an unforeseen size as it became more of a specialised article on growth than a simple post. It tries to explain the disparity between Mexican and Brazilian growth rates, and this topic allows for potentially limitless analysis. I shall finish it eventually, although instead of seeing the light of day in this blog I might submit it to some magazine or publication (by the way, this is a good moment to request any reader tips on Economics magazines or publications with lax submission standards). As the article became unmanageable, I started to collect ideas for the blog but not actually write about them. Not anymore: posts will stay short and sweet.

I thought it fitting to start the rival with a “Brand Surprises” post: do you know where the makers of Fosters, Heineken, Cerveza Sol and Newcastle Brown Ale are from?

If you respond “Australia, the Netherlands, Mexico and England”, you’d be talking about their ancestral countries of origin and, perhaps, the country of brewing. All these beers are actually made by Heineken International, which is headquartered in Amsterdam but a very global company. Their acquisition of Scottish and Newcastle gave them access not only to Newcastle Brown Ale but also the Bulmer’s and Strongbow cider brands.

So then, who owns these brands, some charged with national meaning? From January 2010 it is 20% owned by FEMSA, a Mexican firm with the world’s largest Coca Cola bottler and the former brewer of Sol. The rest is split as follows:

So forget about national origins and start thinking about taste (or price, ahem) when you choose your next beer…

I’d recommend you to read the (short and easy to ready) article, but basically he argues that economists need to include insights from behavioural economics, history and institutional analysis.  He believes economics teaching nowadays has too much maths, and that a more humble discipline can actually have a greater positive effect in the world.

In short, my response to the article is: yes, economics has too much superfluous maths.  Yes, economists are often misguided because they ignore history, institutions, and behavioural tendencies.  They do so because economic models simplify these out.  But we need these models to take decisions that affect the future.  We still don’t know if we’ll be able to incorporate more (especially behavioural) insights into those models, but we do know that without the models, we’re lost.

I believe economists aren’t blind to the existence of a whole world beyond their hordes of rational economic men, but they know economics without models is a waste of time.

Anyway.  I emailed my friend an unwieldy long list of more-or-less disjointed ideas triggered by the article, which you are free to enjoy buffet-style.

1) When I saw the link: be careful with Adbusters, I absolutely detest them.  I wrote a few articles against them already back in sixth form.  They think they know everything, and yet know very little; they argue they’re against “the system”, and yet they think they have the upper hand because they are using “the tools of the system” to fight it.  Result?  A kind of weak, “protest against everything” movement that’s mainly about appearing cool.  (For a much more extended critique of these people, or Naomi Klein etc, try reading ‘The Rebel Sell’.)  I think this article is a great example: a good article clearly flies over the heads of the people writing comments (they have no idea of what’s going on!), whoever chose the picture and caption, and whoever chose to include the article as part of an otherwise brainless “kick it over” movement.

2) “Who grows up happier?”  (picture caption)  - has nothing to do with the article.  It’s pretty stupid when you consider at least one of those children will, statistically speaking, die in pain, in a mudhut, from a horrendous disease that could be cured with medicines costing a few cents (or in an accident).

3) These are not new questions.  It is interesting, for example, to read what Keynes (who famously wrote books and books with very few equations and in very convoluted prose even as a first-class Cambs mathematician) thought about the issue: http://cje.oxfordjournals.org/content/14/1/29.extract

4) “math is too pervasive in economics” – definitely.  I would add to Ormerod’s reasons that it’s far easier to publish in a peer-reviewed journal if you use maths.  First, because using the right mathematical language makes for a clearer, more robust argument (a valid reason).  Second, because nowadays pages full of maths, even if superfluous, are seen as necessary evidence of academic seriousness (this is closely related to physics envy).  Third, because it may be easier to come up with “original thought” if all you’re doing is coming up with a subtly modified “new model” in the vein of existing knowledge.  (but if you just wrote about existing, conventional knowledge without writing a new model it wouldn’t be original thought suitable for publication.)  In today’s academic world, publication volumes the variable academics need to maximise: you just can’t live off a university’s endowment without publishing anything, claiming to wait to get inspiration for the next “General Theory”.  (It must be noted, though, that time spent writing more or less trivial papers steals away time from the reading, thinking, and teaching that can lead to bigger insights.)

5) Note Ormerod’s field is behavioural economics.  This studies how people actually respond to incentives (and so departs from Rational Economic Man).  While he doesn’t make a clear distinction, there’s a difference between that and the amount of maths in economic teaching and economic research.  Specifically, even if it may be a quixotic undertaking, we must try to integrate behavioural insights into conventional models, and this needs a maths translation.  And when that is not possible, we will have to use Rational Economic Man.

Indeed, although I oppose the way in which today no economic work can be taken seriously (in academia) without maths, I definitely believe in the usefulness of models.  No, they’re not perfect.  Yes, the model itself is sometimes wrong, and quite often its wrong application (maybe it’s even impossible to apply correctly!) can wreak havoc (see USSR example, although to be honest politics should be blamed at least to equal measure – it’s not like a team of economists directed the whole transition).

However wrong we may get them, however, there is no alternative to making “predictions” as decisions must be taken.  We don’t always have the luxury of talking about institutions and history and how things are unpredictable: perhaps yes for retrospective analysis, but when deciding about the future, we have to choose A or B.  In this case, mathematics are necessary to create the right models.

We can’t simply “choose” behavioural economics and so forget about Rational Economic Man because the models need an equation describing the behaviour of people.  If we can use behavioural economic insights, then great, but imagine trying to aggregate the patterns of thought leading to decision-taking about, say, healthcare of a whole country and you’ll start to grasp the complexity of the task.  We can’t do it right now, but still need a model that tells us whether to build a hospital or not.

6) Can Economics make people happier?  Well, it can give them more stability (in income, and even in political situation to an extent), and this generally means more happiness.  It can also sometimes allocate resources to the people that want them the most, i.e., reduce waste, and incentivise increased efficiency, i.e., help people have more things.

Whether this translates into happiness is an open question (one investigated by Richard Layard and others, although there is by no means a certain answer right now).  I am increasingly convinced that we human beings have less power over the factors determining our happiness than we like to think (sometimes I believe we’re almost powerless), even when we try to control our environment.  But I wouldn’t say I know the answer to this one!

What really surprised me was the following quote, purportedly from Tesco, in one of my sets of Oxford lecture notes:

“We have been able to predict future sales at six months to 98% accuracy”

That’s pretty good, given there’s no way I can predict my own shopping cart for tonight!

I’ve been jotting down interesting ideas, and have created this picture summarising nearly a year of posts.  (!)

It’ll be over before you know it…

I created the picture with Wordle. I promise to not mention the K-device from Amazon ever again.

In this installment of “Brand Surprises” we cover another surprising conglomerate: General Mills.  Although they focus on food, the assortment of brands merits a blog post in this (almost forgotten) category.

General Mills was founded as the Minneapolis Milling Company in 1856.  Its founder was a Congressman from Illinois.  There’s no word on whether Illinois congressmen were as corrupt back then as they are now!  His involvement is not altogether surprising: as a natural monopoly, milling has traditionally been an area where power and money mix.

Today, some General Mills brands include:

- Cheerios, Wheaties, Trix, Lucky Charms, Cocoa Puffs, and other cereals
- Fruit by the Foot
- Nature Valley – which created the granola bar
- Betty Crocker sandwiches
- Old El Paso tex-mex food
- Green Giant vegetables
- Häagen-Dazs
- Yoplait (thought it was French?  Think again!)
- Progresso soups
- Three fancy organic brands that appear independent: “Cascadian Farm”, “Muir Glen” and “Lärabar”.  (they apparently like the “ä” character.)

They also used to manufacture Play-Doh.  Until 1995, they owned the Red Lobster and Olive Garden restaurant chains in the US, which at the time operated 1,250 “stores” (restaurants).  In the 90s they also owned clothing companies (like Eddie Bauer), and even Parker Brothers, the company that manufactures the board game Monopoly (now owned by Hasbro).  They invented the process to create shapes out of cereal, the tear-strip to open packages, and the modern bag of flour (!), and the space food used by NASA.

Chris Anderson‘s Long Tail idea (I refuse to call it a “theory”) profoundly impacted the debate on the influence the Web and other kinds of technology (like print-on-demand, recommendation engines, mp3 players, e-book readers, etc) would have in tomorrow’s culture.  Adding an extra music album to the iTunes store is almost costless, whereas in a record shop it incurs in an opportunity cost because the space could be taken by something else.  He argues that as the fixed costs involved in storing and displaying varied products falls due to a shift to new technologies, people will choose to buy less bestsellers and more niche products simply because there are more to choose from.

In November 2008, evidence was published showing that, at least for the shop making its data available (EMusic), the Long Tail didn’t really apply.  Anderson retorted in his blog that the site wasn’t the right kind to look at.

The Kindle, however, gives us a new insight.  Its data is relevant because Kindle users are buying a lot of books: Amazon US sells 6 Kindle books for every 10 regular print ones.

However, if I’m interpreting the material published by Foner Books right, within the Kindle marketplace the head is larger than for Amazon’s regular print book selling.  A steeper line on the graph to the right indicates the tail commands less sales within Kindle than within print; a 45° line shows them the same.

Of course, there could be some bias to this.  Kindle users have to buy from Amazon, whereas print book buyers can choose other suppliers.  The numbers are also six months old and the Kindle is a very new product.  Also, book availability is restricted overseas (but it’s not the rarer titles that are necessarily restricted.)  But, still, I’d say this is telling.

The more I think about it, the more it becomes obvious to me that the Long Tail should have remained a magazine article idea.  It was wildly overblown.

The reason I haven’t looked more into it, apart from my other more productive (?) occupations, is that Greece’s problems span all over Economics.  In a way, a good understanding the Greek situation would, for me, be evidence that the person is a good economist inside-out.

Just look at all the stuff going on there:

• Moral hazard – if the Greeks get away with it not too badly, how will Italy act tomorrow?
• Optimum Currency Areas and the adjustment power of exchange rates – Greece is in this trouble partly because its currency can’t depreciate to improve the balance of trade.
• Government deficits – How they can wreck you, how they come to being, and perhaps how sometimes they don’t wreck you!
• Political economy – Who thought it’d be a good idea to get into so much debt and maintains such a large deficit?  How does the reek government works?  Also, slack fund theories and the difficulty of cutting public sector provision.
• Labour economics and the dynamics of unions
• Time inconsistencies – Especially any promises made in order to get an EU bailout!
• Competitiveness and specialisation (why has their competitiveness not increased even if they are part of the EU?),
• Crises (self-fulfilling?), volatility, expectations, and the role of financial markets and speculation
• Finance – The machinations of my beloved Goldman Sachs are probably worthy of many books.
• Insurance – what happens when you can insure against risks  you do not hold?