New Economist

The “Basil Fawlty Factor”

by Mark Thoma

Why are prices so high in the UK?

Tourists tell Britain: you’re a rip-off, by Jon Ungoed-Thomas, Times Online: ...[W]hy is Britain so phenomenally expensive and why on earth do Britons put up with it? So exercised have tourists and other visitors to Britain become that they have started an internet blog on the subject and the “Basil Fawlty factor” that some hold to be responsible.

Britain’s rip-off prices were confirmed last week by a Sunday Times survey that found we are indeed being overcharged for a wide range of everyday products and services.

Whether it is a meal out, a trip to the cinema or a weekend in the country, in Britain it typically costs about 30% more than in comparable countries. Our train fares are four times the global average.

But what perplexes tourists is not British prices per se but the reasons for them. ... Tyler Cowen, professor of economics at George Mason University ..., said: “England is not the wealthiest country in the world but it has some of the most outrageous prices. It’s an overcrowded country with high property prices, but it doesn’t explain why people have to pay so much.”

Cowen has prompted a lively internet debate on the subject on his economics blog, Marginal Revolution, under the heading: “Why is the UK so expensive?” ...

It is not just the goods and services bought by tourists that are sold at premium prices. From the cost of a mobile phone call to downloading a music track on iTunes or ordering a cup of coffee in a cafe, Britain regularly tops the world league table of the most expensive countries. Our transport costs are also among the highest....

Although London is well known for its spiralling prices, the problem is far from contained there. Anyone heading for the seaside is likely to find accommodation and food prices to rival the capital’s. ...

Daniel Kalt, head of economic research at UBS, said the strength of the pound and the housing boom contributed to the higher prices. He said the introduction of the euro in other EU countries had meant greater price competition there. Britain’s relatively high wage packets were another factor.

But contributors to Cowen’s website are not all convinced, not least because the boom in house prices has been a world-wide phenomenon. Britain is also well known for having benefited disproportionately from an influx of cheap eastern European labour that would normally be expected to keep prices down.

Instead they propose a more straightforward explanation. “British consumers are used to being mistreated and cheated,” says one contributor to the debate. “What surprises many American visitors is how seldom locals make a fuss about bad service or poor quality goods.”

Economists agree that the willingness of Britons to be charged higher prices may be a factor. Alena Kozakova, principal economist at the consumer magazine Which?, said: “Consumers are more demanding in the US and aren’t prepared to be overcharged. ...

However, Gary Goodman, marketing director of Pricerunner, said the ease with which British customers could now compare prices was likely to drive down high profit margins and there was already good news for customers. “If you look at the costs of CDs, DVDs and books, we are now actually nearly the cheapest in Europe,” he said.

Update: I just realized this was covered here already under "Nine reasons why London is so expensive."

The end of sisterhood?

For the first time in history, women in developed societies can take up any occupation or career they please. This has brought enormous benefits. But it has also had some less positive consequences—the death of sisterhood, a decline in female altruism and growing disincentives to bear children. So argues Professor Alison Wolf in her cover story for the April 2006 issue of Prospect magazine. Here's an extract from her article, Working girls:

Women used to enter the elite as daughters, mothers and wives. Now they do so as individuals.

This marks a rupture in human history. It is one that has brought enormous benefits to many people, and to many women in particular. But its repercussions are not all positive, either for society as a whole, or for all women. We are no more likely to return to the old patterns than we are to subsistence agriculture, so we need to understand what the new female labour market means for all our lives.

Three consequences get far less attention than they deserve. The first is the death of sisterhood: an end to the millennia during which women of all classes shared the same major life experiences to a far greater degree than did their men.

The second is the erosion of "female altruism," the service ethos which has been profoundly important to modern industrial societies - particularly in the education of their young, and the care of their old and sick.

The third is the impact of employment change on childbearing. We are familiar with the prospect of demographic decline, yet we ignore, sometimes wilfully, the extent to which educated women face disincentives to bear children.

The English: Mutually assured ditherers?

James Westcott, an Englishman in New York, prefers their bluntness to his polite and deferential countrymen. Prompted by Lynne Truss's new book Talk to the Hand: The Utter Bloody Rudeness of the World Today, he writes Against Politeness in the latest Village Voice:

The English can't ask clearly and directly for what they want, and this is precisely a function of our obsession with Truss-style politeness, which does a lot more than keep people safely at arm's length. It makes us terrified of strangers and ashamed of our desires. Petulance, passive aggression, and a fear of strangers result. Give me the smoothness of New York interactions - especially with their bravado or bluntness - over the mutually assured dithering in English corner shops any day.

I can see both sides. I prefer directness, and at times English circumlocutions and lack of assertiveness do drive me crazy. But then, so does the arrogance and parochialism of New Yorkers. (No, your city is not the greatest place in the world - get over it).

I guess what really won me over to the English ways was how calm, polite, patient and good humoured people were on July 7 after the bombings; behaviour I cannot imagine Americans ever being able to muster. (Hat tip: Political Theory Daily Review)

Is the world flat?

The Financial Times seems to think so. Last night it awarded the  inaugural FT/Goldman Sachs Business Book of the Year Award to Thomas Friedman’s The World is Flat, which it dubbed "an exuberant account of the challenges and benefits of globalisation".

Steven Dubner Steven Levitt, author of shortlisted book Freakonomics, was magnaminious in defeat:

Well, you can’t them all... It was actually a terrifically fun evening... I was quite sure we wouldn’t win—Friedman just seemed the likely choice for an award given by the F.T. and G.S.—and in fact, thirty seconds before the winner was announced, I tried to get Will Googlad to bet me $100 that Friedman would win, but out of either cowardice or kindness he declined.

The evening’s keynote speaker was Gordon Brown, who many say will be the next prime minister. He is an expansive, dramatic, clever speaker, and it was worth the trip just to hear his stalwart British voice curl itself around the word “freakonomics.”

Not everyone, though, likes Friedman's premise. Stephen Roach at Morgan Stanley yesterday argued the world is not flat:

With all due respect to Tom Friedman, there’s nothing flat about this unbalanced global economy.  The image of a “flat world” is most appropriate for the endgame of globalization.  In my view, that ideal state is decades into the future -- if that.  In the meantime, the global economy is distinguished far more by its disparities and tensions -- and how the resulting imbalances are likely to be vented in world financial markets.

Hedge funds: Time for a trim?

For hedge funds it may be Time for a trim, according to Economist columnist Buttonwood.

What is it about hedge funds? If lawyers hadn’t already taken all the worst jokes, hedge-fund folk would certainly be contenders. The high-paid managers of these lightly regulated investment pools are blamed for everything from the high price of oil to the crumbling of corporate governance. Yet they are looking anything but omnipotent these days, as rumbling scandals combine with so-so performance to turn many traditional investors off hedge funds before newer institutional fans are firmly committed to them.

One concern is allegations about Man Group and Gamco Investors, which "sit at the heart of the fund-management establishment". But whith around 8,000 hedge funds now operating it is "not unusual to find a handful of bad apples".

More worryingly and more generally, growth is slowing sharply. In Europe, hedge-fund assets increased by only 9% in the six months to June 2005 (to $279 billion), according to EuroHedge, a trade publication, after growing by about 50% in all of 2004. In America, according to a related publication, Absolute Return, the hedge funds with more than $1 billion in assets under management also grew by only 9% in the first half of this year.

Rich private clients in Europe are reportedly now redeeming more than they had invested. Meanwhile, fund managers have yet to rush in. Greenwich Associates research "shows that, despite all the talk, pension funds’ allocation to hedge funds has stayed flat". Part of the reason for the lack of investor enthusiasm is poor performance:

Hedge-fund returns, net of fees, were 4.2% in the year to August, according to CSFB/Tremont’s measure - less than brilliant compared not only with what they were in the 1990s but with total returns on European shares (though returns on the stagnant S&P 500 were even worse).

But it's not just about poor returns:

More may be at work here than undistinguished returns. After all, protection of capital in bad markets and good - not stratospheric returns - is a large part of what hedge funds are supposed to be about. They are prized for adding stability to portfolios, for being uncorrelated with mainstream markets and for minimising risk through diversification. There are increasing doubts these days as to how much most hedge funds are really doing that - about whether, in short, hedge funds are hedging.

Several relatively recent studies* reach disturbing conclusions. The first is that hedge funds overall - even those that define themselves as “market-neutral” - are more correlated with equity markets than used to be thought, and that different strategies are also more correlated with each other than they look. So much for diversification. Another conclusion is that because many hedge-fund investments are relatively illiquid, the way in which they are periodically priced tends to “smooth” returns and hence make funds appear less risky than they are. So much for fancy risk-reward measures such as Sharpe ratios. A final conclusion is that hedge funds are now big enough and intertwined enough with banks to be a new source of risk to the financial system as a whole.

As hedge funds become more like pension funds, there are moves towards more standardised trading procedures and greater transparency:

Just as mutual funds, the investment growth story of the 1980s, were eventually forced to divulge more information, hedge funds will be too. The old argument for exempting them from disclosure - that they dealt only with knowledgeable investors - holds less and less true, as more middle-income investors buy their way in through funds of funds and the like, and ordinary workers’ pension funds commit their future wellbeing to hedge funds. Nor is what most hedge-fund managers do beyond the wit of man to comprehend: equity long/short strategies are the biggest investment style these days.

Goodbye Paris, hullo America: The world's top 100 public intellectuals

Who are the world’s leading public intellectuals? Kevin Drum, Tyler Cowen, Professor Bainbridge, The Observor blog, Clive Davis, the Mises Institute and others on the blogosphere report that Prospect and Foreign Policy magazines have compiled their list of who they regard as the world's top 100 public intellectuals. Needless to say it is hugely dominated by the west and above all America. David Herman writes in the Prospect cover story that Europe has lost its mojo:

A huge number of names come from the US and Britain. Almost a third are American citizens; one in seven are British. However the real story is not about nationality: almost half these people live in the US. Wherever you look in the intellectual culture—from DNA and AI to the new novels by Rushdie and Zadie Smith, from literary theory to economics—America is where the action is.

In Britain, most of the names come from Oxbridge and London. In the US, from the northeast, from Washington DC to Harvard and MIT. Europe has become America's intellectual poor relation. Not only are there relatively few European names, the quality is dubious. Too many of the names rest on old laurels, or are quirky (Negri? Sloterdijk? Zizek?). The almost complete disappearance of Paris as a centre of global ideas is most striking of all.

This Anglocentric bias will cause some controversy in continental Europe. There are, for example, as many Canadians and Australians represented as Germans (three each). Only four French intellectuals made the cut, compared to 14 British. The lack of women is also notable.

The list includes 9 economists, but they are quite a mixed bunch: Gary Becker (US), Jagdish Bhagwati (India, US), Hernando de Soto (Peru), Kemal Dervis (Turkey), Fan Gang (China), Paul Krugman (US), Jeffrey Sachs (US), Amartya Sen (India), Lawrence Summers (US). Richard Posner is listed as a "judge, scholar, author", but could just as easily been dubbed an economist. So too could Daniel Kahneman, labelled a "psychologist" despite winning the Nobel Prize for Economics in 2002.

I wasn't surprised by Krugman's or Sachs' inclusion - the two highest-profile economists in the United States right now - but disappointed that the two most influential economists of the last half century, Paul Samuelson and Milton Friedman, were excluded. There was another stunning oversight: Alan Greenspan. He has certainly been the most powerful economist of the last two decades, with financial markets analysing every syllable he utters. Other notable missing economists include Joseph Stiglitz, Eugene Fama, Douglass North and Charles Kindleberger.

Readers are invited to vote for a maximum of five names from the top 100 here. My five choices are people who not only have a high public profile, but who have made a major original contribution to modern science and thought:

1) Amartya Sen (economist, India)

2) Peter Singer (philosopher, Australia)

3) Richard Posner (judge, scholar, author, US)

4) Daniel Dennett (philosopher, US)

5) Daniel Kahneman (psychologist, Israel and US)

My write in is Milton Friedman, though I do so with some discomfort. I disagree with many of his views, and thought monetarism quite loopy in its heyday. But his huge influence on both economics and public policy around the world is undeniable. Other notable economists missing from the list include Paul Samuelson, Joseph Stiglitz, Charles Kindleberger and Eugene Fama.

Reading other blogs, Stephen Pinker seems popular - though I agree with Socratic Gadfly that Daniel Dennett "is a far better representative than also-listed Steven Pinker, as well as having a broader range of intellectual interests". The popularity of Lawrence Lessig among bloggers is no surprise, nor that of pop-science authors Richard Dawkins or Jared Diamond.

Of course, some commentators have been more concerned about who should not have made the list than who was missed out. On voting, Tim Worstall warns:

Anyone who answers Paul Krugman, Thomas Friedman, Tim Garton Ass, Germaine Greer or Naomi Klein (!) Chomksy (!!)  should and will be shot.

And the Joy of Curmudgeonry is quite splenetic about Slavoj Zizek:

Now, if I might venture here upon an expression of my own view, I should say that professor  Zizek is a purveyor of ugly, senseless and frivolous tat – in other words, everything one expects from a celebrated intellectual fraudster – and that reading his dumbfounding works is the closest one is ever likely to get to an armchair lobotomy.

Of course any list of this nature is subjective and somewhat arbitrary. As Daniel Drezner, points out, part of the problem is that the criteria used is quite muddled. Foreign Policy magazine (emphasis added) explains the criteria thus:

What is a public intellectual? Someone who has shown distinction in their own field along with the ability to communicate ideas and influence debate outside of it.

Candidates must have been alive, and still active in public life (though many on this list are past their prime). Such criteria ruled out the likes of Aleksandr Solzhenitsyn and Milton Friedman, who would have been automatic inclusions 20 or so years ago. This list is about public influence, not intrinsic achievement.

So is it only public influence, or influence and distinction in their own field? One can't help thinking the list is more about popularity and public prominence (or notoriety) than anything else. As for Milton Friedman, he's not exactly on the hustings these days but his ideas still influence. Have none of the list compilers visited Central or Eastern Europe in the past decade?

London in chaos after series of terrorist bombings

Dozens of Londoners may have been killed, many more are injured, hundreds of thousands are stranded and public transport has been shut down across the capital after at least six explosions ripped through central London trains and buses during this morning's rush hour. The train blasts were initially blamed on a power surge, but it soon became clear that it was a co-ordinated and bloody terrorist attack on London Underground trains:

There was no official death toll but survivors of blasts at Edgware Road station and between Aldgate and Liverpool Street reported seeing piles of bodies.

And also buses. A crowded London bus in Russell Square was ripped in two, according to Sky News:

Belinda Seabrook said: "I was on the bus in front and heard an incredible bang, I turned round and half the double decker bus was in the air." Mrs Seabrook said the bus was travelling from Euston to Russell Square and had been "packed" with people turned away from Tube stops.

"It was a massive explosion and there were papers and half a bus flying through the air, I think it was the number 205," she said. "There must be a lot of people dead as all the buses were packed, they had been turning people away from the tube stops. We were about 20 metres away, that was all."

These bombings occur only a day after national jubilation at London at winning the 2012 Olympic bid, and on the opening day of G8 meeting. Prime Minister Blair said the "barbaric" London blasts were terrorist attacks, designed to coincide with the G8 summit in Gleneagles, Scotland. However they have not derailed the summit:

The PM will fly back to London soon before returning to the summit later today. He and the other leaders have agreed to carry on today's meetings without him.

Home Secretary Charles Clarke said in an official statement this morning:

There've been a number of dreadful incidents across London today. ...As far as the Police are concerned they are in operational command and dealing with the situation in accordance with very well established procedures in an extremely professional way. Health services are in support to deal with the terrible injuries that there have been and I want to express sympathy on behalf of the whole Government to the families and friends of those who have been injured.

The scale of the explosions and the disruption to transport network has obvious parallels to the al Qaida attack on Madrid, and indeed according to Sky News a previously unknown group calling itself "Secret Organisation al Qaeda in Europe" said it carried out the attacks as revenge for British "military massacres" in Iraq and Afghanistan.

Most office workers have been told to stay inside, although I have been told some buildings in Canary Wharf and elsewhere were evacuated. Foreign embassies have been evacuated. Police cars periodically whiz by my office window, sirens wailing, and there are reports that British troops are streaming into the city to secure key buildings and transport networks.

I doubt the London Underground will reopen before Friday, as the entire network will first need to be checked for bombs. If it doesn't reopen, then expect more traffic chaos this evening as commuters try to make their way home - though Zone 1 buses may be operating by then. A work colleague or friend may well be sleeping on our sofa bed tonight!

As the CNN website's London timeline shows, first reports were of an explosion and collision on a train between Liverpool Street and Aldgate East. This occurred just before 9am. I was standing on a Circle Line platform at the time, waiting for my train. We were told there had been a "power failure" at Aldgate, Liverpool Street and several other East London stations. Then we were told there had been a "derailment" (later dubbed an "incident") at Edgware Road Station. Then were told to leave the platform and make alternative travel arrangements.

By that time all the taxi company phone lines were jammed, but we were were lucky enough to hail one down the street from our flat as it dropped off a customer. As we were driven to work we passed literally thousands of people on the streets of West London either walking to work or - somewhat optimistically - waiting at bus queues. The terrorists timed the bus bombs to go off after the Tube had been suspended, when they knew London buses would be packed. Sick bastards.

My thoughts, like most Londoners, are with the casualties from these horrific crimes.

UPDATE 1: According to Sky News:

Scotland Yard has denied reports they were warned of an attack by Israel minutes before the blasts. Two people have been confirmed dead and at least 90 people injured in the explosion at Aldgate Station.

ITN quotes "a Government spokesman talking of 20 people dead."

The BBC website has a reporter's log and harrowing eyewitnesses accounts.Here's Scott Wenbourne account; he was on a train near Aldgate Station:

I saw three bodies on the track. I couldn't look, it was so horrific. I think one was moving but I'm not too sure. There were also, I think, some bodies in the carriage, some were moving but I couldn't really look. No-one was attending to them.

We walked to the platform, which took about half an hour as there were so many of us, after all it was rush hour. There were police at the platform and some of the injured were tended to.

UPDATE 2: The Home Secretary told to the House of Commons that "four explosions have been confirmed", not six as previously reported: three in the London Underground and one on a double deck bus.

Tim Worstall has a useful, updated post today, with bunch of links. Robin Grant at perfect.co.uk is live blogging, as is Europhobia, Normblog, Bloggerheads and The Guardian NewsBlog. The Guardian blog reports:

Suddenly, the terrible scale of today's attack becomes clear. Ambulance sources, reported on Sky, suggest 23 people have been killed at King's Cross, nine at Edgware road, seven at Aldgate, two at Russell Square. There are hundreds - possibly more than a thousand - injured. We're trying to verify the numbers.

David at A fistful of Euros has created a Kinja Digest of bloggers on the London bombings. A fistful of Euros also has several posts and updates itself.

Flickr has a slide show of London bomb blast images, though mostly web and TV screen shots. InstaPunk has some grim Scenes from London. And powerful images can be seen at the BBC and Sky News (click the pop-up) websites.

Meanwhile BBC News have a post discussing how blogs responded to the London blasts.

Social science and the seven deadly sins

A new ESRC report, published to launch the annual Social Science Week, uses the seven deadly sins - pride, anger, lust, avarice, gluttony, envy and sloth - as a way of looking at some pressing issues of modern life: religious conflict, rage in kids and adults, sexual behaviour, corporate greed, binge drinking, rising personal debt and political apathy.

Copies of Deadly Sins: A new look at society through an old lens (4.4Mb PDF) are available online, though its a big download. You may prefer to email or call them for a printed copy... and while you're at it, check out the dozens of events being held in the UK this week.

UPDATE: Stumbling and Mumbling has a bit of a moan about Social Science Week:

What gibberish. And what a wasted opportunity. This merely gives the impression that social science is something the experts do to us, rather than something we should all be doing. It's yet another crass manifestation of managerialist ideology.

But do read on, for he has a  serious point to make.

Charts of the month!

Economists love charts. So, too, do econobloggers. Mark Thoma of Economist's Views has collected his favourites for April 2005, collected from various weblogs, and posted them here (warning - this page may take some time to load). As one might expect, many of the more interesting charts come from the prolific Calculated Risk.

Latest Britblog Roundup

Tim Worstall has posted Britblog Roundup # 11. Amongst the choice bits, Tom Coates looks at the history of blogging, The Filter has an interesting piece on one size fits all policies, and my old mate Stumbling and Mumbling on why he’ll not vote.