Regular Regulation

By | 2018-02-02T05:32:17+00:00 February 2nd, 2018|Global Market Update|

Why do we need regulators? Source: Government Accountability Office Regulation is inefficient. No one ever hired a compliance officer to increase productivity. And regulation creates moral hazard. During the “blue law” era, the most energetic advocates for restricting alcohol sales on Sundays were both Christian ministers and bootleggers. The bootleggers got more sales if legal sales were restricted. This is called the “Bootlegger and Baptist” phenomenon. This creates opportunities for disruptive, entrepreneurial enterprises. Uber or AirBNB are taking advantage of the highly regulated taxi [...]

Into the Light

By | 2018-01-24T05:40:06+00:00 January 24th, 2018|Global Market Update|

What’s the underground economy? Photo: Melony Candia. Source: Morguefile The informal economy is the cash economy. It’s the economy of under-the-table transactions, of digital currencies and returning favors. Sometimes it’s unsavory, sometimes not. If you read a new book that you like and loan it to a friend, that’s informal activity. No money changes hands. This is perfectly legitimate. But sometimes informal activity is sleazy: cash payments for goods or services so sellers can avoid reporting what they do – to avoid paying taxes, [...]

Looking for Risk in All the Wrong Places

By | 2017-11-15T07:11:22+00:00 November 15th, 2017|Global Market Update|

Can Artificial Intelligence really manage risk? Source: Wikipedia There’s a new application for Artificial Intelligence. It’s called regulatory technology, or “regtech.” It takes the rulebook of a supervisory agency, like the FDIC, and translates it into a computerized logic engine. The regulators evaluate the logical consistency of their rules, and the banks structure and label their data to be queried. This allows the regulator to look for broad patterns in the data that might not be immediately apparent. AI can identify deep, dynamic structures [...]

Apocalypse Now

By | 2017-11-14T06:52:40+00:00 November 14th, 2017|Global Market Update|

Are we regulating local retailers out of existence? Photo: Jonny. Source: Granola Shotgun There’s a recent story about a family in California that bought an old fire station for $250,000 with a view toward converting it into a bakery and micro-brew pub. This could be a very attractive retail business that would help revitalize a blighted part of their town. They were surprised to learn that they would have to spend almost $350,000 on sidewalks, curb-cuts, parking, storm drains, handicapped access, landscaping – and [...]

A Regulatory Pendulum

By | 2017-07-17T12:21:28+00:00 February 21st, 2017|Global Market Update|

How much regulation do we need? Photo: Arnaud Clerget. Source: Wikipedia After the financial crisis, Congress enacted new regulations on the financial system. The concern was that big banks had gotten us into an awful mess through their reckless lending, so we needed to put new rules in place to make sure they never did that again. Dodd-Frank has been in effect for over six years now, and it’s reasonable to ask if anything has changed. The logic behind most regulation is simple: our [...]

Puzzling Out Productivity

By | 2017-07-17T12:21:44+00:00 September 7th, 2016|Global Market Update|

How can we get the economy moving? Photo: Doug Tengdin When people think of productivity they usually think about getting more done during their work-time, about working harder or smarter or more focused. But when we talk about productivity in the economy, we think about how much workers can get done within the structure of their jobs. Productivity is important. Economic growth is determined by labor growth times productivity growth. That’s all there is to it. So long-term trends in productivity are critical. They [...]

Bootleggers and Bankers

By | 2017-07-17T12:22:04+00:00 April 25th, 2016|Global Market Update|

Are banks out of control? Photo: Nightscream. Source: Wikimedia Many people are still hurting as a result the Financial Crisis. And there’s a lot to be upset about. By some measures upwards of $5 trillion in wealth was destroyed. The crisis triggered the Great Recession of 2008-9, and led to government bailouts and fiscal stimulus packages around the world. At the heart of the crisis was our overly complex banking system. Fundamentally, banking is pretty simple: move money from people who have it to [...]

Good, Bad, or Indifferent

By | 2017-07-17T12:22:05+00:00 April 14th, 2016|Global Market Update|

Are you a good person? Photo: Joe Murphy. Source: Pixabay Most folks think they are. In fact, ask a group to raise their hands if they’re more ethical than average, and almost all the hands will shoot up. Part of this is personal bias—we think we’re better than average at most things. But ethics is particularly important: so much of our economy depends on trust. From Enron to Bernie Madoff to the Panama Papers, that trust has been broken again and again. But sometimes [...]

Private Markets and Public Innovation

By | 2017-07-17T12:22:09+00:00 February 10th, 2016|Global Market Update|

Is the rise of private equity stifling our productivity and competitiveness? Domenichino, “The Virgin with the Unicorn. Source: Wikipedia 20 years ago entrepreneurs all wanted to go public. The stock market was a way to make yourself and your employees rich. Start a company, develop an innovative concept, grow sales and profits by enough, and the equity markets could reward you. At least, that was the dream. But now, companies want to stay private as long as possible. They don’t want the reporting requirements [...]

Standing on Principals

By | 2017-07-17T12:22:10+00:00 January 25th, 2016|Global Market Update|

Do we have too many principals? Principal-Agent Illustration. Source: Wikipedia. 40 years ago we didn’t. That’s when several researchers described the “agency problem,” where principals own the assets, but agents make the decisions. This can lead to conflicts, like when executives decide commercial air travel is too inconvenient, so they buy a corporate jet instead. Who decides whether the jet is a productivity tool or a luxury? When executives use corporate resources for cushy perks, it’s bad for shareholders and bad for the economy. [...]