It is clear that the heavy burden of private and public debt in a number of periphery countries— Greece, Ireland, Portugal—is so large that a debt restructuring and reduction will eventually have to occur, thus imposing—slowly or sharply—a capital loss on these periphery agents’ foreign creditors (mostly financial institutions in the core).

So, how can competitiveness be restored and growth resume in the periphery?

One way would be for the euro to sharply fall in value toward—say—parity with the U.S. dollar. But with Germany being uber-competitive, the core running current-account surpluses and the ECB always more hawkish than the Fed, there is little chance that the euro would fall sharply enough to restore the competitiveness of the PIIGS.

A second solution would be to take the German reform approach: Accelerate structural reforms to increase productivity growth and keep a lid on wage growth below productivity growth to reduce unit labor costs. But this will not work: Structural reforms show their gains only in the medium term—in the short run, they can actually reduce growth as you shed labor and capital from declining firms and sectors; also, it took 15 years for Germany to reduce unit labor costs by keeping wage growth below productivity growth; if Greece, Portugal, etc. start today, the benefit in terms of competitiveness and growth will occur only in a decade, too late to be politically acceptable.

A third option is deflation: If the PIIGS could reduce prices and wages by 5% per year for five years, you would get the necessary cumulative compound fall of 30% in nominal prices/wages to restore competitiveness. The problem with the deflation route to a real depreciation is twofold.

First, deflation is associated with persistent recession and no social or political body could accept another five years of recession to reduce prices/wages by 30%; Argentina tried the deflation route to a real depreciation, but after three years of an ever-deepening recession gave up and decided to default and exit its currency board peg.

Second, even if by some miracle deflation was feasible and successful, the real value of the already-high private and public debts would rise sharply (a balance-sheet effect), forcing even-larger defaults and debt reductions. (…)

If the euro is not going to fall sharply, if reducing unit labor cost takes too long to restore competitiveness and growth and if deflation is unfeasible or (if achieved) self-defeating, there is only one other way for the PIIGS to restore competitiveness and growth: Leave the monetary union, go back to national currencies and thus achieve a massive nominal and real depreciation. (…)

Scenarios that are inconceivable today might not be so far-fetched five years from now. (…) Debt reduction will not be sufficient to restore competitiveness and growth. So, unless the latter can be achieved in other ways, the option for PIIGS of exiting the monetary union will become dominant as the benefits of staying in will be lower than the benefits of exiting, however bumpy or disorderly that exit may end up being.

Messy marriages lead to messy divorces, but if the marriage doesn’t work, even the threat of a messy divorce cannot keep couples together that are not a long-term match.

{ Nouriel Roubini via John Mauldin | Continue reading }

In the coming decades, Europe’s influence on affairs beyond its borders will be sharply limited, and it is in other regions, not Europe, that the 21st century will be most clearly forged and defined. (…)

The current euro zone financial crisis should not obscure the historic accomplishment that was the building of an integrated Europe over the past half-century. The continent is largely whole and free and stable. Europe, the principal arena of much 20th-century geopolitical competition, will be spared such a role in the new century — and this is a good thing.

{ Washington Post | Continue reading }

photo { Walker Pickering }

You talk a lot in the book about the power of creativity and innovation, and I’m very sympathetic to that. But not everybody has creative jobs. What about those folks? Well, first of all, not everybody wants a creative job, either. I’ve met plenty of people in my life who really do want to come in at 9, be given a list of tasks they must accomplish; and they want to be able to go home when the clock strikes 5. They are not really interested in creativity. That’s fine. Or at least on the job. From your point of view, what about those who do seek to demonstrate their creativity and do not have an outlet in their workplace? As I say in the book, there are certainly plenty of people who have miserable jobs, miserable bosses. They may also have miserable home lives, as well. But when you look at the data, and if you take the United States in particular and ask, are you satisfied or pretty satisfied in your job, the numbers are pretty high. About 2/3 or more than 2/3 of the working population are satisfied or very satisfied with their jobs. Is it for me to judge whether you should be satisfied? The UPS man is trotting up to my door as we speak. He looks happy; pay is decent wages. Would I be happy? My back might ache after a couple of days on the job. The question is, in what kind of society, with what kind of political and economic system, are people given a greater choice among occupations? If you look back through history, we’ve been on this march towards more freedom; using Milton Friedman’s words, freedom to choose what sort of jobs. Back in olden times, if your father was a blacksmith, you would be a blacksmith; and your forefather was a blacksmith. Same is true of various vocations. We all know the reason families might have the surname Smith was because their entire family going back a thousand years in Europe were smiths and blacksmiths. We now no longer have those constraints, and I think that gives us greater opportunity for creativity, even if it turns out that there are discontented people, legitimately, who can’t quite figure out how to do it. I live in southern California, and they say every cab driver here has a screenplay in his trunk. He doesn’t want to be driving a cab. He wants Steven Spielberg to call him up for a meeting. Probably not going to happen. But is there another society, another form of economic matter that can make that more likely? I don’t really think so.

{ Todd Buchholz/EconTalk | Continue reading }

Synthetic drugs that use legal compounds but mimic the highs of everything from marijuana to cocaine are proliferating among do-it-yourself pharma labs across the country. Bad trips—and fatal side effects—are increasing, too.

{ BusinessWeek | Continue reading }

bonus:

The normal human ratio is around 105 boys for every 100 girls, a natural evolutionary ratio that takes into account the fact that more boys tend to die before reaching adulthood. But in China today, the ratio is 121 boys for every 100 girls; in India the ratio is 112 boys for every 100 girls. (…)

In her thorough and compelling new book, Unnatural Selection, Hvistendahl explains why these trends will have far-reaching effects. She argues that the sex imbalance could prove devastating to social stability across the developing world, sparking crime, human trafficking, and - if history is any guide - even war.

{ The National | Continue reading }

photo { Sally Mann }

After the U.S.-led invasion of Iraq in March 2003, the George W. Bush administration flooded the conquered country with so much cash to pay for reconstruction and other projects in the first year that a new unit of measurement was born.

Pentagon officials determined that one giant C-130 Hercules cargo plane could carry $2.4 billion in shrink-wrapped bricks of $100 bills. They sent an initial full planeload of cash, followed by 20 other flights to Iraq by May 2004 in a $12-billion haul that U.S. officials believe to be the biggest international cash airlift of all time.

This month, the Pentagon and the Iraqi government are finally closing the books on the program that handled all those Benjamins. But despite years of audits and investigations, U.S. Defense officials still cannot say what happened to $6.6 billion in cash.

{ LA Times | Continue reading }

Is Pole Dancing Art? Court Rules No.

Nite Moves, a Latham, New York-based adult dancing club that features pole- and couch-dancing, had been seeking to argue that erotic dances counted as “dramatic or musical arts performances,” thereby qualifying for a tax exemption. A Tribunal had rejected that claim.

This means that Nite Moves must pay up on a $125,000 tax bill dating back to 2005 — though the club is appealing the ruling. (…)

To distinguish erotic dancing from, say, ballet, the court finds that real art requires you to go to school. In other words, stripping — or at least, the stripping that goes down at Nite Moves — doesn’t count as art because anyone can do it.

{ Art Info | Continue reading }

photo { Shomei Tomatsu }

Why is it that men so often self-destruct? (…) We men just make bad decisions. We can’t help it. We’re men.

Women, on the other hand, do almost everything better. We’ve known this intuitively for a long time. If you didn’t, just ask your wife or your mother. But now there’s a raft of evidence that suggests women are better at everything — including investing.

A new study by Barclays Capital and Ledbury Research found that women were more likely to make money in the market, mostly because they didn’t take as many risks. They bought and held. Women trade this way because they aren’t as confident — or perhaps as overconfident — as men, the study found.

{ MarketWatch | Continue reading }

photo { Katy Grannan }

Why did I self-publish?

Advances are quickly going to zero. Margins are going to zero for publishers. There’s no financial benefit for going with a publisher if advances are going to zero and royalties are a few percentage points. The publishing industry does minimal editing. The time between book acceptance and release is too long (often a year or more). That’s insane and makes zero sense in a print-on-demand world when kindle versions are outselling print versions.

Most importantly, the book industry sells “books”. What they need to do is sell their “authors”. Authors now are brands, they are businesses, they are mini-empires. Publishers do nothing to help 95% of their authors build their platforms and their own brands. This would increase author loyalty and make the lack of a meaningful advance almost worth it.

{ James Altucher | Continue reading }

Can iMessages free the iPhone from the carriers once and for all?

iMessages is the one that may have the largest effect on the future of the iPhone and iPod touch. Although it is largely being referred to as a ‘BBM competitor’, iMessages is better compared to a full IM client that happens to live inside your standard Messages app.

iMessages also sets the stage for Apple to apply a, carrier-agnostic, iPad data pricing model to the iPod touch and eventually, the iPhone.

The choice to blend the iMessages functionality into Messages, rather than keep it as a standalone app seems at first to be Apple adhering to its ‘simpler is better’ tenets. Why include another whole app when you can simply toggle on an option and have it available to users right in the app they already use?

But if you step back from the issue and look at the inclusion of iMessages into the standard app people use to SMS, a picture starts to emerge that Apple is making a statement to the carriers with this feature.

{ The Next Web | Continue reading }

related { iMessage, Skype, Google Voice, and the death of the phone number | Four core takeaways from Apple’s WWDC keynote }

What goes on in stock markets appears quite different when viewed on different timescales. Look at a whole day’s trading, and market participants can usually tell you a plausible story about how the arrival of news has changed traders’ perceptions of the prospects for a company or the entire economy and pushed share prices up or down. Look at trading activity on a scale of milliseconds, however, and things seem quite different.

When two American financial economists, Joel Hasbrouck and Gideon Saar, did this a couple of years ago, they found strange periodicities and spasms. The most striking periodicity involves large peaks of activity separated by almost exactly 1000 milliseconds: they occur 10-30 milliseconds after the ‘tick’ of each second. The spasms, in contrast, seem to be governed not directly by clock time but by an event: the execution of a buy or sell order, the cancellation of an order, or the arrival of a new order. Average activity levels in the first millisecond after such an event are around 300 times higher than normal. There are lengthy periods – lengthy, that’s to say, on a scale measured in milliseconds – in which little or nothing happens, punctuated by spasms of thousands of orders for a corporation’s shares and cancellations of orders. These spasms seem to begin abruptly, last a minute or two, then end just as abruptly.

Little of this has to do directly with human action. None of us can react to an event in a millisecond: the fastest we can achieve is around 140 milliseconds, and that’s only for the simplest stimulus, a sudden sound. The periodicities and spasms found by Hasbrouck and Saar are the traces of an epochal shift.

As recently as 20 years ago, the heart of most financial markets was a trading floor on which human beings did deals with each other face to face. (…) The deals that used to be struck on trading floors now take place via ‘matching engines’, computer systems that process buy and sell orders and execute a trade if they find a buy order and a sell order that match. The matching engines of the New York Stock Exchange, for example, aren’t in the exchange’s century-old Broad Street headquarters with its Corinthian columns and sculptures, but in a giant new 400,000-square-foot plain-brick data centre in Mahwah, New Jersey, 30 miles from downtown Manhattan. Nobody minds you taking photos of the Broad Street building’s striking neoclassical façade, but try photographing the Mahwah data centre and you’ll find the police quickly taking an interest: it’s classed as part of the critical infrastructure of the United States.

{ London Review of Books | Continue reading }

Forever 21 began in 1984 as a single store called Fashion 21 in Los Angeles. After expanding locally, it spread to malls beginning in 1989, but it has only truly proliferated in the last decade. It now has 477 stores in fifteen countries, and projected revenue of more than $2.3 billion in 2010. The worldwide success of Forever 21 and the other even more prominent fast-fashion outlets, like H&M (2,200 stores in thirty-eight countries), Uniqlo (760 stores in six countries), and Zara (more than 4,900 stores in seventy-seven countries) epitomize how the protocols of new capitalism—flexibility, globalization, technology-enabled logistical micromanaging, consumer co-creation—have reshaped the retail world and with it the material culture of consumer societies. (…)

Unlike earlier generations of mass-market retailers, like the Gap’s family of brands (which includes, in ascending order of class cachet, Old Navy, Gap, and Banana Republic), companies like Zara and Forever 21 make no effort to stratify their offerings into class-signifying labels. They also don’t adopt branding strategies to affiliate with particular luxe or ironic lifestyles, à la Urban Outfitters or Abercrombie & Fitch. Instead they flatter consumers in a different way, immersing them in potential trends on a near weekly basis and trusting them to assemble styles in their own images.

{ n+1 | Continue reading }

He’s the mutual fund manager with the best record in the past quarter-century, and he correctly predicted the last two stock market crashes–first with Internet stocks in the 1990s, and then with the financial crisis of 2008. So why aren’t people listening when Bob Rodriguez says another calamity is looming?

{ Fortune | Continue reading }

photo { April Renae }

The Internet has long promised a more efficient and greener world. We save on paper and mailing by sending an email. We can telecommute instead of driving to work. We can have a meeting by teleconference instead of flying to another city.

Ironically, despite the web’s green promise, this explosion of data has turned the Internet into one of the planet’s fastest-growing sources of carbon emissions. The Internet now consumes two to three per cent of the world’s electricity.

{ The Vancouver Sun | Continue reading }

Why Groupon is Worth $25 Billion

Admittedly, Groupon is a work in progress. They continue to spend insane amounts of money to acquire customers and merchants to try to extend their dual-sided network effect with consumers and merchants. Many people see this as unsustainable, some adamant it’s all just a Ponzi scheme. 

But these naysayers who are fixated on the current “daily deal” economics as long-term unsustainable are completely missing the point. The real innovation Groupon brought to the table wasn’t in advertising deals per se, it was their ability to profit off of closing the attribution loop in online-to-offline commerce. And this is a huge land grab that others had completely missed. 

Google never had success (monetarily) with online to offline search, because you can’t go to a search box and carry that discovery process to your offline environment. Yes, you can absolutely use a search query to find a place to go, but when you get there no one knows that you found it on Google.

{ Steve Cheney | Continue reading }

{ In June 1998, the market capitalization of Microsoft + Intel was worth $339 billion, vs. $3.5 billion for Apple. | WolframAlpha via Barry Ritholtz }

The great thing about cities, the thing that is amazing about cities is as they grow, so to speak, their dimensionality increases. That is, the space of opportunity, the space of functions, the space of jobs just continually increases. And the data shows that. If you look at job categories, it continually increases. I’ll use the word “dimensionality.”  It opens up. And in fact, one of the great things about cities is that it supports crazy people. You walk down Fifth Avenue, you see crazy people. There are always crazy people. Well, that’s good. Cities are tolerant of extraordinary diversity.

This is in complete contrast to companies. The Google boys in the back garage so to speak with ideas of the search engine, were no doubt promoting all kinds of crazy ideas and maybe having even crazy people around them. Well, Google is a bit of an exception, because it still tolerates some of that. But most companies start out probably with some of that buzz. But the data indicates that at about 50 employees to a hundred that buzz starts to stop. A company that was more multi dimensional, more evolved, becomes uni dimensional. It closes down.

Indeed, if you go to General Motors or you go to American Airlines or you go to Goldman Sachs, you don’t see crazy people.

{ Geoffrey West/Edge | Continue reading }

related { The Pierre hotel has suspended a supervisor and agreed to equip all room attendants with panic buttons in the wake of two alleged sexual attacks on Manhattan hotel housekeepers in about as many weeks. }

On the day his country exploded, Santiago Bilinkis stayed at home and watched the riots on television with his wife and infant son. It was painful. In Buenos Aires, one of the world’s great cities, looters were attacking grocery stores. Bilinkis’s bank account—along with every other account in the country—had been frozen by executive decree three weeks earlier. Argentina was out of money.

This was December 20, 2001, a Thursday. (…)

The meltdown of 2008—which nearly destroyed the world’s banking system, sent the United States into its worst recession in 80 years, and put half of Western Europe on the brink of economic collapse—barely registered in Argentina. Andy Freire, Bilinkis’s co-founder at Officenet, told me that he finds it hard not to laugh when his American friends complain about their problems. “Retail sales fall 5 percent in the U.S., and people say it’s a major crisis,” Freire says. “Our sales went down 65 percent in a single month. That’s a crisis.”

{ Inc | Continue reading }

In recent years, nightlife has been increasingly recognized as an important resource for the enhancement of the post-industrial profile of the city and for the promotion of gentrification in derelict neighborhoods. It projects an image of a vibrant social and cultural life, considered particularly appealing to the young professional labour force of post-industrial sectors, the members of whom are particularly apt to consider moving to the city. However, the advocates of this ‘nightlife fix’ thesis ignore tensions that have emerged between residents in gentrifying neighborhoods and nightlife businesses due to the nuisance effects of the latter. Using the example of New York City, this paper examines how conflicts over nightlife in gentrifying neighborhoods have resulted in the gentrification of nightlife and have thus transformed the nature of the city’s nightlife itself.

{ Laam Hae, Dilemmas of the Nightlife Fix: Post-industrialisation and the Gentrification of Nightlife in New York City, 2011 | Continue reading }

video { Gil Scott-Heron died this afternoon in New York. He was 62. }

Have too many foreclosed properties? Why not give them away?

That’s what Bank of America plans to do with as many as 150 vacant and abandoned properties in and around Chicago through a new “collaboration” with the city that’s intended to address the problem of abandoned properties.

{ Bankrate | Continue reading }

The psychologist Jens Rasmussen talks about three kinds of error: slips, mistakes, and violations. So, a slip is: you just do something you immediately realize wasn’t what you meant to do–pushed the wrong button, locked yourself out of your house, forgot your car keys. Mistakes are things you do because your view of the world is wrong. So, you took out a subprime mortgage and bought a house because you thought house prices would continue to rise and you would be able to remortgage your house. Then there’s a violation–something you know is against the rules but you did it anyway, for whatever reason. So, maybe you falsified your income.

{ Tim Harford/EconTalk }

photo { Tim Geoghegan }

How do I drill for oil in my back yard?

This is a great idea. (…) Do you own the mineral rights under your property? In many countries the government automatically owns all significant mineral deposits, no matter whose land they’re under. Here in the U.S., both the surface rights to a property and the mineral rights below can be privately owned, but they’re separable — acquiring the former doesn’t necessarily mean you’re getting the latter. (…)

If the rights are yours, you can either use them yourself or lease them to an oil company.

{ The Straight Dope | Continue reading }

image { Alison Rossiter, Acme Kruxo, exact expiration date unknown, ca. 1940s, processed in 2010 }