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How to keep your dignity at bonus time

by Daniel on February 27, 2015

I have an article in today’s Weekend FT! The theme is on how to handle bonus season with a modicum of grace, and preferably while maximising the amount of money that one extracts from Global Finance Capital’s wallet and into your own. To be honest, you lot are probably going to hate it; at least I can promise that it’s protected by the FT paywall, so anyone who is offended or outraged by it can’t say that they didn’t read it on purpose.

The landslide winner’s curse?

by Daniel on February 11, 2015

In the light of current events in Greece, I have a lazyweb request for the political science bods among our readers. Is there a word for the following stylised set of facts:

a) A country has a proportional and multi-party electoral system, which often delivers coalition governments.

b) Because it anticipates a coalition, a party puts together an electoral platform designed as a basis for negotiation.

c) This package, as one would expect, includes genuine “red line” priorities. It also includes some less essential policies which might be expected to be negotiated away. It might even include some policies which are borderline undesirable – ideas which have been included intentionally to be bargained away.

d) Against its expectations, the party wins an absolute majority which is taken as a mandate for its entire platform

e) And thus it is saddled with a political imperative to implement a manifesto which is considerably more radical than it had ever really anticipated putting into practice.

If there is, I’m obviously most interested in the special case of

f) Where key parts of the platform involve negotiations with foreign parties, leaving the party subject to “landslide winner’s curse” having to take a negotiating position in international issues which it had been expecting to have diluted in domestic coalition-formation.

I’m not saying this is definitely something that’s happened in the case of Syriza. But if it’s been studied and is in the literature, it feels to me like that part of the literature is worth digging up right now.

Greece – surplus, stimulus & strategy

by Daniel on February 3, 2015

I have a post up at, outlining some further thoughts about how Greece might go about negotiating. This post was rendered sightly obsolete by the FT headline this morning, but since the plan described corresponds pretty closely to “Program 1” in my article (spoiler: Program 1 is the bad one), I think it’s still relevant. Because Medium restricts comments to 200 characters and requires login, I tend to only get reasonable, concise comments there from people who have thought about the issues. So I thought I’d throw it open here to get plenty of the other kind …

Only kidding. Comments are open on this thread, but I only really want to hear from Greek people. By “Greek people”, I mean a) ethnic Greeks and b) people living in Greece. I have no means of establishing this, other than that regular Mr Angry type commenters whose names are known to me but who have never mentioned any Greek ancestry in the past are not going to get the benefit of the doubt. Everyone else – short questions relating to technical points or asking for clarification will be replied to, but otherwise please don’t. I might make a partial exception for really substantive points made by Spanish, Portuguese or Irish people if there’s a link between the Greek program and the outlook for their own country.

Greek games and scenarios

by Daniel on January 25, 2015

Early news reports seem to be pretty clear that Syriza has won the Greek elections, so I thought CT readers might be interested in the following note, which I sent to my professionals’ mailing list a few weeks ago. Since I wrote it, there has been a lot of rather contradictory comment on what the party’s negotiation strategy might actually be, but nevertheless, it certainly seems that the “ultimatum” approach to debt reduction is very much on the table, and in any case, a dogmatic refusal to continue with past agreements on structural measures would end up having the same effect.

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Happy new year, all. This episode of my ongoing travelogue finds me and the family slowing the pace down significantly and spending six weeks in Bali. Due to an excess of comfort and indulgence, it’s being posted roughly a month late – I am now in New Zealand. Thanks as always for everyone’s kind comments on this series.

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The World Is Squared: Episode 4 – In Hot Places

by Daniel on November 18, 2014

And the travelogue continues – this chapter covers my family’s visits to Jordan and to Sri Lanka. The next episode will take us to a seaside cottage in Bali …

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I’m just in the middle of writing an article on the technicalities of the foreign exchange market, and what went wrong, and this example came up. I think the fair solution is pretty intuitive, but maybe others will differ. Presume below that this is a one-time interaction, so nothing to do with reputations, repeat business etc.

“You are on your way to the fruit market, because you want to buy five oranges. Someone you’ve never met before accosts you on your way and says “Hey, you! Could you buy me five oranges please? I’ll give you the money when you come back and I’ll pay you ten pence for doing it”. You think what the hell, and say yes. You ask what’s the maximum he’s prepared to pay for them and he says “Don’t care – whatever the market price is”.

Down at the market, there is one stall which has five oranges for sale at 50p each, and another stall with five oranges for sale but charging 55p each. You buy five oranges from each stall and head back home.

Your customer is waiting back at your gate. He gives you your ten pence, and asks “How much did my oranges cost?” What do you tell him?

You have three choices really (I’d be interested to know if anyone could justify any other price).

a) Tell him “50p each” – ie, you filled his order first and then your own
b) Tell him “55p each” – ie, you bought yours first, and then his
c) Tell him “52 and a half pence” – ie, you give him the weighted average of what you managed to pick up

In case a) your good turn has cost you a pretty penny – you paid £2.75 for your oranges when you could have got them for £2.50, and your 10p wages doesn’t cover the difference. Even in case c) you are down on the deal – paying £2.625 for your oranges, less 10p for an “all in” cost of oranges of £2.525 which is 2.5p more expensive than if you’d never met the guy. A lot of people would say case b) is perfectly fair – this guy clearly doesn’t really care all that much about how much he pays for oranges, or he would have gone to market himself rather than grabbing a complete stranger to do so. It’s also the point at which your profit from the overall transaction (10p) equals the wage that he said he would pay you.

Why should you subsidise him? But on the other hand, isn’t there something a bit hinky about deciding that all the best-priced oranges were for you, and all the worst deals were for your client?

Of course, I think people’s intuitions about fairness might change if your customer was paying you £10 to go to market for him, or if you had explicitly promised him that you would get him the best price possible. But in the simplest case (and this does match up pretty well to the actual structure and pricing of the FX market), I think it’s not obvious at all that the most intuitive concept of fair dealing corresponds at all to the regulatory concept of “duty of best execution”. Anyway, what do you think?

Update the longer post is now up.

My travelogue continues … By the way, check out friend-o-the-blog Sam Bikinoraion‘s blog – he is also going round the world this year, and seems to be visiting a load of my favourite places, which I didn’t fancy taking the kids to. This episode takes me through Greece, and is posted a bit in arrears, as I headed off to the desert after the events described herein …

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Every single IT guy, every single manager …

by Daniel on September 23, 2014

I’m sure that this point has been made somewhere or other in the general debate on email spying and the NSA/Snowden revelations, but in my opinion not often enough or forcefully enough. People who want to dismiss the whole thing as “no big deal” are, in my view, totally underestimating the scale of the blind trust that’s required of them. In other words, even opponents of ubiquitous surveillance (like Kieran in this worked example) tend to assume that the institution which has access to your information is the institution which collected it. But that’s not necessarily the case at all.

The Leveson Inquiry in the UK demonstrated that the Police National Computer could be accessed by more or less any tabloid journalist with a phone and an account with a crooked detective agency (which served as the conduit to crooked insiders). The Manning and Snowden revelations, whatever else they’ve shown us about the world, have made it clear that mid-level employees can get access to huge amounts of top secret data as long as they’ve got the wit to smuggle it out on a thumb drive.

So the question is not so much “do you trust the CIA/NSA/MI6/etc?”. It’s “Do you trust every single sysadmin working for these organisations? Every single analyst? Every single middle manager?”. The CIA might not be interested at all in my dull mobile phone conversation metadata, but someone else might – the Leveson inquiry was told how the UK’s PNC was used by one copper to check out his daughter’s new boyfriend. In terms of our personal data, the kind of uses which the agencies want to be allowed to make, while worrying enough in themselves, are the tip of the iceberg. And all the policies which might prevent it from being accessed by blackmailers, tabloid journalists, nosey neighbours and basically anyone else, are themselves top secret and not subject to any sort of legal oversight.

This isn’t a conspiracy theory, as you can see; it’s based on the fact that big and complicated systems are set up to malfunction, particularly if they are able to declare themselves above any regulation at all. And the way in which this particular system is set up to malfunction is easily predictable and potentially very damaging to innocent people. I am personally not at the stage where I trust every single person who might be hired for a low level IT job in a security agency, and I’m not sure that I trust an entirely opaque set of safeguards with no accountability either.

The second stage of my travelogue finds me and the family in the French Alps, heading to the Italian lakes. Shortly after finishing this, I set off for Venice to take a ferry down the Adriatic …

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Thanks to P O’Neill in comments to my last post, for suggesting both the idea for this poor-man’s Friedman travelogue and its title. The first installment comes to you from the youth hostel in Grindelwald.

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The end of a glittering career ….

by Daniel on August 16, 2014

And so, as readers of my Twitter account might be aware, I’ve had a life event recently. As of today (I’m posting this from the WiFi at Geneva airport) and for the next year, I am doing less of the stockbroking, and more of the travelling round the world with my family.
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The biggest game in town

by Daniel on December 24, 2013

I never really got round to writing a proper Christmas sermon this year, but given that it’s been kind of topical recently, I thought I might have a go at explaining one of the phenomena of online political debate which is as persistent as it is puzzling – that is to say, why does everything end up turning into a flamewar about Israel?

Consider, reader, a person who is a bit of a nut. His very favourite thing in the world is to have arguments on the internet about the politics and government systems countries he will never visit. There are two issues in the world which he regards as massive injustices which cry out to heaven for redress – the Russian occupation of Chechnya, and the military junta in Burma/Myanmar. He also, broadly, supports the cause of the Palestinians, but this really isn’t much of an issue for him; he’s much better informed and much more concerned about Chechnya and Burma.

So why, when the NSA takes a snoop over this fellow’s online output, does he seem to spend all of his time arguing about Israel and Palestine?
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I wrote this in late September 2011, to explain to my circle of friends why I thought we were in the state we were in. It’s by way of background to my latest post on secular stagnation, so I’ve disabled comments on this one.
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“When you write down all the good things you should have done, and leave out all the bad things that you did do, that’s memoirs” – Will Rogers

“Secular stagnation” is doing the rounds as a theory of why we’re in the mess we’re in, after this Larry Summers talk, which Paul Krugman is claiming basically summarises ideas that he’d also been talking about for the last few years. I am not sure about the extent to which anyone can claim priority on this though – as Krugman says, Summers is basically giving a clear expression of a set of ideas which have been ubiquitous for a long time, to the extent that I was making jokes along that line, ten years ago. I will follow Krugman in saying that I also had been thinking about a similar explanation of things since 2009, set out in cursory form here and in greater detail here[1].

Basically, the thesis is that since about the mid-1990s, it has been the case that it has only been possible to achieve anything like full employment in America during periods when the private sector has been chronically over-consuming and increasing its debt levels. The “natural rate of interest” consistent with full employment has been consistently negative all that time, and since there are good theoretical reasons[2] to presume that the natural rate of interest has some relationship to the natural rate of economic growth, this might be saying something rather depressing about the underlying growth potential of the developed world’s economy. And so on, and so forth.

Now it’s an interesting question, although not one on which I find myself with anything to say, as to whether we are stagnating secularly[3]. But the thing I do want to address is that, in the way in which the issue is being discussed historically, there is a lot of rewriting of the recent past.

Right from the start, you can see that there has been a lot of semantic drift in the word “bubble”. From having once referred to a specific model of how prices could depart from fundamentals in a rational expectations model, to referring to any general inflation of securities valuations, Summers and Krugman appear to be using “a succession of bubbles” to refer to “any period during which personal gross debt increased based on rising asset values”. As an opponent of linguistic inflation, I’m already prejudiced against this way of thinking of the economic history of the last two decades. But in describing the growth in debt as if it was a purely exogenous phenomenon, due to nothing other than animal spirits and irrationality, there’s a really dangerous kind of mistake being made.
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