The Krupnik Medal

aje on May 29, 2016

As an educator it’s a real priviledge to have the opportunity to engage with so many ambitious and intelligent students. My colleagues that teach on PhD programmes tend to have lists of their former students (I even appear on one!) but working in a business school means that I don’t produce future academics. I do, however, look on with pride when I see the achievements of former students in their professional careers.

A Krupnik Medal (🏅) is my way of saying “well done!”

Krupnik Medal holders:

To nominate someone, or reconnect, email me!

Economic Freedom 101

aje on April 26, 2016

dprk-dmsp-dark

Lecture handouts for the Jan 2020 version are available here.

Introduction

This short course provides provides a survey of global poverty and a discussion of the causes of prosperity. Particular emphasis is placed on the institutions required for market exchange, and the importance of economic calculation. As a satellite photo of the Korean peninsula makes clear, socialist planning is literally groping in the dark. We will look at the theoretical reasons behind this claim, and the empirical validation that economic freedom matters.

Prerequisites

The course does not rely on any previous study of economics.

Teaching methods

  • Lectures (3 sessions)

Textbook

The course is designed to tie into Chapters 4 and 12 of the following (amazing) textbook:

The website for the book contains an array of other resources: https://anthonyjevans.com/books/markets-for-managers/

An additional reading list is available here: https://anthonyjevans.com/course-readings/

An edited list of highly recommended articles from The Economist is here: https://anthonyjevans.com/the-economist-an-mba-reader/

Schedule

9am Session 1

Economics matters: The link between economic institutions and global prosperity

In this lecture I will ask some broad and fundamental questions about the application of economic theory to the real world, and the role of the economist as a force for making the world a better place. I will try to convince you that we have a fairly good understanding of what causes economic growth, and how important this is for raising living standards and improving people’s quality of life. In other words, economics matters.

10:45am Break

11:00am Session 2

Groping in the dark: Why socialist calculation is impossible

12:30pm Lunch

2:00pm Session 3

Economic transition in Central and Eastern Europe: Shock therapy or gradualism?

3:30pm Finish

If you’ve taken the course, you can check your learning with this quiz:

Can also include the Bag Game and the International Trade Game

Online learning

aje on March 31, 2016

Also see: Classroom Tech and Making videos

The covid-19 pandemic has prompted a mass transition from in class tuition to virtual learning. It’s an incredible pedagogical experiment, and I’m intrigued as to how it will play out. ESCP Business School was an early mover – our Turin campus made a complete switch online on February 23rd. I’m the Teaching & Learning coordinator for our London campus, and we have been anticipating and managing as smooth a transition as possible since then. We went fully online on March 16th.

This crisis situation has prompted an immediate action, but it reflects a deeper trend away from the classroom. I feel well placed to react because I’ve made online learning a key part of my professional strategy. In 2016 I launched an online Managerial Economics course as part of ESCP’s “Executive Master in International Business” (EMIB). Following that, I added a new online course every year, such that in 2019/20 my online teaching exceeded my in class instruction. I am a digitally minded person, and have loved the opportunity to develop courses that help me to recognise more clearly the value of being physically present. For me at least, those two forms of teaching are complementary and teasing out how they interact has been satisfying.

[This intro was written March 15th 2020. The rest of the article has been modified since then.]

It’s not obvious that teachers have the right skillset to create online courses.

The key skillset for a lecturer:

  • Knowledge of the content
  • Personable delivery
  • Ability to grade exams

The key skillset for an online instructor:

  • Ability to curate content
  • Aptitude with alternative technologies
  • Choice of assessment

So instructors should think carefully before attempting to move online. It takes preparation and experience, and may be detrimental to in class instruction.

I see a few basic models for online learning:

Model 1: Your own pace (on demand)

These type of courses remove students from the dreaded (and stupid) syllabus and allow us to package a course into engaging digital content. I think there are two types of on demand courses.

1a. Lecture video

The first is a simple ~30 minute lecture + quiz. The platforms that I use and recommend are Coursera and Udemy. I am also impressed by edX. I’ve built a course on Teachable, but it’s quite expensive. The good thing about this model is that it is simple to create and the time commitment can be easily calculated. The bad thing is that there can be a temptation to simply record existing lecture content, and this can be boring.

1b. Short content (bitesize)

The other on demand model is a mixture of different media, with much shorter videos. I used to think that the model for this was a simple process:

  • Read this
  • Watch this
  • Listen to this
  • Do this

However in my experience this sends the students off into too many directions. An advantage of an online course should be that they can consume the material in the same “sitting”. Either have extensive video content (e.g. the first option, above); use of articles (which are typically consumed on a tablet, or as hard copies); or everything audio based (so they can do things on the move via a podcasting app). Although I think it’s important to provide a range of content I believe that the course itself should be delivered through a single user interface.

For ESCP enrolled courses I use our existing learning management system, which is Blackboard, because it integrates with grading and students already have password protected access. Some courses I run are via Canvas, which is substantially better. I still find it surprising that it’s non-enrolled programmes that provide an effective user experience, and elite business schools that use glorified file management systems.

The way to incorporate short, mixed content through a traditional LMS is scorm packages. I have tried multiple versions (including iSpring and isEazy) but do not find them effective. They are hard to create and edit and don’t lend themselves to a clear user journey. I have recently experimented with LearnDash (which is a WordPress plug in) and I find it an effective way to present short digital content in a structured and visually appealing way.

For economics instruction, I like the Foundation for Economic Education, but by far the best options are run by Marginal Revolution University. In particular these courses:

You could also do a lot worse than simply watching Jacob Clifford’s YouTube channel.

For some non economics courses, consider:

Finally, my own course on Analytics (including Numeracy Skills Bootcamp; An Introduction to Game Theory; and Collecting and Presenting Data) follows a student led model. As does my Blended GMP courses on Microeconomics and Macroeconomics. A key thing to ensure is a structure, such that students pass through the modules on an appropriate timescale and remain motivated.

Model 2: Virtual classroom

When built well, student led classes can be very effective. But they can be a challenge to ensure consistent student engagement. It’s no surprise therefore that for many traditional courses that are having to transfer online, the prevailing course structure is important. The need to retain a timetable, and get students to interact, more closely replicates their previous experience. Don’t forget, one reason people pay for gym membership is the discipline of going to the gym. If students wanted a DIY alternative they’d already have chosen that, and they would have saved a large amount of money in doing so. So how do you keep the class together?

The main difficulty of live teaching virtually is:

  • Ease of distractions for students, and lack of physical cues around engagement
  • Lack of a decent sized whiteboard and physical representation of idea formation
  • Weird management of energy levels

The upsides of live teaching virtually are:

  • No commuting (making it possible/easier for people in different time zones)
  • Use of breakout rooms is quicker and easier than physical spaces
  • Easy integration of online polling or collaborative whiteboards (e.g. Mural)

Model 3: Remote classroom

Remote classrooms use the technology of the internet to distribute content but don’t fundamentally differ from a distance degree. The key value provided by the university is therefore the grading of assignments and student feedback. They are paying not for the content per se, but to have a professional instructor grade it for them. Automated quizzes don’t cut it in this context. Examples:

Model 4: The watcher

This is when a physical course is delivered as normal but participants receive remote access. This has a bigger emphasis on hardware needs (e.g. high quality cameras and mics throughout the audience) and editing. But it’s an easy way to grant access to those unable to attend physically. Some examples:

Of course some courses can combine the above within a single course. I think for all serious online courses (i.e. ones where students pay big money to a reputable institution), the key factors for success:

  • Strict schedule
  • Tough assessments

I see a major advantage for online courses being the opportunity to crowdsource and aggregate grading into quick, responsive, 360 feedback. I like to ensure that students are viewing, and critically engaging in each others submissions.

Here are some key resources that I have utilised:

Here’s a list of companies that I’m keeping an eye on:

I have taken, and recommend, the following online courses:

Also, I really like the look of these:

It’s never been easier to learn online, and it’s never been easier to teach online. Experiment and have fun!

Note: this article has been routinely updated since it was first published

Dynamic AD-AS model

aje on March 23, 2016

I am a big fan of the Cowen/Tabarrok Dynamic AD-AS model. This page contains resources for my students who want more information.

Here is a video:

 

Here is a presentation:

You can download the slides here.

I published a short blog post called “The policymakers view of the great recession – a dynamic AD-AS analysis.”, and an academic article called “A Dynamic AD-AS Analysis of the UK Economy, 2002-2010“.

There are three components to the dynamic AD-AS model.

The first is the Solow curve, which shows the growth rate that would exist (i) if prices were perfectly flexible; (ii) given the existing real factors of production. It can be derived from the Solow growth model and since this treats capacity as being independent of inflation, it is depicted as a vertical line. Improvements in research & development; better infrastructure; increased competitiveness; higher quality education and training; labour market flexibility; or natural events such as more conducive weather would all constitute a positive productivity (or “real” or “supply side”) shock, increase the Solow growth rate, and shift the Solow curve outwards.

The second component is the Aggregate Demand (AD) curve. This can be defined as combinations of inflation and real growth for a specified rate of total spending, and is far more intuitive than the traditional AD curve. This is because instead of being based on other curves (necessitating an explanation of the Pigou effect, for example) it is instead based on a dynamic version of the equation of exchange:

M+V=P+Y

M denotes the growth rate of the money supply, V denotes velocity growth, P denotes inflation and Y denotes real GDP growth. Since the AD curve simply shows how any given amount of (M+V) can be split between P and Y, it will only shift if there is a change in M (i.e. the money supply) or V (confidence).* In terms of what constitutes a velocity shock, we can switch from looking at the left hand side of the equation (our posited increase in total spending) to the right hand side of the equation (how it is being spent). After all an increase in spending must be spent on something. The composition of total spending is household spending, business spending, and government spending (we’re assuming a closed economy).

AD=C+I+G

Potential sources of increased spending are thus fiscal policy (either changes to government spending or changes to taxes) or wealth effects (where “wealth” means the value we place on the assets we own). An important caveat is that generally speaking changes in the growth rate of V tend to be temporary and thus only changes in M can generate sustained inflation.**

If prices were perfectly flexible, the Solow curve and AD curve would suffice. For example, if the Solow growth rate were 3% and the central bank increased M from 5% to 10% this would lead to an equivalent increase in inflation (from 2% to 7%).

However if prices aren’t perfectly flexible, the dynamic AD-AS model shows how the economy can deviate from potential GDP growth. This requires the third component, the Short Run Aggregate Supply curve (SRAS). The SRAS shows the relationship between P and Y for a given expected inflation rate. As with the traditional AD-AS model, the labour market plays a key role in economic adjustments, and so “sticky” wages (i.e. those that don’t adjust quickly to new conditions) are problematic. For example, if revenues are rising at a faster rate than wages (which constitute a large share of the firms costs), firms will appear to be profitable and will expand their output. Similarly, if prices fall quicker than wages, production will appear to be unprofitable, and they will reduce output. It is due to inflation expectations that we might expect wages to lag behind prices – if inflation is higher than expected output will rise. If inflation is lower than expected output will fall. This explains the upward sloping shape of the SRAS curve.

Underpinning the SRAS is the concept of the signal extraction problem, which implies that in the short run (i.e. whilst prices are adjusting) there may be a positive relationship between inflation and real growth. (This is the conventional argument that money is only neutral once prices have adjusted. One of the nice things about moving away from a “short run” vs. “long run” distinction is that it’s less likely that students fall into the trap of treating these concepts as passages of time. To say that prices are “sticky” is not really to say that it takes time for them to adjust, but that there are costs involved in doing so).

The reason the SRAS curve is flatter below Y* is because wages are especially sticky in a downwards direction. Basic money illusion means that workers tend to be hostile to nominal wage cuts. And the SRAS curve is steeper above Y* because there’s a limit to how fast the economy can grow – it can’t indefinitely exceed the Solow growth rate.*** Given that the SRAS holds for a given rate of inflation expectations, the only thing that can cause it to shift is a change in those inflation expectations. This may appear to underplay the importance of the SRAS curve, but in fact it clarifies the difference between SRAS and the Solow curve. It is tempting to think of the difference in terms of calendar time, for example that a period of bad weather, causing a poor harvest, will primarily affect the SRAS. This is because it is a temporary event that hasn’t altered the underlying production capacity, and if there is nothing to say that bad weather will cause a reduction in supply in the long run, it shouldn’t affect the long run supply curve. However the dynamic AD-AS model makes it a lot clearer to understand why the above reasoning is incorrect. An adverse weather event – even a temporary one – is a real shock, and will therefore impact the Solow curve and not the SRAS. The SRAS shows how the price mechanism facilitates but also can disrupt the adjustments in response to either real (Y*) or nominal (AD) shocks. It can be somewhat complicated (and sometimes arbitrary) to distinguish between SRAS and LRAS shocks in the traditional model. The dynamic model treats all real shocks as Solow shocks and is therefore much easier to use.

* It is tempting to treat M as monetary policy and V as fiscal policy but this wouldn’t be correct. Most central banks use interest rates (specifically a short term risk free rate) as their main policy tool. If the “velocity of circulation” refers to the speed at which money turns over, then this is a function of people’s demand to hold money (relative to their demand to hold goods and services). In other words V is the inverse of the demand for money. If the demand for money is high, people hold onto cash, and velocity is therefore low. Hence central banks can either affect the money supply, or try to influence the demand for money by manipulating the price (i.e. interest rates). This actually helps aid a discussion about quantitative easing. Given that interest rates are very low many central banks have reinstated the quantity of money (through the process of quantitative easing) as a policy tool that can be used in addition to interest rates.

** An increase in C in the dynamic model implies an increase in the growth rate of C, relative to I and G. Indeed this demonstrates a weakness in fiscal stimuli because it is impossible for a permanent increase in the growth rate of G. At some point it is likely that an increase in G that leads to a positive AD shock will at some point reverse itself. Indeed this also implies that when a central bank reduces interest rates this will also be self-reversing. As Cowen and Tabarrok point out (p.257) this reinforces the notion that changes in the growth rate of C, I or G do not change the rate of inflation in the long run. Given that shifts in V will tend to be temporary it is.

*** The above could also be considered a “Lucas” curve, since it follows his islands parable and emphasises the labour market. We might also think of it as a “Hayek” curve if we focus more on the capital market. Entrepreneurs confuse a temporary reduction in real interest rates (due to an increase in the money supply) with a permanent one (or at least one consistent with an increase in real savings) and invest in capital-intensive production plans. The Austrian claim is that this will be self-reversing and bring on a recession. We can incorporate this into the analysis here by stressing that particular increases in AD (i.e. when money supply exceeds the demand to hold it) will – as Cowen and Tabarrok argue happens ordinarily – cause a reverse shift in AD later on, but also end up causing a reduction in Y* through a negative shift in the Solow curve. Monetarists would say an increase in AD ultimately leads to an increase in P. Austrians would say that it increases P and reduces Y*.

Monetary Theory and Policy Workshop

aje on December 14, 2015

512Xl8FIwxL._SX258_BO1,204,203,200_

The purpose of this workshop is to understand basic models in contemporary Monetary Theory and Policy.

(Deep) background readings:

  • Patinkin, D. (1956) Money Interest and Prices Row, Peterson & Co
  • Friedman, M., and Schwartz, A., (1963) A Monetary History of the United States 1867-1960, Princeton
  • Woodford, M., (2003) Interest and Prices, Princeton

Textbook:

Problem sets:

Screen Shot 2015-12-30 at 09.36.17Readings on methods:

  • Origins of VAR – Friedman & Meiselman (1963); Lucas (1976); Sims (1980)
  • VAR – McCandles & Weber (1995); Bjornland (2000)
  • Narrative measures – Romer & Romer (1990)
  • Case studies – Sargant (1986)
  • Origins of DSGE – Kydland & Prescott (1982)
  • DSGE and Central Banks – Smets & Wouters (2002, 2007)
  • DSGE – Sbordone et al. (2010); Dotsey (2013); Romer (2011, Chapter 7)
  • After DSGE – Solow (2008); Blanchard (2016)

Two lectures on methods:

Other readings:

Courses:

Training programs:

Conferences:

Software links:

 

Dynare
Julia
Latex
Matlab
R
Stata

 

Personal finance MOT

aje on November 23, 2015

john_vernon_lord_ant_grasshopper

In a field one summer’s day a Grasshopper was hopping about, chirping and singing to its heart’s content. An Ant passed by, bearing along with great toil an ear of corn he was taking to the nest.
“Why not come and chat with me,” said the Grasshopper, “instead of toiling and moiling in that way?”
“I am helping to lay up food for the winter,” said the Ant, “and recommend you to do the same.”
“Why bother about winter?” said the Grasshopper; we have got plenty of food at present.” But the Ant went on its way and continued its toil.

When the winter came the Grasshopper had no food and found itself dying of hunger, while it saw the ants distributing every day corn and grain from the stores they had collected in the summer. Then the Grasshopper knew: It is best to prepare for the days of necessity.

Source. (See Martin Wolf’s re-telling of the Ant and the Grasshopper as a modern fable here).

I endorse Chris Dillow’s four general principles of investing:

  1. Live within your means. The safest way to get rich is to save. How you invest your savings – cash, shares, gold, whatever – is a secondary consideration, unless you are really silly.
  2. Minimize taxes and charges. Most people can save tax-efficiently through ISAs and pensions, and should do so. Also, don’t be tempted by high-charging funds – they are usually not worth it. And if you hold shares directly, don’t trade much.
  3. Remember that high prices, on average, mean low expected returns. Don’t jump on bandwagons.
  4. Remember G.L.S Shackle’s words: “knowledge of the future is a contradiction in terms.” Don’t pretend you can see what’s coming. And don’t pay others in the belief that they can do so. The essential fact about the financial world is risk (and/or uncertainty). The key question is: what risks are you prepared to take, and which aren’t you? This paper by John Cochrane discusses this well.

I like Harold Pollack’s attempt to put financial advice on a 4×6 index card:

Photo by Harold Pollack

Photo by Harold Pollack

I recommend this investment philosophy from Jim O’Shaughnessy.

And I enjoyed listening to Bill Ackman channel his inner Warren Buffett to explain his approach to (and his defense of) activist investing: #413 – Bill Ackman, Lex Fridman podcast, February 20th 2024.

Many people will say that they want to take more control over their current spending and future financial security, but often find it difficult to actually achieve this. I’m not a qualified financial adviser, I can’t demonstrate past success at investment decisions, and I do not encourage you to blindly follow my advice. All I can offer is a process by which you can gain a better understanding of your personal finances, and something that seems to work for me.

You probably don’t have time to follow these steps now. So find a date a few weeks or months from now and put it in your diary. Don’t shift it. Treat this seriously. Do it when you have time…

Preamble

Picture yourself at 65, and make it as vivid an image as possible – not so much what you look like, more where you are and what you are doing (for more on this approach see Chapter 9 of this book). A large reason why people are careless with their financial situation (and constantly undermine their future happiness) is because we’re conditioned to focus on immediate rewards. But we need to shift perspective and think about what actions your present self needs to take in order to make your future self happy. What resources do you need to deliver to your 65 year old self? Picture your children at 20. What do you want to be able to give them? Having to adjust your future goals to meet your financial resources is failure. Adjust your present behaviour to hit your targets.

Practice self-control and delayed gratification. If you want to watch a movie, try waiting a few days. Treat it as a reward.

In

  • Go through your last 6 payslips and use your typical (i.e. not including bonuses) net (i.e. after tax) income. Unless bonuses are a significant part of your regular income then treat them as a bonus and save them.

Out

  1. The only outgoings I measure are household bills. To do this I check all of my direct debits and fill in a summary sheet (download a PDF here). If I have a DD I put the amount in the “monthly DD” column. If I pay it annually I put it in the “annual” column and then write the month in which it is paid in the “Month” column next to it. Ideally these are spread out throughout the year. The spreadsheet will automatically calculate the “annual sum” and then there are two figures for “monthly sum”, which are the total of all the monthly DD payments and the total of the annual payments divided by 12. Finally, the “monthly total” is the sum of those two numbers, revealing how much I spend on household bills, on average, every month.
  2. My wife and I use our joint account for those bills and only those bills. I make sure that we have a standing order that exceeds this amount going in at the beginning of each month.
  3. In addition to household bills our main spending areas are: food, petrol, commuting, clothes, other. I am fortunate enough to not have to keep track of these, however if I did I would use the budget feature in Monzo to do so.

Shake it all about

  • Once a year I update an overview of my net wealth (download a PDF here).
  • If like me you’re lucky enough to own your own home, this is likely to be the biggest component, and I use a rough estimate of the market price less the outstanding mortgage. I own shares in 2 companies and list these based on the current share price. The investment ISAs include managed funds as well as an easy access Vanguard account. (If it takes a long time to find a current balance then perhaps that’s a problem. But then again, if you’re checking them more than once a year that may also be a problem. You want to “Set it, and forget it“.) We have savings pots in our Monzo accounts for things like holidays and the sum of those 5 categories is what I consider to be my net wealth. A decent proportion of net wealth is pensions and this can be hard to measure, but most providers will show a current value. Make sure you max out any matched contribution and have a figure as hugh as you can afford (>25%). Below that, I include the balance of my children’s Junior ISAs which is nice to know, but not “our” wealth.
  • I don’t include the balance of current accounts because these tend to be low and volatile. Monzo pots have been a real help to allocate specific spending commitments, such as holidays, Christmas, kids extra-curricular activities, car maintenance, house maintenance, and vets bills.

Some general comments:

  • Get a good credit card. Make sure you pay it off each month but make sure you’re getting rewards for spending. An easy way is to link it with Airmiles.
  • For advice on what type of pension, life insurance, and savings vehicle are appropriate for you consult a professional financial advisor (this is helpful). If you don’t think it’s worth paying a few hundred quid to sort out your financial future then you’re an irresponsible idiot!
  • It is really important to start saving early. “Someone who starts saving at the age of 21 and then stops at 30 will end up with a bigger pension pot than a saver who starts at 30 and puts money aside for the next 40 years until retiring at 70“. Also look at the calculators here.
  • Have a look at the interest rates you’re paying. Make sure that you pay off your most expensive loans first.
  • Act as though the Efficient Market Hypothesis is true (see the second half of this page). The best investment strategy is a low cost well diversified index fund. Vanguard are the original and remain the best (and even after the turmoil in Spring 2020, if your goals are long term you shouldn’t even be looking at it). I use the FTSE Global All Cap index, although
    • The ESG Developed World All Cap Equity Index Fund is very similar but reduces emerging market risk (I think).
    • The Lifestrategy 100 is more UK based, which reduces exchange rate risk.

Student loans

I didn’t have a student loan and know they’re controversial, but according to Martin Wolf (2023, p. 285) in an ideal world…:

  • Lower fees (£9k is too high)
  • An equity component to the contract such that higher earning students pay more than their loans
Finally

This advice for personal financial can be extended to life more generally. Here’s an example of a pre-mortem for personal decisions:

Charity

aje on November 20, 2015

I don’t enjoy being asked to make donations to charity, and not solely because I’m a tight, selfish bastard. It’s because it’s a form of bullying – you are put under social pressure to make a quick decision.

My response is to have an articulated approach to charitable donations, which serves as a defense mechanism and means I can avoid treating each request as something that requires my attention. I prefer to have a charity rule, rather than have to judge each request on its case-by-case merits. In a nutshell here it is:

charityPerhaps some points of explanation and elaboration are in order:

  • I believe that the best way to help people out of poverty is through economic liberalisation. I find the empirical and theoretical evidence compelling, and devote my career to pursuing it. This sounds glib and self-satisfying but writing a book about the power of markets is my chief contribution. Economics is my Ikigai and when my children ask me what I’ve done to make poverty history, my response is “public education”. And I sleep well at night.
  • Of course, I can do more. However I’m very concerned about inefficiencies within the charity sector. Since they exist largely outside the profit and loss framework that I deem to be the cause of the success of markets, it is to be expected that they are subject to bureaucratic inefficiencies. I suspect that the charities I’m most familiar with, are not necessarily the most important. I suspect that the causes that generate most media coverage, are not necessarily the most pressing. So I try to discount charities that have good branding, good PR, and are emotionally draining. That said, GiveWell seem to be doing a good job of evaluating the effectiveness of charities.
  • I think it’s important to have direct debits to charities that you believe in. I set a percentage of my income that I feel is appropriate and split that between a few well known charities. One is focused on democracy and basic human rights. One is focused on humanitarian assistance and medical aid. If another charity wants me to contribute to them, they’ll need to convince me either that (i) they are more deserving than a charity I currently support; or (ii) I should increase the percentage of my income I assign to charitable giving. A Tithe requires 10%, but I already donate more than that to the UK government to administer charitable giving on my behalf. So I don’t give 10%. Less than that. If the state shrank, I’d give more.
  • I never donate based on cold calling, be it at home or in the street. This is a rule and the more you encourage me to break it, the more resolute I will be. Don’t bully me!
  • I regularly make donations of clothes, toys, DVDs etc to my favourite local charity shop.
  • Whenever I bet on beliefs I suggest to donate proceeds to charity.
  • I am not as skeptical of government-to-government foreign aid as most free market economists, because I believe that even with large scale bureaucratic inefficiencies the end result could still be beneficial. If for every £1 that gets sent abroad 50p is lost to bureaucracy, 25p goes to prop up a bad regime, and only 25p goes to intended recipients; that may be better than 0. But there’s important incentive effects that should be considered.
  • As an alternative to foreign aid, I’m delighted that the practice of giving cash transfers is generating more coverage. The economic logic is simple, and it seems that it’s working. Yes, they may spend it on booze. But as Chris Blattman points out this pessimism and paternalism is pretty unfounded (do read that whole article). Other good articles on cash transfers are this one and this one.
  • There are also important incentive effects with direct charitable giving. I don’t give money to beggars or homeless people. It’s not because I believe that they’re most likely to be under cover police officers. But if there are rents, I expect rent-seeking. I also expect beggars to invest resources to acquire prime begging locations. And I don’t want to encourage self-mutilation. I assume that any dogs I see are borrowed or rented, and whilst I am tempted to give warm clothes or a cup of tea I find this to be too much hassle. That sounds awful, but I also try to place more weight on the needs of starving people in underdeveloped countries than those where I live, so I don’t feel too guilty from walking on by.
  • I try to tip generously, but mostly when abroad. In many countries the service providers you encounter – taxi drivers, waiting staff, housekeepers – will be on low incomes, and so it’s directed at deserving people. This is a nice way to administer cash transfers. But in richer countries tipping is a horrible practice and I favour an automatic 15% service charge that gets split at the discretion of senior management.
  • I have an annual budget to use for friends that ask for sponsorship. I don’t keep a close record but this generally means that if it’s someone dear to me I will sponsor. This is a nice way to ensure that I have a wider range of giving than if I chose the charity myself.
  • I don’t wear ribbons and resist social media gimmicks. The fact that the Ice Bucket Challenge involved nominations and a deadline involved an amount of peer pressure that I consider to be a form of bullying. I find such expressive gestures self-satisfying and hollow and believe that genuine charity should be understated. Having said that, I’m also aware of evidence to suggest that the more public people are about their charitable activity, the more it encourages other people. Which is why I wrote this post.
  • Don’t conflate environmental concerns and other forms of “doing good” with charity. Avoid virtue signalling, which occurs when you value the image your project more than the solving of a problem. As an example, What you think about landfill and recycling is probably totally wrong (e.g. lazy compost is worse than landfill). And understand the benefits of packaging before lamenting the costs.

If you’ve never given a cash transfer before, I recommend https://www.givedirectly.org. Here’s what I used to think of charity.

One thing I haven’t mentioned is community work, and I’ve often wondered if I’ve used shyness as a mask for selfishness. However Brooks’ ‘The Road to Character’ reassured me that we shouldn’t overstate community involvement. He says, “community service is sometimes used as a patch to cover over inarticulateness about the inner life”. He provides an example of asking a headteacher how her school teaches character, and the response was the number of hours of community service. According to Brooks, “when I asked her about something internal, she answered by talking about something external. Her assumption seemed to be that if you go off and tutor poor children, that makes you a good person yourself”. It isn’t a massive leap to consider “how can I use my beautiful self to help out those less fortunate than I”. He says (p.133),

Today, when we use the phrase “public-spirited,” we tend to mean someone who gathers petitions, marches and protests, and makes his voice heard for the public good. But in earlier eras it meant someone who curbed his own passions and moderated his opinions in order to achieve a larger consensus ands bring together diverse people.

If you struggle to find the balance between donating 80% of your income to charity and retraining as a doctor to work in a children’s hospital in Africa, versus doing nothing, I recommend ‘Stubborn Attachments‘ by Tyler Cowen. In particular, may this passage reassure you:

fullsizerenderOr, as George Eliot ended Middlemarch:

“the growing good of the world is partly dependent on unhistoric acts; and that things are not so ill with you and me as they might have been, is half owing to the number who live faithfully a hidden life, and rest in unvisited tombs”

 

Decision making framework

aje on November 18, 2015

6a00d83451620669e20133f351e64f970b

When struggling to make a decision a simple first step is to create three columns and list:

  • Reasons in favour
  • Reasons against
  • Further information required

I like the advice from Jack Reacher,

Evaluate. Long experience had taught me to evaluate and assess. When the unexpected gets dumped on you, don’t waste time. Don’t figure out how or why it happened. Don’t recriminate. Don’t figure out whose fault it is. Don’t work out how to avoid the same mistake next time. All of that you can do later. If you survive. First of all you evaluate. Analyse the situation. Identify the downside. Assess the upside. Plan accordingly. Do all that and you give yourself  a better chance of getting through to the other stuff later.

The following is a great template for requesting decision rights within an organisation:

  1. Describe the authority that is being requested
  2. Provide a background and summary of the value proposition
  3. Outline the objective with the strategic fit
  4. Prepare an economic summary with the base case, as well as other plausible scenarios that could make the project much better or worse
  5. Identify the key value drivers
  6. Describe the key risks and mitigants
  7. List alternatives considered and why they’ve been ruled out
  8. Project the timeline for future steps

See Koch, C., 2015, Good Profit, Crown Business

And all those points should be evidence-based. Not necessarily extensive, but easily digestible. As management guru Joey Barton points out, three key points are “the limit of relevant, easily digestible information”.

Rejection

aje on November 12, 2015

photo

In May 1997 I applied for the Everton managers job, and received a nice reply from Peter Johnson. Over the next few years I decided to apply to as many Premier League managers jobs as I could, and eventually built a collection of rejection letters. I rediscovered them in November 2015 and here they are:

I still live in hope.

Update: here’s my pitch for the Everton job 2016

 

Thesis supervision

aje on November 2, 2015

This page provides general advice for students writing a thesis or research report under my supervision.

The most important first step is to identify a research topic. I consider the power of economic reasoning to stem from its applicability, and take a broad and eclectic position of what would constitute suitable subject material. Therefore for a general management thesis I don’t require students to work on the same research topics that I do. A second step is to have a clear understanding of your audience. You should be able to visualise who you are writing for, and therefore what you need to achieve. A good way to develop awareness and understand a pracitioner audience is to read the following:

• Harvard Business Review 

• McKinsey Quarterly 

• Knowledge@Wharton

For a standard empirical paper you need to ask an interesting question and deploy rigorous methods to answer it. That’s it. And yet most papers fail to do this. 

For a theoretical paper there is a closer boundary to journalism, but a big difference between good journalism and bad journalism. Your objective isn’t good journalism, it’s good research. Your learning journey isn’t research. 

A successful thesis will accomplish three things:

(1) Choose an insightful research question

The main difference between a very good thesis and an excellent thesis is whether or not you articulate, and answer, a good research question. In most theses that I see, this isn’t the case. Typically students will identify an interesting topic, and then proceed to investigate it. But the purpose of a thesis isn’t merely for you to learn about something, it’s about contributing to our collective understanding. I don’t expect students to have a good research question at the beginning of their project, but be wary of reaching the end of it without having one.

(2) Provide a rigorous literature review

A literature review is more than just a discussion of your topic, it is supposed to survey the existing literature that relates to your research question. For more see here: Writing a literature review.

(3) Utilise the right methodological framework

To start off with, I highly recommend the following articles on research design:

If you use standard research methods then be aware of the social priming replication crisis, publication bias and the problem with p hacking. For more listen to:

I would expect all theses to fit into one of the following categories:

  • Conceptual – this could be theory based, a comprehensive literature review, or some other form of non-empirical paper
  • Empirical – this is more common and investigates/answers the research question utilising data. We can split an empirical paper into 4 main sub-types:
    • Quantitative – this is the typical format for an economics paper and is based on the use of statistical tests and model building to analyse measurable phenomena.
      • The quality of a model rests on the use of control variables
      • The quality of a survey rests on the randomization strategy
        • Note that the common problems with surveys are survivor bias; the fact that they capture a snapshot rather than a trend; they provide only an indirect view of behaviour; and they have the potential for dishonesty from recipients. Useful remedies include posing questions in hypothetical situations, and a recognition/discussion that you are establishing upper or lower bounds (for more on the use of surveys in hostile contexts see Frye, 2017, p. 33-35)
    • Qualitative – these are descriptive accounts that value an interpretive approach
    • Mixed methods – i.e. combinations of both quantitative and qualitative research methods
    • Hybrid methods – e.g. the comparative method (QCA). (See here for an introduction to the comparative method).

We can consider a research report to be a different type of thesis, with more emphasis on explaining a novel topic and establishing some general insights that are relevant to managers, and less emphasis on original research.

Perhaps the key ingredient to a successful thesis is to demonstrate competent project planning.

This is crucial because it determines whether the experience is enjoyable or not. The following are necessary (but not sufficient) characteristics you need to have:

  • Enthusiasm for the research question (and not just the research topic)
  • Genuine desire to have people read your work
  • Ability to self-motivate
  • Swift communication

I will either provide you with detailed feedback on a full draft, or brief feedback on specific questions, but you should not expect me to provide multiple rounds of comments throughout the process. Depending on how many students I supervise in any given year, I intend to provide a similar amount of help to each and will be unable to devote significant time to your project close to the deadline. 

When planning the writing of the thesis take a look at:

This is also useful: Baylor University research planner guide.

For advice on writing see Barry Weingast’s ‘Caltech Rules for Writing Papers‘ and Mike Munger’s “3 simple rules for good writing:

If you get to present your work, here’s a good guide for creating a poster (and here). Don’t forget to include a clear plastic wallet with printed copies, and one for business cards.

Grading

Here is the way in which I judge academic articles and conference presentations. It contains information relating to research articles; theses; the use of data; and sociology challenges: Research Assessment.

For more details on the grade ranges that I typically employ see page 7 of my guide for students, however you should adjust the passing grades such that what I deem to be a C grade for a thesis would get a mark of 12-14; a B is 14-16 and an A is 16+. These are only general guidelines and there’ll always be a gap between my judgement and your understanding of my judgment. But just because the grading is subjective does not make it arbitrary.

Finally, if you’re interested in a career in academic economics, here is advice on surviving grad school. And if you are a female student, do take a look at this “Women in Economics” video series.

Last updated: September 2023