Saturday, July 26, 2008

An Economist on the Beach

For a New Yorker working in currencies, taking a summer vacation in Europe these days is equivalent to unreserved masochism. With the euro overvalued, you know you’re about to get financially abused, yet you brim with anticipation!

But before you jump into undue conclusions, let me clarify that choice I had not. It has become an annual ritual for my scattered family to rendez-vous in the Mediterranean for our joint summer vacation. Part of the ritual involves picking a theme, and this time the task fell on Younger Sister who, after careful deliberation, settled on “Exclusively Beach.” (A retaliation, I’m sure, to my choice of “Beach and Beyond” last year which, admittedly, overstressed the “Beyond”).

Faithful to its name, Sis’ plan involves a road trip tracking Greece’s western shores, crossing over to the Ionian isles and then further west to Italy, to explore the Amalfi coastline. And, frankly, overpriced espressos aside, I really can’t complain… while you’re here, I’ll be here!

So, with two weeks of (exclusive) beach time, what are an economist’s quintessential beach accessories this summer season? Here are my top five, beyond sunscreen and swim suit (if you care for one):

The Age of Turbulence: Almost a year after its publication, Alan Greenspan’s memoir remains more topical than ever, and not just because of its title. The “Maestro’s” legacy is being re-examined in some circles in light of the recent (turbulent) events. And while the jury’s still out, one may not have to be a cynic to still see the book as an exhaustive account of the build-up to the current mess, straight from the horse’s mouth.

The big question, of course, is how to get away with reading a 500+ page book with a geeky old man on its cover without looking like a complete nerd. So here is my tip. Get the audiobook version. Download it on your iPod. Put on your headphones and lie down on your comfy, laguna-pink beach-mat feigning your most relaxed look. Hum your favorite tune now and then. And tap your foot every time Greenspan says the word “conundrum.”

Bayesian… is the new Vogue: They say that beauty is in the eye of the beholder and, actually, so is probability. At least that’s what Bayesian statisticians will tell you. The idea goes as follows:

Suppose I am at the beach, taking a break from my audiobook to check out the Italian ‘material’ roaming around. And suppose I have a ‘prior’ belief that 73 percent of Italians are avid womanizers, based on some vague theory I came up on the relation between pasta consumption and womanizing.

Now, as guys stop by for a chat, they help expand my set of “observations” and may lead me to update my prior belief. My probability number (the 73%) is thus just a subjective “degree of belief” that I may choose to update, based on my theory and in light of new information. This is the Bayesian paradigm.

And it is different from the so-called “frequentist” approach, which claims that there is a true, objective probability (that Italians are womanizers)—anything from 0 to 100%. In fact, if you were a frequentist, you would ideally want to sample as many Italians as possible so that you can get closer and closer to the truth.

Why did I ever get here? Because estimation techniques based on the Bayesian paradigm have been increasingly in vogue among economists in their attempts to gauge their economic model parameters. And my task this summer is to catch up with the latest in this field. As dreary as it sounds, the good news is that the anti-nerd disguise is far easier this time: The academic papers in question are in standard A4 format, easily inserted as a "supplement" in the Italian Vogue.

The Financial Times: Apart from its sporadic misreadings of the Fed’s intentions (who doesn’t?!), the FT remains the best in print media when it comes to global economic and financial news and analysis. Especially for those who are into british spelling and/or captivating reviews of ‘must-see’ performances shown all the way from London to… Bath (U.K.).

The best part of the FT, however, is the paper… I mean, its actual paper. And not because it’s pink. The FT’s paper actually has an interesting property that makes it perfectly cut out for the beach: When exposed to the sun, the ink fades!… A useful reminder that, the news you’re struggling to read, a couple of days later, is no longer news.

Eternal Debt: Eternal Debt (or Deuda Eterna) is Latin America’s response to Monopoly, its title playing with the region’s perennial economic problem: External debt. The game was given to me as a gift by an Argentine colleague, back in the days where I was assigned the (fun?) task of assessing whether the IMF’s lending program to Argentina, in 2002-03, was a good idea (for either).

“Who can beat the IMF?” That’s the objective. And to achieve it, one must convert oneself from a wretched farmer or miner to an industrialist, set up plants to add value to the region’s natural resources, and export the finished products to the rich North. In the process, industrialists have to surpass all sorts of obstacles, including asset confiscations, exchange rate devaluations and—the much despised—IMF “conditionalities” (lending conditions).

For all its factual inaccuracies, I find the game tremendous fun and it’s the third year in a row it’s making it into my beach bag. Only we have never actually played it... when it's come to assigning the roles, nobody ever wants to be the IMF.

A Blackberry: Courtesy of my employer I carry a Blackberry, which I expect to maintain at close proximity—right next to my iPod. I must say, Blackberry has made life much easier: Not only can I track the euro-dollar exchange rate in real time, anywhere; but my boss, too, can track me in real time, anywhere.

But a Blackberry is indispensible for another reason: Bloomberg! No, I’m not referring to the New York mayor, but to his lavish news and financial services empire, that he has made downloadable to a Blackberry. Believe me, it’s far more addictive than the device itself. And a Bloomberg addict I am, particularly when it comes to small “treats” in the form of thought-provoking morning quotes like Gertrude Stein’s “Rose is a rose is a rose is a rose” or, the more insightful “The hardest thing in the world to understand is the income tax”... by Albert Einstein.

So this is it guys… I am officially on holiday. Out of the office, two weeks, flat on the beach, can’t promise I’ll miss you. Rendez-vous mid-August!

Glossary: Bayesian, frequentist, Bloomberg, IMF conditionalities, external debt, FT, Vogue.

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