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ApprovedBusinessBusiness and finance

Can data predict fashion trends?

World of wardrobe

IN THE film “The Devil Wears Prada”, the character of Miranda Priestly, whose role is based on a feared Vogue editor, scolds her new assistant for not understanding fashion. Fashion, she tells her, is whatever a select group of designers and critics says it is. What she does not say, however, is that their judgments are themselves often influenced by another group: fashion forecasters, who predict what will be “in”. Might these seers of style in turn be undone by artificial intelligence (AI)?

Fashion forecasting has always been a peculiar profession. The business came into its own in Paris in the 1960s when agencies began releasing “trend books”, collections of fabrics and design ideas. Retailers use these books for inspiration as they put together designs.

The biggest of these forecasting firms is WGSN, with a market share of 50%. It employs 150 forecasters who scour the world’s catwalks, bars…Continue reading

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Making Bitcoin work better

IN DIFFERENT circumstances the two people could be good friends. Each is rather shy and very smart. And each is passionate about bitcoin, a digital currency. One invented hashcash, which foreshadowed components of the crypto-currency; the other is the author of the first Chinese translation of the white paper in which Satoshi Nakamoto, the elusive creator of bitcoin, first described its inner workings.

Adam Back is the chief executive of Blockstream, a British startup, which employs some of the main developers of the software that defines bitcoin’s inner workings. Jihan Wu is the boss of Bitmain, a Chinese firm, which makes about 80% of the chips that power “miners”, specialised computers that keep the bitcoin network secure, confirm payments and mint new digital coins. But far from being fellow-travellers, each represents one of the two main camps in what has come to be called a “bitcoin civil war”, fought over how, if at all, the system should grow.

The worst seems…Continue reading

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Tech stocks have regained their dotcom-era highs

CAST your mind back to when Bill Clinton was president, Tony Blair and Vladimir Putin were fresh-faced new leaders and tweeting was strictly for the birds. That was when technology stocks, as measured by the S&P 500 tech index, last traded at their current levels.

The horrendous decline in share prices that followed the peak in 2000 was the first financial calamity of this millennium. The dotcom crash had much less impact on the broader economy than the mortgage and banking crisis of 2007-08. Nevertheless, the tech revival has caused some twitchiness among investors. Might history be repeating itself?

In the intervening years the world, and the tech industry, have changed a lot. In the late 1990s enthusiasm for tech shares was so great that the sector’s market value rose far faster than its earnings. The gap is nothing like as great today (see chart). Back then, leading firms like Microsoft and Oracle were valued at more than 20 times their annual revenues, let alone earnings….Continue reading

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The closing of American bank branches

WINDSOR, a community of 6,200 people two hours outside Albany in New York state, offers many of the amenities commonly found in a small town, including a bakery, a car-repair outfit and several restaurants. There is just one thing missing: a bank. The town’s only financial institution, First Niagara Bank, shut its doors in October.

Towns like Windsor are becoming ever more common in America. Since the financial crisis, banks have closed over 10,000 branches, an average of three a day. In the first half of 2017 alone, a net 869 brick-and-mortar entities shut their doors, according to S&P Global Market Intelligence, a research firm. Some fret that branch closures risk turning poorer neighbourhoods into “banking deserts”, cut off from current accounts, loans and other basic services.

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The link between poor harvests and violence

The very dark ages

LAST year over 102,000 people died in nearly 50 armed conflicts across the world, according to the Peace Research Institute Oslo, a think-tank. Much of this violence is caused by tensions between ethnic groups—two-thirds of civil wars have been fought along ethnic lines since 1946. Yet historians differ over whether cultural differences or economic pressures best explain how tensions explode into violence.

A new study* by Robert Warren Anderson, Noel Johnson and Mark Koyama suggests that, historically, economic shocks were more strongly associated with outbreaks of violence directed against Jews than scholars had previously thought. The authors collected data for 1,366 anti-Semitic events involving forced emigration or murderous pogroms in 936 European cities between 1100 and 1800. This was then compared with historical temperature data from a variety of sources, including tree rings, Arctic ice cores and contemporary descriptions of…Continue reading

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Foreign executives need to get their feet dirty to succeed in Africa

NAIROBI, Kenya’s capital, is also known as the “Green City in the Sun”. It might as well be called the city of malls: it has never had such a wide choice. The newest outlet, named Two Rivers, sits on a road near the American embassy and contains no less than three different malls in the space of a square mile or so. Here, you can scoff a Burger King before wandering around a huge new Carrefour supermarket to stock up on French cheese, British-made breakfast cereals and Turkish-made clothes. The owners proudly proclaim that it is sub-Saharan Africa’s biggest mall. It is certainly among the glitziest.

And yet walking into Two Rivers is an odd experience. The scale is huge, but the place is eerily quiet. More than a few shopfronts are empty, with hoardings instead of windows. Those that are occupied have a mere trickle of customers, and the goods they sell—furniture, clothes, electronics—are ambitiously priced. Two Rivers feels a bit like a Potemkin village, projecting an illusion…Continue reading

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A bad week for Germany’s carmakers

STRENGTH and reliability were once the watchwords of Germany’s carmakers. Tardiness and scheming seem more apt terms now. Nearly two years after Volkswagen (VW) was caught rigging emissions tests, the difficulties continue to pile up. Europe is turning against diesel, and even petrol. And German firms are facing accusations of collusive behaviour, including claims of more widespread rigging of emissions tests for diesel engines.

Diesel’s days look numbered. Sales in Europe are falling fast. Before VW’s misdemeanours came to light, they accounted for over half the market in large European countries. No longer: Morgan Stanley, a bank, notes that diesel passenger cars took less than 39% of sales in Germany in June. Another bank predicts that diesel’s share will soon drop to 30% across Europe.

Dismay over premature deaths caused by pollution is one reason. The European Environment Agency says smog causes nearly half a million early deaths in Europe annually. Diesel engines…Continue reading

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The world’s largest online-travel company

NOT since the dotcom boom at the turn of the century have technology shares been on such a tear. On July 19th the S&P 500 index of information-technology stocks hit a record high, closing above its previous peak in March 2000 (see Buttonwood). As titans like Google, Facebook and Amazon hog the limelight, other firms can go unnoticed. One that deserves more attention is Priceline, the world’s largest online-travel company.

Those old enough to remember the dotcom boom may still associate Priceline, which was founded in 1997, with its “name your own price” feature, which let consumers bid for hotel rooms and flights. Today it is a Goliath. Its stable of online sites for booking hotels, cars, flights and restaurants spans the world and includes Booking.com, Kayak, Agoda and OpenTable. Over the past decade Priceline’s pre-tax earnings…Continue reading

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Pandemic bonds, a new idea

Better coverage needed

WHEN the Ebola virus hit west Africa in 2014, it took months to get together the money needed to combat the outbreak. Donors ended up committing more than $7bn. But the money came too late and too inefficiently, says Tim Evans, who directs the World Bank’s global health practice. Lives that could have been saved were lost. The bank estimates that GDP in Guinea, Liberia and Sierra Leone was reduced by $2.8bn.

Such outbreaks are likely to become more common: they have increased in frequency and diversity over the past 30 years, in step with the increased mobility of people, products and food. The World Bank says the probability of another pandemic in the next 10 to 15 years is high. That is why it has issued $425m in pandemic bonds to support its new Pandemic Emergency Financing Facility (PEF), which is intended to channel funding to countries facing a deadly disease.

The bonds cover six viruses likely to spark outbreaks: new…Continue reading

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The wage gap between men and women varies depending on job types

IT HAS been a turbulent few days for the BBC, Britain’s public broadcaster. On July 19th it published the names of those to whom it pays £150,000 ($195,000) or more a year. The ensuing furore was less over the level of pay, but the differences between men and women. Some female presenters discovered that they earned much less than their male peers. Of the 96 people listed, two-thirds are men; across the BBC, just over half are.

In a petition, female presenters said this was evidence that women at the BBC are paid less than men “for the same work”. Although this may be true for people on the BBC’s list, it is much less clear for the rest of its 9,000 female employees: a gender pay gap at the top of an organisation does not necessarily mean that similar gaps exist at lower levels.

In Britain, as in other European countries, the average gap in pay between men and women in exactly the same jobs is tiny or non-existent, according to data for 8.7m employees worldwide gathered by…Continue reading

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Thanks to streaming services, China’s consumers have begun paying for music

HONEST souls intent on paying full whack for the music they listen to used to have a hard time in China. In the era of compact discs, rare was the shop which did not sell counterfeits. The same held true when discs turned into downloads and online streams of songs: hardly any service charged money.

Slowly but surely, China is becoming a market where people pay for music. Over the past five years, digital-music revenues for the recording industry nearly quadrupled, to $195m; most of that amount comes from music streaming (see chart). That sum may still be a tiny fraction of the global total of $7.8bn, but streaming has clearly taken off in China.

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Regulating credit unions in Africa

Striking a co-operative note

THE most recent time Moses Kibet Biegon needed a quick loan was when his roof blew away. He got one from the Imarisha Savings and Credit Co-operative, in Kericho in western Kenya. Imarisha channels the savings of its 57,000 members into loans for school fees, business projects or, in Mr Biegon’s case, roof repairs. It runs a fund to help with medical bills. And it pays dividends to its members from its investments, which include a shopping plaza that it opened last year.

Savings and credit co-operatives (SACCOs) like Imarisha are the African version of credit unions: member-owned co-ops, usually organised around a community or workplace. Some are rural self-help groups with a few dozen members and a safe. Others have branch networks and mobile apps. The largest SACCOs rival banks; Mwalimu National, which serves Kenyan teachers, has even bought one.

The co-operative model brings “a more humane face” to finance,…Continue reading

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How Donald Trump is monetising his presidency

Golf conflict

“PRETTY close to a laughing stock.” That is Walter Shaub’s verdict on America’s standing in the world, at least from an ethics point of view, under President Donald Trump. Mr Shaub’s view counts: he stepped down this week as head of the Office of Government Ethics, a federal watchdog.

He is leaving his job six months early, frustrated at the president’s failure to separate himself from his businesses, at White House foot-dragging on disclosing ethics waivers for staff, at its failure to admonish a Trump adviser who plugged the family’s products in an interview, and more. “It’s hard for the United States to pursue international anticorruption and ethics initiatives when we’re not even keeping our own side of the street clean,” Mr Shaub told the New York Times.

No American leader has ever entered office with such wide business interests as Mr Trump. In the context of the country’s corporate…Continue reading

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The power of populists

WITH the defeat of Marine Le Pen in her bid for the French presidency, establishment politicians in rich countries breathed a sigh of relief. The fortunes of extremist candidates have faltered since the populist surge that put Donald Trump into the White House. But it is hard to be confident that this was populism’s high-water mark without a better understanding of what caused the swell in the first place. The most convincing explanations suggest that populist upswings are not in the past.

It is tempting to dismiss the rise of radicalism as an inevitable after-effect of the global financial crisis. Studies show that the vote shares of extreme parties, particularly on the right, tend to increase in the years after a crisis. The Depression spawned some of the 20th century’s most dangerous and radical populist movements. But the facts do not fit that story precisely. In Europe, for example, populist parties have steadily won more voters since the 1980s. What is more, populist rage is…Continue reading

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An overhaul of Brazilian labour law should spur job creation

IN THE litany of bosses’ gripes about Brazil’s inclement business climate, rigid labour laws vie for pride of place with its convoluted tax laws and its licensing rules (on everything from health and safety to protection of cultural heritage). No wonder: Brazil ranks a miserable 117th out of 138 countries on labour-market efficiency, according to the World Economic Forum. Its rigid labour law was transplanted from Benito Mussolini’s Italy in 1943. Employers find it thoroughly unsuited to a modern economy and cheered on July 13th, when the president, Michel Temer, signed into law the biggest overhaul of the unwieldy statute in 50 years.

The reform is a big victory for the unpopular Mr Temer, who is under investigation in a corruption scandal (he denies wrongdoing). It introduces more flexible working hours, eases restrictions on part-time work, relaxes how workers can divvy up their holidays and cuts the statutory lunch hour to 30 minutes. It also scraps dues that all employees must pay to…Continue reading

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An action plan for Uber’s next chief executive

IT IS said that Travis Kalanick, who resigned as Uber’s boss last month, has been reading Shakespeare’s “Henry V”. Prince Hal’s transformation, from wastrel prince to sober monarch, is doubtless one he would like to emulate. But as a guide to the ride-hailing firm’s financial dilemma, “Macbeth” is the best play. This line especially resonates: “I am in blood stepp’d in so far that, should I wade no more, returning were as tedious as go o’er.”

Uber has bled money for years in an attempt to become the absolute ruler of its industry. Once Mr Kalanick’s replacement is found, voices will whisper that the firm, like Macbeth himself, is in too deep to alter course. But the new boss must change Uber from a company that sacrifices anything for its ambitions, to one which has a realistic valuation and uses resources efficiently.

Its product is elegantly simple. Uber makes a market between drivers and passengers and takes a cut of about a fifth of the fare. The…Continue reading

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Demand for exorcists is soaring in France

FOR A man poised for combat with evil spirits, Philippe Moscato looks remarkably at ease. In casual clothes and chatting about the tools of his trade—a “Vogel” crystal, compass, steel crucifix, pendulum and bag of salt from Jerusalem—he says he can deliver unreal results. Hired to exorcise an apartment in a wealthy district of central Paris, he predicts that the air will change. In the winter, he says, the owners will no longer need their central heating, the result of beneficial vibrations.

Mr Moscato’s work involves first waggling a pendulum, supposedly to assess the flat’s readiness, then lighting a candle, reciting from an exorcism manual, before blessing salty water that he splashes in every room. As he sprinkles, he delivers a flow of incantations. For an hour’s work he pockets €155 ($178). He has requests three or four times a week to de-spook property, and exorcises a person on average once a week. Paris, Lyon and the French Riviera are the areas most contaminated…Continue reading

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Reform of China’s ailing state-owned firms is emboldening them

ACCORDING to company lore, Yunnan Baiyao, a musty-smelling medical powder, played a vital role during the Long March. As China’s Communist troops fled from attacks in the 1930s, trekking thousands of miles to a new base, they spread its yellow granules on their wounds to stanch bleeding. To this day, instructions on the Yunnan Baiyao bottle recommend application after being shot or stabbed. Many Chinese households keep some in stock to deal with more run-of-the-mill cuts. But the government has recently put its maker into service to treat a different kind of ailment: the financial weakness of state-owned enterprises (SOEs).

Yunnan Baiyao has emerged as a poster-child of China’s new round of SOE reform. The company, previously owned by the south-western province of Yunnan, sold a 50% stake to a private investor earlier this year. The same firm had tried to buy a slice of Yunnan Baiyao in 2009 but was blocked. Its success this time has been held up in the official press as proof that a…Continue reading

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Could bond funds break the market?

GOOD generals know that the next war will be fought with different weapons and tactics from the last. Similarly, financial regulators are right to worry that the next crisis may not resemble the credit crunch of 2007-08.

The last crisis arose from the interaction between the market for mortgage-backed securities and the banking system. As investors became unsure of the banks’ exposure to bad debts, they cut back on their lending to the sector, causing a liquidity squeeze. Since then, central banks have insisted that commercial banks improve their capital ratios to ensure they are less vulnerable.

Might the next crisis originate not in the banking system, but in the bond market? That is the subject of a new paper* from the Bank of England. The worry centres on the “liquidity mismatch” between mutual funds, which offer instant redemption to their clients, and the corporate-bond market, where many securities may be hard to trade in a crisis. The danger is that forced…Continue reading

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The spread of 3D models creates intellectual-property problems

Do try this at home

GROOT, a character from Disney’s film “Guardians of the Galaxy”, is usually mass-produced by the entertainment company as a small, collectable figurine and sold by retailers such as Toys “R” Us. But just before the release of the second film in the franchise earlier this year, Byambasuren Erdenejargal, a Mongolian enthusiast, noticed that people in a 3D-printing group on Facebook were searching for a computer model of Groot. So Mr Erdenejargal decided to create one. He spent four days perfecting the design and its printability before uploading his creation to Thingiverse, an online 3D-printing community based in New York. His digital model of the arboreal creature has since been downloaded (and probably printed in physical form) over 75,000 times.

Fans of popular TV programmes and films have long used arts and crafts to express their attachment to fictional characters. Etsy, an online marketplace for artisanal products, is full of…Continue reading

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KKR, a private-equity giant, lays out its succession plan

IN MOST four-decade-old firms run by greying co-founders, investors would have long since demanded clarity on succession. But private equity works differently: the industry has been dominated by its pioneers ever since its origins in the 1970s. So an announcement on July 17th about its future leadership by KKR, one of the world’s largest private-equity firms, puts it a step ahead of its rivals. Its aim of ensuring that the firm has the right structure in place “for decades to come” is not obviously shared across the industry.

KKR has been run since 1976 by two of its founders, Henry Kravis and George Roberts (both in their early 70s). They are staying on as co-chairmen and co-chief executives but with less of a day-to-day role. Lining up behind them are a pair of 40-somethings, Joe Bae and Scott Nuttall, who will join the board and take the titles of co-president and co-chief operating officer.

Such explicit, public succession planning is unusual. Stephen…Continue reading

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The Trump presidency may not have helped Kushner Companies

WHEN the deal was struck just over a decade ago, for $1.8bn, 666 Fifth Avenue, a 41-storey Manhattan skyscraper, became the most expensive office building ever sold in America. Now it is in limbo, awaiting billions of dollars of investment to rebuild it and raise it almost twice as high. Across the Hudson River, another hunt for money is under way, to build a property called One Journal Square in Jersey City. In June a property-investing start-up called Cadre attracted financial backing from Silicon Valley luminaries including Andreessen Horowitz, a venture-capital company.

The thread linking these ventures is Jared Kushner, Donald Trump’s senior adviser and son-in-law, whose family business, like that of the president, is in property. Mr Kushner helped conceive all three projects. He has a “passive ownership interest” in Cadre (meaning he is not actively involved in its management). His family co-owns 666 Fifth Avenue and One Journal Square.

Unlike the president, Mr…Continue reading

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Millions of things will soon have digital twins

THE factory of the future will be a building stuffed full of robots making robots. A factory in Amberg, a small town in Bavaria, is not quite that, but it gets close. The plant is run by Siemens, a German engineering giant, and it makes industrial computer-control systems, which are essential bits of kit used in a variety of automated systems, including the factory’s own production lines.

The Amberg plant is bright, airy and squeaky clean. It produces 15m units a year—a tenfold increase since opening in 1989, and without the building being expanded or any great increase in the 1,200 workers employed in three shifts. (Production is about 75% automated, as Siemens reckons some tasks are still best done by humans.) The defect rate is close to zero, as 99.9988% of units require no adjustment, a remarkable feat considering they come in more than 1,000 different varieties.

Such achievements are largely down to the factory’s “digital twin”. For there is another factory, a…Continue reading

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Norwegian might still transform long-haul flying

Freddie Laker saw it coming

A DECADES-old dream of many low-cost carriers (LCCs), to break into the market for long-haul flights, has also been a long-standing nightmare for executives at full-service airlines, who earn their corn chiefly on such routes. So a series of setbacks for Norwegian, the latest LCC to try its hand at long-haul flights, has set off a round of Schadenfreude at established airlines across Europe. On July 13th, Norwegian revealed a disappointing set of results for the three months to June. A week earlier its chief financial officer of 15 years, Frode Foss, resigned with immediate effect, sending the share price down by 8%. Over the past year the shares have lost a third in value, as investors grow nervous.

The worries go back to Norwegian’s decision to begin long-haul flights. Founded in 1993 by Bjørn Kjos, still its CEO and biggest shareholder, it took over some domestic routes in Norway from a bankrupt charter…Continue reading

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The Big Mac index

THIRTY-ONE years ago, The Economist created the Big Mac index as a way of gauging how different currencies stacked up against the dollar. The index is based on the theory of purchasing-power parity, the idea that in the long run, exchange rates should adjust so that the price of an identical basket of tradable goods is the same. Our basket contains one item, a Big Mac.

The latest version of the index shows, for example, that a Big Mac costs $5.30 in America, but just ¥380 ($3.36) in Japan. The Japanese yen is thus, by our meaty logic, 37% undervalued against the dollar.

In…Continue reading

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Africa is Islamic banking’s new frontier

IN 2008 Ethiopia’s conservative central bank experimented: it authorised interest-free banking. Interest is prohibited under sharia law, so the move was lauded as a step towards expanding financial services for the country’s large and often poor Muslim minority. But momentum soon stalled. An attempt to launch a fully-fledged Islamic bank foundered. Today most of Ethiopia’s big commercial banks offer a narrow range of Islamic financial products, but to few customers. Islamic finance in Ethiopia was stillborn.

Outside Africa, Islamic finance is in much healthier condition. Between 2007 and 2014, the sector tripled in size (although growth has slowed lately). Total assets are around $1.9trn. Sub-Saharan Africa accounts for less than 2% of this, yet it should be especially fertile territory. The continent’s Muslim population is 250m and growing. And according to the World Bank, as many as 350m Africans do not have a bank account.

Several countries are vying to become…Continue reading

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An illustrious Hong Kong container firm sells to China

Terminal value

STONECUTTERS ISLAND in Hong Kong used to be a favoured habitat for poisonous snakes and eye-catching birds such as the white-bellied sea eagle. Thanks to Hong Kong’s rapid development, it is no longer so hospitable. Its sky is full of gantry cranes, stacking 20-foot-long shipping containers in multicoloured tessellations, like giant Lego bricks. A cluster of decorative containers, daubed in graffiti, line the perimeter of container terminal eight, which is partly operated by COSCO, a state-owned Chinese shipping giant. In bright yellow lettering, one slogan instructs passers-by to “Respect Past, Embrace Future”.

Few Hong Kong companies have as much to tell about the past as Orient Overseas Container Line (OOCL), the world’s seventh-biggest container shipping line. Its founder, Tung Chao-yung, owned the first Chinese-crewed steamship to travel from Shanghai to France in 1947, and went on to build a shipping empire of over 150 vessels. His…Continue reading

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The fashion industry pays attention to plus-size women

Hot to trot

A GOOD fit is everything, stylists often counsel, but in assessing its market America’s fashion business appears to have mislaid the measuring tape. A frequently-cited study done a few years ago by Plunkett Research, a market-research firm, found that 67% of American women were “plus-size”, meaning size 14 or larger. That figure will not have changed much, but in 2016, only 18% of clothing sold was plus-size, according to NPD Group, another research firm.

Designers and retailers have long thought of the plus-size segment as high-risk. Predicting what these customers will buy can be difficult, as they tend to be more cautious about styles. Making larger clothes is more expensive; higher costs for fabric cannot always be passed on to consumers. In turn, plus-size women shopped less because the industry was not serving them well. “We have money but nowhere to spend it,” says Kristine Thompson, who runs a blog called Trendy Curvy and has nearly…Continue reading

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A new approach to financial regulation

An inspector Quarles

DONALD TRUMP promised to unshackle America’s financial firms from mounds of stultifying regulation and the grip of bureaucrats with little practical experience of capitalism. One way to put that pledge into practice is to appoint officials with business backgrounds and deregulatory agendas. This element of the Trump strategy was on show this week, with a presidential nomination for a critical job at the Federal Reserve and the first public address by the new head of the Securities and Exchange Commission (SEC), another financial regulator.

Buried in the voluminous pages of the Dodd-Frank act, an Obama-era law passed in response to the financial crisis, was the creation of a new supervisory job at the Fed. Thus far, this powerful post has been informally delegated to an existing Fed board member, first Daniel Tarullo and, since his departure, Jerome Powell. That is set to change. Randal Quarles was formally nominated for the…Continue reading

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Climate change and inequality

ON JULY 12, the Larsen C ice shelf in Antarctica disgorged a chunk of ice the size of Delaware, a small state on America’s east coast. America’s government seems unfazed by the possibility that such shifts might one day threaten Delaware itself. Its climate defiance grows not only from the power of its fossil-fuel industry and the scepticism of the Republican party, but also from a sense of insulation from the costs of global warming. This confidence is misplaced. New research indicates not only that climate change will impose heavy costs on the American economy, but also that it will exacerbate inequality.

Calculating the economic effects of climate change is no simple matter. It means working out how a given increase in global temperature affects local weather conditions; how local weather affects things like mortality and crop yields; how those changes add to or subtract from regional GDP; and how thousands of local-level changes in GDP add up nationally or globally. No…Continue reading

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