Monthly Archives: April 2007

Enrico Fermi and Alfred Nobel

A question from Yahoo! Answers:

Enrico Fermi. Alfred Nobel. What is ironic about the link between the 2 entities?

First of all, they are not “entities”, they are people. Beyond that, it’s a matter of opinion…

Enrico Fermi won the 1938 Nobel Prize in physics. Nobel Prizes in physics were instituted by Alfred Nobel in 1895.

Both men have made contributions to weapons-making. Alfred Nobel invented dynamite and was the mastermind behind turning Swedish steel company Bofors into a major weapons manufacturing concern; Enrico Fermi was one of the intellectual leaders of the Manhattan Project.

There are chemical elements named after both men (Fermium and Nobelium). Nobelium’s most stable isotope, No-259, decays to a Fermium isotope Fm-255 through alpha decay.

Enrico Fermi was born in Italy; Alfred Nobel died in Italy.

Poverty: domestic vs. international

A question from Yahoo! Answers:

We can’t solve poverty in this country. Is it reasonable to think we can fix it world-wide first?

There is poverty and hunger in this country, as well as other countries world-wide. If these countries cannot solve their own problems with it, how can it be solved by expanding it to countries outside of their own? Can we justify letting people in their own countries go without, with a grand gesture of trying to help everyone world-wide? I’m sure the rationality is to pool resources and hope everyone benefits, but we’ve seen that before, and in the end it just doesn’t work. Sustaining people with food has always been a ‘band-aid,’ but the cure seems to still be elusive.

There is nothing elusive about the cure for hunger. Hunger is almost always policy-engineered. Since around 1970, the world consistently produces more food than it consumes. If you look at where and when in the world hunger happens, you will see that it usually happens during a civil war (as in, for example, Ethiopia, where farmers are driven off their fertile lands and languish in the desert) or in a country where government interferes in land ownership, agriculture and/or food wholesale, while simultaneously restricting food imports (as in, for example, India, where the government retains the monopoly on rice wholesale).

As to “justifying letting people in their own countries go without”, you really should read up on how big foreign aid really is and where it goes. In 2005, the U.S. spent $27.2 billion on foreign aid, of which $6.9 billion went to Iraq and $1.1 billion to Afghanistan (so if the U.S. government chose not to fight in Iraq and Afghanistan, the figure would have been under $20 billion). Also in 2005, the U.S. government spent $31.1 billion on food stamps, over $300 billion on Medicare, and over $400 billion on defense. So if you are really concerned about hunger in the U.S., there are larger targets than foreign aid out there…

Is trade deficit a concern?

A question from Yahoo! Answers:

With the current situation with the u.s. deficit should we be concern? do you agree/ disagree with FREE TRADE

i was reading up about china and canada and i just need someone else’s opinion about FREE TRADE and the condition that our deficit is in.

Trade deficit is a statistical illusion. If you consider the flow of capital in addition to the flow of goods, you will see that there is no deficit. Americans are simply paying for goods and services with stocks, bonds, land, and real estate…

The deficit you do need to worry about is not the trade deficit, it’s the budget deficit… Trade deficit has a way of taking care of itself through currency adjustment. Budget deficit doesn’t.

As to agreeing or disagreeing with free trade, it’s somewhat akin to agreeing or disdagreeing with gravity. Regardless of whether you agree or disagree, gravity will exist and free trade (when it is allowed) will produce gains to the world as a whole, which, needless to say, will benefit some people more than others…

The slow industrialization of Russia

A question from Yahoo! Answers:

Why did industrialization come more slowly to Russia than to Western Europe?

Because Western Europe did away with servitude a long time before Russia did; in Russia, servitude was abolished only in 1861. So the merchant class that carried out the bulk of industrialization in Western Europe and eventually took political power away from the military aristocracy never developed to that extent in Russia.

The only merchant republic Russia ever had, Novgorod, was sacked by Ivan the Terrible in 1570. Attempts to call a parliament after repealing the Polish invasion in 1610s were foiled by the gentry. Around 1700, Peter I actually attempted servitude in industry with very limited success. As late as in early 1900s, the wealthiest Russian merchants were those who won rights to administer government monopolies, of which there were quite a few…

Did high gas prices hurt the American economy?

A question from Yahoo! Answers:

Did high gas prices hurt the american economy?
Its like a snowball effect.

Not as much as you would think… Look at Europe; it’s humming along nicely with gasoline prices twice as high as they are in the U.S.

What really hurt the economy in the past was not so much gas prices themselves, but interruptions in supply. Instead of working or enjoying their leisure, people had to spend time in lines at gas stations. Think about it this way. Assume the average worker out there makes $20/hour (or about six gallons of gasoline at current prices). So every hour this average worker wastes in the gas line is a $20 loss to him or her in terms of lost income or lost leisure. That, not gas prices, was the true cost of the energy crisis of the 1970s and 1980s…

Can income inequality be reduced?

A question from Yahoo! Answers:

Income Inequality???

What are some plausible ways in which the issue of Income Inequality in the US can be eliminated (to an extent)? ex. Should the tax system be altered, how so?, can this problem be solved through the negative tax, workfare, or cash transfer programs?

Historically, income inequality in the U.S. has been positively related to immigration and negatively related to inflation and the strength of the unions.

Tax system could potentially be altered to reduce the income inequality somewhat (more progressive income taxation, introduction of wealth taxes, entitlements for low-income families with children, etc.), but it any of these measures would have at least some negative consequences.

Entitlements for low-income families with children have been tried before and turned out to be an incentive to produce more (poorly reared) children rather than take better care of children families already have.

More progressive income taxation and wealth taxes would not have much of a negative short-term effect, but will lead to slower capital accumulation in the long-run. Back in 1981, Laurence Kotlikoff and Lawrence Summers published a paper (Kotlikoff, Laurence J. and Summers, Lawrence H. “The Role of Intergenerational Transfers in Aggregate Capital Accumulation,” Journal of Political Economy, Vol. 89, No. 4, (August 1981), pp. 706-732), which showed that capital accumulation happens largely through inheritance. Smaller fortunes today, therefore, could easily lead to the decrease in the number of the proverbial “good jobs” in twenty or thirty years. One can even argue that the “junk job explosion” of today is directly related to income inequality reaching its historic low in the 1970s…

Why do crude oil prices fluctuate so much?

A question from Yahoo! Answers:

Why do crude oil prices fluctuate so much?

Crude oil prices are the major determining factor in the price of a gallon of gasoline. I think the government is investigating the wrong question. Not manipulation of gasoline prices by oil companies, but rather manipulation of crude oil prices by the market. Large investment companies are manipulating crude oil prices.

There is no need to manipulate crude prices. The structure of the oil industry is such that highly unstable prices are a virtual certainty.

On the one hand, oil is a storable commodity, so it is theoretically possible to make money by stockpiling oil during periods of high prices and selling the stockpiles off during perions of high prices. Moreover, there are at least two very large actors in this play who actually (and actively) stockpile oil in periods of RISING prices, further contributing to price hikes. They are the U.S. government and the Japanese government.

On the other hand, investments in oil production tend to be large and irreversible, so oil companies wait until the last minute to commit to production expansion efforts, just to make sure that higher prices are not a temporary phenomenon. Needless to say, once every oil company starts expanding production, glut ensues and prices drop…

A formal model of the above and its application to the aluminum market can be found in this article:

Fridrik M. Baldursson, “Modelling the price of industrial commodities,” Economic Modelling, Volume 16, Issue 3, 3 August 1999, Pages 331-353

Baldursson concludes that his model predicts the behavior of prices and inventories very similar to what is observed in reality: volatile prices, asymmetric adjustment of production to price changes and long inventory cycles…

The greatest impact on American society in the next generation?

A question from Yahoo! Answers:

What event/invention/development will have the greatest impact on American society in the next gernation? why?

The greatest challenge for the next generation will be coping with ever-increasing longevity. At this point, we don’t know exactly what breakthroughs in medical science will ensue, but we have reasons to believe that some breakthroughs will happen and their impact on life expectancy will be substantial and upward. The young parents of today are likely to live at least until 90, if not 95, which under current Social Security statues means 25-30 years in retirement with steadily decreasing quality of life and ever-expanding need for long-term care…

What is a Commodity Trading Advisor?

A question from Yahoo! Answers:

What is Commodity Trading Advisor?

I know as much about Commodity Trading Advisor as the name suggests. They make money by teaching others how to trade commodities. Do you know if they also manage their client’s money under the same firm? Any inputs about CTA is appreciated.

The business of a CTA has nothing to do with teaching. CTAs manage their clients’ money by using it to speculate in the futures markets. Each client has their own account, and the CTA may devise a personalized trading strategy for each client.

The alternative is called a Commodity Pool Operator (CPO). A CPO pools money from many clients into a single account (much like a mutual fund), so all clients within the same pool are essentially invested into the same strategy; no personalization is possible.