Category Archives: Notes

Double Taxation Agreement between Switzerland and Liechtenstein

Günther Meier reports in the NZZ that an updated double taxation agreement between Switzerland and Liechtenstein will come into effect. Switzerland rejected Liechtenstein’s proposal that would allow the principality to levy a source tax on the income of Swiss residents who work in Liechtenstein.

The Purple Plans

Laurence Kotlikoff appeals to “fellow economists and concerned citizens” to endorse plans for

Wealth Inequality, Theory and Measurement

In an NBER working paper, David Weil argues that Thomas Piketty overestimates wealth inequality. In the abstract of the paper, Weil writes:

In Capital in the 21st Century, Thomas Piketty uses the market value of tradeable assets to measure both productive capital and wealth. As a measure of wealth this is problematic because it ignores the value of human capital and transfer wealth, which have grown enormously over the last 300 years. Thus the constancy of the wealth/income ratio as portrayed in his data is an illusion. Further, the types of wealth that he does not measure are more equally distributed than tradeable assets. The approach also incorrectly identifies capital gains due to reduced discount rates as increases in the capital stock.

 

Dietrich Schwanitz’ “Bildung (Cultured Education)”

Dietrich Schwanitz’ book (Wikipedia) covers “Wissen” und “Können” against the background of the German “Bildungskanon”, the liberal education of a cultured, well-bred German-speaker. The very ambition of the endeavor is breath taking and provokes disagreement and objection. But Schwanitz delivers. A lengthy book of nearly 700 pages it is concise and dense and contains lots of food for thought.

Among hundreds of tidbits, here are some:

  • Footnote on the footnote (pp. 461–462).
  • On Switzerland (p. 596):

Was die Schweizer auf dem Hintergrund ihrer eigenen Geschichte bei den Deutschen am wenigsten begreifen, ist, daß sie mit der antiautoritären Kulturrevolution alle bürgerlichen Tugenden so restlos über Bord geworfen haben. Es sind die Tugenden, die ehemals als besonders deutsch galten und jetzt nur noch in der Schweiz eine Heimstatt haben: Solidität, eine gewisse Ordnungsliebe und Pedanterie, Zuverlässigkeit im Ausführen von Aufgaben und Präzision bei der Produktion von Apparaten, und ein Standard der Sauberkeit und Wohlanständigkeit weit über dem europäischen Durchschnitt sowie ein fest verankerter Glaube an Normen und Regeln.

  • In the section about intelligence, a ranking of what might have been the 10 most intelligent men ever (p. 604):

1. John Stuart Mill; 2. Goethe; 3. Leibniz; 4. Grotius; 5. Macaulay; 6. Bentham; 7. Pascal; 8. Schelling; 9. Haller; 10. Coleridge.

  • Short summaries of “books that changed the world” (pp. 635–654).

Viktor Frankl’s “… trotzdem Ja zum Leben sagen (Man’s Search for Meaning)”

The English language translations of Viktor Frankl’s book “… trotzdem Ja zum Leben sagen: Ein Psychologe erlebt das Konzentrationslager” (Wikipedia German, English) were published as “From Death-Camp to Existentialism” and “Man’s Search for Meaning: An Introduction to Logotherapy.” Frankl describes his experience in Auschwitz and other concentration camps with a focus on the psychological changes the inmates went through. The narrative is shocking and Frankl’s ability to maintain a positive attitude to life in spite of the horror he experienced admirable. But I was less impressed by the book than millions of readers before me—it neither provides a systematic account nor a personal narrative.

The sketch “Synchronisation in Buchenwald” at the end of the book (featuring Socrates, Spinoza, Kant, KZ inmates and others) is the best part of the short book. Structured as a stage play it provides insights into Frankl’s thinking.

Germany and the Euro

In an FT oped, Thomas Mayer summarized a rather typical “German” perspective on European monetary policy. In his view, a sound euro needs either full political union or just stringent rules that are enforced. Helmut Kohl promised the former. When it didn’t happen, ECB independence and the Maastricht treaty should substitute. Ex post, Germany should have asked for more, in particular resolution and exit procedures (and, one may add, it should have played by the rules itself). The crises in the Eurozone illustrated governance problems. Merkel feared Grexit and tried to reestablish the rules. She

built a pan-European “shadow state” — a web of pacts to ensure that countries followed policies consistent with sound money.

It has not worked. From Greece to France, countries resist any infringement on their sovereignty and refuse to act in a way that is consistent with a hard currency policy. The ECB is forced to loosen its stance. Worse, it has allowed monetary policy to become a back channel for transfering economic resources between eurozone members, which politicians have refused to allow through fiscal mechanisms they control. This is Germany’s worst nightmare.

How will the situation be resolved? A century ago, Eugen Böhm-Bawerk, the Austrian economist and finance minister, proclaimed laws of economics to be a higher authority than political power. Some Germans say that a hard currency is an essential part of their economic value system. If both are right, politicians will be powerless to prevent Germany’s departure from a monetary union that is at odds with the country’s economic convictions.

 

Extra-Territoriality and Financial Regulation

That’s the title of the annual conference of the Journal of Financial Regulation to be held at the Georgetown University Law Center in June.

The call for papers includes the following paragraphs which provide a nice overview:

Attempts by national regulators to give their regulatory standards extra-territorial effect beyond their own borders have become increasingly popular in fields as diverse as banking, securities and derivatives regulation. The attractiveness of extra-territorial regulation for policy-makers is obvious: in a world still reeling from the 2008 financial crisis, regulators can export policy preferences unilaterally while preventing some of the most malicious forms of regulatory arbitrage that can undermine their effectiveness.

But extraterritoriality can also generate a range of legal and even economic tradeoffs. At a most basic level, when practiced haphazardly it risks clashing with principles of public international law and the comity of nations, in particular when such regulation is enforced with public authority. Furthermore, extra-territorial rules can increase, as opposed to decrease the potential for conflicting or duplicative regulatory policies as other regulators respond in kind. This can lead to increased compliance costs for market participants that reduce liquidity and subject market participants to operational and legal risks that themselves can potentially introduce new forms of systemic risk.

The conference Extra-Territoriality and Financial Regulation, the annual conference of the new Journal of Financial Regulation, will seek to enhance our understanding of these and other important problems. More specifically, the conference will seek to explore topics including, but not limited to:

· the policy motivations for writing extra-territorial rules and the conditions for selecting this approach – this would include considerations from political economy, political science, and state organization theory;
· the advantages and the limits of extra-territorial financial regulation, with particular regard to the different current policy initiatives and their impact on both financial innovation and prudential oversight;
· the relationship between extra-territorial rules and the growing consensus on international standards and global soft law, in particular through international bodies such as the G20, the FSB, the Basel Committee, and others;
· regulatory responses in other jurisdictions, including the likelihood of retaliation or counteracting measures;
· responses by regulated market participants, in particular theoretical or empirical accounts of reactions by the financial industry to the adoption of extra-territorial standards;
· legal considerations for enforcing extra-territorial standards, possibly including problems from all of public international law, conflict of laws, and democratic accountability.

Heritable Privilege

The Economist argues that with the importance of intellectual capital “privilege has become increasingly heritable.” As contributing factors the newspaper lists

  • assortative matching
  • more stable homes of highly educated parents
  • more stimulation of children of highly educated parents: “children of professionals hear 32m more words by the age of four than those of parents on welfare”
  • high cost of higher education
  • teachers’ unions
  • a school system that aggravates disparities

The background articles are here and here.

Quantitative Easing by the ECB

The ECB announced the long-awaited expansion of asset purchases. The press release lists these main points:

  • ECB expands purchases to include bonds issued by euro area central governments, agencies and European institutions
  • Combined monthly asset purchases to amount to €60 billion
  • Purchases intended to be carried out until at least September 2016
  • Programme designed to fulfil price stability mandate

Less expected is the arrangement for the sharing of “hypothetical losses”. The ECB will directly be exposed to only 20% of the risk of the additional asset purchases.

Another ECB website provides an overview over the ECB’s open market operations.

1.20 No Longer—Buiter Critique

In a Citi research note, Willem Buiter discusses the SNB’s decision to discontinue the exchange rate floor of the Swiss Franc vis-a-vis the Euro. His main points are:

  • The removal of the 1.20 floor on the CHF-euro exchange rate was a mistake.
  • Superior policy alternatives existed.
  • The old regime was indefinitely sustainable.
  • Removing the lower bound on nominal interest rates would have been the best choice. This can be done one of three ways.
  • The economic damage can be limited by restoring the exchange rate floor at a level not below the old one, and/or by eliminating the lower bound on nominal interest rates.
  • The rest of the world can learn from the SNB’s experience with a -0.75% deposit rate.

Buiter refers to his earlier work on removing the lower bound on nominal interest rates that I have discussed elsewhere (here and here).

Longhand Note Taking

Pam Mueller and Daniel Oppenheimer argue in a paper in Psychological Science that taking notes by hand is more productive than laptop note taking.

Many researchers have suggested that laptop note taking is less effective than longhand note taking for learning. Prior studies have primarily focused on students’ capacity for multitasking and distraction when using laptops. The present research suggests that even when laptops are used solely to take notes, they may still be impairing learning because their use results in shallower processing.