Given the number of prominent voices that have been raised against the controversial Cyprus bank levy, it was a wonder it found so much support among the troika – the ECB, EU and IMF. Dmitry Medvedev cried foul, Lawrence Summers saw it as an error, and even former Eurogroup chief Jean-Claude Juncker criticised it. With the exception of the Russian prime minister, however, the element that disturbed most commentators was the application of the levy to supposedly guaranteed bank deposits. The ‘little guy’, they implored, shouldn’t have to suffer in the restructuring of Cypriot bank debts.
A online debate about the merits and dangers of nudging – the ‘soft’ paternalism Richard Thaler and Cass Sunstein promoted in their 2008 book, ‘Nudge’, came to the brink of degeneration last week. The detractors criticised the insidiousness of the behavioural interventions. Nudgers, they suggested, use crafty psychological manipulation to rob people of their individual freedoms in the pursuit of questionable public policy goals
In an online poll, the Guardian newspaper was among the first to test the public reaction to the UK Chancellor George Osborne’s proposal to give workers the option to sacrifice some or all of their employment rights in exchange for shares in their respective companies. In essence the question was: would you give your employer the right to fire you at will in exchange for a tax-exempt equity stake in the firm? The sample was probably not representative of the labour force, but the result was nonetheless remarkable: 94 percent rejected the offer.
Recently on the beach, I overheard the solemn pledge of a generously-proportioned Austrian. He adjusted his unflatteringly tight bathing trunks, leaned over to his equally corpulent companion, and promised: “By the time we go on skiing holiday, I swear I’m going to lose 10 kilos.” She didn’t seem to take the oath too seriously, as she simply shrugged her shoulders and went back to her magazine. I only briefly observed the scene while passing yet, strangely, I can’t seem to get it out of my head.
My nine-year old has been particularly disobedient lately. Her behavior was so unacceptable last week I threatened not to take her to her best friend’s birthday party, planned for last weekend, if she did not mend her ways. Well, the threat went unheeded; she proceeded almost immediately to do the thing that she had been told not to do. So I declared that she would forfeit the birthday party. She became instantly gloomy and remorseful, but seemed to accept the punishment until, that is, the day before the birthday party. Only then did she realize the full weight of the loss.
In a recent post my fellow blogger described how a ‘nudging’ technique helped to encourage people to save for their retirements. The trick worked by leveraging off people’s dislike for giving up things that that they already have. Even if all that is done is to swap one thing for another of equal value, people still do not like it because a loss is perceived twice as keenly as the gain.
Do you prefer a 50 percent loss today or 70 percent loss in three years’ time? This is essentially the choice that faces holders of Greek sovereign debt according to Barron’s. They base their beliefs on data from Citi Investment Research Analysis concerning the size of the haircut that would be necessary to bring Greece’s debt-to-GDP ratio to a manageable 90 percent now, and in each of the next four years. Barron’s recommends taking the 50 percent hit immediately, which it undoubtedly finds easy to do because it does not actually hold the paper.
I was surprised, even curious, when I found a prospectus in my e-mail inbox for a new fund going by the slightly pompous name Peccata Global. As the name hinted, the fund, whose launch seemed perfectly timed to coincide with the start of Lent, had something to with sin. In fact, sin is precisely its philosophy. In a dark twist of the socially responsible theme, this manager hopes to profit from investments in activities that are ‘politically incorrect’, namely those that reflect the Seven Deadly Sins.
The debate on raising UK university tuition fees to among the highest in Europe has inflamed tempers even beyond the simple vote on whether students should pay more for their own tertiary education. Yet, forming a clear opinion on the matter is complicated by the tendency of interested parties to frame their arguments in such a way that observers are almost bullied into the viewpoint of the presenter.
Proposition 19 is a project of law which, if passed, would legalise the possession and sale of cannabis in California. Voter support for ‘Prop 19’ will be tested in the upcoming state elections and the outcome remains highly uncertain. The opinion polls have been mixed, volatile and have revealed voters split along clear lines: young (for) versus old,
On a trip to France last weekend, I was greeted by the frightening news of bitter union unrest in response to the government’s pension reform plans (see earlier post): hundreds of thousands of angry demonstrators; uncollected trash in the streets and fuel shortages at petrol stations.
The issue of how to structure banker incentives to discourage excessive risk-taking has been actively debated against the backdrop of the credit crisis. Most protagonists could agree that equity-based incentives are bad and that reward schemes linked to the long-term value of the bank’s debt might be better.