Incentives in Economics: An Immigration Example

By Paul Kedrosky · January 23, 2004 · ·

Economist Steven Landsburg put it neatly in his book The Armchair Economist:

“Most of economics can be summarized in four words: “People respond to incentives.” The rest is commentary.”

That is why an immigration story this morning in the San Diego paper is so unsurprising. Because according to the Union Tribune, more than half the people accused of trying to use phony documents to sneak in to the U.S. recently via the wildly busy San Ysidro border crossing cited President Bush’s proposal to give temporary legal status to millions of illegal immigrants.

Of 162 people stopped for using phony documents at San Ysidro since Bush announced his plan on Jan. 7, 94 said they were trying to enter because of the proposed new work program, according to sources present at a Wednesday meeting of a border-security working group in San Diego.

[deletia]

Bush’s plan, designed to match willing workers with willing employers, would provide temporary legal status to illegal immigrants working in the United States and to others outside the country if they can show they have a job offer.

His proposal has been widely publicized in Mexico. In some quarters, it is being characterized as an amnesty, despite Bush’s contention that it is not.

Ah, the wonders of economics. People certainly do respond to incentives, whether said incentives were intended or not.

Filed Under: Uncategorized

Nortel’s Errant Speaking Points

By Paul Kedrosky · January 23, 2004 · ·

Nortel’s Chahram Bolouri just can’t seem to stick to the assigned speaking points. He tries to pacify people by saying that Nortel’s decision to sell off the last of its manufacturing plants is about more than money, then goes to say, in clarifying comments, that it is mostly because of the money. I have added my own emphasis throughout:

“I think it is important to manufacture my product where I sell my product, otherwise it costs us a lot of money to ship product from one end of the world to the other end. It is not just about the money, it is a deal that will give us the agility we are looking for in terms of cost and time to help our customers.”

Another benefit, he said, is that Nortel will have more financial flexibility because it will have less cash committed to inventory. Mr. Bolouri said it is too early to talk about how much Nortel will reduce its costs after the last plants are sold.

I have no problem, of course, with the company’s cost-cutting in manufacturing. I just wish Bolouri didn’t feel like he had to apologize for it.

Filed Under: Investing

The Apprentice: Sam, or Just Lousy Male Team?

By Paul Kedrosky · January 22, 2004 · ·

Interesting debate going on over at Fresh Inc, the weblog of Inc Magazine. Basically, people are trying to decide whether the failure to date of the male team on The Apprentice has been the fault of Sam, who was kicked off this week, or just a function of screw-ups by the male team. Or whether it is because the women have had tasks where they could win by selling sex.

Filed Under: Dumbth

Microsoft’s Annuity Problem

By Paul Kedrosky · January 22, 2004 · ·

Microsoft’s quarterly financial results tonight seemingly have many investors in a tizzy. It has nothing to do with the higher-than-expected equity compensation costs, however. Those are shuffling of costs from one period to another, and it isn’t all that important in the great scheme of things.

The bigger issue for Microsoft is the shrinkage in its deferred revenue balance sheet line. In essence, the number reflects revenues Microsoft has earned from selling its software as a large, ongoing license to Fortune 1000 organizations. But to smooth out its revenues it generally doesn’t recognize all that revenue at once, even though it often knows how long the license payments will run. Instead, it recognizes the revenue gradually over the course of the license deal.

There is nothing wrong with the preceding, of course. But you do need to watch the number closely as a sign of licensing health.

And, wouldn’t you know it? Deferred revenue declined about $395 million in the current quarter. It is the second quarter in a row that the deferred revenue figure has fallen more than people expected. While it’s no disaster, it doesn’t exactly give you a warm and fuzzy feeling about Microsoft’s current ability to close large, multiyear software licensing contracts.

Filed Under: Accounting, Analysts, Boom-boom, Brokers, Business schools, Dumbth, Economics, Economists, Entrepreneurship, Greenspan, Hedge funds, Incompetent management, Innovation & design, Investing, IPO, Journalism, Legal, Marketing, Politics, Public economics, SARS, Scandals & scams, Science, Society, Solipsism, Statistics, Stock market, Technology, Venture capital

Davos and the Mars Rover

By Paul Kedrosky · January 22, 2004 · ·

Am I the only one who thinks there is a connection between NASA’s loss of contact yesterday with the Mars Rover, and the beginning of the World Economic Forum annual meeting in Davos, Switzerland?

One of my pet theories is that there a largely unremarked Law of Conservation of Communication in the universe. The more some things communicate, the less that others do. Hence, for example, the increase in the divorce rate alongside the growth of the Internet — more communications means a marital breakdown.

Similarly, the arrival of thousands of delegates in Davos for days of nattering has to have a dramatic effect somewhere else. There has been, to paraphrase Obi-Wan Kenobi, a shifting in The Force, the sudden commencement of economic and political yammering by so many people all at once.

Thinking about it that way, we’re lucky that the only victim (so far) has been the comm link to Rover on Mars. The Law of Conservation of Communications might equally have struck us all mute.

Filed Under: Science

The Corporation as Psychopath

By Paul Kedrosky · January 21, 2004 · ·

A new film called “The Corporation” is getting oodles of attention at film shows around North America. From the makers of the very left-leaning “Manufacturing Consent”, the film, a documentary, apparently tries to make the case that corporations are increasing seen as individuals under the law, and therefore they should be evaluated as such. The conclusion: Corporations in their self-centred amorality are psychopaths.

My views on this are likely obvious, but I’m going to hold fire until I’m seen more than the trailer. Check here for a few more links — and a more appreciative view.

Filed Under: Dumbth

Business Week: Future Hazy — Ask Later

By Paul Kedrosky · January 20, 2004 · ·

Analysts aren’t the only ones that get away with economic double-speak. While the stakes aren’t nearly as high, journalists tend to do the same thing. Case in point — the back-to-back headlines (shown at right) in Business Week’s daily briefing today.

Apparently the current job-less recovery has Business Week so buffaloed that it can’t help contradicting itself in two column-inches. Jobs are recovering, and then again, maybe they’re not.

Filed Under: Journalism

Lake Wobegon & Fund Managers

By Paul Kedrosky · January 20, 2004 · ·

According to a piece in today’s Financial Times, most fund managers are above average. Standard & Poor’s was cited in the piece as saying that in 2003 52.3 per cent of actively managed US equity funds outperformed the Standard & Poor’s SuperComposite 1500 index.

An S&P analyst parsed the implications about right:

“People who believe in active investing will say 2003 was a good year for growth, and this shows managers can add value by finding the right stocks. People on the passive management side will attribute the overall performance to chance.”

Put me on the side of the probabilistic sorts, believing, as I do, that this doesn’t newly prove that fund managers are like children from Lake Wobegon — all above average. And that is borne out by how tight the tussle was: on an asset-weighted basis, US stock funds barely outperformed the index, returning 30.6 per cent in 2003, compared with the 29.6 per cent rise in the S&P SuperComposite.

Filed Under: Investing

Yes We Have No Strong Buys

By Paul Kedrosky · January 20, 2004 · ·

From a Buckingham Research analyst report that crossed my (virtual) desk this morning. The subject is Netscreen, a publicly-traded firewall company whose stock Buckingham was extolling:

“We expect the conference call to be upbeat with conservative, yet positive, guidance.”

The preceding is one of those magnificently opaque bits of analyst phraseology that covers off all bases. They like the stock, yet they think that guidance will be conservative, but in an upbeat way. No matter what happens, the Buckingham analyst is in a perfect position to say “I told you so”. As Strunk & White say, if you’re going to obfuscate, at least have the decency to obfuscate clearly.

Filed Under: Analysts

Larry Ellison’s Nuptuals

By Paul Kedrosky · January 19, 2004 · ·

Quirky piece in the Independent about Oracle CEO Larry Ellison’s recent marriage to romance novelist Melanie Craft. It is requisitely snide in that U.K. way, so you get bon mots like the following:

“At 34, Ms Craft is 25 years younger than the Oracle chief. Cruel commentators suggested her background in archaeology – which she studied at the American University in Cairo – may stand her in good stead.”

Filed Under: Analysts, Boom-boom, Brokers, Business schools, Dumbth, Economics, Economists, Entrepreneurship, Greenspan, Hedge funds, Incompetent management, Innovation & design, Investing, IPO, Journalism, Legal, Marketing, Politics, Public economics, SARS, Scandals & scams, Science, Society, Solipsism, Statistics, Stock market, Technology, Venture capital
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