November 25, 2008
Because my sweet son was up between the hours of 2:15 and 4:45am last night (thankfully something that does not usually happen), I didn’t have the energy to face the commute to LSE and instead stayed at home to work on some data I am refining for an upcoming paper. Working at home used to be very productive for me, but that was before the house during the day was the realm of Nicolò, our nanny and “the chicken ballerina” (an Italian children song that Nicolò loves). Now I have my good days and my bad days of working from home, but there are always more interruptions than previously.
The trick about working from home is to maintain a level of professionalism. Especially as you can get a phone call from the office, a colleague or in my line of work, the media, at any moment and don’t want to be caught off-guard. As an academic, people don’t call me very often, but every once and a while, someone calls. Like today.
Around 2pm my mobile phone rang and the person said “Hello. Is this Dr. Lauren Phillips?” I affirmed and she proceeded to say “This is Christine so-and-so calling from the Financial Times.” I immediately sprung up to close the door so that the FT wouldn’t hear the dancing chicken song in the background. I assumed that they were calling to interview me on something. She proceeded “Dr. Phillips… we need to check your credit card data for your online subscription to the FT to make sure your details are up to date.”
Can you hear the sound of my ego deflating? To be fair, it wasn’t wildly improbable that the FT would call me: I have been quoted in the FT before and appeared on TV and radio to discuss things like IMF reform and sovereign debt. And just the other week my husband, who also teaches at LSE, received a call from Forbes out of the blue asking whether he could comment on the implications of Obama’s win on trade policy (and while M. is an expert on a number of things, trade policy is not really one of them). In fact, being at LSE means that you get entered into a database called “LSE Experts” and if no one more famous than you picks up the phone and the media is desperate to get a quote from an LSE academic, they will eventually find you on the list.
In any case, I carried on with my data, laughing slightly at myself and hoping that if the FT calls another day, I spring into action as quickly.
November 20, 2008
My former colleagues at the Overseas Development Institute made the Financial Times today by arguing that the “fairtrade” labels which denote food sourced from developing countries should be simplified and broadened to a “good for development” label on products which contribute to poverty reduction. This would help ensure that the benefits from such labels are spread more broadly across producers.
I don’t think that they had Italy in mind as one of the potential beneficiaries… but here’s an advert for the Bodyshop that seems to suggest that they are ensuring fair labour standards for community farmers in Italy. While most of the world’s bergamot, especially that used commercially, is farmed in Calabria, and the south of Italy is notoriously less developed than the north, it’s a bit of a stretch to argue that the workers need the Body Shop’s protection to get a fair wage.
November 19, 2008
A guest post on the Freakonomics blog, based on a best selling book and hosted by the New York Times, caught my attention this evening. The post notes the fact that a whole swath of counties across the American south and southeast voted much more strongly Republican this year than in 2004, and discusses whether racism was the primary driver for this embrace of the right. After doing some regressions controlling for the level of education, age, rural / urban divide and percentage of blacks and other minorities both in the county itself and in the state where it is located, he determines that counties that voted for McCain in significantly higher proportions than voted for Bush in 2004 are predominantly white populated counties that live in states which are more racially mixed. In other words, white people who live with blacks voted in a more “racist” manner than other whites.
While reading this post and trawling through the accompanying NYTimes map, I wanted to know something else. Which county in America voted most solidly for John McCain? As far as I can detect (though I challenge you to be dorkier than me and look through every county, not just the southern ones), that particular honour goes to King County Texas. 93% of voters in King County voted for McCain. So who lives in King County? According to Wikipedia and the 2000 census, 356 people, 236 of which were voting age (the New York Times reports 151 of them voted for McCain, 8 for Obama and 3 for other candidates). Main economic livelihood? Cattle farming and, unsurprisingly, oil production, which might be a stronger predictor than race of your willingness to vote for a ticket who’s unofficial motto is “drill baby drill.”
And which county voted most solidly for Obama, you ask? Washington DC at 93% (whose demographics require less research than those of King County). So while McCain is King in King County, Obama is King in the capital. A very appropriate place to be king indeed.
November 18, 2008
When I was in elementary school in Pinetop-Lakeside, Arizona my third grade class performed a musical called “The Good ‘Ol 1890s.” I remember a frankly insane amount of the songs and dialogue that were involved (“in the good ol 1890s, life was really a ball! Horses, horses, clippity clop, a day on the trolley was such an event…”). There was one song about the Alaskan Klondike, one about the Irish-American boxer John L. Sullivan (“shake a hand that shook the hand of John L. Sullivan, also known as the great John. L!”) and one about the suffragettes (“the pie-baking, president making, Petticoat Vote of the USA”). I wore a long purple dress and a matching hat that my mother must have designed for me.
I’m telling you all of this for two reasons, neither of which are very important. First, the play was the inspiration for the title of this post. And second because the post is actually about another memory from a far less distant past that I am about to tell you about. Just now, while doing some research for a paper I’m writing about irrational financial markets, I came across a Financial Times article from July 2000 with news that Telecom Italia had purchased a 30% stake in a Brazilian Internet provider, Globo.com for $810 million, putting the value of the site at more than $2 billion. Globo.com was the website for Brazil’s largest news and television channel, O Globo.
During my first week of work as an analyst at JPMorgan in September 2001 my boss asked me to do a valuation of Telecom Italia’s stake in the site, which my division had sold to Telecom Italia just over one year before. By way of background, I was as green as analysts come. Other than the intensive summer training JPMorgan had given me, I had absolutely no background in anything related to finance. My skills in doing things like valuing companies were exceptionally rudimentary. But away I went, slightly terrified, to complete my first task.
I toiled away with a spreadsheet for a day or so, seeking help from the other people on my “team” where possible (not that there was much of a spirit of teamwork around the place), and finally came up with a number. I don’t think I’ll be revealing any important trade secrets by telling you that the valuation that I came up with was $16 million. A mere 2% of the price we had sold the company for a year before. I spent a sleepless night (common around JPM in any case) staring at the sheet, wondering what I had done wrong. I finally came to the conclusion that I didn’t know what I had done wrong, and brought it to my boss. He took it without saying a word, looked at it and used a four-letter word. Not because I had done something tremendously stupid, as I feared, but because a valuation of $16 million looked about right and it was going to create a number of problems for our relationship with the client.
Why am I telling you all of this? Because that deal was made at the long end of what we could call the good ol 1990s. When there were billboards on Highway 101 between Palo Alto and San Francisco, California for new businesses such as “cheesegrater.com” (I kid you not) and I and everyone I knew at Stanford was busily registering domain names for businesses we would never found. I registered one named after a Brazilian snack food, for some reason. The boyfriend of a Stanford friend IPO’d a business which had no real business plan and made himself over a million dollars. There was a collective madness.com.
And then came the crash. The dotcom bust wiped $5 trillion dollars of value from technology stocks, and basically made the Nasdaq irrelevant. Another boom and bust cycle in the global economy had come to pass. And yet, the economy recovered, despite the dire predictions made at the time. The point I’m trying to make (in an admittedly extremely tangential way) is that boom and busts are normal. The front page of yesterday’s FT stated that predictions are that the UK is facing its worst recession since 1991. But inside, on the Comments page, the columnists were all describing the current crisis as the worst since the Great Depression. Note the disconnect – data predicts (not even provides evidence for) the worst crisis since 1991, analyst says worst crisis since the Great Depression. It seems to me another demonstration that mass hysteria is fuelling this financial crisis. A bit the way mass hysteria fuelled the person who put up a billboard for chessgrater.com, or the person who spent more than $800 million to by a Brazilian news site.
November 18, 2008
Every once and a while, the Financial Times runs a section called “business education.” Inevitably, the section is filled with advertisements for MBA programmes. Today though one ad in particular caught my attention. It asked “Crisis or opportunity?” And then had some text, which explained that the question referred to whether the crisis would generate opportunities for “the exceptional to see solutions.” But I understood something different: the crisis, i.e. the loss of your well-paid job in the financial sector, created an opportunity for you to pursue an MBA at the Imperial College London Business School. And I don’t think that my misunderstanding was an accident – the ad was written to suggest this.
There is in fact no hard evidence (that I could find anyway) that during periods of economic downturn applications to graduate school (including business programmes) goes up significantly. But that is surely the common wisdom amongst college campuses. Within my own department, the possibility for a particularly strong applicant pool and intake for next year’s post-graduate degrees has already been mentioned. There are at least two reasons to believe that academia is “counter-cyclical.” First, undergraduate students who during strong economies would finish their degrees and go seek jobs in the “real world” will be more likely to stick around campus to pursue a master’s degree. Secondly, out of work business people will go and get an MBA, or embark on something further afield that has long been a dormant interest (though I don’t quite believe the member of my department that suggested that these sort of people are likely to fall into PhDs – one needs a much stronger motivation to engage in years of painful unpaid research than unemployment!)
In any case, if there’s any truth to the idea that recession is good for academic business, it’s good news for our house, seeing as both of our two incomes come from the Ivory Tower. Maybe particularly good news in my case. Several years ago all of the students in my classes were interested in trade (trade and finance being the two sides of the discipline I teach in, International Political Economy). Now no one can get enough of finance. Paradoxically, financial crises are doubly good for my business.