Trends: France vs the US

While I was doing some data mining using Google statistical tools, a neat idea popped up. What would happen if I pit two or more similar/dissimilar things against each other? Which one is more popular (based on search volume)? In this little experiment, I compared France to the US.

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1) When I compared the search term “France” to the search term “America”, the former was found to be more popular generating higher level of interests.

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2) When I compared the search term “French” to “American”, the latter was overwhelmingly more popular.

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3) When I compared France’s ageless wonder “Eiffel Tower” to America’s greatest monument “The Statue of Liberty”, the latter edged the former by a small margin.

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The results were pretty much in line with what I had expected. France has a longer and much more illustrious history than the US, and thus it is not a surprise that the country generates more interest than America.The fact that Americans are more popular than the French is self-explanatory. Who would not want to be an American (sarcasm)?

The last result left me a little surprised. I thought the Eiffel Tower would have a slight edge over the Statue of Liberty; I was wrong. I guess people picked symbolic value over historic value. In summary, people like France but love Americans or being Americans. Liberty and freedom are loved as well.

Econ Sense: TMSWB

Check out my recent economic/technology article:
The Most Secure Web Browser

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Econ Sense: CEO Compensation, A Perspective

CEO salary/compensation has always been the subject of heated discussions. The main contention is with regards to the significant disparity between the salary of the average worker and that of a CEO; a typical CEO makes roughly 350 times more than the typical worker. While the position of CEO is one of great significance, it is hard for one to accept the notion that a CEO would be 350 times more productive than the average worker.

As an economist, I tend not to make inferences based on raw numbers. Economists don’t really care how much a CEO is paid as long as his or her performance justifies the huge salary. For example, a CEO’s actions are found to have improved the company’s profits by $10 billion. I have no problem with the company paying the person hundreds of millions of dollars a year in compensation; his salary is well-justified.

Unfortunately, measuring a CEO’s performance is an extremely difficult task. Business is highly cyclical with performance peaks and valleys. More importantly, luck (both good and bad) plays a critical role in the success or failure of a business. Case in point, the swine flu epidemic has brought booming sales of face masks and flu vaccines. One can’t really attribute the increased sales and revenues to the performance of pharmaceutical CEOs; this is more or less a random event.

As one can see, raw numbers do not always accurately reflect performance. Just because a company is making a profit doesn’t mean that the CEO’s actions have had a positive effect. In fact, a company could very well have made even more profits had not for the CEO’s bad decisions. Equally, a CEO should not be punished solely for the fact that the company is reporting a loss. It could very well be that the loss would have been larger had not for the CEO’s excellent stewardship.

The key question is whether or not CEOs are rewarded more for their luck than for their performance. Recent empirical findings have found that luck is greatly payable. CEOs of companies that are making a profit, no matter how small or underwhelmed it is, get paid much more than the CEOs of companies reporting a loss. Interestingly, CEOs generally get paid more in times of favorable business environment than in times of less favorable environment.

This seems to suggest that performance is not the dominant determinant of CEO compensation. In good economic times, everyone feels good and is thus willing to pay CEOs more regardless of their performance. On the other hand, good leadership during tough economic times is often overlooked and undervalued. The only silver lining is the fact that CEOs of profitable but under-performed companies tend to earn less than those of better performed firms within the industry. CEOs who perform well and have good luck are deservedly getting their share.

The unreliable measuring of CEO performance is the reason why some CEOs opt for fixed compensation over performance-based compensation. They don’t believe in the validity of performance metrics; they certainly don’t want to be punished for their bad luck while other CEOs are being rewarded for their good luck.

Another factor in play is the fact that it is almost impossible for a fired CEO to find a job; this prompts CEOs wanting greater financial security and fixed compensation is the likely answer. I will explore this issue further on my post on effective job search. It is my hope that you have gained some fresh perspectives on the issue of CEO compensation and will be less critical of some executives of bailout companies getting a well-deserved bonus.

[Simon N.]
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Econ Sense: Forecasting the Economy

There are two types of economists–the high profile and low profile ones. High-profile economists work for large governmental and academic institutions; they have access to the best data and analytical tools. The Fed chairman Ben Bernanke is a good example. Low-profile economists don’t have access to high quality data; they have to rely mostly on economic theories and common sense to gauge the health of the economy.

People often ask for my opinion as to when the U.S. economy will recover from the current economic malaise. As I am a low-profile economist, I can’t say exactly when the economy will turn around. But I can train people to look for signs of possible economic recovery. When these signs are detected, we would know that the economy has recovered or is very close to a full recovery.

The current economic recession in the U.S. was caused by the housing bubble; the economy won’t fully recover until the housing market has stabilized. Current housing demand, if there’s one, is driven by low home prices and low interest/mortgage rates. This clearly is an anomaly. Low interest rates tend to lead to higher inflation; this should have driven home prices higher and not lower. Unfortunately, bleak employment prospect and investment losses as well as adverse selection in the credit market are causing people to save more and buy less which create an upsurge in housing inventory. Additionally, the U.S. central bank is keeping interest rates artificially low to generate demands.

The housing market will not return to normal conditions unless home prices and interest/mortgage rates part ways. This means that there must be either high home prices and low mortgage rates or low home prices and high mortgage rates. There are numerous other predictors of the economy, but I think this one is the easiest for a non-expert person to grasp.

[Simon N.]

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Econ Sense: Casino Luck and Gambling Economics

Major gambling entities spend millions of dollars each year on the detection and prevention of high-frequency luck. While it is only natural that casinos and betting sites would want to eradicate cheating and fraud, some gamblers are being blacklisted or banned from casinos even though they have never been found to have cheated. People are apparently punished for being too lucky. This begs an intriguing question. Are the casinos money-hungry corporations who take advantage of the gambler’s misfortune while refusing to pay for their own misfortune?

Although I have no high regard for gambling firms, I would have to defend their calculated actions. The gambling business works much like the insurance business. Every time someone places a bet, he or she is actually contributing to a “fund”. The more people gamble the bigger the fund. If someone happens to win the bet, the casino will pay the winner with money from the fund. What is remained of the “fund” then becomes the casino’s profits. For the business to be profitable, the casino needs people to win less often than losing.

Since the odd of winning a bet is on average very low (5-10%), the gambling business is extremely lucrative. Casinos do not mind if you win money as long as the frequency of winning is low. If a gambler is consistently lucky, that would pretty much break the casino’s business model and severely cut into its profit. It is this reason which I believe gambling entities have every right to prevent such an anomaly as to remain financially viable. This is not unlike American insurance companies refusing to provide flooding/wind insurance to people living in the U.S. Gulf States where powerful storms are the norms.

If you have followed this blog for sometime, you would have come to realize how much I despise the gambling industry. I don’t mind gambling entities making money (lots of) even if it is on other people’s misfortunes. My grudge with them is with regards to what they have to do to grow their business. Since they need a constant inflow of new gamblers and people do not become gamblers without cause, gambling entities need to somehow motivate or create an environment for people to become gamblers.

In recent years, poker has become wildly popular in the United States. This is mostly due to high-stake poker tournaments becoming a fixture on American television. Additionally, poker websites are popping up everywhere offering big prizes for online tournaments. Call me naïve (sarcasm) but I don’t believe this is coincidental .The victims of the poker phenomenon appear to be young college students. These foolish youths are giving up dreams of becoming doctors and engineers in pursuit of career as professional poker players.

[Simon N.]

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