<![CDATA[Hedgehogs.net: '' related content]]> http://www.hedgehogs.net/tag/economic+theories?view=rss http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11454672/house-prices-better-seasonal-adjustment-real-prices-and-pricetorent-ratio-in-november Thu, 29 Jan 2015 10:57:35 +0000 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11454672/house-prices-better-seasonal-adjustment-real-prices-and-pricetorent-ratio-in-november <![CDATA[House Prices: Better Seasonal Adjustment; Real Prices and Price-to-Rent Ratio in November]]> This morning, S&P reported that the National index increased 0.8% in October seasonally adjusted. However, it appears the seasonal adjustment has been distorted by the high level of distressed sales in recent years. Trulia's Jed Kolko wrote in August: "Let’s Improve, Not Ignore, Seasonal Adjustment of Housing Data"
The housing crisis substantially changed the seasonal pattern of housing activity: relative to conventional home sales, which peak in summer, distressed home sales are more evenly spread throughout the year and sell at a discount. As a result, in years when distressed sales constitute a larger share of overall sales, the seasonal swings in home prices get bigger while the seasonal swings in sales volumes get smaller.

Sharply changing seasonal patterns create problems for seasonal adjustment methods, which typically estimate seasonal adjustment factors by averaging several years’ worth of observed seasonal patterns. A sharp but ultimately temporary change in the seasonal pattern for housing activity affects seasonal adjustment factors more gradually and for more years than it should. Despite the recent normalizing of the housing market, seasonal adjustment factors are still based, in part, on patterns observed at the height of the foreclosure crisis, causing home price indices to be over-adjusted in some months and under-adjusted in others.
Better House Price Seasonal AdjustmentKolko proposed a better seasonal adjustment:

This graph from Kolko shows the weighted seasonal adjustment (see Kolko's article for a description of his method). Kolko calculates that prices increased 0.6% on a weighted seasonal adjustment basis in November - as opposed to the 0.8% SA increase and 0.1% NSA decrease reported by Case-Shiller.

The "better" SA (green) shows prices are still increasing, but more slowly than the Case-Shiller SA.

The expected slowdown in year-over-year price increases is ongoing. In November 2013, the Comp 20 index was up 13.8% year-over-year (YoY). Now the index is only up 4.3% YoY. This is the smallest YoY increase since October 2012 (the National index was up 10.9% YoY in October 2013, is now up 4.7% - a little more than the YoY change last month).

Looking forward, I expect the YoY increases for the indexes to move more sideways (as opposed to down).  Two points: 1) I don't expect the indexes to turn negative YoY (in 2015) , and 2) I think most of the slowdown on a YoY basis is now behind us. This slowdown in price increases was expected by several key analysts, and I think it is good news for housing and the economy.

In the earlier post, I graphed nominal house prices, but it is also important to look at prices in real terms (inflation adjusted).  Case-Shiller, CoreLogic and others report nominal house prices.  As an example, if a house price was $200,000 in January 2000, the price would be close to $277,000 today adjusted for inflation (39%).  That is why the second graph below is important - this shows "real" prices (adjusted for inflation).

Another point on real prices: In the Case-Shiller release this morning, the National Index was reported as being 9.1% below the bubble peak.   However, in real terms, the National index is still about 23% below the bubble peak.

Nominal House Prices

Nominal House PricesThe first graph shows the monthly Case-Shiller National Index SA, the monthly Case-Shiller Composite 20 SA, and the CoreLogic House Price Indexes (through November) in nominal terms as reported.

In nominal terms, the Case-Shiller National index (SA) is back to April 2005 levels, and the Case-Shiller Composite 20 Index (SA) is back to November 2004 levels, and the CoreLogic index (NSA) is back to February 2005.

Real House Prices

Real House PricesThe second graph shows the same three indexes in real terms (adjusted for inflation using CPI less Shelter). Note: some people use other inflation measures to adjust for real prices.

In real terms, the National index is back to March 2003 levels, the Composite 20 index is back to September 2002, and the CoreLogic index back to March 2003.

In real terms, house prices are back to early '00s levels.

Price-to-Rent

In October 2004, Fed economist John Krainer and researcher Chishen Wei wrote a Fed letter on price to rent ratios: House Prices and Fundamental Value. Kainer and Wei presented a price-to-rent ratio using the OFHEO house price index and the Owners' Equivalent Rent (OER) from the BLS.

Price-to-Rent RatioHere is a similar graph using the Case-Shiller National, Composite 20 and CoreLogic House Price Indexes.

This graph shows the price to rent ratio (January 1998 = 1.0).

On a price-to-rent basis, the Case-Shiller National index is back to April 2003 levels, the Composite 20 index is back to October 2002 levels, and the CoreLogic index is back to April 2003.

In real terms, and as a price-to-rent ratio, prices are mostly back to early 2000 levels - and maybe moving a little sideways now.

]]>
11454672
http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11454624/house-prices-better-seasonal-adjustment-real-prices-and-pricetorent-ratio-in-november Thu, 29 Jan 2015 10:56:18 +0000 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11454624/house-prices-better-seasonal-adjustment-real-prices-and-pricetorent-ratio-in-november <![CDATA[House Prices: Better Seasonal Adjustment; Real Prices and Price-to-Rent Ratio in November]]> This morning, S&P reported that the National index increased 0.8% in October seasonally adjusted. However, it appears the seasonal adjustment has been distorted by the high level of distressed sales in recent years. Trulia's Jed Kolko wrote in August: "Let’s Improve, Not Ignore, Seasonal Adjustment of Housing Data"
The housing crisis substantially changed the seasonal pattern of housing activity: relative to conventional home sales, which peak in summer, distressed home sales are more evenly spread throughout the year and sell at a discount. As a result, in years when distressed sales constitute a larger share of overall sales, the seasonal swings in home prices get bigger while the seasonal swings in sales volumes get smaller.

Sharply changing seasonal patterns create problems for seasonal adjustment methods, which typically estimate seasonal adjustment factors by averaging several years’ worth of observed seasonal patterns. A sharp but ultimately temporary change in the seasonal pattern for housing activity affects seasonal adjustment factors more gradually and for more years than it should. Despite the recent normalizing of the housing market, seasonal adjustment factors are still based, in part, on patterns observed at the height of the foreclosure crisis, causing home price indices to be over-adjusted in some months and under-adjusted in others.
Better House Price Seasonal AdjustmentKolko proposed a better seasonal adjustment:

This graph from Kolko shows the weighted seasonal adjustment (see Kolko's article for a description of his method). Kolko calculates that prices increased 0.6% on a weighted seasonal adjustment basis in November - as opposed to the 0.8% SA increase and 0.1% NSA decrease reported by Case-Shiller.

The "better" SA (green) shows prices are still increasing, but more slowly than the Case-Shiller SA.

The expected slowdown in year-over-year price increases is ongoing. In November 2013, the Comp 20 index was up 13.8% year-over-year (YoY). Now the index is only up 4.3% YoY. This is the smallest YoY increase since October 2012 (the National index was up 10.9% YoY in October 2013, is now up 4.7% - a little more than the YoY change last month).

Looking forward, I expect the YoY increases for the indexes to move more sideways (as opposed to down).  Two points: 1) I don't expect the indexes to turn negative YoY (in 2015) , and 2) I think most of the slowdown on a YoY basis is now behind us. This slowdown in price increases was expected by several key analysts, and I think it is good news for housing and the economy.

In the earlier post, I graphed nominal house prices, but it is also important to look at prices in real terms (inflation adjusted).  Case-Shiller, CoreLogic and others report nominal house prices.  As an example, if a house price was $200,000 in January 2000, the price would be close to $277,000 today adjusted for inflation (39%).  That is why the second graph below is important - this shows "real" prices (adjusted for inflation).

Another point on real prices: In the Case-Shiller release this morning, the National Index was reported as being 9.1% below the bubble peak.   However, in real terms, the National index is still about 23% below the bubble peak.

Nominal House Prices

Nominal House PricesThe first graph shows the monthly Case-Shiller National Index SA, the monthly Case-Shiller Composite 20 SA, and the CoreLogic House Price Indexes (through November) in nominal terms as reported.

In nominal terms, the Case-Shiller National index (SA) is back to April 2005 levels, and the Case-Shiller Composite 20 Index (SA) is back to November 2004 levels, and the CoreLogic index (NSA) is back to February 2005.

Real House Prices

Real House PricesThe second graph shows the same three indexes in real terms (adjusted for inflation using CPI less Shelter). Note: some people use other inflation measures to adjust for real prices.

In real terms, the National index is back to March 2003 levels, the Composite 20 index is back to September 2002, and the CoreLogic index back to March 2003.

In real terms, house prices are back to early '00s levels.

Price-to-Rent

In October 2004, Fed economist John Krainer and researcher Chishen Wei wrote a Fed letter on price to rent ratios: House Prices and Fundamental Value. Kainer and Wei presented a price-to-rent ratio using the OFHEO house price index and the Owners' Equivalent Rent (OER) from the BLS.

Price-to-Rent RatioHere is a similar graph using the Case-Shiller National, Composite 20 and CoreLogic House Price Indexes.

This graph shows the price to rent ratio (January 1998 = 1.0).

On a price-to-rent basis, the Case-Shiller National index is back to April 2003 levels, the Composite 20 index is back to October 2002 levels, and the CoreLogic index is back to April 2003.

In real terms, and as a price-to-rent ratio, prices are mostly back to early 2000 levels - and maybe moving a little sideways now.

]]>
11454624
http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11454239/why-qe-in-europe-will-fail Thu, 29 Jan 2015 08:38:36 +0000 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11454239/why-qe-in-europe-will-fail <![CDATA[Why QE in Europe Will Fail]]> The fear of deflation has become the cornerstone of Keynesian economic thought. A lack of inflation has been used to explain periods of economic weakness from the Great Depression of the 1930s, to the Great Recession 2008-2009.

]]>
11454239
http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11453540/frederic-bastiat-football-punditry Thu, 29 Jan 2015 03:58:40 +0000 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11453540/frederic-bastiat-football-punditry <![CDATA[Frederic Bastiat & football punditry]]>

In the day job I call Arsene Wenger a great economist. I'm making a serious point.

read more...

]]>
11453540
http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11450149/bloomberg-editorial-board-loses-mind Thu, 22 Jan 2015 00:19:49 +0000 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11450149/bloomberg-editorial-board-loses-mind <![CDATA[Bloomberg Editorial Board Loses Mind]]>
ECB Cannot Save Europe

The Bloomberg editorial board says Not Even Mario Draghi Can Save Europe Now.

I certainly agree with that title. Had that been the entire article in and of itself, I would have said "the Bloomberg editorial board gets it".

Unfortunately, the editors didn't stop with the headline. Instead the editors proposed "The ECB needs to surprise financial markets with a bigger-than-expected announcement."

It gets better ...

The board says Draghi should go for outright shock and awe. .... He could say that monetary policy, as he understands it, includes the option of "helicopter money" -- and that the bank would shortly begin sending out checks to every EU citizen.

Such a scheme would be illegal of course. But hey, that's no problem.

Legal or not, helicopter money would be a frontal repudiation of the monetary conservatism that Germany's government and others have sought to impose on the bank.

Not even Draghi can save Europe, but let's do illegal things anyway to prove it. Wow.

Eurozone Structural Problems

The problems in Europe are insurmountable, and well understood by many.

  • No fiscal union
  • Wildly differing social agendas of member states
  • Wide variances in productivity
  • Wage discrepancies
  • Retirement benefit discrepancies
  • One size fits all monetary policy
  • To make treaty changes every eurozone country must agree
  • Target2 imbalances

What the hell good would even €5 trillion in QE do to fix those?

What good would it do if the ECB bought every bond from every country and pushed rates to zero across the board? How would it fix any structural problem?

More QE Will Not Help the World, says Mervyn King

I seldom agree with central bankers, especially when they hold that position. On occasion, however, once outside their official role, they regain some sense of sanity.

For example, More QE will not help the world, says Mervyn King.
More monetary stimulus will not help the world economy return to strong growth, former Bank of England governor Mervyn King said, days before the European Central Bank is expected to decide whether to embark on a massive bond-buying programme.

"We have had the biggest monetary stimulus that the world must have ever seen, and we still have not solved the problem of weak demand. The idea that monetary stimulus after six years ... is the answer doesn't seem (right) to me," he added.
Pettis, Jakobsen Chime In

Saxo Bank chief economist Steen Jakobsen made the claim the other day that QE was actually counterproductive.

Here is Steen's actual statement: "Lower Interest Rates May Reduce Consumption".

That may sound shocking, but his rationale is sound. Michael Pettis at China Financial Markets and Lacy Hunt at Hoisington Management both agreed.

Grand Experiment Failure

I wrote Steen's theory in Grand Experiment Failure; Bankers Prefer Bubbles; Europe is not USA; Final Epitaph, a rebuttal to Bloomberg author Barry Ritholtz, also in favor of massive QE.

Instead of repeating myself again, I simply ask the editorial board and Ritholtz to "Read, Then Think!"

Deflation fighting efforts ruined Japan, but somehow deflation fighting is supposed to cure Europe?! It makes no sense. Nonetheless, people believe central bank parroting instead of thinking on their own.

Deflation Fighting Silliness

Let's once again review my Challenge to Keynesians "Prove Rising Prices Provide an Overall Economic Benefit"

I also strongly suggest the editorial board review Deflationary Spiral Nonsense; Keynesian Theory vs. Practice; Eurozone Policymakers Concerned About Falling Prices.

For a third take on the insanity of fighting consumer price deflation, please see Deflation Bonanza! (And the Fool's Mission to Stop It).

Problem is Debt

The problem with the global economy in general is debt. You cannot cure a debt-deflation problem via attempts to force more debt into the system. It is axiomatic the cure cannot be the same as the disease.

Bloomberg, please go back to the drawing board.

Next Time .... Think!



Link if video does not play: The Blues Brothers - Aretha Franklin.

The ECB, central bankers in general, the Bloomberg editorial board,  Monetarists,  and Keynesians, all need to step back and "Think!" about what they are trying to do (and why it cannot possibly work).

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com]]>
11450149
http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11450148/deflation-bonanza-and-the-fools-mission-to-stop-it Thu, 22 Jan 2015 00:19:46 +0000 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11450148/deflation-bonanza-and-the-fools-mission-to-stop-it <![CDATA[Deflation Bonanza! (And the Fool's Mission to Stop It)]]>
The recent move in the Swiss franc puts a spotlight on the issue. For example, on Sunday, in Swiss Peg Removal: Did Anyone Win? I commented ...
One widely recognized "big loser" is the tourism industry. For sure, hotel prices in Switzerland rose as much as 40% overnight compared to prices elsewhere.

But Swiss grocery shoppers buying food imports from France, Spain, and the rest of Europe benefit mightily.

Which of those is more important? I suggest the benefit to Swiss shoppers is more important, at least in the grand scheme of things. Moreover, those consumers will have more money to spend on other things ... like restaurants, travel and hotels.
Shopping Bonanza!

On Monday came a Wall Street Journal story that exactly matched my prediction: Soaring Franc Creates Bonanza in Swiss Stores.
The soaring Swiss franc that caused howls in financial markets is creating a bonanza in stores, where shoppers are suddenly getting discounts on everything from vegetables to party dresses.

On Monday, Basel-based Coop said it was cutting prices on more than 200 types of fruit and vegetables imported from the European Union. The supermarket chain, Switzerland’s second-largest retailer behind Migros, said further price cuts for imported fish, poultry and cheese were also in the works.

Coop isn’t the only retailer going into bargain mode. Furniture chains, travel agencies and fashion companies are among the retailers slashing prices to rope in shoppers.

“For us housewives, this is welcome news for our daily shopping,” said Anita Mueller, who was perusing sales on Banhofstrasse, Zurich’s main thoroughfare, on Monday morning.

Even luxury stores are passing on the savings. The window of Grieder & Cie., a high-end department store in Zurich’s shopping district, bore a message informing shoppers their money would go further.

“Due to the sudden rise of the Swiss franc against the euro and to give us time to adjust our prices to the move, we are now offering a 20% discount on all of our non-reduced goods for an indefinite time,” the message read.

Swiss consumers are also taking advantage of their improved buying power by crossing into Germany. BVB, the transportation authority in Basel, added more trams to the border town of Weil am Rhein to accommodate the rush of Swiss bargain hunters looking to take advantage of their muscular Swiss francs.

TUI Suisse, one of Switzerland’s biggest tour operators, cut prices by 15% on vacation packages to sunny destinations around Mediterranean Sea. Tours of Greece, Spain, Turkey, Italy and Portugal are all included in the sale, which is dubbed the “euro discount.” TUI Suisse, which has branches in many shopping malls across Switzerland, is also lowering prices on trips to Morocco and Egypt for departures through the summer.
Don't Cry For Exporter Yet

In Swiss Peg Removal: Did Anyone Win? I also commented ...

"Conventional wisdom is that Swiss exporters will be crucified and importers will benefit. Certainly there is an initial shock. But long-term, look at it this way: The price of materials used in exports (metals in watches and Swiss-made machinery) will get cheaper. ...

So, don't cry for exporters just yet.

US Dollar vs. Swiss Franc



Last Thursday, the value of the Swiss Franc related to the US dollar soared as much as 28 percent. About half of that has been recovered.

Swiss exporters will find they can import commodities about 14% cheaper than early last week. They do lose out on current inventories of goods, but this is not the widely-believed export disaster story except for the initial stock market carnage.

Guess What?

Shoppers are shopping! They are even booking extra trains to Germany to do so. Fancy that! Other travel is up as well. Gee who coulda thunk?

The widespread belief is that when prices fall, shoppers will wait and wait and wait. I Have been mocking that view for years.

Economic Challenge to Keynesians

Let's once again review my Challenge to Keynesians "Prove Rising Prices Provide an Overall Economic Benefit"
Challenge to Keynesians

I challenge Keynesians and Monetarists to prove rising prices provide an overall economic benefit.

Sure, those with first access to money benefit (the banks, the already wealthy, and government bodies via taxation). But that is at the expense of everyone else.

The absurd underlying notion behind the battle cry for inflation is that if prices fall people will stop buying things and the economy will collapse.

Reality Check Questions

  • If price of food drops will people stop eating?
  • If the price of gasoline drops will people stop driving?
  • If price of airline tickets drop will people stop flying?
  • If the handle on your frying pan falls off or your blow-dryer breaks, will you delay making another purchase because you can get it cheaper next month?
  • If computers, printers, TVs, and other electronic devices will be cheaper next year, then cheaper again the following year, will people delay purchasing electronic devices as long as prices decline?
  • If your coat is worn out, are you inclined to wait another year if there are discounts now, but you expect even bigger discounts a year from now?
  • Will people delay medical procedures in expectation of falling prices?
  • If deflation theory is accurate, why are there huge lines at stores when prices drop the most?

Bonus Question

If falling prices stop people from buying things, how are any computers, flat screen TVs, monitors, etc., ever sold, in light of the fact that quality improves and prices decline every year?
Krugmanites Cheer Abenomics

The idea that falling consumer prices will lead to a downward spiral is absurd. Everyone in Japan would have died long ago if that was true.

Instead of accepting the gift of falling prices (a clear benefit to consumers), Japan fought it every step of the way with the Krugmanites cheering every step of the way.

Japan Deflation Fighting Results

  • Japan has gone from being the largest creditor nation in the world to being the largest debtor nation in the world
  • Japan now has the largest debt-to-GDP ratio of any developed country, roughly 250% of GDP.
  • Japan has totally and completely squandered every bit of its savings.
  • Keynesians cheered every step of the way, amazingly concluding, Japan failed because it did not spend enough!

Keynesian Theory vs. Practice

Keynesian theory says consumers will delay purchases if prices are falling. In practice, all things being equal, it's the opposite.

If consumers think prices are too high, they will wait for bargains. It happens every year at Christmas and all year long on discretionary items not in immediate need.

Central Banking's Grand Experiment

In spite of the above, and ignoring the total failure of both Monetarism and Keynesianism in Japan for decades, on January 15, Bloomberg author Barry Ritholtz came out in praise of Central Banking's Grand Experiment.

I took the other side of the debate in Grand Experiment Failure; Bankers Prefer Bubbles; Europe is not USA; Final Epitaph.

In praise of the Fed (and with a pointed finger at the ECB), Ritholtz proposed this tombstone epitaph for Bernanke “At least we tried".

I responded ...
And here's the irony: “At least we tried [to create inflation]” is not only the essence of the rising income inequality problem that Fed Chair Janet Yellen (and countless others) moan about, it's also the very essence of the ever-increasing debt problem the world faces.

Final Epitaph

Ritholtz offered his epitaph. Here's mine. It's in regards to today's central bankers in general, written from the perspective of future historians.

"These fools thought the world needed 2% inflation, thought they could end the business cycle and recessions, and thought they could steer the global economy like a car on a curvy, mountainous roadway. The actual result was a series of economic bubbles of increasing magnitude, culminating with the currency crises of [date]."

Addendum:

Lacy Hunt at Hoisington Management pinged me with this interesting thought: "Academic research indicates that QE in the US contracted rather than expanded economic activity, just as it did in Japan. Thus, Steen could have made the even stronger case that since it didn’t work in the US or Japan, it will not work in for the ECB."

To that I will add, I am positive Lacy is correct. Any alleged economic benefit of QE was a monetary illusion coupled with enormous "temporarily" hidden costs.


  1. Bubbles in equities and junk bonds
  2. Expansion of wealth inequality
  3. Massive increase in debt 100% guaranteed to slow future growth

Contrary to widespread popular belief, constant meddling in free markets never provides long-term economic benefits.
Asset Deflation vs. Consumer Price Deflation

Central Bankers to the Rescue - Not.

The fear of falling consumer prices is absurd.

Ironically, by fighting routine price deflation, central banks create asset inflation, pent-up volatility (the Swiss franc is a prime example), speculative bubbles of increasing amplitude (housing is a prime example), and income inequality.

When those asset bubbles break, banks are inevitably in trouble over loans made on speculative assets (for example housing bubbles or more recently loans made on wells that need $90 oil to be profitable).

Then, the central bankers inevitably try to ease the shock, further encouraging moral-hazard speculation. The pattern repeats over and over creating bubbles of ever-increasing magnitude.

Musical Tribute

In spite of central bank foolishness, a musical tribute is in order.



Link if video does not play: Bonanza

Simpler Epitaph for Central Bankers

In retrospect, my above proposed tombstone epitaph for central bankers is far too long. I now propose a far simpler gravestone engraving "We F'd Up".

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com]]>
11450148
http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11449947/a-lucky-chancellor Wed, 21 Jan 2015 23:40:57 +0000 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11449947/a-lucky-chancellor <![CDATA[A lucky chancellor]]> 11449947 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11448949/the-new-economics-of-the-left Wed, 21 Jan 2015 20:37:31 +0000 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11448949/the-new-economics-of-the-left <![CDATA[The New Economics of the Left]]> According to this article, some members of the Democratic party are moving from mainstream to heterodox economic theory. If Bernie Sanders runs for the Democratic presidential nomination, as now appears likely, this development should keep things entertaining for us econonerds.

]]>
11448949
http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11448204/heterodox-economics-the-left Wed, 21 Jan 2015 11:28:38 +0000 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11448204/heterodox-economics-the-left <![CDATA[Heterodox economics & the left]]>

Simon and Tony's impatience with heterodox economics makes me wonder: what is the link between this and political leftism?

read more...

]]>
11448204
http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11447506/silicon-valley-economists-meet-the-market-shapers Wed, 21 Jan 2015 04:18:24 +0000 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11447506/silicon-valley-economists-meet-the-market-shapers <![CDATA[Silicon Valley economists: Meet the market shapers]]>
MOCKING economists is easy sport. They try to predict the future yet missed the 2008 crash, and make bizarre assumptions that cannot hold true. Other offences on the checklist include their narrow academic outlook and lack of exposure to the “real world” of business. The onslaught is common, and hard to refute. But at a turning point the herd tends to be wrong. Economics is evolving, with a mission to solve firms’ real-life problems at its heart. Not unusually, the innovation is most obvious—for now—in Silicon Valley.For Bryan Balin of SmarterTravel, a subsidiary of TripAdvisor, a travel website, economics has to be lightning quick. Only 1% of a typical travel site’s visitors buy a flight, hotel or holiday before browsing away. Popular vendors can have a lot of viewer flow, but take revenues from only a tiny fraction of them. It is paramount to sift the buying wheat—to be guided as quickly as possible to the product they want—from the window-shopping chaff, who can be bombarded with advertising for other products, lifting the website’s profit.Mr Balin helps crack that problem. In the first few seconds a visitor spends on SmarterTravel’s site an algorithm...

]]>
11447506