Cannibalism in Ireland

Cannibalism within most animal species arises only in extreme circumstances. It is not clear to me why this is less prevalent than intra-species killing, as the latter has a clear negative impact on the survival of the species, whereas eating already dead fellows has no impact. In any case, there is a huge taboo on cannibalism, and humans are no different. But it happens in extreme situations, and famine may be one.

Cormac Ó Gráda studies the incidence of cannibalism during famines and focuses on Ireland. Unlike for other great famines elsewhere or before, conclusive evidence for cannibalism and especially murder-cannibalism seems difficult to find for 19th century Ireland. The famine was certainly severe enough for some hearsay about it to emerge, perhaps figuratively. Does the lack of a record imply that the Irish are more humane and principled? Or that the taboo is so strong that cannibalism is unmentionable? While the paper provides an interesting analysis of the historical record, answers to these questions would also be interesting.

A Message from John Lithgow

Something happening in reaction to nothing

Prices reflect information. We tend to test this by looking at how the revelation of new information has an impact on prices, in particular on the stock market. But the fact that no information is being revealed may also be informative, and this could lead to price changes. The question is then whether market participants are attentive enough to notice no information is coming.

Stefano Giglio and Kelly Shue study this by checking on price changes after a merger or acquisition proposal has been revealed. Sometimes they are not getting finalized, and the longer nothing happens, the longer it should become clear the fusion is off. Thus, prices should, all else equal, revert to pre-announcement levels. Looking at 5000 mergers, they find that prices underreact to the absence of news. Either there is a behavioral issues, such as Bayesian updating not working properly when there is no event to update, or there could be a rational explanation in that risk exposure, frictions or asymmetric information issues could be changing as the merger proceeds (or not). Giglio and Shue cannot exclude any of these explanations but show that the behavioral one is certainly consistent with the data. That would mean that there are opportunities to make money lying out there...

Beethoven's Fifth

A performance not to be missed.

The IMF is Unfair (Duh): Japan v Egypt

That the IMF has special and differential treatment for developed countries over developing countries is an unoriginal criticism of the institution. For whatever reason, rich donor countries do not get long sermons about fiscal profligacy, burgeoning deficits, and the need for belt tightening. On the other hand, poor borrower countries are given long sermons about fiscal rectitude, out-of-whack deficits, and the need for austerity. In other words, the poor need to bear the brunt of socially dislocating and harmful policies, while the rich go scot-free.

The recent global financial crisis has been an opportunity for the IMF to prove otherwise. As its recently disgraced and departed former leader suggested, this is supposedly no longer the big, bad IMF that prescribed "structural adjustment" as a "one size fits all" remedy to financial crises globally. Hah! To demonstrate continuing unfairness, let's begin with Japan whose national debt is beyond an unthinkable 200% of GDP. Would they receive a gentle warning from the IMF? Heck no--they are being encouraged to run even larger deficits by having the central bank purchase long-term JGBs:

Christine Lagarde has welcomed the huge monetary stimulus plan unveiled by Japan and says it will help to boost global growth at a time when the outlook is already starting to improve...Christine Lagarde has welcomed the huge monetary stimulus plan unveiled by Japan and says it will help to boost global growth at a time when the outlook is already starting to improve.

Could this "IMF [Hearts] Megadeficits" stance have something to do with Japan constantly filling the international lender's coffers?

In November 2008, in the wake of the Lehman collapse, then prime minister Taro Aso – now finance minister and deputy to prime minister Shinzo Abe – offered the IMF up to $100bn in temporary funds, while calling on other member countries to inject additional permanent capital. And when the IMF asked member states for more capital last year to boost its firepower, Japan was first to commit. Its $60bn pledge was also the largest from any country, helping to lift the total loans available to the IMF above $1tn.

“When the global economy faced its darkest hours, you stood by your fellow global citizens,” Ms Lagarde told a Tokyo forum last July. Japan’s actions, she said, had helped “stave off an even more dire global economic collapse”.

Yes, whatever--on to a national debt that's 300% of GDP (with IMF approval to boot). From Japan as a prime example of a rich nation that gets a free pass, let's turn our attention to Egypt as a repeat customer that gets a bum rap. I am certainly not a fan of the Islamist regime currently in power that has next to no understanding of world politics, international finance and so forth, but the contrast in how it is treated is stark given that the heart of the matter in both cases deals with fiscal irresponsibility. Does the IMF gladly advocate pump priming and other neo-Keynesian measures for Egypt? No. Instead, it's a Washington Consensus-like diet of killing subsidies, austerity and so forth that's held up a $4.8B deal:

Egypt is stalling on the terms of a $4.8 billion International Monetary Fund loan to help it fight a deepening economic crisis, and no deal is likely while an IMF team is in Cairo, diplomats said on Sunday. The IMF mission is set to leave on Tuesday after nearly two weeks of talks, and negotiations may continue on the sidelines of this week's IMF ministerial meetings in Washington, they said...

An IMF programme could help stabilise Egypt's economy in the rocky transition to democracy since the 2011 overthrow of former President Hosni Mubarak, unlocking up to $15 billion in aid and investment to improve a dismal business climate. But diplomats and politicians say Islamist President Mohamed Mursi had yet to endorse required tax increases and subsidy cuts that prompted him to halt implementation of an earlier IMF deal in December, two weeks after it was agreed in principle. "The mission said it is waiting until now for the government to present some of the roadmap related to reforming the economic system," Abdullah Badran of the hardline Islamist Nour party told Reuters after meeting the IMF team...

The news article also has interesting commentary on Egypt being too important to fail in Western eyes resulting in less harsh conditionalities than would otherwise be demanded by the IMF. That said, many Egyptians are clamouring for the ever-elusive conditionality-free loan. At this point, even the IMF is baulking at the suggestion. Just as before, I expect it all to end rather badly. Nevertheless, I am flummoxed by the suggestion that Japan can get away and is even encouraged to run megadeficits while Egypt gets the stick while its people are clearly suffering the effects of economic turmoil.

It's an unfair world where deficits matter for some but not for others according to international financial institutions, but hey, it was like that long before I got here. 

Rethinking Macro

The IMF is holding a conference "Rethinking Macro" on April 16-17.  You can watch a live webcast.  Click here for information.

Congratulations, Raj

My Harvard colleague Raj Chetty has won the John Bates Clark Medal.