Are even the rich changing behaviour?

A couple years ago, I engaged in an rather intense discussion with a friend of mine about the future of oil prices. He holds the view of the classic peak oil theorist . The height of our debate was when I claimed that people will change behaviour and prices would come back down. He disagreed, stating that the world is hooked on oil and there is little room for change.

Now, a few years later, prices have continued to rise more (and much to my surprise). Although I continue to have egg on my face, I remain optimistic.

What is proping up my optimistic view? Well, for one, Sean "Diddy" Combs is even changing behaviour ... WATCH IT HERE (warning: course language)!! Because the artist formally known as "Puff Daddy" can't afford the $250K fuel bill for his private jet, he is once again flying commercial and calling out to "his Saudi Arabian brothers and sisters" to lend him some oil.

Speculation in the oil market

As a follow-up to my previous posting on speculation (a.k.a betting the farm on a hope and a prayer), the world learned a little bit more about how much oil speculation was driving prices ( See the true story here.)
Today's news came one month after the U.S. Interagency Task Force on Commodity Markets released an interim report saying record oil prices were the result of fundamental supply and demand factors. The Commodity Futures Trading Commission made an unusual request last month for data from Vitol Group, a private Swiss energy company that regulators thought was helping industrial firms get the oil they needed, according to The Washington Post. The commission discovered, however, that the Vitol would be better described as a speculator, trading oil contracts to turn profits rather than assisting companies that actually needed oil delivered for their operations ( CNN Money).

So what is the big deal? Well, think "Dot-Com Bust" or the story of how one natural gas trader lost $3 Billion on price speculation (his punishment: he got fired and had to take his $100+ million he made in the previous year from bonuses because he was such a good speculator ...).

Speculation can create asset bubbles - large run-ups in asset values that quickly fall; taking huge amounts of wealth to the grave in the process. Even if there is never a bubble, it can create wild swings in prices. Most importantly when we are taking about oil or rice, the price acceleration hurts some of the poorest people on the planet and it often wipes-out the wealth (sometimes the cash socked away for retirement) of those who had nothing to do with the decisions that were made (just ask the employees of Bear Stearns).

Comments? Thoughts? Additions? Anything going on up there? Does anyone read this thing?

Til Debt Do Us Part: food for the financial soul

Til Debt Do Us Part is the one and only reality TV show I enjoy. For savers, it is probably does not peak their interest (unless it makes them feel good). But, for everyone else, a weekly "o'no-you-don't, Mr&Mrs-spend-thrift" might help keep you from over spending - it is like watching a horror movie. This show should also be part of every marriage prep-course.

Here is the shtick: (The show claims that) "Money is the number one cause of failed marriages. Rare is the couple that agrees on how the pot should be divided and the bills paid. Most families are in debt, and with debt come family arguments, tears, tantrums and marriages on the verge of divorce. To save families from the doldrums of debt, each episode of Til Debt Do Us Part follows financial wizard Gail Vaz-Oxlade as she helps families go from red to black by getting to the root of their destructive spending habits." The show's website calls Gail a "financial wizard" but she is more like the over consumption destroyer. Although I would love to see if the 50+ couples she has helped have kept their new regimes, my speculation takes nothing away from the show's power.

Why is this show amazing to watch? It gives people easy to follow tips to get their financial house in order. Although Gail does over blow the situation sometimes, I think that she does a good job of scaring everyone within listening range with her classic "if you continue spending this way, you will be in debt by [really-big-number-here] in 5 years" - I get the shakes even thinking about it. So why is this so helpful? It forces couples to add their bills subtract it from their income, and then talk about it. Most couples don't want to talk about their debt, let alone take steps to curb their spending and plan for the future ("I hate saying "no" to Jim = I would rather the bank take our house"). No really, it happens more often than you think. So, how does one get their financial house in order? The show provides some work sheets online ( here ) and a 12 step program ( here ). This 12 step program may seem over simplified to some of you, but if you read the show's comment section, it has helped a lot of people. Personally, I think people fear Gail coming to their house to talk to them about their daily Starbucks and pint of Guinness (Oh wait, might be just me).

Although this show appears on Slice, all four seasons (50+ episodes) can be viewed online ( click here and then click Full Episodes).

How to strike it rich in the love market

In honour of the first ever "The Economics of Sex and Love" course that will be taught at Dalhousie University this year, I would like to draw your attention to Lessons in Love, by Way of Economics . Needless to say, like the enrolment number of this Dalhousie class reflects, economists have been very successful at finding ways to popularize our discipline - let's call it: "Freakonomizing". Yes, that's a verb not a noun.

In this NY Times article, Ben Stein's proposes 8 lessons to mastering your return in the love market. I find some of his economics confusing, so I have cut and pasted a few gems and provided a bit of my own interpretation below for my dear readers.

1.) Stein's number #1 rule seems to be: Success in the love market takes smart investing and a long-term view. There are three Stein Love-vestment tips: (a) The returns in love situations are roughly proportional to the amount of time and devotion invested. If you invest caring, patience and unselfishness, you'll get those things back if the person loves you too(and if you don't ...): (b)Once you find that you are in a junk relationship, sell immediately. High-quality bonds consistently yield more return than junk, and so it is with high-quality love;(c)Research pays off. Diversification in love is impossible, so it’s necessary to do a lot of research on the choice you make. Get and give exclusive licensing rights to maximize returns.

2.) The returns on your investment should at least equal the cost of the investment and keep your expectations rational. If you are getting less back than you put in over a considerable period of time, sell-sell-sell. But remember, it is a long-run game. Stein says: The impatient day player will fare poorly without inside information or market-controlling power. He or she will have a few good days but years of agony in the world of love. To coin a phrase: Fall in love in haste, repent at leisure. (Stein's phrase - I will take no credit for that).

As we all know, the love market is a complex beast. I agree with Stein's recommendations to invest conservatively (say no to junk), do your research, take a long-term view, but because we have to put all our eggs in one basket (to make a real run at it), it means that we run the risk of losing it all if we take the plunge. While there is a market for those who believe you can buy happiness , nothing superficial and shallow lasts.

Did this post make you think of David Lee Roth too?

Open Table: The future of dining in Halifax?

My friends at Cuzoogle recently wrote Open Table . What's the deal? You choose the date and time, and this website tells you what restaurant has a table open for your party. Currently 50 Canadian cities have restaurants using this web-booking site. And why not? From the perspective of the restaurant, it's labour saving - the host can concentrate on the customers there in person and the reservations are made with accuracy. And, perhaps on the margin, it will make it easier for their customers to books a table and attract new customers if this web-booking becomes popular. For the consumer, you can search the local restaurant scene in seconds at the last minute (which is much easier than searching the yellow pages and calling).

Currently, Halifax only has two restaurants on signed-up (Onyx and the Cut Steakhouse). I hope they can add a few of my favorites! . Getting a critical mass of restaurants in each city is going to be a big challenge for this website - do you think they have promoters in Halifax? Maybe I should call the Herald or The Coast! Without a large number of already popular restaurant favorites on this list, the website will not survive in Halifax or any city because the benefit to the consumer depends on it! But I like the business case. We currently buy books, movie tickets and almost everything else online, why not book a dinner for 2 online.

On Das Kapital: One of the greatest books of all time

Thanks to Mad Jenny’s recent post, "Globe and Mail's 50 Greatest Books" has grabbed my attention. What defines a great book? The Globe and Mail's view is that "a book is not simply a searchable database, and a great book is adjudged a great book over time by virtue of offering things — astonishing ideas, unforgettable characters, imaginative sublimity, glorious prose — that cannot be got elsewhere, and that tell us something new about the human (or other) condition." So far two economists have made the list of the 50 best: Adam Smith's Wealth of Nations and Karl Marx's Das Kapital. I covered selected readings from these works when I was at the University of King's College (the latter as part of a special lecture series entitled "The Future of Marxism"). With respect to Smith, his contribution needs no introduction. The G&M article on it is interesting and worth a read. I think it correctly points to Smith's genius and often misunderstood concept of the "invisible hand" - Smith did not think markets alone would solve the all world's problems (more on Smith in a future posting).

What stirred me to blog about this today? Mad Jenny asked why Das Kapital has made G&M 50 greatest books of all time list. Why? Here is my letter to my dear friend:

Dear Mad Jenny,

In response to your question regarding the worthiness of Das Kapital on the G&M top 50 list, I have the following thoughts. Given the terms set-out by the G&M, Das Kapital is easily in the top 50 because, simply put, it offers a unique perspective into the human condition. Das Kapital marks the beginning of a new order in political approach and moral thought about how our economic system affects (if not solely responsible for – according to Marx-) our human condition. Marx believed that it was the capitalist system is responsible for greed, and huge and ever growing inequality in wealth he observed in the world. As you know, this kind of critic can only be found in Marx and it is still contributing today. In addition to his obvious contributions to sociology and modern philosophy, Marx was, in one way, one of the first modern economist. How so? Marx spent many years reading and analyzing government blue books to understand the economy; which is something now thousands of economists do everyday.

In my view, many are quick to point-out that Marx's failures - he did not predict the rise of the middle class and the welfare state - but no one else did either. And, after people cite line and verse from Marx's more famous works (for example, "from each according to their ability, to each according to their need"), they quickly discount his contribution to economics and his influence on our own thoughts about society and morality. In addition, he, next to Hayek and Keynes (both should make the list), had great influence on how societies were run in the 20th century and they were instrumental in shaping world history.

I am not a Marxist, nor do I confess to be an expert on his works. But, Marx's best and only completed work in his life time, Das Kapital, is one of the greatest books of all time because of its analysis of the human condition and its influence on world history.

I know this was somewhat generalized and vague, but I hope you are convinced.

Yours,
Canadian Economist

Seeing Paris on the Cheap: Where to Eat and More

I travelled to Paris a few weeks ago to attend a conference at Université Paris-Sorbonne (Paris IV) and my wife and I were on a tight budget. We wanted to enjoy Paris's best eats and see some of the attractions we missed on our previous visits, without having to declare personal bankruptcy when we returned home. Here are some lessons we learned from meandering around the famous French capital.

Eating: The ethnic food in Paris provides the best value for money. The restaurant business in Paris is very competitive and only the best survive. And, since non-traditional Parisian food sells at a discount, it has to be popular to survive (hint: busy=good). If you are into, or have never tried lamb couscous, here are two recommendations: (1) Chez Jaafar, 22, rue Sommerard, Latin Quarter, and (2) Chez Omar, 47 Rue de Bretagne, Le Marais ( a review ). Avoid tourist trap Rue de la Huchette, or as the French all it "bacteria alley". Besides not knowing its alias, many foreign tourists who eat here are under the impression that this is the celebrated Latin Quarter. A shame. In this case, busy with other tourists.

Sleeping: Hotels in Paris are very expensive and often booked well in advance during the peak summer season. Going to Paris in April or October seem the ideal times to visit. We used www.vacationinparis.com to rent a apartment for 6 days ( see here ). It was small, but in a nice location and was only $94US per night, which for July is a good rate. A more centrally located place is Hotel Paris Rivoli (many reviews here . The rooms are a bit small, but the location is great (near St. Paul's Metro). When checking into a hotel, always see the room first and check for signs of bed bugs (yes, I am very serious).


Notes to the first time travelers to Paris:
(1) Read a good travel guide: we love the Lonely Planet. It is well written and has a fairly good map. It's not perfect, but one of the best.
(2) Unlike Canada, this old city is not friendly if you have mobility issues. There are many stairs, and older buildings (including hotels and apartments) don't elevators. If you have mobility problems, plan extra time and make sure to ask the usual questions before booking.
(3) Don't act like a typical American tourist: (a) Before ordering something or asking a question, always begin with "Bonjour Madam/Sir". (b) Gratuities are included in the price of your meal (most servers get paid (often 15%) no matter how the meal goes from your perspective). So don't double tip (although many believe this is the only reason the French let Americans into their country).
(4) Don't keep all your money in one place, lock your luggage, and hold your purse close to your body. Your white sneakers, fanny-pack, map or guide book, and incessant stop-point-and-click, blows your cover too easily making you easy prey.