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Friday’s Top 10

Published in interest.co.nz (Auckland), 17 January 2014

1. Life is a beauty contest

The Atlantic reports on research by economists Joseph T. Halford and Hung-Chia Hsu at the University of Wisconsin.

In a new working paper they revealed that an executive’s physical appearance has a direct effect on his or her salary.

Investors often take shortcuts in assessing a CEO’s performance, and there is no shorter shortcut than beauty.

Beauty is no longer in the eyes of the beholder but in the eyes of the shareholder:

The problem is that the right look is often valued for the wrong reasons. “Mature-looking” CEOs are presumed to be more competent, according to another study by John R. Graham, Campbell R. Harvey and Manju Puri. But while beautiful faces might actually be more valuable for their companies, there’s nothing special about wizened heads or the brains inside them. “Psychology research shows that baby-faced-looking people often possess qualities opposite to those projected by their facial traits,” the researchers write (and this author cheers the finding). Mature-looking CEOs aren’t any better at their jobs. They’re just better at looking like they’re better.

2. The difference between houses and chickens

The Economist has found an ingenious way of showing how absurdly overpriced British property has become.

If, since 1971, the price of groceries had risen as steeply as the cost of housing, a chicken would cost £51 (NZ$99).

The culprit behind this rampant price inflation in property is an artificial restriction of land supply.

If the rest of The Economist’s article sounds familiar to New Zealand readers, it is because our own planning system was not only derived from the British model, but also suffers from many of the same flaws.

This is all the result of deliberate policymaking. Since the 1940s house-building in Britain has been regulated by a system designed to prevent urban sprawl, something it has achieved spectacularly well. It is almost impossible to construct any new building anywhere without permission from the local council. In the places where people most want to live—suburbs at the edge of big cities—councils tend not to give it. … The green belts that stop development around big cities should go, or at least be greatly weakened. They increase journey times without adding to human happiness. London’s, in particular, mostly protects scrubby agricultural fields and pony paddocks. Parts would be prettier with housing on.

3. House & Garden
If the housing shortage is such a big issue, as previous story explains, then at least there is a simple solution to it: Build houses.

Unfortunately, there is significant resistance to the notion. Not least because when it comes to mass home building people associate bland, monotonous developments with it.

It needn’t be this way, and this week the London Daily Telegraph revealed how the British government is considering to revive the Garden City movement.

Building beautiful green cities with gardens that will make housing more affordable.

Of course the government’s initiative will be met with fierce resistance by the NIMBY (Not-In-My-Backyard) and the BANANA (Build-Absolutely-Nothing-Anywhere-Near-Anyone) lobby.

Unsurprisingly, the government is already getting cold feet.

A secret Whitehall report recommending that two new cities are built in southern England to combat the housing shortage is being suppressed by David Cameron, The Telegraph can disclose. The document was drawn up after the Prime Minister gave a speech supporting the idea nearly two years ago. It was described this week by Nick Clegg, his deputy, as a “prospectus” for future developments. But it has languished in a Whitehall office since it was written, with officials said to be in a “panic” about whether it should be made public.

4. If China stalls, Australia might be forced to reform
Australia has enjoyed a good ride over the past 22 years of uninterrupted economic growth – not least due to Chinese demand for Australian commodities.

But as Professor Ross Garnaut explains in an article published in Business Spectator, the good days will come to an end and Australia will have to do what it has neglected in its times of plenty: reform.

A new economic reform era is required. That requires social cohesion around acceptance that all elements in society must share in restraint as well as commitment to productivity-raising structural change. Achievement of this outcome is blocked by changes in the political culture of Australia since the reform era. Now, uninhibited pursuit of private interests has become much more important in policy discussion and influence.

The new Australian government will succeed in building the political culture that is necessary to deal with the problem only if it is effective in persuading the community of the importance of reform, and in confronting the Great Australian Complacency of the early 21st Century. This will be hard, as the government will have to change the 21st century tendency for private interests to outweigh the public interest in policy discussion and choice. Harder still, the new government will have to disappoint its strongest supporters along the way to leading Australia into a new reform era.

5. New Zealand is booming …
While Australia is struggling to get its mojo back, New Zealand is enjoying its best business climate for twenty years.

The NZIER’s most recent business survey underlines a trend that other surveys such as the World Economic Forum’s Global Competitiveness Index have also identified: New Zealand executives are feeling more and more positive about their country – especially when compared to conditions across the ditch.

If this business sentiment translates into economic growth, wages and job increases it should be hard for the government to lose the 2014 election.

Economic activity accelerated in the second half of 2013, according to the NZIER’s December 2013 quarter Quarterly Survey of Business Opinion (QSBO). “Businesses are the most optimistic they’ve been for 20 years and economic activity is strong. Optimism and activity are being realised into better profits, higher investment and more jobs,” said Shamubeel Eaqub, Principal Economist at NZIER. In December 2013, businesses were the most optimistic since June 1994 (52% from 33% in September). Domestic trading activity strengthened to the highest level since March 2005 (net 15% of firms reported increasing activity, up from 12% in September). Reported hiring rose to the highest level since December 2006, and firms expect to hire more staff at the start of 2014. This suggests an improved outlook for jobs and wages.

6. … but not everyone is celebrating
The boom of the New Zealand economy is obviously great news for the businesses, consumers, jobseekers and the government, but not everybody wants to join in the celebration.

Certainly not the International Committee of the Fourth International, publishers of the World Socialist Web Site. Its commentator spots weaknesses, pitfalls and dangers everywhere in the kiwi economy, not least thanks to uncertainty in China. Well, if the Chinese had not deviated from tried and tested Marxist-Leninist policies their future would indeed be more predictable.

While most financial commentators predict an ongoing boom this year, this places heavy bets on the stability of the Chinese and world economy. Economist Brian Gaynor wrote in the New Zealand Herald on December 14: “The present export- and investment-led upturn could be maintained for several years—as long as dairy prices don’t collapse, the Chinese economy doesn’t go into an unexpected downturn and there isn’t an external shock like that of the mid-1970s,” when oil prices increased nearly four-fold.

7. Europe’s debt crisis has barely started
Not long ago, most economic commentators agreed that the euro crisis was the biggest threat to the world economy.

The European Central Bank’s threat to print its way out of trouble may have calmed nerves for now, but as The Daily Telegraph’s Jeremy Warner reminds his readers, the underlying debt crisis has not been tackled. If anything, it now looks virtually insolvable.

[T]he eurozone still clings to the pretence that debt sustainability can be achieved through a mixture of austerity, forbearance and structural reform. This defies not just common sense, but virtually all historical precedent. […] One way or another, Europe will eventually have to provide a mechanism for burden-sharing. Whether it is through comprehensive debt mutualisation, break-up of the eurozone, restructuring or simply European Central Bank monetisation is not yet certain. What can be said is that the longer the delay, and the worse the deflationary pressures get in the meantime, the more painful, divisive and recriminatory the eventual solution will be.

8. A duty of care ?
As lawyers have known since Donoghue v Stevenson, producers should not add dead snails to bottles of ginger beer or they can be liable for neglecting their duty of care.

As the Huffington Post reports, an American pimp serving a 100-year jail sentence is trying to add his own extended definition to tort law by suing Nike for US$ 100 million. Why? Because Nike failed to inform him that their shoes could be used as a weapon. When he repeatedly kicked a victim he had no idea that his Nike shoes could inflict any harm.

It is unlikely the plaintiff will succeed but what a mess the US legal system has become when anyone seriously files claims like this.

Sirgiorgiro Clardy was convicted of repeatedly stomping a man’s face after he didn’t pay one of Clardy’s prostitutes in 2012. He’s serving a 100-year sentence for second-degree assault and other crimes including beating one of his prostitutes so badly she was bleeding from her ears.

This time, Clardy blames Nike.

“Under product liability there is a certain standard of care that is required to be upheld by potentially dangerous product …” Clardy wrote in his complaint. “Do (sic) to the fact that these defendants named in this Tort claim failed to warn of risk or to provide an adequate warning or instruction it has caused personal injury in the likes of mental suffering.”

9. Lessons from Iceland
One of the worst hit countries of the Global Financial Crisis was Iceland. As it turns out, it is also the country with the most impressive turnaround as German newsmagazine Der Spiegel notes.

Part of the story can also be summed up like this: While most countries decided to punish the people and bail out the banks, in Iceland it was done exactly the other way around.

Iceland’s rapid return to health hinged on a series of measures that Nobel laureate Paul Krugman later referred to as “doing an Iceland.” Krugman, an admirer of Iceland’s dramatic comeback, has recommended a similar policy cocktail for other nations in crisis. The rules are as follows: Allow your ailing banks to collapse; devalue your currency if you have one of your own; introduce capital controls; and try to avoid paying back foreign debts.

That may sound like an extremely self-serving recipe — and it was. Whereas billions of public money was pumped into the banking system in Ireland so that financial institutions could pay back their creditors, Icelanders voted against this route in two separate referenda. They couldn’t see why they should pay for the greed of foreign investors who followed the Siren song of high interest rates to the island nation.

10. And finally: Advice on how to get out of boring meetings
It is the book the business world has been waiting for. Jon Petz’s Boring Meetings Suck may not be quite fresh off the press (it was first released in the US in 2011), but the Sydney Morning Herald only just wrote it up for its readers.

Everybody knows how tedious a sequence of pointless meetings can be.

Finally, there is a wealth of advice on how to avoid this office torture – or at least on how to get out of meetings quickly and without hurting anyone’s feelings.

Bliss!

One device he advocates is the “first in, first out” approach. He says when you receive an agenda for a meeting, respond by saying you’ll be there but also ask to meet with the manager or host a few minutes before the meeting starts to share your insights as you won’t be able to stay for the whole meeting.

Petz says meeting the manager beforehand is key, as you will still be viewed as a committed team member. “And because you’re early, this gives you the opportunity to grab a seat by the door for your discreet exit a few minutes into the meeting,” he says. “You walk out, with nothing more than a thankful nod needed.”

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