Portfolio.com: Chartistry

Wanted: Skilled Immigrants

Fri, 06 Jul 2007 17:30:00 GMT

American businesses are in a mad dash to attract employees with talent and skills, but finding them on U.S. shores has proved to be a challenge.

A recent survey of more than 2,000 companies by Manpower Inc., an employment-consulting firm, found that 41 percent of businesses are having trouble filling positions. That figure comes in below last year’s 44 percent, but Manpower expects the talent squeeze to intensify as 77 million baby boomers get set to retire.

Skilled employees such as teachers, technicians, managers, accountants, and information technology workers were the most difficult to find, according to the survey. Looking ahead, the U.S. Department of Labor estimates that 80 percent of the 30 fastest-growing jobs over the next seven years will require some form of post-high-school degree. This list is dominated by medical and I.T.-related positions. (High-skill jobs, however, were not as well represented in the Labor Department’s findings, making up 27 percent of the occupations with the largest expected job gains.)

Another concern is that, with intense technological change, the shelf life of many I.T.-related skills resembles that of eggs more than Spam. Website builders were much in demand just a few years ago, but now almost anyone can put together a webpage, thanks to new software.

While there’s no doubt that low unemployment is also exacerbating the difficulty of finding talented personnel, employers may continue to have trouble even if the economy slows down and unemployment increases. It’s doubtful that the labor pool will contain enough qualified people to fill the skilled jobs. Take a look at the current educational makeup of the unemployed on this chart:

So how did we arrive at this state?

While more than two-thirds of high-school graduates enter college, only about 50 percent go on to earn a degree, according to Susan Dynarski, an economist at Harvard University. This fact, combined with slowing population growth, means that the supply of educated labor from within the U.S. hasn’t been meeting companies’ demand—especially for tech-savvy professionals, as the internet has taken off over the last decade.

Other countries in a similar situation, such as Britain and Germany, have transformed their immigration systems to favor more highly skilled applicants.

And Canada’s point system has helped that country raise the number of immigrants with college degrees to 39 percent. Canada’s scheme requires applicants to score at least 67 out of 100 points on a range of metrics, including education, knowledge of English or French, employment experience, adaptability to Canada, and whether employment has been arranged. Last year, about 20 percent of immigrants given permanent residence in Canada acquired it through this system.

In comparison, only 10 percent of immigrants to the U.S. were granted residence based on their skills.
But Canada’s system, created in the 1960s, has come under fire because the government has been slow to evaluate applications, creating a backlog of close to 800,000 requests.

A proposed U.S. system, which was killed in the Senate, would have also placed a heavy emphasis on job skills and education. The immigration bill’s Democratic opponents are likely to be in power the next time immigration reform is on the agenda, after the 2008 elections, dampening the prospects for a change in direction.
That’s too bad, because academic research has shown that targeted immigration policies could alleviate some of the demographic challenges that lie ahead.

A group of researchers tested what would happen if the number of low-skilled immigrants doubled. The results weren’t pretty. Having more low-skilled immigrants could raise payroll tax rates and lower real wages, because this group is more likely to use government services and thus raise the costs of those services, according to a 2004 study by Hans Fehr and Sabine Jokisch of the University of Würzburg in Germany and Laurence Kotlikoff of Boston University.

On the other hand, the researchers found, raising the number of highly skilled immigrants would have a beneficial impact because of their increased productivity.

Some immigrants also contribute to American innovations. A 2005 study by World Bank researchers found that the presence of foreign graduate students and highly skilled immigrants increased the number of patents granted by 5.37 percent and 6.7 percent, respectively.

Of course, the U.S. has not stood still in trying to attract skilled foreign workers. H-1B temporary visas have allowed companies to fill specialized positions that they weren’t able to hire American talent for. About 115,000 jobs were filled with recipients of H-1B visas in 2005. The immigration bill would have scrapped the H-1B system in favor of the point system.

But if the U.S. eventually turns to an immigration system that heavily favors skills over other attributes, there are a couple of caveats to take into account:

First, more than 25 percent of skilled immigrants in the United States are either not working, can’t find employment, or have jobs they are overqualified for, according to a recent report on international migration by the Organization for Economic Cooperation and Development.

Second, the U.S. is not the only country looking overseas for talent. Competition for skilled workers from other nations, coupled with the emergence of China and India, means highly educated workers have other options besides trying to immigrate to the United States. With globalization, the U.S. is no longer the only land of opportunity.

Is China's Rise Good for Sub-Saharan Africa?

Thu, 21 Jun 2007 16:30:00 GMT

Can China’s hunger for African exports revive sub-Saharan Africa?

That's a fairly tall order considering that the region has long been economically marginalized and lacks many of the institutions that could help foster growth. The 48 nations in the area account for just 1 percent of world trade.

Yet the recent surge in exports to China has raised hopes that increased trade could help lift millions of Africans out of poverty. Thanks to China’s seemingly insatiable appetite for oil and metals, trade between sub-Saharan Africa and China soared to $32 billion in 2005 (the most recent year for which statistics are available), a 263 percent increase from 2000, according to United Nations data.

While the region's amount of trade with China is still well below Europe's ($89 billion in 2005) or the United States' ($63 billion in 2005), it's been heartily welcomed by African countries, who argue that the rich Western nations are not doing enough to help Africa and that they attach too many requirements for trade and aid.

“We like Chinese investment because we have one meeting, we discuss what they want to do, and then they just do it,” Sahr Johnny, Sierra Leone’s ambassador to Beijing, said in 2005. “There are no benchmarks or preconditions.”

China has been criticized for its no-questions-asked approach to trade and especially for its dealings with Sudan, where government-backed forces have killed hundreds of thousands of citizens over the past four years.

But the rise in African-Chinese trade has come as democracy, by and large, has been spreading in the region. In sub-Saharan Africa, 23 nations are considered free or partly free, up from three in the late 1970s, according to Freedom House, an organization that tracks the spread of democratic institutions.

So can the region’s mostly poor countries leverage trade with China into long-term economic growth?

The answer partly depends on the type of country and what it does with its commodity windfall, says Ali Zafar, an economist with the Africa Region of the World Bank.

“If you’re energy rich or metal rich, you’re going to benefit from China. If you’re a textile producer and an oil importer, you’re going to suffer. And if you’re something in the middle, the effects will be mixed,” Zafar says.

About a third of sub-Saharan nations, representing 44 percent of the region's 740 million people, benefit from trade with China because the commodity price boom has allowed them to buy more imports, according to a recent paper by Zafar. These countries include oil exporters Nigeria (the region’s second largest economy, behind South Africa) Angola, and Sudan, as well as Zambia, which exports copper, and Mauritania, which exports iron ore.

But countries that lose out from increased Chinese trade—whose exports are not demanded by China or are in direct competition with it—represent about 25 percent of the region's population. These oil-importing nations include textile exporters Madagascar and Lesotho, and agricultural exporters Kenya and Ethiopia.

The Red Dragon's effects on nations such as South Africa and Tanzania are more ambiguous because these resource-rich countries still must import oil.

But the benefits of trade are not strictly about higher trade volumes. China’s activity in the region has brought increased levels of aid as well as development of telecommunications, road, and railway networks. All of this has helped kick-start the sub-Saharan economy: Over the past five years, the region has grown at a relatively healthy annual clip of 5 percent.

Despite China’s contributions to infrastructure development—about 800 companies are currently working on various projects in the region—the local workforce is largely being left out. Most workers on these projects are Chinese; last year, nearly 80,000 Chinese were working on ventures throughout sub-Saharan Africa.

Policymakers also worry that the resource-centric growth could hamper economic diversification as governments become overly reliant on income from commodities. This is the classic argument for why oil-rich Middle Eastern nations have not yet been able to use their petroleum wealth to boost employment and output.

The most important factor in maintaining long-run growth, many economists argue, is developing an industrial base capable of adding value to the products it exports. Sub-Saharan Africa's future may depend on whether it can make the transformation from a commodity exporter to a manufacturing exporter.

This is how Asian nations—Indonesia after the 1960s, Vietnam and China after the 1980s—were able to use manufacturing to escape the underdevelopment trap.

In order to become dynamic manufacturing exporters, sub-Saharan Africa's nations need improved education, reduced inequality, improved health care, and a strong system of property rights, according to most development experts.

A recent study, however, suggests that many of the region's countries are already close to or above the same level on all of these measures (except for health care) as the Asian nations were when they began to escape poverty.

“The East Asian experience definitely demonstrates that some institutional weaknesses can be escaped,” researchers Simon Johnson, Jonathan D. Ostry, and Arvind Subramanian write.

But precisely because of the region's recent ability to boost exports and solicit international aid, sub-Saharan Africa will likely face a harder struggle in escaping poverty than its East Asian counterparts. Surprisingly, the study found that some of the biggest roadblocks a nation faces on the way to becoming a manufacturing exporter are periods of commodity-based growth and large aid inflows—just what sub-Saharan Africa is currently experiencing and expecting. These two factors can lead to exchange-rate overvaluation, making sub-Saharan exports less attractive on the world market.

Still, notes Zafar of the World Bank, “China’s ascent represents a way for those countries to tap into another source of funds and to use that money creatively.”

Academic research has shown that another type of trade played a large part in the region’s current underdevelopment.

Between 650 and 1900, European and Middle Eastern powers enslaved about 22 million people from sub-Saharan Africa. Besides the obvious human tragedy, the region’s economy took a wallop, as institutions that help foster growth either took much longer to develop or were never properly formed at all.

For the most part, Africans of that era had little say over what would happen to themselves or their societies. But the rise of democracy in the region means that, this time around, sub-Saharan Africa can decide for itself what will best serve its interests.

The Dark Arts of Wall Street

Fri, 01 Jun 2007 01:30:00 GMT

During a climactic scene in Steven Spielberg’s 2001 film A.I.: Artificial Intelligence, robots are rounded up and taken to an arena where crowds of cheering humans delight in their destruction.

Our protagonist, the first machine that can feel love, manages to escape when security guards mistake him for a human.

In the investment world, it may be possible for a machine to dupe technical analysts as easily as those guards were fooled, or so believes Joshua Reich, a researcher for Gilder Gagnon Howe, a brokerage in New York. One weekend this past winter, Reich, the type of person who makes calculators in his spare time, put aside his efforts to build the perfect calculator (one with “all the bells and whistles of modern technology”) and turned his attention to another project: debunking the notion that technical analysis, or chartistry (no relation), has any validity.

Technical analysis has never enjoyed much support from academia or the proponents of f undamental analysis. A technical analyst’s methods are often seen as the voodoo of the investment world and have been compared with fortune-telling. Unlike analysts who look at fundamentals—a company’s sales trends and earnings, the underlying economic conditions—technicians ignore such data and trade only on the basis of patterns they find in the charts of stocks, bonds, currencies, and any number of other securities.

While some technical-analysis tools, such as a stock’s trading volume, price trend, or moving average, have become part of the CNBC lexicon, the trading strategies derived from these can seem as strange as their names: Bullish Homing Pigeon, Death Cross, Fibonacci Time Zones, Sushi Roll, and Jennifer Lopez, to list just a few.

Nevertheless, John Brooks, a senior analyst with Lowry’s Reports, which bills itself as the oldest continuously published technical-investment advisory in the U.S., estimates that about 500 technical analysts currently work at major American investment banks and that thousands of money managers use technical analysis as part of their investment strategies.

The craft has also been incorporated into algorithmic trading where it has prominent practitioners including hedge fund king James Simons and futures trader and Boston Red Sox owner John W. Henry.

Brooks argues that technical indicators can reveal changes in the supply-and-demand relationship for an asset before the data used in fundamental analyses are released. “One of the kinks with fundamental analysis is that you’re looking at a trend going up and making projections based on past information,” Brooks says. “You’re not going to know that there is any change in that flow of information until a report comes out. With technical analysis, you see a break in the trend line and a red flag goes up.”

Technical analysis has lately become more widespread, as computer programs have allowed individual investors to try their hand at it. It’s particularly popular in currency-trading markets. Reuters, for example, publishes daily notes from technical analysts. (Full disclosure: I was formerly a Reuters employee.) Here’s a recent jargon-filled sample on trading between the U.S. dollar and the British pound from an analyst at J.P. Morgan: “Yesterday’s rally on the back of the BoE minutes developed a clear impulsive wave structure, while suggesting additional upside is likely.”

To test the technical analysts’ assumptions behind the gobbledygook, Reich created Stock or Not, an online game that challenges players to decide which of two stock charts is real. The real charts are taken from Yahoo Finance; the fake ones are generated by a model Reich has devised.

From a historical perspective, Reich’s game pits Charles Dow, the co-founder of Dow Jones and the grandfather of modern technical analysis, against Eugene Fama, the architect of the efficient-market hypothesis—the belief that the price of an asset always already reflects the available information, leaving no room for arbitrage.

Fama’s hypothesis comes in three flavors: strong, semistrong, and weak. In the strong form, no amount of insight or insider information will help an investor beat the market, because all assets are accurately priced. In the semistrong form, prices reflect all available public information, but insiders still have an advantage. And in the weak form, careful review of public information—fundamental analysis—can uncover undervalued assets and lead to higher returns. No version of the hypothesis, however, allows for the legitimacy of technical analysis.

Reich, who has a background in mathematics and medicine, generated charts in line with the weak form of the efficient-market hypothesis and launched his game on his personal website. He says he chose the test for its pure simplicity: If technical analysis is legitimate, it should be able to uncover the absence of trends in fake charts relying entirely on an efficient-market model. A more obvious test, perhaps, would be to have users predict the future price moves of charts, since technical analysts can supposedly discern future price movements by studying past patterns. But Reich says he wanted to ram his point home with something simpler. Unfortunately for him, it didn’t quite work out that way.

Buoyed by blogosphere word of mouth, more than 120,000 games of Stock or Not have been played so far. If technical analysis is mere guesswork, then that would suggest that the probability of a player choosing correctly should be the same as the likelihood of a coin toss landing heads: 50 percent. But surprisingly, players so far have chosen the real chart a statistically significant 53 percent of the time. That might not seem like a great victory for technical analysis, but imagine if your stock picks were right that often. With enough money invested over a long-enough time period, you could make a killing.

Reich says that people who have done well on Stock or Not have had trouble explaining how they do it. While he believes that his fake charts are consistent with the efficient-market hypothesis, he suspects there might be tells in the way he designs them. “I’ve tried looking into it,” he says, “but my sense is that it’s my calibration process.”

Incidentally, academic studies of technical analysis have yielded mixed results: Many have found that its techniques can provide market-beating results, but they’ve also shown that once the added risk of using technical analysis is accounted for, the gains are wiped away. And other studies have shown that even if you don’t account for the additional risk, gains offered by technical trading techniques have largely disappeared since the 1990s.

And they have one main explanation for that: the rise of the machines.

Can Latin America Keep Up?

Tue, 22 May 2007 00:00:00 GMT

World Bank researchers announced last month that the developing world has reached a milestone. The number of people living on less than $1 a day is now below the one billion mark, news that was overshadowed by the growing ethics scandal surrounding World Bank president Paul Wolfowitz.

And according to data from the International Monetary Fund, next year the total economic output of the developing world will match that of the 30 wealthiest nations combined.

Although there are about four times as many developing countries as wealthy ones, the figures still indicate an improvement in the lives of millions. If poverty reduction were to continue at its current pace, by 2015 the poverty rate would be less than half the 1990 level, which would achieve the first of the United Nation’s Millennium Development goals.

While these facts look good on paper, they don't tell the whole story. Rather than revealing a worldwide trend in poverty reduction over the past 25 years, the numbers point to the phenomenal economic growth of one country in particular—China. Setting aside China’s population, the number of people living in poverty is actually slightly higher than it was in the early 1980s, even though the percentage of the world’s population defined as “poor” has fallen 10 percent.

As for the rest of the world, there doesn’t seem to be any clear trend: poverty could get better or it could get worse. China and neighboring India are also responsible for the developing world’s greater share of the economic pie. Slice them out and emerging countries have lost out to rich nations.

It may not come as a surprise that sub-Saharan Africa, with its frequent warfare, government corruption, and public health disasters, has found it hard to compete. But what about Latin America, which seems so well positioned and yet has failed to show consistent signs of economic growth?

Between 2002 and 2005, the average per capita output growth (a measure of wealth) in Latin American countries trailed that of every other emerging region, including sub-Saharan Africa—this despite the spread of democracy in Latin American countries and the best, if misconceived, efforts of wealthy governments to drive fiscal reform. High expectations for Latin American development in the early 1990s have not been met. And they probably won’t be for at least the next 15 years, according to a recent paper Sebastian Edwards, a former World Bank chief economist for Latin America.

While governments in the region have improved in terms of financial stability and openness to trade, Edwards found that “more important factors” for long-term growth showed no progress. Property rights are not adequately protected; the courts are not sufficiently independent; and Edwards calls the state of education “deplorable.” In 2003, eighth-graders in Chile, the region’s shining star, placed 39th in mathematics and 37th in science in a ranking of 44 countries. As for higher education, the Times of London’s 2004 list of the 200 best universities in the world included institutions in India and China but not a single Latin American school.

Joining a long list of critics, Edwards says that the recent elections of populist leaders in Bolivia and Ecuador, among other countries, demonstrate an unwillingness to commit to the reforms needed to increase efficiency and reduce government size.

Investors, however, don’t seem to agree with Edwards’ assessment. Morgan Stanley Capital International’s Latin America index is up nearly 300 percent over the past five years, outperforming other regional emerging-market indices.

Edwards has a number of explanations for this discrepancy. He points to cheap stock valuations in the past, Latin America’s attractiveness to portfolios in need of diversification, the recent worldwide boom in commodity prices, and the importance of regional stability in drawing capital. For their part, investors are betting against the odds in hoping for a sustained period of growth in Latin America. History shows that the region has traditionally suffered from a pattern of short-term expansions being followed by extended periods of no growth or outright decline.

But are there countries that could buck that trend and justify the high expectations?

Edwards notes positive prospects for Chile, Mexico, Peru, and Costa Rica. He also points out that Latin American countries have become better able to withstand currency crises of the kind that wreaked havoc on government coffers and employment in the 1990s. But in terms of overall poverty, the picture is contradictory: While the percentage of the population living on less than $1 a day has declined, the number of people below that line has increased by 20 percent.

And a report last week from the United Nations showed that, contrary to economic theory, income inequality has increased because of globalization.

Also to be considered are the geopolitical risks involved in falling further behind China and India. “Slowly, Latin America will move back in relative terms,” Edwards said. “As a consequence, the region will become even less central politically and diplomatically.”

The Stockholm Solution

Tue, 08 May 2007 16:00:00 GMT

What’s more important: getting to work fast or traveling there in comfort? For many people who drive into Manhattan, luxury trumps speed.

A survey conducted this spring found 61 percent of New York City residents who drove into Manhattan’s busiest areas chose to do so even when traveling by mass transit was as fast or faster.

With traffic congestion estimated to cost the city billions of dollars per year in economic activity, Mayor Michael Bloomberg’s plan to charge vehicles to drive into a large section of Manhattan makes perfect sense. Under the scheme, which Bloomberg announced in April, car drivers would pay $8 and truck drivers $12 to enter Manhattan below 86th Street.

Bloomberg’s idea embodies principles that economists have championed for at least half a century: Force people to bear the true cost of their activities, and let those who most value a scarce resource pay for the privilege of using it.

Congestion pricing has reduced traffic in London by 18 percent and in Singapore by roughly 15 percent and has brought down pollution levels in both cities.

But consider the experience of Stockholm, where extensive data were collected during a six-month trial in 2006, as an indication of how congestion pricing could affect New York and other U.S. cities that are contemplating similar programs.

While congestion in Sweden’s capital went down by 22 percent, the number of minutes passengers stood on trains and buses rose by a whopping 21 percent, partly due to increased ridership. This consequence of congestion pricing could hit New York particularly hard because many sections of its mass transit system are already operating at full capacity. Unless New York City Transit adds more trains and buses—which Bloomberg says he intends to push the agency to do—subway crowding like that found in Japan will become increasingly familiar in New York.

The results of the Stockholm experiment also contained a surprise: The congestion tax was most popular with residents of the central parts of the city, even though they paid twice as much of the fees as those who lived outside the zone. City officials speculated that since residents in the inner city drove less, they placed a higher value on the time they gained because of the congestion tax than the average driver.

While some New York politicians have argued that congestion pricing would hurt that portion of the working poor who have to drive into Manhattan, which it doubtlessly will, data from Stockholm show that the impact on this segment of the population is likely to be limited: High-income households paid nearly three times as much as those on the bottom of the income ladder. So properly targeted subsidies and an expanded mass transit system could mitigate any ill effects on low-income commuters.

Others are concerned that Bloomberg’s plan, which will go into effect in 2009 if it’s approved, would damage the economy of Manhattan, as potential customers and enterprises, especially those with vehicles that would have to pay the $21 fee, would balk at the additional cost of shopping or doing business in the congestion-pricing zone. However, studies in Stockholm and London have found little evidence to support this worry.

So congestion pricing is a no-brainer for New York, right? Not quite.

Bloomberg claims that car speeds will increase by a little over 7 percent if congestion pricing becomes a reality. For a vehicle currently traveling 25 miles per hour on Sixth Avenue—a generous estimate—this translates into only 2 miles per hour of extra speed. Would drivers even notice?

Congestion pricing has lowered traffic volume, raised revenue, and cut pollution in large cities around the world. These charts compare the effects of current programs as well as the estimated impact congestion pricing would have on New York. Click here for interactive graphic.

Related Links
Sick Transit
Stockholm
Two Views of Congestion Pricing

Greenspan's Trillion Dollar Experiment

Mon, 30 Apr 2007 20:30:00 GMT

Only a select few can create a phenomenon that affects the lives of millions and then write a research paper about it.

In this case, the phenomenon is the housing boom (or bubble), and the “few” is actually just one: former Federal Reserve chairman Alan Greenspan.

In the aftermath of the technology bust of the late 1990s and the September 11, 2001, terrorist attacks, the Maestro, as Greenspan is known by his fans, brought interest rates to historic lows. This in turn sent home prices through the roof and gave the entire real estate industry a boost.

Altogether, housing activity added 0.5 percentage points to economic growth in both 2004 and 2005, years in which the U.S. economy grew 3.9 percent and 3.2 percent, respectively.

Now Greenspan and Fed economist James Kennedy have released a paper detailing how much cash homeowners have been able to extract from their properties since 1991 and what they spent it on.

This equity extraction was primarily achieved through three means: home sales, home-equity loans, and the refinancing of mortgages. These methods, the two economists find, helped consumers generate about $1 trillion in "free" cash per year from 2001 to 2005, more than triple the $300 billion average between 1991 and 2000.

And what did homeowners do with that money?

In 2005, the bulk of it—more than 60 percent—was spent on buying real estate or investing in other assets. About 23 percent of the cash was used to finance consumption, a category that encompasses most U.S. economic activity. Greenspan and Kennedy say that in recent years this wealth effect financed 3 percent of consumption, up from an average of 1.1 percent from 1991 to 2000.

As interest rates have climbed, the housing party has come to an end and economic growth has slowed. Construction of single-family homes and apartment buildings has fallen for six straight quarters. In 2006, the housing slowdown reduced economic activity by 0.75 percentage points to 3.3 percent, current Fed chairman Ben Bernanke said in February.

In their paper, Greenspan and Kennedy avoid the sticky subject of how hard the decline in equity extraction will hit consumer spending and overall economic growth. The latest numbers have not be reassuring. Last Friday, the government reported that the economy grew at a paltry 1.3 percent annualized rate in the first quarter. On Monday, the Commerce Department said consumer spending actually fell 0.2 percent in March after adjusting for increased gas prices. Meanwhile, critics have questioned Greenspan’s easy-money policy, charging that he merely replaced one bubble (tech stocks) with another (housing).

Greenspan's gamble was that consumers would hand off the baton to businesses in the economic relay race. But despite historically high profits, this has not materialized. In a speech last week, San Francisco Federal Reserve Bank President Janet Yellen said the current business investment environment is marked by "sluggishness."

Skeptics of Greenspan's policies might say he has heard the criticism loud and clear. In their paper, the researchers focus on describing the overall trend of equity extraction since 1991, even though most observers are primarily interested in its impact on the economy over the past five years. Other than appearing in some tables at the end of the paper, the duo mention this time period only once.

Related Links
Criticizing Greenspan's Rate Hikes
Greenspan: No Regrets
His Fault

How Much Are the Cubs Worth?

Mon, 23 Apr 2007 04:00:00 GMT

For a hapless franchise, the Chicago Cubs look to be on their way to becoming the most expensive baseball team ever sold.

On opening day of the 2007 season—which featured a characteristic Cubs loss—news broke that Second City real estate baron Sam Zell would purchase Tribune Co., the team’s owner, for $8.2 billion and put the storied baseball franchise up for sale.

Zell’s reasons? As owner of a stake in the Cubs’ crosstown rivals, the White Sox (who won the World Series in 2005), he’d be in violation of Major League Baseball rules. And besides, he doesn’t like baseball.

Analysts were quick to offer predictions of how much the Cubs might sell for. Andrew Zimbalist, an economics professor at Smith College, says that the team could go for between $600 million and $700 million. Other analysts and prospective buyers pushed the top of that range to $800 million and even $1 billion. A price in that territory would top the record $660 million that the Boston Red Sox fetched in 2002.

However, the potential upside for any would-be Cubs owner “has been undermined by the recent large contracts they’ve signed,” says Zimbalist, referring to the $300 million the club spent on personnel in the off-season. “That’s just bad baseball sense. You’re putting a burden on anybody who buys that team.”

The Cubs, who haven’t won a World Series since 1908, will be sold in the fourth quarter of 2007. The deal will also include Tribune Co.’s 25 percent stake in Comcast SportsNet Chicago, a regional sports network.

While it’s widely expected that Wrigley Field will be part of the deal, Tribune Co.’s press release did not explicitly include the legendary ballpark in the sale. Last season, Wrigley Field had the third-highest attendance-to-capacity ratio, behind only Fenway Park, where the Red Sox play, and Busch Stadium, home to the St. Louis Cardinals. Without Wrigley, the value of the deal could fall by as much as $200 million, says Rodney Fort, a professor of economics at Washington State University.

The ego factor—how much a new owner is willing to pay for the access to politicians and businesspeople that comes with owning a team—is also likely to affect the final cost. Zimbalist says the perceived value of this intangible asset could send the final price tag for the Cubs toward the $1 billion mark.

Since most sports franchises are either privately held or are smaller divisions of much larger businesses, it’s hard to find information on their finances. In its annual valuation of baseball teams last week, Forbes reported that the Cubs were worth $592 million—in line with the low end of predictions of the team’s sales price—and estimated Wrigley’s value at about $90 million.

When Major League Baseball opened its books in late 2001 while debating whether to contract the league, it claimed that the Cubs’ stadium-associated revenue was about $30 million.

“The Forbes list often underprices how much teams are actually sold for, but it gives a rational estimate of what a franchise might be worth,” says Brad Humphreys, an associate professor in the department of recreation, sport, and tourism at the University of Illinois.

Regardless, if a prospective buyer pays anything close to the range mentioned above, Tribune Co. will have made a killing on its initial investment: The media conglomerate paid just $20.5 million for the team in 1981.

As for Cubs fans, they’ll likely have to wait until a new owner takes over to end their misery. With the 2007 season only three weeks old, the Lovable Losers are already in last place in their division.

From Stagflation to Slowflation

Mon, 16 Apr 2007 22:00:00 GMT

It hasn’t been an easy year for the man charged with overseeing U.S. economic policy.

Federal Reserve chairman Ben Bernanke has attempted to pilot the world’s largest economy through gyrations in the energy market and a sharp slowdown in the housing market that’s partly led to the current subprime-mortgage mess.

Then there’s Bernanke's superstar predecessor, Alan Greenspan, who can’t seem to stop talking about an imminent recession. Greenspan said the R-word in February, undermining the ability of Bernanke and his merry crew of Fed officials to communicate with the markets.

Bernanke's own style complicates matters. Initially touted as the man who would open up the secretive Fed, he has been accused of being a little too communicative.

First there was his Maria Bartiromo gaffe: He told the CNBC anchor at a gala that the markets were misinterpreting the Fed's intentions. Then Wall Street complained that there were too many Fed officials saying too many different things.

The latest misstep came in March, when the Fed’s Open Market Committee dropped wording from its post-meeting statement that explicitly stated a bias toward raising the federal funds rate.

It was ostensibly a move to prepare the markets for the first interest rate cut since June 2003, and unsurprisingly, investors reacted positively. But just a week after the statement, Bernanke told lawmakers in Washington that inflation “remains uncomfortably high.”

The seeming flip-flop even moved fellow committee member William Poole, president of the Federal Reserve Bank of Saint Louis, to speak up in early April. "There is a problem when well-informed people in the market come to different conclusions from the same language," he told Bloomberg News. "That tells you that the statement is not completely clear.''

For what it's worth, the numbers back Bernanke’s latest views:

The year-over-year rate in the Consumer Price Index, minus food and energy, was 2.7 percent in January and February—above the Fed's self-defined comfort range of 1 to 2 percent. The figure dropped to 2.5 percent in March according the Department of Labor's latest report.

The spread between the interest rate on the five-year Treasury note and the inflation-protected five-year Treasury note—a gauge of investors’ inflation expectations—has been trending upward since October and was at 2.5 percent on Friday.

Meanwhile, the latest figures from February showed that another Fed benchmark, the price index for personal consumption expenditures, minus food and energy, was 2.4 percent, above the level it was at when the Fed last hiked rates in June.

While price pressures are still elevated, economic activity has been sluggish, with a slowdown in business investment dragging on growth. (In fact, it was surprising that some market participants viewed March’s robust employment report as a sign of a strengthening economy, given that job gains are a classic lagging indicator.)

All this has prompted David Rosenberg, an analyst at Merrill Lynch, to coin a new term: slowflation. It’s not as bad as ’70s-style stagflation accompanied by sky-high interest rates, but it still won’t be easy for Bernanke and the Fed to steer through.

And the Winner Is: Them Again

Fri, 13 Apr 2007 21:30:00 GMT

The New York Times—a.k.a. the New York Yankees of the newspaper business—has won the industry’s version of the World Series more than any competing paper. In fact, the last year the paper didn’t hold the record for total Pulitzer Prizes won was 1936, when the already defunct New York World (at one time owned by media magnate Joseph Pulitzer, the prize’s namesake) had collected nine awards in its history compared with the Times’ eight. (For the Yankees it was 1939, when they were tied with the long-hated Boston Red Sox, each with five titles.)

But how did the Pulitzer Prize, the latest round of which will be awarded on April 16, become so important?

Even in the age of Freakonomics, the research on the economics of awards is pretty thin.

The formerly dismal science has undergone a revolution over the past decade, with researchers delving into fields that were once the domain of biologists, social scientists, and psychologists. This research has largely had the advantage of large and well-recorded datasets. But in the world of awards, medals, and prizes, it’s hard to come by comprehensive data, according to research by Swiss economist Bruno Frey.

That didn’t stop him from tackling the subject, however, and what he found out reveals why most ambitious journalists might think long and hard about giving up their first-borns for a Pulitzer.

The answer lies in the ability to differentiate oneself from the pack. In most entrepreneurial endeavors, the reward comes in some monetary form—and it’s often large.

Ask any reporter who has ever worked a news beat: It takes a healthy dose of entrepreneurial instinct to get the story first and tell it better than the competition. But while they’re by no means paupers, few journalists make the kind of money many of the entrepreneurial people they cover earn. (Think businessmen, athletes, celebrities.)

Frey argues that the more the market prevents individuals from gaining prestige through financial means, the higher the demand for awards.

Take the United States military, where compensation is limited yet more than 70 different types of medals and honors are handed out. There aren’t too many (any?) prestigious organizations handing out C.E.O. of the Year awards.

On the supply side, Frey's arguments suggest it's no coincidence the Pulitzer board has given so many prizes to the paper of record: In order to maintain the influence of their awards and in turn advance whatever view they're attached to, the committees that push prizes will often recognize people and organizations that are already deemed prestigious.

That might explain why red-state favorite USA Today, the nation's largest paper by circulation, has yet to win a single Pulitzer.