Simultaneous buying and selling makes the economy extremely efficient. But in our overconnected world, it may also force us into a race to the bottom.
If you want to succeed in an Internet-driven, overconnected world, you must arbitrage.
If you don't, you will become prey to those who do. But in an Internet-driven,
overconnected world, arbitrage may also force us into a race to the bottom.
makes the economy extremely efficient. In the commodity world, arbitrage can be
a miraculous transaction, yielding an infinite rate of return. The arbitrager
buys a commodity in one market and sells it instantly at a higher price in
another. In a perfect arbitrage, the arbitrager collects the money from the
sale before paying for the original purchase. For example, sell a bushel of
wheat for $7.00 and collect the money instantly; buy the bushel in another
market for $6.75 and pay later.
Of course, perfect arbitrage seldom exists. Speculators quickly root out opportunities,
and prices converge. The sale price, for example, drops to $6.85 and the
purchase price rises to $6.84. Of course, the sale price could drop below the
purchase price to, say, $6.75, and the arbitrager would lose 9 cents on every sale.
In the past, the term "arbitrage" was used in conjunction with financial and
commodity transactions, but now it is used more broadly. For instance, people
talk about arbitraging labor costs, referring to using cheap labor in a distant
location to substitute for more expensive local labor.
Successful arbitrage depends on strong and efficient connections. You have to be able to move products from where you buy them to where you sell them. Transaction costs
and other logistics must be kept to a minimum. And in order to find the best
arbitrage opportunities, you have to have good information about markets.
This is where the Internet comes in. Not only does it reduce the cost of
finding opportunities, but it greatly increases the efficiency of doing so. As
a result, the universe of arbitrage opportunities has expanded. Name something
that can be bought or sold, and there may a way to arbitrage it: stocks, bonds,
commodities, precious metals, labor costs, taxes, regulatory environments,
credit card debt, retail shopping experiences.
In 2004, commenting on slow job growth in the U.S., Stephen Roach of Morgan Stanley cited "global labor arbitrage" as the main
reason growth had slowed. Roach predicted that global labor arbitrage was
likely to be an enduring feature of the economy. Our experiences over the past
seven years have certainly proven him right.
Most people might think Roach was referring to factory workers and customer
support workers in India who answer calls in heavily accented English. But
because of the power of the Internet, information-intensive jobs of almost any
type are subject to labor arbitrage. Teleradiology Solutions, a company located in Bangalore, reads X-rays for patients in the U.S. and Singapore. Jobs we thought
were safe are safe no longer. More and more companies are employing engineers
and programmers in India, Russia, and the Balkans. Businesses must either
arbitrage and succumb to the unrelenting pressure to cut costs or face the
prospect of becoming uncompetitive.
Non-traditional arbitrage lurks in some surprising places. Consider retailing. Physical retailers add value by providing a retail experience. Some people enjoy shopping. One of the most important services retailers provide is the opportunity to experience the merchandise. Test drive a Ferrari. Try on a pair of jeans. Then go to an online retailer and arbitrage out the added value and the local taxes as well. Many of us do this without giving it a second thought. We find what we want at the shopping center and then rush home to buy it on Amazon. If we're shameless, we do our online shopping on our smart phone a few seconds after leaving the store.
In financial markets, arbitrage has run rampant. Transaction costs facilitated by
the Internet have plummeted. It has become possible to collect massive amounts
of information inexpensively. As computation power has increased and data sets
have grown, computers can now uncover more and more arbitrage opportunities.
traders use computers to scan the market to scout out the tiniest mispricings. If
a computer can discover an index made up of a few hundred stocks that is priced
too high, traders sell the index short and buy the stocks, making pennies per
share on billions of shares--pennies that add up to hundreds of millions in
profits. Is it any wonder that high-frequency trading now accounts for nearly two
thirds of the trading volume?
arbitrage adventures aren't just for the big guys. I was amazed to learn about
credit card arbitrage. Get a low-interest introductory loan for signing up for
a new credit card, invest that money in a high-interest account, and pray.
The Internet makes it easier to get around financial regulations and circumvent jurisdictions. If regulators in the UK or USA get too tough, the Internet can help: when data flows so efficiently, it's a lot easier to move the regulated entity from London or Wall Street to a more understanding jurisdiction.
If I can arbitrage a growing number of financial transactions, both low-skilled
and high-skilled jobs, and then throw in retailing, what's left? A lot, as it
turns out. Ask people in Hollywood about movies and recordings. Talk to the
newspapers. As bandwidth increases, opportunities to arbitrage will continue to
grow as well. Maybe the only things that will be safe are meals in restaurants
and trips to the hair salon.
Arbitrage is an economist's dream. It squeezes out inefficiency. It creates an intensely price-competitive world. Consumers benefit big time, because they have access to high quality goods at low prices.
But arbitrage has its downside as well. I used to love to travel. I even looked
forward to the flight. I could sit in peace and quiet and catch up on my
reading. Today I can fly for less money, but I also fly less. The qualitative
experience is so poor that it has reduced my interest in traveling.
Price is one of the most powerful motivators known to humankind. Nobody wants to pay
more. When the focus is exclusively on price, qualitative aspects often suffer,
and in many situations that is too high a price to pay. If only arbitragers could find a way to squeeze out
costs while maintaining quality. Now that
would be the perfect arbitrage.="http:>
Donald Trump will take the oath of office on Friday, becoming the 45th president of the United States.
Donald Trump takes the oath of office on Friday, to become the 45th president of the United States.
The day’s inaugural festivities will get underway in the morning and continue through Saturday. The swearing-in ceremony, which will take place outside of the Capitol, is expected to begin at 11:30 a.m., followed by an inaugural parade at 3 p.m. and inaugural balls in the evening.
Thousands of attendees are expected to descend on Washington, DC for the ceremonies, which will likely be met with celebration and protest. We’ll bring you the latest updates from the nation’s capital as events unfold. Also see our continuing coverage:
Commentators love to praise the peaceful handover of power—but this year, it stands as a reminder of the system’s fragility and shortcomings.
Every presidency is different, but inaugural coverage is always the same. Commentators congratulate Americans on the peaceful transition of power and intone solemn sentences about democratic renewal.
There is something unnerving about these reassurances, something overstated, even hysterical. When a British prime minister loses the confidence of the House of Commons and must suddenly trundle out of 10 Downing Street (as some six dozen of them have done since the job was invented in the 1740s; a few more than once), nobody marvels on television how wonderful it is that he or she doesn’t try to retain power by force of arms. Nobody in Denmark thinks it extraordinary when one party relinquishes power to another. Ditto New Zealand or Switzerland—all of them treat peaceful transfers of power as the developed world norm, like reliable electricity or potable water.
He’s moved to establish his dominance of his party, of Congress, and of the media. Now, he turns to the nation.
Even for some Republicans, it is still a bit unbelievable. They have it all now—all the power. They won it fair and square. Donald Trump is assuming the presidency, and Republicans control the House and Senate.
They streamed into Washington this week to collect their reward, the activists and party hacks and true believers who helped make it happen. The members of the Republican National Committee, representing every state and territory, gathered in the ornate, slightly dowdy ballrooms of Washington’s Omni Shoreham hotel, where they took care of the party’s business between being feted at lunches, receptions, and inaugural balls. The mood was jubilant: Against all odds, after years of frustration, everything they worked for had come to pass.
A history of the first African American White House—and of what came next
In the waning days of President Barack Obama’s administration, he and his wife, Michelle, hosted a farewell party, the full import of which no one could then grasp. It was late October, Friday the 21st, and the president had spent many of the previous weeks, as he would spend the two subsequent weeks, campaigning for the Democratic presidential nominee, Hillary Clinton. Things were looking up. Polls in the crucial states of Virginia and Pennsylvania showed Clinton with solid advantages. The formidable GOP strongholds of Georgia and Texas were said to be under threat. The moment seemed to buoy Obama. He had been light on his feet in these last few weeks, cracking jokes at the expense of Republican opponents and laughing off hecklers. At a rally in Orlando on October 28, he greeted a student who would be introducing him by dancing toward her and then noting that the song playing over the loudspeakers—the Gap Band’s “Outstanding”—was older than she was.
The president-elect filled out his Cabinet on Thursday by nominating former Georgia Governor Sonny Perdue for agriculture secretary.
Updated on January 19, 2017
A day before his inauguration, President-elect Donald Trump has filled out his Cabinet.
Trump on Thursday morning announced the nomination of former Georgia Governor Sonny Perdue as secretary of agriculture, completing a search that took the duration of his presidential transition.
Perdue, who served as governor from 2003 to 2011, grew up on a farm in Georgia and earned a doctorate in veterinary medicine. “Sonny Perdue is going to accomplish great things as Secretary of Agriculture,” Trump said in a statement. “From growing up on a farm to being governor of a big agriculture state, he has spent his whole life understanding and solving the challenges our farmers face, and he is going to deliver big results for all Americans who earn their living off the land.”
Many Americans who support the incoming president feel hopeful about the future. But even some who plan to attend his inauguration are wary about what he’ll do.
Joseph Richardson believes Donald Trump is already working to turn his campaign promises into a reality. “He started talking to companies about keeping jobs in the U.S. even before taking office, and when it comes to business I think people do listen because he’s very successful,” the 23-year-old Trump voter from Delaware said in a recent interview. High hopes for the incoming administration, though, haven’t necessarily translated into fuzzy feelings toward Trump himself. “At the same time, he’s kind of a jackass,” he added.
When Trump takes over the presidency on Friday, he will face a deeply divided nation, and may be on track for historically low approval ratings in office. Many Hillary Clinton voters, shocked and devastated by the outcome of the election, remain unwilling to rally around Trump. But the way his supporters feel about the future, and the candidate they elected to the presidency, may be more nuanced—and, in some cases, more surprising.
On the meaning and implications of the country’s first true businessman president
Among the more arid and promiscuous expressions in the English language is saying that someone is “in business.” The pawnbroker, the accounts executive at CBS, and the risk arbitrageur are all nominally engaged “in business,” but that fact probably does more to obscure the differences in their daily affairs than to reveal any fundamental similarities.
Donald J. Trump has certainly been “in business” for the better part of 50 years. And while his electoral success has made him a global face for American capitalism, the fact that he’s the first businessman to vault from the C-Suite straight to the presidency says little about what the country might expect from the next four years—or at least not nearly as much as many tend to think.
Recent presidential installation ceremonies have been studiously planned and free of major disasters. It hasn’t always been so.
With malice toward none. The only thing we have to fear. Ask what you can do for your country.
Presidential inaugurations will, at their best, inspire their audiences—not just in their respective moments, but for decades and centuries to come. But presidential inaugurations are also run by people, which means that, sometimes, they will go extremely wrong. Sometimes, it will be protests that will mar the best-planned ceremonies. Sometimes, it will be human pettiness (as when President Hoover, riding with Franklin Roosevelt in the motorcade to the Capitol in 1932, seems to have ignored Roosevelt’s attempts at conversations, instead staring stone-faced into the distance). Sometimes, however, inaugural exercises will encounter disasters of a more epic strain: storms, illness, death, extremely pungent cheese.
Curfews, sports, and understanding kids’ brain chemistry have all helped dramatically curb substance abuse in the country.
It’s a little before 3 p.m. on a sunny Friday afternoon and Laugardalur Park, near central Reykjavik, looks practically deserted. There’s an occasional adult with a stroller, but the park’s surrounded by apartment blocks and houses, and school’s out—so where are all the kids?
Walking with me are Gudberg Jónsson, a local psychologist, and Harvey Milkman, an American psychology professor who teaches for part of the year at Reykjavik University. Twenty years ago, says Gudberg, Icelandic teens were among the heaviest-drinking youths in Europe. “You couldn’t walk the streets in downtown Reykjavik on a Friday night because it felt unsafe,” adds Milkman. “There were hordes of teenagers getting in-your-face drunk.”