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:>
I traveled to every country on earth. In some cases, the adventure started before I could get there.
Last summer, my Royal Air Maroc flight from Casablanca landed at Malabo International Airport in Equatorial Guinea, and I completed a 50-year mission: I had officially, and legally, visited every recognized country on earth.
This means 196 countries: the 193 members of the United Nations, plus Taiwan, Vatican City, and Kosovo, which are not members but are, to varying degrees, recognized as independent countries by other international actors.
In five decades of traveling, I’ve crossed countries by rickshaw, pedicab, bus, car, minivan, and bush taxi; a handful by train (Italy, Switzerland, Moldova, Belarus, Ukraine, Romania, and Greece); two by riverboat (Gabon and Germany); Norway by coastal steamer; Gambia and the Amazonian parts of Peru and Ecuador by motorized canoe; and half of Burma by motor scooter. I rode completely around Jamaica on a motorcycle and Nauru on a bicycle. I’ve also crossed three small countries on foot (Vatican City, San Marino, and Liechtenstein), and parts of others by horse, camel, elephant, llama, and donkey. I confess that I have not visited every one of the 7,107 islands in the Philippine archipelago or most of the more than 17,000 islands constituting Indonesia, but I’ve made my share of risky voyages on the rickety inter-island rustbuckets you read about in the back pages of the Times under headlines like “Ship Sinks in Sulu Sea, 400 Presumed Lost.”
Massive hurricanes striking Miami or Houston. Earthquakes leveling Los Angeles or Seattle. Deadly epidemics. Meet the “maximums of maximums” that keep emergency planners up at night.
For years before Hurricane Katrina, storm experts warned that a big hurricane would inundate the Big Easy. Reporters noted that the levees were unstable and could fail. Yet hardly anyone paid attention to these Cassandras until after the levees had broken, the Gulf Coast had been blown to pieces, and New Orleans sat beneath feet of water.
The wall-to-wall coverage afforded to the anniversary of Hurricane Katrina reveals the sway that a deadly act of God or man can hold on people, even 10 years later. But it also raises uncomfortable questions about how effectively the nation is prepared for the next catastrophe, whether that be a hurricane or something else. There are plenty of people warning about the dangers that lie ahead, but that doesn’t mean that the average citizen or most levels of the government are anywhere near ready for them.
According to Franklin, what mattered in business was humility, restraint, and discipline. But today’s Type-A MBAs would find him qualified for little more than a career in middle management.
When he retired from the printing business at the age of 42, Benjamin Franklin set his sights on becoming what he called a “Man of Leisure.” To modern ears, that title might suggest Franklin aimed to spend his autumn years sleeping in or stopping by the tavern, but to colonial contemporaries, it would have intimated aristocratic pretension. A “Man of Leisure” was typically a member of the landed elite, someone who spent his days fox hunting and affecting boredom. He didn’t have to work for a living, and, frankly, he wouldn’t dream of doing so.
Having worked as a successful shopkeeper with a keen eye for investments, Franklin had earned his leisure, but rather than cultivate the fine arts of indolence, retirement, he said, was “time for doing something useful.” Hence, the many activities of Franklin’s retirement: scientist, statesman, and sage, as well as one-man civic society for the city of Philadelphia. His post-employment accomplishments earned him the sobriquet of “The First American” in his own lifetime, and yet, for succeeding generations, the endeavor that was considered his most “useful” was the working life he left behind when he embarked on a life of leisure.
In the name of emotional well-being, college students are increasingly demanding protection from words and ideas they don’t like. Here’s why that’s disastrous for education—and mental health.
Something strange is happening at America’s colleges and universities. A movement is arising, undirected and driven largely by students, to scrub campuses clean of words, ideas, and subjects that might cause discomfort or give offense. Last December, Jeannie Suk wrote in an online article for The New Yorker about law students asking her fellow professors at Harvard not to teach rape law—or, in one case, even use the word violate (as in “that violates the law”) lest it cause students distress. In February, Laura Kipnis, a professor at Northwestern University, wrote an essay in The Chronicle of Higher Education describing a new campus politics of sexual paranoia—and was then subjected to a long investigation after students who were offended by the article and by a tweet she’d sent filed Title IX complaints against her. In June, a professor protecting himself with a pseudonym wrote an essay for Vox describing how gingerly he now has to teach. “I’m a Liberal Professor, and My Liberal Students Terrify Me,” the headline said. A number of popular comedians, including Chris Rock, have stopped performing on college campuses (see Caitlin Flanagan’s article in this month’s issue). Jerry Seinfeld and Bill Maher have publicly condemned the oversensitivity of college students, saying too many of them can’t take a joke.
The Islamic State is no mere collection of psychopaths. It is a religious group with carefully considered beliefs, among them that it is a key agent of the coming apocalypse. Here’s what that means for its strategy—and for how to stop it.
What is the Islamic State?
Where did it come from, and what are its intentions? The simplicity of these questions can be deceiving, and few Western leaders seem to know the answers. In December, The New York Times published confidential comments by Major General Michael K. Nagata, the Special Operations commander for the United States in the Middle East, admitting that he had hardly begun figuring out the Islamic State’s appeal. “We have not defeated the idea,” he said. “We do not even understand the idea.” In the past year, President Obama has referred to the Islamic State, variously, as “not Islamic” and as al-Qaeda’s “jayvee team,” statements that reflected confusion about the group, and may have contributed to significant strategic errors.
The tension between religious liberty and same-sex marriage may eventually come to a head in the courts, but probably not through the Kentucky clerk’s case.
As Rowan County clerk Kim Davis crawls further and further out on a limb, Supreme Court experts agree that she has little chance of prevailing. District Judge David Bunning, on August 12 ordered Davis, in her capacity as county clerk, to issue marriage licenses to all couples who meet the statutory criteria for marriage in Kentucky—a definition that, since the Court’s landmark decision in Obergefell v. Hodges, includes same-sex couples.
Davis has refused, citing “the authority of God.” The U.S. Supreme Court, without comment, denied her emergency request for a stay. This throws the case back to the Sixth Circuit, which will hear the appeal of Judge Bunning’s order. Assuming she loses in the Sixth Circuit—a fairly good assumption—she would then have the alternative of petitioning the Supreme Court to hear her religious freedom claim. The Court will eventually hear a case about religious freedom and same-sex marriage, but I don’t think it will be this one.
How the Islamic State uses economic persecution as a recruitment tactic
Before Islamic State militants overran her hometown of Mosul in June 2014, Fahima Omar ran a hairdressing salon. But ISIS gunmen made Omar close her business—and lose her only source of income. Salons like hers encouraged “debauchery,” the militants said.
Omar is one of many business owners—male and female—who say ISIS has forced them to shut up shop and lose their livelihoods in the process. The extremist group has also prevented those who refuse to join it from finding jobs, and has imposed heavy taxes on civilians.
“ISIS controls every detail of the economy,” says Abu Mujahed, who fled with his family from ISIS-controlled Deir al-Zor in eastern Syria. “Only their people or those who swear allegiance to them have a good life.” When they took over Deir al-Zor, ISIS gunmen systematically took control of the local economy, looting factories and confiscating properties, says Mujahed. Then they moved in, taking over local business networks.
The past is beautiful until you’re reminded it’s ugly.
Taylor Swift’s music video for “Wildest Dreams” isn’t about the world as it exists; it’s about the world as seen through the filter of nostalgia and the magic of entertainment. In the song, Swift sings that she wants to live on in an ex’s memory as an idealized image of glamour—“standing in a nice dress, staring at the sunset.” In the video, her character, an actress, falls in love with her already-coupled costar, for whom she’ll live on as an idealized image of glamour—standing in a nice dress, staring at a giant fan that’s making the fabric swirl in the wind.
The setting for the most part is Africa, but, again, the video isn’t about Africa as it exists, but as it’s seen through the filter of nostalgia and the magic of entertainment—a very particular nostalgia and kind of entertainment. Though set in 1950, the video is in the literary and cinematic tradition of white savannah romances, the most important recent incarnation of which might be the 1985 Meryl Streep film Out of Africa, whose story begins in 1913. Its familiarity is part of its appeal, and also part of why it’s now drawing flack for being insensitive. As James Kassaga Arinaitwe and Viviane Rutabingwa write at NPR:
A Brooklyn-based group is arguing that the displacement of longtime residents meets a definition conceived by the United Nations in the aftermath of World War II.
No one will be surprised to learn that the campaign to build a national movement against gentrification is being waged out of an office in Brooklyn, New York.
For years, the borough’s name has been virtually synonymous with gentrification, and on no street in Brooklyn are its effects more evident than on Atlantic Avenue, where, earlier this summer, a local bodega protesting its impending departure in the face of a rent hike, put up sarcastic window signs advertising “Bushwick baked vegan cat food” and “artisanal roach bombs.”
Just down the block from that bodega are the headquarters of Right to the City, a national alliance of community-based organizations that since 2007 has made it its mission to fight “gentrification and the displacement of low-income people of color.” For too long, organizers with the alliance say, people who otherwise profess concern for the poor have tended to view gentrification as a mere annoyance, as though its harmful effects extended no further than the hassles of putting up with pretentious baristas and overpriced lattes. Changing this perception is the first order of business for Right to the City: Gentrification, as these organizers see it, is a human-rights violation.
Though it wasn’t pretty, Minaj was really teaching a lesson in civility.
Nicki Minaj didn’t, in the end, say much to Miley Cyrus at all. If you only read the comments that lit up the Internet at last night’s MTV Video Music Awards, you might think she was kidding, or got cut off, when she “called out” the former Disney star who was hosting: “And now, back to this bitch that had a lot to say about me the other day in the press. Miley, what’s good?”
To summarize: When Minaj’s “Anaconda” won the award for Best Hip-Hop Video, she took to the stage in a slow shuffle, shook her booty with presenter Rebel Wilson, and then gave an acceptance speech in which she switched vocal personas as amusingly as she does in her best raps—street-preacher-like when telling women “don’t you be out here depending on these little snotty-nosed boys”; sweetness and light when thanking her fans and pastor. Then a wave of nausea seemed to come over her, and she turned her gaze toward Cyrus. To me, the look on her face, not the words that she said, was the news of the night: