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:>
It happened gradually—and until the U.S. figures out how to treat the problem, it will only get worse.
It’s 2020, four years from now. The campaign is under way to succeed the president, who is retiring after a single wretched term. Voters are angrier than ever—at politicians, at compromisers, at the establishment. Congress and the White House seem incapable of working together on anything, even when their interests align. With lawmaking at a standstill, the president’s use of executive orders and regulatory discretion has reached a level that Congress views as dictatorial—not that Congress can do anything about it, except file lawsuits that the divided Supreme Court, its three vacancies unfilled, has been unable to resolve.
On Capitol Hill, Speaker Paul Ryan resigned after proving unable to pass a budget, or much else. The House burned through two more speakers and one “acting” speaker, a job invented following four speakerless months. The Senate, meanwhile, is tied in knots by wannabe presidents and aspiring talk-show hosts, who use the chamber as a social-media platform to build their brands by obstructing—well, everything. The Defense Department is among hundreds of agencies that have not been reauthorized, the government has shut down three times, and, yes, it finally happened: The United States briefly defaulted on the national debt, precipitating a market collapse and an economic downturn. No one wanted that outcome, but no one was able to prevent it.
The results of the referendum are, in theory, not legally binding.
Lest we think the Euroskepticism displayed this week by British voters is new, let me present a scene from the BBC’s Yes, Minister, a comedy about the U.K. civil service’s relationship with a minister. The series ran from 1980 to ’84 (and, yes, it was funny), at a time when the European Union was a mere glint in its founders’ eyes.
The Europe being referred to in the scene is the European Economic Community (EEC), an eventually 12-member bloc established in the mid-1950s, to bring about greater economic integration among its members.
In many ways, the seeds of the U.K.’s Thursday referendum on its membership in the European Union were sown soon after the country joined the now-defunct EEC in 1973. Then, as now, the ruling Conservative Party and opposition Labour, along with the rest of the country, were deeply divided over the issue. In the run-up to the general election the following year, Labour promised in its manifesto to put the U.K.’s EEC membership to a public referendum. Labour eventually came to power and Parliament passed the Referendum Act in 1975, fulfilling that campaign promise. The vote was held on June 5, 1975, and the result was what the political establishment had hoped for: an overwhelming 67 percent of voters supported the country’s EEC membership.
The June 23 vote represents a huge popular rebellion against a future in which British people feel increasingly crowded within—and even crowded out of—their own country.
I said goodnight to a gloomy party of Leave-minded Londoners a few minutes after midnight. The paper ballots were still being counted by hand. Only the British overseas territory of Gibraltar had reported final results. Yet the assumption of a Remain victory filled the room—and depressed my hosts. One important journalist had received a detailed briefing earlier that evening of the results of the government’s exit polling: 57 percent for Remain.
The polling industry will be one victim of the Brexit vote. A few days before the vote, I met with a pollster who had departed from the cheap and dirty methods of his peers to perform a much more costly survey for a major financial firm. His results showed a comfortable margin for Remain. Ten days later, anyone who heeded his expensive advice suffered the biggest percentage losses since the 2008 financial crisis.
American society increasingly mistakes intelligence for human worth.
As recently as the 1950s, possessing only middling intelligence was not likely to severely limit your life’s trajectory. IQ wasn’t a big factor in whom you married, where you lived, or what others thought of you. The qualifications for a good job, whether on an assembly line or behind a desk, mostly revolved around integrity, work ethic, and a knack for getting along—bosses didn’t routinely expect college degrees, much less ask to see SAT scores. As one account of the era put it, hiring decisions were “based on a candidate having a critical skill or two and on soft factors such as eagerness, appearance, family background, and physical characteristics.”
The 2010s, in contrast, are a terrible time to not be brainy. Those who consider themselves bright openly mock others for being less so. Even in this age of rampant concern over microaggressions and victimization, we maintain open season on the nonsmart. People who’d swerve off a cliff rather than use a pejorative for race, religion, physical appearance, or disability are all too happy to drop the s‑bomb: Indeed, degrading others for being “stupid” has become nearly automatic in all forms of disagreement.
More than a decade ago, Daniel Suelo closed his bank account and moved into a desert cave. Here's how he eats, sleeps, and evades the law.
More than a decade ago, Daniel Suelo closed his bank account and moved into a desert cave. Here's how he eats, sleeps, and evades the law.
society is designed so that you have to have money," Daniel Suelo says. "You have to
be a part of the capitalist system. It's illegal to live outside of it."
defied these laws. His primary residence is the canyons near Arches National Park,
where he has lived in a dozen caves tucked into sandstone nooks. In the fall of
2002, two years after quitting money, he homesteaded a majestic alcove high on a
cliff, two hundred feet across and fifty feet tall. Sitting inside and gazing
into the gorge below felt like heralding himself to the world from inside the
bell of a trumpet.
The city is riding high after the NBA final. But with the GOP convention looming, residents are bracing for disappointment.
Cleveland’s in a weird mood.
My son and I attended the Indians game on Father’s Day, the afternoon before game seven of the NBA Finals—which, in retrospect, now seems like it should be blockbustered simply as The Afternoon Before—when the Cavaliers would take on the Golden State Warriors and bring the city its first major-league sports championship in 52 years.
I am 52 years old. I’ve lived in Northeast Ohio all my life. I know what Cleveland feels like. And it’s not this.
In the ballpark that day, 25,269 of us sat watching a pitcher’s duel, and the place was palpably subdued. The announcer and digitized big-screen signage made no acknowledgement of the city’s excitement over the Cavaliers. There were no chants of “Let’s Go Cavs,” no special seventh-inning-stretch cheer for the Indians’ basketball brothers, who play next door in the Quicken Loans Arena, which in a few weeks will host the Republican National Convention.
Patrick Griffin, his chief congressional affairs lobbyist, recalls the lead up to the bill’s passage in 1994—and the steep political price that followed.
For those who question whether anything will ever be done to curb the use of military grade weaponry for mass shootings in the United States, history provides some good news—and some bad. The good news is that there is, within the recent past, an example of a president—namely Bill Clinton—who successfully wielded the powers of the White House to institute a partial ban of assault weapons from the nation’s streets. The bad news, however, is that Clinton’s victory proved to be so costly to him and to his party that it stands as an enduring cautionary tale in Washington about the political dangers of taking on the issue of gun control.
In 1994, Clinton signed into law the Public Safety and Recreational Firearms Use Protection Act, placing restrictions on the number of military features a gun could have and banning large capacity magazines for consumer use. Given the potent dynamics of Second Amendment politics, it was a signal accomplishment. Yet the story behind the ban has been largely forgotten since it expired in 2004 and, in part, because the provision was embedded in the larger crime bill.
A hotly contested, supposedly ancient manuscript suggests Christ was married. But believing its origin story—a real-life Da Vinci Code, involving a Harvard professor, a onetime Florida pornographer, and an escape from East Germany—requires a big leap of faith.
On a humid afternoon this past November, I pulled off Interstate 75 into a stretch of Florida pine forest tangled with runaway vines. My GPS was homing in on the house of a man I thought might hold the master key to one of the strangest scholarly mysteries in recent decades: a 1,300-year-old scrap of papyrus that bore the phrase “Jesus said to them, My wife.” The fragment, written in the ancient language of Coptic, had set off shock waves when an eminent Harvard historian of early Christianity, Karen L. King, presented it in September 2012 at a conference in Rome.
Never before had an ancient manuscript alluded to Jesus’s being married. The papyrus’s lines were incomplete, but they seemed to describe a dialogue between Jesus and the apostles over whether his “wife”—possibly Mary Magdalene—was “worthy” of discipleship. Its main point, King argued, was that “women who are wives and mothers can be Jesus’s disciples.” She thought the passage likely figured into ancient debates over whether “marriage or celibacy [was] the ideal mode of Christian life” and, ultimately, whether a person could be both sexual and holy.