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.
Reuters
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.
Arbitrage
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.
High-frequency
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?
High-risk
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:>
To understand the changes taking place in the Republican Party now, it helps to go back to the last time the party went through a major transformation.
Three Atlantic staffers discuss “Stormborn,” the first episode of the seventh season.
Every week for the seventh season of Game of Thrones, three Atlantic staffers will discuss new episodes of the HBO drama. Because no screeners were made available to critics in advance this year, we'll be posting our thoughts in installments.
Spencer Kornhaber: Game of Thrones ended its latest episode with a good-old-fashion pirate ambush, eliminating two out of three of the Sand Snakes and subjecting Theon to a humiliating self-directed walk of the plank. As far as late-episode twists go, Euron Greyjoy’s at-sea ambush was a solid one, injecting real suspense and unsettling violence into what had seemed like a straightforward sail. Yet, in the end, it was also a typical Thrones-ian calamity: You’d best bet against the side you want to win.
Thirty-one year old Ezra Cohen-Watnick holds the intelligence portfolio on the National Security Council—but almost everything about him is a mystery.
Just 24 days into his tenure as Donald Trump’s national-security adviser, Michael Flynn was forced to resign, having reportedly misled Vice President Mike Pence about his contacts with Russian officials. When Flynn departed, the men and women he’d appointed to the National Security Council grew nervous about their own jobs, and with good reason. The new national-security adviser, General H.R. McMaster, promptly began clearing out Flynn’s people, among them Dave Cattler, the deputy assistant to the president for regional affairs, Adam Lovinger, a strategic affairs analyst on loan from the Pentagon, and KT McFarland, Flynn’s deputy, who was eased out with the ambassadorship to Singapore. Even Steve Bannon, among the most powerful people in the White House, was removed from the meetings of the NSC Principal’s Committee, where he had been installed early on in the administration.
Many point to unromantic 20-somethings and women’s entry into the workforce, but an overlooked factor is the trouble young men have in finding steady, well-paid jobs.
TOKYO—Japan’s population is shrinking. For the first time since the government started keeping track more than a century ago, there were fewer than 1 million births last year, as the country’s population fell by more than 300,000 people. The blame has long been put on Japan’s young people, who are accused of not having enough sex, and on women, who, the narrative goes, put their careers before thoughts of getting married and having a family.
But there’s another, simpler explanation for the country’s low birth rate, one that has implications for the U.S.: Japan’s birth rate may be falling because there are fewer good opportunities for young people, and especially men, in the country’s economy. In a country where men are still widely expected to be breadwinners and support families, a lack of good jobs may be creating a class of men who don’t marry and have children because they—and their potential partners—know they can’t afford to.
Getting too little sleep can have serious health consequences, including depression, weight gain, and heart disease. It is torture. I know.
I awoke in a bed for the first time in days. My joints ached and my eyelids, which had been open for so long, now lay heavy as old hinges above my cheekbones. I wore two pieces of clothing: an assless gown and a plastic bracelet.
I remembered the hallway I had been wheeled down, and the doctor’s office where I told the psychiatrist he was the devil, but not this room. I forced myself up and stumbled, grabbing the chair and the bathroom doorknob for balance. I made it to the toilet, then threw water on my face at the sink, staring into the mirror in the little lavatory. My tousled hair shot out around my puffy face; my head throbbed. I looked hungover.
In those first moments, I remembered the basics about what had landed me in the hospital: Some pseudo-philosophical ranting and flailing brought on by a poorly executed experiment to see how long I could last without sleep.
Biology textbooks tell us that lichens are alliances between two organisms—a fungus and an alga. They are wrong.
In 1995, if you had told Toby Spribille that he’d eventually overthrow a scientific idea that’s been the stuff of textbooks for 150 years, he would have laughed at you. Back then, his life seemed constrained to a very different path. He was raised in a Montana trailer park, and home-schooled by what he now describes as a “fundamentalist cult.” At a young age, he fell in love with science, but had no way of feeding that love. He longed to break away from his roots and get a proper education.
At 19, he got a job at a local forestry service. Within a few years, he had earned enough to leave home. His meager savings and non-existent grades meant that no American university would take him, so Spribille looked to Europe.
The world has many coming-of-age traditions: sweet sixteens, bar mitzvahs, quinceañeras. But in one African country, 'initiation' is endangering the health of girls and boys.
CHIRADZULU, Malawi — A slight frame gives her the appearance of a child, but the hardened look Grace Mwase wears makes her seem older than her 14 years. In many villages across Malawi, a largely agrarian sliver of a country in southern Africa, custom dictates that both boys and girls as young as eight attend a rite of passage known as “initiation,” after which they are no longer seen as children. The practice is most entrenched in the country's south, where Mwase's Golden Village is located.
Mwase was just 10 when she was led, along with about a dozen other girls, to remote huts outside her village during winter vacation from school in August. The girls were accompanied by older women from their village in Chiradzulu district, near the border with Mozambique. The women, known as anamkungwi, or “key leaders,” told them that when they returned to their villages they should cook and clean—and have sex. According to Mwase, most of the two weeks she spent at the initiation camp were dedicated to learning how to engage in sexual acts. She had been excited for this time with friends away from home, but that feeling quickly gave way to dread as she learned the true purpose of initiation.
Why some progressives are minimizing Russia’s election meddling
When it comes to possible collusion with Russia, Donald Trump’s most interesting defenders don’t reside on the political right. They reside on the political left.
Sean Hannity and Newt Gingrich aren’t defending a principle. They’re defending a patron. Until recently they were ultra-hawks. Now, to downplay Russia’s meddling in the 2016 elections, they sound like ultra-doves. All that matters is supporting their ally in the White House.
For left-wing defenders like Max Blumenthal and Glenn Greenwald, by contrast, ideology is king. Blumenthal and Greenwald loathe Trump. But they loathe hawkish foreign policy more. So they minimize Russia’s election meddling to oppose what they see as a new Cold War.
She lived with us for 56 years. She raised me and my siblings without pay. I was 11, a typical American kid, before I realized who she was.
The ashes filled a black plastic box about the size of a toaster. It weighed three and a half pounds. I put it in a canvas tote bag and packed it in my suitcase this past July for the transpacific flight to Manila. From there I would travel by car to a rural village. When I arrived, I would hand over all that was left of the woman who had spent 56 years as a slave in my family’s household.
I used to adore the Pride and Prejudice author. But over the years I’ve grown more ambivalent toward her and the fervor for her work.
I once confessed to an audience gathered for a pre-show talk about Pride and Prejudice that I felt a bit salty to see so many of them in attendance. A few months earlier, I explained, I’d given an absolutely fascinating lecture on Mary Shelley to maybe five people, one of whom was my Aunt Carmen. The crowd for Jane Austen—and it was a crowd—laughed. A mix of students, folks from the surrounding towns, and my colleagues were there to see a stage adaptation of what is arguably the author’s most popular novel. It was my job to introduce the performance, and I was terrified. It’s no small thing to talk about Austen in public. There’s always a cluster of people who have been reading her since before they could walk, and they not only have strong opinions but also know her and her writing like my mother knew the Bible.
Most of the country understands that when it comes to government, you pay for what you get.
When I was a young kid growing up in Montreal, our annual family trips to my grandparents’ Florida condo in the 1970s and ‘80s offered glimpses of a better life. Not just Bubbie and Zadie’s miniature, sun-bronzed world of Del Boca Vista, but the whole sprawling infrastructural colossus of Cold War America itself, with its famed interstate highway system and suburban sprawl. Many Canadians then saw themselves as America’s poor cousins, and our inferiority complex asserted itself the moment we got off the plane.
Decades later, the United States presents visitors from the north with a different impression. There hasn’t been a new major airport constructed in the United States since 1995. And the existing stock of terminals is badly in need of upgrades. Much of the surrounding road and rail infrastructure is in even worse shape (the trip from LaGuardia Airport to midtown Manhattan being particularly appalling). Washington, D.C.’s semi-functional subway system feels like a World’s Fair exhibit that someone forgot to close down. Detroit’s 90-year-old Ambassador Bridge—which carries close to $200 billion worth of goods across the Canada-U.S. border annually—has been operating beyond its engineering capacity for years. In 2015, the Canadian government announced it would be paying virtually the entire bill for a new bridge (including, amazingly, the U.S. customs plaza on the Detroit side), after Michigan’s government pled poverty. “We are unable to build bridges, we're unable to build airports, our inner city school kids are not graduating,” is how JPMorgan Chase CEO Jamie Dimon summarized the state of things during an earnings conference call last week. “It’s almost embarrassing being an American citizen.”
