The social network times of social economics - Business

Calculation of Facebook points "moves" have two doors, one is sociology and economics. Social network this dish chess, the fewest and other chess very different. On the one hand, to have the economists calculate road, otherwise they will be like pushing, that's not good hit; On the other hand, want to have social scientists calculate road, otherwise they will be like Myspace that "speed." annihilate d

In view of the domestic still cannot see a social networking service) to (can be very good balance is the door way now, newcomers have a very good chance, through the master in on the road ahead is deep, found the future business opportunities and realize salted fish rolling.

Article/JiangJiPing (the Po)

Along the direction of Facebook, go forward again a few steps, we will look forward to the future of how?

To answer this question, must use theory. If the life into a chess game theorists like, than a court, he can play chess people is more than a few steps, even more than ten steps, dozens of steps.

Calculation of Facebook points "moves" have two doors, one is sociology and economics. Social network this dish chess, the fewest and other chess very different. On the one hand, to have the economists calculate road, otherwise they will be like pushing, that's not good hit; On the other hand, want to have social scientists calculate road, otherwise they will be like Myspace that "speed." annihilate d

In view of the domestic still cannot see a social networking service) to (can be very good balance is the door way now, newcomers have a very good chance, through the master in on the road ahead is deep, found the future business opportunities and realize salted fish rolling.

The network of social theory boundary markers

The social network era has its special social and economic significance from the Angle of economics, sociology and we can understand the importance of social network, and sociology and economics also must face in their online social time new development.

Specific focus to the subject up online social networking, we find that "moves" or "recipes" quite a lot, we first need to comb. Sociology and economics in the centre of the cross, to form two kind of different disciplines, a class of the difference is very big, with economic called social economics for center of gravity; A class called economic sociology, to the social artificial center of gravity.

Social economics, also called social problems economics (such as sharp, etc "social problems of economics edition), 18 internal has already formed the two schools: one is the classical tradition" welfare oriented "social economics, hereinafter referred to as" welfare school ". In this branch (such as BaiXueQiu, SongGuoXing editor "social economics) and sharp as the interest of the disadvantaged, the main research related to poverty, unemployment, environment pollution, drug smuggling and other social problems, and social network to have nothing to do; One is the Nobel economic prize winner becker, who in the "economic empire" thought control created social economics, hereinafter referred to as "the empire school," agent from the Angle of social behavior such as addiction behind the rational choice.

Economic sociology, also called the new economic sociology to don't at the early stage of economic sociology. Mainly divided into two schools, is a low-grade socialization theories, mainly from the transaction cost economics Angle in introducing social factors, such as the system of the economic analysis, Williamson domestic is wang and built the new economic sociology to China ". One is the excessive socialization point of view.

If the analogy, pay attention to social economics theoretical "field", economic sociology attention "problem"; If the menu parables, social economics "cooking", emphasize on physical factors, economic sociology "soup", emphasize on humanized (or cultural) factors.

In all of these theories, the most help us like Facebook to such analysis of the theory of new economic sociology, it is this one, including Glenn's victor's theory (masterpiece the Mosaic: social nets and economic action "), has the domestic ZhangJiZai new economic sociology. Because they and most relevant to the relationship between the social network.

The old economic sociology and new economic sociology, the biggest difference in network theory or. The "new" major new on the network. Although the network is not intended to the Internet, but are more closely related to, because it is to point to interpersonal interaction network.

Grant's social network theory, the victor is different from the low socialization theories at, he does not agree with the decision of the transaction costs, because they think that's role of economic, physical and chemical, and emphasizes the role of trust in the network, the emphasis is the function of the heart also. But Glenn's victor is different from general social scientists with general aspects of morality explain honest behavior, think that too socialization, "person", and the emphasis on human interaction of trust from the decisive role, a bit like the economics of repeated game stressed in the limited to the influence of the cooperation.

The above is the way these lay a key boundary markers, we can further analysis substantial, see theory for the network society to provide the guidance, and what online social networking to theory and what are some of the problems.

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Losing My Virginity - To Virgin Atlantic Premium Economy

Since returning from holiday everyone's been asking, "What's with the big grin?"

Well if you all must know, I just lost my Virginity, and to be honest, I can't wait to go back for more. I'm no pushover you understand, but after hearing those rumors, I had to find out what all the fuss was about. So one minute I'm innocently working away at my desk, and the next I'm on the phone to my travel agent booking a seat to Hong Kong for a few nights of heady shopping, sightseeing, and degustation.

I'm not one to tell, but as soon as I arrived at the Virgin Atlantic counter at Sydney Airport they were already turning on the charm, inviting me to a special priority check-in for Premium Economy passengers, where a very friendly agent quickly checked me through with a big smile, remarking that I still had plenty of time to ogle the duty-free goodies before take off. Rather fresh of her I know, but that's just the start of it.

As we boarded the aircraft, one of the attentive crew suggested I slip into something more comfortable - like my seat - while she fixed me a drink. Looking around with glee I discovered it wasn't just a line; Premium Economy really did only have eyes for me, and twenty-seven others.

Not only were the seats wider than regular economy class - think Beyonce dancing next to Kylie - the chair configuration of two, three, two across the aircraft provided just the right amount of personal space. In addition, they've added extra padding, leg rests, and a generous recline. This baby was definitely built for comfort.

To put me in the mood before take off, I was offered a selection of drinks, including a glass of champagne. I hadn't intended on letting my guard down so early, but I'm talking real glasses of French champagne, not just plastic picnic goblets of Spumante. What did they take me for, a Business Class passenger?

Slurping noisily on my glass of bubbly, so as to be heard back in economy, I couldn't help but notice a well-stacked set of amenities bursting out of the seatback pocket in front. I have to say I'm a legroom man myself, however, these colourful kits were more than a handful. Each one was stuffed with socks, eyeshades, pens (who can ever find one when they need to fill out those customs forms?), notepads, tissues, and big enough to air your dirty laundry in on the way home.

Once in the skies, the crew really started to put on the moves. More drinks, impressive meals (by airline standards anyway, although I did tell them they were the best I'd ever had), refreshing hot towels, and tempting snack delights such as ice cream and chocolate bars.

Not long after dinner, the crew quietly dimmed the lights and lowered the shutters. However, this was no time to roll over and go to sleep. The flight was still young, and the fun just beginning. Both Premium Economy and Economy seats are equipped with large seatback video screens. Being sensitive to our individual needs, Virgin offer 50 movies to choose from. I could play, pause, go faster, take it slow, back a little, and, of course, stop if the film was just not doing it for me. Whenever I felt like a break between the action, a huge selection of TV shows, computer games, and audio channels awaited my every command.

After some initial fumbling around, I discovered that each seat has its own phone and email address. Of course, I could have communicated with the outside world, but why bother when the real enjoyment was dialling seat numbers to prank call and heavy breathe other passengers for free until I learnt that my seat number appeared at the receivers end. For those who would rather fly by the motto "all work and no play", Premium Economy also provides in-seat power supply for laptop computers.

While gadgets might be a boy's best friends, no airline gets far with me unless they can back it up with a great personality. That's where the experienced and friendly Virgin Atlantic crew really made my first time special, even announcing over the PA system that they would be delighted for me to fly with them again! They haven't called yet, but I'm sure they will.

Now you know how I lost my Virginity and still wear the big grin to prove it. But don't take it from me, give your travel agent a call and tell them "I want what he's having".

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bankers banks the role of central banks in banking crises

Central banks are relatively new inventions. An American President (Andrew Jackson) even cancelled its country's central bank in the nineteenth century because he did not think that it was very important. But things have changed since. Central banks today are the most important feature of the financial systems of most countries of the world.

Central banks are a bizarre hybrids. Some of their functions are identical to the functions of regular, commercial banks. Other functions are unique to the central bank. On certain functions it has an absolute legal monopoly.

Central banks take deposits from other banks and, in certain cases, from foreign governments which deposit their foreign exchange and gold reserves for safekeeping (for instance, with the Federal Reserve Bank of the USA). The Central Bank invests the foreign exchange reserves of the country while trying to maintain an investment portfolio similar to the trade composition of its client - the state. The Central bank also holds onto the gold reserves of the country. Most central banks have lately tried to get rid of their gold, due to its ever declining prices. Since the gold is registered in their books in historical values, central banks are showing a handsome profit on this line of activity. Central banks (especially the American one) also participate in important, international negotiations. If they do not do so directly - they exert influence behind the scenes. The German Bundesbank virtually dictated Germany's position in the negotiations leading to the Maastricht trea ty. It forced the hands of its co-signatories to agree to strict terms of accession into the Euro single currency project. The Bunbdesbank demanded that a country's economy be totally stable (low debt ratios, low inflation) before it is accepted as part of the Euro. It is an irony of history that Germany itself is not eligible under these criteria and cannot be accepted as a member in the club whose rules it has assisted to formulate.

But all these constitute a secondary and marginal portion of a central banks activities.

The main function of a modern central bank is the monitoring and regulation of interest rates in the economy. The central bank does this by changing the interest rates that it charges on money that it lends to the banking system through its "discount windows". Interest rates is supposed to influence the level of economic activity in the economy. This supposed link has not unequivocally proven by economic research. Also, there usually is a delay between the alteration of interest rates and the foreseen impact on the economy. This makes assessment of the interest rate policy difficult. Still, central banks use interest rates to fine tune the economy. Higher interest rates - lower economic activity and lower inflation. The reverse is also supposed to be true. Even shifts of a quarter of a percentage point are sufficient to send the stock exchanges tumbling together with the bond markets. In 1994 a long term trend of increase in interest rate commenced in the USA, doubling in terest rates from 3 to 6 percent. Investors in the bond markets lost 1 trillion (=1000 billion!) USD in 1 year. Even today, currency traders all around the world dread the decisions of the Bundesbank and sit with their eyes glued to the trading screen on days in which announcements are expected.

Interest rates is only the latest fad. Prior to this - and under the influence of the Chicago school of economics - central banks used to monitor and manipulate money supply aggregates. Simply put, they would sell bonds to the public (and, thus absorb liquid means, money) - or buy from the public (and, thus, inject liquidity). Otherwise, they would restrict the amount of printed money and limit the government's ability to borrow. Even prior to that fashion there was a widespread belief in the effectiveness of manipulating exchange rates. This was especially true where exchange controls were still being implemented and the currency was not fully convertible. Britain removed its exchange controls only as late as 1979. The USD was pegged to a (gold) standard (and, thus not really freely tradable) as late as 1971. Free flows of currencies are a relatively new thing and their long absence reflects this wide held superstition of central banks. Nowadays, exchange rates are consi dered to be a "soft" monetary instrument and are rarely used by central banks. The latter continue, though, to intervene in the trading of currencies in the international and domestic markets usually to no avail and while losing their credibility in the process. Ever since the ignominious failure in implementing the infamous Louvre accord in 1985 currency intervention is considered to be a somewhat rusty relic of old ways of thinking.

Central banks are heavily enmeshed in the very fabric of the commercial banking system. They perform certain indispensable services for the latter. In most countries, interbank payments pass through the central bank or through a clearing organ which is somehow linked or reports to the central bank. All major foreign exchange transactions pass through - and, in many countries, still must be approved by - the central bank. Central banks regulate banks, licence their owners, supervise their operations, keenly observes their liquidity. The central bank is the lender of last resort in cases of insolvency or illiquidity.

The frequent claims of central banks all over the world that they were surprised by a banking crisis looks, therefore, dubious at best. No central bank can say that it had no early warning signs, or no access to all the data - and keep a straight face while saying so. Impending banking crises give out signs long before they erupt. These signs ought to be detected by a reasonably managed central bank. Only major neglect could explain a surprise on behalf of a central bank.

One sure sign is the number of times that a bank chooses to borrow using the discount windows. Another is if it offers interest rates which are way above the rates offered by other financing institutions. There are may more signs and central banks should be adept at reading them.

This heavy involvement is not limited to the collection and analysis of data. A central bank - by the very definition of its functions - sets the tone to all other banks in the economy. By altering its policies (for instance: by changing its reserve requirements) it can push banks to insolvency or create bubble economies which are bound to burst. If it were not for the easy and cheap money provided by the Bank of Japan in the eighties - the stock and real estate markets would not have inflated to the extent that they have. Subsequently, it was the same bank (under a different Governor) that tightened the reins of credit - and pierced both bubble markets.

The same mistake was repeated in 1992-3 in Israel - and with the same consequences.

This precisely is why central banks, in my view, should not supervise the banking system.

When asked to supervise the banking system - central banks are really asked to draw criticism on their past performance, their policies and their vigilance in the past. Let me explain this statement:

In most countries in the world, bank supervision is a heavy-weight department within the central bank. It samples banks, on a periodic basis. Then, it analyses their books thoroughly and imposes rules of conduct and sanctions where necessary. But the role of central banks in determining the health, behaviour and operational modes of commercial banks is so paramount that it is highly undesirable for a central bank to supervise the banks. As I have said, supervision by a central bank means that it has to criticize itself, its own policies and the way that they were enforced and also the results of past supervision. Central banks are really asked to cast themselves in the unlikely role of impartial saints.

A new trend is to put the supervision of banks under a different "sponsor" and to encourage a checks and balances system, wherein the central bank, its policies and operations are indirectly criticized by the bank supervision. This is the way it is in Switzerland and - with the exception of the Jewish money which was deposited in Switzerland never to be returned to its owners - the Swiss banking system is extremely well regulated and well supervised.

We differentiate between two types of central bank: the autonomous and the semi-autonomous.

The autonomous bank is politically and financially independent. Its Governor is appointed for a period which is longer than the periods of the incumbent elected politicians, so that he will not be subject to political pressures. Its budget is not provided by the legislature or by the executive arm. It is self sustaining: it runs itself as a corporation would. Its profits are used in leaner years in which it loses money (though for a central bank to lose money is a difficult task to achieve).

In Macedonia, for instance, annual surpluses generated by the central bank are transferred to the national budget and cannot be utilized by the bank for its own operations or for the betterment of its staff through education.

Prime examples of autonomous central banks are Germany's Bundesbank and the American Federal Reserve Bank.

The second type of central bank is the semi autonomous one. This is a central bank that depends on the political echelons and, especially, on the Ministry of Finance. This dependence could be through its budget which is allocated to it by the Ministry or by a Parliament (ruled by one big party or by the coalition parties). The upper levels of the bank - the Governor and the Vice Governor - could be deposed of through a political decision (albeit by Parliament, which makes it somewhat more difficult). This is the case of the National Bank of Macedonia which has to report to Parliament. Such dependent banks fulfil the function of an economic advisor to the government. The Governor of the Bank of England advises the Minister of Finance (in their famous weekly meetings, the minutes of which are published) about the desirable level of interest rates. It cannot, however, determine these levels and, thus is devoid of arguably the most important policy tool. The situation is some what better with the Bank of Israel which can play around with interest rates and foreign exchange rates - but not entirely freely.

The National Bank of Macedonia (NBM) is highly autonomous under the law regulating its structure and its activities. Its Governor is selected for a period of seven years and can be removed from office only in the case that he is charged with criminal deeds. Still, it is very much subject to political pressures. High ranking political figures freely admit to exerting pressures on the central bank (at the same breath saying that it is completely independent).

The NBM is young and most of its staff - however bright - are inexperienced. With the kind of wages that it pays it cannot attract the best available talents. The budgetary surpluses that it generates could have been used for this purpose and to higher world renowned consultants (from Switzerland, for instance) to help the bank overcome the experience gap. But the money is transferred to the budget, as we said. So, the bank had to do with charity received from USAID, the KNOW-HOW FUND and so on. Some of the help thus provided was good and relevant - other advice was, in my view, wrong for the local circumstances. Take supervision: it was modelled after the Americans and British. Those are the worst supervisors in the West (if we do not consider the Japanese).

And with all this, the bank had to cope with extraordinarily difficult circumstances since its very inception. The 1993 banking crisis, the frozen currency accounts, the collapse of the Stedilnicas (crowned by the TAT affair). Older, more experienced central banks would have folded under the pressure. Taking everything under consideration, the NBM has performed remarkably well.

The proof is in the stability of the local currency, the Denar. This is the main function of a central bank. After the TAT affair, there was a moment or two of panic - and then the street voted confidence in the management of the central bank, the Denar-DM rate went down to where it was prior to the crisis.

Now, the central bank is facing its most daunting task: facing the truth without fear and without prejudice. Bank supervision needs to be overhauled and lessons need to be learnt. The political independence of the bank needs to be increased greatly. The bank must decide what to do with TAT and with the other failing Stedilnicas?

They could be sold to the banks as portfolios of assets and liabilities. The Bank of England sold Barings Bank in 1995 to the ING Dutch Bank.

The central bank could - and has to - force the owners of the failing Stedilnicas to increase their equity capital (by using their personal property, where necessary). This was successfully done (again, by the Bank of England) in the 1991 case of the BCCI scandal.

The State of Macedonia could decide to take over the obligations of the failed system and somehow pay back the depositors. Israel (1983), the USA (1985/7) and a dozen other countries have done so recently.

The central bank could increase the reserve requirements and the deposit insurance premiums.

But these are all artificial, ad hoc, solutions. Something more radical needs to be done:

A total restructuring of the banking system. The Stedilnicas have to be abolished. The capital required to open a bank or a branch of a bank has to be lowered to 4 million DM (to conform with world standards and with the size of the economy of Macedonia). Banks should be allowed to diversify their activities (as long as they are of a financial nature), to form joint venture with other providers of financial services (such as insurance companies) and to open a thick network of branches.

And bank supervision must be separated from the central bank and set to criticize the central bank and its policies, decisions and operations on a regular basis.

There are no reasons why Macedonia should not become a financial centre of the Balkans - and there are many reasons why it should. But, ultimately, it all depends on the Macedonians themselves.

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skoda - objective reviews from a skoda driver

Skoda cars have an excellent reputation for producing quality cars at a fair price. In Ireland Skodas are a very popular car for business users and family drivers alike.

Gone are the days of the Skoda jokes, where Skoda was classed with Lada and Polski Fiat. Skoda is now part of the Volkswagen group and the cars are well designed and look great.

There are only three basic models, Fabia, Octavia and Superb.

The models have been designed to fit in between the conventional size classes, for example the Fabia is between a Fiesta and a Focus in size. The engines are quiet, but provide all the power that 99% of motorists ever need. Inside the cars are spacious and comfortable, with a high driver satisfaction rating.

The diesel engined Skoda Octavia has brilliant fuel economy at around 700 miles/1100 kilometres a tank full and it's still a decent performer too.

Rear legroom isn't brilliant, compensation for a big boot, but plenty big enough for a family and occasional adults

As for handling the Skoda Octavia beats the equivalent Volkswagens due to it's stiffer and better ride that's needed for rough Czech (and Irish)roads compared to the smooth German ones of Volkswagen.

Comfortable on long distances, but the road noise level is noticeable.

The Skoda Octavia Estate car just goes on and on. The loading platform seems endless. This estate car is also one of the most pleasant to drive that I have ever come across

The New Octavia car is even better value than the older model. The differences on the outside are subtle, but inside is different story, with redesigned seats and instrument panel. You know you are in a different Skoda Octavia.

The Skoda Fabia is quiet at all speeds. Great steering, brakes, and taut body control. Amazingly frugal engine keeps getting better as it matures, averaging over 65mpg on daily country commutes. Beautiful Skoda gearbox with very smooth changes.

Skoda's super efficient air-con does not affect the Fabia's performance or fuel consumption. Heated seats are perfect for winter. Rock solid construction enhances passenger safety.

I think that the skoda diesel engine is the perfect partner for this car as the fuel economy even in town is in the high 50's and the torque is amazing in this small car making it seriously quick, surprising a few Fiesta and Corsa drivers!

The Skoda Fabia is a real Pocket Rocket! The steering is brilliant - very light when you need it in parking spaces, but it weight's up nicely when out on the open road.

The Skoda Fabia estate is an amazing package of space and economy. The 1.2 16v engine delivers far more power than any small estate car driver has the right to expect

Seats appear to be too uncomfortable at the start as they are very hard, but they soften up and become very comfortable after 10 minutes and you appreciate this in a long drive and it is far better than it's rivals!

The ride is wonderful! Very supple for long distance cruising and a great handler. Amazing!

Loaded with kit for the money and you'll save money with it's excellent fuel economy.

Nowhere else will you find a value for money car like the Skoda Superb. The Superb has features that are generally only found in cars costing half as much again. A test drive in the Skoda Superb is a totally different world from a test drive in the very competent Skoda Octavia. The two cars may look very similar outside, but inside and for driving pleasure the Superb wins hands down.

The Skoda Superb really does live up to its name. It is superb in every way - good handling, excellent drive, full of features such as tip-tronic transmission and electric seat c/w memory, spacious cabin, comfortable ride and powerful engine (turbo). The boot is cavernous!

Its actual rear leg-room is even larger than a Mercedes E class.

The top of the range Skoda Superb is a very high quality, well put together and extremely spacious, luxury family car.

Great engine, smooth auto gearbox, wonderful overtaking ability, relaxed cruising and very economical.

Coupled with great features and reasonable price, the Skoda Superb really is value-for-money. It's money well spent!

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Drivers of SUVs Saving Big Money with Diesel Engines

(ARA) - Half of all American vacationers on the road this year are driving gas guzzling SUVs and pickup trucks, according to a new survey on driving habits from research firm MarketFacts. These bigger vehicles burn high amounts of fuel, which not only puts a dent in drivers' wallets, but also increases the country's dependence on foreign oil. Ironically, the MarketFacts study shows that fuel economy is an important issue for SUV and pickup drivers.

According to automotive experts, standard gasoline engines can't efficiently handle the weight of the larger -- and very popular -- SUVs and pickup trucks. There is an alternative, however, for drivers of big vehicles to consider: diesel engines.

Diesel engines like the Power Stroke Diesel in Ford F-Series Super Duty pickups are specifically made to provide better mileage -- 30 percent in most cases -- and have more pulling power than gas engines, which is why they are especially popular among those hauling camping gear or towing boats, RVs and horse trailers.

"People love big trucks for a lot of great reasons, but running a gas engine in them is like trying to heat a hotel with a small home furnace. You're going to burn way too much fuel and you still won't get the power you really need," said Patrick Charbonneau, chief technical officer, Engine Group, International Truck and Engine Corporation. "Diesel engines produce more power than gasoline engines because diesel fuel itself has more energy. And today's diesel engines are electronically controlled to boost performance and fuel efficiency."

However, the study found that despite diesel's known benefits, many Americans are resistant because they still have a negative perception of these engines, recalling the noisy and odorous diesel engines of the '70s. Industry experts dispel these myths saying today's diesel engines are greatly improved -- running quietly and not producing odors or smoke.

Major automakers in the United States have taken an interest in diesel power predominantly because of the success of diesels in Europe. "Over 30 percent of the passenger cars in Europe are now diesel, and the main reason is fuel economy," said Charbonneau. "The Big Three know fuel economy is keenly important here in North America."

Currently in the United States, diesel engines are an option over the standard gasoline engines, adding a few thousand dollars to the cost of a new vehicle. Although buying a diesel engine is a higher monetary investment initially, automakers say diesel engines make up this cost difference within just three years from fuel savings alone. Diesel engines also add greater resale value to pickups and SUVs due to their longevity.

Industry insiders believe that in 20 years, 30 percent of the passenger cars, sport utilities and pickups in America will use diesel engines because of fuel efficiency and near zero emissions capabilities. According to the Department of Energy, if diesels reach even a percent of their potential penetration by 2020, the country could conserve as much as 700,000 barrels of fuel per day -- half the energy used daily by the state of California.

For more information, visit

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4 Ways To Save Money On Gas

Can anybody remember the good old days when we could buy gas for less than a buck?

Back in roaring 90's we could drive around in our SUVs at little expense. Heck back then I could fill up my 20 gallon tank for less than twenty bucks if I knew where to get cheap gas. It seemed that naive the OPEC and economic recession could help drive you fuel costs $2.00 a gallon. A few years later a war in the Middle East along with hurricane lead gas prices briefly over $3.00 a gallon. Sadly the golden days of low gas prices have come and gone. If you're a smart consumer you do more than just live in hope for gas prices to drop; you need to consider your vehicles fuel efficiency.

The Energy Information Administration estimates that the United States consumes over 20 million barrels (840 millin gallons) of petroleum products each day, almost half of it in the form of gasoline used in over 200 million motor vehicles with combined travel over 7 billion miles per day. A fluctuation in gas costs of even a few cents could cost American consumers millions of dollars

Here are 4 suggestions of where you can lower your gas costs:

1. Your Car

Whether you drive a used SUV or brand new compact economy car your auto maintenance will have an influence on your fuel costs. If you want to maximize your vehicles ability to utilize fuel I would recommend the following:

Get those regular tune-ups

This sounds like common sense for most folks but some people wait a little too long to get that much needed oil change. The EPA predicts that fixed a faulty oxygen can save you up to 40% in fuel cost.

Replace your air filters

They're inexpensive and easy to replace. The EPA estimates that keeping your air filters fresh could save you up to 10% on fuel.

Keep your tires properly inflated

Under inflated tires can lower your gas mileage by up to 3%. They also cause your tires to wear out quicker. You should check your tires PSI at least once a month.

2. Your Commute

A shortcut on the road might short change your fuel economy plan if you're not careful. Your fuel economy can be influenced by multiple variables

Avoid the stop and go

Getting caught in the morning and afternoon rush hour does more than just give you headache. It causes your vehicle to consume more fuel since your spending more time idling in traffic. If possible try avoiding the rush hour by either leaving earlier or later (if the boss is okay with it). Also try to stay on the highways were you will experience fewer stop and goes. The quality of road can influence your cars fuel economy. The EPA also recommends using cruise control and overdrive gears when possible.

Unnecessary Objects

Some people consider their cars as an extension of their rooms. Heavy objects can increase the drag on your vehicle decreasing your fuel economy. If you are on road trip it is recommended that you put objects (such as skis) inside your vehicle to reduce aerodynamic drag if possible.

3. Your Lead Foot

Driving like you're in the grand prix and trying to save money on fuel is like going in two directions at once. In fact the EPA predicts that driving at speeds at an access of 60 mph increases aerodynamic drag and can drastically reduce fuel economy. You also increase your risk of getting in an accident or getting a very expensive speeding ticket. Slow down!

4. Your Gas Station

It can be tempting at times to give in and purchase gas from that nice convenient looking gas station. Its modern look and feel can lull you into spending a couple extra dollars. If you are like most folks you are probably filling up at least once if not twice a week. Those few extra dollars can really add up. Driving around trying to find a gas station with the cheapest gas prices can obviously defeat the purpose! A solution would be find information online about current gas prices, such as

Gaswatch.info is an excellent source for accurate local gasoline prices nationwide. Their information is kept current by checking gas prices via credit card transactions and using gas spotters to keep their database regularly updated. Register with and you will have immediate access to the highest and lowest gas prices in your area. You'll find no other website with more accurate and real time pricing anywhere.

Gaswatch.info is fighting with you to beat high gas prices and keep competition real at the pump.

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bankers banks the role of central banks in banking crises

Central banks are relatively new inventions. An American President (Andrew Jackson) even cancelled its country's central bank in the nineteenth century because he did not think that it was very important. But things have changed since. Central banks today are the most important feature of the financial systems of most countries of the world.

Central banks are a bizarre hybrids. Some of their functions are identical to the functions of regular, commercial banks. Other functions are unique to the central bank. On certain functions it has an absolute legal monopoly.

Central banks take deposits from other banks and, in certain cases, from foreign governments which deposit their foreign exchange and gold reserves for safekeeping (for instance, with the Federal Reserve Bank of the USA). The Central Bank invests the foreign exchange reserves of the country while trying to maintain an investment portfolio similar to the trade composition of its client - the state. The Central bank also holds onto the gold reserves of the country. Most central banks have lately tried to get rid of their gold, due to its ever declining prices. Since the gold is registered in their books in historical values, central banks are showing a handsome profit on this line of activity. Central banks (especially the American one) also participate in important, international negotiations. If they do not do so directly - they exert influence behind the scenes. The German Bundesbank virtually dictated Germany's position in the negotiations leading to the Maastricht trea ty. It forced the hands of its co-signatories to agree to strict terms of accession into the Euro single currency project. The Bunbdesbank demanded that a country's economy be totally stable (low debt ratios, low inflation) before it is accepted as part of the Euro. It is an irony of history that Germany itself is not eligible under these criteria and cannot be accepted as a member in the club whose rules it has assisted to formulate.

But all these constitute a secondary and marginal portion of a central banks activities.

The main function of a modern central bank is the monitoring and regulation of interest rates in the economy. The central bank does this by changing the interest rates that it charges on money that it lends to the banking system through its "discount windows". Interest rates is supposed to influence the level of economic activity in the economy. This supposed link has not unequivocally proven by economic research. Also, there usually is a delay between the alteration of interest rates and the foreseen impact on the economy. This makes assessment of the interest rate policy difficult. Still, central banks use interest rates to fine tune the economy. Higher interest rates - lower economic activity and lower inflation. The reverse is also supposed to be true. Even shifts of a quarter of a percentage point are sufficient to send the stock exchanges tumbling together with the bond markets. In 1994 a long term trend of increase in interest rate commenced in the USA, doubling in terest rates from 3 to 6 percent. Investors in the bond markets lost 1 trillion (=1000 billion!) USD in 1 year. Even today, currency traders all around the world dread the decisions of the Bundesbank and sit with their eyes glued to the trading screen on days in which announcements are expected.

Interest rates is only the latest fad. Prior to this - and under the influence of the Chicago school of economics - central banks used to monitor and manipulate money supply aggregates. Simply put, they would sell bonds to the public (and, thus absorb liquid means, money) - or buy from the public (and, thus, inject liquidity). Otherwise, they would restrict the amount of printed money and limit the government's ability to borrow. Even prior to that fashion there was a widespread belief in the effectiveness of manipulating exchange rates. This was especially true where exchange controls were still being implemented and the currency was not fully convertible. Britain removed its exchange controls only as late as 1979. The USD was pegged to a (gold) standard (and, thus not really freely tradable) as late as 1971. Free flows of currencies are a relatively new thing and their long absence reflects this wide held superstition of central banks. Nowadays, exchange rates are consi dered to be a "soft" monetary instrument and are rarely used by central banks. The latter continue, though, to intervene in the trading of currencies in the international and domestic markets usually to no avail and while losing their credibility in the process. Ever since the ignominious failure in implementing the infamous Louvre accord in 1985 currency intervention is considered to be a somewhat rusty relic of old ways of thinking.

Central banks are heavily enmeshed in the very fabric of the commercial banking system. They perform certain indispensable services for the latter. In most countries, interbank payments pass through the central bank or through a clearing organ which is somehow linked or reports to the central bank. All major foreign exchange transactions pass through - and, in many countries, still must be approved by - the central bank. Central banks regulate banks, licence their owners, supervise their operations, keenly observes their liquidity. The central bank is the lender of last resort in cases of insolvency or illiquidity.

The frequent claims of central banks all over the world that they were surprised by a banking crisis looks, therefore, dubious at best. No central bank can say that it had no early warning signs, or no access to all the data - and keep a straight face while saying so. Impending banking crises give out signs long before they erupt. These signs ought to be detected by a reasonably managed central bank. Only major neglect could explain a surprise on behalf of a central bank.

One sure sign is the number of times that a bank chooses to borrow using the discount windows. Another is if it offers interest rates which are way above the rates offered by other financing institutions. There are may more signs and central banks should be adept at reading them.

This heavy involvement is not limited to the collection and analysis of data. A central bank - by the very definition of its functions - sets the tone to all other banks in the economy. By altering its policies (for instance: by changing its reserve requirements) it can push banks to insolvency or create bubble economies which are bound to burst. If it were not for the easy and cheap money provided by the Bank of Japan in the eighties - the stock and real estate markets would not have inflated to the extent that they have. Subsequently, it was the same bank (under a different Governor) that tightened the reins of credit - and pierced both bubble markets.

The same mistake was repeated in 1992-3 in Israel - and with the same consequences.

This precisely is why central banks, in my view, should not supervise the banking system.

When asked to supervise the banking system - central banks are really asked to draw criticism on their past performance, their policies and their vigilance in the past. Let me explain this statement:

In most countries in the world, bank supervision is a heavy-weight department within the central bank. It samples banks, on a periodic basis. Then, it analyses their books thoroughly and imposes rules of conduct and sanctions where necessary. But the role of central banks in determining the health, behaviour and operational modes of commercial banks is so paramount that it is highly undesirable for a central bank to supervise the banks. As I have said, supervision by a central bank means that it has to criticize itself, its own policies and the way that they were enforced and also the results of past supervision. Central banks are really asked to cast themselves in the unlikely role of impartial saints.

A new trend is to put the supervision of banks under a different "sponsor" and to encourage a checks and balances system, wherein the central bank, its policies and operations are indirectly criticized by the bank supervision. This is the way it is in Switzerland and - with the exception of the Jewish money which was deposited in Switzerland never to be returned to its owners - the Swiss banking system is extremely well regulated and well supervised.

We differentiate between two types of central bank: the autonomous and the semi-autonomous.

The autonomous bank is politically and financially independent. Its Governor is appointed for a period which is longer than the periods of the incumbent elected politicians, so that he will not be subject to political pressures. Its budget is not provided by the legislature or by the executive arm. It is self sustaining: it runs itself as a corporation would. Its profits are used in leaner years in which it loses money (though for a central bank to lose money is a difficult task to achieve).

In Macedonia, for instance, annual surpluses generated by the central bank are transferred to the national budget and cannot be utilized by the bank for its own operations or for the betterment of its staff through education.

Prime examples of autonomous central banks are Germany's Bundesbank and the American Federal Reserve Bank.

The second type of central bank is the semi autonomous one. This is a central bank that depends on the political echelons and, especially, on the Ministry of Finance. This dependence could be through its budget which is allocated to it by the Ministry or by a Parliament (ruled by one big party or by the coalition parties). The upper levels of the bank - the Governor and the Vice Governor - could be deposed of through a political decision (albeit by Parliament, which makes it somewhat more difficult). This is the case of the National Bank of Macedonia which has to report to Parliament. Such dependent banks fulfil the function of an economic advisor to the government. The Governor of the Bank of England advises the Minister of Finance (in their famous weekly meetings, the minutes of which are published) about the desirable level of interest rates. It cannot, however, determine these levels and, thus is devoid of arguably the most important policy tool. The situation is some what better with the Bank of Israel which can play around with interest rates and foreign exchange rates - but not entirely freely.

The National Bank of Macedonia (NBM) is highly autonomous under the law regulating its structure and its activities. Its Governor is selected for a period of seven years and can be removed from office only in the case that he is charged with criminal deeds. Still, it is very much subject to political pressures. High ranking political figures freely admit to exerting pressures on the central bank (at the same breath saying that it is completely independent).

The NBM is young and most of its staff - however bright - are inexperienced. With the kind of wages that it pays it cannot attract the best available talents. The budgetary surpluses that it generates could have been used for this purpose and to higher world renowned consultants (from Switzerland, for instance) to help the bank overcome the experience gap. But the money is transferred to the budget, as we said. So, the bank had to do with charity received from USAID, the KNOW-HOW FUND and so on. Some of the help thus provided was good and relevant - other advice was, in my view, wrong for the local circumstances. Take supervision: it was modelled after the Americans and British. Those are the worst supervisors in the West (if we do not consider the Japanese).

And with all this, the bank had to cope with extraordinarily difficult circumstances since its very inception. The 1993 banking crisis, the frozen currency accounts, the collapse of the Stedilnicas (crowned by the TAT affair). Older, more experienced central banks would have folded under the pressure. Taking everything under consideration, the NBM has performed remarkably well.

The proof is in the stability of the local currency, the Denar. This is the main function of a central bank. After the TAT affair, there was a moment or two of panic - and then the street voted confidence in the management of the central bank, the Denar-DM rate went down to where it was prior to the crisis.

Now, the central bank is facing its most daunting task: facing the truth without fear and without prejudice. Bank supervision needs to be overhauled and lessons need to be learnt. The political independence of the bank needs to be increased greatly. The bank must decide what to do with TAT and with the other failing Stedilnicas?

They could be sold to the banks as portfolios of assets and liabilities. The Bank of England sold Barings Bank in 1995 to the ING Dutch Bank.

The central bank could - and has to - force the owners of the failing Stedilnicas to increase their equity capital (by using their personal property, where necessary). This was successfully done (again, by the Bank of England) in the 1991 case of the BCCI scandal.

The State of Macedonia could decide to take over the obligations of the failed system and somehow pay back the depositors. Israel (1983), the USA (1985/7) and a dozen other countries have done so recently.

The central bank could increase the reserve requirements and the deposit insurance premiums.

But these are all artificial, ad hoc, solutions. Something more radical needs to be done:

A total restructuring of the banking system. The Stedilnicas have to be abolished. The capital required to open a bank or a branch of a bank has to be lowered to 4 million DM (to conform with world standards and with the size of the economy of Macedonia). Banks should be allowed to diversify their activities (as long as they are of a financial nature), to form joint venture with other providers of financial services (such as insurance companies) and to open a thick network of branches.

And bank supervision must be separated from the central bank and set to criticize the central bank and its policies, decisions and operations on a regular basis.

There are no reasons why Macedonia should not become a financial centre of the Balkans - and there are many reasons why it should. But, ultimately, it all depends on the Macedonians themselves.

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Driving To Savings Car Tips To Save You Money

Although the most interesting method to save on car operating costs came from my chemistry teacher in high school (Buy your gasoline in the early morning or at night when it is cold outside. Gas becomes denser in cooler temperatures. Since gas pumps only measure the volume of fuel - not the density - you'll get better overall gas mileage for your money by purchasing fuel when it's cool outside rather than in the heat of the day), the moment that will determine the true amount you can save on your car costs comes before you even buy a car. The simple fact is that the type of car you decide to purchase will have the largest impact on the expenses you incur during the lifetime of it.

Even if a large sports utility vehicle is your dream car, it's probably a lot more than you really need. Taking some time to make a list of the things you'll use the car for will help determine the difference between your true needs and your wants. It's important to remember that each additional want you add above what you really need will cost you not only at the time of purchase, but in most cases well down the road with an increase in maintenance and operating costs.

The size of the car you decide to purchase will have a direct effect on its operating costs. Purchasing the smallest car possible for your driving needs will save you a tremendous amount in gasoline charges. Small cars weigh about half as much as larger cars which results in about half as much fuel being used.

Once you have decided on the size of car, it's worthwhile taking the time to research the safety ratings of the different cars in that size range. Not only will this improve your chances of staying alive in an accident, it will likely reduce your car insurance costs. A quick call to your car insurance company will tell you the tale. Remember, if you keep your car for 7 years, a $25 a month difference in insurance costs adds up to over $2,100 over the lifetime of the car.

Once you have a car, taking some simple steps can reduce your operating costs by hundreds of dollars. For example, if you reduce your gas consumption by $20 a week, it will save you over $1,000 a year. Most people can easily save this amount (and often much more) by simply changing their driving habits and paying a little more attention to their cars.

By far the best way to reduce your car expenses is to use your car only when necessary. Cars are extremely convenient and this causes people to use them much more often than they really need to. By simply asking yourself, "Is this trip really necessary?" you can greatly decrease the amount you drive.

For short trips close to home, try walking or riding your bicycle. Not only will you save money on your car expenses,you'll also get some healthy exercise. When you go shopping or run errands, take a little time to plan and combine them all into one outing instead of several. Of course, car pooling and using mass transportation systems when possible are always excellent ways to reduce car expenses. If you can find a different way to commute to work rather than by your car, there is a good chance that this will result in a discount in your car insurance.

There are also a number of steps you can take to reduce your driving expenses while using you car. Here's a quick list of some actions you may want to consider while driving.

*** Take the time to check your car's tire pressure each month. Under inflated tires reduce fuel efficiency by 2% for every pound they are under inflated. Under inflation also causes premature tire wear giving your tires a shorter use life.

*** Drive at the speed limit. Cars use about 20% more fuel driving at 70 miles per hour than they do at 55 miles per hour.

*** Avoid driving fast in low gears. Driving at high speeds in the improper gear can reduce fuel efficiency by up to 40%.

*** Avoid using air conditioning whenever possible. Air conditioning reduces fuel economy by 10% to 20%.

*** Don't open windows when traveling at high speeds. Open windows on the highway can reduce fuel efficiency by 10%. It is much better to use the ventilation system. Also remember to remove car racks and other items which make your car less aerodynamic when they're not being used. Use cruise control to maintain a steady pace on the highway to increase fuel economy.

*** Avoid rough roads. Driving on roads made of dirt or gravel can reduce fuel economy by up to 30%.

*** Don't let your car idle. Even on cold mornings, there's no need to let your car idle for more than 30 seconds. Newer cars are designed to be driven almost immediately and letting your car idle longer is a waste of gas. In addition, it's more efficient to turn off your car and turn it on again than to let it idle for more than 45 seconds while waiting.

*** Remove all excess weight from your car. Many people use their car trunk as a storage space adding unneeded pounds to the car's weight. This unnecessary weight reduces the car's fuel efficiency.

*** Try to accelerate gently, brake gradually and avoid stops when driving. Gunning engines, quickly accelerating, and abrupt stops all waste fuel. Try to avoid driving during rush hour periods when you know traffic will be stop and go. If you do find yourself in stop and go traffic, try to maintain a crawl. When approaching hills or steep slopes, accelerate before the hill. Accelerating once on the slope will consume much more gas.

*** Service your car regularly while paying special attention to oil and filters. Blocked air flow from clogged air filters will increase fuel waste. Also check your car's alignment since this can cause engine drag which will also increase gas waste.

*** Periodically calculate your car's fuel efficiency. A loss in fuel efficiency is an indication of possible mechanical problems.

To really see how much you can save by using the above information, don't change your driving habits this week, but take note of the number of miles your drive and calculate your car's current fuel economy. The following week begin initiating any of the above ideas which you aren't currently utilizing. You are sure to be surprised by how much you can save over your regular driving habits, and you'll be able to enjoy some extra money jingling in your pockets.

Copyright (c) 2004, by Jeffrey Strain

This article may be freely distributed so long as the copyright, author's information and an active link (where possible) are included.

A complimentary copy of any newsletter or a link to the site where the article is posted would be greatly appreciated.

iAutoblog the premier autoblogger software

Driving To Savings Car Tips To Save You Money

Although the most interesting method to save on car operating costs came from my chemistry teacher in high school (Buy your gasoline in the early morning or at night when it is cold outside. Gas becomes denser in cooler temperatures. Since gas pumps only measure the volume of fuel - not the density - you'll get better overall gas mileage for your money by purchasing fuel when it's cool outside rather than in the heat of the day), the moment that will determine the true amount you can save on your car costs comes before you even buy a car. The simple fact is that the type of car you decide to purchase will have the largest impact on the expenses you incur during the lifetime of it.

Even if a large sports utility vehicle is your dream car, it's probably a lot more than you really need. Taking some time to make a list of the things you'll use the car for will help determine the difference between your true needs and your wants. It's important to remember that each additional want you add above what you really need will cost you not only at the time of purchase, but in most cases well down the road with an increase in maintenance and operating costs.

The size of the car you decide to purchase will have a direct effect on its operating costs. Purchasing the smallest car possible for your driving needs will save you a tremendous amount in gasoline charges. Small cars weigh about half as much as larger cars which results in about half as much fuel being used.

Once you have decided on the size of car, it's worthwhile taking the time to research the safety ratings of the different cars in that size range. Not only will this improve your chances of staying alive in an accident, it will likely reduce your car insurance costs. A quick call to your car insurance company will tell you the tale. Remember, if you keep your car for 7 years, a $25 a month difference in insurance costs adds up to over $2,100 over the lifetime of the car.

Once you have a car, taking some simple steps can reduce your operating costs by hundreds of dollars. For example, if you reduce your gas consumption by $20 a week, it will save you over $1,000 a year. Most people can easily save this amount (and often much more) by simply changing their driving habits and paying a little more attention to their cars.

By far the best way to reduce your car expenses is to use your car only when necessary. Cars are extremely convenient and this causes people to use them much more often than they really need to. By simply asking yourself, "Is this trip really necessary?" you can greatly decrease the amount you drive.

For short trips close to home, try walking or riding your bicycle. Not only will you save money on your car expenses,you'll also get some healthy exercise. When you go shopping or run errands, take a little time to plan and combine them all into one outing instead of several. Of course, car pooling and using mass transportation systems when possible are always excellent ways to reduce car expenses. If you can find a different way to commute to work rather than by your car, there is a good chance that this will result in a discount in your car insurance.

There are also a number of steps you can take to reduce your driving expenses while using you car. Here's a quick list of some actions you may want to consider while driving.

*** Take the time to check your car's tire pressure each month. Under inflated tires reduce fuel efficiency by 2% for every pound they are under inflated. Under inflation also causes premature tire wear giving your tires a shorter use life.

*** Drive at the speed limit. Cars use about 20% more fuel driving at 70 miles per hour than they do at 55 miles per hour.

*** Avoid driving fast in low gears. Driving at high speeds in the improper gear can reduce fuel efficiency by up to 40%.

*** Avoid using air conditioning whenever possible. Air conditioning reduces fuel economy by 10% to 20%.

*** Don't open windows when traveling at high speeds. Open windows on the highway can reduce fuel efficiency by 10%. It is much better to use the ventilation system. Also remember to remove car racks and other items which make your car less aerodynamic when they're not being used. Use cruise control to maintain a steady pace on the highway to increase fuel economy.

*** Avoid rough roads. Driving on roads made of dirt or gravel can reduce fuel economy by up to 30%.

*** Don't let your car idle. Even on cold mornings, there's no need to let your car idle for more than 30 seconds. Newer cars are designed to be driven almost immediately and letting your car idle longer is a waste of gas. In addition, it's more efficient to turn off your car and turn it on again than to let it idle for more than 45 seconds while waiting.

*** Remove all excess weight from your car. Many people use their car trunk as a storage space adding unneeded pounds to the car's weight. This unnecessary weight reduces the car's fuel efficiency.

*** Try to accelerate gently, brake gradually and avoid stops when driving. Gunning engines, quickly accelerating, and abrupt stops all waste fuel. Try to avoid driving during rush hour periods when you know traffic will be stop and go. If you do find yourself in stop and go traffic, try to maintain a crawl. When approaching hills or steep slopes, accelerate before the hill. Accelerating once on the slope will consume much more gas.

*** Service your car regularly while paying special attention to oil and filters. Blocked air flow from clogged air filters will increase fuel waste. Also check your car's alignment since this can cause engine drag which will also increase gas waste.

*** Periodically calculate your car's fuel efficiency. A loss in fuel efficiency is an indication of possible mechanical problems.

To really see how much you can save by using the above information, don't change your driving habits this week, but take note of the number of miles your drive and calculate your car's current fuel economy. The following week begin initiating any of the above ideas which you aren't currently utilizing. You are sure to be surprised by how much you can save over your regular driving habits, and you'll be able to enjoy some extra money jingling in your pockets.

Copyright (c) 2004, by Jeffrey Strain

This article may be freely distributed so long as the copyright, author's information and an active link (where possible) are included.

A complimentary copy of any newsletter or a link to the site where the article is posted would be greatly appreciated.

iAutoblog the premier autoblogger software

The Merits of Inflation

In a series of speeches designed to defend his record, Alan Greenspan, until recently an icon of both the new economy and stock exchange effervescence, reiterated the orthodoxy of central banking everywhere. His job, he repeated disingenuously, was confined to taming prices and ensuring monetary stability. He could not and, indeed, would not second guess the market. He consistently sidestepped the thorny issues of just how destabilizing to the economy the bursting of asset bubbles is and how his policies may have contributed to the froth.

Greenspan and his ilk seem to be fighting yesteryear's war against a long-slain monster. The obsession with price stability led to policy excesses and disinflation gave way to deflation - arguably an economic ill far more pernicious than inflation. Deflation coupled with negative savings and monstrous debt burdens can lead to prolonged periods of zero or negative growth. Moreover, in the zealous crusade waged globally against fiscal and monetary expansion - the merits and benefits of inflation have often been overlooked.

As economists are wont to point out time and again, inflation is not the inevitable outcome of growth. It merely reflects the output gap between actual and potential GDP. As long as the gap is negative - i.e., whilst the economy is drowning in spare capacity - inflation lies dormant. The gap widens if growth is anemic and below the economy's potential. Thus, growth can actually be accompanied by deflation.

Indeed, it is arguable whether inflation was subdued - in America as elsewhere - by the farsighted policies of central bankers. A better explanation might be overcapacity - both domestic and global - wrought by decades of inflation which distorted investment decisions. Excess capacity coupled with increasing competition, globalization, privatization, and deregulation - led to ferocious price wars and to consistently declining prices.

Quoted by "The Economist", Dresdner Kleinwort Wasserstein noted that America's industry is already in the throes of deflation. The implicit price deflator of the non-financial business sector has been -0.6 percent in the year to the end of the second quarter of 2002. Germany faces the same predicament. As oil prices surge, their inflationary shock will give way to a deflationary and recessionary aftershock.

Depending on one's point of view, this is a self-reinforcing virtuous - or vicious cycle. Consumers learn to expect lower prices - i.e., inflationary expectations fall and, with them, inflation itself. The intervention of central banks only hastened the process and now it threatens to render benign structural disinflation - malignantly deflationary.

Should the USA reflate its way out of either an impending double dip recession or deflationary anodyne growth?

It is universally accepted that inflation leads to the misallocation of economic resources by distorting the price signal. Confronted with a general rise in prices, people get confused. They are not sure whether to attribute the surging prices to a real spurt in demand, to speculation, inflation, or what. They often make the wrong decisions.

They postpone investments - or over-invest and embark on preemptive buying sprees. As Erica Groshen and Mark Schweitzer have demonstrated in an NBER working paper titled "Identifying inflation's grease and sand effects in the labour market", employers - unable to predict tomorrow's wages - hire less.

Still, the late preeminent economist James Tobin went as far as calling inflation "the grease on the wheels of the economy". What rate of inflation is desirable? The answer is: it depends on whom you ask. The European Central Bank maintains an annual target of 2 percent. Other central banks - the Bank of England, for instance - proffer an "inflation band" of between 1.5 and 2.5 percent. The Fed has been known to tolerate inflation rates of 3-4 percent.

These disparities among essentially similar economies reflect pervasive disagreements over what is being quantified by the rate of inflation and when and how it should be managed.

The sin committed by most central banks is their lack of symmetry. They signal visceral aversion to inflation - but ignore the risk of deflation altogether. As inflation subsides, disinflation seamlessly fades into deflation. People - accustomed to the deflationary bias of central banks - expect prices to continue to fall. They defer consumption. This leads to inextricable and all-pervasive recessions.

Inflation rates - as measured by price indices - fail to capture important economic realities. As the Boskin commission revealed in 1996, some products are transformed by innovative technology even as their prices decline or remain stable. Such upheavals are not encapsulated by the rigid categories of the questionnaires used by bureaus of statistics the world over to compile price data. Cellular phones, for instance, were not part of the consumption basket underlying the CPI in America as late as 1998. The consumer price index in the USA may be overstated by one percentage point year in and year out, was the startling conclusion in the commission's report.

Current inflation measures neglect to take into account whole classes of prices - for instance, tradable securities. Wages - the price of labor - are left out. The price of money - interest rates - is excluded. Even if these were to be included, the way inflation is defined and measured today, they would have been grossly misrepresented.

Consider a deflationary environment in which stagnant wages and zero interest rates can still have a - negative or positive - inflationary effect. In real terms, in deflation, both wages and interest rates increase relentlessly even if they stay put. Yet it is hard to incorporate this "downward stickiness" in present-day inflation measures.

The methodology of computing inflation obscures many of the "quantum effects" in the borderline between inflation and deflation. Thus, as pointed out by George Akerloff, William Dickens, and George Perry in "The Macroeconomics of Low Inflation" (Brookings Papers on Economic Activity, 1996), inflation allows employers to cut real wages.

Workers may agree to a 2 percent pay rise in an economy with 3 percent inflation. They are unlikely to accept a pay cut even when inflation is zero or less. This is called the "money illusion". Admittedly, it is less pronounced when compensation is linked to performance. Thus, according to "The Economist", Japanese wages - with a backdrop of rampant deflation - shrank 5.6 percent in the year to July as company bonuses were brutally slashed.

Economists in a November 2000 conference organized by the ECB argued that a continent-wide inflation rate of 0-2 percent would increase structural unemployment in Europe's arthritic labour markets by a staggering 2-4 percentage points. Akerloff-Dickens-Perry concurred in the aforementioned paper. At zero inflation, unemployment in America would go up, in the long run, by 2.6 percentage points. This adverse effect can, of course, be offset by productivity gains, as has been the case in the USA throughout the 1990's.

The new consensus is that the price for a substantial decrease in unemployment need not be a sizable rise in inflation. The level of employment at which inflation does not accelerate - the non-accelerating inflation rate of unemployment or NAIRU - is susceptible to government policies.

Vanishingly low inflation - bordering on deflation - also results in a "liquidity trap". The nominal interest rate cannot go below zero. But what matters are real - inflation adjusted - interest rates. If inflation is naught or less - the authorities are unable to stimulate the economy by reducing interest rates below the level of inflation.

This has been the case in Japan in the last few years and is now emerging as a problem in the USA. The Fed - having cut rates 11 times in the past 14 months and unless it is willing to expand the money supply aggressively - may be at the end of its monetary tether. The Bank of Japan has recently resorted to unvarnished and assertive monetary expansion in line with what Paul Krugman calls "credible promise to be irresponsible".

This may have led to the sharp devaluation of the yen in recent months. Inflation is exported through the domestic currency's depreciation and the lower prices of export goods and services. Inflation thus indirectly enhances exports and helps close yawning gaps in the current account. The USA with its unsustainable trade deficit and resurgent budget deficit could use some of this medicine.

But the upshots of inflation are fiscal, not merely monetary. In countries devoid of inflation accounting, nominal gains are fully taxed - though they reflect the rise in the general price level rather than any growth in income. Even where inflation accounting is introduced, inflationary profits are taxed.

Thus inflation increases the state's revenues while eroding the real value of its debts, obligations, and expenditures denominated in local currency. Inflation acts as a tax and is fiscally corrective - but without the recessionary and deflationary effects of a "real" tax.

The outcomes of inflation, ironically, resemble the economic recipe of the "Washington consensus" propagated by the likes of the rabidly anti-inflationary IMF. As a long term policy, inflation is unsustainable and would lead to cataclysmic effects. But, in the short run, as a "shock absorber" and "automatic stabilizer", low inflation may be a valuable counter-cyclical instrument.

Inflation also improves the lot of corporate - and individual - borrowers by increasing their earnings and marginally eroding the value of their debts (and savings). It constitutes a disincentive to save and an incentive to borrow, to consume, and, alas, to speculate. "The Economist" called it "a splendid way to transfer wealth from savers to borrowers."

The connection between inflation and asset bubbles is unclear. On the one hand, some of the greatest fizz in history occurred during periods of disinflation. One is reminded of the global boom in technology shares and real estate in the 1990's. On the other hand, soaring inflation forces people to resort to hedges such as gold and realty, inflating their prices in the process. Inflation - coupled with low or negative interest rates - also tends to exacerbate perilous imbalances by encouraging excess borrowing, for instance.

Still, the absolute level of inflation may be less important than its volatility. Inflation targeting - the latest fad among central bankers - aims to curb inflationary expectations by implementing a consistent and credible anti-inflationary as well as anti-deflationary policy administered by a trusted and impartial institution, the central bank.

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bankers banks the role of central banks in banking crises

Central banks are relatively new inventions. An American President (Andrew Jackson) even cancelled its country's central bank in the nineteenth century because he did not think that it was very important. But things have changed since. Central banks today are the most important feature of the financial systems of most countries of the world.

Central banks are a bizarre hybrids. Some of their functions are identical to the functions of regular, commercial banks. Other functions are unique to the central bank. On certain functions it has an absolute legal monopoly.

Central banks take deposits from other banks and, in certain cases, from foreign governments which deposit their foreign exchange and gold reserves for safekeeping (for instance, with the Federal Reserve Bank of the USA). The Central Bank invests the foreign exchange reserves of the country while trying to maintain an investment portfolio similar to the trade composition of its client - the state. The Central bank also holds onto the gold reserves of the country. Most central banks have lately tried to get rid of their gold, due to its ever declining prices. Since the gold is registered in their books in historical values, central banks are showing a handsome profit on this line of activity. Central banks (especially the American one) also participate in important, international negotiations. If they do not do so directly - they exert influence behind the scenes. The German Bundesbank virtually dictated Germany's position in the negotiations leading to the Maastricht trea ty. It forced the hands of its co-signatories to agree to strict terms of accession into the Euro single currency project. The Bunbdesbank demanded that a country's economy be totally stable (low debt ratios, low inflation) before it is accepted as part of the Euro. It is an irony of history that Germany itself is not eligible under these criteria and cannot be accepted as a member in the club whose rules it has assisted to formulate.

But all these constitute a secondary and marginal portion of a central banks activities.

The main function of a modern central bank is the monitoring and regulation of interest rates in the economy. The central bank does this by changing the interest rates that it charges on money that it lends to the banking system through its "discount windows". Interest rates is supposed to influence the level of economic activity in the economy. This supposed link has not unequivocally proven by economic research. Also, there usually is a delay between the alteration of interest rates and the foreseen impact on the economy. This makes assessment of the interest rate policy difficult. Still, central banks use interest rates to fine tune the economy. Higher interest rates - lower economic activity and lower inflation. The reverse is also supposed to be true. Even shifts of a quarter of a percentage point are sufficient to send the stock exchanges tumbling together with the bond markets. In 1994 a long term trend of increase in interest rate commenced in the USA, doubling in terest rates from 3 to 6 percent. Investors in the bond markets lost 1 trillion (=1000 billion!) USD in 1 year. Even today, currency traders all around the world dread the decisions of the Bundesbank and sit with their eyes glued to the trading screen on days in which announcements are expected.

Interest rates is only the latest fad. Prior to this - and under the influence of the Chicago school of economics - central banks used to monitor and manipulate money supply aggregates. Simply put, they would sell bonds to the public (and, thus absorb liquid means, money) - or buy from the public (and, thus, inject liquidity). Otherwise, they would restrict the amount of printed money and limit the government's ability to borrow. Even prior to that fashion there was a widespread belief in the effectiveness of manipulating exchange rates. This was especially true where exchange controls were still being implemented and the currency was not fully convertible. Britain removed its exchange controls only as late as 1979. The USD was pegged to a (gold) standard (and, thus not really freely tradable) as late as 1971. Free flows of currencies are a relatively new thing and their long absence reflects this wide held superstition of central banks. Nowadays, exchange rates are consi dered to be a "soft" monetary instrument and are rarely used by central banks. The latter continue, though, to intervene in the trading of currencies in the international and domestic markets usually to no avail and while losing their credibility in the process. Ever since the ignominious failure in implementing the infamous Louvre accord in 1985 currency intervention is considered to be a somewhat rusty relic of old ways of thinking.

Central banks are heavily enmeshed in the very fabric of the commercial banking system. They perform certain indispensable services for the latter. In most countries, interbank payments pass through the central bank or through a clearing organ which is somehow linked or reports to the central bank. All major foreign exchange transactions pass through - and, in many countries, still must be approved by - the central bank. Central banks regulate banks, licence their owners, supervise their operations, keenly observes their liquidity. The central bank is the lender of last resort in cases of insolvency or illiquidity.

The frequent claims of central banks all over the world that they were surprised by a banking crisis looks, therefore, dubious at best. No central bank can say that it had no early warning signs, or no access to all the data - and keep a straight face while saying so. Impending banking crises give out signs long before they erupt. These signs ought to be detected by a reasonably managed central bank. Only major neglect could explain a surprise on behalf of a central bank.

One sure sign is the number of times that a bank chooses to borrow using the discount windows. Another is if it offers interest rates which are way above the rates offered by other financing institutions. There are may more signs and central banks should be adept at reading them.

This heavy involvement is not limited to the collection and analysis of data. A central bank - by the very definition of its functions - sets the tone to all other banks in the economy. By altering its policies (for instance: by changing its reserve requirements) it can push banks to insolvency or create bubble economies which are bound to burst. If it were not for the easy and cheap money provided by the Bank of Japan in the eighties - the stock and real estate markets would not have inflated to the extent that they have. Subsequently, it was the same bank (under a different Governor) that tightened the reins of credit - and pierced both bubble markets.

The same mistake was repeated in 1992-3 in Israel - and with the same consequences.

This precisely is why central banks, in my view, should not supervise the banking system.

When asked to supervise the banking system - central banks are really asked to draw criticism on their past performance, their policies and their vigilance in the past. Let me explain this statement:

In most countries in the world, bank supervision is a heavy-weight department within the central bank. It samples banks, on a periodic basis. Then, it analyses their books thoroughly and imposes rules of conduct and sanctions where necessary. But the role of central banks in determining the health, behaviour and operational modes of commercial banks is so paramount that it is highly undesirable for a central bank to supervise the banks. As I have said, supervision by a central bank means that it has to criticize itself, its own policies and the way that they were enforced and also the results of past supervision. Central banks are really asked to cast themselves in the unlikely role of impartial saints.

A new trend is to put the supervision of banks under a different "sponsor" and to encourage a checks and balances system, wherein the central bank, its policies and operations are indirectly criticized by the bank supervision. This is the way it is in Switzerland and - with the exception of the Jewish money which was deposited in Switzerland never to be returned to its owners - the Swiss banking system is extremely well regulated and well supervised.

We differentiate between two types of central bank: the autonomous and the semi-autonomous.

The autonomous bank is politically and financially independent. Its Governor is appointed for a period which is longer than the periods of the incumbent elected politicians, so that he will not be subject to political pressures. Its budget is not provided by the legislature or by the executive arm. It is self sustaining: it runs itself as a corporation would. Its profits are used in leaner years in which it loses money (though for a central bank to lose money is a difficult task to achieve).

In Macedonia, for instance, annual surpluses generated by the central bank are transferred to the national budget and cannot be utilized by the bank for its own operations or for the betterment of its staff through education.

Prime examples of autonomous central banks are Germany's Bundesbank and the American Federal Reserve Bank.

The second type of central bank is the semi autonomous one. This is a central bank that depends on the political echelons and, especially, on the Ministry of Finance. This dependence could be through its budget which is allocated to it by the Ministry or by a Parliament (ruled by one big party or by the coalition parties). The upper levels of the bank - the Governor and the Vice Governor - could be deposed of through a political decision (albeit by Parliament, which makes it somewhat more difficult). This is the case of the National Bank of Macedonia which has to report to Parliament. Such dependent banks fulfil the function of an economic advisor to the government. The Governor of the Bank of England advises the Minister of Finance (in their famous weekly meetings, the minutes of which are published) about the desirable level of interest rates. It cannot, however, determine these levels and, thus is devoid of arguably the most important policy tool. The situation is some what better with the Bank of Israel which can play around with interest rates and foreign exchange rates - but not entirely freely.

The National Bank of Macedonia (NBM) is highly autonomous under the law regulating its structure and its activities. Its Governor is selected for a period of seven years and can be removed from office only in the case that he is charged with criminal deeds. Still, it is very much subject to political pressures. High ranking political figures freely admit to exerting pressures on the central bank (at the same breath saying that it is completely independent).

The NBM is young and most of its staff - however bright - are inexperienced. With the kind of wages that it pays it cannot attract the best available talents. The budgetary surpluses that it generates could have been used for this purpose and to higher world renowned consultants (from Switzerland, for instance) to help the bank overcome the experience gap. But the money is transferred to the budget, as we said. So, the bank had to do with charity received from USAID, the KNOW-HOW FUND and so on. Some of the help thus provided was good and relevant - other advice was, in my view, wrong for the local circumstances. Take supervision: it was modelled after the Americans and British. Those are the worst supervisors in the West (if we do not consider the Japanese).

And with all this, the bank had to cope with extraordinarily difficult circumstances since its very inception. The 1993 banking crisis, the frozen currency accounts, the collapse of the Stedilnicas (crowned by the TAT affair). Older, more experienced central banks would have folded under the pressure. Taking everything under consideration, the NBM has performed remarkably well.

The proof is in the stability of the local currency, the Denar. This is the main function of a central bank. After the TAT affair, there was a moment or two of panic - and then the street voted confidence in the management of the central bank, the Denar-DM rate went down to where it was prior to the crisis.

Now, the central bank is facing its most daunting task: facing the truth without fear and without prejudice. Bank supervision needs to be overhauled and lessons need to be learnt. The political independence of the bank needs to be increased greatly. The bank must decide what to do with TAT and with the other failing Stedilnicas?

They could be sold to the banks as portfolios of assets and liabilities. The Bank of England sold Barings Bank in 1995 to the ING Dutch Bank.

The central bank could - and has to - force the owners of the failing Stedilnicas to increase their equity capital (by using their personal property, where necessary). This was successfully done (again, by the Bank of England) in the 1991 case of the BCCI scandal.

The State of Macedonia could decide to take over the obligations of the failed system and somehow pay back the depositors. Israel (1983), the USA (1985/7) and a dozen other countries have done so recently.

The central bank could increase the reserve requirements and the deposit insurance premiums.

But these are all artificial, ad hoc, solutions. Something more radical needs to be done:

A total restructuring of the banking system. The Stedilnicas have to be abolished. The capital required to open a bank or a branch of a bank has to be lowered to 4 million DM (to conform with world standards and with the size of the economy of Macedonia). Banks should be allowed to diversify their activities (as long as they are of a financial nature), to form joint venture with other providers of financial services (such as insurance companies) and to open a thick network of branches.

And bank supervision must be separated from the central bank and set to criticize the central bank and its policies, decisions and operations on a regular basis.

There are no reasons why Macedonia should not become a financial centre of the Balkans - and there are many reasons why it should. But, ultimately, it all depends on the Macedonians themselves.

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Market Impeders and Market Inefficiencies

Even the most devout proponents of free marketry and hidden hand theories acknowledge the existence of market failures, market imperfections and inefficiencies in the allocation of economic resources. Some of these are the results of structural problems, others of an accumulation of historical liabilities. But, strikingly, some of the inefficiencies are the direct outcomes of the activities of "non bona fide" market participants. These "players" (individuals, corporations, even larger economic bodies, such as states) act either irrationally or egotistically (too rationally).

What characterizes all those "market impeders" is that they are value subtractors rather than value adders. Their activities generate a reduction, rather than an increase, in the total benefits (utilities) of all the other market players (themselves included). Some of them do it because they are after a self interest which is not economic (or, more strictly, financial). They sacrifice some economic benefits in order to satisfy that self interest (or, else, they could never have attained these benefits, in the first place). Others refuse to accept the self interest of other players as their limit. They try to maximize their benefits at any cost, as long as it is a cost to others. Some do so legally and some adopt shadier varieties of behaviour. And there is a group of parasites – participants in the market who feed off its very inefficiencies and imperfections and, by their very actions, enhance them. A vicious cycle ensues: the body economic gives rise to parasitic a gents who thrive on its imperfections and lead to the amplification of the very impurities that they prosper on.

We can distinguish six classes of market impeders:

Crooks and other illegal operators. These take advantage of ignorance, superstition, greed, avarice, emotional states of mind of their victims – to strike. They re-allocate resources from (potentially or actually) productive agents to themselves. Because they reduce the level of trust in the marketplace – they create negative added value. (See: "The Shadowy World of International Finance" and "The Fabric of Economic Trust").

Illegitimate operators include those treading the thin line between legally permissible and ethically inadmissible. They engage in petty cheating through misrepresentations, half-truths, semi-rumours and the like. They are full of pretensions to the point of becoming impostors. They are wheeler-dealers, sharp-cookies, Daymon Ranyon characters, lurking in the shadows cast by the sun of the market. Their impact is to slow down the economic process through disinformation and the resulting misallocation of resources. They are the sand in the wheels of the economic machine.

The "not serious" operators. These are people too hesitant, or phobic to commit themselves to the assumption of any kind of risk. Risk is the coal in the various locomotives of the economy, whether local, national, or global. Risk is being assumed, traded, diversified out of, avoided, insured against. It gives rise to visions and hopes and it is the most efficient "economic natural selection" mechanism. To be a market participant one must assume risk, it in an inseparable part of economic activity. Without it the wheels of commerce and finance, investments and technological innovation will immediately grind to a halt. But many operators are so risk averse that, in effect, they increase the inefficiency of the market in order to avoid it. They act as though they are resolute, risk assuming operators. They make all the right moves, utter all the right sentences and emit the perfect noises. But when push comes to shove – they recoil, retreat, defeated before staging a f ight. Thus, they waste the collective resources of all that the operators that they get involved with. They are known to endlessly review projects, often change their minds, act in fits and starts, have the wrong priorities (for an efficient economic functioning, that is), behave in a self defeating manner, be horrified by any hint of risk, saddled and surrounded by every conceivable consultant, glutted by information. They are the stick in the spinning wheel of the modern marketplace.

The former kind of operators obviously has a character problem. Yet, there is a more problematic species: those suffering from serious psychological problems, personality disorders, clinical phobias, psychoneuroses and the like. This human aspect of the economic realm has, to the best of my knowledge, been neglected before. Enormous amounts of time, efforts, money and energy are expended by the more "normal" – because of the "less normal" and the "eccentric". These operators are likely to regard the maintaining of their internal emotional balance as paramount, far over-riding economic considerations. They will sacrifice economic advantages and benefits and adversely affect their utility outcome in the name of principles, to quell psychological tensions and pressures, as part of obsessive-compulsive rituals, to maintain a false grandiose image, to go on living in a land of fantasy, to resolve a psychodynamic conflict and, generally, to cope with personal problems whic h have nothing to do with the idealized rational economic player of the theories. If quantified, the amounts of resources wasted in these coping manoeuvres is, probably, mind numbing. Many deals clinched are revoked, many businesses started end, many detrimental policy decisions adopted and many potentially beneficial situations avoided because of these personal upheavals.

Speculators and middlemen are yet another species of parasites. In a theoretically totally efficient marketplace – there would have been no niche for them. They both thrive on information failures. The first kind engages in arbitrage (differences in pricing in two markets of an identical good – the result of inefficient dissemination of information) and in gambling. These are important and blessed functions in an imperfect world because they make it more perfect. The speculative activity equates prices and, therefore, sends the right signals to market operators as to how and where to most efficiently allocate their resources. But this is the passive speculator. The "active" speculator is really a market rigger. He corners the market by the dubious virtue of his reputation and size. He influences the market (even creates it) rather than merely exploit its imperfections. Soros and Buffet have such an influence though their effect is likely to be considered benefic ial by unbiased observers. Middlemen are a different story because most of them belong to the active subcategory. This means that they, on purpose, generate market inconsistencies, inefficiencies and problems – only to solve them later at a cost extracted and paid to them, the perpetrators of the problem. Leaving ethical questions aside, this is a highly wasteful process. Middlemen use privileged information and access – whereas speculators use information of a more public nature. Speculators normally work within closely monitored, full disclosure, transparent markets. Middlemen thrive of disinformation, misinformation and lack of information. Middlemen monopolize their information – speculators share it, willingly or not. The more information becomes available to more users – the greater the deterioration in the resources consumed by brokers of information. The same process will likely apply to middlemen of goods and services. We are likely to witness th e death of the car dealer, the classical retail outlet, the music records shop. For that matter, inventions like the internet is likely to short-circuit the whole distribution process in a matter of a few years.

The last type of market impeders is well known and is the only one to have been tackled – with varying degrees of success by governments and by legislators worldwide. These are the trade restricting arrangements: monopolies, cartels, trusts and other illegal organizations. Rivers of inks were spilled over forests of paper to explain the pernicious effects of these anti-competitive practices (see: "Competition Laws"). The short and the long of it is that competition enhances and increases efficiency and that, therefore, anything that restricts competition, weakens and lessens efficiency.

What could anyone do about these inefficiencies? The world goes in circles of increasing and decreasing free marketry. The globe was a more open, competitive and, in certain respects, efficient place at the beginning of the 20th century than it is now. Capital flowed more freely and so did labour. Foreign Direct Investment was bigger. The more efficient, "friction free" the dissemination of information (the ultimate resource) – the less waste and the smaller the lebensraum for parasites. The more adherence to market, price driven, open auction based, meritocratic mechanisms – the less middlemen, speculators, bribers, monopolies, cartels and trusts. The less political involvement in the workings of the market and, in general, in what consenting adults conspire to do that is not harmful to others – the more efficient and flowing the economic ambience is likely to become.

This picture of "laissez faire, laissez aller" should be complimented by even stricter legislation coupled with effective and draconian law enforcement agents and measures. The illegal and the illegitimate should be stamped out, cruelly. Freedom to all – is also freedom from being conned or hassled. Only when the righteous freely prosper and the less righteous excessively suffer – only then will we have entered the efficient kingdom of the free market.

This still does not deal with the "not serious" and the "personality disordered". What about the inefficient havoc that they wreak? This, after all, is part of what is known, in legal parlance as: "force majeure".

Note

There is a raging debate between the "rational expectations" theory and the "prospect theory". The former - the cornerstone of rational economics - assumes that economic (human) players are rational and out to maximize their utility (see: "The Happiness of Others", "The Egotistic Friend" and "The Distributive Justice of the Market"). Even ignoring the fuzzy logic behind the ill-defined philosophical term "utility" - rational economics has very little to do with real human being and a lot to do with sterile (though mildly useful) abstractions. Prospect theory builds on behavioural research in modern psychology which demonstrates that people are more loss averse than gain seekers (utility maximizers). Other economists have succeeded to demonstrate irrational behaviours of economic actors (heuristics, dissonances, biases, magical thinking and so on).

The apparent chasm between the rational theories (efficient markets, hidden hands and so on) and behavioural economics is the result of two philosophical fallacies which, in turn, are based on the misapplication and misinterpretation of philosophical terms.

The first fallacy is to assume that all forms of utility are reducible to one another or to money terms. Thus, the values attached to all utilities are expressed in monetary terms. This is wrong. Some people prefer leisure, or freedom, or predictability to expected money. This is the very essence of risk aversion: a trade off between the utility of predictability (absence or minimization of risk) and the expected utility of money. In other words, people have many utility functions running simultaneously - or, at best, one utility function with many variables and coefficients. This is why taxi drivers in New York cease working in a busy day, having reached a pre-determined income target: the utility function of their money equals the utility function of their leisure.

How can these coefficients (and the values of these variables) be determined? Only by engaging in extensive empirical research. There is no way for any theory or "explanation" to predict these values. We have yet to reach the stage of being able to quantify, measure and numerically predict human behaviour and personality (=the set of adaptive traits and their interactions with changing circumstances). That economics is a branch of psychology is becoming more evident by the day. It would do well to lose its mathematical pretensions and adopt the statistical methods of its humbler relative.

The second fallacy is the assumption underlying both rational and behavioural economics that human nature is an "object" to be analysed and "studied", that it is static and unchanged. But, of course, humans change inexorably. This is the only fixed feature of being human: change. Some changes are unpredictable, even in deterministic principle. Other changes are well documented. An example of the latter class of changes in the learning curve. Humans learn and the more they learn the more they alter their behaviour. So, to obtain any meaningful data, one has to observe behaviour in time, to obtain a sequence of reactions and actions. To isolate, observe and manipulate environmental variables and study human interactions. No snapshot can approximate a video sequence where humans are concerned.

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