By day an economist, by night…

Posted by David Smerdon on May 24, 2013 in Chess, Economics, Non-chess

I’ve neglected the website for a while now, and for that I apologise. I’m in thesis mode these days and I’ve barely had time to make my bed, much less keep up my writing. (Just kidding; I never make my bed.)

A lot of people have been asking me recently what exactly I’m researching for my thesis. A quick pop-quiz of my social network revealed quite a spread of subject matter that my friends for some reason assumed I was studying. Most have gotten the ‘economics’ part right (well done), but I’ve heard  specific thesis topics ranging from feminism to climate change, from helping the poor to ‘some psychology thing’, and from human experiments to my favourite (from a grandmaster who shall remain nameless): “Feeding the capitalist machine”.

I guess the only message that can be taken from this is that I probably talk too much. Fair point. In any case, for the record, my thesis is on the persistence of social norms, and particularly bad social norms or taboos. The basic question is: why do some customs and norms stubbornly persist for generations, despite being practically useless or, occasionally, even bad for society?

That probably needs some more explanation, which I’ll get to in a later post, complete with some juicy examples. For now, though, I’m only outlining it as part of my apology for being slack with the blog. While I’m making excuses, it turns out I’ve been recruited by ChessPublishing to write their anti-Sicilians column. (For the non-chess readers, this is a set of opening variations in chess. Just in case you think I’ve got anything against Italians.)

I figured I’m not going to have time for much chess in the coming thesismania, so at least this forces me to put aside a couple of days a month to studying something a little more fun than equations. You can check out the blurb to my first column here. I’ve also been swamped with chess commentary on ChessFM in my spare time, given the tsunami of top level chess events we’ve had recently. For some reason, chess commentary has really started taking off (I can hear the laughter from you non-chessites, but I’m ignoring you). In fact, these days it’s almost mandatory at the big tournaments to have video and on-location commentators, so ChessFM probably has to catch up and send people to the events to match the coverage we’re getting. (Yes, I’m writing this partly to advance my own frequent flyer points. Shh.)

One thing I’ve noticed from all the coverage is the cultural style differences among the US, continental European and British coverage of events. The commentators for the US championship – Jen Shahade, Yasser Seirawan and Maurice Ashley – were really great, but the whole production was styled like they were commenting on a baseball game. There was action, drama, crosses to special reporters, hyperbole, alliteration, exclamations and exaggerations. I felt like I was part of a Vegas showcase rather than a chess event. Is this bad? Probably not, especially given the US audience. They sensationalised the event, and by jove, they did it well.

On the other hand, the commentary from the Norway and Paris/Moscow events was far more subdued. The commentators – spearheaded by the charming yet monotonic Dirk Jan ten Geuzendam – spoke in dulcet, sometimes somnolent tones, with large pauses and conservative evaluations. I felt like I was at an economics lecture: the quality of the analysis was superb and I certainly learned more about the deeper points of the games, but the lessons were often more catatonic than constructive.

The commentary from the London Candidates tournament, however, has to be my favourite. We usually got to see my mates Laurence Trent and Nigel Short giving blunt and candid opinions about the games and the players, with gorgeously witty intermezzos when the action on the board was quiet. Their dry, abstract British humour, distinguished enthusiasm and erudite knowledge of chess history and strategy perfectly blended the best of both commentary worlds. It’s somewhat humbling to write such a flattering description seeing as I was a rival commentator during the event, but their coverage really was awesome.

I have to say, chess commentary is an amazing job. Now that I’ve finally accepted that my chess-watching procrastination is inevitable, I may as well make some pocket money while I’m wasting valuable thesis hours staring at the games. Combined with writing chess articles on ChessPub, I’ve probably found the two best side-jobs I could have while pretending to be an economist (excluding, of course, my number one dream job: song writer for Flight of the Conchords).

In fact, if this thesis thing doesn’t work out…

More posts to come soon. There’ll even be some without chess in them.


“Fixing Flaws and Stopping Draws”

Posted by David Smerdon on Oct 15, 2012 in Chess, Economics, Non-chess

A lot of my friends often ask me what I do in my studies.  Unfortunately, for the most part, it’s difficult to make what I study sound interesting to a non-economist.  Economics as a field is fascinating and incredibly useful, but the core skills and courses required of a PhD in economics are themselves largely based around complex mathematical models that could send even the more erudite of dinner guests to sleep.

Recently, however, I got the opportunity to tailor one of my assessment pieces to a chessy theme, for a change.  The subject was called “Social and Economic Networks”, a course focussed on a new and emerging branch of mathematics based around network theory.  I decided to write my final research proposal on how the field might be used to develop a new tie-break system for Swiss and round-robin chess events.

I should stress that I’m not really suggesting it as a serious alternative for tournament chess, but it’s definitely true that the current systems each have their flaws – which I discuss in the paper.  My system is based on tallying up a network of direct and indirect wins over all participants in the competition, and has an added perk in that it encourages players to fight for decisive results rather than settle for quick draws.  Mind you, it has its own flaws, but at least it made for a more interesting project than what I’m used to.

You can check it out on the link below, if  you’re interested, though I should add some sort of warning for the mathematical derivations and prosaic language.  As an example, consider the end of the introduction:

 This proposal seeks to address both the inadequacies of current tie-break systems and the issue of ever- increasing draws in chess by introducing a new tie-break system for large tournaments. The system uses a measure based on both direct and indirect wins, and is a generalisation of standard centrality values stemming from the directed network of wins throughout an event.


Still, it was kind of a fun application of some complex math, and I managed to wrangle a bit of text on recent tie-break controversies at the European Championships and also the Commonwealth Championships.  Just try not to be too scared by all the Greek symbols.

(You can check it out here: 01072012 SMERDON – Social Networks Research Proposal )



Office Fever

Posted by David Smerdon on Oct 16, 2011 in Economics, Non-chess

As we approach the first set of exams for the graduate program, it’s fair to say that almost all of us first-years are going a little crazy.  Upwards of 70 hours per week with our heads buried in crazy mathematical formulaes and indecipherable microeconomic texts has created the hardest working (and most unnatural) environment I’ve ever experienced.  And with only each other as human company as we traverse this little office word of funky Greek letters and squiggly mathematical symbols, it’s no wonder we’re all getting a case of cabin fever.

Even my dreams have slowly become infested with my studies.  I’ve had more than one nocturnal subconscious experience with a recurring unsolveable algebra problem – one of the few themes you can’t find in dream dictionaries.  (What would Freud say?)  My fellow study-slaves and I constantly use academic jargon in every day life; comments on “maximising utility” when ordering dinner or using “dynamic programming” to choose a novel (not that we have time to read one) are commonplace.  Our only outlet?  Inconceivably lame nerd-jokes; a sort of acknowledgement of our plight, a shared understanding of our common burden.  And a salute to a hardship of Geek in pursuit of the perhaps unreachable dream of knowledge, enlightenment and social good.

Yep, office fever has struck, and it looks like an epidemic – and perhaps five years’ worth.  But here’s a snippet of the half-laughs that keep us going…

 - He didn't have to add a constant, since it is a de

(Bonus points for picking up the possessive apostrophe error, naturally.)



(Yes, that is the top of my head... photo courtesy of Olga; see http://olgagoestoams.wordpress.com/ for her hilarious but rather odd Polish blog.)

Dinner in the office after 24 hours without sleep - pen still in hand. (Photo: Olga)



As close as we were to success, little did I know that my Italian colleague, Luca, was suffering a particularly dire case of...

...OFFICE FEVER. (Unfortunate photo series, naturally, courtesy of Olga.)


Reflections on a misspent youth

Posted by David Smerdon on Oct 1, 2011 in Economics, Non-chess

Another birthday has come and gone, and I’m now four-fifths of my way through the continuous string of non-prime-years in my twenties.  (In non-geek speak, I’m 27.)  Another birthday in Amsterdam, too, to follow the 2006 extravaganza.

Despite being a newly christened Amsterdammer, it wasn’t a lonely birthday.  By chance, the Tinbergen Institute had organised a ‘welcome weekend’ for its new graduate students, so I spent the day with my fellow classmates in the quaint little Dutch town of Haarlem.  A scavenger hunt around the city, a cook-your-own hostel barbeque and classic party games (including my favourite, Mafia) were followed by pitchers of Dutch beer, shuffle dancing and ten-pin bowling.  How could I complain?

(n.b.1:  “Shuffling” is a modern dance style, usually acompanied with hard trance music.  A little bit of trivia: it originated out of Melbourne, Australia, with the so-called “Melbourne Shuffle” of the late ’80s.  The main move in the more modern scene is the ‘Running Man’; think Gene Kelly crossed with a sort-of stationary Michael Jackson moonwalk, but on steriods.  My attempts to teach myself from YouTube videos in my room over the past week has given me impressive carpet burn on the soles of my feet.)

The Running Man: no longer the symbol for 'head to the exit'. Geez, get with the times, man.


(n.b.2: It turns out my (predominantly Eastern European) classmates haven’t had the ten-pin-bowling education that all Australian schoolkids seem to have forced upon them.  It being my birthday and all (and apparently it being an Eastern European tradition that the birthday boy be plied with drinks), I was certainly not in a coordinated mood, and started the game with four gutter balls in the first four frames.  A dedicated resurgence of Jedi-focus proportions followed to bring me home to a pitiful score of 92 – which turned out to be enough to win.  Yes, a 92 won a game of ten pin bowling.)

In the week leading up to my birthday, the television was utterly jammed with ten-year anniversary tributes to the September 11 terrorist attacks in New York.  “Where were you on 9-11?” became an oft-quoted catchphrase in the press (and Facebook statuses – thank you for flooding my wall again, social media).  There’s perhaps an argument that the amount of attention this received was overkill, given the number of far more gut-wretching (but non-American) international tragedies over the past decade that have paled anonymously by comarison in the press.  But I did undertake the thought experiment, nonetheless.

September 11, 2001:  I was at home, watching the early morning Australian news as the twin towers saga unfolded.  I had the day off school, because – believe it or not – I was off to see the doctor about a kidney stone.  Yes, I was 16, but apparently my quirky habit of eating a kiwifruit a day whole (that is, skin and all…) wasn’t quite as healthy as I thought.  Somehow the combined effect of the acid and the inedible skins had crystallised in my kidneys.  A lot of people experienced a painful knot in their stomachs while watching the footage from the twin towers; mine was doubly so.

Silent, hairy kidney-killers


Too much information?  Probably.  But continuing the thought experiment, I then wrote down all the things I would have done differently if I could go back a decade to 2001.  It’s a really interesting little game, and I recommend you give it a go.  If you do, give me a snapshot.  Overall I came up with a couple of pages, some of significance, but mostly trivial.  Here’s three at random; two trivial, one a little more serious:

– I would have learned Mandarin.  I lived in a predominantly Asian neighbourhood in Brisbane, and we even had some Mandarin classes back when I was ten or so.  I think it’s going to be an incredibly useful language in future years, particularly for an Australian.  I wish I’d taken it up back when my mind was young enough to thrive on new information.

– I would have learned to sing. I’ve always loved the arts, but I have a voice that has had as much interaction with proper pitch as the Dutch have with sunglasses.  It’s on the bucket list.

–  I would have become a neurosurgeon. Of all the careers in all the world, this is the one I’ve though I’d really, really enjoy.  It takes a dedicated student, though, and one who knows very early on that this is the chosen path.  I missed that window a long time ago, but unfortunately it stays a regret.  And no, it has nothing to do with the Grey’s Anatomy star, ‘McDreamy’, nor his hair.

...okay, but the hair is pretty cool.



American Credit for Dummies

Posted by David Smerdon on Aug 21, 2011 in Economics, Non-chess, Politics

It’s been a wild and woolly couple of weeks for international markets and economies ever since the surprise downgrade by S&P of the US credit rating to AA+ on August 5.

Whoa.  Does anything in that sentence make sense to you?

If not, read on.  There’s been a lot of economic-jargon thrown around since then, a lot of it unintelligible to most of us despite its importance.  A lot of my friends have asked me to explain what’s going on in simple terms, assuming, somewhat naively, that working at Treasury means I have a clue what’s going on in the global economy.  That said, I am quite good at dumbing things down (insert punny anti-intellect jibe here), so here we go.

What’s that?  Oh, you want puns, do you?

The US economy: Putting downward pressure on Peruvian yoga classes since 2009.



What is a credit rating?

If you lend me $100, you’d want to first know what the chances are of me paying you back.  If you think I’m trustworthy and not at all dodgy, you might ask me to buy you a coffee when I pay you back, as a little token of thanks.  The dodgier you think I am, the more ‘interest’ you might want to charge me – maybe you’ll ask me to pay you back $110.  If you think there’s a very high chance I’ll blow the cash on tequila shots or novelty chess pieces, you might even ask for $150, to compensate you for the risk.

Instead of ‘trustworthy’, ‘dodgy’ and ‘scum’ as measures of my ability to repay, though, it’s more useful to have some sort of general rating that everybody can understand, and use to compare to other people.  That’s basically what a credit rating is – it’s a measure of how likely it is I’ll be able to pay you back, or worded another way, it’s the chance that I go bankrupt and default on the loan.  The worse my credit rating, the higher the interest, or risk premium, that you’ll charge me – and so it becomes more expensive for me to borrow money.  If I’m in a bit of a financial pickle, this is very bad news indeed.

But instead of rating people like me, a credit rating agency usually rates companies and large borrowers – including countries.

The US credit rating: a dangerous see-saw



What is a credit rating agency?

A credit rating agency (or CRA) is a company that assigns credit ratings.  There are lots of them around the world, but you really only need to know about the big three:  Standard and Poor’s (or S&P, the biggest), Moody’s, and Fitch.  Unfortunately, and really annoyingly, these three don’t have the same ranking system for ratings (the Bank for International Settlements has a comparison table here, if you’re interested).  In general, though, S&P’s is the standard reported, but all you really need to know is:  A’s are better than B’s, more A’s are better than less A’s, and pluses are better than minuses.  So, for instance, AAA is the best; AA+ beats AA; and A- beats BBB+.  Each rating can also get a little qualifier after it, such as “with a negative outlook” or “with a positive outlook”, to give you an idea which way it’s leaning.

The ratings can be applied to products, such as a corporate bond offer (basically, when a company wants to borrow money from the market), a corporation itself, or a state or country.  And given that the rating measures a risk of default, or bankruptcy, you’d be safe in assuming that most large sovereign nations would have pretty good ratings – after all, what are the chances of a first-world COUNTRY going bankrupt?

CRAs copped a lot of criticism in the wake of the ’08/’09 financial crisis, largely due to their failure to properly rate securitised derivatives (the financial products, most based on the US sub-prime mortgage market, that caused all the drama).   A lot of these ‘junk bonds’ were given AAA ratings, despite being incredibly risky in the event of a housing collapse.

(Consequently, the international financial organisations and the G20, largely led by the big European powers, attacked the CRAs with all sorts of regulatory measures.  There was probably a bit of revenge underlying this, as the big three CRAs are American, and the US (particularly Wall Street) was generally considered to blame for the global turmoil that followed.  Australia mainly held off on flaying the CRAs alive, largely because we believed that (a) we all got caught out in the crisis, and none of us realised just how overblown the US housing market was, and (b) in general, we came out of the whole crash relatively unscathed.)

The US debt crisis - Up a certain creek without a certain paddle.



So what happened?

On August 5, S&P (an American company, remember) downgraded the US sovereign rating from the top rank of AAA to AA+, with a negative outlook.  Not a big jump, you might think – but, remember, this is a concrete fall that says the US Government is now more likely to go bankrupt.  And this is the first time the US hasn’t been rated AAA since it was first assigned a rating in 1917.

The rating wasn’t downgraded because of any one feature.  For instance, this was certainly not the first time in US history that Congress was forced to pass a deficit reduction plan due to worries over repaying its loans.  And it’s not the first time the US economy has looked a little shaky – unemployment and inflation fears may be high, but they’re certainly not unheard of.

But it was the combination of these fears, as well as grave concerns over the US policy process in general after the last-day deal was clinched, that really spooked S&P into dropping the rating.  The downgrade really signals a lack of faith in the whole congressional system, which is a far trickier political reality that will have to be fixed separately to economic concerns.

The US economy - hanging by a thread.

Now what?

I don’t pretend to know anything about politics (I barely pretend to know anything about economics), so I’ll steer clear of that debate.  But going back to our $100 example at the start, the US has now become ‘dodgier’ as a borrower, meaning lenders are going to demand more interest before they agree to lending the US money.  That means it’s going to be more expensive for the US to patch up its debts – a lot more expensive.  And because the US Government is going to have to pay more to borrow money, this makes borrowing money more expensive for other borrowers, such as US companies wanting to expand or innovate.  In effect, money just got a whole lot more expensive for everyone.  And while the US Government has no choice but to borrow, whatever the cost, private companies may just choose to put the brakes on operations for a while until things recover.  The Government may inadvertently start ‘crowding out’ its private borrowers, slowing down the whole economy.

And a slowing economy is a very, very bad thing right now.  That was the driving fear behind the controversial (but successful) Australian stimulus package, which basically saw the Government handing out ‘free’ money to try and keep the economy moving forwards.  A slowing economy puts upward pressure on unemployment, it makes it harder for a Government to build its revenue, and it sends investors looking overseas for places to put their money.  In short, it starts what you may have heard of a ‘downward spiral’, where every falling domino moves a country closer and closer to the brink.

Still, I don’t want to get you too excited by all this.  For one, the US is the biggest economy in the world, and they have a lot more wriggle room than smaller nations (say, Greece).  What’s more, Moody’s and Fitch both decided to hold off on downgrading the US sovereign rating, showing that there’s a little bit of debate even among the experts as to just how bad things are.

And besides, a lot of the impact of credit rating movements are relative.  If you have lots of investment options at AAA, then me having a AA+ rating is a real issue – but if all our friends are also at AA+, then I’m suddenly not so worried that I can’t find someone to give me a reasonable loan.  And right now, the economic turmoil and widespread panic at fears of a double-dip recession seem to be universal.

Ultimately, the US is not going to go bust.  But this latest incident could well accelerate the inevitable transition in the global order from the US to China as the world’s economic superpower.  It’ll still take a few decades, but perhaps we’re a little further along the path to the US dollar taking the silver medal in terms of world currencies.  (I took great pleasure in teasing my American housemates in Peru that my smoothies cost “less than one of MY dollars, but more than one of yours!”)

US Credit - a scary monster.

There, did any of that make any sense?  I should write some sort of disclaimer on all this, but surely you trust me, right?  Here, how about I show you:  Give me $100, and I’ll show you exactly how the US economy works…


Behavioural versus Experimental Economics: Evidence from the bedroom

Posted by David Smerdon on Nov 10, 2010 in Economics, Non-chess

People often ask me why I didn’t become a professional chess player.  Basically the answer is because I’m not good enough, but I usually prefer to save face and instead tell them about that other passion that has taken over my career path, behavioural economics.  I usually get the inevitable “What’s that?” question, but sometimes (albeit more rarely) I get a response something like, “Behavioural economics… it’s something like economics in labs, right?”

Not quite, but it’s a common mistake.  Many people these days confuse behavioural and experimental economics, and they do overlap a little.  Basically, both fields look to move outside classical economics and draw a closer focus on what actually happens in the real world.  But while experimental economics uses laboratory experiments and surveys to figure out real-world behaviour, behavioural economics takes psychological research and tries to re-theorise it into economic terms.

Sounds pretty much the same, you might think (or, alternatively, it might have all sounded like gobbledy-gook).  But it’s not.  As a behavioural economist, I might take a phenomenon that is easily observable in real life (for instance, that people are not totally selfish and stop to help injured strangers, even if there’s no reward) and chuck it back into an economic theory.  An experimental economist, on the other hand, would have a little more difficulty testing this hypothesis. 

But surely they could just survey people, right?  I hear this a lot, and in my psychology degree there were a number of students who thought that surveys were the bee’s knees when it comes to testing theories.  “Especially anonymous surveys,” they would say.  “You can always trust an anonymous survey.”

Over time, and after many fruitless attempts at scientifically arguing against this, I’ve found the most compelling counter-argument is a very simple example about – wait for it –women’s sex lives.  A New Scientist study asked women aged 18-25 how many sexual partners they had had.  However, to make things interesting, the women were broken into three groups:  those who thought their answers would be read, those who thought they would be anonymous, and those who were hooked up to a (fake) lie detector.

Women who thought their responses might be read said they had had an average of 2.6 sexual partners. Women who thought their answers were anonymous said they had had an average of 3.4 partners.

And women on the fake polygraph?  4.4.

Hardly conclusive, but great dinner-party fodder if you ever meet an experimental economist.


A tourist’s (irrational) economy

Posted by David Smerdon on Sep 15, 2010 in Economics, Non-chess

One thing I always marvel at on trips like this is how irrational us tourists can be when it comes to simple economics on vacations.  Really, our main objective on our rare holidays abroad should be to enjoy ourselves and not worry about ‘the little things’, but somehow our human nature just won’t let us.  I’ve notived quite a few demonstrations of flawed economic behaviour on this trip – including my own!

As I’ve mentioned before, behavioural economics tries to explain the psychology behind the irrational behaviours that puzzles conventional economics.  One of my favourite examples is fairness.  Sure, if you do the same transaction many times over with the same people, fairness comes into rational consideration – of course you’ll remember if you get ripped off for the next time you transact.  But on holidays, most transactions are what’s called ‘single-play games’, in that you’re probably never going to see the random Vietnamese street vendors again.

And yet, irrespective of the amounts, we humans naturally get pissed off if we think we’re getting an unfair deal.  Take our hotel for instance.  US $35 a night for a deluxe double room is fantastic value, but we walked past an English couple at breakfast who were in a very spiteful argument with the reception staff about the fact that their Vietnamese friends got the same room for US $31. 

This really shouldn’t have any bearing on their happiness with a sweet room at low cost.  But it’s the relative value of the room, compared with the fact that they’re getting an unfair deal, that pushes them to spend time arguing rather than enjoying their vacation.  This is also an example of how the economics is framed:  while the true value to the couple of staying in the room is a lot higher (perhaps fifty quid a night!), they’ve framed it as being worth the $31, and so it suddenly becomes a bad deal.

This is even more obvious when we bargain here.  Often the amounts we’re bargaining amount to small coinage in Australian terms, but we hate that our taxi ride costs $3 instead of the $2 our fellow tourists paid.  I find this myself when haggling over market goods.  The really irrational thing about this is that the extra dollar to me is nothing, but quite a significant amount to the poor vendor – and yet, after bargaining down the price, I’ll walk off five metres and give some change to some beggars, who I know are likely in basically the same economic situation as the vendor.  Completely irrational.

Of course, another factor influencing this irrational decision is the feeling we get when we think we’ve ‘won’ something, for instance, bargaining down a price.  This is why stores often promote free gifts with purchases over some amount, even though of course these costs are factored into the price.  In this case, I think I’ve ‘won’ the haggling game, though deep down I know that, to the locals, I’m just another Western tourist paying inflated prices.

An example combining both of these traits is the resentment Fi and I felt when AirAsia refused to send our lost luggage to our hotel after they found it two days after our flight arrived.  The taxi fare to the airport and back to pick up our luggage was US $7, far less than the savings you get flying AirAsia (the world’s number one budget airline), but somehow this saving was lost on us.  And, of course, we’d framed it such that we were comparing this to the service of every other airline that delivers lost luggage to your door.

Tourists are silly, and we’re no exception.

Still, I find it all facinating, even if I myself get caught up in it as much as everyone else (perhaps more so).  Really, all these little problems are small change compared to the cost of the air ticket (prices which differ by hundreds of dollars from one day to the next), and the focus should be on enjoying the trip.  I’ve decided to try and remember this and ignore my innate behavioural ticks in all budgeting matters from now on, but we’ll see how that goes.

Besides, I’ve saved a fortune on clothes here.  Right? 



Combining business with pleasure

Posted by David Smerdon on Jul 16, 2010 in Chess, Economics

Starved of chess action in between tournaments (and even more so following my office IT’s decision to block all chess blogs and forums at work), I decided to organise the inaugural Treasury Chess Championships.

Perhaps it’s the sorts of people attracted to both chess and economics, or perhaps it’s just the Canberra cold, but the interest in the tournament was quite impressive.  There are 26 players in the tournament, including complete beginners, “I used to play in school” amateurs, players with decades-old ACF ratings, and a top seed rated just above 2000.

Of course there have been the usual mismatches in the opening rounds, probably exaggerated by the large strength differentials, but overall the level of enthusiasm and vigour has been quite impressive.  A bunch of players have gotten stuck into learning how to notate and use a chess clock, looking up chess openings, and even getting me to go through their games.  More significantly (and surely the sign of a successful tournament), there has even seen a bit of sledging and competitive banter among the participants.

As impressed as I am by the players, this has reminded me just how tough it is to be an organiser.  I can’t remember which grandmaster it was who said that any player who feels like insulting an organiser should be made to organise a tournament themselves first, but this is exactly right.  It’s a thankless job, but definitely necessary, something us players would do well to remember. 

At least Treasury seems to be getting behind this event, with our social committee promising to provide a trophy for first, and an article in the monthly magazine scheduled for August.  Even our café staff declared that chess seemed ‘cool’ in our building.  Could it really be?

Now if only IT would unblock the chess sites…



Posted by David Smerdon on May 21, 2010 in Economics, Non-chess

First of all, let me equivocally thank the many of you who emailed me to brag about how many of the words you knew. Particular thanks to those chess players who wrote in to tell me they each knew all of them, thus negating the one viable excuse for my illiteracy. Phoey.

On the plus side, at least today’s new words are perfectly suited to describing the vicissitudal path of the Australian stockmarket. Financial uncertainty in Europe and the US has engendered a rapid decline in our markets and the Aussie dollar, leaving many investors in a state of penury and considering a career change to numismatics. While I don’t mean to sound glib or in any way impugn the Greek government for their various financial peccadilloes, their ingenuous and subsequently quixotic approach to sovereign debt has forced innocent Australians to ford through a fractious week in the markets with a Spartan parsimony.

Leaving my orotundity aside, the Aussie index fell a whopping three percent in the first 15 minutes of trading today, continuing the downward trend that has seen a record week of losses. While the turmoil in Europe for the Portuguese, Greek, Italian and Spanish (the so-called ‘PIGS’) economies is reason enough for their tortuous week, the same factors shouldn’t really be playing such a role for our market turbulence – and certainly shouldn’t exacerbate it. So what’s going on?

For starters, the globalised nature of today’s financial markets means that you simply can’t isolate the effect of regional factors to only those areas; international debt jitters will be felt everywhere, and we’re not going to escape on the basis of geographical remoteness. Nor can we count on China’s stability to pull us through a potential double-dip: uncertainty over the future of Chinese monetary policy and their housing market is only going to further ruffle feathers at home.

But most importantly at all, we probably need to start paying a bit more attention to our own economic fundamentals. We can no longer ignore the possibility that – shock! – we may have just gotten lucky throughout the global crisis. On the off chance that our resource sector pulled us through, perhaps a new Super Tax on mining is not the way to go. If we are actually in a housing bubble, then perhaps adopting some of the Henry Tax Review’s suggestions for slowing housing demand are worth another look.

Or perhaps we simply need to stop naively expecting our economy and markets to grow at irrationally high rates – and start thinking realistically about our future.

During the financial crisis, I once had a prominent chess parent come up to me while I was playing a tournament game and berate me for her stock portfolio collapsing. (Presumably, she incorrectly thought I represented the government, and somehow, therefore, the reason for the market collapse.)  Apparently, she expected her investments in Australian shares to continue to grow by at least 15 percent every year.

I tried to explain that if she really wanted to reduce the risk of losses in the portfolio, perhaps she should choose a less risky investment, such as a term deposit. “Why would I want to do that?” she exclaimed incredulously. “I wouldn’t make as much money!”

Perhaps our culture has gotten a little too comfortable in exceptionally positive market conditions and unsustainably high returns. We did come out of the crisis in good shape, but that’s no reason to get greedy. After all, we don’t want to turn into greedy, little PIGS, now do we?


DISCLAIMER:  As for every post on this website, the views expressed are my own and in no way represent those of the Australian Treasury, the Australian government, any other government, any other grandmaster, chess players generally, or anyone who rides a bike, whether clothed or not.


Bubble, Bubble, Soil and Rubble

Posted by David Smerdon on Apr 15, 2010 in Economics, Non-chess, Politics

What is up with Australia’s house prices? Everything, it seems.

I of course have some personal bias in the matter, being one of many potential Australian first-home buyers ‘in the market.’ But even leaving aside my personal gripes, it must be said that Australian housing prices are ridiculously inflated.

There are a number of possible causes propping up Australia’s bubble, such as ludicrous tax breaks for negatively geared speculators, the Government’s recent theoretically-dubious first home owner’s grant, and an overly optimistic level of consumer sentiment. But regardless of the root cause(s), the bubble is ominously, undeniably there.

Don’t believe me? Just ask Professor Stephen Keen.

In October 2008, Professor Keen bet Macquarie banker Rory Robertson that Australian house prices would fall by more than 40 percent over the course of 2009, with the loser having to walk the 224 kilometres from Canberra to Mount Kosciuszko. To Keen’s credit, he took his loss not as a failure, but as an opportunity to raise awareness about Australia’s housing crisis and the possible coming double-dip in our nation’s remarkable economic recovery. Kicking off this afternoon from Parliament House, the University of Western Sydney Professor of Economics will run and walk up to 30 kilometres every day, accompanied by dozens of loyal (and somewhat eccentric) followers brandishing shirts with graphs and slogans such as “I was hopelessly wrong on house pieces. Ask me how!”

While the bet was made and is being carried out in good spirit and cheer, and raising a fair bit of dough for charity on the side, the whole saga underlies some fundamental questions about the Australian economy. For one, does Rory (who is obviously quite a cluey guy) really believe that we aren’t in a real estate bubble, or did he simply correctly predict that it wouldn’t pop in 2009?

I, for one, am inclined to believe the latter. In fact, modern behavioural finance theory suggests that it can actually be rational for a sharp investor to invest in an asset bubble, even if she realises that prices are over-inflated above and beyond their true levels. Why? Because irrationality breeds irrationality, over-exuberance breeds over-exuberance, and consumer sentiment follows the herd. Of course, if you believe the bubble is going to pop at some point, you’ll have to time it to get out of your investment before the crash. But, just like haggling at a street market, you can push it a far way to grab a bargain before knowing when to quit. Besides which, Australia is facing a massive housing shortage, which will continue to bolster these ridiculous prices.

Still, the prospect of a housing collapse has scared the financier in me, and I’ve stopped looking at real estate for now. Such a deflation would resonate throughout other areas of the Australian economy, and would more than likely trigger a double-dipping effect of the global crisis. Even the Governor of the Reserve Bank of Australia, Glenn Stevens, warned last month of the risks of taking out large loans in order to jump on the housing bandwagon, implying that the current housing growth rate was unsustainable.

Perhaps I should head up to Parliament House this afternoon and join Keen for the first leg of his trek. Whether he’s right or wrong, it’d be useful to hear the insights of a man who has been nominated, along with ten other notable economists, for the Revere Award for Economics –which is awarded to the three economists “…who first and most clearly saw the Gobal Financial Collapse coming and whose work is most likely to prevent another GFC in the future.”

Maybe I’ll be able to get some tips on when he thinks things might start to turn, and what I should be doing to prepare for the calamity. At the very least, the exercise will do me good in the future.

Particularly if I have to sell my car to pay the mortgage.

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