Other Alpha Sources

I am not sure I buy the story that if China allowed its currency to appreciate all the world's problems would be brushed away in one clean stroke. But I concur that the appreciation of China's currency and indeed that of many of the big emerging markets primarily against the USD would certainly help. This is especially the case now that China (and the rest of the EM edifice) are sitting on a mounting inflation problem.

Dave Altig from the Atlanta Fed delivers a nice argument;

(...) if printing money does not buy you control over real stuff, it is very definitely a factor in controlling the nominal exchange rate—a measure of the value in trade of currency for currency. And there, I believe, is the crux of the problem. To keep the nominal exchange rate from rising, the People's Bank of China in effect prints yuan and buys dollars. Though this has limited impact on any real fundamentals, it is the source material for inflation. In fact, if a monetarist heart beats within you, the picture of the recent Chinese inflation experience will surely warm it.

I have long believed that one part of the problem here is the unique focus on China where the real focus should be on much broader based global currency alignment in which a basket of emerging market currencies appreciate against the G3 as a whole. This would then serve to rebalance global aggregate demand most efficiently.


As an economist there are many things to feel negative about at the moment and I would honestly admit that also I must sometimes struggle not to descend into the bottomless pit of eternal doom and gloom. In that vein, I was refreshed by the Economist's recent look at 3D printing which basically covers a whole new and growing area of manufacturing (of everything imaginable) in 3D much the same way as printing a piece of paper.

THE industrial revolution of the late 18th century made possible the mass production of goods, thereby creating economies of scale which changed the economy—and society—in ways that nobody could have imagined at the time. Now a new manufacturing technology has emerged which does the opposite. Three-dimensional printing makes it as cheap to create single items as it is to produce thousands and thus undermines economies of scale. It may have as profound an impact on the world as the coming of the factory did.

It works like this. First you call up a blueprint on your computer screen and tinker with its shape and colour where necessary. Then you press print. A machine nearby whirrs into life and builds up the object gradually, either by depositing material from a nozzle, or by selectively solidifying a thin layer of plastic or metal dust using tiny drops of glue or a tightly focused beam. Products are thus built up by progressively adding material, one layer at a time: hence the technology’s other name, additive manufacturing. Eventually the object in question—a spare part for your car, a lampshade, a violin—pops out. The beauty of the technology is that it does not need to happen in a factory. Small items can be made by a machine like a desktop printer, in the corner of an office, a shop or even a house; big items—bicycle frames, panels for cars, aircraft parts—need a larger machine, and a bit more space.

Needless to say that this holds the potential to completely revamp manufacturing processes and re-define the nature of scale economies. However, apart from the potential to re-navigate the face of the already established manufacturing industry two things stand out to me.

Firstly, the notion of 3D printing brings the world of science fiction closer by leaps and bounds. Forget about printing a cup at home if you break one in the kitchen. Think 3D printing in conjunction with the emerging technology of manufacturing organs and other organic material. Then think about the promise that much less raw material need to be used and you are only a small step away from Picard pushing a button in Star Trek and invoking a meal or of course the irresistible scene in the Fifth Element in which an obviously hungry Leeloo creates a nice juicy chicken on a split second using, presumably, a small capsule containing the condensed raw material to create such a meal. Clearly, such things would easily be possible in a 3D printing setting and indeed, once transferred into a setting of "organic material", the possibilities are mind blowing. 

Secondly, I am in awe about the potential this holds for home and small scale manufacturing in connection with an open source environment. Obviously as the Economist points out, the flip side to this is that companies will need to come up with new ways to protect source codes (or blue prints) to their products since this would be the main source of their intellectual property. Yet, the heretic in me marvels on the potential of this coupled with some nifty reverse engineering. Imagine a complex product such as a Porsche 911. What if you could reverse engineer it, supply the material, and then feed the blue print into your generic manufacturing scale printer and presto, you would be the maker of luxury German (or Danish) sports cars. Clearly, how companies serve to protect themselves from exactly this kind of abuse is crucial to the success of 3D printing. But then again, one could easily imagine companies selling blueprints online to simpler products which consumers could then produce at home.

In short, if you want a positive view of the future look no further.


Finally and perhaps because it spoke kindly to be prejudices in relation to the ongoing climate change debate, I really liked Leon Neyfakh's review of a new book by Colby College historian of science James Rodger called “Fixing the Sky: The Checkered History of Weather and Climate Control,”;

One can’t help but feel a little embarrassed on behalf of the species, to have been involved in all this fuss over something as trivial as the weather. Is the human race not mighty? How are we still allowing ourselves, in the year 2011, to be reduced to such indignities by a bunch of soggy clouds?

It is not for lack of trying. It’s just that over the last 200 years, the clouds have proven an improbably resilient adversary, and the weather in general has resisted numerous well-funded — and often quite imaginative — attempts at manipulation by meteorologists, physicists, and assorted hobbyists. Some have tried to make it rain, while others have tried to make it stop. Balloons full of explosives have been sent into the sky, and large quantities of electrically charged sand have been dropped from airplanes. One enduring scheme is to disrupt and weaken hurricanes by spreading oil on the surface of the ocean. Another is to drive away rain by shooting clouds with silver iodide or dry ice, a practice that was famously implemented at the 2008 Olympics in Beijing and is frequently employed by farmers throughout the United States.

And of course, the last paragraph strikes a special chord with me;

The good news for practitioners of weather control is that amid all this complexity, they can convince themselves and others that they deserve credit for weather patterns they have probably had no role whatsoever in conjuring. The bad news for anyone who’d like to prevent the next 2-foot snow dump — or the next 2 degrees of global warming — is that there’s just no way to know. As Fleming’s account of the last 200 years suggests, it may be possible to achieve a certain amount by intervention. But it’s a long way from anything you could call control. Those who insist on continuing to shake their fists at the sky should make sure they have some warm gloves.

Makes sense to me.