A Special Report on Gambling-Economist Briefing

10 July 2010

Shuffle Up and Deal

• Gambling's widespread appeal comes as much from the hope of imposing order on the fundamental randomness of the world as from the expectation of economic gain.
• Blaming a bad result on an offended spirit or a good result on divine favor is more comforting than accepting the cold indifference of probability.

The Risk Instinct

• W.I. Thomas--early 20th Century sociologist; Taste for risk is essential to human development; Gambling instinct born in all humans.
• Similar to faith in that both express a need for reassurance, order and salvation.
• Alec Roy, a psychiatrist, found that chronic gamblers had a low level of norepinephrine and people gambled for the thrill of action.

At War with Luck

• More experienced player feel that poker is not about luck.
• A 2009 study analyzed 103 million hands of Texas Hold Em played at pokerstars.com and found that over 75% of them were decided before a showdown--indicating that outcomes were determined by people's betting decisions prior to cards being dealt.
• Similarities to chess in that chess players focus on finding the right moves, rather than having fun or stroking ego.

Cutting off the Arms-Slot Machines

• Slots keep 5% of your money.
• Over time, the amount the machine pays back to the customer will approach its average rate, but at least in regulated markets, each spin is independent of the previous one.
• Important branding for slot machines---Wheel of Fortune is the most popular one.

When the Chips are Down

Las Vegas-In 2009, 13% of visitors said gambling was first priority

The Dragon's Gambling Den

• Chinese Macau's casino rejects hub and spoke casino design that forces guests to pass through the gaming floor on their way in or out. Separate entrance to restaurants and rooms. This could be a benefit to Chinese officials who may not be photographed gambling.
• Macau is the world's biggest gambling market.
• Not as much interest in poker or blackjack---more interest in bacarat.
• Mainlanders need a visa to go to Macau---but there are still enough visitors to go.

Come, All ye Gullible - Lotteries

• American lotteries generated 17 billion in revenue.
• One in 176million to win Mega Millions; 1 in 750,000 to get struck by lighting.
• Poorer people spend a higher percentage of their income on the lottery than wealthier, so it's not as effective if looked at it from a tax perspective.
• One in Five Americans think a lottery ticket is a sound retirement plan.
• Much of lottery ticket purchase comes from social security, unemployment, and disability benefits.

Sure Thing

• Possibly $380 billion spent on illegal betting.
• Crime and pathological gambling happen near legal casinos. Problem gamblers tend to be unemployed and more likely to commit crimes.
• Gambling coalitions argue that state sponsored gambling like lotteries are anti-democracy in that they trick people into thinking they will be rich but are really just getting taxed.
• Customers are at risk today, not from betting on line, but from betting through unregulated sites located in foreign jurisdictions which leave customers no recourse when cheated---Properly overseen and regulated, online gambling can become as safe as e-commerce.
• Ensuring people aren't cheated requires regulation, rigorous oversight and a commitment to an open and competitive market.

The Volcker Rule - New Yorker

Obama's economic adviser and his battles over the financial-reform bill.

John Cassidy 26 July 2010

• Paul Volcker - former chairman of the Federal reserve
• Volcker Rule - barred banks from speculating in the market, a practice known as proprietary trading, and from operating and investing in hedge funds and private equity funds.
• Volcker Rule restores the legal divide between commercial banking (issuance of credit to households and firms) and investment banking (issuing and trading securities).
• Volcker believes that commercial banks like Citigroup and Wells Fargo are worth of receiving federal assistance and even taxpayer bailouts. In return for this protection, they refrain from risky activities like proprietary trading and hedge funds.
• Actual bill that was passed allowed banks to increase their investment in risky investments up to 40%. Volcker is a little disappointed by this concession.
• Keys to reducing risk

1. Raise the amount of cash that banks are required to hold helps them survive when their risky investments fail.
2. Volcker wanted to restrict banks' risky speculative activity.
3. Break up big banks so that no financial firms are so large and connected to others that their failure means systemic catastrophe.

• The Dodd-Frank legislation contains elements of 1 and 2. If another crisis ensues, stricken firms would be taken over and wound down instead of rescued.
• With Lehman and AIG, they reached a certain size where they were to big to be allowed to fail. With all of them regulated in the same manner, imposing capital requirements would be a better way to reduce risk taking than prohibiting proprietary trading - Githner and Summers held this view.

• If "too big to fail" enters into the equation, who are we going to protect? The banks. What is a bank? The Volcker Rule defines a bank by saying it doesn't invest in speculative activity.

Economist Briefing : China's Labor Market

The Next China - 31 July 2010

• The strikes, stoppages, and suicides that have afflicted foreign factories on China's coast in recent months have shaken the image of China's workers as docile, diligent, and cheap.

• According to UNC-TAD, foreigners have invested almost 500 billion in China's capital stock. Their affiliates employ almost 16 million people. For a decade, this formula has dominated global manufacturing growth producing cheaper goods from China.

• As pay goes up, China's domestic market will become more lucrative.

• The worker's new assertiveness may reflect a labor law that gave more rights to the worker in January 2008. The strikers at Honda were better educated than typical migrant workers and were trained together which might have given them the glue to socially organize.

• China has the world's largest manufacturing work force of 112 million and generally cost about 2.7% of their American counterpart.

• Some think that China has exhausted its supply of surplus labor. Others think that the labor market may be segmented so that a surplus of labor on the countryside can coexist with a shortage on the coast. China's land policy where villagers lose their land if they don't tend to them may have an affect on unwillingness for people to leave to work in the factories.

• As China's villagers grow older, coastal factories will have to offer higher wages to tempt migration.

• China's sea coast ports are impressive, but it still lacks national trucking services which leaves them at the mercy of local provinces.

• The rise of inland provinces for industry will push labor demand higher, even as China's baby bust reduces supply. As a result, wages will rise at the expense of profits.

• China cannot rescue the world economy on its own. Its consumers spend only 13% of American GDP. And only some of the stuff it buys come from rich nations. But, some say if Chinese consumption rose by 20% and 25 billion were spent on US goods, it might create more than 200,000 American jobs.

Annals of Innovation - Small Change

Why the revolution will not be tweeted.

Malcolm Gladwell - 04 October 2010

During the elections in Iran, most of the people tweeting were almost all from the West.

Nobody seemed to notice or care that most people were tweeting in English instead Farsi.

Revolutions built around Strong Ties

• Mississippi Freedom Summer Project of 1964 - registered black voters in the South, raise awareness.
• People that kept with it had a strong personal connection to the movement, so they knew people directly involved.
• The sit-ins at Woolworths worked because all the people sitting there knew each other, and in a way, nobody wanted to lose face.

Revolutions built around Weak Ties

• Activisms associated with social medias are all weak.
• Effective at increasing participation by lessening the level of motivation that participation requires.
• Facebook activism succeeds not by motivating people to make a real sacrifice but by motivating them to do things that people do when they are not motivated enough to make a real sacrifice.

Civil rights movement was a military precision style campaign.

• Plans were made - Training sessions were held.
• The Greensboro 4 were all a part of this network and belonged to the NAACP.
• Civil rights movement was high risk and hierarchical.
• Non-violent confrontations are high risk strategies because if even one person deviates from the script and responds violently, the moral legitimacy of the tactic is compromised.

Facebook can build non-hierarchical networks.

• It's difficult to reach consensus and define goals without centralized leadership.
• It's a strategy that shifts from strategic and disciplined activity towards those which promote resiliency and adaptability.
• It makes it easier for activists to express themselves, and harder for that activity to have any impact.

India's Surprising Economic Miracle

Economist - 02 October 2010

Two reasons why India will start to out pace China.

1) Demography

China's workforce will start aging and won't be replaced as fast because of their

one child policy.

India is younger and mostly English speaking.

2) India's democracy

Ideas flow freely since it lacks China's secrecy and censorship.

China's rampant piracy should encourage most companies to invest in India.

Economic reforms from the 90's have unleashed commercial potential

lower taxes and easier to start business.

India's growth will start to out pace China in 3-5 years.