The economic consequences of Ms Anderson

The Guardian reports:

The U.S. dollar fell broadly on Tuesday as stabilizing equity markets in Europe and the United States eroded safe-haven flows into the greenback…The dollar has tended to fall when risk sentiment improves as investors move money away from safe-haven investments into riskier ones.

This is a common claim. But it raises the question: how can the dollar be regarded as a “safe haven currency” when the US has net overseas debt equivalent to almost a fifth of GDP, when the OECD said today that the country is likely to have big current account deficits despite the recession, and when there are still good reasons to fear that the dollar could fall a lot?
Here’s a partial answer - Pamela Anderson.
To see what I mean, we must distinguish between risk and uncertainty; risk is quantifiable, whereas uncertainty, or ambiguity, is not.
The dollar might not be a low-risk asset. But it is a low ambiguity one.  And when investors get nervous they flock towards things they “know” - the Ellsberg paradox shows us that people hate uncertainty even more than they hate quantifiable risk. Low-ambiguity assets therefore do well in jittery times, but fall back as “safe haven“ demand falls.
But how did the dollar acquire its low ambiguity status? Many reasons. Here’s one. Foreigners think they are familiar with American society in a way that they are not with, say, Japanese or German society. And a form of halo effect causes them to unconsciously think that because they “know” American society, they know its economy too - and by extension its assets.
This familiarity arises in part from the spread of the English language. But it‘s also the result of the US’s cultural hegemony.  The universal popularity of American film, TV and music has helped make the US seem well known to foreigners.
Which of course is where Ms Anderson comes in. Baywatch was seen by over a billion people in 148 countries, thus contributing to the US’s low-ambiguity status. 
In this sense, Ms Anderson has helped support the US dollar, and helps us understand the apparent paradox of how a risky asset can benefit from safe haven status. And because this status has enabled the US to borrow at lower cost than it would otherwise be able to, Ms Anderson has helped facilitate a huge transfer of wealth from non-Americans to Americans.
I’m surprised her importance for international economics has been overlooked for so long.

Comments

[tom s]

Ironically, Ms. Anderson is Canadian.

[Frank H Little]

Next, Lolo Ferrari and the speed of European recovery.

[Michael]

Very good article.

In my opinion, it is all a matter of market timing. It does not matter if it is gold, oil, or Microsoft, if you have access to good market timing signals, they will help you get in and out at a profit.

No guarantees in this business, but if they are right most of the time, you can still make $s.

There are may web sites providing them out there (search Google). Just find one that works and use it! Check out http://invetrics.com as an example.

Its Dow Jones timing signals are up 43% as of 6/23/09 while the Dow is up just 29% off its March lows.

Following a market timing system works!

[John]

Good to see somebody give Pamela proper credit for her work. I've often thought it was ultimately cheesy pop American culture that brought down the Soviet Union. Now it looks like bosom's boosting the dollar. Whatever works.

[The Welsh]

I disagree that risk is quantifiable. It is only partly quantifiable, which is why it so problematic: there is a strong temptation to focus on the quantifiable part, which is what leads us astray again and again.

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