Eye2theLongRun

At first glance… look more closely please

2012-01-21T18:01:00.001+13:00

A frequently and sadly missed point in NZ debate about tax and companies.

Mankiw writes:

“The corporate income tax shows how dangerous the flypaper theory of tax incidence can be. The corporate income tax is popular in part because it appears to be paid by rich corporations. Yet those who bear the ultimate burden of the tax—the customers and workers of corporations—are often not rich.”

From a Greg Mankiw blog debate featuring the world’s most bad mannered economist Paul Krugman.

Where freedom to choose sits…

2012-01-14T15:59:00.001+13:00

From a Bill Niskanen obituary (late Chair of the Cato Institute), Steve Hanke gives us this:

"Economic growth, income equality, and environmental conditions are all a positive function of the degree of economic freedom." On the moral question, Bill argued that good and evil had no moral meaning in the absence of choice and that a free market economy "maximizes the conditions in which we are 'free to choose'."

Brent

Why you should be short the Euro

2011-12-23T09:24:00.001+13:00

Hans, a middle-aged German tourist on his first visit to Orlando, Florida, finds the red light district and enters a large brothel. The madam asks him to be seated and sends over a young lady to entertain him.

They sit and talk, frolic a little, giggle a bit, drink a bit, and she sits on his lap. He whispers in her ear and she gasps and runs away! Seeing this, the madam sends over a more experienced lady to entertain the gentleman.

They sit and talk, frolic a little, giggle a bit, drink a bit, and she sits on his lap. He whispers in her ear, and she too screams, "No!" and walks quickly away.

The madam is surprised that this ordinary looking man has asked for something so outrageous that her two girls will have nothing to do with him. She decides that only her most experienced lady, Lola, will do. Lola has never said no, and it's not likely anything would surprise her. So the madam sends her over to Hans. The sit and talk, frolic a little, giggle a bit, drink a bit, and she sits on his lap. He whispers in her ear and she screams, "NO WAY, BUDDY!" and smacks him as hard as she can and leaves.

Madam is by now absolutely intrigued, having seen nothing like this in all her years of operating a brothel. She hasn't done the bedroom work herself for a long time, but she's sure she has said yes to everything a man could possibly ask for. She just has to find out what this man wants that has made her girls so angry. Besides she sees a chance to teach her employees a lesson.

So she goes over to Hans and says that she's the best in the house and is available. She sits and talks with him. They frolic, giggle, drink and then she sits in his lap.

Hans leans forwards and whispers in her ear, "Can I pay in Euros?"

HT Victor Hughes

Brent

KiwiSlaver – I wasn’t too cynical

2011-12-22T10:45:00.001+13:00

A basic lesson in economics is the total not just partial costs are important. Coercion and nudge virtually never produces good outcomes. Freedom is always preferable. This independent and objective assessment of the experience with the scheme to date is more than apposite…. the underlying problem is, of course, that it is very likely no political party would sign the death warrant that is reform.

KiwiSaver: An Initial Evaluation of the Impact on Retirement Saving

Published 16 Dec 2011 – N.Z. Treasury

Authors: David Law, Lisa Meehan and Grant M Scobie

Abstract

KiwiSaver is a voluntary savings scheme aimed at increasing the retirement wealth of a target population. A critical element shaping the success of KiwiSaver is the extent to which individuals participate in the scheme, given its voluntary nature; and, having chosen to participate, the extent to which their attitudes and practices toward savings have been modified by their participation. This paper presents the results of an initial evaluation to assess individuals' saving behaviour following the introduction of the KiwiSaver scheme. It is based on the findings of a national survey conducted in 2010.

We find that members adjust their savings portfolio such that only about one third of the contributions they make to their KiwiSaver account represents additional savings. Further, only 22% of respondents report that their expected retirement income would not be sufficient to meet basic living costs. Critically, regression analysis finds no relationship between KiwiSaver membership and any shortfall or excess in respondents' expected retirement income relative to either the amount needed to meet basic needs in retirement or to be comfortable.

Consequently, examination of standard measures of programme efficacy such as target effectiveness and leakage suggests that KiwiSaver has been only modestly successful in reaching the target population and that leakage to the non-target population was high. This implies that the on going cost of the scheme per target member could exceed $13,000 per year. Finally, recognising that KiwiSaver may have had broader objectives not explicitly stated in the Act, the scheme's possible effect on national saving was examined. In the long run the effect on net national saving appears marginal at best.

The full paper can be downloaded here.

Brent

The horror of Govt “stacks on the mill”

2011-12-19T14:56:00.001+13:00

A great reminder here from Richard Epstein………

One of the enduring faiths of modern progressive thought is that omniscient policy makers can cancel out the errors of one form of economic intervention by implementing a second.

That lesson was brought home to me when I was a third year student at Yale Law School, whenever discussion turned to the perennial debate over the minimum wage. The charge against the minimum wage was that it had to introduce some measure of unemployment into labour markets by raising wages above the market-clearing price. “Not to worry,” came the confident reply.

The way to handle that imperfection is to raise the level of welfare benefits in order to remove the dislocations created by the minimum wage. If one government program had its rough edges, a second government program could ride to the rescue. Implicit in this argument was the tantalizing, but fatal, assumption of economic abundance: The government has the power to tax, and with that power, has access to a cornucopia of public funds that never runs empty—at least until it does.

This abundance-based argument is not confined solely to the minimum wage, but has been extended to countless programs of state intervention in labour, or indeed, any market. Thus in 1935, American labour law created a system of collective bargaining whereby employees bargain with a single voice. That system allows unions to seek, and often obtain, monopoly profits for their members. That system in turn reduces the number of workers hired by the unionized firms. So what is to be done with the excess workers? They should be shepherded into job-training programs, funded by the public, which would allow them to re-enter the labour force with other jobs.

Brent

The Incredible Liteness of Occupiers

2011-12-10T10:42:00.001+13:00

This is a current ad on Craigslist:

$1 / 15ft² – need roommate for my occupy tent (financial district)

My step father gave me his old tent to use so I can occupy the financial district. I set up a few nights ago but the cops were able to kick me out by using a big german sheapard to scare me. I want a roommate to help set up a new camp and watch my back in case the NAzis with the GERMAN dog come back to kick me out. I also have a video camera we can share in case they harrass us.

I am clean and keep a neat tent. I shave and shower every other week, we can alternate so some one is always in the tent. My girlfriend will bring food so we don’t have to leave. $1.00 rent is due upon our agreement and is due on the first of every month. It is not refundable as your dollar symbolizes your dedication to the tent and our cause.

Cats are OK, but you are not free to contact this poster with services or other commercial interests. For the pointer I thank David Gonzalez via Tyler Cowan – all spelling errors are the responsibility of the occupier, as is the pricing model adopted for this market.

Brent

Employment Versus Entitlement

2011-11-23T21:30:00.001+13:00

Contrasting numbers:

At a company I chair: One position – Office Junior. 71 applicants (including many with degrees in architecture, media studies etc.). 67 counted out, one employed.
A stat I read today: 1 in 4 Gen Y job offers turned down by applicant due to inadequate cell phone offer.

Conclusion – Snowflake and mates are slowly but surely squeezing the life out of the western economy and their own lives with it…. Gen Y is, rightly, close to the end of the alphabet.

Brent

Abusive language

2011-11-17T09:22:00.001+13:00

One of the things not helping the shocking reputation we finance and economics types have is the use of idiotic language coupled with totally deceptive phraseology.

My latest discovery is the term “high equity content” to describe risky bonds – hitherto known as “high yield bonds” or “junk bonds”.

This curiousity arises from the fact that when a bond has a high probability of default the chances of getting ones money back depend upon what’s left, if anything, of the issuing firm’s assets and earnings – i.e. the stuff of equity (not bonds) and equity analysts – so to assess these instruments takes equity analysis skills rather than the standard fare of credit analysts looking at gilts or low risk bonds.

The most important thing is that risk here is high! Disguising that or being deceptive about it by calling it “high equity content” is silly, condescending and deceptive. High risk bond – is the term the salesmen are struggling for.

In this case it is a new issue by Contact Energy – the ridiculous thing being that they have no need to resort to this rubbish. Investors are perfectly capable of figuring whether this level of risk is for them.

High equity content? Presumably the EU currently has “high equity content?” South Canterbury Finance bonds had “high equity content”?

This rubbery nonsense indicates rubbery intellect – the very same which describes company results as having “no unexpected surprises”. Right? So all surprises were fully expected. Good. Just as the risky option for Kiwislaver sufferers is described as “growth” instead of “most risky of the options”.

After a certain pretty bad day on Wall Street in 1929 JP Morgan’s side kick when asked about the state of the market declared that the market was “susceptible to price increases”.

Cleaning up our language might go some way to cleaning up our industry’s reputation – and possible clear out a few souls who are “susceptible to a brain transplant.”

On asset sales

2011-11-11T16:52:00.001+13:00

Why on earth can Mr Key the National Government not bring itself to say:

Mr Goff and the Labour Party are simply wrong about this. For the last 20 years, all over the world, in governments of left, centre and right wing disposition and from Poland to Africa to the United Kingdom and to Australia, have progressively sold the last of their state owned assets to their citizens’ benefit.

They have done this, as ironically Mr Goff’s own government did in the 1980s, because governments end up being consistently poor stewards of those assets compared with others and because taxpayers do not “own” the assets in any meaningful sense.

Like everyone else, it behoves us to capture at least some of the value that partial sale will bring while that value remains intact. The sales process will also deliver us whatever value might arise in the future – through how this utterly basic piece of finance works eludes Mr Goff and his colleagues.

We no longer have the time to rehearse arguments which have no policy content and were settled long ago – there are more pressing matters to be addressed.

Telling it like it is would make more sense than conjuring up dreamboat slush funds or promising to gamble asset sale proceeds in state owned banks.

Brent

It’s politicians passing election crazed laws that need to extend the cooling off period

2011-11-06T22:26:00.000+13:00

The National Party propose to help “poor” borrowers by, inter alia, extending the “cooling off” period from three to five days. The logic here is astounding.

Is this how it works?

Erstwhile borrower enters credit contract to borrow some money then….

Day One: “yip, good as gold, glad I have this loan.”
Day Two: “Going fine, this loan is just what I need.”
Day Three: “Excellent, three days in and looking good.” (that’s the current law)
Day Four: “Hold on, I’m starting to get smarter. Must be than omega 3 I’m scoffing. Takes a while to kick in”
Day Five: “Whoa – this loan stinks. I’m outta here. Thank God for the government.”

This is utter nonsense which helps prevent people learn any of the things that might improve their financial health.

Brent

Brain wire comes loose

2011-11-01T09:16:00.001+13:00

Why would one take the proceeds from selling down state owned energy assets so as to reduce taxpayer risk, and promptly invest them in a state sponsored bank which is far more risky than any energy company?

Selling state assets is important for numerous reasons but it uses up valuable political capital in N.Z. Squandering the opportunity by straight away locking up the proceeds in an even more risky endeavour (established at the behest of a one man party conspiracy theory), shows just how shockingly low on investment prowess governments and even the normally sensible Bill English are.

It is, of course, precisely because of this sort of sheer brilliance that we ought to sell the state out of the country’s valuable assets.

Brent

Not Quite so Rich

2011-10-27T23:08:00.001+13:00

Top earners have taken some hits which typically have not been widely reported. In the US between 2007 and 2009 for example:

99.9th percentile (the obscenely rich) a fall of 34% in income
99.0th percentile (merely filthy rich ) a fall of 16% in income
Median a fall of 1% in income.

As Greg Mankiw’s research has shown – drawing rich earnings is on average a good deal more risky than drawing median earnings – which is why we depend on the rich to take the risks that bring progress… one of the most difficult concepts to sell.

Brent

Get thinking here…. Sowell

2011-10-18T22:45:00.001+13:00

“Just as freedom of the press does not exist for the sake of that tiny minority of the population who are journalists, so property rights do not exist for the sake of those people with substantial property holdings. Both rights exist to serve social purposes reaching far beyond those who actually exercise these rights.”

1999 – the Quest for Cosmic Justice.

Brent

Yet another reason for Kiwis to quit property

2011-10-14T23:58:00.001+13:00

The effect of ageing on asset prices may make the rich world’s problems worse

Sep 24th 2011 | The Economist

SINCE the bursting of Japan’s asset bubbles in the early 1990s, the country has undergone a long and deflationary process of debt reduction. During this period, Japanese policymakers have attracted criticism from (among others) Ben Bernanke, the chairman of the Federal Reserve, for their gradualist approach to reflating the economy. The critics’ charge is this: that although the Bank of Japan (BoJ) pioneered many of the policies that the Fed and others have since followed—such as committing to zero interest rates and increasing bank reserves by the alchemy of quantitative easing—the Japanese central bank still did too little, too late.

Things look rather different in Japan itself, where some say the problem lies in a lack of demand for loans from the debt-strapped private sector, rather than a lack of supply. This is the hallmark of a “balance-sheet recession”, a term coined by Richard Koo of the Nomura Research Institute to describe the process whereby households and companies pay down debts rather than embark on new spending.

In two speeches* this year, Kiyohiko Nishimura, deputy governor of the BoJ, has developed this line of thinking to help explain why Japan’s balance-sheet adjustment has taken so long. Mr Nishimura blames the prolonged slump on ageing, which is furthest advanced in Japan, but is also occurring in many of the world’s biggest economies.

His central argument is that ageing depresses asset prices. That in turn makes deleveraging tougher because debt used to finance assets is harder to pay off without incurring losses. This, he says, may have grim repercussions for America and Europe.

The theory behind the link between ageing and asset prices is outlined in a recent working paper by Elod Takats of the Bank for International Settlements (BIS). In simple terms, the young and middle-aged save for old age by buying assets, often with borrowed money; the old sell them to pay for retirement. As the working-age population rises—as it did, for instance, after the baby boom—asset prices rocket because of increased demand. As baby-boomers reach retirement, the reverse may happen.

In his paper Mr Takats seeks to quantify this effect. He prefers to look at an international sample rather than data on single countries, because that enables more robust identification of the impact of ageing. He also focuses on house prices rather than financial assets, because they are less likely to be influenced by cross-border capital flows. Mr Takats applies two aspects of demography to BIS house-price data from 22 advanced economies: first, total population; second, the ratio of old people to the working-age population, or the old-age dependency ratio.

Between 1970 and 2009, he finds that a 1% rise in GDP per person and a 1% rise in the total population each corresponded to about a 1% rise in real house prices. But a 1% increase in the old-age dependency ratio was associated with a 0.66% drop in real house prices.

Using United Nations projections, his analysis suggests that house prices will face strong headwinds in the next 40 years as populations age. American house prices, for example, will rise by about 80 basis points a year less than they would do if you strip out demographic factors, he reckons. For faster-ageing countries such as Japan, Germany and Italy, prices would fall by more than 1% a year, though he notes that other factors may offset the demographic effects and he does not expect a meltdown in prices.

Prices of financial assets do not necessarily shadow those of property: people tend to buy and sell stocks and bonds later in life than they buy and sell homes. But they are also affected by ageing as the old sell them to realise cash. A model developed at the Federal Reserve Bank of San Francisco finds that since 1954 there has been a high correlation between the ratio of Americans aged 40-49 to those aged 60-69, and the price/earnings ratio of the stockmarket. The implication of this relationship for share prices in the future is bearish, it says.

Based on standard demographic and earnings assumptions, the San Francisco Fed’s model suggests share prices will fall by 13% between 2010-21. The good news for America is that the relative proportion of middle-aged people should rebound in 2025, implying a strong recovery.

Such estimates should be treated with caution. Ageing, at least in the short term, is fairly predictable, so markets may have already discounted its impact on asset prices. Mr Takats draws attention to the fact that elderly people may end up working longer, which would reduce the pressure to sell their assets.

But the uncertainties run both ways. As Mr Takats points out, overstretched pension systems may spur retired people to run down their assets more aggressively than expected. The BoJ’s Mr Nishimura ventures that the downward pressure on prices may be exacerbated by ageing in countries like Russia and China, whose entry into the global economy helped fuel the world’s recent asset-price boom.

Grey market

If ageing does exacerbate the costs of a balance-sheet recession, what can policymakers do about it? The BoJ, Mr Nishimura says, has sought to counter some of the effects, such as the loss of lending expertise in the banking sector and risk aversion, through “truly unconventional” monetary policy, such as buying low-grade corporate bonds and exchange-traded funds to spur investment in riskier assets; and providing funds for banks to lend and invest in promising new fields, such as innovations for the elderly. But his overall message is stark: repairing balance-sheets when the population is ageing is much harder than when it is young. Some people, he cautions, regard the turmoil since 2008 as a “fleeting nightmare”. But where ageing is endemic, there may be no going back to normal. As the title of one of his papers ominously puts it: “This time may truly be different.”

Brent

Useful sequence on strategy from Steve Hansen

2011-10-14T09:11:00.001+13:00

Forwards coach Steve Hansen almost unwittingly in talking to a radio interviewer this morning provided some helpful insights into strategy and even tactics.

He stated that what is needed (in preparing and then executing in a winning sports effort – in this case the RWC semi final) is:

Clarity first. Knowing with clarity what you are supposed to be doing. Then you can move to…

Intensity. Upping the intensity of effort to actually do what you are wanting to do. And with that tends to come…

Precision – which is fairly useful.

So turned around you should end up with precise and intense effort directed at exactly what you are trying to do. Very simple and no doubt very difficult to achieve (especially consistently) but it helps to know the sequence and work to it.

Joanne Black hits the nail absolutely on the head….

2011-10-10T20:35:00.001+13:00

The Black Page, NZ Listener October 15 2011

Opposition leader Phil Goff says that once state assets are sold, they are gone for good. If only that were true. Sadly, KiwiRail was sold but even though we tried to later pretend we didn’t recognise it, it came back to us. It truly is a dog, in so many ways.

Brent

Inevitably

2011-10-10T00:01:00.001+13:00

Brooks on technological innovation…..

2011-10-08T22:51:00.001+13:00

OP-ED COLUMNIST DAVID BROOKS

NYT: Published: October 6, 2011

Let’s imagine that someone from the year 1970 miraculously traveled forward in time to today.traveled forward in time to today. You could show her one of the iPhones that Steve Jobs helped create, and she’d be thunderstruck. People back then imagined wireless communication (Dick Tracy, Star Trek), but they never imagined you could funnel an entire world’s worth of information through a pocket-sized device.

The time traveler would be vibrating with excitement. She’d want to know what other technological marvels had been invented in the past 41 years. She’d ask about space colonies on Mars, flying cars, superfast nuclear-powered airplanes, artificial organs. She’d want to know how doctors ended up curing cancer and senility.

You’d have to bring her down gently. We don’t have any of those things. Airplanes are pretty much the same now as they were then; so are cars, energy sources, appliances, houses and neighborhoods. A person born in 1900 began with horse-drawn buggies and died with men walking on the Moon, but the last few decades have seen nothing like that sort of technological advance.

Recently, a number of writers have grappled with this innovation slowdown. Michael Mandel wrote a BusinessWeek piece in 2009. Tyler Cowen wrote an influential book called “The Great Stagnation” in 2010. The science-Fiction writer Neal Stephenson has just published a piece called “Innovation Starvation” in World Policy Journal and Peter Thiel, who helped create PayPal and finance Facebook, had an essay called “The End of the Future” in National Review.

These writers concede that there has been incredible innovation in information technology. Robotics also seems to be humming along nicely, judging by how few workers are needed by manufacturing plants now. But the pace of change is slowing down in many other sectors.

As Thiel points out, we travel at the same speeds as we did a half-century ago, whether on the ground or in the air. We rely on the same basic energy sources. Warren Buffett made a $44 billion investment in 2009. It was in a railroad that carries coal.

The Green Revolution improved grain yields by 126 percent from 1950 to 1980, but yields have risen only by 47 percent in the decades since. The big pharmaceutical companies have very few blockbuster drugs in the pipeline. They are slashing their research departments.

If you buy the innovation stagnation thesis, three explanations seem most compelling. First, the double hump nature of the learning curve. When researchers are climbing the first hillside of any problem, they think they can see the top. But once they get there, they realize things are more complicated than they thought. They have to return to fundamentals and climb an even steeper hill ahead.

We have hit the trough phase in all sorts of problems — genetics, energy, research into cancer and Alzheimer’s. Breakthroughs will come, just not as soon as we thought.

Second, there has been a loss of utopian élan. If you go back and think about America’s big World’s Fairs or if you read about Bell Labs in its heyday or Silicon Valley in the 1980s or 1990s, you see people in the grip of utopian visions. They imagine absurdly perfect worlds. They feel as though they have the power to begin the world anew. These were delusions, but inspiring delusions.

This utopianism is almost nowhere to be found today. Stephenson and Thiel point out that science fiction is moribund; the new work is dystopian, not inspiring. Thiel argues that the environmentalist ethos has undermined the faith in gee-whiz technological wizardry. Legal institutions and the cable TV culture dampen enthusiasm by punishing failure so remorselessly. NASA’s early failures were seen as steps along the way to a glorious future. Deepwater Horizon’s failure demoralized the whole nation.

Third, there is no essential culture clash. Look at the Steve Jobs obituaries. Over the course of his life, he combined three asynchronous idea spaces — the counterculture of the 1960s, the culture of early computer geeks and the culture of corporate America. There was LSD, “The Whole Earth Catalogue” and spiritual exploration in India. There were also nerdy hours devoted to trying to build a box to make free phone calls.

The merger of these three idea networks set off a cascade of innovations, producing not only new products and management styles but also a new ideal personality — the corporate honcho in jeans and the long-sleeve black T-shirt. Formerly marginal people came together, competed fiercely and tried to resolve their own uncomfortable relationships with society.

The roots of great innovation are never just in the technology itself. They are always in the wider historical context. They require new ways of seeing. As Einstein put it, “The significant problems we face cannot be solved at the same level of thinking we were at when we created them.”

If you want to be the next Steve Jobs and end the innovation stagnation, maybe you should start in hip-hop.

Brent

The nappy rash indicator

2011-10-06T12:42:00.001+13:00

From Marginal Revolution a post by Tyler Cowen on October 5, 2011 sparked the following:

…recent data show diaper sales are slowing and sales of diaper-rash ointment are rising.

Here is more, and I thank Peter Metrinko for the pointer.

4 comments

Robbie314 October 5, 2011 at 3:58 pm

Speaking as a father of four (including a six-month-old), skimping on diaper changes is a doomed attempt at savings. You give it all back in cleaning costs in the event of what I’ll politely call “catastrophic diaper failure”.

And, diaper cream that actually works is surprisingly expensive.

Andrew' October 5, 2011 at 4:30 pm

Too big to fail fo’ real.

Gabe October 5, 2011 at 4:31 pm

Just substitute the cheaper rash cream into the CPI for the more expensive diapers and whoala…CPI just went down a bit.

I knew I felt my standard of living going up!

Lisa October 5, 2011 at 6:12 pm

Check to see if sales of cloth diapers are up. They’re cheaper and longer lasting, but may increase incidence of diaper rash.

Brent

No prizes for this prediction

2011-10-04T09:42:00.001+13:00

Who would we expect to be the most wary about the implications and soundness, let alone the long run veracity of statistics showing a significant reduction in crime when interviewed on Morning Report today?

Well blow me down if it wasn’t a Professor of Criminology.

Brent

Don’t give up hope on “random”

2011-10-03T21:50:00.001+13:00

Discussions of random processes often include this thought experiment. Here is a “live” test… reported by the BBC.

A few million virtual monkeys are close to re-creating the complete works of Shakespeare by randomly mashing keys on virtual typewriters.

A running total of how well they are doing shows that the re-creation is 99.990% complete. The first single work to be completed was the poem A Lover's Complaint.

Set up by US programmer Jesse Anderson the project co-ordinates the virtual monkeys sitting on Amazon's EC2 cloud computing system via a home PC.

Mr Anderson said he started the project as a way to get to know the Hadoop programming tool better and to put Amazon's web services to the test.

It is also a practical test of the thought experiment that wonders whether an infinite number of monkeys pounding on an infinite number of typewriters would be able to produce Shakespeare's works by accident.

Mr Anderson's virtual monkeys are small computer programs uploaded to Amazon servers. These coded apes regularly pump out random sequences of text.

Each sequence is nine characters long and each is checked to see if that string of characters appears anywhere in the works of Shakespeare. If not, it is discarded. If it does match then progress has been made towards re-creating the works of the Bard.

To get a sense of the scale of the project, there are about 5.5 trillion different combinations of any nine characters from the English alphabet.

Mr Anderson's monkeys are generating random nine-character strings to try to produce all these strings and thereby find those that appear in Shakespeare's works.

Mr Anderson kicked off the project on 21 August using Amazon's cloud computers. Each day of virtual monkey keyboard mashing processing cost $19.20 (£12.40).

The project has been moved to a home PC to speed up text string generation and to cut the cost. To make the task even easier the text being sampled has had all the spaces and punctuation removed.

Mathematicians said the constraints Mr Anderson introduced to the project mean he will complete it in a reasonable amount of time.

Monkeys: More interested in throwing faeces than writing sonnets

"If he's running an evolutionary approach, holding on to successful guesses, then he'll get there," said Tim Harford, popular science writer and presenter of the BBC's radio show about numbers More or Less.

And without those constraints?

"Not a chance," said Dr Ian Stewart, emeritus professor of mathematics at the University of Warwick.

His calculations suggest it would take far, far longer than the age of the Universe for monkeys to completely randomly produce a flawless copy of the 3,695,990 or so characters in the works.

"Along the way there would be untold numbers of attempts with one character wrong; even more with two wrong, and so on." he said. "Almost all other books, being shorter, would appear (countless times) before Shakespeare did."

Earlier experiments have shown how difficult the task is. Wikipedia mentions a 2003 project that used computer programs to simulate a lot of monkeys randomly typing.

After the equivalent of billions and billions and billions of monkey years the simulated apes had only produced part of a line from Henry IV, Part 2.

Also in 2003, Paignton Zoo carried out a practical test by putting a keyboard connected to a PC into the cage of six crested macaques. After a month the monkeys had produced five pages of the letter "S" and had broken the keyboard.

Brent

Institutionalised Racism

2011-10-03T09:49:00.001+13:00

From David Zetland’s Aguanomics blog (David is a primarily a water economist – with an interest in much else besides).

01 October 2010

(via WEH) Thomas Sowell doesn't suffer fools:

Few things have captured in microcosm what has gone so painfully wrong, where racial issues are concerned, like the recent election for mayor of Washington, D.C.
Mayor Adrian Fenty, under whom the murder rate has gone down and the school children's test scores have gone up, was resoundingly defeated for re-election.

One key fact tells much of the story: Mayor Fenty received more than 70 percent of the white vote in Washington. His opponent received more than 80 percent of the black vote.
Both men are black. But the head of the school system that he appointed is Asian and the chief of police is a white woman. More than that, most of the teachers who were fired were black. There were also bitter complaints that black contractors did not get as many of the contracts for doing business with the city as they expected.

In short, the mayor appointed the best people he could find, instead of running a racial patronage system, as a black mayor of a city with a black majority is apparently expected to. He also didn't spend as much time schmoozing with the folks as was expected.

How did we reach the point where black voters put racial patronage and racial symbolism above the education of their children and the safety of everyone?
There are many reasons but the trend is ominous. One key factor was the creation, back in the 1960s, of a whole government-supported industry of race hustling.

Racism will persist longer when governments make rules based on racism,* whether negative (allowing slavery) or "positive" (giving jobs or money to people with different skin colours).

Governments should not discriminate on the basis of colour. If anything, government should help people under criteria that are not permanent. Poverty is ok, sick is ok. Tall, short, black, white, man, woman, gay, or straight? Not ok.

And that's not even acknowledging that most government programs crowd out private programs (educating kids, caring for the local homeless) that can do the same thing, better.

Bottom Line: Governments are necessary some of the time for some things, but for all of the time for all things. Just ask yourself: Is there another way? And then go do it.

* On why racism is NOT about skin colour, read this esearch:
Cosmides, L., Tooby, J. & Kurzban, R. (2003). Perceptions of race [pdf]. Trends in Cognitive Sciences, 7(4), 173-179.
Kurzban, R., Tooby, J., & Cosmides, L. (2001). Can race be erased? Coalitional computation and social categorization [pdf]. Proceedings of the National Academy of Sciences, 98(26), 15387-15392.

Brent

Worth remembering…

2011-10-02T18:32:00.001+13:00

Dismal perhaps… but free

Oct. 2nd’s New York Times Book Review published this letter of mine:

Reviewing “American Dreamers,” Michael Kazin’s paean to the country’s radical left, Beverly Gage echoes Kazin by including the abolition of slavery among the great achievements of leftists — an example of their “utopian spirit” (Sept. 18). Such radicals did call for abolition, but radicals of a very different sort — thinkers who offered a new understanding of how societies hang together and prosper without the centralized commands that Kazin’s leftists so extol — also lent their influential voices to the cause of abolition. These radicals were classical economists.

It was economists’ prominence in the abolition movement that led Thomas Carlyle, in an 1849 essay, to defend slavery and ridicule economists as “rueful” thinkers, each of whom “finds the secret of this universe in ‘supply and demand,’ and reduces the duty of human governors to that of letting men alone.” Economists’ advocacy of freedom, even for slaves, so incensed Carlyle that he gave it, in the same essay, a nickname that — considering its provenance — economists should forever wear proudly: the “dismal science.”

DONALD J. BOUDREAUX
Fairfax, Va.
The writer is a professor of economics at George Mason University.

Thanks to Cafe Hayek

Brent

So what do you really hate here????

2011-09-30T15:20:00.001+13:00

From www.junkscience.com

The Obama administration is prosecuting seven oil and gas companies for the deaths of 28 birds. But what about the wind industry?

The Wall Street Journal (29 Sept) points out in an editorial this morning:

The Obama Administration’s hostility to oil and gas exploration is well known, but last week it took an especially fowl turn. The U.S. Attorney for North Dakota hauled seven oil and natural gas companies into federal court for killing 28 migratory birds that were found dead near oil waste lagoons…

Continental Resources is accused of violating the 1918 Migratory Bird Treaty Act because “on or about May 6, 2011 in the District of North Dakota” the company “did take [kill] one Say’s Phoebe,” of the tyrant flycatcher bird family. Brigham Oil & Gas is accused of killing two Mallard ducks. The Class B misdemeanors carry fines of up to $15,000 for each dead bird and up to six months in prison…

Absurdity aside, this prosecution is all the more remarkable because the wind industry each year kills not 28 birds, or even a few hundred, but some 440,000, according to estimates by the American Bird Conservancy based on Fish and Wildlife Service data. Guess how many legal actions the Obama Administration has brought against wind turbine operators under the Migratory Bird Treaty Act? As far as we can tell, it’s zero.

And this isn’t the first time this has happened.

Brent

Why Dick Smith Should Stick to Electronics: Dickhead Economics

2011-09-28T18:48:00.001+13:00

In a populist outburst bemoaning the Cole’s CE pay for the year – as if that particular salary could materially affect the course of the Australian economy - vastly successful entrepreneur Dick Smith provided further evidence of a commonly observed phenomena:

Often it seems, businessmen who have an intense and sometimes unique knowledge of the micro workings of a given market and how to profit from that, frequently have quaint ideas about the wider forces at work.

Smith told Morning Report that “capitalism has to have growth” and this is not possible because the world is “finite”. Apparently, the Murdoch empire (the guys currently flattened through a misjudgement in the micro markets they know so well) is obsessed with growth and they control 70% of Australia’s newspapers. And? Anyway…..

All this is “of course” linked to the poverty of farmers and “all those people on the dole” (that’s the guys in the hoodies with the cheap MP3 players, batteries and electronic goodies helpfully provided by Mr Wonder who “knows” that this “extreme capitalism” is wrong). Apparently “all extremes are wrong”. A bit of minor ex cathedra from the electronics king.

These are strange meanderings of logic. They come from the now thankfully out of fashion fantasy that “capitalism” like “socialism” is some kind of human selected “way of life” to be lifted down from the shelf in some sort of philisophico-political supermarket specialising in such wares, placed in the trolley and trundled to the cashier.

Presumably “extreme capitalism” is the jumbo size while the people of the USSR all went for the XOS version of socialism.

Nice to know know Dick is sticking with the family size capitalist pack that comes with a modest CEO salary, suitably wealthy farmers (who apparently make the world’s best food – it’s just that globalisation “doesn’t work the way its supposed to”, and no unemployment.

Why am I paying taxes so RNZ can parade this utter drivel? And why does Simon Mercer – once the fearless champion of “Fair Go” let him away with it?

Brent

Obama–policy to date… the evaluation

2011-09-19T16:32:00.002+12:00

By MICHAEL J. BOSKIN WSJ 19 Sept

When it comes to the economy, presidents, like quarterbacks, often get more credit or blame than they deserve. They inherit problems and policies that affect the economy well into their presidencies and beyond. Reagan inherited Carter's stagflation, George H.W. Bush twin financial crises (savings & loan and Third World debt), and their fixes certainly benefitted the Clinton economy.

President Obama inherited a deep recession and financial crisis resulting from problems that had been building for years. Those responsible include borrowers and lenders on Wall Street and Main Street, the Federal Reserve, regulatory agencies, ratings agencies, presidents and Congress.

Stanford economist Michael Boskin on the records that Obama has set as president and last night's jobs speech.

Mr. Obama's successor will inherit his deficits and debt (i.e., pressure for higher taxes), inflation and dollar decline. But fairly or not, historians document what occurred on your watch and how you dealt with your in-box. Nearly three years since his election and more than two years since the economic recovery began, Mr. Obama has enacted myriad policies at great expense to American taxpayers and amid political rancor. An interim evaluation is in order.

And there's plenty to evaluate: an $825 billion stimulus package; the Public-Private Investment Partnership to buy toxic assets from the banks; "cash for clunkers"; the home-buyers credit; record spending and budget deficits and exploding debt; the auto bailouts; five versions of foreclosure relief; numerous lifelines to Fannie Mae and Freddie Mac; financial regulation and health-care reform; energy subsidies, mandates and moratoria; and constant demands for higher tax rates on "the rich" and businesses.

Consider the direct results of the Obama programs. A few have performed better than expected—e.g., the auto bailouts, although a rapid private bankruptcy was preferable and GM and Chrysler are not yet denationalized successes. But the failed stimulus bill cost an astounding $280,000 per job—over five times median pay—by the administration's inflated estimates of jobs "created or saved," and much more using more realistic estimates.

Cash for clunkers cost $3 billion, just to shift car sales forward a few months. The Public-Private Investment Partnership, despite cheap federal loans, generated 3% of the $1 trillion claimed, and toxic assets still hobble some financial institutions. The Dodd-Frank financial reform law institutionalized "too big to fail" amid greater concentration of banking assets and mortgages in Fannie and Freddie. The foreclosure relief program permanently modified only a small percentage of the four million mortgages the president promised. And even Mr. Obama now admits that the shovels weren't ready in all those "shovel-ready" stimulus projects.

Perpetually overpromising and under delivering is not remotely good enough, not even for government work. No corporate CEO could survive such a clear history of failure. The economic records set on Mr. Obama's watch really are historic (see nearby table). These include the first downgrade of sovereign U.S. debt in American history, and, relative to GDP, the highest federal spending in U.S. history save the peak years of World War II, plus the highest federal debt since just after World War II.

The employment picture doesn't look any better. The fraction of the population working is the lowest since 1983. Long-term unemployment is by far the highest since the Great Depression. Job growth during the first two years of recovery after a severe recession is the slowest in postwar history.

Moreover, the home-ownership rate is the lowest since 1965 and foreclosures are at a post-Depression high. And perhaps most ominously, the share of Americans paying income taxes is the lowest in the modern era, while dependency on government is the highest in U.S. history.

That's quite a record, although not what Mr. Obama and his supporters had in mind when they pronounced this presidency historic.

President Obama constantly reminds us, with some justification, that he was dealt a difficult hand. But the evidence is overwhelming that he played it poorly. His big government spending, debt and regulation fix has clearly failed. Relative to previous recoveries from deep recessions, the results are disastrous. A considerable fraction of current joblessness, lower living standards, dependency on government and destroyed savings is the result. Worse, his debt explosion will be a drag on economic growth for years to come.

Mr. Obama was never going to enthusiastically embrace pro-market, pro-growth policies. But many of his business and Wall Street supporters (some now former supporters) believed he would govern more like President Clinton, post-1994. After a stunning midterm defeat, Mr. Clinton embarked on an "era of big government is over" collaboration with a Republican Congress to reform welfare, ratify the North American Free Trade Agreement and balance the budget. But Mr. Obama starts far further left than Mr. Clinton and hence has a much longer journey to the center.

The president still has time to rebound from his economic policy missteps by promoting permanent, predictable policies to strengthen forecasted anemic growth. But do Mr. Obama and his advisers realize their analysis of the economic crisis was flawed and their attempted solutions mostly misconceived? That vast spending, temporary tax rebates and social engineering did little of lasting value at immense cost? That the prospect of ever more regulation and taxation created widespread uncertainty and severely damaged incentives and confidence? That the repeated attempts to prevent markets (e.g., the housing market) from naturally bottoming and rebounding have created confusion and inhibited recovery?

Can Mr. Obama change course, given the evidence that the economy responded poorly to top-down direction from Washington rather than the bottom-up individual initiative that is the key to strong growth? Is he willing to rein in the entitlement state erected under radically different economic and demographic conditions? And will he reform the corporate and personal income taxes with much lower rates on a broader base? Or is he going to propose the same failed policies—more spending, social engineering, temporary tax cuts and permanent tax hikes?

On the answer to these questions, much of Mr. Obama's, and the nation's, future rests.

Mr. Boskin, a professor of economics at Stanford and a senior fellow at the Hoover Institution, chaired the Council of Economic Advisers under President George H.W. Bush.

The Rise and Fall of the White Man’s Empire

2011-09-15T08:44:00.001+12:00

For at least three years I have been claiming that it is largely “all over” for the rent seeking economies – that is the interest group and politics riddled closet collectivist economies which make up the “developed” world.

Here is a graph that makes the point better than I can:

This is one result of the N.Z. Prime Ministers “streak of socialism in us all”.

Such fun…..

Brent

Extraordinary statement–how does this work?

2011-09-07T14:17:00.001+12:00

In describing the denial the appeal of Roger Moses the Herald reported this from the sentencing proceedings:

In sentencing the men Justice Heath said their offending did not involve any element of dishonesty, rather the performance of directors was inept.

While in my view there were various reasons for which the activities of the defendant which might very well warrant a jail term and the upholding of law and order is a praiseworthy objective, sending people to jail for ineptitude seems strange indeed.

On this basis half the population ought to be inside. The rule, down through the centuries has ever been that one is allowed to make mistakes, make errors of business judgment, even make a thorough going muddle of the relatively straightforward.

One is not permitted however to break the law or commit crimes.

To move outside or away from this time honoured principle and commence instead to make judgments about what is and “ineptitude” and jail people on the basis of that judgment requires supreme and dangerous arrogance.

It is to be hoped that the elements of the conviction which led to jail were not those of apparent ineptitude.

Brent

What happens when Governments “stimulate”

2011-09-06T17:56:00.001+12:00

When the inevitable call comes for “more stimulus” and “more government spending” and “more public works” – as it will in the next week or so this extract from the New York Times (hardly an advocate of dumping Keynesian spending or a critic of government spending):

HAMADA, Japan — The Hamada Marine Bridge soars majestically over this small fishing harbor, so much larger than the squid boats anchored below that it seems out of place.

And it is not just the bridge. Two decades of generous public works spending have showered this city of 61,000 mostly graying residents with a highway, a two-lane bypass, a university, a prison, a children’s art museum, the Sun Village Hamada sports center, a bright red welcome center, a ski resort and an aquarium featuring three ring-blowing Beluga whales.

Nor is this remote port in western Japan unusual. Japan’s rural areas have been paved over and filled in with roads, dams and other big infrastructure projects, the legacy of trillions of dollars spent to lift the economy from a severe downturn caused by the bursting of a real estate bubble in the late 1980s. During those nearly two decades, Japan accumulated the largest public debt in the developed world — totaling 180 percent of its $5.5 trillion economy — while failing to generate a convincing recovery.

These policies fail – one cannot manufacture economic growth by governments spending up taxpayer money or borrowing from future taxpayers.

HT Russ Roberts at Cafe Hayek.

Brent

Shortest Possible Course on Why Keynes was wrong and dangerous

2011-08-22T22:48:00.001+12:00

In university classrooms—and especially the Obama White House—fancy theories of macroeconomics defy basic common sense.

By STEPHEN MOORE

Christina Romer, the University of California at Berkeley economics professor and President Obama's first chief economist, once relayed the old joke that "there are two kinds of students: those who hate economics and those who really hate economics." She doesn't believe that, but it's true. I'm surprised how many students tell me economics is their least favorite subject. Why? Because too often economic theories defy common sense. Alas, the policies of this administration haven't boosted the profession's reputation.

Consider what happened last week when Laura Meckler of this newspaper dared to ask White House Press Secretary Jay Carney how increasing unemployment insurance "creates jobs." She received this slap down: "I would expect a reporter from The Wall Street Journal would know this as part of the entrance exam just to get on the paper."

Mr. Carney explained that unemployment insurance "is one of the most direct ways to infuse money into the economy because people who are unemployed and obviously aren't earning a paycheck are going to spend the money that they get . . . and that creates growth and income for businesses that then lead them to making decisions about jobs—more hiring."

That's a perfect Keynesian answer, and also perfectly nonsensical. What the White House is telling us is that the more unemployed people we can pay for not working, the more people will work. Only someone with a Ph.D. in economics from an elite university would believe this.

I have two teenage sons. One worked all summer and the other sat on his duff. To stimulate the economy, the White House wants to take more money from the son who works and give it to the one who doesn't work. I can say with 100% certainty as a parent that in the Moore household this will lead to less work.

Economic bimboism is rampant in Washington. The Center for American Progress held a forum earlier this summer arguing that raising the minimum wage would create more jobs. For this to be true, you have to believe that the more it costs a business to hire a worker, the more workers companies will want to hire.

A few months ago Mr. Obama blamed high unemployment on businesses becoming "more efficient with a lot fewer workers," and he mentioned ATMs and airport kiosks. The Luddites are back raging against the machine. If Mr. Obama really wants to get to full employment, why not ban farm equipment?

Or consider the biggest whopper: Mr. Obama's thoroughly discredited $830 billion stimulus bill. We were promised $1.50 or even up to $3 of economic benefit—the mythical "multiplier"—from every dollar the government spent. There was never any acknowledgment that for the government to spend a dollar, it has to take it from the private economy that is then supposed to create jobs. The multiplier theory only works if you believe there's a fairy passing out free dollars.

How did modern economics fly off the rails? The answer is that the "invisible hand" of the free enterprise system, first explained in 1776 by Adam Smith, got tossed aside for the new "macroeconomics," a witchcraft that began to flourish in the 1930s during the rise of Keynes. Macroeconomics simply took basic laws of economics we know to be true for the firm or family—i.e., that demand curves are downward sloping; that when you tax something, you get less of it; that debts have to be repaid—and turned them on their head as national policy.

As Donald Boudreaux, professor of economics at George Mason University and author of the invaluable blog Cafe Hayek, puts it: "Macroeconomics was nothing more than a dismissal of the rules of economics." Over the years, this has led to some horrific blunders, such as the New Deal decision to pay farmers to burn crops and slaughter livestock to keep food prices high: To encourage food production, destroy it.

The grand pursuit of economics is to overcome scarcity and increase the production of goods and services. Keynesians believe that the economic problem is abundance: too much production and goods on the shelf and too few consumers. Consumers lined up for blocks to buy things in empty stores in communist Russia, but that never sparked production. In macroeconomics today, there is a fatal disregard for the heroes of the economy: the entrepreneur, the risk-taker, the one who innovates and creates the things we want to buy. "All economic problems are about removing impediments to supply, not demand," Arthur Laffer reminds us.

So here we are, three years of mostly impotent stimulus experiments and the economy still hobbled. Keynesians would be expected to be second-guessing the wisdom of their theories. Instead, Prof. Romer recently complained that the political system will not allow Mr. Obama to "go back and ask for more" stimulus.

And that is why Americans hate economics.

Mr. Moore is a member of the Journal's editorial board.

Brent

Hypothesis worthy of consideration

2011-08-15T10:43:00.001+12:00

In 1887 Alexander Tyler, a Scottish history professor at the University of Edinburgh, had this to say about the fall of the Athenian Republic some 2,000 years prior:

"A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse over loose fiscal policy, (which is) always followed by a dictatorship."

"The average age of the world's greatest civilizations from the beginning of history, has been about 200 years. During those 200 years, these nations always progressed through the following sequence:

From bondage to spiritual faith;
From spiritual faith to great courage;
From courage to liberty;
From liberty to abundance;
From abundance to complacency;
From complacency to apathy;
From apathy to dependence;
From dependence back into bondage."

Professor Joseph Olson of Hamline University School of Law in St. Paul , Minnesota , points out that in the last Presidential election:

Number of States won by: Obama: 19 McCain: 29
Square miles of land won by: Obama: 580,000 McCain: 2,427,000
Population of counties won by: Obama: 127 million McCain: 143 million
Murder rate per 100,000 residents in counties won by: Obama:13.2 McCain: 2.1

Olson adds: "In aggregate, the map of the territory McCain won was mostly the land owned by the taxpaying citizens of the country. Obama territory mostly encompassed those citizens living in low income tenements and living off various forms of government welfare..."

Olson believes the United States is now somewhere between the "complacency and apathy" phase of Professor Tyler's definition of democracy, with some forty percent of the nation's population already having reached the "governmental dependency" phase.

Brent

Lottery Winners Do Not Avoid Bankruptcy

2011-08-12T23:56:00.001+12:00

This short post by Alex Tabarrok is well worth thinking about….

August 11, 2011 at 10:33 am in Data Source, Economics | Permalink

The rags to riches to rags story of a poor, unemployed fellow who wins the lottery, blows the cash, and ends up just as poor and unemployed as he began is a common trope. (Here is a classic in the genre). In a paper just published in the Review of Economics and Statistics (gated, free version here), Hankins, Hoekstra and Skiba argue that the rags to riches to rags story has a systematic component.

The authors link records of lottery winners to bankruptcy records. The use of the lottery is a great randomization device, although obviously it restricts the sample to people who play the lottery.

The central finding is this: people who win large amounts are just as likely to end up bankrupt as people who win small amounts. People who win a large amount, $50,000 to $150,000, have a lower bankruptcy rate immediately after winning but a higher bankruptcy rate a few years later so the 5-year bankruptcy rate for the big winners is no lower than for the small winners. Amazingly, by the time the big winners do go bankrupt their assets and debts are not significantly different from those of the small winners. The big winners who ended up bankrupt could have paid off all of their debts but chose not to.

N.B. the result is not that most lottery winners go bankrupt or that winning money doesn’t help people–the result, as Robin Hanson might say, is that bankruptcy isn’t about money.

Brent

Drop in queue at food banks….

2011-08-09T22:00:00.001+12:00

Gisborne Herald. Saturday, August 06, 2011 • Andrew Fernando

A HUGE increase in the number of Gisborne people seeking budgeting advice has contributed to a drastic drop in demand for food bank services, even as living costs and unemployment levels rise.

Three Gisborne food banks spoken to by The Herald said there had been a significant drop in the number of people seeking donations, with the city’s largest food bank — The Salvation Army — reporting a decrease of around 50 percent.

The decline in demand for help has coincided with a dramatic increase in people seeking advice on their budget — a result of Gisborne food banks’ collective efforts to break the intergenerational cycle of food dependence.

Gisborne food banks tightened their eligibility criteria in March last year, requiring regular clients to sign up for budgeting advice.
The move had paid dividends 12 months later, said Salvation Army community ministries coordinator Beverley Hauiti.

“There has just been an incredible increase in the number of people who have wanted budget advice. We have three budget advisers on site here, but we still have a three-week waiting list of people who are just waiting to see one of us.”

Ms Hauiti said budget advisers were in high demand across Gisborne.
“We work very closely as a collective unit with other food banks, and some of them also have waiting lists on their budget advice services.”

The Salvation Army had reaped the benefits of an attitude change, she said.
“For a long time we have been the ambulance at the bottom of the cliff but we’re now trying to inform and inspire people to change the way they live and deal with the deeper issues.”

Gisborne Salvation Army Pastor Graham Medland agreed the budget advice service was likely to have influenced the dip in demand for food parcels.

“We have not sat down and analysed the figures, but I think the increase in people enrolled in our budget advice services has certainly had an effect there.”

The manager of another Gisborne food bank said it had also had fewer requests in recent months, and believed the popularity of budget advice services was making the difference.
“We refer people to budget advice as well and have had a lot of good feedback from it. I think it’s a really positive sign that people are taking more responsibility.”

The unemployment rate for the East Coast rose 2.4 percent in the quarter ended March 2011, and sits at 9.8 percent — 3.2 percent higher than the national average.

Brent

Any chance they will learn? Not a big one….

2011-08-06T22:28:00.001+12:00

All three articles on the exchange rate in the Herald at the moment show (again) that the financial economics texts which say “don’t bother even trying to predict exchange rates” are on the money.

Evidence and theory about market processes are roundly hated by journos, pundits and news paper analysts. After all – if its true you can’t pick this stuff, what are they to do?

All the articles bemoan the “high exchange rate”, a couple dish out advice – to the Reserve Bank and anyone else silly enough to listen - as to how to knock the guts out of the exchange rate. All were totally out of date with 24 hours of publication as the dollar danced down from touching $0.89 to embracing $0.83.

My test is always “so you say it’s too high? How many short contracts are you holding?” The answer is always, predictably (and rationally of course – since it is a mugs game only a “commentator” would think they can convince someone to believe) – “None”. No money where mouth is.

Brent

Regulatory Costs: Good for Mr Soros, What About Us?

2011-07-31T16:36:00.001+12:00

From WJS: (HT D. Haarmeyer)

Regarding your editorial "Soros's Regulatory Hedge" (July 27): I wish my partners and I could give back a mere 4% of capital under management as George Soros is doing and be free of the new SEC requirement to register as an investment adviser. Instead, our small firm will be forced to create a compliance department and incur substantial costs to track and report various aspects of our business because the Dodd-Frank Act defines us as a systemic risk to financial markets.

We must make 44-page quarterly filings, and even longer annual filings require vast disclosure on personnel, partnership agreements and underlying investments—companies that have nothing in common except that we are a shareholder. Like most private equity firms, we use no leverage at the fund level. Our contract with investors limits us to a tightly defined list of permitted investments. Each of the companies we invest in produces audited financial statements. These audits are the basis for our own audits, which are provided to investors and used in fundraising activities already highly regulated by the SEC.

Contrast this to Mr. Soros's "family office," which will be free to invest billions of dollars in anything, anywhere, anytime with or without leverage and with little or no disclosure to anyone. The family-office exemption exists because Congress determined that requiring these private capital pools to register would not reduce systemic risk, though they may manage many times the capital our firm does. There is absolutely no credible reason to treat private firms managing third-party capital for sophisticated investors differently than family offices—except to create sound bites and score political points.

Brian P. Simmons

Chicago

Brent

Dom Post claims to have found the “free lunch”

2011-07-25T15:03:00.001+12:00

This comes in the form of the “Free Store” started in Wellington and now replicated in Waitakere – a grocery shop where offerings are given away while local artists exhibit their works. Instant claims of a free lunch were made.

Far from being a “free lunch” the huge popularity of the Free Shop and the joy it no doubt brings to both needy “shoppers” and generous volunteers, the idea, its execution and its popularity demonstrates numerous economic principles and underlines the value of market processes.

We see that:

people do derive benefit from from helping others, are more than willing to expend energy and ingenuity doing just that and the return to them can take many forms – satisfaction, a sense of communing with their fellows and, let’s hope, some artwork sold.
produce comes from local businesses donating leftover and other produce. So it seems not all the business world is full of the vicious, spiteful and mean capitalist classes. The business’s reputations and their own desire to feel they are doing something useful turns out to, in fact, be useful.

And on the other side – some economic problems never go away.

The shop is so popular the managers have to “ration” how many people are allowed in at once. Scarce resources – free groceries in this case, do, it seems have to be rationed even when the high minded are running the place.
There has also been some criticism of consumers of the Free Shop offering. What? These “shoppers” are likely to be needy and poor. But envy and fear of competition is also a classic feature of success.

So free lunch it is not. Worthy example of capitalism it is – and as in “conventional” capitalism those who bring nothing but envy to the party are welcome to leave.

Brent

Demonising the source of improved social welfare

2011-07-25T12:51:00.001+12:00

By 1934, the Depression's banking crisis had been resolved, "yet full recovery was still seven years away," (Nobel winner Robert Lucas) said in the Milliman lecture. GDP stayed more than 10% below trend.

"Why?" The answer, he says, was growth-suppressing policies, such as the Smoot-Hawley tariff, cartelization, unionization and, "most important but hardest to measure, FDR's demonization of business."

The last point (the inverse of Bourgeois Dignity – for those who have been listening) is critical in N.Z. We are awash with demonising business, fearing gnomes of Zurich, believing that co-op free lunches (AMI ownership structure for instance) abound, fear of Yellow Peril, the belief that trade leads to invasion, hatred of phone companies…. et al.

All good fun, low effort news stories and no doubt cute… also dumb and deadly.

Full article on the Brent Wheeler Group site.

Brent

For those believing NZ debt is not an issue…

2011-07-20T22:34:00.001+12:00

“Yields on 2-year Greek govt debt shot up more than 3 pct -pts to 39.02% today (JPMorgan) That is not a typo.” (HT David Wessel)

Brent

Regulating to produce immoral behaviour

2011-07-17T09:44:00.001+12:00

"Mr Grant (Jim Grant – WSJ 16 July, Newsletter columnist) is also a critic—albeit with caveats—of today's great bankers, whom he says in one respect don't hold a candle to their gilded forebears. "When you take away the downside, you take away the virtue. You take away the moral foundation of markets. You always have envy but now the envy is a little better grounded in objective facts. Taxpayers get the downside. Modern-day Wall Street gets the upside."

What I like about this is that it provides a sound economic explanation for behaviour which is usually explained with a whole lot of “moral stuff” about bankers or whoever being “bad people” – as many a decent economist has pointed out – there are no good or bad people – just human beings responding to incentives.

The regulator, the politician, the media, and indeed those who support all of these have constructed a regulatory structure which transfers risk to the population at large – all in the fond belief that they can banish risk and penalise those of whom they are envious. In doing so what they have banished is the one mechanism which might deliver their dreams – the market.

Brent

Central Banks–Inflation Performances

2011-07-10T10:26:00.001+12:00

Brent

YTD Central Bank OCR Changes

2011-07-02T19:59:00.001+12:00

Brent

A clue as to why a local govt based insurance scheme is not a cool idea…

2011-06-30T10:33:00.001+12:00

Something people keep failing to understand….

2011-06-29T11:56:00.001+12:00

There are two sides to the sale of an asset: a one-off payment to the seller and an expected stream of profits to the buyer. If the price is efficient, these two sides of the transaction should be equivalent: that is, the purchase price represents the net present value of the future stream of profits (i.e. the commercial value).

In general, in respect of sales of government assets the value of the business to the purchaser should exceed the commercial value of the asset if retained in Crown ownership because of the greater efficiencies likely to be achieved in private ownership. A competitive sale process should ensure that the value of those expected efficiency gains are captured by the Crown in the sale price. (see R. Kerr blog and www.treasury.govt.nz)

Brent

Dealing with “Pike River” type compensation issues….

2011-06-18T12:28:00.001+12:00

From a Latte to a Life: 'The Price of Everything'

Published: May 03, 2011 in Knowledge@Wharton

In the months following September 11, 2001, Congress approved a fund to compensate the victims of the terrorist attacks on New York City and the Pentagon that claimed nearly 3,000 lives. Unlike most bills passed by Congress, this one had an unlimited budget. Money, in the grand scheme of things, was not an object when it came to the largest terrorist attack ever to occur on American soil.

But Congress wasn't about to open its checkbook indefinitely: It set tight criteria under which people could file a claim. With the stroke of a pen, Congress had put itself in the unenviable position of determining how much a human life is worth.

Kenneth Feinberg was appointed to manage the fund. Feinberg, a lawyer and former chief of staff to Senator Edward Kennedy, had been in this position before: In 1984, Feinberg negotiated a $180 million settlement paid by the manufacturers of Agent Orange to 250,000 Vietnam veterans who had been sickened by the chemical agent. He was part of the team that awarded $16 million to the Zapruder family for the 26.6-second film Abraham Zapruder took in Dallas on November 22, 1963, the day President John F. Kennedy was assassinated. In 2010, Feinberg was appointed to administer the $20 billion fund created by BP to compensate those affected by an oil spill in the Gulf of Mexico.

In the first case, Feinberg determined an average life was worth about $720 a head. Zapruder's family got about $600,000 per second of film. Along the Gulf of Mexico, the final payouts are yet to be determined. But why are the injuries to a Vietnam veteran worth only a fraction of a cent compared to a dollar's worth of a film? How much is a dead fish worth versus the life of an investment banker who would have made millions of dollars had her life not been cut short by a terrorist attack?

These are the questions at the heart of The Price of Everything: Solving the Mystery of Why We Pay What We Do. The author, Eduardo Porter, an editorial board member of The New York Times, leads readers on a leisurely, but thorough, trip through the corners of humanity in which price affects our decision-making process.

Much of Porter's book, despite its title, isn't dedicated to parsing the details of how commodity prices influence food or how comparison-shopping for plasma TVs keeps the market honest and prices low. Such matters are discussed in his very first chapter, "The Price of Things." The bulk of Porter's book is dedicated to more existential matters -- faith, "free," happiness, the future culture -- areas that, despite the ideals of purists, are no less subject to market forces than the device on which you read this review. Every examination isn't equally enlightening, but Porter is at his best when the subject is at its farthest from the traditional realm of economics.

The Price of Faith

Take, for example, Porter's discussion about the price of faith. The most starry-eyed of us would believe that faith is free, that the path between you and God is a toll-free highway with the only disruptions ones you place in your own path.

Think again: Even faith comes with a price tag, Porter argues. Religion demands sacrifices from its members, including dietary restrictions, sexual abstinence for the unmarried and tithing. You cannot just walk into St. Patrick's Cathedral and decide you are going to be a Catholic: You have to study, undergo several religious rites and demonstrate your allegiance to the faith. And that's just to get in the front door -- the pricing doesn't stop after your first Communion.

Porter takes the abstract subject of faith, breaks it down to its most elemental and applies price theory to its parts. Consider his analysis of why the normal laws of pricing seem to work in the inverse when it comes to the price of faith: "The most successful religions at building enthusiastic flocks are usually the most extreme in their beliefs, like evangelical Christians in the United States or radical Islamists in Central Asia and the Middle East. Even in the face of increasing opportunities in the secular world outside, these churches have developed a growing following of truly fervent believers by closing down their options. They select their members among people with the fewest opportunities outside and erect higher barriers to keep them in. It is a strange strategy: raising your prices to keep your customers. But it works."

The Price of a Life

Putting a price on life is no less abstract than faith, but it happens on a daily basis. How much, for example, would you pay for a car with the newest safety features versus a 10-year-old used car with a lesser generation of airbag? Although a host of other variables come into play -- the mileage of a used car, for example, or the cost of financing or even paint color -- all things being equal, Porter writes, the difference between the used car price and the new car could be construed as the price you are willing to pay for your safety, and ultimately, your life.

In determining how to mete out the bottomless pit of money allocated to the victims of September 11, Kenneth Feinberg was immediately faced with the challenge of putting a value on the tangible, and intangible, aspects of human existence. As Porter describes, Feinberg started with an arbitrarily flat figure of $250,000 a head plus $100,000 per dependent for the noneconomic loss of life. Figuring out how to compensate economic loss was more difficult.

The World Trade Center was home to a fleet of high-paid financial experts as well as a fleet of minimum-wage workers who kept the windows clean, the carpets vacuumed and the china at the Windows on the World restaurant clean. A busboy could never hope to earn as much in his life as a broker at Cantor Fitzgerald might earn in an above-average afternoon, but did that mean a broker's life was worth more than that of an illegal immigrant?

Although the fund paid $2 million, on average, to the next of kin to 2,880 victims who died in the attacks, "each of the families of the eight victims who earned more than $4 million a year got $6.4 million, while the cheapest victim was valued at more than $250,000," Porter wrote. Life, as it turns out, does indeed have its price tag.

The Price of Free

Porter's look at pricing also considers what he calls "the price of free," or the value of ideas and information -- an interesting discussion in light of The New York Times' recent implementation of a metered pay wall on its website. His book was published before the Times made its online pricing system public, but Porter, a media veteran, still has a lot to say about the concept of information floating around the Internet for free -- namely, that it's not.

Porter uses an apt analogy of a lighthouse to make his claim, writing, "Those who believe information online should be available at no cost like to see it as the light from a lighthouse. Any ship passing through the bay at night will benefit from its light, yet this use will not reduce the supply of light for other ships in the vicinity." It is a good analogy, because the theft of a copy of the latest blockbuster movie does not reduce the ability of others to view it, either online or at the local multiplex.

Of course, the light from the lighthouse isn't free. Nor is the news on CNN, nor clean air or national defense. The free rider problem, long ago identified with these public goods, has increased in the world of online information because the cost and availability of Internet access has dramatically fallen. If private companies can't make money providing information for free, they will abandon their efforts, as so many media organizations have done in the last decade.

For information, Porter writes, free is too expensive a cost: "(I)f information becomes truly free, we will stop producing any."

The Value of a Day's Work

Porter's meatiest work makes a thorough examination of the dynamics of how workers get paid and is the most relevant part of his book.

Take the history of determining the value of a single day's work. Nowadays, negotiating your own price is a common practice undertaken by millions of Americans. If you think you are worth more than your prospective employer wants to pay, you either negotiate for more money or turn the job down.

But in serfdom, and its first cousin, slavery, the price is totally set by the employer -- a situation that lends itself to some manageable labor costs, in theory. In practice, however, a company paying nothing for its labor does not mean a good deal. Porter writes, "Employers who could increase production by adding more inexpensive slaves had little incentive to invest in laborsaving technologies. Coerced workers had no incentive to become more productive -- because they would just be handing a higher surplus to the boss. Both these effects hindered economic progress."

Slaves were not free. The cost of buying, feeding and housing slaves, even in meager shanty towns, cut into the profits slave owners expected to reap. Slavery led to slower economic growth: The cost of free labor was too high.

When Prices Are Wrong

Published as the United States was only starting to crawl out of the deepest economic downturn in modern times, one that still held many European countries firmly in its grasp in 2011, Porter saves his biggest punches for his book's finale. After setting up situation after situation in which pricing is a way, if not the best way, to organize life, the first nine chapters of his book become target practice for the epilogue -- where pricing homes destroys the American economy and where economists have to derive a new theory to explain situations where the laws of pricing fail.

The theory of pricing, Porter writes, only works when relative prices are right. "When prices are wrong, these decisions are distorted, often to devastating effect. This, unfortunately, happens depressingly often," as it did between 2000 and 2006 when housing prices were boosted by 70% on average, on the belief that home prices would rise forever. During the so-called "dot-com" bubble of the late 1990s and early 2000s, any company with an "e" prefix was instantly assumed to be worth more -- an assumption that ultimately proved false after a wave of Internet companies filed for bankruptcy.

Economics must include human irrationality to be a more exact science, he argues, a paradox that lies at the heart of Porter's book. It must incorporate social norms, the pursuit of what people think they want, and individuals who will pay an exorbitant price for a seemingly meaningless object just because it's expensive. "Including all these dimensions of humanity is likely to turn economics into a messier, less mathematically elegant discipline" he writes -- an understatement for the ages -- "but, in exchange, the new economics will provide a more comprehensive understanding of the world. Also important, it will be able to grapple with the many ways in which the decisions we make based on the prices arrayed before us can take us in directions that, individually or as a society, we would rather avoid."

Porter skillfully blends economics and existentialism in his discussions of how prices are negotiated, which rescues the book's brisk 304 pages from being just another economic tome that tells readers why Starbucks charges four dollars for a venti latte or how Wal-Mart can undercut its competitors on nearly everything, from tires to lettuce. Although those topics are touched upon here, they have been so well covered elsewhere that Porter's decision not to ground his book in the everyday is far from fatal. In fact, as Porter himself could argue, they make the book worth its price.

Brent

A little story from Oregon–another “liberal” state

2011-06-16T18:48:00.001+12:00

Have you ever tried to hire an average teenager? A few years ago, when I needed some furniture moved, my mother reached out to some fundraising teenagers on my behalf, offering the wage that I had set. The three boys eagerly accepted the offer, showed up for work and proceeded to demonstrate why it can be so difficult for many teenagers to land and maintain employment. They not only lacked experience, but they required detailed tutoring in seemingly straightforward work. More time was spent teaching them how to lift, move and pack furniture than they actually spent working.

In Oregon, you cannot legally employ anyone, teen or otherwise, for less than $8.50 per hour, even if his actual labor is worth much less. It should be little surprise then, that our population’s least experienced workers – teenagers – had an unemployment rate of 28.8 percent last year (much higher than the state’s rate of 10.2 percent). The national teen employment rate in 2010 was a meager 27 percent, which has dropped substantially since 2000, when it was healthier (but still too low) at 45%.

Cascade Institute… HT NZBR

Brent

Why Economists Care So Much About the Minimum Wage…

2011-06-07T15:45:00.001+12:00

Art Carden writing in Forbes (May 13 2011) magazine expresses the answer to this question – such a critical question in N.Z. right now – very well:

Someone once asked me why economists care so much about the minimum wage. It reduces employment for the poor, to be sure, but the efficiency effects are probably pretty small compared to the effects of other policies. So why do economists care so much about the minimum wage when there are other policies that inflict greater damage?

It’s a good question, and an important one. The welfare loss might be small–though this is itself debatable–but the relevance of economic thinking is what is important. Beyond its consequences for the poor, I care about the minimum wage because it brings into high relief the fundamental differences between the anti-economic way of thinking and the economic way of thinking.

The anti-economic way of thinking sees the minimum wage as a policy whereby those endowed with Goodness and Mercy redistribute possibly ill-gotten wealth from the rich to the poor and protect the weak from exploitation. According to this view, the only reasons to oppose the minimum wage are ideology and sheer meanness. Just as the only reason someone could possibly oppose a war is because he or she hates America, the only reason someone could possibly oppose the minimum wage is that he or she hates poor people. Or so some might think. The economic way of thinking sees the minimum wage as exactly what it is: interference that destroys wealth, encourages wasteful rent seeking, and hurts exactly the people it is alleged to help.

The “anti-economic way of thinking sometimes seems to thrive in N.Z….. and we all suffer when it does (thanks to NZBR for the alert).

Brent

The unsurprising push behind this light bulb nonsense–Greed meets Green

2011-06-05T21:54:00.001+12:00

NYT June 3rd……

The whole story is here. Here is what kicked it off. Needless to say it fits the Adam Smith warning

I have never known much good done by those who affected to trade for the public good

Philips created its L.E.D. bulb to compete for the L Prize, a government-sponsored award meant to encourage the development of a replacement for the 60-watt incandescent before the new standards begin to go into effect in January. Traditional incandescents are extremely inefficient, giving off 90 percent of their energy as heat, not light, and over the years, the government and the lighting industry tried to move consumers on to products like halogens and compact fluorescents. But no amount of subsidy or “green” branding has managed to woo consumers away from Edison’s bulb. “Not only is it in alignment with the type of light that consumers like,” says David DiLaura, author of “A History of Light and Lighting.” “It’s commoditized and it’s cheap.”

So some years ago, Philips formed a coalition with environmental groups including the Natural Resources Defense Council to push for higher standards. “We felt that we needed to make a call, and show that the best-known lighting technology, the incandescent light bulb, is at the end of its lifetime,” says Harry Verhaar, the company’s head of strategic sustainability initiatives. Philips told its environmental allies it was well positioned to capitalize on the transition to new technologies and wanted to get ahead of an efficiency movement that was gaining momentum abroad and in states like California. Other manufacturers were more wary, but they also understood the downside to selling a ubiquitous commodity: the profit margin on a bulb that sells for a quarter is negligible. After much negotiation, the industry and environmental groups agreed to endorse tightening efficiency by 25 to 30 percent.

Brent

Cost of democracy–the first slice

2011-06-01T17:10:00.001+12:00

ELECTORAL COMMISSION FUNDING 2011

National: $1.5. million + 36 minutes airtime
Labour: $1.5. million + 36 minutes
Greens: $300,000 + 15 minutes
Act: $160,000 + 5.5 minutes
Maori Party: $160,000 + 9 minutes
United Future: $100,000 + 9 minutes
Alliance: $20,000 + 5.5 minutes
Aotearoa Legalise Cannabis Party:$20,000 + 2 minutes
Coalition of New Zealanders: $20,000 + 2 minutes
Kiwi Party: $20,000 + 2 minutes
Libertarianz: $20,000 + 2 minutes
New Zealand Sovereignty Party: $20,000 + 2 minutes
Pirate Party: $20,000 + 2 minutes
World Peace Party: $20,000 + 2 minutes
Mana Party: $0

Brent

Dependency and Votes

2011-05-30T15:23:00.001+12:00

The ever insightful and well researched Thomas Sowell.

Those who regard government "entitlement" programs as sacrosanct, and regard those who want to cut them back as calloused or cruel, picture a world very different from the world of reality.

To listen to some of the defenders of entitlement programs, which are at the heart of the present financial crisis, you might think that anything the government fails to provide is something that people will be deprived of.

In other words, if you cut spending on school lunches, children will go hungry. If you fail to subsidize housing, people will be homeless. If you fail to subsidize prescription drugs, old people will have to eat dog food in order to be able to afford their meds.

This is the vision promoted by many politicians and much of the media. But, in the world of reality, it is not even true for most people who are living below the official poverty line.

Most Americans living below the official poverty line own a car or truck— and government entitlement programs seldom provide cars and trucks. Most people living below the official poverty line also have air conditioning, color television and a microwave oven—and these too are not usually handed out by government entitlement programs.

Cell phones and other electronic devices are by no means unheard of in low-income neighborhoods, where children would supposedly go hungry if there were no school lunch programs. In reality, low-income people are overweight even more often than other Americans.

As for housing and homelessness, housing prices are higher and homelessness a bigger problem in places where there has been massive government intervention, such as liberal bastions like New York City and San Francisco. As for the elderly, 80 percent are homeowners. whose monthly housing costs are less than $400, including property taxes, utilities, and maintenance.

The desperately poor elderly conjured up in political and media rhetoric are— in the world of reality— the wealthiest segment of the American population.

The average wealth of older households is nearly three times the wealth of households headed by people in the 35 to 44-year-old bracket, and more than 15 times the wealth of households headed by someone under 35 years of age.

If the wealthiest segment of the population cannot pay their own medical bills, who can? The country as a whole is not any richer because the government pays our medical bills— with money that it takes from us.

What about the truly poor, in whatever age brackets? First of all, even in low-income and high-crime neighborhoods, people are not stealing bread to feed their children. The fraction of the people in such neighborhoods who commit most of the crimes are far more likely to steal luxury products that they can either use or sell to get money to support their parasitic lifestyle.

As for the rest of the poor, Professor Walter Williams of George Mason University long ago showed that you could give the poor enough money to lift them all above the official poverty line for a fraction of what it costs to support a massive welfare state bureaucracy.

We don't need to send the country into bankruptcy, in the name of the poor, by spending trillions of dollars on people who are not poor, and who could take care of themselves. The poor have been used as human shields behind which the expanding welfare state can advance.

The goal is not to keep the poor from starving but to create dependency, because dependency translates into votes for politicians who play Santa Claus.

We have all heard the old saying about how giving a man a fish feeds him for a day, while teaching him to fish feeds him for a lifetime. Independence makes for a healthier society, but dependency is what gets votes for politicians.

For politicians, giving a man a fish every day of his life is the way to keep getting his vote. "Entitlement" is just a fancy word for dependency.

As for the scary stories politicians tell, in order to keep the entitlement programs going, as long as we keep buying it, they will keep selling it.

To find out more about Thomas Sowell and read features by other Creators Syndicate columnists and cartoonists, visit the Creators Syndicate web page at www.creators.com. Thomas Sowell is a senior fellow at the Hoover Institution, Stanford University, Stanford, CA 94305. His Web site is www.tsowell.com.

Brent

Another Tech Bubble ????? LinkedIn

2011-05-25T09:33:00.001+12:00

BWG has a discussion on this running at Finance 3.0 . Below is a bit more evidence from the ever humorous Dr Goose.

In the IPO pricing of LinkedIn,
Which doubled before one had blinked in,
Either banks ripped off clients,
Or it's more art than science;
It's a point which the truth's indistinct in.

The IPO of the professionally oriented social networking site LinkedIn created a sensation last week when the offering price of $45 was quickly more than doubled in the first day of trading. The IPO "pop" became the object of furious debate between those who saw a successful issue creating investor excitement and those who objected that the deal was underpriced and the company thereby deprived of potential capital. Underwriters Morgan Stanley, Bank of America and JPMorgan may indeed have delivered a windfall to their favored investors, who could have flipped the shares and doubled their money immediately; however, since the original $4.3 billion valuation (at $45/share) seemed bubblicious for a company that earned $15 million last year, all the complaints about ripping off the company may amount to 20/20 hindsight.

From Dr. Goose at The limericks meets economics style blog.

Brent

Rules for fools

2011-05-21T23:05:00.002+12:00

Occupational regulation is the scourge of the unemployed as well as the consumer. Even the Economist doesn’t like it (Economist May 14). It’s increase shows the vulnerability of democracy to rent seeking.

IN 1941 Franklin Roosevelt added two new items to America’s ancestral freedoms of speech and worship: freedom from fear and freedom from want. Today’s politicians offer a far more generous menu: freedom from unlicensed hair-cutters, freedom from cowboy flower-arrangers and, most important of all, freedom from rogue interior designers. What is the point of enjoying freedom from fear or want, after all, if you cannot enjoy freedom from poorly co-ordinated colour schemes?

In the 1950s, when organisation man ruled, fewer than 5% of American workers needed licences. Today, after three decades of deregulation, the figure is almost 30%. Add to that people who are preparing to obtain a licence or whose jobs involve some form of certification and the share is 38%. Other rich countries impose far fewer fetters than the land of the free. In Britain only 13% of workers need licences (though that has doubled in 12 years).

Some occupations clearly need to be licensed. Nobody wants to unleash amateur doctors and dentists on the public, or untrained tattoo artists for that matter. But, as the Wall Street Journal has doggedly pointed out, America’s Licence Raj has extended its tentacles into occupations that pose no plausible threat to health or safety—occupations, moreover, that are governed by considerations of taste rather than anything that can be objectively measured by licensing authorities. The list of jobs that require licences in some states already sounds like something from Monty Python—florists, handymen, wrestlers, tour guides, frozen-dessert sellers, firework operatives, second-hand booksellers and, of course, interior designers—but it will become sillier still if ambitious cat-groomers and dog-walkers get their way.

Getting a licence can be time-consuming. Want to become a barber in California? That will require studying the art of cutting and blow-drying for almost a year. Want to work in the wig trade in Texas? You will need to take 300 hours of classes and pass both written and practical exams. Alabama obliges manicurists to sit through 750 hours of instruction before taking a practical exam. Florida will not let you work as an interior designer unless you complete a four-year university degree and a two-year apprenticeship and pass a two-day examination.

America’s Licence Raj crushes would-be entrepreneurs. Consider three people who come from very different states and occupations. Jestina Clayton is an African hair-braider with 23 years of experience. But the Utah Barber, Cosmetologist/Barber, Esthetician, Electrologist and Nail Technician Licensing Board told her that she cannot practise her craft unless she first obtains a licence—which means spending up to $18,000 on 2,000 hours of study, none of it devoted to African hair-braiding.

Justin Brown is an abbot at a Benedictine abbey that supplements its meagre income by making and selling simple wooden coffins. But the Louisiana Board of Embalmers and Funeral Directors has ordered him to “cease and desist”. Heaven knows what harm a corpse might suffer from an unlicensed coffin. Barbara Vanderkolk Gardner runs a flourishing interior-design business in New Jersey. But when she tried to expand into Florida, the state’s Board of Architecture and Interior Design ordered her to delete all references to “interior design” from her website and stop offering “interior design services” in the Sunshine State.

The cost of all this pettifoggery is huge—unless, that is, you are a member of one of the cartels that pushes for pettifogging rules or an employee of one of the bureaucratic bodies charged with enforcing them. Morris Kleiner of the University of Minnesota calculates that licensing boosts the income of licensees by about 15%. In other words, it has about the same impact on wages as membership of a trade union does. (Trade unionists who are also protected by licences enjoy a 24% boost to their hourly wages.) Mr Kleiner also argues that licensing slows job-creation: by comparing occupations that are regulated in some states but not in others he found that job growth between 1990 and 2000 was 20% higher in unregulated occupations than in regulated ones.

The Institute for Justice, a free-market pressure group, argues that this is only the beginning of the Raj’s sins. The patchwork of regulations makes it hard for people to move from state to state. The burden of regulations falls most heavily on ethnic minorities (who are less likely to have educational qualifications) and on women (who might want to return to work after raising their children). States that demand that funeral directors must also qualify as embalmers, for example, have 24% fewer female funeral directors than those that don’t.

Uncle Sam will save you from bad feng shui

You might imagine that Americans would be up in arms about all this. After all, the Licence Raj embodies the two things that Americans are supposed to be furious about: the rise of big government and the stalling of America’s job-creating machine. You would be wrong. Florida’s legislature recently debated a bill to remove licensing requirements from 20 occupations, including hair-braiding, interior design and teaching ballroom-dancing. For a while it looked as if the bill would sail through: Florida has been a centre of tea-party agitation and both chambers have Republican majorities. But the people who care most about this issue—the cartels of incumbents—lobbied the loudest. One predicted that unlicensed designers would use fabrics that might spread disease and cause 88,000 deaths a year. Another suggested, even more alarmingly, that clashing colour schemes might adversely affect “salivation”. In the early hours of May 7th the bill was defeated. If Republican majorities cannot pluck up the courage to challenge a cartel of interior designers when Florida’s unemployment rate is more than 10%, what hope has America? The Licence Raj may be here to stay.

Brent

Bit of a laugh…

2011-05-19T10:17:00.001+12:00

Q: What does an economist do?
A: A lot in the short run, which amounts to nothing in the long run.

Q: How many economists does it take to change a lightbulb?
A: Eight. One to screw it in and seven to hold everything else constant.

Q: How has French revolution affected world economic growth?
A: Too early to say.

Stefan.

A wee clue on law and order–imitation is the most common form of learning

2011-05-15T21:58:00.002+12:00

There is perhaps nothing new in this article insofar as it merely chronicles yet again the nature of tax gathering processes and shows that much of what Oliver Cromwell thought he achieved in fact turns out to be simple substitution of one form of tyranny for another.

More worrying though is the advice proffered at the end of the article which seems to me to be thoroughly sound and prudent. It offers as the first rule of engagement to remember when dealing with the IRD:

The IRD’s job is to collect tax, not to be fair.

To the extent that this is the case – and the evidence suggests that it is an unexceptionable conclusion - is it any wonder that a good proportion of the community therefore concludes that:

The citizens job is avoid tax, not to be fair.

Where redistribution is at issue “fairness” is a vacuous concept. Where sound process is at issue “fairness” is fundamental.

For a modern society the above job descriptions are less than flattering.

Emerging markets–Central Bank Rate Changes

2011-05-14T16:43:00.003+12:00

These changes:

The past week saw monetary policy decisions announced by 12 different central banks around the world.

Those that increased interest rates were:

Azerbaijan +25bps to 5.25%
Poland +25bps to 4.25%
Norway +25bps to 2.25% Peru +25bps to 4.25% and
Chile +50bps to 5.00%.

Ghana was the only country that eased policy, cutting rates 50bps to 13.00%.

Those that held rates unchanged were:

Indonesia 6.75%
South Africa 5.50%
Latvia 3.50% and
South Korea 3.00%.

Other changes saw two economies lift reserve requirements:

Uruguay lifted its required reserve ratios 300bps to 15%,
China increased its RRR by 50 basis points to an average 21% for large banks.

Central Bank News Info reports….

The theme of emerging market monetary policy tightening continued, as did the theme of the gradual start of developed market monetary policy tightening; or more appropriately, monetary policy normalization. The rate hikes in Norway and Poland show that policy tightening or normalization is becoming a Euro region-wide phenomenon, as inflation pressures begin to rise due to rising inflation expectations and improving economic conditions. Meanwhile the outlier of Ghana shows that when commodity prices start to ease it will give central banks the luxury of being able to ease policy somewhat, which will be helpful for economic growth, but of course it depends on how much of an impact the short-medium term commodity price spike will have on broader inflation conditions.

Full list of current central bank rates on the Brent Wheeler Group website here.

Brent

Opportunity Cost can be tricky

2011-05-10T20:52:00.001+12:00

Brent

More xenophobic delusions

2011-05-03T09:43:00.001+12:00

A number of people, thinking they are “bright sparks” circulate the following on the grounds that it provides “insight” into why jobs are tough to get in New Zealand. It in fact provides insight into:

1. a long list of things other people are able to do better than New Zealanders can at present;

2. a long list of things which cost less or are of higher quality or both or provide a better mix of money and quality than their N.Z. equivalent – if that exists at all; and,

3. proof positive that the level of economic education here remains dismal – which is probably why the subject of this story – should he decide to read an economics book – would find it was written elsewhere.

“John Smith started the day early having set his alarm clock

(MADE IN JAPAN ) for 6 am.

While his
coffeepot (MADE IN CHINA ) was perking, he shaved with his electric razor (MADE IN HONG KONG ). He put on a dress shirt (MADE IN SRI LANKA ), designer jeans (MADE IN SINGAPORE ) and tennis shoes (MADE IN KOREA )
After cooking his breakfast in his new electric skillet (MADE IN INDIA ) he sat down with his calculator (MADE IN MEXICO ) to see how much he could spend today.

After setting his watch (MADE IN TAIWAN ) to the radio (MADE IN INDIA ) he got in his car (MADE IN GERMANY ) filled it with fuel (from Saudi Arabia ) and continued his search for a good paying JOB.

At the end of yet another discouraging and fruitless day checking his Computer (Made In Malaysia ), John decided to relax for a while.

He put on his sandals (MADE IN BRAZIL ) poured himself a glass of wine (MADE IN FRANCE ) and turned on his TV (MADE IN INDONESIA ), and then wondered why he can't find a good paying job in New Zealand.

Employment is more likely for John Smith than the promoter of this delusional pap.

Brent

Merit beats “ocracies”

2011-04-27T08:53:00.001+12:00

This:

As far as you could see, among the endless lines of tents and waving standards, the broad maidan* was alive with foot battalions at drill, horse regiments at field exercise, and guns at practice — they were all uniformed and in perfect order, that was the shocking thing. Black, brown, and yellow armies in those days, you see, might be as brave as any, but they didn’t have centuries of drill and tactical movement drummed into ’em, not even Zulus, or Ranavalona’s Hova guardsmen. That was the thing about the Khalsa: it was Aldershot in turbans. It was an army. (Flashman and the Mountain of Light, p.58, Fontana Paperback edition, 1991)

tells us that constraints and barriers which stand in the way of merit are a problem since they favour the incompetent. Simple merit was the organising principle of the Kalsa as this passage (Wikipedia) shows:

The Sikh Army was strongly Punjabi with a predominantly Sikh and Hindu cadre but also had a significant multi-religious component made up from other parts of the Punjabi people: different religious backgrounds: Muslim, Hindu, Sikh and different tribal backgrounds: Pashtuns, Dogras, Khatris, Jatts, Nepalis and European mercenaries. A promotion to a higher military rank was based on military skill, not hereditary background, so was a classic meritocracy.

Competence then adds value providing merit can shine through irrational nonsense.

Brent

Spare us the email yada-yada

2011-04-24T21:53:00.001+12:00

The Economist recently pointed out what most of us suspected… that all that rubbish about lawsuits, illegality of reading wrongly addressed emails, attempts to disclaim various offences and other hopeful attempts to contract out of any conceivable whatever at the foot of emails is indeed rubbish. Apparently……

“no court case has ever turned on the presence or absence of such an automatic e-mail footer in America, the most litigious of rich countries” (Economist April 9 2011, p. 65).

They might well have added a further piece of irritating e-mail yada-yada… the “Please consider the environment before printing bla-bla…” . This plea should at least be balanced by something to the tune of “Please consider the unemployment of pulp and paper workers and their families before not printing this e-mail.”

For those who have ventured further along the demand curve, the message might be “Please consider how paper consumption leads to ever greater sized carbon sinks before not printing this e-mail.”

Presumably the harassed e-mail reader would, and is certainly advised, to pay as much attention to earth day sheep following footers as to bush lawyer automated font fodder – close to zero.

Brent

More regulators here to help you…

2011-04-22T09:13:00.001+12:00

We know about this but it’s such an irresistible example….. http://gregmankiw.blogspot.com/2011/04/price-controls-for-limo-rides.html especially for today’s loves of public interest, regulation, “responsible business” and various other costly fairy tales built on greed and envy. (HT Greg Mankiw)

Brent

A poorly understood but critical message

2011-04-17T20:35:00.001+12:00

“when everyone figures out how to get oil into tank cars, or cheap steel from Masabi ore, or close monitoring of retail inventories by computers, the profit goes back to normal, and we, poor exploited things, are left with cheaper kerosene and cheaper steel, and retail goods 30% cheaper than charged by our good neighbours the local hardware and clothing monopolists on Main Street.” Deidre McCloskey, Bourgeois Dignity, Univ Chicago Press, 2010.

Brent

Markets punish those who discriminate–the state’s record on the other hand is poor….

2011-04-11T15:21:00.001+12:00

Boston Globe columnist Jeff Jacoby defends freedom of association. Here are Jeff’s concluding paragraphs:

Free and competitive markets aren’t thought of as promoting tolerance and reducing bigotry, yet they do so far more effectively than ever-more-detailed civil rights regulations. Writing in the 1730s, Voltaire famously described the London Stock Exchange as a place “where the representatives of all nations meet for the benefit of mankind. There the Jew, the Mohammedan, and the Christian transact together, as though they all professed the same religion, and give the name of infidel to none but bankrupts.” Gary Becker earned the 1992 Nobel Prize in economics in part for demonstrating that discrimination is economically detrimental — free markets penalize an employer who discriminates for reasons unrelated to ability and productivity.

Freedom of association is indispensable to making a free society work. No culture is without unfairness. But where men and women are unfettered in their freedom to form or avoid relationships with others — socially and economically — tolerance and cooperation increase, and ugly prejudice recedes. ( Cafe Hayek )

Brent

Frozen in the headlights of our own cowardice

2011-04-09T23:22:00.001+12:00

This is David Brooks in the NYT on the US situation… but it is accurate in respect of the middle left and right of centre in N.Z.:

“The Democrats are on defense because they are unwilling to ask voters to confront the implications of their choices. Democrats seem to believe that most Americans want to preserve the 20th-century welfare state programs. But they are unwilling to ask voters to pay for them, and they are unwilling to describe the tax increases that would be required to cover their exploding future costs.” (HT M. Rev)

More immediately this is the exact nature of Bill English’s problem right now and the guts of the dilemma outlined by Fran O’Sullivan’s compelling analysis in the Herald.

Brent

The new IPv6 story

2011-04-07T09:16:00.001+12:00

Cows and carbon emissions….

2011-04-06T17:32:00.001+12:00

The simplicity is this namely....

1. Grass absorbs carbon (CO2) from the atmosphere.

2. Cows eat grass and belch, returning carbon to the atmosphere as methane (CH4).

3. As a greenhouse gas, methane is massively worse than CO2.

4. Methane survives a very short time, on a global warming timescale.

5. Methane rapidly breaks down and reverts back to the CO2 we started with.

Effect of a million cows on global warming?
NIL.
Effect on global warming of reducing the herd by a million cows?
NIL

More if you need it.

Thanks to Ron Allan

Brent

Voting with Their Feet

2011-03-30T21:56:00.001+13:00

By Thomas Sowell

(with debates about people leaving NZ this is an apposite piece from a highly objective researcher (first and foremost) and a highly astute economist observer.)

The latest published data from the 2010 census show how people are moving from place to place within the United States. In general, people are voting with their feet against places where the liberal, welfare-state policies favored by the intelligentsia are most deeply entrenched.

When you break it down by race and ethnicity, it is all too painfully clear what is happening. Both whites and blacks are leaving California, the poster state for the liberal, welfare-state and nanny-state philosophy.

Whites are also fleeing the big north-eastern liberal, welfare states like Massachusetts, New York, New Jersey and Pennsylvania, as well as the same kinds of states in the midwest, such as Michigan, Ohio and Illinois.

Although California has long been a prime destination of Asian immigrants and the homes of their descendants, the 2010 census shows a striking increase in the Asian American population of Nevada, more so than any other state. Nevada is adjacent to California but has no income tax nor the hostile climate for business that California maintains.

The movement of the black population-- especially educated young blacks-- is the most striking of all.

In the past, the massive movements of millions of blacks out of the South in the early 20th century was one of the epic migrations of a people-- comparable in size with the millions of the Irish who fled the famine in Ireland in the 1840s or the millions of Jews who fled persecution in Eastern Europe in the late 19th and early 20th centuries.

In more recent decades, blacks have been moving back to the South, however. While the overall black population of the northeastern and midwestern states has not declined in the past ten years, except in Michigan and Illinois, the net increase of the black population nationwide has increasingly been in the South. About half of the national growth of the black population took place in the South in the 1970s, two-thirds in the 1990s and three-quarters in the past 10 years.

While the mass migrations of blacks out of the South in the early 20th century was to places where there were already established black communities, such as New York, Chicago and Philadelphia, much of the current movement of blacks is away from existing concentrations of black populations.

Blacks are moving to suburbs, and even to cities like Minneapolis. Overall, the racial residential segregation patterns are declining in the great majority of the largest major metropolitan areas.

Among blacks who moved, the proportions who were in their prime -- from 20 to 40 years of age-- were greater than in the black population at large, and college degrees were more common among them than in the black population at large. In short, with blacks, as with other racial or ethnic groups, those with better prospects are leaving the states that are repelling their most productive citizens in general with liberal policies.

Detroit is perhaps the most striking example of a once thriving city ruined by years of liberal social policies. Before the ghetto riot of 1967, Detroit's black population had the highest rate of home-ownership of any black urban population in the country, and their unemployment rate was just 3.4 percent.

It was not despair that fuelled the riot. It was the riot which marked the beginning of the decline of Detroit to its current state of despair. Detroit's population today is only half of what it once was, and its most productive people have been the ones who fled.

Treating businesses and affluent people as prey, rather than assets, often pays off politically in the short run-- and elections are held in the short run. Killing the goose that lays the golden egg is a viable political strategy.

As whites were the first to start leaving Detroit, its then mayor Coleman Young saw this only as an exodus of people who were likely to vote against him, enhancing his re-election prospects.

But what was good for Mayor Young was disastrous for Detroit.

There is a lesson here somewhere, but it is very doubtful if either the intelligentsia or the politicians will learn it.

Brent

Use your brain during earth hour… for heaven’s sake if not people’s

2011-03-27T11:44:00.001+13:00

The following sets out exactly where I stand on earth hour and other such mumbo jumbo……

From:

Ross McKitrick
Professor of Economics
University of Guelph

In 2009 I was asked by a journalist for my thoughts on the importance of Earth Hour.

Here is my response.

I abhor Earth Hour. Abundant, cheap electricity has been the greatest source of human liberation in the 20th century. Every material social advance in the 20th century depended on the proliferation of inexpensive and reliable electricity.

Giving women the freedom to work outside the home depended on the availability of electrical appliances that free up time from domestic chores. Getting children out of menial labour and into schools depended on the same thing, as well as the ability to provide safe indoor lighting for reading.

Development and provision of modern health care without electricity is absolutely impossible. The expansion of our food supply, and the promotion of hygiene and nutrition, depended on being able to irrigate fields, cook and refrigerate foods, and have a steady indoor supply of hot water.

Many of the world’s poor suffer brutal environmental conditions in their own homes because of the necessity of cooking over indoor fires that burn twigs and dung. This causes local deforestation and the proliferation of smoke- and parasite-related lung diseases.

Anyone who wants to see local conditions improve in the third world should realize the importance of access to cheap electricity from fossil-fuel based power generating stations. After all, that’s how the west developed.

The whole mentality around Earth Hour demonizes electricity. I cannot do that, instead I celebrate it and all that it has provided for humanity.

Earth Hour celebrates ignorance, poverty and backwardness. By repudiating the greatest engine of liberation it becomes an hour devoted to anti-humanism. It encourages the sanctimonious gesture of turning off trivial appliances for a trivial amount of time, in deference to some ill-defined abstraction called “the Earth,” all the while hypocritically retaining the real benefits of continuous, reliable electricity.

People who see virtue in doing without electricity should shut off their fridge, stove, microwave, computer, water heater, lights, TV and all other appliances for a month, not an hour. And pop down to the cardiac unit at the hospital and shut the power off there too.

I don’t want to go back to nature. Travel to a zone hit by earthquakes, floods and hurricanes to see what it’s like to go back to nature. For humans, living in “nature” meant a short life span marked by violence, disease and ignorance. People who work for the end of poverty and relief from disease are fighting against nature. I hope they leave their lights on.

Here in Ontario, through the use of pollution control technology and advanced engineering, our air quality has dramatically improved since the 1960s, despite the expansion of industry and the power supply.

If, after all this, we are going to take the view that the remaining air emissions outweigh all the benefits of electricity, and that we ought to be shamed into sitting in darkness for an hour, like naughty children who have been caught doing something bad, then we are setting up unspoiled nature as an absolute, transcendent ideal that obliterates all other ethical and humane obligations.

No thanks.

I like visiting nature but I don’t want to live there, and I refuse to accept the idea that civilization with all its trade offs is something to be ashamed of.

Brent

Go for the best deal regardless and “local” will really look after itself

2011-03-26T18:12:00.001+13:00

Imagine a supplier in Invercargill makes a spanner you can buy in Dunedin for $10.00.

Imagine a supplier in Dunedin makes the same spanner you can buy in Dunedin for $12.00.

You live in Dunedin. Which one do you buy? You buy the "import" from Invercargill and save yourself $2:00 right?

Not if you belong to the Chamber of Commerce "Buy local club" you don't. The club tells you that by "buying local" you are supporting the home team, your area, suppliers who might be your friends etc.

Are you? Actually no - you are damaging them. How?

If you buy the Dunedin spanner and lose $2:00 you just:

supported someone who is less efficient at making spanners and needs to improve;
told them that being inefficient and not giving customers the best deal is "ok";
told other suppliers that if their costs creep up they can always lift their prices and still sell products;
you wasted $2.00 which you could have spent on someone - maybe someone local - who is efficient.

If you buy the Invercargill spanner the effects are the opposite :

you get the best deal;
you have money over to support other locals who provide the best deal;
you give the inefficient suppliers a reminder to lift their game;
you scare off others who might have been getting lazy;

So - buying and selling is not like supporting Otago Rugby because you love Otago.

Buying the best deal makes everybody better off and does the most you can do to make "local" worth buying ahead of anything else.

When both spanners cost $10.00 it won’t matter either way – then you can support the local guy…. oh and the Chamber of Commerce can then do something useful with the members levies.

You might well ask what it is that escapes the Chamber's brain in this logic?? I have no idea but a deep suspicion.

Brent

Bruce Yandle–how regulation works

2011-03-13T08:06:00.001+13:00

Brent

How productivity creates jobs–Why Luddite = “Fail”

2011-03-10T21:39:00.001+13:00

Many people fear that productivity threatens employment, yet in the United States both have risen in every ten-year rolling period but one since 1929. Productivity is a job generator rather than a job killer because it not only increases efficiency but can also expand output through innovations that improve the performance, quality, or value of goods and services.

Even productivity that stems solely from efficiency gains can raise employment if companies pass the cost savings on to their customers in the form of lower prices—leaving households and businesses with more money to spend elsewhere—or use their savings from leaner operations to set up new job-creating ones. To learn more, read “Why US productivity can grow without killing jobs” and “Five misconceptions about productivity.”

McKinsey Quarterly March 2011.

Brent

Buffett brilliance in 2011

2011-02-28T10:12:00.001+13:00

“…..those entrusted with handling the funds of others should establish performance goals at the onset of their stewardship. Lacking such standards, managements are tempted to shoot the arrow of performance and then paint the bull’s-eye around wherever it lands.” Shareholders’ letter 2011

Brent

One reason US economic recovery is trailing….

2011-02-26T22:58:00.001+13:00

"The U.S. effective corporate tax rate on new investment was 34.6 percent in 2010, which was the highest rate in the OECD and the fifth-highest rate among 83 countries. The average OECD rate was 18.6 percent, and the average rate for 83 countries was 17.7 percent." (Courtesy Greg Mankiw)

Source.

Brent

Why not to bother with a MBA – Highlights

2011-02-22T11:19:00.001+13:00

THINK TWICE by Philip Delves Broughton

If a MBA signals to companies that you were good enough to be accepted by a decent business school (so must be good enough for them) Why not just pay the bill, sign here and reap the rewards?
The return on investment on an MBA has gone the way of Greek public debt.
If you are getting good business experience already, the best strategy is to keep on getting it, thereby making yourself ever more useful rather than groping for the evanescent brass rings of business school.
There are business academics right now panting for your cheque. They need it to pad their sinecures and fund their threadbare research.
When you look at today’s most evolved business organisms, it is obvious that an MBA is not required for business success.
Successful entrepreneurs are as rare among MBAs as they are in the general population.

Are employees purely using qualifications as signals of productivity and work ethic and not concerned as to what has been taught? Or does education increase human capital and therefore mean the investment in education does give ‘real’ returns?

Stefan.

Smart thinking and distribution costs–supply chains are not cheap

2011-02-21T22:05:00.001+13:00

It is common in N.Z. to quote Fonterra and others supply chains as major assets – how can this be? The following from Tech Republic explains the difference distribution costs mat=y be making to Apple’s iPad profits……

More specifically, the combination of Apple’s 300+ retail stores and its online Apple Store means that the company sells a huge chunk of its iPads directly to its customers. While Apple has cut distribution deals with Best Buy, Target, Wal-Mart, Amazon, and a few others, those are mostly market-share grabs and ways to help spread the iPad’s marketing message.

Apple appears to carefully control the inventory it sends to these retail partners. Even during the holidays, there weren’t typically huge stacks of iPads on a pallet in the aisle at Best Buy or Wal-Mart like other popular consumer electronics such as the Nintendo Wii or the Xbox 360. The iPads seemed to be sprinkled among the various retailers throughout the holidays. Meanwhile, the Apple retail stores were loaded with an almost unlimited supply of iPads, so if you wanted to make sure you got one your best bet was to go there (or order one from Apple’s Web store). One estimate was that Apple sold 8.8 iPads per hour per retail store on Black Friday.

While Apple hasn’t released statistics on the percentage of iPads that it sells directly to customers versus the number it sells through its retail partners, I wouldn’t be surprised if the number of direct sales was as high as 50%.

That means that Apple can set the retail price of the iPad at a precipitously low number. The company can swallow the bitter pill of hardly making any money from iPad sales through its retail partners because it can feast off the fat profits it makes when customers buy directly through its retail outlets and the Web store. However, companies like Motorola, HP, and Samsung have to make all of their profit by selling their tablets wholesale to retailer partners.

For example, iSuppli estimates that the total production cost of the 16GB iPad Wi-Fi is $229.35, so when Apple sells it directly to customers for the retail price of $499 the company makes a whopping $270 of “profit” on each unit. This isn’t pure profit, obviously, since the company has additional overhead, but we’ll use the term profit for the purpose of this discussion.

However, when Apple company sells the iPad wholesale to retailers, it’s a different story. The wholesale price is traditionally half of the retail price (although this sometimes varies in high volume consumer electronics and PCs where manufacturers and/or retailers take less profit in order to get the price down and ultimately make more money by selling in larger volumes).

We don’t know the wholesale price of the iPad, but since the iPad launched as an untried experiment in computing, it’s likely that Apple and its retail partners have a more traditional arrangement. In other words, Apple probably sells the iPad to retailers for around $250, which means it makes about $20 profit on each unit — respectable, but certainly not a number Apple would live with if it didn’t have the big profits of its direct sales to balance it out.

Conversely, iSuppli estimates that the Samsung Galaxy Tab has a total product cost of $214.57. Verizon Wireless was selling the Galaxy Tab for $600 with no contract (and thus, no subsidy) when the product was first launched last fall, which means Samsung was likely wholesaling it for around $300. So, Samsung was making about $85 per unit on the Galaxy Tab — much better than the 20 bucks Apple makes from retailers on its lowest priced iPad, but a far cry from the more healthy $270 Apple makes when it sells the iPad itself.

So, when pundits like me were saying that the Samsung Galaxy Tab would have been a much more popular product if it cost $300 (and I stand by that), you can see where that price was utterly impossible for Samsung to hit — unless it was selling the tablet directly to consumers.

The math here is estimated and imperfect, but it gives us a general picture of the situation. From this perspective, it’s easy to see why the tablet economics are not adding up for everyone else outside of Cupertino, California. This is a massive advantage that Apple has over its tablet competitors, and the fact is, none of them are going to be able to change the reality of the situation any time soon.

UPDATE, Feb. 20, 2011, 5:59PM EST: Since first publishing this article, I’ve received multiple reports from people in the retail sector saying that the wholesale price Apple sells the iPad to its retail partners is significantly higher than the traditional 50%-of-retail that I suggested (remember when I stated that some OEMs and retailers occasionally take lower margins?).

In fact, one individual who didn’t want to be identified because of being under NDA stated unequivocally that Apple sells the iPad to retailers at a meager 3% discount off of the retail price (in other words, $485 for the $500 iPad). I’m attempting to get confirmation on this from Apple and its retailers, but have not received a response. If true, this raises a number of additional questions and issues. Are retailers willing to sell the iPad for virtually no profit just to bring customers into the store? Would they be willing to take the same low profit margin in order to carry the Motorola Xoom or the BlackBerry PlayBook or HP TouchPad? (TechRepublic member donb says they might) If not, then this gives Apple even more room to wiggle on price than its tablet rivals.

Brent

Economic Drivel entry for the day….

2011-02-15T07:35:00.001+13:00

“There remains a non negligible risk of another negative quarter for GDP (in December), though the unchanged levels of core volumes suggests this is far from a fait accompli.”

Cameron Bagrie, Chief Economist ANZ wins the prize again for utter tripe which demeans the profession.

Brent

Against Public Libraries

2011-02-09T21:15:00.001+13:00

This debate – as outlined here by Eamonn Butler, Saturday, 05 February 2011 on the Adam Smith Institute website – is relevant in New Zealand…. especially for local authorities. Identical issues surround Concert FM (rough N.Z. equivalent of the “Radio 4” classes).

The Radio Four classes are up in arms about library closures. The authors among them naturally worry about a loss to their trade. As for the others – well, I wonder how much of it is nostalgia for how libraries used to be. But none of that justifies taking money from already-stretched taxpayers to pay for middle-class entertainment. Most books borrowed – look at the authors' lending right figures – are popular fiction. It costs the library service about £3 to lend a book. Hey, for 50p you can buy second-hand books at a charity store, and help a good cause in the process.

Public libraries are a recent phenomenon. They grew fast in the 1920s and 1930s when an expanding state thought it should get involved. Before that, though, the public had plenty of access to books - either through philanthropic foundations like the Carnegie Libraries, or through subscription libraries (of which the London Library in St James's Square, London, was an early pioneer. Indeed, until well after the Second World War, private shops like Boots would lend books out to the public for a few pence.

As for that other staple of public libraries, reference, the technology is making their job redundant. 30m Britons access the internet every day. Some 73% of households have internet access - most of those who don't say it's not because they can't afford it but because they don't need it. And many more of us can access the internet at work. Who needs to go to the library to look something up any more?

Public libraries could be taken over by community and voluntary groups, who might actually run them more appropriately for local needs. And they might bring in some fresh ideas. See how bookshops have changed over the years, with their coffee bars and easy chairs? But public libraries look positively antique. Most of them belong in a museum. Their huge footprint simply crowds out private and voluntary alternatives. Private shops rent out CDs and DVDs - why do we need a state-funded body to do their job? And if public libraries weren't in the way, how many agencies might spring up to lend out books too?

Those who criticize the public library service are of course branded as mean-spirited philistines. But it's easy to be generous if you do it on someone else's money. I don't see why poor taxpayers should be forced, by threat of imprisonment, to pay for the entertainment of the middle classes. Let's get some balance into the morality of this debate.

Brent

Following on from “Better Blogging” here is “How Not to Use Twitter”

2011-02-07T23:07:00.001+13:00

Learn from Kenneth Cole

By Katherine Noyes, PCWorld

For all those who needed an illustration of how a business shouldn't use Twitter, Kenneth Cole kindly provided it this week by using the current unrest in Egypt as a promotional tool.

"Millions are in uproar in #Cairo," read the original tweet from Thursday morning. "Rumor is they heard our new spring collection is now available online at http://bit.ly/KCairo."

Widespread uproar was the result, all right, but not as a result of any spring collection. Such was the magnitude of the outcry at Cole's insensitivity, in fact, that the company hastily removed the tweet that same day and issued two retractions instead.

"Re Egypt tweet: we weren't intending to make light of a serious situation," read the first. "We understand the sensitivity of this historic moment -KC"

A second, posted on Facebook soon afterward, read as follows:

"I apologize to everyone who was offended by my insensitive tweet about the situation in Egypt. I've dedicated my life to raising awareness about serious social issues, and in hindsight my attempt at humor regarding a nation liberating themselves against oppression was poorly timed and absolutely inappropriate."

Cole's apology didn't prevent the creation of a satirical Twitter account inspired by the gaffe, however, and it's now filled with mock tweets such as, "South Africans won't be able to tear APARTheid my new knits -- they're just that strong!"

‘It Goes in the Trash'

Sensitivity, of course, is a key requirement of any business trying to use Twitter as a promotional tool, and Cole's original tweet failed miserably on that front. Cole, however, is by no means alone. We couldn't resist putting together a small roundup of other notable gaffes from other businesses and public-facing officials.

Back in 2007, Steve Rubel, a senior vice president at publicity agency Edelman, used Twitter to post a negative comment about PC Magazine. "PC Mag is another. I have a free sub[scription] but it goes in the trash," he tweeted, prompting the magazine's editor-in-chief to publicly suggest a media boycott. Rubel later apologized.

In 2009, Dallas Mavericks owner Mark Cuban criticized referees via Twitter during a game. He was fined $25,000.

An employee of Vodafone UK used an unattended keyboard to send a homophobic tweet from the company's @VodafoneUK account, which then had more than 8,500 followers. In response, the company had to issue multiple apologies.

‘Pls Refudiate'

Late last year, a profane tweet was made on Sen. Chris Dodd's (D-Conn.) Twitter account. ""U love torturing me w this s---," the tweet read, causing Dodd's office to have to scramble with an explanation and an apology.

Speaking of unfortunate word choices, former Alaska governor Sarah Palin used a nonexistent word in a tweet last year and then excused it by likening herself to Shakespeare. The word in question was refudiate: "Ground Zero Mosque supporters: doesn't it stab you in the heart, as it does ours throughout the heartland? Peaceful Muslims, pls refudiate" Later, she sent a tweet of justification: "Shakespeare liked to coin new words, too. Got to celebrate it!"

Another bizarre turn of phrase was tweeted last year by the U.S. embassy in Beijing, which in a Twitter pollution report referred to Beijing's air as "crazy bad." Of course, at least it used real words...

Earlier this year a U.K. councillor admitted on Twitter that her party had not effectively tackled inequality, despite the party's proclamations to the contrary. "Inequalities deepened despite our 13 years in power," wrote Isobel Bowler.

6 Twitter Rules of Thumb

What can businesses learn from these well-publicized missteps? There are plenty guides out there for using Twitter effectively. Based on the above examples, however, I'd hasten to add the following rules of thumb.

1. Be Sensitive. Never, ever use a political, environmental or civic crisis to promote your company or your products. It reeks of opportunism.

2. Be Positive. As a business entity, you should never post negative comments about others on Twitter. You're the only one that will end up looking bad.

3. Be Clear. Make sure you have a policy regarding who in your company may post using the company's official Twitter account, and make sure you offer them training on what is and isn't appropriate. Make clear the ramifications for misuse.

4. Be Clean. Never use profanities or other vulgar terms in a tweet. Once again, it will only make you look bad, and you'll likely offend customers, too.

5. Be Literate. Don't follow in the footsteps of Sarah Palin or George W. Bush: Make sure it's a word before you make it public.

6. Be Careful. Last but definitely not least, remember that using social media is a little bit like driving. Don't do it while intoxicated, and always think twice before you tweet.

Follow Katherine Noyes on Twitter: @Noyesk.

Brent

Bullies go beyond the school playground

2011-02-07T12:05:00.003+13:00

Nocera on the Crisis and All the Devils Are Here

In this EconTalk podcast they talk about the devils involved in the economics crisis. They discuss how Fannie and Freddie were 'bullies, they used the mantra of home ownership to get anything they wanted and steam roll who ever got in their way'. They then go on to talk about some smart devils in Wall St who used synthetic CDO's which Joe Nocera believes made what was a disaster into a crisis. This made me think back to the school playground where kids went through phases of trading and playing for collectors cards or marbles. The older kids would take advantage of the younger ones and sell their card as 'the best' or the perfect compliment to the younger trader's other cards. Through many and many of these unfair trades there would eventually be an abundance of unhappy ripped off little kids and therefore the principal would step in and ban the cards or marbles from school grounds.

This was a funny little similarity that came to mind. Bullies obviously do not limit their nasty trading to the school playground.

Stefan.

Write blogs that score not bore

2011-02-05T23:32:00.001+13:00

Possibly a spot American in flavour but worth a read for those who are always looking for ways to improve…

Reformed Broker’s tips on sharper blog writing.

Brent

Getting a genuine handle on the scale of deficits and Govt spending

2011-02-03T09:39:00.001+13:00

From a college student thinking about Obama’s cuts….. well worth the minute. Scale and Govt spending

My letter to the Listener–Joanne Black and journalism that counts…

2011-01-27T22:43:00.001+13:00

We are accustomed to thinking of great journalism as involving exposes of events such as Watergate brought to a naive world (which is supposed to be ever grateful) by intrepid heroes of the press. The value of both the process and content embedded in that notion is questionable and eventually boring.

More rarely good to brilliant journalism fulfils a much more significant if under rated function. Such is the case with Joanne Black's piece on Pike River (Listener January 29, 2011).

This has to be amongst the best journalism has to offer. It is executed to the highest of standards when measured as it should be, albeit subjectively, across multiple dimensions.

I hate to think how much agonising went into crafting every word and sentence yet it reads as easily as tough to compose writing should - effortlessly.

The challenges in producing such work are boundless. This piece is timely, relevant and competes with numerous other opinions. It articulates thoughts many of us may have had but were too afraid to express.

The hallmark then is courage that is sensitive but uncompromising.

It should perhaps be said that the editorial decision or granting of freedom to publish involved no small degree of courage either.

If I over state the efforts involved - which I doubt - the column is of course, the more remarkable.

These journalistic accomplishments may sit on the back page but their quality deserves our front page attention.

Brent

Squoozernomics

2011-01-26T22:16:00.003+13:00

The time has come to reveal squoozernomics to the world. Squoozernomics involves a proposition advanced by my youngest daughter (a political studies exponent) and the subject of intense empirical verification efforts (rather than falsification attempts) by my eldest daughter (another social science grad).

Part of the appeal of studying squoozernomics is that its tenets involve widely held beliefs – and not just amongst social scientists or the unwashed.

The hypothesis is that under capitalism there is a systematically and constantly (and irritatingly it seems) at work a process known as “turning down the squoozer” on various goods and services hitherto supplied in more generous quantity, quality or both. The genesis of turning down the squoozer is hypothesised as lying in the mean spirited nature of those who inhabit the supply side of the numerous transactions which take place in the economy.

Notable examples of “turning down the squoozer” include – reductions in the number of biscuits in a packet, making the Moro bar smaller, failure to supply hot water with coffee in cafes, and, most recently, Starbucks offering a choice of either mustard or tomato sauce but no longer both with the American hotdog. Evidence of the fact that such “squoozer turn downs” are motivated by mean spirits is exemplified by the fact that Starbucks has “two huge bottles” of both sauce and mustard parked close to the counter.

Those turning down the so called squoozer are alleged to have scant regard for and are indeed known to ignore quality, long run reputation, repeat business or any other benefit in their rampant pursuit of fulfilling their mean and base instincts.

This is apparently “obvious”.

Neither confirmation nor falsification of the hypothesis can be readily achieved by repeated empirical study. The value of the proposition lies less in such work as in the questions the proposition raises as well as what its wide uptake says about the ability of analysts of squoozer events to think on both the supply and the demand side of the equation.

In these early days of potential refutation I note that:

it is the self interest of the consumer (the sqoozee) which drives their irritation just as it is the self interest of the producer which leads to the turning down of the squoozer (confirming the basic Adam Smith propositions on human behaviour);
The squoozee seems oblivious (according to leading empirical studies) to the cost savings bestowed upon him or her by the “turning down” (contrary to the expectations of Alfred Marshall’s marginal analyses); and,
The wish for “static squoozer rates” betrays a desire for perfect but unattainable worlds in which squoozee demand is constant in time and space (confirming the ubiquitous nature of the Demsetz’ nirvana and greener fields fallacies).

These are but three areas worthy of further research. Squoozernomics then, offers much to improve the communication of the workings of basic economic processes.

Meantime – let’s have the mustard.

Brent

Do economists need a code of conduct?

2011-01-19T12:12:00.002+13:00

Jan 7th 2011 by R.A. | The Economist

This week the American Economic Association will take up this question. Many academic economists have financial ties to industry, government or other organizations, and critics say this biases their research. Do these associations create a conflict of interest? If so, how should it be addressed? Do academic economists need their own version of the Hippocratic Oath, a formal code of conduct, or a more vigorous policy of disclosing potential conflicts of interest?

Some interesting responses to this question included:

by Lant Pritchett click here for his full response.

This is not how an academic community should conduct itself. We should stand for allowing truth to emerge from a dedication to the evaluation of ideas, arguments, and evidence based on scholarly and disciplinary discourse.

by Tyler Cowen click here for his full response.

I FAVOUR such codes, but I'm not sure they will help much. First, most economic research doesn't matter in the first place. Second, the research which does matter very often is distorted anyway.

See here for all responses.

Stefan.

Politics is a poor process for resolving issues

2011-01-12T21:32:00.004+13:00

In his book Government Failure and Over Government Arthur Seldon points out that:

"confrontations" in the market are small, and solved by higgling and haggling over price, the peace-maker. In a state economy or state industries, decisions are centralized to planning boards, committees, commissions, councils, government departments, that nominally "represent" the very much larger number of workers, managers, and consumers who will benefit or suffer. Change is therefore more likely to be opposed, repressed, inhibited, postponed. When it takes place it is contrived, jerky, discontinuous, lumpy, convulsive. Disturbance, dislocation, disruption are large-scale. Friction is inflated.
He goes on to point out that representative government can be distorted by lobbying of special interests. This may be an unavoidable cost when the government is producing public goods, but it's inefficient and unfair when the government is providing private goods (heath care, food, housing) through overreach.

The book is reviewed at Aguanomics – a great economics blog. The review alone has pithy points worth reading.

Brent

The long history of law and economics

2011-01-11T12:35:00.002+13:00

Roman law in the dark ages I read from Leonard Mlodinow The Drunkard’s Walk: How Randomness Rules Our Lives, was based on the practice of Germanic tribes. Things were somewhat different to what we are now familiar with – but there are similarities. The rules of testimony are a case in point.

The veracity of a husband’s denial of the claim that he was having an affair with his wife’s toga maker would have been determined not by his performance in front of a prickly opposing counsel but by whether he would stick to his story after being poked with a red hot iron.

Mlodinow – a statistician rather than an economist notes that bringing back that custom would likely increase the number of out of court settlements dramatically.

Incentives mattered to Romans too.

Brent

Top 10 tunes suggest slow beat for economy into 2011

2011-01-07T16:03:00.002+13:00

- NZIER Insight 22 by: Dr Johannah Branson, John Ballingall, and Peter Nicholls with assistance from Jessica Matthewson, 24 December 2010.

The bands fighting it out for the coveted Christmas No.1 are in tune with the latest forecasts for the economy

When we have less money to spend, we not only buy less music, but it seems we also buy different types of music. A recent study of pop music preferences over the past 50¹ years found that during tough economic times we are more likely to listen to “tougher” artists and songs. Instead of escaping into bright and bubbly pop songs, we turn to more serious and meaningful songs from older and more established artists, for understanding and comfort. The rhythms of recession tend to be darker, longer and slower – like the economy. More cheerful, lighter and faster music booms when the economy does.

So what does New Zealand’s musical preferences suggest about the economic outlook for 2011? Using a highly scientific method, our in-depth analysis of the current New Zealand Top 10 songs (see hyperlink above) aligns well with our take on the economy. The outlook is mixed and messy, like the tunes played by a drunken DJ.

Music stores and other retailers are downbeat this holiday season. Consumer spending has been humming quietly for the past 12 months and, despite ringing tills in the November and December sales, hasn’t risen to its usual Christmas crescendo this year. As the echoes of recession fade, households are still cautious about their spending and focused on repaying debt whilst waiting for employment, wages and the housing market to pick up the beat.

Stefan.

Rejecting drivel in favour of thoughtful writing

2011-01-02T18:45:00.001+13:00

Journalists and commentators wishing to write tolerably well about economic matters in 2011 should avoid the following cant:

Prices which start by “skyrocketing.” Especially when “sellers outnumber buyers” and prices fall from “exorbitant” or perhaps “gouging” levels to “fair” and “just.” Next if this “vicious cycle” goes on too long prices fall to “unfair” as a result of “dumping”.

Beware too the man in the street who believes he knows that either unions or corporations have more “bargaining power” than do their victims and can “exploit” them.

Watch out as well for consumers who can “afford” medical care and those who can “barely afford” it but “need” housing and see food as a “basic necessity”.

Beware businesses which “impose” various “profit margins” which are “obscene” and “unwarranted” typically through “passing on costs of labour” or working their “monopoly” causing workers’ wages and prices to “spiral”. Like numerous things apparently, this is “inflationary.”

Be on the alert for the “living wage” which needs to be “protected” as a “priority from “unfair competition” especially from “foreign labour.”

Little need be said of “Mum and Dad investors” who should be “fully informed.”

These pointers come from or are inspired by brilliant economics writer Deidre McCloskey. To really improve your writing read her Economical Writing.

Brent

I trust these predictions are hopelessly off beam…

2010-12-31T11:38:00.002+13:00

Valuable predictions are, by definition, the ones you think most unlikely to turn out to be true. On those grounds – and they may be the only grounds for taking any predictions seriously (think about it)… here, from ZDNet are some useful thoughts about 2011 and the tech space…..

“It’s very difficult to predict what an entire demographic of broad level users will do in the upcoming year. It’s like predicting whether or not you’ll get hit by an engine falling from a plane while dressed as Hugh Jackman in drag.

1. Generation Y will continue not to be put off by copyright laws

Copyright laws are weak. Even the newer digital laws are prohibitive and disproportionate. They are busting at the seams with irrelevant content which bears little know how of modern technologies, and are practically unenforceable. No wonder people have been taking advantage since the days of WinMX and the original Napster back in the 1990’s.

Cases which have enveloped the media with disproportionate fines and court battles turns the defendants, arguably the victim in these cases, almost into a martyr for the cause. Surprisingly public sympathy becomes divided, with a feel of modern day ’stealing a loaf of bread’ because they were hungry. I know it sounds odd, but copyright laws at the moment are as effective as the odds to winning the Euro lottery.

2. Rising inflation will impact Generation Y spending

As inflation rises so do the price of consumer goods. For many who are working on national minimum wage at £5-$12 an hour depending on age and country, this is not enough to maintain a technology filled lifestyle.

The technology already bought, ranging from mobile devices to laptops, either by parents or themselves during a time of economic downfall, will be safe. Yet with wages remaining the same, plus the hike in Value Added Tax (VAT) in the UK and similar taxes across the developed world, spending will significantly reduce.

I expect that those with higher incomes with little or no dependencies will have more expendable income. This may include some of the Generation Y, but not the iGeneration demographic as a whole.

3. High speed fibre/WiMAX broadband will be sought by colleges and universities

Even with rising tuition fees and universities and colleges still recovering from their own budget cuts since the recession, the recovery is on. One of the logical options for many will be a increase in bandwidth to their campuses to encourage growth, external research and development, and opportunities for entrepreneurs.

Bandwidth nowadays acts like a currency; the bigger the pipe, the bigger the wallet, and the more you can fit in and the more to spend. New York University could be getting the first taste the fibre pie with Google’s new office conveniently located above a hub of fibre activity.

4. Younger developers may be put off by increasing corporate bureaucracy

Back in the day, there was a good mix of development for enthusiasm but also development for revenue. With a more broad spectrum of devices and platforms to develop for, combined with the bureaucracy of terms and conditions, especially from Apple, this could hamper the efforts for younger developers who create for passion as well as money.

5. Computing students will become more ‘creative’ and less ‘technical’

There always has been a disparity between the creative and the practical industries; like political parties, one occasionally holds the top spot until the other leads the polls.

From what I have seen and heard on my student y-travels, the creative industry for university students has been on a downwards trend, as the recession recovers from ‘non-vital’ infrastructure and technical staffers. The creative industry bridges the technical world with the ordinary consumer, and at long last now that money has hit the economy like a wet fish, more money can be invested into areas which spur on the ordinary consumer.

New kid on the Block

2010-12-29T15:11:00.002+13:00

I am privileged to have been invited to join Brent on eye2thelongrun. As a graduate, one thing I have most definitely learnt is about the problem New Zealand has because Kiwi’s do not seem to have their eye on the long run. Spending today is much more attractive than spending tomorrow right? Well yes, it seems that way. It is comforting to read on Stuff.co.nz:

Kiwis vow to save more

‘The latest Fly Buys poll, carried out by Colmar Brunton, found the most popular New Year's resolution was increasing savings with 58 percent of New Zealanders choosing to focus on that in 2011.’

Can we increase savings enough to decrease our reliability on foreign debt?

Stefan

Difficulties with logic, consistency and history in Australia too…..

2010-12-23T23:56:00.002+13:00

We Have to Sell the Farm

By Andrew Leigh

23 December 2010 (Australian Financial Review… HT NZBR)

An iron law of populism is that while Australian businesspeople investing abroad are portrayed as job-creating entrepreneurs, foreign investors are depicted as rapacious robber-barons.

And so it is with the latest tabloid campaign against foreign investment. Under headlines such as 'Chinese buying up our farms', 'It's time to stop selling off the farm', and 'It’s time to save our farms from foreign investors', News Ltd tabloids have recently embarked upon a fear campaign against foreign investment in Australian agriculture. With anecdotes taking the place of statistics, foreign investment has been labelled 'a dramatic global land grab', fed by 'a looming global food shortage'.

For a country whose agricultural sector has benefited substantially from foreign investment, this is odd stuff indeed. In 1855, British investors helped kick start our local sugar production industry when they established CSR (originally Colonial Sugar Refinery). In 1877, American firm Schweppes opened its first Australian factory - as did Kraft and Kellogg in the 1920s. Japanese investment in Australia's beef cattle sector has been important since the 1970s. Today, the largest foreign investors in Australia are still Britain and the United States.

Brent

Twin Peaks–of Folly

2010-12-15T21:54:00.002+13:00

There has been a some unfortunate hand wringing recently in our local paper regarding “peak oil”. The new Mayor ought to read this letter from economics Prof Don Boudreaux of George Mason University in response to some New York Times hand wringing on behalf of China……..

Here’s a letter to the New York Times (HT Chris Meisenzahl):

You report that China risks encountering “peak coal,” thus making that country’s continued economic growth “unsustainable” (“Does China Face a ‘Peak Coal’ Threat?” Dec. 14).

Your report reminds me of William Stanley Jevons‘s book The Coal Question. In the Preface to the second edition, Jevons warned his fellow Brits that “The question here treated regards the length of time that we may go on rising, and the height of prosperity and wealth to which we may attain. Few will doubt, I think, after examining the subject, that we cannot long rise as we are now doing.”

Jevons’s dire warning was written in 1866. It was the product of an accomplished scholar steeped in the science of his day. Nevertheless, was Jevons correct to predict that Great Britain’s economy would soon stop growing because coal supplies were destined to shrink to dangerously low levels – low levels that drove the price of industrial power to heights that stymied economic growth? No. (British economic growth did slow for quite some time during the 20th century, but that was due to a surplus of socialism rather than to a shortage of coal.)

As your report today demonstrates, predictions of resource depletion and a resulting serious slowing of economic growth are in abundant supply. But there’s a severe shortage of evidence to support these fears.

Sincerely,
Donald J. Boudreaux

Brent

Another pair of eyes to the long run

2010-12-15T09:50:00.003+13:00

I am pleased to announce that Econ and Commerce grad Stefan Fairbrother, new analyst with Brent Wheeler Group is joining me in blogging.

Stefan has broad interests in economics and finance and has scored heavily in the fixed interest area lately

Brent

Social media generate new types of relationship….

2010-12-13T17:12:00.002+13:00

Have politicians noticed? The climate change scare is dying

2010-12-09T12:13:00.002+13:00

By Christopher Booker – Daily Telegraph 7:26PM GMT 13 Nov 2010 (Pointer NZBR)

Nothing more poignantly reflects the collapse of the great global warming scare than the decision of the Chicago Carbon Exchange, the largest in the world, to stop trading in "carbon" – buying and selling the right of businesses to continue emitting CO2.

A few years back, when the climate scare was still at its height, and it seemed the world might agree the Copenhagen Treaty and the US Congress might pass a "cap and trade" bill, it was claimed that the Chicago Exchange would be at the centre of a global market worth $10 trillion a year, and that "carbon" would be among the most valuable commodities on earth, worth more per ton than most metals. Today, after the collapse of Copenhagen and the cap and trade bill, the carbon price, at five cents a ton, is as low as it can get without being worthless.

Here in Britain, as the first snows fall, heralding what may be our fourth cold winter in a row, it is time we addressed one of the most glaring political "disconnects" in our sadly misgoverned country.

Next Friday is the first anniversary of the leaking of the "Climategate" emails – the correspondence of a small group of scientists at the heart of the UN's Intergovernmental Panel on Climate Change (IPPC). By exposing their manipulation of data and suppression of dissent, these called their reputation as disinterested scientists seriously into question. But that was only the first in a series of events that, in the past year, saw the climate scare going off the rails.

Next month sees the anniversary of the Copenhagen conference – the largest ever held, with upwards of 100,000 people present – which collapsed in an acrimonious shambles, without the treaty that would have landed the world with the biggest bill in history. This was followed by all those scandals surrounding the IPCC itself, hitherto regarded as the supreme authority on global warming. It emerged that the most recent IPCC report was riddled with errors, and that many of its more alarming predictions were based, not on proper science, but on claims dreamed up by environmental activists.

Since then, despite a series of unconvincing attempts to clear the Climategate scientists, it has become clear that the 20-year-old climate scare is dying on its feet. The money draining away from the Chicago exchange speaks louder than all those inquiries – and the same point will be made obvious in a fortnight's time in Cancun, Mexico, as the UN attempts to salvage something from the wreckage at a conference that will draw scarcely a tenth of the numbers that met in Copenhagen.

But to all this deflation of the bubble our political class in Britain remains quite impervious. Our governments in London and Brussels charge on with completely unreal and damaging policies which increasingly look as much of a shambles as the warming scare which inspired them. Scarcely a single politician dares question the Climate Change Act, by far the most expensive law in history, which commits Britain, uniquely in the world, to reducing its CO2 emissions by 80 per cent in 40 years. By the Government's own estimates, this will cost up to £18 billion a year. Any hope that we could begin to meet such a target without closing down most of our economy is as fanciful as the idea that we can meet our EU commitment to generate 30 per cent of our electricity by 2020 from "renewable" sources, such as wind and solar.

It was recently reported that farmers are rushing to cash in on the ludicrous subsidies which could earn them £50,000 a year for covering 35 acres of their fields with solar panels bought from China. These yield, on average, only 8 per cent of their capacity. Last year, all the solar panels in Britain generated an average 2.3 megawatts, barely 1/500th of the output of a single medium-sized coal-fired power station. Yet our Government wants us to pour billions of pounds into this scheme, just when Spain, Germany and Australia have drastically reduced their own solar subsidies, because the billions they lavished on them turned out to be a total waste of money for virtually no return.

Our Government also wants us to pay £100 billion through our electricity bills for thousands more wind turbines over the next 10 years, with another £40 billion to hook them up to the grid. Yet it's predicted that by 2013, thanks to soaring costs and technical problems, orders for turbines will have fallen by 93 per cent.

The EU continues to set targets to power our transport with an increasing percentage of biofuels, when a new report from some of its own advisers finds that meeting its 2020 target will mean taking an area of farmland as large as Ireland out of food production, and that producing biofuels requires up to 167 per cent more energy from fossil fuels than they theoretically save.

None of this, of course, will do anything to save Britain from the looming crisis when the ageing nuclear and coal-fired power stations which supply 40 per cent of our current electricity needs are forced to close. The other night when it was very cold I checked to see how much of our electricity was, at that moment, coming from wind. The answer was 0.1 per cent, or a thousandth of all the power we were actually using to keep our homes lit and warm.

It appears that Chris Huhne, our Energy and Climate Change Secretary, is so obsessed with the half of his job relating to climate change that he can happily ignore the other half, to do with keeping the lights on. But Mr Huhne is far from alone. Not a single MP of any party has yet found the courage to mount a properly briefed challenge to all this lunacy. So what do we pay them for?

A Late Thanksgiving Story

2010-12-07T07:57:00.002+13:00

The Pilgrims’ Real Thanksgiving Lesson
November 25, 2004
Benjamin Powell
Charlotte Observer, The San Diego Union-Tribune (Courtesy NZBR)

Feast and football. That’s what many of us think about at Thanksgiving. Most people identify the origin of the holiday with the Pilgrims’ first bountiful harvest. But few understand how the Pilgrims actually solved their chronic food shortages.

Many people believe that after suffering through a severe winter, the Pilgrims’ food shortages were resolved the following spring when the Native Americans taught them to plant corn and a Thanksgiving celebration resulted. In fact, the pilgrims continued to face chronic food shortages for three years until the harvest of 1623. Bad weather or lack of farming knowledge did not cause the pilgrims’ shortages. Bad economic incentives did.

In 1620 Plymouth Plantation was founded with a system of communal property rights. Food and supplies were held in common and then distributed based on “equality” and “need” as determined by Plantation officials. People received the same rations whether or not they contributed to producing the food, and residents were forbidden from producing their own food. Governor William Bradford, in his 1647 history, Of Plymouth Plantation, wrote that this system “was found to breed much confusion and discontent and retard much employment that would have been to their benefit and comfort.” The problem was that “young men, that were most able and fit for labour, did repine that they should spend their time and strength to work for other men’s wives and children without any recompense.” Because of the poor incentives, little food was produced.

Faced with potential starvation in the spring of 1623, the colony decided to implement a new economic system. Every family was assigned a private parcel of land. They could then keep all they grew for themselves, but now they alone were responsible for feeding themselves. While not a complete private property system, the move away from communal ownership had dramatic results.

This change, Bradford wrote, “had very good success, for it made all hands very industrious, so as much more corn was planted than otherwise would have been.” Giving people economic incentives changed their behavior. Once the new system of property rights was in place, “the women now went willingly into the field, and took their little ones with them to set corn; which before would allege weakness and inability.”

Once the Pilgrims in the Plymouth Plantation abandoned their communal economic system and adopted one with greater individual property rights, they never again faced the starvation and food shortages of the first three years. It was only after allowing greater property rights that they could feast without worrying that famine was just around the corner.

We are direct beneficiaries of the economics lesson the pilgrims learned in 1623. Today we have a much better developed and well-defined set of property rights. Our economic system offers incentives for us—in the form of prices and profits—to coordinate our individual behavior for the mutual benefit of all; even those we may not personally know.

It is customary in many families to “give thanks to the hands that prepared this feast” during the Thanksgiving dinner blessing. Perhaps we should also be thankful for the millions of other hands that helped get the dinner to the table: the grocer who sold us the turkey, the truck driver who delivered it to the store, and the farmer who raised it all contributed to our Thanksgiving dinner because our economic system rewards them. That’s the real lesson of Thanksgiving. The economic incentives provided by private competitive markets where people are left free to make their own choices make bountiful feasts possible.

Benjamin Powell
Send email
Benjamin Powell is Research Fellow at The Independent Institute ,assistant professor of economics at Suffolk University and a Senior Economist with the Beacon Hill Institute. Dr. Powell received his Ph.D. in economics from George Mason University. He has been assistant professor of economics at San Jose State University, a fellow with the Mercatus Center's Global Prosperity Initiative, and a visiting research fellow with the American Institute for Economic Research. Benjamin is also the editor of Housing America: Building out of Crisis.
Full Biography and Recent Publications

This idea has plenty going for it….

2010-12-05T09:10:00.001+13:00

Close the Washington Monument

Alex Tabarrok (Marginal Revolution)

The National Park Service wants to add airport-level security to the Washington Monument. Bruce Schneier says we should close it:

...Let it stand, empty and inaccessible, as a monument to our fears.

An empty Washington Monument would serve as a constant reminder to those on Capitol Hill that they are afraid of the terrorists and what they could do. They're afraid that by speaking honestly about the impossibility of attaining absolute security or the inevitability of terrorism -- or that some American ideals are worth maintaining even in the face of adversity -- they will be branded as "soft on terror." And they're afraid that Americans would vote them out of office if another attack occurred. Perhaps they're right, but what has happened to leaders who aren't afraid? What has happened to "the only thing we have to fear is fear itself"?

An empty Washington Monument would symbolize our lawmakers' inability to take that kind of stand -- and their inability to truly lead.

...The empty monument would symbolize our war on the unexpected, -- our overreaction to anything different or unusual -- our harassment of photographers, and our probing of airline passengers. It would symbolize our "show me your papers" society, rife with ID checks and security cameras. As long as we're willing to sacrifice essential liberties for a little temporary safety, we should keep the Washington Monument empty.

Terrorism isn't a crime against people or property. It's a crime against our minds, using the death of innocents and destruction of property to make us fearful. Terrorists use the media to magnify their actions and further spread fear. And when we react out of fear, when we change our policy to make our country less open, the terrorists succeed -- even if their attacks fail. But when we refuse to be terrorized, when we're indomitable in the face of terror, the terrorists fail -- even if their attacks succeed.

...We can reopen the Washington Monument when we've defeated our fears, when we've come to accept that placing safety above all other virtues cedes too much power to government and that liberty is worth the risks, and that the price of freedom is accepting the possibility of crime.

I would proudly climb to the top of a monument to those ideals.

I agree.

I really can’t do anything for you I’m sorry

2010-12-03T10:34:00.001+13:00

In The NZ Herald this morning Securities Commission Chair Jane Diplock is quoted as saying that even when there is full disclosure regarding an investment there is nothing at all the Commission can do to make sure intentions disclosed are fulfilled.

Honesty at last – and all credit to her – no amount of disclosure and no regulator can “save” investors through disclosure. So there is absolutely no point:

1. Pretending that disclosure will protect investors in more than a minimal fashion, or,

2. Spending any great time and money on it. Certainly costly laws and regulatory activity cannot be justified.

In our hearts we knew this all along – why are are we so weak then?

Completely unnecessary condescending rubbish–how not to write a hotel business strategy

2010-11-29T18:27:00.000+13:00

Those doyens who have evolved from yester years’ inn keepers to today's hotel managers have discovered that providing clean towels every day is probably unnecessary. Moreover the daily replacement costs time, labour and energy.

There is then, assuming guests can cope or choose to cope (since foregoing the daily towel is typically voluntary) money to be saved – and a material saving it would be too over a year and a few dozen floors of rooms.

So let’s save the money…..

But…. how is this tackled? The current fashion is to announce that “as a hotel” you are “green, responsible and saving the planet”. In one especially bad case, abstaining from fresh towels is said to be planting trees at the rate of 1 tree per five forgone towels.

This approach has to be nonsense – and unnecessary. Even from a governance point of view. Investors invest in hotels to make a return on capital invested in hotels and their management. If they wanted to invest in planting trees they would do just that – invest in forestry companies.

The dumbest thing is that given a competitive capital and goods and services market – money saved has to end up in savings for consumers through lower room rates or room rates not going up as fast as they otherwise might. Even hotel managers can’t stave off competition and its effects.

So this is god’s work. What is not is (vainly) trying to fool consumers that one is “greener than thou” and that they are “guests” on planet earth…

Why not simply say – “Join with us in keeping room rates down and, as a bonus, save some energy – a win win”…. its a fairly easy slogan.

Business gives itself a bad name doing dumb things – especially when its arrogance allows management and boards to pretend customers and shareholders are as dumb as they can be.

Rent seeking and crowding out are real phenomena

2010-11-27T11:14:00.001+13:00

Drawing from a study (Henderson, D. George Mason) reported in the Economist I note that…..

Examining 232 appointments of Chairs to Congressional Committees, the average state received a 30% – 40% boost in earmarks in the year following the appointment. Private firms reacted by reducing R&D spend by some 7% – 12% and capex by some 8% – 15%.

A long run study (Furceri – OECD and Sousa Univ Minho) finds that over the long run a 1% rise in government consumption reduces private sector consumption by 1.9%.

The real action around all the complaints about “troughing” then turn out to be serious concerns – not about fairness (a pointless concept) but efficiency and therefore social well-being.

“Canada’s Budget Triumph”, by David R Henderson, Mercatus Center, George Mason University
“Do Powerful Politicians Cause Corporate Downsizing?” by Lauren Cohen, Joshua Coval and Christopher Malloy, Harvard Business School
“The Impact of Government Spending on the Private Sector: Crowding-out versus Crowding-in Effects”, by Davide Furceri and Ricardo Sousa

The problem is clear and it’s not corporate tax rates

2010-11-25T22:35:00.001+13:00

Is there any reason to think Ireland’s competitive corporate tax regime is responsible for the nation’s economic crisis? The answer, not surprisingly, is no. Here’s a chart from one of Ireland’s top economists, looking at taxes and spending for past 27 years. You can see that revenues grew rapidly, especially beginning in the 1990s as the lower tax rates were implemented. The problem is that politicians spent every penny of this revenue windfall.

When the financial crisis hit a couple of years ago, tax revenues suddenly plummeted. Unfortunately, politicians continued to spend like drunken sailors. It’s only in the last year that they finally stepped on the brakes and began to rein in the burden of government spending. But that may be a case of too little, too late.

ex Cato Institute

Favourite birthday card

2010-11-20T10:16:00.001+13:00

It seems my daughters do understand me…..

Eye2theLongRun

At first glance… look more closely please

Where freedom to choose sits…

Why you should be short the Euro

KiwiSlaver – I wasn’t too cynical

Abstract

The horror of Govt “stacks on the mill”

The Incredible Liteness of Occupiers

This is a current ad on Craigslist:

$1 / 15ft² – need roommate for my occupy tent (financial district)

Employment Versus Entitlement

Abusive language

On asset sales

It’s politicians passing election crazed laws that need to extend the cooling off period

Brain wire comes loose

Not Quite so Rich

Get thinking here…. Sowell

Yet another reason for Kiwis to quit property

The effect of ageing on asset prices may make the rich world’s problems worse

Useful sequence on strategy from Steve Hansen

Joanne Black hits the nail absolutely on the head….

Inevitably

Brooks on technological innovation…..

OP-ED COLUMNIST DAVID BROOKS

NYT: Published: October 6, 2011

The nappy rash indicator

From Marginal Revolution a post by Tyler Cowen on October 5, 2011 sparked the following:

No prizes for this prediction

Don’t give up hope on “random”

Institutionalised Racism

From David Zetland’s Aguanomics blog (David is a primarily a water economist – with an interest in much else besides).

01 October 2010

(via WEH) Thomas Sowell doesn't suffer fools:

Brent

Worth remembering…

So what do you really hate here????

Why Dick Smith Should Stick to Electronics: Dickhead Economics

Obama–policy to date… the evaluation

The Rise and Fall of the White Man’s Empire

Extraordinary statement–how does this work?

What happens when Governments “stimulate”

Shortest Possible Course on Why Keynes was wrong and dangerous

In university classrooms—and especially the Obama White House—fancy theories of macroeconomics defy basic common sense.

Hypothesis worthy of consideration

Lottery Winners Do Not Avoid Bankruptcy

This short post by Alex Tabarrok is well worth thinking about….

Drop in queue at food banks….

Any chance they will learn? Not a big one….

Regulatory Costs: Good for Mr Soros, What About Us?

Dom Post claims to have found the “free lunch”

Demonising the source of improved social welfare

For those believing NZ debt is not an issue…

Regulating to produce immoral behaviour

Central Banks–Inflation Performances

YTD Central Bank OCR Changes

A clue as to why a local govt based insurance scheme is not a cool idea…

Something people keep failing to understand….

Dealing with “Pike River” type compensation issues….

A little story from Oregon–another “liberal” state

Why Economists Care So Much About the Minimum Wage…

The unsurprising push behind this light bulb nonsense–Greed meets Green

Cost of democracy–the first slice

Dependency and Votes

Another Tech Bubble ????? LinkedIn

BWG has a discussion on this running at Finance 3.0 . Below is a bit more evidence from the ever humorous Dr Goose.

In the IPO pricing of LinkedIn, Which doubled before one had blinked in, Either banks ripped off clients, Or it's more art than science; It's a point which the truth's indistinct in.

From Dr. Goose at The limericks meets economics style blog.

Rules for fools

Bit of a laugh…

A wee clue on law and order–imitation is the most common form of learning

Emerging markets–Central Bank Rate Changes

Opportunity Cost can be tricky

More xenophobic delusions

Merit beats “ocracies”

Spare us the email yada-yada

More regulators here to help you…

A poorly understood but critical message

Markets punish those who discriminate–the state’s record on the other hand is poor….

Frozen in the headlights of our own cowardice

The new IPv6 story

In the IPO pricing of LinkedIn,
Which doubled before one had blinked in,
Either banks ripped off clients,
Or it's more art than science;
It's a point which the truth's indistinct in.