Wednesday, October 15, 2014

Hardly a lesson learned… a $1m plus education fail

Another day another failed prosecution. Hardly news. Hardly surprising…. but hardly anything learned either.

Media analysis of the SFC debacle is busy writing lazy headlines full of melodrama while the major lessons are being lost.

Just so we are clear…. the Janet and John here is:

  1. no “guru” is infallible. Having an old Volkswagen, a folksy “way”, and being a “good joker” is not enough and never was.
  2. this applies to Buffett as much as anyone else. Buffett’s greatest attribute is probably the fact that he is the world’s least deluded investor. He does not kid himself – ever.
  3. If you do not use your brain and do some homework you will lose your shirt or (regrettably) lose the taxpayers shirt. And you deserve to – big time.
  4. There is always risk – every time. If you can’t see it that just means you are blind to it. It’s there. Look for it till you find it. If you can’t find it invest elsewhere.
  5. don’t whinge, moan and blame the government – bond holders did it with Equiticorp, investors were “saved” with SCF (which the judgment now says there is little evidence did anything wrong (so can I have my tax money back then?). Its poor logic and pathetically dim.
  6. As the promoter of the awful Deposit Insurance Scheme himself (the beaming RH Cullen) said  “You lost, eat that”.

As for governments:

  1. The rat always smells the cheese. If governments say “come to Santa” the kids will flock. Deposit guarantee schemes always produce “too big to fail / not pay / hand out”. Come to Santa policies are just silly – that’s all. Do stop – its my money you are wasting.
  2. Less is more. It is pointless – utterly pointless passing laws you can’t, won’t or don’t have the bottle and competence to enforce. The Serious Fraud here is that taxpayers spent over a million on a failed prosecution which helped no one (legal fraternity aside).
  3. Do not, ever, try to save investors from risk. You can’t, you look silly, you delude them in a cruel hoax – and you still lose everyone’s shirt. Also – note – it doesn’t even get you votes for heavens sake.

So use your brain, face risk, get educated… it needs to be part of our culture.

I have long argued that if the average Kiwi knew as much about investing as he and she know about power tools, DIY, various “Idles”, and My Kitchen Rulez then we wouldn’t have a retirement problem.

DIY being in our genes does plenty for Placemakers, Mitre 10 and Bunnings and close to nothing for our kids and your retirement.

Thursday, October 9, 2014

What Academics Are Really Saying


All walks of life have their codes. Academics no less than other gangsters. Below some glimpses of the argot:image

Hat tip to Conrad Hackett

Faulty Logic…

Please note – the fact that “we”, or NIWA or even the PM have discovered a fault which we hadn't noticed makes not one whit of difference to the probability of an earthquake event. It was there all along.

So much – one would think – is obvious…. but

Monday, September 29, 2014

This graph says plenty…


Labour’s General Election vote since 1938 thanks to David Farrar.


  • best score since 1938 was the capitalist Labour Govt of 1984 –1990
  • 1938 – 1984 is how long it took to cripple the economy enough to get that turnaround
  • as the overall benefits of the “model” slid down so did the vote

The current review of the Labour Party has no chance of going anywhere useful for them until they face a few serious questions (as other Social Democrat parties world wide have done) about the model itself.

Monday, September 22, 2014

Classic from the textbook–Election 2014

There is a substantial body of work in the areas of behavioural economics and cognitive psychology which shows that the record of political pundits, political forecasters and the media is appalling in forecasting all but the most obvious of outcomes (a comprehensive review is to be found in Nate Silver’s The Signal and the Noise).

Kahneman shows that we tend to have a systematic bias which involves:

  1. Consistently underestimating extremes – National won and by a significantly greater margin than was forecast while the left suffered greater than expected decimation; and,
  2. that we are very poor at estimating ranges or spreads – much the same thing here too. The gaps between the factions were not well estimated as forecasters cramped things around the averages.

Did forecasters do better than a random pick would have? Yes – very likely they did. Even the Peters NZ First result has become systematically bizarre to the point where it is unlikely to be the result of a coin toss (the main guy who ran the coin toss – Hone Hariwera dipped severely).

Did the pundits and forecasters do any better than an amateur would have done? Very unlikely – and they got the extremes wrong – just as the amateur would have.

Moral? Don't pay forecasters much attention and certainly not money unless you are wanting to buy moral support – and even that is a dubious purchase – just ask the left.

Wednesday, September 17, 2014

The most boring bankrupt economic argument–“we export raw logs when we could be adding value and making jobs”

The rot set in in the late 1940s on this. Jim Anderton was maybe the first in the modern era to believe we wantonly refused to profit from the blindingly obvious money and jobs to be had from processing timber.

In recent times only Winston Peters has been bright enough to see what the entire business sector has apparently completely missed.

Now, joining him as a value add timber processing expert we have the lawyer from Herne Bay – Mr Cunliffe who has spotted the opportunity.

It is, you understand, not so profitable that any of them would give up their day job… it never is, is it?

It seems that only these elite economic whizz kids can see what needs doing. Mr Cunliffe even wants to stop Fonterra doing the unthinkable – exporting what people want to buy and what they will buy – and focussing instead on processing raw product here in NZ.

Apparently there is more money to be made ignoring the reality which sees us export what people want and instead “processing” here in NZ… at an uncompetitive wage rate all these people, in a curious coincidence, want to hike.

Evidently the business sector, with skin in the game and a shirt to lose – not just “the baubles” knows we are more than lucky to be able to export the logs and milk fat – and doing that is far from a cinch.

Shouting “value add” does not make one a competitive processor, it does not convince consumers in a world full of competitively priced product they should buy from you, and it will never justify giving up the hard earned offering you do have.

Besides… 50 years of bleating about this wrong headed nonsense produces boredom by the tonne none of which can be exported.

Sunday, September 14, 2014

Measured views of minimum wages

Eli Lehrer September 13, 2014

Highly relevant in NZ – none of the parties have a measured view – the polar positions are BOTH WRONG…. but it still doesn't help the poor.

The ground has been shifting in the battle over the minimum wage. With President Obama's proposal to hike the national minimum from $7.25 to $9 an hour stalled in Congress, local labor activists have been aiming even higher, getting behind a vastly higher minimum wage of $15 an hour.

The proposals are gaining steam. The small city of SeaTac, Wash., which includes Seattle-Tacoma International Airport, already has a $15 minimum in force, while Seattle plans to implement one over time. Similar "super-minimum" proposals also are under consideration in cities like San Francisco and Chicago. Recent state-level legislation will phase in a minimum wage of greater than $10 in California, Connecticut, Maryland, Hawaii and Vermont. Massachusetts' minimum will rise to $11 by January 2017, while the District of Columbia's is set to rise to $11.50 by July 2016.

Predictably, market advocates and business interests warn that such laws portend disaster: layoffs, benefit cuts, huge surges in consumer prices, mass unemployment and business closures.

Just as predictably, labor unions and their allies on the left paint the subject in terms of "fairness," arguing the higher wages will be paid out of what one SEIU lawyer called "billions and billions" in “extra” profits earned by fast food restaurants and others.

In truth, while the proposals are deeply flawed, the projections of economic catastrophe are at least somewhat overblown. The best reason to oppose a $15 minimum wage is that it's a bad way to help the very people it is intended to help.

Though the economic literature on the subject is mixed, a comprehensive review done in 2013 by the National Bureau of Economic Research found most studies do find a small but measurable increase in unemployment in response to minimum wage hikes.

The effects tend to be concentrated in a few industries that employ lots of low-wage workers, often teens and seasonal employees.

That a rising minimum wage would have only a small impact on unemployment shouldn't be terribly surprising, because government regulation doesn't have that large an immediate effect on jobs anywhere.

The Bureau of Labor Statistics regularly asks employers the reason behind layoffs. Those attributed to "government regulations/intervention" are routinely less than 0.5 percent of the total.

Both because they want to take care of their employees and because they would lose customers if service levels get cut sharply, business owners will avoid layoffs if they can. Nor are the costs of higher minimum wages simply passed on to customers. While a portion of almost any cost increase will almost certainly be passed on to consumers in the form of higher prices, price competition alone means that consumers will rarely have to pay all of it.

Instead, businesses may look to cut the cost of non-labor inputs, or to slow cost-of-living adjustments, cut raises for employees earning more than the minimum wage, or increase employees' share of health-care costs.  And yes, some will accept lower profits.

Of course, none of this makes a vastly higher minimum wage a good idea.  Higher labor costs will encourage businesses to automate more tasks and, over time, look for creative ways to avoid filling vacancies.

This will encourage elimination of many of the easiest-to-replace jobs.  And while mass insolvencies and rampant unemployment may be unlikely, there will certainly be some effect. Some already teetering businesses will almost certainly be pushed over the edge and some jobs that could have been taken by teenagers, the disabled and those lacking familiarity with work itself will never be created in the first place.

What's more, raising the minimum wage is simply a terrible way to help the poor. Only about 7 percent of those below the federal poverty line work a full-time job of any sort. Meanwhile, many of those who earn the minimum wage aren't poor at all. Roughly 42 percent live with a parent or relative, while another 18 percent are married second income earners, which helps explain why the average family income of a minimum wage earner is $53,000 per year.

Expanding the Earned Income Tax Credit, a direct subsidy for those who work for modest wages, is a much better and much more direct way to help the working poor.

Changes to healthcare, nutrition and education programs could do still more to help those in poverty. By comparison, a $15 minimum wage, even if not as disastrous as some market advocates claim, is likely to do more harm than good.

Eli Lehrer is president of the R Street Institute.