Friday, December 31, 2010

I trust these predictions are hopelessly off beam…

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.

Wednesday, December 29, 2010

New kid on the Block

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

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?


Thursday, December 23, 2010

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

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.


Wednesday, December 15, 2010

Twin Peaks–of Folly

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.

Donald J. Boudreaux


Another pair of eyes to the long run

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


Thursday, December 9, 2010

Have politicians noticed? The climate change scare is dying

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?

Tuesday, December 7, 2010

A Late Thanksgiving Story

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.

altBenjamin 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

Sunday, December 5, 2010

This idea has plenty going for it….

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.

Friday, December 3, 2010

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

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?

Monday, November 29, 2010

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

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.

Saturday, November 27, 2010

Rent seeking and crowding out are real phenomena

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

Thursday, November 25, 2010

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

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

Thursday, November 11, 2010

Round in circles

Some fancy terms designed to elevate the apparent status of the speaker or writer simply act as confirmation that the simple – and often useful term  “dork” applies. A good example is referring to “myself” when you mean “me”.

The term “revert” – a favourite in some business circles is another classic example. The toffs who use this term have recently started providing the confirmation referred to above by saying “revert back”.

Revert back? Right. Does this mean “go forward”? Or is it simply a business stutter?

The most recent example I have come across was the Customer Services Manager of Telstra Clear explaining in his two day late apology for that company’s gigantic email crash that customers would need to “revert back” to their old password.

Perhaps the email servers simply got sick of their master’s language and gave up.

Tuesday, October 19, 2010

Pretty simple stuff really….

David Carran from Infometrics makes two simple points which show up the folly of restricting foreign ownership of land very clearly:

  1. the immediate impact of Goff like plans would be to lower the value of farmland (which is owned by NZ farmers), and,
  2. NZ immediately becomes a more risky place to invest in so the cost of capital goes up.

Every dollar lost from agriculture through such processes involves, on average, a further $1.99 in outputs from contributing industries being displaced into less valuable uses…. and 2.46 FTE jobs.

This is a high price to pay for an ephemeral “feel good”  notion based on xenophobia. And that's not even counting the benefits lost.

Saturday, October 16, 2010

Stimulating more problems….

As Bernanke gets ready for another round of “stimulus” in a vain attempt to push recovery in the U.S. it is worth recalling these absolute basics:

  1. Stimulus plans must be financed.
  2. If the financing takes the form of additional government debt, the added debt displaces other uses of the funds.
  3. Thus, stimulus plans only enhance incomes when they move resources from less productive to more productive uses.

Nowhere that I am aware has he identified what the current “unproductive uses” are let alone the “more productive” uses.

Thursday, October 14, 2010

You’re out by miles…..

Economic misconceptions abound – not least in the media. The extent to which people are “out” in their notions is not often tested however. Here  marginal revolution brings us some stats about US students. I find it difficult to think why they would not apply – at least in order of magnitude in NZ… especially to journalists:

“Students typically come to an economics class with many misconceptions, not just random errors but systematic biases (see especially Caplan 2002).

Bill Goffe recently (2009) surveyed one of his macro principles classes and found, for example, that the median student believes that 35% of workers earn the minimum wage and a substantial fraction think that a majority of workers earn the minimum wage (Actual rate in 2007: 2.3% of hourly-paid workers and a smaller share of all workers earn the minimum wage, rates are probably somewhat higher today since the min. wage has risen and wages have not).

When asked about profits as a percentage of sales the median student guessed 30% (actual rate, closer to 4%).

When asked about the inflation rate over the last year (survey was in 2009) the median student guessed 11%.  Actual rate: much closer to 0%.  Note, how important such misconceptions could be to policy.

When asked by how much has income per person in the United States changed since 1950 (after adjusting for inflation) the median student said an increase of 25%.  Actual rate an increase of about 248%, thus the median student was off by a factor of 10.”

Wednesday, October 13, 2010

Forex ALWAYS involves rhyming couplets…

Is this so hard to get our heads around? Here is the lesson:

First read this……

Washington - Fears of a full-blown currency war flared as the US dollar fell to an eight-month low against the euro and the US stepped up pressure on China to let its currency rise. (NZ Herald)

Now read this….

Beijing – Anticipation of a full-blown currency war  grew as the euro rose to an eight-month high against the US dollar and China stepped up pressure on the US to let its currency fall.  (Brent Wheeler Herald)

Currencies are best thought of NOT as investments but as positions – the key being that it is completely and utterly impossible… nor will all the journalists and politicians in the world ever make it any different… for a currency rate to mean anything except relative to another currency.

So various people who ought to know a very great deal better, should stop, cease, and desist permanently from using phrases such as  “saving the export sector”… unless they are happy to declare their desire to destroy the import sector. And if they want stable prices and cheap consumer goods to “stimulate” the economy they should be happy to declare their agreement to destroy a few exports.

And those who use the term “currency wars” should really just read war comics… Whitcouls have them in bound editions for the “big reader”.

I know exciting and important stuff like TV presenters and foreshores and spiritual gynaecology and  really interesting stuff is a distraction but…..  do try to keep up please.

Losing at forex…. not a record but a creditable effort by RBNZ

The world record for losses as a foreign exchange trader despite owning the printing press still belongs with the Bank of England after its little tussle with George Soros – an effort which could only be described as a FAIL. 

This effort was a major – but one of so many over such a long time you really have to conclude that central banks just don’t have the learning gene – not there, sorry, absent, not functioning.

And thus we get this bit of pith from the RB chief in N.Z…..

“the Bank has maintained stable underlying income from interest earnings and stable operating costs. “Nonetheless, we have recorded a loss of $111 million for the year ended 30 June 2010, as a result of unrealised losses arising from adverse revaluations on our assets and liabilities.

Dr Bollard said most of these losses occurred on the Bank’s unhedged foreign exchange position, as exchange rate and interest rate movements partially reversed the large unrealised gains of the previous year. “

The “trading” was supposed to take the “extreme highs and lows” off the dollar assist our economic  wealth. This is a puzzling objective – even if it could be achieved….

  • If short it guarantees to wallop importers
  • If long it guarantees to wallop exporters

In either case the taxpayer stands to get whipped – and was 111,000 ,000 times this last year.

While wondering why this needs to happen – the idea of “stable underlying income from interest earnings” is also worth a thought. What exactly is this and why is the currency monopolist helping itself here as well?

Friday, October 1, 2010

Outlawing employment through deluded thinking…

Wage Laws Squeeze South Africa’s Poor – NYT 26 Sept (thanks to NZBR)

By Celia W Dugger

1 October 2010

NEWCASTLE, South Africa — The sheriff arrived at the factory here to shut it down, part of a national enforcement drive against clothing manufacturers who violate the minimum wage. But women working on the factory floor — the supposed beneficiaries of the crackdown — clambered atop cutting tables and ironing boards to raise anguished cries against it.

“Why? Why?” shouted Nokuthula Masango, 25, after the authorities carted away bolts of gaily colored fabric.

She made just $36 a week, $21 less than the minimum wage, but needed the meager pay to help support a large extended family that includes her five unemployed siblings and their children.

The women’s spontaneous protest is just one sign of how acute South Africa’s long-running unemployment crisis has become. With their own industry in ruinous decline, the victim of low-wage competition from China, and too few unskilled jobs being created in South Africa, the women feared being out of work more than getting stuck in poorly paid jobs.

Thursday, September 23, 2010

Brilliance – from my very good friend Tom

A paraprosdokian (from Greek "pa?a-", meaning "beyond" and "p??sd???a", meaning "expectation") is a figure of speech in which the latter part of a sentence or phrase is surprising or unexpected in a way that causes the reader or listener to reframe or reinterpret the first  part.

It is frequently used for humorous or dramatic effect, sometimes  producing an anticlimax.

Some paraprosdokians not only change the meaning of an early phrase, but also play on the double meaning,creating a syllepsis.

      Ø  I asked God for a bike, but I know God doesn't work that way. So I stole a bike and asked for forgiveness.

      Ø  Do not argue with an idiot. He will drag you down to his level and beat you with experience.

      Ø  I want to die peacefully in my sleep, like my grandfather, not screaming and yelling like the passengers in his airplane.

      Ø  Going to church doesn't make you a Christian any more than standing in a garage makes you a car.

      Ø  The last thing I want to do is hurt you, but it's still on the list.

      Ø  Light travels faster than sound. This is why some people appear bright until you hear them speak.

      Ø  If I agreed with you we'd both be wrong.

      Ø  We never really grow up, we only learn how to act in public.

      Ø  War does not determine who is right, only who is left.

      Ø  Knowledge is knowing a tomato is a fruit; wisdom is not putting it in a fruit salad.

      Ø  The early bird might get the worm, but the second mouse gets the cheese.

      Ø  Evening news is where they begin with "Good evening" and then proceed to tell you why it isn't.

      Ø  To steal ideas from one person is plagiarism. To steal from many is research.

      Ø  A bus station is where a bus stops. A train station is where a train stops. On my desk, I have a work station.

      Ø  How is it one careless match can start a forest fire, but it takes a whole box to start a campfire?

      Ø  Some people are like Slinkies ~ not really good for anything, but you can't help smiling when you see one tumble down the stairs.

      Ø  Dolphins are so smart that within a few weeks of captivity, they can train people to stand on the very edge of the pool and throw them fish.

      Ø  I thought I wanted a career, turns out I just wanted pay cheques.

      Ø  A bank is a place that will lend you money, if you can prove that you don't need it.

      Ø  Whenever I fill out an application, in the part that says "If an emergency, notify:" I put "DOCTOR".

      Ø  I didn't say it was your fault, I said I was blaming you.

      Ø  I saw a woman wearing a sweat shirt with "Guess" on it, so I said "Implants?"

      Ø  Why does someone believe you when you say there are four billion stars, but check when you say the paint is wet?

      Ø  Women will never be equal to men until they can walk down the street with a bald head and a beer gut, and still think they are sexy.

      Ø  Why do Americans choose from just two people to run for president and 50 for Miss America?

      Ø  Behind every successful man is his woman. Behind the fall of a successful man is usually another woman.

      Ø  A clear conscience is usually the sign of a bad memory.

      Ø  You do not need a parachute to skydive. You only need a parachute to skydive twice.

      Ø  The voices in my head may not be real, but they have some good ideas!

      Ø  Always borrow money from a pessimist. He won't expect it back.

      Ø  A diplomat is someone who can tell you to go to hell in such a way you look forward to the trip.

      Ø  Hospitality: making your guests feel like they're at home, even if you wish they were.

      Ø  Money can't buy happiness, but it sure makes misery easier to live with.

      Ø  I discovered I scream the same way whether I'm about to be devoured by a great white shark or if a piece of seaweed touches my foot.

      Ø  Some cause happiness wherever they go, others whenever they go.

      Ø  There's a fine line between cuddling and holding someone down so they can't get away.

      Ø  I used to be indecisive, now I'm not sure.

      Ø  I always take life with a grain of salt, plus a slice of lemon, and a shot of tequila.

      Ø  When tempted to fight fire with fire, remember that the Fire Department usually uses water.

      Ø  You're never too old to learn something stupid.

      Ø  To be sure of hitting the target, shoot first and call whatever you hit the target.

      Ø  Nostalgia isn't what it used to be.

      Ø  Some people hear voices, some see invisible people, others have no imagination whatsoever.

      Ø  A bus is a vehicle that travels twice as fast when you run after it as it does when you are in it.

      Ø  Change is inevitable, except from a vending machine.

Monday, September 20, 2010

Simple explanation of stimulus economics

It's a slow day in a rural New Zealand Town Times are tough, everybody is in debt, and everybody lives on credit. A rich tourist is driving through town, stops at the local motel and lays a $100 bill on the desk saying he wants to inspect the rooms upstairs in order to pick one to spend the night. The motel proprietor gives him keys to a few rooms and as soon as the man walks upstairs, the owner grabs the $100 bill and runs next door to pay his debt to the butcher.

The butcher takes the $100 and runs down the street to repay his debt to the pig farmer. The pig farmer takes the $100 and heads off to pay his bill at the supplier of feed and fuel. The guy at the Farmer's Co-op takes the $100 and runs to pay his drinks bill at the local pub. The publican slips the money along to the local prostitute drinking at the bar , who has also been facing hard times and has had to offer him "services" on credit.

The hooker rushes to the motel and pays off her room bill to the motel owner with the $100. The motel proprietor then places the $100 back on the counter so the rich traveller will not suspect anything. At that moment the traveller comes down the stairs, picks up the $100 bill, states that the rooms are not satisfactory, pockets the money, and leaves town.

No one produced anything. No one earned anything. However, the whole town is now out of debt and looking to the future with a lot more optimism. And that, ladies and gentlemen, is how the New Zealand Government's stimulus package works.

Thursday, September 16, 2010

The most forgotten outcomes…

Politics is a game of “I win you lose” and vice versa.

Trade is a game of “I win you win” and vice versa.

Wednesday, September 15, 2010

The incredible lightness of green

Like other western countries who are going uncritically “green” – typically a reliable sign of illness – N.Z. has leapt or attempted to leap on the “smart light” bandwagon. Recent years have seen various pleas for consumers to switch to those coiled “fittings” -  which conjure up all the sophisticated nuance, interior decorating charm and wankiness of having a segway parked in the bedroom – to save money, energy and of course the planet.

We even have a taxpayer funded website explaining how much money you “really save” buying these sources of light which the (female) vanity industry has rejected in the U.S. on the grounds of, well insufficient beauty rendering for marginal faces. Next stop is solid state lighting…. which is even better in this area and the current fad for the “conserve with lighting technology” brigade.

The Economist (August 28) shows that these ideas are less than bright and are in fact dim.

The trouble lies – and this is my reading of the Economist’s data….. with oh dear, that curse of mankind, the law of demand. As the per unit cost and thus price of buying lumens or units of light has fallen, quantity demanded has grown. A paper in the Journal of Physics (Tsao J.) has it this way – better technology has stimulated the demand for energy to be converted to light.

We economise (unsurprisingly) on light – it is a scarce resource with costs attached….. so many outdoor areas we leave “dark” (parks, streets in some areas etc) because it would be too costly to light them.

Neither is this a new phenomena. A gas light “back in the day” gave off about the same amount of light as a 25 watt incandescent bulb does today. As the effective cost dropped we consumed ever more light.  Tsao sees solid state sources meaning an increase in light consumption by a factor of ten within two decades.

The problem with the “green analysis” which promises to save energy is that it is static (same issue as the earthquake economics – see previous post). Life though is dynamic and when “P” for price drops “Q” for quantity demanded goes up.

So we cannot light our way to green heaven with Morris Dancing impertinences – stick to being an incandescent being…. and save some energy into the bargain.

Friday, September 10, 2010

Gems in the rubble: economic process is dynamic not static even after earthquakes

A number of economists (me included) have pointed out that while there will be a lot of increased construction and related activity generated by the “re building” of Christchurch, this does not necessarily make up for the loss nor add to economic output because of the opportunity costs involved in glaziers being diverted from what they were already doing, profits lost while re construction takes place and all the other cost mayhem imposed.

That is true – and intuitively it feels as if it should be true – otherwise we could generate GDP growth heaven simply by smashing things and repairing them.

Clearly we can’t. So “net” we don’t want earthquakes thank you.

BUT – this is also a static analysis. Life – and economic processes -  are of course dynamic. By thinking about the dynamic aspects of re construction we do start to see some net benefits. Consider:

  1. New buildings and reconstruction will involve today’s materials not yesterday’s – they likely last longer, deliver better performance, and, are likely more earthquake proof,
  2. New techniques and improved productivity practices are likely to be used in the re build meaning things will get done faster and more efficiently and likely more safely,
  3. There are multiple opportunities to consolidate building spaces, replace air conditioning, improve heating, better adapt, re fashion, customise and improve so as to fit the “new” fabric of the CBD to today’s conditions,
  4. Various weaknesses, vulnerabilities, temporary solutions and deficiencies in local infra structure, networks and like assets will no doubt be discovered and put to rights.

The improved technologies, work practices and materials available for the most part at lower cost per unit than when the “originals” were installed means that these improvements will be able to be implemented – as a matter of course (“we wouldn’t do it that way if we were doing it today” is the concept here) at a cost likely to be less than originally incurred and one which offers better value for money.

No doubt other opportunities to add value will arise – the chance to lay more fibre, lay very long lasting plastic pipes instead of shorter lived environmentally less sound lead and metal – and an ability to get all of this done without the costly, time consuming and debilitating impost of the various regulatory regimes which often strangle progress.

Does this mean we should celebrate this event? No of course not – the costs have been and will continue to be disturbing and horrendous. It does mean though that there are silver linings.

The major costs which are difficult to bear are the transition costs – supermarket workers cannot turn into fibre optic telco technicians over night.  Ghosts and fears cannot be laid to rest easily and trauma impacts do not always yield well to economic progress.

For this reason the enormity of the volunteer and charitable efforts of those helping reduce adjustment costs and offer succour in numerous forms are both vital and to be admired.

Even where transition costs are tough though, dynamic market processes help. The scope for Foodstuffs in Kaiapoi for example to build their reputational capital, turn their considerable skills and experience to helping their workforce and franchise owners while calling in the assets in the rest of the country which their owners investments have helped build generates hope and assistance.

So – it is true that we cannot vandalise our way to heaven and that mother nature playing vandal is neither helpful nor pleasant – but it is also true that opportunity abounds in building new ways forward for communities which are likely stronger not weaker than they were.


From Tyler Cowan’s searching on Marginal Revolution this….. written in respect of Ireland 

“It's not a good sign when the government has to intervene to prevent a run on a bank that is already owned by the government...”

Only the Irish?

Sunday, September 5, 2010

Quote of the day……..

James M. Buchanan used to say, “It takes varied reiteration to force
alien concepts upon reluctant minds.”

Thursday, September 2, 2010

The horror of moral hazard

The South Canterbury debacle is instructive…..

The really boring part is “Little old ladies and gents salivate over high interest rates, ignore the risk these signal and invest and ought to have lost their shirts like the other investors in the earlier 53 finance companies which have fallen over.” Of course that great hater of “smarmy rich pr—ks” maestro Cullen, like all politicians had to “do something”…. and he did (though Phil Goff has forgotten it – duh) and introduced the government deposit taxpayer theft guaranteed deposit insurance.

The interesting part is yet another proof of the fact that “incentives matter, all the rest is commentary” (Landsburg). Give them the guarantee and what happens – as Sandy Maier…. to his eternal credit noted – they ramped up the investment in yet more risky investments… bars in Auckland etc etc. So a highly leveraged company sees that someone else will pay and goes for the doctor. so far so predictable. Isn’t it good to have a regime which “aligns” with Australia and the U.S.?

Worse…. all other finance companies now know they have till October 2011 to call in the receivers and save their hide and their depositors funds if things look dicey. Marvellous.

So from now on its “forever Tuesday morning”. The rat has smelt the cheese and while we all bend over backwards to be nice to “trust me I’m Allan I am modest and drive a Volkswagen”, investors scurry from placing their funds where those funds might, for a measured risk, generate improved social well being.

Sunday, August 22, 2010

This would be “A Fortunate Experiment”

“So the Obama administration removed from the Department of Labor’s website that agency’s study that found differences between women’s and men’s pay as resulting, not from discrimination, but from different career choices made by each sex (“Gender pay gap reflects choices, not bias,” August 21).  Big deal.  Politically opportunistic fact-filtering is a bi-partisan tradition as newsworthy as mosquitoes in summer.

But to those persons who believe that women are indeed consistently underpaid, boy do I have a deal for you!  Start your own firms and hire only women.  If it’s true that women are consistently underpaid, you’ll be able to hire outstanding employees by paying them more than the relative pittances they currently earn, while you still profit handsomely from employing them.

And that’s not all.  Being benighted male chauvinists, your competitors will not follow your example; they will stubbornly refuse to offer female employees wages commensurate with these women’s productivity.  You’ll expand your operations by easily hiring highly productive, formerly underpaid workers while your competitors – made stupid by prejudice – will shrivel into bankruptcy as they lose productive employee after productive employee.  You’ll simultaneously corner your industry’s market, earn handsome profits, and raise women’s wages.  If you’re correct that sex discrimination is rampant in today’s labor market, you can’t lose!  So get to work!”

Don Boudreaux – again!

Friday, August 20, 2010

What’s to be scared of in economics?

Trying to encapsulate my views on economics and policy in a short sentence or two for a friend I have managed this so far….

“The notion that we tend to strive for a little more of what we like and a little less of what we don’t, and that in the process, for the most part society is better off as a result – which to me is the guts of economics – does not seem so difficult, nor threatening that it could ever be usefully supplanted by the call to coercion.”

Saturday, August 14, 2010

The need to be camera shy

Stephen Joyce should be utterly ashamed. He knows better…. Or does he? The efficiency effects of taxi camera coercion are obvious. Perhaps the equity effects aren’t?

So regardless of how this is done, prices to consumers ultimately go up. Industry sources tell me the cost to drivers will be around $6,000 to $7,000 per camera. People who can’t see that this ultimately winds up with the consumer are still in some flat earth brigade. Likely equity effects include more cost for:

§ All disabled people who depend on taxis for transport

§ Kids whose safety is ensured by taxiing not walking

§ Women who ought to taxi not walk home

§ Ditto elderly people

§ Beneficiaries who use taxis for essential transport.

And even on the supply side:

§ The taxi drivers who can least afford this are poor taxi drivers

§ Many are immigrants

§ Many are doctors, surgeons and the like which other regulations here prevent working

§ Many are not young rich but old relatively poorly off drivers

So a bunch of costs incurred for suppliers and consumers for a possible – and it’s only a potential not a guaranteed gain of maybe lowering levels of taxi driver assault. Even over the ditch the experts agree they are unsure whether it has helped.

Notice that the costs above are absolutely certain. The gains are a maybe.

There are literally millions – yes millions – of safe cab trips taken every year. We have had a spate of bad assaults and deaths. No one denies that or the tragedy. There are though far better local, individually generated solutions.

This is a poor response to interest group lobbying which hurts consumers – the least able to cope consumers at that – in the interest of baby kissing and looking like a “tough boy”.

Stephen Joyce – FAIL.

Sunday, August 8, 2010

A Wise Passage


From Paul Seabright, via Peter Gordon:

Politicians are in charge of the modern economy in much the same way as a sailor is in charge of a small boat in a storm. The consequences of their losing control completely may be catastrophic (as civil war and hyperinflation in parts of the former Soviet empire have recently reminded us), but even while they keep afloat, their influence over the course of events is tiny in comparison with that of the storm around them. We who are their passengers may focus our hopes and fears upon them, and express profound gratitude toward them if we reach harbor safely, but that is chiefly because it seems pointless to thank the storm. (p. 25)

Courtesy of Greg Mankiw

Sunday, July 18, 2010

Workplace entry?

Difficult to imagine a group such as, say a religious group interested in looking after workers spiritual health and welfare, getting a legislated right to enter the workplace without permission…… how is a union any different?

Sunday, July 11, 2010

Its just a farm? Sorry – wrong.

The PM recently stated that while he was not xenophobic about China -  and in light of his recent efforts to build relationships that has to be seen as true – he couldn’t see the point in foreign ownership of farms….. “it’s just a farm”

….. that such ownership didn’t anything much for jobs or the areas in which N.Z.s future lies. This kind of understanding is a worry – especially given that he is articulate and readily grabs the sympathy of already suspicious New Zealanders….

  1. When foreigners invest, New Zealand exports risk to them. It relieves the N.Z. economy of risk. Foreign shareholders – not N.Z. investors – have born the bulk of the risk and cost caused by Telecom’s recent woes.
  2. New Zealand needs capital – especially in agriculture and especially in dairying. The level of debt in dairy is high, costly and generates large amounts of risk. Foreign equity would help greatly.
  3. The much beloved Fonterra still has a fragile capital structure, it needs farmer support, it needs farmers ready to invest in it, sell to it and back with strong enterprises.
  4. New Zealand may be underfunding its R&D efforts in agriculture. When N.Z. farmers and companies they supply are saddled with debt their ability to invest is limited.
  5. The agricultural inputs industry (fertiliser etc) employs thousands. It is tough to provide jobs if debt ridden farmers cannot afford to buy inputs.
  6. Foreign experience brings new ideas, experience and innovation. To think we don’t need it is simply arrogant and incorrect…. N.Z. of all isolated places needs it badly.

Lets get the thinking on this right at long last…..   oh and

Postscript…. since I started this note 8 hours the Chinese Govt have, in China, approached Mr Key suggesting a growth and production partnership in agriculture to benefit both countries.

Somebody thinks this stuff involves more than “just a farm”.

Sunday, June 27, 2010

Cause and Effect Issues…….

Paddy tells Mick
He's thinking of buying a Labrador
Fook off says Mick
Have you seen how many of their owners go blind?

Saturday, June 26, 2010

Tough to take but absolutely correct….

Open Letter to the Head of Boeing

by DON BOUDREAUX on JUNE 25, 2010


Mr. W. James McNerney, Jr.
Chairman, President, and CEO
The Boeing Co.

Dear Mr. McNerney:

One of your company’s radio ads proclaims that an advantage of Boeing’s NewGen tanker over Airbus’s rival product is that, being made in America, the NewGen tanker creates lots of jobs for Americans.  But your ad also boasts that the NewGen tanker costs less to own and operate than does Airbus’s tanker.

If you honestly believe that using lots of labor to produce a product is a benefit bestowed on society by that product, why do you brag about your tanker’s lower cost?  After all, producing the NewGen at the lowest possible cost – that is, efficiently – means that you don’t employ as many workers as you would if you produced the NewGen inefficiently.

Suppose, for example, that you banned computers from Boeing’s offices and factories.  This policy would oblige you to hire many more workers to perform nearly all tasks from aircraft design to managing the weekly payroll.  You could then boast of even more American jobs being created by the NewGen tanker.  But would this result be something to celebrate?

Or ask the following question: if a brilliant inventor devised a means of producing each of these planes at a cost of $50, and using a mere one hour of modestly skilled labor, would that invention be good or bad for the economy?

Donald J. Boudreaux

Wednesday, June 23, 2010

Macro economics = Macro Guesswork

“The country's current account deficit has fallen to its lowest in more than 20 years, mainly because of higher commodity prices and a drop in investment income.

The deficit - a measure of payments to foreigners minus earnings paid from overseas to New Zealanders - was $4.46 billion for the year to March, or 2.4% percent of gross domestic product (GDP).

That's better than the market was expecting: the consensus among economists had been that the deficit would come down to just over $5 billion.

Statistics New Zealand says the lower deficit - $5.3 billion less than in the previous quarter - is attributable to a slump in imports and a drop in the profits paid to overseas owners of local companies.

Earnings from sales overseas also picked up in the March quarter: for the first time in more than a year, returns from exports rose, largely because of higher commodity prices.”  23 June 2010

Copyright © 2010 Radio New Zealand

Worth remembering……

“One of the few benefits of growing old can be that, while one’s short-term memory may be pathetic, one retains a functioning and commodious long-term memory. This can provide context and a sense of proportion. It can do something to rescue one from what has been well termed the ‘parochialism of the present’ — the tendency to believe that what is happening now, and to us, must be of unprecedented and transcendent significance.”

Owen Harries. Australian Spectator, April 2010

Tuesday, June 22, 2010

Well…. what a surprise. Tell banks to tighten up and poor credit becomes visible

Ex Yahoo Finance

WASHINGTON (AP) -- The Obama administration's flagship effort to help people in danger of losing their homes is falling flat.

More than a third of the 1.24 million borrowers who have enrolled in the $75 billion mortgage modification program have dropped out. That exceeds the number of people who have managed to have their loan payments reduced to help them keep their homes.

Last month alone,155,000 borrowers left the program -- bringing the total to 436,000 who have dropped out since it began in March 2009.

About 340,000 homeowners have received permanent loan modifications and are making payments on time.

Administration officials say the housing market is significantly better than when President Barack Obama entered office. They say those who were rejected from the program will get help in other ways.

But analysts expect the majority will still wind up in foreclosure and that could slow the broader economic recovery.

A major reason so many have fallen out of the program is the Obama administration initially pressured banks to sign up borrowers without insisting first on proof of their income. When banks later moved to collect the information, many troubled homeowners were disqualified or dropped out.

Many borrowers complained that the banks lost their documents. The industry said borrowers weren't sending back the necessary paperwork.

Carlos Woods, a 48-year-old power plant worker in Queens, N.Y., made nine payments during a trial phase but was kicked out of the program after Bank of America said he missed a $1,600 payment afterward. His lawyer said they can prove he made the payment.

Such mistakes happen "more frequently than not, unfortunately," said his lawyer, Sumani Lanka. "I think a lot of it is incompetence."

A spokesman for Bank of America declined to comment on Woods's case.

Treasury officials now require banks to collect two recent pay stubs at the start of the process. Borrowers have to give the Internal Revenue Service permission to provide their most recent tax returns to lenders.

Requiring homeowners to provide documentation of income has turned people away from enrolling in the program. Around 30,000 homeowners started the program in May. That's a sharp turnaround from last summer when more than 100,000 borrowers signed up each month.

As more people leave the program, a new wave of foreclosures could occur. If that happens, it could weaken the housing market and hold back the broader economic recovery.

Even after their loans are modified, many borrowers are simply stuck with too much debt -- from car loans to home equity loans to credit cards.

"The majority of these modifications aren't going to be successful," said Wayne Yamano, vice president of John Burns Real Estate Consulting, a research firm in Irvine, Calif. "Even after the permanent modification, you're still looking at a very high debt burden."

So far nearly 6,400 borrowers have dropped out after the loan modification was made permanent. Most of those borrowers likely defaulted on their modified loans, but a handful either refinanced or sold their homes.

Credit ratings agency Fitch Ratings projects that about two-thirds of borrowers with permanent modifications under the Obama plan will default again within a year after getting their loans modified.

Obama administration officials contend that borrowers are still getting help -- even if they fail to qualify. The administration published statistics showing that nearly half of borrowers who fell out of the program as of April received an alternative loan modification from their lender. About 7 percent fell into foreclosure.

Another option is a short sale -- one in which banks agree to let borrowers sell their homes for less than they owe on their mortgage.

A short sale results in a less severe hit to a borrower's credit score, and is better for communities because homes are less likely to be vandalized or fall into disrepair. To encourage more of those sales, the Obama administration is giving $3,000 for moving expenses to homeowners who complete such a sale or agree to turn over the deed of the property to the lender.

Administration officials said their work on several fronts has helped stabilize the housing market. Besides the foreclosure-prevention plan, they cited government efforts to provide money for home loans, push down mortgage rates and provide a federal tax credit for buyers.

"There's no question that today's housing market is in significantly better shape than anyone predicted 18 months ago," said Shaun Donovan, President Barack Obama's housing secretary.

The mortgage modification plan was announced with great fanfare a month after Obama took office.

It is designed to lower borrowers' monthly payments -- reducing their mortgage rates to as low as 2 percent for five years and extending loan terms to as long as 40 years. Borrowers who complete the program are saving a median of $514 a month. Mortgage companies get taxpayer incentives to reduce borrowers' monthly payments.

Consumer advocates had high hopes for Obama's program when it began. But they have since grown disenchanted.

"The foreclosure-prevention program has had minimal impact," said John Taylor, chief executive of the National Community Reinvestment Coalition, a consumer group. "It's sad that they didn't put the same amount of resources into helping families avoid foreclosure as they did helping banks."

Sunday, June 20, 2010

Survival chances should be nil for CE… dim for company

Two serious failings of BP…..

1. A first lesson in management is that one can delegate authority but one cannot delegate responsibility. Before the Congress Committee the CE of BP in reply to a question stated that he knew nothing of the decisions taken in respect of the relevant undersea drilling risk – and thus was not to blame. He then put this particular fire out with gasoline by stating that BP had hundreds of drilling operations at work at any one time.

2. BP were amongst the “early adopters” of racy, fashionable, “stakeholder based” CSR mantras – going so far as to change BP from meaning British Petroleum to Beyond Petroleum. The less faddish and much criticised advice from Friedman to the present has always been - companies have no comparative advantage as quasi social and environmental welfare agencies they should concentrate exclusively on what they do know something about. In this case oil drilling and its risks.


Tuesday, June 8, 2010

Sharp explanation of why time and holding period is such a critical variable in investment.


From Eugene Fama and Kenneth French

“Note first that the uncertainty about the average premium to be realized during a holding period is captured by the standard deviation of the average premium (statisticians call it the standard error) for the period. The standard deviation of the average equity premium for a holding period is the standard deviation of the year-by-year premiums for the period divided by the square root of the number of years in the period. This square root rule means that the standard deviation of the average premium goes down, that is, the estimate of the average premium becomes more reliable, as one increases the holding period. This is important: it is the reason the probability of realizing a positive average equity premium during a holding period increases with the length of the period.

For example, suppose we assume future equity premiums will be drawn from a normal distribution with a mean of 7.64% per year and a standard deviation of 21.04% - the estimates for 1927-2008. The probability that the premium for a single future year is negative is about 36%. In other words, even though the expected annual premium (the mean of the true premium distribution) is high (7.64%), the much higher standard deviation of year-by-year premiums (21.04%) means that single-year premiums will be negative about 36% of the time. If one stretches the holding period to four years, the square root rule tells us that the standard deviation of the average premium drops to one-half the standard deviation of annual premiums, from 21.04% to 10.52%. As a result, for four-year holding periods, the probability of a negative realized average premium falls to about 23%.

In other words, we expect that for four-year holding periods the average equity premium will be negative (bills beat stocks) about 23% of the time. For 16-year holding periods, the probability of observing a negative average premium drops further, to about 7%. And for 25-year holding periods, the probability of a negative average premium is about 3.4%. Thus, even for quarter century holding periods, there is a 3.4% chance that bills will beat stocks.

What does all this say? The expected equity premium is compensation for bearing the high risk of equities. The risk manifests itself in highly volatile returns. This volatility means that even for long holding periods, there is some probability that less risky investments like bills beat stocks. The probability is lower for longer holding periods, but it never goes to zero.”

Sunday, June 6, 2010

Keep it real? Get some private property rights

There is a difficult irony in Russell Norman’s demands that more be done to preserve the environment by, say, having users pay for using water – and yet central Green ideology seems to prevent utterly the formation of the very property rights to abstract and discharge which would allow this to happen.

A genuine desire to “keep it real” – as opposed to a vague push to differentiate a bunch of political aspirations – would see the Green Party pushing hard for the formation of private property rights in water and other elements of the environment which they want to see responsibility taken for.

Wednesday, June 2, 2010

The woeful state of reporting and repeaters

Don Boudreaux at his best again……

Here’s a letter to the New York Times:

Dear Editor:

Suppose Uncle Sam orders you to raise by 41 percent the price you charge for subscriptions to your newspaper.  Would you be surprised to find a subsequent fall in the number of subscribers?  If you assigned a reporter to investigate the reasons for this decline in subscriptions, would you be impressed if that reporter files a story offering several possible explanations for the fall in subscriptions without, however, once mentioning the mandated 41 percent price hike?

Unless you answered “yes” to this last question, I wonder why you published Mickey Meece’s report on today’s record high teenage unemployment rate (“Job Outlook for Teenagers Worsens,” June 1).  Between 2007 and 2009, Uncle Sam ordered teenage workers (who are mostly unskilled) to raise the price they charge for their labor services by 41 percent.  (That is, the federal minimum-wage rose from $5.15 per hour in 2007 to its current level of $7.25 in 2009 – a 41 percent increase.)

Does it not strike you as more than passing strange for your reporter – assigned to help explain why teenagers today have an increasingly difficult time finding jobs – to ignore the fact that these teenagers are ordered by government to raise significantly the wages that they charge their employers?

Donald J. Boudreaux

Tuesday, May 25, 2010

What is the problem with the EU? Maybe Not what You Think

Daily it seems the woes of the PIIGS spread – most recently bank failure in Spain hard on the tales of the Greek tragedy papered over through the world’s largest cross subsidy to date. Frailty seems to abound.

A friend who – like a very large number of people including me – has a great fondness for all that is or was Europe – finds it hard to conceive of collapse let alone why this catastrophe may be upon us.

The standard economic diagnosis is of course quite correct – decades of dependency policy with the inevitable and rising fiscal cost that brings, labour markets paralysed by regulatory strictures which generate the very unemployment they seek to avoid while channelling rent  to the lesser deserving and so on.

The widespread knowledge of these and numerous other policy ills has done nothing to promote change and their reform seems distant in the extreme. Certainly the recent wild debt binge will bring no life saving reform.

What seems no longer to be noticed though, is that the very concept of the “EU” is now and always has been flawed. The idea of the EU as an “economic major… an economic force to be reckoned with” is based on some kind of trade penis envy in which sheer size generated by political and administrative “grouping” is somehow superior and could trade with majors such as Japan, the U.S and others.

This BLOC notion seems to me to characterise Europe in precisely the wrong terms. It ignores or rather tries to supplant the essentially niche nature of the nuanced complexity which centuries of historical, cultural, social and economic development have brought to a series of quite distinctive countries.

Those niches can operate successfully – very successfully, albeit with the proviso that broadly market oriented or at least not market destroying, policies are maintained. Like all niches however the game is about specialisation, competitive advantage, comparative advantage and working to distinctive strengths.

What does not work is the “build a bigger fruit salad” approach. Trying to run trade blocs which blow the person you are trading with out of the water has a dismal success rate. Worse that approach has two major problems.

First it destroys the distinctiveness which is essential to trade and survival – as parodied decades ago on television’s “Yes Minister” in an episode featuring the need to reject the “Euro-sausage”.

The worst excesses of the innovation killing fruit salad is epitomised by the entire concept of “Brussels” as it has become – an administrative and political machine which strangles initiatives in numerous fields – and at vast cost.

Second the misguided prospect of wealth through scale, or at least redistribution from the centre to the periphery, has those on the fringes lining up at high speed in search of “whatever it takes” to get into the soup kitchen.

As with any dependency  driven welfare system this destroys the finances of the donors while making things worse for the recipients – thus those who have most recently signed up “for the dole” – the PIIGS - have begun the slaughter of the finances of continental Europe while getting themselves further in the mire.

Should this unholy mess – put together by those who believe that politics rather than competitive markets have the power to produce wealth – fly apart this might be the very best thing that could happen since a return to the profitable niches – and all that so many admire about those niches - might be possible.

That fruit salad currency the EU – a daft concept for all the above reasons – appears (exactly as we would expect) to be leading the way.

Those on the side of the bureaucratic Goliath who doubt this analysis might ask themselves why the  Swiss – for centuries one of the world’s most stunning niches on every front - are not members of the EU nor even vaguely interested in joining the queue.

Reasonable bet? Long the Swiss franc against the Euro…. in spades.

Monday, May 17, 2010

Diary of an Outside Listener stuck in NZ

1.  The Band Rock of Ages

2. Little Feat “The Last Record Album”

3. Donald F “The Nightfly”

4.  Getz Gilberto 1962

5.  Grateful Dead “From the Mars Hotel”

Tuesday, May 11, 2010

Having here

In New Zealand – and most western economies, some claptrap about “unique surroundings”, cost of staff and other “surcharge” drivel is used to charge a premium for “eating in” even when the food is identical to that which can be purchased and taken away.

Today in Singapore I saw a sign advising patrons not “having here” that there was a charge ($0.20) for takeaway. Eating out is so common that it is the nuisance value of preparing a takeaway rather than “having here” which commands the premium.

Wednesday, May 5, 2010

Second Life: Property rights…. virtually

Second Life Users File Class Action Lawsuit Over Virtual Land

A group of Second Life users is suing Second Life’s creator over a virtual land dispute. They say their contractual property ownership rights have been changed and that this alteration of the terms of service constitutes fraud and violates California consumer protection laws.

Before you scoff too much at this seemingly ludicrous lawsuit, remember that virtual worlds aren’t just “funny money” and avatars. They’re serious business, both for the owners and investors who profit from them and for the users who pump hundreds and even thousands of dollars each into creating characters and interacting online.

Second Life’s parent company, Linden Labs, was recently valued at $383 million. The virtual world’s economy was at an all-time high when Q1 transactional data was reported last month. And although the economy is virtual, remember these transactions have a basis in very real funds.

The lawsuit gives rise to the question: Who owns virtual goods, the creators of the goods or the people who have paid virtual currency for them?

The users are claiming that Linden Labs and Founder Philip Rosedale persuaded them to invest money and pay a sort of “property tax” with the promise of actual ownership of virtual land. Now, the users say, the terms of service have been changed without their prior knowledge or consent. They say the new terms “state that these land and property owners did not own what they had created, bought and paid for, and that these consumers had no choice but to click on a new terms of service agreement or they could not have access to their property.” Moreover, the group alleges that Linden Labs froze user accounts and deleted or converted non-virtual currency and virtual property without giving any explanation or avenues for recourse.

We’ve contacted Mr. Rosedale for comment and will update this post as new information becomes available.

What do you think: Is this a frivolous lawsuit over a virtual non-issue? Can anyone really “own” pixels? Did Linden Labs have the right to change the TOS for their own product, just as Facebook does on a regular basis? Or do these users have a justifiable complaint when they say that Linden Labs broke its promise to them?

Through Marginal Revolution

Monday, May 3, 2010

The Cullen Nudge and the need for more stupidity….

Join KiwiSaver and become a living part of a process which will…

  1. Instantly capitalise a $3,000 gift (or $5,000) after two years into the price of housing. The cheaper the house price the greater the proportional impact. Those not getting the gift still face the increased price as they house hunt.
  2. Divert yet more money into the overheated housing market while taking out of the hands of job creating employers with the worst hit employers being the smallest and facing the biggest threat from cost increases at the margin… great for job seekers this is.
  3. And of course, If $3,000 makes the difference, then as Cactus points out, the house likely cannot be afforded. So the gift generates a nice little bit of sub prime risk…. which in spite of 50 finance companies falling, someone will be keen to lend on.

KiwiSaver author Mary Holm says the grant is "terrific" news….

and that:

“Every first-home owner in New Zealand is a bit stupid if they haven't been in KiwiSaver,"

To be fair she is reflecting the widespread notion that “you’d be a mug not to take the governments free money”. Understandable sentiment and maybe it works for the individual – it certainly works for the providers….

But policy wonks are supposed to understand these collective action problems which generate long run harm for society as a whole.

Ironic that the Cullen nudge favours short term gain for individuals at the expense of the collective good.

Sunday, May 2, 2010

All xenophobes should read this….

IMMIGRANTS benefit America because they study and work hard. That is the standard argument in favour of immigration, and it is correct. Leaving your homeland is a big deal. By definition, it takes get-up-and-go to get up and go, which is why immigrants are abnormally entrepreneurial. But there is another, less obvious benefit of immigration. Because they maintain links with the places they came from, immigrants help America plug into a vast web of global networks.

Many people have observed how the networks of overseas Chinese and Indians benefit their respective motherlands. Diasporas speed the flow of information: an ethnic Chinese trader in Indonesia who spots a commercial opportunity will quickly alert his cousin who runs a factory in Guangdong. And ties of kin, clan or dialect ensure a high level of trust. This allows decisions to be made swiftly: multimillion-dollar deals can sometimes be sealed with a single phone call. America is linked to the world in a different way. It does not have much of a diaspora, since native-born Americans seldom emigrate permanently. But it has by far the world’s largest stock of immigrants, including significant numbers from just about every country on earth. Most assimilate quickly, but few sever all ties with their former homelands.

Consider Andres Ruzo, an entrepreneur who describes himself as “Peruvian by birth; Texan by choice”. He moved to America when he was 19. After studying engineering, he founded a telecoms firm near Dallas. It prospered, and before long he was looking to expand into Latin America. He needed a partner. He stumbled on one through a priest, who introduced him to another devout IT entrepreneur, Vladimir Vargas Esquivel, who was based in Costa Rica and looking to expand northward. It was a perfect fit. And because of the way they were introduced—by a priest they both respected—they felt they could trust each other. Their firm now operates in ten countries and generates tens of millions of dollars in annual sales. Mr Ruzo wants the firm, which is called ITS Infocom, to go global. So although he and Mr Vargas Esquivel natter to each other in Spanish, they insist that the firm’s official language must be English.

Trust matters. Modern technology allows instant, cheap communication. Yet although anyone can place a long-distance call, not everyone knows whom to call, or whom to trust. Ethnic networks can address this problem. For example, Sanjaya Kumar, an Indian doctor, arrived in America in 1992. He developed an interest in software that helps to prevent medical errors. This is not a small problem. Perhaps 100,000 Americans die each year because of preventable medical mistakes, according to the Institute of Medicine. Dr Kumar needed cash and business advice to commercialise his ideas, so he turned to a network of ethnic Indian entrepreneurs called Tie. He met, and was backed by, an Indian-American venture capitalist, Vish Mishra. His firm, Quantros, now sells its services to 2,300 American hospitals. And it is starting to expand into India, having linked up with a software firm there which is run by an old school chum of one of Dr Kumar’s Indian-American executives.

Ethnic networks have drawbacks. If they are a means of excluding outsiders, they can be stultifying. But they accelerate the flow of information. Nicaraguan-Americans put buyers in Miami in touch with sellers in Managua. Indian-American employees help American consulting firms scout for talent in Bangalore. The benefits are hard to measure, but William Kerr of the Harvard Business School has found some suggestive evidence. He looked at the names on patent records, reasoning that an inventor called Wang was probably of Chinese origin, while some called Martinez was probably Hispanic. He found that foreign researchers cite American-based researchers of their own ethnicity 30-50% more often than you would expect if ethnic ties made no difference. It is not just that a Chinese boffin in Beijing reads papers written by Chinese boffins in America. A Chinese boffin in America may alert his old classmate in Beijing to cool research being done at the lab across the road.

Network effects

In Silicon Valley more than half of Chinese and Indian immigrant scientists and engineers report sharing information about technology or business opportunities with people in their home countries, according to AnnaLee Saxenian of the University of California, Berkeley. Some Americans fret that China and India are using American know-how to out-compete America. But knowledge flows both ways. As people in emerging markets innovate—which they are already doing at a prodigious clip—America will find it ever more useful to have so many citizens who can tap into the latest brainwaves from Mumbai and Shanghai. Immigrants can also help their American employers do business in their homelands. Firms that employ many ethnic Chinese scientists, for example, are more likely to invest in China and more likely to do so through a wholly owned subsidiary, rather than seeking the crutch of a joint venture, finds Mr Kerr. In other words, local knowledge reduces the cost of doing business.

Immigration provides America with legions of unofficial ambassadors, deal-brokers, recruiters and boosters. Immigrants not only bring the best ideas from around the world to American shores; they are also a conduit for spreading American ideas and ideals back to their homelands, thus increasing their adoptive country’s soft power.

All of which makes the task of fixing America’s cumbersome immigration rules rather urgent. Alas, Barack Obama has done little to fulfil his campaign pledge to do so. With unemployment still at nearly 10%, few politicians are brave enough to be seen encouraging foreigners to compete for American jobs.

Tuesday, April 27, 2010

Too much……

I've always been grateful to Gene Lees for that story he told about Allan Broadbent. They were sitting on the terrace of a hotel with a couple of drinks, it was a perfect day and a young woman in a bikini walked by. She was absolutely stunning. Neither Lees nor Broadbent said a word for a moment as they watched her pass by, but when she had gone Broadbent turned to Lees and said, "...... and she really digs Bud Powell".