Friday, December 28, 2012

The Crucial Difference Between Wealth Creation and Wealth Distribution

From the Wall Street Journal:

In his Dec. 20 op-ed “America’s Dangerous Powerball Economy,” Arthur Brooks quite correctly points out that earned income, indeed earned success generally, affects our happiness very differently than unearned income or success.

I would like to extend his point further with something I’ve told my college students for years.

In general, the creation of wealth is edifying. When only voluntary transactions are permitted, the creation of wealth requires cooperation, and this brings out the best in us.

Piles of wealth, however, tend to be corrupting. The fixed nature of a pile is all about apportionment, not cooperation, and this zero-sum game tends to bring out the worst in us.

It follows directly that no matter how noble the ends, government redistribution (which is hardly voluntary) tends to bring out the worst in us. Rising government redistribution over the past 75 years has produced ample evidence of this point.

We are in this mess because we have allowed our culture to be dominated by those who are bent on spreading the false and self-serving narrative that our economy is a giant zero-sum game…

David C. Rose

Department of Economics
University of Missouri-St. Louis
St. Louis, Mo.

I note that much the same explanation accounts for the way families often squabble furiously over an inheritance while happily accepting the differing earning patterns of family members.

I further note that it is since the 1930s and the introduction of the welfare state that societies such as those found in the west have become increasingly concerned with the distribution of the pie to the point where that distribution now threatens the very production which makes it possible.


Sunday, December 9, 2012

Self interest rules–it’s what they do not what they say–even for Saint Warren

Economists stress the absolute importance of “revealed preferences” – what people actually do as opposed to what they say. Here is a classic example of why this simple principle is crucial:

Retailer Costco announced plans to pay out a special $3 billion dividend this year. As Reuters reports, "Several companies have declared one-time cash payouts in recent days ahead of a likely increase in the dividend tax rate due to the so-called fiscal cliff."

Other companies doing similar things include Sheldon Adelson's Las Vegas Sands, Dillard's, Brown-Forman, and Wynn Resorts Ltd. Apple started paying a dividend, and Walmart "moved its planned dividend to late December from early January to help shareholders avoid any increase in the tax rate," the Reuters article says.

The Costco move is particularly rich because the Costco board of directors includes Warren Buffett partner Charles Munger, who has said he is "100%" behind Mr. Buffett's "rule" that would impose higher taxes on the rich. It also includes WIlliam H. Gates Sr., the father of the Microsoft chairman. Gates Sr. has been a vocal advocate of tax increases in Washington State. The board also includes James Sinegal, a Costco founder, who spoke at the 2012 Democratic National Convention in support of President Obama. Also on the Costco board, as the lead independent director, is Hamilton E. James, who was part of that group who recently met with Secretary Geithner and President Obama at the White House.

And Mr. Buffett wants us to believe that tax rates don't affect business decisions? Why are all these businesses all of a sudden paying out dividends now?

Pro market not pro business is the name of the progress game thank you.

Extracts from Reuters and Future Capitalism.


Monday, December 3, 2012

A Great List

A monthly post looking at what books Abnormal Returns readers purchased at Amazon in the prior month has become very popular with our readers. It serves as a great list for readers looking for investment-related books for everyone on their holiday list. The top two books on the list were the subject of one our Amazon Money and Markets blog posts. Nearly 36% of purchases were of a single copy so I have omitted them. Below are the books (combined print and Kindle) that our readers purchased for November 2012:

The Bestsellers

  1. Mastery by Robert Greene

The Rest

  1. Hedge Fund Market Wizards by Jack Schwager
  2. Automate This by Christopher Steiner
  3. Instant: The Story of Polaroid by Christopher Bonanos
  4. Thinking Fast and Slow by Daniel Kahneman

Sunday, December 2, 2012

Difficult to disagree with

Posted in MR:

The retreat from child rearing is, at some level, a symptom of late-modern exhaustion — a decadence that first arose in the West but now haunts rich societies around the globe. It’s a spirit that privileges the present over the future, chooses stagnation over innovation, prefers what already exists over what might be. It embraces the comforts and pleasures of modernity, while shrugging off the basic sacrifices that built our civilization in the first place.

Here is the link.

Thursday, November 29, 2012

Appalling theft…..

This (courtesy of Cafe Hayek) is from page 92 of the 3rd edition (2009) of Douglas Irwin’s indispensable volume Free Trade Under Fire (link added):

Pareto‘s idea that the benefits of trade protection are highly concentrated, while the costs are highly diffused, has been a central point of departure for explaining the existence and persistence of import restrictions.

The U.S. sugar program, once again, illustrates this imbalance in costs and benefits.  Import restrictions have kept domestic sugar prices at roughly twice the world price.  The General Accounting Office estimated that domestic sugar producers reaped about $1 billion in 1998 as are result of this policy.  However, 42 percent of the total benefits to sugarcane and sugar beet growers went to just one percent of all producers; indeed, just seventeen sugarcane farms collected over half of all the cane growers’ benefits.  Clearly, the owners of these few farms have a powerful incentive to maintain the import restrictions.  Although the sugar policy imposes far larger costs on consumers of sweeteners ($1.9 billion [in 1998] according to the GAO) than are distributed to growers, consumers are far more numerous, and these costs are spread widely among them.

Sunday, November 25, 2012

Fixing Housing Policy with Education Policy

Apparently crazy house prices in Auckland (Herald 25th November) may result as much from education policy as from housing policy. 

Teacher unions are afraid of school league tables and performance pay. Meanwhile parents are using cheque books and housing prices to rank them anyway.

The housing market is the league table.

Home buyers and parent home buyers evidently do not believe all schools perform equally well across Auckland;

Home buyers and parent home buyers evidently do not believe learning and teaching involves identical teacher performance.

  • Currently they are prepared to pay any where between $250,000 and $500,000 above market value to get their children into schools they believe are high performers.

The converse is important.

  • Currently they are prepared to pay any where between $250,000 and $500,000 above market value to keep their children away from schools they believe are low performers.

Non parents selling out of the leafy suburbs are able to use their new found capital gains to bid up house prices all over Auckland.

The Ministry helpfully provides property value fences called zones to reinforce the effect. Meanwhile providers of education rock along merrily while house prices soar and reformers puzzle about land availability and construction prices.

Rip those zones out, install some serious performance evaluation measures such as those everyone else faces and the southerly  impact on house prices would likely be serious – right across the board.

Scary thing is – people paying huge educational premia in housing very likely believe they will recover their premia when they sell after the kids are educated – which tells you how big a threat they believe educational reform is.

Being too timid is costing us dearly.

Thursday, November 8, 2012

A little Milton seems apposite right now…

“The fantasy that the democratic act of centralizing and concentrating decision-making authority and responsibility in the state ensures that decisions are made better and more wisely and more ‘scientifically’ and in ways likely to promote greater human flourishing is the most absurd and dangerous – yet widespread – fantasy that afflicts modern humanity.  It is a fantasy to which academics cling with special and remarkably steadfast faith.”

Tuesday, November 6, 2012

Logic that’s tough to argue with….

Rakon plans to cut up to 60 jobs in New Zealand as part of plans to shift production to China.

The electronics company says some its crystal manufacturing output, which is used in mobile phones, can be made cheaper in its Chengdu plant.

Rakon's shares slumped to a low of 38 cents in August. Investors have been unhappy since the company reported its second annual loss in three years in May.

Managing director Brent Robinson said 60 of the 430 jobs at Rakon will go by early next year, but research and product development will remain here.

He said the move will help Rakon take advantage of a global growth in demand for smart wireless devices, and save $10 million per year, with 70% of that happening by April next year.

The company's shares rose 10%, or 4 cents, to 45 cents each on Tuesday.

Copyright © 2012, Radio New Zealand

Sunday, November 4, 2012

Nominal GDP Targeting–the simple description

By  Brendan Greeley on November 01, 2012

Scott Sumner finally got a cell phone last year. Almost everything else in his Newton (Mass.) apartment would be familiar to a time traveler from the Great Depression, right down to the steel barber’s chair and brass cash register. His new Mac confuses him. “I like old things,” he says. Sumner, who stands with the rounded shoulders of an academic economist, teaches at Bentley University in nearby Waltham. And by sheer force of will, he’s changing the way governments respond to economic crises.

On Sept. 13 the Federal Reserve’s rate-setting committee announced a third program of quantitative easing, which it vowed to continue until it saw substantial gains in the labor market. This open-ended commitment was a shift for the Fed, which in earlier rounds of quantitative easing had simply targeted a certain amount of bonds to buy.

The Fed’s decision under Chairman Ben Bernanke to alter course has roots in ideas about setting targets for a specific percentage growth in nominal gross domestic product. Sumner has quietly promoted this approach to central banking for nearly three decades, especially over the last four years on his blog The Money Illusion. Sumner concedes that he’s “someone who doesn’t really know people at the top levels of the profession.” But after influential economics bloggers, such as Tyler Cowen, picked up Sumner’s ideas, officials from Sweden’s central bank and the British government got in touch with him. At a press conference in November 2011, Bernanke had to field questions about Sumner’s theories. “Sumner deserves most of the credit here,” says Cowen. “He turned the idea into an intellectual movement—and through his blogging only. A pretty amazing feat.”

Sumner, who holds a Ph.D. from the University of Chicago, made a suggestion in the late 1980s to the New York Federal Reserve. He proposed that the Fed set a target for nominal GDP—real growth in GDP plus the rate of inflation. He felt that this would induce the correct level of business investment better than targeting either inflation or growth in real GDP by themselves. The response at the New York Fed, says Sumner, was, “Thanks, but no thanks.” He returned to Waltham and grew bored with monetary policy. “There was a sense that [central banks] had figured it out,” he says.

He revisited the subject in 2008. In his view, the Fed initially responded too timidly to the crisis out of fear of provoking inflation. He also wondered why Bernanke was forgetting his own work as an academic, when he studied the Japanese stagnation of the 1990s. Bernanke in 2000 wanted the Bank of Japan to adopt “lead targeting”—publicly stating an inflation target of 3 percent to 4 percent for a number of years as a way of inspiring confidence.

Sumner decided to start a blog that argued for his old idea of targeting nominal GDP, which in a crisis means expanding the money supply until you reach your target. It also means swallowing any fears of inflation. Sumner is well known in his department as a technophobe, and he triggered expressions of surprise and amusement when he informed his colleagues that he was starting a blog. He was also aware of his own obscurity. “I had a fairly low opinion of my ability to change the debate,” says Sumner. Later, though, he saw signs that he was breaking through. One example: When Christina Romer, head of the President’s Council of Economic Advisers, returned to academia at Berkeley in 2010, she added his blog to her class reading list.

The announcement by the Fed’s rate-setting committee in mid-September doesn’t contain any mention of targeting nominal GDP. But its open-ended nature and clear goals—pump up the money supply until hiring rises strongly—resembles Sumner’s nominal GDP model, which would have a central bank do all in its power to achieve an agreed-upon nominal rate of growth. Sumner thinks the Fed should shed its fear of the “zero bound,” the point past which a central bank can no longer lower interest rates. The zero bound is a psychological barrier, he says. It prevents policymakers from taking more aggressive steps to respond to financial crises—aggressive steps like targeting nominal GDP.

The bottom line: Targeting nominal GDP is gaining in popularity among economists, who see it as a new way to encourage business investment.

Greeley is a staff writer for Bloomberg Businessweek.

Wednesday, October 24, 2012

People really should think and think hard about this graph



In case graphs are not familiar:

  • look what 2000 – 2009 meant in 2009 – 2012 for the PIGS
  • contrast that with Germany.

HT Marginal Revolution


Friday, October 19, 2012

Three key questions for global growth

Here is the Economist’s view:

From anti-austerity protests in Europe to the US presidential campaign, you don't have to look too far for proof that a weak economy tops most people's concerns. The uncertainties holding back growth are widespread, but we think they can be condensed to three questions: whether the latest policies in Europe will help to save the euro; whether lawmakers can steer the US economy away from the "fiscal cliff" that looms in early 2013; and whether China's response to its economic slowdown will succeed. On all three fronts, my team of analysts and I think moderately favourable outcomes are likely. Our latest global outlook explains why economic conditions should improve a bit next year, and why we have raised our forecast for US growth.

I am a lot less optimistic for these reasons:

  • the woes of the EU essentially concern micro issues (notably labour markets and regulatory reform). Macro fiddling will not address those but do involve screwing the bondholders and investors needed to fund reform and transition;
  • it is tempting to reach the same conclusion regarding the U.S.  The case their highlights the dominance of distributional concerns over production concerns. It may be beyond the polity to draw back from distribution driven politics.
  • China is on the road to equilibrium which includes less risk and lower returns. Double digit growth is not on that agenda. That is not a problem but the west cannot expect China (or India) to provide infinite demand at prices the west loves.

I trust the difference between these views is one of timing not fundamentals.

Monday, October 8, 2012

Genuinely tragic statement of where we have got to…..

“Dr Norman (Greens Co Leader) said the Reserve Bank should print an extra $2 billion and buy Government earthquake bonds and replenish the Natural Disaster Fund by providing money for the fund to invest in overseas assets.

He said that would help reduce the need for overseas borrowing and send a signal to the market that New Zealand is prepared to act to protect its currency.”

It might have been nice to have thought he knew better…..


Saturday, October 6, 2012

Further impotence of monetary policy

Amongst  the several factors which render monetary policy impotent as a means for manipulating the economy through centralised playing with the levers, the forces which drove the RB of Australia to drop interest rates remind us of yet another.

When global times are tough and almost all central banks drop interest rates, a country which holds its rates suddenly finds itself running – through no choice of its own other than the choice not to follow suite – a tight monetary policy.

This is precisely where Australia and New Zealand find themselves, whether they like it or not, as other monetary authorities slide down through zero into quantitative easing.

While it is true in a technical sense that the decision to retain present settings is indeed a policy stance, the resulting relative position is one at least partially “forced” by external circumstances.

Central banks then are not masters of their own destiny regardless of their governance arrangements.


Thursday, September 27, 2012

Vulnerability of Economies Exposed to China

Most significantly – likely Australia…. the following are IMF estimates of impact within 12 months of a fall of 1% in Chinese fixed investment. Precision less important then the leverage into those exposed.


Tuesday, September 25, 2012

What is a “safe” sovereign bond ????

There are some more than interesting shifts in risk here…. from Euromoney’s country risk survey.



Saturday, September 22, 2012

Perennial problem for entrepreneurs

Mike Su, on building

"To build something exceptional, you must make exceptions. To build something scaleable, you cannot make exceptions"


Friday, September 21, 2012

As I say not as I do….. guess who

Photo of the Day

Sep 20, 2012 at 3:21 pm… from:

A vending machine in the front lobby of the Brooklyn Public Library, one of two dispensing the 20-ounce sugary drinks Mayor Bloomberg wants to ban.

Since Mayor Bloomberg is so determined to prevent privately owned New York businesses from selling sugary drinks in sizes larger than 16 ounces, you would think he might take action to prevent the actual New York City government agencies he controls from doing the same. Yet in the lobby of the central Brooklyn Public Library today, I encountered not one but two Snapple vending machines offering for sale non-diet beverages in 20-ounce bottles. All too often this is how government regulation works — the government tries to impose rules on the private sector, complete with penalties for failing to comply. But the government itself doesn't follow the rules it tries to make the private sector obey.


Tuesday, September 11, 2012

Where the west is headed…..

For those who believe the “fall of the west rise of the rest” hypothesis is incorrect…..



Tuesday, September 4, 2012

Sunday, August 26, 2012

Culture Sticks… just ask an astronaut

Tom Wolfe’s “The Right Stuff” documents the great schism played out in the 50s and 60s between the air force and navy airmen from the military and the space scientists and bureaucrats who were the forerunners of NASA in the space race and what we now know as the space programme.

The essential clash was between the airman who “flew”, the intrepid aviator culture, the dare devil courageous pilots – and the technocrats and physics driven guru engineers of the more modern age in which computers “flew” aircraft and the intrepid were passengers.

The ultimate intrepid aviator was the “test pilot” amongst whom Chuck Yeagar is the acknowledged all time hero. Test pilots indeed had the “right stuff” in every dimension.

There were numerous scraps over how much control (if any at all) the astronaut (a term not taken up with gusto by test pilots)  should have over the Mercury capsule and later the Gemini etc.

For all practical purposes the ultimate result was some mix of man and machine but with a heavy weighting to machine – astronauts could not be described and have not for the last 30 or more years as “pilots” in any sense implied in the earlier era.

The landing of the Curiosity surely underlines the argument.

Culture however is enduring – in life and in business.

The test pilot culture, the culture of “the right stuff” was so far reaching and enduring that today, in August 2012, with the passing of 82 year old Neil Armstrong – the first man to walk on the moon and surely the most famous astronaut of all time – I heard his fellow crewman of the Apollo moon missions Buzz Aldrin describe him as “the greatest test pilot I ever knew.”

Those seeking to change “culture” might reflect on this…


Tuesday, August 14, 2012

Can’t you just be blunt? Just for once?

The EU and its currency the euro are undeniably in a mess and still, even at this late stage in the second innings with possibly one wicket in hand and stumps looming the unwillingness to recognise why farce is turning to horror show persists.

Why? Leaders everywhere seem to be fatally infected with the worldwide western disease that threatens to prove terminal – inability to be blunt.

It started the first day a Microsoft marketing type called a problem an “issue” and it’s been downhill from there.

The entire EU endeavour was a rather pathetic attempt by Europeans to say "we're just as big as the Americans if not bigger" and then to try to build an economic bloc that matched the US to prove it - complete with currency. Utter nonsense based on ego, post war insecurity and the mistaken belief that size matters.

The tragic thing was always that the strength of Europe is likely the numerous high value niche economies, histories, cultures, languages - that unmatched richness and diversity which allows high margin production.

Look at the (increasingly former) margins in products, services and brands.... the guts of the dozens of valuable economies which should be what we term Europe.

The vast value which the Europeans gave away with Brusselised regulation, myriad weak kneed transfer payments to free riders and the collective "pea soup" blandness of closet socialism.

Can it be fixed? Of course. East Germany took, relatively speaking, no time to turn around. See too Estonia, Poland and on….

Does it matter – yes but not because the EU is important… but because this “issue” and how it got to be an “issue” is a poster child for the rest of the west.

The cure starts by being blunt… however red the faces.


Wednesday, August 8, 2012

Why do we need state branded marriage at all?

In the currently fashionable rush to assert positions of either so called “liberal” or “conservative” views on legislation to allow more or less same sex marriage, no one seems to ask  why on earth we need the state passing laws to “let us” or “prevent us” marrying?

We have gone to great lengths – and quite rightly – to ensure that irrelevant factors such as gender, race and age do not impinge on  people’s freedom’s, entitlements to such benefits as the state offers and to the obligations people face as members of the community.

The result is that the mere fact of “being married” is neither here nor there to the state and its governments in any sense which matters.

Yes its critical to some people and for a wide variety of valid, even commendable reasons – which is fine – but marriage is not some sort of “statutory instrument of policy” one would have thought.

Even using “marriage by statute” as a collateral administrative convenience is simply indulging bureaucrats who now have  more transparent and open means for collecting information or establishing legal status for this or that purpose.

Why then ought we to need:

  • legislation to “let people get married”; any more than we should have
  • legislation to “stop people getting married”.

Surely the role of the state is to be utterly agnostic on the matter and simply uphold the rights and freedoms which matter – rather than lending its legislative name to a meaningless statutory branding makeover?

A genuine liberal then, would be looking to ditch the statute not fiddle with its anachronisms.


Sunday, August 5, 2012

Just…. say what?

A currently popular “space filler” amongst the young who are our future is “just saying.”  What might this mean? There are a few possibilities:

  • I don’t really agree with what I am saying I am merely mouthing off;
  • there was a space in the conversation so I figured “best I fill it though I having nothing to say”
  • this idea is probably rubbish or easily shown to be subjective indulgence so don’t take me up on it;
  • I shall just ward off anyone who gets the idea they might perhaps, disagree with what I am suggesting here, so a bit of verbal defence is in order.

Whatever the meaning is supposed to be, there is idea that “although I am talking I don’t want anyone to take any notice or do anything different because of it.”

It is in fact a type of disclosed and declared conversational non event which at best registers my presence though not any idea or assertion I want to be held to.

Rather like a broken pencil then. Pointless. Does this matter. I’m not sure…  just saying.


Thursday, July 19, 2012

Mom and Pop – those filthy institutional investors

It would be helpful if the Australian born co leader of the N.Z.Greens with the sharp dislike of “foreigners” in general and Chinese in particular was to learn a bit about how Mum and Dad (Mom and Pop in investment terms) investors – beloved of many in N.Z. end up (verb chosen advisedly) investing in this country. Clayton Cosgrove could do a good deal better than pretend he doesn’t know as well….

Worldwide more than half the investment in equities markets is held by institutions. Those institutions include insurance companies (generating funds to help pay Mom and Pops claims), pension funds (helping pay Mom and Pop’s retirement), Building Societies (helping generate interest for Mom and Pop) and Investment Funds (generating returns for Mom and Pop). Even so called “friendly” institutions with Kiwisaver funds or the “Cullen” fund invest in institutions.

In large measure – institutions are Mom and Pop. As well as creating wealth for the “little guy” so beloved of various critics, institutions provide risk management by diversification – we know what happens when Mom and Pop try this on their own (they tend to concentrate savings in single asset classes like housing and finance companies).

Institutions provide governance services putting pressure on company boards, analysing company performance, reporting their findings to investors and the newspapers – in short they work for “Mom and Pop”…. and in ways Mom and Pop never could and at a lower cost.

Institutions buying shares sold in partial asset sell downs are therefore buying for Mom and Pop… as usual, there is no conspiracy – other than people telling you Morris dancing is normal.


Friday, July 13, 2012

Lesson from Sir James Goldsmith

“The private sector. This is the sector the government controls; the public sector is the sector no one controls.”


Monday, July 9, 2012

Does Rigging the Libor Matter – Very Doubtful

There has been no end of song and dance coupled with the predictable “told ya so” stuff from the hate bankers brigade over the so called rigging of the Libor. Jobs have been lost, mud has been flung, and prejudices confirmed.

The unimaginative hypotheses that “there are crooks in every business” and when the stakes are bigger the supply of crooks increases, have not been rejected.

But does it matter? Has any damage been done? If so who or what has suffered?

As with most economic issues, when analysing “rigging” two things are worth bearing in mind. First it pays to think beyond “round one” (rigging went on from at least 2005 till 2009) and, secondly, many apparent windfall gains or losses turn out to be zero sum games.

Market rigging is a competitive sport. As we have seen from the disclosures there was plenty of it, it was reasonably frequent and it is a safe assumption that more than a couple of the “riggers” knew there were other “riggers” who would be next up with the rigging.

One could – along with one’s bank – find oneself in the role of rigger or riggee.

Result? Because there might be money to be made with up or down rigging and there was competition it is difficult to see how sustained, systematic misallocation could occur. That may be why there was never sufficient evidence of systematic distortion as to uncover and confirm until various emails surfaced.

For sure the rules were trampled all over in the hope of systematic gain, and the assertions regarding objective benchmarking can be shown to be so much piffle but systematic material misallocation seems unlikely  - especially over any length of time.

So much for efficiency effects then. What about equity effects? Again over time it seems unlikely because of the competitive nature of the markets involved and the potential to gain and lose either through over or under specification of the rate.

Could specific instances of damage be identified? Absolutely – but users of Libor benchmarks are consistent and persistent investors and traders thus long run average outcomes  are what counts.

The key protection for the economy then is simply that some days you’re the windscreen and some days you’re the fly.

My colleague the Cactus has done a fine job analysing the (now) former Barclay’s CE trial by summons. His testimony is neither that of a crook nor a pimp.

All well and good then – but should we tolerate this type of behaviour and the types who persist in it? The answers are banal and ought not to carry too strong a whiff of the presbytery.

Breach of trust and good faith almost always leads to undesirable outcomes  and in this case the erosion of confidence, the fuelling of doubt and the betrayal of fellow professionals – and that in these most difficult of times – is unpardonable.

More interestingly there are better ways to have the function performed. A random number drawn from a published band would – given the efficiency of markets described above – serve better as well as being transparent and low cost.

This is one situation where it might be difficult to be “fooled by randomness” – to set Taleb’s book title to a different purpose.


Tuesday, June 19, 2012

What your taxes are doing

This – Radio New Zealand National news, 1:00 19-06-12

“After a four year review of beekeeping the Ministry of Primary industries is hopeful that very shortly it will be able to determine what constitutes a beehive.”

My goodness we’ve got a grip here in this country.

Sunday, June 17, 2012

America’s Crippling Regulatory Habits

Prof Bruce Yandle – Clemson University

There is more to the U.S. problem than Europe or even the past recession. There is a bias toward redistribution woven deeply into the economy’s fabric, a bias that works against productivity gains, innovation, and wealth creation. And it did not begin with Mr Obama or with Mr Bush, though their administrations strengthened the bias mightily.

The redistribution disease seems to have begun in the very early 1970s, perhaps in 1970 when Richard Nixon severed the dollar from gold.. It was then that the U.S. went on an amazing deficit binge. This was accompanied by a regulatory rush that gradually yet systematically introduced endless rules and constraints on how we work, what we produce, where we can produce, how we market things, and how we hire, just to name a few of the major rule categories.

Funded with deficit dollars, the regulatory establishment was able to grow more rapidly than federal revenues. From 1970 to the present, 2.5 million pages of new and modified rules have been published.

New pages in the Federal Register form a proxy for regulation growth. And the number of annual new pages divided by real GDP is a proxy for the overall economic burden of those rules. . Can an economy, even a strong market economy, digest this much government regulation without choking or at least sputtering?


Tuesday, June 12, 2012

Completely the wrong way around

An AP report in the Herald this morning shows just how far the world still is from “getting it” about collapsing western economies and the causes of the problem – it states that:

Spain has agreed to accept a bailout of its banks.

How magnanimous of it…. how generous of them to “accept” 100 bn euro.  We can readily imagine the week’s activity at other Euro banks… getting ready to “accept” no doubt.

Thursday, June 7, 2012

So Much for “the People”… a motley crew to be sure

Cafe Hayek reminds us of:

the four ‘biases’ that Bryan Caplan finds among the general public unfamiliar with the economic way of thinking. These biases are (in no particular order) (1) the anti-foreign bias; (2) the make-work bias; (3) the anti-market bias; and (4) the pessimistic bias.

It is well to be versed in these and their anti enlightenment logic… the better to deal with them.


Tuesday, June 5, 2012


The world’s most exclusive social network

Let’s swap emoticons
SOUTH KOREANS take romance seriously. Lovers are expected to swap sweet nothings many times a day and woe betide the clod who forgets a “100-day anniversary”. Some pairs dress in “couple style”, in the same garish red sweater and blue jeans combo, for instance. Small wonder that a Korean firm has created a social network for couples.
VCNC’s app is called “Between”. It creates a private space for two people, in which they can share photographs and special memories, chat in real time and exchange any number of cute “emoticons”: smiley faces, winks, hearts and so on. Though revolting to singles, Between is a hit. Since its launch in November, more than 560,000 Koreans have fallen for it. This comes despite VCNC spending virtually nothing on marketing. Park Jae-uk, the firm’s boss, claims another 200,000 users abroad, divided between China, Japan and North America.
Between is part of a trend towards intimacy in social networking. Some Facebook users are fed up with the torrent of “friend” requests from people they barely know. Others resent being tagged in embarrassing photographs their boss can see. Hence the rise of services such as Path, an American network that limits members to 150 friends. Other networks, such as FamilyLeaf and Storytree, target families.
VCNC is betting that couples particularly value their privacy. A message on one’s Facebook “Wall” from an old flame can incinerate a new relationship. Cutting the ex (and everyone else) out removes the risk. Cynics may ask how a social network for two differs from simply sending text messages back and forth. Between’s users presumably think the cynics lack romance in their souls.
Revenue will come from advertising. The firm hopes that nice restaurants and sellers of romantic holidays will pay to pitch to loved-up couples. It also plans to offer premium services, such as the printing of photobooks documenting the progress of a relationship.
Swingers may be miffed to learn that Between allows only one partner per user. But some cheaters have beaten the system by using multiple identities, laughs Mr Park. He is unlikely to join them. Running VCNC keeps him too busy even for one girlfriend, he laments.

The Economist

Monday, May 28, 2012


Why is it so rare to meet anyone who wants to be a Keynesian with their own money?


Saturday, May 26, 2012

Glass-Steagall Wouldn't Have Prevented the JPMorgan Loss or the Financial Crisis

Matt Welch | May 22, 2012

"Dealbook" columnist Andrew Ross Sorkin pokes a liberal sacred cow:

A meme around Glass-Steagall has been created, repeated so often that it has almost become conventional wisdom: the repeal of Glass-Steagall led to the financial crisis of 2008. And, the thinking goes, has become almost religious for some people, that if the law were reinstated, we would avoid the next crisis.

The facts — basic facts — just aren’t that convenient. While the repeal of Glass-Steagall has seemingly become the sine qua non of the financial crisis, it is pure historical revisionism. [...]

Glass-Steagall wouldn't have prevented the last financial crisis. And it probably wouldn't have prevented JPMorgan’s $2 billion-plus trading loss. The loss occurred on the commercial side of the bank, not at the investment bank. [...]

The first domino to nearly topple over in the financial crisis was Bear Stearns, an investment bank that had nothing to do with commercial banking. Glass-Steagall would have been irrelevant. Then came Lehman Brothers; it too was an investment bank with no commercial banking business and therefore wouldn't have been covered by Glass-Steagall either. After them, Merrill Lynch was next — and yep, it too was an investment bank that had nothing to do with Glass-Steagall.

Next in line was the American International Group, an insurance company that was also unrelated to Glass-Steagall. While we're at it, we should probably throw in Fannie Mae and Freddie Mac, which similarly, had nothing to do with Glass-Steagall.

More in that vein here. My favorite part of the column comes when Sorkin gets Democratic Senate candidate Elizabeth Warren to reluctantly admit that the restoration of Glass-Steagall probably would not have prevented everything she likes to rail against, despite her constant messaging to the contrary.

In my conversation with Ms. Warren she told me that one of the reasons she's been pushing reinstating Glass-Steagall — even if it wouldn't have prevented the financial crisis — is that it is an easy issue for the public to understand and "you can build public attention behind."

She added that she considers Glass-Steagall more of a symbol of what needs to happen to regulations than the specifics related to the act itself.

What the world needs less of: symbolic governance.

Reason came to similar conclusions about Glass-Steagall a little earlier in the debate.


Tuesday, May 15, 2012

Wednesday, May 9, 2012

Austerity Cuts? First You Need Some Austerity


Maybe Spain, flat perhaps in Italy, a genuinely Greek effort in Greece. The graphs do not of course show the tax increases.


Wednesday, May 2, 2012

Evidence…. invest to reduce poverty

Evidence of the wealth effects of investment for all society as noted in my last post:

The chair of the Philosophy Department of Yeshiva University, James Otteson, has a piece published by the Manhattan Institute on "The Moral Case for Capitalism." It takes the long view:

Since 1800, the world's population has increased sixfold; yet despite this enormous increase, real income per person has increased approximately 16-fold. That is a truly amazing achievement. In America, the increase is even more dramatic: in 1800, the total population in America was 5.3 million, life expectancy was 39, and the real gross domestic product per capita was $1,343 (in 2010 dollars); in 2011, our population was 308 million, our life expectancy was 78, and our GDP per capita was $48,800. Thus even while the population increased 58-fold, our life expectancy doubled, and our GDP per capita increased almost 36-fold. Such growth is unprecedented in the history of humankind. Considering that worldwide per-capita real income for the previous 99.9 percent of human existence averaged consistently around $1 per day, that is extraordinary. What explains it? It would seem that it is due principally to the complex of institutions usually included under the term "capitalism," since the main thing that changed between 200 years ago and the previous 100,000 years of human history was the introduction and embrace of so-called capitalist institutions—particularly, private property and markets.

HT Future Capitalism blog


Ditching envy in favour of diminishing poverty

There is a crying need to understand this point in N.Z…… even if Conard is a spot optimistic Baker is average to gloomy here. The need to fuss over the size of the pie not the way it is sliced remains critical:

The idea that society benefits when investors compete successfully is pretty widely accepted. Dean Baker, a prominent progressive economist with the Center for Economic and Policy Research, says that most economists believe society often benefits from investments by the wealthy. Baker estimates the ratio is 5 to 1, meaning that for every dollar an investor earns, the public receives the equivalent of $5 of value. The Google founder Sergey Brin might be very rich, but the world is far richer than he is because of Google. Conard said Baker was undercounting the social benefits of investment. He looks, in particular, at agriculture, where, since the 1940s, the cost of food has steadily fallen because of a constant stream of innovations. While the businesses that profit from that innovation — like seed companies and fast-food restaurants — have made their owners rich, the average U.S. consumer has benefited far more. Conard concludes that for every dollar an investor gets, the public reaps up to $20 in value. This is crucial to his argument: he thinks it proves that we should all appreciate the vast wealth of others more, because we’re benefiting, proportionally, from it.

NYT: Magazine 1 May


Sunday, April 29, 2012

Communicating Policy – An Abject Failure in N.Z.

When 9,600 people march down Queen Street protesting against partial privatisation you know you have an abject failure to communicate policy adequately.

Privatisation is, on average, a global policy success and is understood and in full swing across the globe in cultures and economies as disparate as Somalia, Nigeria, Rwanda, Russia, the UK, the EU, Japan, South East Asia, the U.S. and Australia – amongst numerous others.

In China in the late 90s some 3,950 state businesses were “partially privatised”. It’s difficult to argue that wasn’t a success.

Why then in N.Z. don’t we “get it”?  Very simply because no one has explained in simple terms why it is a good policy which creates benefits.

Why not? Very simply because at least half the people implementing it don’t understand why it is a strong policy, how it works and they are confused about the criticisms. Worse they don’t seem to care.

They think it feels right. Not good enough – by far.

Plus the “spin doctors” employed to sell the policy don’t understand it or why it is a good idea. Rather than put some brain work into understanding the economics, they spit out politically driven clich├ęs which they fondly believe will “bring people round”. Clearly another fail.

No wonder journalists reporting such “spin” are wildly confused as well.

National Governments have never been renowned for taking a strong analytical interest in policy. That might be defensible – as the ever eloquent Rachel H. once said “we don’t all have to be brain boxes.”

But they do employ people who are supposed to understand and communicate policy.  Those people – their communicators - do their political masters a vast disservice by either failing to understand or failing to communicate or both.

Meanwhile the economy suffers as the stage is cleared for those with other agendas to strut loony tunes about the wonders of the state as a great investor.


Monday, April 16, 2012

Justice without fear or favour–at a price

In a TV Close Up investigation of the recent conviction of Directors of failed finance company Lombard Finance Ltd, the Chief Executive of the Financial Markets Authority stated that the law had to be applied without fear or favour to everybody. Quite. This is, as I understand it, the lay persons’ understanding of how the legal system works.
Consequently, being a knight of the realm, as one of the directors is, makes absolutely no difference to ones treatment before the law. Again. Quite right it would seem. How else could we observe fair treatment before the law?
Asked, however, why these particular directors had been chosen amongst many who might have been charged, the Chief Executive stated that the FMA had criteria it used in picking whom to prosecute. These criteria include (inter alia presumably):
  • the amount and quality of evidence the Authority has to prove the case and get a successful prosecution; and,
  • the ability of those they prosecute to pay any fine which might be imposed by the Court.
This has to be worrying logic – presumably if the evidence is a bit shakey and one is fairly broke one needn't worry too much about the law?
Thankfully only in the fantasy world of securities regulation do we find this type of tortured thinking which is as hopelessly flawed as the idea that regulation can save investors from the world and themselves.

Monday, April 9, 2012

Maori Battle Goldman by Mount Doom as New Zealand Sells Assets

Here’s how the N.Z. asset sales programme looks – along with the country and some of its history and current players – to Bloomberg reporters:

A bus full of bankers from Goldman Sachs Group Inc. (GS) and other lenders bounces down a dirt track in New Zealand’s North Island to survey sites that are dividing the nation, pitting John Key’s government against Maori who have lived here for centuries.

Near the volcano that film director Peter Jackson chose as Mount Doom in his “Lord of the Rings” trilogy, the bankers view a drilling rig shipped from Iceland that has bored 1,100 meters (3,600 feet) of a geothermal-power well for state-owned Mighty River Power Ltd. The company plans to sell shares this year in the first of four initial public offerings Key says will help raise as much as NZ$7 billion ($5.7 billion), the nation’s biggest asset sale in two decades.

Some Maori say the sales violate the 172-year-old Treaty of Waitangi, New Zealand’s controversial founding document that gave the indigenous people rights to their land and resources. They’re mounting a legal challenge to the IPOs that Key says will raise money for schools and roads after the country lost its top credit rating because of mounting debt.

“Overseas investors just really want to understand what it is they’re buying into,” said Mai Chen, who founded Wellington- based law firm Chen Palmer with ex-prime minister Geoffrey Palmer. “What they don’t understand is this black box called the Treaty of Waitangi.”

Maori want to stop their “taonga,” or treasures, from being controlled by private investors who the government says won’t be liable for any unresolved Treaty claims. The companies make power from resources including rivers and underground steam in areas of scenic beauty. Most of the nation’s 4.4 million people oppose the sales, with Maori opponents saying they turn a sacred life force -- water -- into a commodity.

Five Sales
The government plans to sell as much as 49 percent of Mighty River in the third quarter on the New Zealand stock exchange and replicate that with Meridian Energy Ltd., Solid Energy New Zealand Ltd. and Genesis Power Ltd. over the next five years. It will also reduce its 73 percent stake in Air New Zealand Ltd. (AIR) to as low as 51 percent. The timing and order of the other IPOs haven’t been decided.

Goldman, Credit Suisse Group AG (CSGN) and Macquarie Group Ltd. (MQG) are among banks that stand to gain fees from the sales. All three declined to comment.

To damp public opposition, Key said 85 percent to 90 percent of the companies will be owned by New Zealanders on completion of the IPOs. Overseas investors can build bigger stakes by buying shares in the market after that, State Owned Enterprise Minister Tony Ryall said in a telephone interview.

‘Raped and Pillaged’
“Once those resources become commodified and put on to the financial marketplace, they are raped and pillaged to maximize profit for the shareholder,” Hone Hariwira, leader of the one- seat Mana Party, said in an interview. “There’s no holding back in that world, and that’s not something that indigenous people see as being an intelligent future.”

New Zealand’s land and resource ownership has fueled wars and racial tension since James Cook claimed the islands for Britain in 1769. The 1840 Treaty of Waitangi promised the Maori undisturbed ownership of their land, forests and fisheries in return for becoming British subjects. Alleged breaches of the treaty have split national opinion since the 1970s when Maori -- now 15 percent of the population and with almost triple the white unemployment rate -- began seeking redress.

The New Zealand Maori Council filed two claims in February with the Waitangi Tribunal, an independent panel. The council argues that Maori rights to water and geothermal resources have been denied and the IPOs should be stopped. While the tribunal can only recommend actions to the government, it has helped return about NZ$1.2 billion of cash and property to Maori complainants since the early 1990s.

Unresolved Rights
Nobody owns the nation’s water, the New Zealand Herald reported Key as saying in February. A 2009 cabinet paper said Maori water rights “remain undefined and unresolved.”

“There’s no doubt that it needs to be resolved,” said Chen in an interview. The tribunal last week granted the claims urgent hearings, which are likely to be heard before the IPO of Mighty River, she said.

The dispute follows a public outcry over the government’s January approval of the sale of 16 dairy farms to China-based Shanghai Pengxin Group Co. Opponents including the three-seat Maori Party said parts of New Zealand were being sold off to the highest bidder. That deal is being reviewed after a rival bidding group of local dairy farmers led by businessman Michael Fay successfully appealed in court.

Telecom Sale
Key’s sale program is New Zealand’s biggest since the government raised about NZ$10 billion between 1988 and 1990, including the sale of Telecom Corp. of New Zealand Ltd. to U.S. phone companies, government figures show.

The country lost its top credit rating at Standard & Poor’s and Fitch Ratings in September. Fitch said that a “key vulnerability” was New Zealand’s high level of net external debt, which fell to NZ$146.2 billion, or 72 percent of gross domestic product, at the end of last year.

Mighty River, which sells electricity to more than 370,000 customers, has been showing bankers and lawyers around its power stations, workers told Bloomberg News during a site visit. The company operates hydroelectric and geothermal stations near Lake Taupo, New Zealand’s biggest lake, where tourists jet-boat through river rapids or take winter skiing holidays on Mount Ruapehu, Jackson’s setting for the fiery Mount Doom.

Almost two thirds of voters in a One News Colmar Brunton poll this week opposed the planned sales.

‘Lost and Confused’
“This isn’t an asset sale. It’s a sell-down of a minority shareholding in the company,” Doug Heffernan, Chief Executive Officer of Mighty River Power said in an interview at the company’s Auckland offices. “That point has been lost and confused in the public’s mind.”

Stephen Franks, a Wellington-based lawyer who advised on previous state asset sales, said the Maori council is unlikely to stop the sale and is pressuring the government for a stake.

“The Maori strategy is essentially to raise enough dust and enough smoke and problems that it becomes worthwhile to the government to buy them off before the offerings,” said Franks, previously a member of parliament for the ACT party, which has one seat and is in coalition with Key.

Maori groups are seeking “a substantial shareholding interest” in the  POs as one form of compensation should the sale go ahead, the Waitangi Tribunal said last week. Some Maori oppose the indigenous council’s claims after already settling with the government and forming successful joint ventures with companies such as Mighty River for years.

Harawira last month wrote an open letter to overseas investors, warning them to “steer clear” of any share offers, or they may be “caught up in legal battles and direct action from citizens determined to protect their own interests.”

“The assets involve natural resources and to us, those are taonga and belong to the inhabitants of this place,” Pita Sharples, co-leader of the Maori Party, which is also in coalition with the government, said in a telephone interview. “It’s part of our cultural and spiritual identity -- the water and the mountains and the forest.”


Saturday, April 7, 2012

The Trouble with Pushing People Around–More KiwiSlaver Problems….

It appears there is some disquiet about the default provisions of the KiwiSaver scheme. At present some six relatively lucky providers are the “default” providers for those savers who find themselves compelled by law to donate their hard earned to the Kiwisaver scheme and forget, fail or otherwise do not nominate who that provider should be.

In the interests of the great egalitarian state and “fairness” one of six (actually five since one of them owns two of the providers) carefully selected providers are chosen to receive such funds on a random basis as the default provider.

The unsolicited punter can change to a different provider if he or she wishes. Personal experience tells me that in fact the process is somewhat bureaucratic and takes the expected length of time any transfer run by a government sponsored scheme would be expected to take.

Being one of the providers is fairly helpful. It is helpful not just for the fact that one gets a certain guaranteed stream of funds and attendant fees, but – and the Herald article along with the commentators seem to completely miss this point – it means that with the dice assuring one that one will get ones share, there are five other competitors one need not worry about.

And these are not just any competitors. They are for any given fund manager the five other largest competitors in the market. Not having to compete with them because the dice is ensuring you get a good lick at what is going is very helpful indeed.

The providers are well aware of this of course. Evidence for this comes from “our man from Tower” popping up and declaring that, sadly, they have barely broken even having sunk an enormous amount of money into establishing themselves as a provider and ensuring that the punter gets a great service.

His conclusion is the oft quoted and ever helpful, quaint and folksy “If it ain’t broke don’t fix it”. Clearly it is not broke from his point of view. The last thing he needs is someone “fixing it”.

The Herald article and commentators suggest a variety of solutions. Unsurprisingly their first port of call is that “the State” should provide a default service. Brilliant. If the State’s well-known acumen in the finance sector is to set the benchmark then again one wouldn’t be too worried about the standards that one is likely to have to meet down in the provider bazaar.

What seems to be missed in this commentary and others is that the net effect of having a default provider system with six carefully mandated and selected providers is two-fold:

  1. It means these providers don’t have to compete with one another to get Kiwisaver business. Inhibiting competition like this results in outcomes we are all too well aware of; and,
  2. Various drivel about consumers and investors not being able to choose for themselves simply continues a situation where citizen knowledge of investment continues to be poor. If punters can’t decide which provider to use or are unaware of which provider they ought to use then it is more than high time they learnt.

Good financial outcomes in New Zealand require better education amongst consumers. Squashing incentives to learn and become educated in matters of risk and return involves the same arrogant paternalism that led to the need for the Kiwisaver scheme in the first place.

If, of course, these providers produce such wonderful results and provide such an incredibly competitive service that they are without peer then they have nothing to fear from open competition. Putting selected default provider status utterly to the axe would be a, shall we say, “fair” test of their claim.


Thursday, March 15, 2012

The right way to make money

A critical point totally lost on the non economists…. 

by RUSS ROBERTS on MARCH 14, 2012


People are making fun of this piece by Greg Smith where he talks about his disillusionment with the culture at Goldman Sachs. Smith claims the only focus at GS is making money and people openly disdain the customer. He’s being mocked for thinking it could possibly be otherwise.

But I was reminded of this 1950 quote from George Merck who was president of the pharmaceutical company:

We try never to forget that medicine is for the people.  It is not for the profits.  The profits follow, and if we have remembered that, they have never failed to appear.

If you focus on making money, you end up making a lot of bad decisions. Paradoxically, if your goal is to make money, it’s better to think about making a great product, making the customer happy and so on with the constraints of making money along the way. The best corporate cultures encourage excellence, not the bottom line.

The bottom line matters of course, but if that’s your focus your long-run results may be quite poor. No corporation that I know of has as its motto: make as much money as possible! And I don’t think it’s just public relations. A great corporation with great profits gets its workers to focus on the consumer and uses other mechanisms to make sure the employees don’t bankrupt the company by being too generous with prices or quality.

EconTalk listener Andrew Hedge points out that Smith’s time at Goldman began when Goldman had just gone public noting that Emanuel Derman also views the post-IPO Goldman as a less attractive company than when it was a partnership.

I suspect that when Goldman was a partnership risking more of the partners’ own money their bets were more prudent than today when they are able to use a lot more leverage with a lot less equity. I’m sure their culture was different and that it eroded slowly at first.


Saturday, March 10, 2012

Buffett and Bono turn bozo

Just as rock stars ought to stick to music and eschew politics so investors – no matter how great – should stay away from public policy analysis and prescription.

Warren Buffett’s venture into tax policy has been an unmitigated disaster as well as an embarrassment because he broke his own rules  - he erred and strayed into areas he knows nothing about.

I guess it helps to know your favourite investment analyst is human, but…..

The lawsuit against the IRS by Warren Buffett's Berkshire Hathaway subsidiary NetJets to avoid paying $643 million in taxes that the IRS said it owed was the subject of a post here back in November. Now, the Huffington Post reports, NetJets paid $2.5 million to lobbyists who got Congress to change the law so the company doesn't owe the tax. From the bio of Jeff Munk, who the Huffington Post says led the lobbying effort:

Prior to joining the firm, Jeff served as Legislative Counsel to U.S. Senator Kay Bailey Hutchison (R-TX). Today, Sen. Hutchison is Ranking Republican of the Senate Commerce, Science & Transportation Committee. While with Sen. Hutchison, Jeff developed and executed the senator's major legislative initiatives and counseled the senator on policy issues and floor procedures. He was the Senator's key counsel on taxes, trade, appropriations, environment, and regulatory issues.

The revolving door strikes again.

Let it be said, too, that a $643 million return on a $2.5 million lobbying investment is a pretty good return on investment even by Warren Buffett standards.

Never mind the hypocrisy of the fact that the tax savings Mr. Buffett realizes here far outweighs whatever additional he would pay under the proposed "Buffett Tax."

From Future of Capitalism


Wednesday, February 29, 2012

Stop whinging about partial asset sales–try something with real balls.

The French village of Courbefy, in Limousin, a region in central France, has been put up for sale for the seemingly low asking price of $436,370, according to the Telegraph. The village, which includes 19 buildings and a swimming pool, was once home to about 200 people. But after the town failed to transform itself into a tourist destination, local residents say it’s now filled mostly with “thieves, drunks and squatters.”

But Courbefy isn’t the only town to go up for sale recently. Last April, a medieval village in the central Italian region of Abruzzo was put up for sale for about $770,000, according to a separate Telegraph report. The village, which is largely uninhabitable, includes 11 “crumbling stone buildings” and a half-ruined 13th century church. More recently, the British village of Askham Richard near York, went up for sale with a price tag of more than $10 million.

Here is more, and for the pointer I thank Daniel Lippman via Tyler Cowan.

The magnitude of the micro econ problem in the EU

The EU is likely the worst example of production and growth utterly mired in labour market problems. The auto industry is a case in point. Some auto makers are doing well  - growth in sales, export opportunities and so on. Those that are failing however are doing that  in the grandest of styles.

Production costs are the chief problem. The following numbers provide a microcosm of the French economy, the EU and indeed the West:

  • it is 1,300 euro cheaper to make a Renault Clio in Turkey than in France. The key component in the cost difference is labour – too many workers and each one grossly more expensive than those in Turkey; and,
  • to change that? Just 200,000 euro per worker layoff. The Opel Vauxhall factory – long identified as needing to be closed would cost 8 billion to close.

Clearly unsustainable. It’s that simple – and that complex. Without minute exceptions only western labour markets all look like some version of this and the cost of changing – under present rules look like these as well.

Monday, February 27, 2012

Weasel words can’t hide it…..

When I entered local govt in 1982 I was told “the local body is not a viable endeavour”.  The guy who told me that made a living out of it and on it…


but he was, nonetheless, largely correct in his prognosis. This graph (NZ Listener) starts in 1993. Now in 2012 we simply have Greece lite - and the Council likely own the olives.  Is there really no scope and hope for change?


Wednesday, February 15, 2012

What is everyone else doing?

Courtesy of Ajay Makan and Dan McCrum at the FT, Barclays Capital estimates that based on reporting thus far earnings growth for S&P 500 companies was 7 percent in Q4. But if you strip out Apple, that plummets to 2.9 percent.

One company, in other words, is responsible for most of the earnings growth among the large cap firms in the index.

HT Marginal Revolution


Monday, February 6, 2012

Reality of Financial Systems

Sebastian Mallaby is a financial journalist with a strong understanding of the financial economics of capital markets. He is author of More Money than God which describes, explains and analyses the hedge fund phenomena. 

The following description of the financial system from the FT is accurate.

Most critiques of modern finance miss the mark. There is no point hoping, for example, that armies of Dodd-Frank enforcers will ever render finance truly stable. Finance is a system of promises about an uncertain future; barring the advent of some magical prediction machine, regulation cannot change that. Currencies will rise and fall; interest rates will fluctuate; some companies will succeed while others go bust. A good financial system will absorb these risks without taxpayers picking up the pieces. But the risks will still be there; financial firms will still blow up.

It also shows why people find the whole business a little hard to swallow, why conspiracy theories are so attractive, denial is to be found everywhere and politicians figure they can “fix stuff” – all responses which are – in the words of the immortal Black Adder – like a broken pencil - “pointless”.


Saturday, February 4, 2012

Good sense on SOPA

From Jon Chappell at Harmony Central – a musicians forum

Dear Musician,

SOPA-riffic! The loose but vocal collective that are the denizens of cyberspace achieved a small and perhaps temporary victory last week when several prominent bipartisan members of Congress—and the White House itself—withdrew their support for the proposed House of Representatives bill known as SOPA (Stop Online Piracy Act). The bill will now have to be re-drafted.

All of this was the result of the great hue and cry sounded not just by individual cybercitizens but many big organizations (like Wikipedia and Google), some of whom took their sites offline for a day to register their protest. At issue with SOPA, and its Senate counterpart, PIPA (Protect I.P. Act), is how much power the government should have in punishing those who allow access to websites that engage in piracy (the "P" in SOPA), or the illegal trafficking of copyrighted material, most of which is in the form of movies, TV shows, and music.


No reasonable person is in favor of piracy. And many people were reacting to the source of SOPA's authorship—the entertainment industry—rather than the content of the bill itself. After all, Big Media (including movie studios, networks, and the record companies) are notoriously parochial and primitive in their attempts to deal with the illegal copying and distribution of their properties.

But whether you begrudge the entertainment industry their profitability or not, you darn sure don't want them in control of the Internet, nor do you want them to be the authors of the legislation that enables their ham-handed tactics. (My longtime favorite example of this is the anti-piracy warning that precedes rental videos, where viewers must sit through an insulting and non-fast-forwardable screen—complete with FBI logo—about how you'd better not be stealing this movie.)

That doesn't mean the points raised in the now-scuttled bill aren't without merit. The movie industry doesn't profit unless it can make money for its Spielbergs, Lucases, Woody Allens, and Michael Bays—the creators and artists behind the industry. This obviously trickles down to the mere mortals—writers and film score composers, session musicians who play on these recordings, and everyone connected to the entertainment business in which we all strive to succeed. No one wants their stuff given away for free. Not if you hope to be a professional at it.

But protecting copyrighted work doesn't mean that industry-drafted regulations are what's called for, either. Imagine YouTube not existing because some material wound up being posted that hadn't cleared the copyright bar. Or shutting down Facebook and Twitter because someone posted a link to a copyrighted video. What next—sanctioning Google for returning a search result that lists a torrent site in Russia? That's what the broad language in SOPA's submitted form was calling for.

Swift justice for wrong-doers might be appealing, but the other side of that coin is the “law of unintended consequences”—the phenomenon where passing a law to address one problem results in a greater detriment somewhere else. (Consider 1920s prohibition, Africanized bees in South America, and our own vicious political climate, courtesy of Citizens United v. Federal Election Commission.) That's what people are afraid of here.

We need to protect the content producers and their publishers. I don't want to be in a profession that doesn't do that. And to be sure, there has been misinformation in the protest language, too. But we musicians—as the ones who are ultimately affected by copyright laws—must be fully informed as to when our rights are being protected versus when our industry overlords are overreaching in their authority. Because one thing's for sure: that legislation is coming back, just in a different form. And when it does, we need to be ready, and we had better be educated.
— Jon Chappell


Thursday, February 2, 2012

Why is the quality of American Governance Low?

Frank Fukuyama writes:

Conversely, I would argue that the quality of governance in the US tends to be low precisely because of a continuing tradition of Jacksonian populism. Americans with their democratic roots generally do not trust elite bureaucrats to the extent that the French, Germans, British, or Japanese have in years past. This distrust leads to micromanagement by Congress through proliferating rules and complex, self-contradictory legislative mandates which make poor quality governance a self-fulfilling prophecy.

The US is thus caught in a low-level equilibrium trap, in which a hobbled bureaucracy validates everyone’s view that the government can’t do anything competently. The origins of this, as Martin Shefter pointed out many years ago, is due to the fact that democracy preceded bureaucratic consolidation in contrast to European democracies that arose out of aristocratic regimes.

I note that very similar arguments can be applied in NZ given its anti class sentiment upon settlement.

HT Marginal Revolution.


Saturday, January 21, 2012

At first glance… look more closely please

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

Mankiw writes:

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

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

Saturday, January 14, 2012

Where freedom to choose sits…

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

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