Sep

3

Apple misses the TV game again

Joshua Gans | Leave a Comment

TV is a mess. It is hard to navigate to what you want to watch without having to deal with a mess of technology and diverse business plans rooted in crappy copyright laws. Everyone knows it and for ages we have waited for someone to cut through it and fix it.

Apple has had ambitions on this for years and has offered a few contributions. First, it put TV and movies on iTunes so you could watch a computer connected to a TV. Second, it put TV and movies on iPads and let you play them on a TV. Third, it developed Apple TV — a glorified iPod — to do the same thing. Each has helped but each suffers from the overall flaws in the system.

People had hoped that Apple’s new Apple TV device might solve that. It hasn’t and so it is time to reflect on why. (By the way, it all sucks for Australians as there is no TV rentals anyway so my reflections here are for the US). Read more

Sep

3

What does HDR mean for photos?

Joshua Gans | Leave a Comment

Apple announced yesterday that it would be building HDR processing into its iPhone camera. There is already an app for that and the two pictures here that I took the other day show you what it means for pictures.

Sep

2

Ping’s big flaw

Joshua Gans | 3 Comments

Apple introduced a new social network yesterday — Ping. Ping basically allows you to share your iTunes music, video and other interests with you friends. On paper, it is a great idea as it integrates an existing social network into an existing payment and shopping network. This provides a route to monetisation that has eluded many others. Do this for apps and books as well and this might be significant. As I have written before, sharing your electronic tastes is a gap waiting to be filled.

So I downloaded iTunes 10 and fired up Ping this morning and immediately realised a big problem: our iTunes account is a family account. Not only are the tastes of the two adults in the house mixed but we have the children polluting our preferences as well. If I let lose this on my friends, they will think I have a troublesome fondness for Hannah Montana. If my kids let this lose on their friends, I suspect they will suffer the social damage of people who still like ELO. Not to mention that your past interests are weighted the same as your current ones. This same issue has plagued Genius recommendations.

This is a longstanding issue that Apple needs to deal with. The simple solution would be to allow family accounts to break down into individually assigned ones more easily. I suspect there is a mess of copyright and hurt in the way of that but without it this social network I think is on a path to failure. For now, can I interest you in some Mika, Glee or OK Go? We all seem to like that in the Gans household.

Aug

31

China’s central bank governor and the USD

Mark Crosby | 8 Comments

There are at the moment some unconfirmed reports that China’s central bank governor, Zhou Xiaochuan, has defected to the United States. Among the reasons given for his possible defection are large losses made by the central bank on investments in US Treasury Bonds. One can only speculate at this stage, but presumably the next central bank governor would be a lot more reluctant to invest in US assets! Which will make the financing of the US public debt much more challenging, as well as lead to a much weaker USD. A story worth watching!

Aug

29

Newspapers, aggregators and the ABC

Stephen King | 13 Comments

I wrote an Op Ed for the AFR a few weeks back that has sparked some debate. Rather than attempting to debate by e-mail, I reproduce the Op Ed below and hope that the debate can continue through this blog. Read more

Aug

28

Toilet explorations

Joshua Gans | 3 Comments

As part of my on-going commitment to keep you up to date with the latest urinal and toileting thinking, I have to report today to this Dear Economist quandary posed to Tim Harford:

When I travel I am faced with a difficult choice: which of the toilet booths to use in offices or hotels. I always try to guess which one is the least used.

Harford responds by appealing to the efficient markets hypothesis that suggests that there will be an equilibrium whereby all toilets will on average be equally clean. Of course, this equally suggests that there is nothing special about traveling: toilets will be on average equally clean at your own office too. Note that with a sufficient amount of use this will be true even if there are toilet choosing biases of the form Harford speaks about. After all, it takes a number of rational choosers to balance this out.

What he hints at but fails to see the gravity of is the insufficient incentives for people to investigate toilet cleanliness and the potential externality poses by dirty toilets being even occasionally overused. Anyhow, as ever, the issues here have not been fully worked out — certainly by hard nosed academic researchers. (Yes I intended the pun!) May be a good opportunity for someone to signal their lack of interest in Harvard.

Aug

28

Signalling academic immobility

Joshua Gans | 1 Comment

Tim Harford looks at signaling by criminals. In the process, comes this remark:

Other signals seem perverse. Gambetta describes a convention in Italian academia for some established professors to celebrate the poor quality of their published work. This, he says, is a credible signal that they cannot jump ship for somewhere like Harvard – so will remain in Italian academia as powerful patrons.

That does seem perverse. It also seems a self-serving excuse for low productivity in a low incentive environment. Surely, the way to signal a commitment not to become a Harvard professor but to otherwise want to contribute to society is to publish exclusively in the popular press.

Aug

25

Gillard’s future if the coalition forms government

Stephen King | 3 Comments

The counting currently has the Coalition likely to win one more seat than Labor. And while this doesn’t mean that the independents will support an Abbott government, it does raise the issue of the future direction of the ALP. With likely state level defeats in the near future in NSW and Qld, a loss of government at the federal level means that there may be a ‘call for blood’ by some sections of the party. In particular, will Gillard be blamed for the loss and replaced? And if so, by whom?

I will not speculate on the second question, but on the former, I think it would be a major loss for the ALP and for Australia if a post-election blood bath leads to a change in leadership for the ALP. Gillard was impressive during the election campaign. While there has been a focus on Abbott’s ‘surprising’ success, the campaign was very much about the two individual leaders (hey – there were not many policies to focus on). The campaign showed that the two leaders, despite there differing styles, could relate to the electorate and handle themselves well. Indeed, the campaign was notable for the lack of significant ‘others’ shining in either party. It was the Tony and Julia show. So even if the outcome of the weekend is a coalition government, I for one hope that our first female Prime Minister gets another chance to apply to the electorate for the job in three years time.

Aug

25

The right political career investment

Joshua Gans | 5 Comments

Thinking of a career in politics or public life? Then have I got the opportunity for you. The most economically-qualified person to ever hold elected office in Australia is looking for staff (advertisement and details over the fold). This has got to be the horse to back for a long-term investment in political leadership and you have a great chance to get in early. I’m sure, for the right candidate, the pay is well below market opportunity but think of the signal you’ll be sending by accepting that pay.

Also, mentioning that you read the ad on this blog will surely not go astray.

Read more

Aug

25

A rant about ABC’s copyright policies

Joshua Gans | 4 Comments

The other day, frustrated that while I could read ABC reporters comments on Twitter about an ABC news program, I wasn’t permitted — by ABC — to watch that program outside of Australia, I announced that I would no longer contribute to their online site. That is, exit. That boycott lasted all of 30 seconds when I switched to voice and offered to write a piece complaining about the ABC on their own site. To their credit, they accepted and it was published here.

Read more

Aug

24

Tasmania’s 2 extra seats in the Constitutional gerrymander

Sam Wylie | 22 Comments

A little mental arithmetic on Saturday night left me wondering why Tasmania has 5 federal seats in the lower house.  There are 150 seats in the lower house, as we all now know.  The Australian Bureau of Statistics site trumpets Australia’s population as 22.4 million.  So there should be about one seat per 150,000 people.  Tasmania’s population was 505,000 at the end of 2009.  Therefore Tasmania has less than 3.4 quotas, and since quotas are, quite rationally, rounded to the nearest integer, Tasmania should have 3 seats in the lower house.

The reason that Tasmania has 5 seats is because the Australian Constitution guarantees each state at least 5 seats in the House of Representatives.  I didn’t know that until I went to the Australian Electoral Commission’s website to find out what is going on.  But the implication for this election is obvious.  The five seats in Tasmania are all in the Labour-Green column.  If the seats were allocated purely on the basis of population then NSW and WA would each have another seat.  WA has only 3 Labour seats out of 15.

This constitutional gerrymander may well keep the Conservatives out of power in this pivotal election.  This distortion should be brought to the people’s attention and rectified in a referendum.  None of the other states are in any danger of falling below the 5 seat floor.  South Australia, the next lowest, has 11 seats. Read more

Aug

23

Time to think about voting power

Joshua Gans | 2 Comments

I’m surprised that this hasn’t cropped up yet but no one seems to have measured voting power in the potential hung parliament. Tim Harford offers a nice primer for those unfamiliar with the idea. The way to think about it is, what value do individual independents have to form coalitions and win majority votes?

The Shapley-Shubik index seems to me to be appropriate for our current situation. Here are some scenarios. The last one is where the Nationals candidate wins O’Connor but decides to go independent. Notice that Tony Crook is far more valuable to the Coalition than he would be as an independent so you can see what will likely happen there.

Anyhow, this exercise demonstrates that the power of the independents changes little as there are more or less than them but who actually wins more seats amongst the majors matters alot. Specifically, if the major parties can sign on independents as ministers and lock them into their voting block that matters a great deal compared to an informal undertaking.

You can calculate these yourself on Dennis Leech’s website.

Aug

23

Well may we say …

Joshua Gans | 4 Comments

I have to admit, and I stress that all parties involved are ones I believe to be beyond reproach and, indeed, for that reason, I think the Governor-General will step aside. I don’t know anything about constitutional law but when the father of your grandchild is in Parliament and you have to decide who governs that’s a conflict of interest. I don’t think anyone thinks that being without a Governor-General right now would be good but that may well be the outcome.

This exposes a key flaw in our current system. It is not simply that we have a Constitutional Monarchy but that the monarchy part is determined by the incumbent executive party. If the Governor-General were elected, this isn’t an issue because the people electing her would be the ones holding responsibility for any personal conflicts and their relevance.

Maybe some constitutional law experts can chime in but if a resignation occurs or even a temporary stepping down, then the Queen will likely appoint the longest serving state Governor as Administrator who will then adjudicate this. That would be Professor Marie Bashir of NSW so it looks like we are covered.

Aug

23

The political landscape

Joshua Gans | 8 Comments

The comments on my post from yesterday prompted me to think about the changing direction in Australian politics. What the parties are doing reflects where the people are. Here is my, admittedly subjective, attempt to map the dynamics.

The informals are really the Latham informals. The Coalition actually moved north west during Turnbull and now has realigned with the movement Labor is taking.

What this shows is that there is a ‘north’ gap emerging in Australian politics and to some extent an ‘eastern’ gap too although I would gather that the Greens ascendancy is occurring precisely because they are moving ‘east’.

Anyhow I am not wedded to any of this, but I think this is the useful exercise to make sense of all of this stuff and perhaps for people to start thinking about what new parties we might need in the mainstream.

Aug

22

Media and economics

Joshua Gans | Leave a Comment

With all of the discussion about media reporting in the election, I wanted to reflect upon a positive experience I had this week in the US that demonstrated what reporting could be.

I have done a ton of media interviews, both on radio and for newspapers, in conjunction with Parentonomics. Most are of the “aren’t economists wacky” mode which can be fine but either lends itself to ridicule or a lack of seriousness. This week I did a long interview for National Public Radio in the US. I was contacted some weeks ago by a reporter, Chana Joffe-Walt. I had actually heard of her having been a regular listener of the Planet Money podcast for about two years. She was interested in the economics of allowances and I guess I was the go-to academic on such issues. There wasn’t much science to it despite a few studies in the Journal of Economic Psychology trying to understand whether pocket money had any effect: bottom line — it is hard to tell. There was certainly no facts and figures on the amount of pocket money kids get, etc.

Nonetheless, I could provide the theory and certainly reflect on my own experience on that. The end result was an hour in the studio alongside my 11 year old daughter to provide her perspective. It was a setting that could easily have devolved into a less serious piece that might have been amusing but little else.

But listen to the podcast. The basic angle is that economists complain all of the time that Governments never quite do what they want and if only they did things would be great. What happens then when an economist has control over his own little economy in the home? He runs into all of the same things that make economic policy hard to do in a democracy and for much the same reasons.

Now the podcast is light in tone but Joffe-Walt did many days of work and research on it and so was able to, in very short order, link parenting issues to serious economic issues. I was quite impressed with the end result and, indeed, wished I had thought of that angle when writing the book.

The point here is that when journalists complain that they have to do pieces under time pressure, I suspect that it does cause a large reduction in quality that they might otherwise achieve. Planet Money does a couple of podcasts a week using a team of three or four. So their story rate is well below what we put any of our journalists through in reporting for Australian newspaper, radio, the web and television. The end result is seriously high quality. I knew that before from Planet Money which is why I have listened to it but to see it put together from the inside was revelatory.

Aug

22

What just happened?

Joshua Gans | 8 Comments

When I left Australia in December, it was inconceivable that Labor would not be re-elected in this year’s election. The Liberals had gone for a third leader since Howard and had no policies. None of that changed but in the intervening period, the Henry Tax Review proved a disaster and Rudd was stunningly deposed. One wouldn’t even have thought this would be enough but it is clear that if you add what was a poorly run campaign, there is a real possibility that the Government will change sometime this week. I should also add that it took until 11pm on election nights for the betting markets to actually move in line with the reality — so much for them.

Here are a few other points that should be made:

  • Politics drove the situation we find ourselves in. It destroyed Malcolm Turnbull’s chances of bringing sanity. And it led to Rudd’s ousting and it is almost surely the case that that cost the Labor party votes and seats (especially in Queensland).
  • But more importantly, this outcomes exposes Labor’s problem is that it currently has no core values that it will stick to. This is in contrast to The Greens as John Quiggin has reminded us often recently. Labor failed to significantly improve educational outcomes. Labor did little to correct held. Labor abandoned the urgency of doing something on climate change. Labor moved on broadband and telecommunications competition and faltered with a narrow vision and inconsistencies (such as the internet filter). Labor failed to give Australia moral leadership on immigration. And finally Labor have done nothing to end the legislative discrimination against same sex marriage. If Labor is returned to power, my hope is that it will get this core back and start putting that above politics. My hope for that lies in a necessary coalition with The Greens keeping them honest.
  • All that said, I worry about what this all reflects about Australia. No commentator seems to be saying this but I wonder if gender discrimination is more entrenched in Australia than many of us had considered. The media coverage, terrible though it was, in many ways surely reflects the tolerances and intolerances of its readership.
  • On the real prospect of a Coalition government, the need to rely on independents will surely not help us improve matters. The hope is that it will be more like Ronald Reagan (with some good advisors) and less like George W. Bush but it is really hard to tell at this stage.
  • What was going on with the informal vote? Many seats well above 5%
  • Finally, and on a note of considerable hope, Andrew Leigh has won in Fraser and with a better performance than his peers.

Aug

19

Paid Paternity Leave: A Start

Joshua Gans | 1 Comment

Labor came out today with an addition to their parental leave policy:

The Gillard Labor Government’s Paid Paternity Leave will be government-funded, and will provide eligible working fathers and other partners with two weeks pay at the national minimum wage – currently $570 a week.

The current parental leave plan applies to fathers too but let’s face, if it can’t be shared, at least initially, it is the mother claiming that benefit.

In contrast to the other moves on parental leave, this one has the benefit in that it will not contribute to the problem of gender discrimination in the workplace — although, family-discrimination may be another matter. The issue is, of course, what role the additional payment is playing. I think it puts on the agenda that fathers taking parental leave is an expectation rather than a cost. But don’t think that it is a pure subsidy to parents. A workplace with a father of a newborn does not have as productive a worker. If there was ever a time you wanted your employee to take leave, it is then. Throwing $1114 extra dollars at the issue makes it more likely that employers will make such leave an expected part of the workplace which can go some way towards changing cultural attitudes.

That said, it only applies for households earning less than $150,000 per year. So while you might take paternity leave, your boss has no additional incentive to do so. As the boss sets the employment policies …

Nonetheless, it is a start and is far from perfect economically. Also, I can’t help but thinking that the benefits of this policy might be higher if the payment was contingent on nappy changes. That is, make the payment $80 per nappy change. Now that would have a cultural impact.

Aug

19

Reciprocal obligations of banks

Sam Wylie | 2 Comments

Here is an extended version of my opinion piece on bank reciprocal obligations for government support which appeared in the AFR on 18 August.

The GFC has been a train wreck for the world’s commercial banks.  Large banks which were travelling in the ‘too big to fail’ carriage lay beside the wreckage for many months, sustained only by the life giving infusion of equity from central Governments.  Hundreds of smaller banks lie dead in the field.  But Australia’s four major banks emerged from the still burning wreckage with hardly a scratch, swiping dust from their shoulders and striding confidently into the future with record profits in hand and a field cleared of competition before them.

A combination of good management, good regulation and good luck helped bring them through.  But Government support of the banks was crucial.  The Government gave banks everything they needed in the GFC to survive and thrive.  Only banks were given that special support; cash management trusts, property trusts, investment banks, and others were not.

Special treatment of banks is sound policy in a crisis because banks have a pivotal role in monetary policy and the transmission of liquidity that other financial firms do not.  But for all of the Government’s support of banks what has been received in return?  With the special treatment of banks goes reciprocal obligations, but so far the Government has not held Australia’s major banks to those obligations. Read more

Aug

18

Game classifications and sensible implementation

Joshua Gans | 7 Comments

There is some discussion at the moment that the Australian government might move to require mobile application games to be classified according to content. This is a move that is consistent with requirements on other computer games and, on the face of it, if classification is policy there it would seem that it should be policy for mobile games. (Note to commentators: it may well be that classification of games is silly but I’m not looking to discuss that here.)

What I want to discuss is the implementation of this. Here is what the concern is:

The government is now making plans to require developers to submit their game apps to the Classification Board before they are released. This would cost developers between $470 to $2040 per game.

This would cause several things. First, literally thousands of overseas developed games would be removed from the various mobile application stores in Australia. Most of these do not cover the developer costs and even those that may have in the past may not do so in the future. Not to mention the cost of applying for classification. The effect on Australian consumers would be immediate. Second, this would have an impact on local developers. Fortunately, with regard to games, most of their sales are elsewhere. But we will see a headline within a year: “Australian teenager has hit mobile game but her friends cannot play it.” Nonetheless, there will be a disproportionately negative impact on developers who are trying to tailor games to the local market. Third, this will end up including educational games and books. For instance, Dr Seuss books on the iPad have little games in them. I assume that means they require classification. Maybe popular children’s books won’t be impacted but there will be many other educational apps that will be and this will spark further headlines. Fourth, apps that use Apple’s iAds will be impacted as these ads may include games in them. Finally, all of this will cause Australians to either pirate games in droves — indeed, they may do so just to get games that are actually free elsewhere! — or move to overseas app stores. My guess is that rules imposed internally by Apple and co that prevent purchases by Australians from say, New Zealand will be relaxed. This will alleviate the harm of all this but it will be a very bad look. Need I say, that this is as much a problem for Apple and Google as it is for developers and consumers. In other words, the doom and gloom forecasted may well occur.

The good news is that there is an easy solution to this. First, raise the fines for selling games in Australia with the incorrect classification; including on application stores themselves. Second, allow developers to self-classify their games. That’s it. The vast majority of games can be classified easily and, indeed, Apple already does this. There seems little reason to add another layer of review prior to an app’s launch. Instead, the onus would be on developers and publishers/platforms to review applications and make sure their content is rated properly. If they fail to do so and there are complaints — which there inevitably are — then the Government can prosecute. Anticipation of that and a large fine will keep this in check.

My point is that all of the dire consequences for the industry arise because Classification requires pre-evaluation. If it was made a self-evaluation process plus a later process to deal with infractions that would alleviate almost all concerns without sacrificing whatever public policy goals there are from the classification policy. And if developers are still concerned about taking that risk, then they can pay a fee and be pre-classified. See, this is one area where everyone can be happy so long as a little bit of common sense is applied. I guess we will have to see what occurs.

Aug

18

Public Policy and the Election

Mark Crosby | 1 Comment

Having submitted my postal vote a couple of weeks ago I have been blissfully ignoring the election campaign, and also hoping that most of the abysmal election promises being made are soon broken. The most frustrating part of the election is the pandering to the median voter – I’m not sure why we need leaders any more. Leaders win people over with ideas and shift society in a superior direction. Followers run with the mass – clearly both Abbott and Gillard are only followers, not leaders. Gillard has even offered up environmental policy to some form of community forum. Who knows how that will pan out, but why can she not show leadership on this issue. We have had the Garnaut report. We know what most experts are saying about the need for change. Economists would all agree that pollution must be priced – there are a number of possible ways to do this, but to promise no change in electricity or petrol prices while promising to solve “the biggest problem” of our time is absurd.

As for community forums, the latest journal to hit my intray from Berkeley Electronic Press is a new journal (I think) called Poverty and Public Policy. The first article in that online journal gives details about some Town Hall meetings in the US, designed to generate ideas to reduce the US budget deficit. As reported in the journal this is inferior to polls as ways of assessing public opinion, and at least as far as poverty is concerned lead to negative outcomes. 

I have been trying to write a piece on why policy proposals made during the current election campaign have been so weak. I think a lack of leadership is important, but so too is the strength of the economy. Forget the 50 economists story about stimulus pulling us through – Australia was in a great starting position because of 20+ years of consistent economic reform, and low debt. Stimulus helped get us through the GFC, but as usual the lucky country found a few rocks and a big buyer that still bought when the rest of the world was falling over. Now that the GFC appears to be mostly behind us politicians have forgotten the importance of ongoing reform – of making tough decisions. When our economy was weaker we had Malcolm Fraser telling us that “life wasn’t meant to be easy” (so take courage), Paul Keating giving us “the recession we had to have”. From the time that Whitlam cut tariffs until Howard’s introduction of the GST our leaders were willing to make tough decisions, despite the potential electoral cost, in the national interest. I think that it is no coincidence that the pandering to the swinging voter by both sides of politics in the past 5 years has coincided with the latest commodity boom. Natural resources may be blessing us, but they’re also a curse.

Aug

16

The costs of free parking

Joshua Gans | 5 Comments

In the NYT, Tyler Cowen argues the case against free parking. It is a simple and compelling point. The way it is put in the NYT piece has created confusion (for example, see Arnold Kling).

If developers were allowed to face directly the high land costs of providing so much parking, the number of spaces would be a result of a careful economic calculation rather than a matter of satisfying a legal requirement. Parking would be scarcer, and more likely to have a price — or a higher one than it does now — and people would be more careful about when and where they drove.

He couches it in terms of all of the mandated parking and subsidised parking that is providing freely alongside roads resulting in over-supply but actually, it is just a consequence of congestion and environmental concerns. Put simply, every time someone provides and prices a parking space, they are failing to take into account the externalities this causes. That is, parking is a complementary service to driving and so is underpriced. Each additional spot causes more driving and more congestion — neither cost is internalised by the parking provider. So this isn’t a regulatory thing as much as an overall environmental issue.

But is it as easy as putting a price on parking as Cowen advocates? I’m not sure. While San Francisco is moving in a good direction in terms of congestion pricing on meters, it strikes me that usage based pricing is a better way to go — that is, taxing petrol, road use or emissions. But I do wonder how the free parking issue interacts with such policies. Sorting that out will require a model; something I don’t have time to undertake in this post.

Aug

16

The public-private NBN divide

Joshua Gans | 2 Comments

After years of ignoring broadband, we at last have a Liberal politician putting forward the ‘right’ opposition argument on the National Broadband Network. Malcolm Turnbull says it is a private good that does not justify large government expenditure and it is better to leave these things to the market. Here is Chris Joye with a similar line.

Now I think about that because when Labor, then in Opposition, came out with its fibre to the node, $4.7b plan (when that was considered a lot of money), I said much the same thing. See here, here, here, here, here, here, here, and enough already; I should put out a collected works volume. And I remember how tough an argument that was to put forward. It is hardly surprising that it has taken 4 years for a politician to do so.

The NBN, however, has the potential to be a public good and a justifiable expense on that basis. This is something Stephen King and I articulated recently in a paper published in the Australian Economic Review [over the fold]. First, it is the only proposal put forward by any Government in recent times that has a chance of breaking the competitive problems in telecommunications that have really held Australia back. The Coalition’s plan, ont the other hand, gives over broadband policy to Telstra. Second, a basic level of broadband service could be provided free with the NBN charging for faster speeds. This would allow broadband to be ubiquitous and remove a barrier to its use by private and public interests alike. Third, if the Government invests in public applications — notably, eHealth services and also Government services online (as recommended by the Cutler Innovation Review) — this will lead to additional savings but also a higher quality of public services. (I note that the PM announced a move in this direction today).

The Government are vulnerable to the Turnbull line of attack because they continue to sell broadband as a private good — as if it were a handout dressed up in economic and technological rhetoric. That sales pitch is flawed and the sooner it is pulled down as such, the sooner the Government will get serious about the NBN and actually develop it as a public good. At the moment, that development is surely lacking.

[Update: Malcolm Turnbull tells me he made the same argument in 2009.] Read more

Aug

13

That cost-benefit analysis

Joshua Gans | 9 Comments

I thought it was time to pick up a theme on the National Broadband Network that has been going around for sometime; the lack of a clear cost-benefit analysis.

First, it is never going to happen. Put simply, the political rationale for the NBN is a combination of two things. First, that a big push on broadband was not going to happen without a big push from Government given the virtual monopoly held by Telstra and the ineffectiveness of regulation to manage that. Second, there is the Yes Prime Minister Trident/Hollowmen/GFC Big Ticket/Shiny things rationale that is wonderfully captured by this piece in The Onion. You only want a comprehensive cost-benefit analysis if it is going to change your decision. The political rationale is so strong that that is not going to happen and so there is no point to attempts at quantification.

Second, even without a choice motive, there is a downside to the lack of clear analysis: that we can’t optimise the NBN and will inevitably end up causing some waste and inefficiency. I have already mentioned many times that by placing the policy sales pitch and broadband, and worse than that, on broadband speed, we leave that as the sole metric for performance. However, the NBN can potentially yield benefits of lower prices (virtually nothing in fact) for telecommunications and also a revolution in government services if basic broadband is freely available. The problem is that the Government is not being held to account for realising those benefits and this is very troublesome. That said, once the stuff is in the ground …

Third, and this is more worrying than the lack of a cost-benefit analysis, there has been no consideration whatsoever given to issues of market design. If we were serious about this, the NBN would be regarded as a platform that would allow telecommunications markets to evolve. Instead, it is regarded as a thing rather than an institution that sets the rules of the game. That is why we end up with fibre all over the place. That is why we end up with engineering criterion.

On that latter point, and with due respect to my colleague Rod Tucker, it may well be true that only fibre can deliver the fastest broadband speeds. But time and time again we find that people are willing to sacrifice engineering metrics for other things. The evidence is compelling that consumers will sacrifice speed for wires just as they sacrificed CPU power for portability (something IT people thought would never happen). For this reason, we need to be cautious in how we let technological choices be made and to provide rules to allow it to evolve flexibly. The problem is that that does not square with the one-eyed sales pitch on the NBN.

Finally, one thing we can’t quantify well in cost-benefit analyses is ‘future proofness.’ That provides a reason to push forward with the NBN but at the same time is the reason to ensure it is built in a flexible manner. You can’t simultaneously be claiming you are insuring Australia for the future without actually taking out insurance on the details.

Oh and by the way, there is no cost-benefit analysis for the Coalition’s plan. To do that would require a consideration of opportunity cost. So if the choice is between ‘do nothing’ and ‘do the NBN,’ as any first year economics student will tell you, you can’t justify ‘do nothing’ without first doing a cost-benefit analysis on the NBN.

Aug

12

The overseas broadband bottleneck

Joshua Gans | 9 Comments

It was a relatively small part of my piece in the Age yesterday but this has garnered lots of chatter:

I’m sitting here in the US at the moment on a 100Mbps maximum speed . But if I look at a website in Melbourne, my speed drops to 2Mbps. That is pretty much the maximum you will get from Australia to much of the internet, regardless of the theoretical maximum of your provider. This is because a key bottleneck is our submarine fibre link rather than our backbone network, or even the last mile.

It is worthwhile unpicking this. Broadband speeds and especially the user experience of those speeds is a function of a ton of stuff but is driven by an O-Ring quality. You will recall that the space shuttle Challenger blew up because a relatively minor component, an O-Ring, froze and broke. For broadband, your speed is limited by the weakest link.

At the moment, the weakest link for most people is their distance from the exchange unless you don’t even have ADSL in which case it is something else. Fibre to the Node and to the Home would alleviate that weakest link.

However, when I was in Australia, I was blessed with Australia’s fastest residential internet connection provided by Big Pond Cable Extreme. I received measured speeds of over 40Mbps but sometimes more. However, when I accessed overseas sites, it dropped to 2Mbps. By the way, for YouTube or a video download, that really wasn’t a constraint at all. I had to wait a little longer. Now there are issues of shared connections and network configuration and so I suspect you might be able to squeeze some more out of this with an NBN in Australia but the point is that the weakest link will soon become our overseas connections.

Now one thing to note is that this can be solved by moving the data. Data centres often play the role of hosting content locally. So that may come with the NBN because there would actually be a point to that. But if you are looking to have high definition video communications or things that might rely on it (like some fanciful remote surgery!) the interconnectivity issue will be there.

The question is: why? I have been contacted by some industry experts who claim to me that the capacity is, in fact, there and it is a puzzle as to why our overseas connectivity speeds are low. As I noted yesterday, it works both ways. Australia is isolated from the rest of the world. Thankfully, the only thing for which that would really matter for me is ABC News video and they block me from looking at it for ‘copyright reasons.’ (Hey, Mark Scott, I am still paying taxes and voting Mark Scott!)

I’ve asked these questions for years and have never received a satisfactory answer. Someone out there knows the truth but not even the Government has been willing to investigate even though at present it looks like crippling the NBN. I have long suspected that international carrier arrangements were to blame. They are still possibly high cost and local carriers possibly cripple overseas speeds to save on those costs.

One reason why that might be the case is that this phenomenon is not confined to Australia. Over the fold, you can see my results for a variety of countries including between the gold class network I am sitting on here in Cambridge (MA) and Japan and South Korea. You judge for yourself whether this is an issue worthy of official clarification.

Finally, I note, as always, that this is an issue because the Government refuses to consider the NBN as anything but broadband and is not structuring competition policy nor its own public policy to ensure the NBN becomes more. Read more

Aug

12

Higher education policy

Stephen King | 5 Comments

Higher education has not been a feature of the current election campaign. That is a problem.

There is a huge and unsustainable cross-subsidy in higher education in Australia. The subsidy is from international students to domestic students. In areas such as business, an international student can be paying three or four times as much as the university receives for a domestic student. Same seat, same lecture, vastly different price.

This cross subsidy has enabled successive governments to ignore their funding obligations to Australian universities. Australian students in undergraduate courses in business, arts or law simply do not pay the average cost of their education. As capacity constraints come into play – as they do in many business courses – Australian students do not even pay the marginal cost of their place.

Why is this a problem? Because Australian universities are competing in a highly competitive international market for education. We have been very lucky – in our geographic location, in our multi-cultural society and in the perceived intolerance of the US and Europe. But the GFC has led US and European universities to look more aggressively at attracting Asian students. And recent events, together with the ongoing debate about population and immigration, have undermined the view of Australia as a tolerant and open society.

Put simply, our competitors are playing hardball and we are throwing away our competitive advantages.

So two conclusions:

  1. whoever is in government after August 21 needs to address the funding shortfall in Australian tertiary education. We cannot expect China and India to keep underwriting our domestic students; and
  2. if you are an undergraduate HECS students and you are sitting next to a foreign fee paying student, turn to them and say ‘thank you’. After all, they are paying for your education.