Mar

31

More Aussic Mac in the AFR

by Joshua Gans | Filed Under Economics | 3 Comments

A couple of mentions of Aussie Mac in today’s Australian Financial Review. First of all, in a letter John Sutton, the National secretary of the Construction Forestry Mining and Energy Union, wrote that the Aussie Mac proposal “merits strong consideration … The Rudd government’s commitment to tackling the housing affordability crisis must not be blindsided by recent developments in financial markets.”

Also in the paper was a longer piece by Andrew Cornell which talked about the proposal. He wrote:

They put a strong case, but the critical issue is whether what is happening is indeed more significant than a cyclical unwinding of an abnormal situation of excess liquidity.

There is no doubt the non-banks were a vital source of competition, a brilliant idea that exploited the times, garnering 13 percent of the home loan market and shaving around 2 percentage points from every mortgage out there.

Yet should non-banks by protected? Dire as it is, the crisis will pass, securisation markets will reopen, non-bank competition in some form will re-emerge.

Ultimately it is competition which benefits the consumer and the economy and that should be what the government and regulators concentrate on. Any proposal like Aussie-Mac should withstand the test of improving efficiency across cycles, not simply providing a mechanism to support one segment in a crisis.

I agree that we should not be supporting particular firms nor reacting just to the crisis.  But that is not what our proposal is about. First, it is about supporting the securitised segment of the supply of liquidity for lending in Australia. That support helps the majors as much as the smaller non-banks; both of whom rely upon it. But what it means for consumers is (a) there is more liquidity and that will keep interest rates lower and (b) the non-banks main supply (as they don’t have a large deposit base) stays intact and so competition is preserved. I do not believe what we saw over the last decade was some sort of ‘blip of entrepreneurship.’ In the US and Canada, it is a lasting model.

Second, the evidence we present in our report demonstrates that an institution like Aussie Mac will improve the efficiency of the lending markets for the long-term and not just in a crisis. Although, it would be good to have there. Already the US are using the privatised Fannie and Freddie to inject liquidity while we rely on the comparatively non-transparent activities of the RBA. Do we really have enough faith that Australia can have high competition in lending without institutions to smooth the bumps where in so many other places with more competitive banking structures they don’t. That seems to place a faith in the market-place beyond what is warranted in these or any other times.

Mar

31

2020 in Communications Day

by Joshua Gans | Filed Under Broadband | Comments Off

In today’s industry rag, Communications Day, an article about my thoughts on what the 2020 Summit might mean for telecommunications [reproduced over the fold]. Bottom line: I don’t expect to be talking about fibre to the node but do expect to be talking about regulation and privacy. Read more

Mar

31

Game Theorist: Weekend Posts

by Joshua Gans | Filed Under Economics | Comments Off

In Game Theorist this weekend, some toothy incentives, the war on stuffed toys and Kevin Rudd loses a future vote.

Mar

30

Really ‘blind’ reviewing

by Joshua Gans | Filed Under Academia | Comments Off

I guess it was inevitable. As an editor, it is tough finding reviewers for papers and I get a little sad every time someone really suitable declines. Of course, I can only be so upset when I get a polite decline like this:

Dear Editor,
I will be happy to review a paper for your journal, but this paper is my own.
sincerely,

Well, I thought the reviewer was really suitable. Fortunately, they were honest too. Back to the drawing board on that one.

Mar

29

The Real Economics of Time Travel

by Joshua Gans | Filed Under Economics | 9 Comments

Following on from all of the talk of interstellar trade, Glen Whitman explores the economics of time travel [HT: Tyler Cowen]. His argument is that if wages rise in the future, future society will use time travel to import cheaper labour from the past. So there will be intertemporal migration and wage equalisation. Really? You think that is what we are going to get if someone invents a time machine. This is about as convincing as Michael Crichton’s continual plot line that inventing things like time machines or dinosaur resurrection would be funded off the basis of theme parks.

Let’s get serious, for a moment, about the possibilities of time travel. When it comes down to it, the primary reason for someone to spend money inventing a time machine is to go back into the past, possessing future knowledge, and to exploit that knowledge either by inventing something (e.g., MS-DOS before Bill Gates) or trading on financial markets (e.g., airline stocks before late 2001). That is, on the face of it, a sound commercial rationale especially if time travel is Terminator rather than Back to the Future style.

The question is: if you think about the full equilibrium, will the investment in a time machine pay off? You see, you go back in the past and make a fortune. The problem is, even if you can patent or keep secret your time machine, someone in the future is going to duplicate your innovation. It only takes time. Then, they will target the maximum wealth generating opportunity in the past. If that was for you inventing something in particular, it will likely be the same for them. They will just go back in time and pre-empt your investment. The end result will be that you will find yourself going back in time but with the past already altered. All cost and no return. You would then have to go into the future to work out what you need to do but, and you can see where I am going here, that would have to be pretty much to the end of time at which point, the knowledge you need may not be so transparent.

A savvy (potentially evil) would be expropriator of future knowledge cannot possibly recoup all of the R&D costs on inventing a time machine. Hence, it won’t be done.

So if you are wondering why we haven’t seen time travellers from the future, you don’t need some elaborate theory of physics whose main purpose is to make science fiction really fiction. All you need is some economics: there is no incentive to invent time travel (unless you want to stick to historical theme parked tourism that is). That said, didn’t someone invent MS-DOS before Bill Gates?

Mar

28

More 2020

by Joshua Gans | Filed Under Economics | 1 Comment

I notice that my previous post on the 2020 Summit was picked up by Crikey today. It is a little out of date as the sessions have been re-organised and I am in the “The Productivity agenda – education, skills, science and innovation.” It is still far from the cool area but I will be joined by 99 others today including bloggers Andrew Leigh, Nicholas Gruen, Andrew Norton and my MBS colleague Ian Harper (all no-brainer attendees). The make-up of the list looks like a pretty typical economics conference (so I can imagine people thinking that the market cleared on this stream) but hopefully the injection of those who don’t normally make it to such events will make this something different.

Mar

28

Aussie Mac FAQ

by Joshua Gans | Filed Under Economics | 1 Comment

Events have really moved on this week with respect to the credit crisis. As Stephen Bartholomeusz in Business Spectator wrote today:

The Reserve Bank’s latest financial stability review confirms the findings of academics Christopher Joye and Joshua Gans in a paper issued earlier this week – the residential mortgage-backed securities (RMBS) market is just about dead and that has unpleasant implications for competition.

This was just as we had spent the vast majority of our report making the case that there was a problem in the RMBS market. And what is more, the RBA is now raising its own, complementary policy to Aussie Mac: to put in place an explicit deposit insurance scheme in Australia. (I’ll note that this too was on Daniel Gross’s list). All this is to the good.

Nonetheless, discussion over the last few days has brought up a few questions that could use a specific answer. So, as I have done before on other issues, over the fold is a FAQ (including also, Christopher Joye’s take).

Read more

Mar

27

Freaky predictions

by Joshua Gans | Filed Under Economics | 2 Comments

Want to play (literally) on a prediction market? Try the Freakonomics Prediction Center.

Mar

27

Aussie Mac in the AFR

by Joshua Gans | Filed Under Economics | 4 Comments

Christopher Joye and I have an opinion piece in the Australian Financial Review today on our Aussie Mac report (over the fold).

Read more

Mar

27

Aussie Mac in the media

by Joshua Gans | Filed Under Economics | 2 Comments

Various media reports on Aussie Mac today. The paper is available here. Our press release is over the fold.

Interestingly, in a speech here at the University of Melbourne today, in talking about the government’s reponse to the global financial crisis, the Prime Minister said that:

We will continue to monitor the Australian financial system in light of the current turbulence to ensure that it remains efficient, flexible and competitive – including maintaining competition and choice in the Australian domestic loans market for the benefit of consumers.

This is a good sign.

Read more

Mar

26

Canberra, we have a problem

by Joshua Gans | Filed Under Economics | 6 Comments

The global financial crisis that started with the US subprime meltdown and now continues to spread through investment banking is impacting upon the Australian financial system. The source of funds for lending provided by securitised assets has all but dried up. The problem is that we have no institutional structure to step into the breach. Read more

Mar

26

2020 Ideas

by Joshua Gans | Filed Under Economics | 5 Comments

So it appears that I was one of the first tranche of invitees to the 2020 Summit. A bunch of journalists then called me to ask me what I thought of getting an invitation and I resorted quickly to a tired cliche: “I’m honoured obviously, I think it will be a good opportunity to discuss some of the issues facing the future.” I then noted the cliche but no one printed that introspection. Truth be told what I was actually feeling was that this made up for all those times in high school that I was picked last for the team! (Eat that you people). Read more

Mar

24

Game Theorist: Weekend Posts

by Joshua Gans | Filed Under Parenting | Comments Off

Some new posts at Game Theorist this weekend. A couple of conversations here and here, a look at a real academic economic paper on parenting, an amazing computer game, a complaint about whole grain bread and a review of Horton Hears a Who!

Mar

24

Garnaut takes the right stance

by Joshua Gans | Filed Under Economics, Environment | 2 Comments

For so long, the big issue with emissions trading was how permits would be allocated. This was an issue not because it would matter for efficiency but it would determine how the costs of dealing with climate change would be shared. This distributional issue looms large in most economic reform efforts. Read more

Mar

23

Last word on baby bonus

by Joshua Gans | Filed Under Behavioural Econ, Economics | 5 Comments

… until late 2009. For some reason I had continued to hold out hope that the government would freeze the baby bonus at current levels rather than increase it to $5000. This would prevent any disruption to maternity hospitals (something that should be unnecessary even if the bonus was increased) and save $250 million per annum forever to boot. Indeed, during the election I called the neglect of the previous government on this “economic mismanagement.” That equally applies to the current government in this regard. Read more

Mar

22

Obamanomics

by Joshua Gans | Filed Under Economics | 6 Comments

Following on from my post yesterday about Barak Obama, there is a simmering issue amongst economist about his economics. In particular, he said this:

This time we want to talk about the fact that the real problem is not that someone who doesn’t look like you might take your job; it’s that the corporation you work for will ship it overseas for nothing more than a profit.

This hits at the heart of the economist’s soul (assuming that exists). And I agree. Economic and moral calculations should not end at the US border. But let’s face it, Obama is being no different from 99 percent of US (or other) politicians in expressing such views. As The Economist blog points out, this is actually unlikely to matter much for policy. Read more

Mar

21

A West Wing speech

by Joshua Gans | Filed Under Politics | 5 Comments

One of the reasons I loved The West Wing is that from time to time the speeches were amazing. It was fictional but you could be forgiven for wondering why it couldn’t happen in reality. This week it did and the speech is here. If you look to the side of the YouTube video you can (seemingly) contribute to the Obama campaign. I was moved enough to click that contribute button — for the first time ever for me I wanted to give money to a political campaign. Alas, it wasn’t to be: US citizens and permanent residents only; I presume due to election laws. It has been easier to give money to the West Wing by purchasing DVDs.

So be it. But if the last 8 years have shown us anything, we in the rest of the world are as bound to the outcome of the US election almost as much as those in our own countries (and for some countries more so). But I guess we will have to keep our distance from that process for the time being.

Mar

21

iPods with music: Good idea or anti-competitive?

by Joshua Gans | Filed Under Competition Policy | Comments Off

So around the net this week, Apple has floated the idea of selling free access to the iTunes music store with iPods. It isn’t clear how it will work but I guess the thought is that it is a way to get new iPod users to effectively purchase legally rather than turn to Limewire. Who could object? Read more

Mar

21

More on subprime

by Joshua Gans | Filed Under Economics | Comments Off

Following on from The Daily Show‘s insightful analysis, here is Clarke and Dawe. And if you are still having trouble with this one, David Leonhardt is with you.

I am going to have more to say about this one and implications for Australia later next week. In the meantime, I need to stop my superfund sending me statements about their performance. I don’t want to know about paper losses.

[Update: John Hodgman thanks to Bayesian Heresy (watch for the upside down iPhone use)]

Mar

20

Sample chapter of Parentonomics

by Joshua Gans | Filed Under Economics, Parenting | 1 Comment

Justin Wolfers has written about Parentonomics today on the NYT Freakonomics blog and in honor of that I thought this would be a great opportunity to share a sample of Parentonomics (which is coming out here in Australia in August). Here is Justin’s post and click here and you can read Chapter 7 of Parentonomics. It encompasses page 69 that Tyler Cowen argued was what you should read rather than judging a book by its cover.

Mar

19

Bears on the Daily Show

by Joshua Gans | Filed Under Economics | Comments Off

Classic reporting [HT: Bayesian Heresy]. At least we got a few laughs for all the trillions.

Mar

19

Arthur C. Clarke

by Joshua Gans | Filed Under Economics | Comments Off

Arthur C. Clarke has passed away. He pioneered the idea of a communications satellite and produced a wealth of science fiction. While he is best known for 2001: A Space Odyssey, my favourite has always been Rendezvous with Rama; the story of a future Earth encounter with a relic from a more advanced civilization. Apparently, it will become a movie soon. I also think that the idea of a space elevator, contained in several of his books, might have legs one day.

Mar

18

Gmail and transmission fees

by Joshua Gans | Filed Under Economics | 5 Comments

A story in The Australian reports that Macquarie University has abandoned plans to switch to Gmail for staff after incurring high transmission costs when it did this for students. This seems strange. Read more

Mar

18

The baby bonus and obesity

by Joshua Gans | Filed Under Behavioural Econ, Economics | 12 Comments

OK now this one had me bemused. On the ABC News website, “Baby bonus leading to fatter kids: economist.” Really? Seems surprising … Read more

Mar

18

Broadcast vs internet viewing

by Joshua Gans | Filed Under Television | Comments Off

An interesting paper from Joel Waldfogel provides evidence that amongst the college-aged, internet viewing (even from network websites) far exceeds broadcast viewing.

While I find some evidence of substitution of web viewing for conventional television viewing, time spent viewing programming on the web – 4 hours per week – far exceeds the reduction in weekly traditional television viewing of about 25 minutes. Overall time spent on network-controlled viewing (television plus network websites) increased by 1.5 hours per week.

Of course, let’s be clear, on the web, broadcaster’ bottleneck market power (a broadcast license) disappears. A good sign of things to come.

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