• Recent Comments

  • Dudley Leggett on Dick Smith’s idea prize
  • dk.au on Ping’s big flaw
  • Joshua Gans on Ping’s big flaw
  • davidp on Ping’s big flaw
  • Ping’s big flaw : Core Economics on Romanticising books
  • Dylan on Newspapers, aggregators and the ABC
  • c-sez on Newspapers, aggregators and the ABC
  • Professor Robert Pope on Dick Smith’s idea prize
  • Dudley Leggett on Dick Smith’s idea prize
  • Dudley Leggett on Dick Smith’s idea prize

• Recent Posts

  • Apple misses the TV game again
  • What does HDR mean for photos?
  • Ping’s big flaw
  • China’s central bank governor and the USD
  • Newspapers, aggregators and the ABC
  • Toilet explorations
  • Signalling academic immobility
  • Gillard’s future if the coalition forms government
  • The right political career investment
  • A rant about ABC’s copyright policies
  • Tasmania’s 2 extra seats in the Constitutional gerrymander
  • Time to think about voting power
  • Well may we say …
  • The political landscape
  • Media and economics

• Popular Posts

  • Mathtype in Word 2007
  • China’s 2009 GDP growth
  • House price predictions
  • Exchange Rate forecasts
  • Free Insulation
  • Tax multipliers
  • Free insulation, yes pay nothing!
  • What’s “normal” anyway?
  • Bolt on electricity
  • Health insurance changes

• Twitter: Joshua Gans

  • @jodiecongirl Actually, it says more about you that you've heard of them! about 3 hours ago from TweetDeckin reply to jodiecongirl
  • @jodiecongirl I think it says that economists don't just assume rational agents but are attracted by them too. Talk about a value conflict. about 3 hours ago from TweetDeckin reply to jodiecongirl
  • @jodiecongirl Why uninteresting? Think of Alex P. Keaton, Quark , Sheldon and Dogbert. about 5 hours ago from TweetDeckin reply to jodiecongirl
  • RT @freakonomics: Freakonomics Movie is released via iTunes tomorrow: http://bit.ly/9YveA3 [I'm gathering the kids for a Friday night movie] about 6 hours ago from TweetDeck
  • Am I to understand that we are now in the path of a Hurricane? http://bit.ly/daitO9 This aint the tropics. about 6 hours ago from TweetDeck

• Readership

  

In the US and Canada, Hasbro have succeeded in getting rid of the Facebook application, Scrabulous. For the rest of the world, where the rights are owned by Mattel, it is still there. Each has its own version of Scrabble but, of course, it sets up a wall to prevent people outside the US and Canada from playing with anyone else. What we are seeing here is how non-globalised the world can become when copyright laws apply in local jurisdictions. There is a consequent loss in openness.

So what should those people in the US and Canada do about this? I assume we will see Facebook updates en mass such as “x is really pissed at Hasbro.” But will that really have an effect?

Anyhow, right at this moment, Mattel isn’t playing hardball. So that spells (ha ha) opportunity with a double word score. Here is what people in the US and Canada should do? Go to amazon.co.uk and buy Scrabble and send it to the top of the best-sellers there. This will be legal and deny Hasbro royalties. Of course, if Mattel change tunes then stop doing that and send a message to them.

Amid a surprising amount of hype, a new search engine, Cuil, was launched this week. I have previously written that the current search engines were not without problems but that they were all remarkably similar. The issue I identified was that certain results were appearing highly ranked that shouldn’t be. My example was an old post of mine on how to use Mathtype with Word 2007. That post was useful at the time but over a year later shouldn’t really be above the company’s site on a simple search. But on Google it is.

Slate asks how we can tell whether Cuil is any good. I am not sure. But I can report that it is different. My post is nowhere to be seen on the first page of results for the search “mathtype word 2007.” Consequently, it is adding diversity at the very least which is a good start. By the way, check out the search result’s URL and its simplicity.

This video shows someone operating electronic equipment during the landing of the Qantas jet with the hole in it. I guess that didn’t actually pose a problem as Steve Levitt has suspected. Then again could it have gotten any worse?

A couple of weeks out and some iPhone apps are really standing out. I’ll list them here:

• WordPress: allows you to blog easily with pictures from the iPhone
• Facebook: allows you to check on Facebook status updates
• Google: Google’s app allows easy access to all Google things. Sadly, you can’t edit docs.
• Scribble: allows you to draw and email pictures
• Midomi: hum a tune and work out what song it is.
• Galcon: a great strategy game.
• Enigmo: a great puzzle game with physics
• Pine Tree: a book for your kids to read
• Level: this is just amazing. It is a level to tell you whether that picture or table is straight

In The Sunday Age today an article reviewing sociological research into the adverse impact of maternity leave entitlements on gender discrimination in labour markets. The researchers argue that the Swedish model where mothers and fathers have more equal leave entitlements has done little to impact on gender discrimination. However, I must admit that it seems inconsistent to argue that maternity leave entitlements have increased discrimination while pointing to countries with policies that, in principle, are less harmful on this front, not doing much better. Either those observations are wrong or the causes of discrimination are deeper.

There is resistance to water pricing. This is most serious in agricultural settings that offer the greatest opportunities for price signals to work in economising on water use. The idea is to trade water permits and make relatively more expensive crops that are water intensive. The costs associated with that will flow to consumers who will then presumably change consumption patterns and force a change in the crops that are planted. In the end, we will match water to utlimate consumer value. Ta da.

The problem is that there is resistance to this. I don’t get it but that is the way it is. So what can you do? An alternative would be to price water and measure the intensity of water usage by crop. Then at the consumer end you would price a given unit of produce, say an apple, and alongside it you would also list the cost of water (unpriced) that went into producing it. Consumers only have to pay the usual price but they will see the ‘environmental harm’ they are causing. It is a form of good product labelling. But consumers might with this information use it to change their consumption patterns. And come up with a way of using less water and you will reduce the ‘water price’ that consumers see. So while it isn’t perfect, some price signal could be sent and replace the desired intent of a fully fledged water market.

The ACCC is likely to recommend unit pricing as part of the grocery inquiry. Why not go further and include various environmental labels too? After all, the worst that happens is consumers don’t care but the same pricing label has to be printed anyway so what would we lose. The best thing that happens if we get signals going even without a real market. It would be a good start at least.

The only issue with the ETS is that we get certainty and send signals to investors that incorporates the fact that they will be responsible for paying for future emissions. In electricity, the Green Paper argues that we should give coal-fired plants free permits to compensate them for being in the wrong place in the wrong century. It is not at all clear that this will send an appropriate signal nor actually change anything in terms of emissions from that sector. Let’s face it what we need is for investment in capacity to take place that is above coal in the merit-order — the 5 minutely order of which plant gets to run or not. The higher you are in that order, the more likely you are to run.

We will get coal lower in the order but either increasing the marginal cost of coal (which requires them to feel emissions costs) or getting investments that have lower costs — most likely wind and solar but there could be others. The problem is that free non-tradable permits will keep coal where it is and that is bad.

Here is a better way forward. Let’s raise the regulated price cap to final consumers by 20 percent over the next few years. In return for that, retailers will have to put in smart meters into households. The twin effect of that will get some behavioural changes at the user end. But the short-run effect will be to see more money available in the electricity sector and so a big incentive to move quickly on new investment. And what new investment will that be: ones that economise on emissions in the long-term.

It shouldn’t be hard to get effective environmental policy but these exceptions and compensation mechanisms can stand in our way. We need to get rid of them.

It has been a few weeks since I actually submitted these but they are finally public. I have two submissions to House of Representatives Standing Committee on Economics inquiry into competition in banking. The first is with Chris Joye and is a major update of our AussieMac proposal. The second has to do with switching costs, exit fees and bank mergers. I’ll get to testify on both of these next month.

If the whole debate on broadband teaches us anything it is that ownership and control matter. For Telstra, they own what is still the critical bottleneck in broadband, the link out of the home. Given that, apart from letting Telstra own the rest of the network we need regulation in order to have a hope of diversified ownership.

This issue is not lost on Google who today advocate models giving households the ownership of the link from their home.

This may all sound rather abstract, but a trial experiment in Ottawa, Canada is trying out the consumer-owned model for a downtown neighborhood of about 400 homes. A specialized construction company is already rolling out fiber to every home, and it will recoup its investment from individual homeowners who will pay to own fiber strands outright, as well as to maintain the fiber over time. The fiber terminates at a service provider neutral facility, meaning that any ISP can pay a fee to put its networking equipment there and offer to provide users with Internet access. Notably, the project is entirely privately funded. (Although some schools and government departments are lined up to buy their own strands of fiber, just like homeowners.)

Two years ago I proposed that Australia could have achieved this easily by instead of selling off Telstra, by just handing back the copper-pair into homes back to the people. Post-privatisation that appears not to be a viable option but who knows. In any case, if I wanted to build fibre out of my home and to a node, surely I should be able to do it. This is especially the case after my government spends taxpayer money on a fibre to the node network.

Of course, it is possible that wireless mesh might overcome this bottleneck too. Nicholas Gruen points me to Meraki who is proposing and rolling out just that. However, even doing this requires regulation at the exchange and a meeting with Telstra.

In Business Spectator today, Alan Kohler looks at AussieMac and the government’s options. Basically, he argues that what the government is doing is supporting the big banks whereas he should be supporting competition in general.

Those who have iPhone’s know that this blog has been iPhone friendly for some time. Well today WordPress have released an app that allows me to blog more easily directly from the iPhone. And of course I am doing this right now. It even allows pictures to be added as you can see.

All I need now is a cut and paste feature on the iPhone and I am set.

… which turns out to be a good thing.

So there is a Star Trek: Deep Space Nine episode entitled Melora that is so bad that I have banned anyone in my family from ever watching it. Basically, it is about a woman from a low gravity planet or something who is effectively wheelchair bound elsewhere and who Dr Bashir falls in love with (of course) and wants to ‘cure.’ She uses some exo-skeleton thing to get about and manages to engender so little sympathy it is not funny.

Well, the exo-skeleton thing appears to have become a reality three hundred years sooner than expected. That’s a good thing. Now please don’t go getting melodramatic as a result!

The Australia-New Zealand Shadow Finance Regulatory Committee met in Wellington in June 2008 to consider the implications of the US subprime market on the two countries. Its press release suggested that the involvement of the public sector in securisation “is a topic worthy of future exploration.” I wonder whether a joint New Zealand and Australian GSE might be an option.

Thanks to Wordle.

I have wondered about the potential for gender discrimination to work against men as well and make it harder for them to spend time with the family because they face larger costs from doing so at work. From The Age, it appears someone agrees with this possibility:

MEN are feeling pressure to work long hours when they don’t necessarily want to, and should be given the same opportunities as women to work part-time, the Sex Discrimination Commissioner says.

“What we need is more senior part-time roles filled by men and women,” commissioner Elizabeth Broderick told The Age. “Flexibility is absolutely part of the modern workplace, and it’s about men and women, not just women with young children.”

The pressure felt by men is particularly enhanced when their partners have children and they become the primary breadwinner in the family.

Fathers of infant children are among the hardest working in the country, preventing them from spending time with their partners and children.

“They work more hours than other men, and they don’t want to,” she said. “Men have said to me, ‘My female colleague can work three days a week, but if I ask for that, there’s a culture that says he’s obviously not committed to his workplace’.”

Christopher Joye and I have a piece in today’s Australian Financial Review on the political risks associated with not doing something about the reduction in competition in home lending [over the fold].

Read more

In this month’s InSight magazine published by the Centre for Policy Development I revisit an older interest of mine: our broken health insurance system. Read more

… Flash of Genius, the story of Bob Kearns and the windshield wiper. This is a story I have taught for years. Now a movie and a must see for entrepreneurs or those interested in entrepreneurship.

Last night I met a regular reader of this blog who said, “I like reading your blog but disagree with everything you say.” Fair enough. But he also suggested that I hadn’t made the case for a government-sponsored enterprise (GSE) like AussieMac or something related.

This surprised me because I had figured I was talking about this ad nausium. Anyhow, just in case the message isn’t clear, let me put it here in baby steps:

1. Home lending is funded from two sources: deposits and securities.
2. Thanks to the US subprime crisis, securities have dried up in Australia.
3. The result is a contraction in supply, a rise in interest rates on mortgages, credit rationing of SME business lending and the major banks now having 90%+ of the home lending market (reversing a decade or more of competitive gains).
4. Non-deposit taking institutions (and smaller banks) have been left out in the cold. Compared with the US and Canada that have GSEs where they are still operating competitively.
5. An Australian GSE would bring back the securitisation channel. By using the government’s AAA-rating it would restore confidence to that market and so long as the GSE was not backing non-conforming (high risk or subprime) loans then there would be no cost to the government.
6. The only risk would be a major housing meltdown (of the kind seen in the US recently) but in that situation the government is already carrying that risk by an implicit guarantee to the banks.
7. There would be no moral hazard as loans backed by the GSE would have to be conforming.
8. There would be no crowding out because supply is currently tight and the GSE could have a mandate to only ramp up activities in liquidity constrained times. (see also Paul Krugman today on this).
9. At present, there is no other solution that offers to do all of this and back sustainable competition in home lending. (The spectre of re-regulation looms as a lack of a securitisation pathway removes the Wallis justification for de-regulation).
10. And that is why we need a GSE.

The government’s green paper on emissions trading has just been released. There are lots of interesting aspects to it. For instance, at least until 2014, it is a hybrid model with a defined price cap on permits; although surely to make that work it needs an elastic supply of permits at that cap a la Warwick McKibbin. I’ll have to read more to understand that bit. Read more

I am quoted in the AFR saying various things today about emissions trading:

Melbourne Business School’s professor of management, Joshua Gans, said the imposition of a carbon price was an anticipated cost for business so there were no genuine grounds for compensation, except for low-income households and possibly measures to assist traade exposed operations, as recommended by Ross Garnaut.

“Their investments that have taken place previously have all taken place with that knowledge,” Professor Gans said.

… Professor Gans said dealing with trade-exposed sectors was very complex and an effective environmental policy woudl tax imports of carbon-intensive items such as steel.

However, he said Professor Garnaut’s message about assisting trade-exposed industries lacked clarity.

And let me repeat what I said last week on this: saving a ton of emissions by getting a trade-exposed industry to cut back on production is not a saving at all if that ton is produced elsewhere. We cannot be said to be dealing with our international obligations unless we deal with trade-exposed industries. At the moment, for import competition, I favour something akin to a carbon tariff. Yes, that is an ugly word but so be it.

The Higher Education section of The Australian today has a solid review of the Centre for Ideas and the Economy. Once again, let me put out the call to academics out there who would like to be involved in CITE and to write either an ideaCHECK or ideaPITCH. We have resources to support both.

News today that the Government will, for three years at least, leave petrol effectively out of the emissions trading plan. To be sure, permits will be required (I think) but the cost of those permits will be fed back into reduced excise taxes. What this means is that if you want to buy petrol, the price will be no higher or lower as a result of emissions permit price fluctuations (or the existence of that price).

A year ago, I would have been outraged about this. But with world markets doing a much better job of getting petrol prices up than any emissions trading regime, we can be relaxed. What is more, this plan must be forecasting that the pain from emissions trading will be no more than the current level of the exise tax. That implies that we already have a carbon tax on petrol in our current policy. To get political traction on this issue, this is something I can live with. Moreover, there will still be impacts at the refining end and also on the costs of car capital. This also doesn’t preclude some sensible moves on road pricing (something I see as far more important) at a later date.

But these arguments come with a caveat: should world petrol prices plummet all bets are off? We need to ensure that petrol prices stay at their current levels or higher to send signals to people to change behaviour. It would be a welcome move to make a petrol price floor explicit.

First, poll all of the economists to see what they think, says Scott Adams.

I think we would all agree that having better information won’t influence most voters. If every economist in the survey somehow miraculously supported the same candidate’s positions, it wouldn’t change the votes of hardcore Democrats or Republicans. But in a close election such as this one, independent voters, who I call the Rational Few, end up making the decision. I am hopeful that for that influential group, better information will lead to better decisions. If the Rational Few are indeed influenced by a poll of economists, and it tips the election, economists will forever be polled before national elections. Problem solved.

And what is more, he is doing the poll and will get back to us with results. Stay tuned.

[This post appeared in Crikey, 15th July, 2008] It has only been a few decades since interest rates were pretty much regulated and there were a raft of controls on banks. That ended with the Wallis Inquiry of the late 1990s. And since then, political-economic equilibrium on banking control has held because of the twin gifts of loose monetary policy and competition against the major banks. Those gifts have now been returned.

Yet, in the wake of the US government making its implicit guarantee of Fannie Mae and Feddie Mac explicit, there are numerous calls for Australia to leave the market to itself (e.g., in today’s AFR editorial). I believe this is the wrong call economically because there is ample evidence that the market does not provide a sufficient level of liquidity on its own. But it is also a poor political strategy as well.

Consider this: over the next year we have tighter monetary policy at the same time as the real competition in home lending has dried up. We have already been seeing the result of this: interest rates rising faster than the RBA targets and credit rationing of small business lending. And all awhile that major banks keep telling everyone that things are just fine.

That will last until the first profit statements from those banks appear. I predict they will be a bumper year for Australian majors. And then the politics will shift and we will see a raft (yes, a raft as per The Hollowmen) of measures to claw that back. Most of these will just tie banks’ hands and not truely deal with structural competitive issues.

This is a solid reason, apart from hedging the economic risks, that banks, the Treasury and the RBA need to seriously consider structural options. Christopher Joye and I have been suggesting a structural solution to this for sometime. Along with the Australian Securitisation Forum, we see a role in Australia for a government-sponsored enterprise like Fannie and Freddie (well, at least what they were before privatisation, political capture, and slack over-sight). Put those in place as a backstop for the bad times and banks and other financial institutions can make the case for continued de-regulation and a light hand in the good times. The alternative is a heavy hand at all times. Banks playing the political game here have to consider just what they are risking.

[Update: Daniel Gross on the economic risks. Bottom line: relatively small and a good public bargain.]

Next Page →

• RSS Feed

  • Subscribe to Main Feed

• The CoreEcon iPhone App

  Free! Click to download

• Email

  • Subscribe (Daily Edition)
  • Subscribe (Weekly Edition)
  • Subscribe (Kindle)

• Archive by Author

  • Andrew Leigh
  • Chris Lloyd
  • Christine Neill
  • Guest Contributor
  • Joshua Gans
  • Justin Wolfers
  • Kwanghui Lim
  • Mark Crosby
  • Paul Frijters
  • Sam Wylie
  • Stephen King

• Archive by Date

  July 2008

  M	T	W	T	F	S	S
  « Jun				Aug »
  	1	2	3	4	5	6
  7	8	9	10	11	12	13
  14	15	16	17	18	19	20
  21	22	23	24	25	26	27
  28	29	30	31

• Interesting Items

• Ads

• Blogroll

  • Christopher Joye
  • Club Troppo
  • Economist’s View
  • Economix
  • Freakonomics
  • Greg Mankiw
  • John Quiggin
  • Kalimna
  • Marginal Revolution
  • News for Econ Students
  • Paul Krugman
  • Peter Martin
  • The Dilbert Blog
  • Tim Harford

• Sites
• Core Research
• Parentonomics
• GameTheorist Blog
• Aussie Mac
• Centre for Ideas and the Economy