Jan

31

Do we need a good bank?

by Joshua Gans | Filed Under Financial crisis | 7 Comments

Last week, I tried to sort through the whole bank nationalisation issue. For instance, one of the issues being discussed is whether toxic assets should be moved from private banks to a single public bank. It was hard to tell whether this was a good idea.

This week I am asking a new question: instead of the public bank being a bad bank, do we need it to actually be a good bank?

First of all, what is a good bank? Aren’t our Big Four banks currently good? Well, they are currently big but that doesn’t necessarily mean good. And they are currently profitable but that also doesn’t necessarily mean good even if it does mean bad.

What would a good bank be? It would be a bank that in the present crisis, takes deposits and a guarantee and then tries to lend out responsibly by investing in borrower information. Put simply, I am not sure our current banks are doing this. There are widespread reports of credit rationing and also discussion that banks are tightening home mortgage requirements — for instance, moving back from 5 percent to even 20 percent equity gobbling up the government’s home ownership grants in the process. That is a real worry. After all, the government has guaranteed deposits. The idea is that those deposits get retained with the banks rather than put under a mattress. However, if the banks are expanding their mattresses, then what is it all good for?

That said, I don’t know what the banks are doing. But the question is: does the government? Surely a reasonable quid pro quo for all this bank support is greater transparency and information so the government can assess its risk exposure? For the commercial property fund, what is the banks’ current exposure to risk? How are banks distributing guaranteed deposits? Is there really credit rationing?After all, the PM says that the market system needs this transparency but I haven’t seen the legislative requirements for it. I must admit, I am not sure we are getting anything for our public guarantee in that regard. Surely, we should expect certainty in lending in return for certainty in keeping depositors with the banks?

In the meantime, the banks are trotting along very well. ANZ, for example, continues to expand into Asia. Bank CEOs continue to have high pay and high bonuses all because things are going well — in part, because of a lack of competition. In the US, there are calls for bank dividends to be suspended when banks get government assistance. Where are similar calls here? I am not saying there should be but how can we square hardship and risk of insolvency with actions that make it look like times are good? If there was a case for an industry where the ask for it and lose it test should be applied, surely it is this one?

It is time for our journalists to ask these questions:

  • What is the risk on commercial property?
  • What are the banks doing with deposits?
  • Have the banks changed their loan requirements?
  • Why is bank executive pay not yet cut to save money?
  • And what information are the banks providing the government?

In the absence of this, the case for a publicly owned good bank that does all of these things seems to me to be getting stronger and stronger.

Jan

31

iPhoto faces

by Joshua Gans | Filed Under Technology | Comments Off

I have been playing with iPhoto 09. We have 13,000 photos so it was going to be interesting to see how it went in cataloging the faces in the photos. And I must say, it has gone quite well. In fairly short order we have about 5,000 faces identified and confirmed. But there is a way to go.  Occasionally, it thought someone was a shoe. Basically, it takes some time to learn and when you have children of different ages that also look like one another, it isn’t that easy a task.

But it could be easily improved. First of all, how about asking for more information about the face including date of birth. This would mean that it could tell whether older photos were not of my youngest daughter, etc. Second, I think it needs to realise that two people in the same photo cannot be the same person. Finally, when cataloging, a simple ‘right click’ or other option to identify a swag of images as someone else would be in order. Nonetheless, I can’t really complain. Constraints aside, it works very effectively.

Jan

31

Britain’s broadband report

by Joshua Gans | Filed Under Broadband | Comments Off

Here is one thing Britain is doing on broadband that beats Australia: they had an inquiry and a report. The Digital Britain interim report was released yesterday. You can download it here. Here is a news item on its findings. The first thing you will notice is that it isn’t just about broadband. Turns out that digital does not just mean broadband and the UK government has recognised this in the report.

There is lots to digest. First of all, unlike Australia, it looks like the report authors are not yet convinced that the government should have a role in building next generation broadband access network as we are doing here in Australia.

The Government is not persuaded that there is a case now for widespread UK-wide public subsidy for Next Generation Network deployment, since such widespread subsidy could simply duplicate existing private sector investment plans or indeed chill such plans. However, as suggested above, a significant proportion of households will fall into the group between current market-led planned deployment and the ‘last few percent’ of households. This gap reflects the difference between a widespread next generation broadband network, desirable for national innovation, efficiency and productivity gains, as opposed to, in the very long-term, universal access to the next generation network for reasons of fairness and equity.

That said, it looked approvingly at local initiatives to invest in such networks.

The Caio Report also recognised that localised open-access models of broadband deployment had a potentially important role to play in Next Generation roll-out. This is particularly true when a defined and relatively stable local community can be engaged in committing to demand for such roll-out. In the Netherlands, the OnsNet project in Neunen has direct commitment from a high proportion of residents in a local community to next generation broadband. This significantly alters the economics by removing uncertainties over take-up. The issue then becomes long-term, stable finance.

A soft version of this model was successfully deployed by BT in the later stages of the roll out of first generation broadband to more rural communities. It has also been successfully deployed by organisations like the Community Broadband Network.

Local Government and Regional Development Agencies too are working on broader roll-out of next generation networks as a central part of local regeneration and economic development strategies.

This is terrific and sensible stuff. They cite some interesting examples of this going on.

Alston Cybermoor is a localised community project in Cumbria which aims to provide a fibre-to-the-home network in the most sparsely-populated parish in England. A local project to obtain first-generation broadband led to the creation of Cybermoor, among the first community-run broadband projects in the UK. Cybermoor is now looking to maintain their pioneering position by investigating the opportunities for fibre-optic technologies. By taking an intelligent approach to network design, financing and harnessing the power of the local community to drive take-up, Cybermoor can become Fibremoor at a cost well below usual estimates for such rural locations.

Digging started in January 2009.

See that. It is happening already and without the national government. That said, they see a role for governments in ensuring that there are some compatibility and regulatory barriers are removed.

The Caio Report rightly pointed out the key risk of such local developments: that we could see the emergence of unrelated and incompatible ‘islands of connectivity’. If local developments are to form the nuclei of a connected Britain beyond the point that the market will serve, they need interoperability and common standards.

An established set of standards could also provide ready-made template solutions of best practice, which local communities could adopt off-the-shelf rather than each having to start from scratch. This could, in turn, provide further momentum to local self-help schemes, in which the public sector needs play only a small part.

The Government is committed to working with community and local groups to develop interoperability and best practice standards to unite localised NGA projects.

Nonetheless, when it comes to basic broadband (up to 2Mbps), there is a case for ensuring universal connectivity. This is something everyone agrees with. What is good about the UK report is that it recognises that that is enough to do plenty of things in terms of information access and commerce.

Rather than drive high speed broadband infrastructure, the report argues that the government make it more attractive for consumers. For example,

The Government needs to drive to promote the adoption of e-public services by businesses and individuals. This requires careful design of how the services are delivered, but also the right promotion. For example a vigorous information campaign, combined with financial incentives, saw the number of businesses completing their Employer Annual Returns for tax online jump more than ten-fold in a single year, to well over 1 million businesses now.

But in order to maximise the impact of e-government, we also need to ensure universal access to broadband-delivered services at necessary speeds. That means having broadband which supports public services which are inherently information and audio-visual content-rich, such as education and health services.

Amen to that.

Basically, my initial read of this report is that it is broadly sensible. There is no pretense of a cost/benefit analysis and a thorough consideration of the options. Where is our broadband report, Mr Conroy?

Jan

31

Allow parallel importing

by Joshua Gans | Filed Under Competition Policy | 11 Comments

Apparently, Australian authors are against allowing parallel importing of books, specifically, their books. This is where, if an Australian author publishes their book overseas, then overseas publishers can sell that book back in Australia. They claim that their publishers here can’t earn enough if they face that competition (from themselves!).

LINGERING in an American warehouse is a threat to Morris Gleitzman’s wellbeing. Books. His books. Books he has written that have been sold for publication in the substantial US market. The problem, as he concedes, is that he is not well known there and his books do not do as well as in Australia.

So the books in this particular warehouse are ones that have been remaindered — sold to a specialist bookseller by his American publisher at a substantially reduced rate to get them off its hands.

What worries Gleitzman is that a proposed change to the Copyright Act would allow the American dealer who bought his remaindered copies to dump them in the Australian market.

So let me guess this straight. Gleitzman does well in Australia but his publisher makes mistakes overseas. And remember that overseas publisher exists at the choice of Gleitzman and his Australian publisher. So apparently we need laws to protect Gleitzman’s royalties from himself?

The theme of lost profits in Australia is common. But let’s take the argument further. Suppose that I publish a book and it does well in Melbourne but not so well in Sydney. My publisher can support publishing the book so long as they can charge a price of $30 but they also publish in Sydney were the book can only fetch $15. What my publisher wants is the ability to prevent books coming across the NSW/Victoria border but the nasty government wont give them that “support.”

Well, they could (a) not sell in Sydney; (b) not discount wholesale to Sydney; (c) not ship as many books to Sydney; all of which would preserve Melbourne profits. But they don’t. Why? Because even facing some competition between cities, they do better. Seen in this light, publishers are gunning for more profits.

And we can see the effect. My book, Parentonomics, retails in Australia for around $30 ($27 if you find a cheaper bookstore). But around the world, you can get it for as low as $23.87. So Austalians are paying 15-20 percent more for books published by Australian authors (and others too). It might cost me but I would happily forgo royalties to see cheaper books across the line in Australia.

Jan

31

Bolt on electricity

by Stephen King | Filed Under Economics | 21 Comments

Andrew Bolt has a bit of a rant in the Herald-Sun about lack of investment by the Victorian State Government in water, public transport and the failure to build new generators.

Hmmm. Let’s just back up on that. Last time I looked our electricity generators were privately owned, as is our transmission and distribution infrastructure. We leave it to the market to determine generation investment. Yes, the market rules are set by the Government (but not the State one) and enforced by the Australian Energy Regulator. But investment decisions in generation capacity are private decisions made according to market signals.

Is Andrew suggesting perhaps nationalisation? Read more

Jan

30

Credit squeeze

by Sam Wylie | Filed Under Economics | 1 Comment

The RBA releases its Financial Aggregates file on the last business day of each month.  Today’s figures, showing data to the end of December 2008, reveal a turnaround in credit growth in Australia. 

Total credit provision by banks, other financial intermediaries and securitisation vehicles ($1.91 trillion) was 0.3% down on the November 2008 figure.  Within that figure housing credit was up 0.3% and business lending credit down 0.9% over the month.  Personal loans (a much smaller category at only $0.14 trillion) was down 1.1%.  Read more

Jan

30

Rebalancing

by Mark Crosby | Filed Under Economics | 5 Comments

There is a lot of speculation about the form of a government stimulus package at the moment. Below I reproduce my article in today’s AFR on this, but let  me also offer a brief comment on Warwick McKibbin’s proposal to cut the GST in half…I don’t think it will work. It is extremely unlikely that this will raise demand – indeed, in Japan during their deflation period private consumption spending growth fell as consumers deferred spending on consumer durables that were expected to fall in price. A cut in the GST will reduce headline inflation, and even though the effect will be temporary, I would worry that this would push inflation too low, and reduce, rather than increase aggregate demand – seems perverse, but we are not in normal times.   In any event I am very skeptical that such a tax cut will lead to any economic stimulus given the level of uncertainty that households are currently facing…follows is today’s AFR piece.

It is fair to say that most economists did not predict the severity of the global downturn in the past few months. But most economists have also been warning for some years of the potential consequences of the unwinding of the global imbalances that have built up in recent years. An unhealthy reliance on public spending and a consumption binge in the United States, alongside an excessive reliance on exports in China and some other countries has proven to be disastrous as these forces reverse. Read more

Jan

30

Cut the GST

by Joshua Gans | Filed Under Economics, Financial crisis | 6 Comments

Ages ago I suggested we think about a temporary cut in the GST to provide an economic stimulus. The UK did a similar thing but I was still called crazy for suggesting it here. And so I was delighted to read the front page of The Age today:

In the latest proposal to revive the economy, Reserve Bank board member and Australian National University economist Warwick McKibbin has suggested slashing the GST from 10 to 5 per cent until February next year.

“The December stimulus payments didn’t have much impact,” Professor McKibbin said. “The spending wasn’t directed at the right things.

“We know that when the GST was introduced, people increased their spending ahead of time and then cut it afterwards. The trick would be to get people to bring their spending forward again but to get income tax cuts coming in the future so that they don’t cut their spending too much when the GST goes up.”

Unlike myself, Warwick really knows about such things. As the days go by, it starts to look better and better.

Jan

30

Is there a market for ideas?

by Joshua Gans | Filed Under Innovation | Comments Off

Al Roth links today to a new paper I have written with Scott Stern entitled, “Is there a market for ideas?” You can download it here. Roth’s description of it is apt:

They seek to combine modern insights on the unusual properties of intellectual property with some of the recent conclusions from market design.

In particular, they take seriously my proposal here that many market failures have to do with a failure to make the market thick, to deal with congestion, or to make it safe to participate in the marketplace, together with the fact that some transactions are regarded as repugnant.

They argue that some of the properties of ideas themselves make it difficult to organize successful markets for ideas along conventional lines: e.g. “…a key property of ideas – the potential for expropriation – limits the potential for market thickness and lack of congestion identified by Roth.”

Among the particular examples they discuss of market designs that try to solve these problems and make markets for ideas are the scientific incentive system (“Open Science”), open source efforts such as Wikipedia, and commercial projects such as Ocean Tomo (which runs auctions for IP assets), and Innocentive (which runs a marketplace in which companies can post Challenges in need of solutions).

I’ll write some more about some of these ideas over the next few days. Expand for the abstract.

This paper draws on recent work in market design to evaluate the conditions under which a market for ideas or technology (MfTs) will emerge and operate in an efficient way. While most research on MfT have focused primarily on bilateral exchanges, market design principles suggest that any single transaction takes place in the shadow or all other potential transactions. As highlighted by Roth (2007), effective market design must ensure four basic principles: market thickness, lack of congestion, market safety, and avoidance of “repugnance.” Taken together, these conditions ensure that participants in a market have opportunities to trade with a wide range of potential transactors (market thickness), that the market is rapid enough (relative to the speed of transactions) that market participants can feasibly turn down offers in order to seek better matches (lack of congestion), potential market participants have a high incentive to participate in the market and avoid strategic interaction which might undermine allocative efficiency and social welfare (market safety), and that market trade is not undermined by other social values which limit the ability to charge positive prices for a good (avoidance of repugnance). This paper provides a critical examination of these criteria for MfT. Our analysis suggests that microeconomic, strategic, and institutional factors likely inhibit the allocative efficiency of MfT in most circumstances. For example, Arrow’s disclosure problem suggests that the value of a given idea to any one buyer may be decreasing in the number of other potential buyers who have been able to evaluate the idea (due to information leakages in the valuation process). As a result, a key property of ideas – the potential for expropriation – limits the potential for market thickness and lack of congestion identified by Roth. At the same time, key institutional developments such as the development of formalized IP exchanges and increased attention on how to design the patent system to facilitate technology transfer suggest that effective market design may be possible for some innovation markets. Perhaps most intriguingly, our analysis suggests that markets for ideas are beset by the “repugnance” problem: from the perspective of market design, Open Science is an institution that places normative value on “free” disclosure and so undermines the ability of ideas producers to earn market-based returns for producing even very valuable “pure” knowledge.

Jan

29

Is Less Really More?

by Kwanghui Lim | Filed Under Advertising, Innovation, Technology | 2 Comments

The Economist just ran an article on less powerful computers becoming more attractive due to the recession and because more services are available online. This might hurt the computer industry. Well, not entirely true. While a “regular” consumer may indeed find a slower netbook laptop good enough, a corporation putting slower machines on its workers’ desks will have to invest in reliable networking and faster servers to carry the extra computational load. So, computing services will still have to be paid for either through direct hardware investments or by paying service providers such as salesforce.com and Amazon EC2. The right question is whether there is a net savings in IT expenses by investing in faster servers instead of desktops. And the impact on the industry should be viewed in the same way, since having the new arrangement of servers doing more and desktops doing less may give rise to new and unexpected opportunities.

ps: a personal example of where less is indeed more is this dishdrawer. My wife and I hardly used the full-size machine we had before, but we’re finding this tiny appliance fills up quickly enough that we actually use it.

Jan

29

China’s 2009 GDP growth

by Mark Crosby | Filed Under Economics | 3 Comments

The latest IMF forecasts show downward revisions to all countries and regions. The US and Europe are now predicted to have their worst post-war year as far as GDP growth goes, and emerging markets have seen their growth forecast revised down from 5.1% to 3.3%. Their is no forecast for Australia, which falls into the “other advanced economies” group. But with global growth now forecast to be about 5 percent below growth in recent years, it would seem very difficult for Australia to avoid negative growth in 2009. The interesting forecast for me, and of course critical to Australia’s prospects, was the forecast for China. Last October the IMF forecast China’s GDP would grow at 8% in 2009. Yesterday’s forecast for China was for 6.7% GDP growth this year. Last October the impact of declining global trade was already being felt in China, hence growth was forecast to be well below potential. But ongoing declines in share and property prices have led to further deterioration in that economy, particularly in the very important construction sector. More or less the population of Australia migrates from the rural areas to urban areas each year in China. Read more

Jan

29

Ask for and lose it

by Joshua Gans | Filed Under Economics, Financial crisis | 3 Comments

I think that if there is one consensus opinion amongst economists is a shared hatred of rent seeking. This is where individuals or groups engage in various efforts to secure a bigger share of the pie from centralised decision-makers. Consider Jeff Sach’s comment:

The most obvious problem with the stimulus package is that it has been turned into a fiscal piñata – with a mad scramble for candy on the floor.

We dislike it when it is directed at government or at the powers that be where we work.

And that pretty much explains economists’ nervousness about fiscal stimulii. Taking a macro perspective, the rationale for a stimulus is easy to see and you can come up with a dollar number of what should be happening. But converting those dollars into specific projects is another matter. Stephen tried to do it yesterday and the recent “RuddBank” for construction is another. For my part, I generally agree with the Stephen line but worry about the RuddBank line. And I’m not alone. Chris Joye thinks its rationale is undeveloped and Sam Wylie worried that it seemed inconsistent with other government choices. But then again, I can see how construction ticks the boxes on keeping various sectors in employment and leading to stuff that can be used in the future.

I think the issue relates to rent-seeking. When independent analysts put forward a spending suggestion it is different from when an interested group puts forward one. That is why we don’t like car or child care bailouts but we did not mind it when money was handed directly to local governments.

So how should government’s deal with rent seekers? (I stress should as I don’t expect them to do this). I can relate to their situation of having a myriad of groups coming to their door with hands open. This happens to me everyday with my children. But I have a simple rule there: “if you ask for it, it is likely you won’t get it.” This strategy keeps my children at bay. So if the government simply refused to fund any project proposed by a rent seeker would that be a good thing? If you ask for it, you lose it.

If credible, the rent seekers would certainly run away. But the counter will be: how then can government’s choose how to spend their money. Is a random allocation better than one based on the preferences of at least somebody? It is hard to tell.

But it isn’t really random. As I have argued before, there are plenty of projects lying on the government’s table that have been given cost-benefit ticks and then put off. Those are the ones we should be looking to do and if we implemented “ask for, lose it” those are the ones that will likely be done. That would probably be a pretty efficient state of affairs.

But there could also be some instances of “changed circumstances.” In thinking about this, I wondered if some Web 2.0 input from the public might help. Rent seekers post their “emergency” proposals on a web site and then can do no more. Others then comment.  The government uses the process to make a decision but never has to meet with the rent seekers. It is a fast-track version of how we normally do things but it is better than others. In today’s Age, Nicholas Gruen appears to have similar thoughts. It couldn’t hurt, could it?

Jan

29

Credit card cost: who pays?

by Joshua Gans | Filed Under Competition Policy | 8 Comments

Steve Levitt points to a site, truecostofcredit.com, that allows you to calculate what costs you are imposing on merchants when you use a credit card instead of cash. The site works for Australian cards (I guess when purchasing stuff in the US). So when I buy a $50 book there that costs the bookseller $1.17 if I use my MasterCard and $1.87 if I use my AmEx. This is about double the rate for similar transactions in Australia. Read more

Jan

29

Another try at the wealth-signalling app

by Joshua Gans | Filed Under Economics | Comments Off

I always liked the “I am Rich” iPhone app that cost $999 and did nothing but signal that you paid $999 for it and must be rich. Actually, the app was pulled after 6 people bought it signalling “I am Stupid.” Read more

Jan

29

Good for some

by Joshua Gans | Filed Under Economics | 6 Comments

As I write this, it is 6:30am and the temperature outside is 32.3 degrees Celsius. And we are only at the start of a heatwave here in Melbourne with the next three days continuing 40 degree plus temperatures.

The graph below (from NEMMCO) shows the last 24 hours of demand and market prices in wholesale electricity in Victoria. In the late afternoon demand hit historic highs and prices spiked towards their cap. A price that is usually around $43 per MWh went past $9000. Think of what that means. Yesterday electricity generators in Victoria look like they earned for 30 minutes more revenue than they would earn in a good week at other times of the year.

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Read more

Jan

29

The tale of two property investors

by Sam Wylie | Filed Under Economics | 1 Comment

Two groups of property investors wish to withdraw their funds from the sector.  The first group are the investors in mortgage trusts who wanted to to redeem their shares in those trusts in November 2008.  The second group are the international banks which we are told wish to withdraw from syndicated loans to property investment companies.  The contrast in the Federal Government’s assistance to these investors is quite interesting.

Read more

Jan

28

Keep on cutting

by Mark Crosby | Filed Under Economics | 2 Comments

As expected, the CPI figures released a moment ago show that prices fell (by 0.3%) during the last quarter of 2008. Of course the headline inflation rate was significantly reduced by the fall in oil prices, though ongoing rises in food prices (and rising rents) largely offset this. The question for the RBA of course is where inflation is going in the next 12 months, not in the past quarter of last year. But whether one is forecasting the headline or the underlying inflation rate, there seems almost no reason to fear rising inflation. There are some forecasts around for deflation by year end or early next year, which seems to me to be have a low probability. But it is also low probability that inflation will be above the RBAs target range. In the current environment the RBA can afford to do a lot more to stimulate the economy without running the risk of inflation rising. Despite interest rate cuts in the second half of last year, real rates have not fallen at all – Melbourne Institute measures of expected inflation have fallen by 3%, matching the fall in the cash rate). With 8 of Australia’s top 10 trading partners in recession, the RBA can afford to cut rates to 2% or below immediately without risking their 2-3% inflation mandate.

Jan

28

What is to be done?

by Stephen King | Filed Under Economics | 4 Comments

Peter Martin has a piece on his Blog and in today’s Age summarising the views of a group of economists (including yours truly) on what we think the Government should do in the face of the GFC. I present my expanded views below. Read more

Jan

27

BlackBerry Under Threat

by Kwanghui Lim | Filed Under Innovation, Technology | 5 Comments

One of the unexpected news highlights of the US elections is Obama’s forceful battle to keep using his BlackBerry, which he won this week. The BlackBerry is a communications device built by RIM of Canada. I suspect Obama’s victory actually didn’t matter other than for his personal preferences, since these days several good substitutes are available, such as from Apple, Palm, Nokia and even Google.

Yet a few years ago, this wasn’t true. Dave Weston and I recently wrote a case study on the BlackBerry, and we learnt that in 2005, when RIM was told to shut down the BlackBerry network due to a patent infringement case, Washington DC insiders appealed to keep it running, claiming it was indespensible for the operation of the US government. Ironically, the US defense department cited National Security as the reason why the US government should be exempt from the shutdown — the same reason given now for why Obama should use a “more secure” device.

Read more

Jan

27

Short selling and financial stocks

by Sam Wylie | Filed Under Economics | 4 Comments

The following opinion piece appeared in the AFR on Tuesday. 

There is a good reason why financial firms should be treated differently to other firms in terms of bans on short selling.  This reason is hardly ever mentioned in the public discourse on short selling, perhaps because it takes a little explaining, so here goes. Read more

Jan

27

Gong Xi Fa Cai

by Mark Crosby | Filed Under Economics | 1 Comment

Apologies for not getting this out yesterday, on the first day of the Chinese New Year, but for the first time in many years this of course coincided with Australia day and I took a holiday. Chinese new year is on the second full moon after the (northern) winter solstice, and I make it the odds of the two holidays being on the same day is 1/28. This is the second day of the year of the ox in the Chinese calendar. For the superstitious among you I record below some events during the last five years of the ox, as well as Australian sharemarket returns – as you can see the year of the ox has been a volatile year for Australian sharemarkets, and my top of the head calculation of the average return in these years of about 7% is well below the long run average of around 12% for the Australian market. Note that these are returns for the calendar year, not the chinese lunar year, and of course, past performance is no guarantee of future returns.

1949 Communist Party victorious in civil war in China, Australian sharemarket returns 24.8% in year. Read more

Jan

27

A tangled web of reality

by Joshua Gans | Filed Under IP | 2 Comments

Flash of Genius is a movie about Bob Kearns, the engineer who invented the intermittent windshield wiper only to have it built into Ford and other cars without permission. It is a favourite case for entrepreneurship classes about the risks associated with disclosing ideas while trying to sell them.

Read more

Jan

27

Stimulating equations

by Joshua Gans | Filed Under Economics | 1 Comment

Chicago’s Kevin Murphy has generated a ton of discussion regarding his framework for analysing spending stimulus packages. Here is the video (starts at around 17 minutes in) and it is best viewed with these accompanying slides. Brad de Long summarises the model here.

Murphy argues that government spending will be good if the following inequality is satisfied:

f(1-λ) > α+d

where f is the fraction of the output produced using “idle” resources, λ is the relative value of “idle” resources, α is the inefficiency of government spending and d is the deadweight cost per dollar of revenue from the taxation required to pay for the spending. This equation neatly divides up into left and right. The right hand side has all of the costs of extra government spending (inefficiency relative to private spending plus the costs of taxation) while the left hand side has the benefits (the level of unemployed resources multiplied by the benefits of employing them).

Read more

Jan

25

Climate change convergence

by Joshua Gans | Filed Under Environment | 4 Comments

With the release of the Coalition’s climate change policy, my impression is that we have at long last reached policy convergence. The policies of the two major parties are hardly different from one another when compared with the policies of other countries or any past, I guess, lack of policy action. There are some details where there are difference but thankfully, Malcolm Turnbull has avoided getting into headline emissions target bidding (whether up or down) and instead has emphasised some areas that the government hasn’t: most notably, the lack of carbon offsets being part of the ETS.

So overall, we have broad mainstream political agreement on climate change. I must admit that I think the Coalition’s arguments for delaying the introduction of the ETS are weak (why delay the inevitable when there is nothing more to learn) but their arguments that we are not seeing enough positive action to complement the ETS right now is a strong one. Everyone needs to get to work and do so quickly.

Jan

24

Bank nationalisation: My 2 borrowed cents

by Joshua Gans | Filed Under Economics, Financial crisis | 4 Comments

The big economic debate at the moment concerns bank nationalisation. Near as I can tell, the intense pressure to consider this is the dramatic fall in share valuations of some of the titans of the banking industry. Here is the recent Bloomberg picture:

Bank equityNot a pretty picture. But does it tell us: private investors do not think banks are a good investment.

The question is: does this mean they are a good or better investment for the government? Read more

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