If you think there’s no way you could ever get used to curling up with an electronic reader, you haven’t given the Kindle a chance. Load up a good book and you’ll soon forget you’re reading plastic rather than paper. You’ll also wonder how you ever did without it. The Kindle makes buying, storing, and organizing your favorite books and magazines effortless. You can take your entire library with you wherever you go and switch from reading the latest New Yorker to the latest best-seller without rolling out of bed. In my few days using it, I was won over: The Kindle is the future of publishing.

OK, that doesn’t sound like doom and gloom. But here we go:

And that’s what scares me. Amazon’s reader is a brilliant device that shanghais book buyers and the book industry into accepting a radically diminished marketplace for published works. If the Kindle succeeds on its current terms, and all signs suggest it’ll be a blockbuster (thanks Oprah!), Amazon will make a bundle. But everyone else with a stake in a vibrant book industry—authors, publishers, libraries, chain bookstores, indie bookstores, and, not least, readers—stands to lose out.

So there is the argument. The Kindle is wonderful, so wonderful that everyone will dump paper books and use it. Moreover, amazon have carefully taken advantage of a year lead and with such a first mover advantage and a larger set of books than anyone else will trump all other eReaders and so become the monopoly bookseller. As a monopolist, they will continue to do the things they are doing now to keep their books to themselves and squeeze publishers and everyone else until they no longer write books and so amazon has nothing to sell.

Aiken points out that even if Amazon does create a Kindle app for the iPhone and other devices, the service will still have the same fundamental problems. Your books will still be locked to Amazon—you’ll just have two or three places to read them rather than one. At the moment, Aiken notes, Amazon is selling e-books at a loss in order to spur Kindle sales—it sells books for $10, but pays publishers more than $10 per copy. But once Amazon gets control of the market, it will be free to impose price reductions—to force publishers to reduce their e-book rates to less than $9.99. “That would be potentially devastating to the industry,” he says.

And even if the publishing industry isn’t devastated when a single bookstore takes over the e-book world, the marketplace for books will be diminished. Amazon stands as proof of how innovative retail practices can transform an industry; over the last decade and a half, the company revolutionized the book market with innovations like customer reviews, collaborative filtering, one-click shopping, and unbeatable customer service. It launched all these services to stay ahead of its rivals. But what will happen when it has no rivals?

And current experience has confirmed this, right?

In addition, Kindle books are cheap, the majority selling for $9.99 or less. Consequently, as Amazon CEO Jeff Bezos told investors last month, Kindle owners are voracious book buyers. According to the company’s stats, when people get a Kindle, they keep buying the same number of physical books as they did before—and they buy nearly twice as many e-books as paper books.

So cheap books have lead to more reading and more purchases. Hardly a recipe for disaster. And the claim is that it will continue to do so.

The problem here is that the dire prediction that content won’t be produced due to a book distribution monopoly is both unlikely and also, even if amazon.com does come to dominate the space, its incentives won’t be to do that.

As an author, I know how little of the book price comes my way. Cut out the printing and maybe even the publisher (as eDistribution opens up a by-pass option) and I can imagine that there will only be more and certainly no less coming my way if amazon did everything. Indeed, Parentonomics isn’t available on a kindle yet but I really wish it was (click here to request that it is). At the moment, bookstores have no incentive to keep the price of my book down as they need to get their cut. But amazon’s pricing will influence overall book demand if they have a monopoly. That will create incentives to keep price low and go for volume. Bring it on.

One set of losers I guess might be book jacket designers. Like album cover designers before them, electronic distribution reduces the need for good signage. Of course, then books are less likely to be judged by their covers and on something else. Again, who could not want that?

But probably my favourite is from John Clark and Brian Dawe, with schoolboy John Howard being dressed down by the principal on his performance on his recent exam performance.

“Question: Who is responsible for interest rates
Answer: The Prime Minister if they’re low … and the bogeyman if they’re high.”

Love it. From the early stages where we learn that after invading another country and creating a power vacuum, you end up with peace and democracy, every time, to the end, where the cheque attached to the exam is explained as a first homebuyer’s grant. It does take a bit of work translating it for a non-Australian audience, though.

This one’s also nice: how the financial system works and why the banks need lots of your money.

“You don’t need to afford the things you buying Bryan; you need to afford the interest on the money you need to borrow in order to buy them.”

The Daily Show and the Colbert Report both have writers who seem to try to get the basics of economics before making fun of it.

Your Tax Dollars at War (February 23, 2006)

Fun for dealing with inflation and debt financing/Ricardian equivalence.

Tax Cuts (May 17, 2006)

The trickle down effect explained – everyone benefits when the rich get more money, from monocle makers to diamond-tipped-cane polishers.

Unfortunately, can’t get them online in Canada any more. Someone really should put together a collection of these things and package them with a textbook or something.

Anyone else got any favourites?

But it is interesting. I follow all manner of people including our political leaders and also others like Stephen Fry. That last one decided to follow me and didn’t I feel special until I found out he was following 50,000 others! That said, I know when he goes to bed everynight and pretty much where he is every minute. It is somehow compelling.

David Pogue of the NYT has also got into twitter. He loves the ability to put a question out there and have answers in a second. Well that is fine if you are David Pogue and have 17000 eager followers. But for the rest of us, while some things can come, it can’t be really specialised. That said, I tried it for Twitter related advice and it did work. Moreover, I was more than happy to answer Malcolm Turnbull’s call for questions to ask at Question Time. Not sure if any got up.

The other thing you get is being able to carry on conversations. They are public but can be fun and useful from time to time.

Like everyone else, I can’t see were the money is going to come from. If it was integrated with Google and advertising it might make more sense but who knows.

Anyhow, if you want to follow me or just see what I have been tweeting just go to: http://twitter.com/joshgans

Are you kidding me? The whole idea of bonuses – a pretty big part of compensation in the financial sector – is that it’s variable. Is Posner really wanting to argue that workers in the financial sector didn’t understand the deal they were taking, and are incapable of assessing risks to their income, understanding that bonuses and consequently incomes can go down as well as up (for instance – they could have lost their job!) and saving accordingly? Seems like a pretty good argument that none of them should have had a job where they did at all.

These guys raked up the dollars in the good times. But Posner wants us to believe that this means that they are habituated to the extravagant incomes they have been earning recently, and precisely because of that they should get to rake up the dollars in the bad times too? When the alternative to getting bailout money is that they lose their jobs and all their income????

“It may cause senior management at some banks to refuse a bailout”

I’ll counter with Becker: “Companies that take government assistance do so because they fear going bankrupt.” I don’t know, take a salary cut or go bankrupt and lose my job? So hard to choose.

Not very good arguments:

“the problem of overcompensation in the banking industry is more serious at the trading level than at the senior management level … The pay cap doesn’t reach down that far in the corporate hierarchy.” (Posner)

Aren’t the higher ups supposed to be supervising the lower downs and setting policy? (Alright, I know this is an area where things may have been a bit lax, so theory might not be great here. Still.)

It distracts attention from the real culprits of the crisis – the Fed, Treasury and other regulatory bodies – “If the government thinks that shaming the bankers and capping their pay will prevent future banking disasters, it will be distracted from making the regulatory changes that are necessary to restore effective public supervision of a vital industry.” (Posner)

I think ‘the’ government can walk and chew gum at the same time, and I haven’t heard anyone seriously saying that pay caps of themselves will fix all the financial sector’s woes.

“severe limits on severance pay help to lock in incompetent executives who then might refuse to leave voluntarily” (Becker)

Um – so sack them instead of waiting for them to leave voluntarily? (OK, naïve, I know.) And what’s the chance that an incompetent person who is in a job in an industry where jobs have been melting away is going to take a redundancy anyway, unless they’re about to be forced out.

“the value of the stocks owned by these top executives also dropped sharply, and since their bonuses have been sharply reduced or eliminated, most top executives did suffer greatly along with stockholders when their risky decisions failed.” (Becker)

If the motivation is punishment, then this is not a bad point. But again, this isn’t really punishment – it was the deal on compensation made by these guys, and it worked well for them for a long time.

Good arguments:
Salary caps don’t actually reduce total compensation, and there is a cost to working around them (Becker)

But, if true, almost all the other arguments against salary caps – especially the blather about disruptions to exec’s personal lives affecting work performance – are largely irrelevant. So why all the frills?

A more interesting analysis of the problems with the form of compensation limits added to the US stimulus package is here.

But as I have written many times before, the proposed plan to have the government and employers fork out for the scheme is detrimental to employment – particularly for women. There were schemes that targeted direct issues such as liquidity and also ones that were employment promoting such as return to work credits. The government instead is moving towards a more complicated amended to the baby bonus scheme that would impose costs on employers at a time when, let’s face it, they need no more excuses to let workers go. From that perspective, the delay is surely welcome.

I am writing this in the context of the recent debate regarding micro-payments for newspaper articles. This is something I previously commented on, was a lead story in Time, objected to by others, and discussed here and here. That debate notes that (a) people value information and (b) it is costly to produce that information and so that means people can and surely will fork out to cover information costs. Fair enough except that it doesn’t appear to happen when it should and maybe, as I will argue here, ever.

Let’s start with books. Books represent a collection of information. But in pricing books publishers and booksellers take into account various factors including the quality of paper and binding as well as timeliness — charging more for books closer to the time of release in many cases. So the same information is sold for differing prices depending on how it is delivered. And we see this being expanded to electronic books too. And all this occurs when books can be easily borrowed from others. So what book sellers are competing with are those other modes of delivery. That is why, except in extremely rare cases, households only tend to buy one book.

Now, let’s move on to music. Previously, the issue in delivery was quality (albums to CDs) and portability (cassette tapes). Then came digitisation (actually that came with CDs) and supposedly every thing changed. Yet, iTunes is able to sell music despite the fact that you can get that very same music for free (albiet illegally but nonetheless). The obvious reason is that it allows for easier delivery. Pandora radio — something that I suspect could charge for a subscription — does delivery differently but allowing tailoring and experimentation. Indeed, it works like radio that way — the obvious delivery-based competition for music sales.

I could go on but let’s get to newspapers and the current apparent dilemma. The claim is that newspapers when they lost classifieds, moved to unprofitability. In reality what happened was that newspaper content and classifieds shared a delivery mechanism — timely and regular delivery to readers. But classifieds found a better mechanism and one that made search easier as well as involved lower costs. News content could also use that mechanism. The problem was that classifieds still had their traditional customers — advertisers — while news content was now much less about delivery and more about information. According to my hypothesis, that is the problem.

So the response has been, let’s work out how to get people to pay for information. One example of this is Chris Anderson’s notion of “freemium.” You give away 99 percent and charge for 1 percent. The idea there is to charge for some premium content. But my conjecture here is that is wrong. What you need to do is charge for better delivery. Ad-free is an example of this but customisation is another way.

Now I don’t have the ‘solution’ for newspapers but my guess is that once they start thinking about giving away content and charging for delivery, payment mechanisms will come (something that Jonathan Rosenberg was groping towards).

Our children, he contends, will not pay at all because by the time they grow up, the debts will have been repaid.

But the fact of the matter is that we all pay. We pay today, and our children will pay tomorrow.

Today’s wasted debt-creating public expenditure will need someone in the future actually producing and earning an income to repay the debts that are accumulating.

Kates is right when he notes that I was not saying government expenditure was free. It isn’t. I was saying that the wrong objection to government expenditure is that it is bad because we benefit but our children pay the cost. This is for two reasons. First, I don’t think historically that was literally true (at least in terms of dollars repaid) and second, if you are worried about it, you can take on those costs right now by saving and giving this to your children.

Instead, I called looking at the costs and benefits of government expenditure on the merits of the expenditure items themselves. There is nothing wrong in borrowing for something if there is a positive net present social value. Take the school’s investment. If a given multi-purpose hall in a school has a cost today that is less than the benefit it bestows on children today and in the future then that is a good expenditure. If it is better to delay that construction or never have it, that is a bad expenditure. We need to argue on those terms for each of the $42 billion rather than drawing up overall debt repayment schedules.

So I can hardly agree with Kates as he goes on:

Nothing in an economy comes free. Why anyone should think deficits are an exception is anyone’s guess. The only real question is not whether these debts will be repaid, but when and by whom.

And our children will be part of the payment process because by diverting resources into less productive assets, we weaken the economy and leave a depleted legacy of valuable capital upon which they can build.

But what Professor Gans is actually saying, I think, is that because the problems of the deficit become so acute so quickly, we are unable to just coast along forever, but must do something almost immediately.

I definitely do not think deficit problems will become acute so quickly. Indeed, I think we can coast along for decades with a sustainable and serviced amount of public debt on our national accounts. So long as the expenditure on each and every date is justified and covers the interest payment on the debt and so long as someone is lending us the money to do so (that is, they believe we can service the debt in the future) then why note take advantage of it. Now I’m not saying that we shouldn’t adjust for risk but it is the risk of default and liquidity constraints that we should worry about. And those risks don’t justify a zero debt or worse an accumulation of assets that we saw under the Howard government. Let us not forget. That government may have paid down the debt but it was the biggest spending government in recent memory.

So in that light, consider some of the spending components of the stimulus package. Unlike the US, it is completely non-diversified in many ways and concentrated on one thing: construction. The question is: why spend on construction right now? The asumption would seem to be that we have or are going to have idle resources there and so it will be really cheap. What we need to make sure that that assumption is true before spending in that sector. The statistics on that have yet to come to bear.

• Within 10 years save more oil than we currently import from the Middle East and Venezuela combined.
• Put 1 million Plug-In Hybrid cars — cars that can get up to 150 miles per gallon — on the road by 2015, cars that we will work to make sure are built here in America.
• Ensure 10 percent of our electricity comes from renewable sources by 2012, and 25 percent by 2025.
• Implement an economy-wide cap-and-trade program to reduce greenhouse gas emissions 80 percent by 2050.

In the Federal Budget last May $2.3 billion over five years was earmarked for projects to reduce emissions. In this months UEFO (updated budget) another $3.9 billion was earmarked for ceiling insulation projects. The total of $6 billion (roughly) over 5 years is not too different as percentages of GDP to the US bullet point 1. There is no equivalent strategy to bullet points 2 and 3, and given the Government’s commitment to cut fuel excises one for one with carbon taxes on petrol, in fact we are likely to make little progress in terms of significant improvements in the energy efficiency of our cars relative to other countries.

The Australian governments renewable energy target is to have 20% of electricity generated from renewable sources by 2020. Again, a similar trajectory to the proposed US path. Finally, Australia’s aim is to reduce greenhouse gas emissions by 60% by 2050 – on this front we are far less ambitious than the US under Obama. As economists, we know that talk is cheap, and it will be interesting to see what actions back up these ambitions. But it is clear that the US is starting to show some leadership on this issue – I’d like to see us following the lead a little more closely.

Emotive opposition arguments make no sense

Recently a group of economists affiliated with the Cato Institute ran an ad in the New York Times opposing the Obama’s stimulus plan.  As chair of my department I tried to arrange a public debate between one of the signatories and a proponent of fiscal stimulus — thinking that would be a timely and lively session.  But the signatory, a fully accredited university macroeconomist, declined the opportunity for public defense of his position on the grounds that "all I know on this issue I got from Greg Mankiw’s blog — I really am not equipped to debate this with anyone."

And I can imagine that happening. Indeed, I have said similar things to various people, journalists and others all of the time. And I am no slouch on being opinionated. Even apart from the blog, I was in the press an average of once per day last year. But that hasn’t stopped me not wanting to comment on what the latest unemployment numbers mean and have passed the buck to various others on that. Eventually, there is a taker. And sometimes if people just wait, an opinion will form in my head.

I think academic economists are actually more engaged than ever as a result of this downturn. In contrast to Clark, I would be very surprised if the result doesn’t appear in the journals over the next few years.