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28 September 2005

Obviously not a terrorist

Reports yesterday claimed that, by 3pm on the day, five hours after the shooting, the Yard knew Mr Menezes was Brazilian and not linked to terrorism, although his precise identity had not been established. Independent

How could the police have been so stupid. Everyone knows that Brazilians aren't terrorists.

21 September 2005

Why economists alienate their fellow man

Economists (namely my business and govt lecturers) continue to blithely propagate the idea that market allocate resources efficiently. Of course, on a good day, they'll remind you that this assumes "you've got an optimal distribution of income", and promptly forget about it altogether. They'll start using phrases like "and this is why we must cut funding for social services." The argument is purely one of efficient allocation of goods.

I think that the major problem with all this is that economists believe that in an ideal world income is only influenced by how much someone wants that income. If it were true then incomes would be "optimally distributed" and we could leap to all the counterintuitive conclusions to which economists regularly leap. But any economist will happily tell you that incomes are influenced by all sorts of things. In fact, one of the core components of wage theory is that wages are influenced by both the willingness of people to work and the need employers have for their work. The willingness to work can be equated with how much someone wants income relative to how much they want spare time.

To make matters more ridiculous this is only looking at the combined willingness of all workers and the combined need for work of all employers. The need that employers have for each individual worker is very different. This half the explanation for why people incomes are different. The outcome of all this is that a person's income has very little at all to do with how much they want income.

I think that income serves too many purposes for it to be useful in telling us how much stuff people want to have. You can argue that if someone wants more stuff they'll simply go out and earn more income. So that when they go out and buy something we can safely say that the transaction is "optimal". Which merely means they wanted that thing more than anyone else did. But because income is also a way of motivating people to work it loses it's meaning as a measurement of desire for things.

To put it simply, income is only a useful proxy for utility when income is a function of and individual's demand for income. To the extent that it is a function of demand for income, then market's are "efficient". Since economists themselves show that income is a function of many other things, it seems unlikely that our free markets are going to be particularly efficient at all. And the old "efficient by not equitable" argument doesn't cut it. Economists mix up equity of income and equity of market outcome. It's true that given some distribution of income, a market will find the optimal-ish outcome. But who decided that markets should only be measured on their efficiency once the distribution is known. You can totally ignore inequity and still say that markets will not achieve an efficient outcome. Because the income distribution you're given not purely a function of utility. Given we don't really know what the utility distribution looks like - the income distribution is just a very lazy approximation - who's to say that the government doesn't have as good an idea of the optimal distribution as anyone.

The interesting thing about this is that you'd probably get a much more efficient distribution of resources if income was earned by queuing in a line for dollars. Everyone has the same number of hours in a day. The one small problem is that there wouldn't be anything to buy once you left the queue. Which leads you to the conclusion that communist-style rationing is probably far more efficient than capitalism. Capitalism actually trades efficiency for higher production.

20 September 2005

Uni Internet

NSW Uni Library has finally got free wireless internet. Brilliant. It makes me very happy.

15 September 2005

Libby’s Partea

Libby is having a party on Saturday night. Which is Saturday night the 17th of September. It will begin at about 7:30pm or whenever. If you would, please wear something retro. For the purposes of this party retro is considered to be anything from the 50s, 60s or 70s. So come, one and all, to the party!!! And the party is at Libby's old house, which is next door to Ryan's old house.

Libby really wants people to come, and she is sorry she hasn't got around to inviting you yet. If you are reading thins and you know Libby, chances are she would like you to come to her party. So just do.

(Libby hasn't got a blog yet but she is tempted. If you like blogs and you want her to have any faith in the blog system, you should come if you have read this because then she will know what a great grapevibe it is.)

13 September 2005

Tim

Tim posted. I reckon my recent posts inspired him.

11 September 2005

AASB 127 and Stock Options

15. In assessing whether potential voting rights contribute to control, the entity examines all facts and circumstances (including the terms of exercise of the potential voting rights and any other contractual arrangements whether considered individually or in combination) that affect potential voting rights, except the intention of management and the financial ability to exercise or convert. AASB 127 - Consolidated and Separate Financial Statements

This is all well and good but the exemption of the financial ability to exercise seems a bit dangerous to me. What is to prevent rogue management from issuing large numbers of stock options with strike prices far above the likely price of the stock. The options will not devalue the stock since they will never be exercised, but they will cast doubt over anyone's claim to control of the company since they can never have the majority of all authorised shares - or even 100% of feasibly useful shares. Perhaps it's not different enough from having a distinction between voting shares and ordinary shares - which is legal - for the IASB people to care. But given the care they seem to have gone to, to provide a sturdy definition of control it seems like an odd exception to allow.

10 September 2005

Why I Love Superannuation

I just read this in Understanding Power by Noam Chomsky.

But of course, achieving real democracy will require that the whole system of corporate capitalism be completely dismantled - because it's radically anti-democratic. And that can't be done by a stroke of the pen, you know: you have to build up alternative popular institutions, which could allow control over society's investment decisions to be moved into the hands of working people and communities.

Which reminded me again why I love superannuation. And why I'm excited about where it might lead. It's basically undemocratic and big government-ish. We say to the working and middle class, that since they seem incapable of generating assets the state will do it for them. The great thing is, the people who are pushing this sort of safety net, are the same people who derive all their power from their exclusive control of the world's assets. As the trillions of dollars of superannuation investment starts to crowd out the investment of the powerful, their power will diminish. And the beautiful thing about it is that business will flourish because consumption has been converted by the government into investment. And not through the conventional means of ripping it off workers and handing it to capitalists, which economists have always said is the only way of getting enough investment into the system.

It gets better though. Because workers own the means of the production there's this wonderful cycle where wages become merely a way of distributing the workforce efficiently rather than a means of survival for the working class. It's so stable and elegant. Not to mention equitable and just and happy. And it reduces the return on assets the rich get because of the crowding out effect. I just love it.

The cool thing about Noam Chomsky's quote and superannuation is that we actually have achieved what he's saying with a stroke of the pen. It's not complete but I really believe that in a couple of decades the working class will wake up and realise that it has far more power than it has ever had before.

Sleep Multiplying

I had an accounting exam yesterday. I didn't go that good, but I reckoned I passed.

Last night Libby and I walked home from Surrey Hills, which I thought would take 30 minutes but took an hour. When we got home we were tired and flopped, kind of on top of one another, on the bed. An hour and a half later we woke up and reshuffled ourselves. I went to sleep straight away, but Libby wanted to put an alarm on my phone. She asked me "How do I take your phone off silent?" Naturally, I replied with the obvious answer "Just multiply it by whatever number." Libby is such a ditz sometimes.

7 September 2005

Redeemable Health Credits

Instead of medical copayments - which I reckon would be inefficient in desperately poor households - why don't governments allocate redeemable health credit to certain families at the beginning of each year. Each time they go to the doctor they use up some of the benefit. Whatever doesn't get used is paid out at the end of the year, or over the following year, or added to their super, or whatever. It could even be niftily logarithmic so that as they approached the limit, the amount "used up" per service dropped. So it got gradually cheaper, but never quite free. Each time you went to the doctor the secretary could give you a little slip that said "Your next visit will reduce your health credit by $x".

I'm going through a bit of a love affair with super at the moment, so I'd probably prefer to use that if it was possible. You'd have a study the value people place on it. There probably isn't much incentive for people who are desperately poor to increase their super, because it all seems too far away.

Indians Are Clever

People always laugh at Indians (and other cultures) that have a high emphasis on haggling. But after having thought about price discrimination for a bit, and thinking about optimal output levels, and the good things that can happen if you have consumers owning the means of production, I've decided that haggling is a really nifty idea. It means that producers can still make a profit without slaving themselves to death, but the very poor can still afford their products. Hagglings means that producers make a higher profit from people who value their produce more highly. Instead of the same profit from everyone. People complain about Westerners having to pay more when they go into foreign markets and the like, but it's entirely reasonable since we value the items more "highly", at least in a superficial economics sense. So Cuba has a dual economy which is very messy to administer and tends to force a lot of poorer tourists (like me) out of their market. But in India, they don't discourage tourists from coming, the producers make a living, and the people in their own country can still afford to buy stuff. If Indian hagglers were in charge of government managed natural monopolies then you probably wouldn't have to worry about what price to charge. They'd work it out on a case by case basis.

Market Failure

I used to believe in lots of different market failures. I think it was mostly because I don't like free-market bigots, and was excited about anything that made them look silly. I still believe in most of the reason for market failure, but no in two of them, at least not as intrinsic problems. Some of the stuff I read Ronald Coase has finally sunk in I guess. I don't really believe in the "non-excludable" or "free rider" problem anymore. And I don't believe that natural monopolies are insurmountable problems. Both tend to result from a lack of information, but I think the information required to make both of them non-issues isn't that hard to get. A fancy auctioning system is all you need to solve the free rider problem. And a lot of market research on consumer reservation prices will solve the natural monopoly problem. I'm not sure that either issue is interesting enough to discuss at length, but I thought it was worth noting my shift.

1 September 2005

Hot-blooded Hoons in Cars

I've often wondered why the government is so relaxed about young men driving very expensive cars very fast. I read the other day that of 70 new model GT3s ($500,000-ish sorts of cars) imported into Australia, only about 40 were still on the roads. Probably most of those weren't bought by young men, but it reminded me how many crashes expensive cars seem to be involved in. I've ended up deciding that every time a government minister, wandering along the street, sees a fancy car speed past dangerously, he or she isn't troubled by it at all.

Instead, I reckon they think about how wonderful it is that the driver is spending all night driving around in cars and all day working his arse off to pay the insurance and loan repayments. They've convinced young men to go and find work. Convinced them to stay in jobs long term. Convinced them to work hard to get promoted so they can afford a faster car. Given them something to lose. Given them something to do at night which makes them look cool without beating people up or stealing stuff. They've successfully co-opted people into an economic system which is notorious for excluding the sorts of people driving these cars. If the cost of this is a higher number of road accidents, maybe the government has decided it's worthwhile. I have no idea if the costs are worth it, but it has made me think about it a bit differently.

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