Economics and similar, for the sleep-deprived

A subtle change has been made to the comments links, so they no longer pop up. Does this in any way help with the problem about comments not appearing on permalinked posts, readers?

Update: seemingly not

Update: Oh yeah!

Monday, May 28, 2012

Idea for a game show, part whatever ...

"Time Team Extreme".  The problem with the current version of the show is that the drama is all visibly bogus.  Tony Robinson and the archaeologists only have three days to investigate the site, but this constraint is purely a figment of the filming calendar.  My proposal would be to introduce a genuine element of risk; have the planning approval granted and the mixers ready to concrete over the site to put up a housing development ... unless Tony and the Time Team can find something of genuine archeological significance there, in three days.  You could have special episodes once a series where he calls up Chris Packham with hours left to go, on the offchance of finding an endangered frog.

It ties in with my proposal a few years back with respect to Griff Rhys Jones "Save Our Historic Buildings" series, which I thought was utterly one-sided; in each case, a local property developer ought to have at least been given ten minutes to put the case that the Georgian pile in question was actually pretty dull, and to extoll the merits of the retail units he had it marked out for.
1 comments this item posted by the management 5/28/2012 08:51:00 AM

Wednesday, May 23, 2012

Ever have absolutely irrefutable and definitive evidence that you are, actually, being ripped off? 

And here, via Phil (imagine me doing a David Attenborough voice now) we see the craft beer nerd in its natural environment, attempting to convince themselves, on a blog, that paying seven quid for a small bottle of beer is a sensible and even a highly intelligent act. This is accomplished by the "Revealed Preference No Harm No Foul Theorem", whereby the simple fact that someone paid a price means that the commodity was "worth it to them", therefore they weren't ripped off. I do not agree. It's not quite as much a state of denial as the people who went to the Sex Pistols "Only In It For The Money" tour, but …let me tell you a story …

What we need here is a paradigm example of a market in which the customers are being ripped off.  What would you say if I told you there was a company which ripped off its customers, had a specific policy of selling them goods for a thousand times what they were worth, agreed that it was doing so, and had periodic negotiations with representative groups of those customers over the exact extent to which they would be ripped off? Paradigmatic enough?  Tough crowd.

Ladies and Gentlemen, the Royal Mail, and the philatelic market for stamps.  Philatelists are the perfect market for post companies because they buy 60p worth of mail delivery services and then don't use them.  It's a form of seigniorage not unlike that time RBS used its note printing privileges to run up a bunch of "commemorative" fivers with Greg Norman on them, and stuffed them in the tills of the Open Golf Championship one year.  Good times.

The philatelists are aware that they are paying absurdly over the odds for stamps.  But what can they do?  Well yes, but what can they do while remaining philatelists?  Not a lot.  The Royal Mail doesn't have anything approaching a monopoly on small sticky bits of paper with pictures on them.  It doesn't even have a monopoly on stamps - they're pretty much intrinsically an internationally traded commodity.  What the Royal Mail has a monopoly on is an intangible commodity called "The Ability To Think Of Yourself As A Person Who Buys Every Set Of Stamps Issued By The Royal Mail".  It's like owning an awards ceremony, and the ownership of a good awards ceremony can be a real old money spinner - ask Institutional Investor magazine, or for that matter the Press Gazette, which was kept going for years beyond unprofitability and irrelevance by the profitability of its awards ceremony.

The price of the Royal Mail Completist product is set by the Mail, and they do so by controlling the number of new editions of stamps they put out each year.  Regularly, the philatelists complain that the RM is making a mockery of the whole hobby by proliferating too many new editions.  They protest, and they are listened to fairly respectfully.  And then they go on buying.  The job of calculating precisely how much piss-taking the philatelic market can bear is one that takes up roughly half of the working time of a thirty-something middle manager in the marketing division - I know this because I happen to know someone who used to do it.  You also get the title of "President of the Stamp Bug Club", which comes with a once-yearly appearance on Blue Peter and the consequent award of the badge.

So yes, anyway.  Everyone involved in British philately in any serious way is aware that the whole thing is basically a rip-off.  From the philatelists' point of view it's just about worth hanging in because the game is worth the beating, but it's clear to both sides that what has happened here is that the hobbyists have created a piece of intellectual property for the Royal Mail, which then charges them rent for using it.

And thus, craft beer.  The reason why I gently and lovingly mock this subculture (and avidly lurk on their blogs soaking up the delicious squabbles and politics, OK I do that, are you happy now) is that they're trainspotters acting like connoisseurs.  Audiophiles are very similar.  The pleasure that they are consuming is the intellectual property, not the stuff in the glass.

After all, think about the economics.  I know why Premier Cru Chablis costs what it does - it is intrinsically limited in supply because it can only be made from the agricultural output of a surprisingly tiny area of France.  It also has a lot more capitalized interest expense in the aging time than nearly all beers.  But beer is a mass production product, made out of commodity inputs in an industrial process.  If someone is charging St-Emilion prices for something that can be mass-produced, then you can be pretty sure that the difference is accounted for by the intangible assets, not by the costs of inputs.

And what are those intangibles?  Well, it could be "you are paying for vast amounts of research and development, to the extent that for every bottle you see, three or four have been discarded".  But it isn't.  It might be "you are paying the market price for expertise, in the sense of culinary and brewing skill".  But this would very much raise the question of whether, since this is an entirely new market segment, the skill and intellectual capital concerned really is greater than any that has existed before - ie, that American craft brewers are literally the greatest of their kind that have ever existed.

On the other hand, it seems very likely indeed that you are paying for the intellectual capital in the marketing department, just like the guys licking the stamps and bemoaning the number of things and people that are capable of being commemorated.  The secret input into craft beer that makes it possible to charge twelve quid a throw for it is "the brewer's ability to identify a smallish but economically viable hobbyist market that will buy the product no matter what it costs", combined with that vital ingredient of "very much more willingness than the everyday businessman to take the piss".

I don't judge.  No really I don't.  In many ways, my aim in teasing the beer nerds is to get them to come off their high horse and admit that they're spotters, rather than compiling completely screwed-up concepts like "Beer/Food Matching", or doing that American thing where you literally say that the beer is better because there are lots of different bottles in the supermarket.  I don't think one has to go all the way into the philatelic depths and literally say that completism is all there is to it.  But … birdwatchers seem to have a pretty healthy relationship with the two aspects of their hobby, very few of them would ever pretend that they're only up at dawn because of the sheer beauty of birds, although the beauty of birds is obviously the major motivator.  I originally thought of "We're Only Here For The Beer" as a title for this post, but they aren't.

7 comments this item posted by the management 5/23/2012 08:25:00 AM

Thursday, May 17, 2012

Death of a man who could play in time

It's in lousy taste and more than a little arseholish, I know, but I wouldn't be true to myself if I didn't take advantage of the short gap between deaths to mention that an awful lot of these "iconic, genius" figures who are currently dying were actually total journeymen who held down roles competently in mid-table entertainment outfits.  I mean, Levon Helm?  Yes, important role on two or three (and clsoer to two than three) records that solidly fill out the middle of everyone's top 200.  But if you had said "of course, Levon Helm is one of the towering figures of popular music in the twentieth century" three months ago, people would have looked at you funny.  Similarly, Donald "Duck" Dunn was a good bass player and wrote an instructional book which I still use and like, but I would very much invite any of the people who referred to his "unique and characteristic groove" to do a blind listening test between MGs records which he did and didn't play on.

It's the first-of-the-gang-to-die syndrome again, as it was with Hitchens.  When people wax elegiac about these figures, they're basically writing about their own impending death.  Actuarially, the bulge in mortality of sixties dudes which started with my dad and will presumably end with Paul McCartney (married, vegetarian diet, keeps active - the annuity industry is going to get hosed on that one) is going to peak over the next four or five years, so at some point soon we are going to be having a new iconic figure who defined our childhood more or less every week.

Update: I of course bloody knew that within a minute of me putting that up, another beloved-but-forgotten-about entertainer would die, making me look callous.  Donna Summer.
10 comments this item posted by the management 5/17/2012 06:40:00 AM

Monday, May 14, 2012

You must go on; I can't go on; I'll go on

Comment posted on the Krugman blog ... On this post, claiming that Greek exit from the euro wouldn't be too bad.
This isn't really all that convincing.
1. On shipping, since any Greek exit would necessarily involve the imposition of capital controls, and since shipping companies necessarily have legal entities and bank accounts all over the world, what is the likelihood that these hard currency revenues will be brought back home to Greece?
2. On tourism "as long as the political situation isn't too chaotic" is a bit of a big ask, and remember that a large proportion of Greece's hotel and tourism infrastructure is owned by German companies who have financed it with Euro-denominated debt (and who are therefore bankrupt on day 1 of the exit).
3. Most importantly, you can't eat shipping or tourism, and you can't heat or air-condition your house with them. The mix of Argentine vs Greek *imports* also matters. Argentina was an exporter of fuel and food. Greece is a net importer of both, and would end up having to impose fuel rationing. As a way of avoiding "austerity", Euro exit seems to involve a hell of a lot of austerity.
What I don't understand at this point in the crisis is why "default and remain in the euro" isn't being given more consideration since it is actually the economic policy of SYRIZA.  I have a horrible feeling we're sleepwalking into an outcome that will be awful for the Greek people, for no better reason than Keynes' "relentless urge to action rather than inaction".  Actually, the current situation could be sustained as an equillibrium for a very long time, if policymakers wanted to.  That damned stupid "kicking the can down the road" metaphor has a lot to answer for, particularly as no bugger ever explained precisely why you can't carry on kicking a can down a road indefinitely.  Strikes me as the sort of thing you could do all day and why I was six I probably did.

Update: Also see this excellent comment on Larry Elliott's attempt to push the same idea. If Argentineans had an unconditional right to emigrate and work in the USA, the recovery would surely have taken a very different path.
21 comments this item posted by the management 5/14/2012 11:08:00 PM

Tuesday, May 08, 2012

I didn't expect that

Potentially a rather important post from Paul Krugman, documenting one of the nasty little secrets of central banking - the great "credibility" doesn't actually matter that much, and that people's expectations are for the most part conditioned by what they see in front of them.

I would actually take it a bit further and say that the time is ripe for someone to do a reassessment of "myopic expectations", which was the main modelling approach in use for forecasting purposes before the Rational Expectations Revolution (and its notoriously awful forecasting models).  In general, we have established that people do not form their expectations based on the correct solution of the correct economic model.  Thanks guys. 

But before everyone reaches for their copy of that Kahneman book, I don't think that the way forward is to start making laundry lists of results from the behavioural psychology literature and "incorporating" them in some way that nobody has ever really said what it means in a macroeconomic context.  There are two big problems with behavioural economics; first, the robustness of their results really degrades quite startlingly quickly once you get out of the lab.  And second, there are so damn many of these "anomalies" and "biases" that the models pile up degrees of freedom until they can fit anything (and therefore fit nothing).  And the only way to prune down the degrees of freedom is to start ruling things out ad hoc, which is pretty transparent model-mining.

On the other hand, I think that there are very good reasons to have another look at myopic expectations on their own merits.  The argument I'd make is that it in a surprisingly large proportion of cases, it doesn't matter so much what you actually, truly in your heart of hearts expect; it matters what you are willing or able to act on economically.  In a world of institutions, this is often constrained by what you can present objective evidence for, which is what you see around you.  Or to put it another way, you can't borrow money based on your expected salary (in most cases).

I've had decent success with myopic-expectations models over the years - particularly the One True Model Of House Prices (which assumes that housebuyers don't form any expectations at all; they just take the current price of housing and credit as given and gear up to the maximum extent possible).  I think they deserve another run out, and that central bankers hung up on their "credibility" ought to be much more embarrassed than they are about the nearly total absense of this "credibility" from discussions on wage and price setting.
4 comments this item posted by the management 5/08/2012 11:45:00 PM
First ever use of graphics on this blog

Pretty snazzy, eh?

4 comments this item posted by the management 5/08/2012 02:01:00 AM

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