jamesz

There’s no new criticism

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Mark Blaug in 1997:

Modern economics is sick. Economics has increasingly become an intellectual game played for its own sake and not for its practical consequences for understanding the economic world. Economists have converted the subject into a sort of social mathematics in which analytical rigour is everything and practical relevance is nothing. To pick up a copy of The American Economic Review or The Economic Journal these days is to wonder whether one has landed on a strange planet in which tedium is the deliberate objective of professional publication. Economics was once condemned as “the dismal science” but the dismal science of yesterday was a lot less dismal than the soporific scholasticism of today

Matt Nolan

How to sell superannuation changes

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While sitting today I got very confused.  I realised that I could really see future generations currently stealing resources off me in the way I keep hearing.

Now, as was quickly pointed out to me by my work colleagues’ resources are in fact being “stolen off me” in two ways:

  1. Future taxes will need to rise to pay for superannuation
  2. Knowing that superannuation is available, the older generation is saving less now and increasing consumption – thereby pushing up interest rates and the price of consumption.

Very good, we have our fundamental reason why superannuation is unsustainable – because tax rates will need to rise in order to satisfy the governments “balanced budget” constraint.

Now if we believe it is the hubris or straight selfishness of older generations that is behind the refusal to change the superannuation age to make it affordable – then frame it in terms they understand.

Say that, when they are retired it will be the next generation in charge.  The next generation won’t be willing to increase taxes, and so will cut them off – forcing them to leech off their children or live an impoverished existence.  If the younger generations show this degree of bloody-mindedness now then older generations will definitely cut back on consumption, and start saving for their retirement.

They might even be willing to “make a deal” regarding the retirement age.

So if that’s the way you think, stop saying how much Gen X  and Gen Y are going to get hurt by the superannuation issue – point out the potential for the Baby Boomers to have the rug pulled from under them, giving them a miserable impoverished retirement.

Easy.

Note:  I don’t want anyone to suffer here.  I’m just part of Gen Y, and we were raised during the reforms – so I’ve learnt to think about these matters in a more, say, clinic way.

Update:  Bill picks up that the population demographics aren’t in favour of my proposal – while Eric indicates that no-one really is 😉 .  I’d note that my joking proposal was mainly just a way of showing that there is a “cost” turning up, and we are thinking about how to share this burden between people – it isn’t just a case of baby boomers robbing everyone blind!

jamesz

It’s the stupid, stupid

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I get it: economists aren’t cool. It’s fashionable to complain about them without understanding the first thing about the discipline. Ordinarily that sort of thing is easy to ignore. But sometimes, though very rarely, it produces that special sort of stupid that you can’t help but cherish! Today is one of those beautiful days and we can thank Ross Gittins for providing it.

His lengthy rant, which I don’t recommend ploughing through, accuses economists of being idiots for not solving all the world’s problems before they happened. So far, so dull. The good part comes when he tells us his solution to all the stupid economists:

She was Elinor Ostrom, a professor of political science at Indiana University, who devoted much of her career to combing the world looking for examples where people had developed ways of regulating their use of common resources without resort to either private property rights or government intervention.
…
For her pains, Ostrom, who died last month, was awarded the Nobel prize in economics in 2009, the first woman so honoured.

Whoah, hold up there, the solution to all the dumb economists is… more economics?! Yes, apparently what we need are more Nobel prize-winning economists, drawing on their cross-disciplinary expertise to make the world a better place. Not the solution I was expecting but I can’t say I disagree!

HT: Bernard Hickey.

jamesz

A nobel and quotable scholar

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Great quotes from Daniel Kahneman. Very worthwhile clicking through and skimming over.

Many people now say they knew a financial crisis was coming, but they didn’t really. After a crisis we tell ourselves we understand why it happened and maintain the illusion that the world is understandable. In fact, we should accept the world is incomprehensible much of the time.

Matt Nolan

A summary of credit creation

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This post on VoxEU gives a neat summary of the credit creation process, and the ways that collateral chains have had an impact on the process.

I’m not going to reiterate the post – as it is concise, and if you are interested it would be a good idea to go and read it.  However, what I will say is that this is akin to the standard view of credit markets – essentially at a given point in time assets and liabilities match across the market, but the more convoluted the chain, the more vulnerable financial markets are to an uncompensated change in asset prices.

jamesz

Samsung and Google vs Apple: the war heats up

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In the ongoing patent battle between the Android suppliers and Apple:

Apple has been granted a preliminary injunction banning sales of the Samsung Galaxy Nexus smartphone in the United States… just two days after a similar injunction banning sales of Samsung’s Galaxy Tab 10.1 tablet.

A large contribution to the academic literature on technology patents has been made by Bessen and Hunt. On the subject of companies with large patent portfolios they say:

[E]xtensive competition in patents, rather than inventions, may occur if firms rely on similar technologies and the cost of assembling large portfolios is not very high. In such an environment, firms may compete to tax each others’ inventions—for example, by demanding royalties—and, in the process, reduce their competitors’ incentive to engage in R&D.

The outcome of patent litigation and licensing agreements often depends on the size of the firm’s patent portfolio. This creates an incentive for firms to build larger patent portfolios, especially when their rivals focus on patents as a competitive strategy. Economists sometimes describe this type of environment as a prisoner’s dilemma. All firms would be better off if they did not act in this way, but each firm would be worse off if it did not respond to a surge in patenting by their rivals. Under these circumstances, firms may find themselves competing in court, rather than in the marketplace.

It seems that has come to pass even for companies that are considered among the most innovative.