This is a guest post by Kate Manning, an independent writer. Her bio is at the end of the piece.
As a note, this post is focused exclusively on the situation in the United States – the trends in other countries (such as New Zealand) have been significantly different.
A long time ago my university friends and myself used to use this thing called Myspace as a social network site – before it effectively became a music site. Facebook turned up, and it destroyed Myspace – leading us to crawl over and make Facebook accounts.
My guess is this happened because Myspace pages were so clunky, busy, and confusing – you would go to write something to a friend and you would get your eyes molested by a set of animated gifs and your ears ripped open by whatever terrible music they liked. There was also another feature Myspace had that would wind people up – top friends.
In Myspace you would choose your “top friends” for everyone to see. People would constantly change these, knocking people off the list to upset them, or switching people around following any sort of conversation. It is all a bit childish – but I think Facebook could introduce something similar in order to increase revenue.
Myspace friends ....
Simply put, Facebook could introduce their own top friends feature – however, have it based on the amount of interaction between people on Facebook. By doing this, people who care about being on top friends lists will use Facebook more, increasing hours and pushing up advertising revenue.
If there is anything Myspace showed me, its that there was a group of people who took the idea of being a “top friend” seriously – lets not try to understand why. Given these people are now on Facebook, it is undeniable that they would make a concerted effort to get up their friends top friends list – thereby triggering more ad revenue for Facebook as an organisation. Do you think this would work – and what do you think the downsides are?
After saying I thought the general goal of catching other countries was a bit silly I suddenly clicked onto another point – the implied inconsistency of the policies being suggested by Labour.
Look, I don’t want to beat up on Labour specifically – as I think all parties are guilty of this – they just did it right here right now. Labour is saying:
So they want to increase capital investment … when their main policy recommendation so far is reducing the rate of return on investment. They also suggest investing more in education – which is fascinating when we are a small open economy with an extremely mobile labour market, implying that it is very hard to keep hold of said highly trained labour.
Seriously, lets let the rest of the world bid down the price of manufactured goods and keep pushing forward technology, while we feed them and offer them awesome holiday’s – focus on what we are good at, and we will be better off than if we start trying to gamble on venture capital, or joining into the current highly competitive game of manufacturing/high tech.
So there is talk of comparing New Zealand to Finland. Fine, I still think this is as pointless as comparing us to Australia – but not to worry.
The plus of comparing us to Finland rather than Australia is that Finland is a small open economy more in our mold. However, they are also significantly closer to market – so any thoughts that we can become like Finland have to be tempered by this fact.
Deep down I don’t believe in government oriented “transformational change”. If anything, if the rest of the world is busily trying to compete in making information technology and manufactured goods then it is doubly good that we stick to our comparative advantage of making food – because it will become relatively more valuable (just look at our current terms of trade).
However, I have to take issue with this attack on using Finland as an area to compare us to. Given both parties accept that we should arbitrarily compare ourselves to other countries (which I don’t) the current unemployment rate is not a fair figure to look at – instead we should keep an eye on PPP adjusted GDP per capita. Finish people are, on average, 30% more wealthy than we are. So the “final goal” associated with copying Finland seems to be the same goal that the current government is suggesting – magically increase incomes by 30%.
For me, the independence of central banks is one of the greatest institutional changes that has taken place in the past 30 years when it comes to “economic management”. This independence has allowed central banks to clearly articulate goals and ensure that the arbitrary monetary distortions that previously occurred no longer take place – governments can not use storage, and central banks are generally less likely to accidentally tighten or loosen conditions inappropriately.
But this independence, and this view that a central bank provides some central “management” role has led an increasing number of writers to believe that the central bank truly controls the economy. Not just in a broad sense, but there is a belief that a central bank can meet many disparity micro goals, changing the structure of the economy, controlling firms pay structures, changing inequality.
There was a time not so long ago when it was clearly recognised that STRUCTURAL issues were the responsibility of Treasury – if there was a clear defined market/institutional/government failure to deal with.
But now an increasing number of these broad structural issues are being blamed on central banks, there is an increasing belief that by changing an interest rate the Bank can separately determine a myriad of clear “good and bad” potential outcomes – and people appear to get frustrated because they feel that central banks are purposefully making things worse.
But this is not true, monetary policy is inherently cyclical, financial stability issues are just that … issues of financial stability. If there are failures in the more general economy it is due to either the imperfection of the world we live in or the inappropriateness of government policy settings (in either direction) – it is not due to the central bank setting the wrong interest rate, or making the wrong comment in their latest statement.
I just hope this fundamental lesson will be remembered before people decide to start diluting the independence of, or stretching the role of, our central banks.
Update: This issue is discussed more sensibly on the Money Illusion. Choice quote:
Monetary policy should be boring, as it is in Australia; not exciting, as it is in the US and Japan. Most of my readers think I am advocating use of monetary policy as a tool. Most think I want it to be exciting. Nothing could be further from the truth.
With more and more policy being founded in economic analysis, lawyers are having to become ever more familiar with economic concepts. Competition law (antitrust to Americans) is an area that has become particularly mired in economic analysis. In New Zealand we have seen plenty of debate over large cases in which anti-competitive behaviour has been alleged. So it is apropos to find two economists asking whether “antitrust [is] too complicated for generalist judges”:
We find that decisions involving the evaluation of complex economic evidence are significantly more likely to be appealed, and decisions of judges trained in basic economics are significantly less likely to be appealed than are decisions by their untrained counterparts. Our analysis supports the hypothesis that some antitrust cases are too complicated for generalist judges.
One of the authors has an interesting and detailed (for a blog post) discussion here. It’s certainly a worthwhile topic for investigation, since the decisions in these cases can be extremely expensive for the parties involved. If there is enough evidence, does it point to the need for specialist judges in this field?