jamesz

Wants, needs and production

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What is a ‘want’ and what is a ‘need’? Do these things change over time and how do we provide for them? These are the issues being considered by Pablo at Kiwipolitico in a fashion that may confuse many economists. He says:

The current phase of globalised capitalism brought with it the uncoupling of production from consumption even as the “wants into needs” syndrome persists. The specific result is that, relatively speaking, global production of goods has declined while the consumption of non-productive commodities has increased. That means that there is an excess of wants with respect to needs. In fact, mass focus on obtaining a proliferation of wants has served to obscure the basics of needs.

When I read that I had no idea what it meant and I think that is because of some definitional problems. First, what are ‘wants’ and ‘needs’? To an economist the distinction is fairly meaningless because there are only ‘things that people want to varying degrees’. Of course, there are trade-offs that one must make — I can’t buy a car and a bicycle with the same $5,000 — but the things we want are not inherently different and the degree to which we want them differs between individuals.

So, when Pablo talks of ‘wants’ being converted to ‘needs’, what does he really mean? What I think he means is that, as technology advances, our incomes rise and the relative cost of purchasing complex goods drops. Consequently, more people buy them and they become ubiquitous. You don’t need the nature of goods to change for that to happen. You don’t even need peoples’ preferences to change — although that may have happened, too — for smartphones to be in every pocket, either. It is enough that the cost of manufacturing has dropped and our incomes have risen due to technological progress.

What of his contention that these smartphones are ‘unproductive consumption’? I’m a bit baffled by that because it suggests that everything we purchase should be useful for producing something else. As if enjoying our purchases were not enough in itself. Either he is suggesting he knows better than we do about what makes us happy or, more likely, I am reading too much into a poetic flourish!

Finally, he suggests that there has been a ‘decoupling of production from consumption’, which is probably the most confusing statement of all. All production is consumption – as it is either consumption now, or it is investment which translates into consumption in the future. There can be no sustained difference between production and consumption in modern, market-based economies.

Rather than railing against the way he perceives society to be, it would be helpful for Pablo to refine the problems he sees and ask why things are the way they are. Once we understand the problems we can ask whether there has been a systematic misallocation of resources that has caused these problems. At the moment it appears that these issues are being clouded by some confusion over what wants, needs, production and consumption really are.

Matt Nolan

Creeping nationalism

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You know what I love, this article from the Dom by Nigel Pinkerton.  Read this:

Z Energy’s advertisement was, at best, sloppy and, at worst, a deliberate attempt to build its brand on a misguided sense of national pride by implying that New Zealander’s deserve those jobs, even at a higher wage, more than foreigners.  As the world’s separate economies become increasingly globalised, allowing labour to move more freely between regions and allowing companies to outsource, it will not only deliver cost savings to businesses and consumers, but also help correct the vast global inequalities our world still tolerates.

Boom!

Now I have to admit some interest – he is a work colleague.  He showed me the ad the other day (as I tend to avoid watching TV) and I was also shocked.  When did we think it was alright to say we are shutting people, often people that are much poorer than ANYONE in NZ, out of the opportunity to work – no only is it alright, but its comical.  I suppose it became alright at about the same time we decided it was fine to be xenophobic, which if I remember correctly started at the beginning of the recession … although it was probably sitting in the back of peoples minds to start with … come to think of it, even during the good times we liked to push buy NZ made 🙁

There are a lot of good things with nationalism: belonging to a group, pride in one self, building opportunities with others in the group – but when nationalism moves people to exclude others, doesn’t that seem a bit wrong.

Personally, I have been hurt by the xenophobia that has become apparent in recent years (*, *, *, *) and it was nice to read someone else who felt the same way.  As people, why can’t we just care about other people – who cares what country they were lucky (or unlucky) enough to be born into.

Matt Nolan

Strawman at the centre of the discussion of economics

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In an article in the Herald it is suggested that the separation of economics from moral philosophy is morally abhorrent, and as a result we should ignore what economists say about tax.

I will put the tl;dr up first:  Economic theory is “descriptive” – which in turn allows us to discuss how economic theory is actually a very useful thing for discussing these issues.  In my opinion it is important to make these trade-offs that are described transparent –  and that is all economists are trying to do.  In that context, economists don’t actually seem morally abhorrent 😀 .  Furthermore, by showing a willingness to discuss and identify trade-offs, we can find some issues and facts that seem to get slightly missed in the article 😉

Read more

Will Taylor

Ban transfer fees in professional soccer (football)?

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A very interesting piece in the telegraph today where Rory Smith argues that it is time to abolish the transfer fee. This passage of the article had particular resonance, mainly because it smelled like there was some economics present:

In what other sphere do companies have to pay other companies to recruit their staff?

There would be some logic to it if it was a figure reflective of the time left on a player’s contract, the wages they were due to earn, the potential loss to the club, that sort of thing. But an arbitrary sum plucked from an oligarch’s imagination? An amount a local baker decides he desires for a teenager with a season’s mediocrity under his belt? Nonsense. Victorian nonsense. It’s people trafficking in Baby Bentleys. It’s a Roman slave market.

He seems to be saying that transfer fees represent some form of barrier to switching. While transfer fees are higher for better players, and lower when contracts have less time to run (i.e. Liverpool paying  more for Stuart Downing then Manchester United paid for Ashley Young, primarily because Ashley Young only had a year remaining on his contract), I can see some logic to what Rory is getting at. If we abolished transfer fees, then players would presumably still move to where they are most valued by virtue of the wages they would be offered?

What are your thoughts…are transfer fees a historical relic or is there an efficiency justification hiding in there somewhere?

Matt Nolan

A point on “wealth”

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People keep telling me that the top 1% own some large chunk of the wealth – and that this is obviously unfair.  And hey, it might be.  But I think the conception of wealth that is being used here isn’t really appropriate.

The wealth that is being looked at is the asset value of these people – so this tells us the expected discounted sum of profits from this physical capital.  Fair enough.

However, what we are missing is human capital – we can’t really compare “wealth” levels unless we look at all forms of capital.  As a result, we need to add in the expected discounted sum of labour income into peoples measured “wealth” before we can start to make any sort of comparison.  I suspect that this may change the story somewhat …

The thing here is that, we may feel that a lot of physical capital is “owned” by too few people – but the requirement of labour in this case implies that the surplus created by the physical capital will be shared between workers and capital owners through profits and labour income.  We can’t just look at one side of this and bemoan it – we would need to show that there is some type of issue in the wage bargain between workers and capital owners AND we would need to use a measure including human capital to get an idea of the true distibution of capital.  Once we have done that we can start throwing around our value judgments – but the current case is merely being cherry picked to fill a narrative that wealth is too concentrated (which is may be), without fully putting together the case.

Will Taylor

Google buys Motorola: Vertical integration or Android IP play?

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So Google has just bought Mobile handset maker Motorolo Mobility (see announcement on the Google blog), a move that sees Google  vertically integrating into phone hardware.

My initial reaction to this was a worry that by vertically integrating to compete against Apple, this might discourage non-integrated phone makers (such as Sony, Samsung and HTC) from using Android. The argument being that by virtue of the vertical integration, Motorola would have an advantage over other phone manufacturers who use Android (e.g. closer hardware/software integration ala the Apple model).

However, signs point to this being a patent play in response to RIM, Microsoft et al buying up the Nortell patents (which Google has complained to the Antitrust authorities about). The worry being that threats of legal action or patent fees will make Android costly to install on phones.  By acquiring Motorolo’s IP this gives Google something to fight back with (i.e. the ability to threaten to counter-sue).

So hopefully Motoroloa continues to be run as a separate company competing against Sony/Samsung/HTC etc., while Google’s control of Motorola’s patents gives these companies some more legal certainty.

For more reading check out Chris Keal’s piece at the NBR and a pretty detailed piece at the WSJ

UPDATE: A neat info-graphic which shows “who is suing who” in the smartphone wars (HT: @d7street and the NBR article already linked)