Retirement planning is an interesting conundrum

Over at the New York Times, there is a really good article about retirement planning –

That’s the trouble with this strategy. “Most of the time, you underspend,” said Mr. Pfau, who is also a principal at McLean Asset Management. “Yet you still run the risk of running out.”

A major problem New Zealand faces is that most people have a house and NZ super and basically nothing else. 92% of household wealth is allocated to housing. Only 8% is in financial assets. That is clearly not diversified, when you consider that New Zealand is not even 1% of the global equity and bond markets and nor is even Australia!

So the policy problem in New Zealand is that no one wants to cut their standard of living and we still have cradle-to-grave welfare mentality and old people are a massive voting block so the most likely scenario because lots of households don’t save enough for retirement is higher NZ Super payments paid for through higher taxes or borrowing.

A lot of people will have a rude awakening when they are forced through ill health or labour market conditions to reassess their standard of living when they have no safety net to fall back in until NZ super kicks in at 65 or later depending on how policy changes between now and then.

Maybe, just maybe, house prices won’t keep going up…just because Auckland house prices have kept going up for decades doesn’t mean house prices can’t go down and you can’t meet mortgage repayments. Thinking that New Zealand is “special” is a recipe for financial disaster.

The story of college over at Medium, interesting US piece

We are left with a situation in which institutions that were originally created to perpetuate the reign of an inherited, moneyed elite, and to train that elite to be civic leaders, are now facing the burden of incredible expectations. We expect our colleges, at this point, to essentially create a healthy labor market. With the demise of the middle class uneducated lifestyle, thanks to deliberate policy choices to crush unions and globalize labor markets, colleges are now expected to train an ever-growing population of students adequately to ensure them good jobs. Meanwhile, the madcap race to compete in the Resort-Hotel-Plus-Classes vision of higher education has resulted in an increasing reliance on exploited adjunct labor, the demise of the professoriate, the rise of sky-high tuitions and attendant debt loads, and more and more deserved public scrutiny.


Tone deaf rhetoric as examined by Andrew Dean

It is quite clear that one team thinks the economic history of New Zealand is very different from what it actually is in terms of outcomes across heterogeneous households.

But the other team doesn’t have an accurate version of that economic history either. Nothing is black and white in New Zealand’s economic history, and the short ebook “Ruth, Roger and me” by Andrew Dean (published recently by Bridget Williams Books) is a really interesting look into how one side thinks about these things from a non-elderly person’s perspective.

Many of the reformist grey ones – once cardigan wearers now sporting grey hair – suffer from attribution error where successes are their responsibility, but failures are not theirs at all and the suggestion that there were any negative outcomes at all from the reforms of the 1980’s and 1990’s is met with an indignant “what do you mean, the gains were so much greater than the losses”.

There are obviously enormous benefits that have accrued to society as a whole in terms of standard of living – but not all of those gains can be directly linked to the reforms. More seems to be driven by technology and the ability to import cheap goods than the easier path of entrepreneurial trial and error that will never feasibly be open to lower quintile households.

The recent efforts by the UNITE union to make zero-hour contracts untenable for fast food restaurants are an interesting example of this asymmetric information and bargaining power conflict that the top quintile barely understand as it is discussed on National Radio.

Ironically, normally higher levels of uncertainty lead to higher wages – see how much IT contractors get paid relative to IT permanent staff for clear labour market evidence – but this doesn’t apply to “low skill” jobs. It seems that economics doesn’t apply equally because clearly bargaining power is necessary to be treated appropriately in a 21st century liberal democracy.

Who cares about the gains to other countries from TPP?

Seriously, who cares about the gains to other countries from TPP? This is just another example of poorly developed critical thinking skills on the part of many economists, the same silliness that ignores that most gains from migration accrue to the migrant as opposed to the host country.

If the mark of “good policy” or an attempt to sell “good policy” is to focus on people in other countries then clearly there’s something less wonderful than sunshine happening to the natives.

Think of this as a repeated game – if you know that the inhabitants of Country A always consider the welfare of Country B when playing their hand, then you’re going to exploit that in negotiations so most of the gains from the deal accrue to your country.

The idea that “poor countries” are charity cases that need free lunches from trade deals is silly. Re-read the literature on institutions – and think about how most of the gains from trade have accrued to the Community Party connected elite in China – and then keep asking “why?” until you bump into the inevitable conclusion that all of these gains from trade simply won’t “trickle down” to the poorer citizens except incrementally over long stretches of time.

The more likely outcome from TPP for the countries being discussed is non-trivial increases in luxury good consumption and capital flight, which, if you really care about the poorest people in these poorer countries, you would not support the watering down of the shallow capital or retained equity held by those firms experiencing the gains from trade.

Campbell Live, House Prices and Humanitarian Crises

It isn’t too hard to figure out why news and current affairs rates so poorly. You can’t classify either One News or 3 news as either – they are full of nonsensical feel good rubbish like turtles playing with dogs in Florida and sob stories from all over the country.

Real news and current affairs is restricted to National Radio and key global newspapers. There is a second tier of information available via magazine sites and blogs written by informed individuals on a wide range of topics.

Take Top Gear – it is a show that could only have been produced on the BBC because otherwise the conflict with car manufacturers would have been impossible to bridge for the producers.

No one cares about humanitarian crises or the obscure reasons why the government thinks an NZDF deployment to Iraq is in any way, shape or form appropriate, but 1/3 of the country (Auckland!) is obsessed about house prices.

The idea that:

  • this time is different
  • New Zealand is “special” when it comes to housing
  • 92% of our household balance sheet allocated to housing
  • wealthy households typically have 10% or less allocated to property as an asset class

…all doesn’t bode well for middle class Aucklanders who think that residential properties are a credible investment class. They may have earned high real returns but past returns are no guarantee of future performance as any disclaimer will proclaim.

The “house horny” behaviour of young couples who haven’t any emergency capital reserves in case of job loss or recession trying to jump into highly leveraged debt contracts without thinking through the consequences shouldn’t surprise anyone familiar with behavioural finance literature.

People are stupid, they don’t realise how stupid they are, and think that they are special, so they don’t follow the findings of the literature and maintain broadly diversified household portfolios of assets and instead succumb to the madness of crowds.

It would be comical if it wasn’t so sad – hardly any people draining their Kiwisaver to afford a deposit are keeping their contributions going! People turning 65 are spending their entire Kiwisaver balance on holidays and boats and cares! It’s all going on the mortgage and then once that’s done party time! Crazy!

No wonder no one wants to live in the real world and hear about stories of hardship in the rest of the country. There’s no market for sad sack stories – people want happy house price boosting feel good stuff. What are the odds that the 7pm show to replace Campbell Live will be housing related? That’s where the money is for now, at least.

Interesting take on Iran and that nuclear deal

The nuclear agreement is not what determines Iran’s regional standing. Iran is already a dominant state in the Middle East. It’s a large, resource-rich and potentially powerful partner in what can only be described as an unstable region. Its population is large: double the size of Saudi Arabia’s. But perhaps most importantly, both to those inside and outside the region, it has the capacity to pursue a serious international agenda.

The piece is over at National Interest.

For another interesting piece that details Iran’s work in Iraq, this New Yorker piece about Qassem Suleimani is worth a read.

Although the Iranians were severely strained by American sanctions, imposed to stop the regime from developing a nuclear weapon, they were unstinting in their efforts to save Assad. Among other things, they extended a seven-billion-dollar loan to shore up the Syrian economy. “I don’t think the Iranians are calculating this in terms of dollars,” a Middle Eastern security official told me. “They regard the loss of Assad as an existential threat.” For Suleimani, saving Assad seemed a matter of pride, especially if it meant distinguishing himself from the Americans. “Suleimani told us the Iranians would do whatever was necessary,” a former Iraqi leader told me. “He said, ‘We’re not like the Americans. We don’t abandon our friends.’ ”

Iran is the clear winner when it comes to any nuclear deal, even if the current likely deal is watered down further, the loss of face falls on the US side. I mean, the US has been backing the rebels who have been squarely routed by ISIS, whilst dissembling that Assad’s forces have any role to play in any return to some sort of temporary stability in the region.

This guy thinks the taxi medallion industry is “too big to fail”!

Over at the NYT:

“I have delivered, personally, in excess of $300 million to the city in these auctions,” he said. “Do I not have a little bit of standing to say there should be support from that institution that I delivered, personally, $300 million to? To do what the government does for every other industry? Am I not being logical?”

Yeah nah. Uber is awesome and we recently spent a week in Christchurch. Taxi service there is abysmal! It is interesting to note how the introduction of Uber into a taxi market like has happened in Wellington forces the useless ones to sharpen their act.

The value of a rent like a taxi medallion going down – primarily because of pressure from better alternatives like Uber and Lyft – is an inherently good thing. I don’t see what the big deal is about people in sunset industries having to eat some capital losses when they were earning a premium – a rent – sometimes for decades.

If they didn’t have the foresight to maintain a diversified portfolio of commercial assets outside their pool of taxi medallions, tough cookies. Tell someone who cares.

With respect to TARP and the Wall St bailouts, they clearly weren’t necessary. Because AIG was a regulated insurance company the top of the pyramid (where AIG Financial Products resided) could have gone into Chapter 11 without affecting the policies of millions of policy holders because US state insurance regulators and overseas insurance regulators wouldn’t have let them send assets upstream. (David Stockman explains this in his GFC book). So it’s a sucky argument for a sucky industry rent seeker to make.


There is no magical growth formula

A common theme in the economics and policy blogosphere is that almost every blogger has their own story about which policy settings will produce a magical elixir of economic growth without corresponding trade-offs attached.

The recent passing of Lee Kuan Yew, founder of Singapore, should give pause to those who think that democracy and human rights matter when it comes to economic growth. Hint – they don’t matter nearly as much as many bleeding heart types think they do. They might be helpful, but capitalism cares about profit maximisation not avoiding micro-aggressions.

This means that when attempting to copy-and-paste the policy settings that have worked for unique groups of people and firms in unique geo-political circumstances, you run into a brick wall because you are unlikely to capture all of the bits of specialised knowledge that exist several network nodes away from policy analysts and commentators.

There is no magical growth formula. Based on New Zealand’s policy settings, we should conceivably be leading the world in economic growth. But we’re not, and our current economic performance is due more to population growth and the Christchurch earthquake recovery than some sort of inherent South Pacific economic machine that only turns on when right wing governments rule.

Netflix NZ – Why?

If you have a VPN and Netflix keep taking your money, why would you switch to Netflix NZ? I’m not sure how the numbers are going to work for Netflix on this one, maybe their strategy is to gain a foothold and progressively pressure content producers to not renew NZ exclusive content deals that are nearing expiry using their big content cheque book?

If they started actively blocking VPN users, many users would cancel…when a firm has incurred / are incurring massive fixed programming costs like Netflix does every $8.99/month counts!

Use of renewables in the US has plummeted

Over at Marginal Revolution:

Percentage of annual net electricity generation by renewables in 1948: 32

Percentage of annual net electricity generation by renewables in 2005: 11

The main difference of course is the fall in the relative import of hydroelectric power.

The book this data comes from sounds interesting. The economics of energy are pretty basic. Low energy prices as at present are an uphill battle for renewables advocates to fight. It’s not possible to run manufacturing plants and heavy industry on solar panels, yet.