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.

Small Town Economics

I’ve spent some time in both Gisborne and Blenheim recently. One thing you notice is that in smaller towns, there are a lot of big chains. I was thinking about why this is, and have a theory that goes something like this:

Because margins in retail have become quite thin, even long supply lines (distance from distribution centre to a node in a retail network) can be economic and profitable when these processes are highly productive.

The local retailer does not have buying power – they can’t negotiate directly with the manufacturer, they can’t get good freight deals because the volume of their freight is far lower than a national chain – the economies of scale are enormous when you add them up across all of the inputs for a basic retail store, particularly when you think about technology and point of sale efficiencies.

And that’s before you think about wages – stories in the US suggest that big chains pay better than “mom and pop” stores. What is a riskier employment proposition – a small store or a national chain that might even offer management training and higher wages over time?

The only hope for smaller retail stores is to have very streamlined and flexible lines of business. Selling higher margin products helps, but easy online shopping, returns and customisations and smart marketing are the only way to stand out from the crowd.

3 stories of winner take all markets and average is over

NBC News suspending Brian Williams without pay for 6 months and the new figures for Premier League television rights up 70% for the next 3 years.

The Premier League rights will cost £5.1 billion for the next 3 years. Most clubs lose money hand over fist and a few star players and managers accrue most of the rents from the money sloshing around from television rights and merchandising.

Calls to cut ticket prices for “real fans” will be met with deaf ears because of 1) revealed preferences for football fans to spend a fortune 2) the enormous sums that can be charged to corporates for hospitality at Premier League games.

Nightly News makes US$30 million in profit a year while paying Mr Williams over US$10 million in salary. A 30 second ad spot is over US$50,000 according to some stories I’ve seen.

And then there is this story at Fusion about income inequality within the (US) millennial demographic. The 1% starts at US$129,000 per annum.

Millennials with bachelor’s degrees have the greatest share of their generation’s One Percent, at 39 percent, compared with just 7 percent for individuals who only graduated high school and 10 percent for college dropouts. And 76 percent of millennial one percenters have at least a bachelor’s degree — yet more evidence that it pays to stay in school, if you can get there.

The college premium for graduates of quality colleges with majors in demand in the labour market are doing just fine. All of this is very interesting. If you look at NZ Census figures, there are a non-trivial number of millennials who aren’t part of the lost generation.

 

What is this “club” you speak of?

British Foreign Secretary rocks up to Wellington and says New Zealand is “part of the family”, thus we need to make a contribution of 100 soldiers to an Australian operation that already has a few hundred soldiers and pilots in the Middle East.

Apparently, helping to train the Iraqi military and build it back up again isn’t going back into Iraq. What an abuse of the English language. The idea surely was that all of those resources poured into the Iraqi military – training, equipment, technology and embedded advisers – was supposed to help them get on their own two feet to fight ISIL?

The consequences of political actors’ need to be needed by the international community are grave. There is no clear strategic interest for New Zealand and no clear strategic benefit that we would obtain. The Iraqi government is likely to collapse – this situation is far too complex for any New Zealand military planner to wrap their heads around, far too volatile for any New Zealand diplomat to be able to be helpful in the event of a soldier getting kidnapped by ISIL and far too far fetched to be a credible use of the NZDF.

How about sorting out whaling ships and vessels that fish illegally in our EEZ first, before doubling down on foreign entanglements? We’ve had UN Observers in the Middle East for decades, what has that achieved in terms of concrete gains in the situation for the locals? Is expending resources purely for the sake of being seen to be participating in what “the family” is doing really the basis of sound foreign policy?