Beats1, Spotify0? #Beats1

Apple Music kicked off today around the world. It is a massive move by Apple, and based on listening to a few suggested playlists and Beats1 for a couple of hours this evening, it is clear that Spotify is at a high risk of losing millions of subscribers over the next few months alone.

Because Apple Music is included with the iOS 8.0.4 upgrade – baked in just like notes or health – and it uses your iTunes account to sort billing details – switching over from whatever streaming music service you were previously using is trivial.

I don’t have the time like I used to have when I was a student to curate playlists – I haven’t listened to radio (save National Radio for the news) in quite some time, because in the age of the curated playlist, ads and people talking can kill the vibe.

So far, the DJs and light advertisements on Beats1 are very different from what we’re used to on commercial radio in New Zealand. The DJs know their music and transitions are quite snappy. There is an interesting opportunity here – for a generation that has moved away from radio towards Spotify/Pandora/iTunes/Soundcloud – perhaps Beats1 might shake up commercial radio in a way that satellite radio never really did outside of the US.

Anyway, the user experience is great. The suggestions obviously play on previous iTunes purchases so that was a trip down memory lane, but the curated playlists, particularly in electronic music, are excellent. They might be brief – but this is the tl;dr generation so a 9-10 track playlist in between listening to Beats1 means that Apple Music could capture the ears of tens of millions of subscribers in the next year.

What does this mean for other streaming music services? From a technology point of view, they’re basically competing as a standalone product against a firm that has made integration with all of its products and ease of use a priority. I will definitely smash Apple Music for the next couple of weeks – and the more I tune in, the less likely I’ll still be a Spotify subscriber this time next month – that is disruption.

Thoughts on the skills gap

Old, but interesting piece over at Prospect:

If we want to improve the quantity of jobs, we’ll have to do more to promote labor demand. We’ll need to worry less about robots and more about austere fiscal policy, imbalanced trade, weak capital investment, and bubbles and busts. If we want the jobs we create to be of higher quality, we’ll have to do more to lift workers’ bargaining power, by enforcing labor standards, raising minimum wages, and leveling the playing field for collective bargaining. Supply-side solutions targeting workers’ skills may well help the targeted individuals, but they won’t help raise the number and quality of jobs.

Eric Crampton’s piece “The STEM Sucking Sound” is an interesting read and related:

The government messes up teaching of maths at primary, making things harder at secondary. Then, pushes to increase NCEA Level 2 completion rates lead kids away from harder subjects and into more basket-weaving unit standards: basically, a form of stat-juking. So fewer numerate grads show up at university doors.

Next, Minister Joyce wants to push Sciences, Technology, Engineering and Maths. So Universities get way more money for degree completions in STEM subjects than for degree completions in other disciplines that require numeracy: economics, for example, but also education (for maths teachers). This has staffing and course offering consequences at the Universities, which kill off less lucrative lines.

The whole STEM thing is a bit overcooked. Technology isn’t that hard to learn if you have high general intelligence. The same goes for things like data analysis or even coding. It’s just a matter of intensity * hours worked on the right things. Looking to the government to set policy that will some how magically lead to better labour market outcomes for people who spend more time socialising at university rather than studying make this “issue” a bit moot.

By the time policy settings have changed, it’s simply too late. The importance of getting on the right career track is basically set up by what subjects you do at Level 2 / Level 3 and “stats juking” is basically going to ruin any genuine attempts to get higher skilled graduates out of the university pipeline and into good jobs – the sort of jobs they went to university for instead of getting a trade certificate or working in retail or hospitality.

Over the next few decades, enormous differences in labour market earnings are going to make things a bit more difficult for policy makers. They already live in a Wellington bubble, but their relatively higher earnings compared to many graduates means that their frame of reference for all of these policy settings is skewed in the direction of reliance on tertiary qualifications as an appropriate proxy for ability to perform the job.

I’m not convinced that incremental measures like limiting student loans to 5 years of full-time study can be reconciled with dreams of a STEM driven future. We have to remember that skill in STEM (technology in particular) is not normally distributed, and just because you graduate with a computer science degree does not mean that you will be able to contribute productively to a team of developers or engineers.

There are many more components to building a successful career and I think that this whole “government can design a perfect tertiary sector” project that has been going on since 1991 has run its course. It’s clear that material differences in graduate labour market outcomes even amongst those who study the same things, means that there is a lot more to do than having high level goals that can’t be reconciled with the dismal math learning experience many young Kiwis face in the schooling system.

Excellent Radio New Zealand Insight programme on NZ Super

 

Despite that message of self reliance, the University of Auckland’s Retirement Policy and Research Centre co-director, Susan St John, believes younger generations will feel the pinch of an aging population.

“The working age population will be squeezed mercilessly. They’ll get ever lower benefits, tax credits and lots of student debt, while an older, mostly, more affluent population lives longer and takes what is seen as an unfair share of resources.”

Susan St John believed means testing super to exclude the wealthiest pensioners would save about $1 billion a year, which could then be redirected to the poorest families, easing inequality.

http://www.radionz.co.nz/national/programmes/insight/audio/201757212/insight-for-7-june-2015-the-superannuation-conundrum

Some quick thoughts:

  • NZ Super Fund should not be paying tax – that is a failure of finance 101 – tax reduces the compounding growth of the fund materially when you forecast out to the 2020’s and 2030’s – $1 billion at a 5% real return more than doubles by 2030 – the irony here is that materially affects the deficit/surplus if you think about it!
  • Government cost of debt has been lower than both ACC and Super Fund returns since 2008 – the government can’t do what every tinpot property investor has done – borrow at low rate / invest at higher rate….billions of dollars in future compound growth lost…far lower “Save As You Go” coverage the end result
  • Kiwisaver is solid policy that has clearly helped “Generation Rent” – auto-enrolment is great and attempts to look at net wealth of Kiwisaver members a few short years into a multi-decade savings scheme with the greatest growth tacked onto the end years before retirement is pretty poor thinking particularly when household wealth data is one of the lightest data sets around and really difficult to measure accurately / reasonably
  • The fact that older people vote more than younger people will basically ruin New Zealand’s public finances unless significant levels of immigration alter the beneficiary/taxpayer ratio – forget 50,000 net migrants/year – a few million migrants could arrive between now and 2030, how will that additional infrastructure be paid for as well? Do recent immigrants care about supporting NZ Super? How will the political calculus change in that environment?
  • There is no entitlement to anything anymore unfortunately, the user pays generation won’t stomach higher taxes for nothing in return, leaders not making tough decisions now are clearly out of touch with the levels of resentment many younger people have towards the older generation – but it’s understandable because this is such a political third rail
  • This is just another one of those policy problems that can’t be resolved in a democracy without causing a whole lot of drama, so it will never be resolved until there is a crisis point and the government’s hand is forced to means test or increase the age of eligibility or increase taxes a lot
  • A cheap and easy solution to at least stem the massive outflow of cash to superannuitants, making the application process at least as painful as someone going into a WINZ office for anything else would be surely be a reasonable interim step towards means testing

Retirement planning is an interesting conundrum

Over at the New York Times, there is a really good article about retirement planning – http://www.nytimes.com/2015/05/09/your-money/some-new-math-for-the-4-percent-retirement-rule.html

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.

Source: https://medium.com/bull-market/the-story-of-college-48d3603e58c6

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.