Prize Winning Economics

The 2009 Nobel Prize for Economics has been announced. I’m not familiar with the work of the winners, Elinor Ostrom and Oliver Williamson, I spend far too much of my time heads down over models, but judging from some of the reaction online they are definitely my sort of economists. If you are interested, here are Henry Farrell and Lynne Kiesling.

I should also note that Henry blogs for Crooked Timber which is a fairly left wing political blog, whereas Lynne has distinct Libertarian leanings. For both of them to be happy about the Nobel Prize seems quite remarkable.

Internet Piracy

While New Zealand is a remarkably beautiful place full of wonderful people, there is one great drawback to the country – it has terrible Internet service. The hotel in Auckland was merely antediluvian: the idea that 200 Mb of traffic is a “monthly” allowance is just absurd. Auckland airport was actually OK. I gave me 100 Mb of download for NZ$10. I wish I had been there longer. But the hotel in Wellington was a disaster.

I’m not too upset with Mercure over this. They don’t provide the ISP service themselves, and by the look of the face of the guy on the front desk when I checked out I’m by no means the only unhappy customer. I think the message is getting through that they need to change providers. 100 Mb / day at $40 is pretty steep compared to the airport charge, but that assumes that you get 100 Mb. Watching my email download, and checking the usage meter, it was pretty clear that either I had some very big incoming downloads (much bigger than the ones that had come in while I was at Auckland airport) or the meter was over-clocking. I was prepared to give them the benefit of the doubt on that, but there’s no way I believe that logging onto Facebook for a minute or so would have chewed up around 11 Mb.

I can’t see any obvious reason why Internet access in NZ should be so expensive, other than lack of both competition and effective regulation. The country doesn’t lack a decent phone service; it should be able to provide DSL just like anywhere else in the world. And even if there service is expensive, there’s no excuse for cheating customers by over-counting their usage.

Economist on Internet TV

Today’s issue of The Economist includes a fascinating article about Internet television. Economists love talking about disruptive technologies, and this one seems to be a classic. According to the article, cable TV companies are doing everything they can to resist the adoption on Internet TV because they are terrified that it will destroy their business model.

Having said that, once of the things that opening up the market will do is emphasize the power law nature of the market. Right now minority taste TV companies make money because they get packaged with more popular channels by cable and satellite companies. In the ultra-competitive world of Internet TV, consumers will eventually only pay for the programs they want, they won’t even have to subscribe to a channel. And that means huge viewing figures for whatever is popular, and a very tiny share of the market for everyone else. Just like trying to sell a book on Amazon. This will doubtless be good and bad in varying quantities.

Personally I won’t care too much as long as I can get baseball on TV when I’m in the UK, and cricket and rugby on TV when I’m in the US.

Meanwhile I’d be interested to hear from anyone who is using Boxee. The only Linux machine I have with me is the Asus, which is not ideal for TV-watching.

For Various Values of “Liberty”

As an economist I occasionally get sent magazines by the Cato Institute. I rarely bother to read them because they are mostly full of arguments as to why markets should be fixed to allow big companies to exert oligopoly or monopoly control (all in the name of “freedom”, of course). David Moles, however, is a braver soul than I. He reads Cato Institute publications so that I don’t have to. Which is how come I discovered that Libertarians look back fondly on the 1920s as a golden period of American politics, because in those days women (and other enemies of “freedom”) were not allowed to vote.

Yes, of course, how silly of me. I would be much more free if I wasn’t allowed to vote. Why, a man told me so, how could it be otherwise?

Economist on Smart Metering

Today’s Economist is talking energy economics – in the Tech section no less. Their correspondent has been to Demo 09, an emerging technologies conference in California that some of you may have seen Simon Bisson tweeting from. The ideas that are getting our man excited revolve around something called the Smart Gird, which is basically applying computer technology to electricity distribution so that we can better understand how we use the stuff.

In general, people don’t like wasting money. But with electricity we generally have no idea how much our appliances are using. We may have a vague idea that we should do laundry in the evening or at weekends, in order to cut peak usage, but even then our utility companies may not give us any credit for that. One of the primary ideas behind the Smart Gird is that if we only knew how much money we were pouring down the electrical socket then we would be less wasteful. The expectation is that, armed with such data, the average American would cut electricity usage by 10%-20%. And that’s mostly peak usage as well, which is when the dirtiest, most expensive power plants tend to be running. (Don’t ask me how I know – you don’t want a lecture on my day job.)

I firmly believe that this sort of thing is essential if we are going to do something about global warming. Human beings tend not to act without feedback. Getting an electricity bill once a month is not good feedback. Give us data and we can act on it. And it will save us money too. And create new tech jobs. Which is pretty much a win all round.

Tsk, Naughty Conservatives

A new study of the consumption of pornography in the the USA discovers that people who are right wing and religious tend to consume rather more of the stuff than people who are not.

Basic law of economics. If you try to ban something, people will buy more of it.

Update: Henry Farrell thinks that New Scientist has been rather free with its interpretation of the data. Had it been a newspaper, I would have suspected that, but I’m disappointed in New Scientist.

Silver Linings R Us

The Vancouver Sun, bless it, is worried about the Montreal economy. Now that the city has lost its F1 Grand Prix, where will it get tourist dollars from? Oh, not to worry, the World Science Fiction Convention is coming to town.

Well, to be fair, Montreal is also getting the World Diabetes Conference, which is estimated at a significant 12,000 attendees, but it looks like we are actually the second biggest show in town this year. Let’s not let them down.

The Economics of Free

There is an interesting article by Chris Anderson in the WSJ. It is mainly trailing his new book, but the subject matter is concerned with business models in an online world where so much is given away free.

One thing that the article has confirmed for me is that Twitter has no business model. It might be the fastest growing phenomenon on the web right now, but it has no idea how to make money from the service it provides.

The basic idea of freeware is, of course, that if you give away enough free stuff then you will connect with some people who are prepared to pay for what you do. This might be in terms of paying for a premium edition of your service (e.g. The Economist), or simply donating money (e.g. WordPress plugin developers, or Clarkesworld). But the problem there is attracting enough people. My usual rule of thumb is that for every 100 online readers you have, only 1 will be prepared to pay you any money.

Advertising doesn’t help. Anderson is right on the money here:

Running Google’s Adsense ads on the side of your blog, no matter how popular it may be, will not pay you even minimum wage for the time you spend writing it. On a good month it might cover your hosting fees. I speak from experience.

So basically everyone needs more readers, except that to get more readers you have to broaden your appeal, and that moves more and more into the territory of the big providers who already dominate the market.

Still, if making money was easy, everyone would do it.

So Much for Free Trade

The one thing we know about politics is that Republicans are all about free trade and Democrats are all about protectionist tariffs, right?

Wrong. One of the many petty things that Dubya did just before leaving office was impose a bunch of hefty tariffs on foreign foods. That included a 300% tax on Roquefort. Sacré bleu! This is outrageous! I trust that all cheese-thinking Americans will write to Mr. Obama forthwith and demand that this unjust tax be done away with. (And failing that you should all mail packages of over-ripe Vieux Boulogne to your CongressCritters.)

It’s a Global Economy

Remember all those people celebrating the “death of capitalism” and saying how the world would be a much better place because of the economic troubles? Well, one of the effects of those troubles has been a massive collapse in the prices paid for recycled materials. As a result the recycling industry in the USA is being pretty much wiped out. This, I suggest, is probably not a good thing.

Chris Anderson: Culture Evangelist

Now that the idea of long tail marketing appears to have been debunked, Chris Anderson is looking for new things to talk about. In this interview at the BBC he speculates that “Everything wants to be free,” and suggests that we are moving towards a world in which more and more things will be available for free, but in which companies will still be able to make profits.

That, of course, sounds crazy, but he doesn’t quite mean that. What he’s talking about is the tendency in the digital world to offer limited versions of a product for free and charge for an upgrade to the premium version. This can be a very effective marketing strategy, but in addition people who can’t afford the premium version, and in many cases who don’t need it, get what they want for free.

It is interesting stuff, though I’ll be more impressed when someone offers me a free car. On the other hand, I suspect that most of the flights I take are heavily subsidized by the people traveling in first and business class. Slowly but surely, The Culture is arriving.

Neurotic, moi?

The Economist‘s blog has some interesting data from a study of the effect of personality traits on income.

For example, being neurotic is correlated with lower wages for women, but is not significant for men.

And…

It does not pay to be the nice guy at work. Being agreeable is correlated with lower earnings for both genders. That may be because being agreeable is associated with being passive.

Where’s Kelley Eskridge when you need her? The world clearly needs better management practices.

Getting Old

One of the lead news stories in the UK today is a report from the Office for National Statistics which highlights the degree to which the population is growing older. Based on current trends, a quarter of the UK’s population will be over 65 by 2032. The fastest growing age group is people over 85.

There are many consequences of this. A fairly obvious one is that the proportion of the population that is in work is falling. Retired people may still be acquiring wealth through investments, but someone still has to do the work on which those investments are based. Perhaps more seriously, while people may be living longer, they are not necessarily able to look after themselves. Dementia, as Terry Pratchett has highlighted, is a very serious problem.

On Sunday I was listening to a podcast that touched on health issues in the UK. Because the company that runs India’s railways is being broken up, the NHS is now probably the largest employer in the world. And health care workers are amongst the poorest paid people in the UK. This sounds very much like a train wreck we are heading into.

More on this story from The Guardian and the BBC. I was particularly struck by the BBC’s map which shows that old people are concentrated in rural areas where, of course, they are harder to look after.