In today’s New York Times, an account of the scrambling and general mess going on in e-books as Amazon and Apple try to position themselves in the market ahead of the iPad launch. They are each pushing different pricing models — Amazon who sets the price to consumers and negotiates the price to publishers and Apple who will let publishers choose their own price but will just take a 30% cut (a la the App Store). Actually, Amazon aren’t totally against that model but are looking for lock in deals and guarantees of not being undercut if they move to the ‘agency’ model. Publishers don’t know what to do but would like to keep their options open. Read more »

As regular blog readers will know, I’m a big fan of randomisation. In the context of tax audits, this is particularly useful. Though politically controversial, random audit experiments like the US TCMP have taught us a lot about who underreports tax. And now a new two-stage experiment in Demark is revealing other lessons. Perhaps Australia – which has never had a random audit of personal income taxpayers – could follow suit. Read more »

Xiaodong Gong and I have a paper in the latest issue of the Australian Economic Review. Abstract below. Read more »

My AFR op-ed today is on the economic incidence of company taxes. The draft benefited from comments by Nicholas Gruen and an anonymous friend. Full text over the fold.

‘Abbott Tax Hits Workers’, Australian Financial Review, 16 March 2010

On the morning that Tony Abbott released his proposal to pay for paid parental leave with a tax on Australia’s 3200 largest firms, I was reading Norman Lindsay The Magic Pudding to my three year old son. As you know, it involves a pugilist strolling around outback Australia, punching his enemies on the nose and promising his friends a free lunch. The Magic Pudding has a similar storyline.

Promising to raise company taxes has an visceral appeal to any ambitious opposition. Perhaps some voters will think that they will be borne by the companies themselves, leaving all living persons miraculously unharmed. Slightly savvier citizens might think that company taxes are entirely borne by investors. Read more »

My colleagues at the Law School have just written an interesting analysis of the Lara Bingle nude photo case. They think she doesn’t have a strong legal case based on either privacy law or defamation law. Lara appears to be earning a tidy sum from the publicity generated, so I suppose its not an entirely bad strategy. The Bingle incident is one of an increasing number of clashes among conflicting goals to maintain privacy, copyright protection, and freedom. It is tempting to blame the technology (cellphones, cameras, iphones, etc.), and to suggest that people should not be allowed to take photographs or videos unless permitted. Read more »

Expect to see the usual bank bashing as a result of the RBA’s publication of their estimates of bank margins and funding costs just published in the RBA Bulletin. Front page of the Age is fairly typical. The facts are that bank funding costs have increased as a result of the GFC, and banks are also competing to increase their share of funding coming from deposits. Householders seem to be doing OK, as mortgages are seen as reasonably safe and so margins haven’t increased on mortgages (last evidence I saw was that mortgage margins have fallen). But loans to small businesses are harder to come by, and more expensive. Overall banks net interest margins rose by 20-25 basis points between the start fo the GFC and the end of 2009, before narrowing slightly since, according to the RBA. So margins are now about where they were in 2006. The heart of the issue is whether our banks have enough competition. If not then the government needs to address that. Read more »

One of the biggest outstanding questions for both the private profitability and social value of the National Broadband Network is how much consumers value high speed. Telstra have found out recently that few people want to pay alot for very fast (100 Mbps) broadband service. Only 200 people signed on to pay $269 per month for that service even when it included local and long-distance calls and Foxtel Premium as well. I wasn’t sure if download limits (100GB) were crimping that.

A new study by Gregory Rosston, Scott Savage and Donald Waldman uses a comprehensive survey to extract consumers’ willingness-to-pay for various aspects of broadband. They demonstrate that households may pay US$98 a month for premium service although this is contingent upon them having experienced poorer service. The good news is that experiencing poorer service actually boosts willingness to pay for better service — that wasn’t a given. Read more »

One of the interesting factoids around in the past year or two was the fact that the emerging markets finally accounted for more than 50 percent of global GDP. However, it turned out that it depended which measure of GDP was used, with this being true only for the PPP based measure. Then more recently, the latest revisions to the price series on which the PPP measures were based led to the emerging markets share being revised down to only about 45 percent in 2008. Still up from 36 percent since 1980, but yet to account for half of global GDP (the data is from the World Bank World Tables, with the latest data I have to 2008). Read more

Read more »

Craig Emerson, the Minister for Competition Policy and Consumer Affairs  recently spoke about proposed reforms to franchising. See here. Most of the reforms are common sense and follow the recommendations of an expert panel. But one bit in particular struck me as incredibly sensible. When considering unconscionable conduct under the Trade Practices Act, and earlier recommendations of a Senate inquiry, Minister Emerson noted that:

The Senate Select Committee on Economics recommended that the Government consider whether a list of clear examples of behaviour which constitutes unconscionable conduct could be included in the Trade Practices Act.

The expert panel looked carefully at this recommendation but concluded that a list of examples would not help the understanding or implementation of the unconscionable conduct provisions.

Instead, the panel recommended that a set of principles be added to the Trade Practices Act.

The Minister has accepted this recommendation. Read more »

Maybe, but not likely in the way Farhad Manjoo thinks. Apple has filed a suit against HTC for 20 or so patent infringements making good on a threat it made when the iPhone was announced in January 2007. Manjoo argues that software patents like this shouldn’t be granted although there seems a mix of software and hardware in the claim. He argues that the patents shouldn’t have been granted anyway because they are too far-reaching. Although if you look at the 20 patents, they are pretty specific and isn’t it the USPTOs job to make sure the claims are just that. Then he argues that the patents are not covering new technology as others had demonstrated similar things at the same time or earlier. Well, that one is easy for the Court to sort out and unless Apple is blind surely it would see that. The more likely thing is that those other technologies were not what was covered by the patent. Read more »

It is quite gratifying to see the change in governmental attitudes in recent times over the prevision and freeing up of public data. The latest to make moves in this area is Victoria. The data available isn’t overwhelming but the change in attitude is worth applauding.

But even more fun they have launched an App My State contest to develop mobile and web apps for Victorians. You can submit ideas or apps for some weekly prizes.

pMy AFR op-ed today is on the economics and philosophy of inequality. Full text over the fold. I’ve hyperlinked the cited studies. Two others that I can also heartily recommend are a href=”http://www.brookings.edu/gs/Events/americaninequality.pdf”a paper by Gary Burtless amp; Christopher Jencks/a, and another by a href=”http://www.jstor.org/stable/20027737″Christopher Jencks in Daedalus/a./p blockquote pstrongEquality is a Just Cause, emAustralian Financial Review/em, 2 March 2010/strong/p pAustralian economic policymakers have a zippy self-confidence these days. Having dodged the 1997 Asian financial crisis, avoided the 2001 US tech-wreck, and emerged largely unscathed from the Global Financial Crisis, our economic growth seems remarkably robust. Adjusting for buying power, Australian incomes per person are a href=”http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/5204.02008-09?OpenDocument”70 percent higher/a than they were in 1980. /p pAverages are handy, but can sometimes conceal more than they reveal (every time James Packer enters a bar, the average drinker becomes a millionaire). Read more »

Richard Thaler discusses a proposal by Thomas Hazlett to have the US government earn $100b from spectrum reallocation and created 10 times that in economic value by discontinuing free to air spectrum use. It is the best spectrum and in the use appears to be completely inefficiently allocated given cable and internet proliferation.

The same message applies for Australia and will certainly be true post-NBN. Think of it, you build the NBN and then discontinue the free-to-air television spectrum and use the proceeds to ensure that everyone has basic broadband service so they can access television by that means. This would at least work for spectrum were 90% of the population who will have fibre passing their homes.

Of course, your reaction would be to tell me I’m dreaming. After all, the Government appears to be throwing money towards free-to-air TV to encourage its continuation rather than saying goodbye to it. Read more »

In the technology area, a worrying development is the increasing  (and increasingly blatant) use of antitrust laws as part of business strategy. If you can’t beat a competitor then just set the competition watchdog on them. One recent recipient of these attacks is Google. The instigator is Microsoft. An article is here.

Now, maybe Microsoft has legitimate competitive concerns – I do not have the details of their complaints so I cannot comment. But I am always suspicious when large and powerful firms make competition complaints against their (possibly just as large) competitors. After all, if you can distract your competitors with a nice legal inquiry or court case then that makes life just a bit easier for you in the market place – without having to do the hard things like innovating or  improving customer service. Antitrust authorities need to be cautious of such complaints and avoid being played as a competitive tool rather than a competition watchdog. Read more »

“Kev, Kev”  shouts Wayne as he bursts into Kev’s office.  ”Kev, I had the dream again last night.”

“Is that the dream where Paul says that you are greatest treasurer of all time?”  asks Kev without looking up.

“No, Kev, its the dream with all the cows — the thin ones and fat ones”  remembers Wayne.

“Oh yeah” says Kev “run that past me again.”

“Well, its very mysterious Kev.  First I dreamed that 15 thin cows emerged from the Murray-Darling and ate 15 fat cows.  Then I dreamed that 15 withered ears of grain ate 15 fat ears of grain” says Wayne.

“That is mysterious” says Kev looking puzzled.  ”We need someone to tell us what it means.”

“Let’s ask Ken.  He tells us what everything means” says Wayne.

“No, Ken used to be good, but now he only says what he thinks we want him to say.  We need to ask Glenn.  Glenn is the new Ken.”  muses Kev.

“Great idea Kev, I will get Glenn on the blower” says Wayne. Read more »

This week’s Economist poses the question “What’s gone wrong with Washington?” and also expresses puzzlement at President Obama’s inability to make progress on America’s most pressing problems.  The Economist’s view is that things are not really that bad — the constitution envisages a legislative branch in which super-majorities are required; but it would be good if there was less partisanship from all players including the President.

Mostly I agree, but I am less sanguine about the lack of progress on the biggest problems, which from my perspective are:  global warming; the broken banking system; out of control spending; and ineffective foreign policy.  This is a pivotal time and without high quality leadership the US will be in big trouble on all these fronts.  The blame for the problems in Washington lies with the American public.  In a democracy the people get the politicians that they deserve.  American voters have not punished partisan politicians, and they have not chosen effective leaders in recent presidential elections. Read more »

My ABC Radio National ‘Wryside Economics’ segment tomorrow (Tue 23rd) will be on gender and competition, riffing off my AFR op-ed on this topic. Jane Caro is standing in for Richard Aedy (who has the flu this week), so you’ll be spared the spectacle of two blokes discussing gender.

If you miss it, the podcast should be up on the Life Matters website around lunchtime.

So stem cell researchers are calling for referee reports of published papers to themselves be published. Read more »

When I get a chance I’ll write on the disastrous budgetary situations in Europe and the US. Raises the question of how Australia was able to avoid getting into such difficulty with high public debt levels. The economics literature on the politics of debt doesn’t seem that helpful, though some factors such as the extent to which voters are polarised do seem to play a role. A big part of the story is the quality of our leaders, who have (at least sometimes) been willing to introduce unpopular policies. Leaders who are willing to say “life wasn’t meant to be easy,” or “this is the recession we had to have” have been willing to make tough economic choices. Peter Costello inherited an economy in reasonable shape, and then got lucky to have the resources boom help him pay off our public debt. But to be fair to Costello, lots of Treasurers in other countries did not pay off debts when the opportunity was there. Another interesting issue is whether the Budget Honesty Act has been responsible for keeping governments honest? Read more »

In politics, death is a remarkably potent card to play. But its rhetorical power needs to be matched by a bit of substance. Every year, about 130,000 Australians die. Each of these deaths are tragic (I’m not saying this lightly – having attended the funeral of a young bloke last month). But it’s also a fact that because government is about one-third of the economy, and there are hundreds of deaths every day, government policies will invariably affect mortality. In some cases, government money can reduce the death rate. But plenty of other policies potentially increase the death rate. For example: Read more »

So I am writing this blog post somewhere over Kansas. For just $12.95, I was able to logon and get 1Mbps speeds from Boston to LA. It’s very nice although my family have already discovered that it isn’t perfectly free (they appear to block Farmville so some chickens may not survive the flight). At the same time, in economy we have a personal touch screen TV with movies (you pay US$8 and I opted for Michael Moore’s capitalism movie in a fit of irony) but also (for free), cable TV that is live. If I want to buy food, I just order it from my seat and it comes. It is a marvel.

But there is more, the airline was very easy to deal with. You had to pay to check bags but you could do so at home so you didn’t have to fiddle around at the airport. And the airline kept you informed about any delays.

This is not the standard US airline experience. That is usually a disaster. But somehow a new entrant, Virgin America, is able to provide all of it. The plane is full but the tickets were dirt cheap. Read more »

Apple is known for its penchant for secrecy. Products are developed as top-secret projects and unveiled to the public with great fanfare. This has brought it tremendous benefit, for example with during the dramatic launch of the iphone by Steve Jobs (http://www.youtube.com/watch?v=vZYlhShD2oQ#t=2m20s). However secrecy carries costs, and in some cases the costs outweigh the benefits. Yet Apple retains this approach across a whole range of its products; secrecy is apparently “baked into the corporate culture” (http://www.nytimes.com/2009/06/23/technology/23apple.html). Consider Aperture 3.0, the newly updated photo-management product by Apple aimed at professional photographers. It was launched last week following Apple’s usual “secret till the last minute” approach. It is instructive to compare Aperture to Lightroom, a very similar product by Apple’s rival Adobe which has taken a very different approach. Read more »

From BusinessWeek:

Greek government bonds fell after Finance Minister George Papaconstantinou said his country is in a “terrible mess” and compared fixing the nation’s deficit to changing “the course of the Titanic.”

My friend Daniel Mulino – who did his PhD at the same time as me – is part of a unique Australian experiment. Daniel is one of three candidates in a US-style primary for the federal state seat of Kilsyth in Victoria (if you’re a Labor supporting living in the seat, you can register here). An article in the Age discusses the primary a bit more. It follows on the successful use of primaries by the UK Conservative Party in South Devon last year, and suggests that their use might grow in Australia in the future.

For my part, I’m waiting to see whether there’s a Labor preselection for the federal seat of Fraser, where Bob McMullan is about to step down after 22 years in parliament. If a preselection is held, I’ll throw my hat in the ring. Read more »

I blogged last year on the difficulty I’ve been having in getting the OECD to correctly quote a paper that I wrote on intergenerational mobility. Apparently my friendly ‘oops, you did it again’ emails don’t seem to have any impact. The OECD’s A Family Affair report yet again gets my estimate wrong – putting Australia as one of the most mobile nations in the OECD, rather than middle of the pack (if anyone in Paris reads my blog, here’s the final version of my paper: Australia’s intergenerational elasticity is about 0.25).

Not unreasonably, this has prompted a round of media articles here and overseas. Some of the writeups are very thoughtful – just a pity they’re based on a mistake by the OECD.

(xposted @ andrewleigh.com) Read more »

Warner Music Group released the following statistics on a decline in expected music revenues from iTunes. Since tiered pricing was introduced (i.e., rather than songs being 99 cents they went up to $1.30 for DRM free and some were discounted), the growth in unit sales went down from 10 percent to 5 percent. This amounts to an expected unit decrease of about 4.5%. So a 30% apparent increase in price caused quantity sold to drop by 4.5%. Sounds like great news for Warner as revenue should rise. But they remarked that revenue was up only 8 percent from an expected 20 percent (as it was last year).

And indeed, Warner CEO Edgar Bronfman Jr. argued that the pricing change has been a “net positive” for Warner. But he also suggested that in hindsight, perhaps it wasn’t a great idea to raise prices 30 percent during a recession. Read more »

I’m distracted by other things today, but couldn’t resist the PM’s call for evidence on the costs and benefits of raising the Australian minimum drinking age from 18 to 21. Here are 3 possibly relevant economics papers.

Read more »

The possibility of a sovereign default by Greece has called into question the permanence of the Euro monetary union and of the European Union itself.  Fiscal problems of smaller members are not a big enough problem to seriously threaten the survival of the EU.  Nonetheless, the following question remains unanswered:  Has there been no serious political trouble between EU members since 1945 because of the EU, or alternatively, does the EU still exist only because there has been no serious political trouble between its members?

The European Union has never been stress tested, so we don’t know how strong the union is.  The US started out as a very loose federation after the War of Independence ended in 1783.  The 13 colonies were more like NATO than the EU.  They created a constitution, then federal institutions slowly evolved, and a sense of American uniqueness and manifest destiny grew from 1820 to 1850.  But they were still “these United States” until the fearful test of the union by the civil war. Read more »

So here in Boston we have moved from a two car commuting family to a single car that is used for incidental activities rather than regular travel. The kids walk to school while I walk and catch the bus to work. Even though it is the dead of winter I have actually sustained this new routine mostly due to the ability to work on the bus with my iPhone. The exercise is doing me good and at some level I am supposed to think I am contributing to the environment.

I also listen to podcasts on the bus as I did when I drove to work. So it was of some surprise that I listened to a recent episode of Tim Harford’s More or Less (while on the bus) about the environmental impact of bus as opposed to car travel. Tim repeats the issue in his FT column today. Read more »