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Friday’s Top 10

 

Published on interest.co.nz (Auckland), 27 May 2016

1. Central banks should target inflation – what else?

Don Brash has many claims to fame, but his most enduring and global legacy is the introduction of inflation targeting. As governor of the Reserve Bank, he pioneered the technique of inflation targeting for central banks. But what to do about it now that CPI-measured inflation is stubbornly low? Stick with it, Brash told Fairfax Australia.

“The primary focus is still price stability but there’s a broadening appreciation that’s it’s not the be-all and end-all. The game that they’re playing is broader.”

Dr Brash saw some of the dangers of deflation over-stated.

“I’ve heard the argument also that if consumers foresaw deflation they might withhold spending that would cause a deflationary, recessionary environment. I’m not sure that’s very convincing. You buy stuff even knowing that next week or next month some of the prices will go up,” he said. “When you buy your iPhone you know it’s going to halve in price over the next 12 months you nevertheless buy it because it’s fashionable and so on.

“I think the argument that we suddenly stop buying if we thought prices might be declining slightly is a bit far-fetched to be honest. The last 30 years of the 19th century were a period of general deflation across much of the developed world and yet it was also a period in which economic growth by 19th century standards was quite robust.

“So I am not sure that we should panic when year to date inflation is less than 2 and in some cases less than 1.”

2. The unlikely home of free market fans

Life is full of surprises. Who would have thought that the most free-market friendly people are the Vietnamese? At least that’s what the Washington Post reports. Then again, their understanding of free markets may be different from Western notions: Since 1986, the Vietnam’s Communist government has been promoting a “market economy with socialist direction”, a full squaring of the circle.

Vietnam has become one of the most U.S.-friendly nations in Asia, if not the world. One recent poll from Pew found that 78 percent of Vietnamese citizens had a favorable view of the United States while 50 percent felt that the United States was the world’s leading economic power. Perhaps even more remarkable, given the context, another Pew poll found that 95 percent of Vietnamese felt that people were better off in a free-market economy.

3. Sad tunes from Spotify

A company that is dominating a global industry and has displaced previous forms of distribution: it must be profitable, right? Not if you’re Spotify. The music streaming service may have reduced CD sales and music downloads. It is also far bigger than its rivals. Yet surprisingly, Spotify is running at a loss to its owners.

On the upside, Spotify’s revenues accelerated in 2015, growing by about 80% to 1.95 billion Euros or about $2.1 billion U.S. dollars. That was almost twice the growth rate that the company saw in 2014. At a time when Apple Music and other competitors have been pouring resources into expanding their reach, Spotify seems to have increased its lead. Its user base climbed almost 50% to 89 million, up from 60 million in 2014.

On the glass-half-empty side of the equation, however, Spotify’s losses also expanded to $206 million, up from $184 million in 2014. Despite the larger losses, some observers cheered this news because the company’s red ink didn’t increase as quickly as its revenues did. But that silver lining disappears if you look more closely at the costs that really matter.

4. A taste of elections to come

Under normal circumstances, Austrian presidential elections do not matter much. Probably not even in Austria. But Sunday’s election of Green candidate Alexander van der Bellen, narrowly ahead of his far right rival Norbert Hofer, was different. Two candidates from former fringe parties have displaced the political establishment.

As The Economist comments, this is symptomatic of the state of politics in Europe and beyond. Donald Trump would have watched the Austrian election with interest.

In this sense Austria reflects the state of politics across Europe, and perhaps across the West as a whole. In France, Marine Le Pen, who endorsed Mr Hofer, will almost certainly make the presidential run-off next year. In Germany, the anti-EU Alternative for Germany party is making strides forward at regional elections. In Poland and Hungary, right-wing populist governments are already pushing some of the authoritarian policies that Heinz-Christian Strache (Mr Hofer’s more divisive party leader and, some would say, puppet master) is advancing in Austria. … The message of the Austrian election is that European publics are instead hungry for politicians with clear ideals—and that it is a very close call as to whether they prefer right-wing or left-wing ones.

5. Talk is not cheap

On just US$400,000, US Presidents are hardly overpaid. A far better job is being an ex-President. Just ask Bill Clinton. Perhaps Obama’s eight years in the White House were just a stepping stone to a more promising career?

Most of [the Clintons’] income came from book royalties and giving paid speeches. Bill Clinton, for example, gave a speech to the National Association of Manufacturers in March 2015, being paid $325,000 for his time.

You probably don’t need to be reminded that $325,000 is more than most people make in a year. The median income for a family of four in 2014 was $53,657 — what Clinton made about a sixth of the way into that one speech.

And that was one of 22 speeches Bill Clinton gave last year. The NAM speech was the most lucrative, but Bill earned more than $5 million combined from those 20 days of work. Since the Clintons left the White House, Bill and Hillary Clinton have been paid more than $150 million from speeches alone.

6. Monetary fumes

Low or zero interest rates have spread around the world. A new study shows that, weighted by GDP, more than half the world runs on policy rates of 1 percent or less. Conversely, this means that these low interest rates better work in stimulating the world back to growth because there is no alternative economic ammunition.

With monetary policy perhaps nearing its practical or political limits, fiscal stimulus is now the tool of choice for notable centrist Keynesians like Larry Summers. Yet there are also significant barriers to expanding government spending…  In short, the world economy is running on monetary fumes. We had better hope it picks up steam on its own, because policymakers are unlikely to be of much further help.

7. The romantic side of economics

Much has been written about the gender pay gap. But that is not the only economic discrepancy between the sexes, as MarketWatch informs its readers. For a long time, men have been paying for dates. And, as it turns out, there is serious economic research into the question why that is.

A non-relative male paying for a meal was once so anomalous that it was considered — and not always incorrectly — prostitution, says Moira Weigel, a Yale University PhD student and the author of the just-published “Labor of Love: The Invention of Dating,” with police officers staking out bars and restaurants and even arresting daters.

“It was really very shocking in a way that I think is hard to remember now,” Weigel said.

Modern dating as we know it — think the archetype of dinner and a movie — came around at the turn of the 20th century, as women began working outside their homes and moving to cities.

Ironically, these measures of freedom accompanied a new dating dynamic, one that continues to restrict female daters today: the male-issued date invitation. Without ready access to their own spaces where men could call on them, women — once able to invite male visitors to call on them — no longer had that right.

“Once courtship moves public… men become the hosts,” Weigel said. “That’s a really big shift.”

8. Africa rising

At The New Zealand Initiative, we believe that New Zealand should pay more attention to African business opportunities. That is why we invited Stephen Jennings, the CEO of Kenyan company Rendeavour, to deliver our annual lecture (for tickets, see here: http://bit.ly/1WgHFOh). So it is great to read about a new study by Ernst & Young confirming the ‘Africa rising’ narrative.

The recent survey by Ernst & Young indicates Sub-Saharan Africa will remain the second fastest growing region in the world, after emerging Asia, for the foreseeable future. Private consumption and investment in infrastructure are identified as the key drivers and, to a lesser extent but rising, the services and manufacturing sectors.

9. Why printed news is just a nostalgic experience

Henry Blodget, co-founder of Business Insider, talks to SPIEGEL magazine about the future of the media. He is optimistic about the future of journalism – even though it will never be the same kind of journalism that it once used to be.

SPIEGEL: How compatible is the idea of offering readers more and more of what they like with the role of journalists in a democratic society: to publish information that is relevant to our social coexistence but not necessarily read by millions of people; to investigate and uncover scandals and cases of wrongdoing?

Blodget: Before the internet, big publications were like hydrants in the desert. There were relatively few of them, we needed each one of them tremendously and they had control over what was delivered. Now they are like little streams flowing into a massive ocean. An example: Before the internet, a journalist would write an article about a company that the company felt was unfair and missed a point. All they could do was write a letter to the editor and wait, and maybe a week later it would be printed, or not. Now, they can go to medium.com and immediately publish a long rebuttal, saying the journalist forgot this and did not consider that, the analyst is wrong here. Everybody pulls that immediately into the debate. So it is a much more democratic field for ideas.

10. Work-shy? Move to France!

It’s Friday, and if you feel that your working week has been far too long it might just be that you are living in the wrong city. Perhaps you should move to Paris instead? In the future, the French will not even be disturbed by work emails after hours anymore. It’s all very well so they can enjoy life in their stagnant economy even more.

French people worked the fewest hours last year, with staffers in Paris clocking up 1,604 hours in 2015 followed by Lyonnaise employees with 1,631 hours, according to a survey by UBS. Spread out across the entire year, that means Parisians worked an average of 30 hours and 50 minutes every week.

France is currently in the process of banning out-of-hours emails by requiring companies to give staff a set of guidelines that include evening and weekend hours when they should not read or send work-related emails.

A recent report from the Chartered Management Institute (CMI) found that the majority of UK managers spend 29 extra days a year working on handheld devices outside of office hours, more than cancelling out their full holiday allotment for the year.

 

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