Steve Hemingway

Labour and Poverty of Aspiration

2012-02-09T15:33:16Z

I have been reading Chris Mullins autobiography, the latest volume, "A Walk-On Part". He comes across as a thoroughly decent man. Of course everyone wants to be loved, and it would take superhuman objectivity to present oneself in an entirely neutral light, but I find it hard to believe that he is hiding anything very objectionable about his personality.

He is a true socialist, and believes that the moral case for redistribution of income is so strong that it justifies the damage to incentives and the consequent loss of total economic output. He does not put it this way, but this comes across from what he writes. This is an entirely respectable argument, which cannot be resolved by debate but by measurement, itself a very difficult matter. Not that Chris is concerned about ideology. His diaries are a great read and illuminate the characters of the major figures of the Blair years far more brightly than their own autobiographies are ever likely to.

Although these diaries are now very old, covering the period 1994 to 1999, the issue of income and the redistribution of it is as fresh as ever. In spite of their being, now, a Conservative-dominated administration, feelings seem to be stronger than ever that income is too unequally distributed in the UK and the USA. The Occupy Movement, in spite of its rather incoherent aims, is widely supported, and plutocratic candidates like Mitt Romney are now struggling to get elected in a way that would have been suprising even five years ago.

I am sure that the cause of this change in sentiment is the fact that people are both feeling poorer, and feeling that there is a dwindling chance of them becoming any less poor. Somehow it's much easier to tolerate extreme wealth if one's own income is at least moving in the right direction.

This is all very familiar, but it seems to me that the debate is very limited. It seems to me that inequalities of income are a consequence of inequalities of power. Lawyers, doctors, bankers, private equity investors, CEOs, hedge fund managers, bankers, actuaries, fund managers, accountants all benefit from a power structure which they can exploit to get, to a varying extent, above-average incomes. They may well have above-average academic success and personal qualities, but this is largely a result of a competition to do these jobs, as opposed to the nature of the jobs themselves. Of course there is a competitive aspect of some of these jobs, and, in some cases, maybe law and investment banking, there is a winner-takes-all aspect which means that inevitably only candidates at the extreme of the distribution will be successful.

Correcting this situation would mean taking on powerful vested interests. These high-earning groups are heavily represented both directly, and via well-funded lobbying. It is hard to see how taking on these pillars of the establishment could be done by a Conservative administration, but it's very sad to see that the previous nominally socialist administration not only did nothing, but did not seem to appreciate that tackling the sources of inequality would be much more effective than (weakly) trying to tax it out of existence. This would also have avoided many of the problems of incentive destruction that we have seen.

My Medical History My Property

2012-02-07T17:44:16Z

I am very fortunate to have had a life largely devoid of contact with the medical profession. I know however that a large part of the time I spend in any sort of interaction with them is my racking my brain to remember when exactly I had the final vaccination for Hep B, and writing down one more time that I am not allergic to penicillin.

This information is relatively straighforward for me because my medical history doesn't change much from year to year, and my memory is serviceable enough to remember the odd new fact that arises. Things were much more difficult for some elderly relatives who had a range of medical interventions just at the time their memory was getting more unreliable. In one case a number of separate hospitals were involved, and, of course the GP. You will be unsurprised to hear that practically no information passed between these various branches of the same organisation, the magnificent NHS, peace be upon it.

My father in law had a file relating to treatment of his eyes that was the thickness of a telephone directory. His sight was not good. When I helped him attend outpatient clinics I saw a porter working full time bringing huge shopping trolleys, groaning under the weight of similar paper files, to the consultant. As someone who has worked with computers almost his whole life, I inwardly wept that the the NHS, in the 21st Century could rely on such Victorian technology to keep people healthy.

It has long been recognised that more use of IT should be employed in the NHS, but, like most large organisations, it has always taken the view that 'knowledge is power' and that it should share it only in extremis, and certainly not make it available to the actual patient. The resulting fiasco is well documented. Like many central government IT programmes it failed expensively and spectacularly in its most recently incarnation as "Connecting for Health"

I was talking to someone today who had recently had an operation. She mentioned that when discussing the procedure with the anaesthetist she had been advised to have a local anaesthetic as 'we nearly lost you last time' (when she had undergone an operation under a general anaesthetic). This may sound reasonable until you realise that had this person had to have an operation in any other hospital than the one that had previously operated on her (possibly with any other anaesthetist) her chance of dying would have been enormously increased: because nobody had mentioned to her the problems encountered in her previous procedure.

This got me thinking, and confirmed what I had always thought: that it is not sufficient for patients simply to have a right to see their medical records, but that their medical records should by law be made available to them, automatically, via a simple web page, or portable digital record. Most people do not need to worry excessively about privacy: a portable format medical record would be much more valuable to them than the knowledge that their records were safe from News of the World hacks.

The professions would oppose this, of course, for purely selfish reasons, and to preserve their monopoly position. Most patients would take the view that 'the doctor knows best' and might never access their records. But for many it would be a modest benefit, for some it could be a life saver. For the NHS it would represent a huge saving of money.

From a practical point of view it would be sensible to adopt one of the existing Electronic Medical Record formats. Many exist, but I suppose the Not Invented Here syndrome would induce our beloved NHS to invent another, incompatible one.

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Fraud and incentives

2012-02-05T14:53:21Z

One of the causes of the Global Financial Crisis was fraud. Lots of people lied about their income, the value of the property they were about to buy, and their liquid assets in order to get a loan. Although the ultimate creditors (quite possibly now the taxpayer) cared a lot about this, nobody in the chain otherwise did. Certainly the brokers, who were incentivised by fees were not remotely bothered that borrowers were lying. In fact they much preferred the 'self-certified' loans, because these tended to carry higher interest rates and much higher fees.

The banks themselves didn't worry too much, because in many cases they could sell on the loans practically as soon as they hit their balance sheets. The whole system rewarded fraud, and sure enough fraud became endemic. The fault though is not the individuals: they just behaved exactly as an economist would expect them to behave. The fault is clearly the politicians who yielded to lobbying from organisations who wanted the fees to keep rolling: various bodies in the financial sector. The endless problems of 'mis-selling' financial products, most recently PPI, will continue indefinitely unless something very radical is done.

Banks regularly are affected by spectacular fraud conducted by insiders. The most celebrated case recently is that of Kwame Adoboli who managed to lose $2.3 bln for UBS by breaking the rules, but he's merely the latest in a long line. What is noticeable is that no matter how many compliance officers and complicated systems these banks use, the frauds continue to be conducted, and that whenever fraud is exposed it has caused a big loss for the bank. Somehow it seems likely that frauds that net employers big profits do not go to court.

The pressure on all parties to make money is the cause of this fraud, but somehow when designing remuneration schemes, this never seems to be taken into account. Senior executives, rewarded by when share prices go up, have a huge incentive to gear up, start buy-back schemes, issue special dividends. The result is that the system is gained: they win, but the shareholder loses. Nobody has both the power to change the rules of the game and the chance of gaining from the use of better rules. Maybe this is where the government can get involved, although it seems hard to see how this could withstand the opposition that this would generate from those who benefit from the current system.

The End of the High Street

2012-02-03T11:08:18Z

The UK retail sector accounts for about 10% of all jobs. It accounts for about 8% of GDP, at least double the size of the agricultural sector and only just behind manufacturing in terms of its importance.

But it is in severe trouble. In Stockport one in four shops is empty. Shops in shopping centres carefully designed by town planners with their superior ability to know the future. In the country as a whole, one in seven shops is empty, and a large number of the rest are occupied by extremely marginal traders, like charity shops, which depend on special tax breaks to keep open.

If you are reading this you probably haven't been to a shop, at least a physical one, in weeks. You wonder what on earth those 3 million shop assistants are doing. I certainly do. Certainly whenever I hear of another plan to 'regenerate' a town centre by p

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utting more retail capacity in it, I think that the developer and the councillors will have long gone before ordinary people finish paying the cost of this malinvestment.

Retailing is an industry in retreat. Regeneration of town centres would be much better achieved by converting some or all of the retail premises to living accommodation. Of course extremely low interest rates may disguise the true extent of the disaster that is retailing, but the time will come when these return to normal (unless the Bank of England fails to wean itself off the low rate drug that it is on).

So the key takeaway from these facts: short the retailers and commercial REITs.

Related Links

One in Seven Shops Empty

BIS Retail Sector Stats

Facebook

2012-02-01T15:09:09Z

A: What's all this about the Facebook IPO then?

B: It's being floated, going to jump to being one of the most valuable companies on the US stockmarket overnight.

A: Does this mean that Mark Zuckerberg is going to sell all his shares and lose control then?

B: No, he's set up two classes of share capital to keep control.

A: Doesn't that mean that everyone will end up as a minority shareholder vulnerable to being oppressed by Mr Z and his cronies?

B: Oh, no, a charismatic guy like Mark would never do a thing like that. Look at stock markets in Asia. Minority shareholders are always treated with scrupulous fairness.

A: So, how come it's so expensive. Don't social media sites tend to come and go like flared trousers and padded shoulders? After all, it's not as though we've never had them before: remember MySpace, Bebo, Orkut, QQ, Faceparty, Friends Reunited. And LinkedIn, don't forget LinkedIn, the kind of 'Facebook for grownups'.

B: Oh, but FB is different. It's run by, err, hackers, and it's really difficult for competitors to break into this market because well, uh, it would take a long time for people to move their stuff from FB to anywhere else now.

A: I thought that Google was muscling in on FB's territory, with Circles and stuff,

B: Oh, Google can't really compete with FB. They, err, don't have the money, or the personal data of users, or competent programmers, or global reach, or lots of servers, or access to your email, or, ... oh well, maybe FB will share some of the revenue stream with Google,

A: So, for FB to be worth so many squillions, they must be making a ton of money right now. How do they do that exactly? I guess they have all sorts of clever tariffs and charges that heavy users hardly know they are paying for access to the site, right?

B: Err, they make their money from their display ads, you know those ads that tell you how to lose weight, or wrinkles on the right hand side of the page.

A: What?? Display ads? Like Yahoo was focussed on back in 1993? I thought the idea was that with all the stuff FB knows about their users they can deliver laser-targetted advertising to them so that the ads will cease to be irritating and all be fascinating, alerting users to just what they want to buy now.

B: Err, maybe ......

Bankers Pay Will Cease to Be Excessive

2012-01-30T10:02:43Z

If something cannot go on forever it will stop. This quote, attributed to Herb Stein seems to be a tautology or more accurately a statement of the bleedin' obvious, and it's hard to see it as a statement containing much wisdom. But somehow people frequently fail to act on this obvious truth.

It's possible to understand why some processes should get going, but sometimes it's hard to see exactly the agent which will stop them, or the time when this will happen. Certainly in the field of prediction, it's always a mistake to predict the event and its timing together and in a readily testable way.

Lots of things seem as though they have been going on for a long time and will never stop. Libertarians like me look at the inexorable rise of the size of the state. Others look at the 'top 1%'. In another fields entirely, there is a huge concern about the increase of CO₂in the atmosphere.

The issue of executive pay is particularly live right now. Fred Goodwin is still in the news, three years after he was sacked. Roger Beale has a cartoon in today's FT of a banker, sitting in the back of his limo complaining "This really has gone too far. The next thing you know they'll be expecting me to work for just my salary." When the FT thinks that this sort of comment on bonuses will go down well with its readers one wonders who is left to defend the bankers - apart from Angela Knight and Digby Jones.

The increased income going to CEO's reflects their increasing power. This in turn is a result of less and less direct holding of equities by individual investors and the increased principal agent problem. It also of course reflects the increased effectiveness of lobbying by big business, and especially the financial secto

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r, to deflect any tendency of governments to compensate for the failure of shareholder democracy.

Ultimately however lobbying will fail. There is a limit to the extent to which campaign contributions can nullify voter anger. Mitt Romney had to spend $16,000,000 just to persuade members of his own party in Florida to choose him as a candidate for the presidential election in preference to a deeply, deeply unattractive alternative in the form of Newt Gingrich. This process will surely ultimately discourage the likes of Romney, as is has John Corzine, Fiorina and Meg Whitman from defending the indefensible to the public.

The fact is that there really is a lot of money that can be extracted from the rich. The top one percent control 21% of the total UK wealth, according to the impeccable source. This equates to about £420 billion according to my calculations. Although it's not as though this could be liquidated overnight, and even if it could be and could be seized to redeem gilts, it does amount to about 40% of the official deficit, which would go a long way to improving our lot.

Of course if all that wealth were in the form of gilts, we'd be back to square one, but I'm pretty sure that's not the case.

Anyway, I'm not predicting anything, and certainly not when it will happen, but it seems to me inevitable that in due course we'll see a lessening of income and wealth inequality in the UK (and US). Inequality of income is a reflection of inequality of power. Although bankers and CEOs think they have the whip hand, they actually do not and eventually politicians will respond to voters, 99% of whom are not in the top 1% (and never will be, no matter how much redistribution goes on, but that's another story).

Are you the patsy?

2012-01-28T13:22:51Z

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Warren Buffett, once said: "If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy."

I don't play poker, and I don't know for certain what a patsy is, but I have an uncomfortable feeling that if I started playing poker, I'd be it. I always thought that Warren's game of choice was bridge, but perhaps if he can't find a good partner he chooses poker as the least worst alternative.

Poker, and gambling generally, of course have a lot in common with investing. Speculation is the game of guessing what the marginal investor is about to do, and guessing better than all the other investors in the market. It's certainly tough, and there are a lot of patsies, not least because it really is a zero sum game if you ignore fees, and if you pay someone to gamble for you, it's a negative sum game.

The nature of investing is that you can buy something only if someone on the other side of the bargain thinks that what you are buying is worth more than what he is selling. Given that you're probably buying from a professional, it's as well to think long and hard about whether that bargain you think you are getting really is such good value.

The same sort of reasoning goes for all goods and services: the guy who sells you a cappuchino in the morning definitely thinks that it's worth a lot less than what you are paying for it. Of course he has 'overheads' - fixed costs of production that he has to recover from your payment for your coffee. Economic theory says that at the end of the day, once he's paid for everything there are no profits, or 'economic rents' left. If he has a great spot then the person he leases his shop from will get all the benefit of his higher than average turnover.

This theory all seems pretty reasonable until one thinks of certain industries and service sectors. How can there be no rents in investment banking, even retail banking, the hedge fund 'industry', private equity, corporate law, defence contracting, even something like public works contracting? Well, I think the answer is that, actually, it's all to do with who is on the other side of those profitable transactions. My contention is that the common factor is that the when firms in these industries do their high-margin transactions, the party on the other side is ultimately the public, often represented by an agent who isn't really that bothered about seeking out the best deal for the principal.

Nearly all firms love to be contractors supplying government agencies. It's wonderful to be a stockbroker doing transactions on behalf of a fund manager who is looking after savings for a firm which has, somewhere, some annuitants who are hoping to get a good pension out of those savings. The same goes for a shipbuilder who has the capability to build an aircraft carrier for the British Government.

High margins can arise from lots of factors - innovation in product or production technology, patents, brilliant marketing, cheap capital or low production costs. But the only enduring source is the absence of competition, which usually goes with consumers who do not have the incentive to seek out alternative suppliers, or are prohibited from doing so by regulation. It's usually impossible to avoid paying the cost of these (set up your own hedge fund maybe?) but it is at least possible to buy the shares in some companies operating in that kind of business. Unfortunately many of the very high margins are associate with low capital requirements, so most, or all of the excess profits flow to managers, rather than owners, if they are different.

Investing 101

2012-01-26T21:59:38Z

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The Financial Services Industry in the UK is in a sorry state. Retail investors are sold stuff which is in the vast majority of cases unsuitable. A solid diversified portfolio of stocks and bonds would suit the vast majority of investors, but of course none of them ever are recommended this kind of investment. Instead they are steered into managed funds of various sorts that have large fees part of which go to pay the salesman.

This is how it is, how it has been and, as far as I can see, how it always will be. As long as people are told that investing is a dangerous business and they can do it only through the agency of a qualified and approved 'advisor' they will simply never make good decisions.

The one thing the industry loves is more regulation. This justifies high fees and, most importantly, creates large barriers to entry. It makes spivvy insurance salesmen like doctors or lawyers. So, it's not surprising that the government is proposing more regulation. They have consulted extensively with interested parties, overwhelmingly the banks and existing industry, and they have concluded that, although regulation has given terrible outcomes in the past (think of just about anyone you know who has been sold any financial product over the last decade), the solution to the problem is ... drum roll ... more regulation!

Of course you need a highly experienced professional, expensive regulator to manage this, so let's welcome Martin Wheatley who has arrived from HK to run the newly-created Financial Conduct Authority. Apparantly the problem is that we didn't understand enough about behavioural economics, not that greedy salesmen routed savers into rip-off products because that was what maximised their commissions.

Of course, as usual real estate, carbon credits, bamboo plantations, land banks, wine, diamonds, precious metals, art and the rest remain outside the scope of this regulation. So valuable do ordinary savers feel the regulation is that they put much more of their money into unregulated buy-to-let properties than equities, even though for the large majority a few REITs, directly held, would offer a far better exposure to UK property than even a quite large portfolio.

References

http://www.ft.com/cms/s/0/7a681cc2-4674-11e1-85e2-00144feabdc0.html

Can Tech Save Education?

2012-01-24T15:11:21Z

Via: OnlineEducation.net

The Development Problem

2012-01-22T13:32:16Z

It's generally considered that good institutions, like body of law, courts, constitution, make for a wealthy society. This is supposedly why the USA, UK, Denmark, Australia, Japan, France are wealthy countries. Although they have different laws and constitutions, they have functioning institutions.

This suggests that it should be easy to make a south american country prosperous. In fact as someone once said, if you ever need to check something in the US Constitution and don't have one to hand, you can go to practically any Latam country and borrow theirs, since it will be virtually a xerox copy of the US one, just as the Japanese one is.

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But Japan is wealthy and Ecuador is poor. It is argued that the missing ingredient is trust. As a guy from Africa once said to me "you guys are incredible: you actually pay your taxes and expect the government not to steal them all, but to use them to build hospitals and run schools to teach your children - do you realise how implausible that outcome seems to a typical African?"

Large organisations are really important to get productivity improvements, and as I've blogged before, great productivity is the only thing that matters when it comes to enjoying a wealthy society. With large organisations, and great division of labour, productivity becomes enormously greater. Not just a bit, but unbelievably. In the past, Kings with wealth beyond the dreams of avarice would not have enough to pay for the production of a car which is remotely comparable with the most basic runabout as churned out by Korean factories today.

But large corporations, and other institutions in society, can exist only with a large element of trust. To an extent once the institutions have 'got going' it's easier to keep them going than to start them from scratch. But still, individuals have to risk a lot, and trust a lot, to keep the show on the road.

This is similar to the problem with the firm - why, in practice, most of us work for large corporations, rather than entering into contracts with others for the supply of our labour. The legal contract lacks a lot when it comes to the selling and buying of labour. The 'old fashioned' feudal system, which requires a lot of trust, is alive and kicking and embodied in the modern corporation and is currently surviving even the extremes of inequality of income that we're seeing and the progressive erosion of the position of the employee, particularly in terms of what are usually called 'pension rights' but which many long-standing employees are discovering are not really rights at all when the profitability of the firm is at stake.

The problem with trust, in the context of Economics, is that it's very hard to model quantitatively, and therefore it's not really part of mainstream theory. Somehow I think it needs to be incorporated, because Economics is failing, both to explain how the economy will evolve, and what poor countries need to do to get richer.

Geography, anyone?

2012-01-20T13:38:38Z

What children learn at school is terribly imporant. Politicians tell us this, so it must be so. A great deal of taxpayers money is spent on schools, and when parents pay for private education the sums they are prepared to spend are extremely high.

Most things people value highly are subject to rapid innovation. Mobile phones, movies, cars, holidays, food. The quality of these goods and services benefit from the strong competition with the result that strong gains are obtained. But it's not the case with school. The same subjects are taught, in much the same way, perhaps now with an 'interactive' whiteboard taking the place of a blackboard. Teachers may be more smartly dress

Image by ttelyob via Flickr

ed, but they teach the same things in much the same way, with pupils failing to reach any higher standard, certainly if university tutors are to be believed.

The other thing is that there is very little global convergence. British children continue to study geography and French long after the point when it's clear that they have any great relevance to modern society. They no doubt study the Born-Haber process and electrolytic production of aluminium in Chemistry. The only conclusion I can come to is that whoever consumes what it is that teachers produce are not really very bothered about the ostensible product.

What then explains the high value placed on education? The only conclusion I can come to is that it is largely a positional good. Knowledge in itself is valueless, whereas an Oxbridge degree is of great value. This certainly is consistent with the fact that there is very little variation of graduate pay by subject studied.

The conclusion of all this: focus on passing exams and study what interests you!

After I wrote this I came across Rory Sutherlands article about various things, but in particular about what parents really want from schools: "What they want is a system that will give their children an advantage in securing a place at that small number of universities from which a 2:1 might get their CV to one of the seven law firms or banks for whom it has been their dream to work since age 13. " You can read the rest here. It is a rather bleak article and suggests a reason why British children are probably the most miserable in the world.

References

UK accused of failing children (BBC).

SOPA and PIPA

2012-01-18T00:30:00Z

Image by Octavio Rojas via Flickr

Today the English language Wikipedia will be blocked out for twenty four hours to protest against the SOPA and PIPA acts that are currently going through the US congress. The background to the blackout, and some information on the acts themselves can be read on the anti-SOPA blackout page.

I must admit that I haven't read the details of these acts. Probably 99% of congressmen haven't either. But we all know that they will read as though they were dictated to Congress by the US media industry, particularly the Hollywood studios, and as a kind of last stand defence, the recorded music business which stands as an ever-present reminder to Hollywood of what might happen to them if these bills are not passed.

What will be conspicuous by its absence is the case that this IP will actually deliver economic rents to the studios resulting from their control of an artificially scare resource: the distribution network that they control, that is now being challenged by alternative channels available through fast internet connections.

The economic and political case is not entirely one-sided. People like to watch Hollywood films, because they have high production values which are partly the consequence of the high profits the studios can gain from their control of content and its distribution. In eff

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ect they can obtain monopoly profits, because if you want to see Pirates of the Carribean 5 the only place you can get it from is Walt Disney Pictures. Of course a large part of these monopoly profits is diverted into the pocket of Johnny Depp, because he controls the supply of that essential ingredient of the franchise, namely Jack Sparrow.

Anyway, these acts will create new offences and give additional powers to the holders of this IP to support their position relative to what it would be without them. This takes power away from consumers and gives it to producers. In a democracy it seems odd that the democratic will of the consumers who would presumably overwhelmingly prefer these measures not to go ahead, is overriden. The resolution to this paradox was given by Mancur Olson in his book The Logic of Collective Action (the link is to Wikipedia which, of course, will be unavailable if you are reading this on the 18th, ironically).

Olson realised that because the return per capita on lobbying by small groups of vested interest was so great, and that organising large groups was so difficult, the small groups would progressively hijack the democratic process. Basically in large groups everyone assumes that someone else will make the effort - the famous 'free rider problem'.

Since I came across Olson's ideas I have realised that they have terrific explanatory power. When I see any proposal for a new piece of legislation I now ask myself: 'which industry/professional body will benefit from this?'. Invariably the industry/profession will be heavily represented in the body of experts called upon to draft the legislation. Of course one group benefits from almost all new legislation: they lawyers themselves. Is it surprising that so many politicians are lawyers?

Buying a new PC

2012-01-16T19:24:21Z

PC's are expensive. They are amazingly powerful and complex pieces of equipment, and they are worth the money, but they do represent the consumption of a lot of resources.

These are the rules I follow when buying a PC. Others may work for you, not least because you may be reluctant about installing a new operating system, upgrading the memory of your laptop, or replacing the hard disk. If you are willing to have a go at doing these things you can save a lot of money:

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Think about buying a second-hand machine. There are a lot on the market, and some have been well maintained,
don't disregard processors made by AMD or designed by ARM,
don't be worried if the hard disk has failed - this is usually easy to replace, and quite cheap,
don't be worried if the computer has no operating system. If the PC has a COA then you are entitled to install a fresh Microsoft operating system. In any case you can install Fedora or Ubuntu, which will probably serve you just as well,
eBay is a great source of ex-lease laptops. Sellers will usually have very high feedback.
think about buying the sort of boring computer corporations typically lease - i.e. not Alienware or Mac,
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don't be put off buying from abroad - you can escape the VAT (possibly) and it's easy to get used to a US keyboard (I prefer them) or if you don't like that you can still use a UK-style keyboard, you just have to remember where the £ key is,
get as much memory as you can afford. I think that a 4GB PC is just much nicer to use, even if the processor speed is a bit slow. It's fairly cheap to buy extra memory from a specialist supplier like Crucial but it's probably going to be cheaper to buy the PC with the extra memory already installed,
always google for reviews of the particular PC before you bid. Amazon is good, but sometimes ordinary buyers will give a low rating because the item was delivered damaged, or doesn't do something it was never designed to do,
think about what you need the PC for. If you are going to connect it to a modern PC or monitor, then an HDMI connector is very important (DVI or display port may be an cheaper alternative if you're prepared to buy a slightly more expensive adaptor cable).

Image via CrunchBase

These are my top-ten tips. I am sure there are other things to look out for. Send them to me on Twitter and don't forget to tell me how you get on! My latest purchase was a Dell Latitude E6400 with 4GB RAM which I managed to pick up for under one hundred and sixty pounds from PC Efficient in Shefford (driveable from me, so I save the delivery cost!).

Copywrong

2012-01-14T14:03:46Z

Property rights are pretty important. They are probably the reason that capitalism won the cold war. They solve that most important of problems: the tragedy of the commons.

The classical economists identified certain goods that should be outside the control of single owners. Public goods, which are non-rivalrous and non-excludable, are such goods. Such goods should not be subject to property rights for fairly obvious reasons: imagine someone being able to charge for the air that we breath. However, it seems fairly clear that someone who has legitimately acquired land, and built a dwelling on it, should have fairly exclusive use of it. The exact rights are perhaps more subtle: what about the column of air above the plot, or the minerals below it. But the general concept that the house should be for the exclusive use of the owner seems reasonable.

We get into trouble when we extend property rights to what has been called intellectual property. If I invent a new way of solving a problem, should I be able to charge you for using it? The patent lawyers say 'patently, yes!'. I am not so sure. By giving exclusive use of land to a single owner, he can ensure that it is farmed just enough to maximise the yield. When it comes to an idea, then there is no point in restricting the amount of exploitation because the greatest yield is obtained by not restricting its use.

I think the law accepts that when it comes to techniques of solving equations (for example), but does not do it when it comes to finding cures for a disease. The argument is that drug companies will never invest enough in research and development if they cannot get the rent from exploiting their monopoly supplier status granted by the patent system for the term of the patent.

So the issue boils down to how to fund research into these techniques, drugs, software algorithms and the like. I don't really care about trade marks because consumers always have the option of buying a non-branded but otherwise equivalent product.

Alex Tabarrok has argued the case more eloquently than I can, and has argued that the weight of IP law in the USA has hampered innovation. Certainly it was argued that the patents taken out by Boulton and Watt delayed innovation in steam engine design because it prevented other engineers from incorporating condensers to their engines, as this was covered by the Watt patents, although Watt's own engines did not make full use of them.

An argument that I had not come across before, which I learned from Tabarrok, is that although each patent holder will expect a 'small' royalty for the use of their IP, many high-tech inventions rely on many patents. If a new phone requires the use of 20 patents, then the weight of paying a royalty cost of a few percent of the retail price for each of them will probably make the invention uneconomic. Google and Nokia can afford to purchase portfolios of patents (by buying Motorola in the case of Google) but new entrants into the sector will be forever kept out, resulting in a gradually ossifying oligopoly.

How long does it take to decide that a policy is a good one?

2012-01-12T11:16:06Z

Alan Greenspan was celebrated during his time as Fed Chairman as he seemed to have managed to slay the dragon of inflation without sacrificing the virgin of economic growth. For a decade or two we had the 'Goldilocks economy' which was neither too hot (heading into a boom) or too cold (heading into recession). His success led central bankers around the world to emulate him and his policies, becoming as close to pop stars as bankers or academics are ever likely to come.

Of course now we know that actually the whole time we were building up to a financial crisis which is possibly the most severe the world has ever known. The funny thing is that nobody seemed to question whether or not he really had managed to hit his inflation targets without any future trouble being stored up. A few questioned the bailing out of LTCM, even more the famous 'Greenspan Put' which saved the equity markets repeatedly, but none seemed to say 'hold on a minute, are we sure this is not going to end in tears?'.

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This is in contrast to the long-term attitude of the Chinese. When asked about what he thought of the success of the French Revolution, Zhou Enlai famously replied that it was too soon to say. It is natural that elected politicians are impatient for fixes. They have their eyes firmly fixed on the next election, usually five or fewer years ahead. This means that good policies that take a long time to work will never get a chance.

The private sector has this kind of problem, in that corporations that produce products that take too long to become popular or successful will go out of business. But the difference is that these products remain available for others to develop and exploit. If someone can see a point in the future when profits will come, they will be developed. Lots of important technologies take a very long time to make money. The initial investors in the railways all lost their shirts. It took sixty years for electricity to become very widely adopted. The whole history of civil aviation has been a disaster for investors, but consumers have benefited enormously. It's hard to see how these technologies would have been developed by democratically elected governments.

Of course it can take a long time for the flaws in a new technology to become apparent. We may be seeing this with fossil fuels now, and also with the separation of ownership from control that followed the invention of the limited liability corporation. Over time this has resulted in managers helping themselves to the slice of the cake that would, in the absence of this separation, go to providers of capital. By controlling the capital the managers can extract rents from passive shareholders in a way that's all to familiar to the members of pension schemes that have seen their savings collapse.

Just for the record, I think central banks are a very bad idea. Banks existed quite happily for centuries without them, and I think that at best they convert frequent little crises (runs on undercapitalised banks) into rare but catastrophic global financial crises.