To clearly explain why this is the case we first need to define productivity. Productivity is a measure of output from a production process, per unit of input. A productive capital investment therefore enables more future goods and services to be produced per unit of input (such as labour, materials etc).
An example of a productive investment may be a machine that enables a new design of metal fasteners to be produced from less metal, and with less labour time, but is equally as strong. In this case we have a productivity gain in terms of materials and human labour time for the same output. This investment allows use to produce more fasteners in future periods even with no more inputs.
Housing does nothing of the sort. It simply houses more people and does nothing to improve the per capita productivity.
Let's use a little thought experiment to prove the point.
Another classic example is saving. Economists assume that the savings rate is fixed by our preference for current consumption over future consumption (not only this, they assume that individual preferences are fixed over time – that’s right, from birth to death). To any person living in reality, this fixed assumption is obviously not true.
For example, there are literally millions of websites preaching new an innovative ways to implement a saving strategy. Freezing your credit card in a block of ice to overcome spending urges is one solution. Having your salary paid directly into a fixed term investment account that can’t be touched is another.
The intriguing question is why we can be rational enough to use these ideas, but not so rational as to not need them. I want to examine this point today.
It appears that someone has spent time investigating the potential ad revenue from websites that are misspelled variations of popular websites. Surprisingly, a viable business model is to register misspelled website domains, and simply post ads relevant to the real website (or to the real website), to ultimately generate a decent profit.
But is there anything wrong with that? The authors of the study think so, and they have launched a lawsuit seeking damages from Google for facilitating this practice with their Adsense for Domains tool.
To me, this is a classic example of market fulfilling a niche function. There is nothing stopping businesses buying the domains which are misspellings of their own if they are willing to pay more than the value of revenue generated by advertising to the current domain name owner. Further, I would suggest that typing a web address to navigate to a site is fast becoming obsolete as you can generally navigate to the site with less typing by using a search engine.
In other news, the Brisbane Young Economists Network is hosting an event in Brisbane on the 4th March. Pecha Kucha presentations will be given by some local economics PhDs, drinks are supplied, and there will be plenty of time for socialising.
Yo's list -
1. People buy whitening products for their skin – it is considered more beautiful – funny that a tan is beautiful in the west! No one sunbakes.
2. The people walk very slowly, they are never in a hurry.
3. No one EVER sticks to the left.
4. People always sit on the aisle seat in the bus so that no one sits next to them
5. “la” is said at the end of most sentences (I still don’t t know why this is)
6. People hold a business card with two hands when passing it to someone whom they have just met.
7. The umbrella is actually useful on a sunny day *shame* and is a must for the handbag
8. Pashmina’s are also a necessary handbag item – the air-conditioning is set to arctic wherever you go.
9. Chewing gum is not illegal
10. You get the cane for any sort of graffiti (10 lashes I believe)
11. Kids don’t play in parks, or generally for that matter...they are very academic from a young age
12. There are alot of really, really expensive cars: Ferraris, Lamborghinis, Bentleys, Aston Martins...etc etc
13. Public transport is exceptionally cheap to encourage high patronage – it really puts Australia to shame. It is also very efficient (except to Matt’s work of course).
14. Affordable housing is done well, there are very little, if any homeless people.
15. Maids (mostly from the Philippines) invade Orchard road on Sundays – it’s their day off
16. Being Caucasian, and blonde (and female), you get stared at alot...you learn to win stare-offs very well. (Phebs, prepare yourself)
17. You pay for incoming calls on your mobile
18. You don’t see many policemen.
19. Shopping is a sport. More importantly, bargain shopping.
20. It’s all about the food here. Everyone is always asking about your next meal. (Chappo will fit in just fine)
21. Taxi’s are cheap, which is odd considering a Toyota Yaris is about $50k (just imagine what the Ferrari’s cost).
22. Starting Salary for a graduate engineer is about A$20,000.
23. You can have a maid for A$400/month. They will work 6days/week.
To round out Yo’s top 23 things to a top 30, Matt adds-
24: Almost all residents who live in Singapore are not from Singapore. Most are from Malaysia, Indonesia and other surrounding countries.
25: “Can” means yes, as in yes I can do that
26: Cash for payment is received in two hands (similar to Yo’s no. 6)
27: When someone invites you out to Friday afternoon drinks, that means you leave work late, not early
28: You can pay $2 for two coffees. You can also pay $20.
29: In addition to Yo’s no. 20, people never bring lunch with them to work. We don’t even have a microwave in the kitchen. Lunch with Singaporeans is always a sit down hot meal in a restaurant or cafe.
30: A 100m walk to a Singaporean is equivalent to a 1k walk to an Australian. No one walks very far here.
Let’s look at a recent example of people latching on to the quantity without thinking of the error. Lately, ABS data has shown that unemployment has fallen by 0.1% - what is the probability that in reality unemployment has actually risen?
But there was a problem.
The price indexes for each commodity group were so completely manipulated by quality adjustment (and any other unknown statistical manipulation that occurs) that you could not dramatically change the final CPI figure. Using German weightings I was within one percent (of the total change) over a 10 year period.
Have a look at the house purchase index used for the CPI against the ABS' own capital city house price index in the graph below. The extreme magnitude of the disparity is quite shocking. The index used for the CPI increased by 36% over the 7 year period, while the capital city median price index increased 92%.
I do however believe that some packaging, such as the excessive size of cereal boxes to ensure good shelf space, does not always result in benefits for consumers.
First, let's be clear about the purpose of the CPI. In principle I believe that measuring the price level is impossible as the type and quality of goods and services in the economy changes constantly. However, some indicator about the changing cost of living is still important for determining changes to welfare payments and calculating real growth in incomes.
Mlodino asks us to consider an experiment from Khaneman, Slovic and Tversky’s famous book on judgement under uncertainty. Given the brief description about the Linda below, eighty eight subject were asked to rank the statements that follow on a scale of 1 to 8 according to their probability, with 1 representing the most probable, and 8 the least. The results are in the order ranked by the participants from most probable to least probable.
See the results under the fold and why their finding, that people have poor intuition of probability, may be incorrect.
For those who believe that economics generally gets things half right, behavioural economics might be your thing. A mix of psychology and economics, this field has been enlightening economists for the past two decades. Some of the latest findings in behavioural economics are found here (highly recommended).
But where are the incentives to create a beautiful city?