GI Joe and the Market for Lemons

GI Joe is possibly the worst movie ever (see the number of goofs and plot holes here). But I still spent 2 hours watching it, even though there were plenty of better things to do with my time. Am I simply a fool?

The answer is, well, maybe. The reason I sat all the way through is that I thought the movie might redeem itself by having a nice twist at the end, or even a few cheesy lines that I could laugh at. But no.

Considering the number of terrible films made this type of situation is relatively rare. It is easy to get a number of honest reviews to narrow down the quality before watching a film.

In any case, it got me thinking that movie markets are similar to lemon markets because the quality of the good cannot be known in advance. In a true lemon market the quality cannot generally even be known after the good is consumed.

Economics of work and leisure

Recently, I cut back work to 4 days a week with a surprising result. Rather than feeling like I am enduring marginally less of a bad thing, I am actually finding work more challenging and interesting – even though I am surrounded by the same public sector circus.

I feel like a 20% cut in work has resulted in an 80% improvement in my work satisfaction, rather than merely a 20% boost.

As an economist I really shouldn’t be surprised. Economic theory suggests an optimal work time – there are decreasing marginal benefits to work (in terms of pay), and increasing marginal costs (in terms of time, level of stress, level of frustration etc).

But this experience (and the popularity of this television show) has got me thinking about how the wellbeing of society at large can be improved by working less.

Investing the easy way

If I combine the ideas of my land tax post, and my post on Tony Abbott, I end up with a generalised principle of scarce resources.  That is, that productivity gains across the economy accumulate as capital value of scarce resources that have few substitutes, with land being the ultimate example of this principle.

As we find dwindling environmental assets such as wild fish stocks, scarce rights to harvest fish begin to accumulate value due to economy wide productivity gains.  Australia is separating land and water rights as part of National Water Reform, and these finite water rights will also exhibit this general principle.

Most interestingly, and permits from the proposed Carbon Pollution Reduction Scheme will have this characteristic.

We will make a transition from a society where wealth accumulates in land, to one where wealth also accumulates in various rights to other finite resources.  I'm not saying this is bad. In fact the creation of finite rights is the best way I can think to place a value on scarce environmental assets.

I guess my point is that investing in these new finite rights to the environment is one way to invest in the protection of the environment.  Simply buying and holding these rights will accumulate wealth in much the same way that land traditionally has.  Of course, buying land and not developing (or even improving the environmental condition of the land) is a fantastic way to invest in the environment.

*Please note this idea is not yet fully developed.  Any ideas/comments are appreciated.

The Christmas gift arms race

I do like Christmas. Maybe it’s the memories of childhood where a simple water pistol was enough to keep the anticipation high for weeks, and then become an object of desire (and destruction) for months.

But these days I feel like Christmas has become more of a burden then a blessing. My experience suggests that the last decade has seen the demise of delayed gratification. Maybe it’s just because as a child you are subject to parental decisions, and so you learn about delayed gratification. Then in adulthood, you realise there is little need for that anymore and are happy to splurge whenever it suits you. But maybe it is a more widespread cultural phenomenon.

The cause of this burden I feel is what I call the Christmas arms race.

Summer Reading

The past few weeks I’ve somehow found time to read.  Here are a few interesting titles that I would recommend.

Tony Abbott...

…believes that a high price of oil will encourage new discoveries, such that the concept of peak oil is not valid.  This is a classic example of what could be called ‘Price religion’.

Could I suggest that Tony Abbott (and I guess many ideological economic zealots) try and apply their logic elsewhere.

For example, if the price of fish goes up, does that mean that we will discover more fish on the Great Barrier Reef?

If the price of land goes up, will we discover more land?

Of course Tony Abbott and other followers of the Price religion don’t believe we will find more fish on the reef if the price goes up. But somehow, they will leave their logic at the door when it comes to oil or other fossil and mineral resources.

Then again, he could just be reiterating his party line – it is probably not a good time to let the media catch a glimpse of anything other than unity in the Liberal party these days.

Best of luck with that Tony.

*Note: I have grown to dislike all the current political parties, although I used to give support to the Greens. Maybe there is an opportunity for a fresh young political party in Australia these days?

Are the States simply an historical legacy?

Kevin Rudd seems to be taking Federal control wherever he can.  His latest move is take more control over town and regional planning.  (Does that mean more regulation or less?)

But why not scrap the States altogether?  Aren't States just historical happenstance?

It's an old question. As a State employee I have witnessed the inefficiencies of this bureaucracy first hand.  More importantly, I have witnessed the animosity between State and Federal governments where open cooperation should be the order of the day.  The States always complain about the lack of understanding of Federal officers. "They don't understand what it's like in Queensland" - true, they don't understand the getting things down the slowest and most expensive way is the how we do it.

But my questions are, what is holding back Federalism (for want of a better word)?  Is there not enough public frustration with the States, no political will?

If there was the political will, how would one actually start the process of removing State governments?

Maybe in my lifetime I will get a chance to witness these things.

PS.  I'll be in Canberra next week liaising with the Federal government, so the blog may be quite for a while.  Maybe when I'm there I can get some thoughts from Federal government officers on this issue.

A graph I promised to make

There is a lot of talk about population and number of new dwellings in the housing market debate.  What is generally overlooked is that at any point in time everybody is living somewhere.  Occupancy rate is fluid, prices change, and in the long term, population growth in an area can't happen without prior construction of housing. 

The graph shows the new dwellings constructed per new person (per person of population growth).  We do notice a recent decline in the number of dwellings being constructed nationwide compared to the population growth, which is reflected in the later graph showing increased occupancy rates.  The direction of causation amongst these variables remains unclear, and in all likelihood, they are interdependent.

Regression with net new dwellings per person of population growth as an explanatory variable for change in the capital city price index gives a negative coefficient (-0.011) but really, has no explanatory power (r2 of 0.006).

That means that analysis of population growth and dwelling construction figures has no power in explaining housing price changes.

Australia's most expensive house

The previous record for Australia's most expensive single dwelling (don't think it falls into the house category, nor even the mansion category) was a measly $45million.  Just this week that record has been smashed by a respectable figure of $57.5million for a Perth waterfront mega/super/ulltra-mansion.


(What was he askin'? $70million - tell him he's dreaming!)


It shouldn't be a surprise that the sale was from one mining baron to another.  In Brisbane mining companies have a reputation for sending lots of cash in a hurry.


What shocked me was the claim from the real estate agent the he had sold Australia's most expensive house back in 1980 - for just $2,150,000.


Times have indeed changed.

The sleepwalking defence

I state in my profile that we need to turn our ideas on their heads to gain understanding.

So what did I make of this report of a man who strangled his wife in her sleep? His charge of murder was dropped, but I would be surprised if he is not now charged with manslaughter.

But behind the headlines there is an interesting tale about responsibility. We humans are extremely susceptible to external influence. Stanley Milgram’s famous experiment showed many years ago how our rational decision making capabilities can be heavily influenced by our interactions with others. We seem to obey authority figures, and we are known to also conform to group behaviours.

Economists generally assume people behave in a perfectly rational way, and that decisions are made independently. Legal practice certainly seems to take decisions as personal and independent. But we only can make these decisions based on our past education and experiences – past external factors.

But just as we still believe that people are responsible for the decisions and behaviour, even though these arise from past external factors, we should believe that a sleepwalker is responsible for their actions.