Watch this video. It is a rather humorous look at why economic bubbles are created. The worst is yet to come unfortunately.
By the way, Peter Schiff (man giving the speech) is someone who you should want to follow. Here is his youtube channel. Will be getting his book ‘How an economy grows and why it crashes‘ soon enough.
Regards
-Simon
Recently our federal politicians here in Australia decided to give themselves a pay raise. They did this through an ‘independent’ body. Once they found out the Remuneration Tribunal was in favor of drastically increasing their pay, they quickly gave them unilateral powers to determine politicians pay in order to avoid the political inconvenience of providing themselves with an increase.
Their pay is not linked to performance (their performance has been rubbish in the last few years). Their pay is determined by themselves. This is an agent-principle problem, where the interests of a worker and employee are not aligned.
A worker wants to work the least amount possible and get the highest wage possible (in this case the politicians are being paid by the Australian tax payer).
The worker wants their employee to work as much as possible with the least amount of pay.
Further problems arise when the employer is not able to monitor the output of the employee (or at least not properly).
One justification of the pay increase is the saying ‘if you pay peanuts, you get monkeys.’
Unfortunately for Australians, we are paying caviar prices and getting downs syndrome monkeys.
The justification for this pay increase was to attract better quality candidates to put themselves up for election for the local seats in parliament. Unfortunately this cannot happen until the next election… but guess what? The pay increase happens immediately (even though the next election isn’t scheduled until around 2 years from now).
Politicians shouldn’t be blamed for this, they are doing what is in their (economic) best interests. It isn’t really a political issue because both sides of politics are benefiting from it. The Greens party (third side of politics) feign outrage and then happily accept the pay increase.
What Australians need is a system whereby they can adequately monitor the performance and pay of politicians. There are a number of ways.
1) They could have a system whereby their politicians must perform some significant KPI (key performance indicator) or face loss of income.
For example, you could concentrate on an economic KPI (which is appropriate since we are talking about pay for politicians).
We could say that the government must keep the budget in surplus and must keep the economy growing (out of recession) or their pay reverts back to the minimum wage. If they succeed, each member of parliament gets paid a large sum ($500 000 each, $1 million for the front benchers).
The economy would be so well managed that within a year we would turn our current deficit into a surplus, all the while keeping economic growth strong (since money wasn’t wasted by government).
The problem with this system would be inflation (government printing money to ensure their target is reached) and also the fact that the government reports on their own progress (and not an independent body).
So in other words, they would ‘cook the books’. They would use accounting tricks to show that there was economic growth and surplus where they may not have been.
It would be like if you allowed kids to write their own report cards… every kid would come home with straight A’s. Same principle applies here.
I have a second alternative.
2) We force political candidates to vote for or against a pay increase during an election. You would do this by placing (on the voting slip) whether or not they voted for or against a pay increase.
So for example, a person may look at their voting slip and it would look something like this:
John Smith (Y)
Steve Sims (N)
Sarah Jones (N)
etc, etc, etc
You would see the name of the candidate and whether they supported a pay rise (Y) or were against it (N).
A voter would be able to see whether or not the candidate wanted a pay increase, and could factor that into their decision regarding who they wanted to vote to employ to run their country.
This would force political parties in marginal seats (seats which could realistically be won by each 2 or more parties) to place an ‘N’ next to their candidate, this decreasing their chances of increased pay. A candidate would know that a vote against increased pay would increase their chances of being elected.
There are a few problems with this system.
Firstly, it requires politicians to pass this system into law. They won’t do this as it harms their chances of getting paid more.
The second problem involves political parties playing games with the system. They may decide that any safe seat (a electorate which only one party has a realistic chance of winning) will vote ‘yes’ for a pay increase. They may find enough safe seats to pass any pay increase.
This does, however, leave them vulnerable to independent local candidates. It would also force political parties to vote ‘no’ in marginal seats, unless they came to a prior agreement. This is why it is important to have the vote be private, and not allow it to be changed once it has been cast (say, a month before an election).
3) A final way to prevent ridiculous pay increases would be to have term limits on parliament. So a single person may only be allowed to serve in parliament once and no more. Any pay increase would only be enacted after the next election (whenever that may be).
The obvious weakness here is that politicians on both sides will not vote this into law in the first place… unfortunate as it would get rid of the career politician over night. A person would make their bed and be forced to sleep in it.
I would also get rid of any pensions to a members of parliament (which are a complete fraud). If it was up to me (thankfully for politicians it isn’t), politicians would be getting minimum wage.
This would encourage those people who have made it in business or another area (and therefore have no need for money) to get into politics for the love of their country or for the ego boost that comes along with it. They may also be encouraged due to the decreased energy required for playing politics.
That’s all there is to say for now.
Regards
-Simon
At the moment, almost every country in the world is going through a recession (thankfully not Australia… yet).
Here is a list compiled by Josh Sanburn of time magazine of what products that were bought more often since the global financial crisis of 2008.
He gives them the title of ‘recession proof products’.
They are listed below.
I won’t go into the explanation behind each and every one of the products (the slide show in the link does a good job of that).
It is interesting to note that most of these goods are comforts in hard times.
People are hiding from their problems rather than facing them head on. This is perfectly understandable and natural (although not productive).
There are a few smart choices on the list (e.g. buying generic drugs instead of brand name drugs and buying vegetable seeds in hard times). However products like donuts and lottery tickets aren’t going to get you too far (lottery is a dumb scam).
Unfortunately, people’s problems aren’t going to be solved by hiding from the problem.
I wish everyone good luck in these hard economic times.
Regards
-Simon
There is a theory that your current consumption of a good depends on your past consumption. This theory is called ‘path dependency‘.
If your parents are into classical music and they played it to you as a child, then you yourself will be more likely to listen to classical music.
While the theory may or may not be reality, it certainly holds true when it comes to myself and economics (which I currently study).
It started when I was about 5 years old. I was with my parents at the supermarket when they consulted and decided to give me an allowance. I had no need for the money and frankly didn’t deserve it, but was happy to take the money none the less.
The allowance was $2 a week.
It was made very clear that if I spent it, the money would be gone (a lesson many of our nation’s leaders obviously didn’t get as kids).
Needless to say… it felt like being a millionaire.
$2 is a lot as a kid.
A single packet of mamee noodles ended up being bought (an addiction that would last to this day). $0.60 was paid and $1.40 received as change.
It was that initial encounter with money and the explanation that would result in 2 years of commerce class (2003 and 2004), 2 years of both business studies and economics class (2005 and 2006), a diploma of commerce and the current study of a bachelors of economics.
There is no saying where the interest will lead.
The addiction in action 17 years later.
Regards
-Simon
Denmark has just introduced the world’s first ‘fat tax’. With this there have been other nations looking to follow suit (France, USA).
The idea is that the government taxes foods deemed to be unhealthy, making their prices unattractive, encouraging people to switch to a healthier option.
While I hope it works for them, I am almost certain it will not. These foods will increase in price, with a relatively small decline in demand.
Economists refer to a good’s ‘elasticity’.
Elasticity is a goods reaction to changes in price in terms of how much is demanded.
A good is ‘inelastic’ if a price increase (decrease) will only slightly decreases (increases) demand.
A good is ‘elastic’ if a price increase (decrease) drastically decreases (increases) demand.
Food is one of the most inelastic goods there is (everyone’s gotta eat).
Why then would a government place a tax on fatty foods?
I believe the answer to be revenue raising. Any excuse for the government to put their hands in the tax payers pocket. Take a look at a quote from one of the above articles:
The tax applies to all saturated fats equally, regardless of whether they are contained in a McDonald’s hamburger or a quart of milk from grassfed cows.
We aren’t just talking about ‘luxury’ foods like fast food. We are talking milk, cheese, butter etc. This seems like revenue raising.
This seems like yet another example where the eventual outcome is different from the intention of the action (taxing fat). In this case it is not entirely certain if the intentions are actually reduce obesity.
Another example from the article illustrates this point. A restaurant owner expresses concern over his organic food suppliers:
“Organic is already more expensive than industrially produced [food], and the tax will just make it more so,” Puglisi says. “But organic producers can’t absorb the price increase the way that industrial can, so fewer people are going to be willing to buy it.”
A tax to try get people to eat healthy could turn many of them off organic food (and onto processed food). A small example but one that illustrates the point.
If you go to the supermarket every 2 days and buy a 250g block of butter, a price increase will not alter the amount you purchase (up to the point that the price increase becomes ridiculous).
You aren’t going to buy half a block of butter and you aren’t going to buy zero. This really won’t work.
Someone who is obese does not look closely at price. It’s usually the case that they are eating on emotion (although not always). To think that the eating habits of these obese people (who this tax is intended to help) will be altered is false. They will just be poorer for the experience.
If this ends up working, we will hear it all over the news in a few years time. Something tells me it won’t.
Regards
-Simon
Check this hilarious video out…
Apparently gold isn’t backed by anything.
Except for a 5000 year history of being used as money.
Or the fact that you cannot print gold. Gold is extremely hard and costly to extract out of the ground. Therefore it is an ideal store of value. I guess Bridget didn’t realize this.
I feel sorry for her though. She was probably spoon fed that sound bite by some other idiot. Either a producer with no real knowledge of money and finance, or someone in the know who couldn’t be arsed explaining to her how things work (and so just gave her that soundbite).
The US dollar being backed by the US government and Fed is little comfort since the government deficit in the US is over a trillion dollars a year and the Fed is constantly printing money (therefore diluting the value of every existing dollar).
Classic.
Regards
-Simon
The reaction to Steve Jobs’ death has been adequately recorded by the media. Almost everyone in the tech industry has had something to say. Even US president Barack Obama had some kind words. We wont be going through those reactions here.
Instead we’ll be taking a rather personal look at the reaction to Jobs’ untimely passing through the eyes of my facebook news feed.
(Note: I have blocked out the names of my friends reactions for privacy reasons… the only people shown are celebrities whom I follow on facebook and myself).
This was the first reaction. It posted probably second after Jobs was officially announced as dead. With that came the jokes…
This comment came immediately after the first comment. News of Jobs’ death was not entirely unexpected as he had been battling cancer since 2004. He was particularly weak in these last few months. The jokes would have been created long in advance, awaiting their release.
Note that I liked the joke. I have nothing wrong with the jokes as they were in good humor. Having people laugh at your death (while not really laughing at you) will be a real bounty for Jobs. Here are some more jokes:
Kassem G is a genius. The joke is brilliant in it’s simplicity. Most didn’t bother waiting…
and..
Leykis really wasn’t a fan of Jobs (for whatever reason). Perhaps it was more the worship that many were doing of the Apple co-founder.
There were more updates from Leykis about Steve Jobs… I won’t go through them all. However one good joke came out of the comments section…
Classic.
Then there were the more conventional tributes.
The quotes:
The sadness:
The respect:
The above tribute from Michael was in my opinion the best tribute I saw.
A number of people shared a link to Jobs’ 2005 Standford commencement address (although I cannot find them on the wall). Here’s the video for those who may be interested:
A look at my wall would not be complete without showing what I had to say.
Final Thoughts
I have huge respect for what Jobs did. While I never owned his products, and only bought one of his products (as a present for my sister), I believe his products were the coolest out there bar none. Not just in terms of being fashionable but accessibility.
Jobs may have ‘borrowed’ some of his ideas from others, but he went a step further and made those products economically viable to produce (read: new technology must be economically viable). Concepts for the ipad, ipod and desktop computer were around before he introduced them. However he made them popular enough that other companies wanted to produce and ship them.
His actions brought technology to the masses. He can leave this world in the knowledge that he increased wealth and quality of life of millions.
Regards
-Simon
This is a response to this blog post by a blogger named Sam Harris (which was suggested to me through Tim Ferris‘ fan page). It speaks of the forms books will take in the future. He compares paperbacks to E-books.
With E-books taking over more market share, Harris looks at the possible consequences we may face as a result.
However the demise of paper books has been greatly exaggerated (although it is funny that we now have to refer to ‘physical books’ these days). I remember in the 90′s when we were told that the post office would close down as letters were superseded by email. This is obviously laughable now (although I wouldn’t mind the post office closing down).
I believe it is the same with physical books. They will lose drastic market share but will still be around, at least for those who refuse to read e-books. The book store may go the way of the CD store.
Sure, there are some CD stores, but they are fewer and farther between than they were in the 90′s and early 00′s. Now everyone is downloading music from the internet.
I am not sure why e-books have suddenly become so big. I have been reading them for over 10 years now (back in the day when they were glorified PDFs). Now that the kindle has come on the market, they have become popular (who would have thought that an expensive e-book reader would make e-books popular when you could just read them on your computer).
The kindle probably succeeded because it was directly linked to the amazon market place. Suddenly there was a marketplace for the e-books, making creating them profitable.
I do not consider myself to be in any way technologically savvy. I am considered a laggard when it comes to adopting new technology, which is why I found it surprising that e-book readership spiked as late as 2011.
Regardless…
E-books allow an author to write a book of any size. An author can even sell collection of essays should he/she so wish. In the blog post mentioned above, Sam says it best (in regards to reading long books):
When shopping for books, I’ve suddenly become acutely sensitive to the opportunity costs of reading any one of them. If your book is 600 pages long, you are demanding more of my time than I feel free to give. And if I could accomplish the same change in my view of the world by reading a 60-page version of your argument, why didn’t you just publish a book this length instead?
The honest answer to this last question should disappoint everyone: Publishers can’t charge enough money for 60-page books to survive; thus, writers can’t make a living by writing them.
I am of the same mindset. You should make a book no longer than it has to be in order to convey your thoughts. It is now possible to do this.
A person can publish a book on create space (amazon’s self publishing site). They can do this with both e-books and physical books. You no longer need to kiss a publishers arse in order for them to take your book on.
All of this can be done relatively inexpensively (perhaps $100-$150).
It can also be done easily. You could record yourself speaking your mind, have the audio’s you’ve taken transcribed for a very cheap price (I think around $20, but don’t quote me on this) and then create an ‘essential rants’ book or something similar (should you so wish).
Since the perceived value of a book is directly related to its size (in most cases), publishing a physical book runs into problems if you don’t need many pages to say what you have to say.
In contrast I recently bought a kindle book from a youtuber I follow. It was a 40 page book (which I had no problem with) and it cost 99 cents. He was able to sell it so cheaply because he did not use a publisher (in today’s day and age he doesn’t need one). He probably made a nice profit on it (better than most physical books which do not turn a profit for publishers).
We really do live in a fantastic time.
Regards
-Simon
Yesterday in part 1 it was demonstrated why a new technology can become obsolete the second it has been invented. Here in part 2 we will be elaborating on this theme some more.
Back in the 1990′s I would see footage of robots as personal servants. Most of this footage would be from the 1980′s.
Even at my young age back then, I had the capacity to understand that technology was ever improving. A technology that seemed clunky now could potentially undergo a fast improvement to the point where it provided great benefit.
Which got me asking myself why we didn’t all have robots cleaning our houses and serving us.
Why didn’t we?
Surely those concept robots of the 80′s should have improved to the point where everyone could afford and want one of these robots. What I didn’t grasp back then was the fact that these robots may not (and did not) provide society with it’s most efficient allocation of resources.
Simply put, it wasn’t worth producing them.
A pity.
2005… yeah right.
What about this?
Would love a flying car… but I don’t think we’ll be getting them by 2015.
Why bring this up? I was inspired by a post on a friends blog post (twiaap… for crazy tech). He showed a video of some interesting technology. “6th Sense” by Pranav Mistry. (Video Below).
I then left a rather lengthy comment below again making reference to videos of similar technology developed much earlier than “6th sense”.
Examples:
Loving the hair from 1991.
Also,
and finally…
Some examples of technology used in 6th sense. None of which have made it to market (in a ubiquitous sense). 2 of the videos are 18 years before the “6th sense” talk and one 8 years before.
Why wasn’t any of this used in our day to day lives?
My guess is that people didn’t want a calculator projected onto their desk. Instead they wanted to pick up a normal calculator to add or subtract etc etc. This stuff must have been seen as not being worth it.
Does that mean Pranav’s technology is destined to fail? Not necessarily. He must however make it of value to the general public if it isn’t to go the way of the other technologies shown above.
Is this possible?
Glad you asked.
To answer that question we need only look at technologies which have become part of our every day lives. A classic example is the mobile phone (or cell phone).
From expensive, clunky and often useless in the early 80′s, we now have very cheap and technologically advanced mobile phones today. From $3000 back in the early 80′s (in 1980′s dollars) to the price they are today (I can buy a basic pre-paid phone for $20 if I wanted).
This is no accident. The process of technological development, the cheaper prices over time and the fact that many people have mobile phones can be put down to them being economically viable.
Phone contracts or pre-paid packages provide cash flow for telephone companies. Te profit motive then forces them to improve reception (or risk having customers jump ship to another provider). Since people want good phones, phone makers are forced (again through the profit motive) to create better and better phones.
Without that cash flow, mobile phones would not have gone beyond the ‘bricks’ you saw back in the early 80′s. The profits available to phone makers and service providers were society’s way of saying ‘we want more of this, please give it to us’.
Let us finally look at a more pertinent example.
The iPad.
The world’s most useless device in my mind. But ipads have been profitable enough for Apple that a large number of copy-cat products have entered the market. Is the tablet computer a new concept?
Not at all… here are 2 examples from apple alone.
Not bad, here’s another one.
So the technology for the tablet computer was already around (at least in concept form) 20 years ago. I am sure than had it been economically viable 20 years ago they would have found a way to produce it.
This is more relevant to our discussion on “6th sense” as it shows a technology that was placed on the back burner for a long time and the resurrected as it became profitable to produce. Society told businesses that they wanted more of this product and were willing to provide profits to the business that produced it.
6th Sense could change our lives. However it requires either the technology to change or society’s preferences to change in order for business to be able to make money out of it. Otherwise it will just be another one of those technologies that look cool but never venture beyond trade shows or science magazines.
Good luck to Pranav Mistry.
Regards
-Simon
In order for a technology to succeed and to change the world it must be economically viable.
What exactly do you mean?
Good question. The world is full of interesting and seemingly revolutionary technologies. Unfortunately many of these (most) do not make it to market (therefore do not become ubiquitous). You have only to look back at old videos of shows that focused on ‘futuristic technologies’. A perfect example is ‘beyond 2000′.
If you are really keen click on the link to youtube and watch all of the ‘beyond 2000′ promos/footage. One thing of interest to note in the video above is the pocket tv. At the turn of the century the ubiquity of pocket tv’s seemed inevitable. So why don’t we all have pocket tv’s? Well it may be that they ultimately did not provide a benefit that outweighed the cost (accounting profit). Perhaps it didn’t provide a benefit superior to any other option (economic profit).
Instead many people today have smart phones. There has been a change of emphasis from tv to the internet (as online video becomes viable). While it may have looked cool, watching tv while walking down the street isn’t all that smart… but walking and texting at the same time is.
A person can watch a video on youtube (like video on demand) anywhere. Watching tv during your day rarely provides value (unless you are at home and want to relax on the couch and immerse yourself in a tv show). If you were to pull your hand held (or pocket) tv out during the day… you’d probably find something like this on:
Ugh… day time tv is rubbish in general. See what I’m getting at here?
Yes I do Simon!
Awesome. Ultimately, a hand held tv didn’t provide value equal to or greater than the next alternative (in terms of how a person spends their money or spare time). This means that the economic profit of this technological venture is negative (the opportunity cost outweighs the benefit).
Benefit – Opportunity cost < zero
On the flip side, the smart phone became ubiquitous because it provided a useful service and provided a benefit to society greater than the next best option.
Benefit – Opportunity cost > zero
Remembering that the opportunity cost is the next best alternative.
The market has a way of mercilessly scrapping technologies that do not provide an economic profit to society. These technologies are less economically viable as a business cannot generate positive cash flow selling these goods or services (a brilliant way of finding out whether or not something is economically viable).
Think of this as natures way of purging new technologies that would soak up society’s resources.
Will talk about more of this tomorrow, until then…
Regards
-Simon
