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Still Confusing Family Rust with Silver
As the issue of best use of taxpayers capital again raises its head, a curt reminder of just how good Govts (od any stripe) are at managing projects “owned” by the state is this:
“Radio NZ reports:
When the New Zealand Transport Agency signed off on an integrated national ticketing system in 2009, John Key was prime minister, Avatar ruled at the box office and a pound of butter cost about $3.60.
After more than 16 years, the first stage of the $1.4 billion National Ticketing Solution’s (NTS) latest iteration, known as Motu Move, was launched on Monday in Christchurch, rolling out contactless payment options on bus and ferry services across Greater Christchurch.
The option to pay with contactless debit or credit cards and digital payments like Apple Pay and Google Pay on phones or smart watches on buses and ferries will work on three hundred buses across Christchurch, Waimakariri and Selwyn, but only for those paying full fare.
A system to enable concession holders to pay less and the Motu Move cards themselves have been relegated to later stages.
The entire point of this system is to enable cards which can be programmed with maximum daily fees etc. So basically after 16 years, all they have managed to do is allow 300 buses to take EFTPOS. This is something that you could probably do in around a week, as mobile EFTPOS terminals are very common.
The NTS was slated to be launched in South Canterbury in 2024, but by the middle of this year, Transport Minister Chris Bishop weighed in, saying the project was facing technology, delivery and governance issues and was “not on track”.
Bishop said nothing was “off the table”, as consultants conducted an independent review of the project.”
What would your employment prospects look like if you were this good?
Thanks to David Farrar
The perverse incentives created by Deposit Insurance
The origin of these is well summed up here:
“I can assure you that when you don’t have the full faith and credit of your government you care a lot about the management of systematic risk. I don’t think anyone at Silicon Valley Bank cared about it a damn bit.” (because depositors had deposit insurance – and management could go wild).
A Noisy World
Considering some physics recently I was reminded of the well-established fact that to date at least, all measurement is ever an imprecise business. Measurement is an imperfect act insofar as if the object is to measure one specific phenomenon and that alone – undistorted, without bias, devoid of contaminating adjacent effects, such untouched forms of purity are unattainable,
It is simply the case that the very act of measurement generates “unwanted” intrusions.
Summarised and simplified we have at least:
Systematic Error
- Consistent and predictable bias in measurements.
- Often caused by faulty equipment, calibration errors, or environmental conditions.
An example: A scale that always reads 0.5 kg too high.
- Unpredictable and varies from one measurement to another.
- Caused by human limitations, small fluctuations in experimental conditions, or instrument sensitivity.
- Example: Slight hand tremor affecting stopwatch timing.
Random Error
These errors produce what we conveniently term “noise”. Phenomena which in and of themselves are distinctly separate from and are not that which we seek to measure – but do exist and their presence is captured nonetheless.
Most Significantly
We may be testing or probing to find the presence of (say) a given disease for example. Even where no such disease or symptom thereof exists at all (i.e. patient fit and well – no disease), nonetheless we will measure something. Noise will register in our equipment or otherwise make itself felt in our data.
The trouble is in a great many (most if not all) cases we cannot reliably distinguish the “signal” from the “noise”. We may therefore mistake “absence” for “presence”. No disease but a non-zero reading. We simply do not know with great reliability where noise stops and the phenomena which we are interested in begins.
This is not always simply because of our sloppy ways. The uncertainty principle suggests for instance that even at the most disaggregated of scales we cannot establish both speed of movement and location. One or the other perhaps but both most certainly not. The situation is difficult at other scales as well.
Conclusion
It does strike me therefore that “if we look long enough and hard enough we will find something” but that “something” will not necessarily be anything other than the noise occasioned by measurement.
This effect is worth pondering – notably in medicine and behavioural sciences. In the case of the latter, it may account for the fact that in early days researchers uncovered perhaps five or so cognitive biases. On a recent count Wikipedia claimed to identify 175 or so cognitive biases. Really?
Trading Banks are Not Central Banks
I am not in any sense a “bank hater” – that oh so popular persona favoured by numerous customers who seem to forget that:
- there are no free lunches
- that they love secure deposits
- that but for debt most homeowners would never get to buy a house
- that in NZ a significant tranche of Australian shareholders bear the risks of lending
Still – that is no reason to either listen or take too much notice of trading banks busily telling the RBNZ what to do – a highly popular sport amongst trading bank “analysts” at present. There is no reason to suppose that trading bank analysts have any better idea of how to do the RB’s job that the RB itself – dangerously however for the rest of us – they do know their own bank and its strategy all too well and are, in this sense no different to (say) the liquor industry advising on what our liquor laws should be – simple rent seekers.
A few things we do want from the RBNZ are:
- consistency over time in policies reflecting the long term (which is not the next quarter) objectives for a strong economy,
- Independence – in particular independence from objectives such as growing a residential debt book, or getting “new homeowners into homes”,
- a medium to long term view and a set of behaviors which are consistent with that view and the broad direction of the governments overall (not just monetary) policy.
- A firm stance which stands back – well back – from the noise of trading banks and others seeking whatever interest rate matches their tactical position over the period till they next report.
Adoption of this boring but highly functional approach has been shown to serve us well.
When political decisionmaking is a bad choice
Recent years have seen an increase in political involvement in large scale projects which essentially have little to do with politics. Why is that a problem?
Political decisionmaking is aimed, at bottom at producing votes. It matters little whether votes for left right or centre – the output is votes.
Problem is:
- votes do not produce health treatment
- votes do not produce plant and equipment
- votes do not produce roads, or bridges or infrastructure
Indeed they produce votes. Nothing else (more than a few nasty side effects as well).
And yet our politicians and their govts are donkey deep in decisions about these outputs yet we need them quite regardless of whose got the votes, they need to be financially sound, they need to match demonstrated needs of myriad groups and individuals, they need to be professionally designed and delivered and they need to work.
Votes and those who hold them have little or no expertise in any of these domains – they are politicians ever bound by aspirations of gaining and maintaining power.
Their better contribution would be to:
- stay out of pretending they have expertise. Simple truth is – they don’t
- stick to setting and maintaining rules for independent professionals who do know what they are doing
- holding such independents to account by rewarding success and penalising failure (heavily) promptly
- growing some expertise in supervising contracts (of all kinds) that will produce the outcomes needed regardless of votes.
Representation Achieved by Force Fails
Law which purports to “require” representation fails two fundamentals of democracy:
- Laws which include or exclude, are instruments of force not voluntary commitment
- Democracy, rightly or wrongly, requires voluntary action
While attempts to camouflage this bare bones fact may sound elegant and seemly the law in this role is the ugly instrument of yesterday’s armies and operates by force and the threat of force. Representation which cannot be achieved without behaviour enforced by law is neither voluntary nor democratic.
So much for “fair”
The NZ Grocery Commissioner has had a guess at the level of overcharging in NZ supermarkets and come up with two notions of interest:
- the number is likely to be in the “tens of millions of dollars”; and, more dangerously than this idle speculation,
- the idea that overcharged customers should get the entire purchase “free”.
Apart from the fact that Commissioners bear no risk (other than to their reputation) in adopting these god like postures (and their “reckons” should be discounted accordingly), a more interesting point is that if we apply his logic to undercharging – and it seems that the type of errors which sometimes lead to overcharging equally arise with resultant undercharging – with some 18,000 items in a typical supermarket this seems likely – then customers would presumably be charged double the original item’s price if we apply the Commissioner’s logic. He may have some argument of the “they can afford it” variety – but even seen in a kindly light that’s an equity argument of some sort.
Even anecdotal tales do not reveal large numbers of customers reporting under charging let alone offering to make up any shortfall or more. This is surely what we would expect. Why?
- rational self interest without the morals suggests customers should be charged correctly and compensated for any amount overcharged. That is apparently common – certainly that is my experience
- supermarket operators do not, however seem to pursue or harass or even try to find customers who benefit from errors of under pricing (theft is a different animal). Why is it that rational and what does it tell us.
Given that both shop owners and customers are likely to be equally self-interested one conclusion is that they are operating on rather different time scales. Over the long run the shop owner likely has little to gain and a deal of goodwill to lose in trying to recover underpricing error losses. For the customer there is short term gain to reporting over charging (though making a federal case of it on a serial basis may lead to longer term costs).
Both parties then may well be operating rationally. What’s “fair” and what’s “unfair” depends a bit on the time scale being considered. The overall outcome certainly seems to be rational over the bucket of different time frames we all operate in.
It is more difficult to see much logic in wild guesses and back of the envelope compensation schemes applied inconsistently – the incentives for that sort of approach involve a quite different story.
The fraught balance
It is difficult to ascertain reliably whether long run political stability or instability favours economic growth and welfare. The Economist July 20th 2024 suggest this useful distillation:
“It is a fraught balance-neither extreme instability nor extreme stasis, all while staying within the bounds of civilised discourse. That this balance has been the norm for decades in much of the West is a miracle. To lose it would be a tragedy.”
Time to take notice.
Smart Way to Think of Govt Debt
Reuters reports that in the US:
“Short-term government borrowing rates are cranking towards the 6% mark for the first time in history – not far off the rate you’d expect to pay on a 30-year mortgage, with all the risk that this would entail.”
Berkshire Hathaway – Strong Result
There are a handful of larger companies, and there are older companies, but there are few companies that have been around as long as Berkshire that have compounded as consistently. In this sense the stock is at least a reasonable proxy for a diversified exposure to relatively conventional US stocks.
Earnings Recap
Berkshire Hathaway’s most recent quarterly release beat analyst estimates on both the top and bottom lines, with metrics such as:
- $85.93 billion in revenue, up 21% year-over-year,
- $8.065 billion in operating earnings, up 12%,
- $35.7 billion in net income,
- $16.25 in GAAP EPS,
These earnings metrics were all well ahead of average. GAAP EPS, in particular, was 364% ahead of analyst estimates. It’s possible that some analysts have taken Buffett’s words to heart, and are using operating earnings as their “EPS” metric. If that’s the case then, with 2.184 billion ‘B’ shares outstanding, EPS was $3.69, which was also ahead of the $3.50 estimate. Especially noteworthy in the release was $4.4 billion worth of buybacks, which helped propel EPS slightly higher, and showed management’s commitment to returning value to shareholders.
Not only did all relevant metrics beat analyst expectations, but underwriting earnings rose from $167 million to $911 million largely through turnaround of the auto insurance business .
Eye2theLongRun 