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No Full Substitutes
“You can’t replace reading with other sources of information like videos, because you need to read in order to write well, and you need to write in order to think well.”
— Paul Graham
One reason is that:
Writing is often the process by which you realize that you do not understand what you are talking about.
Unfortunately and an Eternal Curse
“a salutary lesson [is] that good economics often makes for poor politics. Especially when there is a trust deficit between the key stakeholders and the government; and the politics is partisan and non-consultative.” BBC 20-11-2021
Piece of classic Coltrane
Branford Marsalis, age 27 at the time, on a relaxed version of the classic…… Newport at it’s best. Branford Marsalis – Giant Steps – 8/26/1987 – Newport Jazz Festival (Official) – YouTube
Buy Now Regulate Later
The government has shown its typically regulatory interest in the burgeoning “buy now pay later” segment of the capital market. This “I can’t see the costs so it must be free” approach to relatively high risk easy come but not so easy go credit has been growing strongly in NZ just as it has elsewhere. Various “caring Ministers” have now shown considerable warmth to the idea of “saving” any poor darlings who get lost under this new money tree – and of course the weapon of choice is the fired up and ready to go legislative battery already operated by the various save our souls agencies.
There are, baldly, two choices here:
- Crunch all providers of any form of credit even handedly and thoroughly consistently, with the full blast of the “Ministers know what’s the best risk for you, what you can afford and what you need and I’m going to stop you and anyone trying to say otherwise from moving outside my plan for you.” The “here for you cradle to financial grave” approach to financial security – which is, incidentally, popular with providers since it tends to handily exclude the competition and lock in profit for the incumbent.
Or
- The far less popular, “time for some adulting. You know perfectly well there are no free lunches, and you know better than anyone else what you can and cannot afford. If you choose to disregard what you know in your head and your heart you stand to play your own Squid Game and lose. It has always been this way and with no “fools paradise regulation” to pretend to help you, you have learned how to deal with this. It’s a pain yes. But it’s realistic and long run you know you are better off”.
Unsurprisingly neither providers nor politician are in favour of this second approach. It generates competition, there are no babies to be kissed, it calls for “do nothing” and providers must seriously look after their would-be borrowers.
Either choice demands absolute consistency (or its simply not equitable or “fair”), serious enforcement (not cherry picking what regulators figure they can win in court) and it needs to provide disclosed risk low cost finance to those needing credit rather than a whimsical, dream on Yeah/Nah approach to capital.
Property Is Not Immediate Realisable Cash Wealth
This is the classic case of illusory wealth. ‘Level and trajectory’ of house prices creating risks for recent buyers – Reserve Bank Financial Stability Report (msn.com)
In the article there are two statements:
- Household wealth has grown by 27% so people have plenty of wealth and ability to withstand shocks. They then say more than half of this is through growth in home values – housing. That’s the RB
- Then Core logic say much the same. People have plenty of scope because their property has risen in value and they are wealthy.
NONE of that is liquid. It is not cash. It depends on
- The housing market staying up there
- Strong liquidity in housing markets
- Willingness of credit providers to take illiquid houses to secure the credit card
BUT
- You cant sell “bits” of houses
- A house takes six (6) weeks to settle…. No money for 6 weeks
- When liquidity drops vendors fix that by selling for less and prices go down
- So attempts to “drive liquidity into the market” reduce prices
The problem then is that lending is secured against illiquid assets which cannot be readily crystallised into cash in a timely fashion.
Property increases may produce a number of things. Immediately Realisable (liquid) Cash is not one of them.
Certainly an Historic Agreement
Global “leaders” (politicians) have reached the momentous decision to increase the tax on “big business” by 15% so as to improve the overall state of the world https://www.rnz.co.nz/news/world/454581/g20-climate-and-covid-19-also-on-agenda-as-world-leaders-meet.
Presumably the resulting revenue will be applied to “good works”. Even in New Zealand (one of the most tax efficient countries) each dollar of revenue raised by tax costs around $1.20 to raise – or “put in a dollar get $0.80”. At the same time there is the minor issue of reducing the incentives, passion and capacity of the world’s most successful enterprises by some significant amount to be ultimately born by their consumers who get to pay for this thereby reducing such contribution as they choose to make.
The remuneration of those reaching this historic agreement is of course funded by taxes.
The Rich Failing to Get Richer but the Poor ?
One longstanding and popular, even appealing and logical sounding to many, myth is that some immutable law means that the rich get ever richer while the poor get poorer. While the evidence has, for some 500 years or more, suggested that this is likely to be cute but wrong, the appealing doomsday characteristics of this tale has led to its continued popularity.
The last 8 years or so have shown that for the US at least, a more balanced state of affairs seems to exist in respect of growth.
The rate of growth in median income for the poorest quartile in the US is now just on twice that of the the rate experienced by the richest. Back in 2017 the numbers were similar across the divide, while in 2013 growth rates favoured the rich. As ever seems to be the case the melodramatic is trumped by observed data. For those in the poorest quartile that is good news just as it may be bad news for the attention seekers in so many media.
One Ring to Rule them All is Often Suboptimal
Watching those having the unenviable task of deciding whether or not school students should return to school as we try to learn how to manage covid in a “non elimination” world, a striking constraint is the fact that in an education system where there is but one approach which has to be applied (more or less) uniformly to all education, through one system utterly dominated by one “Ministry” and one set of institutional settings options is needlessly limiting.
As time marches on and the pandemic unfolds what is clear is that there is remarkable diversity in the nature and form of exposure and risk scattered through myriad communities in quite different geographies, demographic character, exposure profiles, vaccination states and vulnerability status. Successful management is most likely to reflect nuance, adaptability, wide variation and scope for a dynamic approach.
A set of institutional settings that is founded at its very heart on a “make one size fit all” dictate is likely to be overly dictatorial, inflexible, capable of generating conflict and inadequate – almost by definition. A centralised template is most likely more of a hindrance than a help. Greater reliance on the capacity of communities to develop their own solutions has a good deal to offer that is swept away in pursuing central dictate as a way forward.
Cross Branding
While this sort of approach is not entirely new, this take is fairly bold:
Lexus and Fender have created a Stratocaster electric guitar inspired by the Lexus LC flagship.
From a musicians point of view, something of an extension of the “guitars for lawyers and Doctors” trend… the music is yet to be heard.
Experts Going Off-Piste May be Unhealthy
One of the more dangerous phenomena identified by those working in economics and the cognitive behavioural domain in recent years is the “Halo Effect”. This refers to situations in which expectations of the success and wisdom of those having expertise, experience, skill and success – perhaps even notoriety – in a given field such as sport, medicine, politics, art, mathematics, company management, politics or indeed any particular reasonably well defined arena is unjustifiably extended into other unrelated fields. This seems to be common.
Thus it is not uncommon to find All Blacks professing expertise in selecting the best garage door to buy, actresses promising longer, wrinkle free lives for all, and celebrities in almost any field lauding the benefits of goods, services and behaviours unrelated to their core knowledge and expertise.
There may be some underlying generic attributes which justify an element of this. Characteristics such as determination, energy, passion, dedication to an objective might be examples. However in a number of cases the halo reaching well beyond its originating point seems far fetched and unlikely to emanate from any serious basis for favourable compariuson.
At present we appear to suffer this problem in the health area. Expertise in epidemiology for example would seem no basis for predicting likely human behaviour in the light of public policy initiatives, significant success in diagnosis and treatment of various health conditions is not necessarily a crucial component in understanding behaviour patterns of groups or crowds or even individuals.
Prediction of economic outcomes and behaviour patterns in particular off the back of medical or public health expertise is likely a doomed enterprise subject, at the very least, to risks of enhancing uncertainty, offering inappropriate levels of risk aversity, ignoring critical factors (such as the relevant opportunity costs) and failing to come to grips with risk management optimisation or the need to avoid absolutes as benchmarks when desirable outcomes are inextricably bound up with comparative assessment.
A more sound approach then is for experts to “stay within their circle of competence” to quote Warren Buffett, and in particular refrain from making attention earning or seeking, melodramatic assertions regarding “problems” and their “solution”.
Eye2theLongRun 