October 23rd, 2009
Kiwis are well used to the dread of checking in for a long haul flight, economy class, and hoping the plane will be undersold so there is a prospect that extra space can be scored. Now the clever clogs at Air NZ have found a way to turn any spare space into revenue. Like many good ideas, its obvious once you hear it: offer a guaranteed extra adjacent seat for a heavily discounted price. This is a perfect way to get cash for highly perishable inventory (unsold seats) just before it expires (at takeoff).
But there may be more to it. The SMH is reporting speculation that Air NZ has devised a cabin fitout that would allow two economy class seats to convert into something resembling a those wonderful lie-flat beds they have in business class.
Because this is a world first, the idea also has the potential to earn millions of dollars for Air New Zealand in export revenue. Its aircraft interior design subsidiary Altitude Aerospace Interiors, set up last year, plans to sell its economy seat-bed design to other airlines.
Posted in Innovation, Productivity | 1 Comment »
October 22nd, 2009
A few days in Papua New Guinea has reinforced the idea that “social problems” go hand-in-hand with income inequality. PNG has the 19th most unequal income distribution of 137 countries (NZ is in position 83 on the same scale). The richest 10% of people enjoy 40% of the income; the poorest 10% get 1.7%.
Crime is endemic. Looking around Port Moresby, the high walls, razor wire, and guarded gateways are everywhere. I get driven from compound to compound in cars with locked doors. Restuarants look like prisons – armed guards are posted at steel door entrances. I hate to think what the actual prisons are like, but there are scary clues. There is also a pretty serious HIV/AIDS problem; the highest rates in East Asia and the Pacific.
Yet, at the same time, the people I’ve met are lovely, friendly, shy, curious. It is a bit hard to fathom, particularly on a short visit, but here is a (true, recent) story that might help. An ex-pat was woken at 3am in his “secure” hotel to find a gun under his nose and three guys in his room. They cleaned the place out, taking everything except his pyjamas and passport. At the end of this, while two were outside loading up the loot, the third returned to the room. The victim assumed he was about to be murdered, but instead received a sincere apology. I guess the message was “we don’t hate you or wish you harm; we just want your stuff”.
Posted in Inequality | No Comments »
October 21st, 2009
The competitive benefits of low (i.e. undervalued) exchange rates are well known (evidence), but by definition, we can’t all have them. Still, some countries such as China are fairly active managers of their exchange rates (evidence/reaction). If/when countries start managing their exchange rates down, there is a strong temptation for others to follow suit, all the more so when the initiator is a big economy.
So its big news that Brazil has just imposed a 2% tax on portfolio capital inflows in what looks like an effort to stem the appreciation of its currency.
Where this will lead is anyone’s guess, but here is The Economist suggesting that “the current system is unsustainable“.
Posted in Macro | 2 Comments »
October 20th, 2009
One way to think of the left-right economic policy debate is between fans of two different economic outcome criteria: equity and efficiency. For the right, the goals are to increase total surplus through trade, market liberalisation, better productivity and low taxes. They focus on efficiency, innovation and growth. By contrast, the left are more interested in equity, fairness and the distribution of value.
Well call me greedy, but I want both.
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Posted in Inequality | 1 Comment »
October 16th, 2009
While educating myself about the NZ blogsphere I stumbled across the TABOR concept, courtesy of Bomber Bradbury. In essence, TABOR is legislation that caps the size of government, by capping its revenues. It sounds similar to something Rodney Hide has advocated previously, but not recently, for local government. So lets assume its a plan in progress. Does it make sense?
My conclusion is that it could, if designed well.
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Posted in Law & Economics, NZ Inc, Productivity | No Comments »
October 7th, 2009
maybe only to a credit card geek…
The Commerce Commission has settled everything in its prosecution of Visa and MasterCard and all the banks in their capacity as members of those networks. It (the Commission) incurred costs of $6.6m over the three years it spent preparing for the trial which has now been aborted. Multiply that by about 8 to take account of all the defendants and you have a bill of about $50m.
And on the benefit side? Well there are 3 main points. First, interchange is still set centrally (which was the basic competition complaint – the thing that made this look like a cartel) but now by offshore profit-seeking networks (Visa and MC have both demutualised in recent years), rather than by local committees with good information on competition and market conditions in NZ. These cental interchange fees are unlikely to fall and may well rise over time IMHO. So no gain there.
Second, banks can negotiate bilaterally and the Commission has extracted “committments” from the banks that involve
significantly reducing the average interchange fees charged on New Zealand credit card transactions, ensuring that these fees in New Zealand are driven downwards from the rates that were centrally set by the Visa and MasterCard schemes
These sound very much like behavioural undertakings, so I wonder if this is a precedent to the use of such undertakings in other areas, such as merger clearance applications. In any case, logic suggests that if there is a maximum price that card issuers can charge for interchange, they will do that. Will be very interesting to see if there are deviations. Personally I’m sceptical of any real gains from this.
Third, merchants are allowed to “surcharge” meaning they increase the price when you present a credit card. Again, I don’t see much change. Those who can already do (eg taxis) and I’d expect retailers to be quite careful about where and when they surcharge, for fear of annoying their customers or driving into the arms of rivals who do not surcharge.
So overall, this case has been a disaster: huge expense for very modest gains at best.
Posted in Law & Economics | No Comments »
October 2nd, 2009
If you are at a loose end in Auckland on Monday, pop along to the High Court for the opening shots in an intellectual test match, and one of NZ biggest cases in recent times. Some time later (the hearing will take months) a selection of the best IO economists in the world will show up for a hot-tub session that will be even more fascinating.
The case pits the Commerce Commission, joined in this instance by a group of retailers, up against most of those involved in supplying credit card services in NZ (e.g. the banks), but with the notable exception of Visa and MasterCard (who have settled) and American Express (who was not sued in the first place, for interesting, and IMHO relevant reasons).
The charges are being brought under the competition provisions of the Commerce Act (s30 and s27 in particular). They allege cartel-like conduct, particularly in relation to “interchange”. Interchange is the source of the benefits delivered to credit cardholders, such as free credit for a month, frequent flyer points etc.
This litigation was started almost 3 years ago and has cost many tens of millions of dollars so far. I anticipate having plenty to say once the case is over, but until then, mum will probably be the word.
Posted in Law & Economics | No Comments »
October 1st, 2009
The NZ Institute says we (NZ) are hopeless at converting science into business. Referring to “innovation factors” in the World Economic Forum’s Global Competitiveness Report, Director Rick Boven says
New Zealand performs poorly relative to advanced economies on several of these innovation measures. Our relative performance indicates that we do not yet have the conditions in place to compete successfully.
I’m sure there is scope for improvement, but here are a few reasons to be a bit more cheerful…
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Posted in Innovation, NZ Inc, Productivity | 6 Comments »
September 30th, 2009
Congratulations to the government for having a decent crack at reforming the “Telecommunications Service Obligation” or TSO. This obligation (primarily to protect residential users by maintaining unpriced local call options and cap line rental increases at the rate of CPI inflation) was a liability accepted by the people that bought Telecom from the government 20 years ago. Its cost would have been factored into the price.
In the lead-up to the 2001 Telecommunications Act which was the first regulation of the industry since privatisation, it was decided to share the “net cost” of the obligation between all telcos. And ever since then, we’ve been fighting over the details of what “net cost” means, how other technologies (notably mobile) affect it, where these loss making customers actually live, etc etc.
The MED discussion document canvasses several relevant issues. A particularly interesting one is how to estimate the net cost. This is referred to very obliquely by the Herald but Stuff has understood it correctly. Here is how it works.
The (stylised) red line shows the cost an efficient telco would incur to provide each fixed line connection. For many urban customers its quite low because of economies of density. Out in the sticks it starts to climb rapidly. Everyone pays the same line rental, so Telecom makes a decent profit on many customers (area A) and a loss on some customers (area B).
Up until now, the net cost has been defined as B, based on the view that the profits on cheap connections (A) would be competed away. The new proposal is that it be defined as A – B, so there would only be a loss if there was a nationwide loss, which is pretty unlikely.
Posted in Telecoms | 1 Comment »
September 29th, 2009
An interesting suggestion on Saturday from Paul Chrystall via John Roughan: delink property inflation from the exchange rate by taxing the interest on new property loans (when appropriate) at rates set by the Reserve Bank.
I quite like it. Compared with the status quo its not a huge leap, but it addresses a pretty basic issue which is that there may be two legitimate targets for monetary policy, but there is only one instrument: interest rates.
The basic idea is not new though. Here is Bill English scoffing at Michael Cullen’s version back in 2007 and making some good points along the way.
A mortgage tax wouldn’t just hit people speculating on houses in Auckland, it would hit the whole export sector. Farm debt has gone up dramatically in the last few years.
Still, it might not be beyond the wit of the bureacracy to exempt productive assets. The underlying question is whether its worth trying to design an independent tool that might do the job. On that question, I interpret this exchange between Matt Nolan and Andrew Coleman as being 1 each way.
Posted in Housing, Macro | No Comments »