It’s the fate of market innovators to be undercut by new entrants. Bill Tozier has hit on the idea of auctioning co-authorship rights, including the acquisition of an Erdös number of 5. As of this posting, the Ebay high bid stands at $US 31. 354

But Bill has apparently failed to learn the lessons of the dotcom era. The first is to patent everything. As far as I can tell, Bill has failed to file for a business methods patent on his idea, leaving it open to new entrants to imitate him, or even to patent the idea themselves.

The second is that the best way to undercut the competition is to give your product away. Following on this lesson, I’ve decided to set my co-authorship price (including *free* Erdös number of 4) at zero. That’s right, potential co-authors! Send your paper to me with a space for my name on the front page, after yours[1]. SEND NO MONEY! If I like it, I’ll insert my official stamp, and send it off to an appropriate journal. I don’t know why I didn’t think of this earlier!
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At least one reader has asked for my views on the investment aspects of the proposed FTA between Australia and the US. The provisions aren’t that extensive. It appears that the threshold for Foreign Investment Review Board review will be raised, but this will have little direct impact since hardly any proposals are rejected.
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Thanks to reader Christoper Short for alerting me to this NBER Working Paper by Orley Ashenfelter and Michael Greenstone which gives more information on speeding and road deaths. Most of the article concerns statistical pitfalls in estimation, but I’ll focus on the bottom line which is their estimate that the implicit value of the time saved per life lost as a result of relaxation of rural speed limits in the US in the 1980s was in the range $1.2 million to $3.2 million in 1997 values.

This sounds like a lot, but it’s lower than most estimates of the value people place on risks to life (for example, looking at stated willingness to accept risk, wage premiums for risky occupations, or costs of medical procedures that are generally accepted as cost-effective). I discuss this a bit more here and you can find more discussion by searching the site for “speeding”[1].
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I’ve been looking at an interesting report from the National Office for the Information Economy on Productivity Growth in Australian manufacturing (PDF file). Released with no fanfare (not even a press release) recently, it presents results which accord with everyday observation, but not with the ideological assumptions that dominate the policy debate in Australia. The approach used was to examine labour productivity growth in a wide range of manufacturing industries and use regression analysis to explain differences in rates of productivity growth. By far the most important factor was the use of advanced information and communications technology, with additional explanatory power being gained when the education level of the workforce was taken into account. Claims that reductions in tariffs would expose inefficient industries to the “cold wind of competion” (or sometimes the “hot blast”), forcing them to increase productivity and therefore induce dynamic efficiency gains got no support. The coefficient on the associated variable was both economically and statistically insignificant (negative in most cases) [1].

A notable technical feature is the point, which has been emphasised by Brad de Long that it’s not appropriate to focus on multifactor productivity when most technological progress is embodied in capital items with rapidly declining prices, such as computers.

fn1. A mildly surprising result in view of the Thatcher effect, by which average productivity is automatically increased when inefficient factories close.

I’ve been looking at an interesting report from the National Office for the Information Economy on Productivity Growth in Australian manufacturing (PDF file). Released with no fanfare (not even a press release) recently, it presents results which accord with everyday observation, but not with the ideological assumptions that dominate the policy debate in Australia. The approach used was to examine labour productivity growth in a wide range of manufacturing industries and use regression analysis to explain differences in rates of productivity growth. By far the most important factor was the use of advanced information and communications technology, with additional explanatory power being gained when the education level of the workforce was taken into account. Claims that reductions in tariffs would expose inefficient industries to the “cold wind of competion” (or sometimes the “hot blast”), forcing them to increase productivity and therefore induce dynamic efficiency gains got no support. The coefficient on the associated variable was both economically and statistically insignificant (negative in most cases) [1].

A notable technical feature is the point, which has been emphasised by Brad de Long that it’s not appropriate to focus on multifactor productivity when most technological progress is embodied in capital items with rapidly declining prices, such as computers.

fn1. A mildly surprising result in view of the Thatcher effect, by which average productivity is automatically increased when inefficient factories close.

It’s depressing to reflect that everything in this report is true and that this was an election-winner for Howard. New Zealand readers, facing their own example of a right-wing leader playing the race card can be pleased that, at least for the moment, they are looking like good citizens of the world.

Economic analysis of policy proposals may be based either on first principles or on economic modelling. The proposed FTA is too complex to be analysed simply in terms of first principles. Nevertheless, a great deal of insight can be obtained from simple parametric models of various aspects of the proposal.

As compared to a large-scale simulation model, this approach has the advantage of clarifying the processes leading to estimates of costs and benefits. A large-scale model offers greater precision and the capacity to model policy outcomes for particular regions and industries. However, where there is a large divergence in estimates of aggregate outcomes between simple and elaborate models, this divergence is rarely a consequence of greater precision in the elaborate model. More frequently, the divergence is the result of differences between the economic assumptions used to ‘close’ (that is, derive an equilibrium for) the elaborate model and the economic assumptions used in the simple model. Hence, there should be no automatic preference for the results of more elaborate models. What matters is the validity of the core assumptions.

For the next few years, the worst-case scenarios for the world and Australian economies involve a combination of rapidly rising interest rates and rapidly declining prices for assets, particularly in housing and construction. Such an increase in interest rates could begin in the United States, if investors (particularly Asian central banks) lost faith in the capacity of the US Government to bring its burgeoning deficits under control and in the capacity of the US Federal Reserve (that is, Alan Greenspan) to keep inflation rates low. A market-driven increase in US interest rates would rapidly spread to other countries with low savings rates and high current account deficits, notably including Australia.
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A reader asks a question to which I don’t have an immediate answer

I’ve noticed that in general people are always concerned with the unemployed and how/why they don’t work etc. Often this attitude is negative, and this is certainly capilized by the goverment.

So what I wondered is why doesn’t this attitude doesn’t seem to also apply to people who don’t work but don’t collect benefits ? What I mean by this is that it seems clear there are lots of indirect benefits that people still receive/received even if they don’t work (roads, schooling etc.) and direct benefits too (health-care) that must cost the community. However, this group seems exempt from the negative criticism of those that collect unemployment benefits in particular, and sometime it is also positive (if you make enough money to retire at thirty, thats great!). Why ?

Any thoughts on this?

There’s been a lengthy debate, in the blogworld and elsewhere about the causes of recent growth in US labor productivity, and the associated fact that reasonably good output growth has produced little or no employment growth. Brad de Long, in particular has discussed this at length. My preferred explanation, which I put forward here is that

Beginning with productivity, it’s only labour productivity that’s grown rapidly and seemingly anomalously. Capital productivity has declined markedly, as has multifactor productivity (a weighted average of capital and labour productivity) In part this reflects the economics of embodied technical change – as computing power has become cheaper it has been applied more intensively. But there’s also a big hangover effect from the bubble and bust, when crazy signals from capital markets led lots of firms to undertake unprofitable investments. Once some semblance of reality returns, the natural response is to cut back and it’s much easier to sack the least productive workers than to reduce capital stock. So labour productivity rises fast, but output growth is weak.

This NYT piece gives lots evidence, admittedly msotly anecdotal, to back up my analysis. The key statement is the

the slow process of working through a glut of boom-era investment that continues to litter the economy with underused factories [ is weighing on job creation]

Along with lots of case studies of soap factories is the point that

Not since the severe recession of the early 1980’s has capacity use in manufacturing stayed so low for so long, government data show. Production as a percentage of total capacity fell precipitously in the aftermath of the last recession, which ended in 2001, and 23 months into the recovery, the upturn has still not come. On average, manufacturers are using less than 73 percent of their capacity.

If multifactor productivity were really rising we’d expect to see new investment and hiring as US producers displaced competing imports, especially with the dollar depreciating. But there’s no sign of this so far.

Updated Brad de Long has responded to the same article with a restatement of his main argument

Louis Uchitelle frames the issue the wrong way around: there is no such thing as “overinvestment,” there is only too little aggregate demand. If you think that there is “overinvestment,” dropping the interest rate will cure you of that belief. At least, it will until you hit a liquidity trap… But it looks like that is no longer a dangerous possibility.

There’s a disconnect here between the macro arguments Brad is making and the micro arguments I’m making. My intuition is that the size of the US CAD indicates that deficient aggregate demand is not the problem. But I need to think more about this.