I’m slow off the mark when it comes to buying or reading books from the latest release sections of book stores– just finished Freakonomics (published 2005). Now reading The Return of the Economic Naturalist (2009).
Last year I finally got around to reading The Spirit Level (2009) and Outliers (2008).
In 2011 I vow to read a ‘new’ book.
Anyway one of the more interesting chapters in Freakonomics concerns children’s names – why would a parent call their child Shithead or Loser, which according to the authors has happened.
What chance have these children got in life? Funnily enough Loser did way better than his older brother Winner.
Whatever name is given, the authors say it is a signal of a parent’s expectation of success for their child. “The name isn’t likely to make a shard of difference.”
I’ve posted before on how actual tax rates may make little difference to economic growth rates. But what may make a difference is the expectation of economic success that drives a country to make decisions like lowering tax rates.
So like a parent choosing a child’s name, it may be that a country’s tax rate is important for the expectations underpinning it rather than the actual rate itself. The expectation, accompanied by the willingness to do stuff to meet that expectation – for example the hard political decision to cut tax rates – is the important thing.
As usual it’s not only about politicians. It’s everyone being willing to do their bit, such as saving rather spending, making sacrifices…
In the earlier post on taxes I noted we shouldn’t wet our pants over what tax cuts will achieve.
This was based on the fact that New Zealand already had a sh!t hot business tax system. In the World Bank’s Ease of Paying Taxes rankings, New Zealand comes in 9th in the world in “total tax burden” which measures, for small and medium-sized businesses:
• the number of payments
• time spent complying with tax laws
• the total tax rate – the different taxes and contributions (eg, labour, social and property taxes), payable after accounting for deductions and exemptions.
Looking at corporate tax rates around the world there’s mixed evidence for my idea that there’s a connection netween tax rates and economic growth expectations.
Contradicting this idea are, for example, the fast growing high-expectation economies of India and Brazil which have relatively high corporate rates of 34%. In the same camp are China and Korea which have average looking tax rates of 25 and 24% respectively.
Not to sure what to make of the US corporate rate of 40%.
But backing my idea are the economic slugs of Japan and Argentina which have 40 and 35% tax rates respectively.
Also there’s a raft of low-tax, fast-growth high-expectation economies like the Czech Republic (19%), Taiwan (17%) and Singapore (17%).
I guess all this just shows that tax isn’t everything.
I reckon that sometimes – like Loser – it’s more about having the courage, smarts, strength and luck to make the most of the hands we are given.
Didn’t know that the origin of the term conventional wisdom was from economics – John Kenneth Galbraith no less.
He said we associate truth with convenience, including “what most closely accords with self interest…”
We do this to simplify life “adher(ing), as though to a raft, to those ideas which represent our understanding”.
Clearly conventional wisdom does not necessarily equate to truth.
This becomes pretty obvious when you have competing conventional wisdoms, say for example business support for privatisation based on the conventional wisdom that a businesses in private hands will out perform businesses in public hands, thus privatisation represents an increase in our overall wealth; over in the other corner you’ve got business sceptics who’d argue that at a minimum, handing over businesses currently in government hands to the private sector would represent a loss of overall wealth.
Both arguments can’t be right, but both sides can hit you with powerful arguments, to which the initial response should be (to paraphrase Mandy Rice-Davies): ‘Well they would say that, wouldn’t they.”
This is not meant as a cop out for not taking one side or the other.
Conventional wisdom can be debunked – Steven D.Levitt and Stephen J. Dubner devoted a whole book, Freakonomics, to it. (The book is where I got the J.K. Galbraith quotes from).
Levitt and Dubner write: “[By] noticing where the conventional wisdom may be false – noticing perhaps the contrails of sloppy or self-interested thinking – is a nice place to start asking questions.”
I don’t think this should be confined to the other side’s conventional wisdom. Be brave, start with your own.
Just finished reading Bill Bryson’s “A Short History of Nearly Everything” – this sentence about sums up the short human bit:
“It’s an unnerving thought that we may be the living universe’s supreme achievement and it’s worst nightmare simultaneously.”
Yes, there are two paths you can go by, but in the long run
There’s still time to change the road you’re on. [Stairway to Heaven – Led Zeppelin/Robert Plant]
The path to greater income equality is not necessarily built on the back of the welfare state.
As the book, The Spirit Level points out there are “many ways of reaching the same destination”.
I think the authors only come up with two:
1) Redistributive taxes and benefits and a larger welfare state, for example Denmark and Norway and I guess to a lesser extent NZ
2) A smaller gap between the earnings of the rich and poor to start with, for example Japan.
“Countries like Japan manage to achieve low levels of inequality before taxes and benefits,” the Spirit Level says.
“Japanese differences in gross earnings (before taxes and benefits) are smaller, so there is less need for large scale redistribution.”
As a result Japan has a more equal society than the US, even though its social security system is smaller. (Mind both have very small welfare systems by high-income country standards).
In Japan, as with some Scandinavian countries the richest 20% are less then 4 times as rich as the poorest 20%. In the US it’s more than 8 times. (NZ is a bit over 6 times).
So what’s going on in Japan? The Economist says it’s a country “that very nearly defines itself by its egalitarianism”.
You can’t help thinking it comes down to culture and history. Japan’s current low levels of inequality only really began after World War II.
One academic paper I found attributed this to “the relative abundant human capital and extreme shortage of physical capital”.
As well as valuing equality (though not so much for women), the Japanese are self deprecating, modest, have strong social bonds,
This sounds a lot like Kiwis, except for the women bit.
But the path we have gone by towards egalitarianism is the (now much reduced) welfare state one rather than the flattening out of incomes.
Must say the Japanese path appeals more, but a practicable path?
Probably not.
Author Lloyd Jones says New Zealanders are great travellers, but we also tend to have strong homing instincts.
In an interview in the UK’s Independent on Sunday for his new novel, Hand Me Down World, Jones says Kiwis are “sojourners. [NZ Herald review here]
“We’re not like the Africans, Indians or Pakistanis, who come [to the UK] because it’s a better world. For generations we were quite secure that our world was better. We were just inspecting the source before going home.”
Past tense.
However, it is still largely true, except (and it’s a big exception) for Australia.
HT – nzedge
One reviewer called it a “new competitive logic”.
The idea is businesses and organisations sharing stuff often with the help of the web and social networks or the “mesh”.
The bible of sharing is entrepreneur Lisa Gansky’s book The Mesh: Why the Future of Business is Sharing.
It’s also called p2p (as in person to person).
Gansky predicts that over the next decade “ this model will conspicuously shape how we think about our lives and work and will shake-up the buy-and-throw-away economy”.
There are already heaps examples around – bikes, houses, various exchanges, perhaps even the good ol’ second hand shop. Trademe?
At one level this may seem to be just a fashionable fad among hippy-types, but it’s also one that captures the frugal resource-nervous mood of the times.
The zombie economy (the complete and utter madness and waste done in the name of the consumer) has become uncool. As Trendwatch says “mature consumer societies are changing … an increasing number of consumers are no longer (solely) obsessed with owning or experiencing the most and/or the most expensive. “…traditional status symbols (BMW’s X6! Marc Jacob’s latest eyewear! Emirates’ Airbus 380 Suites!) are no longer every consumer’s wet dream.”
If you’ve got to have one, how about sharing?
HT – boingboing via Richard Florida
The Spirit Level’s take on the consequences of inequality is proving a great way to frame a bunch of issues, including health.
Maori Party MP Rahui Katene’s bill to take GST off health food (including fruit and vegetables, breads and cereals etc) got dumped by Parliament yesterday.
Katene I think presupposes that the poor don’t spend as much on healthy foods as the more wealthy because they can’t afford to do so.
The Spirit Level (which I have posted on before) suggests this is not the whole story. It’s not only the absolute amount of money in a food budget that comes into play when explaining the poor’s poor health, it’s also their relative wealth or status.
What’s driving the poor to not eat enough healthy food is not just that they can’t afford it, but also a raft of psychological issues arising from feelings of not being valued, feeling inferior etc.
So making healthy food cheaper may not make as big a difference as the Bill’s backers had hoped.
You’ve got to go to the underlying causes of why the poor have higher levels of heart disease, cancer, lung disease, depression etc. And that, say the book’s authors, is income inequality.
“…in rich developed countries … material living standards are now high enough to have ceased to be important direct determinants of population health.”
It’s social status, social networks and stress in early childhood – “psychosocial factors” – that are increasingly important.
I still haven’t read the whole book, so haven’t seen whether the authors try to weight these two effects – what we can afford versus our relative wealth.
Anyway, they say numerous studies show the same thing – “…for most kinds of ill-health, low social status has a clear impact on physical health, and not just for people at the very bottom of the social hierarchy.
“There is a social gradient in health running right across society and where we are placed in relation to other people matters; those above us have better health, those below us have worse health, from the very bottom to the very top.”
The book has bunch of graphs to back this up. All of them show a direct relationship between income inequality and life expectancy.
The level of health expenditure doesn’t make such difference. The US spends more than twice as much on health as most of the other 23 countries the book looks at, but the highly unequal US has the fourth lowest life expectancy.
So understanding our social issues is a bit more complex than BigCake for one first thought.
But may be there’s a simple fix – reduce inequality.
One of the earliest ideas behind BigCake was that wealth is relative – if NZ wasn’t becoming less wealthy (or if you like, poorer) compared to the nations we usually liked to rate ourselves against, then no worries, no need to catch Australia by 2025.
A slightly newer idea was that wealth alone wasn’t a great way to measure how we’re doing as a country. A more accurate state of the nation would have to include life style factors such as the environment, education, health etc.
Economic growth is a means to an end, not just an end. And the end?…maybe just being happy.
And just arrived on the BigCake agenda is equality, mostly based on the book “The spirit level – Why equality is better for everyone”.
The guts of this book is that wealth inequality is tearing some Western societies apart. The greater the difference between rich and poor, the greater the problems such as crime, obesity, smoking, drinking…
The scary thing here is that NZ, relative to many Western countries, is a very unequal society.
Of the 23 nations the authors look at, NZ has the 6th highest income gap – as measured by the difference between the richest 20% of citizens and the poorest 20%. Worse than us were: Australia, UK, Portugal, the US and Singapore (with the biggest difference).
The book’s big weapon is a series of graphs that show the relationship between income inequality and a bunch of ‘bads’ such as health problems and social issues. (For the wonks, the graphs have regression lines). Basically countries with high levels of inequality are likely to have high incidences of health and social problems.
And mostly this is true of NZ.
Of course the opposite is true also –countries with low levels of inequality (such as Japan and the Scandinavian countries) enjoy better health and so on.
A lot of the time the ‘bads’ of the poor get dismissed as the result of poor housing, poor diets etc, so fix these and you’ll fix the big issues.
The challenging bit of “The spirit level” is the claim that this won’t work because they are symptoms not causes. “The problems in rich countries are not caused by society not being rich enough…but by the scale of material differences between people within each society being too big. What matters is where we stand in relation to others in our society.”
What corrodes society is high levels of inequality. The active ingredient at work here is the way we humans rate and compare ourselves. The thing that causes us greatest stress is being evaluated by others – what we wear, where we live, what cars we drive…
And how we measure up in these tests mostly depends on how much money we have.
As theBigCake moniker implies, I’m not much into a redistributive fix, but this is food for thought.
Anyway, still working my way through the book.
Expect more posts on inequality.
Going to be in Samoa with family for a holiday for next eight days. BigCake is not completely going to rest – he’s taking a copy of “The spirit level – Why equality is better for everyone” with him, so expect posts (perhaps during next week) on equality.
The authors ask: How is it that we have created so much mental and emotional suffering despite levels of wealth and comfort unprecedented in human history?
Should be a fun read.
The media during the last week or so have highlighted two bits of great Kiwi technology that are definitely not ‘me too’ products that clutter the world’s market places.
High hopes abound.
o PowerTread which turns the energy of vehicles passing over judder bars into electricity. The company behind the technology, Enervate – a couple of Auckland Westies – has hooked up to some Singaporean Government cash to help get its PowerTread system from prototype to commercial release. Enervate says one PowerTread unit could generate enough energy to supply power to up to three typical New Zealand homes.
o Rex, the Robotic Exoskeleton a pair of robotic legs that enables some wheel chair users to stand up, walk, move sideways, turn around, go up and down steps as well as walk on flat hard surfaces including ramps and slopes. Rex Bionics is finishing off tests needed to put Rex on the market in Europe and Australia. It will also seek FDA approval so that Rex can be put on the market in the US.
As far as BigCake knows there is nothing exactly like either of these products on world markets.
The big question is what happens next.
These guys look to be doing the right things:
o Getting outside investment (VC firm No8 Ventures has backed Rex Bionics)
o Bringing expertise on board (Enervate hooked up with AUT University’s Business Innovation Centre)
o Getting boards of directors
o Setting up international advisory boards (BTW – Rex Bionics’ one includes Frank Gardner, the BBC’s Security Correspondent who wrote one the all-time great journalism books Blood and Sand)
BigCake’s not sure how scalable these businesses are, but NZ’s track record for turning what looks to be world-beating technology into businesses that register on a national economic scale ain’t that great.
I’ve posted before on the lack of size of our high-tech companies compared with those of other smaller nations.
There’s a disjunction between our high levels of inventiveness and entrepreneurial drive, as shown by the above two companies, and our relatively poor overall economic growth performance.
A NZ Trade and Enterprise report identified the following management traits that may explain this:
o The struggle between creating more wealth and pursuing leisure tends to be won by leisure at a lower threshold of wealth creation in New Zealand than in most other countries.
o We tend to view the world from a distinctly Kiwi perspective and easily make the mistake of thinking for our customers. That results in us being judged as being quite different to how we think about ourselves.
o We are fiercely self reliant and reluctant to rely upon others for success. As a result we feel compelled to do things that we would be better off delegating to others.
o The Tall Poppy Syndrome which causes us to under-perform, to have a profound reluctance to give and receive feedback, and a similar reluctance to use specialists, preferring instead Jacks of all trades.
o We under value and struggle to recognise the intellectual assets that we create through our inventiveness.
So, yeah, judging by what Enervate and Rex Bionics have done to date, some Kiwi companies have moved on.
As an aside. When Campbell Live did a piece on Enervate the other week it played up the Kiwi inventiveness, No8 wire, DIY, mangled prototypes, overcoming the odds angle – all set in a West Auckland backyard.
This goes down well with the way we like to see ourselves, but it’s a crap picture for any international investor.
See my posts on the ‘slow sell nation’.