The Ownership Society

Remember the old argument about how private social security accounts would make everyone a capitalist?

Looks like the pirates listened.

Piracy investor Sahra Ibrahim, a 22-year-old divorcee, was lined up with others waiting for her cut of a ransom pay-out after one of the gangs freed a Spanish tuna fishing vessel.

"I am waiting for my share after I contributed a rocket-propelled grenade for the operation," she said, adding that she got the weapon from her ex-husband in alimony.

"I am really happy and lucky. I have made $75,000 in only 38 days since I joined the 'company'."

Yup, the pirates have set up a market where folks can invest in pirate ventures in exchange for a share of the spoils.

It is a lucrative business that has drawn financiers from the Somali diaspora and other nations -- and now the gangs in Haradheere have set up an exchange to manage their investments.

One wealthy former pirate named Mohammed took Reuters around the small facility and said it had proved to be an important way for the pirates to win support from the local community for their operations, despite the dangers involved.

"Four months ago, during the monsoon rains, we decided to set up this stock exchange. We started with 15 'maritime companies' and now we are hosting 72. Ten of them have so far been successful at hijacking," Mohammed said.

"The shares are open to all and everybody can take part, whether personally at sea or on land by providing cash, weapons or useful materials ... we've made piracy a community activity."

And they say it's hard to raise venture capital in the current climate.

No tax changes without spending changes

Unless National shows some backbone in cutting back the rather large run-up in government expenditures that occurred under the last term of the previous Labour government, any moves to make the tax system more efficient are a rather bad idea.

In 2004, core crown expenses totaled about $42 billion. In 2007, $54 billion. 2008: 57 billion. We're on track for about $63 billion this year. That brings central government spending from about 30% of GDP to about 35% this year. Some of this year's figure would reflect the effects of the recession, but we're likely on track for a steady state of 34% absent changes.

Labour's spending increase from 2004 to 2008 was about $2000 per capita in inflation-adjusted terms. Median per capita income from salary and wages for those earning salary and wages is about $40,000 per year: Labour's spending run up was not insignificant.

National reckons any changes in spending to be too radical to contemplate. David Farrar thinks it politically impossible to reverse the three-year runup in Labour's spending in anything less than three terms of a National government.

So even if trading a reduction in the top marginal tax rate for the imposition of a land tax is efficient, it's a bad idea. Here's the likely outcome. The Tax Working Group recommends eliminating the punitive top rate imposed on "rich pricks" (our former Finance Minister's delightful term for the folks who pay the bills) and covering the tax reduction by increases in GST and imposition of a land tax. The new tax system is more efficient, but National doesn't reduce spending. Labour takes office in 2014, reinstitutes a high top marginal rate on "rich pricks" and boosts government spending to 40% of GDP, which it's only able to do because National made the tax system more efficient to start with. National takes office in 2020, considers any reductions in government spending to be "too radical", gets rid of the punitive top marginal rate and increases GST and the land tax to compensate for the loss. Lather, rinse, repeat.

The spending cuts have to come before the tax changes to make it credible. And Finance Minister Bill English's pre-emptive response to the 2025 Productivity Commission's report does the opposite.

No land taxes without spending cuts.

Update: Fran O'Sullivan rightly excoriates Key as well. (HT: Kiwiblog).

Advantage: Arts over Commerce

A prospective economics student taking a first year in arts rather than commerce will have greater exposure to a wider range of disciplines; in Commerce, AACSB's core requirements kill student ability to take anything outside of Commerce, at least in New Zealand's three-year undergraduate degree. Having to specialize too early has costs, says Ofer Malamud:

In addition to providing useful skills, education may also yield valuable information about one's tastes and talents. This paper exploits an exogenous difference in the timing of academic specialization within the British system of higher education to test whether education provides such information. I develop a model in which individuals, by taking courses in different fields of study, accumulate field-specific skills and receive noisy signals of match quality to these fields. Distinguishing between educational regimes with early and late specialization, I derive comparative static predictions about the likelihood of switching to an occupation that is unrelated to one's field of study. If higher education serves mainly to provide specific skills, the model predicts more switching in a regime with late specialization because the cost of switching is lower in terms of foregone skills. Using survey and administrative data on university graduates, I find that individuals from Scotland, where specialization occurs relatively late, are less likely to switch to an unrelated occupation compared to their English counterparts who specialize early. This implies that the benefits to increased match quality are sufficiently large to outweigh the greater loss in skills from specializing early, and thus confirms the important role of higher education in helping students discover their own tastes and talents.

Evening roundup

• Tyler Cowen is a lanthanide


• NotPC updates the state of play on ClimateGate: Hadley apparently also destroyed raw data. I can understand old raw data being on a tape drive that would be hard to read now. I could understand the tapes having deteriorated over time. I can't understand destroying raw data. Cardinal rule is never destroy raw data. Sigh.


• High top marginal tax rates erode incentives to acquire human capital. More evidence for Don Brash's productivity commission.


• A handy tool for folks car shopping on TradeMe (where Kiwis go rather than EBay...coordination equilibrium...)

Less than helpful

From the computer network folks on campus:

Over the weekend we experienced difficulties with our Staff 2 volume. We have recovered the files from Thursday's backup.

We are still attempting to recover data that was not backed up on Friday. If you are missing any files, please contact the ICT Service Desk with the exact file names and where they were located in your My Documents (P:Drive).

We will be working with our vendors to conduct a mini-review, and to determine measures so that this will not happen again.

We apologise to all staff who were affected over the weekend.

Exact file names? Yikes.

Cross-pricing problems

The old saw has it that Gilette started the "give 'em the razor, but make 'em pay for the blades" pricing strategy. It's an effective price discrimination strategy: low value customers will keep using the old blades for a long time, high value customers get to identify themselves by refreshing their blades more quickly.

Same thing happens in computer game consoles. The Sony Playstation 3 is very cheap; Sony recoups it in the games. High intensity gamers pay more by buying lots of games and subscriptions; low intensity gamers just buy a couple. If the console were sold at a single price, the lower tier gamers would drop out of the market.

The pricing strategy only really works, though, if somebody else doesn't have a strong demand for the product that doesn't require buying the blades, or the games. We find now that the American military is buying thousands of PS3s to build into clusters that operate as supercomputers. Now, we'd expect that if it were a commercial outfit doing this, Sony would simply refuse to fulfill the order. Supermarkets list "not for trade" on their loss-leaders and have maximum purchase quantities. But is the DoD a buyer they can't refuse? Or is the publicity of having their platform being one of the DoD's supercomputers worth the losses on the units? I wonder what Sony thinks of this.

HT: BoingBoing

"Me" got bigger

Robin Hanson and Bryan Caplan are blogging one of the most fun arguments they've had, or at least one of the ones I enjoyed most at lunch as a grad student.

Suppose you're scanned, atom by atom, and a replica of you is made. Hanson then says '"me" got bigger'. The replica shares all of your memories and purposes; it seems pretty reasonable to view it as an extension of you. I'm with Hanson up to this point.

Hanson then claims to be indifferent between whether he or his replica is shot following replication. Either way "me" gets smaller. So Robin would have no problems in stepping into a Star Trek teleporter: the teleporter destroys the current instance of 'him' but creates an identical new instance elsewhere who materializes remembering having stepped into the teleporter. I'm with McCoy: there's no way I'd step into the teleporter. Shuttlecraft only, unless the alternative is that the only instance of 'me' otherwise would be destroyed (yes, I'd teleport away from the planet that was imploding if the shuttle couldn't get there in time). And then Hanson would needle by asking why you're ever willing to go to sleep.

Robin and Bryan are currently arguing this with respect to cryonics. Robin's happy to go for cryonics even if it only gives the chance of having a simulated upload of his brain run on a computer sometime down the line; Bryan doesn't think that's good enough. I'd take the upload over nothing, but would still prefer waking up thawed. And Robin would of course demolish that line of argument: whatever is woken up a century or two from now will only be 'you' to the extent that the neurons are in the right positions with the right charges, so there's no particular reason to prefer that the physical instance of your current brain is woken up or some replica of it or a neural net scan that's running as an upload on a computer. In all cases, something would wake up with a memory of having been 'you'.

If you're a materialist, it's hard to avoid Hanson's conclusion. But I still want to give a higher priority to the current instance of 'me' than to any potential extensions. I remain a "me-utilitarian", where higher weights are placed on instances of 'me' closer to the current instance.