virtualeconomics

All my money's invested in planning permission. And so is yours

In Britain at least, most people's biggest asset is their house. We are, we like to think, investors in bricks and mortar. Or even investors in land - they are not, the old trope goes, making any more of it. Bricks and mortar and land sound like such wonderfully safe things, such solid things, to imagine your money being invested in. And anyway you need to live somewhere, and you need somewhere to keep your stuff, so it's only sensible to put your money into bricks and mortar and land. We all do it.

This is, of course, not quite true.

Last time I bought a house it was valued at about £350k. For insurance purposes it was necessary to find out how much it would cost to rebuild the whole thing from scratch, and that was estimated at about £120k. For not very interesting reasons I looked into what it would cost to buy a bit of the garden next door and got back an estimate of a few tens of thousands, at most. This is, needless to say, a patch of land in central London which in every practical sense is big enough to build another house on. It just so happens that it's a bit of someone's back garden and there is no planning permission - so it's worth little more than the same size patch of land in Yorkshire or the Outer Hebrides.

Do the maths with me. The land qua land was actually worth say £20k. The bricks and mortar were worth £120k. The "house" was worth £35ok. Mostly what I was buying was planning permission. Something a bit short of a quarter of a million quid of it. For the privilege of being allowed to have a house worth £120k on a patch of land worth £20k.

Look at it another way and everything's fine. Anything is worth what the next guy will pay for it: I was willing to fork over £x and the next guy will fork over roughly £x too. Why worry?

I guess I worry because a society or an economy whose members generally hold the majority of their assets in the form of planning permission might not be in such good shape, even if few of them articulate it in quite that way. Bricks and mortar sounds nice and robust. Land sounds solid. The administrative whims of planning functionaries at the local council...not so much. 

(Photo from Woodleywonderworks on Flickr)

Happy birthday to you

Copyright law is, of course, an ass - intended to incentivise and protect the creation of new ideas, it now merely disincentivises the creation of new ideas by protecting the old ones.

Nowhere is this more obvious than in the distortion of the cultural record of the early C21st fostered by the copyright to "happy birthday". In real life, birthdays are accompanied by the singing of happy birthday. In film, they are not - the rights are expensive so other songs are substituted.

Does this distortion of the cultural record achieve anything? Of course not. No one makes any money from it. It just taunts future historians with the claim that no-one ever sang "happy birthday". But they did. We do. I was there.

Don't get into a market where your customers want to hit you

According to a Mintel report quoted today in the Economist, "Britons are far more satisfied with the service they get from their supermarkets than from their banks". The Economist draws from this the lesson that Tesco should get deeper into retail banking, competing to offer current accounts.

Of course the opposite is the case.

It's not that supermarkets are good at customer service and retail banks are bad, so that for example Tesco will be able to magically do well something at which Barclays and HSBC are failing (in fact, HSBC's First Direct won a top award for customer service only last year). It's that dealing with a retail bank, like dealing with broadband providers, public transport or most branches of the government, is unavoidably infuriating for many customers.

Of course it's a bubble

Marc Andreesen argues it's not a bubble because the big tech companies - Google, Apple - still have sensible P/E valuations and anyway it can't be a bubble if everyone calls it one. Let's look at some counterpoints.

Facebook, Zynga, Zipcar, LinkedIn, Demand Media, Twitter, iwantadoor.com (yes indeed) and yesterday's big story, Groupon.

What makes all these companies signs of a bubble? Everything is priced as if this market has no losers. Everything is priced to win, win big, face no competition, face no meaningful downside risk and not "do a MySpace". 

Oh what a lovely bubble!

LinkedIn doubled in the first day of its IPO, Facebook is heading to $100 billion before it even floats, higher education might be a bubble, silver had a stab at being a bubble, commodity prices have become uncoupled from demand and China is hoarding rare earth metals. But if you're looking for the perfect bubble, Bitcoin looks like a great bet.

If you don't already know what Bitcoin is, it will take several minutes of reading largely inpenetrable articles to find out. Here's Wikipedia. Here's an explanation from Tim Lee. Here's Tyler Cowen. Bitcoin is a peer-to-peer virtual currency that's better, in various arguable ways, than other virtual currencies like Beenz or e-gold or Azeroth gold coins. A handful of technophiles accept it as payment. There's lots of ways to trade it. It's an internet currency that fulfils the standard criteria for being considered money and you can buy some right now, if you want.

Startup100 riggers just Wronga

By now you'll have seen Mike Butcher's piece on TechCrunch about the results of last month's Startup100 awards. Wonga was voted the winner, but at the last minute Spotify was jobbed in to win the prize. So far so nefarious, but the worst bit is that the vote was only rigged because some of the people running the award are apparently too stupid to understand the benefits of short-term lending so don't want to be associated with it.

The folly of rigging your own awards ceremony has been sufficiently addressed by Mike (and it is telling that the Telegraph's reponse to this is basically to wash their hands of the whole affair, little more than "a big boy did it and ran away"). It is the apparent misapprehension of the organisers that Wonga is doing something disreputable that I wish to address, by looking at the basic economics of short-term lending and the small amount of research that has been done on this market.

Adapt by Tim Harford

Tim Harford's third book, Adapt, is much braver than his first two.

The Undercover Economist, his first book, leapt on the post-Freakonomics enthusiasm for popular economics and - alongside Steven Lansberg, Tyler Cowen and others - explained how we can all use economic principles to make sense of our everyday lives. It was clever, fun and accessible: a better introduction than most to demystifying economic theory and making it actually useful to the man complaining about ticket prices on the Clapham omnibus. The Logic of Life, his second, told us simply that logic underlies even our most seemingly absurd decisions. Tim's narrative, that people act rationally even when they seem not to, drew examples and theory from the field of behavioural economics to tell the reader what was again an ultimately comforting and familiar story that helped them make more sense of their own life.

Where The Undercover Economist and The Logic of Life were reassuring, Adapt is confrontational.

Little more than a glance at the new economics of news

Strange to see Scout Analytics' latest infographic on the disparity between online and print news revenues getting so much coverage. It's obviously true, but it's also just a fairly superficial restatement of a small subset of the known facts.

Is online news worth less than offline news because less time is spent reading it (both absolutely and relatively), because of anchoring at "free" and because of commoditised online ad rates? Well...sort of. Partly. It's true as far as it goes.

First, this isn't about news.

If newspapers really cared about the freedom of the press, most of them would close tomorrow

There's been a lot of talk about press freedom of late, what with the rich and powerful taking out super-injuctions and attempts by special interest groups such as the GMC to exempt themselves from press scrutiny.

The common theme here is, of course, that as fewer people read newspapers and newspaper company revenues decline the power of news organisations to hold even the minor celebrities within their own ranks to account, let alone to talk truth to power, evaporates.

Newspapers had the power to unearth and reveal secrets because they wielded vast political and economic influence and could afford the best lawyers. Celebrities, politicians, plutocrats and even doctors increasingly think it a safe enough  bet that actually they now have the best lawyers, and even if the Sun won it for the Tories in 1992 no-one even in Wapping seriously pretends it will ever carry such political weight again. Twenty years later the Telegraph spent the better part of a year spinning out the revelation that practically every member of the lower house had systematically stolen from the public purse and the political fall-out was inconsequential - the barest handful of sacrificial imprisonments and the rest allowed to continue on their way. Insofar as serious investigative political journalism is still attempted outside the pages of Private Eye and - utterly bizarrely - Rolling Stone its key practitioners are currently being tortured by the US military or going through the slow process of being quietly shipped off to the same fate by obedient European governments. 

Car insurance ruling will expose and rationalise a basic profiling shortcut

The ECJ in Luxembourg declares cheaper car insurance for women "discriminatory", so it must be gone by December 2012. Apparently this will see car insurance premiums for women go up by as much as 25%.

It is usually claimed that the difference in premiums is because women are safer drivers. They are not - they simply drive less.

According to the 2009 Annual Travel Survey (pdf), "overall in 2009, females made 5% more trips than males. However, males travelled 19% further than females, averaging 7,380 miles a year compared with 6,193 miles respectively." Would a 19% difference in average miles travelled per year account for the difference in insurance premiums between the genders? Why, yes, it would.

Women crash less because they drive less, not because they drive safer. Insurers have, to date, simplified their response to this phenomenon by offering women cheaper premiums than men. Now they're not allowed to use this basic profiling shortcut my initial guess is that the fairest way to achieve the same outcome will be to price insurance on the basis of miles driven, since this will reflect much the same basic insight - that the more you drive, the more you crash and the greater the risk your insurer bears.