The End of Print Media?

I’ve been following the Murdoch bid for Dow Jones courtesy of Jason and it’s actually more interesting than it looks on paper.

What is the future for print? Murdoch seems to be thinking that at some point the major papers will shut down. I agree with this though the time frame in uncertain.

This article confirms that the squeeze is on(thanks Jason!) noting that the San Francisco Chronicle is taking a major bath and should be shut down. Much of this is driven by falling advertising revenue but i think there is something else at work here.

People are generally using the internet for news and general media information. Who wants the hassle of buying a paper of which you may only read 20% of the content.

Murdoch senses something more economic. The costs of running a print media are enormous and the savings he could make by putting the Wall Street Journal online could be hefty. No distribution or printing costs. Imagine all the trees that could be saved

But think out further. Why do we read a newspaper? to get news, find out stuff, see what’s on etc.

Do we read it for editorial? Not anymore. Who cares what some editor thinks when there’s a million blogs all talking about the same thing. The blogosphere may be a holy mess but over time it will sort itself out into various structures and frameworks. Over at VortexDNA we have MyBlogDNA which will be rolling out soon where you can match your blog to others who share your DNA.

We are all editors now!

But imagine if you had the ability to create your own “paper” drawing from the net stories that you were interested in and were relevant to you. So order your subjects and away you go.

But you still want to hold something to read. Ok just print it off at home. With the printer technology we have now and no doubt coming soon, home printers will be able to handle a myriad of tasks. Have your own paper delivered and printed at home.

Now that will save a lot of money and energy too. No more wasted papers, sections of papers or rubbish i don’t want to read about.

Relevant advertising can come with it or without it.

Could this extend to magazines as well? Glossy Vogues printed out at home? Maybe that is a stretch too far but who knows?

What is for sure is that Murdoch seems to be ahead of the game here as he was with MySpace. I wonder how far ahead he has really thought.

Thoughts anyone?

Monetary Policy 101: time for a rewrite?

Local government rates go up followed by interest rates.

Energy prices go up followed by interest rates.

So people are made worse off by increases in prices for goods and services that they cannot easily deflect or cut back on. That’s hard.

But wait there’s more, like a boxer climbing off the floor after a big punch they are hit again even harder by interest rate rises.

And to cap it off it’s all their fault.

I must be missing something here.

The only result of this type of policy is a regular cycle of boom and bust with more and more people forced into bankruptcy for no good reason.

It could be argued that interest rates should be cut in this scenario so that people are not forced to seek higher wages to compensate.

The main concern in the inflation issue is asset and commodity prices. But really its asset prices that are the culprit. They have been driving the global economy for many years now, most notably since financial deregulation in the 80s.

Talk has surfaced recently of the Treasurer invoking a clause in the Reserve Bank Act to move the inflation target aside in order to focus on the exchange rate. Whilst this is a bit far fetched it is another symptom of the policy malaise NZ is facing.

The Reserve Bank Governor has made the same mistake many others have before him: not understand the role and process of bank credit.

It’s as simple as that.

Using an inflation target to manage an economy is like riding a bike with one eye closed. Eventually you have a write off.

Efficiency: The answer to climate change?

What a wonderful word efficiency is. As an economist (we all are by the way) one almost salivates over the word, knowing deep down that it exists in 2 dimensions usually in a textbook where one line meets another.

Alongside “ceteris paribus” it ranks as one of those words or phrases which we extol, use a lot but know to be shrouded in a cloak of misinformation.

One approach to dealing with climate change has been the technological one….increasing efficiency (output per input etc). One problem with this is that sometimes efficiency, in money terms, can actually encourage an increase in demand.

Witness air travel, i pods, computers, LCD tvs and the like. Craig at Celsias has an interesting post on this conundrum quoting the Khazzoom-Brookes Postulate which investigates whether energy efficiency actually saves energy.

The premise being that when we perceive an improvement in something we have been told not to use we all rush to use more of it. That makes sense. We’ve seen that with almost all new technological developments, air travel being the most obvious. See how the airlines that have cut fares have prospered by creating greater demand than expected.

The point of all this is that improving efficiency may not be the answer if demand is simply going to absorb it all. It reminds me of the Red Queen effect where we keep running just to keep up.

This has been noted in the area of organ donation and other medical advances. So once we can fly from Christchurch to London in a few hours for the same energy output we use now you can be sure a few million people will be commuting daily

Financial Literacy: Yes Please

In the latest RBNZ Bulletin, alongside a paper on the transmission mechanism of monetary policy, there is a paper on financial literacy and how important this is for society as a whole. Hurrah! Well almost.

I was very excited about this paper as i think financial literacy if absolutely crucial to our education system and the success of our society. However, when I read through it I felt some disappointment because the missed the most important bit out.

Money itself: What is it? How is it made? How much of it is there? How can it be created and destroyed…………and the best one: Who makes it?

Alas it focused on issues like the time value of money, risk, return, arithmetic and stuff like that. All very good and a positive step forward but it’s not enough.

This is not unexpected though. Whenever I interrogate any government official on the issue of money their eyes glaze over or they simply express incomprehension as to what I  am going on about.

There is only one political party in NZ that understand this issue and that is the Democrats for Social Credit. They are having a conference in Christchurch this weekend and you would probably learn more from that than reading the RBNZ bulletin.

Let’s have it RBNZ!

You have made a good start but let’s have full disclosure on our money system. You know it makes sense.

Economists have feelings too!

I have just spent the last 3 days at the NZ Association of Economists annual jamboree in Christchurch. It was well worth the time as it was a good opportunity to meet economists working in a wide range of areas and sub disciplines.

There were plenty of interesting papers on monetary policy, forecasting, environmental economics, migration, work and of course the housing market. There was a good mix of age and gender which added to the energy.

The keynote speakers were interesting with talks as diverse as climate change and the economics of sexual harassment.

The paper on Climate Change from Warwick McKibben is worth a look and the paper from Motu on Nutrient Trading provides a micro view of how trading in externalities might work at the local level. The work on allocating and trading pollution permits dovetails nicely with the work from Peter Barnes on reclaiming the commons and allocating rights to pollute which can be traded.

The general feeling on the housing market is that the boom is coming to an end but that it has been justified by low interest rates and the ability to ringfence losses from geared rental properties. I should add to this that migration and willingness to pay higher prices than locals has also contributed to the excessive rise in house prices. The banks have played their part in happily lending the required amounts and no doubt will be the first ones to notice any pullback from investors. This seems to have already started.

I would like to have seen some papers on behavioural economics as i think that is starting to build as an interesting field alongside new wave areas like neuroeconomics.

Economist is a dirty word in NZ due to the long hangover from the economic revolution of the 80s but i can report they are a good bunch….really

Currency Intervention: Kiwis don’t fly

On June 11th the RBNZ intervened in the NZ$ by selling NZ$ around the US$0.7660 level in thin markets. This was followed up by another bout or two resulting in short term sell offs to US$0.76.

This action has create a fair bit of comment most of it apoplectic in nature focusing on the poor NZ central bank against the might of global speculators. The commentary uniformly blasted the RB and trotted out the story of how George Soros buried the Bank of England back in 1992.

Well this is one time i can say “i was there” as i was actually trading Stg at the time, with the regular trader lying on a beach in the Carribean. It was a crazy time to be in the markets but when you were the focal point of action that feeling was magnified. The Bank of England phone line was running hot as we called up to sell more and more Stg. The voice on the other end of the phone was resigned to the ship going down.

It duly did. The next day i had my biggest one day loss in 12 years of trading as the market all but disappeared and every customer was looking to trade. I remember my broker took me out to dinner at the casino in Park Lane to recover. Nice.

But the main point of this story is that Stg was way overvalued and stuck in the ERM where it was required under the Maastricht Treaty to keep the Pound above a certain level which was DM2.7780.

So the Old Lady was just doing her job. She wasn’t taking on Soros or the market but just fulfilling legal obligations. Soros made a bet that the UK would have to pull out of the ERM and that was a political action and you can be sure he would have done his homework there.

So it is very different to what we see when the BOJ intervenes in the Yen at 100 or 145 where there is no legal cap but an extreme extension in rates.

The RBNZ action falls into this camp. The NZ$ is appreciating well beyond fundamentals based on the current account deficit, PPP comparisons and problems for the export sector to sell its goods. It is also suffering from carry trade side effects which are causing a huge inflow of short term investment to take advantage of high interest rates.

Its intervention is justified on those grounds. The NZ$ should be trading around US$0.60 which is just above its long term average. Of course currency rates can run way beyond what might be considered justifiable and for some period of time.

The Great Game continues in the global financial markets where the US sells it paper to trading nations such as Japan and now China in return for goods. One day this game may stop and the US$ will go into freefall.

The same could happen to the NZ$. I would say the RBNZ intervention is justified though how effective it is remains to be seen. Jeff Gamlin at the NBR is quite positive on the profit implications and it’s certainly a good long term trade to buy some foreign reserves. They should be selling as much Kiwi as possible!

As it happens intervention usually works if the intervening bank has some justification. Remember currency speculators like to make money. They don’t care whether it’s up or down.

The RBNZ is in a tight spot regardless of what Grant Spencer, the Deputy Governor , says. They will need a bit of luck to get this right and will need to continue intervening if required at higher levels like 78 and 80. I think though they will be safe there as people are starting to feel the pinch of higher rates.

Also yesterday the Japanese Minister of Finance weighed into the fray with some well placed comments. The Japanese are the experts in intervention and jawboning the currency. That shot across the bows should not be ignored.