Oh, and get this blog comment and response.

Update 16:58: Then, of course, you read this.

Why don’t economists get any respect?

Nevertheless, as my job now takes me onto an aeroplane more than I before, I’m curious and so I read the summary from the Competition Commission’s provisional report. I’m not sure I’m any the wiser, but there were some interesting facts and statistics embedded within:

• Gatwick’s proportion of business travellers is a mere 18%, far lower than I would imagine (I know it’s not strong on the transfer front, but normally appears to have many terminating flights to useful places, from what I’ve seen). By comparison, Heathrow’s is 40%.
• From the set of BAA-owned airports, only Heathrow and Aberdeen have above 20% of transferring passengers, with 34% and 21% respectively. Heathrow’s reputation as a hub is clearly deserved.
• BAA’s airports account for 60% of UK air passengers, but 90% in south-east England, and 84% in Scotland. Maybe there could be a local monopoly at work here, at least?

It’s interesting that the Competition Commission makes lots of slights about poor service, lack of responsiveness to the market, high prices, and so on. This seems a bit unfair. I’ve often wondered how one can gauge the degree of monopoly exploitation fairly, partly there’s rarely an accurate enough free-market alternative implementation to compare it to. The theory does dictate that a monopoly might happen, given some of the stats above, but saying that there is one is a much bigger stretch. This does make me think that perhaps a bit more laissez-faire might go a long way in keeping things market fair – although, as I think they hint at, a bit less regulation would help even things out too.

The law of unintended consequences is a bitch.

Adam Smith (and many other free-marketers since) have had a lot to say about the ingenuity of the human spirit and the market’s ability to do a better job of enriching humans than central planning. Nevertheless, I sometimes still wonder about the extent to which new ideas are sometimes missed, even in strong market arenas, because existing ones are taken for granted.

If Adam Smith could be brought into the 21st Century, with a time machine (this is where the childhood fantasy comes in), what would he think? After the initial shock had subsided, would he be pleased with the globalised world we’ve built, or would he be disappointed by general economic ignorance?

But here’s the real puzzle – if one showed him that it’s now possible to get from London to New York in 7 hours, would he be impressed with what we’ve managed to do with that capability, or disappointed? Would he think it’s cool that we can eat fruit from the other side of the planet, or think that the human race is hardly stretching itself?

I’d love to know.

Roll on postal competition.

Flickr, of course, has been a great success story of recent years, providing a simple and cheap way for anyone to upload and share photos. They have got the balance just right between the man-in-the-street and the enthusiastic amateur, so much so that many professionals now inhabit Flickr (don’t be fooled by the ‘pro’ logo, though; it means nothing more than that a subscriber is paying for more space – which is what I do). They’ve also spent a considerable amount of time getting the social aspects right, so much so that it’s easy to spend hours browsing Flickr for funky photos and talking with other keen photographers. Many of my friends are also into photography and most of them have Flickr accounts.

At the same time, Flickr makes it trivial to access mountains of excellent content that most photographers would be rightly jealous of. I’m proud of some of my best photos, but it doesn’t take long on Flickr to find stuff that’s miles ahead.

Despite the legal, moral, and practical issues involved in copying a photo (see the Creative Commons page for an indication of how unnecessarily complicated it can be to understand), I can’t help but think that all of this will reduce the average cost of a saleable photo for a professional photographer – whether they choose to participate online or not. In fact, it’s easy to see that this is true, simply by observing the rush of online stock photography websites selling stuff for pennies. Put in other terms, it makes it easier to become a professional photographer, whilst making it harder to make money from it. It’s a good substitution argument – if I don’t like the price you’re charging for your pretty picture, I’ll find another one (and Flickr and the web makes it easy). It’s no coincidence that the consequences of this digital enablement roughly mirror the struggles and increased opportunity that many music artists are going through with the rise of online music, file-sharing, etc.

None of this is designed to discourage anyone. It’s got to be more satisfying to beat the world than just those lucky few who can afford a camera. But like much of economic progress, the commoditisation of good photography is going to be easier for the consumer (viewer) than the producer (photographer).

For a long time, Winchester’s most obvious and best option for coffee (in my humble opinion) has been the equally sterile and characterless Caffè Nero chain. There are a few other chains and independents around, but they’re all weaker for one reason or another (low ceilings, no air-conditioning, dirty tables, etc.). Starbucks will become its most obvious competitor, located only a few doors down, and will hopefully shake things up. It’s interesting how Caffè Nero’s dominant position has allowed it to get away with some things – the lines are always far too long, and the staff slow and inefficient. I see this as a practical example to observe how change in markets works, that wouldn’t be possible in a larger city with less incumbency and more turnover of residents. It’s going to be curious to see what happens, and I’ll be one of the first in Starbucks’ door.

People with my political opinions often make arguments for the latter based on either practical or moral arguments. Richard and I had a online discussion about this recently. But maybe there’s another, more silly, question that’s missing: which is sexier: business or government? A quick look at the primary US government portal compared to Wal-Mart’s homepage leaves me in no doubt who hired the better web designer, at any rate (and Wal-Mart is hardly an example of glamour). Which corporate body makes you want to interact with them? Anybody who’s spent any time at a UK local council, with their cuppa-and-rich-tea-biscuit image, will know what I mean (that’s an example of non-sexiness, if it’s not clear: not that I have anything against rich tea).

I’m semi-serious, actually – this does matter – it’s an issue of marketing. Clearly a company cannot actually be sexy – only people can be that. But the Virgin family of companies gets pretty close – and not just because of the suggestive naming. It’s an image that has been carefully cultivated by the folk at Virgin. Virgin is a company that you want to like (well, I do, anyway), irrespective of the fact that their trains don’t run on time.

I think the reasoning behind this is simple. Companies have to be sexy – or at least, they have to project an image which is aligned with values their customers want them to have. Sometimes this is sexiness – and Virgin is a prime example of a brand that’s attacked several markets with that technique and won some new custom. Sometimes, to be fair, there’s another image to be conveyed (UPS brown vans and brown uniforms are not alluring; but they do project an image of reliability). Conversely, government has no such motivation to project an image of anything – or at least the vast majority of unelected officials don’t. There’s no requirement to improve, no motivation to act like a marketer, because there’s no competition. Thus, government will always continue to project an image of dull and incompetent, whether that be the case or not. As Seth says, ‘[people] lose their jobs because of boring marketing’ – except in government they don’t, because they rarely lose them at all.

It’s probably not the most pressing problem the world faces right now, but wouldn’t it be nice to stop worrying about global warming for five minutes and think about how to make the institutions we deal with on a daily basis more appealing?

The most important single central fact about a free market is that no exchange takes place unless both parties benefit.

Milton’s son David is also an economist, and continues to promote his ideas on this blog. The Economist has also drawn up an interesting selection of quotes discussing Friedman.

Note: Milton Friedman is unrelated to Thomas Friedman, author of The World is Flat, a book which Roo Reynolds wrote a partial review of recently.

Google have clearly made a success of Google Maps (I’ve discussed Google Maps before as compared to Multimap – not entirely favourably – but whatever I think, the market loves the former). Plenty of competitors have also sprung up, notably from Microsoft. Incidentally, Flash Earth brings together all of these services into one ultra-slick interface; although I’d still love to see them available on Jeff Han’s touch screen (iPhone, eat your heart out – your interface is nothing on this).

However, one thing all these services have in common is that the mapping data is (as far as I can tell) commercially licensed, ultimately from a governmental institution. In the UK, we have the Ordnance Survey (who actually produce excellent paper maps, even if their customer-facing technology is a little backward). The Ordnance Survey gets its revenue from licensing data, selling maps, and so on, rather than from general taxation (which is something that as a libertarian I can almost approve of; although it does raise the question of why the government needs to be involved at all, since there’s therefore clearly a market for the data). The closest equivalent in the US appears to be the USGS (which also has other functions).

It always used to be conventional economic wisdom that mapping (or, to be more precise, surveying) was a function that had to be performed by government, because it was so astronomically expensive – in other words, it cost more than the direct revenues one could possibly obtain (presumably the indirect benefit to society is supposedly significant, which is why we engaged in it). Whether you agree with the morality of this depends on your political views, but it is at least plausible. It’s interesting to see that the Ordnance Survey no longer seem to operate on this model, but clearly many folk still believe surveying should be done centrally.

Now technology might be able to change all of this. OpenStreetMap is showing how it might be done – using cheap GPS receivers, driving along streets, and plotting the resultant data (yes, I know the receivers rely on expensive satellites; but there are only a few of them; and they’d be there anyway). Obviously there’s a long way to go, as shown by the short list of places that have been mapped. There are obviously also concerns over completeness, accuracy, and so on (although most of these have an analogy in Wikipedia, too). However, the potential for these maps is huge if the concept does take off – Google Maps mashups would have nothing on the potential richness of data available. The real concern so far has to be over how many people are really interested in creating this data and keeping it up to date.

As with all futurology (aka: guesswork), time will tell.

Update 2006-01-16: A recent edition of the BBC radio programme In Business (available as a podcast) took a rather quaint look at open-source. Worth a listen as a discussion of how hard open-source is to sell, although not as a rigorous discussion of the technological and legal issues.

Bjorn is an economist (my favourite type of -mist) and I know this doesn’t bode well for the acceptance of this theory: primarily because economics has never done a very good job of publicising what it’s about, and so there’s a frequent misconception that it’s something to do with money. The typical reaction to the conclusion above is that economists only are only looking at the monetary side of things. Well, yes, that’s true, but it’s also the whole point. Economists put prices and costs on all kinds of things that many people don’t (life or death, polluted air, a loving relationship, etc.). Of course one can argue until the cows come home about the what those prices and costs are: and everyone does (even when they aren’t quoting them in dollars or pounds). But the money is only used as a number, as a symbol.

If we were to try and rank which we wanted more, an orange or an apple, we could probably do that. In fact, we could probably say how much more we wanted one than the other (twice as much – give me two apples, and I’ll exchange you an orange). Introduce a banana and the decision becomes more complex, but the principle doesn’t. This is all prices are – a way to trade off one alternative against another and allocate resources (which is similar to the definition of economics you’ll find in any textbook).

This is why it isn’t really callous to rank the world’s big problems and say that maybe climate change doesn’t deserve so much attention. At the end of the day, the world only seems prepared to spend so much time and money solving problems. Doesn’t it make sense to solve the ones that gives humanity the greatest degree of progress, health and prosperity?

Given that I like the economic way of thinking (given my limited training), I thought I’d take a look at dating, something close to my heart as a bachelor. This arguably makes me so far unqualified to discuss the subject – but I’ll give it a go anyway.

Most relationships go through three simply described phases:

1. Establishment – the fun part – getting to know a new person.
2. Established – the sometimes fun, sometimes not part. Most couples are in this phase right now.
3. Break-up – the not-so-fun part – upsetting, perhaps anger-generating. At the very least, not fun.

Successful long-term relationships, one hopes, never reach phase 3.

Most people enter relationships, I would assert, because they want a piece of phase 1 – it sounds like fun. Phase 3 is far away, and hopefully not going to happen anyway, so they downplay its significance. The question is – if phase 3 could be time-adjusted – expressed in the immediacy of today’s hurt rather than 3 years’ time – would people, on average, assess the situation any differently?

In fact, this comes down to a question of rationality. Economists like to assume that everyone is rational (or at least more rational than most people would). This means that people make optimal decisions, given the information they have. Without this, it’s hard to make markets make sense. Commonly expressed sentiments from friends after a break-up include: ‘at least you learnt something; remember the good times; it’s good you went through that relationship’. If cynical, one could dismiss those as simply statements designed to console and soften the blow. But the presumed implication of those words is that your choice was rational – it was worth the emotional upset in phase 3 for the enjoyment in phases 1 and 2.

I’m deliberately not going to come to a conclusion – I find rationality to be one of the hardest parts of economics – whilst I can understand people making rational choices about where to buy cornflakes from, it’s much harder to map it onto emotions. But it’d be nice to think that we do make sensible choices when it comes to dating, and that we do learn from our mistakes. I wonder if that’s so?

(NB: I know I’ve oversimplified the situation. But I think the same principles hold even if you develop dating into a more complex model)

Safeway (now Morrisons) scrapped their loyalty scheme in 2000, citing that it wasn’t worth the money to run it. They may have been right. Nevertheless, Tesco, now the UK’s biggest grocery retailer, still retains their scheme, and as the Economist states, the information goldmine (the only reason the supermarkets run loyalty schemes) is lucrative – although they don’t say exactly how lucrative. Safeway’s decision indicates the margins can be thin. Despite the low return on hassle I mentioned above, though, there are still plenty of takers – empirical evidence would suggest that more shoppers have loyalty cards than don’t.

There have been other issues; for example, loyalty cards came under fire from David Blunkett in 2004 in a fairly obvious attempt to draw away attention away from the problems surrounding the ID card debate:

Mr Blunkett said the cards produced key details about people’s shopping habits but were accepted because they were run by private firms. People should not distrust ID cards because they are a state idea, he said.

…

Holding up a Nectar card, he said people voluntarily signed up to allow such details to be collected through such loyalty cards by private firms. “There is a real issue about how that should be overseen and supervised,” said Mr Blunkett.

Mr. Blunkett presumably ignored the fact that voluntarily signing up to handing over data about tomato-buying preferences was a more respectable practice than being forced to hand over more medical information to travel. Fortunately, his illiberal idea didn’t seem to gain much traction. In all fairness, though, it’s quite likely than many folks don’t know that their data is used in this way; for that, The Guardian deserves some praise for educating the public.

Maybe reward cards will die out eventually. It’s hard to back that up with public data, although I’m sure Tesco have a hard time quantifying the exact benefit they get from theirs (how do you measure repeat custom accurately – with and without the card?). If I’m right, though, I hope they die because they don’t make business sense – not because the government regulates a harmless practice out of existence. Interestingly, Wikipedia alleges that this has already happened in California.

It’ll be interesting to see where the reward industry is in five years time.

This is the long tail of demand; it’s successful because although many sales come from (say) the top 100 books, a significant proportion of sales come from the (say) bottom 2 million. The bottom 2 million couldn’t be readily made available before, so this is why it’s a new concept. Here there is one seller (Amazon), and many millions of customers.

But what about the long tail of supply, where there is one customer and there are many millions of sellers? Does such a thing exist? Could it ever? The long tail of demand seems to exist mostly due to taste: you like that weird music, I like this. That isn’t likely to work where there’s only one customer. Any suggestions?

However, not everything it’s used for involves cats falling off trees as per You’ve Been Framed, or actors fooling people. One of the best uses has been the huge amount of compelling video that’s been released free from conferences this year. I’ve absorbed tens of hours of it this year, on subjects as diverse as life coaching from legend Tony Robbins (Alexander Kjerulf has been to one of his seminars, and I want to go too), the marketing of spaghetti sauce, and curing aging. ‘Catch-all’ conferences such as Gel, TED, and LIFT have all got in on the act. This, of course, is an alternative to physically travelling, and will surely produce more super-star conferences that attract bigger names, bigger audiences, and grow in stature.

I’d love this video-based content to be one more nail in the coffin of the box in the corner. TV still seems to hold an now-unworthy position, primarily because of the culture of FUD around copyright that scares studios away from the network and causes them to avoid doing anything more adventurous than releasing restriction-encumbered shiny discs. I don’t think this can last, though; despite the nonsense that’s spoken about the ‘ethics’ of ‘owning’ content by those think they’ve bought more than a license, as Cory Doctorow rightly points out, DRM is fundamentally a broken business model. Whichever way the details of the market go, I’m sure we’ll eventually be able to chalk up another win for the long tail. I certainly hope so.

I never fucked anybody over in my life that didn’t have it coming to ‘em. You got that? All I have in this world is my balls and my word and I don’t break ‘em for no one.

… and he’s right: at least by his terms. Scarface is also an interesting study of the drugs industry. Of course, it’s hard to know how accurate it is (I suspect real drug dealing is much more mundane than the glamorous life here), but nevertheless, there was more than one scene that reminded me of the interesting study of drug dealing in Freakonomics, with the price of risk being openly discussed.

The film runs much as you’d expect: rise to power followed by fall from grace, but it does it with style, cheap 80s music and cheap 80s fashions. Unlike Roger Ebert, I don’t think it’s a classic (although, as I said, I don’t like the genre much anyway), but Scarface is still one of Pacino’s strongest performances: his jutting jaw and accent so parodied now that it’s hard to watch without being amused. It’s still a strong film.

However, the upside is often overlooked. Travel is pleasurable. Some of the best experiences in my life have involved travelling, and I’m far from the only one. Quality of life does have value. Perhaps even more importantly, transport enables you to get stuff more cheaply. Trade is mostly beneficial, and the wider the scope of a market, the more beneficial it is (because of the greater likelihood that you’ll find large extremes of want and produce a large profit). Fast, cheap, reliable transport increases the efficiency of markets and is good for humankind.

Don’t feel bad next time you hop on a jet, and please don’t waste your money on offsetting carbon. Recycling is a whole ‘nother story.