Tuesday, September 17, 2002

Information Technology - use it, don't make it

Noël Coward is said to have observed that TV is for appearing on, not for looking at.

The Wall Street Journal is now saying something similar about IT. It's for importing, not making.

And it cites Australia as the success story.

"...one of the biggest beneficiaries from information technology is Australia, which hasn't any high-tech industry at all. Yet it is one of the few economies to have enjoyed a 1990s surge in productivity (or output for each hour of work) as impressive as the one the U.S. has seen. Its secret: import high-tech gear that others make. As in the U.S., the spread of bar-coding, scanning and inventory-management systems is making Australian wholesalers much more efficient, and that is paying economywide dividends. Compared to its population, Australia has more secure servers, the sort used in e-commerce, than anyone else besides the U.S. and Iceland (that is another story)."

In 1997 our own Information Industries Taskforce produced a report entitled The Global Information Economy: The Way Ahead in which it advised the government quite differently. We had to make, not just use.

"Australia’s future as an advanced economy will depend on the extent to which it participates in the evolving global information industries as a provider of products and systems; not just a taker. Full participation in the digital economy will require a significant increase in current exports by the information industries based on a much more focused and cohesive export strategy."

Perhaps it is just as well the report lay largely unread...

As did many reports commissioned by the new government. What about the one by Charlie Bell advising the government to cut the burden of red tape on small business?

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Tipping

This week on Monday Economics with Geraldine Doogue I discussed the economics of tipping. Pure economic theory would suggest that we should not. We try to get the best possible price for things. So why pay more, and why do it after the service has been rendered? Especially if you are not likely to ever go to that town or restaurant again?

The Research at Cornell University suggests that we do it in large measure to ensure good service. Tipping is a sort of shadow market which fulfils a role legal contracts cannot. These days there is such a contract for employment. I will work more than the strict number of hours required, and in return you will pay me more than you are legally required to, and keep me on in a downturn.

We also do it for status. Ray Williams of HIH did it a lot. Men do it much more than women.

We are more likely to tip when other people are watching (say, in a big group).

And women are significantly more likely to do it when their waiter is a man, especially a man of eligible age.

For men, apparently, there is no such effect.

Some of the references are here.

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Happiness 3

The debate continues in Ross Gittins' column over the weekend. Many people find these conclusions shocking. They are debating at Henry Thornton.

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Tuesday, September 10, 2002

Happiness 2

Tom V writes: the correlation between having a job and being happy might be because theres so many negative connotations of being unemployed. perhaps because were stuck with the protestant notion of work ethic.

To decipher this cause, it would be interesting to take some people, and pay them the same amount but they dont actually have to turn up to work. i doubt their happiness will decline.

So two things: searching for a job might cause total misery, and then getting a job makes one happy. second, there may be a big difference in happiness for the small difference in income between welfare and entry level job.

...tom

I agree, there must be reasons why we want to work, and those reasons might be social, as well as biologicial.

But the experiment about taking some people, and paying them the same amount with some not having to turn up to work has been done (on paper and with economietrics at least). The finding, reported by Frank and Stutzer is that for the European countries observed, "a move from the lowest income quartile to the highest income quartile would not be enough to offset the adverse effect of unemployment."

It is true that some days I would quite like to be paid not to work. I would like to volunteer for any experiment in which I was paid not to work, but I am not sure I would like to be part of that experiment for ever.

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Monday, September 09, 2002

Happiness

Today on Life Matters with Geraldine Doogue I spoke about happiness.

Money doesn't matter much. The average Japanese can buy five times what they could after the war but is no more happy. The average American can buy 2.5 times what they could and is no more happy. Psychologist Bob Cummins from Deakin University refers to "homeostasis". He says our body regulates how happy we feel to keep our mood in a tight band, in much the same way as it regulates blood pressure and temperature. There are doubtless good adaptive reasons for doing that. Too little happiness and we'll commit suicide or forget to eat. Too much happiness and we won't bother to hunt, or look out for predators.

One way in which adaption happens is rising expections. The higher our income, the more income we feel we need. So we believe that a certain increase in our income will make us happy, but it never does. The Journal of Economic Literature article includes a graph which describes the process perfectly.

What does make us happy is work. Having a job is usually far more important to happiness than the income the job provides.

Even moving from the lowest quartile of income to the highest won't be enough to compensate for losing a job. It's worth paying money in order to be in work...

The implications for policy: a tax on employed Australians designed to create employment is a good idea. Also the economists obsession with GDP is probably the right one - but for the wrong reasons! We need high GDP not because of the goods that it will deliver us but because of the work that getting the high GDP will make for ourselves along the way!

The other thing that matters is democracy. The Swiss local government areas where citizens can take part in direct elections are far more happy than those where citizens can not. The process matters. Economists Frey and Stutzer determine this by observing that immigrants to Switzerland who can't vote, aren't made nearly as happy by living in a district with direct referenda as are those who can vote, even though they enjoy the same outcome in terms of good government.

Taken all together - the implications are that redistribution of income is a very good idea, positional goods should probably be banned (in aggregate they make people unhappy by raising expectations) jobs matter, and that democracy matters in its own right, regardless of where it leads us.

After the discussion Geraldine told me of a Background Briefing program on happiness which noted the importance of festivals. Experiences give a much bigger happiness bang for the buck than goods. (Unless it is the experience of buying the good. A new kitchen increases happiness at the time it is bought, but not a lot after that). Much of India is very poor, but poor Indians devote a lot of effort to festivals (and weddings, as some recent films make clear).

Also aftert the discussion Kathy Golllan, the Life Matters Executive Producer, told me of her amazing finding. Teaching English to upper class children in Indonesia, she asked, as a language excercise: "What would you do if you had a million dollars?" One of the replies shocked her. "I would get a job".

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Thursday, September 05, 2002

Game Shows.

Each Monday I discuss economics with Geraldine Doogue on Life Matters on ABC Radio National.

This Monday I talked about what economists are learning from TV game shows. The Price is Right and The Weakest Link are almost-perfect laboratories in which to study financial behaviour. Unlike artificial laboratories the money is real (six million for the price is right) and the data is rich (7,000 banking decisions in 70 episodes of the Weakest Link.)

The findings are that we don't behave entirely rationally. We approximate rational behaviour by using easy rules of thumb.

We make a rational decision to be economical with our thinking resources. Ironic, huh?

And there was more besides.

Here are some of the references.

Next Monday, I'll be discussing happiness, using the references dug up this week by Ross Gittins.

I'll go further. I'll reveal what really does make us happy.

For the SBS Business Show I am researching a panel discussion about the unwieldy nature of taxation in Australia.

The problem is that it is an unwieldy topic.

That discussion should go to air on Sunday September 15.

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Monday, September 02, 2002

Hello

This is my first post.

I report for "The Business Show" on SBS television in Australia. 6.00pm Sunday nights.

For most of the two decades before that I was the Economics Correspondent for ABC Radio Current Affairs.

I am a former Treasury economist with an honours degree in economics.

I am married to the award winning journalist Toni Hassan, and I have two children, Alexandra and Grace.

My email address is peter at petermartin.com.au

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