Friday, January 31, 2014

Nudged into poor returns

The not inconsiderable number of people who believe NZrs need to be “nudged” into savings (due to their dim witted nature and inability to understand anything much) also nudge these hapless folk into “default funds”.

The brilliantly conceived administrative slope to be climbed to get out of these defaults, understand easily where is a better place to go and then get there at low cost in a timely manner, means that default providers are having “a big time” and a good time.

The investor who is “looked after” with a little nudge into a “safe place” is not necessarily having fun though – as Fundsource point out here:

Let’s use the example of KiwSaver and, as the majority of KiwiSaver funds under management are sitting in Default funds (more than $5 billion), the Conservative sector. Currently, the average performance from inception to 31 December 2013 for the Conservative sector is 4.74%. And over any of the six calendar years to 31 December that the Scheme has been running the average performances range from 0.32% to 8.27%. There are currently twenty five funds in the KiwiSaver Diversified Defensive (Conservative) sector and the annualised five year return starts at 4.07% per annum to 10.94% per annum (not a Default fund).

So its seems that there is wide variation in what can be earned. Competition between these funds would be useful then. So would pressure on fund managers to compete hard for investors funds.

Fundsource has not published on variations in costs for investors (fees etc.) but the variation is equally wide.

The moral is clear and “letting the government nudge you and pick your default position is likely to be bad for your health.”

Tuesday, January 21, 2014

Without a Net – it’s safer

The trampoline and its add on for idiots – the trampoline safety net – continues to provide the most brilliant example of both the unintended consequences of over intensive societal wimpishness coupled with our striking inability to learn from mistakes.

The ODT of 21st Jan 2014 reports that accident claims arising from the safety enhanced trampolines now touted as “protecting your child”, a clear sign of “responsibility” and adding a mere $150 or so to the cost of a trampoline have risen and risen remarkably – from 298 to 451 in the last year in Otago and 10% nationally.

It seems that in a fit of enthusiastic confidence engendered by these “now safe” pieces of sports equipment, children throw caution to the wind, leap aboard and go for it. Not just kids either. The number of 64+ “masters” doing the same has also risen. An “expert” pronounced that users need to “learn”, “establish rules” and otherwise use their brains.

A startling revelation indeed. 

Apart from manufacturers and retailers of these safety enhanced products it is likely that the original intention was to enhance safety (for the former an optimal level of injury entices just enough safety net purchasing as to breeze up margins without turning consumers off completely – a delicate balancing act – but if one tries it is doable evidently).

Far from from enhancing safety, the reverse appears to have occurred. The unintended consequences of this and like plonker intervention will continue while we take comfort in fooling ourselves that risks can be eliminated, that we can do better than learning from experience, and for as long as we refuse to accept that attempts to protect people from themselves is a near certain means of harming them.

Tuesday, January 14, 2014

Fonterra–again!

 

More death at Fonterra with the current recall of product.

Questions:

1. If this is a hazard how come they test after it's on the shelves?

2. If it matters why is the recall only voluntary ?

Monday, January 13, 2014

The ethics of job prospect denial

As it becomes unsurprisingly fashionable and trendy to generate plenty of oil drilling hate in Otago there are some who claim that there are “ethical issues” in supporting fossil fuel exploration and use.

Leaving aside myriad consistency and hypocrisy issues regarding the fossil fuel consumption involved in making such protests and car ownership amongst protestors, a reasonable question concerns:

How ethical it is, in a regional economy where job prospects are grim, layoffs have been and are promised to continue to be high, and the economy is weak to deny those seeking work and the families that depend on them, at least the potential for work which such prospecting may bring?

Inconvenient as it is, ethics cuts both ways. Net benefit based on the statistical record is a better criterion  for considering the issues than the garnering of political capital .

Sunday, January 5, 2014

The Dogonomy and Dogonomics

It takes a good deal of courage to depart much from Adam Smith. The great economist philosopher once stated that man is an animal who makes contracts. Others have pointed out that man is, in this way, unique and in particular distinguishable from say, dogs.
I’m not so sure.  The Christmas break has given me a chance to think more carefully about what we can learn from the ubiquitous dog habit of “hiding things”. Bix (Beiderbecke fame) the “local subject” griffon does plenty of hiding – but with discrimination.
Not everything is to be hidden. Dried pigs ear are especially prized. Dried hide bites less so. Other bits and pieces fall in between. What does this tell us?
For a start the dog has the ability and the inclination to value assets, to value them differently one to another, to value them relatively in respect of one another and (presumably) tastes. These values seem to dictate certain behaviours.
Secondly, he appears able to make sense of the value of time, discounting and net present values (in this he is ahead of Russell Norman). Thus one buries some assets for the future since the NPV of consumption right now is below that of other items to be eaten right now – better to save.
A third point is the implication that Bix grasps opportunity cost. The opportunity costs – the sacrifice in time that could be spent barking, chasing cats and other activities – is simply not worth the candle for a bit of dried hide. A pigs ear is a different matter.
Notice too the grip he has on substitutes here. The price elasticity of a pigs ear is clearly lower (in his subjective valuation) than the ever substitutable commodity – any old piece of dried animal hide readily obtainable in the here and now.
Finally, in this first brush with dogonomics, notice that he has a grasp of the significance of private property rights. Hiding places have value – since it is monopoly possession of that knowledge which ensures that the value of the asset is maintained through time.
It is then rational to incur the significant transaction costs involved in finding a hiding place, silent and careful hiding assets so that others do not notice and are unable to easily misappropriate the property in question.
All the elements of trade are here then….. efficient running of the dogonomy (and thus the maximising of dog utility) depends, as in other economies, on respecting the fundamental rules. This means  not attenuating property rights by interfering with inappropriate leashes, or through undue command and control, and certainly not by arbitrary re-distributions of wealth .
It seems that to call one’s dog Marx would be to risk a serious labelling error.