On the cost of foreign exchange: Scottish independence edition

artiste_207Well gentle readers, it’s come to this. Scottish independence is going down to the wire. It is hanging by a thread, though if you are concerned that I am mixing my metaphors, I think you’re flogging a dead horse after it’s bolted.

In any event, in the question of Scottish independence the question of what currency it will use is the elephant in the room – the sporran on the kilt. If you’ve not been paying attention, the Scottish separatists have been insisting that they can pick up someone else’s currency – the Euro or the Pound – and otherwise enjoy independence.

Paul Krugman is horrified that so soon after the debacle of the Euro the Scots could contemplate this. He’s studiedly agnostic as to whether it might be worthwhile if they had their own currency and focuses on the prospect that they might repeat the disaster of the Euro, or imaging that a monetary union might be a Good Idea outside of a political union. I’m in broad agreement though I think he might be overdoing it a bit.

Meanwhile Joe Stiglitz fancies the idea of Scottish independence if it can help carve out of the British Isles a more egalitarian nation leading him to rather downplay the significance of leaving a political union without also leaving its monetary union. I’m sympathetic to his deprecation of economies of scale as being a big part of the decision. Firstly if you want to be a nation, if you incur a few costs in doing so, that shouldn’t be a big deal in your decision. Further, quite a lot of Scottish governance is already different to British governance so the costs are already there. (As Adam Smith thought in the area of education, some Scottish governance may well be superior. When I was in law school my Evidence teacher was very much enamoured of the Scottish legal institution of the Procurator Fiscal [which is nothing to do with fiscal policy by the way]. But I digress.)

Anyway, one thought that seems largely absent from the debate is that, in this age of the internet, it might well be possible to run a separate currency at a tiny fraction of its current economic cost at least as far as access to foreign exchange (FX) in the spot market is concerned. Continue reading

Institutional innovation and ‘demarketising’ economic bads

institutional innovationMiles Kimball, for the uninitiated a sensible centrist commentator on economic policy is also an admirer of John Stuart Mill and has supported the case for decriminalising drugs.  At the same time, since he thinks drugs – certainly recreational drugs or the new ones – are bad news or likely to have substantial social downsides - he wants to hem in the damage they can do with all sorts of legal restrictions.

[We should] do whatever we can to drive down the usage of dangerous drugs consistent with taking the drug trade out of the hands of criminals:

  • Taxes on dangerous drugs as high as possible without encouraging large-scale smuggling;
  • Age limits on drug purchases as strict as consistent with keeping the drug trade out of the hands of illegal gangs;
  • Free drug treatment, financed by those taxes;
  • Evidence-based public education campaigns against drug use, financed by those taxes;
  • Demonization in the media and in polite company of those who (now legally) sell dangerous drugs;
  • Mandatory, gruesome warnings like those we have for cigarettes;
  • Widespread mandatory drug testing and penalties for use of dangerous drugs—but not for drug possession;
  • Strict penalties for driving under the influence of drugs.

I don’t know enough to have a primary view about whether or not drugs should be legalised – or if I do it’s a pretty tentative one that they should be – but if we were to do so, while I’m OK with Kimball’s list I think it doesn’t go far enough. He presumably agrees with plain paper packaging though he’d extend it to nasty pictures and warnings which is all good. But I’d do more. As I wrote on his blog post (I’ve slightly edited what I wrote there):  Continue reading

Creative destruction: Cities edition

Creative Destruction: Barriers to Urban Growth and the Great
Boston Fire of 1872

by Richard Hornbeck, Daniel Keniston – #20467 (DAE DEV EEE EFG LE PE)


Historical city growth, in the United States and worldwide, has required remarkable transformation of outdated durable buildings. Private land-use decisions may generate inefficiencies, however, due to externalities and various rigidities. This paper analyzes new plot-level data in the aftermath of the Great Boston Fire of 1872, estimating substantial economic gains from the created opportunity for widespread reconstruction. An important mechanism appears to be positive externalities from neighbors’ reconstruction. Strikingly, gains from this opportunity for urban redevelopment were sufficiently large that increases in land values were comparable to the previous value of all buildings burned.

Queensland as impresario

ChangemakersOn Tuesday I gave a talk to a Queensland Public Service Conference. The Conference is quite a production. It’s a regular annual fixture and makes a good profit. Over 500 people attend and they take the opportunity to fund some excellent speakers. Dominic Campbell who founded FutureGov and is doing great things in the UK – and now here – spoke on the second day as did Gary Sturgess who was his thoughtful, and conservative best even if I didn’t agree with him on a number of points. International authorities were beamed in by telepresence.

In any event I gave a talk entitled ”Impresarios for public and social innovation: Why and How” in which I put some major themes of my ‘innovation without money’ message which I’ve been peddling around Canberra and elsewhere. There are, in short, all sorts of ways in which governments can drive innovation and better outcomes without spending lots of money. I gave lots of examples of public-private partnerships in the above linked talk and in my Brisbane talk to the conference I gave my 23andMe example and some of the design work of the Australian Centre for Social Innovation to illustrate the idea that there are lots of ways in which governments can do great things using instruments at its disposal other than funds or regulation. Governments have substantial convening power and convening power matters more and more as the world becomes more complex and less amenable to coercive solutions. It is also often the case that the architecture of the way systems work matters hugely and yet is often not something that is top of policy makers’ minds.

This was well received but my one regret was that in meeting my agreed allotment of time for my presentation, I truncated the end of my speech in which I was going to make two suggestions – offering two ways in which the Queensland Government Public Service might like to play the impresario. Continue reading

A special new service from Optus

Bad Customer Service

Delivered for your amusement – if not necessarily mine: :)

This conversation took around 15 minutes as I was working on other things.

Hi! You are now chatting with Sebastian

You:I’m buying your $45 mobile package – and porting my number

You:How will it be handled – will my existing service continue until I put in the new SIM?

You:Yoo hoo

Sebastian:I’ll be right with you.

Sebastian:Thank you for waiting. I’ll be with you in just a moment.

You:This isn’t much of a ‘live chat’ is it?

Sebastian:I’m sorry for the delay. I’ll be right with you.

You:Sure you will

We value your business. Unfortunately none of our Representatives are available at this time OR you have reached us outside our normal hours of business. Please continue to browse our site and feel free to use our self-serve options. Thank you!

Viewing the broadband future

The latest cost-benefit analysis of various Australian broadband proposals is out. It’s part of a report from an inquiry chaired by former Victorian Treasury head Mike Vertigan.

And it says in essence that Australia’s expected growth in demand for bandwidth is big enough to make the NBN viable, but small enough to make the government’s alternative look better.

I would have expected to hear the report’s authors out there defending it, but Mike Vertigan has never been keen to put himself forward in the public debate. So today much of the media I saw has been dominated by critics, and they’ve mostly been saying that a useful cost-benefit analysis is impossible, so we should just build the NBN. Paul Budde was making the claim this morning on ABC Radio, and lesser-known experts such as Sydney Uni’s Kai Riemer have been saying the same thing.

This claim – that we can’t usefully analyse the NBN’s costs and benefits – is hooey.

We can’t do a precise cost-benefit analysis, given how much Internet use is likely to change over the next decade or two. And whatever analysis we do should be up-front about how much guesswork is involved. But cost-benefit analyses are not just helpful; they’re also inevitable. Indeed, everyone who says “we should just build it” actually is doing a cost-benefit analysis. Typically they’re just doing a really sloppy cost-benefit analysis in their head, and setting their median estimate of the benefits at, approximately, Unimaginably Huge.

And Unimaginably Huge is almost certainly an overstatement.

“We can’t begin to imagine what people could do with upload speeds on an industrial scale,” Riemer told News Limited.

But of course we can begin to imagine that. Here’s how. Continue reading

Free, marginal cost pricing and policy

Chris Anderson managed to get an article, and then a book of the article (a pet peeve of mine, but we’ll move on) out of the idea that ‘free’ is a big deal. Better than a low low price, free avoids ‘mental transactions costs’ and is all round a Big New Thing. One thing that I don’t think he mentioned is that the ‘free’ of the internet revives to practical relevance an old insight from textbook economics which was theoretically clear but always of less use than some economists appreciated because of the practical difficulties of implementing it. (Sound familiar?)

There’s always been a ‘textbook’ case for governments to help subsidise from general revenue their own or even other service providers’ fixed costs to make marginal cost pricing (as supported by Economics 101) financially viable. But the incentive perversities and institutional complexities of doing so were usually formidable. If you issue subsidies for fixed costs, how will you get those fixed costs met at lowest cost? How will you prevent various tricks to maximise fixed costs to further lower marginal costs? How do you even define fixed costs in contradistinction to marginal costs – there can be difficulties making the distinction in practice.

Web 2.0 platforms will often provide a much cleaner opportunity to trial these ideas. Take, for example, the Australian firm CultureAmp, which successfully sells browser based employee engagement software to large and small firms whilst also offering a cut down free version. Government could negotiate with CultureAmp and its competitors to fund one of them to supply a full suite of web-based services within a certain jurisdiction for free. (It might make more sense to do this for businesses within a certain size also as larger businesses may well require customisation). Continue reading

My Trip . . .

In case anyone’s interested I did an interview on ‘my trip’ overseas recently which if you fancy a bit of light and slightly educational entertainment is here.

Anyway, the main burden of my remarks is that we’re losing ground within the leaders group on eGov and Government 2.0 (which I see as somewhat different things). The UK have been stepping up the pace and are now way ahead of us on the digital agenda including the PIMS agenda – personal information management services - which we’ve barely begun to work on.

This year every student studying at MIT will be given their own bitcoin wallet and $100 in bitcoin. Sounds like a fantastic way to kick off an ecosystem to build the internet of money!

We’re not distinguishing ourselves in this area. The UK has had three PMs pushing the digital agenda – Blair, Brown and Cameron. The US has had Silicon Valley pushing things along and Obama driving things with all sorts of highly talented people brought into the administration.

Us? Not so much, from either party.

Medical Marijuana Laws and Teen Marijuana Use

Amazing that this is such a big deal, that we can administer morphine but not medical marijuana to alleviate pain. The paper is here.


While at least a dozen state legislatures in the United States have
recently considered bills to allow the consumption of marijuana for
medicinal purposes, the federal government is intensifying its
efforts to close medical marijuana dispensaries. Federal officials
contend that the legalization of medical marijuana encourages
teenagers to use marijuana and have targeted dispensaries operating
within 1,000 feet of schools, parks and playgrounds. Using data from
the national and state Youth Risk Behavior Surveys, the National
Longitudinal Survey of Youth 1997 and the Treatment Episode Data Set,
we estimate the relationship between medical marijuana laws and
marijuana use. Our results are not consistent with the hypothesis
that legalization leads to increased use of marijuana by teenagers.

by D. Mark Anderson, Benjamin Hansen, Daniel I. Rees – #20332 (CH HE LE)