Marketing is all about the story

When you think of marketing geniuses there probably aren’t a lot of economists on the list. Yet, according to the Washington Post, economists are increasingly taking on the role of a company’s public face.

In a data-chic world, a chief economist is the new marketing must-have.

Economists are useful because they are experts at interpreting data. Plenty of companies generate a wealth of data and attempt to use it to provide insights for their clients. But the data does not speak for itself: it requires interpretation to be useful. My twitter feed is full of people sharing statistics and correlations but they are rarely useful because they require a framework to interpret them. For example, UK GDP just exceeded its pre-GFC peak. Is that a good thing? Relative to what? What does it mean for my income? For the wages of the poor? Without a framework it is a fairly uninformative piece of data.

This is where economists come in. Their expertise is in the application of models to interpret data and extract information from it. No wonder they are the friendly face of data-centric companies today and long may it continue!

Uber surge pricing: “Sugar coated poison”?

A quite sensationalist headline on stuff this morning…Uber app ‘sugar-coated poison’ – cabbies“. The head of the Taxi Federation is telling us that Uber is evil. Now Uber is a big threat to the traditional taxi business model so take these comments with a grain of salt. Particularly the fact that:

The app is currently illegal in New Zealand

Just because the law hasn’t kept up with technological innovation doesn’t make Uber a bad thing. Now the real fear mongering comes when he talks about Uber’s “surge pricing”

The metering system isn’t authorised and they don’t want to change it because they want to be able to bring in surge pricing. For those people who complain about the cost of taxi fares, you ain’t seen nothing yet.

It’s our job to educate the drivers and the public that this is sugar-coated poison.

What is surge pricing? I’ll let Uber themselves explain it:

Without a surge pricing mechanism, there is no way to clear the market. Fixed or capped pricing, and you have the taxi problem on NYE—no taxis available with people waiting hours to get a ride or left to stagger home through the streets on a long night out. By *raising* the price you *increase* the number of cars on the road and maximize the number of safe convenient rides. Nobody is required to take an Uber, but having a reliable option is what we’re shooting for

So yes, surge pricing means Uber is really expensive when there is a large demand for car rides. You might pay more $ than you would for normal taxi at the same time, but this ignores the non financial cost you might incur waiting for a normal taxi. So we incur the opportunity cost today when we are trying to find a cab on Saturday night. Surge pricing gives you the option to pay a premium to avoid that. In total it may not be more “expensive” depending on how you value your time. Is that a bad thing? You still have the option of catching a normal cab….I can think of a few nights where surge pricing would have come in mighty handy.

Update: by pure coincidence Jesse Mulligan just tweeted the following from LA…turns out Uber can be cheaper than taxis too, no wonder the taxi industry is scared!

On participation and wages

Last week the Reserve Bank released their official cash rate review.  As always, it was a good review laying out the important trends that are influencing their thinking when it comes to setting the official cash rate.

However, there is no fun in leaving it there.  There is one part of the statement I want to be pedantic about:

Wage inflation is subdued, reflecting recent low inflation outcomes, increased labour force participation, and strong net immigration.

There are two parts I want to discuss here:

  1. Increased labour force participation:  The Bank is essentially saying that wage inflation is subdued, relative to what we would expect given the increase in employment, due to the fact that labour force participation rose.  They are right, totally and completely – labour demand shifted right, and the supply curve was such that most of the change came in quantity not price, neat!  However, this can give a misleading impression of the future if we don’t read it carefully – let us not forget that labour force participation rates are at a record high at the moment.  As a result, the “capacity” in the economy is more limited – and future lifts in labour demand are likely to lead to nominal wage pressures (note this isn’t the same as higher real wages per se – but more like an increase in inflation expectations) than lifts in employment.  This is indeed what the Bank was hinting at with the statement prior “Inflation remains moderate, but strong growth in output has been absorbing spare capacity. This is expected to add to non-tradables inflation.”
  2. Strong net migration:  Hold on a second.  We keep being told that strong net migration is pushing up inflationary pressures.  Now we are being told that net migration reduced inflationary pressures (note that “wage inflation”, again not real wage growth, is a lot closer to real inflation, and real inflation expectations, than a point in times annual increase in the CPI).  Higher population growth does indeed increase “demand” and “supply” so the relevance to monetary policy itself is indeterminate.

Anti-Dismal is back live!

Hi all, I am a month slow on noting this as I haven’t been reading blogs over the past couple of months – so just pointing out now that Paul Walker is back blogging over at Anti-Dismal again.  I’d suggest heading off and reading this recent post.

Truly, the link between factors such as agglomeration, scale, productivity, and dispersion of income is a pretty danged important issue – and one that keeps being looked past when discussing inequality trends IMO.

Tweeting the curse of distance

Via Owen Williams on Twitter came this gem:

This is true, shipping is a pretty big deal.  However, Aaron Schiff pointed out another common cost of being in NZ:

This is of course the curse of distance – both from the “production” of goods and from large centres of “consumption” (where the fixed cost of transporting can be spread over more customers).  The OECD has discussed this cost before, and NZ’s Productivity Commission also mentions it when discussing why productivity in New Zealand is relatively low.

Nice to see Amazon giving us some concrete examples we can use to discuss the phenomenon though – well nice until you want to buy anything ;)