Category Archives: Money

Venture capitalism, getting funding, investment

Please make it okay for KITT to drive itself around

Driverless vehicles are coming. A clear legal framework will make them come all the sooner, and there’s an opportunity to make autonomous vehicles as safe as passenger aircraft.

Don't drive a car like a smuck, get the car to drive you!

Don’t drive a car like a smuck, get the car to drive you!

Make the manufacturer(1) solely responsible for all liabilities incurred by the vehicle, driverless or not. Transfer this liability to anyone who modifies the vehicle without manufacturer approval(2) – covering up sensors, adding systems, modifying software etc. While autonomous, fines for driving infractions are the responsibility of the manufacturer; demerit points are treated as unidentified and the fine for failing to identify the driver is payable by the manufacturer. Annual vehicle registration fees(3) remain payable by the vehicle owner, but third party insurance costs – personal and property – are remitted to the manufacturer, who could be expected to pay you to… not drive the car – if you drive the car, that creates an uncontrollable liability, but if the car drives itself then the risks are only those that are those due to the product, which presumably would lead to product improvement to decrease crashes and injury.

How would you force owners of cars that are the liability of someone else to properly maintain them? Simple; you make the manufacturer cover maintenance costs too – tyres, servicing etc. So now we’re getting to the point where we ask: what are people paying for cars that they only have to cover the running expenses for? How does the manufacturer recoup the cost of maintenance? Doesn’t really matter, but I think you’ll see that driverless cars will only be able to be leased, or hired, or rented, or some other such model. They’d basically be taxis – paid for by time and distance.

Every driverless crash will be investigated by a federal body – the Australian Transport Safety Bureau. To aid investigations, vehicles will be required to detect crashes and refuse to function after them; extensive data logging like on aircraft will be mandated. Because of the lack of humans involved, crashes come down to systems failure and the crash rate should be highly controllable.

 

Fly, KITT, fly

(1) Autonomous vehicle manufacturers might baulk at these plans to make them directly fiscally responsible for their products. Fine; they could instead put an insurance/finance company in as the responsible entity, but whomever is responsible would have to prove to the government their capability to meet their contingent liabilities.

(2) That is, you can hack your car if you want. But if you do, you wear the (potentially quite substantial) risks associated with having done so. Find an insurance company that’s willing to cover you (ha!).

Have you played thePopulation: Tire game? If not, you haven't lived.

Have you played thePopulation: Tire game? If not, you haven’t lived.

(3) Why do we charge registration fees? Owning a car doesn’t impose any costs on society. Driving it does; parking it does. There ought to be taxes on… tyres. The consumption of tyres by a vehicle is roughly correlated to the wear and tear on infrastructure and other externalities. Motorbikes, two tyres; semis eighteen or more. There are already taxes on fuel, again because of externalities – and presumably, because they’re easy-to-levy taxes that are hard to avoid. But infrastructure wear is not a function of fuel consumption, but it is a function of using tyres. The problem with a tyre tax is that people will naturally buy tyres that last a long time, rather than other considerations – for example braking efficiency; to address this some wear factor ought to be applied too.

This is why retail is in such trouble

To our surprise, we’ve discovered our youngest has terrible vision due to dud eyes.  He’s proven a superlative example of the brain’s ability to work around systems failures – his parents didn’t have the slightest idea his vision was as stuffed as it is.  The discovery that something was wrong was made at his 3.5 year overhaul child health check.  We got a recommendation to an optometrist who was reportedly good with youngsters; and she determined the exact problem and quantified it (without using any lasers at all, which seriously disappointed me). Medicare covers the entire cost of this testing.

Neither Cathy nor myself wears or has ever worn eyeglasses (I recently complained to my doctor that my vision had deteriorated, and after testing he told me to quit bitching because my vision has dropped to  20/20), so we were lost at sea when it came to acquiring and purchasing.

With a prescription in hand we went shopping, with prices ranging from $350 to $550 for a single set of eyeglasses that will need replacing in six months.  These prices seemed dramatically above what the cost ought to be; I’ve bought sunglasses before and paid between $1 and $100 a pair.  “To the Internet!” I cried. And lo, the Internet said that if we were willing to wait three weeks instead of one to two, it would hand over the same kinds of vision correction devices for $90 $78; actually that was USD, so it was going to be less again.  Not only that, all the stores on the interwebs had memory metal eyeglass frames, whereas the physical stores often didn’t carry that vital (in a three year old) option, hoping instead that arms that were double-hinged might be able to survive (or, given the warranties involved, perhaps even hoping they wouldn’t survive).

Australian retailers are in trouble and want GST charged on all imports into Australia, rather than with the $1000 limit that currently operates; the GST is the least of the problems with retail in Australia.  And the cost of collecting GST on imports is high:

The Productivity Commission said that reducing the threshold to $100 would raise an additional $472 million, but, based on the current customs processing charges, this would cost consumers and businesses approximately $715 million.

So that’s not taxing everything, just anything where $10 of tax could be collected.  An efficient way of taxing imports would be just to tax everything based on the cost of posting it into Australia; one could argue that if someone’s willing to pay $50 postage on something, the goods must be worth something more than… say $50… to them.  So charging Australia Post $5 for the parcel will collect some tax on the thing that we don’t know what the price is, but can make some guesses about its value.  AP will just pass on this charge to the postal services it operates with, pushing up the price of posting to Australia.  People receiving gifts would be able to fill out paperwork to claim this tax back.

The 55m parcels imported into Australia below the $1000 threshold account for a guessed $5.8b of value, that’s an average of about $100/parcel.  My proposal would collect… perhaps $200m, with a very low administration cost – 40% of the tax for 1% of the cost.

But none of this is going to save retail, because the problem retail has with eBusiness is that the fixed costs are so much higher.  Once property prices – and rents – drop to a reasonable level, retail will have a chance.  And for that to happen, many retail businesses are going to have to fail.  Until then, retail is going to need a 50% markup on everything, and will continue to struggle against competitors that don’t need that margin.

Interestingly, our optometrist probably has the right model for a business – they are a service provider providing a service that can only be performed in person, with an adjunct retail business selling glasses etc, ready to mop up consumers who don’t baulk at $550 for a pair of glasses.  They can justify these prices because have the right kind of warranty – two years, no question, anything happens and we’ll fix it.  Accidentally drove over them?  No worries, we’ll replace them.  Try getting that from the intertubes.

Of course, this whole discussion assumes capital and materials mobility, and low labour mobility.  If fuel costs skyrocket, or immigration becomes just a matter of getting on an aeroplane, the whole ball game changes.

Update: Ten days (six business days) after placing the order, the glasses have arrived from China.  That’s right in the delivery window suggested by local providers, and half the delivery time promised by the online eyeglasses retailer we used.  Everything looks great; I’ll whine if anything isn’t right, but with my limited knowledge, all seems well at the moment!  On the downside, our health insurer says that we choose poorly if we wanted a refund; the cheap Internet places they pay out with want $200 for the same glasses, so screw ‘em – our out-of-pocket’s the same whichever way, and this way has less paperwork.

Josh has something even simpler than budgeting

Just write down what you spend your money on. At the end of the month, review.  You might want to classify things, graph total expenditure and other fiddling around with the numbers.  But that’s all you’ve got to do: just monitor things. If it turns you on, the monitoring etc can be done via a spreadsheet or personal finance application, but a sheet of paper marked out with every day in the month will do just fine.

When you become aware of what you’re spending your money on, and look at it as a proportion of your monthly spending, the awareness alone may be enough to change your behaviour to be more fiscally responsible.

Five years on: VoIP? No. Well, maybe. But not really.

Five years ago we looked at dumping the POTS and going VoIP to save big dollars. It cost more to use VoIP.

So, recent events have suggested that moving to ADSL2+ is now a good idea. Now that the local loop is unbundled, true competition has smashed into the marketplace, and VoIP has finally gone mainstream. ADSL2+ prices are cheaper than ADSL. There’s dozens and dozens of VoIP providers, you can even port your existing POTS number to a VoIP number (for certain providers, from certain telecoms companies).

Interestingly, there’s a $10 difference between going with Naked ADSL2+ and ADSL2+ bundled with a home phone; typically you also lose some data allowance, for example going from 20Gig to 15Gig, and that 15Gig will have a further (quite small – I’ve seen an estimate of 30Meg/hr) amount consumed by ‘phone calls. So, you get less, and the question is, can you pull in VoIP functionality for less than the $10 price difference?

Well, maybe. If you insist on porting your existing phone number to the VoIP provider, there are charges (say $3/month), plus an upfront charge ($55). You’ll also need to acquire a convertery-thing to turn your Ethernet cable into a POTS connection for your existing phone handsets, or buy a network-connected VoIP phone, or whatever – some kind of connectivity to your network and thus the ISP and thus through to your VoIP provider is required. If you want a VoIP account with a Direct Inward Dialing (DID) number (you might know that as a phone number) they start at $5/month. So, of your $10 price difference, you’ve just chewed up $8. You get to amortize the connectivity hardware and charges over the $2 savings you’re making; if you’ve got the hardware lying around, the $55 port charge is will be clawed back in just 28 months. Did I mention you’re running with a smaller data allowance? And there’s also the cost of keeping the convertery-thing powered up each month. And the fact that if you lose you broadband connection, you lose your phone (POTS have very high availability rates; broadband not so much).

Now, admittedly, VoIP calls are hella cheap compared to POTS calls. If we made many, that might be a factor. But we don’t, so it’s not. Our phone line’s more for people to call us. If we wanted to place calls cheaply, VoIP accounts without DIDs start at $0; we’re looking at replacing the home phone, and the numbers still don’t stack up, even after all this deregulation and vastly increased competition. Which makes no sense.

Or maybe it does. If the costs are approximately at parity for VoIP and POTS, surely that’s showing that the prices are competitive?

Here’s another scenario. You go with POTS and ADSL2+, plus VoIP with a freshly allocated local number which you use for all outgoing calls. You still need the bridge, and now you need a second phone. You retire your POTS number (advise everyone you know of that you’ve changed numbers – doctor, dentist, home insurer, car insurer, friends, family, work’s HR department, your bank, etc etc – shouldn’t take more than a day or two), but keep it alive for, say, six months (this assumes your ISP loves the idea of you starting out with a POTS line and then dropping it after the six months; I haven’t checked, but I can guess what their reaction will be). You’re paying $15/month over naked prices (ignore bandwidth differences), but your call costs are lower. At the end of the six months you’re saving $5 a month, so another 12 months to break even, and then you can start amortizing the convertery-thingy at $5/month – about two years for every $100 it costs. And once that’s amortized, and you’ve recovered the price of the extra electricity you’ve been using, you’re making pure profit.

I can’t wait.

When the phone line is $5, or $8 for your existing number, rather than $30, that’s when it’ll make sense. But it’s almost at that price now, when you get down to brass tacks, it’s $10 plus they throw in a little extra bandwidth. So we’ve got a competitive situation (at least on the connectivity costs), and VoIP, as a result, sucks balls. Interestingly, bundled plans aren’t sold as “naked plus $10, and we’ll throw in some extra bandwidth!”.

Let’s say you were forced to change phone numbers anyway (perhaps an interstate move), so now it makes sense to go without the POTS number at all. You’ve still got to amortize the convertery-thingy at $5/month, but on the upside you’re saving money on your calls – if you make any.

Final analysis: if you’re forced to change you telephone number anyway, you might as well go Naked ADSL2+ and VoIP. Otherwise, not worth the bother.

ANZ computerised banking is user-hostile

I have an ANZ Bank account. Using their website to pay bills is an exercise in frustration. I only have one account, but the website insists on me picking it out of a dropdown with two entries – the first one, the default, instructing me to pick an account. Failure to do so results in an error – “Please choose a From Account.” I only have ONE! Assume that’s where I want to pay from! Then one must pick who to pay, with an option to pick previous billers from a drop-down list. If you pick from the dropdown without JavaScript enabled, you get the error “Please select a biller from the drop-down list or enter a biller code.” – with JavaScript it fills in a few fields for you, but why does it even need you to fill those fields in if you’ve picked your biller already? Fill them in when I click the “I’m done” button!

Finally, we come to a bugbear I have with ANZ currency fields. You can’t enter a dollar amount, it has to include a decimal point with two following cents; they can’t infer from a lack of a decimal point you’re talking about a dollar amount. They enforce this rule on their website, and they insist that at an ATM you enter the number of cents you wish to withdraw from the ATM. Given the smallest unit of currency available from an ATM is $20, what is wrong with this picture?

Josh on Housing – Part 2

My local library has magazine back issues. I was reading a Money, August 2004 article by Paul Citheroe, entitled am I better off Renting or buying a home? on pg 22.

Virgin home loans are now available at 7.34%pa. That’s pretty darn cheap. But still not as cheap as my preferred lender, HomePath (a Commonwealth bank subsidiary). All this cheap money, someone should buy a house, right?

I advocate two positions. One I advance to those people I know that are good savers. That is, buying a home is for suckers. The other I push on those whose money management… leaves something to be desired. Perhaps they show the kind of financial restraint that the Enron accountants did. Anyways, to them, I say “buy a house. Now. Are you still here? Go on, get!”

Paul agrees with me, sort of. He thinks that we’re all spendthrifts, just because our country is going into the hole at $2b/month:

Given our poor track record as savers, I fear that you won’t “rent and buy shares.” You’ll rent and blow the money on lifestyle, leaving you in the situation at retirement with no house and no investments.

But, he says, that’s irrelevant, because of the figures in the article which show you’re better off buying real estate, regardless of the alternative of saving while renting. He give enough hints in the article that I might be able to reproduce his (well, the Macquarie Bank’s) workings and then refute his proposition.

Let’s see:

Buy and repay Rent and invest
Capital Gain 8.7%pa 8.1%pa
Income - 4.12% dividend (what’s the franking level?)
Txn costs in $8586 1 month’s bond ($14,300),
1% on shares
Txn costs out 2%? 1%
CGT - 50%?
Holding costs $30,543pa interest +
~$3,700pa rates, insurance, etc
$14,300pa indexed

Shares at 8.1% capital gain, 4.12% dividend (what’s the franking level?). Actually, the long term average is about 10% gain; perhaps that’s with taxes paid and dividends re-invested. Don’t know about average dividends or franking levels. 8.1%pa growth for property matches my understanding, which is a long term average of 8%.

Shares with a 1% broker fee (you’d be hard pressed to pay that kind of fee, it ought to be more in the $50 range).

CGT at the marginal rate – I wonder if they 50% discounted it? CGT will only be payable on realization of the asset, which might not happen.

Strata levis (etc) increasing at 3%pa ($19,219 total by year 5), rental of $14300 (figure from NSW dept of housing for 2br flat) increasing at 5%pa ($78,890 total by year 5). I presume these figures are reasonable. Except, $337,500 property (average Sydney property) – is this the same property as the 2br flat used to calculate rent, or is it a better property?

Already I can see a problem – the yield on the property is incomparable to reality. I don’t think they’re comparing apples with oranges – $14,300 rental on a $337,500 flat is about a 4% yield, and you generally don’t see that high a gross yield. More like 2%, perhaps 3%.

30% marginal tax rate, $39086 in savings (questionable), $7K First Home Owner Grant (you might get more than that), acquisition/loan establishment costs of $8586, no stamp duty – (Flash stamp duty calculator, or non-flash) – but no stamp duty is unlikely.

1 month’s rent as bond. Agent fees on property realization 2% (this assumes no advertising etc costs, which is highly unlikely) – I don’t know why they’re indexed at 3%.

Initial mortgage of 337,500 at 7.6%pa fixed for 25yrs $30,543pa.

As he stated, he ignored reno costs of IBISWorld estimated $500pa – a lot on the low side by my figuring, and something your landlord picks up the tab on. You’re going to lose the hot water service every ten or twenty years, a new fence, new carpets, kitchen cabinets, curtains, a lick of paint every five years, new taps every twenty, light fittings, etc. Every 50-100 years you’re going to need to replace the whole house. It all adds up, even if all you’re paying for is materials.

Okay, what about HECS and Medicare? As your taxable income goes down, so do these components.

The analysis wasn’t controlled so that the take-home was the same for both parties. It would have allowed a tax-deductible margin loan to ramp up the share exposure. Apples with apples!

So, after all these random bullet points, I’ve decided that the analysis was flawed, and heavily biased towards home purchase. I did a similar analysis six years ago, and renting came out ahead of borrowing to buy. But the real money was in buying, and then mortgaging to purchase shares. But the spread between margin loans and home loans was a lot larger back then.

For a US-centric view on things, read Misconception: Renting is for Suckers. There, home loan interest is deductible from tax (you can get a similar arrangement here, if you are able to jump through the significantly large hoops).

Josh on Housing – Part 1

Wandering around the web, I found this article on the economics of housing:

Home Economics – New York Times

In 2000, Glaeser took a sabbatical from Harvard and began to spend a few days a week in Philadelphia working with Joseph Gyourko, a real-estate economist at the Wharton School of the University of Pennsylvania. Glaeser had already been thinking about the relationship between housing and urban poverty when one day he and Gyourko began to discuss why cities like Philadelphia and Detroit — places with poor future prospects, both economists believed — weren’t doing even worse in terms of population. Why didn’t everyone leave, Gyourko wondered, and go to a place like Charlotte, N.C., that had a fast-growing economy? This question addresses a puzzle of urban economics. Cities (think of Las Vegas or Phoenix) can grow at a very fast rate, exploding overnight with businesses and residents. Some can increase in population by 50 or even 60 percent in a decade. But cities lose their residents very slowly and almost never at a pace of more than 10 percent in a decade. What’s more, when cities grow, they expand significantly in population, but housing prices tend to rise slowly; even as Las Vegas grew by leaps and bounds in the 1990′s, for instance, the average home there cost well under $200,000. When cities decline, however, the trends get flipped around. Population diminishes slowly, but housing prices tend to drop markedly.

Fascinating observation: When a location becomes undesirable, house prices collapse quickly – but the affordability of housing keeps people living in them. Rural Australia exhibits this kind of behaviour in droughts, and generally. Basically, only poor people live where noone really wants to:

Glaeser and Gyourko determined that the durable nature of housing itself explains this phenomenon. People can flee, but houses can take a century or more to finally fall to pieces. “These places still exist,” Glaeser says of Detroit and St. Louis, “because the housing is permanent. And if you want to understand why they’re poor, it’s actually also in part because the housing is permanent.” For Glaeser, this is the story not only of these two places but also of Buffalo, Baltimore, Cleveland, Philadelphia and Pittsburgh — the powerhouse cities of America in 1950 that consistently and inexorably lost population over the next 50 years. It is not just that there were poor people and the jobs left and the poor people were stuck there. “Thousands of poor come to Detroit each year and live in places that are cheaper than any other place to live in part because they’ve got durable housing still around,” Glaeser says. The net population of Detroit usually decreases each year, in other words, but the city still attracts plenty of people drawn by its extreme affordability. As Gyourko points out, in the year 2000 the median house price in Philadelphia was $59,700; in Detroit, it was $63,600. Those prices are well below the actual construction costs of the homes. “To build them new, it would cost at least $80,000,” Gyourko says, “so there’s no builder who would build those today. And as long as those houses remain, the people remain.”

So, houses can be bought for less than they be constructed for – kind of paying full price for the house, then getting a discount because of the dirt they’re built on. The prices are very attractive, but they’re that cheap for a reason – you don’t want to live there. The only people who will live there are those that can’t afford to live elsewhere. You get a massive supply of housing (that doesn’t get smaller – not quickly anyway) that is insensitive to price, so basically demand drives prices in a falling market. If the demand is falling because the place is no good to live in, prices will fall like a stone as everyone who can afford to live elsewhere does.

Buying in an environment like this, the price you pay needs to work on the assumption of $0 residual value at the end of the economic life of the house on the property. So rental returns have to compensate you for the forgone income (i.e. provide a return on your investment) and holding costs (rates, insurance, etc) plus compensate you for the depreciation of your investment. This would imply that rents in these kinds of environments have high yields compared to markets where the property is expected in increase – or at least not decrease – in value.

What I’m taking away from this is that old adage – you’re buying the dirt, not the house. Also, location location location. Plus, yield alone is a bad thing to chase.

As a guide for purchasing, the article seems to say that you want to go where there’s a natural upper limit on housing, and better yet a rapidly depreciating house stock.

Glaeser likes to point out the close correlation between a city’s average January temperature and its urban growth; he also notes that cars per capita in 1990 is among the best indicators of how well a city has fared over the past 15 years. The more cars, the better — a conclusion that seems perfectly logical to Glaeser. Car-based cities enable residents to buy cheaper, bigger houses. And commuters in car-based cities tend to get to work faster than commuters in cities that rely on public transit. (The average car commute is about 24 minutes; on public transportation, it is around 48 minutes.) While many of his academic peers were looking at, and denigrating, how the majority of Americans have chosen to live, Glaeser (though no fan of the aesthetics of sprawl himself) didn’t think an economist should allow taste to affect judgment. “You shouldn’t go around thinking that all these people are just jackasses for deciding to drive an automobile,” he says.

I wonder if Melbourne commuting is longer because it’s difficult to move house closer to your job? Also, Melbourne is a huge city compared to many US cities, there’s only a handful of American cities larger than a couple of million people, and most are sub 500K.

Digital TV takeup

Absolutely superb article in today’s Age.

The federal government wants to close down the analog TV signal. It can’t do that until enough people have digital TV receivers. People don’t particularly want to spend the time or money purchasing a digital TV set top box. So the government is going to have to spend a couple of billion dollars to continue broadcasting the analog signal for longer.

Sony have even suggested spending $200 million on consumer education, I guess to tell us why we should buy digital set-top boxes.

Alex Encel thinks we should just spend $150 million to give everyone a digital set top box for every TV they own.

What a brilliant solution! It’s not often you get to achieve your goals and also save a couple of billion dollars at the same time!

Where are the aliens?

Coffee drinkers are easier to persuade.

Fermi’s Paradox is explained by aliens getting adicited to computer gaming.

Strom reckons he knows how to make money with a website: ads! Plus a little other stuff.

An Irishman has a rather good summery of how to negotiate an intial salary.

Cross-platform rounded corners without images, extra markup nor CSS. The holy grail of web-design dweebs.

Economics of Digital Cameras

I was reading a backissue of Money magazine where Paul Clitheroe made a remarkably insightful analysis of film vs digital cameras (Money, June 2005, pg 20 am I better off With a digital or film camera?).

One thing he noted is that acquiring a digital camera turns you into a shutterbug; I would suggest spending hundreds or thousands of dollars on a camera has that effect, but the zero-cost of each individual photo certainly does help. He notes that in bangs-per-buck, film beats digital – and he’s right. Not only are digital cameras more expensive to acquire for the features you get, but (at the time of the article) processing costs were higher too. Couple that with the poorer image resolution you get from digital images (super high-end digital cameras are only now approaching the image resolution of $20 compact cameras) and you would have to be nuts to go digital.

Unless you don’t actually process your images. As a general rule, I don’t. In the last eleven months I’ve taken… let’s see… 10,327 images (I was wondering what would happen to the camera when it rolled over 10K images, because the manual hints that you might have to re-format your media; turns out that’s not the case). Recently Cathy and I took advantage of a Harvey Norman promotion and trebbled the number of images we’d printed, to a total of 200. We might have spent $50 on printing all up. That would have bough 240 frames of analogue film in processing costs, but we only printed out the winners. If the full 10K images had been processed we may have spent $2000 on processing. That’s a bunch of money. I suspect I would have husbanded my shots more if I’d spent the same amount of money on a film camera. In fact, there’s no way on God’s green Earth I would have spent that much money on a film camera. Something about perceived value differences. Anyways, the camera has been fun, and I think given the thrashing it’s been getting, I’ve been getting value for money from it. Which I’m a little surprised by, because it was a lot of money.

For me, the big advantage of digital is that I can learn to be a better photographer at no marginal cost. And Paul says that at National Geographic, photographers average 350 rolls of film (almost 12600 frames) per story, with an average of 10 published. So, if I was a professional grade photographer using professional equipment, one in twenty of the photos I’ve printed would be magazine quality.

CityLink eTags to be used for a reverse-toll

There’s a proposal to have Melbournians use their CityLink eTags for a reverse-toll on public transport by a economist-type guy from Melbourne Uni. I can just see homeless guys making a living by taking sackfuls of eTags around the city on trams while their owners are at work, to make the day’s commute in to work and back again net-free.

It’s an attempt to address the free rider problem of vehicular road use; he’s also proposed that the charging should be demand driven – so road tolls are higher in peak hour, and might be free in the middle of the night. But we have a crude version of this proposed roaduse charge already – it’s called fuel excise. Cars idling in traffic jams keep burning petrol, and thus their owners paying tax, as an added bonus, SUVs/4WDs burn a whole lot more of it. If you want to hike the charges up, I’m all in favour of, say, tripling the excise on fuel. That should make public transport more attractive – especially as there won’t be homeless guys with sacks!