Some tips for real-world economists in the academic labour market in 2012 December 19, 2011
Posted by Peter Earl in Economics Publishing, Job market, Uncategorized.add a comment
Once upon a time, academic job vacancies for economists focused on filling holes in teaching plans and a promotion was assured if one was prolific, had established a good external reputation and had done one’s bit in collegial terms. Nowadays, things work very differently and real-world economists need to know how to play the game (often against those trained extensively in game theory) in order to get a foot on the career ladder and step up it. In this post I reflect on how things have changed and how real-world economists can try to improve their competitive edge in the academic job market.
A telling sign of the times was the opening comment from the chair of the recruitment committee in the department in which I work, at the start of a meeting to shortlist applicants to be interviewed at the upcoming AEA meeting: ‘Remember, we’re trying to hire people better than ourselves.’ The subtext of this comment was that the goal is to improve the department’s ranking by hiring staff with a better capacity to publish in the top-tier journals; if they were in areas where there were teaching needs to be filled, that would be a bonus, but it wasn’t a prerequisite. This way of thinking is driven by the rise of research audits that rank economics departments with an emphasis on the ratings of the journals in which their members of staff publish. It can prove catastrophic for economists who take a serious interest in the real world.
Another telling sign of what real-world economists have to deal with is the fact that at the same meeting we had nearly 600 applications to deal with. While this is for a university ranked in the world top 100 and top three or four economics departments in Australia, the situation is likely to become increasingly common for those whose institutions use the online ‘Headhunter’ job application/candidate reviewing system that makes it easier to apply for all the entry-level jobs available on the system rather than to be selective. We increasingly have a global auction for assistant professors/lecturers, whereas in the past, at least for those of us outside of North America, the market was much more segmented and application piles much smaller. The result is that each institution ends up having to shortlist far more applicants than under traditional systems in which applications were more carefully targeted. (My own institution shortlisted 42 for interview at the AEA meeting, from whom perhaps a dozen might be selected for a ’fly-out’ to an on-campus presentation and interview.)
In this situation, information overload is a major factor and initial screening processes will rarely be conducted in depth if assessors each have several dozen (on in some cases, a hundred or more) applicants to assess in order to get three or four verdicts on each applicant. Worse still, applications are becoming increasingly hard to differentiate : virtually all are from mainstream economists whose ‘job market’ papers and other working papers all display mathematical and/or econometric expertise and highly supportive references that attempt to save the assessors the trouble of reading the papers by summarizing them. The only way recruitment committees can cope with the information overload is by focusing on familiar signals, such as what they know of the quality of the applicant’s institution, familiar referees, or where the applicant has published. Those who come from lower-tier institutions will attract little interest from higher-ranked institutions but the lower-tier institutions that will be more likely to be willing to hire them may not be particularly familiar with the institution where they are doing their PhD.
How, then, might you increase your chances if you are a real-world economist, especially if, as is likely, you aren’t at a top-tier institution with big-name referees? A certain amount of stealth may be required here, as even factors such as whether or not one’s papers seem to have been written using Latex send signals about the kind of economist you might be and hence what kind of things you may be able to publish, and where.
Be aware that if you have published in second- or third-tier journals this could count against you with higher-ranking institutions that are comparing you with those who have not published at all: such publications may be seen as a sign that you will never publish in higher-ranking journals. Particularly problematic will be publications in journals that are clearly non-mainstream as they send strong signals about being the wrong kind of economist. So, while publications can help increase your marketability in the right context, other things equal, it can also be dangerous to get into print too early, especially if this involves showing one’s ‘true colours’. The trouble is, you may need to appeal to non-real-world departments of economics in case you cannot win a position in a real-world department, so a CV that suits the latter but is not quite good enough can then mean disaster with the former. Until they have got a job, heterodox economists who have empirical work would probably be wise to try to package it without an emphasis on its heterodox nature and submit it to normal applied journals rather than those whose titles mark them out as heterodox. If the methodology is unusual, explain why it was adopted but in a positive way rather than defensively; find areas of overlap rather than difference where it will help you win referee support.
More important, perhaps, is to be aware of the importance of social networking in getting your academic career happening. Here, I’m not suggesting focusing on using Linked-In (though this may turn out to be important) but to recognize that you can give yourself an edge by setting out to build relationships with academics outside your current institution: send your work to those whose own work has influenced it, making clear the influence that they have had. You are likely to be surprised by the warmth of response, constructive comments and suggestions. Having a bit of email interaction behind you gives you a basis for approaching your heroes with more confidence at conferences. By developing these connections, all manner of opportunities may open up to show your capabilities or ‘get a leg up’ in the publication race, and in potentially influential referees whose names will stand out on Headhunter. Remember that, in evolutionary terms, the life of an academic is about passing on one’s intellectual contribution (more akin to memes than genes) and that the senior scholars therefore need to cultivate the next generation. While the very top-tier don’t have to worry about doing this and may be too busy to take under their wing those who approach them out of the blue, others will be flattered to be contacted in this way and will responded dutifully.
The challenges are rather different if you have been in the game some time and are trying to ensure your tenure or get promoted. The external contacts that you have built up may be willing to serve as referees but within the internal labour market there is no guarantee that they will actually be asked for their reports or that reports that are sought will carry the sort of weight that you might hope.
The problem is that if you have half a dozen real-world economists of note lined up to be referees, they will be expected all to offer glowing reports, so your employer may canvass opinion more widely. The probabilities are that if they do this, they will end up with preponderance of reports from mainstream referees who actually do not know your work very well, much as happens when research grant applications are refereed. But your application may not even get as far as being shortlisted because you have not been able to garner enough internal support. If you have a senior but lone real-world economist arguing that your work is outstanding and half a dozen mainstream economists damning your many contributions with faint praise (e.g. by saying that they are, at best, ‘solid’ because they are not in top-tier journals), the promotion committee may simply decline to shortlist your promotion application without seeking external references. If they have any notion of the politics of the situation, they will realize that taking up external references will merely reinforce the split of opinion rather than telling them how to resolve it.
If this is how things work as far as refereeing is concerned, then you will only find it worthwhile applying for promotion if you can (a) get support from senior mainstream colleagues, and/or (b) comprehensively demonstrate that you are already performing at well above the norm for the grade to which you are trying to achieve promotion. The challenge is to ensure that attempting the latter does not alienate the senior colleagues by demonstrating the limitations of their achievements.
For real-world economists, the advent of Google Scholar provides a great opportunity to establish the impact of one’s work. But it must be used carefully. Google Scholar picks up citations from a much wider range of sources than other citation systems. This makes it the best citation system for showing the impact of real-world economics: it is great at picking up citations in books, book chapters, lower-tier journals and published reports by government agencies and consultants. It thereby readily exposes the relative lack of impact of many papers that are published in high-ranking journals but only referred to by a very specialized audience in other journal articles. You will find it surprisingly easy to demonstrate how well you shape up compared with your mainstream colleagues by compiling statistics from Google Scholar. However, it is probably wise to compare yourself with the best performers amongst your higher-grade colleagues rather than brining out the limited citation achievements of the rest of them. You can also show how you compare with recently-promoted staff in rival institutions and how you are doing better than your colleagues of similar rank.
The latest iteration of Google Scholar also enables you to create your own citation profile and readily cranks out usable statistics for your portfolio of cited works (my own one can be viewed here as an example). As more scholars register to do this it will become much easier to make relevant comparisons rather than having to spend hours doing the work manually. However, a particularly important feature of the new version is that it gives a year-by-year profile of citations for one’s work, both in total and for individual publications. Copies of these charts could be included in a promotion application to demonstrate the rising trend of annual citation rate and also to demonstrate that early work, that are likely to have accrued higher citation counts, have not passed their ‘use-by dates’ and are continuing to make an impact. It is to be hoped that Google Scholar may sooner or later also produce results with self-citations removed; in the meantime, it is be wise to count these manually and include a note spelling out their incidence.
These days, success in winning competitively-awarded external research grants is a major way for real-world economists to win support from mainstream colleagues. To the extent that members of funding committees come from a wide range of disciplines rather than consisting only of economists, real-world economists may have a bigger chance of winning grants than they have of getting papers in high-theory journals. Papers based on findings from grant-funded projects may provide a means of getting acceptable-looking quantitative work done and hence, if they is packaged in a non-oppositional manner, if may be possible to get them accepted in high ranking generalist journals. The crucial issue here seems to be to do with timing. If you have success in winning a major research grant at a time when senior mainstream economists are not having such success, it may provoke jealous reactions when they come to evaluate your case for promotion. They will be more likely to say what a wonderful achievement it is if they have recently won their own major grants. It may also pay to delay applying for promotion until you are close to the completion of the grant-funded project (but before you have had to try to raise further grants) so that you can demonstrate your skilful use of the funds in terms of accepted publications (ideally, on a rising trend in journal status) and ‘engagement’ for the university by getting media coverage for your real-world findings.
To get support from senior non-real-world economist colleagues, and to win publications in more widely read journals, real-world economists would be wise to cease applying factional labels (e.g., feminist, institutional, Post Keynesian) to the work that they do and be advocates for their work in a way that is non-combative. We use these factional labels to find like minds and we are accustomed to fighting against the oppressive forces of mainstream economics. However, if we thereby confess to being aligned with eccentric minorities (about whom most mainstream economists know rather little), then we limit our acceptability. So, simply tell it like it is and if it departs from standard approaches explain the case for doing so with a positive spin that does not denigrate traditional, more restrictive work but at the same time shows the opportunities that open up by doing things a bit differently. Try reminding the readers and referees that contexts differ and show why your approach seems sensible for the context in question, without saying that you would never use traditional approaches in any context, even if that is actually the case.
If it still proves impossible to get work published in the high-prestige journals, then carefully make your case—not by emphasising that your work is in heterodox journals but with reference to the impact factors of the journals in which you have published, how these compare with selected journals of the kind your mainstream senior colleagues rate highly, and what the impact factor trends look like for the journals in which you are publishing. If your key works are your books, then explain how they constitute a major integrated body of work compared with what would have been achievable via separate articles and demonstrate this via their relative citation impact.
In short, a key thing to be doing to win promotion in face of potential hostility from non-real-world economists is to demonstrate that in terms of key performance indicators you are on an upward trend and that (despite not being mainstreams) your contribution to economics compares well against mainstream work on these indicators. It is easier than you think: the mainstream may largely ignore heterodox work, but its real-world nature means it gets picked up much more widely.
Finally, do not forget that, as you get further up the academic ladder, leadership is going to be valued more and more. The rising trend may show you are getting more influential and capable of making things happen, but consider what else you can say about your capabilities as a leader. This is where, having been an unswerving real-world economist you may have an advantage: you’ve been taking academic risks, leading by example and not being afraid of going against the grain. Portraying what we do in terms of leadership rather than slavishly following mainstream dogma carries a wholly different air than giving the impression of being embattled and increasingly pushed into a corner.
(Some of the points made here regarding promotion processes emerged in a very helpful conversation I had recently with the University of Queensland’s outgoing Senior Deputy Vice Chancellor, who was also the chair of the University’s Professorial Promotions Committee. However, the usual disclaimer applies. For further discussion on the issue of marketing non-mainstream economics, click here for a paper by Ti-Ching Peng and myself.)
Monetary innovations for eco-friendly production and economic stability December 9, 2011
Posted by Peter Earl in Ecological economics, Global Financial Crisis, Keynesian economics, Liquidity problem, Solvency problem, Uncategorized.add a comment
Discussions about improved prudential regulation, changing the incentives that players in the financial sector face and the possibility of a financial transactions tax as means of reviving the economic system have tended to overlook innovative monetary proposals that focus on changing the nature of credit money itself. Some of these have come from outside academic economics and aim to promote eco-friendly paths of economic recovery. In this post I hope to stir up some discussion by presenting a guide to some of these proposals and showing how they are related to each other. First, though, it is necessary to offer a short reflection on the need for reliable stores of wealth.
During the Global Financial Crisis we have tended to think of property bubbles as being driven, on the demand side, by consumers operating with a ‘get rich quick’ mentality, who hope to increase their wealth or ability to consume more rapidly than they can by generating income from work. However, in the 1970s, when inflation was accelerating, property prices were often driven less by hopes of easy capital gains than by the potential for a house to serve as a hedge against inflation. Real estate markets therefore tended to be fuelled by first-time buyers trying to get on the home-ownership bandwagon before their deposits eroded. With bitter experience of losses associated with financial failures and weak stock markets, consumers are again looking for safe stores of value, especially if they are retired or approaching retirement. Though house prices can go (and have gone) down as well as up, the combination of short memories, the tangible nature of real estate and limited taxation of capital gains on home ownership is likely sooner or later to sow the seeds of another real estate bubble and further financial disasters, unless consumers are presented with credible alternative stores of value.
Ideally, such a store of value would help support effective demand without having adverse environmental consequences. Precious metals such as gold serve well as stores of value precisely because their production cannot easily be increased. The difficulties entailed in mining and refining them bring bad news regarding energy use and other sources of pollution such as mine tailings. The limited geographical spread of such resources means that few economies benefit directly when they are in high demand as stores of value. (Australia’s current prosperity and woeful carbon footprint per capita both are partly a consequence if its luck in having gold as well as other sought-after minerals.) The good news is that some of the innovative approaches to creating stores of value appear to have potential to serve us all far better in this respect than mining precious metals has done.
These ideas typically involve the creation of something that can serve as a parallel currency alongside the official currency, rather in the way that US dollars are often accepted by traders and circulate widely parts of Latin America alongside local pesos. Easiest to understand are local currencies exemplified by the ‘Totnes Pound’ project (see the wikipedia entry and the project’s website) in the town of Totnes in South-West England. This is mainly designed to try to limit the leakage of spending from Totnes to other areas. The idea is not merely to maintain employment in Totnes but also to help reduce environmental damage since the project is part of a wider programme to make the town far more environmentally sustainable than a typical town. Totnes Pounds come into circulation after individuals buy them in exchange for Pounds Sterling, with the latter being held in trust in a regular bank account. They can be spent at any business that accepts them in the locality.
Clearly, the success of the Totnes Pound project, and its imitators in other towns, depends upon its ability to win strong community support so that its unofficial currency is accepted in many businesses. Without this, people who accept Totnes Pounds in payment will then tend seek to sell them back to the trust in exchange for Sterling. The limited acceptability of a parallel currency inherently makes people nervous about using it and gives a sense of restricted choice similar to that experienced by members of the Bartercard network. (The probability of being unable to use Bartercard credits readily may result in traders who are members of the network only accepting Bartercard payment if the customer foregoes a cash discount.) But in the case of the Totnes Pound the project is designed to limit choice, to stop spending from leaking out of the eco-friendly town, and community support has been strong.
The next step along from issuing a parallel currency in exchange for official currency is to use the proceeds to finance eco-friendly ventures rather than simply keeping the receipts from selling the parallel currency in trust in a regular bank account. This is pretty much the idea behind what is known as Green Money. If local knowledge and social connection can be employed to assess creditworthiness and enforce repayment obligations, the administrators of a Green Money fund may be able to offer loans with lower rates of interest that regular banks would charge (or make loans available when they otherwise might have been declined), thereby making it more viable to invest in eco-friendly projects with lower internal rates of return than rival technologies that do not have to cover their environmental costs.
Notice how, under a Green Money system, this addition to the supply of credit can come about without community-/environmentally-conscious consumers necessarily keeping their savings in a ‘green bank’: the Green Money liabilities of the trust are the Green Money notes in circulation and these notes typically will get created because people buy them as means of payment rather than as alternative stores of value. With no deposit interest inducement needed for the system to operate, loan charges can be reduced yet further, making eco-friendly projects with long payback periods yet more viable. If people buy the alternative currency via a transfer from their existing bank to the trust’s bank account they do not change the ability of the banks to lend, though they will be reducing the velocity of circulation of money defined in terms of the liabilities of traditional financial institutions.
In contrast to the idea of a parallel local currency stands proposals based around transferable titles to standard products, such as kilowatt-hours of electricity (as in the work of Shann Turnbull or in Robert Hahl’s ‘kilowatt cards’ experiment). What happens here is somewhat akin to what happens when we insure our cars, homes or health by parting with a known sum of money today in return for some kind of guarantee of being able to get a particular kind of service at an unspecified date (in these cases, typically within a particular year) if a particular contingency arises. By buying insurance, we know where we stand in that part of our lives – at least, so long as we have read the fine print carefully and the insurance company does not default. The ‘fine print’ issue should be less of a problem with Hahl’s ‘kilowatt cards’: the buyer of these cards hands over (by electronic transfer) a sum of conventional money in return for vouchers that can be redeemed to pay for a specific number of kilowatt-hours of electricity. The ‘kilowatt card’ organization makes the transfer to the nominated electricity company account on behalf of the person who is trying to redeem the vouchers, and an ingenious voucher registration system prevents counterfeiting by ensuring each voucher has a unique registration code that initially resides partly on the vouchers and partly online. Consumers who buy these vouchers can use them as stores of value or as gifts to others. Those who hold the vouchers can opt to sell them rather than redeeming them for electricity.
If a kilowatt-hour monetary system is running, consumers can exchange a known sum of conventional money today in return for access to a known quantity of electricity at an unspecified point in future. Someone who is about to retire can thus guarantee their electricity supply for a particular number of years by buying the requisite number of vouchers and thereby insulate themselves from unpredictable changes in energy prices, interest rates and stock market yields. If they find themselves using less electricity than expected, they can later sell surplus vouchers, and if they die before using the vouchers, their bequests can include these titles to electricity services. At no point does the system require the issuing organization or any other party to store electricity, despite these titles to electricity delivery serving as stores of value.
In this system, buyers of the vouchers run the risk that electricity prices may fall, or that the issuing organization goes bankrupt and fails to honour the vouchers when they are presented for redemption. By buying them today the consumer foregoes the opportunity to invest the funds in alternative assets. However, the organization that issues and honours the vouchers then has the opportunity to invest the proceeds from the sale of vouchers so long as they are in circulation. Aside from costs of administering the scheme, the main driver of the difference between the current offer price for electricity vouchers and the current price of electricity will depend on balance of expectations about future prices of electricity and other assets between consumers and the issuing organization, along with their risk preferences.
In principle, a single class of voucher could be used to pay for an identical amount of electricity anywhere in the world, despite the fact that, due to the costs of long-distance transmission and lack of integration of electricity networks, there is no single ‘world price’ for each kilowatt-hour. Like a bank or insurance company, the issuing organization (or another institution to which it on-sells the risk) will need to manage the proceeds of voucher sales and the price at which it offers new vouchers in such a way as to prevent itself from running into crises of liquidity or solvency. The former could arise if too many consumers tried to redeem their vouchers at the same time and the organization had too much of its portfolio tied up in illiquid assets. The latter could arise due to the issuing organization misjudging the trend in the average price of a kilowatt hour of electricity or the geographical mix of electricity accounts against which vouchers were presented for redemption (for example, too many might come from remote areas with expensive electricity). There could also be losses due to poor investments. If it wished, the issuing organization could operate on eco-friendly principles and use its investment funds to finance, say, major solar panel arrays or wind turbine schemes that would be able to produce electricity more cheaply in the long term than carbon-burning electricity generation systems.
Monetary innovations based around kilowatt-hour vouchers may have a good chance of attracting the interest of the financial community, for there would be major new opportunities for speculative activity due to uncertainty about the future price of electricity. This possibility could be a cause for concern among those who take seriously the writing of Minsky or Kindleberger on financial instability. Yet, without the involvement of trusted financial institutions, such a system could be hard to launch due to consumers doubting whether the vouchers would actually be honoured when the time came to redeem them. Like many insurance schemes, the kilowatt-hour voucher proposal could founder due to problems of adverse selection unless the geographical coverage of any particular class of voucher were limited to areas with similar electricity prices. This somewhat limits the possibility of such vouchers coming into worldwide use as a kind of substitute for the sort of ‘international commodity reserve currency’ that Kaldor, Hart and Tinbergen proposed in 1964, or as something approaching a Sraffian ‘standard commodity’ that enters directly or indirectly into the production of everything. Such a scheme might also be confounded by the use of multiple tariffs for electricity according to the time of day it is being delivered: as well as needing to offer vouchers that were nation- or (for large counties with incomplete power grid) region-specific, the system might need to offer peak and off-peak vouchers in each region.
In theory, the ideas behind the kilowatt-hour voucher plans can be applied to all manner of standardized products that are widely used and against whose price increases consumers and producers might want to insure. Seen thus, things start tending somewhat in the direction of the wacky fictional world of an Arrow-Debreu general equilibrium economy with complete futures markets. However, there would be one crucial Keynesian difference: though consumers might hold vouchers for a variety of products and services, these vouchers would not have particular redemption dates. Thus even if all electricity were being paid for via kilowatt-hour vouchers, the electricity utilities would not know what the demand for electricity would be at any particular point in space or time. Like department store chains that issue gift cards but have no idea in which branches they will be redeemed or what they will be used for purchasing, business plans would still suffer from uncertainty about demand. Thought there would be less distortion of economic behaviour due to fears of inflation, there would still be room for failures in effective demand due to pessimism about future sales leading to restraint in the hiring of workers and orders for other inputs.
Given this problem, the obvious solution is not merely to foster the use of transferable product-specific vouchers as stores of value but to make them company-specific and include expiry dates on them. Businesses that issue them could then be confident about the level of sales they can achieve before the end of the expiry period. This is where we go, roughly speaking, if we follow the ingenious Digital Coin proposal of Paul Grignon, a Canadian film maker whose excellent animated documentary Money as Debt deserves to be screened to all students of economics.
Grignon’s plan is available in summary form in its own must-see animated video. It appears to be a way of simultaneously overcoming both Say’s Law and the problems of the Bartercard concept. From the standpoint of scholars of the evolution of Keynes’s General Theory of Employment, Interest and Money, Grignon’s proposal amounts to using modern technology to replace an ‘entrepreneur economy’ with a ‘co-operative economy’ (see Keynes’s Collected Works, Vol. XXIX, pp. 77-80). This is because workers and other suppliers of inputs used by a company accept payment for their inputs in the form of claims on the output to whose production they have contributed. Since they cannot be sure what they can exchange these claims for in terms of claims on outputs of other firms, they are sharing the risk of the business with the owners of the business. So long as substitution can be induced by relative price adjustments (and I do not believe it always can be), unemployed workers can price themselves into employment by offering to work for fewer credits that were previously being paid per hour. The employer issues the extra credits associated with making extra output and these credits will end up being used to relieve the firm of its output within the expiry period of the credits. In the world of Digital Coin, unlike Keynes’s vision of a conventional monetary/entrepreneur economy, wage cuts do not have adverse effects on aggregate demand and a fractional marginal propensity to consume on the part of workers cannot result in additional output having to be sold at a price that covers the costs of creating it.
In Grignon’s scenario, there are two kinds of coin: (i) a limited supply of ‘perpetual coins’ that serve, like ounces of gold, as the unit of account, and (ii) ‘credit coins’ that are issued by firms and can be exchanged within a specific expiry period for credit coins issued by other companies or output produced by the firm that issued them. The credit coins do not need to exist in physical terms and Grignon envisages them being exchanged and traded electronically with electronic records being kept of who is holding balances of particular credit coins being continually updated.
Imagine the case of a salaried worker who helps produce cars for Ford. The worker would be electronically credited with an agreed number of Ford credits each week. Component suppliers would be paid in Ford credits, too. Mostly they would not want to accumulate these credits to purchase Ford cars before the credit expiry date arrived. However, at any point in time, they would be able to get a price online for Ford credits, and credits for any other company’s products. To buy, say, an Apple computer, they could trade Ford credits for Apple credits at the payment terminal in the computer store. If Ford cars are not strongly in demand and demand for Apple computers is booming, Ford credits would tend to trade below their par value against perpetual coin, and Apple credits would command a premium.
It would also be possible to create a mixed portfolio of credits from a variety of companies by trading online. Because people may prefer to hold mixed portfolios, it is likely that financial institutions would offer the option of exchanging credits for any specific company, at the going price, for units of a bundle of credits comprising credits from a wide range of companies. These credit bundles would be rather like holdings of present-day unit trusts, except that they are claims on the flow of output rather than shares. We can imagine consumers simply keying in which kind of credit they wished to use to buy credits of the business at which they were buying something, much as we now selects from the ‘cheque’, ‘savings’ or ‘credit’ account menu on a payment terminal. Once a credit has made its way back to the company that issued it and been exchanged for goods, it is deleted — just as with an airline ticket that has been used and is then thrown away because it cannot be used again.
The companies that issue their respective credits to the expected value of their outputs expressed in terms of the perpetual coin unit of account do not have to worry about whether or not what they produce will be sold. This is because they have paid for production with these self-issued credits and the fact that the credits have expiry dates will ensure that their prices adjusted to a level low enough to ensure that the credits are redeemed against their output. Rather, what the firms’ shareholders, workers and input suppliers have to worry about is the exchange value of the credits in terms of which they are remunerated. Thus if workers bargain aggressively to be paid more units of their company’s credit per week, management will have to decide whether to pay fewer credits to shareholders or simply create more credits and impose on workers and shareholders the risk that their exchange value will fall if demand for the product does not expand in line with the increase in the supply of credits. If either strategy seems likely to involve unsatisfactory returns to shareholders, the managers may cut production and employment until workers moderate their claims.
Under Grignon’s Digital Coin system everyone who accepted payment in a firm’s self-issued credit becomes, in effect, a member of a cooperative. Keynes’s problem of effective demand falls away, the more so the shorter the expiry time on each new batch of credits. Supply creates its own demand but the crucial issue becomes what supply to create, so that one’s credit coins have a worthwhile exchange value. Aggregate-level coordination problems of a Keynesian monetary economy lose centre stage to the sectoral coordination problems emphasized by George Richardson in his 1960 book Information and Investment (Oxford University Press, 2nd edition 1990; see also his article in the 1959 Economic Journal). All manner of behind-the-scenes trading activities would be likely to spring up to enable risks to be traded between those who wanted to limit their exposure to risk and those who were keen to risk making incorrect guesses about the relative price trajectories taken by different companies’ credits. However, it appears that if credits had short-dated expiry periods the scope for destabilizing speculation would be relatively limited: credit coin markets would function more like short-term bond markets than more volatile long-term bond markets.
I find Grignon’s Digial Coin proposal especially well thought out. The time for this self-issued credit system to be implemented seems ripe both because of the failure of the existing bank-credit system and because we now have the technology to make it work. (If it were implemented, I presume that initially firms might offer a choice between payment in standard currency units or in credit coin.) However, I would like finally to mention a further possibility, one that takes us back to where we started, namely, the problem of real estate speculation. This final ideas is that we might be able to deter property speculation (and perhaps thus discourage people from living in bigger, more environmentally costly houses than they really need) by indexing mortgages on homes to the median prices in their suburbs whilst indexing to average residential property prices the deposits against which mortgages are funded. My colleague Bruce Littleboy suggested this idea to me and I have fleshed it out in some details in a separate post.
Anyone interested in the further development of these kinds of ideas may be interested in the 2012 Tesla Conference, 10-12th July, 2012 Split, Croatia, whose theme is energy currencies.
The cost of a BYO mobile phone versus a contract mobile phone October 28, 2011
Posted by Peter Earl in Consumer behaviour, Telecommunications economics, Uncategorized.add a comment
Many users of mobile phones are prone to speak of having ‘got a free phone with my plan’ but the fact that the service provider companies advertise phones as ‘$0 upfront’ rather than ‘free’ is an invitation to canny consumers to try to find out the prices that are really being charged. This market is in a constant state of flux, so never assume that even recent figures are accurate: do you own sums. This piece is about the sums to do, illustrated with what are now partly historical data: it offers an analysis of what Vodafone was offering its Australian customers on 26–7 October, 2011. However, on 28 October 2011, while this piece was being completed, Vodafone changed some of its plans, so do not presume what is said in the present tense still applies.
Vodafone don’t sell outright many of the phones they offer with the postpaid plans, but here are the ones they do sell as prepaid phones, locked to the Vodafone service as well as offering them on contracts:
Nexus S RRP $299, online $269
Nokia X3-02 RRP $129, online $117 ($199 unlocked at Dick Smith Electronics)
Nokia C2-01 RRP $79, online $71 ($99 in warm silver or $129 in black, unlocked, at Dick Smith Electronics).
Samsung Galaxy Fit RRP $179, online $161
The first lesson here is that it is worth checking what the unlocking fee would be if you decided you wanted to switch to another company: despite these charges, it can still make sense to buy a phone outright in locked form from the service provider, depending on the kind of gamble involved. Vodafone customers who don’t want these four phones would be wise to check at third party retailers to see if unlocked versions of the Vodafone contract phones that they fancy are available there, and at what price.
To find out what the provider is really charging for its phones, you need to find SIM-only plans that offer the same included value and usage charges as a contract that includes a phone. At Vodafone, it appears that:
- A $20 SIM-only, phone aside, is the same as $29 Cap, so the cost of a ‘$0 upfront’ phone is $9 per month on a 24 month plan, i.e. $216.
- A $35 SIM-only is the same, phone side, as $49 Cap, so the cost of a ‘$0 upfront’ phone is $14 per month on a 24 month plan, i.e. $336.
- A $55 SIM-only is the same, phone aside, as $79 Cap, so the cost of a ‘$0 upfront’ phone is $24 per month on a 24 month plan, i.e. $576.
Clearly, it makes sense to go for SIM-only if you only want a cheap phone on a 24 month plan. The Nexus S comes at ‘$0 upfront’ on each of these cap plans, but is only worth getting via a contract in the case of the $29 Cap; in the other three cases, it pays to buy it outright and select the corresponding SIM-only plan.
With 12 month plans, there is an additional monthly fee for the Nexus S and the pricing is much more consistent. This phone adds
- $15 to a $29 Cap plan, so the cost of the phone is $(15+9)*12 = $288
- $10 to a $49 Cap plan, so the cost of the phone is $(10+14)*12 = $288
- $5 to a $59 Cap plan (but there is no SIM-only equivalent)
- $0 to a $79 Cap plan, so the cost of the phone is $(0+24)*12 = $288
The Nokia X3-02, Nokia C2-01 and Samsung Galaxy Fit are $0 on all 12 month plans, so effectively cost $108 on $29 cap, $168 on a $49 cap and $288 on a $79 cap.
The deals that Vodafone offers on iPhone contracts seem rather more obviously better – at least for Cap plans – than a SIM-only with an unlocked iPhone from an Apple Retailers. Here are the figures for a couple of different iPhones:
iPhone 4S 64GB ($999 from Apple)
- Not available on a 12 month $29 Cap plan
- Adds $52 per month to a 12 month $49 Cap plan, so the cost of the phone is $(52+14)*12 = $792
- Adds $47 per month to a 12 month $59 Cap plan (but there is no equivalent SIM only plan)
- Adds $42 per month to a 12 month $79 Cap plan, so the cost of the phone is $(42+24)*12 = $792
- Adds $25 per month to a 24 month $29 Cap plan, so the cost of the phone is $(25+9)*24 = $816
- Adds $25 to a 24 month $49 Cap plan, so the cost of the phone is $(15+14)*24 = $696
- Adds $10 to a 24 month $59 Cap plan, (but there is not equivalent SIM-only plan)
- Adds $5 to a 24 month $79 Cap plan, so the cost of the phone is $(5+24)*24 = $696
iPhone 4 8GBis ($679 from Apple)
- Not available on a 12 month $29 Cap plan
- Adds $22 per month to a $49 Cap plan, so the cost of the phone is $(22+14)*12 = $432
- Add $17 per month to a $59 Cap plan (but there is no equivalent SIM-only plan)
- Adds $12 per month to a $79 Cap plan, so the cost of the phone is $(12+24)*12 = $432
- Adds $11 per month to a 24 month $29 plan, so the cost of the phone is $(11+9)*24 = $480
- Add $0 per month to a 24 month $49 Cap plan, so the cost of the phone is $(0+14)*24 = $336
- Adds $0 per month to a $59 Cap plan, (but there is no equivalent SIM-only plan)
- Adds $0 per month to a $79 Cap plan, so the cost of the phone is $(0+24)*24 = $576
With Vodafone’s Infinite plans the only difference between a plan with a ‘$0 upfront’ phone and a SIM-only plan is at the $45 level where the SIM-only plan gets an extra 1GB of data, so it is hard to infer the charge for a ‘$0 upfront’ phone. With these plans, the Nexus S and the Samsung Galaxy Fit are ‘$0 upfront’, as of course are the far cheaper Nokia C2-01 and Nokia X3-02, so it is only possible to see the price of an iPhone in terms of additional monthly charges for upgrading from any of these. For example:
For an iPhone 4S 64GB, the extra charges on Infinite plans are:
- $45 12 month: $57 ($684 over 12 months)
- $65 12 month: $52 ($624 over 12 months)
- $85 12 month: $42 ($504 over 12 months)
- $100 12 month: $38 ($456 over 12 months)
- $45 24 month: S25 ($600 over 24 months)
- $65 24 month: $15 ($360 over 24 months)
- $85 24 month: $10 ($240 over 24 months)
- $100 24 month: $0.
For an iPhone 4 8GB, the extra charges on Infinite plans are:
- $45 12 month: $27 ($324 over 12 months)
- $65 12 month: $22 ($264 over 12 months)
- $85 12 month: $12 ($144 over 12 months)
- $100 12 month: $0
- $45 24 month: S12 ($288 over 24 months)
- $65 24 month: $2 ($48 over 24 months)
- $85 24 month: $0
- $100 24 month: $0.
Given the prices these phones are at an Apple Store ($999 and $679, respectively), it may seem hard to justify buying either of them outright from an Apple retailer to use with a SIM-only Infinite. It would make no sense to ask for an iPhone 4 8GB with a $100 Infinite plan given that the superior iPhone 4S 64GB costs no more.
While the earlier calculations revealed the significant discount on iPhones that is achieved if they are obtained via a Vodafone Cap plan rather than an Apple retailer, the implied discount seems even better on the Infinite plans. I was about to conclude that a $45 Infinite plan was an better deal than a $49 Cap plan for an iPhone users, but when I went back to Vodafone’s website for a final check to make sure there was no area in which the $45 Infinite plan was inferior, the plan had been replaced by the $50 Infinite plan with the monthly add-on cost of an iPhone 4s 64GB reduced to $20 on this plan but cut to $10 on the $49 Cap plan. With the $50 Infinite offering unlimited domestic calls and texts but the $49 Cap offering 1GB more data, it is not obvious which one dominates.
Take care, and, as you do so, keep in mind how fast the price of phones is coming down whether you buy them outright or via a service plan: if you can get by with your existing handset for another six month or a year, it may save you hundreds of dollars.
