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.)

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.

As an example, consider the financing of a $500,000 property that rises in value by 10% to $550,000, for which the buyer is able to make a $100,000 deposit. For simplicity, assume the 10% price increase takes place in the first year of ownership. Under the existing system, if the buyer takes out a mortgage from, say, the ANZ bank at 7.55% over 25 years, the monthly cost will be $2969, so the annual cost is $35,628. If the property would have cost, say, $500 per week to rent and, after tax, the $100,000 deposit could have yielded, say, 4% as a bank deposit if the house had been rented rathe than purchased, then the net outlay on renting would be $22,000. By renting, the consumer suffers a 6% loss in their capacity to offer a house deposit instead of enjoying capital gain, whereas buying the property and spending an extra $13,628 to service the mortgage produces a capital gain of $50,000, a net gain of $36,372. In this scenario, it pays to own rather than rent, leading to upward pressure on housing prices that generates the capital gains.

Under the mortgage indexation proposal, the numbers would be as follows. If the house is purchased, then by the end of the first year of ownership the mortgage will have been marked up to $440,000, leaving the consumer still with 20% equity in the property. and the monthly mortgage charge at 7.55% would have gone up to $3266, so the average cost per month would have been ($3266 + $2969)/2 = $3117.5 and the cost for that year would have been $37,410. The consumer’s nominal equity in the property has grown from $100,000 to $110,000 but if they had rented and left their $100,000 in the bank not only would it still have grown to $110,000 but, at 4% after tax, on an average of $105,000, it would have yielded $4200, so the net outlay on renting at $500 per week would have been $21,800. In other words, owning costs $15,610 more than renting over the year. If it pays to rent rather than own, the chances of real estate prices actually increasing by this amount are reduced. If real estate prices do continue to increase, this will be driven by demographic and supply-side issues (that will also affect rental costs and therefore not affefct the rent/buy choice in the long run) and by preferences for ownership that have nothing to do with the prospect of capital gains, such as the greater security of tenure and control that come with owning a property. Once property speculation is removed from the equation, there will be less turnover of properties for speculative reasons and this should increase the security of tenure of one is renting.

Under current policies, the Reserve Bank tries to limit inflation by raising interest rates. In the indexation scenario, the monthly mortgage fee of $3340 is almost exactly the same as what it would cost to service a $400,000 unindexed mortgage if the interest rate were raised by 0.67% to 8.12% ($3119, according to the ANZ bank’s calculator). If the Reserve Bank steadily increased mortgage rates by that much during the course of the year in the no-indexing scenario but property prices still rose by 10%, the mortgage servicing costs for the year would be 12*($3119 + $2969)/2 = $36,528 and the property buyer would get a net capital gain of $13,472. However, since the mortgage costs an extra ($36,528 – $22,000) = $14,528 to service compared with renting the house and leaving the deposit in the bank, there is actually a $1056 loss (i.e., $13,472 – $14,528) in terms of opportunity cost. If the higher interest rates actually limited the rise in property prices, the opportunity loss would be bigger. However, so long as the current approach tend to impose smaller threats of opportunity losses than in the indexation scenario with similar monthly mortgage charges, the indexation system is likely to be more effective as a means of controlling inflation of real estate prices. If the current approach has less leverage on house prices, it is less of a deterrent against risking financial stress for the prospect of capital gain, and hence it is a policy more likely to be associated with mortgage defaults.

In the mortgage and deposit indexation scenario, inflation of house prices will be limited but to the extent it still occurs tendencies of depositors to increase their spending as their deposits are increased will be offset by reduced spending by those with bigger mortgages to service. This is in sharp contrast to what has occurred with non-indexed mortgages, where those who purchase real estate subsequently partially index their mortgages themselves by withdrawing their capital gains (e.g. via drawing more heavily against overdraft-based mortgages) and spend them on increased consumption.

It needs to be stressed that in the indexation scenario, real estate prices could still rise despite it being impossible for those with mortgages to increase the percentage of equity they held in their properties without actually paying off their loans. If only deposit accounts that fund mortgages are indexed, the speculative focus will switch to the possible gains to be had from having deposits in the indexed accounts rather than unindexed accounts. If underlying real forces of supply and demand are expected to produce an upward trend in property prices, people will want to keep their money in the indexed accounts unless the banks reduce the nominal interest rates they pay and (if interest rates tend towards zero) impose higher account maintenance fees to discourage deposits.

Banks will tend to try to deter deposits by these means rather than increase their lending on real estate to a degree that is out of line with underlying real forces. Under the indexation system, deposits that fund mortgages would be seen as a safe haven for funds in times of inflation but, with the scope for making capital gains on mortgaged properties removed, people would only be buying real estate with the aid of mortgage finance because they wanted it for its use value and option value. This will limit their enthusiasm to take on bigger mortgages that banks are offering as a result of having surplus funds, while banks will also limit their lending, and prefer instead to deter mortgage-funding deposits, due to a shortage of would-be borrowers whom they judge to be creditworthy.

Legislation that brought in the mortgage indexation system but limited banks’ abilities to charge onerous deposit management fees would seem likely to result in banks having to offer indexed deposit accounts more generally (to the general price level) in order to limit inflows into their indexed mortgage-funding accounts. This in turn would put them under pressure to index other kinds of loans. All in all, in the absence of wage indexation, a policy that resulted in the indexation of both sides of the balance sheets of financial institutions has great potential for curtailing inflationary pressures: if prices are expected to rise, consumers will have incentives to pay off loans faster and be less willing to finance spending by borrowing when this entails an indexed loan, while there will be less of an incentive to spend money if it is protected from having its value eroded by inflation.

The automatic stabilizing forces work in the opposite direction if the economy is tending to suffer deficient aggregate demand and falling prices. If property prices fall, the indexation policy would soften the impact on the level of real spending in the economy. It would reduce the probability of mortgage defaults as mortgages would become more affordable even if interest rates were not lowered. Those with mortgages (and other indexed loans) who kept their jobs would enjoy increasing the real purchasing power, while those with financial balances would not have an incentive to hold back on spending them on the basis that things would be even cheaper in future, for if that happened, their deposits would likewise be marked down.

For the policy to work efficiently, mortgages would need to be indexed to median values in the suburb in which their respective properties are located. Indexing mortgages according to national real estate prices would cause problems since some areas will rise faster than average (thereby still providing opportunities for capital gains from speculation) while others will rise slower than average (thereby tending to have over-indexation of mortgage amounts, thereby running down homeowner equity in mortgaged properties in those regions).

If mortgages were indexed without deposit indexation occurring, rises in real estate prices on the assets side of bank balance sheets would be matched by rises in banks’ reserves rather than rises in their deposit liabilities (unless these profits were paid out to shareholders, with their accounts being credited with the dividends). This would mean that banks still had an incentive to pursue lending policies that contributed to the inflation of real estate prices, though they would find it harder to encourage customers to take up such loans. Without deposit indexation also being introduced, any tendency of real estate prices to rise despite mortgage indexation would continue to provide an incentive towards buying real estate sooner rather than later due to falling purchasing power of savings for home deposits relative to housing prices. With deposit indexation, this incentive is removed and the extent to which capital gains are captured in banks’ reserves is also limited.

When a bad loan is written off, or some other form of capital loss is suffered, the bank’s assets are written down by the amount of the loss, as are its reserves. A bank is insolvent when the losses that have to be written off are bigger than its reserves. The shortfall in reserves means that the bank can only pay its depositors a fraction of their deposits. If the depositors panic and try to withdraw their money en masse, the bank may then have a liquidity problem too, for it will not be able instantly to liquidate its loans and it may have trouble borrowing funds from elsewhere to repay its depositors. In the early phase of the Global Financial Crisis, the problem was more a liquidity problem than a solvency problem, for banks got nervous and became unwilling to lend to each other at a time when some institutions needed to pay out panicking depositors or simply refinance existing deposits. But increasingly the solvency issue is threatening to drive the financial system into meltdown.

When a bank is insolvent, writing down the value of deposits by the value of the shortfall does not fully solve the problem even if it does not cause further loan defaults due to depositors being unable to meet their financial obligations after having their deposits marked down. Such a writing-down of deposits will still leave the bank without any reserves, so it either needs an injection of new shareholder capital or a period of sustained profits to restore its reserve position. To the extent that banks in general are worried about growing insolvency risks, we may expect to see them increasing the ‘spread’ between their loan charges and rates of deposit interest and hence their retained profits. If this is going on, banks on the marginal of survival may likewise start to generate operating profits and start to accumulate new reserves. This way of staving off disaster involves the burden of adjustment being borne by the banks’ borrowers, not by their depositors. If bank margins are increased prior to loan defaults, shareholder capital may not be wiped out and depositors will not have their deposits written down. But pushing the burden of dealing with previous bad lending decisions on to the borrowers may increase the scale of defaults.

Because of this, policies aimed at preventing the collapse of banks have tended to involve the banks being provided with financial assistance or ensuring that their debtors do not default. If a government nationalizes a failing bank and recapitalizes it, the bank’s reserves are restored and a write-down of deposits is avoided. However, instead of having their deposits written down in value, members of the non-bank private sector still end up suffering a reduction in their wealth if the government borrows on financial markets to pay for bank recapitalization and then increases taxes to service and eventually repay these loans. In terms of the banks’ balance sheets, assets are reduced by the amount of the loan write offs as are reserves (to the extent that loans are indeed written off) but so, too, deposits. In essence what happens with deposits is that some deposits are used to buy government debt, with the money received by the government then ending up in bank reserves. As the loans to the government are serviced and repaid, the bank deposits of those who bought the government bonds are replenished and those of the rest of the public are reduced. The rest of the public’s bank deposits end up being lower than they otherwise would have been due to increases in taxation or cuts in public spending. This, in essence, is what has happened in Ireland. The masses end up paying for the incompetence and/or opportunism of the bankers.

From a Keynesian standpoint, the Irish solution looks crazy if implemented at the level of the world financial system as a whole. There is no need to impose burdens on ordinary people in order to revive the financial system, for governments can simply ‘print money’ (aka ‘engage in quantitative easing’) in order to buy up failed banks and recapitalize them. Under quantitative easing, government debt grows and the debt does not end up in the hands of the private sector but on the assets side of the reserve bank’s balance sheet.

The Keynesian solution is only open to governments in command of their own currencies, such as the US and the UK. It is not an option for Greece and Italy, since they are members of the Euro zone, and neither is their problem one of bank solvency within their countries. Rather, the problem is of Greece and Italy is their inability to service or refinance their own levels of borrowing, which threatens the solvency of banks in other countries. The governments of the latter, such as France and Germany, are addressing the problem by trying to prevent sovereign debt defaults – i.e., by agreeing partially to refinance the problem deficits so long as they are also partly reduced by austerity measures being imposed on the populations of the debtor countries. In this way, the populations of corrupt, poorly-managed economies are given a strong message that they had better elect better governments that will reform these economies to ensure such problems do not recur; they do not get off largely without penalty. Their fate is in sharp contrast to that of the least credit-worthy of the US sub-prime mortgage customers, who walked away with their new furnishings and cars after defaulting on negative equity home loans that they had used, while the market was rising, as if they were getting money out of an ATM.

If Greece or Italy were to leave the Euro and default on public sector debt obligations, their residents would still end up suffering reduced real incomes, for their new currencies would fall in value against the Euro and other currencies, raising the prices of imported goods. (Residents of these countries would therefore be wise to hold their current Euro wealth as cash rather than as electronic bank deposits for as long as the risk of exit from the Euro is present.) But they would have a bigger chance of avoiding unemployment and lost output, and part of the problem would then be pushed over to the banks and, ultimately, governments and residents of other countries. The remainder of the Euro zone, and other countries in which bank solvency was jeopardized by exposure to Greece, Italy and their like, would then face a choice between the Irish solution and a more Keynesian strategy based on quantitative easing and bank nationalization. If they were foolish enough not to go for the latter, Keynesians would surely hope that an Irish-style solution would be modified by ensuring that the burden of the austerity measures fell on the rich (especially bankers), whereas in the Irish case the bankers and elite public servants were insulated from the cuts and tax increases. If the less well-off have a higher marginal propensity to consumer than the rich, a more egalitarian version of the Irish solution may also have less adverse implications for aggregate demand.

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.

Unfortunately, there is a complication. Some of the income received from the stimulus packages will be spent on imported goods and services, creating a demand for foreign currency. This will tend to push down the value of the domestic currency. If this does happen, then residents of the country will face higher prices for imports, so some of the real income gains from the stimulus will be lost. The reserve bank could try to maintain the domestic currency’s value by running down the country’s foreign currency reserves by an equivalent amount – if so, the stimulus package has not been a ‘free lunch’. Alternatively, the rise in imports might not result in a fall in the domestic currency’s value if the overseas counties returned their earnings by spending on goods and services from the country that implemented the stimulus package or by buying that country’s financial assets such as government bonds or shares in the country’s firms. To the extent that the stimulus package results in the overseas sector buying up the country’s financial assets, the stimulus package does involve a cost to the economy, despite being financed by quantitative easing. It is a cost that will grow with time because of interest/dividend earnings on these securities, quite apart from any need to pay off the principal at some point. In short, the ‘free lunch’ story of Keynesian stimulus packages financed by quantitative easing works fine for a closed economy but runs into trouble in an open economy setting. Treasurers who try to reduce unemployment are likely to end up adding to their country’s foreign debt, which will eventually require servicing from greater export earnings and may, if the financial markets get nervous, lead to a collapse of confidence in the domestic currency. Treasurers thus will find themselves torn between the pain of unemployment today or the pain of a debt crisis further down the track. With employment affecting fewer voters than would be affected by a debt crisis, it is easy to see why they might end up, as in the UK, backing away from Keynesian policies.

The thing to notice about all this is that it is not that the Keynesian free lunch is not available in times of recession but that the world economy operates with a deflationary bias – something that was emphasized long ago by Joan Robinson (in her 1966 inaugural lecture in Cambridge, reprinted in 1973 in her Collected Economic Papers Volume IV, Oxford, Blackwell) and Michael Stewart (in his prescient 1983 book Controlling the Economic Future: Policy Dilemmas in a Shrinking World, Brighton, Wheatsheaf). The foreign debt problem arises because the countries with trade surpluses – most notably China – insiston having undervalued currencies and/or fail to engage in stimulus packages of their own to ensure that their demand for products from the rest of the world rises far enough to offset the trade deficits of the nations that try to pursue Keynesian policies. The financial markets punish the economies that do the right thing in Keynesian terms and end up with rising foreign debt (for example by downgrading their credit ratings), while those with seriously undervalued currencies end up being allowed to own an increasing share of the world’s financial assets.

Given this set of incentives it is not surprising that we have been witnessing both the non-Keynesian policies of spending cuts being undertaken in the UK but also beggar-my-neighbour attempts at competitive devaluation to reduce the need for stimulus packages. If the world is to get out of the Global Financial Crisis, measures will need to be implemented to remove the deflationary bias and coordinate expansionary policies so that they realize the Keynesian free lunch and do not exacerbate any nation’s foreign debt problems. Bodies such as the G20 could have a major role to play here; individual countries cannot deal with the problem unless the follow the kinds of import control policies advocated during the 1970s by Wynne Godley and his fellow Cambridge Economic Policy Group members. Such policies would be aimed at stopping a demand expansion from partially leaking out to the rest of the world, rather than at reflating domestic demand by cutting imports from the rest of the world. But it is hard to imagine them being adopted in the age of the WTO.

The basic idea

In essence, the proposal recognizes the rightful ownership of the land by the ATSI people as a whole. However, rather than them being given back the freehold title to all of Australia’s land, with the rest of the population (and ATSI who presently have purchased land of their own, such as the more financially successful living in urban areas) leasing it back from the ATSI people, the ATSI are assigned shares of an income stream derived from the land. These shares—entitlements to flows of income from the land—I propose we call ATSI bonds. ATSI would receive income from their ATSI bonds until they died, but would not be able to bequeath the bonds to anyone, so on their deaths their bonds would be cancelled. However, new bonds would be created for members of new generations of ATSI. The dividend stream for ATSI bonds would be generated by a reform of the public finance system in which marginal income tax rates and spending on ATSI income support were reduced while there was a significant increase in taxation on unimproved land values with what, for want of a better term, I shall label as an ATSI levy. The proceeds from the ATSI levy would then be divided up amongst ATSI according to their eligibility. Earnings on each bond would thus depend upon what happened to revenue from the ATSI levy and on changes in the population of ATSI. If the number of full-ATSI-equivalent member members of the population increased faster than revenue from the ATSI levy, then the average payments to them would be reduced.

The scale of the ATSI levy would not need to be huge. Consider some rough calculations. The median ATSI age is 20 and the ATSI population is about half a million out of about 21 million. So if 250,000 adult ATSI were to be provided with an annual payment of, say, $50,000 (roughly Australia’s per capita income) would cost the rest of the Australian population (20.5m) only about $640 per head per year. Actual costs would be less than this, since income taxes would be reduced and the payments themselves could be treated as part of the recipients’ taxable income. It would be still less if people currently can qualify as ATSI for benefits purposes on a less than full blood basis. Social security and unemployment benefit arrangements might need to be modified to ensure that ATSI with substantial unearned income could not claim benefits, in line with the rest of the population.

The ATSI levy to generate income for the ATSI bonds could be charged simply as a percentage of the current valuation of unimproved land, as used for rates assessment by local authorities. The big political question is what the appropriate levy rate should be. In terms of economic justice, a first approximation might be, say, three per cent, a figure commonly used as a rule of thumb for the normal rate of return to expect after inflation on a safe asset. With the unimproved valuation of a typical quarter acre block of land in a large Australian city often at least $150,000 nowadays, this would imply an annual levy per house of, say $4,500. This would probably be politically unacceptable, not merely because of the cost to property owners but also because it would very likely imply six-figure payments per year to ATSI (if the average land value stood at $150,000 and there were eight million properties, a three per cent ATSI levy would permit 250,000 adult ATSI each to be paid $144,000). A one per cent levy might be about all that would be needed to ensure $50,000 per year per adult ATSI. But the implications of a three per cent levy certainly should give the non-ATSI population pause for thought about the extent of the ATSI grievance in economic terms.

The size of the levy imposed on property owners could be reduced, for a given total ATSI bond income flow, if it were augmented by a slice of any resource rent taxes charged on minerals extracted from underneath the surface of the land.

It may appear that what is being proposed is akin to a glorified form of ‘Sit Down Money’ or dole payments, but the philosophy is entirely different. To be sure, some might decide not to try to look for work if the dividend from being an ATSI were high enough, but this would be no different from the situation of the ‘idle rich’ or those who have retired. However, this flow of income is not demeaning and instead reflects an acknowledgement of rightful entitlement. It can be on a scale to enable ATSI to escape from poverty and make it easier for them to relocate to places where jobs are easier to come by but where costs of living may be higher. Moreover, as I explain later, because the flow of income is based upon an asset, it puts ATSI in a position where they can raise money to improve their qualifications and lifestyles. If they are put in a better position to acquire property of their own, it is likely they will look after it rather than end up living in the midst of what often seems to an outsider to be a version of the Tragedy of the Commons, namely, over-crowded housing that is being trashed.

How entitlements could be worked out

If ATSI bonds are designed to make amends for disappropriation of ATSI from their land by European settlement from 1788 onwards, then ideally in deciding entitlement one would wish to work out a person’s ATSI fraction by studying their family trees right back to the arrival of the First Fleet. Clearly this is impractical. More capable of implementation is the idea that the number of ATSI bonds a person would be granted would depend on the number of ATSI great-great-grandparents they had. Full-blood ATSI would receive 16 ATSI bonds, those with just a single ATSI great-great-grandparent would receive one ATSI bond, and so on. If this were too problematic in terms of proof, then more modest schemes based on a maximum of 8 bonds and great-grandparents, or based on 4 bonds reflecting the number of possible ATSI grandparents. Clearly there could be major administrative problems for establishing a person’s lineage in some cases (in the absence of documentation, could one rely upon family oral history, for example?), but these problems are present in current welfare systems.

Whatever fraction a person is deemed to be an ATSI, there needs to be further rules about the age at which they become eligible to receive earnings from their ATSI bonds, and about whether or not earnings entitlements will be age-related (in the way that income from work and asset accumulation often is) after the initial age threshold has been crossed. If would, of course, be possible to have a system in which ATSI bond entitlements and earnings began at birth, with the earnings stream being paid to the (active) parents until the child turned, say, 18. But such an approach is clearly open to abuse by the parents and could result in a major incentive to have children just to profit from their earnings streams if the flow of income from bonds were much in excess of the costs of rearing children to adulthood.

Two alternative strategies for dealing with the child/adult issue stand out as contenders. One is simply to begin entitlement and pay ATSI bond income from 18 onwards, with children being treated exactly as for non-ATSI families in terms of Family Tax Benefit, etc. The other is to have entitlement beginning at birth but to pay the income from birth to 18 into a trust and invested. At 18, the accumulated capital could be used to buy an annuity, the income from which would supplement the flow of income from the person’s ATSI bonds. Alternatively, the accumulated capital could be turned into units of an investment trust deemed to be owned by the person in question and open for them to sell, along the lines of a conventional investment trust. The second class of strategies clearly requires much more financial sophistication on the part of the ATSI recipients and makes their overall income streams much dependent on the competence of the trustees. It would also require policymakers to decide what to do about taxing trust earnings on income on assets being held up to age 18. While the investment trust units variant would permit newly-adult ATSI to cash in their accumulated assets and get off to a head start financially as adults, rather than having the front-end loading that many young adults face with mortgage and student loan interest charges, this would still be possible with the simple ‘benefits from age 18’ approach, as the next section explains.

A market for ATSI bonds

Some ATSI may wish to sell their bonds in order the raise money to start a business, invest in their education or buy property. They should have the right to do so, with those who purchase the bonds then receiving the income stream from them and being able to on-sell them to others, should they wish to do so. The ability to sell ATI bonds gives ATI from remote areas a much bigger chance of moving to areas with higher living costs and, if they wish to do so, integrating with urban Australian society. However, it must be conceded that it does come at the risk that those who sold their bonds would not use very wisely the proceeds from selling them: some might use the money mainly to finance a catastrophic rate of drug and alcohol abuse.
To enable an ATSI bond market to operate, the bonds would be dated on the basis of the difference between the initial owner’s life expectancy and their age at the time the bond is offered for sale. If the bond is offered to the market for the first time in, say, 2010 by a 26 year-old ATSI male with a life expectancy, say, 59, then it would be recorded as a 2043 ATSI bond, with its stream of income ceasing at the end of 2043. A bond held by a female ATSI of a similar age but a life expectancy of, say, 65, would be recorded as a 2054 ATSI bond. Life expectancy figures used for dating the bonds would vary depending on the person’s age cohort.

In many respects, an ATSI bond, once offered and sold in the open market, would be like any other medium- to long-term government bond with a market value based on the present value of its future earnings, which would fall as interest rates on alternative assets rose, or vice versa. There would, however, be several potential sources of uncertainty about the income stream:

• If the rate of growth of the ATSI population fell (or an existing decline accelerated), the total number of ATSI-held and non-ATSI-held bonds would be smaller than it would have been, and earnings per bond would be higher.
• Rising life expectancy amongst ATSI would reduce the average earnings per bond.
• The earnings stream for ATSI bonds would be affected by changes in land values and, unless enshrined in law, by changes in the percentage rate of ATSI levy on land.
• The earnings stream of ATSI bonds could be affected by an adverse selection problem. Suppose ATSI who judged they had a poor chance of living to anywhere near their life expectancy sold their ATSI bonds, while those who had healthier lifestyles and judged they had a good chance of living well beyond their cohort’s life expectancy did not. If so, and if these guesses were correct, then the average longevity of ATSI who hold on to their bonds will increase while the earnings streams of traded ATSI bonds will run for longer than they would have done if they had not been traded. This would make the number of claims on the earnings pool bigger than it would have been in the absence of adverse selection.

The need to speculate about the these issues is, however, not limited to potential buyers of ATSI bonds: ATSI who potentially have long lives ahead need to work out what is likely to happen to their earnings through time before they reach decisions about whether or not to sell their bonds. This could limit the impact of the adverse selection problem: shrewd ATSI would have a bigger incentive to sell their bonds if they anticipated the impact of adverse selection on the value of earnings per bond for those who continued to hold bonds.

Once a market for ATSI bonds existed, ATSI would be able to use their bonds as collateral with banks if they wished to borrow money to finance education, buy property or other assets, or start a business. This would provide a means for ATSI to raise funds in cases where, for whatever reason, they were reluctant to sell their ATSI bonds in order to do so. This is, ultimately, perhaps the crucial difference compared with current systems of benefits paid on the basis of ethnicity: the current systems provide income but no asset base to use as a means for an ATSI to raise money to improve their position.

But once we decide, say, which new television or digital video recorder to buy, we’re still not out of the woods: what we’ve just decided to buy is  an appliance that has to be hooked up to something else, and we’ve still got to pay for it. These are two areas in which the retailers can use the element of surprise to make us pay dearly.

If it’s part of a home entertainment system, our new electrical device will be useless without the connecting cable, but we probably forgot to research cables because we had quite enough on our minds dealing with whether we ought to be getting an LCD, Plasma, LED or 3D TV, what sort of energy efficiency rating we can live with without feeling guilty, how big a screen we really need, and so on. What should we do when presented with HDMI cables ranging in price from under $20 up to $300 by a salesperson who suggests that we should go for the top-end cable? Do we really risk losing the gain in picture quality we would otherwise get from hooking a Blu-Ray player to a $3000 state-of-the-art TV rather than an ordinary $1000 TV? In psychological terms, the extra cost of a premium cable tends to seem small relative to the extra cost of the premium TV. This is an obvious area for ‘framing effects’ to be at work.

If we don’t have an Internet-capable mobile phone to research the answer on the spot, or are too embarrassed to challenge the salesperson by doing so, we should defer buying a cable or buy the cheapest one. We should not give into pressure and buy a premium cable. Before coming to the store we had coolly invested our time in becoming informed shoppers.  If it was worth spending an hour on the Internet to save $200 on the TV, it is worth spending an hour to save $200 or more on the HDMI cable. If we buy a cheap cable and discover it is perfectly OK, we won’t need to make a second trip. Even if we were to discover a premium cable is worth having, we could order that online and still avoid making a second trip to the store or a few days of being unable to hook up our new toy.

In fact, if we took a coolly economical approach to the cable choice, we would soon discover that there is little point in buying a premium HDMI cable unless we need a very, very long one. Digital signals either transmit perfect or they are conspicuously broken up; there’s no half-way state of fuzzier images. (See this report. for example

Even if we do the economically rational thing about the cable choice, we may still fall at the final hurdle. Quite aside from the confusion that may be inflicted upon us if we consider using in-store credit, we will face the question ‘Do you wasn’t an extended warranty?’ This is a question we are asked repeatedly as modern consumers of appliances and the fact we get asked it so often should be a warning to us. The retailer is trying to sell us an insurance product each time this question is posed. But if we own lots of these products, and expect to continue to buy yet more as technology moves along, we should normally decline extended warranties. Some appliances will fail when just out of their normal warranty but most will last for years: you win some, you lose some, but if you have a good sample over the long term, then it pays to self-insure.

When an appliance fails, we should buy another with the money saved by not buying extended warranties.  We may also try taking it back to the retailer and pointing out that a ‘consumer durable’ is expected normally to last longer than the manufacturer’s voluntary warranty period and hence there is an ‘implied warranty’ under the Trade Practices Act. According to the Report of the Productivity Commission Inquiry into Australia’s Consumer Policy Framework, extended product warranties often offer little more than the ‘implied warranty’ obligations that manufacturers face.

On top of this, there are the problems that we may run into in getting our appliances fixed under their extended warranties. A third-party contractor, who stands to benefit from having the appliance come back for further work, typically does the appraisal and repair. Consequently, the problem may not be fixed efficiently or effectively the first time the appliance is sent for repairs. The warranty company, at arm’s length from the process can be duped by the contractor more readily than the owner would be if dealing directly with the contractor. This is because the owner can observe the symptoms directly rather than merely reading what the contractor has written on a report. Hence an opportunistic contractor will be much more conscious of the risk of losing repeat business from individual consumers (who may also spread adverse word-of-mouth reports to their social networks) than from warranty companies. The prices of the warranties will need to cover the higher repair costs experienced due to this principal-agent problem.

The trouble is, even if we know all this, we still have to stand firm in the face of the salesperson’s patter. The willingness of salespeople to back off when presented with the economics of the situation varies: some will give in graciously but with others there can be a hostile response as they attempt to prevent their patter from being derailed. In the latter situation just remember: if you tough it out for a few minutes and leave the store without buying the warrant you will probably save more than you can earn in an hour.

For those who aren’t confident about the legal side of implied warranties, it only makes economic sense to buy an extended warranty in a few special cases involving very occasional purchase of very expensive items. One is where consumers are elderly and unlikely to be buying many other expensive appliances during the rest of their lives. Another is where buyers do not have the financial reserves that would be necessary to pay for major repair or replacement costs without having to use high-interest extend credit facilities on their credit cards. Those who are risking bankruptcy by using extended credit on a big scale to purchase all the latest appliances with extended warranty cover don’t come into this second category: they would do better to hold off from buying some of the appliances as well as the extended warranties. By being patient for a year or two, they can save on interest and then benefit from the tendency of these kinds of products to fall in price as technology improves.

I have used Google Scholar to calculate the citation rates for the most heavily cited half-dozen works by myself (an Associate Professor) and my heterodox economics colleague, Jason Potts (a Senior Lecturer) versus the four senior mainstream microeconomic theorists in the University of Queensland’s School of Economics, all of whom are at the rank of Professor. One of the Professors, Andrew McLennan, is roughly the same age as me, whereas the other three professors are younger than us but older than Jason Potts. If total scores for each of our top half-dozen citations are added together, the results are rather telling as regards the status rewards that come with doing mainstream economics rather than the kind of behavioural/evolutionary/institutional/Post Keynesian/Austrian economics that Jason and I do.

Total scores for top six most heavily cited works as of 1 July 2010

Dr Jason Potts: 748 hits

Associate Professor Peter Earl: 642 hits

Professor Andrew McLennan: 641 hits

Professor Rohan Pitchford: 305 hits

Professor Flavio Menezes: 242 hits

Professor Rabee Tourky: 170 hits

On this basis, the rest of us should all feel overpaid relative to Jason, but some of us appear more overpaid than others.

These results are, of course, somewhat rough and ready indicators of impact and input as they do not exclude self citations and no distinction is made between single and multi-authored works. For career-to-date indicators it would be better also to present tallies for all citations that have been achieved: my impression, however, is that this would make the mainstream/heterodox contrast even more glaring. It should also be noted that in calculating them it is necessary with books to add together separate entries that arise because of differences in the way that a particular book has been cited, for example, with or without subtitle and with UK or US publisher (for example, my Lifestyle Economics comes up in four different ways [104, 63, 3, 4] and The Economic Imagination comes up in three different ways [74, 74, 15]). Google Scholar has also taken to merging my 1990 Economic Journal survey on Economics and Psychology with my review article in Prometheus 1988 and reporting the total as though it is for the latter (as far as I know the latter has only been cited once, so I have removed this from the total of 127 recorded by Google Scholar).