An ode to PayPass (from the future)

Remember the EFTPOS minimum? Hahahaha!

What a time that was!

Back when Eftpossing was seen as a  privilege. Back when it was a hassle!

My goodness. How barbaric we were.

I recall carrying around these heavy metal discs.

Coins, they were.

God, what a pain! But under the old system, you couldn’t just pay the amount you wanted. you had to pay with whatever combination of money you had on your person.


It’s funny the things we didn’t expect would improve our lives. The future is here. And there’s still no flying cars.

It turns out even something as simple as improved payment systems is incredibly hard to achieve. Nobody owns the payment system, so it’s hard to get people to invest in it.

Even Apple has had little luck making their new payment system widespread enough to please people. It’s in 220,000 outlets, but that is apparently just a fraction of all the shops people go into. And payments are about habits. You need to have your payment option available everywhere someone wants to pay.

RBA Governor Glenn Stevens spoke about the payments system last week. As well as interest rates, the RBA is responsible for managing payments.

He said this

“Overall, the record in Australia in instances where innovation requires cooperation between established players, especially where one or more of them feels the need to protect an existing line of business, is mixed… This isn’t just a problem for the industry. It’s a problem for the users of the system as well. Innovation in the ‘cooperative space’ – where no single entity has control – is critical because it is this space that determines the limits on the services that the rest of the payments system can provide.

Australia now has an Australian Payments Council to try to smooth the path to the future. The measure of their success will be forcing this yellow line down below zero.

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A huge push for new payments to become a reality will come via the New Payments Platform. That’s a new payments architecture being funded by 17 major banks.

It’s very promising – so long as it isn’t crippled by vested interests along the way.

Here’s what the Governor had to say about the process of keeping those 17 banks cooperating :

“This approach, however, is not without its challenges. It requires that industry leadership and collaborative spirit be maintained over a sustained period. At various key moments the project faces the risk of that spirit breaking down….


This is where the broader governance arrangements now in place need to take into account the interests of users and the need for the system to be open to competition, not just the interests of the existing players. We – the industry and the Reserve Bank itself – are building a piece of national infrastructure. We should take every opportunity to increase its potential value to the nation, rather than limiting it for fear of where it might take us.”

I for one look forward to a time when I can take a jar of coins into the bank for the last time, burn my wallet, and leave the house without patting my hip pocket a dozen times, just to make sure.

The price of solar energy just did something amazing

I don’t write much about energy. I love economics and policy, but there’s only so many fields you can get excited about. I normally prefer to focus on transport, cities, the labour market, taxation, trade and technology.

But the developments in solar energy make the field impossible to ignore.

solar price
Source: Bloomberg

The price of solar energy is now lower than its competitors throughout most of the US. In fact, there are 36 states that are either sunny enough (California) or far enough away from the oil (Vermont) that solar will be the cheapest choice in 2016.

In India, solar is now cheaper than importing Australian coal.

In Victoria, the feed-in tariff paid by government for electricity generated on people’s roofs is 6.2c per Kilowatt Hour. Meanwhile AGL is charging 22c/ kilowatt hour for their product.

The potential of solar is enormous.

Currently, solar provides around 1 per cent of Australia’s energy. But we have the rays to make a lot more:

Kilowatt hours per square metre. Source Wikipedia
Kilowatt hours per square metre. Source Wikipedia

The long-time global leader in solar power is Germany. They use the sun for 3 per cent of their electricity needs. Here’s that same* map for them. Note the scale is different. Germany’s red is equivalent to Australia’s light green.

germany solar

Obviously solar is not yet dominant in Australia, and the technology is far from settled..

Even the basics can improve a lot more. For example, placement of panels. The traditional choice has been between having them fixed and having them move to chase the sun. The former is generally preferred for it simplicity.

When fixing them, obviously you should point them at the midday sun. Right? Apparently not. The smartest thing to do is point them at the sunset.  The point is not to maximise supply, but to maximise supply when demand is highest – i.e. people get home from work. The late afternoon is when traditional coal-burning power stations ramp up, and when solar can best counter the spike in prices.

The other problem with solar panels that all point at the midday sun is packing them in. Solar arrays have to use more space because the panel in front casts a shadow on on the one behind. A british academic reckons east and west facing panels can be packed in twice as densely.

Battery technology also needs to improve for solar to manage the evenings and cloudy days.

You can see the impact of clouds on this super-cool interactive and animated live map that shows the share of Australian electricity demand being met by solar panels. As I type this at 9am, Queensland is winning with 5 per cent of electricity coming from solar. Click to play with it.

Solar energy may need a boost from government, but the policy space around energy is a hot mess.

I wanted to say something smart about it, but between The Renewable Energy Target (which the government is trying to change) and the Clean Energy Finance Council, the Clean Energy Regulator, the Australian Renewable Energy Agency, feed-in tariffs and solar subsidies, the Solar Cities Program and Direct Action, I’m not sure if we end up with too little policy or not enough.

But overall I note that Australia lacks large-scale solar, which doesn’t seem ideal.

I suspect economies of scale mean individuals putting their own solar panels on their roofs won’t be the dominant trend for ever. Installation costs are pretty significant in the life-span of a solar panel. Furthermore, homes mainly use energy at night.

Costs will fall if big organisations can do solar at scale on the roofs of industrial buildings and in areas where land is cheap. Like this massive installation in rural NSW.

AGL Nyngan


I look forward to a day when you drive the Australian outback and know the bloke leaning on a fence post and chewing a stick of grass is as likely to be an electrical engineer as a drover.

How the end of Facebook will come

Facebook looks like a titan. Its empire is big enough now that its end won’t come quickly. But all the ingredients for the fall of Facebook are there already.

Facebook has 13.4 million users in Australia. About 9 million use it every day. Out of a population of 23 million, that’s almost complete saturation. At the moment many families have two generations on facebook. Before long it will be three.

You hear stories that the youth are “using snapchat instead” but I suspect most kids will have a facebook account, even if it is unfashionable to use it. It probably just takes one missed party invitation to crack and sign up.

Globally, 1.23 billion people use Facebook. That’s one in six of the world’s population.

Screen Shot 2014-10-28 at 9.52.00 am

So at the moment Facebook is everywhere. It’s the Coca-Cola of online communities – it’s everything to everyone. How can it ever be usurped?

The idea humans will only ever need one social network is wrong.

Most people are already on more than one, even if they don’t necessarily see it like that. Twitter and LinkedIn and Ello are obvious ones to mention. But online games and forums are somewhat-competitors to Facebook. So is any site on which you can make an account and leave a comment or ‘like’ an article.

As Facebook becomes the mainstream backbone of our social networking, lots of little social networks to meet specific needs will come up.

Why can’t Facebook just meet all those specific needs?

Whenever someone talks about the one big solution that will replace all the other kludges in our life – in any field – I think about the kitchen.

This is perhaps the most intensively used, tried and tested set of “apps” in human endeavour.

Mostly we need to apply heat to food. Do we have just one big heat source that does everything? Hell no. My kitchen has at least seven different ways of warming food and drink: an oven, a microwave, four gas burners of different sizes, a kettle, a coffee machine, a sandwich press, and a toaster.

Source: Wikipedia
Source: Wikipedia

Mature markets don’t offer a Swiss Army Knife solution. ‘All-in-one’ is really a synonym for ‘not very functional at anything.’ If this wasn’t true, we’d all wear those pants that zip off to become shorts.

Facebook will be the backbone of our social networking. In kitchen terms it is our stove – the one thing everyone has. But that does not mean it will be the only network we need. Everyone will experiment with a few other networks for their own preferences.

One day, one of those social media that meets some people’s needs will have a cool feature that means it suddenly has almost as many users as Facebook.

Then, the owners of that network will have a choice – do they try to become the new backbone, or do they try to remain a niche app? The rewards are probably highest in becoming the new backbone app, so they will try to knock Facebook off its perch.

Facebook’s purchases of Instagram for $1 billion and What’sApp for $19 billion make a lot more sense from this perspective.

Facebook was once just a little app for college kids to find each other. It recognises the potential for a simple and effective app to become global fast. It knows it has to prevent a competitor from rising. The easiest solution is to make your competitors your employees.

But with the payoffs to being a Facebook competitor rising, many more social networks – including things that don’t look exactly like social networks – will enter the fray. Many will end up big enough to get buy-out offers from Zuckerberg.

But eventually one of those will be owned by a young entrepreneur with a Napoleon complex who’ll turn down the offers in order to take a shot at the throne. I give Facebook ten years.

Australia and China: an unbalanced relationship.

I think this must be the most-seen three-word phrase in the history of humanity:

Made in China

Unlike liberte, egalite fraternite, or love thy neighbour, Made in China crosses national boundaries with ease, creating only a minimum of tension.

Australia, however, is in the unusual position of running a merchandise trade surplus with China.

Screen Shot 2014-10-21 at 1.14.23 pm

This graph shows merchandise imports and exports from Australia’s perspective. Somewhere around 2009, our exports to China started growing much much faster than our imports from China.

So far, so nice. But the imbalance in our relationship has another aspect.

Far more Chinese visit Australia than Australians visit China. This is intriguing.

Should we be worried about this? What does it imply about our level of interest in our #1 customer?

Do Australians not even care about the culture and the people of China?

Screen Shot 2014-10-21 at 1.13.53 pm

Or is this just the result of there being 60 times more Chinese people than Australian people in the world? Certainly it is the case that the 23 million richest Chinese are richer on average than the 23 million richest Australians. (That’s all of us).

What will be interesting to see is if there is any correlation between the exports of merchandise and the exports of tourism services. When the taste for our iron ore drops off, will our hotels suddenly lie empty?

IN the meantime, I strongly recommend Beijing, especially if you can get there on a day when it’s not too smoggy.DSC00552 DSC00631 DSC00707 DSC00834

photo (2)photo (5)

Buy Australian: About as sensible as F*ck Off We’re Full.

Dick Smith Foods is at risk of closing down. 

The not quite-iconic Australian brand has seen sales halve and its future is cloudy. But Aussies are voting with their feet. They are happy to buy from overseas.

Is this bad? Shouldn’t we buy Australian?

australian mde

I say buy it if the quality or price is good. But not if you have to trade off price or quality. I think this is an example of how global markets are actually a powerful force for good. Let me explain.

I like to think of myself as socially aware. But I take a Rawlsian approach to social justice. I think support is wasted unless it is aimed at the worst off. The very rich giving money to the merely rich is not really charity, in my view.

This is why I support the charity rating system Givewell. And also why I support global trade.

Trade with poor countries helps people who might otherwise live on $1 day, while buying Australian might be the difference between someone driving a car and catching the bus. Trade has helped 1 billion people move out of poverty in the last 20 years.  Those people aren’t under our nose, so its easy to forget about them when you’re considering whether to buy jeans made in China or jeans made in Australia.

The only reason to value the welfare of Australians above those of foreigners is unexamined subconscious bias. I think that bias should be brought into the open and tested for how it impacts our actions and how our actions impact the lives of others.

Here’s a little argument I got involved in online today, in response to someone noting that their crumbed fish fillets had been caught in NZ, crumbed in China and sold in Australia.:

A: Apparently that is cheaper than just doing everything in the same country

B: Oh nooooo, that would be more jobs for our people, and we’d have to pay them gasp!

Me: “our people”

C: Get back to us on this when you’re a gen Y uni graduate with no job, work experience or any connections.

So, Do you buy Australian? Why or why not? Leave a comment below.

A Harvard Professor has two big reasons China will crash (and wreck your personal finances)

China’s economic growth has been very strong for a decade, making Australia one of the richest countries in the world. China has buffered us from the GFC, boosted exports, lifted house prices and invested in our businesses.

Forecasts are for more of the same: At Budget time, Australia predicted growth of about 7 per cent for China until 2017.

But Harvard Professor Lant Pritchett is doubtful about those forecasts. The economic development expert has published a working paper full of reasons why China is far more likely to come to a bust than continuing boom. If he is right, the Australian economy will be stuffed (a technical term) and we’ll probably all lose our jobs.

“History teaches that abnormally rapid growth is rarely persistent.”

This is the unique angle of his story. Pritchett doesn’t purport to analyse China in depth. He looks at economic history, comparing China’s streak of success to other countries’ growth spurts, and predicts reversion to mean.

“regression to the mean is the empirically most salient feature of economic growth. It is far more robust in the data than, say, the much-discussed middle-income trap.”

I’m inclined to think this approach has strengths. The current trope about Chinese policy-makers is that they simply set the level of economic growth that they want.

If this is true they are the only country in the world with that power.

What do we really know about the Chinese economic policy-making apparatus? We know only that it has been very successful, according to its own statistics. And everyone acknowledges those statistics are rubbery.

Pritchett compares betting on China to investing in the best-performing managed fund – past performance is no guarantee of future performance, he cautions us.

“The lack of persistence in country growth rates over medium- to long-run horizons implies current growth has very little predictive power for future growth”

Pritchett, it turns out, really hates extrapolation:

“Paul Samuelson’s textbook predicted in 1961 that there was a substantial chance that the USSR would overtake the United States economically by the 1980s. There was a widespread view right up until the end of the 1980s that Japan would continue to grow and outcompete the world. Or in the opposite direction, consider the pervasive pessimism of even a decade ago regarding Africa. Since then, African countries emerged as a majority of the world’s most rapidly growing nations.”

His paper shows the correlation between growth in one decade, and growth in subsequent decades is low: from 0.3 for adjacent decades, down to around 0.1 for decades separated by 20 years.

“The median duration of a super-rapid growth episode is nine years… China’s experience from 1977 to 2010 already holds the distinction of being the only instance, quite possibly in the history of mankind, but certainly in the data, with a sustained episode of super-rapid (> 6 ppa) growth for more than 32 years.”

Pritchett instead suggests China will grow at an average of 3.3 per cent a year over the next decade. That means China’s GDP will be about half of what it would have been by 2033 than if it grew at 7 per cent.

Pritchett does make one concession to analysing China itself, and that is to note that growth is, on average, less variable in countries that are more democratic.polity and growth changes

“For China, continuing to have rapid economic growth while maintaining its current level of democracy (as proxied by its Polity score) … would make it more and more anomalous.”

So if China crashes, what should you do?

1. Have a job that doesn’t depend on China (BHP bad, Qantas bad, universities bad, milk exporters bad. Doctor and primary school teacher probably safe.)

2. Have a job that can survive in a downturn. (BMW retailing bad, electricity retailing good)

3. Get out of shares. Australia’s corporate profits depend on Australia’s growth, which depends on exports to China. A China collapse and a stock-market collapse would look like that Olympic event where the two divers leap from the platforms at the same time.

4. Sell your property. China props up our house prices directly (by bidding on them) and indirectly (by making us wealthy). When the firecrackers stop popping in Beijing, auctions in Australia are going to be cold and quiet for a few years.

5. Put your money in a government guaranteed deposit account (and get ready to get very little interest indeed, because the RBA will be busy cutting rates to near-zero.)

In summary, let’s all hope Mr Pritchett is really wrong.

Why the Nobel Prize is worth a little less this year.

This year’s Nobel Laureates got a raw deal.

The prize of 8 million Swedish Kronor was the least valuable prize awarded since 1990. Eight million Swedish kronor is worth $1,280,000 in Australian dollars, which is nice, sure.

But it’s not that rich when you consider the 2001 prize was 10 million krona, worth over $A1.9 million.

nobel 2012
Me, Stockholm, 2012

The value of the Nobel prize has varied a lot over time. Alfred Nobel gave the Nobel Foundation 31 million krona in his will, with instructions to give prizes to those who have conferred ‘the greatest benefit on mankind.’ The first prize was 150,000 krona, (worth 8 million krona in today’s money.)

nobel value

As the graph above shows, the foundation did a pretty bad job of protecting the buying power of the prize. The value of it fell steeply pretty much straight away. Some of the investment downturns coincided with World Wars and the Nobel Prize reached a low ebb in 1945 when its buying power was less than 30 per cent of in 1901.

Of course, that was the lucky year for Australia’s Howard Florey. Not only was his prize worth the least ever, but he also had to split it with two others, Fleming and Chain. That’s what you get for inventing penicillin.

The Nobel Foundation now has a very large sum of money. They turned the initial 31 million Krona into over 3 billion today, and give away just about a quarter of a percent of that total for each prize (of which there are six).

There is detailed data only on the first year and then years since 1975. I interpolated some data after 1901 for illustrative purposes.



Nobel instructed the money to be invested in “safe securities.”

The wild variation in the blue line above suggests that is being interpreted fairly liberally.

And when we dive into the Nobel Foundation’s annual report, we can see they are invested quite aggressively.Screen Shot 2014-10-14 at 9.48.28 amSo if you have a Nobel Prize winning discovery, my advice is to save it up and release it in a year when the global stock-markets are doing well.