Ask an Economist (Post #1005 and counting)

[JerichoHill]

Yeah, I know about that...thats my job.

But I don't think my office would have standing, so the FCC or something would have to do it.
I consider sports video games to be a separate market from say, Halo...but thats just me.

As a former anti-trust regulator I would state that its not likely that the DOJ wing would actively litigate in such a narrow market definition such as "sports video games". There are far too many other substitutes available for exclusivity / monopoly to produce monopoly outcomes

 

[downtown]

As a former anti-trust regulator I would state that its not likely that the DOJ wing would actively litigate in such a narrow market definition such as "sports video games". There are far too many other substitutes available for exclusivity / monopoly to produce monopoly outcomes

Thats what I figured...but this is way more important, compared to stuff like Insurance Companies, or Oil Companies.

Madden Jericho. Madden!!!

 

[JerichoHill]

Thats what I figured...but this is way more important, compared to stuff like Insurance Companies, or Oil Companies.

Madden Jericho. Madden!!!

No, it all has to do with how a market is defined, and we're going to look at substitutes to that product along with other forms of market powers. We do get involved in what many may think are small niches, but there are economic power reasons behind it.

There are two federal regulators, essentially. DOJ's Anti-trust wing, which deals with those laws, and the SEC. The FCC has a small group for media investigations.

All in all...Probably less than 1000, definitely less than 200, federal regulators.

 

[downtown]

No, it all has to do with how a market is defined, and we're going to look at substitutes to that product along with other forms of market powers. We do get involved in what many may think are small niches, but there are economic power reasons behind it.

Well, (although I am mostly kidding about this example), what would be an acceptable alternative for this market? I wouldn't necessarily say that the Sports Video game market is small (at least when compared to the video game market as a whole).

I mean, if there was suddenly only one producer of Canoes, people would use Kayaks. But if only one company makes a football game...whats the alternative? Other video games? I think they attract a different demographic, and I would personally argue that they're pretty different in a lot of other ways.

Plus, A football game without the legal ability to employ real NFL teams and likenesses would be pretty awful. Doesn't the licensing problem create a barrier to market entry?

 

[ravensfire]

Nothing is preventing a competitor from creating a Football game using ficticious names and teams, just from using existing names and teams.

That happens in other markets, it's not just this one.

-- Ravensfire

 

[The Yankee]

Nothing is preventing a competitor from creating a Football game using ficticious names and teams, just from using existing names and teams.

That happens in other markets, it's not just this one.

-- Ravensfire

And that has been done. It's also been done for players (such as Michael Jordan and Barry Bonds) because they were not included in the players' union licenses and thus the developers were not allowed to use their names and likenesses.

 

[downtown]

Nothing is preventing a competitor from creating a Football game using ficticious names and teams, just from using existing names and teams.

That happens in other markets, it's not just this one.

-- Ravensfire

It has been done before...actually, fairly recently. I am not aware of any of these games (and not just football, but any sports game) that has not been a total failure. The allure of purchasing a sports video game is not just for the gameplay, but the chance to play "GM"...to create players, make trades, etc etc. Its why Fantasy Football is so important.

The major video game series, like NBA Live, Madden and NCAA football, have made little change to their gameplay and engines (the graphics and animations in NCAA 04 are very similar to that in NCAA 08)...but the general manager and franchise modes have been totally overhauled, because its one of the major features of sports video games. To deprive a game of that feature seems to pretty much cripple its ability to compete in the market, I think.

 

[JerichoHill]

Downtown,
How many different game companies are there? Plenty. You're really defining an exceptionally narrow market. Especially since its the game platform maker that controls a good bit of what prices games can be sold at and what games can be made.

I believe that All-Pro Football 2K8 was very popular as a Madden alternative.

 

[Gangor]

As you may know, interest rates in New Zealand (and thus the NZ$) is sky high right now, and no-one seems to know what to do about it.

One suggestion is allowing the Reserve Bank to set the tax on petrol. How would this work?

I thought that it would be a whole lot simpler to give the Reserve Bank control of a supplementary tax on "interest bearing products" so that Japanese housewives (they're public enemy #1 right now, apparently ) and the like are discouraged from buying bonds etc in NZ. I'm sure there's a down side to this idea, but I can think what it might be. Could you enlighten me?

Thanks!

 

[JerichoHill]

How would a tax reduce interest rates?

Taxes tend to distort the marketplace, so if one levies a tax, there better be a darn good reason (like wanting to promote a certain behavior, or ****** a certain behavior), and a specific understanding of where that tax revenue would go.

If your Reserve Bank is anything like our Federal Reserve, taxes are an entirely seperate issue.

 

[Gangor]

How would a tax reduce interest rates?

Taxes tend to distort the marketplace, so if one levies a tax, there better be a darn good reason (like wanting to promote a certain behavior, or ****** a certain behavior), and a specific understanding of where that tax revenue would go.

If your Reserve Bank is anything like our Federal Reserve, taxes are an entirely seperate issue.

The problem we face is no so much with interest rates (although they're a problem), but the effect of those interest rates on our currency. The idea is to control inflation without affecting the currency so much. The petrol tax thing I guess would be used in place of increasing interest rates, and the suggestion I made could be used to discourage people buying NZ dollars to take advantage of the high interest rates (over 8% currently). Sorry for not being more clear

 

[Cutlass]

The problem we face is no so much with interest rates (although they're a problem), but the effect of those interest rates on our currency. The idea is to control inflation without affecting the currency so much. The petrol tax thing I guess would be used in place of increasing interest rates, and the suggestion I made could be used to discourage people buying NZ dollars to take advantage of the high interest rates (over 8% currently). Sorry for not being more clear

If your central bank is using an aggressive interest rate policy to prevent inflation, then barring other factors the international currency traders are going to feel your nation's currency is worth more and bid up the exchange rate. It sounds to me that you want an alternative preemptive anti inflation strategy. Conventional economic theory doesn't have one.

 

[JerichoHill]

Well, Cutlass got this one for it. You cant control inflation via taxes, period

 

[Gangor]

If your central bank is using an aggressive interest rate policy to prevent inflation, then barring other factors the international currency traders are going to feel your nation's currency is worth more and bid up the exchange rate. It sounds to me that you want an alternative preemptive anti inflation strategy. Conventional economic theory doesn't have one.

Yes exactly, and that's the problem.

Currently the Reserve Bank uses interest rates to control inflation, much as in other countries. The problem with that is that because we have such a small economy, the pressure on our currency (as you describe) is immense. It far outweighs other factors such as consumer confidence, commodity prices, etc. So the problem is controlling inflation without distorting the currency.

The first suggestion (petrol tax) seeks to cool off the economy without resorting to interest rate hikes, while my suggestion (supplementary tax on interest payments) seeks to ameliorate the effects of having comparatively high interest rates. What I'm really after is a critique of these approaches.

Again, sorry for being so unclear in my first post - I was in a hurry at the time.

Thanks

 

[JerichoHill]

Yes exactly, and that's the problem.

Currently the Reserve Bank uses interest rates to control inflation, much as in other countries. The problem with that is that because we have such a small economy, the pressure on our currency (as you describe) is immense. It far outweighs other factors such as consumer confidence, commodity prices, etc. So the problem is controlling inflation without distorting the currency.

The first suggestion (petrol tax) seeks to cool off the economy without resorting to interest rate hikes, while my suggestion (supplementary tax on interest payments) seeks to ameliorate the effects of having comparatively high interest rates. What I'm really after is a critique of these approaches.

Again, sorry for being so unclear in my first post - I was in a hurry at the time.

Thanks

Gangrol, you're still not getting something basic to economics.

Taxes do not influence or mitigate inflation, they mitigate and influence consumption.

http://en.wikipedia.org/wiki/Inflation#Controlling_inflation

The New Zealand Central Bank is highly regarded throughout the world for its inflation targeting schema, evidenced by that fact that it has kept inflation around 2% since the 80s. By all measures it has done marvelous job creating a low inflation environment since 1989 when it began the targeting scheme.

http://www.federalreserve.gov/BoardDocs/Speeches/2005/20050526/default.htm

The size of your economy doesn't have that much to do with pressure on one's currency to rise or lower in value (which is not inflation or deflations).

You want your economy to grow, so why would you tie one of its hands around its back with additional petrol taxes? That harms NZ competitiveness relative to other economies.

I am also failing to understand why you feel that a strong NZ currency (ie, one that buys more overseas and is desired more overseas) is harmful to the NZ economy. Net/Net, currency strength is a neutral thing: weak currencies help an economy recover, strong currencies help an economy not overheat

 

[Gangor]

The New Zealand Central Bank is highly regarded throughout the world for its inflation targeting schema, evidenced by that fact that it has kept inflation around 2% since the 80s. By all measures it has done marvelous job creating a low inflation environment since 1989 when it began the targeting scheme.

Or rather it did do a marvellous job... ever since the change of governor inflation has been getting away from them

The size of your economy doesn't have that much to do with pressure on one's currency to rise or lower in value (which is not inflation or deflations).

Perhaps it contributes to the volatility then? It just seems to me that when world investors choose our currency to buy, it affects it more than it would, say, the US currency, simply because the number of global investors who want to invest in a high interest rate economy is greater in proportion to the NZ economy than it is in proportion to the US economy. US GDP is several trillion, while NZ GDP is only a fraction of that, while the likely movement of investment money to or from our economies is likely to be about the same (assuming the same interest rates).

You want your economy to grow, so why would you tie one of its hands around its back with additional petrol taxes? That harms NZ competitiveness relative to other economies.

That was my initial reaction. But then again, isn't that what increasing interest rate (and thus the value of the NZ$) does? A high dollar makes all of our exports less competitive, while the high price of oil would do the same, except it would also reduce the trade deficit.

I am also failing to understand why you feel that a strong NZ currency (ie, one that buys more overseas and is desired more overseas) is harmful to the NZ economy. Net/Net, currency strength is a neutral thing: weak currencies help an economy recover, strong currencies help an economy not overheat

The NZ$ is hovering around the highest against the US$ that it has ever been (now just slightly under 80c, has been under 40c not so long ago), while GDP growth is stuck at around 2%. Our current inflation problem (as I see it) is at least partially wage led (employment relations laws were changed recently), partially caused by the very large payout earlier in the year to dairy farmers from Fonterra (Our biggest export sector - Fonterra has a near monopoly) and partially caused by sky-high government spending. So, dairy farmers and public servants are fine, but everyone else is in trouble...
So basically, for a couple of reasons our currency is overvalued and the best way to fix it (cut government spending) ain't going to happen in the near future.

Also, you didn't comment on my suggestion to tax interest payments to discourage people from buying NZ dollars just to earn the interest. The main potential problem I could think of was that the banks might be forced to pay higher interest rates to attract investors therefore charging higher interest on loans, thereby rendering the OCR redundant because real interest rates bear no resemblance to it. But I wanted to hear an economist's view on that...

 

[Cutlass]

I think you're confusing a few different factors. First, there is going to be inflationary pressures on every nation that imports oil for the foreseeable future. Oil is a basic input for just about everything in an advanced economy. Nothing can be done about that in the short run. In the long run, switch as much of the economy off oil as you can.

Monetary policy is used by default to fight inflation because, for practical purposes it's all they've got. If it's not working as well now as it has been in the past, it's because it's up against a force that's fundamentally stronger than it is.

Second, the people who are receiving income from $NZ are people with bank deposits in NZ or who own bonds from NZ. Not international currency speculators. Currency traders make their money off capital gains by buying low and selling high. Not by collecting interest payments. And I would doubt that very much of that activity is actually taking place inside NZ, so you can't tax it in any case. The markets for that is in places like New York, London, Tokyo, and other major financial cities.

Some nations have passed laws to limit the activities of currency traders, but I don't think without researching it that it was a very successful plan.

As far as the government's domestic activities are concerned, all you can really do is support the party that opposes what you feel they are doing wrong.

 

[JerichoHill]

@@Gangor

Or rather it did do a marvellous job... ever since the change of governor inflation has been getting away from them
Umm, no statistics that I know of support this contention.


Perhaps it contributes to the volatility then? It just seems to me that when world investors choose our currency to buy, it affects it more than it would, say, the US currency, simply because the number of global investors who want to invest in a high interest rate economy is greater in proportion to the NZ economy than it is in proportion to the US economy.
There are more factors, and it would not increase volatility


That was my initial reaction. But then again, isn't that what increasing interest rate (and thus the value of the NZ$) does? A high dollar makes all of our exports less competitive, while the high price of oil would do the same, except it would also reduce the trade deficit.
It would also restrict economic growth, which is bad. Exchange rates are rather neutral in the scope of economics, they're neither bad nor good.


The NZ$ is hovering around the highest against the US$ that it has ever been (now just slightly under 80c, has been under 40c not so long ago), while GDP growth is stuck at around 2%.
That's more to do with the decline in the dollars

Also, you didn't comment on my suggestion to tax interest payments to discourage people from buying NZ dollars just to earn the interest. The main potential problem I could think of was that the banks might be forced to pay higher interest rates to attract investors therefore charging higher interest on loans, thereby rendering the OCR redundant because real interest rates bear no resemblance to it. But I wanted to hear an economist's view on that...
What you are wanting taxes to do is not what they're designed to do. All you'd be doing is slowing your real growth of your economy down. Also, folks just don't buy NZ dollars for interest payments, htey buy them to do business in NZ or for NZ to do business in the world. Such a move would create one heck of a problem for NZ.

 

[Gangor]

Ok then, thanks guys. One more question though...

How does high interest rates or exchange rate influence investors to invest in a country's economy?

 

[Mulholland]

Congratulations Jericho. Looks like your blog made it to the front page of reddit again. I'll click on a couple of the google ads and see if I can send some pennies your way.

Spoiler :