Does being richer make you feel better than being cooler?

Economists (and actuaries) like to measure things.

The easier to measure and the more reliable the measure, the more we like to measure it. This is not unlike the drunk looking for his keys under the street lamp because that’s where the light is even if it isn’t where he dropped the keys.

Sometimes the most important things to measure are very difficult to measure reliably. Happiness is one of these things.  Economists have been trying to measure this for decades with interesting, counter-intuitive and sometimes contradictory results.

Recent research suggests that maybe money does make people happier after all.

Finally, something newsworthy on Eskom and electricity prices

The typical quality of conservation around electricity prices in South Africa is so low as to be worthless. Cry after cry about it being “unfair” or “it will drive inflation” or any number of issues, while all the time disregarding that if Eskom doesn’t make money, we pay for it through taxes in any case. It’s become so frustrating and, frankly, boring that I haven’t blogged much about it in a while.

Until I read this article summarising Brian Kantor’s evaluation of the return on assets Eskom is achieving compared to international norms and how low their gearing is becoming compared to international norms for an ultra-low risk business.  Both of these elements work in the same direction.  Higher gearing will result in a higher return on shareholder equity for the same return on assets, and a lower hurdle rate for return on equity will allow for a lower return on assets which will then require less profit to achieve.

The view presented here is that Eskom is trying to make too much money and simply charging too much as a result. I hope this gets a lot more air-time.

Different types of predictions

As part of the run-up to my overview of my own predictions for 2012, I thought i should highlight why I bother at all.
Most predictions, most of the time, will be wrong. Crystal balls aside, it is nearly impossible to reliably, accurately predict future complex events. However, the process of rigorously considering what might happen, what could go wrong, what the drivers of change are – all of those are really useful.
But why then bother making ultimate predictions if the “process” is where the value is? As it turns out, making the final prediction is part of the process. Paying poker without money at stake is a pointless exercise; there are no consequences to poor play (be it luck or skill that was lacking).
Making that firm and final prediction is important to ensure the process was rigorous and not an off the cuff guess.
Finally, evaluating part performance can’t suggest whether the predictions are improving, whether they are consistently biased or whether the system is working.
So, most predictions are wrong, but some are useful.

Bitcoin Ponzi not Bitcoin’s fault

This recently collapsed ponzi scheme was based on Bitcoins. It could have happened with US Dollars or Danish Krone or South African Rand, so it’s not really the fault of Bitcoins (to personify a digital currency momentarily) but I think there is a link.

Those who like Bitcoins are from four groups

  • Nefarious ne’erdowells who like the anonymity for their illegal dealings
  • Paranoids who don’t do anything wrong but like the anonymity. Yes, you are paranoid if you invest this much time in a Bad Idea called Bitcoins.
  • Geeks who want to try it out because it’s interesting and having 2 Bitcoins to digitally rub together (digital, digits, fingers, get it?) is kinda cool
  • Economically naive self-taught conspiracy theorists who drink too much coffee and like tea parties, who think that fiat money is the root of all evil but really don’t have a clue about how money works, why monetary policy flexibility is a good thing and just how very many financial crises there were during various gold standards. And for that matter, how almost every gold standard that ever existed also “failed” in that it didn’t last.

In my mind it’s the last group that is most worrying because they try to affect and infect other citizens. It’s also that group who thinks they know better and therefore everything to do with Bitcoins is a Good Idea (they’re not) and are more likely to get hooked into a Ponzi scheme than others because they’re too smart to listen to anyone else’s opinion or advice.

Possibly my bluntest post ever, but at least I have listened to the outside views, thought about them, and discarded the ideas from that last group of Bitcoin supporters while recognising the legitimate interests of the first three groups. Note the interests of the first three groups are no motivation for wider acceptance of Bitcoins, just that some individuals may have their own, internal reasons for wanting to use Bitcoins.

Bottlenecks

It may be time to pull out the old Milo Optimisation Post. It was trivial 5 years ago and it’s still intended as funny rather than serious, but the sad, sad thing is that the lesson still hasn’t been learnt in our airports and probably a range of other entities.

The security check point is a bottleneck. More specifically, the number of scanners open at certain rush times isn’t enough to cope with the arrival rate of passengers at the check point.

The bottleneck is the small number of open scanners. The bottleneck could be fixed and throughout increased by having more scanners. No amount of hurrying up the process to inspect tickets will change the bottleneck. No amount of directing people to stand in queues at each scanner will change the rate at which people go through the scanners (as long as there is always a queue at each of them). None of this changes the throughput of the sytem.

But it does mean that there are extra people employed to inspect tickets and extra handlers directing people to queues – these employees could presumably operate an extra scanner and massively increase throughput. This might in turn create a bottleneck somewhere else, but if that happens it shows that throughput has already been increased. It also presents an opportunity for the next stage of optimisation.

SAM and compliance

SAM introduces massively complex new legislation which at first glance provides enormous amounts of additional work for insurers’ compliance departments.

But given the concepts behind SAM, is it really a compliance exercise or is it a business and risk management exercise?

Ultimately, insurers will need to decide how they are going to meet the SAM objectives and principles, codify this in their own documents and then comply with those.

The role of compliance here is two-fold:

  1. Ensure that the chosen approach to complying with SAM will in fact achieve compliance
  2. Ensuring the company’s practice is compliant with their own chosen approach

I gave a SAM update session to compliance officers recently. There is some of the standard material in there, but with a slant more towards what compliance officers need to know about SAM.