NY Magazine has an interesting article on New Yorkanomics. One of the profiled businesses is Random House.

Out of every eight books, one is highly profitable, one loses money big time, and the remaining six break even. It is also interesting that a big blockbuster only accounts for about 10% of their profits. The main revenue generator is their back-catalog, and fiction is 55% of all revenue.

The overhead breakdown is interesting:

Two thirds of Random House's income comes from paperbacks, which retail for about $10. Of that, $5 goes to the retailer; $2 covers Random House buildings and staff; $1.50 goes to author payments; $1 goes to paper, printing, and binding; 50 cents is profit.

The retailer, of course, has their own overhead and costs they have to cover in that $5 amount. It is also interesting that the most profitable way to make money for a publisher is to lock a writer into a long-term contract that is disadvantageous to the writer.

The music industry is having issues with this business model as bands are finding it more rewarding to self-publish and self-promote.

With the increasing popularity of vanity publishing companies such as cafepress and lulu; as well as the democratisation of vanity printing presses from companies such as Xerox and HP, then deadtree publishing will most likely follow the same route.

After all, South Sea Republic has published its own books in the past.

Winter writes that a good sign of recession is when local councils, due to their restricted revenue raising ability, hit upon hard times and blow their budgets. I have seen similar things written on Ritholtz's Big Picture.

There may be an element of truth to it, but I don't necessarily agree with it in this context as most local councils raise revenue off property taxes. The last ten years probably have to be treated as an aberration in that area as towns and counties got fat off the inflated housing market.

I know my house in Virginia inflated 200K in the space of three years; with a commensurate increase in property taxes. The local county did not reign their budget in or give tax breaks during that period, they spent all they could get their hands on. Now with the housing market deflated back down to normal levels again they have nearly 60% of the revenue they did in 2006.

I suspect bad governance over the last five years may be a stronger contributor to broken town and county budgets than the 'recession'.

William Bernstein argues that income equality is more important for political and social stability. Bernstein writes:

The paradox of economic growth is that the same mechanisms that create great wealth - secure property rights and rule of law guaranteed by an independent judiciary - also give rise to great inequalities in its distribution.

Private property provides a powerful incentive to produce wealth for oneself while simultaneously denying that same wealth to others. Wealth does trickle down to the rest of the population, but often not fast enough to avoid political strife and worse.

Modern political systems can be defined by how much economic inequality they are willing to absorb. The Nordic countries aim for equality first and foremost, while the US tolerates greater inequality than the Euro and Anglic nations such as Australia.

This has to be balanced with capitalism's ability to create a large homogeneous consumer group known as the middle class. Yet it is pretty obvious, in my opinion, that great inequality will lead to political violence both from the top and the bottom of the economic pile.

As a note: Peter Turchin's thesis is heavily reliant on income equality for effective group social action. Though he sees violence as a self-correcting or dampening mechanism when inequality gets too high.

Mother's Day came and went recently. Since I live in the US and my mother is in Australia I am always faced with the issue of where to buy presents. Adam made the comment once, which para-phrased, went something like 'everyone is first world now, just the shipping rates vary'. A fantastic little observation, but when it comes to books in America and Australia, the shipping rates do vary, but the prices do to a horrendous amount. This is a book from Amazon;

This is the same book from Dymocks.

Even taking exchange rates and shipping rates into account it was way, way cheaper, for me to buy several books from Amazon and have them shipped to Australia rather than ship directly from Dymocks. To add to the pain, last time I shipped from Dymocks they said they had them all, which was untrue, and then shipped them one by one. Amazon is far more reliable in this area too. So more expensive, despite the advantage of lower shipping rates, and poor service. Bit of a no brainer really.

Chart from big picture. John Mauldin writes:

Deficits are not necessarily a bad thing if kept in check and restraint is shown. But everyone cannot run deficits at the same time. If we don't buy $700 billion in goods, then that money cannot be recycled back to our debt. It is that simple.

The issue is that the US is not buying all the cheap manufactured crap from China, Japan and the other countries that fed their deficits back into the US Treasury bonds. Which raises the issue, all the money that is being borrowed to put all these countries in deficit; where is it coming from? From my simple understanding of economics, it only leaves domestic savings, increased taxation and inflation as the mechanism to pay for all the borrowing. Mauldin believes that all the borrowing in the US and Europe will leave the bond market 'seriously distorted'. It seems inflation is the inevitable outcome in such a case.

John Quiggin's book is largely about how the Great Financial Crisis [GFC] had discredited neoliberalism's excesses yet those policies are persisting despite the empirical evidence of the GFC and the ineffectiveness of neoliberalism's policies to foresee it as well as deal with it.

The book goes through each of the economic theories supporting the policies of The Great Moderation, the Efficient Market Hypothesis, Dynamic Stochastic General Equilibrium, Trickle-Down Hypothesis and Privatization. I got kind of a bit dull toward the final third as the theories were repetitive. That isn't Quiggin's fault more the dry nature of the subject in creating a consistent thesis.

The book isn't against the social organization technologies of liberal democracy and free markets. The policy prescriptions are quite mild in reality and can probably be adopted without the need for public debate on them. Where that might hit a brick wall is in the United States the Republican Party is increasingly demagogic and not really interested in good governance in my opinion. Then again that is where the zombie part of his thesis appears - something that isn't unique to the American Republican Party, nor America.

Well worth the read and an excellent attempt to inform the political interested but economically dull average reader about the economic theories that have informed economic policy since the 1980s.

Would read again.