John Kenneth Galbraith 1908-2006

John Kenneth Galbraith died yesterday at age 97. One of the giants of US liberal economics, Galbraith wrote for a mass audience - his controversial ideas on advertising and on the 'revised sequence' whereby large corporations, not consumers, were seen as deciding what would be produced, turned standard economic theory on its head.

I think it is fair to say that academic economists did not generally accept Galbraith's arguments but the critical tone of his theories had a significant impact on modern economics. His books 'The Affluent Society' and 'The New Industrial State' were the first introduction many undergraduates had to 'political economy'. One of my earliest essays, as an economics undergraduate, was to evaluate the critique that James Meade made of Galbraith's views on advertising. On balance, I sided with Meade but Galbraith left a significant impression. He was a big thinker.

Update: A discussion of his life is here. I will gather more links as they come to hand. John Quiggin posts here. A nice tribute is here, Crooked Timber's tribute here and Joshua Gans makes a statement here that parallels my own experience.

Forever young

The lyrics in Alphaville’s ‘ageist’ song ‘Forever Young’ depress me a bit even though I like the tune. The song has been following me around the house as the kids listen to ‘video hits’ shows. The videoclip itself is here.

What do you think? Is it such a bad thing to age? Are young people so much happier? Given the magic elixir I'd subtract 20 years without having to think too hard about it but 30 years I'am not so sure about. Some studies suggests happiness may increase with age. Suppose lifespan was fixed and, at your current age, you could choose the age at which you would live the rest of your days? What age would you choose? The choice is certainly path-dependent and probably time-inconsistent - your choices at younger ages would differ from those at older ages. It is idle speculation but bears on the issue of our attitudes to aging and, indeed, the aged.

Forever Young

Let's dance in style, let's dance for a while
Heaven can wait, we're only watching the skies
Hoping for the best but expecting the worst
Are you going to drop the bomb or not

Let us die young or let us live forever
We don't have the power but we never say never
Sitting in a sandpit, life is a short trip
The music's for the sad men

Can you imagine when this race is won
Turn our golden faces into the sun
Praising our leaders, we're getting in tune
The music's played by the madmen

(chorus) Forever young, I want to be forever young
Do you really want to live forever
Forever - and ever

Some are like water, some are like the heat
Some are a melody and some are the beat
Sooner or later, they all will be gone
Why don't they stay young?

It's so hard to get old without a cause
I don't want to perish like a fading horse
Youth's like diamonds in the sun
And diamonds are forever

So many adventures couldn't happen today
So many songs we forgot to play
So many dreams swinging out of the blue
We'll let them come true

(chorus) Forever young, I want to be forever young
Do you really want to live forever
Forever - and ever

Taxing belief

According to The Age, tax exemptions to Australian churches cost federal, state and local government more than $500 million annually. Complaints about this have come from commercial operators who see the tax-free status as unfair competition and from local government. For example, a new hospital wing built by a church that competes with a private hospital is exempt from land tax. The Melbourne City Council asserts that church exemptions from rates cost it $10 million annually and force a 10% increase in rates for other ratepayers. The recent study on aggregate tax exemption costs was commissioned by the Rationalist Society of Australia and a group at Victoria University.

Churches argue that charitable and community services get provided cheaply by them so the taxpayer gets value from tax exemptions. This is a fair point – many people working for these organizations have high moral aspirations and deal effectively with the problems of those in desparate need. Recent cases of abuse of people in aged care suggest the unadorned profit-motive does not always work - we need people with moral values for this work although there is should be no presumption that only those who believe in religion are moral.

An improvement on this arrangement would see explicit grants being paid to charitable organizations that would also be liable for full taxes. These organizations would then be held to account for how this money is spent via a public accounting system. But I cannot see this proposal as plausible in the current Australian political scene. So I won’t waste my breath elaborating ways it might be done.

Current tax exemptions go mainly to traditional churches but also to the Church of Scientology. I guess traditional Catholics and Protestants would frown upon this but I don’t believe differentiation on this basis is justifiable if the only basis for claiming a tax exemption is belief in a deity. It’s a belief that cannot be refuted using evidence that is being subsidized so particular believers should not be exempted. Why be selective in selecting among silly beliefs?

Indeed, when I look at this wicked world and consider the good work that my blog is carrying out in promoting love, peace and universal understanding I feel that I should declare myself a God and form my own religion that would seek tax exempt status. US firms offer advice on how to do this. Given my vast life experiences (economist for 35 years, parent for 20) I should be able to get my Doctor of Divinity degree in 7 days.

If this was granted – as it should - I would pontificate on the vexed question of whether condoms should be permitted for sex between partners, one of whom is HIV positive. In fact I already worked that one out. In a dream, last night, I had visions of a doctor and the pope debating the issue and, in a flood of universal illumination, I backed the doctor. I’d find it harder to determine who among the virtuous of this world should be punished and who among the dishonest crooks and the wicked should be inexplicably allowed to get away with it.

With tax exemption I could also take that long-awaited working holiday to help save pagan souls. And my proposed tithe, 8% of your gross salary, is competitive – the Hillsong Church for example charge 10%. You would receive a receipt for your contributions and a locket of your hair could be posted in remote sensing range of my aura.

I don't have any testimonials as yet but I have never been accused of abusing government grants – if I got money to help aborigines I would not spend it on my staff. Indeed that’s easy as I don’t have any and wouldn’t plan to. All proceeds would go to me.

Animal lovers

I have long been interested in animal liberation movement as it has been developed by Peter Singer in his book Animal Liberation. I am interested in the philosophy as a source of conservation ethics but it seems to me the problem is complicated - conserving native species generally involves killing introduced, feral species and these too should have rights in an animal liberationist ethic.

My take on this debate - as an omnivore who is also a conservationist - is that most people strongly dislike causing pain or distress to animals. Thus we recognise that animals have rights. The issue of the appropriate definition of these rights and whether or not they need to be curtailed is the difficult bit. My view is that animals do not possess the moral agency of humans so that the rights extended to animals should be more constrained than those for humans.

Singer disagrees and argues that any curtailment of rights is speciesism. So I am a speciesist. Jason Soon, over at Catallaxy, makes an interesting post on the the Spanish Socialist Party which will introduce a bill calling for

“the immediate inclusion of (simians) in the category of persons, and that they be given the moral and legal protection that currently are only enjoyed by human beings.”

The justification is that humans share 98.4% of our genes with chimpanzees, 97.7% with gorillas, and 96.4% with orangutans, although I think Peter Singer probably would not even require that. The earthworms would be able to stand shoulder-to-shoulder in Singer's ideal world and vote down certain agricultural practices.

I like simians and I certainly respect their rights but I think this proposal is absolutely crazy. Its not a matter of not respecting non-human life. Its a practical issue - human beings are the group in this world who make decisions - not monkeys. Humans make the decisions that determine their rights. For this reason alone the values of humans require extra weight. These values may convey a sense of reverence and love for nature - I hope mine do - but they are human not animal values.

Increasing inequality a good thing

If you want to be first with a provocative new viewpoint go to the Becker-Posner blog on why increasing inequality is a good thing in the US (and, following Andrew Leigh's valuable work, presumably Australian) economy because it correctly signals the increased value of human capital. Its a variant on the response that 'increasing gaps' are a good idea. It sets good incentives in place.

I will quietly anticipate the predictable social democratic response - that earnings are much more than a market signal - and then enter the action. Becker has a point but this thesis will drive some to distraction.

Mid-week review

I am pleased with how my new blog has progressed. Traffic has surged - I am not quite sure why it has been so sudden. And while most people do not make comments, I have enjoyed, and been informed by, the excellent comments that have been made.

Blogging takes a lot of time but the response to this, as a complaint, is 'If you don't enjoy don't do it'. This is something I don't have a simple answer to. It is a lot of work and I enjoy it.

As usual I welcome comments on any issue but, in particular, how I might improve the blog.

Obesity & health: A case for public intervention?

An article by Dagan Miljkovicn in Choices, a new online journal from the American Agricultural Economics Association, looks at the short-run reasons for anti-obesity policies and the long-run historical evidence suggesting we are are all getting both fatter and healthier! An excellent article, summarised below.

Short-run studies examine obesity and its claimed costs. Long-run studies examine trends in human longevity, and relations between physical characteristics of the population (height, weight, or posture) and health/longevity. Short-run studies find a strong link between obesity and deteriorating health suggesting a case for government intervention. Long-run studies indicate how obesity and overweight may not be associated with health problems. Is obesity then a major health problem requiring policy intervention or not?

Short-Run Perspective

Obesity has been linked to technological change resulting in calories becoming relatively cheaper, while exercise has become relatively more expensive. Individuals have maximized utility subject to this new budget constraint and rationally got fatter. There is no reason to intervene with policy to reduce obesity, since it is merely the outcome of individuals pursuing their own self-interest.

This view assumes well-informed individuals but obesity issues often arise in childhood and children rarely purchase their own food or determine what is for lunch or dinner. And with subsidised healthcare there is a negative externality associated with being obese if there are linked health costs. There are also ‘internalities’ or costs borne by individuals themselves because of high weight arising from self-control or addiction problems: people would like to eat less than they do, but have difficulty doing so. Individuals do not internalise the consequences of current eating for their future happiness. Finally, there is concern because government already intervenes in ways with consequences for weight. Public spending on transportation, parks or education affects the exercise people get. Dietary guidelines affect foods schools serve. Policies on labour supply influencing time available to exercise, time to oversee diet and oversee exercise.

Long-Run Perspective

The short-run studies on possible obesity prevention policies presuppose a benefit from reducing obesity which stems from improved health. Yet these studies ignore long-term health trends and the role obesity plays. Several studies have analyzed long-term health using the longitudinal Gould data set containing age, physical and health characteristics of 23,785 Union soldiers in the1860s, 1880s and early 1900s as well as comparable data for the US Army from the 20th Century.

Analysis of the Gould data set reveals that past populations were shorter-lived, smaller, lighter, and faced a more disease burden in old age. The BMI's of Union soldiers were 23 on average compared to a BMI of 26 for modern soldiers. These studies consider various indicators: height, BMI (a measure of total body fat), waist-hip ratio, the ratio of chest circumference to shoulder breadth etc and various socio-economic and demographic variables. Their findings are that there have been substantial changes in the human frame over the last 100 years as men have become taller and heavier. Controlling for total body fat, men today have less abdominal fat than past populations. Overall the evidence suggests that overweight may not be significantly associated with excess mortality and the risk of obesity on mortality may have decreased.

The theory of technophysio evolution posits that during the last 300 years human beings have gained an unprecedented control over their environment, that set them apart from all other species and previous generations. This has enabled people to increase their average body size by over 50%, to increase their average longevity more than 100%, and to greatly improve the robustness and capacity of their vital organs. Advances in food production technology after 1700, in combination with technological advances in manufacturing, trade, transportation, energy production, communications, or medical research and services all increased average longevity and body size. The specific environmental factors contributing most to the observed declines in morbidity and mortality remains unclear.

Obesity and Overweight: Policy Dilemma?

Increased obesity over the last 20 years has left scientists undecided about the actual effect this has had on the health and mortality of people. Studies using longitudinal data suggest that previous populations, albeit having significantly lower BMI than today's population, suffered from the same chronic diseases that are commonly thought to be caused by being obese. If the government seeks to stop or reverse obesity that may not be to improve health but really to protect people's perceptions of how they should look. This may be a misplaced emphasis.

ANZAC Day

I didn’t make it to the ANZAC Day dawn service in Melbourne today – crowds stated to build up there from 4-30am to reach perhaps 30,000 - but I did attend the march that began at 8-50 am. It was a deeply moving but very happy occasion. Clear blue skies and cold Melbourne weather – it was only 6 degrees at 6.00 am.

It was great to see the veterans greeting old friends. For the first time this year, the 91st anniversary of the ill-fated ANZAC landing at Gallipoli, Australia marks the occasion without a single living World War 1 combat veteran – the last of the 330,000 Australians to see action in WWI, former sailor William Evan Crawford Allan, died in Melbourne six months ago. Over 8,000 ANZACs were killed at Gallipoli and none of the survivors now survive.

To watch the march I got a great vantage point between St Paul’s Cathedral and the pub that used to be called Young and Jackson’s and which had the delectable Chloe. (I have always wanted a reason to post that link and this is that).

What impressed in watching the march was the wide range of people attending. There were bikies in the crowd drinking beer. A lot were ex-Vietnam vets. There were many very old vets being limousined around. Also lots of 15-30 year olds. The march itself was very impressive.

The surge in interest in ANZAC Day over the past 10 years I think has surprised many people for demographic if not for other reasons. You can speculate about the reasons for this - I am sure this commemorative occasion gives people a chance to think about the meaning of war - but, for whatever reasons, it is becoming the most important public holiday for most Australians each year. The surging interest among Australians in visiting Gallipoli itself is also interesting.

Note also that while Gallipoli was previously largely ignored by the Turks, it is now visited by over 2 million Turks each year. To quote The Australian today on ANZAC Day: ‘More than 86,000 Turks died at Gallipoli, yet Kemal Ataturk, the Turkish commander and founder of modern Turkey, pledged that the Australians who died at Anzac Cove would lie there in honour. It remains, quite simply, the one day of the year.’

Addendum: In a provocative piece yesterday Stephen Barton argues that El Alamein was a great strategic turning point, in the Second World War whereas Kokoda was not. He argues that had the Japanese driven south to Port Moresby it would have been a grim setback, but not a decisive blow since the Japanese forces in New Guinea had pretty well had it anyway. The claim that Kokoda was a decisive battle that saved Australia was, he claimed, Labor Party mythology. This has been strongly rejected by Kim Beazley and the RSL - discussion continues at John Quiggin’s blog. Like John I find it hard to believe that Labor politicians fostered the myth of Kokoda because I learnet about Kokoda when Labor hadn’t held office in Australia for a long-time. I suppose it is a legitimate historical question but making what sounded like party-political claims the day before ANZAC Day seems a bit off to me. Larvatus Prodeo survey interesting blogposts on ANZAC Day here. Most Australian newspapers had ANZAC Day specials – I thought those in The Australian interesting and the editorial useful for putting the events of war and our current situation in perspective.

Stop now

The US should stop this now in Iraq.

Krugman on the current account

Paul Krugman's gloomy story on the US current account.

The dangers of being too postmodern

I liked this succinct statement by David Williamson over at Crikey.

Soft drink banned in schools

I have long-defended the unpopular nutritional views of Robert Atkins. The specifics of his diet are questioned by many (not me) but there is no question he has successfully promoted the idea that obesity and diabetes problems are linked to carbohydrate consumption, and particularly consumption of sugars, not only the consumption of fats. The global epidemic of diabetes and obesity in developed countries cannot be separated from the fact that nutritional authorities have sought to clamp down on fats (many crucial for health) while being irresponsibly complacent about carbohydrate consumption. An outstanding villain in this has been the carbohydrate-dominated food pyramid often advocated as a nutritional ideal.

One of the big villains in the excess consumption of carbohydrates is consumption of sugar via soft drinks and fruit juices. There is reasonable evidence that soft drink consumption is associated with childhood obesity. One sugary drink per day among women is claimed to increase their chance of contracting diabetes by 80% - although, guess what, the soft drink industry reject this. These results are replicated in many countries. Excess sugar consumption is primarily a problem of developed countries but developing countries (like India) are catching up quick.

Australian kids gain significant amounts of their daily calorie intake via soft drinks. The intake of soft drinks in Australia has grown rapidly in the past 30 years from around 47.3 L per person per year in 1969 to 113 L per person (children and adults) in 1999. While this is below the per capita consumption of 200 L per year in the US it does put Australia within the top 10 countries for consumption.

Victoria has just banned the sale of high sugar soft drinks in its 1,600 public schools from next year. The sale of fruit juices is encouraged as a substitute. The rationale is that the consumption of even a single bottle of soft drink more than exceeds the recommended intake of calories from sugar per day for a 14 year-old child. Irrespective of whether this nutritional objective is sound or not (I think it is sound) if the objective is to reduce sugar content the proposed ban might help but probably not by much.

At lunch today I bought a 600 ml small Coke. Its sugar content per 'serving' (defined to be 200 ml) was 21.2 grams. But I don't ever recognise people drinking 1/3 of a small coke. They typically scoff the lot so in fact they get 63.6 grams. This is equivalent to 8 teaspoons of powdered sugar or over 15 teaspoons of sugar from a sugar bowl. By the way, I didn't drink this rubbish - I poured it down the drain!

My friend John bought a healthy Just Squeezed Orange Juice in a 300 ml container. The 'serving' size is now more honestly taken as 300ml which contains 21.3 grams of sugar. 600 ml of this healthy drink contains, yes, 42.6 grams of sugar. This is equivalent to 10 teaspoons of sugar from a sugar bowl.

If people substitute from soft drink to the bottled juices there is some saving in terms of sugar consumption but not much. The Coke will be banned in public schools, the bottled juice won't be though it too is laden with sugar. Better advice would be to drink water when you are thirsty - from a school tap it has the additional advantage of being free.

In my view the objective of cutting sugar intake among school children is sound. But I am not sure this measure will do it since it focuses on soft drinks not sugar content.

Remark. Why the Coke 'serving' size labelling? For a 600 ml Coca Cola Zero (the low sugar variant) the 'serving' is 600ml while for Coke with sugar it is 200ml. Is Coke's manufacturer hiding the huge sugar load of a bottle of ordinary Coke? And the label on the Just Squeezed juice reveals the juice is 'reconstituted'? Does this mean the same as 'just squeezed'?

Problem gambling 1

Gambling has been a popular activity for thousands of years and was popular among Australian Aborigines, American Indians and ancient Chinese societies. While widely practiced, gambling has also long been condemned as irrational and a social evil. Thomas Moore in 1516 proposed, in Utopia, a society where the irrational was abolished - this included the eradication of gambling. While often criticized gambling has also been seen as socially desirable. Universities, charities and governments have long been attracted by its ability to yield revenues. Moreover, where the cost of gambling is recouped as a tax it is a ‘voluntary tax’ citizens can avoid by not gambling.

In Australia, gambling re-emerged as an important leisure industry in the early 1970s, after a 50-year interval where strict controls had been enforced. Now gambling is a major global industry. In Australia, 82% of people gamble in any year. In 2002/03 they spent $15.3 billion on gambling. Of this about 60% was spent on poker machines with the remainder split between casino, racing and lottery products. In the 10 years to 2003/04 gambling expenditures grew at 8% annually, much faster than growth in total spending. Thus gambling has grown in relative importance. In 1977/78 it was 1.7% of total household income, in 2002/03, 3.4%. Most growth resulted from legalized poker machines and from having more casinos.

Along with growth in economic importance have emerged social problems linked to excessive gambling. The Productivity Commission, in 1999, estimated, using a standard screen for assessing the intensity of gambling, that 300,000 Australians have significant problems with gambling in the sense of chasing losses, experiencing guilt and depression, concealing their gambling and gambling excessively. Of these 130,000 had severe problems, experiencing depression, serious suicide thoughts, divorce, debt, poverty and becoming involved in crime. (The terms 'significant' and 'severe' here correspond to what therapists label Level 2 and Level 3 behavioural pathologies respectively). Moreover, there are indirect costs of gambling on non-gamblers with 5-10 individuals, often family members, adversely impacted for every problem gambler. Level 2 and level 3 gambling provide around 1/3 of the gambling industry’s total revenue, and are highest for poker machines and racing and lowest for lotteries. These seem to be high figures but, if anything, the surveys on which they rely understate the problem since evidence shows people do have a propensity to understate such problems.

The widespread social disapproval of gambling is, partly based on the illusion that it is only tangible goods that yield economic gains. But while there are few production-side benefits from gambling, since resources expended can be spent elsewhere, there are consumption benefits. For most people gambling provides excitement and relaxation without significant negative effects. Indeed the PC estimate consumer benefits, measured as consumer surpluses from gambling, exceed costs. This implies a weak efficiency-based case for gambling. The measure of surplus used was adjusted down to 'normal' gambling levels to account for ‘excessive’ expenditure by problem gamblers. This efficiency argument can be strongly qualified - the PC recognised that that major social problems were associated with gambling noting that ‘existing policies and practices were inadequate to deal with it’.

The psychic and emotional costs to problem gamblers and their families are substantial. They include adverse impacts on productivity, criminal involvements, relationship break-ups, depression and serious thoughts of suicide. While some of these problems are precipitated by prior conditions they usually be traced to gambling itself. When these costs are accounted for, the net benefits of gambling liberalisation, in Australia, were estimated to range from losses of $1.2 billion to net gains of $4.3 billion. The wide range here reflects difficulties in assessing costs.
Even this mixed overall conclusion has deficiencies. It masks an association between forms of gambling such as lotteries where a net social gain is probable, to gambling where net social losses are likely, such as poker machines. There are also disadvantageous regional impacts and impacts on particular income groups. Efficiency-based measures of advantage ignore distribution and many forms of gambling are predominantly ‘blue collar’ activities and concentrated in low SES areas where the ability to sustain gambling losses is low.

The introduction of poker machines in clubs and hotels in Victoria in 1992/93 illustrates specific impacts of gambling. There are now 30,000 poker machines with 2,500 allocated to Crown Casino and the remainder split 50% between metropolitan Melbourne and non-metropolitan areas. Estimated losses from these machines amount to $2.4 billion in 2004/05, a figure that would have been higher were it not for a smoking ban that has stemmed rapid growth. These losses accrued to the State Government, which takes more than 1/3, Tattersals and Tabcorp (the duopoly owning the machines) who take 1/3 and the hotels and clubs which take something less than 1/3.

Victoria, like all other Australian states except Western Australia, is heavily dependent on gambling for revenues. It gained 14.3% of its 'own-source' revenues in 2002/03 from gambling taxes with 8.9% coming from poker machines. This understates the dependence of Victoria on gambling losses since it neglects the GST paid on them to the Commonwealth which is refunded as a grant to the State. Pressures by the Commonwealth Government on the States to reduce business or other taxes will, if successful, increase the pressure for the States to remain dependent on gaming revenues.

In Victoria annual losses per adult are positively related to the number of machines per person in different local government areas. Losses are also negatively related to ABS Socioeconomic Indexes for areas. Areas with lowest socioeconomic status (Greater Dandenong, Maribyrnong) have the highest concentrations of machines while areas of high socio-economic status (Boroondara, Nullumbik, Bayside) have lowest concentrations. This suggests operators see poker machine use as a blue-collar activity and target such areas intensively.

The dependence of losses on supply suggests demand is partly supply-determined on the basis of access costs. Reducing the supply of machines should reduce losses particularly if such reductions occur in areas of low socio-economic status. Capping numbers of machines in such areas, as the Victorian Government now does, will reduce usage if there is no excess supply of machines in such areas.

The PC estimates that Australia-wide 80% of losses come from the 20% of heaviest gamblers with 42.3% of losses coming from problem gamblers. These are supported by internal documents from Tattersals suggesting that 57% of their revenues came from the 15% of customers who lose $100 or more per visit and with the 34% of members who lose more than $50 per visit contributing over 82%. This suggests that 225,000 Victorians are each losing on average $5,800 per year. But, in high gambling areas such as Maribyrnong, 6% of adults are losing $11,000 per year. This scale of losses causes huge individual and social harm because such poorer communities can least afford them. It also shows that taxes levied on the losses to poker machines are sharply regressive in their impact.

This is the first of a series of posts on gambling. It is a draft - comments very welcome.

Mad Mahmoud

The fanaticism of Iran’s Mahmoud Ahmadinejad (MA) embrace of martyrdom creates difficulties in resolving tensions between Iran and the rest of the world over its use of nuclear technology. Mahmoud’s willingness to accept many potential Iranian deaths, and his hatred for Israel and the United States, mean that policy responses to prevent him from acquiring nuclear weapons are likely to end up involving a military intervention that will ultimately not be a ‘limited’ attack.

Almost all countries oppose Iranian development of nuclear enrichment technology - though Russia is curiously opposing UN sanctions and is continuing with a planned sale of missiles to the Iranians. It is difficult to believe that Iran seeks nuclear power for peaceful purposes. In any event their successful development would hasten a nuclear arms race throughout the Middle East that could have globally catastrophic implications. And it is plain silly to assume that Iran has no malevolent intentions towards Israel.

A chilling story by Matthias Küntzel in The New Republic here (reprinted in today’s Weekend Australian) explains the background to the intransigent Iranian position.

President Mahmoud was an instructor in the Basiji Mostazafan during the Iran-Iraq war. This was the volunteer militia that sent young adolescent men in almost unarmed ‘human wave’ attacks against Iraq where they were slaughtered in droves. Sometimes the tactics worked because the Iraqi opposition refused to kill such innocents but mostly they were slaughtered. The Basiji experienced no fear of death since, their faith in one of the founding myths of Shia Islam, glorified death. Death, by helping to vanquish evil, help provide a precondition for the return of the 12th Imam who will establish paradise on earth under universal Islamic Law. We can all hardly wait! The Basiji glorify mass death and, since 2004, have trained an estimated 52,000 members of suicide brigades for suicide in foreign countries.

After Mahmoud’s election he stated ‘Is there an art that is more beautiful, more divine, more eternal than the art of the martyr’s death?’ This makes Mahmoud a dangerous terrorist leader. In a nuclear war with Israel the deaths of hundreds of thousands of Iranians would be of little consequence to Mahmoud if Israel could be wiped off the face of the earth and the arrival of the new Imam hastened.

This message appeals to the poor in Iran who are having a difficult time. The Iranian economy is weak, overregulated with a huge public sector, with over 40% of the population living in poverty and almost completely dependent on oil exports. The narky message of the fanatical Mahmoud to Iran’s poor who, incidentally, identify nuclear power with progress.

Küntzel writes, ‘The history of the Basiji shows that we must expect monstrosities from the current Iranian regime’. Indeed Timothy Ash predicts a massive wave of attacks on foreign targets should the US bomb Iran. Tim Blair shocks by responding – ‘Better take out the whole country, then’. But that is the logical implication of the current mindset in Iran for US policy with respect to a military intervention there. Half-measures would be costly for the US since strong retaliation will be expected unless Iran is severely damaged by a US attack.

A paper from the American Enterprise Institute argues that the Iranian mullahs don’t really want war. The reasoning - if they really wanted it they would not broadcast their nuclear technology successes so loudly. What they do get from such broadcasts are higher oil prices, lots of publicity that is attractive to fanatics in their own society and even offers from European nations to protect the mullahs themselves from a US attack and even from attack by their own nationals.

Is this theory plausible? Are the mullahs making empty threats of the type made famous by Saddam Hussein. If so it’s a dangerous escalation game. But what seems more plausible to me is that evoking a hostile response from the US and its allies helps provide the Iranian leadership with a way of garnering mass support from the poor of Iran. It’s a completely cynical exercise since it is these people who will pay the main price.

The Europeans and the Russians must support strong moves by the US to limit Iran’s nuclear program and get rid of Mahmoud. Strong support for the US now will help avoid costly future military options.

Subsidising medical drugs

The Sunday Age's ‘Cancer Drug Shame’ (followed by a supporting editorial) advocates the subsidized provision of various ‘biologicals’ for treating cancer patients irrespective of any assessment of their cost or effectiveness. The Government’s Pharmaceutical Benefits Scheme (PBS), it seems, are just not getting it right. Although drugs like Herceptin would cost ‘more than $140 million’, the editorial suggests, this is a pittance in relation to the $6 billion spent on the PBS and given ‘the precious commodity of human life, is this too much to ask for?’

I can’t answer this without data and neither should irresponsible journalists. One needs information on the effectiveness of the drug, its provision costs and the opportunity cost of investing the $140 million in other forms of health or social investment - there needs to be a cost-benefit study. Roche, the drug’s manufacturer, has applied for Herceptin be listed on the PBS and the application will be considered at the July meeting of the Pharmaceutical Benefits Advisory Committee (PBAC). The PBAC is required to ensure that public money spent on drugs provides cost-effective returns. Isn’t this sensible? Or would you just want to take Roche’s word for it? Indeed, cost effectiveness seems to be a secondary issue for the Age since one of the other drugs it cites is iressa for treating lung cancer. It costs $50,000 per years but has not proven ‘as effective as hoped’.

The argument is also that, since Herceptin can be afforded by wealthy people who pay for it themselves, poor people who cannot afford it should therefore have it provided via public subsidies. This logic would apply to any drug or treatment irrespective of cost or effectiveness.

What’s got into The Age recently? Front page stories that are little more than poorly-researched personal viewpoints - they are not news- buttressed by supporting editorials. The same irresponsible journalism occurred recently with the silly plan to provide free public transport in Melbourne. No data, no arguments, just daft populism.

Visy & Amcor: Spy-vs-spy-vs-spy….

I posted earlier on the case involving Amcor and Visy’s alleged cartel in the packaging market between 2000-2004. According to Amcor, the firms agreed not to take away each other’s customers and to charge hefty prices to established customers. The ACCC action on Amcor and Visy, seeks to prosecute the alleged cartel but exempts Amcor from prosecution because it has acted first in coming forward as a whistleblower. It seems interesting as an instance of how the corporate regulator can exploit well-known instabilities (of the Prisoners Dilemma type) in attacking cartel agreements.

But it seems Graeme Samuel at the ACCC got it all wrong! Visy are now claiming they were not colluding at all. They were taking Amcor for a ride. It was all an elaborate subterfuge to enable Visy to poach customers from Amcor. Visy was duping Amcor into leaking information that allowed Visy to steal Amcor customers. Visy has claimed it gained market share while Amcor lost it as a result of the subterfuge.

Matthew Stevens in The Australian characterises this version of the tale as a cunning plan – Cold War double bluff. Visy’s claims attempt to thwart damning and self-incriminating evidence from Amcor. Its claim is that whatever Amcor thought was going on was delusional. Amcor is then left well and truly in the lurch – although it can escape ACCC prosecution it is still subject to a class action claim from Australia’s largest food and beverage companies that the Australian Financial Review today (subscription only) could amount to $300 million.

Its fascinating stuff. I guess the evidence on whether actual competition occurred will be crucial. But if the basis of the claim is that prices were fixed and that competition was thereby limited, if the Visy defence stands could Amcor still be liable for class action damages? And does their exemption from prosecution rule need revision? Stay tuned.

English studies

The question was in an assessment task in March for advanced English students in Year 11 at SCEGGS Darlinghurst, NSW, an independent, private Anglican girls' school in Sydney that charges $20,000 a year in fees for senior students.

The assessment asked students to write an essay explaining how Othello supported different readings. ‘In your answer, refer closely to the prescribed text and explain how dramatic techniques might be used to communicate each reading. You must consider two of the following readings: Marxist, feminist, race’.

This approach to English literature has been criticized and ridiculed – most recently by Prime Minister Howard. Indeed, today even his arch opponent David Williamson has joined in supporting Howard in attacking it. The Australian’s editorial puts the issues clearly – in the following excerpts Ms. Allum is the Headmistress of SCEGGS – her background area of expertise is in the area of curriculum design:

‘…Year 11 students have their first encounter with Shakespeare's Othello when they are thrown into the postmodern deep end and told to analyse the play through the prisms of racism, sexism, and feminism. While many arguments can be made against this postmodern approach, the strongest one is that it does not belong in a high school classroom. If a graduate student who is well-versed in the Western canon and understands 5000 years of social and political thought from Plato and Aristotle through to John Stuart Mill, Karl Marx and Jean-Jacques Rousseau wants to deconstruct an author through a philosophical prism, then fine. But forcing dull formulas of race, sex and class on unsuspecting Year 11 students is unfair – not so much because it dumbs down the curriculum, but because it introduces the concept at the wrong time. Neither high school students nor their teachers are equipped with the base knowledge of literature, history and politics to do justice to such an enterprise. No wonder educationalists are tossing out Beowulf for Buffy the Vampire Slayer and claiming that students are bored by the classics.

The Australian strongly believes there is much more to life than race, sex and class, and that literature is a great way to understand the transcendant themes of human existence. Love, hate, war, jealousy, greed, charity, faith, hope, despair: these are the universals of human experience, and great and ancient literature speaks to us about these themes from across the years.

Sadly, a small-mindedness has infected Australia's education system, producing an obsession with politics and power relationships that has infected the nation's classrooms like a mould. Those who defend current teaching methods by setting up a straw-man argument – "all we're trying to do is teach students that there are different points of view" – are being disingenuous. For, in forcing students to accept dull interpretations of "texts" in which everything becomes political, the postmodernists exhibit the worst sort of narrow-mindedness. The first job of teachers introducing students to the works of any great writer should be to instill a love of literature and learning. And English teachers everywhere must focus more on basics such as spelling, punctuation and grammar, all of which lose out to trendy theories like critical literacy and outcomes-based education. Those who are so inclined can always study the gobbledegook later.

One of the more bizarre aspects of the controversy is the postmodern fixation on Karl Marx as an appropriate filter through which to examine literature. For one thing, he was an economist, not a literary critic. For another, his writings inspired the deaths of perhaps 100 million people around the world, and this tragedy is better learned about in history classroom. And teaching high school students to interpret literature through ephemeral "isms" is, by definition, a way to produce students with dated knowledge. While the likes of Ms Allum may hopefully believe they are teaching students to "understand what (great authors) said in the context of their day and what it is they say to us today", it is tragically obvious what this obsession with Marx leads to – namely, students with poor skills who have had the love of books beaten out of them’.

I commented on this obsession among social scientists with Marx, in a preceding post. If one did want to use an economist to analyze the complexities of human motivation in Shakespeare (even though I am an economist, I would not) then it would be better to try Adam Smith’s Theory of Moral Sentiments. The reason for the obsessive interest in the crank-like theories of Marx are worthy of investigation but the theories themselves are not.

Moreover, I am not convinced that it is curriculum design that is at fault here rather than teaching directions within schools and teacher ideologies. Today I found web material on VCE English – specifically a textbook list for the subject 'English' and the final exam, here. They are not in themselves particularly offensive and the suggested readings seem fine. So I would like to think that the current controversy is a storm in a teacup. But I am not persuaded it is. Kevin Donnelly today cites evidence of widespread vulgarization of English curricula in Australian schools and his critique falls heavily on English teaching bureaucrats and teachers. It is a real problem.

Widely-held strange beliefs

I followed a debate over at Larvatus Prodeo on the ‘Literary Studies Argy-Bargy’ that deepened somewhat yesterday when John Howard criticised the teaching of English in Australian schools. I entirely support John Howard’s view that English studies should not reflect post-modernist philosophy, feminism and Marxism. But that is not what I want to post on here (though your views are welcome). What I am interested in is how many people do obsess on the issue of strange ideologies such as Marxism which seem to me thoroughly discredited ideas.

I agree with Paul Samuelson that, as an economist, Karl Marx was a ‘minor post-Ricardian’ and quite uninteresting. His theory of value lacks logic (though it was accepted by Smith and Ricardo) and his belief in the increasing misery of the working class proved false. Those interested in reading classical economics would be far better-off turning to David Ricardo or Adam Smith though I wouldn’t recommend these either if I wanted to understand how modern capitalism works. If I was a beginner I’d go for something like Paul Samuelson’s Economics. The discipline of economics has progressed so much over the past century – it would be foolish to use obsolete theory.

Marxism is of course of interest in sociology and to the governments of Cuba and North Korea but I wondered who else is interested. Well apparently a lot of people according to a rough search I did this morning using Google Scholar. The approach isn’t very scientific (the use of Goggle Scholar in more traditional citation counts is analysed here) but I still found the results interesting. I cite the exact search item used and the Google Scholar hits encountered.

Maynard Keynes 12,000
Paul Samuelson 17,000
Postmodernism 50,400
Karl Marx 68,000
Conservatism 124,000
Marxism 133,000
Adam Smith 187,000
Feminism 202,000
Liberalism 209,000.

Marx is still a much-discussed person and Marxism a much-discussed political philosophy. I am heartened that Adam Smith and Liberalism were of such widespread interest but ambivalent about the high score assigned to feminism and disappointed that Lord Keynes and Paul Samuelson ranked so low.

Maybe this is an excessively rough way of assessing the social impact of people and their ideologies. I’d welcome comments about better ways of doing this.

Did you hear the bell?

The Treasurer Peter Costello has warned that the boom in commodity prices that Australia is enjoying will not last more than a couple of years. I agree – there has been a massive surge in commodity prices articulated here and here and, as the RBA have already suggested if we retain a flexible approach to exchange rate management the price crunch when it comes should not be too harmful.

The Australian share-market is not acting in this way. While heavyweight mining stocks have soared in recent times (BHP-Billiton and Rio Tinto have about doubled over the past year), the speculative end of the market has in some cases performed much better than even this. The most enjoyable book I have read on such booms was Trevor Sykes, The Money Miners (now out of print) which described the mining boom of the 1970s and the huge share price gains of firms like Poseidon and Tasminex. ‘Did you hear that bell’ Sykes asked. He was talking about the bell that rang yesterday telling you to sell out because the market was about to crash.

The big mining companies in Australia should have sound long-term prospects given growth in Asia though the inevitable supply response will decrease their profitability medium term. Most of the small explorers will never mine let alone make profits. There will be much wailing and gnashing of teeth. And I will regret not being one of the few smarties who made a fortune speculating on rubbish stocks and thereby successfully playing the game of pass-the-parcel.

Brain food

There is fairly mixed evidence on whether videogames stimulate intelligence. Or do they encourage 'nature deficit disorder'? Or do they make kids tense and fearful?

This new Nintendo game is actually intended to stimulate your brain.

Disappearing & disconnected posts

I've had a problem with segments of posts disappearing. It occurs when certain web browsers are used. Its connected with my use of the "continued over the fold" instruction. Sometimes this seems to work and sometimes not.

Do me a favour please. Let me know here if it happens and the browser you are using when it does happen.

On a different matter I've had archived material vanish. Suggestions welcome. I have no idea what is happening.

Urban water

In a moment of idleness I analysed my water bill on this blog and decided that, with current pricing rules in place, I had low incentives to change my household's relatively high usage. John Quiggin in today's Australian Financial Review (subscription required) nicely analyses the case for using price rather than quantity restrictions to manage urban water use in Australia. This is topical as the Victorian Government announced today scaled up fines for using water 'wastefully' and a program of moral exhortation to cut Melbourne's water consumption by 30%.

In resource economics quantity restrictions are often advocated for dealing with short-term emergencies while pricing is often seen as a more efficient way of managing use longer-term. This is John's approach and I agree 100%. Particularly if price increases rise steeply enough with increasing household usage. The failure to impose a steep gradient on prices in Melbourne is the reason that, as discussed above, I am rather slack in limiting my family's water use.

John's argument too, is that using price to balance supply and demand in the longer-term leaves open the option to use quantity restrictions to deal with short-term issues shocks such as droughts. Otherwise draconian restrictions or price increases are needed during shocks which hurts all. Moreover, attaching a price to water encourages appropriate cost-efficient investments in water conservation in urban and rural sectors. Currently, driven by quantitative restrictions, excessively expensive conservation investments are occurring in urban areas when cheaper conservation measures could be initiated in the country.

John's aricle is posted at the new RSMG blogsite he has set up.

Titbits

Good stuff on the blogs I usually visit. Jason Soon posts on whether eating fish oil will reduce the murder rate. I consume this stuff so if true I will be a safer person to be around. Andrew Leigh has several interesting posts. One is to a paper by Bob Gregory and Paul Frijters on long-run trends in minimum wages another to the debate on the case for and against capital punishment. Joshua Gans promotes a conference on media ownership which I will try to attend. Finally I found these very useful daily summary of economics blogs here - you might consider bookmarking if you are into economics.

Apart from that I got several interesting reports. The Reserve Bank posted on growth in "net Australian debt" while the Treasurer, Mr Costello picked favourable bits out of the six-monthly IMF World Economic Outlook relating to Australia. He also gloats on why Australia is better-off having zero Commonwealth Government debt as from tomorrow here? The complete IMF report is here. I also got a nice papers on the role of outsourcing and contracting in Australian agriculuture (and other more general papers on agriculture) here.

Finally, my colleague Rob Waschik pointed out how excess demands for ice hockey matches are dealt with by a lottery system that eliminates inefficiencies associated with queuing while avoiding charging a market-clearing price. Fans wanting tickets were given numbered bracelets as they arrived at a box office. It's the same system used to sell red-hot Madonna tickets recently. After a time officials began drawing numbers at random and those lucky enough to hear their number called are given the option of buying as many as six of the 7,000 available tickets. Colleague David Prentice responded with another example, the Collingwood (AFL) Football Club. If Collingwood gets into the AFL Grand Final, then all members in the top three tiers of membership (Captains, Legends and Social Club) are placed into a ballot for tickets - one membership - one ticket. Members do not have to notify the club if they are interested - the ballot is held automatically and if tickets are not taken up within a certain time, there is a second ballot and so on.

Finally, commentator Conrad pointed me to an interesting (if somewhat aged) report from the AIC on links between ethnicity and crime here. I've sought something like this for a while and the conclusions are interesting. I don't know if there are more recent studies.

Flubbery economics of blubber

I’ve just seen this on obesity economics by Bruce Hollingsworth and Katharina Hauck (HH) at Monash University’s Centre for Heath Economics. There is not much research on this issue in Australia, despite the fact that Australia is unique among countries in having a National Obesity Task Force. Unfortunately the HH study, while a start, does not offer much that is new.

HH see obesity as an important public health concern not well served by rational choice theory. They make some very preliminary observations on Victorian experience. To sumnmarise: 16% of Victorians are obese while 48% are overweight. The extent of obesity is educated-related with 21% of those with only primary education being obese but only 14% of those with tertiary education being so. There is also a relation with income: 18% of those with incomes of less than $20,000 per year are obese compared to 14% of those earning more than $60,000. All this is well-known.

HH also point out that obesity has health costs, psychological costs in terms of poor body image and productivity costs. Again well-known – it has, for example, been estimated to contribute to 12% of the massive US health care budget.

Rational choice models – economic models that suggest people do the best they can for themselves – must suggest that people are becoming obese because they want to – this might be because food prices have fallen and that activity levels overall (those in workplace plus through exercise) have fallen due to technological innovation in the workplace. But HH reject these models claiming that it is socio-economic constraints and market failures that foster obesity.

To support their analysis they consider the Victorian Population Health Survey with a sample of 7,500 households. Why do their regression results show? Not a lot that is interesting or new in my view and nothing that contradicts rational choice explanations. There are relations between obesity and age, marital status, country of origin etc but no links between interesting economic or social policy instrument variables and obesity.

HH then go on to consider the issue of policy interventions with various forms of market failure such as asymmetric information. The only real market failure they come up with is information provision failures on such things as labeling the nutritional contents of foods or suggesting desired exercise programs. You can apply this sort of public goods reason for intervention to any economic issue. They again repeat what we all know that health markets generally do not operate efficiently and so make a standard case for additional information provision and - even - taxing harmful foods. They even reiterate old clichés about ‘prevention being better than cure’. This is all true but because it is well-known, not very helpful.

In my judgment, high quality research into the economics of obesity in Australia remains to be done.

Investing in backstops & current oil prices

An environmental economics group last week asked me to analyse the effect of a reduced price of a backstop substitute (such as 'tar sands') on the time path of prices for conventional oil resources. A famous result by Hotelling says that, with enough competition in producing oil at low extraction costs, for oil to be sold gradually rather than kept in the ground or all be extracted immediately, its price must increase at the rate of interest until it hits the choke or 'backstop' price where the oil is no longer ever used. The initial price charged must be such that, when the backstop price gets hit, the oil resource is just completely depleted.

The figure illustrates what theory predicts. Oil prices increase at the interest rate along their Hotelling price trajectory H1. They increase up to PB, the choke price where consumers switch to a backstop at time T3 at fixed price PB. Now suppose at T1 there is a shock lowering the backstop price to PBNEW- this might reflect a technological breakthrough reducing costs of getting oil from, for example, tar sands. The effect is to cause an immediate collapse in current oil prices from P(T1) to P(T2) whereupon a new lower Hotelling price path H2 results with higher use at each time than would have been the case before the shock. The conventional oil resource is depleted at T2, earlier than before.

Thus one way to moderate current oil prices (now around $70 per barrel) is to invest in the efficient provision of backstop supplies.

But will this work? With monopoly power in OPEC I think possibly not. Indeed current oil prices seem to be well-above backstop levels which suggests oil producers should be cutting their prices markedly but they show no sign of doing so. It is important is to recognise that OPEC has price-setting power and may be dealing strategically with alternative energy suppliers. We know that extraction costs of much Middle East oil are low - Saudi Arabia likes to remind us of this - so they can cut prices heavily to maintain their market and still remain viable. What matters to alternative energy suppliers is not the price OPEC charges now but the price they would charge were alternative energy supplies to come on-stream.

It seems to me that this is part of the reason alternative energy supplies are not coming on-stream more rapidly right now (quite a lot is occurring via firms like Shell) to help cope with, what might amount to being, an impending liquid fuels crisis. The fear is that alternative energy suppliers, having incurred high fixed development costs, will always face oil prices set to make sure they are uneconomic. To put it simply, producers of alternative fuels are concerned that oil prices may again dip to levels much lower than current levels.

One way out of these dilemma is for governments to agree to insure the value of competiting fuels by offering to subsidise any gap between average production costs of the alternatives to conventional fuels. Indeed if you attach a high probability to current 'peak oil' hypotheses this is one way of avoiding a sharp discontinuous spike in energy prices as conventional supplies deplete. Publicly-subsidised investment in new production technologies will also increase private sector incentives to innovate.

Mid week review

Its great to write my mid-week review after a slothful break - slothful in terms of not doing paid work. I enjoyed the Easter break with quite a bit of time outside, gardening and enjoying the limited remnants of sunshine that Melbourne leaves us at this time of year.

The proceeds of a small consulting project gave me enough money to stock up on some good red wines. Buying wine with skill is potentially purchasing an asset - an asset that appreciates in value and, perhaps, in drinkability. Given the wine glut at present in Australia its a good time to accumulate wine wealth. I thought Wynns 2003 cabernet at Boccaccio Cellars at $16-99 good buying. There is also an even 'worse' (from the viewpoint of vendors) wine glut in Europe and I took this opportunity to buy a range of Italian, Spanish and French wines including the much publicised el-cheapo, The Arrogant Frog.

Out of the three working days left this week I have at least one that will be consumed by administration. A lot of people in the universities will take holidays this week so many boring meetings should not occur. I might therefore get some paid work done.

On a more serious note the attack by Islamic Jihad that killed 9 innocents in Israel - and one idiot suicide bomber who believes he is headed for paradise - didn't shock but left me more than usually saddened. The murderous thugs in Islamic Jihad cannot justify this carnage with the usual cliches regarding Palestine's right to defend its homeland. The refusal of the Hamas Government to condemn the bombing shows Israel what it is dealing with. I assume they will respond with a tit-for-tat attack.

Ignoring such bad news for the moment I hope you enjoyed your Easter Break As usual comments on anything welcome.

Cronulla and the Lebanese

An issue in Australia, and elsewhere, is that Muslim migrants do not always adopt life styles considered normal or reasonable in their new host society. Are such people sought-after new citizens as immigrants to Australia?

A particular group of immigrants, Lebanese Muslims (LMs), have posed particular issues. Many have come from a war-torn country as refugees and have generally not settled well into Australian society. They are a large group and constitute a substantial proportion of all of Muslim immigrants.

Some LMs have an involvement in crime and in anti-social behavior that has major social impacts, particularly in NSW. Their involvement in the hideous race-related rapes headed by Bilal Skaf, their contribution to organized crime in Australia and their contribution to the recent Cronulla riots raise the legitimate question of whether ‘we’ (those living in Australia now) should seek to continue this form of immigration.

Two recent articles in People and Place examine Lebanese Muslim settlement in Australia and throw light on this issue.

(i) Kathleen Betts & Ernest Healy (BH) on Lebanese Muslims in Australia identify issues of social disadvantage among LMs. Their average income per household is low compared to that of other nationals and very low relative ‘per family member’ because of large family size – incomes per head are half the Australian average. 39% of first-generation Lebanese Muslims aged 25-44 are unemployed or not in the labour force compared with 16% of all Australians. 65% of LMs aged 45-64 are unemployed or not in the workforce compared to 27% of Australians. Second generation LMs (those of Lebanese Muslim ancestry, but not overseas born) are doing better – but still experience high unemployment with 50% not having any post-school educational qualifications.

Perhaps it is their history, perhaps their social values or perhaps it is because they are subject to prejudice but, for whatever reason, LMs are socially disadvantaged. And, of course, this socially-disadvantaged group does impose obligations on other Australians. 26% of Lebanese borne males receive government pension compared to 12% of the overall male population.

(ii) Ryan Barclay & Peter West (BW) discuss the Cronulla demonstration of 11 December 2005. This is also discussed on Four Corners, and here, here. The beach in Australia is a public good which anyone can utilize – Cronulla has a suburban feel to it as a beach compared to, for example, the more cosmopolitan Bondi. Cronulla users are ‘locals’ (pre-dominantly Anglo-Saxon) and ‘visitors’ (from all over Sydney, including Lebanese). The beach is nominally an open access resource but tends to be regarded as common-property by local users. Certain forms of behavior are tolerated by locals others are not. In a sense the way newcomers interact with locals in this environment reflects the ability of each group to coexist with the other.

Lebanese male users of the beach broke implicit rules or norms that locals saw as reasonable. Males in packs verbally abused female non-Lebanese beach users with sexually-explicit insults (‘you Aussi slut’, ‘you should be raped’ etc) and assaulted local males including a savage attack on two lifesavers as they were leaving the beach. Lifesavers have high social prestige in the Australian beach scene and, even though their attackers could not have identified those assaulted as lifesavers, this attack created more than usual anger. The behavior by the Lebanese males was discussed in what many saw as inflammatory media reports. On December 11 a large demonstration was organized by locals that became highly-emotional and involved consumption of large amounts of alcohol. While initially the demonstration focused on ‘Lebs’, it quickly became focused on any non-white citizen and led to attacks on such people. It became racist. The following day the Lebanese community countered with its own racism, bashing white Australians, vandalizing property and using expressly racist language ‘pigs’, ‘dogs’ directed at white Australians.

BW suggest that part of the local reaction to the Lebanese was fostered by prevailing multicultural attitudes of tolerance that permit it to be accepted to call Australian women ‘sluts’ and to regard the word ‘Aussi’ as an insult. The local reaction was partly nationalistic – locals carried Australian flags and asserted their pride in Australia. Initially, they did not seem to be opposed to individuals asserting their ethnic identity, though alcohol helped transform that pride towards ignorant racism which in turn fueled further ignorant racism by the LMs.

What to do? Apart from trying to screen out nasty types using occupational or educational skill requirements (this would exclude most so-called refugees), Australia has a simple choice in relation to new LMs. It should either

• Take the effort to address issues of social disadvantage facing LMs in Australia through active social programs that invest in LM skills, or;
• Find a reason to exclude them. Unless we can change LM attitudes we are under no obligation to accept those who despise us and treat half our citizenry as subhuman.

Issues of straight criminality can be addressed by law. The case of the racist rapes of Australian women by Lebanese men shows that this can be done.

Whatever happens the status quo should not prevail. If further Lebanese Muslim migration to Australia only adds to social discontent and social welfare bills then it does not offer good value to Australia. Muticultural tolerance should not be used to downplay what is an ongoing social expense. LM attitudes to Australiam women are not only a marginal inconvenience. Who wants ongoing, almost nauseating social attitudes in an open, democratic and tolerant society that functions reasonably well?

Cybersex, sex, robots, birth canals, MRI scans

Cybersex here.
A possible romantic partner for Bender here? Educational!
A visual cyber-preview here. Not a bad snap!
Magnetic resonance imaging used to describe what really happens?

Naqoyqatsi

Naqoyqatsi: Life as War is the last of the trilogy of Qatsi movies. They took 25 years to make and I have watched all 3 in 3 days. Like the other two, this movie utilise the superb musical skills of Philip Glass but now also has a unique key role for cello soloist Yo-Yo Ma. The music is, if anything, rather different from the film. The title means 'war as a way of life' or 'civilised violence'. The movie, unlike the first two of the trilogy, is sternly technological and experimental - the editor and visual designer - Jon Kane - obviously played a very significant role. There is beauty but it is abstract, symbolic beauty and the emphasis is on technology. There is an anti-technology message here that is being conveyed using high technology - as Reggio puts it, 'no immaculate conceptions'.

The locations here are not developed countries (as in Koyaanisqatsi) or those of the Third World (as in Powaqqatsi) - indeed the locations here are images of a globalised world. It is the music that softens the whole experience and prevents the film from becoming overly experimental and excessively demanding. To me it also made the experience primarily aesthetic rather than didactic. The collages of images to me is computer art.

The attractive feature of all these movies is the way music and images are blended. It is abstract and there is no dialogue but the movie still flows - there is no feeling of staccato experimentation. Reggio the director collected images, Glass designed music, Kane edited and unified. The three participants explain how they worked together successfully - in the case of Glass and Reggio the collaboration lasted the full 25 years.

I can't recommend these 3 films enough. I'll certainly watch them again and when I can't watch listen to Phillip Glass's music. One thing I want to do is follow up on the cinematography of Ron Fricke who worked on Koyaanisqatsi. Reggio describes him as a genius and I'll take his word for it. Fricke worked on a number of films for IMAX including Chronos (as director, cinematographer, editor and co-producer), Sacred Site (director, cinematographer, editor, producer) and most recently Baraka (director, cinematographer, co-editor and co-producer). He is about to release Samsara.

Policies on booze

The Age, this morning proposes taxes on alcoholic products that are proportional to the alcohol content (volumetric taxes) rather than ad valorem taxes (taxes that are a fixed proportion of price) on the value of a product. This follows earlier claims by AMA President Bill Glasson for the same type of tax. It is claimed that current ad valorem taxes are a major cause of the disproportionate levels of alcohol-related harm experienced in some areas, particularly in some Aboriginal and Torres Strait Islander peoples and communities. Being based on price, ad valorem taxes take no account of the alcohol content. It hence favours the production and sale of cheap cask wine.

With some qualifications such a tax will work provided price elasticities are high enough. Recent UK work suggests they are. The UK Treasury estimate price elasticities for beer at -1.0, spirits -0.9 and wine at -1.1. A price elasticity of -1.1 means that a 10% increase in price will reduce consumption by about 11%. Interaction effects with income can strengthen these price effects. Those on low incomes (the poor and the unemployed) with low incomes might display stronger price-elasticity effects.

Of course such a tax will inevitably be regressive and falls on people who drink sensibly and for whom a glass of wine is a pleasant conclusion to a busy day as well as drunks.

Alcohol is a potentially dangerous drug - it is neurotoxic. As previously discussed on this blog its positive health effects may be considerably exaggerated. And alcohol may hold particular problems for adolescents and young adults. A variety of health, assault and road accident problems are linked to alcohol. There are, however, more specific policies than taxes for targeting those at risk from alcohol.

Education policies have turned out to be expensive and many claim they are ineffective. One crucial item of information that is often not presented relates to the alcohol consumption of a father. There is a strong genetic basis for problem-drinking (and here) and those with alcoholic fathers probably should not drink. Those coming from dysfunctional families where physical and sexual abuse have occurred may also be triggers for alcoholism. But these are fairly non-specific triggers to act upon and are difficult situations to identify.

Alcohol is linked to 30% of car accidents in Australia and campaigns to limit drink-driving clearly make sense. It seems some of the punch has gone out of such campaigns. People accept a drink-driving conviction as a working hazard of modern life. It is no longer a social disgrace. My suggestion is to steeply increase penalties to enforce ignition interlocks and to jail (without fail) repeat offenders. This is a penalty that is directed at a harmful consequence of drinking rather than drinking per se. So too are regulations directed at alcohol vendors that prohibit sales to those intoxicated.

Banning advertising and restricting the availability of alcohol via trading hour restrictions do not make much sense to a libertarian who believes in rational choice models. But they do make sense to those of us who recognize self-control issues associated with excessive alcohol consumption and the role of cue-related responses to advertising and promotional stimuli. And banning alcohol advertising is very effective – this is why the liquor lobby oppose it so intensively.

Minimum age restrictions make much sense if you believe (as some suggest) that the brain neuron-killing potential of alcohol is most severe during adolescence and if you paternalistically agree that lids are excessively impulsive and prone to self-harm. Grow up first boys and girls.

And finally we need to deal with those who do have alcohol problems with therapies, drugs and other treatment policies. This is a vast subject for another posting but two points. (i) Providing treatment reduces user costs of abusing alcohol so that direct harm-reduction will be to some extent offset by induced increase use. (ii) Treatment of those with problems offers less gain to society than preventing potential abusers from ever abusing. This is not a sternly critical rebuke to the important work done by treatment agencies, just fact.

U3O8

The Uranium Information Centre provides an interesting paper on Australia’s uranium industry. Yes, the UIC is funded by companies involved in uranium exploration, mining and export in Australia – but the observations seem broadly consistent with the Federal Governments’s Geoscience Australia report (pages 65-69) for 2005 –the UIC do lump in ‘inferred’ with actual reserves, hardly a hanging offense.

Australia’s reserves of U3O8 are the world’s largest – 30% of the total at prices up to $80US per kilogram. Australia has 38% of the world's lowest-cost uranium resources (exploitable under US$ 40/kg) and indeed most reserves fall into this category. Only 3 mines are currently operating (Ranger, Olympic Dam, and Beverley) but these produce 22 % of the world’s uranium, around 11,000 tonnes of U3O8 per year. Two more Jabiluka and Honeymoon are proposed.

A significant expansion in production could come about from BHP-Billiton’s attempts to demonstrate the viability of a much expanded operation at Olympic Dam – which would yield up to 15,000 tonnes of U3O8 per year. The capital cost is A$5 billion. Proved and probable reserves are currently some 376,000 tonnes of U3O8, the total resource being some 1.6 million tonnes or over one third of the world's known total. Present production capacity is 4500 tonnes annually with 235,000 tonnes of copper also produced. Olympic Dam is primarily a base metals prospect and the decision to expand its uranium production is conditional on its ability to profitably expand copper production to 500,000 tonnes per year.

Uranium comprises about 40% of Australia’s energy exports in thermal terms. The customer countries' contracted imports of Australian uranium oxide concentrate are the USA (c 4100 tonnes per year with 103 reactors supplying 20% of electricity), Japan (c 2700 tonnes per year with 55 reactors supplying 30% of electricity, South Korea (c 1000 tonnes per year with 20 reactors supplying 40% of electricity) and EU countries ( c 3200 tonnes per year, including Spain: 9 reactors supplying 24% of electricity, France with 59 reactors supplying 77% of electricity, the UK with 23 reactors supplying 20% of electricity, Sweden with 10 reactors supplying 50% of electricity, Germany with 17 nuclear reactors supplying 30% of electricity, Belgium with 7 reactors supplying 55% of electricity and Finland with 4 reactors supplying 27% of electricity.

About 16% of the world’s electricity is currently generated using uranium in nuclear reactors. Some 439 nuclear power reactors operate in 31 countries; a further 69 new reactors are under construction or planned for completion within the next 10 years. Much of this growth will occur in China, India, Japan and South Korea. A total of 16 countries generate more than 25% of their total electricity from nuclear reactors (Geoscience Australia, 2005).

In Australia we have no commercial nuclear reactors and the media still regards as a key debating point whether nuclear power is a viable source of electricity.

Australia is a preferred uranium supplier to world, especially East Asian, markets. It could readily increase its share of the world market because of its low cost reserves and its political and economic stability. Australia has recently signed an agreement to supply China with uranium after about 2008. China will build 40-50 reactors over the next 20 years. So far Australia has proven resistant to supplying the equally large Indian market which currently uses nuclear fuels for about 3% of its electricity.

Update: One of the founders of Greenpeace makes the case for nuclear power here.

Powaqqatsi

After viewing Koyaanisqatsi I couldn't wait to see Powaqqatsi: Life in Transformation which is its 1988 sequel, again directed by Godfrey Reggio, and the second film in the Qatsi trilogy. Searching for it at the video store I eventually found it in the documentary section. Not surprising really - it is a visual, musical documentary of sorts although again, as with Koyaanisqatsi, it has no dialogue at all.

'Powaqqatsi' is a Hopi word meaning 'parasitic way of life' or ' an entity that consumes the lives of others for its own survival'. Whereas Koyaanisqatsi focused on modern life in industrial countries, Powaqqatsi, looks at developing countries and traditional ways of life with their emphasis on physical labour and new ways of life that are introduced with industrialization. As with the ealier film I had to concentrate to pick up the drift of the 'message' - the skill of the cinematography and the music drag your senses away from any simple assignment of intent in relation to this beautiful film.

The cinematography is intensely beautiful and perceptive - the film-makers' curiosity and keen eye entertains. The soundtrack, again written by Philip Glass, stands alone as superb, modern, classical music. And the music blends perfectly with the cinematography - the cutting and editing must have been a huge task. The vocals are particularly haunting. As the wikipedia review notes here '...human voices (especially children's and mainly from South America and Africa) appear more than in Koyaanisqatsi, in harmony with the film's message and images'.

A fine film.

Missing motivation in macroeconomics

George Akerlof gave a fascinating talk on this topic to a World Bank forum last month. His earlier Nobel Prize lecture on behavioral macroeconomics is here. The World Bank talk is a gas - I would like to hear a stern neoclassical macroeconomist's views on Akerlof's demolition of Ricardian equivalence, the permanent income hypothesis, the Modigliani-Miller theorem, the natural rate hypothesis and rational expectations - and his enthusiastic support for Keynesian underpinnings for macroeconomics.

Akerlof's main line is that norms regarding what people should do - not only real outcomes - should enter the utility function we regard agents as maximising. He argues that the wrong models we have endorsed stem from a false endorsement of parsimonious 'positive economics' and flawed econometric methodology. Economists should study the 'microscopic' not just the average. Keynes' got it right and neo-classicals who supported the big 5 neutralities in economics got it wrong.

By the way, the discussion at the end of the Akerlof talk identifies major issues. Key issue: Where do the norms come from? Role of evolutionary economics? Neuroeconomics? Should macroeconomics be culture specific? Can you change behaviour by changing norms? Can you foster development by changing norms?

The World Bank talk is a stunning lecture - watch it circulate across the web! My speciality is microeconomics not macroeconomics so I'd be very interested in views of others.