Saturday, June 30, 2007

John Ashfield aged 6

This story damaged my day. Why is someone from the Department of Community Services not in jail? Why the need to suppress information about this little boy's death?

Krugman on Murdoch

Paul Krugman expresses his opposition to Rupert Murdoch's intended purchase of the Wall Street Journal. He argues that Murdoch's commercial motivations mean that US citizens have been misled on issues such as the war in Iraq.

'The problem with Mr. Murdoch isn’t that he’s a right-wing ideologue. If that were all he was, he’d be much less dangerous. What he is, rather, is an opportunist who exploits a rule-free media environment — one created, in part, by conservative political power — by slanting news coverage to favor whoever he thinks will serve his business interests.

In the US, that strategy has mainly meant blatant bias in favor of the Bush administration and the Republican Party — but last year Mr. Murdoch covered his bases by hosting a fund-raiser for Hillary Clinton’s Senate re-election campaign.

In Britain, Mr. Murdoch endorsed Tony Blair in 1997 and gave his government favorable coverage, “ensuring,” reports The New York Times, “that the new government would allow him to keep intact his British holdings.”

And in China, Mr. Murdoch’s organizations have taken care not to offend the dictatorship.

Now, Mr. Murdoch’s people rarely make flatly false claims. Instead, they usually convey misinformation through innuendo. During the early months of the Iraq occupation, for example, Fox gave breathless coverage to each report of possible W.M.D.’s, with little or no coverage of the subsequent discovery that it was a false alarm. No wonder, then, that many Fox viewers got the impression that W.M.D.’s had been found.

When all else fails, Mr. Murdoch’s news organizations simply stop covering inconvenient subjects.

Last year, Fox relentlessly pushed claims that the “liberal media” were failing to report the “good news” from Iraq. Once that line became untenable — well, the Project for Excellence in Journalism found that in the first quarter of 2007 daytime programs on Fox News devoted only 6% of their time to the Iraq war, compared with 18% at MSNBC and 20% at CNN.

What took Iraq’s place? Anna Nicole Smith, who received 17 percent of Fox’s daytime coverage.
Defenders of Mr. Murdoch’s bid for The Journal say that we should judge him not by Fox News but by his stewardship of the venerable Times of London, which he acquired in 1981. Indeed, the political bias of The Times is much less blatant than that of Fox News. But a number of former Times employees have said that there was pressure to slant coverage — and everyone I’ve seen quoted defending Mr. Murdoch’s management is still on his payroll.

In any case, do we want to see one of America’s two serious national newspapers in the hands of a man who has done so much to mislead so many? (The Washington Post, for all its influence, is basically a Beltway paper, not a national one. The McClatchy papers, though their Washington bureau’s reporting in the run-up to Iraq put more prestigious news organizations to shame, still don’t have The Journal’s ability to drive national discussion.)

There doesn’t seem to be any legal obstacle to the News Corporation’s bid for The Journal: F.C.C. rules on media ownership are mainly designed to prevent monopoly in local markets, not to safeguard precious national informational assets. Still, public pressure could help avert a Murdoch takeover. Maybe Congress should hold hearings.

If Mr. Murdoch does acquire The Journal, it will be a dark day for America’s news media — and American democracy. If there were any justice in the world, Mr. Murdoch, who did more than anyone in the news business to mislead this country into an unjustified, disastrous war, would be a discredited outcast. Instead, he’s expanding his empire.

Thursday, June 28, 2007

Professor Max Corden on Immigration

I am attending the Dynamics, Economic Growth and International Trade Conference organised by the Asian Economics Centre, University of Melbourne. Apart from participating in a panel on Climate Change and Economic Growth I am also providing a brief commentary on the contributions to the economics of immigration of one of Australia's most important contributors to international economics, Professor W. Max Corden. My draft remarks are below - reader comments are very welcome.

Max Corden has intersected with immigration debates in three ways:

(i) Max is an immigrant who arrived in Australia as a young boy in 1939. He is also someone who has spent a lot of time living outside Australia both in the UK and the United States as he reveals in his discussion with William Coleman in The Economic Record in December 2006.
This means that Max, who has always had an applied interest in the Australian economy, has looked at issues both from the viewpoint of an insider and an outsider. His attitudes to immigration I would characterise as ‘radically liberal’ and I think that this partly reflects Max’s understanding of sound economic theory which I believe points in this liberal direction. But Max’s liberal and tolerant attitudes towards immigrants and different cultures also reflect his background.

(ii) The second intersection that Max has had with immigration discussions arose from his interactions with Harry Johnson and James Meade (his PhD thesis supervisor) while Max was a student at the LSE. Harry Johnson was interested in the links between economic expansion (including expansion caused by population growth) on international trade and the terms of trade. Drawing on some thinking of Meade, Max provided an ingenious, geometrical framework for analysing the effects of a wide range of growth shocks on the terms of trade and the pattern on trade (Corden (1956)).

Max emphasised that both the production and demand consequences of such shocks must be assessed. For fixed terms of trade the production effects of factor endowment changes can be assessed via Rybczynski ‘s (1955) analysis. This suggested that the increased endowment of a scarce factor (specifically, labour in Australia) would lead to an expansion of the sector that used that input intensively (the labour-using, import-competing, manufacturing sector in Australia) and to a contraction in other export-oriented sectors (primarily, in Australia, agriculture). This would create an excess world demand for agricultural output thereby suggesting an improvement in the Australian terms of trade. Max’s key insight was that these effects could potentially be overruled if the growth was also associated with particular changes in consumer preferences. For example suppose the increase in labour supplies arose from immigration, and the preferences of the immigrant workers were strongly biased towards manufactures. These latter effects need to be very strong indeed to overrule the production effects, but, if they are, the terms-of-trade effects suggested on the production side can be reversed and these terms of trade can in fact deteriorate.

It is worth noting however that it is these perverse demand effects that are relied on in settings, such as in the Monash model and in the recent use of this model by the Productivity Commission (2006) to generate the startling and, in my view incorrect conclusion, that immigration of even skilled migrants generates unfavourable effects on the terms of trade which adversely impacts on the economic welfare of incumbent residents and their progeny (Clarke (2007)).

Max applied this analysis to studying the effects of population increase on a country’s trade in a broader setting in The Economic Record (Corden (1955)). Max examined the arguments that immigration might increase unemployment, create internal inflation and cause deterioration in the balance of payments. The argument he adopted inconsistently followed the style of James Meade. Like Meade’s total utility maximisation rule for determining optimal population – the optimal immigration intake for Max occurred once the fall in consumption per head that was a consequence of having more people was no longer compensated for by the political and other non-economic advantages of immigration. The slight inconsistency in Max’s use of this criterion is that, at one stage, he writes of determining optimal population in terms of maximising the average product of labour which I think Meade would not have done. Maximising the average product of labour leads to average utilitarian rules for optimal population of the type discussed by John Pitchford (1974) which focus naturally on ‘scale economies’ and ‘diseconomies’ issues.

Max is modest about these early papers but I think they initiated a valuable discussion that raised most of the key issues in analysing the economic implications of increasing human populations: Specifically Max discusses effects on fixed resource stocks, on incentives to invest and most importantly on the composition of international trade. Max makes the interesting insight that opening an economy up to trade reduces the size of the optimal population although, of course, living standards will be higher as the economy opens up. This insight is linked to the Brigden Committee’s (1929) famous ‘Australian case for protection’ which argued that the optimal population is lower if tariff protection is removed because protection will defend the level of real wages.

(iii) The third recognisable intersection that Max has made with contemporary immigration debates. I have enjoyed conversations with Max where he displays wide knowledge of the social and cultural impacts of immigration on settler countries like Australia and the United States. Max remains interested in immigration economics – as evidenced by his 2003 Richard Snape Lecture (Corden (2003)) but he is also keenly interested in broader assimilation and cultural diversity issues.

In the Snape Lecture Max assesses contemporary Australian immigration debates. He argues that the sensible population options for Australia are for moderate intakes of 100,000 migrants per year leading to a population of about 26 million by 2050 or for a more ‘radical’ policy that would raise intakes to 200,000 thereby leading to a population of 40 million by 2081. Max prefers the more expansionary option but argues that it is unlikely to be realised because of ‘the conservative approach to immigration policy by the public and the pragmatic approach by government’.

I wish to close by questioning this presumption. Many things are changing in Australia’s immigration environment. The Coalition Parties in Australia have substantially increased the size of the Australian immigration intake – the 2006/07 program involves up to 144,000 places while the Humanitarian Program has an intake of up to 13,000 (Fact Sheet 20 (2007)). The reasons for this expansion relate as much to macroeconomic conditions in the Australian economy as ideology. Australia is approaching the 17th consecutive year of its economic expansion and is enjoying low inflation, low unemployment and strong economic growth.

Moreover, we have substantially reduced the family component of the migration program thereby diffusing community concerns that the program was become interest-group driven. About two-thirds of those entering as migrants during 2006/07 did so because of the work or business skills they had. The rigidity in labour markets has been reduced through the Hawke-Keating government’s promotion of enterprise bargaining and later reforms.

With low unemployment concerns about the unemployment consequences of immigration fade. Indeed immigration is increasingly being seen as a means of containing demand-side pressures in the economy that emerge because of the unparalleled growth in commodity demands from countries such as China. In addition, since the migration intake is primarily oriented to accepting those with skills, concerns raised by earlier critics of the program (discussed in Lloyd (1993)), that sectional interest groups were driving immigration have faded. The shrill voices have become less strident.

If unemployment continues to it might yet be the case that Max’s enthusiasm for a much expanded immigration program will gain more general support.


J.B. Brigden, D.B. Copland, E.C. Dyason, L.F. Giblin & C.H. Wickens, The Australian Tariff: An Economic Inquiry, Melbourne University Press, Melbourne , 1929.

H. Clarke, “Comment on James Giesecke: The Economic Impact of a General Increase in Skilled Migration”, People and Place, 15, 2, 2007, 12-14.

W. Coleman, ‘A Conversation with Max Corden’ The Economic Record, December 2006, 379-395.

W. M. Corden, ‘Economic Expansion and International Trade: A Geometric Approach’, Oxford Economic Papers, June 1956, 223-228.

W.M. Corden, ’40 Million Aussies? The Immigration Debate Revisited’, Inaugural Richard Snape Lecture, Productivity Commission, 30 October 2003.

W.M. Corden, ‘The Economic Limits to Population Increase’, The Economic Record, November 1955, 242-260.

Department of Immigration and Citizenship, Australian Immigration Fact Sheet, Migration Program Planning Levels, 20, June 2007.

P.J. Lloyd, ‘The Political Economy of Immigration’ in J.J. Jupp & M. Kabala (eds), The Politics of Australian Immigration, Bureau of Immigration Research, AGPS, Canberra, 1993.

J.E. Meade, The Theory of International Economic Policy, vol 2, Trade and Welfare, Oxford University Press, London, 1955.

J.D. Pitchford, Population in Economic Growth, North Holland, Amsterdam 1974.

Productivity Commission, Economic Impacts of Migration and Population Growth, Productivity Commission, Final Report, Melbourne, 2006.

T.M. Rybczynski, ‘Factor Endowment and Relative Commodity Prices’, Economica, November, 1955.

Science, prejudice & smoking

Ryo Nakajima in the Review of Economic Studies (subscription required) considers the role of ‘peer effects’ on the decision to smoke among teenagers. To what extent do teens smoke because their friends smoke? This is an important question since one quarter of US youth are smokers when they finish school. You could guess that peer group effect matter quite a lot and that is what this US study finds. The peer effects are particularly strong within genders and within particular racial groups.

We know that smoking behaviour varies markedly by gender and by race. Price elasticities are lower for girls than boys and much lower for whites than for black teenagers. One explanation for this is based on the strength of peer group interactions. Nakajima finds that peer interactions are stronger within genders and within racial groups.

Tax increases have very significant effects on smoking by youth and a ‘multiplier effect’ is found because of peer interactions. An increase in price causes reduced use and this reduced use, in turn, contributes to a further reduction because of reduced peer effects. The multiplier is more than 1.5.

Meanwhile there have been some foolish responses by the health industry to the decision of Phillip Morris to introduce a smokeless cigarette – the ‘Heatbar. This heats cigarettes without burning the tobacco – it is claimed to be much safer.

Quit Victoria’s acting director Suzie Stillman urges the Federal Government to introduce a licensing system for all tobacco products. "Without this system, the tobacco industry will continue to use the Australian public as laboratory rats for their latest gimmicks."

Cancer Council Victoria director Professor David Hill said the technology was part of the industry's long-term strategy to portray tobacco products as fashionable and desirable to the young. "If the proposal is indeed technically legal, Philip Morris seem to have issued an invitation to government to respond with appropriate legislation or regulation."

I strongly disagree with the ethic expressed here. About 3.5 million Australians continue to smoke cigarettes – a very dangerous form of behavior. The best thing these people can do is to quit smoking but many seem unable to do this. Attempts to come up with a safer fag should be looked at and considered rationally.

Blind prejudice has no role here – it may only condemn committed smokers to unnecessary early deaths. One way of reducing the crippling damage caused by cigarette smoking is to induce companies like Phillip Morris to seek healthy substitutes.

Smoking cigarettes is not sinful – it is very dangerous. Any attempt to reduce the damage - whether by quitting or by coming up with safer alternatives such as smokeless tobacco, nicotine replacement therapies, electronic cigarettes and perhaps the Heatbar - should be given a hearing.

Wednesday, June 27, 2007

Catch-up politics

In light of the government's broadband reaction this week as well as to climate changes over the last six months, ‘Is there merit in catch-up politics’? (Blogocracy-organised group blog (Joshua Gans, Tim Dunlop, Ken Parish, Kim, Robert Merkel, Andrew Bartlett and Tigtog, question 3).

My answer to this is a ‘two-handed’ economist response – on the one hand it sometimes is and, on the other, not. It is really an obvious point when you think about it – sometimes it makes sense to mimic someone else’s ideas, sometimes it does not.

Politicians can learn from each other and steal good ideas. That is the useful aspect of ‘catch up’ and applies when the community seeks a single best response to a policy issue. This works if there is no fundamental disagreement or division in the community over policy. Pollies can apply this type of catch-up, without losing face, by reverse engineering ideas to repackage them and by falsely claiming priority.

Indeed it is this imitation that should motivate people to advance political ideals and to argue them. Advancing ideals just to install one group of pollies into power is much less important than having the ideals voiced and pursued.

However if there is fundamental disagreement and views are bimodal – so different groups have markedly different views - then playing catch-up can lead to significant views in the community being underrepresented. This is the famous Hotelling Ice-Cream Salesman problem or the Tweedledum-Tweedledee theory of politics.

If the government is holding out in a bargaining situation (e.g. against Telstra re broadband) and faces an opportunistic, populist attack from an opposition party then, a desire to appear to be doing something could weaken its hand make us worse-off. I am not suggesting this is what happened in this case now.

Of course if one party holds silly policy views with populist appeal (e.g. support for ‘industry policy’) and another party copies it, then general ignorance increases as both parties go into populist overdrive and race towards idiocy. We are then all worse off.

While imitation of useful policy ideas is not necessarily harmful, a government that relies primarily on the policy ideas of others might not be thought of being able to deal effectively with the issues of the day in a closed-loop fashion. There should be reduced confidence in its ability to deal with new, unexpected circumstances.

Finally, imitation can lead to better policy, it can also cover up ‘free-rider’ externalities. If a government is not putting effort into coming up with effective policies and towards arguing the case for policies in the marketplace for ideas we all lose. This is so because aggregate effort falls on the part of the ‘free-riding’ party and because other groups then have reduced incentives in making this effort. The only way to avoid this failure is to give some reward to groups who do come up with innovative thinking.

I ran a bit short of time on this quiz as exam marking and doing a million other things.

Other contributions are:

Joshua Gans (proposer) responds here.
Kim’s view, those of Robert Merkel and Andrew Bartlett .
Tim Dunlop has just posed a view that I largely agree with.

Tuesday, June 26, 2007

Old red wines

I enjoyed two great old vintage wines last night with old friend Chongwoo and his kin. A 1976 Wolf Blass Black Label Cabernet-Shiraz for a pre-dinner warm-up was, I thought, in excellent condition - Chongwoo thought it a bit faded. These very old wines are a matter of taste - they don't appeal to all.

Wolf Blass took out three consecutive Jimmy Watson Trophies more than 30 years from 1974-1976 so this wine, though not a winner itself, has great pedigree. Good colour, brisk acidity – a gentle aged wine from the Barossa Valley and Langhorne Creek. I've said cruel things about Wolf Blass wines over the years - all is retracted!

Then some Italian tucker with a 1986 Chateau Tahbilk Shiraz. This wine has been a source of inspiration for me for over a decade as I have chewed my way through 2 dozen of the beasties all bought for an absolute song – a myopic restaurant owner decided his cellar was taking up too much space so he had a fire-sale. I remember filling the trunk of my car and congratulating myself for my far-sighted wisdom!

Now the CT-shiraz is definitely an old wine with cigar box bouquets and sweet fruit – an absolute classic. This vintage was one of the greatest of the Tahbilk shiraz wines though now it is getting scarce. It was an enormous wine when I bought it in the late 1980s and remained so for a decade. It is now (like me) maturing gracefully.

Recent Chateau Tahbilk wines (shiraz, cabernet, marsanne, chardonnay) have been uninspired in my view - they improve with breathing for several hours. Its a sad development.


This is an interesting New York Times blog containing an interesting argument by Stanley Fish. The atheist’s claim that God does not exist - because actual religions are a bundle of contradictions that could not possibly be constructed by an omniscient God - does not undermine the case for the existence of God. Nor, of course, does recognising that it does not undermine the argument establish that God does exist.

‘It is God (if there is one) who is perfect and infinite; men are finite and confined within historical perspectives. And any effort to apprehend him – including the efforts of the compilers of the Old Testament, the New Testament and the Koran – will necessarily fall short of a transparency that will be achieved (if it is achieved) only at a future moment of beatific vision. Now – any now, whether it be 2007 or 6,000 years ago – we see through a glass darkly (1 Corinthians, 13:12); one day, it is hoped, we shall see face to face.

In short, it is the unfathomable and unbridgeable distance between deity and creature that assures the failure of the latter to comprehend or prove in the sense of validating the former.
If divinity, by definition, exceeds human measure, the demand that the existence of God be proven makes no sense because the machinery of proof, whatever it was, could not extend itself far enough to apprehend him.

Proving the existence of God would be possible only if God were an item in his own field; that is, if he were the kind of object that could be brought into view by a very large telescope or an incredibly powerful microscope. God, however – again if there is a God – is not in the world; the world is in him; and therefore there is no perspective, however technologically sophisticated, from which he could be spied. As that which encompasses everything, he cannot be discerned by anything or anyone because there is no possibility of achieving the requisite distance from his presence that discerning him would require.

The criticism made by atheists that the existence of God cannot be demonstrated is no criticism at all; for a God whose existence could be demonstrated wouldn’t be a God; he would just be another object in the field of human vision.

This does not mean that my arguments constitute a proof of the truth of religion; for if I were to claim that I would be making the atheists’ mistake from the other direction. Nor are they arguments in which I have a personal investment. Their purpose and function is simply to show how the atheists’ arguments miss their mark and, indeed, could not possibly hit it.

At various points Harris, Dawkins and Hitchens all testify to their admiration for Shakespeare, who, they seem to think, is more godly than God. They would do well to remember one of the bard’s most famous lines, uttered by Hamlet: “There are more things in heaven and earth than are dreamt of in your philosophy.”’

Monday, June 25, 2007

Fatal car accidents & car speed

Tim Blair criticises the idea that small reductions in speed can greatly reduce the probability of a car accident. I think on this occasion he is incorrect.

I forget much of my high school physics but isn’t it true that impact is proportional to mass and speed squared? Thus increasing speed from 60 to 65 km per hour - by about 8% - increases the collision impact by 17%. This is quite apart from difficulties of stopping a faster car, problems with lower reaction times and so on. Taking all these into account it has been found that increasing speed as suggested does in fact double the accident probability.

The impact of speed on accidents is discussed here. Their suggestion is that reducing a car’s speed from 60 to 50 km per hour reduces the probability of killing a hit pedestrian by half although you are still almost certain to injure them. A more ccomplete bibliography is here.

Of course reducing car speeds to zero would reduce traffic accidents to zero. The question then is what are appropriate speeds from the perspective of trading off reduced travel times against reduced accident risks. There is quite a literature on this (see here for example) . My understanding is that current speed limits on urban residential streets get it about right.

Parading their own defects

In relation to emergency measures taken in the Northern Territory, in relation to indigenous affairs, Glenn Milne in The Australian today - says it better than I ever could.

The irresponsible leftwing blogs, the claims by David Marr and Peter Harcher in the SMH that the proposed Federal takeover of indigenous affairs policy is militaristic authoritarianism, the bleating cries of Lyn Allison that we should be ‘collaborating’ with dysfunctional communities and the evil claims by Jon Stanhope that the policies are simply 'racist' mainly parade the character defects of the people making these claims.

These include blame- and motive-based nastiness, a troubling view of human nature, a complete lack of any idealism and a thoroughly inaccurate prioritization of what is important in politics. It is interesting that Kevin Rudd has stated that he disagrees with the criticisms of these irresponsible people and with the notion that Howard is playing wedge politics. Rudd accepts that past policies – including those of the Hawke-Keating era - have failed and wants to move on. Good on him.

Quotes from Milne:

‘Anybody who knows Howard and his Aboriginal Affairs Minister, Mal Brough, particularly anybody with knowledge of what Brough has seen and experienced first-hand, also knows this is a heartfelt initiative. Yet it is Howard's burden that at this stage of the political cycle his critics can immediately question his motives, even on an issue as clear-cut and emotional as this one’.

‘the notion that Howard would use the sexual abuse of children as a vehicle for his own political advancement is simply vile. If that truly is the case, as a political class we may as well simply pack up and go home. We are barbarians without souls or hope of salvation’
It is worth reading the whole Milne article. Excellent.

Sunday, June 24, 2007

Setting up new computers with musical finale

I've set up new computers (one desktop, two laptops) in my home using Windows Vista Ultimate and the new Microsoft Office 2007. The only hitch that took me several hours to unravel was that the cable modem connection I needed required an ethernet not a USB cable. Everything eventually clicked and was in apparently good working order late last night - I even installed a surround sound system around my desktop to create inspiration when it might otherwise be lacking.

I celebrated completing this task by viewing some rock videos on DVD I bought from DirtCheapCDs in Swanston Street. Have you noticed that CDs are vanishing from stores and being replaced by MP3 files? Music stores seem to sell mainly DVDs. This is great if you are a fan of modern music but the format did not even exist when the music that I enjoy most was around.

The DVDs I purchased were recordings of older performances - I thought they were as good as anything I've seen for years and much better than the bopper nonsense my kids listen to - I know my vintage is showing! The three I looked at were:

The Band’s The Last Waltz was a movie made by Martin Scorsese in 1976 just before the group split up. It was released in 2002 as a DVD. The Band is one of the most talented and unique rock-country sounds that I have heard. Bob Dylan, Neil Young, Dr. John, Joni Mitchell... all joined in with the fun. Extreme musical talent, it sounded - if anything - better than the studio versions of the same material – here are some YouTube clips.

For pure exuberance and good vibes I have heard nothing as extraordinarily vibrant as Tina Turner’s One Last Time In Concert. This was made in about 2000 at Wembley Stadium and she really belts it out in a sweaty, sexy extravaganza. Lots of great sample clips here. The version of "River Deep Mountain High" was good but not up to the standard of the widely-televised version of years ago. I searched YouTube but couldn't find this older version.

Finally, I have been getting enormous pleasure for months from the Roy Orbison and Friend’s DVD Black and White. It is a black and white movie with supremely talented backing musicians. Clips here. Orbison had the most expressive, tragic voice I have heard - why does it feel so wonderful to be moved to tears? Co-performers included Jackson Browne, Elvis Costello, k.d. lang, Bonnie Raitt, Bruce Springsteen, Tom Waits, and Jennifer Warnes, along with the rhythm section from Elvis Presley's fabled late '60s and early '70s touring band. Great stuff.

Saturday, June 23, 2007

Impacts of new grog & porn policies on indigenous Australians

As I noted in an earlier post the Federal Government will ban alcohol and pornography in aboriginal towns and communities in the Northern Territory and deliver half of government welfare payments to Aboriginal parents in the form of vouchers to make sure the money is spent on food and essential items. Government payments will be made contingent on children attending school. Children under the age of 16 will have compulsory medical examinations and extra police, and perhaps even the military, will be seconded to enforce these regulations. The government will also compulsorily acquire – with fair compensation - land granted under the Aboriginal Land Rights Act for a period of 5 years, while these problems are dealt with. A proposal to introduce similar quarantining regulations on welfare payments to non-indigenous families with children considered at risk will be put to cabinet shortly.

The primary intent of these measures is to address the problem of child sex abuse.

I support these policies though I caution they will not work perfectly. A major issue is the extent of financial support given to them. In my view there are three primary objectives of such policies.

(i) By banning alcohol and pornography on aboriginal land a geographical distance is established between aboriginals who consume these products and those who don’t. Aboriginals can continue to consume grog and porn but they will need to do so at a distance from non-users. Aboriginals have high levels of alcohol abstinence – those who do drink often do so to considerable excess. My guess is this move will prove popular within most aboriginal communities. Those who criticize the policy on the grounds that aboriginals will continue to consume grog in non-aboriginal towns miss this point.
(ii) The bans on alcohol and pornography increase the user costs of such goods by making them less convenient to consume. This should reduce demand for them. There will also be less casual buying of alcohol based on ‘availability’. In urban centers it is known that levels of drinking and problem drinking are related to outlet numbers.
(iii) The decision to provide half of the value of social security payments as vouchers that cannot be used to purchase grog reduces the income available for purchasing alcohol or porn. Straightforward economic theory suggests that because alcohol is a ‘normal good’ – its demand depends positively on income – that this should substantially cut alcohol consumption.

Part of the hysteria of the ‘left’ blogs on these measures is based on the idea that alcohol consumption and child sexual abuse reflects social disadvantage. That is true but a socially disadvantaged aboriginal who does not have easy access to alcohol is better-off than one who does. Alcohol is an independent cause of aboriginal (and non-aboriginal) problems associated with social disadvantage.

Measures (i)-(iii) will have significant effects in reducing levels of drinking and the consumption of pornography. This is an important end in itself. But doing this will improve aboriginal health as well as reducing violence towards women and children.

My research into addiction suggests than to advantages (i)-(iii) one might add.

(iv) The policies cited will improve the welfare of heavy drinking aboriginals. People who drink vast amounts of alcohol until they are absolutely drunk on a regular basis are not rational consumers whose preferences need to be respected for reasons of ‘non-paternalism’. Those with an alcohol dependency and those who drink for ‘cue-related’ reasons may be better-off with policies that restrict their freedom.

The libertarian ideologues will froth at the mouth with this type of suggestion but in the drug and alcohol field this view is unexceptional. It makes very little sense to be obsessed with the issue of ‘free will’ in relation to people with a chemical dependency to ethyl alcohol or any other drug.

The image of young kids cowering in fear from adult sexual predators is one that, as a father, worries me. The thought too of women being bashed by drunken male partners is also one that makes me want to tell the devout libertarian paternalists to take their obsession with ‘freedom of choice’ and shove it.

Finally, giving kids medical examinations to test for sexual molestation in an environment where it is not uncommon is simple sense. It increases the chance that those carrying out these unspeakable acts will be detected and reduces their incentives to commit these acts.

Little Children are Sacred. This is true. Black and white kids are the hope of the world. Young kids are not racist, they have no cultural hang-ups and they offer the prospects for a better future. Aboriginal Australians have often received shocking, murderous treatment from the time of white settlement. They have lived in Australia for over 40,000 years and are one of the oldest cultures on earth. But that they have suffered horribly is no reason not to take action to deal with the grog and child-abuse problems that now beset them. We should not allow our own guilt to stand in the way of addressing this terrible problem that wrecks lives and destroys an ancient culture. Current policies (free money, access to booze) have failed miserably.

As Noel Pearson said:

‘We are dealing with children of the tenderest age who have been exposed to the
most terrible abuse…what matters more the constitutional niceties, or the care
and protection of young children.’
These policies are not going to work neatly. Improvements should be suggested and should be listened to. But the general thrust of the policies should be given bipartisan support. They should be given a chance. More than that, state governments should be encouraged to join in.

Nicotine the wonder drug?

I have previously posted a satirical piece on the health benefits of smoking. If you are thinking about the costs and benefits of tobacco it is very important to distinguish between non-smoking consumption of tobacco (by eating it, sniffing it or even inserting it up your rectum - yes this was done for centuries) and the smoking of tobacco.

Non-smoked tobacco is far, far safer than the deadly dangers posed by smoking tobacco products as I have emphasized. Indeed there might even be real health benefits from consuming clean nicotine:
‘Smoking may be bad for you, but researchers and biotech companies are quietly developing pharmaceuticals that are decidedly good for brains, bowels, blood vessels and even immune systems - and they're inspired by tobacco's deadly active ingredient: nicotine.

Nicotine acts on the acetylcholine receptors in the brain, stimulating and regulating the release of a slew of brain chemicals, including seratonin, dopamine and norepinephrine. Not surprisingly, the first scientific work that identified these chemicals and how they affect the body came out of nicotine research -- much of it performed by tobacco companies.

Now drugs derived from nicotine and the research on nicotine receptors are in clinical trials for everything from helping to heal wounds, to depression, schizophrenia, Alzheimer's, Tourette Syndrome, ADHD, anger management and anxiety.

"Nicotine is highly stigmatized -- and for good reason, because the delivery system is so deadly," says Don deBethizy, CEO of Targacept. "But the drug itself and the research generated by studying its effects on the brain both show great promise for helping us improve our physical and mental health."

Friday, June 22, 2007

Banning grog & porn to cut child abuse

Levels of child abuse in Australian aboriginal communities are completely over the top - there is systematic abuse of young kids in many communities. Young girls and boys are routinely taken as sexual partners. Often the abuse is preceded by alcohol consumption and by the viewing of pornography. The Prime Minister’s move to ban alcohol and pornography in aboriginal communities is a dramatic move designed to deal with an extreme situation. Another part of the policy package, quarantining welfare payments from being entirely spent on booze, is a move that will cut alcohol and therefore child abuse as well as promoting health. Howard's statement is here.

This policy packages provide a partial prohibition scheme on alcohol that is designed to eliminate its availability on aboriginal land – some of these lands are 'dry' already. The policy is a worthwhile move even if some aboriginals do leave their lands to drink. Most won’t because aboriginals as a whole have high levels of alcohol abstinence – it is the few drinkers who consume at vast levels who are doing the extreme damage that is occurring. Quarantining welfare payments is close to being a rationing scheme –it effectively prescribes the consumption bundle chosen by a welfare recepient. This is draconian but will only be a coercive measure for those currently abusing their government welfare check. The check isn't that large and most should be spent on food and essentials anyway.

Economists generally don't like either prohibitions or rationing schemes but there are exceptional emergency circumstances here that drive the need for a policy shock. Moreover as John Howard acknowledged last night - past policies have failed.

The Guardian has a useful review including the predictable reactions from those who would put anti-discrimination above the problems being faced. There is a potent quote:

Alcohol kills an Aborigine every 38 hours and accounts for a quarter of deaths in the Northern Territory.
I am pleased to see that Kevin Rudd states he will support the PM’s move. Even the Northern Territory Government seems to welcome the move. This issue should be above politics and the move should be given a chance. No points scoring should be attempted from any side. It is an extremely difficult policy to make workable. As a community we need to try to make it work and to improve the policy so it does.

Kim at the lavatory blog sees the issue purely as a political move. She would. She has previously declared that women who had their genitals cut out might have prejudiced views on Islam. People who say they dislike seeing young children raped are presumably also acting in a biased self-interested way that has nothing to do with stopping the abuse - they just seek a 'wedge' issue that will increase their electoral appeal. I find Kim’s attitude more hideous than usual. Mark Bahnisch supports her – he searches for grounds to attack the policy and refuses to confront the real problem. For them both it is just another opportunity to attack John Howard. Its an indictment of LP's sick approach to politics.

The Little Children are Sacred report had this to say:

‘Alcohol remains the gravest and fastest growing threat to the safety of Aboriginal children. There is a strong association between alcohol abuse, violence and the sexual abuse of children. Alcohol is destroying communities. The Inquiry recommended urgent action be taken to reduce alcohol consumption in Aboriginal communities’.
The report also specifically mentioned the role of pornography. The claims John Howard is making are not fiction. So Howard is just concerned with politics Kim, Mark? He isn't but you both are.

Words cannot express my anger towards these leftist phonies. Do either of them have children? Can either of them not see any social issue - not matter how painful - other than in their nasty, partisan political terms?

The comments by Ken Parish are less prejudiced but still over the top. For sections of the 'left' the welfare of sexually-abused aboriginal kids can be sacrificed if there is the chance for a political attack on John Howard. The comments of Tim Dunlop I agree with almost entirelythe impact of the policies should be carefully thought through and we should try for a bipartisan approach.

Thursday, June 21, 2007

Efficiency-driven policies to encourage the Chinese to clean up their CO2 act

China last year overtook the US as the largest national emitter of CO2. This will crystallize preexisting concerns among developed countries that China’s emissions (as well as those of Indonesia and India) will need eventually to be controlled.

I have suggested two approaches to dealing with this issue:

(i) Introducing an international carbon tax with sufficient bite to meet Greenhouse gas reduction targets internationally and to levy tariffs on imports from non-complying countries – those that do not adequately impose the carbon tax. This is the somewhat coercive Stiglitz enforcement mechanism proposal. Non-taxing polluters are excluded from free trade because they are unfairly leaning on the rest-of-the-world by not internalizing their emissions. They are being levied with import tariffs to compensate for their environmental theft in exactly the same way that France seeks to attack US non-compliance with Kyoto.

The Stiglitz proposal moreover is designed to switch the tax base internationally from taxing socially-desirable pursuits (work-effort, saving) to pursuing double-dividend advantages from taxing social ‘bads’ such as pollution.

The attractive feature of this program is that it prevents 'carbon leakage'. By imposing direct restrictions on countries such as China it becomes impossible for pollution firms in developed countries to simply relocate to developing countries. Carbon leakage means jobs are lost in developed country and there is no improvement in the global environmental situation. This is the weakness of unilateral moves toward dealing with climate change - and indeed a weakness of the Kyoto Protocol.

Ultimately all countries need to tax carbon emissions or to be penalised by being excluded from trade.

(ii) Setting strict enough carbon emission quotas on complying developed countries (but not seeking to cap emissions from developing countries) to meet very stringent aggregate global emission targets but allowing developed countries to buy carbon credits from emission reductions that achieve via investments in developing countries. This is equivalent to the Clean Development Mechanism proposed (and used) under Kyoto. The difficulty with this proposal is that, as discussed in an earlier post, incentives can be distorted in developing countries. For example, incentives can be created to generate lots of pollution in order to make a sale.

I haven’t thought through the details of these respective viewpoints. My views might back-flip – I suspect there are intricacies here - and I might well have missed something entirely obvious. But I am increasingly coming to the view that option (ii) – despite its problems – has a much to recommend it. Aut least in the short-term before policy option (i) can be seriously considered.

Think of an analogy with conserving biodiversity existence values. These are the values associated with the happiness people experience from knowing that biodiversity species remain extant and can be thought of as a global public good. A species conserved in China contributes as much happiness as one conserved in Australia. Reflecting this suppose wealthy countries value the conservation of biodiversity irrespective of where it is located for existence value reasons and that these wealthy countries have a higher preference for conservation than do poorer developing countries. Suppose too that the options for conservation are better in developing than developed countries – there are lower cost conservation options in developing countries simply because very little conservation effort has been made. Then on efficiency grounds there is a case for resource transfers from rich to poor countries to effect good conservation outcomes on cost-efficiency grounds. These are not ‘charitable’ contributions but simply a consequence of seeking to best allocate conservation expenditures and where taxes to fund such conservation effort are set equal to marginal biodiversity conservation values in providing the global public good.

Roughly speaking developed countries have high willingness-to-pay reflecting their high marginal valuations on conservation. Moreover, the best opportunities to conserve are in developing countries where willingness-to-pay is lower. A resource transfer from rich to poor countries resolves this imbalance. (I once spelt out the analytics of this in a couple of published papers – unfortunately no online versions are available).

Does not an equivalent argument apply to CO2 emissions? Using the argument that the ‘environment is a luxury good’ (there are higher demands for environmental prissiness from rich countries) suggests that countries like the US and Australia have a higher demand for environmental prissiness than will (for example) the Chinese who are mainly targeting their quest for material wealth – they will kill* any animal that moves and have probably one of the environmentally dirtiest societies on earth. Being non-emotive, the Chinese have a low preference for conserving the natural environment – they want growth that will move them out of their miserable current circumstances.

Chinese energy consumption is low relative to developed countries but energy efficiencies are also low so that the opportunities for energy conservation in China are abundant and cheap as China moves toward higher energy consumption levels. Given the disparity in objectives between rich and poor countries and given that CO2 emissions are a global public bad it might make sense for there to be a transfer from wealthy to poor countries such as China to clean up the damage they are creating.

Proposal (ii) creates the incentives for the private sector to do this via a huge investment program that makes money by expanding the clean energy generation technologies in the west by cleaning up the dirt in the developing world. Yes there are huge incentive problems but the proposal to generate a developed country capital market response to cleaning up in the developing world will at least help to deal constructively with global warming issues.

This is a broad sketch since one needs to account for growing Chinese energy demands even if energy conservation is promoted. Moreover, while China has been singled out, many developing countries fit into the Chinese situation. In the longer-term it is essential to seek a transition whereby all countries take care of their own environmental damages. Indeed unless that happens measures to control emissions in deverloped countries will simply be swamped by environmental grubs in the developing world.

* The Chinese have no animal protection laws and their treatment of nature is appalling. See this YouTube if you have a strong stomach.

Wednesday, June 20, 2007

Working in a call centre

The Four Corners show ‘Tough Calls’ telecast Monday dealt with the introduction of new management styles in Telstra call centers. The show made me rethink. As an economist I teach the principles that are being employed by Telstra but, to be honest, I have never been in a call centre and in fact I have never had what my country-based relatives describe as a ‘real job’ - I’ve always been an academic who teaches people what do based on what he can see, feel and read in books and in supposedly learned journal articles.

The basic theory of agency, on which management theory develops, adopts a pessimistic view of people. It teaches that humans are essentially lazy, slackers. Bosses (‘principals’) direct workers (‘agents’) to do certain things but workers have different objectives to their principals and have an impulse to be slack and to deceive. The boss wants profit while the worker wants to earn his wage but to otherwise loaf or enjoy the quiet life. It’s a ‘cat-and-mouse’ game view of the world where the worker is a sneak who seeks to evade his contractual obligations.

Because workers cannot often be continuously monitored the boss must come up with incentive contracts that reward the worker well only if he/she works hard. This often means coming up with output-related measures of performance. Basically this is what Telstra is now doing. This is supposed to enhance economic efficiency – firms produce more and workers are better-paid.

The monitoring and measuring behavior that seems to occur in the Telstra call centers– counting toilet breaks and so on – is only distantly related to the notion of providing incentive contracts. It is more like a conventional work contract with some Taylorist embellishments since it basically rewards maximum effort and punishes anything that falls short of this maximum.

The tragic suicide deaths of two highly-productive (and very attractive) Telstra employees and the negative impressions many had of the work-culture under the new Telstra should force us all to think carefully about the value of this theory.

What do I conclude? Well the situation isn’t as negative as Four Corners suggests but there are problems that fair-minded people need to consider. Here are some provisional thoughts. Comments (of course) are welcome.

1. Ultimately workers need to be more productive if they are to sustainably derive better incomes. Incentive contracts increase worker productivity and hence allow some workers to be better remunerated.

2. Some people who fail such reward systems may be better suited to other forms of employment. Not all those who fail to succeed in such systems provide evidence against the use of incentive contracts.

3. Low-skilled jobs in call centers will end up being outsourced internationally unless high productivity standards are met. An excellent wikipedia entry on call centers is here. There are advantages in Australians processing decision problems faced by Australians but ultimately competition from other countries will drive work conditions in these types of service industries.

4. It is difficult to design good contracts. If productivity depends on a measurable output (‘widgets produced’) and a non-measurable output (‘quality of widgets produced’) then evaluating workers on the basis of the measurable output alone might not work.

5. Thus some contracts may fail to improve productivity (defined to include output quality) and might need to be replaced by non-incentive related schemes or schemes with lower incentive gradients.

6. That most of the theoretical work underlying such contracts comes from theoretical economists (like me) with limited understanding of real workplace environments and with only a smattering of psychological insight. Mr. Leon Dousset, the Telstra technician for 32 years who killed himself this year, clearly valued doing a job well. He did things ‘slowly’ because he took pride in his work – maybe the work wasn’t slow in the sense that it avoided the need for future work.

5. Work is important to us individuals and it helps us achieve feelings of self-worth. Having creepy, business school types checking on our toilet breaks detracts from what it means to exist in a free, liberal society. As an academic I would despise such treatment. Why should I expect that those in other occupations should find it less obnoxious?

6. In the same way subjecting individuals to verbal abuse and demeaning rituals is unwarranted and probably counter-productive. Telstra needs to rethink its attitudes to those who don’t met pre-set expectations. Issues of work culture are important and influence productivity throughout the workplace – it is noteworthy that the two Telstra workers who suicided were success stories not those failing to achieve targets.

6. The important issue is to secure good productivity from those who can provide it but to not damage and destroy the lives of those who cannot. This will be best supported in a free labour market where workers have the maximum range of options to contract with employees. Uniform wage rates and minimum wages will tend to work against the interests of less productive workers.

Competitive labour markets offer the best protection to workers who receive unjust or abusive treatment. They can then leave and go elsewhere. These supply constraints limit the ability of creative business school types to come up with unrealistic incentive schemes.

7. Social justice is important in determining the distribution of income in society but this is a responsibility of government and the tax-transfer mechanism not of business firms. Society is better-off as a whole in the sense of yielding high net wages and a high redistributable tax surplus if the workforce operates with high productivity.

8. Productivity is important but so too is decent treatment of people in the workforce.

Tuesday, June 19, 2007

Bow wave of the Sydney cyclone

As an ex-surfer (yonks ago!) in the Sydney area this picture made me gasp. The accompanying story is pretty good too. Tim Blair is providing an armory of resources for tracking the current path of the cyclone about to hit Sydney. On Tuesday 10-15pm, as I type this, it looks like it is about to hit from the south of the city.

Mr. Brendan Keilar

Yesterday in Melbourne a 43-year old male solicitor, Brendan Keilar, came to the rescue of an obviously distressed woman being violently dragged by a male from a taxi in Flinders Lane. The attacker responded by shooting the solicitor in the chest – he died an hour later. Mr Keilar was a brave man who didn’t ignore the cries of someone in a distress. He was killed as a result. This evening police are pursuing the killer. Another man was shot and is in a critical condition. The woman being assaulted was also shot and is in a serious condition.

We should be inspired by these individual acts of bravery. I recall the American Wesley Autry who threw himself on railway tracks in the face of an oncoming locomotive to pin-down and protect a man having a convulsion who had fallen there. The locomotive roared over his head and both Autry and the man he saved survived. Autry didn’t have time to think - he acted spontaneously.

There are brave people in all communities. They are an inspiration to us all. My sympathies go out to the wife and 3 children of Mr Keilar.

More porkies from climate change denialists?

One suggestion (due to denialist Ross McKitrick) that is doing the rounds (Pommygranate, Tim Blair) is that carbon taxes should be tied to current degrees of global warming. This idea is flawed because climate change occurs with a lag in response to greenhouse gas emissions. NewScientist describes the lag:

‘The time lag occurs because rising air temperatures take time to make themselves felt throughout the immense thermal mass of the oceans. This "thermal inertia" means that Earth has not yet felt the full effect of today's level of greenhouse gases’.

Thermal inertia means that sea level changes will occur even if greenhouse gas emissions are drastically cut. This is quite apart from time-to-build issues involved in constructing new power generation technologies and in making investments to adapt to sea level changes and other consequences of climatic shift.

There are also cognitive lags in the brain-functioning of the denialist camp. The need for anticipatory policies has been extensively discussed in the climate change literature.

One wonders what Ross McKitrick is on about – these lagged effects have been discussed for years.

Monday, June 18, 2007

Election polls and gambling markets

According to the AC Neilson poll Labor has hung onto a landslide lead against the Government's sustained assault even though John Howard strongly outstrips Kevin Rudd on leadership and economic credentials and is regarded as having a better grasp of foreign policy. Kevin Rudd is seen as more open to ideas than John Howard. Labor has lost only one point in a month, leading the Government 57-43 per cent in two-party preferred terms.

According to Newspoll, Labor remains in a position to wipe out the Coalition at the next election, 56 to 44 per cent.

The two polls are close but the rate of shift back to the Liberals is greater for Newspoll. As usual the analysis of the polls splits on party lines – The Age providing the AC Neilson poll sees solid support for Labor being maintained while The Australian sees the cup as half empty for Labor – the Liberals are catching up! It is pathetic.

The odds favoring a Liberal victory have shortened in the betting markets. Its close to a 50:50 bet though Labor has a slight edge.

Alcohol, addiction, congestion, migration & biodiversity

I have put online some recent papers of mine. Comments are welcome.

Thinking About Alcohol Policy. A reasonably liberal approach to the issue of regulating alcohol use.

The case against the case against skilled migration. An argument refuting suggestions Australia does not derive long-term gains from skilled migration. Awful double negatives I know.

Conserving biodiversity in the face of climate change. A survey of the economic issues that arise in attempting to adapt biodiversity strategies to the uncertain effects of climate change.

Being rational about rational addiction. A critical examination of the Becker and Murphy 'rational addiction' thesis (with Svetlana Danilkina).

Targeting urban congestion: equity and second-best issues. First-best arguments for comprehensive congestion pricing are often rejected because of equity implications and because pricing can only be partial. This paper revives a case for pricing with these constraints.

Sunday, June 17, 2007


I forgot today to celebrate the anniversary of Bloomsday, 16th June 1904 on Saturday. It was celebrated in Sydney and in Melbourne. A lifetime ambition of mine is to celebrate in Dublin. Another is to read Finnegan's Wake with a pleasure and understanding.

My earlier posts on JJ have not aged nor improvedhere and here.

In digging around and trying to find some celebratory and new to say I came across this old post by John Quiggin on the attitudes of Joyce’s family to intellectual property. In particular Joyce’s grandson, Stephen Joyce, apparently didn’t want free recitations of his grandfather's work in Dublin.

This insistence is unfortunate but it can be at least understood if you realize the terrible poverty that JJ lived in for decades while writing Ulysses and Finnegans Wake. The poverty must have been hard on his kids. It obviously was for daughter Lucia who, after a fling with Samuel Beckitt, went mad. You can read of this in Carol Shloss’s, Lucia Joyce: To Dance in the Wake.

Joyce was a great writer but a poor husband and dad!

Older wines: the 1984 Metala Cabernet-Shiraz

Metala Cabernet Shiraz was one of the more reliable, long-lived South Australian red wines that is sourced mainly from Langhorne Creek in South Australia. At a recent retrospective, wines from Metala were sampled back to 1945 – the 1951 shiraz-cabernet was still sound after 50 years in the bottle and one of the best wines sampled. The 1945 vintage port was also very much alive and was described, with the degree of hyperbole, that one expects from a reviewer - who has spent his (or her) whole day sampling 60 years of vintaged wines - as ‘one of Australia’s great wine treasures’.

No I didn’t go to this retrospective and I can only comment on one of the supposedly lesser wines reviewed there, the 1984 shiraz-cabernet, which I drank this evening. The wine was in near perfect drinking condition showing bottle age characteristics, but much strength and character. There were (as earlier reviewers found) some herbaceous characters which I didn’t find troubling in the least. Good color, with no browning, and with tea leaf flavors and nose. A great old wine that, while certainly not outstanding, was pleasurable drinking.

I didn’t start a cellar until the late 1980s and recall scouting around Melbourne then for wines with a few years’ bottle age. I paid $16-99 for this, then, and I reckon in retrospect it was a bit pricey since at a 5% discount rate that would work out at about $50 today. But, I could have enjoyed it 10 years ago!

The reviewers at the retrospective mentioned were less complimentary about this wine than I was. It could have been that in a lineup dating back to 1945 this wine under-performed others or it just might be that I don’t enjoy their expert ‘good taste’. Their comments follow:

‘ 1984 Stonyfell Metala, Langhorne Creek, South Australia.

A disappointing Metala with too much herbaceous, unripe fruit character. Deep brick red colour, with orange, tawny brown hue. The nose displays herbaceousness, tea leaf notes, followed by an earthy end note. On the palate, flavours of spice and tea leaf over a herbaceous background. Firmish, dry tannins, followed by a tea leaf aftertaste. Drink (2002).
RATING: 78/100’.


It is an old theme on this blog but, in my view, the major cause of the obesity-diabetes epidemic in modern societies (developing and developed) is related to excessive sugar consumption. A sugar soft-drink or sugar-laden fruit juice drink per day increases the chance of a woman contracting diabetes by 80%.

Sweets, soft-drinks and fruit drinks, cakes, biscuits, alco-pops, pizza were once seen as 'treat' consumption items. For many people they are now routinely consumed as regular food along with carbohydrate-dense but nutritionally impoverished bread and rice products as well as increasingly saccarine fruits.

Casual inspection suggests to me that more than half of the isles in a modern supermarket push high sugar products such as soft-drinks, sweets, flours, cakes, biscuits, breads, bread spreads etc - essentially all sugar-dense, low-nutrition foods.

Lee Smith drew my attention to a useful article on our overconsumption of sugars in today's Age. It is an excellent read.

In my view Dr. Aikins was right. Our diets would be much better based on a mix of healthy proteins and fats with an end to bread and the ubiqitous bread roll. Lots of salads and green vegetables should be consumed, much less potato and generally a reduced obsession with high sugar fruits such as the over-ripe sugary apples, bananas and oranges that doting mums force down their childsren's throats on the mistaken impression that the sugar in them is somehow safer than that in a lollypop.

To assume that adults are well-informed and can (and should) make rational choices for themselves and their children is naive. Most adults are obsessed in their food-selection habits with fat content - they will select a 'no fat' muesli bar as a snack even if it is mainly a sugary 'treat'. Bread and rice are part of most people's everyday diets yet they are primarily just a source of simple carbohydrates that are broken down almost immediately on injestion into sugars.

Taxing sugary foods is impractical (and regressive) but advertising high sugar foods probably should be restricted and that certainly soft-drinks and fruit drinks should be banned from school canteens. I think the composition of the worst types of sugar-indulgent junk food, such as Krispy Kremes Doughnuts, should be exposed and publicised.

The best way of addressing diabetes and obesity issues is to change peoples attitudes to food and to encourage the private sector to deliver foods which are not sugar-dense. Bacon and eggs is a wonderful breakfast and McDonald's hamburgers make a reasonable lunch if you ditch the bread roll in the bin.

I have been working on other economic issues for the past few months but intend resuming my economic work on nutrition and health policy in the second half of 2008.

Saturday, June 16, 2007

Glenn Stevens on wage market flexibility

In an address to a business audience Thursday in Brisbane Glenn Stevens made perhaps his most important policy speech since becoming RBA Governor. He emphasized the importance of the supply side response – in particular the labour market response – in Australia gaining all the benefits from the massive growth in China – without inflation taking off. In effect he sided with Paul Keating who recently emphasized the role of labour market reforms that confine high wage growth to the more productive sectors of the economy.

He is saying that the Labor Party is wrong in attributing Australia’s recent economic success entirely to the minerals boom. It is more precisely the minerals boom plus structural reform in the economy.

‘Unless supply is somehow forthcoming expanding demand just produces overheating and inflation’. With such overheating come contractionary monetary policy, bankruptcies and job losses.

Stevens argues that extra migrants and low prices of Chinese goods have helped produce this outcome but that the main reason for the outcome is the increased labour market flexibility over the past two decades.

‘…my guess at present is that at least some of the explanation for these better-than-expected outcomes probably has to do with changed behaviour in the labour market. Despite, on most counts, the tightest labour market conditions for a generation, growth in most measures of labour costs has remained well disciplined for the past two years or more, after a mild acceleration earlier. Wages are rising quickly in some areas, but quite slowly in others. That is, relative wages are changing, adjusting to the forces at work on the economy, but without, so far at least, a serious inflation of the whole economy‑wide cost structure’.

Stevens saw the WorkChoices legislation that came into place 15 months ago as part of this move to flexibility. It has contributed to the sustainability of an expansion that is now approaching its 17th year. This accords with recent RBA research confirming that
deregulating labour markets along with product markets drives productivity growth.

As The AFR editorialized (subscription only) on Friday:

‘The question the government will pose every day until the election, and Labor must answer, is can we afford Labor’s misguided plan to return to a more regulated labour market than the one Paul Keating gave us in 1993? Mr Stevens is saying diplomatically that labour market flexibility trumps all. The answer must be no.’

The ACTU lies when it claims underemployment is up in the economy – it isn’t as full time jobs are growing at the expense of part-time jobs and workforce participation is at record levels. As the AFR point out tax revenues have also surged giving us the capability of a generous safety net.

Australia’s future economic prospects are excellent – we should build on the economic successes of the past 17 years – not take actions which endanger our continued prosperity.

Traveler’s Dilemma

‘Lucy and Pete, returning from a remote Pacific island, find that the airline has damaged the identical antiques that each had purchased. An airline manager says that he is happy to compensate them but is handicapped by being clueless about the value of these strange objects. Simply asking the travelers for the price is hopeless, he figures, for they will inflate it.

Instead he devises a more complicated scheme. He asks each of them to write down the price of the antique as any dollar integer between 2 and 100 without conferring together. If both write the same number, he will take that to be the true price, and he will pay each of them that amount. But if they write different numbers, he will assume that the lower one is the actual price and that the person writing the higher number is cheating. In that case, he will pay both of them the lower number along with a bonus and a penalty--the person who wrote the lower number will get $2 more as a reward for honesty and the one who wrote the higher number will get $2 less as a punishment. For instance, if Lucy writes 46 and Pete writes 100, Lucy will get $48 and Pete will get $44.

What numbers will Lucy and Pete write? What number would you write?’

Kaushik Basu (a noted game theorist) has a non-technical and beautifully written exposition of this famous Traveler’s Dilemma problem in the most recent Scientific American. Real people who play such games do not behave rationally but, by so doing, derive a kind of meta-rationality since, as a consequence of not behaving rationally, they do much better than they would by behaving rationally. It is a paradox of rationality that also arises in standard Prisoner’s Dilemmas.

An entertaining and informative light read.

Friday, June 15, 2007

Reducing carbon emissions in poor countries

In my recent post on getting wealthy countries to pay for reducing carbon emission reductions in developing countries I didn’t mention that a scheme close to that proposed already exists under the Kyoto Protocol. This is the Clean Development Mechanism. I draw heavily on an excellent wikipedia post in preparing these notes on CDM.

The CDM. CDM allows industrialised countries with a greenhouse gas reduction commitment to invest in emission reducing projects in developing countries as an alternative to making costly emission reductions at home. In theory the CDM allows for a drastic reduction of costs for industrialised countries, while achieving the same emission reductions. However, critics argue that emission reductions under the CDM may be fictive – in early 2007 the CDM came under fire for paying €4.6 billion for destruction of HFC gases while according to a study this would cost only €100 million if funded by development agencies.

The CDM arose out of the negotiations of the Kyoto Protocol in 1997. The US wanted flexibility in achieving emission reductions. Eventually, and largely on US insistence, CDM and two other flexible mechanisms (emissions trading and joint implementation) were written into Kyoto.

Determining baselines and additionality. An industrialized country seeking credits from a CDM project must obtain the consent of the developing country hosting the project that it will contribute to sustainable development. Then, the applicant must make the case that the project would not have happened anyway – it must establish additionality - and provide a baseline of future emissions in absence of the registered project. The emission reduction depends on the emissions that would have occurred without the project.

With costs of emission reduction typically much lower in developing countries than in industrialised countries, emission reduction targets in industrial countries can be received at much lower cost by receiving credits for emissions reduced in developing countries as long as administration costs are low The IPCC Has projected GDP losses for OECD Europe with full use of CDM to between 0.13-0.81 % of GDP versus 0.31 to 1.50 % with only domestic action.

Excessive profits. However, many CDM projects have led to excessive profits. In early 2007 a study found that the main type of CDM projects paid as much as 50 times more for the emission reductions than the costs alone would warrant, with the excessive profits ending up with the factories and the carbon traders.

The particular CDM projects in question involved refrigerant-producing factories in developing countries that generated the powerful greenhouse gas HFC 23 as a by-product. By destroying the HFCs, the factories earn CER credits worth €4.6 billion. But a simple and relatively cheap piece of equipment (a scrubber) would cost only €100 million to destroy HFC 23. While the CER credits are cheaper than the typical cost of reducing emissions in industrialized countries this anomaly is seen as a major loophole in the carbon trading system. The HFC 23 emitters can earn almost twice as much from the CDM credits as they can from selling refrigerant gases. The UN claims this loophole is now closed.

Environmental concerns with CDM. There are also environmental concerns. As CDM is an alternative to domestic emission reductions, the perfectly working CDM would produce no more and no less greenhouse gas emission reductions than without the CDM. But if projects that would have happened anyway are registered as CDM projects, the use of CDM will result in higher total emissions, as the spurious credits will be used to allow higher domestic emissions while not delivering lower emissions in the developing country hosting the CDM project. Similarly, spurious credits may be awarded through overstated baselines. CDM Watch argues that a majority of the CDM projects up to 2005 would have happened anyway.

NGOs have also criticized the inclusion of unsustainable hydropower projects, of sinks and the exclusion of renewable energy projects as CDM projects.

Getting developing countries involved in carbon trading. Within CDM the United Nations Development Program (UNDP) have recently announced the MGD Carbon Facility to help developing countries conceive projects intended to reduce emissions of greenhouse gases. The idea is to get developing countries to the point of being able to operate in international carbon markets. The insurance giant Fortis will purchase, and sell-on, the emissions-reduction credits generated by projects and use the proceeds to finance investment and to promote development.

The MDG Carbon Facility will operate within the framework of the CDM and Joint Implementation, the market-based mechanisms under the Kyoto Protocol that allow developed countries to meet their compliance targets by financing projects in developing countries that contribute to reducing greenhouse-gas emissions.

The CDM has been at the center of a rapidly expanding, billion-dollar international market for carbon credits. However, early signs indicate that the CDM is unlikely to deliver the broad-based benefits that many hoped it would, at least in the near to medium term. CDM projects have so far been limited in geographic reach, and focused primarily on 'end-of-pipe' technologies that generate limited benefit for long-term sustainable development.

By expanding the CDM's presence into countries and regions previously considered inaccessible to carbon finance, the MDG Carbon Facility will help people in these areas acquire the resources and knowledge to take greater control over their future environment and development paths.
Once a developing country gains proficiency in carbon finance, in attracting private-sector investment and in developing project technologies that deliver longer-term development benefits, the MDG Carbon Facility will exit that market. It will have accomplished its market transformation objectives and no longer needing to play its role as a bridge between developing countries and the global carbon market.

Thursday, June 14, 2007

Song of a Salesman

I got this from Tim Blair's blog - it made me feel wonderful.

Mr. Paul Potts has a wikipedia entry.

Blair on motives & the media

British PM Tony Blair gives all sections of the media - including the blogosphere - a carefully directed spray. He accuses the media of behaving like a 'feral beast' that 'tears people and reputations to bits'. He is concerned with the emphasis on analysing motives (a theme I have also recently emphasised) and in critiquing policies at the expense of explaining what the policies are.

The media (including the blogosphere) spend far too much time thinking about the motives for policies and critiquing policies and far too little time thinking about what the implications of policy will be. Newspapers, for example, become 'viewspapers' as news gets usurped by (often) uninformed commentary.


' Tell me how many maiden speeches are listened to; how many excellent second-reading speeches or committee speeches are covered. Except when they generate major controversy, they aren’t . If you are a backbench MP today, you learn to give a press release first and a good Parliamentary speech second'

' a result of the changing context in which 21st-century communications operates, the media are facing a hugely more intense form of competition .... They are not the masters of this change but its victims. The result is a media that increasingly and to a dangerous degree is driven by “impact”. Impact is what matters. It is all that can distinguish, can rise above the clamour, can get noticed. Impact gives competitive edge. Of course the accuracy of a story counts. But it is secondary to impact. It is this necessary devotion to impact that is unravelling standards, driving them down, making the diversity of the media not the strength it should be but an impulsion towards sensation above all else'. (my bold)

'....scandal or controversy beats ordinary reporting hands down. News is rarely news unless it generates heat as much as or more than light. Second, attacking motive is far more potent than attacking judgement. It is not enough for someone to make an error. It has to be venal. Conspiratorial'. (my bold)

'... there will often be as much interpretation of what a politician is saying as there is coverage of them actually saying it. In the interpretation, what matters is not what they mean; but what they could be taken to mean. This leads to the incredibly frustrating pastime of expending a large amount of energy rebutting claims about the significance of things said, that bears little or no relation to what was intended'. (my bold)

' is rare today to find balance in the media. Things, people, issues, stories, are all black and white. Life’s usual grey is almost entirely absent. “Some good, some bad”; “some things going right, some going wrong” – these are concepts alien to today’s reporting. It’s a triumph or a disaster. A problem is “a crisis”. A setback is a policy “in tatters”. A criticism, “a savage attack”'.

These are fair comments from an experienced politician.

Getting wealthy countries to pay for Chinese carbon cutbacks

China will shortly become the largest carbon emitter on earth. It is difficult to understand how global emission targets can be met without involving China - and for that matter the grubby developing countries Indonesia and India. Currently China as a signatory to the Kyoto Protocol is not obliged to adopt carbon targets until after 2012.

The G8 countries last week supported a new global framework to reduce carbon emissions but the difficulty is to get China involved. The core issue is to attract the massive capital resource flow to China that will achieve this outcome.

Michael Molitor (AFR 13/6/07, subscription only) argues that we should rethink the idea of trying to persuade China to cap their carbon emissions. Their recent statement on climate change makes it clear they are not yet prepared to have a cap and they want much higher levels of energy consumption. Moreover, a cap in itself will not encourage an investmjent program to cut Chinese emissions when China is growing rapidly and has many competing demands on its scarce capital resources.

An alternative approach to efficiently reduce emissions is to put really stringent caps on OECD carbon emissions but to allow OECD-based firms to buy carbon credits from carbon abatement programs anywhere – and, in particular, in China – where incredibly inefficient electricity generation technologies provide the greatest pool of carbon abatement opportunities on earth and, indeed, the greatest investment opportunity of the 21st century.

The global carbon market rather than a cap would then drive dramatic and easy-to-achieve carbon reductions in China. If you wanted to give this program a kick start then a deal with the Chinese might be attempted which gave preferential investment status for foreign investment in return for a delay in the introduction of a cap from 2013 to 2018.

I’ve got to say that Molitor’s proposal has a an attractive sound to it. Perhaps it is more attractive than my earlier suggestion to force China to comply with a cap by levying savage export taxes on Chinese goods to compensate for the unpaid carbon costs the Chinese economy is imposing on the globe. The Molitor proposal relies on developed countries investing in carbon reductions where these can be most readily and cheaply delivered. I will think about it further – and welcome commentary and feedback.

My major concerns with this proposal are the incentive effects that might arise for the Chinese to create very high-carbon emitting technology to secure developed country investment. The basic arithmetic of the proposals also seems suspect - presumably the caps on developed country emissions would need to be very substantial. But it is an interesting suggestion that serves investigation.

Wednesday, June 13, 2007

What I have been reading

Books on water, tobacco and the acid-rock musical era.

I was informed by and enjoyed Fred Pearce’s When the Rivers Run Dry, Transworld, 2006 which dealt with global water problems briefly and concisely but which provided a good sense of perspective. Excellent value. Traversing all continents it highlights the monumentally huge water resource problems in India, Pakistan, various African countries, the Middle East, Europe, South America, Australia and China and the relation of these problems to groundwater mismanagement, building dams and of course irrigation schemes. Issues of flooding, water shortages, catastrophic problems of groundwater abuse and contamination gave me perspective on the problems of the Murray-Darling. For all our sins, Australia’s problems are negligible compared to those of the developing world. As I have suggested before Australia may derive economic advantage from the water-driven misery of other countries.

I also thoroughly enjoyed Iain Gately’s Tobacco: A Cultural History of How an Exotic Plant Seduced Civilization, Grove Press 2001. He writes in a humorous, incisive way and I kept reaching for my pen to mark down points that I will use in my academic research into the evil weed. He starts 18,000 years ago – 500 years ago if you refer to puffing on the stuff but the real punch lines for me were Gately’s later chapters where he describes the development of automatic cigarette machines in the 1880s coupled with vast levels of marketing expenditure. Cigarettes really took off around the turn of the century when the great surge in lung cancer deaths began. The responses of the cigarette companies in the 1950s to the emerging horror is frightening. The demand for evidence of a causal mechanism explaining cancers when US deaths per thousand increased 9-fold in about 20 years reminds me of similar claims by the global warming denialists. But this is an interlude of morbid drama in what is overall a great read. Gately adores smoking but recognizes that it kills you.

I struggled through Dennis McNally’s A Long Strange Trip, Corgi 2003 which dealt with the history of one of the beloved rock groups of my adolescence, The Grateful Dead. The book was just too long and hagiographic for my tastes. I kept at it because of the interesting intersections which other acid-rock bands of the late 1960s such as Quicksilver Messenger Service, Jefferson Airplane, Country Joe and the Fish and the country-oriented New Riders of the Purple Sage. The Allman Brothers, the Band, Joan Baez, Crosby Stills, Nash and Young, Bob Dylan, The Fugs, Santana, Rolling Stones and Frank Zappa all fitted in at various times as well as non-musical components such as Ken Kesey’s Merry Pranksters (including for a time Neal Cassidy), Baba Ram Dass, Owsley-Stanley III and Timothy Leary. If you don’t recognize these names you won’t want to read this book and even if you do recognize them you may not. The book is mainly focused on Jerry Garcia who could be a monumentally talented guitarist. Objectively speaking the book is a testimony to the destructive powers of dope and booze. Jerry Garcia ended up a very sick, overweight man who squandered his talents on heroin and cocaine. Many others from the musical scene in this era just died from overdoses, liver diseases and drug-related accidents.