Preliminary thoughts on gambling economics

Recreational gambling is a socially disapproved of activity. That it yields entertainment benefits in the form of service flows rather than material outputs should not be the reason for this disapproval. Services rather than material outputs are a significant source of consumption pleasures for most people – many enjoy viewing football matches, pictures in art galleries or pole dancers in New York nightclubs - these are service flows also. The difficulty with gambling is that it can be behaviourally addictive and – because commercial gambling offers a series of unfair bets – this generally will lead to financial ruin if the amount staked is large enough. A significant fraction – perhaps around 10% - of the Australian gambling population comprise ‘problem’ gamblers in this sense.

Poker machines in particular are observed to be the most addictive forms of gambling and accordingly one of the major growth areas in commercial gambling in Australia.

I don’t want to argue the case for government intervention in this post – there are well-worn arguments about whether restricting access to gambling is an instance of ‘nanny statism’ or not. Let me take the case for intervention as given and look at how best to achieve that.

The standard approach by almost all governments has been to restrict the number of gambling outlets or the number of gambling machines either by setting absolute numerical quotas, by limiting the availability of venues and machines in particular locations or by pursuing both of these strategies. In Victoria the ‘both’ strategy is being employed.

Limiting the number of gambling venues and the number of gambling machines at venues then provides monopoly rents to the owners of venues and machines which the government then subjects to various taxes.

It is known that a monopolist has incentives to raise the price of a service above its marginal cost. Price here measures the expected loss rate on a $1 gamble and, under monopoly, this will be higher than under competitive conditions. Proportional taxes on venue profits or fixed taxes per machine or venue under monopoly will not disturb this price but taxes on revenues generated or on the gambling price itself will tend to further raise the price of gambling services. Any move toward increased price due to the taxes will increase the inefficiency losses associated with monopoly provision.

Note that these policies have nothing directly to do with the issue of compulsive or problem gambling. It simply returns to the state some of the rents the monopolist will gain from government imposed restrictions on competition.

The conventional economic theory of externalities would suggest a case for having a competitive gambling industry and, instead of regulating to achieve monopoly power, levelling a tax on the price charged for a gamble - on the expected loss - that would force the gambling operators to internalise the social costs gambling imposes on the community. This realises the social optimum as illustrated in the figure.

Here the demand for gambling is indicated D, the marginal cost of providing gambling services is MC (this is supposed constant, allowing it to vary would change little), the average cost of providing the gambling service is AC=MC, the price of a gamble (the expected loss) is P and the volume of gambling is q. The social marginal cost of gambling that occurs as a consequence of behavioural addictions is SC which exceeds MC. Here SC is supposed to increase faster than MC because with high levels of gambling demand more people are supposed to be dragged into ‘problem gambling’ with consequent social problems for families and so on. SC might also capture monitoring costs from authorities concerned with the use of gambling facilities for illegal purposes such as money laundering the proceeds of crime.

Corresponding to prices pm, psc and pc are levels of gambling consumption qm, qsc and qpc.

An unregulated gambling industry would result in the high level of gambling qc with low gambling losses per gamble pc. There would be a high level of social costs associated with this pattern of gambling described by the deadweight losses C. Levying the tax on the cost of gambling tc would restore gambling levels to their socially optimal levels qsc supplied at a tax-inclusive price psc.

The competitive approach is not however the approach to gambling governments typically enforce.

Instead they provide service providers with monopoly status which encourages them to provide the gambling output qm at price pm with the government levying taxes tm (much larger than tc) to recoup the monopoly profits – the firms have incentives to act as monopolists but, in theory at least, the government accesses most profits. The deadweight loss to the community from monopoly provision is the area A+B. It is also clear that with this level of provision the government’s tax take might even fall.

This picture suggests that the current approach to gambling regulation will not realise efficiency. It reduces the level of gambling but it does so excessively and produces a cost of gambling that is too high. It reduces the non-internalised social cost of gambling but at the expense of a more than proportionate increase in the private costs.

One objection however that one might make to this analysis is that the gross benefits from gambling to gamblers are treated here as the area under the demand curve. This is true only for informed consumers who do not face behavioural addiction or compulsion issues. The Productivity Commission’s report on gambling adjusted for this problem by shifting the demand curve downwards to cut out the compulsive gambling group. This will reduce the quantity of gambling services the community would seek to deliver and, if costs are increasing, will increased the targeted loss rate on gambling in the direction that heads toward the monopoly price even if a competitive type of equilibrium was sought.

The regulator could seek to retrieve the situation by regulating the loss rates allowed at gambling venues and pegging them at the competitive tax-inclusive price psc. This makes the monopolist resemble a competitive firm but creates an excess demand for gambling services at the going price and still leaves deadweight losses. If one thinks about a specific gambling venue one could imagine that queuing or other rationing devices need to be employed by operators to balance machine availability with demand.

So where do I end up? Do we want a society where citizens are offered many low priced gambles or a society where the same citizens are offered fewer gambles at a higher price? Loss rates are higher in the latter situation, which will deter some people from gambling, thereby reducing the overall incidence of problem gambling but at the same time penalising those who do continue to gamble. Competitive gambling scenarios provide improved environments for those who can manage their gambling instincts sensibly but leave society as a whole with more problem gamblers who head downhill more slowly because of lower gambling costs than occur with monopoly.

One incomplete defence of government regulatory policies is that profits are easier to identify than social costs. Even if a competitive gambling industry with a low competitive tax tc outperforms a monopolised industry with tax tm it is certainly much easier to identify tm than tc.

Another defense of current policies is that making gambling widely available in the community creates a demand for gambling entertainments that the government regards as unhealthy. Thus the government restricts supply to limit demand. This might be correct but it moves away from standard arguments based on the premise that consumers should be sovereign.

More than usually - comments are welcome.

All in the mind

'Your brain hijacked - possessed by a chronic, relapsing brain disease. Scientists now view addiction as a disease, not a behavioural problem. Brain circuits involved in reward and pleasure, planning and control are dramatically changed. The priority is medical treatment, not shame and blame. But others challenge what they dub the 'disease rhetoric', arguing it's fatalistic and reductionist. Do we treat the brain, or the person? And, should we surrender control to the addicted brain?'

I found this podcast on ABC radio interesting.

Nostalgia: The Forsyte Saga

I have been occupied for the past few days watching the complete original version of The Forsyte Saga based on the novels by John Galsworthy. A couple of years ago I tried to watch a more recent 2002 TV adaptation of the same tale but lost interest – the characters lacked conviction compared to the earlier version in my memory.

The original adaptation was first screened on TV in Australia in the late 1960s. It is one of the most memorable and engaging TV dramas I can recall. In Britain, 18 million people watched the final episode of this 26 part series and, as a measure of its near universal appeal, it was the first British drama sold to the former Soviet Union. It was the last major TV drama shot in black and white.

The version I purchased from Amazon.com was a replication of the original version transferred to a set of 7 DVDs from BBC video. Its 26 episodes run for nearly 22 hours with nearly 2 hours of trailers. Once I stated watching I found it as difficult to stop as it is to put down an engaging novel.

What a totally absorbing drama The Forsyte Saga is. Succinct dialogue, superb acting and an engrossing nostalgic look at Victorian and post-Victorian society.

The distinguished Shakespearian actor Eric Porter played the part of the unforgettable, dour Soames Forsyte. Soames was a ‘man of property’ who did have a soft affectionate side but had a very limited capacity to communicate that. In a remarkable trailer on the final DVD Porter reveals that he coped well with the Soames part because it reflected his own character – his own communication problems turned him into an actor.

The other character who was a clear image in my head after nearly 30 years was Soames’ daughter by his second wife, Fleur, played by Susan Hampshire. I still find her performance totally captivating. A flighty, charming yet very determined young post-Victorian woman who was used to getting what she wanted.

Less interesting to me was the beautiful Irene, played by Nyree Porter. She was Soames’ first wife in a tragic, loveless marriage that never worked. Irene did have beauty on her side - she was almost statuesque - but seemed about as cold as Soames without his depth or good qualities.

One of the memories that re-watching the series stirred was the community debate that occurred during the first series over who was the culpable party in the Soames –Irene conflict. Was it the dour Soames or a cold, unyielding Irene? I remember it split viewers strongly. I always had some affection and sympathy for Soames. I thought this might be an unpopular choice but I was interested to learn recently that surveys in Britain at the time suggested most people backed Soames too.

Good story-telling is often about nostalgia. It can be about shifting us to another place or time where we can fantasise. Victorian and post-Victorian England is a convenient source of bourgeois fantasy. Indeed leftwing critics of the series criticised it as such. But The Forsyte Saga is more than nostalgia – it is great drama – indeed I have seen nothing comparable to it for years.

Youth smoking & risk foresight

Smoking cigarettes usually begins in adolescence. In Australia the average age of smoking initiation is 15.9 years. Although the incidence of youth smoking has decreased dramatically over the last few decades still around 10% of school-kids aged 12-17 smoke . A basic issue for designing possible policies for limiting such use is whether youth understand the implications of the action of initiating the dangerous smoking habit.

In short how do youth use information about the risks of health damages and the damages when they themselves make current cigarette consumption decisions?

For a person aged less than 20, serious health damages are unlikely to occur for 50 years or more so that, using the discounted utility model, considerably less weight may be placed on them than were these damages immediate. Death or disability at an old age may also be regarded as less significant than the same event now because less life is lost at older ages and life itself might be regarded as being worth less when a person is older. The upshot is that it is not necessary to rely on myopia to understand youth smoking. Even at low discount rates it can appear to be rational to smoke at young ages because the discounted value of the costs will be low.

There is also the question of the way risk itself is understood by youth in making smoking decisions. Are risks fully appreciated? In a famous study W. Kip Viscusi (1992) argued that people of all ages – including youth – overestimate the numerical values of health risks associated with cigarette smoking. Moreover, information-based increased perception of these risks did lower the probability of youth initiating smoking so that youth could be understood as making weakly rational choices about smoking based on perceived risks. The perceptions were inaccurate but youth were not being lured into smoking through an under-perception of risks.

Information about smoking risks comes from public health warnings and from implied and explicit health warnings in cigarette advertising. Cigarettes can promote themselves as ‘smooth’ or ‘gentle to the throat’ and so on even apart from legislated health warnings on packaging. Fully one quarter of the claims in cigarette ads from 1926-1989, that were examined by Ringold and Calfee (1989), related to health.

Moreover, public health warnings over the damages of smoking are not only a recent phenomenon. Tate (1989) points out that, even as early as 1893, 14 US states outlawed the sale of cigarettes and at least another 21 states considered prohibition on the basis of claimed bad health consequences! There were also active, organised groups of citizens who opposed smoking. The main issue missed in these early heath concerns was recognition of lung cancer risks – lung cancer was rare before 1930 and not even recognised as a disease until 1923.
Overall however recognition of the health risks of smoking is nothing recent.

There has been an explosion of information on the negative consequences of smoking over recent decades. Evidence of increasing recognition of health risks arose in the 1950s with decreased cigarette use. Viscusi claims that people have taken the negative implications of this information too far. The young he claims overestimate the risks of smoking more than the overall population because they have only been exposed to intense, more recent, information. There is considerable evidence that reduced smoking has occurred because of heightened risk perceptions.

Hence Viscusi argued that measures to limit smoking amount to excessive zealousness. The only case for regulation to Viscusi could stem from third party effects such as passive smoking externalities. The negative message about the health consequences of smoking then has been effective and reduced smoking levels among youth. Those youth who are left initiating smoking are well-informed consumers who have assessed risks and benefits appropriately.

In addition, according to Viscusi, smoking policy should focus on trying to incentivise tobacco companies to produce a safer cigarette rather than engaging in public information campaigns that further emphasise the already-exaggerated risk perceptions of smokers.

The impact of the provocative Viscusi study can scarcely be underestimated given the amount of printer’s ink that has been spent subsequently trying to overturn its conclusions. Strong responses, in particular, have come from psychologists who dispute generally dispute Viscusi’s analysis.

Bad decisions by youth. The psychologist Slovic (2001), for example, has edited a volume whose primary purpose is to critique the proposition that youth are well-informed about the risks of smoking and to propose more activist policies than Viscusi would see as desirable for reducing youth smoking. The study, by emphasising smoking initiation decisions, complements work on policies promoting smoking cessation decisions by older smokers (Sloan et al., 2003)).

The empirical component of the Slovic volume is based on surveys involving interviews with 4,000 persons aged 14+ in 1999 and 2000. Contributors discuss different aspects of these databases.

A major idea is that an affect heuristic is important in understanding people’s decisions regarding the initiation of a risky activity such as smoking. According to this, youth may try a risky activity because their feelings about it, rather than their rational thoughts, are favourable to it. Employing this heuristic they may come to understate the risk of a smoking initiation decision.

Also, in questionnaires designed to elicit risk responsiveness, respondents should be asked how they themselves would be affected by smoking rather than how they believe the general population will be affected. This helps to account for the possible ‘optimism biases’ that arise when individuals assess their own risks.

For the most part the remainder of these notes review arguments by various authors in Slovic (2001).

1. What do young people think they know about smoking? P. Jamieson and D. Romer agree with Viscusi that ‘many’ (they claim around 70%) of young people overestimate the risks of such smoking-induced events as lung cancer but they point out that youth estimates of the risk of dying from a smoking-related cause were much more accurate – only 34% overestimated these risks. Also, they claim, youthful smokers underestimate the impact of smoking on years of life lost which the authors see at about 7 years. But modern research suggests that early authors overstate these losses anyway because smokers are risk-takers who will enjoy shorter life spans because of their greater risk tolerance. Accurate figures on life lost after accounting for such effects are 4.4 years lost life for men and 2.4 years for women (Sloan et al. (2004)) so the Jamieson-Romer argument is unconvincing. The authors are correct however in asserting that young people severely underestimate the difficulty of quitting. Youth also wrongly believe smoking is less dangerous to health than drinking or drugs when asked which produced the most deaths per year. That this is false shows that, in assessing risk relative to other activities rather than as numerical probabilities, youth do understate risk.

2. Risks in starting and stopping smoking. In accord with the ‘affect heuristic’ D. Romer and P. Jamieson find that, while risk perceptions do not drive smoking initiation, feelings about smoking do. Positive feelings about smoking reduced perceived risks to the extent that such risks did not influence smoking initiation. The perceived ease of quitting was the only risk factor involved in the decision to try cigarettes. This suggests that counter-advertising emphasising health risks will not deter trialling cigarettes by youth although an emphasis on depicting the smoking experience in a negative way and on difficulties of quitting might. Commercially-oriented advertising that promotes positive feelings about smoking however will encourage smoking and provides a case for limiting advertising.

As youth continue to smoke and as they sense they are becoming addicted to nicotine their perceptions of risk and of short-term harm increase and their optimism about quitting declines. As they have already started smoking this cannot affect their initiation decision but it does bear on the progression of their addiction. Smokers tend to become more aware of the risks – especially long-term risks - as they continue to smoke and become more concerned with quitting. The policy implication is again that the emphasis on risks should focus on quitting not initiation.

The few adults who initiate smoking behave like youth and disregard even heightened perceptions of risk. As they continue smoking however perceived health risk - particularly immediate risks - provide incentives to quit and hence deter continued smoking. Thus risks might bear on smoking decisions once they are initiated even if they don’t impact on initiation itself. Immediate risks become more pressing as the smoker ages.

3. Smokers recognition of vulnerability to harm. Weinstein revises an earlier paper to examine what it means to comprehend a smoking risk. That one recognises a certain probability of risk numerically does not mean that one accounts for that level of risk in real-life unless probabilities are interpreted as a scientist does. This is particularly so if risks are seen to apply in general or ‘on average’ rather than the person themselves because of ‘optimism biases’.

People do not make decisions on the basis of numerically estimated probabilities so, for example, the extent to which risks are acknowledged by smokers depends on the way risk assessments are assessed.

Many studies confirm that smokers recognise that they face higher risks than non-smokers and, in the great majority of studies, non-smokers and ex-smokers rank these risks more highly than smokers do. Smokers however fallaciously understate the relative risk of smoking compared to risks such as road accidents which suggest that, in this sense, smokers understate the risk of smoking. Moreover, even when the average response is not to show an optimism bias, there are many smokers who do not acknowledge any increase in risk from smoking.

4. Cigarette smokers as rational fools. Slovic defines the affect heuristic formally and uses it to analyse the rationality of smoking decisions. Affect means the specific quality of ‘goodness’ or ‘badness’ experienced as a feeling and which demarcates the positive or negative quality of a stimulus. Reliance on such feelings to make decisions is to use the affect heuristic. Such responses occur rapidly and automatically without much consideration so experience is not integrated with reason.

With respect to evaluating risky prospects people both think about the prospect and have feelings about it. With an affect heuristic there is an inverse relation between perceived risks of an activity and benefits from it so, if people like an activity they judge the adverse risks associated with it to be low. The benefits themselves are evaluated by their affect.

Slovic tested this theory with 3000 smokers about 2000 of whom were’ youth’ under age 23. Of the youth there were 478 smokers. Nearly half of smokers said they thought ‘not at all’ about health issues when they began smoking. Most wanted to try something ‘new and exciting’ and gave no thought as to how long they would smoke. More than half of current smokers think a lot about quitting and most both wish to quit and believe can do so within the next year. According to Slovic, the difficulty is that expected future pain or discomfit is less heavily weighted than current visceral factors such as the craving for a cigarette. Earlier work suggests that 32% of young smokers and 45% of adult smokers believe smoking needs to continue for 5 years or more to cause health damage.

Slovic also criticises the size of the Viscusi risk estimates as exaggerated because he considered only smoking as a way of dying. Adding other causes and then asking for estimates of smoking risks reduces estimates by 50%. The same finding holds with respect to other methods of describing risks and for other measures of harm such as expected longevity reductions. In addition, that many in the surveys stated that they would not choose to initiate smoking again suggests that they did not understand the consequences of their smoking initiation actions. Again, smokers only began to think about smoking risks after they have begun to smoke.

5. Advertising. D. Romer and P. Jamieson extend the work of Slovic to show that advertising by enhancing the positive affective qualities of smoking dampens perceptions of health risks. Counter advertising which emphasises the risks is ineffective because it is imagery and feelings that lead to smoking initiation not perceptions of health risks. What are required instead are unfavorable images of smokers and favourable images of non-smokers. These reduce perceptions of support for smoking among peer networks.

6. Nicotine addiction and youth. Benowitz revises an earlier paper to discuss the factual nature of nicotine addiction. The younger the age that smoking is initiated the more likely are youth to become regular smokers. Those who smoke 3 or more cigarettes face a high probability of becoming regular smokers. Children will often be light smokers but, unlike adult chippers, these consumption patterns are not stable and typically estimate into much higher levels of smoking.

The first cigarette produces discomfit and nausea but with repeated smoking positive effects prevail as tolerance develops. With tolerance develops dependence towards these adverse effects develops and many youth are smoking dependent.

Digression: Work by DiFranza et al. (2003) suggests that it need not only be ‘pleasant effects’ that lead to ongoing use – see also here. Strong averse reactions may also trigger continued use via what is termed the sensitivity model. Thus ‘chippers’ – people who can continue smoking cigarettes at low levels - tend to have low initial aversive effects, those who feel ‘sick or dizzy’ with their first cigarette are seen as more likely to continue on to become regular smokers - dizziness and nausea are independent predictors of dependence symptoms. Increased sensitivity to nicotine as manifested by relaxation, dizziness, or nausea in response to the first exposure to nicotine represents a risk factor for the development of nicotine dependence. This confirms earlier work by Hirschman et al. (1984) which associated dizziness after smoking the first cigarette with progression to a second cigarette whereas coughing was associated with non-progression.

N. Benowitz is concerned with articulating the main factors that lead to smoking initiation. These split into proximal factors (direct effect – such as being offered a cigarette) and other distal factors such as prior advertising exposure, Environmental factors include having friends or parents who smoke or being exposed to positive advertising. Behavioral factors include risk-taking or rebellious behaviour. Personal factors include depression, sensation-seeking or pharmacological responses based on genetics or race. Many of these factors, while being associated with smoking initiation, may not be useable triggers that policy-makers can draw on to reduce youth smoking initiation.

Young people underestimate the addictive nature of tobacco and the risk that they will become addicted hence underestimating the risk that they will incur tobacco-related diseases.

7. Visceral factors. G. Loewenstein views addiction not as a sui generis phenomenon but as one form of a wide range of behaviors. He puts Benowitz’s and Slovic’s findings into theoretical perspective by viewing addiction as a form of behavior controlled by ‘visceral factors’ involving short-term fluctuations in tastes in the form of nicotine cravings. These are ‘interrupts’ that focus attention on a high-priority goal. They are aversive sensations that agents can mitigate by having a cigarette. Although they can dominate current decisions youth will underestimate the impact on their own behaviour of future visceral factors that they will experience in the future. So as with Slovic’s ‘affect heuristic’, it is difficult with smoking to anticipate the force of the cravings one will feel for cigarettes when smoking is initiated. This appreciation begins after one is addicted to nicotine.

Initiation into smoking is therefore promoted by biased expectations about the ability to quit. Immediately experienced cue-conditioned cravings (rather than withdrawal costs) then crowd out all other goals other than mitigating the visceral factor despite the obvious benefits of quitting.

8. Quitting. D. Romer, P. Jamieson and R. Ahern consider paradoxes that create incentives to initiate smoking and to defer quitting. They give this the distinctive name the ‘catch-22’ of smoking although the basic result is evident in literature on self-control. If one believes it is easy to quit smoking one may have no hesitation in starting. However initiating smoking can lead to addiction and difficulties in quitting. This paradox creates problems in designing messages that will both reduce the likelihood of initiating smoking while at the same time motivating current smokers to quit.

There is an exaggerated optimism about the possibilities of quitting particularly among youth. This complements the belief that light or occasional smoking is associated with low risks in encouraging smoking initiation. Once people begin to smoke optimism about the possibility of quitting leads to greater intention to quit. But with continued smoking quitting becomes more difficult as perceived addiction increases. Failed attempts to quit also reduce optimism of the success of quitting.

Anti-smoking messages need to stress the difficulty of quitting to those who are thinking of initiating smoking but at the same time to stress to smokers the benefits of thinking one can quit. A message needs to be framed so different groups interpret it in different ways.

For example the message ‘Each cigarette makes it harder to quit, so don’t start, and if you do smoke, stop now’ has two implications. Here the ease of quitting is seen as greatest when you don’t start but, if you have started, the reframed emphasis is on the progressive difficulty of doing it later rather than now.

9. Final speculative thoughts. The notion that youth correctly appreciate the risks and damages associated with initiating smoking is an almost absurd position. The various arguments in Slovic (2001) confirm this. There is no reason to believe that youth thing in terms of numerically estimated probabilities when the risks of initiating cigarette smoking are assessed. Nor is it immediately clear that youth have the capabilities to assess mortality of disability costs.

My intuition is that youth are rationally myopic in outlook. They understand that a single cigarette or so will have a negligible impact on their future health. They thus try a cigarette to see what it is like and having tries it once innocently repeat the experience. What is being misunderstood here is the addiction potential of cigarette consumption which can lead to long-term health costs.

There are strong arguments for banning all positive cigarette advertising and a case for providing information that seeks to discourage youth from smoking. For the most part such messages should not emphasise the long-term health risks of smoking. The emphasis should be on showing that smoking does not provide positive affect - smokers are not social winners and being a smoker evokes disapproval not respect.

The risks discussed should emphasise the extreme difficulties of quitting and the likelihood that smoking a few cigarettes will lead to regular smoking. Costs emphasised should emphasise current costs of reduced current fitness, unattractive odours and loss of current social acceptability.

References

J.R. DiFranza, J.A. Savageau, K. Fletcher, J.K. Ockene, A.A. Rigotti, A.D. McNeil, M. Coleman & C. Wood, ‘Recollections and repercussions of the first inhaled cigarette’, Addictive Behaviors, 29, 2, 2004, 1-12.

R.S. Hirschman, H. Leventhal & K. Glynn, ‘Development of smoking behavior: Conceptualization and supportive cross-sectional survey data’, Journal of Applied Social Psychology, 14, 1984, 184-206.

D.J. Ringold & J.E. Calfee, ‘The Informational Content of Cigarette Advertising: 1926-1986’, Journal of Public Policy and Management, 8, 1989, 1-23.

F.A. Sloan, V. Kerry Smith & D.H. Taylor, The Smoking Puzzle: Information, Risk Perception, and Choice, Harvard University Press, Cambridge, 2003.

F. A. Sloan, J. Ostermann, G. Picone, C. Conover & D. H. Taylor, The Price of Smoking, The MIT Press, Cambridge, Mass, 2004.

P. Slovic (ed), Smoking: Risk, Perception & Policy, Sage Publications, California 2001.

C. Tate, ‘In the 1800s antismoking was a burning issue’, Smithsonian, 20, 4, 1989, 107-109.

W. Kip Viscusi, Smoking: Making the Risky Decision, Oxford University Press, Oxford, 1992.

The PBS & mesothelioma drug treatment

The Age runs its normal pre-election, anti-Liberal Party line – this time Mr Howard (with all those budget surpluses) won’t interfere to ensure the PBS spend money to provide the drug Alimta, on a subsidised basis under a PBS listing, to unfortunate sufferers of mesothelioma. An editorial repeats these charges.

Drug firms seek to have their high-priced drug products listed under the PBS to sell them using public monies to meet required subsidies. Hence the PBS - not Mr Howard - screens drugs for effectiveness and value for money. The general idea is to maximisde health benefits per buck spent. Their assessment is that Alimta does not provide value for money and may not increase lifespan. The drug costs $20,000 per year of treatment and, acoording to one US study, can increase life expectancy by at most 3 months. It can also have adverse side effects. The detailed reason for the PBS’s Pharmaceutical Benefits Advisory Committee decision to not list Alimta is here. It has been put forward by its manufacturer (Eli Lily) 3 times for listing and is to be put forward again this November.

The scientific evidence discussed in the PBAC report is complicated. But none of this evidence is discussed in The Age’s article. The implication is that John Howard is just a cold-hearted bastard who won’t help those suffering from this awful disease. This is gutter journalism at its worst. As I have said before The Age is becoming one of the worst newspapers in Australia.

Mr Bernie Banton is a tragic sufferer of mesothelioma and a co-supporter with Eli Lily of listing Alimta under the PBS. He is a very brave man - and a battler who has universal public support and affection. He has done a lot to publicise the lot of those suffering from asbestos-related diseases and in dealing with the company, James Hardie, that inflicted this damage. Of course suffering from a disease does not make one an expert in evaluating treatments.

The Age should provide evidence that Alimta has health advantages that the PBAC has overlooked and which exceed the benefits from spending comparable amounts of money on the treatment of other diseases. Otherwise it should butt out and leave the cheap populism to nasty left-wing blogs.

Using surpluses to invest rather than cut taxes

The Australian Financial Review (subscription required) and The Australian (here) have run commentaries over the past few days asking why the huge surpluses the Commonwealth Government is accumulating are not simply returned as tax cuts rather than being invested in the stock market via such things as the Future Fund, the Higher Education Endowment Fund or the Health and Medical Investment Fund

It is extraordinary that the government collects revenue from taxes and invests in on our behalf in equities. This is particularly so given that the Government is avowedly free-enterprise and anti-socialist.

The political argument for non-returning the funds is that there is a relatively low political return on giving tax cuts. The 2006 tax cuts gave no boost to the stocks of the government and, in any event, the ‘me-too’ opposition will certainly match any cuts offer from the Government this year. The economic reason is that tax cuts are being withheld because the economy is operating at close to full capacity so that further boosts to public spending will increase the need for interest rate hikes.

Apart from being immoral the political reasons don’t make a lot of sense. Making really significant income and company tax cuts would be politically appealing. The economic reasons are more cogent – investing the resources in equities will reduce the financial claims that retirees and the education sector will make in future generations thereby enabling the fiscal advantage of lower taxes to be deferred to the future when conditions may be less buoyant. But it is a bizarre twist – resources are being held from the private sector because private spending is judged to be too high. Incentives to save have been reduced by the role of superannuation.

Despite their protestations the Coalition Government remains the heaviest taxing party in our post-war history. In part this is a symptom of the commodities boom and the restricted possibilities for investing in additional new infrastructure because the full employment of resources will create excess demand pressures. It makes me profoundly uneasy to have a Government not returning unneeded tax revenues to citizens and firms. Moreover investing funds in stock markets will not have zero inflationary impact - asset prices will be further bid up.

It is our money and if there are no good public sector projects to fund – perhaps because of resource constraints in the economy - then it needs to be given back not invested in equity markets on our behalf.

Update: Slim has posted on this over at the Dog’s Bollocks and Peter Martin with a different angle that emphasises the failure to predict surpluses here.

End of heroin & advent of socially-approved big pharma narcotics provision

I posted a few days ago on the explosion in use of illegally-diverted prescription painkillers such as oxycodone now occurring in the US and throughout the western world. In my view this is a dramatic development that may signal the advent of a new global drug problem that is, in many ways, analogous to the nicotine century that we have just struggled through with its horrific record of millions of deaths from lung cancer and other tobacco-induced health disorders.

Rather than being driven by poppy farmers in Afghanistan and Myanmar, current global opiate use is increasingly under the control of big pharma who can make billions from this line of business.

The world now has about 10 million heroin addicts. Government controls and restrictions have squeezed the supply of illicit heroin but still a lot is supplied.

A recent Canadian study however suggests that heroin use in 7 major sites has dramatically fallen in recent years – in 5 of the 7 sites it is virtually absent. Most illicit opiates are now coming from the medical system not from illicit markets. Users are consuming painkillers that were originally legally supplied, or illegally imported from countries like Mexico. Alternatively users were consuming medically-prescribed substitutes for illicit opiates. All these sources of supply generate a buck for big pharma.

In recent years in Australia a heroin drought that started in 2002 has triggered major reductions in opiate use and overdose deaths. Is this outcome partly the result of medically-supplied pain-killers that in some cases have been illegally diverted and used to substitute for heroin? Certainly there has been growth in the substitute narcotics markets supplying methadone and buprenorphine. These are heroin ‘cures’ that substitute a medically-provided opiate for an illicit opiate. Moreover the demand for opiate-based painkillers has risen strongly in Australia as it has in the US.

Most of our attention has been driven towards thinking about ‘ice’ amphetamine substitutions for heroin but maybe there is a more straightforward route of substitutions towards medically-supplied opiates.

As I wrote in my earlier post, commercial interests are muscling in on a great market. Pharmos can sell these products to addicted users for a lifetime at government-subsidised costs.

I strongly urge those interested in this area to read the short editorial by Benedikt Fischer and Jurgen Rehm in Addiction. There are ideas here that might guide licit and illicit drug debates for the next 50 years.

Liberal Party & the environment

To state the blindingly obvious - the Liberal Party does not promote its concern for the environment well. The current spat between Malcolm Turnbull and Geoffrey Cousins over the Minister’s approval of the Tasmanian pulp mill project could have been better handled. Turnbull could have been more conciliatory and listened harder. The Liberal Party does not seem to get the message that Australians are concerned about preserving the quality of the natural environment. The pulp mill is not only a Tasmanian issue – it affects the voting intentions of environmentally-concerned voter perceptions nationally.

By the way, my old mate (and very good economist) Graeme Wells reckons that the mill might impose net costs on Tasmania – a $3.3b drain. I have not read his detailed report but I would be surprised if it did not make a lot of sense.

Moreover, the recent decision by a majority of Coalition MPs on a Senate committee to sign their names to a minority report that denied the reality of anthropogenic climate change was stupid in terms of the feeble-minded science it endorsed. And publishing this report was not sympathetic to the mood of the nation which is very concerned with climate change. It suggests the Coalition’s policies on climate change are half-hearted. I hope that is not true.

Meeting with a bunch of Liberals the other evening I asked a prominent senator why the party was performing so poorly in the polls given the glowing state of the Australian economy - low unemployment, low inflation and high economic growth. His response was that the public had begun to take the good times for granted. A 'spat' had developed between the Liberal Party and its close friends, the 'Australian public'.

My alternative interpretation is that, in some respects, the party is out of touch with community sentiment. On environmental issues and climate change I believe this is so. The environmental pledges that are made often seem to lack conviction – the community has a more refined attitude to environmental issues than many Coalition (and to be fair Labor) parliamentarians.

I believe the Coalition can be returned as the Federal Government later this year but, if it does, its attitude to environmental issues will not have helped it.

The Liberal Party claims it is the only political party in Australia that represents the interests of all Australians. Given the National Party’s focus on rural areas and the dominant role in the Labor Party of unrepresentative trade unions this is probably correct. But there are various ways you can split up the ‘representativeness’ issue. The only way the Coalition can honour its claims to be 'in touch' is to recognises the reality and strength of legitimate environmental concerns in the community.

The days when ‘jobs are all’ have gone - tradeoffs must be entertained. Business is not always right!

Moreover, concerned environmentalists should join the Coalition parties to push a non-socialist environmental agenda. The Greens too should return to having a focus primarily on environment and stop acting like a bunch of lowbrow, adolescent socialists. They should become a genuine environmental pressure group party that goads both major parties to pay more attention to the environment.

A nation in pain

This article in The Age reports on an explosion of addictive painkiller use in the US. It fails to mention that a significant degree of this abuse is due to prescription and illegally-diverted prescription use by those addicted to these drugs. Oxycodone is the drug most responsible for the increased use of painkillers – it is an opiate with similar effects to heroin.

According to The Age:

AMERICANS took more than 90,000 kilograms of painkillers in 2005, with sales of five major painkillers almost doubling between 1997 and 2005.

The dramatic increase has been attributed to the ageing population and aggressive marketing by pharmaceutical companies. (my bold)

According to analysis by the Associated Press of figures from the Drug Enforcement Administration, more than 91,000 kilo-grams of codeine, morphine, oxycodone, hydrocodone, and meperidine were purchased in 2005, the most recent year of the data. This equates to 300 milligrams of painkillers for every person in the country.
The main increase was in the sale of oxycodone, the chemical used in OxyContin, which increased sixfold…….

AP found that the reason for the increases was that the population of the US was getting older, with the number of Americans aged over 65 expected to reach 65 million by 2020 — almost double the 35 million over-65s in 2000.

But it also said that drug manufacturers had embarked on unprecedented marketing campaigns, with spending on drug marketing almost trebling from $11
billion in 1997 to nearly $30 billion in 2005.

Big pharma (a clone of big tobacco) is cashing in on the legal opiate addiction business for killing pain just as they are with methadone and buprenorphine that are used as ‘maintenance drugs’ for heroin addicts. In fact the effects of all these drugs are pharmacologically similar - they are all opiates.

These drugs are ideal products to market. Just like nicotine once you are addicted to any of them it is something you do for life – providing a lifelong stream of income to those supplying them. Indeed in many cases you can get the taxpayer to subsidise the cost of providing these drugs on the grounds that you are treating pain or treating heroin addiction among 'disadvantaged' groups.

Many in the medical profession promote methadone and buprenorphine as ways of practising harm minimisation with respect to heroin users. This is assisted by professional medical groups such as APSAD (Australian Professional Society on Alcohol and Other Drugs) who hold staged promotional sessions for drugs such as buprenorphine at their annual conference meetings. I have attended the last two myself.

Dare to question the case for substituting dependence on one addictive opiate for another and you will get a blasting. Addictive drug use is purely a medical issue and other views are not tolerated.

By the way how are so many drug users gaining access to prescription painkillers which they abuse are prescribed these painkillers by doctors? My assumption is that most are. In this sense the problem of painkiller abuse is a medical problem. It stems from selfish, inept and perhaps lazy doctors who do not do their proper duty with respect to those they are supposed to exercise a duty of care toward.

I'll try to get some data together on the extent of the painkiller issue in Australia. I know it is bad here but not quite as bad as for the US.

Daft law overturns Haneef visa cancellation

The judgement overturning the Haneef visa cancellation by Justice Spender is extraordinary. He claims not that Kevin Andrews was wrong in cancelling the visa -there were plenty of grounds to do that on the basis of UK police reports - but that Andrews has applied the wrong test. After setting out the highly technical grounds for overturning the Attorney-General’s judgement – it was based on ‘innocent association’ - Spender goes on to support the case for excluding Haneef from Australia because there were good grounds for believing the judgement was ‘non-innocent’:

‘Nonetheless I am of the opinion that, had the Minister applied the right test, it would have been competent for the Minister to cancel Dr Haneef’s visa.This is because, in addition to the matters which the Solicitor-General identified as supporting the Minister’s view of the "association" of Dr Haneef with the Ahmed brothers, there was before the Minister:

(a) advice from the Metropolitan Police Services Counter Terrorism Command that Dr Haneef was a person of interest to their investigation through his association with two of the United Kingdom suspects believed to have been involved in the London incident and the Glasgow bombings; and

(b) On 14 July 2007, Dr Haneef was formally charged with intentionally providing resources to a terrorist organization consisting of persons including Sabeel Ahmed and Kafeel Ahmed, and being reckless as to whether the organization was a terrorist organization, contrary to s 102.7 of the Criminal Code.

These matters would have permitted the Minister to conclude that the association between Dr Haneef and the Ahmed brothers went beyond a purely familial, social, "innocent" relationship. On that material, it would have been open to the Minister, applying the proper construction of s 501(6)(b), to cancel Dr Haneef’s visa’.

The claims by Tigtog over at LP that the Attorney General has ‘egg on his face’ sound like nonsense to me. Peter Faris at Crikey.com describes the judgment not the Attorney-General as the ass in this case:

‘This decision demonstrates true legal-hairsplitting. The Judge concedes that the decision was for a proper purpose, that the existing law was applied in making the decision and that there was evidence to support a decision to revoke Haneef's visa. This is also a case involving serious acts of international terrorism. But none of that is enough to save the Government. Spender J overturns the existing law and then rules that as the wrong test was applied, the visa was invalidly revoked.

It is rubbish like this that continues to give the law a bad name’.

I agree. Spender has restored the visa to someone he regards as potentially excludable on the grounds of UK police advice and because he supplied assistance to a terrorist organisation. And the moronic left are celebrating an alledged body-blow to the Attorney General. They would applaud any outcome no matter how harmful for Australia provided the Government was embarrassed. It is totally irresponsible behaviour.

The AG is appealing this foolish decision and hopefully will succeed.

Sex, Kevin Rudd, drunk, sex, left the boring old wife at home, apology, sex

I am amazed at the reaction of the left in feeling the need to apologise for Kevin Rudd’s drunken evening at a strip joint. I am also surprised at the attitude of those feminists who almost seek to apologise for not condemning him in order to preserve their dubious reputation for consistency. The response indicates that leftist feminists have psychological difficulties resulting in embarrassingly obvious, sexual guilt and persistently negative attitudes towards the world as it is.

I thought this obvious sort of Puritanism disappeared in the 1960s.

Persecuting Kevin Rudd for his drunken strip club visit borders on the ludicrous and trivialises our nation. I would be worried if Rudd didn't enjoy viewing a bit of flesh and imbibing some grog. Indeed I am worried that he feels the need to apologise for his ‘mistake’. Perhaps he is concerned that the phony devoted Christian persona he has put on might evaporate – no risk ‘mate’ it never condensed - at least in my mind - maybe to a handful of evangelicals. The moment the pollies put on the ‘god-talk’ I switch off and listen to ‘Captain Courageous’ or my well-worn ‘greatest hits from the 1950s’.

Men enjoy checking out the physical assets of a beautiful woman and most women enjoy displaying such. Women have similarly despicable ‘sins’ with respect to men. We are all essentially, disgusting, sexual beings. That is indeed wonderful although also base and despicable. We all, at least, have one thing in common.

Enjoying physical beauty a key pleasure of being alive? The pale virgin, shrouded in snow arise....where my sunflower wishes to go. I’ll head off with the sunflower, thanks.

Leftist clots take care of the burial, rightist critics of Rudd – you lose one vote!

Ms. Rolah McCabe, big tobacco & the ACC

In Australia there had been no successful individual actions against local tobacco companies until the successful case of lung-cancer sufferer Ms. Rolah Ann McCabe who was awarded $700,000 against British American Tobacco (BAT) in the Supreme Court by Justice Geoffrey Eames in 2002. The judgement, however, was overturned by the Court of Appeal 8 months later, a couple of months after Ms. McCabe died.

In his original judgement Mr Justice Eames found that the destruction of key internal tobacco company documents had denied her a fair trial. The Appeals Cort claimed there was no evidence that this was true. Maybe but it seems that the processes of law may have been corrupted by events that occurred during the Appeals Court hearing - in particular by BAT and its agents destroying internal company documents that may have had a bearing on the outcome of this case.

Indeed, Victoria’s Director of Public Prosecutions, Mr. Paul Coghlan QC, has referred allegations of criminal behaviour of BAT and its former Australian lawyers Clayton Utz to Australia’s top crime fighting body, the Australian Crime Commission. Mr. Coghlan, in a letter to Victorian Attorney General Rob Hulls, refers to allegations of perjury and conspiracy to pervert the course of justice against BAT and a number of parties associated with BAT. The ACC has powers to examine witnesses under oath and to obtain documents.

This referral followed the sensational revelation by former senior BAT executive Mr. Fred Gulson that the document policy was ‘to get rid of all the sensitive documents but do so under the guise of an innocent housekeeping arrangement’.

This referral also follows an internal investigation by a senior partner of Clayton Utz, Mr. Christopher Dale, which found that two of its lawyers (Mr. Glenn Eggleton, Mr. Richard Travers) had engaged in serious professional misconduct. Mr. Eggleton had given evidence at the trial that was ‘potentially perjurious’. Mr Dale leaked the findings of his inquiry to The Sunday Age last October.

The Dale internal inquiry suggested to Mr Coghlan that:

‘...the destruction of thousands of apparently relevant documents suggests that in addition to the offence of perjury, possible criminal offenses include a conspiracy to pervert the course of justice...

In particular the destruction of thousands of apparently relevant documents by BAT when litigation was apprehended in Australia may warrant national investigation'.

Mr Coghlan went on to say a compulsory examination of Mr. Dale would be ‘especially beneficial to the investigation’. BAT has taken action to prevent the use of the internal Dale documents by the McCabe family. If this material can be used as evidence in a court of law the judgement of Justice Eames can be reinstated and some measure of fairness restored to the case of Ms. McCabe.

Let us get to the bottom of what BAT and its attorneys did. Otherwise the presumption will be, as The Sunday Age surmises, Big tobacco - you are not acting fairly.

Lung cancer & capitalism

I have been reading some quasi-medical literature on lung cancer and emphysema. The Wikipedia entry here, despite some wiki-criticism, seems to me an excellent start to the subject of lung cancer. The graph above I pinched from this survey. It shows nicely the 20 year lag between smoking and the contracting of lung cancer in the US and complements an earlier picture I provided due to Weiss. The survey also contains reference to a fascinating paper by Witschi (2001) ‘A Short History of Lung Cancer’.

I have for the past few months been scouring the pre-1950s literature for early medical insights into the connection between cancer and smoking – I knew, for example, that Adolf Hitler was very anti-smoking and, yes, it is true – many of the earliest recognitions of the connection (e.g. Mϋller (1940)) were medicos from Germany who published in German. Robert Proctor has written a book eulogising the role of the Nazis in recognising the threat from cigarettes!

Some American environmentalists of the 1960s, like Rachel Carson – who emphasised the role of environmental chemicals in causing cancer - never mentioned tobacco smoke. This is a major oversight. Tobacco smoke is the most important carcinogen in the environment and the one that can be completely controlled. Recognising its existence has simple implications - don’t smoke and do not allow yourself to be exposed to secondary tobacco smoke.

Lung cancer describes a condition where tissue cells in the lung grow out of control. It is the major cause of cancer-related death among men and the second-greatest among women. It is more than 90% caused by inhaling tobacco smoke. There are various ways lung cancer can be treated (surgery, chemotherapy, radiotherapy) but it is one of the nasty cancers – it kills 86% within 5 years. The death that results from lung cancer is, in the words of one leading surgeon, ‘horrible’. Not in any sense a painless exit.

The changes made in cigarettes over recent decades have altered the types of lung cancers generated in humans. In early studies tar from cigarettes was painted onto the shaved backs of animals, like mice, and shown to produce cancers. With the advent of low-tar, low-nicotine cigarettes people smoke harder. They consequently do not reduce their cancer risks at all – the tobacco industry and medical authorities refer to this as compensation. Compensated cigarette smoking activates a new set of carcinogens in tobacco smoke – 'tobacco specific nitrosamines' and volatile carcinogens in the gas phase. These produce a distinct range of cancers - 'adenocarcinomas' rather than 'squamous cell carcinomas'. Passive smoking also produces its own range of tumors.

Cigarette products when consumed as intended have about a 0.2 chance of killing a smoker from these types of cancer outcomes alone. A smoker's overall health risks from smoking can be summarised by saying that they have a 1 in 2.5 chance of prematurely dying from a smoking-related disease. That this is not new news does not make it less than true.

That cigarette companies have continued to provide addictive products that they have known for 50 years have these devastating consequences makes me somewhat despondent about the human condition.

To say that issues of smoking are primarily questions of individual choice seems to me close to an outright lie. It is universally known that it is mainly young, immature kids who initiate this disastrous habit.

On the other hand creates puzzles for people such as myself. The smoking debate brings into question many of the basic issues I have accepted in my 35 years of work as an economist.

The case for letting people choose and the consequent 'gains-from-trade’, the notion that a profit-seeking firm would not find it in their self-interest to produce a product that they knew produced harm are both brought into question. Moreover there are a myriad of widely-discussed externalities (e.g. passive smoking) and much-less-discussed (though more important) issues of internalities (information failures and irrational choices that mean people make stupid decisions).

Related to the positive issues of trying to limit the harm from smoking are profound ethical issues about why societies have allowed things to continue to this point.

The tobacco smoking debate provokes uncomfortable and pessimistic thoughts.

Smoking cannabis damages your lungs

FHX kindly sent me this link to a Guardian article claiming that smoking a joint is much more dangerous to your lungs than smoking cigarettes. Note that this is different from the claim that smoking cannabis causes lung cancer – that is not being asserted here.

The article states:

A single cannabis joint may cause as much damage to the lungs as five chain-smoked cigarettes, research has found. Medical examinations of cannabis and cigarette smokers found the drug increased specific lung problems, including obstructed airways and hyperinflation, a condition where too much air remains in the lungs when a person exhales.

Smoking one cannabis joint caused damage equivalent to smoking 2.5 to five cigarettes in rapid succession, researchers at the Medical Research Institute of New Zealand found. Doctors who carried out the study believe the damage is linked to the difference in the way cannabis is usually smoked, with users inhaling hard, holding their breath for longer and failing to use filters.

The report follows a flurry of confessions from ministers who admitted having used the illegal drug and comes days after a review of cannabis research, published in the Lancet medical journal, revealed that cannabis use may be to blame for 800 cases of serious psychosis in Britain.

The scientists set out to investigate whether smoking cannabis put users at greater risk of developing emphysema, a progressive and potentially fatal lung disease.

A group of 339 volunteers aged 18 to 70 were divided into four groups according to whether they smoked only cannabis, only tobacco, both, or were non-smokers. Each volunteer was then subjected to lung function tests and x-ray scans of their chests to assess the level of damage to their lungs and airways.

In the study, published in the journal Thorax, all smokers complained of coughs and wheezing, while only tobacco smokers showed signs of emphysema. Coughing was reduced among people who smoked cannabis and tobacco, possibly because these people smoked pure cannabis joints and so less tobacco leaf.

The extent of lung damage was directly related to the number of joints smoked. "The most important finding was that one joint of cannabis was similar to 2.5 to five tobacco cigarettes in terms of causing airflow obstruction," the authors write. "This pattern is likely to relate to the different characteristics of the cannabis joint and the way in which it is smoked. Cannabis is usually smoked without a filter and to a shorter butt length, and the smoke is a higher temperature," they add.

I made a similar claim o these in an earlier post – indeed the link to that earlier article has vaporised but I believe from memory it was referring to the same NZ study.

In relation to lung cancer issues there are contrary results and even some preliminary findings that cannabis may have a protective effect. The finding is one that I now, given the months I have spent reading about smoking is one I have no doubts about. I can’t imagine anything more damaging to your lungs than holding hot smoke in it for as long a period as possible to maximise the effect of getting stoned.

If you must smoke cannabis (something I do not recommend) eat it in cookies - don’t smoke it.

Australian economic prospects

The Reserve Bank of Australia’s Statement on Monetary Policy came out today. I am not a macroeconomist but I normally glance through this document to get a feel for what is happening.

It is 64 pages long so it must take a fair bit of effort to remain up to date – particularly given the seismic shifts in stock and financial markets that are occurring at present. Huge falls in Australian stock markets occurred again this morning following significant falls on Wall Street yesterday. The falls signify much more than a minor market correction and, if the bad news in the US sub-prime market continues, so too will the falls.

The RBA added some cautionary remarks on the financial sector onto what was obviously an intrinsically upbeat assessment of the Australian economy. They certainly did not wish to cast any doubts on the wisdom of their recent decision of the bank to further increase interest rates.

Of course interest rates are not only determined by central banks – they are also market determined and the private sector pressures now are for interest rates to take a hike.

Essentially, however, the RBA believe the Australian economy will continue to grow at above average rates through 2007 and 2008. They see the boom in the East Asian economies, in China and in India as likely to continue and even the Japanese and US economies they claim look in good shape.

The relatively high level of Aussie interest rates and the continuing strength in commodity prices had driven the Aussie dollar to high levels – it has retreated a bit with the financial mess – does not concern the RBA. Nor do high levels of capacity utilisation with inflation lying at close to the top of its range.

So the RBA is optimistic longer-term though, in its usual Delphic style, it will keep a close watch on ‘further developments in international financial markets’. It should too. I am not a macroeconomics expert but my comment would be that analysts need to watch for any signs of emerging problems in the Chinese economy.

Currently the Chinese economy is growing at 12% and its stock market is booming and it is reasonable to ask whether this sort of growth sustainable? The Chinese stock market has come close to quadrupling since 2005. Indeed it has increased by 20% over recent months. Eventually Chinese monetary authority attempts to cool the market will have an impact on this market.

The inexperienced Chinese economic managers - and those equally inexperienced Chinese investors in equity - need to get it right when the Chinese economy does experience what must be an inevitable hick-up on its path towards much higher sustained standards of economic development.

Costello said....

Journalists and reporters work in the most distrusted occupations in the community – they rank lower in terms of public trust than Federal or State politicians. The of actions of the trio (Michael Brissenden, Paul Daley and Tony Wright) in reporting now (in the leadup to a Federal poll) comments claimed to be made by the Treasurer Peter Costello during a convivial, boozy evening in a restaurant in June 2005 – more than two years ago – bring no credit on them or their profession.

They had agreed comments were ‘off the record’ but broke that undertaking. Brissenden regrets initially taking the story ‘off the record’ so, eventually, they outed the Treasurer. If the facts were so important why wait more than two years?

Keep the secret until it becomes OK to release conversations held in confidence and then divulge them. And what a pointless non-secret it is! That Peter Costello wants the leadership position! That he is angry with John Howard for not giving it to him! Is there anyone aged 15+ in Australia who is not aware of this.

The Treasurer was naïve to believe journalists can be trusted to keep their word. Don’t send them Xmas cards Peter and dine out with your mates – not these nasties.

Look at the whole institution of the written press in Australia and ask what is going on. The Australian newspaper has for years put a pro-Coalition slant on all aspects of the news while The Age - the most biased major newspaper in the country - consistently and invariably supports the Labor Party. In terms of TV coverage I wonder how the ABC will continue to function given that so many of its journalists are standing for Labor seats. We are not being well served as a community.

Incidentally Michael Brissenden was very confident of the factual details of the meeting but the notes he took were dated March 5 in 2005 not June 2. He is sure of his memories though!

But I am absolutely sure of other things about this trio.

Pets as part of the household

I recently posted on some descriptive aspects of pet ownership in the US - the claim was that $41 billion was now spent of pets. A study by Schwartz, Troyer and Walker (STW) looks at more economic, analytical aspects of the issue - they seek to embed pets in a theory of the household that includes children as substitute or complementary goods. STW claim the number of US households with pets increased from 52 million to 69 million from1988-2002. The 2002 total included an estimated 65 million dogs and 78 million cats, comparable in magnitude to census estimates of 72 million children under the age of 18.

Pet spending in the US increased at a faster rate, from $17 billion in 1994 to $34 billion by 2004. Pets have been gaining attention, with the press taking note almost daily of the latest pet-related business trends, such as pet insurance, day care, and pet-friendly hotels. My earlier post also comments on these issues.

Health professions have been giving attention to the physical and mental health benefits of pet ownership. But STW note pets have hardly been touched in any formal economic analysis even though the fastest growing segments of pet owners are empty nesters and young professionals who postpone starting families but want a substitute, suggesting parallels with the economics of the household. There are differences between pets and children. It is legal to purchase pets but not children, unwanted pets can be abandoned and pets cannot provide for parents in their old age. Single or gay people can have a pet without any social stigma!

STW support a model of the family that includes pets and children, allowing for substitutability and complementarity between the two. Increasing the number of children reduces pet spending in married households, suggesting that children and pets are substitutes. However, households with young children are less likely to own pets, while families with older children are more likely to own pets. Hence pets are viewed as a substitutes for very young children and complements with older children.

Positive income elasticities show that pets are a normal necessity goods with women in married households having smaller income elasticities for pet expenditures than do men. This is the opposite of what has been found for women and men with regard to expenditures on children.

I assume the same sorts of trends hold iin Australia. I would be interested if there was any data out there at all.

Liberal backbenchers lack judgement & political nous

Backbench Coalition MPs Dennis Jensen, Jackie Kelly, Danna Vale and David Tollner have disputed the reality of anthropogenic climate change.

A consensus report, here, deals with the technology of carbon dioxide geosequestration. The dissenting minority report here accepts the quality of the main report's work on carbon sequestration but disputes its underlying hypothesis that global warming is anthropogenic.

The minority report is a strong statement that goes well beyond raising doubts about the science of warming. It claims that the evidence does not support the hypothesis of anthropogenic global warming. It cites views of several global warming skeptics to support its claims and thanks these skeptics for their editorial input into the dissenting minority report.

The views of these skeptics have been discredited many times - a recent account is a recent issue of The Bulletin.

Australians are concerned about the prospects of global warming. It is an important issue of concern in the electorate. The best knowledge we have suggests that the global warming is caused by human activity creating greenhouse gases (i.e. it is anthropogenic) and further evidence suggests this issue can be addressed successfully at modest cost. Hence there is a sensible insurance argument for dealing with the effects of climate change.

The difficulty for the Coalition is that it suggests a split in its ranks that might create at best an insincere response to addressing climate change issues. In my view this is inaccurate – John Howard has repudiated the views of the four dissenters and government policy is to proceed with a carbon trading scheme. But perceptions in politics are important – that 4 out of 6 Coalition MPs on a science committee report would make this public statement is disturbing.

Let us get on with dealing with the climate change problem while continuing to research the determinants of the global climate and our climatic future. We can keep our eyes open and be prepared to entertain new theories. However the evidence so far accumulated suggests strongly that anthropogenic climatic change is occurring. We would be foolish to ignore it.

What is addictive about smoking?

The story I have long believed is that it is nicotine that addicts smokers to tobacco products but that it is the other compounds in tobacco (e.g. tobacco specific nitrosamines) which cause medical problems such as cancer.

Hence one way to encourage people to stop smoking is to provide NRTs (nicotine replacement therapies) such as nicotine patches, gums, nasal sprays or inhalers to deal with the chemical dependence and, by so doing, eliminate the ingestion of other health-damaging compounds from cigarette smoke. The idea is to use NRTs to break the physical dependence of nicotine as the smoker breaks the behavioural cues that trigger smoking.

In fact these sorts of pharmaceutical interventions have been tried often without a great deal of success (Balfour and Fagerstrom). The reasons are various – the NRTs may be inappropriately used, may release nicotine to the brain too slowly or be used by low-intensity smokers who are smoking-dependent but not dependent on nicotine.

There are in fact over 4000 chemicals in cigarette smoke many of which could potentially contribute to dependence on tobacco. The consensus has been that nicotine is the major component of tobacco responsible for addiction.

Commenter ‘dany le roux’ suggested (in remarks on an earlier post) that nicotine may not be the only addicting agent when tobacco is smoked. Nicotine definitely seems to be a major addicting agent through its action on nicotinic acetylcholine receptors and the downstream release of dopamine. However non-nicotinic components of tobacco smoke may also play a role by inhibiting monoamine oxidase (MAO) activity and subsequently altering neurotransmitter levels – this might enhance the addictiveness of nicotine by providing anti-depressant effects.

As I understand it dopamine releases can be stimulated in the brain directly by nicotine or other chemicals may inhibit the action of those chemicals which destroy dopamine. It is conjectured that both processes go on when cigarette smoke is ingested. A simple discussion is here.

A survey of recent research in this area is provided in the survey article by A. Lewis, J.H. Miller & R.A. Lea. Understanding these issues may lead to more effective pharmacotherapies for smoking cessation that utilise these MAO inhibitors. Several MAO inhibitors have already been trialled – these are discussed in the Lewis et al. paper.

The issue of policy importance here is that it may be fallacious to put all weight on NRTs as a cessation therapy. They have not performed that well to date perhaps for the reasons discussed above. It would be interesting to find out whether 'smokeless tobacco' products such as snus outperformed NRTs in delivering MAO inhibitors or if these products are only delivered by smoke.

I’ll keep a watchout on this literature – thanks to dany for the tip on MAOs.

Cigarette commercials

In the 1880s when ‘Buck’ Duke purchased the Bonsack machine, which enabled the mass production of cigarettes for the first time, he was able to produce cigarettes much more cheaply than his competitors. However cigarettes in these days were an unpopular form of consuming tobacco – most was consumed as pipe tobacco, cigars or chewing tobacco.

Duke created a mass market for tobacco through, among other things, advertising his low cost cigarettes. His profit margins were close to 100% but he reinvested 20% of sales revenue in advertising. He did indeed create a mass market and, by 1910, Duke had turned his firm from a small enterprise into the American Tobacco Monopoly – the third largest firm in the US with subsidiaries in China and Australia. This firm was split up under the Sherman Act in 1911.
The cigarette century was initiated – by 1920 cigarettes were the major form of tobacco consumption in the US and 20 years later an epidemic of lung cancer developed.

Between 1920 and 1950 smokers enjoyed a brief period of respite of peace-of-mind before the connections between smoking and cancer became manifest. The first major scientific reports were published in 1950. What is interesting is that well before 1950 the tobacco companies were obviously concerned with the harmful health implications of smoking. Issues of ‘taste’ were counter posed against those of claimed ‘mildness’ and ‘smoothness’ in numerous commercials and advertisements for cigarettes.

Tobacco products are relatively homogeneous so that market share can only be sought by differentiating in terms of image, claimed health advantages and claimed taste characteristics. A recent survey of cigarette advertising is here.

Some of these early commercials are interesting to look at. It is also interesting to see how the resources of YouTube and the Web can be used to get a glimpse of what was happening 60 years ago. Archives of interesting material are being compiled and being made available online.

Early cigarette commercials

This is a great collection of filmed TV commercials for cigarette products – the earliest dating back to 1897. There are also many anti-smoking statements. Can you recall the prosecutor who always lost to Perry Mason? He was Hamilton Burger the actor William Talman who made one of the early anti-smoking commercials 6 weeks before he died from lung cancer. His wife also died from the same disease. (Top page 1).

These are some of the particular ads that caught my attention:

Not an ad but a 1947 anti-ad by Tex Morton ‘Smoke, Smoke, Smoke, That Cigarette’. Yep, poor old Tex - he died of cancer. Note the clear early indication of the addictive, harmful character of smoking.

A 1948 ad for Chesterfield – preferred by ‘professional smokers’ and Perry Como! These cigarettes don’t irritate the throat!

Here’s an ad from 1949 for Camels – more doctors smoke Camels! The ad obviously emphasises health issues but, again, was released before major research in 1950 showing links between smoking and cancer in 1950. In fact most printed ads in the 1940s and 1950s emphasised some kind of health advantages from smoking particular brands. A good collection is here.

An ad from 1948 for Lucky Strike. A longer ad (with woman) from 1950s. No mention of health issues in either.

A Winston ad featuring the Flintstones from the 1950s.

An ad for Chesterfields in the 1950s – cigarettes provided by Chesterfield are safe – they are much milder.

An ad for Camels from 1952 addressed to women. Mild – doesn’t harm the throat.

Steve McQueen’s ad from the 1960s for Viceroys. McQueen died from lung cancer in 1980.

Tareyton from the 1960s – smokers of these carcinogens would rather fight than switch. Emphasises health properties of filter and of course – keeping the faith – don’t switch brands.

One of the most successful advertising campaigns of all time from around 1950 – I still remember the jingle that was used up to 1960 ‘filter, flavour, flip top box’. Come to Marlboro Country! This is one analysis.

Around 1969 the tobacco companies offered women freedom and their own unique supply of carcinogens – Virginia Slims. The last TV commercial for cigarettes in the US was for Virginia Slims – telecast in 1971.

Finally, this is a very gripping anti-tobacco message produced in Australia.

John Winston Howard biography

I have been reading with pleasure Wayne Errington & Peter Van Onselen’s, John Winston Howard, Melbourne University Press, 2007. The authors are associated with the Liberal Party but have written a frank, critical view of Howard’s life.

John Howard is one of Australia’s most successful Prime Ministers. He is an exceptionally capable, tough-minded man who has changed the way politics is practised in Australia. Above all else Howard is a realist. He has made mistakes, and observed the mistakes of others, but he has always been a learner. He has gained and held onto political power while implementing a pragmatic, conservative agenda that has changed the way politics will be done in Australia.

Among other things, Howard Governments have restored faith in our immigration program, provided the Reserve Bank of Australia with the independence necessary to tackle inflation to help keep the economy sound, got rid of mounting and unsustainable public sector deficits and maintained a firm grip on the 'dries' in his own party who would have been best suited at maintaining their ideological purity from the opposition benches. Howard has successfully built on the Labor Party’s microeconomic reforms of the 1980s – that he supported – and helped create a powerhouse Australian economy.

Howard has substantially eliminated the carping negativity that the Australian left has consistently tried to inflict on Australians in relation to both our past and present. This has been a major achievement since the left in Australia has always sought to define – if not to manage - the political agenda on the basis of a sense of guilt, outrage, hysteria and injustice. There is more to life than listening to the complaints of these miserable people.

Howard has attacked stifling political correctness, divisive multiculturalism and has helped to restore good sense in relation to indigenous policies. He has also restored civility and decency to Australian political life. Howard is unassuming, polite and modest – the man Paul Keating described as the ‘bowser boy’ because he had worked in his father’s petrol station – is in every sense an impressive man. As Kim Beazley said – Howard became the most successful conservative politician in a generation.

Howard has not been a visionary politician who has driven Australia towards more lofty goals which coincide with the views of intellectual elites – he is too much of a realist to believe that abstract principles can provide an inclusive guide to politics. That is one reason Australians like him. Howard is a political thinker but, above all else, a master politician who is sensible – and sensitive enough in feeling the political winds - to eschew ideology and to pragmatically pursue policies that have kept him in power and kept his ideological opponents on the left and the right out.

Even if Howard loses the forthcoming 2007 election he has redefined political debates in this country and driven the Labor Party to the point where Labor policies, if not the quality of its potential ministers, are a clone of those in the Coalition. This is a strategically important outcome for Australia. Trade union officials who see Australian society as a zero sum game have, at best, a limited future in Australian Federal politics. The trade unions have had their role marginalised in labour markets and in the Australian economy as a whole.

Howard was a settled, nerdy young man from Sydney’s western suburbs who would never have chewed gum at school assemblies. Life was protestant, uncomplicated with decent values and uncomplicated virtues. His parents were Liberal Party supporters whose lives were based around their local church and hard work. They were comparatively wealthy – more so than I had come to believe. Howard was an average student at a good public school – he failed Leaving Certificate maths – but somehow got into Law at Sydney University. His hearing problems, his devotion to the Liberal Party and the loyal support he received from his wife Janet drove him into a political career. He was obviously politically ambitious and always had the gift of the gab.

Howard's earliest high status position was as a hard-working Treasurer under Malcolm Fraser a politician whom he was loyal to while he was Prime Minister but whose failure to deliver a much-needed reform agenda he disliked. Indeed, during these years, Howard had similar economic reform views to Paul Keating who subsequently became Howards unrelenting public enemy. Howard came to see Keating’s foul-mouthed outspokenness, his parliamentary laziness and his unwarranted elitism as an opportunity. Howard also liked the economic theories embodied in John Hewson’s Fightback but saw that Hewson was politically naive – again an opportunity that Howard could build on. He watched and learned and eventually gained an accurate sense of the tradeoffs between reform possibilities and political acceptability. He made mistakes but did not repeat them and learned from the mistakes of others.

Much has been made of the rejection by his party of Howard after the Fraser years. Up until the time of his removal as opposition leader Howard had been narrow and intolerant. He came to see this as a personal political failing and learnt to coexist with a broad range of people within the Liberal Party. This has been one of the ingredients of his outstanding political successes. Another success was his targeting of socially conservative Labor voters who disliked the ‘agenda-setting’ elitism of the Labor Party. Howard won these voters over not by a ‘small targets’ strategy, of the type that destroyed Kim Beazley’s chances, but by becoming known as a reliable conservative politician who occupied the 'middle ground'. He also capitalised on the failure of Labor leaders to capitalise on the strengths that they did have:

‘In addition Labor’s tactic under the leadership of Kim Beazley and Simon Crean of discounting their legacy of economic reform made it easier for Howard to claim the credit for the country’s prosperity.’

Much has been made in the press about revelations regarding the Tampa incident. Howard sought a second opinion on the Attorney General’s initial view that turning back these illegal migrants was illegal. So what? I have never believed that Howard had a case to answer here. He was simply counteracting the bloody-mindedness of the Indonesian Government in refusing to stop the flow of illegal migrants following Australia’s intervention in East Timor. The policies he was implementing were similar to those pursued by Bob Hawke and others for many years. The stance he took was correct and, by restoring faith of Australians in the legal, controlled immigration program, he enabled its eventual expansion into a skill-based program not one that advanced interest group needs.

Much has also been said of Howard’s relation with Peter Costello. Howard has never been close to Costello because he regards him as too 'dry' and lacking in political nous. That Costello comes from Victoria is, regrettably, also probably important. The ongoing rifts between NSW and Victorian branches are an important part of Liberal Party history. But it is interesting that, in this book, Howard reveals that he believes Costello would make a good Prime Minister – leadership would force greater pragmatism on him. Of course that the pair were not close personally did not prevent an effective working relationship from developing.

Howard has been systematically underestimated and overcriticised by his critics. Indeed, he has been so extensively vilified - some might say demonised - that criticisms can now barely touch him. Howard’s answer is to his critics is to reject the pessimism of the old left and to argue that the non-pragmatic theorists on the right, who seek to guide us all with their abstract principles, can snipe from the sidelines but will not gain political power. This book shows the strengths of Howard and a few weaknesses. It is a good read.

Paul Krugman on the sub-prime lending crisis

Paul Krugman is pessimistic about what is currently happening in financial markets. The crisis in sub-prime mortgage lending in the US has spread to Europe and Asia – batches of these loans have been sold to French and Dutch banks.

Financial markets have suddenly become illiquid – people wish to hang onto their cash. This could be merely a brief scare or it could generate a chain of defaults that might have an impact in Australia given our record private debt levels. It could also just herald a period of tighter money where constraints on macroeconomic growth emerge.

There is not much policy-makers in Australia or overseas can do about these things although the most recent interest rate hike in Australia was probably ill-advised and further increases are probably unwarranted.

Krugman argues:

‘The origins of the current crunch lie in the financial follies of the last few years, which in retrospect were as irrational as the dot-com mania. The housing bubble was only part of it; across the board, people began acting as if risk had disappeared.

Everyone knows now about the explosion in subprime loans, which allowed people without the usual financial qualifications to buy houses, and the eagerness with which investors bought securities backed by these loans. But investors also snapped up high-yield corporate debt, aka junk bonds, driving the spread between junk bond yields and U.S. Treasuries down to record lows.

Then reality hit — not all at once, but in a series of blows. First, the housing bubble popped. Then subprime melted down. Then there was a surge in investor nervousness about junk bonds: two months ago the yield on corporate bonds rated B was only 2.45% higher than that on government bonds; now the spread is well over 4%.

Investors were rattled recently when the subprime meltdown caused the collapse of two hedge funds operated by Bear Stearns, the investment bank. Since then, markets have been manic-depressive, with triple-digit gains or losses in the Dow Jones industrial average — the rule rather than the exception for the past two weeks.

But yesterday’s announcement by BNP Paribas, a large French bank, that it was suspending the operations of three of its own funds was, if anything, the most ominous news yet. The suspension was necessary, the bank said, because of “the complete evaporation of liquidity in certain market segments” — that is, there are no buyers.

When liquidity dries up, as I said, it can produce a chain reaction of defaults. Financial institution A can’t sell its mortgage-backed securities, so it can’t raise enough cash to make the payment it owes to institution B, which then doesn’t have the cash to pay institution C — and those who do have cash sit on it, because they don’t trust anyone else to repay a loan, which makes things even worse.

And here’s the truly scary thing about liquidity crises: it’s very hard for policy makers to do anything about them.

The Fed normally responds to economic problems by cutting interest rates — and as of yesterday morning the futures markets put the probability of a rate cut by the Fed before the end of next month at almost 100%. It can also lend money to banks that are short of cash: yesterday the European Central Bank, the Fed’s trans-Atlantic counterpart, lent banks $130 billion, saying that it would provide unlimited cash if necessary, and the Fed pumped in $24 billion.

But when liquidity dries up, the normal tools of policy lose much of their effectiveness. Reducing the cost of money doesn’t do much for borrowers if nobody is willing to make loans. Ensuring that banks have plenty of cash doesn’t do much if the cash stays in the banks’ vaults’.

In a time of economic crisis the advantage goes to experienced economic managers. The current difficulties in Australia are a short-term negative but an election time positive for the Coalition.

Real & nominal interest rates in Australia

Real Australian interest rate trends are thoughtfully discussed by James Farrell over at Troppo. This set of pictures by the Reserve Bank of Australia is interesting for the purposes of this discussion.

Real interest rates are nominal interest rates per annum less the expected rate of inflation per annum. The expected inflation rate is approximated in these calculations by some sort of measure of recent actual inflation rate. The idea is that the actual inflation rate evolves fairly gradually so the best forecast of the expected rate is some recent measure of the actual rate.
The idea is that buying an asset at a nominal interest rate r, when inflation is occurring at rate π, is really costing you r-π per period in interest since you are getting capital appreciation of about π simply because inflation is occurring. Thus in considering the real cost of borrowing it is claimed that what matters is the real rate.

That is true provided you are not budget-constrained. If you are buying a house for $300,000 and borrowing the lot at rate 8.25% when the inflation rate is 3% your real cost of borrowing is 5.25%. You actually have to find $24,750 in interest each year but of that $9,000 is an increase in the value of your capital assets so your real cost is $15,750.

But each year you do have to shell out $24,750 – this is tough if you are shelling out for school expenses and orthodontic work for your kids - but you should be getting $9000 of that back (eventually) when you come to sell the house assuming that its value increases by the rate of inflation. The truth is that we all worry about both nominal rates (which determine how much of current income we must dedicate to our borrowings) and real rates which measure the real cost of our capital asset acquisitions.

Politicians don’t like interest rate increases. It is often not clear why. An interest rate increase means that borrowers (e.g. the ‘young’ buying their first house) pay more while lenders (e.g. wealthy old pensioners, like my mum, with investments) get paid more. So that disliking high interest rates amounts to hatred of the old. More seriously, it probably indicates a dislike for increased earnings to owners of capital than increased costs for struggling wage slaves (you poor buggers!) trying to buy their first home.

So looking at those graphs cited in the hyperlink what has happened to interest rates over the recent past?

Real interest rates have moved steadily upward since 2003 but going back to 1989 the secular trend downwards has been very pronounced – the real cash rate now is
under 4% compared to 11% in 1989. But since the early 1990s real interest rates have barely fallen and it is wrong of JWH to suggest they have.

Nominal interest rate trends have followed real interest rates although these respective rates have moved together as inflation has fallen.

The yield curve is now essentially flat – long-term interest rates are similar to short-term interest rates. There is no risk premium for lending long.

Interest rates in Australia have been consistently higher than those in other countries such as the US though the differential has narrowed. Why? This is a major question that interests me. If capital flows are reasonably mobile internationally why should this be so? The Aussi dollar looks strong rather than weak so anticipated exchange rate devaluations cannot account for it.

Australian nominal housing interest rates now are about what they were in 1996 and in 2000. Life is still tough out there for homebuyers and interest rate costs on housing in Australia are not tax deductible.

Most small business interest rate contracts these days are variable not fixed rate contracts. Smart if you assume interest rates are likely to remain stable or to fall.

Corporate bond spreads – the differentials between corporate bond yields (generally riskier) and those on government debt have been pretty well trendless for almost two decades – and particularly since 2003. So there is no evidence of mounting risk premia. We are not showing evidence that corporate debt is becoming riskier.

I am not a macroeconomist so I welcome corrections and comments on these interpretations.

A murder conviction

The murder of Mersina Halvagis at the Fawkner Cemetery in 1997 was a haunting event. It was a senseless act of brutality. I remember seeing on a television newscast the anguish of her father Mr. George Halvagis after the murder. His obvious pain sent a message to every father who was watching. Mr Halvagis still visits his daughter's grave every day. It is a unending, loss for him and the whole Halvagis family.

Finally, yesterday, after 10 years, mutiple murder Peter Dupas was convicted of the murder. It will hopefully give some closure to the family to these tragic events.

Central to the verdict was the sworn testimony of convicted drug trafficer, Andrew Fraser, who was in jail with Dupas and who recalled in court conversations he had with Dupas. Fraser is eligible for a $1 million reward for helping to secure the conviction and has already applied for the reward. The jury who convicted Dupas knew that he had been convicted for the murders of Nicole Patterson in 2000 and Margaret Maher in 2004. The judge in the case told jurors to ignore past convictions.

Dupas is a terrible man who deserves no sympathy and the Halvagis family deserve compassion and, by any reasonable standard, need closure.

China to be a world centre for Christianity?

With 10,000 converting to (mainly pentacostal) Christianity each day and a predicted 200 million strong Christians by 2050 China will become a leading Christian nation. The ultimate Western export!

'China may be for the 21st century what Europe was during the 8th-11th centuries, and America has been during the past 200 years: the natural ground for mass evangelization. If this occurs, the world will change beyond our capacity to recognize it. Islam might defeat the western Europeans, simply by replacing their diminishing numbers with immigrants, but it will crumble beneath the challenge from the East. China, devoured by hunger so many times in its history, now feels a spiritual hunger beneath the neon exterior of its suddenly great cities.

Four hundred million Chinese on the prosperous coast have moved from poverty to affluence in a single generation, and 10 million to 15 million new migrants come from the countryside each year, the greatest movement of people in history. Despite a government stance that hovers somewhere between discouragement and persecution, more than 100 million of them have embraced a faith that regards this life as mere preparation for the next world. Given the immense effort the Chinese have devoted to achieving a tolerable life in the present world, this may seem anomalous. On the contrary: it is the great migration of peoples that prepares the ground for Christianity, just as it did during the barbarian invasions of Europe during the Middle Ages'.

Thanks JB

Laser printers produce carcinogens

According to a recent report about 30% of laser printers in the office produce high levels of carcinogenic particulates in the air. The suggestion is to keep rooms ventilated and take care when using new cartridges and when doing graphical work. Otherwise having printers in your office can be as dangerous as passive smoking.

Manufacturers deny their printers provide a carcinogen risk but advise using them in 'well-ventilated areas'. Its a safe precaution.

Skippy to rescue lung cancer sufferers?

From Opinion Dominion (a conservative blogsite) I learned of this funding proposal to investigate use of a bacterium found in the stomach of kangaroos to try to deal with lung cancer. A longer report is here.

From the first report:

‘A Queensland scientist has won a $750,000 fellowship to develop a lung cancer treatment from a bacterium found in eastern grey kangaroos.

The State Government presented the award to University of Queensland researcher Dr Ming Wei.

The scholarship was created in memory of the late Dr Jian Zhou, who co-founded the world's first cervical cancer vaccine with Professor Ian Frazer.

Dr Wei says his research involves spores of bacteria that target cancer cells.

"By injecting the spores into the blood, the spores can get into the centre of the tumour and that would work as a live active and tumour seeking agent that destroys tumours from the inside," he said’.

Wow!

World clock

I found this world clock diverting.

Thanks Bernd

Information, risk & cigarette smoking

A major plank in policy efforts to reduce cigarette smoking are public information-based policies. How should these policies be constructed to increase quitting? This is a tough issue.

Telling old people that there are benefits, at any age, to quitting (a truthful statement!) encourages them to delay quitting. It might even encourage younger people to initiate or continue smoking for a time because it might suggest they can they can make an early-enough quit that will limit adverse health effects.

On the other hand telling long-term smokers that the damage they have done is irreversible (generally a false statement) might encourage them to continue smoking on the grounds that stopping now will not advantage them.

This general issue of designing public information messages is taken up in:

Frank A. Sloan, V. Kerry Smith & Donald H. Taylor, The Smoking Puzzle: Information, Risk Perception and Choice, Harvard University Press, Cambridge, 2003.

I learnt much from this. The main message is that general information about the disease and mortality consequences of cigarette smoking is not getting through to many in the population of smokers. While some, such as W. Kip Viscusi (1992), (2003), claim that smokers overestimate risks, Sloan et al. claim that smokers tend to be over-optimistic about their longevity and future health if they quit late in life. In fact, while you can quit early enough to reduce your mortality risks you need to quit very early indeed (more than 16 years before your mid-fifties) to evade the disability consequences of smoking.

Older adult’s decisions to quit smoking seem to require personal experience with a serious health consequence of smoking, such as a heart attack. Less serious symptoms such as shortness of breath will not do it. It is, of course, disadvantageous to wait for serious health events. The trick for Sloan et al is to come up with an information substitute to a serious health event – the one they propose and test is to focus on the disability consequences of smoking among older smokers rather than mortality consequences.

The emphasis is on older smokers who quit in large numbers anyway – the authors do not have a lot to say about dissuading youth from initiating smoking.

The main data base Sloan et al use was a large sample of people born between 1931-1941 who were aged 51-61 in the first year of a survey conducted in 1992. The survey was repeated in 1994, 1996 and 1998. The study has a panel structure with the same individuals asked the same questions about, among other things, their smoking behaviour and their health status and expectations of future health.

The notion that smoking kills is old news to most people - almost no-one disbelieves it. Information may be accurate but not considered relevant to those who use it. But information about the impact of smoking on the quality of life of a smoking-related disease does impact – the claim is that an 11-15% reduction in smoking by older smokers is possible with this approach which is equivalent to a 50% increase in cigarette prices. The prospect of losing the ability to care for oneself is something that grabs people’s attention. Smokers need to be informed of the long-term consequences of disease and be warned of the consequences of quitting too late. In this sense anti-smoking messages substitute for real events such as heart attacks that evoke quitting behaviour.

This can be interpreted as reflecting the concern smokers have both with risk probabilities and the consequences of the risks or the context. Premature death is often viewed as an ‘easy passage’ and taking on a little more risk in this regard is resolved with a decision to continue smoking. The essential point is to emphasise that the transition would be to a lower quality of life because of smoking-induced disability rather than an 'easy passage'.

An interesting feature of the Sloan et al policy prescription is that it partially conflicts with Sloan et al. (2004) where they demonstrate relatively limited disability consequences of smoking – smoking seems to bring disabilities forward but not increase to increase their length.

How do people make smoking decisions? Economic (optimising) and psychological (heuristic) criteria are alternative approaches to determining how people make smoking initiation choices under uncertainty. Smokers start to smoke when young (in Australia, on average, at age 15.9 years), they then go through an ‘discovery phase’ where they learn of some bad effects of smoking, a ‘day of reckoning phase’ where they either quit or face the risk of a serious health problem and a phase where they die.

Rational optimising models that rely on economics suppose predetermined preferences, time constant exponential discount rates and accurate perceptions of future risks and costs.
Perceptions of risk will be subjective probabilities or beliefs and will depend on information the potential smoker is aware of from private and public sources. The objective probabilities of very harmful health consequences are neither minute nor very large. The hazards are however seen as controllable (a smoker can elect to quit) and the smoker may have little or no direct experience of the hazards. These factors can foster optimism biases although, that the hazards are not negligible, should suppress such biases (Weinstein (1989)).

In addition, people may face cognitive limits in their ability to process risk information. Sloan et al in fact provide evidence that heavy smokers do not process risks accurately but that the average smoker does. But smokers do not update their risk perceptions on the basis of general information and need a personalised message such as particularly salient health warnings.

Furthermore, preferences may not be exogenous as economists often suppose but endogenously determined by the process of consumption as in habit-formation and rational addiction models.

They may also be peer-group-determined though this should be reduced by advertising bans and limitations on depictions of smoking in movies. These peer group pressures will be enhanced among low intelligence individuals facing stress and depression.

Discount rates too may be endogenous and time-inconsistent (hyperbolic) rather than exponential.

Government Policy and Advertising. It is difficult to assess the effects of advertising on smoking because it is difficult to measure advertising exposure although individual level studies confirm a link (Lewit et al. (1981)). The Joe Camel ads increased the demand for Camel Cigarettes among youth from 0.5% to 32.8% so it seems difficult to argue with the proposition that marketing works, at least for youth. In that event bans would be effective in reducing smoking. What about the effectiveness of anti-smoking campaigns? The evidence here is mixed with tobacco control enthusiasts being much more confident of campaign successes than economists. Today’s smokers in their fifties started smoking when advertising promoted use and there were few anti-tobacco campaigns. It might take quite a while to see if current campaigns are effective though the rapid decline in adolescent and school-age smoking in Australia provides optimism that there may be significant effects.

Recognising health impacts of smoking. This book argues that people adjust their smoking behaviour on the basis of personalised messages regarding their health. These messages can take the form of health signals particularly in people's late middle age so the emphasis here is on those aged 51-64 years in the final survey 1998. Disability is definitely linked to smoking . Moreover disability effects occur in much the same way for ex smokers as current smokers unless the smokers quit while they are young – here taken to be more than 16 years prior. Ex smokers live longer but still suffer substantially higher disability that 'never' smokers. This is worth pointing out to smokers. One needs to quit early to avoid disability costs.

Risk Perceptions. This investigates how information affects risk perceptions by focusing on responses to the question of what probability individuals attach to living to age 75 and beyond. People generally quite accurately forecast their longevity but smokers and ex smokers are excessively optimistic about their life expectancy while non-smokers are overly pessimistic. Heavy smokers understate risks. The evidence is that health shocks condition forecasts.

People generally pay close attention to their own health and the health experiences of their blood relatives.

Health Shocks and Smoking Behaviour. In the US about 30% of smokers attempt to quit each year but 80% of these attempts fail within a month. Smokers often make 4-5 attempts to quit before they succeed for a sustained period of time and even then cessation is not 100% effective.

Quit rates increase strongly with age presumably because the present value of the costs of smoking increase and information about one’s own health accumulates.

Smoking and quitting decisions are linked to longevity expectations. Serious health complications and messages that mimic effects of such complications induce quitting as do price increases but minor adverse health signals and general health warnings do not. Many smokers quit gradually so that ‘cold turkey’ strategies may be a less effective quit strategy than 'cutting back'.

Personalised Health Messages. Warnings about disability rather than survival are most salient to smokers. Smokers believe you will die anyway but warnings about such things as emphysema are particularly salient among older smokers – these diseases are feared and disliked. This study used a focus group to study how longevity expectations are formed.
Current smokers are more optimistic about their health than former smokers but information warnings were particularly successful among those smokers who had good cognition. Moreover, the messages stayed in their minds for six months after they were administered. Reminders and reinforcing messages would strengthen this effect. People misunderstood the implications of ‘never too late to quit’ messages which they understood as an excuse to delay quitting.

Personalised health messages from physicians based on genetic or other information may, in the future, be a useful way of inducing quits among older smokers.

Longevity Expectations and Cigarette Demands. This tests the information strategy based on emphasising disability and finds it works for older smokers. Providing information about emphysema substitutes for the effect of substantial price hikes which cut into smoking. While prices may be the best triggers for inducing quits in younger smokers prices-cum-information policies might work better for older smokers.

Conclusions. A major issue is why people smoke given its obvious health implications. The key argument in this book is that the quit decision depends on the way information affects risk perceptions and how these jointly impact on smoking behaviour. The main argument is that public messages that relate to effects of smoking on disability among older people is a useful way of inducing quits. Information about risks of premature death seems less effective than information about the disability effects of such things as emphysema. You need to make it clear that smoking-induced death is not an ‘easy exit’. While this is a welcome insight it does not tell you anything about how to induce quits among young smokers - quits that would induce a much greater present value of benefits. Moreover, many of these older smokers will quit anyway.

This paper does however tie information campaigns to an area where marketing will have an impact. It is an innovative and welcome piece of research.

References

E.M. Lewit, D. Coate & M. Grossman, ‘The effects of government regulation on tobacco smoking’, Journal of Law and Economics, 24, 3, 1981, 545-569.

N.D. Weinstein, ‘Optimistic biases about personal risks’, Science, 246, 4935, 1989, 1232-1233.

Price of confession

"Bless me Father, for I have sinned. I have been with a loose girl".

The priest asks, "Is that you, Dicky?"

"Yes, Father, it is."

"And who was the girl you were with?"

"I can't tell you, Father, I don't want to ruin her reputation."

"Well, Dicky, I'm sure to find out her name sooner or later, so you may as well tell me now. Was it Mary Walsh?"

"I cannot say."

"Was it Teresa Brown?"

"I'll never tell."

"Was it Margaret Doyle?"

"I'm sorry, but I cannot name her."

"Was it Anne O' Neil?"

"My lips are sealed."

"Was it Catherine 0' Tool, then?"

"Please, Father, I cannot tell you."

The priest sighs in frustration. "You're very tight lipped Dicky, and I admire that. But you've sinned and have to atone. You cannot be an altar boy now for 4 months. Now you go and behave yourself."

Dicky walks back to his pew, and his friend Tommy slides over and whispers, "What'd you get?"

"Four months holiday and five good leads!"

Thanks JS

No riff-raff among the Laborite comrades

Victoria's Labor leadership consists almost entirely of pretend toffs or real toffs. That's all the better to help them spot that 'light on the hill' and helps us Liberal supporters since we win whoever wins the Victorian State election. Quote:

'PREMIER John Brumby's new-look Cabinet is crammed full of highly educated lawyers, teachers, social workers, an architect and a nurse.

Analysis of the Cabinet members' high school and tertiary education shows that 17 out of 20 of them have at least one university degree. (How many products of the Dawkins reforms?)

Deputy Premier Rob Hulls does not have a degree but is a qualified barrister and solicitor who studied an articled clerk's course at RMIT. (Its nearly a degree Robbie though you always do come across as a traditionalist, brainless ruffian).

The other two without university-level qualifications are Energy Minister Peter Batchelor and Agriculture Minister Joe Helper, who has a trade certificate and is a qualified mechanic.
Far from the days when Labor Cabinets were full of union organisers, five members of the Brumby Cabinet have law degrees. (I am sure they don't actually talk to Joe Helper).

They are Police Minister Bob Cameron, Finance Minister Tim Holding, Education Minister John Lenders, Mental Health Minister Lisa Neville and Roads and Ports Minister Tim Pallas.
Community Services Minister Gavin Jennings has two degrees, in arts and social work, while Mr Lenders also has a Bachelor of Education.

Ms Neville also has an arts degree, while new recruit Tony Robinson has both a bachelor and masters in arts.

Thirteen out of 20 went to non-government schools and six obtained their degrees at Melbourne University.

Those who attended state-run high schools are Mr Batchelor, Mr Cameron, Mr Helper, Mr Jennings, Public Transport Minister Lynne Kosky, Mr Lenders, new recruit Maxine Morand and State Development Minister Theo Theophanous.

Nine of the 13 who did not attend government schools went to Catholic schools. (An interesting commentary in itself. Maintaining a place for the bog Irish?)

Mr Brumby went to exclusive private schools Ivanhoe Grammar and Melbourne Grammar, then obtained a Bachelor of Commerce at the University of Melbourne. (My son goes to Ivanhoe Grammar, I am so proud!)

Liberals leader Ted Baillieu was in the same year as him at Melbourne Grammar.
Mr Hulls attended the upmarket Xavier College and Peninsula Grammar before studying at RMIT.

Planning Minister Justin Madden has a degree in architecture, while Housing Minister Richard Wynne, Ms Kosky and Mr Jennings all have university qualifications as social workers. (A degree in social work still counts!)'.

Smoking over a lifecycle

One of the more interesting discussions of the costs of cigarette smoking is Frank A. Sloan, Jan Ostermann, Gabriel Picone, Christopher Conover & Donald H. Taylor, The Price of Smoking, The MIT Press, Cambridge, Mass, 2004.

This provides a provocative new view of what matters and what doesn't in considering these costs. The study emphasises the huge private costs associated with increased mortality and passive smoking costs for spouses. It deemphasises the role of (conventionally defined) external costs and disability costs.

The Sloan et al (SEA) team provide a remarkable picture of the social costs of smoking in the United States over a smoker’s lifetime. The costs are split into external costs (costs a smoker imposes on society), quasi-external costs (costs imposed on the smoker’s family) and internal costs (costs the smoker bears themselves). The focus is on the lifetime costs a 24 year old man or woman imposes - a ‘longitudinal’ rather than a ‘prevalence’ or cross-sectional approach.

In summary, they find that a 24 year old who smokes incurs about $141,181 (discount rate of 3%) supporting his or her habit which is equivalent to a cost per pack of cigarettes of nearly $33 dollars. The cost was $182,860 for men and $86,236 for women. External costs per pack are $1-44 (quasi-external costs excluded) and $6-88 (quasi-external costs included). These costs are lower than those determined in cross-sectional studies.

The $33 private cost of a packet of cigarettes comprised a $3-12 cost of the cigarettes themselves, a $20-28 mortality cost (a year lost was valued at $100,000) and a surprisingly low disability cost of $3-44. There were medical, social security and pension costs and a subsidy from life insurance.

The quasi-external costs of smoking per packet were a very significant $5-44 comprising mainly an average $5-20 spouse mortality cost.

The external costs per packet were a relatively low $1-44 so that excluding spousal costs suggests taxes on cigarettes are about right but including them suggests they are too low.

Among the interesting findings:

1. Mortality. The authors start off sceptical of claims that 400,000 Americans die of smoking-related causes each year. They ended up computing the actual number of deaths at 422,000 which was greater than earlier estimates. A woman who starts smoking at age 24 loses 2.4 years of life while a man loses 4.4 years of life. These figures are much lower than the differences between life expectancies at age 24 for smokers and non-smokers. For women this difference is 6 years whereas for men it is 9.1 years. The reason for the difference in results is that smokers tend to be more poorly educated than non-smokers; they drink more and have a greater acceptance of risk. Thus it is crucial to compare the mortality of actual smokers with what they would have experienced had they not smoked – SEA refers to the latter5 group as ‘non-smoking smokers’.

On the other hand, accounting for all these other factors still leaves smoking-attributable mortality very high. Accounting for characteristics of smokers does not change this basic story.

2. Outlays for personal health care. Impacts of smoking on all health care costs are assessed for adults in the age groups 24-50, 51-64 and 64+. Over the life cycle men incurred increased health costs of $2600 while women incurred $3800 in the 24-50 age range. Increased expenditures after age 50 were more than offset by lower survival of smokers beyond mid life.

3. Social security. Smoking reduces income earned over the lifecycle and reduces lifespan. Thus less money is paid via taxes into the social security coffers but benefits withdrawn towards the end of life are reduced by increased mortality and reduced contributions but increased by earlier claims based on increased likelihood of disability. Among the various effects here the main effect turns out to be the increased mortality of smokers which means that 24 year old male smokers lose $6549 in social security benefits while females lose $1519. It is important to point this out to smokers since it provides another mechanism by which they lose from smoking. On the other hand it reduces the claim by public agencies that they are out-of-pocket because of smoking. Here smokers subsidise non-smokers. The findings also mean that reducing the incidence of smoking will substantially increase aggregate social security costs.

4. Private pensions. SEA points out that a comparable finding to 3 holds for private pensions. Reducing smoking will reduce the value of private pensions to non-smokers and reduce the market value of pension schemes because of increased liabilities from the reduced mortality.

5. Life insurance. Life insurance companies will make increased payouts for smokers though it might be difficult to determine a person’s smoking status. A recent quitter would provide an increased mortality risk but could describe themselves as a ‘never smoker’. It turns out that there is a large subsidy paid by non-smokers to smokers who are not charged an actuarially fair premium. For a 24 year old male the subsidy by non-smokers is worth $12,013 while for women it is worth $2019. This subsidy promotes a dangerous activity and can only be eliminated by requiring insurers to pay a specific surcharge to smokers.

6. Morbidity and disability. These are some of the most interesting of the SEA findings. It is known that smoking causes increased mortality. What are its effects in promoting ‘unsuccessful aging’ and disability? SEA estimate that in 1998 4.6 million Americans aged 24+ were in fair or poor health because of smoking. Of these 2.1 million had emphysema – the probability of contracting this disease for current smokers is 20X that for never smokers. At all ages smokers self-report a higher incidence of being in ‘fair or poor health’ than do non-smokers. The effects on time spent in ill health due to smoking however were surprisingly low on average. A man aged 24 dies much earlier if they smoke but the period they spend in ‘fair or poor’ health is only increased by about 11 months. For women the figure is around 15 months. For specific diseases such as emphysema the effects are more pronounced but the prevalence of these diseases was not high enough to alter the average. Smoking kills but it does not extent life with major disabilities.

7. Passive smoking. SEA provide an excellent survey of the costs of various smoking externalities. Sidestream smoke is the smoke emitted from a smouldering cigarette whereas mainstream smoke is the smoke inhaled and exhaled by a smoker. Environmental tobacco smoke (ETS) is 85% sidestream and 15% mainstream. Sidestream smoke is more dangerous partly because it is unfiltered. ETS promotes cancer and heart disease in non-smokers and has numerous harmful effects on young children. SEA perform a spouse study on the effects of ETS and define ETS simply bas being married to a smoker. They found significant passive smoking costs though much lower than the costs a smoker imposes on themselves – about 8X the mortality damage accrues to the smoker than their spouse. Attaching values to these costs and to induced disability costs shows that these impacts are much greater than the effects of smoking on health service costs.

8. Summary points. The external costs of smoking are relatively minor – certainly much lower than the private costs. However spousal costs of passive smoking were high and exceeded US tax receipts from smoking. An interesting conclusion was that smoking shortens your life but does not greatly increase the time you are disable – it does however bring that period forward. Mortality costs are the major component of overall costs and they are particularly high for young men.

What are the cockies thinking about?

I’ve bought the last couple of issues of The Weekly Times -the Melbourne-based 'voice of the country' - it has operated since 1869. More than anything I bought it to find out what country people are thinking about. It is an informative newspaper where most major stories are published online. What worries the cockies? I did a random flip through the last two issues and some things stood out. The choice of stories I made is not a random sample but I did focus on major stories. The issues emphasised included many that interest an ‘urban greenie’ such as me – climate change and the environment, trade liberalisation, animal rights, economics.

The following provides a survey of selected issues discussed in no particular order.

1. How the rise in the value of the Aussi dollar hits those farmers hard who are just recovering from the drought. There is particular concern about increasing food imports from China and the prospects for stone fruit producers of a free trade agreement with Chile. It is a sound observation particularly given that in some sectors, such as wool, there is expected to be price weakness anyway.

2. This Melbourne-based newspaper is very concerned about Victoria being shut out of the Commonwealth’s national water plan and potentially missing out on millions of dollars in handouts and free infrastructure. The paper seems broadly supportive of the Commonwealth’s approach to giving handouts.

3. The economics of organic farming, farming native species and game, genetically modified crops and bio-fuels. All interesting niche areas for those of us interested in pursuing green alternatives in the agricultural sector.

4. The paper has concerns with promoting the health benefits of red meat. It also remarks about Australian lamb being sold in New Zealand. Interesting for me, at least, since I have always thought New Zealand lamb was much higher quality than the pongy Australian stuff. Australians seem unable to produce quality lamb and to deliver pork to supermarkets that doesn’t have a disgusting odour.

5. There were fearful observations about the role of flatulent beef cattle in promoting global warming. Also there was concern for the wine industry, which will be one of the agricultural sectors most hard hit by climate change – grapevines are sensitive to climate. In the longer-term these emissions will need to be included as a component of the Commonwealth’s emissions trading schemes.

6. There were fears for the consequences of Victorian moves to treble red gum forest reserves along the Murray River in Victoria and to ban grazing of cattle in the Barmah forest. An editorial thundered over the evils of ‘urban green environmentalism’ that will involve huge water diversion costs – these forests will need to be flooded once every 5 years. This periodic flooding I have suggested in an earlier post are essential for biodiversity conservation but of course they make some of these greedy sods cranky.

7. There are concerns over animal rights organisations such as PETA and such issues as sheep export deaths. In my view unless humane practises can be established here the trade should be banned. It is a national disgrace to assign sheep for export slow, agonising deaths.

8. The role of the WTO and the Doha round aroused interest and there were the usual concerns over US food subsidy plans for the next five years. Ho hum, these justifiable complaints have been around for a while.

9. Finally there is lots of information about new developments in agricultural machinery that meant little to me. Ditto for information on sheep and cattle prices, weed problems as well as wool and canola prices. There is detailed information on very recent rainfall trends and current water storage levels is provided but not much in the way of long-term forecasts that I assume farmers access from the Bureau of Meteorology website. I was interested also in the obviously deep market for Australian agricultural properties and, as I have remarked before, in the surprisingly high prices paid for capital assets in this low rate of return sector.

Booze & kids

The debate over whether alcopops are designed to adapt the tastes of immature sugar-loving adolescents to drinking booze is ridiculous. Of course this is the intention. Who else would drink these sugary nasties!

Booze consumption in Australia has stabilised over recent decades so the only way to grow the market is to create a new generation of boozers.

The 'insider' revelations that the industry is targeting youth published in the press this morning should not surprise anyone. This is exactly parallel to the strategy of tobacco companies seeking to promote youth smoking - with reduced social acceptibility of smoking among adults and with high mortality from smoking the only way to grow this market is to encourage youth smoking.

Alcohol doesn't cause lung cancers but it does induce other cancers and does cause brain damage - 6 drinks a day over 8-10 years puts a male at high risk of damage.

Exaggerated responses to Fed intervention into aboriginal affairs

The exaggerated responses to the Federal Government’s much needed interventions into Aboriginal affairs continue.

Pat Anderson complains that the legislation facilitating a Federal takeover of aboriginal affairs in the Northern Territory treats aboriginals as 'children'. If this is intended to convey the impression that the aboriginals are not in a position to manage their own affairs then the claim seems to me accurate. Aboriginals do not seem capable of running their affairs.

On the other hand the claim by Galarrwuy Yunupingu that the measures mean aboriginals will be “dispossessed of everything” is just inaccurate. Indeed, former Labor Party national president Warren Mundine has said the Federal move is not a ‘land grab’ and has urged the Labor Party’s left to support it.

Aboriginals and the Northern Territory Government have shown that their joint administration of aboriginal affairs is ineffectual. Much of the moaning about Federal Government plans comes from failed bureaucrats and failed aboriginal community leaders who are being displaced.

The Government’s plans include:

• Abolishing the permit system so Commonwealth sponsored personnel can enter aboriginal lands. As an Australian citizen why should I need the permission of any group to drive along public roads that are adjacent to anyone’s land?
• Alcohol and pornography will be banned in 73 aboriginal communities taken over by the government. Alcohol abuse is the major social problem facing these communities. This measure will not eliminate this abuse – drunks can still head off to town – but it will increase the user costs of abuse and help separate abusers from abused.
• 50% of welfare payments will be quarantined to ensure children are adequately cared for. This will only impact on families where children are being neglected because parents spend welfare payments on booze and other inessentials.
• Health checks to be given to all indigenous children.
• As a part of broader reforms parents who do not send their kids to school will be denied welfare. This is a good move that in the long-run will help aboriginals gain employment.
• A job creation scheme replacing current CDEP schemes that often do not provide real jobs. This is an objective of policy rather than a policy measure and the success of the Federal intervention should be measured in terms of how well this is achieved. It is difficult to establish meaningful jobs in remote areas. If it is impossible then perhaps aboriginals seeking to live on social welfare should be encouraged to relocate.

These are sound policy ideas that deserve community support not a puritanical guilt-based reflex of disapproval.

What I am reading: Crikey Guide to 2007 Election

I have been reading Christian Kerr (ed) The Crikey Guide to the 2007 Federal Election. For $19-95 this is an informative - and entertaining - guide to the forthcoming Federal Election. As someone who has never been particularly interested in electoral detail (or knowledgeable about it) I have learnt a lot. I think Labor will win if they pick up about 5 seats in NSW.

Incidentally I found a number of parts of this book interesting. The chapter on the political ‘spin machines’ that the public funds for each of the 150 members of the House of Representatives and the 76 senators extraordinary. Each has 4-5 full-time staffers and at least one electorate office. The astounding statistic provided is that 24% of all news stories originate with a politician or a person employed by a government department.

There is an interesting article by Sally Young in today’s Age on related topics such as government advertising (Young has recently edited Government Communication in Australia) which argues, among other things, that public media are overwhelmed by the quantity of ‘spin’ they are subject to.

On the forthcoming election itself I am mainly interested in what will happen. After reading The Crikey Guide I think Labor will win if they can pick up a large nunber of seats in NSW.

Overall Labor needs to win 16 seats to effectively govern. A uniform national swing of about 4% would give them that so that current opinion polls suggest Labor would win in a landslide. Betting markets are slightly more favourable to the Coalition giving a win probability for them of between 39-42%. An unusual aspect of recent developments is that while the polls have swung towards showing some sort of recovery for the Coalition the betting markets have moved more firmly against the Coalition – in March the betting markets were predicting a Coalition win.

We know that the Coalition will improve its vote as the election approaches – its primary vote has recovered 5.2% since March. The huge lead that Labor now has will presumably be further eroded but the issue is whether it will be eroded completely. My assumption is it will not be eliminated – the Coalition will lose some support – but I don’t know what sort of net swing Labor will get. Indeed I wonder if anyone does – hence I can understand the fairly even prices in betting markets.

The opinion polls suggest a Labor landslide but many of those shifting to Labor in their stated intentions now will think hard about their economic situation on voting day. I think the current macroeconomic instability being suggested by US financial market performance and the prospect of higher interest rates in Australia will provide votes for the Coalition not Labor. The disturbance is clearly externally sources and the nervous nellies will tend to stick with those having experience as a government. Overall however I still think Labor has a clear edge.

The Crikey Guide suggests that Labor should fairly easily pick up about 10 seats or so which will not give it victory but will at least put it in a strong position in 2010. It should get around 3 in South Australia at least 1 or 2 in Queensland, about 2 in NSW and, despite recent pork-barrelling, they should get Braddon in Tasmania. There are 2 very marginal seats in Western Australia - these might be difficult to get given the resilient strength of the Coalition there. Taken together this will give Labor 10 seats. Can Labor get another 6 to claim victory?

Queensland. It seems quite difficult to get more seats in Queensland even given Rudd’s appeal as a Queensland. Getting a third seat in Queensland would require a 5.7% swing while a fourth seat would require a 6.2% swing. These are not impossible but a big ask given the economic boom conditions in this state. Maybe one more seat?

NSW. There are a whole batch of potential gains in NSW beyond Parramatta. But among these are Wentworth (2.5% swing required) and Bennelong (4.2%) held by Malcolm Turnbull and the Prime Minister respectively. Gaining these seats seems a big ask. Apart from these there are Lindsay (2.9%), Eden-Monaro (3.3%), Dobell (4.8%) and Paterson (6.3%). Labor must win former Labor seats like Dobell and Lindsay to win this election. These are the ex-Labor voting ‘Howard battlers’ who are worried about their mortgages. It seems to me Labour must pick up an extra 3 of these 4 seats in NSW to gain victory.

South Australia. Labor should pick up three seats in South Australia but to get more than that it would need to win Boothby (5.4%). Interestingly the troubled Mitsubishi plant is in the centre of this electorate. Labor has a hopeless candidate, Nicole Cornes, but she does have high visibility. You would have to guess that if more pork-barrelling politics is to occur it will be here. Labour might get one more.

Western Australia. Support for the Coalition in polling has been stronger here than elsewhere. Discounting the two seats it should get Labor needs to get Kalgoolie (6.3%) and Canning (9.5%) without losing Swan and Cowan which it holds by a thread. I find it hard to believe that Labour will improve its position here beyond two seats.

Victoria. A difficult state for Labor – its best chances are Deakin and MacMillan requiring 5% swings. My guess is at most one seat.

This forecast split gives Labor exactly 16 extra seats. The key to realising it it seems to me would be to get a full 5 or 6 seats in NSW. This with the 10 seats it should get with a 4-5% swing should give it government.

The Crikey Guide suggests that ‘when the swing is on its on’ which it interprets to mean that swings can be very dramatic in Federal politics. A uniform swing of 6% would give it government no risk. If the swing is non-uniform anything could happen. A hefty swing in strong Coalition electorates that was not enough to displace sitting members might leave the Coalition in power.

Smoking bans in bars encourage quits

One reason for banning smoking in the workplace, in public places, bars and in cars with non-smokers is to limit the deadly consequences of passive smoking - moderate exposure to passive smoking increases heart disease risks by 50%. Another reason is to increase the 'user costs' of smoking for those who pursue the deadly-dangerous habit of cigarette smoking. This motivation is becoming increasingly important particularly for high income smokers who can absorb the effects of hefty taxes on cigarettes. Taxes are good at encouraging low income smokers to quit but don't work as well on the 'well-to-do'.

The rich however cannot avoid the effect of bans which force them not to smoke while they work or enjoy themselves. If they are addicted to nicotine one way to avoid the costs of 'busting for a fag' but being unable to do so for much of their day is to simply quit. In response to the recent move to ban smoking in bars and pubs in Victoria they are doing just that in droves. Quit services are doing record business. An extremely positive outcome.

Another way of evading such user costs is to step outside your workplace or bar and have a smoke outside. This becomes particularly inconvenient if it is freezing cold outside. Some British pubs have installed heaters outside their establishments to reduce these user costs and to thereby reduce the effectivess of such bans. This heating has been condemned as a waste on money by some, such as London mayor Ken Livingstone, since most of the energy dissipates into the environment. I am much less concerned with this cost than with the effect such smoking has in terms of reducing incentives to quit. Keeping them cold and miserable while they inhale their carcinogens will further encourage quitting which, again, is extremely positive.

Pork-barrelling on hospitals - bad move JWH

It is difficult to see the Commonwealth Government’s move to intervene and inject $45 million annually to maintain hospital services at the Mersey Hospital in Davenport as much more than a pre-election stunt.

The State government had previously agreed to downgrade the facility on the grounds that the local region could not reasonably support 3 specialist hospitals – it is the type of tough political decision no state government would like to undertake. There is a case for rationalising health responsibilities between the states and perhaps a case for the Commonwealth taking over all public hospitals in Australia. There are also arguments for maintaining a Federal system that encourages competition in service provision between the states – in health as in education. Australians do not seem to be getting an appropriate standard of hospital health care in part because of duplication and waste in this sector and buck-passing between State and Federal Governments.

However, the case for singling out one particular hospital in the marginal seat of Braddon (the Liberals gained it in 1994 by a 1.1% margin after gaining a 7.1% swing against Labor) does not advance this rationalisation objective. Even Health Minister Abbott seems to agree it is an election gimmick. I generally concur with the analysis of John Quiggin on this. We don’t want a sort of ’selective centralism’ based on handouts to win elections. There needs to be policy reform not ad hoc moves or attempted vote-buying.

It is hard to see that the Commonwealth here has improved capacities to run particular hospitals than the states. Indeed it is not even clear what exactly is to be done with the $45 million - this has not been spelt out - or why the money should be spent there rather than in other parts of Tasmania or the rest of Australia.

Moreover, there are suggestions the $45 million might be wasted given the difficulty in securing specialist doctors to this hospital and the limited population base this hospital in conjunction with two others serve. All hospitals may be left ineffectually short-staffed.

Ken Henry in a much criticised speech earlier this year warned of the potential of pre-election pork-barrelling to derail an economy operating at close to full employment. The implications of resource shortages emphasised in Mr Henry’s discussion seem to make particular sense in the hospital sector where key labour resources are already in short supply.

Vote-buying might achieve a few votes in a particular electorate but contribute to increasing scepticism throughout the electorate as a whole. I’ve recently been talking with informed people on the Labor side of politics who believe that Howard will be returned by a narrow margin so that perhaps the Government is not in a desperate situation at this stage.

Cynical moves with the public purse might tip things back in the opposite direction, particularly if the press does its job as it has on the hospital issue. This move by the Commonwealth was a mistake though not a particularly expensive one. Let’s hope it stops here.

An interest rate increase this Wednesday might help the Commonwealth Government regain a sense of its macroeconomic management responsibilities and the need to exert budgetary restraint up to the next election.

My need to go 'dum-dum'

I've been working hard for the last couple of weeks - mainly on tobacco issues - and reached the phase where the point of diminishing returns to what ever limited creativity I might have has been very much exceeded.

I feel the need for a 'do nothing' interlude where my brain is disengaged and, to use the phrase of an old friend, I go 'dum-dum'. A bit of wine, lack of intent and recognition of the strategic advantages of some (hopefully temporary) general stupidity is needed. I've done that this evening and hence needed help with this post.

I asked my 9-year old son, William, to help me and he said:

Write about how the government is trying to take people's holidays away and why they shouldn't - he saw the WorkChoices ads on the TV. OK, so the government shouldn't!

He also said people should not stay inside all day but should go outside and do some exercise. I don't think he was talking directly about me but he did think birdwatching was a good idea. I'll try tomorrow. Promise.

He also thought that kids should be restricted to less than 5 hours playing video games and watching TV per day a generous target that, quite honestly, he does not always meet himself. He has several of his dad's hypocritical genes and flair for prescription.

He also thought we should do something about helping poor people, global warming, pollution and excessive water use. How could anyone disagree? I'll start next Monday.

So that's it for this week, I'll return refreshed and reinvigorated Saturday. Consider this a free post zone. Do you ever need to go 'dum dum'? How do you do it if you do it?

Australia's descent into global ignominy

The Age has commissioned an op-ed by Urs Walterlin, ‘Scaring off the World’, that discusses our nation’s move toward becoming a fascist, totalitarian state that destroys the environment and which invites international hatred and contempt. The Age outdoes itself today with its more than usually stupid commitment to national self-hatred.

According to Mr Walterlin ‘Other countries are not blind to Australia's many faults, ranging from politics to the environment’. The Haneef case, David Hicks, Tampa, our treatment of aboriginals and our environmental vandalism have, it seems, damaged Australia's reputation all over the world.

'There are, of course, many other issues that have over the years grabbed the attention of overseas readers: Australia's seemingly blind support of the US, its treatment of David Hicks and the introduction of draconian anti-terrorism legislation that has brought one of the highest levels of loss of individual rights presently observed in a Western country. And then there is the shameful plight and treatment of indigenous Australians that still has the capacity to shock audiences around the globe.'

Finally, our international reputation suffers too because of the way we trash the environment:

'It will simply not be possible for a country, on the one hand, to market itself as a 'clean and green' destination, and on the other hand to have the highest per capita pollution in the world. It will be unacceptable to clear fell-native forests and wastefully use other resources simply because they are cheap and abundant. In the end, only real action will convince the world, not taxpayer-funded PR coups. It will not be enough to send satellites over Asian rainforests and change to "green" light bulbs. This country will have to do better - much better - or the environment could become Australia's next 'Tampa'.'

What really foolish exaggeration this is.

Haneef was justly dealt with by our legal system and our Immigration Minister and, despite serious concerns about his criminal associations, was home in India in under 4 weeks. The Times of India congratulated Australia for the speed with which it dealt with this issue. David Hicks is a convicted terrorist who took up arms against his country. He will be out of jail by Xmas. The Tampa issue was an attempt by our Prime Minister to stop queue jumping and illegal migration. Australia has, per capita, one of the most active immigration policies in the world with 144,000 coming here in 2006/07 and 13,000 refugee and humanitarian immigrants. These intakes are much more generous than most countries and much larger than occurred when Labor was in power in Australia.

Australia has problems with its indigenous communities as do the US, Canada and Asian countries like Malaysia. These are intractable problems that have not responded to huge levels of government spending but which are being addressed. We do have an active greenhouse gas policy and controls on emissions will be made. Our environmental record generally is quite good because we are a rich prosperous community that can afford to spend much on the environment.

The Age is in the business of selling newspapers. Why is there a national market for this type of deceit and self-hatred? How could anyone believe such nonsense. If Australia is such an ugly country in the eyes of the international community why do so many skilled and unskilled migrants seek to live here? Why are international tourism levels so high? Why is it that as an Australian citizen I feel happy and anything but someone who is suffering?

Crowing, apologising & denying

It is now quite clear (also here) that the action of Kevin Andrews in cancelling Md. Haneef’s visa was entirely appropriate under the Migration Act. Indeed, as the only requirement for cancellation was that Haneef could reasonably be suspected of associating with criminals, the cancellation was reasonable even before last night’s revelations. It is even more so now. My own judgement on this issue (here, here, here) was entirely vindicated. To those who directed a torrent of abuse at me here and elsewhere (‘geriatric fascist’ was my favourite) - I forgive you all, you graceless worms.

The press have had a field day over the Haneef issue with The Australian performing as badly as any. After last night’s dramatic disclosures I guess it could not so quickly admit it was wrong. So it continued today to not only criticise Minister Andrews but in fact to call via its editorial for his resignation. I guess it’s a matter of covering up a monstrously inept coverage with a dramatic call in order to try to conceal its errors. The Age which has been unrelenting in its pursuit of the government over this issue editorialised that the full story need be told. No credit to it either. Andrews provided more than enough evidence to show that he acted with ‘reasonable suspicion’ and explained why further information could not be provided at this stage. I'll wait and see if Crikey.com reverses the despicable sentiments it expressed yesterday - Richard Farmer stated he had 'no doubt' the government acted for political reasons and that Minister Andrews should be sacked.

Peter Faris who had previously criticised the government (and who was cited on this blog in commentary as an expert who would know more about this issue than me) has accepted he was wrong and agreed that the Minister acted appropriately. Also Ken Parish has recognised the soundness of the Minister’s case over at Troppo – though Andrews still couldn’t be let completely off the hook - the Minister was still a ‘turd’ and a ‘god-bothering twerp’.

Over at Larvatus Prodeo – well, never let the truth get in the way of a good story. These people have serious problems because of the conspiratorial world they live in and the echo chamber effect of a similarly-minded bunch of people projecting the same fantasies. The LP blog is vastly successful but samples a tiny proportion of the adult population and the opinion there is unbalanced and marginal. You can forget that when most commenters there deliver the same spray of nonsense. My comment to them last night stands:

‘The problem with dealing with those here who are supporting the attacks on Andrews and the Government is that they are dishonest. You know the truth but your stupid pride won’t admit it.

It wouldn’t matter what information was presented to Andrews it would spoil your fun and your idiotic intrigues to have the graciousness to admit you were wrong. Totally wrong.

Of course the information was not conclusive - indeed it does seem to have turned out to be wrong. But at the time it was reasonable to hold suspicions and to check them out.

The UK police were the source of the misinformation so all the crap about political intrigues, wedge politics and so on goes out the window. It probably was a mistake but one with very limited costs.

As was clear from the start Andrews had the responsibility under the Migration Act to cancel Haneef’s visa. He took appropriate action and the explanation he gave Kevin Rudd was appropriately accepted by him.

What always gets me is the view of human nature you guys take. It must reflect your own values. You must assume other people act and think as you do. Not just Liberal politicians but Kevin Rudd, Mick Kelty the lot.

Don’t worry about it Mark & Co I am sure that next week you can come up with a new hysterical fantasy. But you only bring discredit upon yourselves with this appalling behaviour.’

I don’t think this judgement is overly harsh.