Thursday, August 30, 2007

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.

Wednesday, August 29, 2007

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 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.

Tuesday, August 28, 2007

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.


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.

Sunday, August 26, 2007

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.

Saturday, August 25, 2007

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.

Thursday, August 23, 2007

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.

Wednesday, August 22, 2007

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.

Tuesday, August 21, 2007

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 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.

Monday, August 20, 2007

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!

Sunday, August 19, 2007

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.

Saturday, August 18, 2007

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.

Friday, August 17, 2007

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.

Thursday, August 16, 2007

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.

Wednesday, August 15, 2007

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.

Tuesday, August 14, 2007

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.

Monday, August 13, 2007

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.

Sunday, August 12, 2007

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.