Tuesday, October 30, 2007

Labor policy clowning on climate change

The Coalition has been subject to repeated, venomous attacks from Labor because it refused to sign the Kyoto agreement unless developing countries also came to the party and also made commitments to cut emissions. Developing countries are not required to cut their emissions under the Kyoto agreement until after 2012.

But now Labor has stated that it too will not sign a global climate change agreement after 2012 unless developing countries agree to cut their emissions. Labor has adopted the climate change stance of the Coalition.

Watch for the denials and for the qualifications from the rabid left but this theft of Coalition climate change policy is precisely what has happened.

This development caps off a completely hopeless 24 hours for Labor on climate change issues. After Labor’s ex rock star-cum-environmental spokesman Peter Garrett said that developing countries not signing would not be a ‘deal breaker’ yesterday Labor’s policy was revised to say exactly the opposite today.

Previously the Labor Party criticised the Coalition for not setting firm greenhouse gas cutback targets. Labor went ahead and formulated firm targets – 60% cuts by 2050 – and then selected pro-Labor economics Professor Ross Garnaut to conduct an investigation which would show how large the cutbacks should be. This inversion of commonsense is a bizarre and inept policy move, perhaps designed to derive advantage from the current political situation, but certainly to the disadvantage of Australia. The Coalition are going slower and, sensibly, advocate setting targets once they know the implied adjustment costs.

Labor went on today to set fixed targets for renewable energy production to be 20% of the total by 2020. But where is the analysis and where are the cost estimates? Why not 5% of 15% or indeed 50%. I think the Coalition policy on this one (15% target by 2020) is silly but Labor’s policy is 5% sillier without information on costs and benefits.

Labor policies on climate change are in the hands of populist clowns who don’t have the capacity to think beyond election day.

I have argued that electing the Labor Party will place Australia’s continued economic prosperity at risk. Because Australia has enjoyed 17 years of strong economic performance and currently enjoy high growth, record low unemployment and low inflation some people have come to forget the costs of inept economic management and are pursuing other social objectives. But the Labor buffoons won’t realise these either because they have such transparently inept policy development skills.

There is more to policy than mouthing comfortable clichés about ‘working families’ and there is more to government than just copying the successful rational policies of other parties. Indeed Mr Rudd’s ‘me-tooism’ is a clear endorsement of the value of not voting Labor. The Coalition would not work as policy advisers for a Federal Labor Government so who would design Labor policy?

Monday, October 29, 2007

Flying blind with the Super Hornet

Four Corners tonight raised disturbing questions regarding Dr. Brendon Nelson’s decision to scrap the F111’s (no, the alleged 'wing defects' seem to be a myth) and to purchase 24 Super Hornets for $6.6 billion. The claim is that the Russian-made Sukhoi 30 fighters (bought by India, Indonesia, Malaysia and China) sell for half the price and are much better aircraft.

A case was made that we have wasted billions of dollars, ended up with second-rate fighter aircraft and possibly lost air superiority in the region. More than that, the purchase seems to have been made without careful evaluation of the capabilities of alternative aircraft and largely on the basis of the personal views and convictions of Brendon Nelson.

The Super Hornets have not been purchased by any other country outside the US and are intended to be an interim replacement for 100 Joint Strike Fighters (JSF) due from the US to arrive in 2014 at a cost of $16 billion. Paying $6.6 billion for an interim aircraft seems a lot when the FIII’s seem such a fine fighter. Moreover committing at an early stage to the JSF leaves us vulnerable to US corporate opportunism and 'holdup'.

Defence staff dispute the claims of poor quality of the Super Hornets but the criticisms of procedure, waste of public money and carelessness with respect to our defence priorities need to be assessed. I’ll summarise press links as they come to hand. I welcome comment particularly from those with a defence focus - there does seem to be an problem here.

The full-transcripts and a video of this edition of Four Corners is available at its website.

Sunday, October 28, 2007

Supporting working families

I am all for it! Who would not be?

Kevin Rudd will:

Get wealthy families to support the education of poor children in working families.
Supply subsidised laptops to poor children in working families.
Reintroduce tariffs to protect the livelihoods of working families.
Save working families from capitalism and give Australian working families an industry policy.
Subsidise solar panels and rainwater tanks in the schools of working families.
Reduce the price of urban land for working families.
Reduce the price of groceries and petrol for working families.
Set specific carbon cutbacks and then work out how large they should be to benefit working families.
Promote and improve Australian culinary standards - begun in Britain, now in India and the US - an international commitment to working families.
Win friends in China with his approach to politics – more help for working families.

Market pressures that help eliminate cigarette smoking addictions

I am occupied in my work with thinking about government policies for reducing the damages of cigarette smoking. There are also market mechanisms that operate to reduce damages automatically. In most cases these can be given a boost by government policy.

On the demand side that smoking causes disease encourages smokers to pay others to help them quit – this is the opposite to most patterns of consumption – here you pay to stop consuming. Private ‘quit’ clinics can be supported by public subsidies and public information campaigns. There is also a market for smoking substitutes such as nicotine replacement products and smokeless tobaccos. I have discussed such markets many times – they can be given a prod by subsidising such products or providing better information about their availability.

There are supply side effects as well since smokers are an input into the production of outputs and their illnesses impact on firm productivity. Indeed, smoking imposes health costs of around $16,000 on US employers so employers find it reasonable to invest $900 to help smokers quit. Firms are doing the same with respect to other chronic health conditions such as obesity and diabetes. Firm support supplements the role of public inducements to quit cigarette smoking. I suspect it is also an independent confirmation to a smoker of the huge health benefits from quitting. A smoker might with good reason think: If a profit-seeking private firm is prepared to devote resources to encouraging quits maybe there is some substantial damage being done to my health.

The ASH Australia website cited costs to business in Australia on $3.5 million from smoking but I don’t have specific information on programs within firms to cut smoking here. If readers knew of any – or had links to interesting material I’d appreciate hearing about them. Perhaps a group such as the Business Council of Australia might think of taking up this issue.

Friday, October 26, 2007

A ramble: time, golf & death - the last taboo that you cannot postpone with optimism

Another week disappears as 2007 gets devoured – time passes quickly as we age since each year is a smaller fraction of our life so far. Yet our discount rates decline – we become less impulsive. This is the reason that the initiation of destructive drug-taking is concentrated among kiddies and the reason some of us are wise.

The blogosphere goes into partial hibernation each weekend and I feel a bit too disgruntled this morning to make a sensible effort at posting to meet limited reader demands. So this ramble is it.

My golf game yesterday was full of high hopes but disintegrated into a sequence of bad shots. This damaged what was otherwise a promising end to the week. The Zen of a good golf swing - it eludes me!

I am still thinking about death and two websites caught my attention last night:

The Australian Museum has an interesting online discussion of death. One of my favourite web pages at this site is the page on 'corpse fauna'. It is an eexcellent discussion of death.

I also liked this post from ScienceBlogs on whether cancer patients benefit from a positive mental attitude. In short they don't live longer but they do, of course, enjoy a less painful exit.

This is not quite consistent with the advocacy of my earlier post on rational death - I favour realism rather than unthinking optimism but, if you do want to exit with the help of a cognitive error, this is the way to go.

Enjoy your Saturday.

Nurse dispute resolved as teacher union makes its move

I am puzzled by the resolution of the nurses wage as announced today. Health Minister Daniel Andrews said the deal for the state's 29,000 public-sector nurses was consistent with the Government's 3.25% a year public-sector wages policy.

This is difficult to understand since:
  • Pay rises range between 3.8-6%
  • The state will fund an extra 500 nurses.
The minister said the additional wage rises beyond 3.25% were offset by productivity increases that included treating extra emergency patients, improving hygiene practices and having flu shots to minimise absences.

But while addressing nurses at the rally yesterday, head of the Australian Nursing Federation, Ms Fitzpatrick portrayed the productivity offsets as either motherhood statements or reiterations of current practice.

I don't get it. The government seems to have caved in to demands from the nurses because of staffing bans imposed that put public health at risk.

The outcome of the case is poor for the cause of maintaining a lid on public sector salaries in Victoria. The Victorian Branch of the Education Union will meet today to endorse a strike to be held in Victorian schools during VCE exams. Ms. Blewett, the union's Victorian boss said:

"The (nurses) package of 3.8-6% would not stop the loss of teachers to NSW in particular and other states," she said. "We have to get a package that has the capacity to attract and retain teachers in Victoria and the gap in salary is a very significant one."

The Victorian union is seeking a moderate increase of 30% over 3 years for its 33,000 members. The State Government has caved in to the nurses - I guess they will do the same for the teachers. Like the nurses, the teachers have rejected any move for salary increases based on productivity increase - their high principles mean that they are totally opposed to 'performance pay'. With the suggested increase in salaries a new graduate teacher would start on just under $60,000 per year.

State Government public service costs will gallop away under Labor. Watch it.

Thursday, October 25, 2007

Costs of the war on terror

Greg Mankiw's blog provides estimates of the cost of military operations in Irag, Afghanistan and the war on terrorism from the Congressional Budget Office.

The estimated present value of costs from 2001-2017 is between $1.2-$1.7 trillion. This is, of course, a vast amount. But it is quite a bit smaller than the estimates of Linda Bilmes and Joseph Stiglitz (here) which came up with a figure of up to several trillion dollars for the war in Iraq alone. I discussed the BS estimates in an earlier post. The CBO exclude general macroeconomic costs - such as interest rate effects of the war which BS consider but quite a few of the BS estimates just seem too high.

The amount appropriated to the US Department of Defence for these activities in 2007 was $604 billion.

These estimates consider costs alone not benefits. They do however provide a dramatic illustration of the opportunity cost of these activities.

Our economic future under Labor

It seems likely that Kevin Rudd will win the coming Federal election. What will happen if he does? This depends very much on what will happen to the economy over the next few years. It seems almost certain that the specific commodity boom will continue, fostered by continuing high growth in the Asian economies and that the economy-wide investment boom will also remain strong at least for some time.

But there is no question that confidence in macroeconomic management will fall. Poll after poll shows much higher levels of community confidence in the ability of the Coalition to manage the economy. This is not just a matter of perceptions - there is little economic expertise or experience in the Labor team.

Moreover, the success of Coalition policies in driving unemployment to a 34 year low and operating the economy at full pace in itself poses problems for Labor. Currently, despite moderate cost-push inflationary pressures, the underlying rate of increase in the CPI at 3.1% is at the upper range of the RBA’s range of tolerance.

There are 8 trade unionists on Labor’s front bench and the trade union movement has spent $20 million funding the deceitful campaign against the Coalition’s industrial relations reforms. There will necessarily be a need for payback given a Rudd victory whatever Rudd says about ‘governing for all Australians’. Wage demands were likely to increase anyway but will now increase faster as will general cost-push pressures in the economy. That Labor markets will be more regulated with union control of workplaces and pattern bargaining under a Rudd Government will mean that the chances of a wages ‘breakout’ increase.

The prospect of higher tax collections acting as a macroeconomic stabiliser has been reduced by Rudd’s proposal to match the Coalition tax cuts. My guess is that in this tax offer might in fact not be realised but, if it is, there will again be further pressure on interest rates and inflation.
So what are the prospects? My guess is that the economic fundamentals facing the Australian economy will tend to remain sound but that electing a Rudd government will lead to higher wages growth, higher inflation and hence higher interest rates. These factors in conjunction with lower economic confidence suggest higher unemployment and hence lower economic growth.

There are high levels of private sector debt and these will create straightforward solvency issues for business and households were markedly higher interest rates to emerge. Whether this will go as far as triggering a recession I do not know but the unparalleled 17 year period of continuing economic expansion definitely seems under threat.

The Labor Party may win the coming election on the basis of its misrepresentations about WorkChoices and its scurrilous abuse of John Howard but the successful economic management it has delivered has created an explosively growing economy that presents problems for Labor.

The large tax cuts offered by Howard and Costello might be deliverable without harmful macroeconomics implications, by a talented team of fiscal conservatives, but to a union-dominated Labor Party which feels a strong need to implement an expanded social program in heath and education it spells trouble.

I’ll be interested to observe the stock market in the remaining weeks up to the election. The market has closed in the red in 7 of the last 10 trading sessions. Valuations will appear high if firms anticipate markedly higher wage and capital costs. A plunge over the coming weeks may be the first of a series of warnings we will receive about our likely economic life under Labor.

Less hunting => poorer conservation?

I am not a big fan of recreational animal killing (= hunting). But this story from the United States is interesting. It does offer possible policy insights for Australia.

In the US the decline in hunting and the consequent decline in hunting licence fees that fund increasingly costly conservation efforts is creating a threat for US wildlife. How to protect the endangered hunter?

The number of hunters has slid from a peak of 19.1 million in 1975 to 12.5 million last year, while states generated $724 million last year through hunting licenses and fees for wildlife management and conservation; taxes on guns and ammunition added another $267 million, according to the Fish and Wildlife Service.

"Sportsmen pay the bills, especially east of the Mississippi," says Rob Sexton, vice president for government affairs at the U.S. Sportsmen's Alliance, a hunters advocacy group in Columbus, Ohio. "A vast majority of the public land where people go for walks, wildlife viewing or mountain biking, the vast majority is bought by sportsmen."

To stem the loss, states have been altering hunting laws to get people into the woods.
Since 2004, 18 states have changed their laws to loosen restrictions on when children can hunt with parents, and to allow novice adult hunters to try hunting without a license, Sexton says. The effort has shown signs of working, Sexton says: The states have seen an additional 35,000 people apply for hunting licenses since 2004.

The decrease in hunters appears to be a result of modern living, says Nicholas Throckmorton, Fish and Wildlife Service spokesman. He says fewer Americans hunt because they are spending more time on work and organized sports for their children. Most Americans now live farther from wildlife areas than in the past, says Throckmorton, whose agency conducts a national survey of Americans' outdoor activities every five years.

Officials are changing state laws because they are "trying to tear down the barrier for recruitment of new hunters," Throckmorton says.

Mark Damian Duda, executive director of Responsive Management, a research firm focusing on outdoor recreation, says the modest increase in the hunter population has been good news. He says the vanishing hunters are "a long-term concern."

"At some point, there's going to be less dollars if current trends continue," Duda says. "Is it a good thing for fewer and fewer people to be funding all wildlife conservation … protecting national resources enjoyed by 97% of the people?"

Among steps being taken:

Kentucky allows new hunters to hunt for a year with a legal hunter before taking a hunter-safety course. Since July, 1,159 new permits have been issued.
Oregon has a Mentored Youth Hunter Program that allows unlicensed children ages 9 to 13 to receive one-on-one hunting experience and training.
Arizona implemented an online hunter-safety course that can be completed in three hours, instead of the standard 16. Big game, such as deer, are reserved for hunters 10 and up.

More hunters also help states save money on certain expenditures, such as those linked to damage by foragers that are too plentiful, such as the Canada goose and whitetail deer.

"Rather than paying professional hunters to cull the herd, sportsmen would be happy to pay a fee to do it themselves," Sexton says.

Some say the focus on hunter retention is not the way to go.

"The number of people who hunt has declined in recent decades, and the number of people who enjoy wildlife in other ways, like wildlife watching or bird-watching, continues to expand," says Michael Markarian, executive vice president of the Humane Society of the United States.

"Efforts to reverse these trends are futile."

Rachel Brittin, spokeswoman for the Association of Fish & Wildlife Agencies, says hunters are a great source of revenue, but they can't do it alone.

U.S. wildlife is threatened by more issues than ever: increasing urbanization, invasive species, climate change and new diseases. States receive $1.5 billion a year but need an additional $1 billion annually to accomplish goals, Brittin says.

Efforts to raise enough elsewhere have failed, says Dave Chadwick of the Association of Fish and Wildlife Agencies.

Lawmakers came up with a plan to buy land with $350 million a year in offshore oil and gas revenue, he says. Environmental groups squawked about taking money from the oil and gas industry, and property rights advocates balked at the land acquisitions, Chadwick says. The effort died in 2000. (my bold, how incredible!)

Land use planning to resist 'tree changers'?

The Age outdid itself today yesterday in ‘Tree Changers Bring Gloom with Rural Boom’. Who is the journalist ‘Clay Lucas’ who wrote this? The Age website says Clay won a United Nations ‘Media Peace Award’ in 2005 for a study of ‘multicultural Melbourne’, written with Claire Miller. Why does that sound just so, so believable for an Age journo?

I refer jokingly these days to the Age as Melbourne’s Pravda but I doubt it would espouse this type of low-level socialist, muddle-headed nonsense.

Lucas is concerned with the effects of city people wanting to buy country properties. While this increases asset values held by country people - the median house price in 2001 in country Victoria was $121,000 while by 2006, it was $220,375 - it calls for planning because country areas will be ‘swamped’ according to academic town planner Trevor Budge.

‘An influx of ‘tree changers’ to some of Victoria's most beautiful rural towns may cause serious development pressures unless growth is properly managed, planning experts have warned’.

In some areas ‘58% of new residents had never even lived in a rural area’. Well, golly gosh.

‘Many planners were now asking whether Victoria needed to establish a tree change taskforce’, Mr Budge said. (my bold)

‘In some of these places, the locals can't buy a house or the person who wants to work at the local tourist office can't afford to live there.’ Oh no!

In fact, with externalities or distributional considerations giving people the right to trade their properties into the highest-valued use maximises society’s gains from land. You might want to control land acquisitions if externalities were involved but it is difficult to discern that specific externalities will stem from the identity of a purchaser as a former urban or rural dweller.
Nor are distributional issues arise from the identity (uban, rural) of a country land purchaser.
It is just that when something increases in value fewer people will want or be able to buy it.
Finally if zoning restrictions to protect biodiversity are inadequate they should be reformed but this case for reform is, again, independent of the identity of the land purchaser.
Or is this so-called analysis yet an instance of the ancient fallacy (derived from mercantilism?) that being a farmer is a socially-worthwhile activity while other sections of the economy are simply parasitically dependent on agriculture?

Hat tip to Tim Blair.

Wednesday, October 24, 2007

Australian native plants: Flannel flowers

Where I grew up in a less-than-distinguished part of Sydney’s north shore our house was built on rocky outcrops close to bushland. I remember my father being keen on retaining whatever native plants existed on what was really an otherwise desolate block – one thing he retained for years was a self-seeding clump of flannel flowers (Actinotus helianthi). I have had an interest in them since though I’ve never tried growing them because of (misleading) tales I had heard about difficulties of doing so.

But this year - in Melbourne - I did. I planted a compact variety in a pot containing a fair bit of gravelly sand and a good quality (low phosphorus) native potting mix. The drainage was perfect.

It grew quickly to become a mass of flowers that has lasted weeks.

They liked more water than I had believed - they wilt demonstrably if deprived. Apart from that all I did was cut back the spent blooms after they flowered. They are a beautiful native flower that is easy to grow.

By the way the best flannel flowers I have seen in Melbourne are at the northern end of the Melbourne University’s student union. They are adjacent to one of the best flowering waratahs I have seen in this city.

This whole area features West Australian banksias and dryandras – there is at least one very knowledgeable gardener at the University! The Melbourne campus has some spectacular shrubs and trees – near the Old Geology Building are a pair of male and female Ginkgo Giloba, a source of the widely-used brain food. These trees are also the best I’ve seen in Melbourne.

I should mention that the Melaleuca blog is good on native plants - this are some of Mel's favourite native plants.

1% of Australia for sale: Australian Agricultural Co.

I have a long standing interest in the Australian Agricultural Company (AACo) both as a very small investor and as someone interested in the Australian agricultural sector and its history. AACo is Australia’s second-oldest company – it was founded in 1824 - and our biggest beef producer by a ‘country kilometre’. It runs 630,000 cattle on 8 million hectares – that is about 1% of the Australian landmass. Most of the land is in the north of Australia where rainfall is good. AACo is a great asset.

Elders bought AACo and Elders itself became majority owned by Futuris in 1996. Futuris then floated the AACo in 2002 retaining a 43% stake. Yesterday Futuris put the stake on the market on the grounds that it was an expensive holding and that the share-market was not appropriately capitalising Futuris on the basis of its valuable stake.

As a shareholder I could hardly complain because the share price rose strongly to $2-80 but from an external vantage point I am troubled by this move and the evident lack of patience by Futuris. It seems to me to be a repeated pattern in Australian equity markets that local investors are excessively myopic in their pursuit of gains. The most plausible outcome in this case is that a multi-national from the US, Asia or one of the local groups of smarties like Macquarie Bank will find AACo an easy takeover prospect by swallowing the Futuris holding at a hefty discount to its long-term value. I can’t help thinking of the disgraceful sales of MIM to Xstrata and the initial opportunistic bids for Coles. WMC was sold for an absolute song to BHP-Billiton to the long-term disadvantage of its shareholders.

The drought has perversely depressed cattle prices and consequently the share price of AACo so now does not seem a good time to sell. Returns are low even though the vast scale of AACo makes it relatively drought-proof even though long-term prospects given surging food demands in Asia are excellent.

I’d prefer to hang on as a small investor and hold out for better times that to accept miniscule capital gains now. I'd certainly like to see AACo remain in the hands of those with experience in agriculture rather than being controlled by a bunch of myopic sharpies from Macquarie Bank.

Tuesday, October 23, 2007

RIP Mr. John Ilhan

Mr John Ilhan was brought up on (what some would describe as) the wrong side of the tracks in Broadmeadows. He was a migrant from Turkey who arrived in Australia at age 3 and was an ex student of La Trobe University. He died today from a suspected heart attack – aged only 42. He left behind a wife, three daughters and an infant son.

He founded the Crazy Johns mobile phone stores in 1991 (their tribute here) – now there are 120 stores. He was one of Australia’s very wealthy, very successful businessmen -ambitious, entrepreneurial and a generous philanthropist to boot.

His is an inspirational rags-to-riches story. His death is a tragedy for his family and friends. Australian business lost a talented man.

Eddie Maguire said about Mr Ilhan.

"He says everything about the migrant success story. Turkish boy, lands in Broadmeadows, has a shopfront in Brunswick, turns it into a multi-million dollar

"But at the same time... he still looked after his parents and looked after the community and put everything he could put back into it."

A new political option – the LDP

Its great to be given additional choices with the Federal election coming up.

Stephen Lloyd points out in a Catallaxy comment stream concerned with the case for voting for the (libertarian) Liberal Democratic Party that one of the LDP’s candidates is Lisa Milat, sister-in-law of convicted multiple killer Ivan Milat.

Lisa is an active target shooter and member of the Sporting Shooters Association of Australia.

The LDP supports the right to own firearms for self-defence, sport and hunting and also stands for lower taxes, small government and individual responsibility. It opposes restrictions on cigarette smoking and supports the decriminalisation of illicit drugs. This is Lisa's website.

Yes the freedom to own guns and kill wildlife. The message is so beautifully persuasive but there is, as yet, something missing. It will eventually come to me.

Pluralist Economics Review

November 2007 issue. This is probably the most interesting collection of economics papers I have seen in years. Absolutely fantastic - the first Akerloff paper alone a classic but there are many, many gems here. You can subscribe free to this new review - go here.


The Missing Motivation in Macroeconomics, George A. Akerlof
Model Building versus Theorizing: The Paucity of Theory in the Journal of Economic Theory, Daniel B. Klein and Pedro P. Romero
Uncovering the American Dream: Inequality and Mobility in Social Security Earnings Data since 1937, Wojciech Kopczuk, Emmanuel Saez and Jae Song
The American Family and Family Economics, Shelly Lundberg and Robert A. Pollak
Growing Inequality in the Neo-liberal Heartland, George Irvin
The Macroeconomist as Scientist and Engineer, N. Gregory Mankiw
The U.S. Economy: What’s Next?, Wynne Godley, Dimitri B. Papadimitriou, and Gennaro Zezza How Well Off Are America’s Elderly? A New Perspective, Edward N. Wolff and Ajit Zacharias
The Causes and Consequences of Wal-Mart’s Growth, Emek Basker
Hedge Funds: Past, Present and Future, René M. Stulz
Introducing Incentives in the Market for Live and Cadaveric Organ Donations, Gary S. Becker and Julio Jorge Elíasb
Learning From Schelling's 'Strategy Of Conflict’, Roger B. Myerson
On the Fundamental Theorems of General Equilibrium, Eric S. Maskin and Kevin W. S. Roberts

Shorter Articles

Science, ideology and development: Is there a ‘Sustainability Economics’?, Peter Söderbaum
Ten Principles of Feminist Economics: A Modestly Proposed Antidote, Geoff Schneider and Jean Shackelford
An orientation for a green economics?, Tony Lawson
What Industries Does Multiple-Equilibrium Trade Theory Recommend?, Ian Fletcher

Articles You May Have Missed

Let There Be Markets: The evangelical roots of economics , Gordon Bigelow
Small is dangerous? Schumacher, science, and social development, Cowan Coventry
The Social Science Citation Index: A Black Box—with an Ideological Bias?, Daniel B. Klein with Eric Chiang
What Has Happened to the Theory of Games?, Leonid Hurwicz

The Economy

The U.S. Economy: What’s Next?, Wynne Godley, Dimitri B. Papadimitriou, and Gennaro Zezza
Will There Be a Dollar Crisis?, Paul Krugman
The Bubble Economy, Rober Kuttner
The financial crisis: burst bubble, frayed model, Robert Wade

Economics in the News

The New Bipartisan Capitalism, Daniel Morris, The Nation
Hip Heterodoxy:, Thomas Palley, Julie Nelson, James Galbraith, Brad DeLong and others, TPM Café Debate
In Economics Departments, a Growing Will to Debate Fundamental Assumptions, Patricia Cohen, NYT
Who You Calling Heterodox?, Andy Guess, Inside Higher Ed
Solidarity No More?, Elizabeth Redden, Inside Higher Ed
American trio wins 2007 Nobel for economics, Reuters
Excerpts from the citation of the 2007 Sveriges Riksbank Prize in Economic Sciences, Herald Tribune


One Answer to Global Warming: A New Tax, N. Gregory Mankiw
Prizes, not patents, Joseph E. Stiglitz
How to pay for a free press, André Schiffrin
Growth isn’t working, D. Woodward and A. Simms
Why Not Shift the Burden to Big Spenders?, by Robert Frank
Should We Aspire to a High Score for ‘Economic Freedom’? Margaret Legum
The Entertainment Industry Police Crackdown, Dean Baker


Creative Destruction vs. the New Industrial State, Deirdre McCloskey
Is Economics Really All It Claims To Be?, CFED
Reintroducing Macroeconomics: A Critical Approach, reviewed by Ryan A Dodd


Galbraith’s lessons in death, Evan Jones
Milton Friedman, Financial Times
Milton Friedman, Workers Online

Selling high nicotine smokes to addicts & low nicotine smokes to new smokers

The key addictive agent (perhaps not the only one) in cigarettes is nicotine. This has led to proposals to cut the nicotine content of cigarettes so that it is more difficult for new smokers to get addicted. The difficulty with this proposal – and the failure of the so-called ‘low tar derby’ that sought to encourage tobacco companies to produce low nicotine cigarettes – is that addicted smokers will need to smoke more to get their levels of nicotine to equilibrium. By smoking more they ingest more tobacco specific carcinogens which is potentially damaging to heath. It is these carcinogens not nicotine that cause most health damage.

In fact, since the late 1970s I have often seen exactly the opposite suggestion made – to increase the nicotine content of cigarettes. The idea is to reduce the number of smokes an addicted smoker needs to light up to get to their equilibrium level of addiction. Of course now the problem is that new smokers get addicted more quickly ultimately leading to increased health damages by a different route.

I’ve played around with schemes to sell two types of cigarettes – one for new smokers (with low nicotine) and one for addicted smokers (with high nicotine) but have never convinced myself that they would work. This proposal from a former US FDA employee however seeks a reform along these lines based on selling two types of cigarettes.

‘When it comes to the health of our children, two cigarettes may be better than one. Young smokers who begin their habit with nicotine-laden cigarettes need a cigarette that will not leave them to later fight the ravages of addiction.

Experts tell us that teenagers often begin smoking to copy their peers and others whom they see smoking. As adults, however, they continue smoking largely because of the addictive qualities of nicotine. (90% of smokers regret having begun smoking and most make efforts to stop.) This means that in the absence of addictive levels of nicotine in their cigarettes, most young smokers would ultimately quit.

A two-cigarette strategy would prohibit young smokers from buying addictive cigarettes. The tobacco industry is capable of producing cigarettes that are virtually free of nicotine, and regulators could develop clear standards for non-addictive cigarettes. (Disclosure: My law firm represents tobacco companies, but I have recused myself from that work.)

The age to purchase addictive cigarettes might be set at 21. Better yet, sales of addictive cigarettes could be restricted to individuals born 19 or more years before the two-cigarette strategy was put into effect. Under this approach, 18-year-olds who start smoking non-addictive cigarettes would be prohibited from switching to addictive cigarettes even after they turned 21. In addition, a higher federal excise tax on addictive cigarettes than on non-addictive cigarettes would create a financial incentive for smokers of all ages, including scofflaw adolescents, to select non-addictive cigarettes’.

Why am I sceptical of this idea? I am not sure whether it can be made to work. The best way to market a cigarette product to kids is to declare it adults only – it’s the ‘forbidden fruit’ idea.

How would you effectively prohibit youth from buying high nicotine cigarettes?

If you could effectively discriminate between type of user I would support this plan and bolster it by increasing the nicotine content of cigarettes sold to addicts so they would smoker less.

Problems with nurses a foretaste of the costs of Labor power

Victorian nurses and hospital managers are negotiating tonight, to try to reach an agreement over pay and conditions. The heroic nurses in their brave 'struggle for wage justice' have imposed work bans for the past 6 days that have closed more than 1200 hospital beds and the cancellation of 500 elective operations.

The union has rejected the government's pay offer of 3.25% per year over 5 years. The Australian Nurses Federation (ANF) wants 6% a year over three years, and a guarantee that nurse-patient ratios would not be abolished – in other words they refuse to consider productivity improvements. The nurses are raiding the public purse and hoping that the threat of spill-over from their actions onto the Federal election prospects of the Labor Party will help secure the delivery of extra public money.

Watch for the surge in such actions by health workers and others who dip into the public purse if Labor has power both Federally and in all the States. Already, state public servants and increasing their take from the public trough faster than the average wage earner.

With 70% of Labor's front bench being ex-union officials and the unions having contributed $20 million towards the anti-WorkChoices campaign that has created irrational support for Rudd you would have to be monumentally naive not to believe a payback will be required. It will be the usual self-defeating Labor story - more strikes because Labor markets are tight, higher inflation and higher unemployment to the detriment of all.

The nurses' union defied an order from the Industrial Relations Commission (IRC) to end the work bans this morning. The Victorian Health Minister, Daniel Andrews, says if bans are not lifted by tomorrow morning, the IRC could issue a fine and hospital management could ask for Federal Court intervention. "You can't have a situation where the decisions that go your way are fine and proper, but the decisions that don't go your way you can thumb your nose at," he said.

But the ANF’s Lisa Fitzpatrick says nurses won't be swayed until an ‘acceptable’ agreement is reached – until their wage demands bolstered by a threat to community health are met.

Ms. Fitzpatrick is outraged that nurses have been threatened with having their pay docked for participating in the bans. In fact the law insists that this be the case. Alec Djoneff, of the Victorian Hospitals Industrial Association, says the Association will ask the Federal Court tomorrow to enforce the orders made by the IRC. The Federal Court can fine each nurse $6600 and the union up to $35,000 for each breach of the order.

Those sanctions pre-date WorkChoices and give the court discretion to seize personal assets if a union member refuses to pay the fine. The Government should enforce vthis law but won’t. The State Government says it is powerless to prevent the enforcement of these fines – they should just enforce them if necessary.

Monday, October 22, 2007

Secret snaps from the Party Congress

Inscrutable lot.

Sunday golf lesson with Kevin Rudd

Almost no politics, no economics for most of yesterday - I’ve been practising my golf. I’ve been watching, then pausing, bits of a clip which shows you how to make the perfect golf swing. It really is pretty good and it is free.

Then my Sunday was disturbed by the big event - the debate at 7-30pm between John Howard and Kevin Rudd. It left me unsettled. JWH looked a bit nervous initially and Rudd was throwing clichés and slogans left, right and centre. A bit like the aimless, somewhat neurotic, character of my golf game. JWH the optimist and Rudd the gabby, baloney merchant espousing the need for an unspecified plan to take Australia out of its currently deprived state. We are all facing imminent peril unless we elect Rudd and pursue his personal ‘vision’ for Australia and its ‘working families’ (repeated 50 times).

Any politician who tells the Australian people to adopt his vision should be turned into Pal.
Rudd is dangerous because he does not understand his vision is based on romantic deceit. Let all the poor kids have laptops. Working families told him so.... He was unconvincing.

It is hardly surprising that I think Rudd would be a calamity as PM. 2050 carbon targets with no idea what they will be in 2020 and criticising JWH for not pursuing this idiocy. How will he cut petrol prices and better the work of endless ACCC inquiries? How will he cut home prices and would you want to? This dill still wants us to accept culpability for damage done 100 years ago to Australia’s aboriginals. How will he enginner an 'education revolution' with a pittance? It is verbiage without policy substance.
Rudd will cut petrol prices and make housing less expensive – no he won’t. It is nonsense.

But Rudd will do well among those who value glibness. The Channel 9 worm endorsed him as did a foolish post at Troppo by James Farrell that I commented upon.

The key issue is whether this debate will disturb my Tuesday golf game?


Sunday, October 21, 2007

Coalition & Labor tax reforms

Andrew Leigh has provided us with an empirical picture of the effects of the alternative income tax reform packages by 2010/11. We can all thank Andrew for this.

As expected there is not a great deal of difference. Except at high incomes there is almost no difference in effects on income with or without the education. The Labor Party's policy is 'me-tooism' with a bit of temporary 'hit-the-rich' populism - a useful way of discouraging high income talent from working in Australia.

Labor's tax scales are flatter than those proposed by the Coalition which is interesting in itself. Labor also offers the prospect for even more favourable treatment of the very rich but only after 2013.

A principled policy stance for both parties would be to agree to legislate to index all tax scales for the effects of inflation. An earned income tax credit at lower incomes would have encouraged more work among the low paid.

In addition, there should be a serious targeting of the compliance costs associated with paying personal income tax, payroll tax, company tax and the GST.

The Tax Act in Australia has grown from 3000 pages in 1996 to more than 10000 pages today.

Saturday, October 20, 2007

Podcasts by prominent economists

I have been listening today to some sensational podcasts by economists from Bloomberg.com. Strongly recommended – fascinating introduction to the major ideas of economics particularly interesting to economists but economists as well.

The highlight for me was Ken Arrow on Hayek, on some amazing reminiscences, recent Nobel Prize Winners, global warming and Sir John Hicks. He strongly endorsed the recent Nobel Prize winners. Arrow was the 1972, Nobel Prize Winner.

A shorter piece by Paul Samuelson gave equally amazing reminiscences particularly on Hurwicz, relates mechanism design theory and game theory to global warming. He was the 1970, Nobel Prize Winner.

Some whining liberal ideas from Paul Krugman who discusses his new book ‘The Conscience of a Liberal’, the modern liberal age and the role of radical, modern conservatism. Has strong views on Ronald Reagan and Richard Nixon – he seems these two as driving modern conservatism. Krugman accepts the proposition that the median household’s welfare has probably not improved in 30 years – that there are questions about this but no question about the dramatic increase in incomes among the very rich suggests the depths of achievement failure in the US.

Krugman strongly advances his well-known preferences for universal health insurance, higher taxes and bigger public spending in the US.

Drew Fudenberg from Harvard talks briefly about game theory and mechanism design but this was boring to me. He is modern specialised, inarticulate American economist.

If you have 30 minutes or so well worth a listen.

More debates good for the Coalition

Kevin Rudd demanded repeatedly than John Howard debate him but then threatened not to turn up when a debate was to be held because he demanded multiple debates. Rudd insisted on determining the agenda. But yes, he will turn up to debate Howard this Sunday. Who could be surprised?

I wonder whether Howard should have met Rudd halfway on the debate proposal. The Coalition, despite recent welcome improvement in the polls, still faces the prospect of defeat. Why not agree to some debates but broaden it a bit? Have a debate on economics between Wayne Swan and Peter Costello, between Joe Hockey and Julia Gillard, between Peter Garrett and Malcolm Turnbull etc. This option may still be open.

From the Coalition’s viewpoint such debates would play to its strength and gives it the chance to do something dramatic to reverse its fortunes. I wonder how the Australian public would take to the prospect of Wayne Swan as Treasurer if they had seen him debating Peter Costello. My guess is that the prospect of change would become frightening real.

Rudd as Laurie Oakes wrote in this week's Bulletin (subscription required) is a windbag full of cliches - putting him on the spot with respect to policy substance is a sound tactic too.

My post yesterday on the Coalition’s improving prospects is valid – there is a real chance Howard can retieve this situation and win – but it requires an active attack on Labor not any passive reliance on past form.

The initial tax policy announcement by the Coalition was fine – it got the campaign off to a flying start – by some of this impulse was offset by the ‘second-mover advantage’ made possible by ‘me-tooism’. Labor simply replicated the policy and made a minor switch by persecuting wealthy taxpayers and giving the proceeds to school-kids. Dump populist policy since these types of redistributions would be better effected by direct grants to poor schools but undoubtedly an effective ploy among the naive and ignorant. The difficulty, as Peter Costello stated yesterday, is that if Labor is elected they won’t have a paid team of Liberal Party advisers on hand to work out their policies. They will have to rely largely on their front bench of populist trade unionists and party hacks to design policy.

In open debates ‘me-tooism’ won’t be as effective for the opposition. The Coalition therefore has little to lose by pursuing a series of more open debates in terms of improving its electoral prospects. They are better-qualified ministers than their shadow opponents.

Friday, October 19, 2007

Cheerful Friday thought - Coalition on the mend

Howard closes in on the riff-raff.

The Age poll shows Labor down 2 points to 54% of the preferred vote and the Coalition up 2 points to 46%. The Gallaxy poll puts Labor’s position at 53% versus the Coalition’s 47%. John Howard has improved his approval rating to the closest it has been behind Rudd since the latter was elected and went on his honeymoon.

It is a long way to go but – I’ll buy a bottle of Bollinger in anticipation – the Federal election remains a contest. The revival of Coalition prospects was partly due to its announced tax package but also simply the inevitable narrowing in the polls following the election announcement. Australians are fearful of jeopardising their future with union-dominated, hack politicians. My guess is that Rudd’s ‘me-tooism’ and ‘small targets strategy’ (something the left criticised when Kim Beazley tried the strategy) will fail as it should. Why give up on a tried and proven team when the challenger offers nothing substantively new?

The nodding ALP dills need to respond with something more than some clichés about skills and irrelevancies concerning the IMF. The tax cuts were promised to be phased in over 5 years thereby defusing inflationary impacts. Wayne Swan is so unimpressive – unimaginative, hack politician.

Yippee! I enjoyed my golf yesterday and the prospects of retaining civilised, decent, experienced government in Australia invigorates me today. Let us hope Rudd accepts loser Kennett's advice and rejects the tax cuts! Where is that Bollinger?

Update: The betting markets further bolster my optimism: Labor on $1-60 this morning and the Coalition on $2-20. This is the shortest the Coalition price has been in weeks.

Update: The Coalition's tax plan has been endorsed by Labor who have replicated it. There is slight differentiation with some low impact 'soaking the rich' restrictions on the tax cuts and a minor boost to reducing education costs - dumb cause they could have just given the money to needy schools at lower cost. But overall good policy choice by Labor but what a pathetic alternative government. Alternative? Peter Martin outlines the plan.

Update: Rudd's wax policy - No, Kevin! NO, KEVIN! NOOOOOO! (From, Tim Blair).

Thursday, October 18, 2007

A case for much larger tax cuts?

Kenneth Davidson says in The Age this morning that the tax cuts offered by John Howard only compensate for bracket creep – indexed to inflation the cuts deliver nothing to tax-payers. If that is so then the Labor Party and all the other critics of the cuts should endorse the tax cuts now. Otherwise they are effectively agreeing to real tax increases.

Hands up pollies for those in favour of real tax increases over the next three years.

The sensible implication of Davidson’s critique is that, if anything, the cuts should be deeper.

Wednesday, October 17, 2007

Hot strippers earn big bucks

I found this fascinating. Geoffrey Miller’s theory is that women have lost their oestrus – any outward sign of fertility – to keep men faithful. Otherwise a man might go hunting for another mate when he knew his mate was infertile. But this should create an evolutionary arms race among men as men evolve ever-heightened sensitivity to signs of female fertility.

Miller tested his theory in lap-dancing clubs by examining the number of dollars female performers received for their dancing. During menstruation – when women were infertile – women earned about $185 per shift – about what they earned if they were on the pill. Women who were ovulating earned $335.

This suggests a woman is sexier when she is fertile and that lap dancers should stay off the pill if their main objective is to maximise their income. Earlier studies have shown that a woman’s face, smell and even clothing become more attractive during oestrus. Clothing looks more attractive to men when women are fertile.

But I still don’t know if women advertise their sexuality better when they are fertile or men have enhanced powers to pick up their fertility status.

Stereo systems bleg

I am trying to buy a stereo system of the old type - good speakers, amplifier and CD player. My budget is up to about $3500 but I'd be happy to pay less than that.

I am mainly interested in listening to classical music (orchestral, piano sonatas, opera) though I listen to rock and some folk music as well.

I've looked at a few systems in specialist audio stores and frankly thought the sound quality was unattractive with thick, very unnatural bass sounds that seemed to dominate. Even orchestral music had a rock album 'thump, thump, thump' quality to it and a dullness which you didn't seem to be able to correct by altering the balance. I've heard that the dislike of strong bass sounds is connected to age - it gets harder to hear treble sounds as you age.

I was also underwhelmed by the 'test' recordings retailers supply - obviously intended to make you go 'wow' with the wild sound flourishes - so of course I now take my own CDs.

I haven't bought a decent stereo system for 20 years so - as salespeople are quick to intuit - I am not knowledgeable. I'd be interested in ideas from readers - not retailers.

Is my budget too low - surely not in an era of cheap Chinese imports? Who are good retailers in Melbourne? Are any of the music magazines or online sources of information reliable or do they simply promote commercial interests? What about all this stuff on cables - is it baloney?

Comments welcome.

Ben Cousins

The AFL’s Ben Cousins was arrested yesterday in Perth and charged with allegedly possessing unspecified illegal drugs. His arrest seems to have been pre-planned by police and news camera people were on hand to photograph Cousins, naked from the waist up, waiting in his car as it was searched and then as he was taken away. Cousins seems to have ongoing problems with methamphetamine. It is a tragedy for this good-looking, athletic man with an engaging personality to stumble in this way.

I can’t help thinking that earlier this month his buddy Chris Mainwaring died after what seems to be a bout of drug taking. Cousins was with him just before he died and was a pallbearer at his funeral.

The wolves are baying for Cousins blood. Caroline Wilson in the Melbourne edition of Pravda argues that Cousins’ career should now be permanently terminated – he should be sacked from the West Coast Eagles. Send him off to the Gulag, Caroline.

I am strongly anti-drugs but the treatment of Cousins seems completely over the top. The guy is recovering from a chemical dependency and relapses are almost inevitable due to ongoing cravings even after withdrawal has ended. There were additional pressures on Cousins particularly with the recent tragic death of a close friend.

Give this guy a break. Punish his illegal drug use and his refusal to take a drug test in the normal way. But leave it at that. How will a media-generated appeal for blood and a program of seeking to destroy Ben Cousins’ career help anyone?

Update: Cousins was in possession of a valium-type drug. How ridiculous! This is a widely-used, though, addictive tranquiliser. That Cousins was using it is consistent with my view that he was under pressure from the death of his recent friend and from his cessation of use of amphetamines. He was sacked from his club yesterday and denounced everywhere in the media. What a tragedy.

Update: Police admit they were mistaken in arresting Cousins but the Eagles say his sacking will stand. He was never convicted in a court of any offense. I hope Ben sues the pants off these people. Totally outrageous, immoral and unfair.

Tuesday, October 16, 2007

Slow death economics gains three gongs

Three Americans Leonid Hurwicz, Eric S. Maskin and Roger B. Myerson won the Nobel prize in economics on Monday for developing a theory that helps explain how incentives and private information affect the functioning of markets. It is called mechanism design theory. Roughly it is concerned with establishing a mechanism to get individuals to reveal information about their preferences.
One-page discussions of mechanism design theory are here and here. Serious surveys are here and in the background document for the Nobel Prize awards here. It is often rather abstract stuff derived in the brain rather than from observation - note that the references to the survey on environmental applications contained in the last link include nothing on any specific environmental issue – the best description is a nice thought experiment in search of an application.

MDT is an intensely mathematical area that does not seem to me to have generated much insight for policy-makers – Joshua Gans obviously disagrees (and here) – but the posts at Marginal Revolution broadly reflect my assessment:

“No doubt mechanism design, and the general problem of inducing truth-telling, will be with us forever. But how practical are these general results? Or have the theorists simply provided us with cautionary notes and left the real applications to the context-specific world of practice?

Did these guys get at the real reasons why we don't organize the entire economy as a second-price auction?

Part of me thinks: "Hey, let's say Natasha wants Yana to tell her the truth about when she will clean her room. This stuff isn't useful!"

Another part of me thinks: "It is most important to get theory right. These guys are brilliant. Only the philistines demand that all scientific contributions have immediate applications....

Some of you might argue: "These guys have already had a big impact on real world auctions and incentive schemes." In terms of the induced improvement in human
welfare, I find that a difficult case to make. The important progress has come from recognizing much simpler truths about incentives.”

Frankly I find this stuff to be slow death – I am interested in observing and interpreting the world not in mathematical insight divorced from reality. But others, no doubt reflecting on the real intellectual challenges of MDT, get a thrill from it all.

It all shows how I have aged – 20 years ago I would have objected loudly to the negativity I display here. 'The bloody philistine!' I can imagine myself saying. Now I like congestion pricing and the economics of tobacco smoking. To totally bury my chances of ever being seen as having any sophistication I have to say that from my perspective a better choice for the Nobel gong would have been an economist like William Baumol.

Monday, October 15, 2007

Staged, substantial tax cuts are sound policy

The phased program of tax cuts offered by the Treasurer Peter Costello today is sound policy. Taxes are raised in order to pay for public goods and to fund social security programs. If tax receipts systematically exceed expenditures – as is now happening - taxes should be cut. It is our money. That the economy is operating at very high levels of economic activity, with only 4.2% unemployment and inflation next year forecast to run close to the upper range of RBA tolerances, suggests that immediate significant tax cuts might put undue pressure on interest rates.

But longer-term it would be crazy to run structural surpluses just to constrain private sector demand – moreover these cuts will leave the budget in surplus above 1% of GDP with growth in the economy of 4.25% over 2007/08 compared to 3.75% in the May budget. Unemployment is forecast to continue to fall with 100,000 extra jobs over the next year.

Most importantly the rise in the tax threshold for low income workers to $16,000 by 2010 will encourage them to join the workforce – about another 65,000 according to Treasury modelling.

Since 2000 the Government’s tax cuts are estimated to have generated over 300,000 jobs.
With these reforms 85% of taxpayers will be on a top marginal rate of 30% or less. Some 98% would be on a top rate of 35% or less, with 45% paying only the minimum rate of 15%.

The cumulative effects of tax reform are attractive.The proposed new tax cuts amount to $34 billion over 5 years.

Moreover, the move is smart politics because it forces the Labor Party to prioritise any big spending proposals that it will come up with against the opportunity cost of foregoing tax reform.

The Age summarised key aspects of detail in the policy:
  • Within 5 years the top rate would be 40 cents in the dollar.
  • The tax cuts will deliver a cut of around $20 per week to a person currently on average weekly earnings - around $50,000 - from July 1, 2008, rising to around $35 per week from July 1, 2010.
  • For a family where the principal earner is on average weekly earnings and the second income earner is in part-time work - earning 40% of average earnings - the income tax cut would be around $30 per week, rising to $50 per week in 2010.
  • Under the new plan, low income earners from the 2008-09 tax year would see their tax free threshold rise from $11,000 to $14,000.
  • The 30% threshold would increase from $30,001 to $34,001 and the 40% threshold would increase to $80,001.
  • The 45% threshold would increase to $180,001 as previously announced in the budget.
    From July 1, 2009, low income earners would be tax free up to $15,000, the 30% threshold would increase to $35,001, the second top marginal rate would be cut from 40% to 38% and the top marginal rate would be cut from 45% to 43%.
  • From July 1, 2010 , low income earners would be tax free to $16,000, the 30% threshold would increase to $37,001, the second top marginal rate would be cut from 38 to 37% and the top marginal rate would be cut from 43% to 42%.
Encouraging more people into the workforce, by reducing their effective tax-free threshold and particularly by lifting the threshold up until which you pay 15 cents in the dollar, is boosting the number of people joining Australia's workforce.

In reference to Kevin Rudd and his as yet unannounced tax policies Prime Minister John Howard said the across-the-board tax relief was a better way to relieve cost-of-living pressures on families than targeted housing affordability policies or cutting petrol tax. You would have to agree.

With Kevin Rudd as PM and a trade union dominated front bench we can expect instead of tax cuts and a growing economy higher unemployment and higher inflation as unionists 'fight' for the rights of their members. It is an unattractive and foolish alternative to the great prospects the Australian economy has. Its the reason I’ll be voting for an experienced, better team.

Sunday, October 14, 2007

What are the issues?

A federal election will be held 24th November. The competitor parties have similar policy packages and it is reasonable to expect Kevin Rudd to be doubly cautious about expressing policy difference from PM Howard over the next six weeks. Both parties will therefore plausibly compete on a non-policy basis emphasising personal issues and 'fear' factors.

There will not be the constructiveness we want. What do we really want from the parties? Do we really want just to confirm our own prejudices? In my view a primary concern is that the economic expansion of the last 16 years should be extended.

What do you think? It is a good discussion topic to think seriously about in this first week.
I was impressed with the statement by Michael Chaney, President of the Business Council of Australia. It emphasises economic policy and is balanced.

“The key policies required for future prosperity remain effective federal–state relations, nationally coordinated infrastructure renewal, streamlined business taxation and regulation, lifting workforce participation, and outcomes in education and innovation that better meet our future challenges.

Our current prosperity has been delivered because successive governments, through several elections, have thought beyond the short term and taken difficult reform decisions.
The benefits of those decisions are clear, but what is not clear is how long our growth will continue without a commitment to a comprehensive reform agenda covering fundamental areas of our economy”.

If the huge public surpluses continue I would include measures to cut personal income taxes as well as business taxes without compromising the social safety net. The best way to have a just and decent society is to maintain the strength of the economy. I would also add that proposals to manage carbon emissions need to be in place and operating within the lifespan of the next parliament.


As I have suggested before it is reasonable to suppose that economists should view animals kept as pets as an economically important part of the family unit. There are health, companionship and perhaps even biophilia benefits from owning pets. I have had pets myself in the past (dogs, cats, fish) but don’t do so now mainly because of my busy lifestyle and concerns about environmental implications. Others obviously get a lot of pleasure from owning pets – I prefer observing free-ranging, wild animals.

On conventional pets The Age today writes:

‘Australia has one of the highest rates of pet ownership in the world, even though dog and cat populations have declined recently. About 38 million dogs, cats, fish, birds and other pets live domesticated lives. Birds and fish make up 29 million of these, and there are 3.7 million dogs and 2.4 million cats.

The pet food industry, worth more than $2 billion a year, is dominated by multinational companies. The key pet food makers include giants such as Mars Petcare and Nestle Purina.'

I posted a while back on the US pet industry but I had no data for Australia. The Age this morning cites some – not in the link they provide on their website but it is there in the hard copy. The data comes from an industry group the Australian Companion Animal Council which has an excellent website:
  • Australians spend $4.6 billion per year on pets and the pet industry employ 44,000 people.
  • Expenditure on pet food is $1.9 billion per year.
  • 63% of households own a pet with 53% owning a cat or a dog – although there have been longer-term declines in these proportions particularly with respect to cat ownership.
A report by BIS Shrapnel, Contribution of the Pet Care Industry to the Australian Economy, 2006 provides more information including international comparisons with the US and UK – both big pet owning countries – and information on newer types of pets being kept such as native species and particularly reptiles.

Pets are a significant part of the Australian economy and a significant extension of the conventional idea of a household. There is evidence pets are a substitute for having children and are often not kept when young children are young but treated as complementary household input when children are older.

Saturday, October 13, 2007

Victoria's Labor Party to tax the poor more

The Labor Party has expanded its regime of taxing the poor in Victoria. Gambling taxes are overwhelmingly borne by the disadvantaged. Moreover, almost all taxes to this point from gambling have come from poker machines concentrated in poor areas – a survey of various posts I have made on this issue is here. Lotteries (Lotto, Oz Lotto, Powerball and Scratchies) are currently a minor part of total gambling activity which is overwhelming devoted to the pokies. As Paul Keating said, these gambling products are a tax on the poor.

The Victorian Labor Party is doing what it can to change that. The monopoly that Tattslotto had on the lottery market has been broken with it still running Lotto, Oz Lotto and Powerball but with the instant lotteries and scratchies being awarded to the Greek firm Intralot. The Victorian Government expects to make up to $3 billion annually from this expanded gambling regime through the hefty taxes it levies on gambling.

Intralot spokesman – (and ex Labor Party Treasurer of Victoria) Tony Sheehan must be pleased as punch. Intralot is expected to offer these gambling products through an expanded range of outlets such as service stations and convenience stores. This will be a long-term disaster for working people – there will be a propensity to have a bet every time they do the shopping, buy petrol or get a newspaper.

While the community as a whole has had a gutful of the social problems gambling imposes, Labor proposes to expand it on another major front.

Tony Robinson, Labor's Victorian Gaming Minister is a co-owner of a racehorse with auditor Geoff Walsh who oversaw the probity of the lottery licence allocations. I suppose ex-state Gaming Minister, David White, who acted for Tattersals would have been disappointed but Tattersals itself didn’t seem to mind much – the big current money is with the pokies and Tattersals retains that monopoly. Giving up this part of its business got right of the nightmarish PR problems it has experienced by employing ex-Labor Gaming Minister White to argue its case.

The Labor Party has dressed up its attack on working class living standards as an attempt to introduce competition and efficiency into the gambling industry. That is deceit. There won’t be competition - the products offered by the duopolists have largely different markets. It only means that previously huge gambling opportunities are further expanded.

This is an unprincipled policy by an utterly unprincipled State Labor Party.

These hypocrites couldn’t care less about the working class constituents they claim to represent - their stated ideology is a deception designed to win votes for a talentless bunch of nonentities primarily interested in lining their own pockets. It also represents a cave-in to those ex Labor Party pollies and party officials now working for the gaming industry. Most of all, it is a total tragedy for the 200,000 Victorians fighting problem gambling problems.

In Victoria it is Vote 1 for total hypocrisy: Vote 1 Labor.

Friday, October 12, 2007

Taking the big snip to free up your golfing weekends

It is Friday again and time to lighten up and forget about the horrific prospect of Labor victory.

I had been reading how to eliminate 70% of my golf driver errors with a ‘no-backswing swing’ in Golf Magazine when I noticed a curious ad on page 120 for vasectomies provided by Marie Stopes International. I’ve never wanted to take the big snip myself – humanity may still call upon me to spawn new dynasties in as yet untraversed lands.

But I did lazily wonder 'Why this ad in a golf magazine?'

It took two seconds for the penny to drop but then ….ah….of course….smart, precisely-targeted marketing.

Thursday, October 11, 2007

Rationality suggests voting for John Howard

'AUSTRALIANS would re-elect Prime Minister John Howard in a landslide if votes were cast purely on policy - not personality or party loyalty - according to the first results from a 'blind voting' tool developed by NEWS.com.au.Almost 35,200 of the 72,300 participants who have completed the Vote-a-matic were matched with the Coalition, compared with 28,700 participants who were identified as a fit with Kevin Rudd’s Labor Party'.

Who could not agree with that? A vote for Kevin Rudd is an irrational vote - a vote for cognitive error.

Update: Sour, leftist responses to this news.com story at Deltoid, Phil Gomes, Jeremy Sear & Tim Hollo. Who can blame them? How would you like to have your politics seen as a cognitive error? I just can't stop laughing.

Ignore economic policy sadists - learn to live with & love prosperity

The economic news was positive today – the unemployment rate in Australia fell to 4.2% which was the lowest since 1974 – 13,000 jobs were added in September.

It is wonderful news that almost all Australians can get a job. The tight labour markets improve labour’s bargaining power and offer the best chance for long income households to get economically established. Over the years I have known skilled people who were unable to get jobs – one former colleague was so desperate and so disheartened by being unemployed that for a time he took voluntary work with a church group rather than spend his days unoccupied. People have short memories but unemployment should be clearly understood for the disaster it is. We all complain about our jobs from time-to-time but not having a job is demoralising and, of course, economically inefficient.

It surprises me that the low unemployment outcome is portrayed in negative terms by emphasising the possible consequences for a rise in interest rates. Federal Opposition Leader Kevin Rudd in an absurd statement says if the Government wants to take credit for the jobs figures, it must also accept responsibility for interest rate rises. What stupidity to cast doubts on the value of getting people employed and from a Labor leader.

The case for increasing interest rates is based on the presumption that inflation will re-emerge to be 2.8% next year compared to 2.1% this year. This fear is based in part on the past view that excess demands for labour have driven high inflation. The RBA I suspect also fears the prospective election of a Labor Government that will damage the economic gains generated in Australia enjoyed over the past decade. The current international environment now is very different from that experienced in the 1980s – even with oil price shocks inflation is muted partly because China and other newly developing countries are putting a competitive seal on labour costs. In addition, the Australian dollar is the strongest it has been for 23 years and looks like it will continue to increase in value. This will put deflationary pressures on exports. I think the case for a further interest rate hike is unwarranted.

The economy is being held prisoner to fears about resurgent inflation. Even with massive Federal Government budget surpluses ($10.6 billion projected in 2007/08) cannot be given back to the tax payers who own it because of inflationary fears. This is bizarre.

I think that macroeconomically Australian policy makers should ‘cool it’ a bit. Allow unemployment to continue to recede and to accept that automatic exchange rate stabilisers will work to put pressure on Australian exports.

John Howard should offer the promise of tax relief in 2008 and the RBA should keep interest rates at current levels. Generally we need to accept the fact that the Australian economy is likely to perform strongly for the next 20 years at least – unless an inexperienced Labor Party stuffs things up. Strong performance is unambiguously a good thing and should not be taken as a sign that we all need to suffer.

Wednesday, October 10, 2007

Kevin Rudd's 'Me-tooism'

Over at Troppo the normally rational James Farrell is at pains to point out why frothing at the mouth with hatred that is directed generally at the Liberals – but specifically at John Howard – makes sense. Yes, hatred is rational! It is a hypocritical post since, while James decries Coalition mudslinging, he ignores the lack of morality in Kevin Rudd’s ‘me-tooism’. Rudd is dramatically ahead in the polls and is carrying out an unofficial election campaign based on one guiding principle - ‘don’t stuff up’.

The left is consumed by an irrational hatred of John Howard – they must be because the policies of the competing parties are so similar that there can be no other sensible explanation. Indeed, this is not unexpected – the left have always needed to have something or someone to hate. But it is surprising that the disaffection with John Howard seems so widespread. While The Age/Nielsen poll indicate that nearly half the electorate believe Kevin Rudd has a better vision for Australia than Howard, it is difficult to discern, from policies so far announced, what part of Rudd's vision voters find preferable.

Support for Labor might just be viewed as a soon-to-be-regretted cognitive error based on failure to appreciate the good times we now enjoy and the need, given that economic prosperity and growth are taken as a given, to find new issues to grizzle about and new demons.

John Roskam has a piece on the near perfect policy equivalence of the two major parties and Kevin Rudd’s ‘me-tooism’ (in more dignified language, the ‘small targets strategy’). Rudd is either agreeing with the Government or simply saying nothing. The interesting question is whether he would he behave differently in Government – in which case he is currently deceiving us all – or whether the bland equivalence he espouses is something that will persist?

Roskam’s basic argument is that, other than WorkChoices, Labor is close to identical to the Liberals on many important issues. For example:

The announcement that the intake of African refugees to Australia would be limited gave Rudd the chance to take a strong stand contrary to the Government in favour of a non-discriminatory immigration policy but no, instead he made ‘me too’ noises.

On the Tasmanian pulp mill ex-rock star and ex-Greenie Peter Garrett must be wondering why he joined the Labor Party if his only task is to agree with Malcolm Turnbull. 'Me-too'.

For years the ALP has complained about the Coalition's non-government schools funding policy. Now Labor announced that if elected it would maintain the current funding formula until 2012. He now has the seal of approval of the Pope’s Australian commander-in-chief. Indeed Cardinal Pell joined in with ‘me-tooism’ observations: ``In so many ways the policies of the Labor Party are scarcely distinguishable from those of the Liberal/National Coalition”. (my bold).

Yesterday, Rudd said that no government he led would ever intervene diplomatically to save the life of a terrorist facing capital punishment. He repudiated his own foreign affairs spokesman and followed exactly the established position of the Howard Government. Even the Labor Party’s official newspaper in Melbourne, The Age, describes Rudds views on the death penalty as ‘a me-too policy mess’.

On federal intervention in indigenous communities in the Northern Territory — the ALP's stance is indistinguishable from that of the Coalition. Labor has distinctively agreed to sign the UN declaration on indigenous rights promoting collective victimhood although, as Janet Albrechtson points out, the most distinctive feature of this move is its stupidity. It has had little news coverage anyway. Other stupid symbolic moves include the impossible proposal to bring the President of Iran before the International Court of Justice to face charges of inciting genocide. Distinctive? Yes, it is but again only empty symbolism.

The Murray-Darling water takeover from the states – well yes ‘me-too’ says young Kevvie.

Labor has pledged to follow the Coalition's budget strategy to ensure continued low unemployment and low inflation. It is, of course, difficult to see how this will be assisted by abolishing AWAs.

On social policy the ALP has followed the Government's lead on everything from the federal takeover of public hospitals to performance pay for teachers. 'Me-too', 'me-too'.

Even on WorkChoices and IR legislation on issue after issue, Rudd and Julia Gillard have been backtracking from original commitments. AWAs are going to be around for a long time. The anti-trade union penalties are going to stay. The 'freedom' of contractors is going to stay and any trade union that attempts to take action against dishonest or anti-worker contracts will be told to butt out. Gillard is reported as saying that 'unions should not be able to interfere in commercial arrangements involving contractors'. Onya Kevvie, I agree.

On foreign policy, Rudd has pledged to withdraw Australian troops from Iraq, but remains strongly committed to the US alliance and fighting the war on terror. Not surprising an odour of inconsistency here given Rudd’s total hypocrisy on the issue of Iraq – he backed the intervention in 2003 and now wants to 'cut-and-run'.

Even fixing federalism is more important than removing the Queen as head of state. A republic – no, that is certainly no priority.

At this election, Rudd has portrayed himself as being as similar to Howard as possible. Rudd would take being labeled "conservative" as a compliment.

For example consider the likely next Prime Minister on economic questions. He has already announced the formation of a ‘razor gang’ saying that ‘In the first six months of us becoming government … we’ll institute a razor gang to go through commonwealth outlays’. And guess what they will be looking to cut? They include the ‘growth in the public service and slashing duplication of health and education spending by federal and state governments’. Nothing is being said about slashing the enormous handouts to private enterprise by both the Howard and former Labor governments. Which side are you on Kevvie?

Labor’s policies are ‘small targets’ politics with a vengeance. Perhaps those on the left are so conditioned to Labor Party deception that they see this ‘me-tooism’ simply as a way of gaining power. It then becomes a legitimate strategy of deception to achieve power which, once achieved, can be abandoned with years of ‘real labour’ policies. But if Labor becomes the next government the selective, and rather moderate, criticism of Rudd’s policies now starting to filter out of left wing circles will become a crescendo. The single redeeming feature of a Labor Party win.

It will be interesting to see how Rudd deals with the maladjusted ideologues that dominate his union dominated party once the imperative of winning an election fades and the maddies on the left tire of his bland imitative style.