Monday, June 30, 2008

Pornification of girlhood

I was interested in this Quadrant article by Melinda Reist on trends in modern commercial culture towards the sexualisation of girls. Girls are increasingly taught that their bodies are their major asset and the main source of their self-worth. The important thing is to be 'hot'.

Despite the internalisation of many of the ideas in the 'women's movement' many young women seem to me to lack a sense of autonomy. Modern dress styles mirror this. Freedom and fulfillment are endangered by a promoted need to be desired.

Reist's arguments are a bit exaggerated - and a bit worn - but, overall, they are a good read. They came at the same time as this Senate report on the sexualisation of children in the media - policy recommendations are here.

Public policy responses to the sexualisation of children are often inappropriate - they should be directed at restricting offensive advertising. Beyond this promoting realistic sense of self-worth is a matter of education and developing sufficiently discriminatory tastes.

Sunday, June 29, 2008

Young children should not marry

In Yemen 8-10 year old female children get married to adult males where they are raped and beaten. The children are married off because the alternative is to be abducted and raped. In addition ‘young virginal brides can be shaped into dutiful wives’. And as tribal elders say, the Prophet Mohammed was married to a 9-year old wife.

At these ages girls are not equipped physically to give birth – Yemen has one of the highest maternal death rates on earth. The children produced from these unions who survive are often 'stunted'.

Most of the girls who get married have no sex 'education'.

Ugly societies, with incredibly ugly and ignorant people with what can be objectively described as barbarous beliefs, who have beautiful, innocent children.

Turnaround for the Coalition?

With its total domination of the Australian political scene are the public becoming cautious about State Labor? Are Australians tiring of Kevin Rudd's hot air politics? The cartoon above (from The Age) is an absolute delight.

In NSW Morris Iemma would be thrashed on the basis of current opinion polls and yesterday’s State Government by-elections in Victoria also look good for the Coalition – the Nationals got a 7% swing to them in Gippsland and there was a 13% swing against Labor in Kororoit – admittedly, in the main, to independent Les Twentyman.

The performance of the Liberals in NSW has been disgraceful for years in the face of a hopeless, corruption-ridden Labor Party but the trend is finally a bit more positive for the Coalition.

Friday, June 27, 2008

Parentonomics

Joshua Gans is auctioning off the first copy of his book Parentonomics on Ebay. Proceeds will go the MS Society so bidding gets you a good (autographed) read and does good. Joshua will match the bid with a contribution of his own.

Update (1): I bid $50 but was soon outbid. Go for it sons and daughters of the idle rich!
Update (2): By Sunday at 6-15pm it was $421. I'll buy it (eventually) but too rich for me at this price!

Thursday, June 26, 2008

Andrew Leigh on house prices & the value of a quality public education

Andrew Leigh is an amazingly active economist and does work of real social value. The current Economic Record has a piece by Andrew and his colleague Ian Davidoff where he values public school education in the ACT by looking at the effects of better than average test scores on house prices. A preprint of the whole paper is here.

I have a question for Andrew. If you get an education benefit from locating in a suburb that provides access to better-than-average public schools that means that house prices should rise to internalise that benefit. But doesn't it also mean that house prices should subsequently grow more slowly to account for the non-residential benefit? For example suppose real estate is increasing at 7% per annum on average everywhere. If you get some education benefit from living in a living in a particular location (say it is worth 2% of the value of the house) doesn't arbitrage mean that house prices should grow at the slower rate 7%-2% = 5%.

I wonder about this because I observe house prices in suburbs like Kew and Balwyn in Melbourne. The prices of these houses are high partly because they are very near good public and private schools. My theory suggests rates of capital appreciation should be slower in these suburbs - a prediction at variance with the facts. These suburbs are galloping away in terms of rates of capital accumulation.

Am I confused? I have asked many people about this over the years and remain none the wiser. The best discussion I had on the topic was with Ted Sieper a decade ago - he was adamant that prices in suburbs offering education benefits should grow more slowly than the market as a whole.

Wednesday, June 25, 2008

How we think

I'll post this review of 7 books on neuroscience because, while I didn't learn a lot that is new - I am sure I would if I read the books - it contains a fascinating collage of titbits and is a good introduction. The comments on the ambiguous benefits of nicotine I have discussed before.

Tuesday, June 24, 2008

Carbon leakage effects leak away

As is well known the global external costs of greenhouse gas emissions (GGEs) are ignored for Prisoner’s Dilemma reasons. This means that even if all countries would be better off with an agreement to cut their GGEs it makes sense for individual countries top defect from such an agreement. They can then either enjoy the benefits of other countries cutting GGEs without incurring the emission reduction costs themselves or derive benefits from joining other countries in not cutting back.

This provides a hindrance to negotiating an agreement to cutting back global GGEs.

Another claimed obstacle is the existence of carbon leakage effects. These were the source of Australian and US opposition to ratifying the Kyoto Protocol. Simply put the claim is that if Australia enacted strict quotas on carbon emissions or hefty taxes on these emissions then our aluminium smelting (and other) industries would relocate in countries such as China where they would pollute at perhaps even higher levels than when in Australia. Thus the global environmental situation would not have been improved but unemployment would have risen in Australia.

These types of effects mean that unilateral moves to control GGEs won’t work.

One response to such effects is to levy such things as carbon taxes on a destination basis. Thus Australians would be taxed on the aluminium they consumed (whether imported from a country not levying such a carbon tax or produced locally) not the aluminium they produce. Most of our energy exporting firms would then be exempt from carbon taxation though tariffs would be imposed on the import of carbon intensive goods not taxed in their country of origin. This would be a type of retaliatory tariff as more recently advanced by authors such as Joe Stiglitz – I provided a consulting report to Environment Australia urging such tariffs 10 years ago.

Recent studies discussed in The Economist suggest we should not be over-concerned with the leakage phenomenon. The authors of “Leveling the Carbon Playing Field” argue that with respect to carbon leakages:

‘the damage would be small.... Energy makes up less than 1% of the cost of making cars, furniture or computers. Even some energy-intensive industries, such as power generation, should not be much affected. Since they have no foreign competition, they could pass on extra costs to their customers.

Only a few industries—metals, paper, chemicals, cement and the like—are both global and profligate enough to be at risk. These accounted for just over 3% of America's output in 2005 and less than 2% of its jobs. Much the same is true in Europe: those industries, plus refining, account for less than 5% of output and an even smaller share of jobs....

Even those supposedly vulnerable industries do not seem to have wilted in the face of a carbon price....(the authors) cannot even detect any impact on aluminium, which is as energy-intensive and widely traded as any good. ...a shuttered smelter in Germany reopened in 2007, despite the rising cost of emissions.

There are many explanations for this resilience. One is that booming demand for aluminium and other commodities has kept all manufacturers profitable. Product specifications that vary from country to country, meanwhile, help to protect refiners from foreign competition. And Europe has handed out so many free permits to pollute that the costs of meeting its emissions cap have been negligible so far.

But putting a price on carbon may still do some harm in the future.... Europe is planning a tighter cap and fewer free permits. Many blueprints for emissions-trading in America call for no free allocations whatsoever. What is more, the biggest effects may come not in the short term, as factory closures, but later, as lower investment in new plant.

A study sponsored by Resources for the Future, an American think-tank, has tried to describe how American industry would meet a carbon price, albeit one of just $10 a ton—much less than the European price of over €25 ($39). Based on economic modeling, it concludes that industrial output would fall by less than 1%. The hardest-hit industry would be metals, but even that would shrink by only 1.5%. Better yet,
the damage could be offset by granting energy-intensive firms enough free permits to cover just 15% of their emissions.

Another study under way at the Pew Centre on Global Climate Change, another think-tank, sizes up a $15 carbon price using data on the past effects of rising energy prices on industry. It concludes that output would fall by 2% or less in 80% of cases. Paper and glass would face a bigger contraction, of 5%. Still, even the most vulnerable industries would not suffer the Armageddon that lobbying groups are predicting.

That is important, since it suggests that the politicians are over-reacting, and that their remedies may actually make matters worse. A carbon tariff....would be hard to implement. Customs officials would either have to assess the emissions embedded in imports, an impossibly complicated task, or make arbitrary assumptions, a recipe for a trade war. Moreover, it would do nothing to protect exports of energy-intensive goods from cheap competition.

Many studies also point out that carbon caps could bring benefits, in the form of factories making windmills, say, or solar panels. But these are even harder to quantify than the costs—and so they are even easier for the politicians to ignore.’

This last point sounds suspect. Investments incurred to meet the effects of GGEs are a cost not a source of income and are so regarded in such studies as the Stern Review. But the overall argument is sound.

Sunday, June 22, 2008

Nibbling away at nature & amenity resources

I don't have strong views on the proposed use of the particular park in Kensington for Sir Ron Eddington's proposed tunnel to connect the eastern freeway with the western suburbs in Melbourne*. Public protests are being organised on this use of the park. However I am concerned at the propensity of governments at all levels to nibble away at public parks and nature reserves in meeting infrastructure and other developments within intensively settled urban areas.

These parks and reserves have significant social value both in terms of their use values (e.g. walking the dog, bicycling, enjoying the open air) and because of the implied amenity externalities that get crystallised into increased local property values. The extent of the use value generated can be measured by the consumer surplus triangle the presence of such areas generate - the triangle is large because the access costs of large numbers of people in urban areas to these resources is so low. (I always set out this idea to my environmental economics students as an application of Harold Hotelling's 'travel cost' method of valuing natural resources).

But every time a new road or development is proposed the prospect of resuming large numbers of private homes and business firms to provide land needed looks far too expensive compared to nibbling a bit of the local park or reserve and, of course, the externalities these resources give rise to get forgotten about. And the argument normally put is that the park is quite large and we are only taking a 'small' proportion of it. Repeated applications of this reasoning lead to death by one thousand cuts, to an impoverished amenity resource and a urban environment.

It is not always the public sector alone that is at fault here. Private developers stage protracted campaigns to get land in reserves rezoned to develop private housing and industry - private nibbling along most of the Yarra Parklands in Melbourne is close to an outrage despite the excellent efforts of Melbourne Water and other groups in restoring this land. Developers pester local governments for decades.

And at the time of each public or private sector 'nibble' the argument is sensible in terms of myopic development costs or of giving private agents the chance to 'enjoy nature'. It is just that the long-term outcome is not at all sensible.

In my view we ideally want far fewer private gardens and much more public land that can be assigned to provide amenity resources and nature conservation. There are economies of scale in providing both types of output. One advantage of private holdings however is that they are less susceptible to development pressures and nibbling. While they are much less efficient they are more resiliant in the face of relentless development pressures and the views of philistine public administrations.

* Of course I am strongly opposed to unending expansions of road and tunnel infrastructure when socially costly urban travel is unpriced. Supply decisions should be made in an environment where costly travel is priced.

Saturday, June 21, 2008

Sydney's traffic woes

Correspondent Conrad referred me to this interesting newspaper account of an academic report on Sydney’s traffic woes. The suggestion is that, without congestion pricing, Sydney would need to construct the equivalent of 14 Lane Cove tunnels annually just to stabilise traffic congestion at current levels.

These claims seem a bit exaggerated. Crippling congestion will itself discourage travel. But the essential message is correct. Pricing travel at zero and then trying to accommodate the resulting excess demands with infrastructure investments is dumb policy. I lived in Bangkok for most of the 1980s – believe me, living in a city with hypercongestion imposes huge costs on your everyday life - getting to work, going out to dinner etc.

The moronic comments of Roads Minister Roozendaal are worth noting. He dismissed the findings as "armchair advice from academics in ivory towers". "We need commonsense solutions," he said. How pathetic.

I think what we really need as some politicians with guts and foresight.

Useful background to the report is here. Note the authors endorse a package of policies for Sydney and certainly do not rely on congestion pricing alone.

Thursday, June 19, 2008

Urban congestion

My paper, Targeting urban congestion: Equity and second-best issues, has just been published in the Australian Economic Review. Unfortunately the complete paper is firewalled outside the universities. I originally drafted this here on my blog for the Making the Boom Pay Conference in 2006. Comments welcome.

Editorial assistant sought

I am looking for someone to work as an Editorial Assistant for the journal Economic Papers which I now edit. They must be based in Melbourne.

The work involved is 1-2 days per week depending on the volume of work. The work involves proof-reading and dealing with academic journal submissions. It also involves maintaining records for refereeing of journal articles, reminding referees of work due and communicating with authors and the Economic Society of Australia by email and phone.

The work would be part carried out at my university but could also be partly done at home. It is a position that would be casual but would be fairly permanent - probably for several years - if things worked out well. The position would suit someone wanting regular, part-time employment. Remuneration depends on skills.

The main requirement is excellent written English language skills and the ability to communicate easily with authors and referees by telephone. Prior knowledge of economics is useful but not essential.

I can be contacted at harryrclarke@gmail.com.

Closing date: 27 June 2008.

Wednesday, June 18, 2008

Transport costs, fuel prices & trade

As fuel gets more expensive the transport costs associated with international trade get larger and trade diminishes. By how much? Paul Krugman cites a study (by Nuno Limão and Anthony J. Venables) that deals with transport costs and geography as factors determining trade. It implies that a doubling of fuel costs will contract trade by 45%. Current fuel price hikes if sustained would reduce trade by 17%.

Of course such significant reductions would reduce the demand for fuels and have the general equilibrium effect of reversing the price increases.

Much the same effects apply to reductions in the demand for long distance travel induced as a consequence of higher fuel costs.

It is certain that the direct initial effects of a fuel price increase will dominate offset effects that reduce fuel prices. This means that from the viewpoint of travel and trade the world is getting bigger.

Tuesday, June 17, 2008

Tiger Woods again & again

After an extra 19 holes of playoff Tiger woods defeated Rocco Mediate to win his third US Open Golf championship. Wood's rounds included 3 spectacular eagles. It was great viewing on FOXTEL - I have watched all but the final playoff holes which I will view this evening.

Woods played with a severe knee problem that left him wincing in pain throughout the tournament. Mediate is a comparatively old guy (45 years) who hasn't achieved a respectable win in 6 years but who severely challenged Woods. At times I found myself barracking for the older guy - yes I know that is tragic - but still the Woods phenomenon amazes me and I was pleased to see him get his victory.
Update: Woods' knee was in fact in very bad shape. He subsequently announced that he would miss the remainder of the 2008 season as he has a total knee reconstruction. The tremendous torque he generates with his golf swing puts huge pressure on his knees. Its a pity.

Monday, June 16, 2008

Conservative governments who run large deficits

When do conservative administrations run big budget deficits? One answer might be that they face almost inevitable electoral defeat and wish to leave the pantry bare to restrict the options of future less conservative administrations. That's Paul Krugman's view of the rationale for the Bush tax cuts and the resulting huge US government deficits. A Machiavellian might apply the same reasoning to John Howard's huge tax cut offers in the face of electoral defeat at the last Federal election.

Of course Howard left Rudd with a huge budget surplus - not a deficit - but forced Rudd to match his tax cut policies in an environment where inflation and interest rates were accelerating and where Howard knew Laborite stupidity towards restricting markets for labour would complement inflationary pressures in driving higher unemployment.

The prospects for a Labor-induced recession might have looked good to Howard with, at best, a short vacation from office for the Coalition. The issue is whether politicians exhibit this foresight?

Update: Gregory Mankiw discusses the same issue in an entertaining 'Starve the Beast' post. there is a long discussion over at Catallaxy.

No need for moral panic over drugs

I have pointed out repeatedly that drug use in Australia is under control. Cigarette, heroin, amphetamine and cannabis consumption are declining and alcohol consumption is roughly stable. It is the reason I don’t support moves to reform drug laws on the grounds that current laws have failed – they have not failed at all.

An article in today’s Age makes the same points about alcohol.
Alcohol consumption has costs and benefits – to an economist this suggests trying to get the balance right in consumption and to persuade consumers not to drink in risky situations – such as prior to driving a car.

Proposals to redefine ‘binge drinking’ (meaning socially excessive drinking) to mean the consumption of half a bottle of wine (3 standard drinks) do not seem wise. All activities involve some level of risk but this risk must be balanced against benefits. Telling people who are not driving that they should not enjoy a half bottle of wine is destroying too much enjoyment and not addressing dangerously high levels of drinking and situations of drinking before driving or operating machinery.

The moral panic that is developing needs to subside a bit and the very real problems of drinking that do exist should continue to be addressed. As usage of dangerous illicit and licit drugs decreases then efforts to further reduce harm will need to become more focused – targeting indigenous Australians makes much sense – but this does not mean further coercion across the whole community.

Saturday, June 14, 2008

China & India will end up complying with US demands on greenhouse gas mitigation

The current environmental situation in countries such as China and India is poor – China’s citizens are getting richer but increasingly living in a rubbish dump. But, with respect to climate change and other environmental problems, China is altering its policy view towards being much more environmentally protective. I don’t think it has altered its commitment to mainly pursuing ‘no regrets’ policies – it is just coming to understand that climate change will severely damage its agricultural sector. No regrets options now include contributing towards the global mitigation effort.

To quote The Economist:

‘The vast and sparsely populated Tibetan plateau is the origin of the great river systems of China, South-East and South Asia: the Yangzi and Yellow Rivers, the Brahmaputra, the Indus, the Mekong and the Salween. The Ganges rises on the Indian side of the plateau's Himalayan rim. These rivers, fed by thousands of Himalayan glaciers, are an ecological miracle. They support some 1.3 billion people.

But the glaciers are retreating. Chinese experts predict that by 2050 the icy area on their side of the Himalayas will have shrunk by more than a quarter since 1950. Predictions for the Indian side are gloomier still’.
China sees its agricultural output as declining 5-10% by 2030. In India the figure is estimated to be closer to a catastrophic 30-40%. China now recognises its role as the major contributor to greenhouse gas emissions and is committed to cutting emissions. India is dragging its feet partly because half its population is still not linked to electricity supplies and there are widespread fuel subsidies.

The attitude of India is foolish if understandable: A senior official in the India’s foreign ministry characterises the US line of urging developing countries to cut their emissions as: “Guys with gross obesity telling guys just emerging from emaciation to go on a major diet.”

This is foolish logic because, irrespective of the ‘rights’ of developing countries to damage the global environment to the same extent as the US, they will suffer much greater damages from failing to mitigate. The local benefits from mitigation are much greater in India and China than they are in the US.

Indeed, whatever the moral arguments advanced the US is in the box seat in terms of bargaining options for negotiating a global greenhouse agreement post-Kyoto. It will insist on developing country mitigation efforts and will get them.

Update: Of course the optimism about China must be tempered with some statistical realities - it has just extended its lead as the world's largest CO2 emitter. Last year it provided 2/3 of the worl'd increased CO2 emissions.

Thursday, June 12, 2008

Cooperation in climate change negotiations

For certain types of national payoffs the problem of engineering a cooperative agreement among nations to achieve good greenhouse gas controls can have the structure of a Prisoner’s Dilemma. The welfare of all countries is maximised if they all agree to mitigate their emissions but each country has incentives to ‘free ride’ on mitigation agreements. This reflects the ‘public bad’ character of greenhouse gas emissions and the prospects for gains through carbon leakage (the setting up of carbon emitting industries) in countries that don’t mitigate.

I have been studying this issue using game theory. One issue I have focused on is whether getting an additional country to mitigate improves the prospects for negotiating a global agreement or not. When does some element of ‘moral suasion’ work in driving further countries to mitigate?

It isn’t as easy an issue as it looks. When an extra country mitigates the possibility of losing business to that country via carbon leakage falls and this improves - perhaps only marginally – the prospects for other countries to mitigate since their industries can now leak away to a smaller subset of non-mitigating countries. But the local gains from mitigation must still exceed the presumably large gains a country would receive when it alone does not mitigate but gets carbon leakage benefits from all the countries which do.

But, for the dominant strategy to be mitigation, local gains from mitigation now do not need to exceed the presumably huge costs of going it alone in mitigating since the pool of potential carbon leakage losses has fallen as other countries commit to mitigating. These improvements in the prospects for avoiding Prisoner’s Dilemma issues improve the greater the potential reduction in carbon leakage losses that follows commitments to mitigate.

Thus if a developing country like China were to commit to mitigation, and to thereby rule out extensive carbon leakage losses for developed countries if they mitigated, then the improvements in the prospects for cooperation are enhanced. If a small country or an already developed country – such as Australia - mitigated then the case for other developed countries to mitigate in response would be relatively weaker.

These ambiguous prospects for enhanced global cooperation can be re-examined in repeated or dynamic game settings - I have done this and will discuss these results in further posts. This work can be adapted to account for asymmetries in national interests and for the possibility of repeated negotiations.

But an alternative approach draws on behavioural economics and examines the conditions under which agents cooperate even though it is not in their individual self-interest to do so (I recently came across this interesting paper by Brekke and Johansson-Stenman (2008) which takes this approach).

Laboratory experiments suggest that people are willing to cooperate if they see others doing so. Moreover, field evidence suggests that people’s willingness to contribute to good social causes increases with their perception of the contribution of others. These are instances of conditional cooperation. There is also much laboratory evidence consistent with reciprocity – this is a social norm that motivates people to reward kind and to punish unkind actions towards them. This reciprocity is not conditional on gaining some long-term reward and can even occur in one-shot interactions. Intentions of kindness or unkindness matter as well as consequences of actions.

These observations relate to individuals rather than countries interacting in a multi-country setting. A key issue then is whether or not agents become more or less cooperative in a group situation. Unfortunately the experimental evidence here goes both ways - sometimes groups behave more cooperatively than individuals and other times less so.

Behavioural economics also provides evidence of self-serving biases. When facts and principles are ambiguous we tend to choose those which favour our self-interest. Even if people are motivated by ‘fairness’ their world view as to what delivers fairness is likely to converge toward views that serve their own self-interest. For example, policy-makers in rich countries may simply seek to avoid ethical discussions involving the needs of energy-poor developing countries and climate change because entering into this discussion with them might induce the discomfit of guilt. Cognitive dissonance may also be a factor. Countries which release large volumes of GGEs may change their beliefs to fit their behaviour by coming to believe that the damages of GGEs are overstated.

These behavioural perspectives provide new ways of thinking about enhancing the prospects for greenhouse gas control. To quote Brekke and Johansson-Stenman:

First, people, and also countries, are able to make decisions that are not in their own material interest if they have other sufficiently strong reasons for doing so, such as obtaining a situation that is overall socially desirable and if this can be obtained in a way that is perceived as reasonably fair. Second, when individual parties analyse what a fair outcome should look like they are typically influenced by self-serving bias, and this makes it more difficult to reach agreements. Third, negotiating parties are likely to avoid looking at information that would force them to reflect over ethical issues. A potential policy implication is therefore to emphasise such information to the point where it is impossible for the negotiators to ignore it. Fourth, the possibility to use sanctions and punishments seems essential for the longer term effectiveness of a climate agreement. The Kyoto protocol and the forecasts for the next agreement currently lack this opportunity….see also Stiglitz (2006) for a suggestion of linking the climate and trade negotiations, leading to countries that fail to act responsibly in the climate area being punished by tolls’.

Wednesday, June 11, 2008

Acid mud (= ‘sulfidic sediments’): A repost

I got several things wrong in my earlier effort on this. This is a rethink which probably is still not error free but it is an improvement.

In many wetlands along the Murray and Darling Rivers, sediments flooded for decades by locks and weirs, are being exposed to air as drought-affected water levels fall. Inland sulfidic sediments have been found in NSW, Victoria, South Australia and Western Australia.

Waterlogged soils often contain sulphides produced by bacteria decomposing organic matter, but if these sediments are allowed to build up and are then exposed to oxygen, they form sulphuric acid – hence the names ‘acid mud’ and ‘sulfidic sediments’. These are usually naturally occurring events but are worsened by human activities, particularly in inland aquatic ecosystems, and by sustained drought. I learnt more about ‘sulphide sediments’ from colleagues at La Trobe University Albury-Wodonga Campus last week. The following notes are based on this meeting together with an earlier inspection of the Web to find some background facts. Again I would be interested if readers had links to further information.

The basic idea is that while water resource analysts have paid attention to the need for periodic flooding of river systems and wetlands to maintain ecological health (see here) some wetlands need to be periodically and regularly drained dry to inhibit the formation of sulfidic sediments. For example Bottle Bend, near Mildura, was once a healthy wetland but it is now it’s a toxic waste site where nothing but micro-organisms can survive the acid water given its steel-eating pH of 1.6. This caused the death of all fish in the wetland and all the trees surrounding it. Thousands more wetlands – particularly those in the lower reaches of the Murray - could be brewing the same deadly formula and if the rivers again flow enough to re-flood the exposed acid mud, toxic baths will pose a major threat to towns and cities downstream. This slide show by the Murray-Darling Freshwater Research Centre was useful in getting an overall picture.

Constructed wetlands are potentially at more risk of producing sulfidic sediments than other wetlands because such wetlands are often designed to help improve water quality. The water, whether it is from storm water, treated sewage, industry or other sources is often of poor quality. If the levels of sulfate in the feed water is high (greater than about 10-20 mg S/l) then there is a real likelihood that the wetland will develop sulfidic sediments over time. There are fairly high salt levels at sewerage treatment works such as the Western Treatment Plant and I would be interested to know how sulfidic mud issues are avoided there or why, indeed, they do not arise.

Coastal problems of sulfidic sediment can be dealt with by adding lime to soils but this type of policy response is ruled out in inland waterways simply because of the scale of the problem. Indeed not a lot is known about treating inland sulfidic sediment problems. Essentially they need to be first identified and then regularly flushed out. The flushing out required however needs to be repeated and will, of course, have impacts on water availability upstream from the sites of sulfidic sediment.

One potential approach is to utilise triage arguments to isolate areas where sulfidic sediments exist to prevent them interacting with other components of a river system. Then the emphasis becomes one of attempting to prevent the development of acid sulphide problems elsewhere in river systems with appropriate management policies such as periodic drying out of wetlands. For example as pointed out by Kenneth Davidson, in Lake Alexandrina at the mouth of the Murray River, the soil in the lake is laced with sulphides that have turned into sulphuric acid. The pH of the lake, which measures the acid/alkaline balance, is already bad enough to make it toxic to animals. Moreover, without flushing as a result of heavy rains upstream, the combination of salt and acid will move upstream and progressively contaminate the lower Murray. The danger is immediate. Murray Bridge, 38 km from the mouth of the Murray, is only two metres above sea level at the mouth of the river — a drop of less than 0.5 cm/km — which means that the salt and acid can move relatively easily upstream. The lower Murray is more akin to a series of interconnected ponds rather than a free-flowing river.

This is serious because Adelaide and South Australia's main provincial towns depend on the Murray for most of their water. Without flushing rains or 200 GLs from the Dartmouth Dam on the upper Murray, the water that Adelaide pipes from the Murray below Murray Bridge will be undrinkable. But if the water that is available from Dartmouth is allocated to the environment, it won't be available to irrigators further up the Murray.According to Davidson, this is why the Brumby Government delayed for 15 months signing up to the Murray-Darling Basin Authority, which is supposed to give ultimate authority for allocation of the water to Federal Water Minister Penny Wong. Either the system must get well above average rainfall during the coming winter, sufficient to flush out the lower reaches of the Murray, supply Adelaide and keep irrigators alive or Wong will have to choose between Mildura and Adelaide as to who gets the 200 GL of water held in reserve in the Dartmouth dam. But there is no real choice. If the southern river Murray system dies, Mildura and the other irrigators along the southern Murray will die as well.If salt and sulphuric acid damage is limited to Lake Alexandrina, the irrigators and the towns along the southern Murray can be kept on life support until there is a permanent increase in the flow of water into the Murray system.

One proposal is to flood Lake Alexandina with salt water from the ocean to flush it out. This would help disperse the acidic liquids but would damage the lake if it is judged to be primarily a body of fresh water. Evidence from diatoms in the lake floor has been used by different spokespeople to claim different things – some have claimed that historically it is a freshwater lake while others claim it is saltwater. History here matters if the policy objective is to retain levels of environmental authenticity.

Among the groups studying sulfidic sediments one with very useful data and articles is the CSIRO’s Land and Water. Staff members of this group provided me with useful information last week but should not be held responsible for the tentative remarks made above.

Joni Mitchell

I’ve been busy working over recent days but I after finally receiving a few early Joni Mitchell CDs from Amazon.com I got to listen to them last night. After a few minutes I abandoned all thoughts of anything other than this music.

For some reason I’d forgotten just how good she is. I started with the more recent Court and Spark – mature voiced Joni - the title track is close to perfection. Also enjoyed her second album Clouds (including Both Sides Now) and the rather cerebral, elegant first effort Song to a Seagull – that has her early, totally captivating ‘little girl’ voice with some of the most poignant lyrics she ever composed - here is the haunting title track. Supremely elegant intonations and background instrumentals.

Mitchell in my view is one of the most important popular female singer-songwriter over the last 50 years. She sounds timeless – fresh, undated, with a style of her own.

Here are a few more video clips I have collected. California. Blue, Big Yellow Taxi, Both Sides Now, Circle Game, Free Man in Paris.

Tuesday, June 10, 2008

AIDS-HIV & heterosexuals

For a long time heterosexuals have been told that they run significant risks of contracting HIV-AIDS if they have unprotected sex. Outside of Africa this claim is now seen to be false. Outside of Africa the main groups at risk from the disease are homosexuals, intravenous drug users and sex workers.

There will be no generalised AIDs epidemic among heterosexuals outside the African countries. AIDs still kills vast numbers of people - more than all wars and conflicts together - but expensive negative advertising campaigns directed at general populations are a waste of money.

African countries have high rates of AIDs for various reasons - low levels of male circumcision, high rates of genital herpes and high use of commercial sex workers.

Monday, June 09, 2008

Happy birthday Queen Elizabeth II

It is six weeks late but still definitely worth celebrating. (Inexplicably once again I did not get a gong. I'll hang onto the drafted acceptance letter/email and wait hopefully again for recognition of my services in 2009.)

Great leader Rudd

What a disappointing PM Kevin Rudd is turning out to be. Despite the rhetoric about ‘working families’ and the impression he seeks to create of a diligent, hard-working leadership this guy is not proving to be a particularly competent PM. In part it is presumably inexperience which means that the key resource he needs are those civil servants he has recently been so intent on alienating by accusing of laziness - these guys obviously are not part of the 'working families' brigade.

Rudd has said a profoundly ambiguous ‘sorry’ to indigenous people and has signed a soon-to-be- redundant Kyoto agreement. We should all be underwhelmed by these symbolic actions that do nothing to improve the lot of anybody.

On economic policy Rudd’s decision to encourage middle income earners to abandon private health insurance thereby putting increased pressure on an already overstretched public health system is possibly the most socially destructive policy he has yet undertaken. The move should devastate the public hospital system and will reduce overall standards of community health care. To suggest, as both Rudd and Nicola Roxon did, that the policy can be justified on the basis of the implied tax relief is ludicrous unless you favour the poor paying relatively higher taxes.

I say it is 'possibly' the most foolish policy move since an almost equally foolish policy was to sideline the Productivity Commission in assessing the case for continued protection of the automobile assembly industry by substituting known protectionist and Labor hack Steve Bracks to head an enquiry whose outcome was well understood from the day it was set up. Rudd last week compounded the error by rejecting an opposing view from the Productivity Commission before it had even been publicly released that showed that reducing protection to 5% after 2010 would provide significant benefits to automobile consumers and small gains to the economy. a doubly stupid move since the PC report provided valuable information on how protection might be structured even assuming you did want to continue it.

The FuelWatch policy which essentially tells retailers that they must post prices in advance improves the prospects for coordination among retailers and might therefore increase prices a little – contrary to the stated intention of the policy.

Rudd followed these moves with a scathing critique of the foolish proposal by Brendon Nelson to cut the excise on petrol by 5 cents per litre. But he then reversed his stance by implicitly endorsing Nelson’s foolish populism with a proposal to cut the GST on petrol on the grounds that petrol was already subject to a hefty excise. This is populist backflip nonsense since there are taxes on taxes throughout the economy.

The rhetoric about grocery prices and the proposal for the ACCC to monitor prices will noit help the government repeal the laws of supply and demand with food prices continuing to increase as a consequence of supply shocks and, in particular, increased energy prices. Moreover, there is little the government can do to reconfigure industry structure to drive more competitive outcomes. The horse has bolted in retailing with the large duopoly (Coles, Safeway) established in the field.

The chorus of Labor drones are singing their foolish tunes of hero worship for Rudd but I imagine they simply don’t have the brains to think through these policies or are too committed in their quasi-religious fervour to think about much at all. Mark Banished at LP is now criticising the ABC for being biased about Labor over claims of its pro-Chinese, anti-Japanese biases because it didn’t first check with the Japanese that they had in fact been offended by being overlooked. As if they would say they were offended!

I’ve been banned from LP for suggesting that MB lacks independence of thought. I think I should have been banned for being tediously boring in stating the obvious. On the other hand a ban has commitment benefits for me - my urge to comment on the drivel LP usually offers as social commentary will be diminished. More time for the important things of life.

Saturday, June 07, 2008

Intellectual property to get cheaper

This article by Paul Krugman takes up the theme that, as a consequence of digitisation and hence of easier replicability, that intellectual property (including software, books, music, movies) will inevitably become cheaper and that products sold in conjunction with the increasingly free goods will become important. Thus the Grateful Dead encouraged the reproduction of its music but sold lots of Grateful Dead teashirts. Digitised books may be given away free but live readings by authors will be marketed with the books.

The turnaround in Iraq

A favourable outcome seems likely if the US commits to a continued presence in Iraq after the next US presidential elections according to the WSJ.

The Iraqi army have routed insurgents in 3 of their most important urban strongholds. This follows the success of the surge in crushing al Qaeda in the Sunni triangle. Basra has been retaken from Moqtada al-Sadr's Mahdi Army and is now mostly peaceful. After this Mr. Maliki repeated the same exercise in Sadr City. Recently Iraqi army operations in the northern city of Mosul netted more than 1,000 suspected Sunni insurgents in al Qaeda's last major urban sanctuary.

US deaths in Iraq now number around 4,000 but for the last few weeks the violence has subsided. The number of violent incidents recently have been at their lowest level since the spring of 2004 with the number of US combat fatalities last month, at 19, being the lowest of the entire war. Iraqi military and civilian deaths are also sharply down. In addition during the first 5 months of this year, 4,500 insurgent weapons caches were found, compared to 6,900 for all of 2007. These numbers have sometimes moved in the wrong direction and may do so again, particularly during major combat operations but the trend is positive.

'The Iraqi military is also improving, partly from the confidence gained from its recent successes. The government now counts more than half a million men under arms, and the army is emerging as a reliable and multiethnic national institution'.

'a permanent U.S. military presence – albeit one reduced over time – would give Iraqis the confidence to continue their political maturation. Another Iraq national election is scheduled for next year, and it is an opportunity for democracy to put down even deeper roots. It's crucial for Americans to understand that, apart from the Sadrists, all factions of Iraqi politics now support some kind of U.S.-Iraq status of forces agreement to succeed the U.N. mandate that expires later this year'.
Kevin Rudd implemented Australian Labor Party policy this week by announcing the withdrawal of Australian combat troops from Iraq. This will have a minor effect on the war effort in Iraq - although the Australian forces in Iraq have performed a very useful role but does offer encouragement to the terrorist destroyers in Iraq. I cannot believe that it will leave the Australian-American alliance as 'rock solid' as Rudd suggests. Being a 'fair-weather friend' cannot fail to do harm to the most important defence alliance Australia has.

Thursday, June 05, 2008

Economics of alcohol policy

My paper 'The Economist's Way of Thinking About Alcohol Policy' has just been published in Agenda. I continue to work on these issues so comments are very welcome.

Tuesday, June 03, 2008

The 'four pillars' policy

Melbourne Business School’s Professor Ian Harper has written an article in today’s AFR (subscription required) attacking the ‘Four Pillars’ policy recently reindorsed by the Labor Treasurer. This policy limits mergers between the four major Australian banks.

Professor Harper has two main arguments. One is that such a policy is unnecessary since the ACCC has the power to disallow mergers which it sees as not being in the national interest and, in making this determination, the ACCC would be able to sort out the cost-benefit case for allowing or disallowing mergers. The second argument is that the four major Australian are ‘bonsai banks’ that are ‘pot-bound by a regulation which blocks the most natural route to growth and scale’. He asks that the banks be given the ‘same opportunity to grow as any other Australian company’.

None of these arguments seems self-evidently correct.

The ACCC is an agency of government that assists in the promotion of competition in the Australian economy. If successive governments make the judgement that maintaining minimum levels of competition among the banks is a desirable social policy it is entirely appropriate to enact policies which achieve this. What matters here is the government policy itself not whether it hands over responsibility to the ACCC. The only issue is whether the ‘four pillars’ policy is sensible or not.

The second argument is that our banks are too small to realise economies of scale. I am not expert on such matters but it would be nice to see some empirical evidence on this. Are Australian banks with their privileged oligopoly position unable to access funds internationally at the lowest cost? Are costs of managing deposits or making loans locally too high to promote productive efficiency in banking? I would like to see some evidence on this rather than poetic claims about 'bonsai'.

According to Fortune the National Australia Bank is the 239th largest firm by revenues in the world. The Commonwealth Bank is the 340th, the ANZ is 376th and Westpac is the 464th. Ranked among the world’s banks on the basis of revenues the National Australia Bank is 35th largest, the Commonwealth Bank is 45th, ANZ is 50th and Westpac is 56th. Are these banks minnows? Just how big do you need to be to realise economies of scale in banking?

Furthermore, as banks increase in scale is there always an efficiency dividend or are there x-inefficiency concerns? Banks in Australia seem to be out of touch with their customers and to increasingly offer depersonalised, inflexible services at the same time that bank fees are rising strongly – over the past 10 years fees from households have quadrupled. This evidence does not clinch things since it is possibly consistent with increasing efficiency and offering a wider range of services. But it is also consistent with lack of competition and banks squeezing customers using their monopoly power.

And why are mergers among domestic banks the most ‘natural route to growth and scale’? If the primary economy sought is better access to international capital markets why focus growth locally where customers are offered only restricted banking choices and limited competition?

The suspicion is that the major banks wish to further consolidate their monopoly power in a limited market by decreasing the limited competition and by improving their already substantial opportunities for coordination. The evidence on increasing fees and surging profits is consistent with this view.

Finally, it is not sensible to claim that the banks should be given the 'same opportunities as other Australian companies' when they are quite unlike other Australian companies both in terms of the size and the fact that they obtain banking licences from government. It is entirely appropriate that governments isolate those large businesses that impact on the lives of every Australian and expose them to specific scrutiny and regulatory effort.

Update: Joshua Gans also comments on the Harper article.

Monday, June 02, 2008

John McCain is too old to be President

This YouTube outlining John McCain's views on economics, foreign policy and disaster relief amused and frightened me.

I have suggested before that Barack Obama will be the first black American President and, despite my conservative politics, believe this will be, on balance, a good thing. He is the best of a weak field and John McCain is well past his best.

My support as a non-American for Obama would be unambiguous were it not for his support for a 'cut-and-run' Iraq policy. I think his assessment that the US position in Iraq is hopeless is not consistent with current developments. But John McCain lacks credibility on this same issue.

Hat tip to RH for the clip

Disappearing honey bees

Honey bees around the globe are disappearing and nobody knows why - maybe it is due to bloodsucking mite called varroa - pictured above. One-third of US honey bees were wiped out last year. Bees are crucial for the pollination of 90 major crops. Albert Einstein is claimed to have said that if honey bees disappeared the human race had 4 years until it to became extinct. Commenter AndrewT points out this may well be apocryphal.
In addition there is the possibility that wild bees may substitute as pollinators if honey bees disappear.

An intriguing story and the subject of a book.

Sunday, June 01, 2008

Around the blogs

I have been too busy to actively blog the past few days but a few issues caught my attention.

1. Bill Hensen. I enjoyed this post by Liz Conor on the Hensen controversy (Is it Hensen or Henson – both spellings are widely used). Conor's post makes some comparisons with Nabokov’s Lolita – and tries to understand the ‘peculiar’ beauty of art involving young beautiful people while feeling caution and fear over their vulnerability. As a parent of two daughters (& one son) I can relate exactly to what she says. Of course Nakokov is discussing the views of a young woman from the perspective of a pedophile while Hansen is definitely not taking such a perspective.

There is no debate on this issue on the right side of politics . Hensen’s work is pornography pure and simple to these sober minded defenders of the faith. But there is plenty of misogynistic porn on the web – comparing its to Hensen’s work shows there is no overlap at all. The religious right have predictably voiced their support for the interpretative role of storm-troopers in our art galleries. Predictably Kevin Rudd has felt it necessary to inject his ‘absolutely revolting’ critique something which really appeals to these fanatics. Rudd should butt out of these moral debates or use more measured language.

2. FuelWatch. The FuelWatch scheme is likely to make very little difference to the cost of petrol for motorists. Apart from imposing hefty compliance costs on motorists it seems likely to encourage coordination among retailers and hence increased collusion – if anything this might push prices up a smidgeon. Rudd’s abuse of the public servants for leaking their opposition to the scheme is understandable – nobody likes being shown to appear an idiot – but his bully-like threat to increase their workloads seems to be the response of a peanut. More of this idiocy to come I am sure. Rudd choose what he thought were an indefensible group of ‘fat cats’ to use earlier Labor language but is revealed to be a total hypocrite in terms of his pre-election comments on the needs of ‘working families’ to enjoy their leisure.

3. Medicare Tax Levy Threshold. The move to raise the income tax threshold for avoiding the Medicare tax levy – from $100,000 to $150,000 for families – is the most foolish policy move of the Rudd Government so far. Forcing those who can afford it to pay the cost of their private health cover helps release resources for public health. This measure hurts those constituents Labor would claim to be supporting. Labor Health Minister Roxon should learn some basic economics. It makes perfect sense to encourage private participation in health insurance by providing tax relief given that Australia has a national health scheme that provides a measure of health cover at zero explicit cost.

4. Climate Change & the Right. I generally enjoy the wit of Tim Blair and the hard edge that Andrew Bolt applies to current events but I still wonder about the propensity – which they share with members of much of the conservative right - to continually (on a weekly basis) provide posts which deny or ridicule the theory of anthropogenic climate change. It is a interesting question. It is reflected in the fact that over at Troppo’s blogroll I am described as an economist with mostly conservative views who unusually takes a strong stand on climate change issues.

The science on climate change is overwhelmingly accepted. Why are the right so vehemently opposed to this science? One reason seems to be simple anti-intellectualism and to desire to appear to be against 'mainstream thinking'. Another reason is the implication that global action needs to be taken to deal with global warming – this hardly advances the cause of laissez faire.

But this latter reason is illogical. Belief in laissez faire needs to be based on the facts not on blind religious faith and public good/externality reasons for intervening in market economies have been accepted for over 200 years. The climate change issue is an extension of these arguments.

Moreover, accepting these arguments and moving to adopt carbon taxes or transferable carbon quotas does not make you ‘anti-market’ – accounting for climate change costs can be understood as attempting to get markets to work more effectively.

Acid mud (= ‘sulfidic sediments’)

In many wetlands along the Murray and Darling Rivers, sediments flooded for decades by locks and weirs, are being exposed to air as drought-affected water levels fall. Inland sulfidic sediments have been found in NSW, Victoria, South Australia and Western Australia. Waterlogged soils often contain sulphides produced by bacteria decomposing organic matter, but if these sediments are allowed to build up and are then exposed to oxygen, they form sulphuric acid – hence the names ‘acid mud’ and ‘sulfidic sediments’. These are usually naturally occurring events but are worsened by human activities, particularly in inland aquatic ecosystems, and by sustained drought.

I will learn more about ‘sulphide sediments’ from colleagues at La Trobe University Albury-Wodonga Campus this week but, before this, I inspected the web to find some background facts and what follows are some notes. I would be interested if readers had links to further information.

For example Bottle Bend, near Mildura, was once a healthy wetland but it is now it’s a toxic waste site where nothing but micro-organisms can survive the acid water given its steel-eating pH of 1.6. This caused the death of all fish in the wetland and all the trees surrounding it. Thousands more wetlands – particularly those in the lower reaches of the Murray - could be brewing the same deadly formula and if the rivers again flow enough to re-flood the exposed acid mud, toxic baths will pose a major threat to towns and cities downstream. This slide show by the Murray-Darling Freshwater Research Centre was useful in getting an overall picture.

Constructed wetlands are potentially at more risk of producing sulfidic sediments than other wetlands because such wetlands are often designed to help improve water quality. The water, whether it is from storm water, treated sewage, industry or other sources is often of poor quality. If the levels of sulfate in the feed water is high (greater than about 10-20 mg S/l) then there is a real likelihood that the wetland will develop sulfidic sediments over time.

Not a lot is known about treating inland sulfidic sediment problems. Essentially they need to be first identified and then regularly flushed out. The flushing out required however impacts on water availability upstream from the sites of sulfidic sediment.

For example as pointed out by Kenneth Davidson, in Lake Alexandrina at the mouth of the Murray River, the soil in the lake is laced with sulphides that turn into sulphuric acid with prolonged contact with the air. The pH of the lake, which measures the acid/alkaline balance, is already bad enough to make it toxic to animals. Moreover, without flushing as a result of heavy rains upstream, the combination of salt and acid will move upstream and progressively contaminate the lower Murray. The danger is immediate. Murray Bridge, 38 km from the mouth of the Murray, is only two metres above sea level at the mouth of the river — a drop of less than 0.5 cm/km — which means that the salt and acid can move relatively easily upstream. The lower Murray is more akin to a series of interconnected ponds rather than a free-flowing river.

This is serious because Adelaide and South Australia's main provincial towns depend on the Murray for most of their water. Without flushing rains or 200 GLs from the Dartmouth Dam on the upper Murray, the water that Adelaide pipes from the Murray below Murray Bridge will be undrinkable. But if the water that is available from Dartmouth is allocated to the environment, it won't be available to irrigators further up the Murray.

According to Davidson, this is why the Brumby Government delayed for 15 months signing up to the Murray-Darling Basin Authority, which is supposed to give ultimate authority for allocation of the water to Federal Water Minister Penny Wong. Either the system must get well above average rainfall during the coming winter, sufficient to flush out the lower reaches of the Murray, supply Adelaide and keep irrigators alive or Wong will have to choose between Mildura and Adelaide as to who gets the 200 GL of water held in reserve in the Dartmouth dam. But there is no real choice. If the southern river Murray system dies, Mildura and the other irrigators along the southern Murray will die as well.

If salt and sulphuric acid damage is limited to Lake Alexandrina, the irrigators and the towns along the southern Murray can be kept on life support until there is a permanent increase in the flow of water into the Murray system.

Among the groups studying sulfidic sediments one with very useful data and articles is CSIRO Land and Water.