The Stage 3 water restrictions that are being used to restrict household water consumption in Melbourne arise because water is under-priced so that an excess demand for it must be dealt with by means of restrictions.
The main implication for households is that gardens in Melbourne can only be hosed twice a week for 2 hours in the evening. In addition, if you wish to top up your swimming pool, you must use a bucket and a tap – not a hose.
These restrictions are asinine given that the water shortages are a longer-term not a short-term issue. The best way of rationing something like water in the longer-term is to charge a price that clears the market for it. Then the water that is used goes to its highest-valued uses. If one does insist that pricing must reflect distributional concerns, so poor people need access to water at low prices, then a two-block scheme can be used. Water is given at low or zero price up to a fixed number of liters per month and is then charged at a sufficiently high rate to clear the market. This two-block scheme is better than the current three-block scheme but inferior to a scheme where every consumer is charged the same price (the scarcity value of water at the margin) with poor consumers rebated all or part of the implied costs that would have been incurred in providing the subsidized water at the initial low rate. They cannot be worse-off since they can use the subsidy to pay for the efficiently priced water or for anything else they might want.
The restrictions are being policed by ‘water police’ and dobbing-in your neighbor is widespread and encouraged. Quote: ‘To report a breach, call 13WATER (139 2837)’. Dobbing-in is something I intrinsically dislike, particularly at the neighborhood level, but some I know self-righteously see it as their moral duty. I always find it interesting that such measures are introduced by our Labor government comrades.
The restrictions though are having some good economic effects as would just charging higher prices. Swimming pool covers are being sold which reduce evaporation from pools and hence the need to top up. New pools can be filled with salty aquifer water which will be delivered onsite for about $2000 for an average pool.
With respect to gardens the water shortage is encouraging more sensible watering practices such as the use of grey water and rainwater tanks. It is also encouraging people to pave yards rather than to pursue high maintenance lawns – the paving moreover, in some cases, is porous and allows water to soak into the ground supporting adjacent gardens – rather than becoming runoff. Finally, the restrictions are driving people to reconsider the case for native gardens which, as I have long argued, make sense on the basis both of aesthetics, environmental benefits and particularly, in the present context, of being water-friendly.
These moves to rationalize water use have reduced demand but would work more effectively with rational water pricing. This would also send out the correct signals for firms to augment private water supplies and for both firms and households to recycle.
Finally, rational pricing would also allow gardening fanatics and swimming enthusiasts to enjoy their pleasures and to pay for such pleasures by funding the cost of these indulgences.
Monday, January 15, 2007
Sunday, January 14, 2007
Noble Park riots
Noble Park is 30 km south east of Melbourne’s CBD. It’s a rapidly urbanizing part of Melbourne with fairly cheap land and a high migrant population. During the 1980s it had one of the most notorious street gangs in Melbourne. Last Friday night it had a fully-fledged riot with a clearly criminal element supported by a mindless mob.
1500 drag racing morons and their brainless supporters (some with kids in prams) rioted, threw flares and rocks, at a hopelessly inadequate police response, and smashed up property including a video store. The rioters were proud of their achievements and put video clips of their rioting on YouTube – see here and particularly here.
Police, of course, were quick to use these clips to identify these bright sparks. 5 offenders were arrested at the site but hopefully a lot more arrests will come.
Some of the YouTube clips have been taken down by those who had posted them – but the police already have them. In addition the TV stations have their own video footage and the Herald Sun has run photos of the louts trashing the video store on their web page. This might help to catch them.
You can wail on about disadvantaged youth and so on but zero tolerance is called for here. The drag racers could kill themselves or – more significantly – innocent parties. And rioters who smash up shops and attack police are an aberration in Australia that is intolerable. Take back the streets.
1500 drag racing morons and their brainless supporters (some with kids in prams) rioted, threw flares and rocks, at a hopelessly inadequate police response, and smashed up property including a video store. The rioters were proud of their achievements and put video clips of their rioting on YouTube – see here and particularly here.
Police, of course, were quick to use these clips to identify these bright sparks. 5 offenders were arrested at the site but hopefully a lot more arrests will come.
Some of the YouTube clips have been taken down by those who had posted them – but the police already have them. In addition the TV stations have their own video footage and the Herald Sun has run photos of the louts trashing the video store on their web page. This might help to catch them.
You can wail on about disadvantaged youth and so on but zero tolerance is called for here. The drag racers could kill themselves or – more significantly – innocent parties. And rioters who smash up shops and attack police are an aberration in Australia that is intolerable. Take back the streets.
Saturday, January 13, 2007
Iraq war escalation
I thought George Bush made a good speech on the Iraq situation. He admitted strategic mistakes and addressed the problems caused by support for terrorist factions in Iraq by Syria and Iran – the Arab press see these comments as an indication that war against Iran is imminent and they might be right. The Iranians cannot be allowed to possess nuclear weapons and dominate the region. Bush resolved to put more effort into dealing with civilian security, particularly in Baghdad, and to put pressure on Prime Minister al-Maliki to restrain the Mahdi Army sponsored by his patron Moqtada al-Sadr and by Iran.
In the end I think Bush’s current judgment – and that of John Howard – is correct. Allowing barbarous thugs, with avowedly anti-western aims, to win in Iraq and to impose their particular brand of sectarian tyranny on Iraq is too costly an outcome - too costly for Iraqis and for the West.
On the other hand with only an additional 21,000 troops the obvious question is, as The Australian editorializes, whether a substantive change in outcomes is likely. The increased troop commitments are anything but a ‘troop surge’ – they are an escalation and one that might be part of a broader strategy in the region to deal with Iran. The cost of the conflict has already been massive for all concerned and the power of the murderous militias is unrelenting. If the terrorist factions in Iraq make the judgment that the increase in troop numbers is only a temporary palliative, until the next US President is elected and withdraws US forces, expectations will drive a self-fulfilling US defeat.
US policy on Iraq must be all-or-nothing. Either withdraw completely or provide enough troops to maintain civil order.
I thought the Aussie blogs would say something about Bush’s speech so I had a quick look around. Most said very little – a survey of the standard leftwing blogs is here. It’s for the most part a routine dismissal of Bush’s arguments - none of it addresses the issues at hand. The situation in Iraq is dire but this is not the time to whistle to the propaganda tune of Iran and the terrorists. I was similarly unimpressed by the points scoring of the Democrats in the US who similarly failed to address the issues raised by Bush.
Aside: By the way William Shawcross writes an interesting piece in The Australian suggesting current signs of improvement in Iraq’s economy.
In the end I think Bush’s current judgment – and that of John Howard – is correct. Allowing barbarous thugs, with avowedly anti-western aims, to win in Iraq and to impose their particular brand of sectarian tyranny on Iraq is too costly an outcome - too costly for Iraqis and for the West.
On the other hand with only an additional 21,000 troops the obvious question is, as The Australian editorializes, whether a substantive change in outcomes is likely. The increased troop commitments are anything but a ‘troop surge’ – they are an escalation and one that might be part of a broader strategy in the region to deal with Iran. The cost of the conflict has already been massive for all concerned and the power of the murderous militias is unrelenting. If the terrorist factions in Iraq make the judgment that the increase in troop numbers is only a temporary palliative, until the next US President is elected and withdraws US forces, expectations will drive a self-fulfilling US defeat.
US policy on Iraq must be all-or-nothing. Either withdraw completely or provide enough troops to maintain civil order.
I thought the Aussie blogs would say something about Bush’s speech so I had a quick look around. Most said very little – a survey of the standard leftwing blogs is here. It’s for the most part a routine dismissal of Bush’s arguments - none of it addresses the issues at hand. The situation in Iraq is dire but this is not the time to whistle to the propaganda tune of Iran and the terrorists. I was similarly unimpressed by the points scoring of the Democrats in the US who similarly failed to address the issues raised by Bush.
Aside: By the way William Shawcross writes an interesting piece in The Australian suggesting current signs of improvement in Iraq’s economy.
Thursday, January 11, 2007
Inquiry on open skies for Australia - one to watch
I have blogged on the case for an ‘open skies’ aviation policy for Australia. It seems that the case for one will be tesated by an inquiry launched by Tourism Minister, Fran Bailey, though details are scant. Qantas has predictably rejected the case for it and I wonder if the falling Qantas share price is an indication that the Macquarie debt-junkies looking for a quick buck from their planned private equity move on Qantas are being anticipated by the market not to appreciate the implied extra competition.
Efficiency in international and domestic aviation is a major concern to Australia given the distribution of our population over a large area, the distance of Australia to its major markets and the crucial role of internal and external tourism as economic drivers. The low travel flows within Australia on all routes other than the Melbourne-Sydney (M-S) route means internally the sorts of competition gains the US has enjoyed on its domestic routes won't be realized.
I looked at domestic fares on internal US flights during my recent trip to the US. For example, the 4 hour flight from Chicago to Los Angeles for less than $200US return can be compared to discount return tickets on the 1 hour flight from M-S of about double that. And the M-S route is a major link with huge traffic volumes.
I’ll add to this post as further information about the inquiry comes to hand.
Efficiency in international and domestic aviation is a major concern to Australia given the distribution of our population over a large area, the distance of Australia to its major markets and the crucial role of internal and external tourism as economic drivers. The low travel flows within Australia on all routes other than the Melbourne-Sydney (M-S) route means internally the sorts of competition gains the US has enjoyed on its domestic routes won't be realized.
I looked at domestic fares on internal US flights during my recent trip to the US. For example, the 4 hour flight from Chicago to Los Angeles for less than $200US return can be compared to discount return tickets on the 1 hour flight from M-S of about double that. And the M-S route is a major link with huge traffic volumes.
I’ll add to this post as further information about the inquiry comes to hand.
Wednesday, January 10, 2007
Dating services & getting a job
One of the more onerous tasks faced by younger participants at the American Economic Association (AEA) meetings is to try to get a job.
The meetings provide the largest organized job market in economics. Each year around 1000 soon-to-be doctoral graduates attempt to get jobs in universities and public agencies around the world that send representatives to the meetings and interview. Most of the larger, and some of the smaller, Australian universities send representatives and there are now typically quite a few Australian-based job applicants at the meeting as well.
The task of getting a job is onerous for all concerned because of the sheer volume of interviews – talented students might secure up to 30 interviews over the 3 days. For the interviewing institution the cost of hiring a young Assistant Professor can range between $10,000-$15,000. It’s a lot and my guess is that it would cost Australian universities more than this.
Harvard’s Alvin Roth has sought to simplify the procedure and reduce everyone’s costs. To do this he borrowed a technique from online dating – each applicant is allowed to send to electronic pings to potential employers to ‘signal’ a serious desire to secure employment at a school and to reduce frivolous applications. This is a market design procedure that reduces the costs of both applicant and interviewing institution.
Candidates are advised not to waste a ping on a school who already knows they are interested and not to waste a ping on a school that is well away from their plausible range. Schools in turn are told not to take a failure to ping as a brush-off.
The approach follows the 2005 suggestion of Stanford’s Muriel Niederle and MIT economist Dan Ariely to the dating service Cupid.com. The difficulty in online dating services is that women get lots of approaches from men but men only get a few. Thus this dating service allocates two electronic roses to its male members which they can use to contact two women. The men tend therefore to be much more selective and the signals they do send are much more serious. This reduces the search costs of both men and women by weeding out the non-serious interest.
Each of these examples illustrate the idea that getting more information in a market does not always promote efficiency given positive search costs. Measures can often be devised which restrict the amount of information provided and which thereby deliver efficiency gains to all.
The meetings provide the largest organized job market in economics. Each year around 1000 soon-to-be doctoral graduates attempt to get jobs in universities and public agencies around the world that send representatives to the meetings and interview. Most of the larger, and some of the smaller, Australian universities send representatives and there are now typically quite a few Australian-based job applicants at the meeting as well.
The task of getting a job is onerous for all concerned because of the sheer volume of interviews – talented students might secure up to 30 interviews over the 3 days. For the interviewing institution the cost of hiring a young Assistant Professor can range between $10,000-$15,000. It’s a lot and my guess is that it would cost Australian universities more than this.
Harvard’s Alvin Roth has sought to simplify the procedure and reduce everyone’s costs. To do this he borrowed a technique from online dating – each applicant is allowed to send to electronic pings to potential employers to ‘signal’ a serious desire to secure employment at a school and to reduce frivolous applications. This is a market design procedure that reduces the costs of both applicant and interviewing institution.
Candidates are advised not to waste a ping on a school who already knows they are interested and not to waste a ping on a school that is well away from their plausible range. Schools in turn are told not to take a failure to ping as a brush-off.
The approach follows the 2005 suggestion of Stanford’s Muriel Niederle and MIT economist Dan Ariely to the dating service Cupid.com. The difficulty in online dating services is that women get lots of approaches from men but men only get a few. Thus this dating service allocates two electronic roses to its male members which they can use to contact two women. The men tend therefore to be much more selective and the signals they do send are much more serious. This reduces the search costs of both men and women by weeding out the non-serious interest.
Each of these examples illustrate the idea that getting more information in a market does not always promote efficiency given positive search costs. Measures can often be devised which restrict the amount of information provided and which thereby deliver efficiency gains to all.
Monday, January 08, 2007
Notes on the AEA meetings in Chicago
The main point of my US visit was to attend the American Economic Association (AEA) meetings. They have been pretty good although many of the sessions were (predictably) mainly oriented to the US. In all I attended 12 sessions over 2.5 days with 4 speakers per session. I saw several Aussies at social events during the meetings but most were recuiting new staff not attending the actual meetings. I took the following notes as the conference proceeded to force myself to begin to think about what I had learned.
Day 1
I went to a ‘social economics’ session on climate change where the speaker sought to apply behavioral economics ideas to global warming issues – I approve of the idea of attempting to encourage a change in US mass consumption ethics as a way of reducing greenhouse gas emissions but still wonder how you do it. Conventional carbon taxes coupled with tradable quotas seem to me to be the necessary proximate policy instruments although I am as happy as the next guy if ‘moral suasion’ to cut energy waste can work. Generally, I think we can sensibly cut our desires Buddhist-fashion to augment our welfare – substituting leisure for material consumption – but I would be very reluctant to cut out conventional policy approaches. I have long thought of writing a new version of the basic consumption model of economics where you allow the consumer to invest money and time in contracting desires!
A session on the economics of obesity was focused on things that interest me. Getting fat involves external health costs because (unlike smoking or drinking) the activity is untaxed and there are health costs generated that are paid for by risk-pooling insurance arrangements. But, for certain, the private costs you incur from being a fatty are much bigger than the public costs so perhaps obesity is not so much of a public health issue. Two of the three papers presented focused on this issue. In the US health insurance is generally provided by your employer and fatties are paid less than people of normal weight. Indeed the lower wage probably more than compensates for the extra health costs imposed by being fat. So I am unsure if this analysis applies much to Australia. If health care funds in Australia could charge higher premia to fatties effects would differ.
I then went to a session chaired by James Galbraith (son of John Kenneth) on the economics of exiting from Iraq. It was chilling from the perspective of the US. Nobel Laureate Thomas Schelling argued that the war had ended and the issue was how does the US get out of an occupation? He generally thought that an exit would not occur until the Presidency changed – then an ‘if you break it you must pay for it policy’ should be used. Lynda Bilmes (co-author last year of a celebrated study with Joe Stiglitz on the cost of the war in Iraq) estimated the huge costs the US would continue to experience from disability payouts even if it withdrew now. For each of the 3,040 US troops killed there are 16 with injuries that need treatment (50,508 injured disability claimants) creating ongoing health costs of a $700 billion dollars. Lynda ideas are summarized here. By the way she has increased her estimated total cost of US involvement in Iraq at $18,000 per US household!
The most astonishing paper in this session for me was by ex-1991 Iraq veteran Col. Douglas MacGregor who argued that the US had lost the war in Iraq and was an irrelevant force in the region. He argued that the US politicians who had organized the war as well as their generals were simply militarily incompetent. His classic line with respect to the idea of sticking around and ‘building institutions’ was ‘Iraqi Muslims would not accept a cancer cure from an invading white Christian military force’. He rejected ‘break it you must pay for it policy’ and argued for withdrawal now without any attempt to transfer military prowess to the local US-backed administration which he described as ‘doomed’. He believed the US had mistaken impressions of its invincibility because of flawed perceptions of its role in World War 2. There was an urgent need to think about how to stage moderate interventions that did not involve ‘shock and awe’ attempts to annihilate a country.
A luncheon address on the case for the US Federal Reserve to continue combine monetary policy with supervision of the banks – on the basis of economies of scope- was provided by Governor Ben Bernanke. It was boring – better suited for a straight banking audience though I was curious to see Bernanke. It was well argued using agency theory and ideas of economies of scope.
I finished my day with a session on the economic contributions of Milton Friedman by Thomas Sargent, Gary Becker and Robert Lucas. There were no eulogies but a lot of emotion. All three economists identified Friedman’s skills as a teacher along with his superb economic insight. Becker is not a young man but said that Friedman had been his friend - and teacher - for 50 years. Lucas was an ex-student of Friedman. All three say Friedman’s strength as his love of argument and his respect for opposing views even as he sought to demolish them as among his strongest assets.
I have long lost my copy of Friedman’s Capitalism and Freedom so bought a new copy after this talk. I have been flipping through it during dull presentations - it is still a good read!
Day 2
The opening session I made it to was on economics and biology chaired by Gary Becker. Economic motivations for biological phenomena such as the demographic transition, other-regarding utilities and perhaps most interestingly of all piece by Arthur Robson on ‘why we die?’ and (with Larry Samuelson) ‘why nature might want us to hyperbolically discount/’. Generally I found the discussion a bit space-cadet-ish and abstract. The paper by Robson is good but requires careful reading.
The luncheon involved a speech by David Kreps on the contributions to game theory of Thomas Schelling and Robert Aumann with a response by Schelling who told some nice intuitive stories about focal points in game theory. He discussed his delightful story about two separated friends in a city might find each other by thinking where the other person might focus.
Then excellent presentations on the US productivity acceleration after 1995 – they have finally agreed there was an acceleration! Standard stories dominated about the role of IT. An interesting piece by Barry Triplett argued that the main source of productivity growth was growth in the services sector backed by IT. It was a neat argument. Since the 1960s and a famous paper by William Baumol economists have regarded services as a sector that will not benefit greatly from technological advance – it was Baumol’s ‘unbalanced growth’ thesis. But in the US this is no longer true – services are the sector where most productivity gains are occurring. Indeed as I noticed on this trip there are now not only automatic check-in facilities for air travelers in the US but also automated check-in facilities in hotels. (The Hyatt Regency Chicago also has a device that checks on whether the bottles in your room bar fridge move – if they do you are charged for the drinks even if you don’t consume them – the idea is to stop you stacking your fridge with outside supplies – if you do the supplies are confiscated and you are charged $25). A final paper on Europe finds that it didn’t enjoy productivity acceleration after 1995 because its use of IT, particularly in the services sector, was so low. I found this interesting.
Finally I went to what I thought was the best paper at the meetings so far, an AEA Presidential address by George Akerloff on the use of norms in macroeconomics – ‘The Missing Motivation in Macroeconomics’. All the big consequences of neoclassical macroeconomics (Ricardian equivalence, independence of consumption from current income, the Modigliani-Miller theory, irrelevance of monetary policy etc) are a consequence of ignoring norms about how people believe they should behave. Incorporating these norms restores the commonsense conclusion that none of these neutralities need hold and, indeed, restores the valuable insights of Keynes. Highly recommended reading - the full paper is here. This might be a new topic I pursue. Many of the behavioral economics I understand through my work on economics and psychology for the study of illicit drugs.
Day 3
The first session was on urban economics and sprawl. We had what I think was a trite paper on the game-theoretic economics of building skyscrapers which modified conventional building models by defining a benefit from being biggest. It suggested developers wouldn’t earn big profits since they would overdevelop. But often they do earn very big profits. Very large buildings often reflect the lumpy nature of planned expansions in office and residential space rather than skyscraper wars. Another paper looked at persistence in urban structures by examining Los Angeles. The pattern of urban concentrations could be better explained by patterns of highway networks many decades ago than current networks. Interesting – you cannot ignore history. I also liked a paper by Jan Breuckner on urban sprawl externalities that focused on the issue of population densities and externalities from being social – the intriguing result was that sociable people choose to live in denser environments but that density itself is associated with low social capital. Thus sprawl delivers positive externalities in terms of allowing people to be sociable – on this grounds it should be subsidized not taxed! Of course agglomeration an d congestion externalities interact in complex ways so this is not a particularly robust finding.
A subsequent session looked at mega-stores such as WalMart. Although Mum & Pop single stores remain about constant in numbers in the US – they remain an important force - many of them are exiting just as many are entering. It is the big chains however which are growing much more rapidly and which don’t exit (close individual stores) so frequently – there are 500 US retailers which operate in more than 14 US states. Some of the papers used standard economies of scope arguments (demands for ‘one stop shopping’) to account for such trends possibly fostered by an increased role of women in the workforce. On the supply side WalMart now uses satellite technology, new barcode and GPS technologies and benefits from lower trade barriers. One stop shopping might be part of the explanation for the success of the chain but my guess is that cheaper prices are as important. Many of these efficiencies won’t be realized in smaller markets such as Australia – at least to the same extent. But still it is the large Australian chains such as Coles and Woolworths that should do best given the US experience. This seesion feed into ideas about the next session - the greater stability of US mega-stoire chains may have contributed to the greater macroeconomic stability of the US economy over the past decades.
The final session I attended was mainly on the great moderation (the perceived reduction in macroeconomic volatility) and financial markets. The main idea is that financial innovation and the removal of credit constraints better enables households to consumption smooth and thereby reduces the volatility of aggregate demand. This is a hypothesis not a claimed regularity since better access to debt might conceivably destabilize things. But household and cross-country OECD studies confirm that greater stability has been associated with financial market liberalization.
Recreation
Chicago is architecturally a beautiful city with both attractive older and more modern buildings. Its centre has broad footpaths that give it spaciousness. The Magnificent Mile portion of Michigan Avenue is a buzz for tourists, like me, with elegant buildings and shops. I have been here early January before and it was freezing cold but this year it is mild – cool, sunny spring weather in the middle of winter – the result of warmer air masses flowing in from the west and southwest and the effects of an El Nino year.
Is this weather trivia? Perhaps but it has caused a downturn in US oil demands and the largest drop in spot oil prices in 20 months. At $55-59US per barrel it’s the lowest priced oil since June 2005. It shows the market power of US energy consumers! And in turn a big collapse in gold prices and, surely not, base metal prices as well. I was interested to note that the warm winter in Chicago seemed to be having effects on the resource sector of the Australian economy which has dropped dramatically while I was here!
I was jetlagged throughout my visit and spent a lot of non-conference time reading and watching US TV. If anyone has good ways of dealing ewith jetlag I'd be interested to hear. I have tried melatonin and tryied adjusting immediately to the new time zone but after 6 days I was still very jet-lagged.
TV in the US describes a different world. Apart from the medical ads, the endless get-rich-quick schemes (Donald Trump was performing in Chicago while I was here), the body-beautiful schemes, the boring god-talk-shows and the expanded range of commercial trash shows available here, there was TV of great interest. I watched a PBS show on the withdrawn book Hit Man which describes how to kill people. It was defended by the press here on the grounds on freedom of speech. On the same theme while here I read the chilling (though poorly written) Phillip Carlo account of The Ice Man – a ghoulish account of a Mafia contract killer’s trade that has won high acclaim – he claims to have helped kill Jimmy Hoffa – gripping as it is it lacks credibility – save your money.
I did very much enjoyed a Frontline show on PBS that examined how the weapons of mass destruction lies in Iraq were concocted with the involvement of VP Dick Cheney. Astounding documentary television and well worth watching. By the way Cheney is still making money out of Halliburton!
Meanwhile I’ve had a carnivorous time in Chicago in the evenings eating my way through some great NY-cuts, prime rib and two excellent lobster tails over the past few days. While I may have made a bit of a pig of myself I have remained alcohol-free now for 6 days – the world looks different! I am a bit steaked-out so on my last evening here tonight I’ll try some Asian food.
Day 1
I went to a ‘social economics’ session on climate change where the speaker sought to apply behavioral economics ideas to global warming issues – I approve of the idea of attempting to encourage a change in US mass consumption ethics as a way of reducing greenhouse gas emissions but still wonder how you do it. Conventional carbon taxes coupled with tradable quotas seem to me to be the necessary proximate policy instruments although I am as happy as the next guy if ‘moral suasion’ to cut energy waste can work. Generally, I think we can sensibly cut our desires Buddhist-fashion to augment our welfare – substituting leisure for material consumption – but I would be very reluctant to cut out conventional policy approaches. I have long thought of writing a new version of the basic consumption model of economics where you allow the consumer to invest money and time in contracting desires!
A session on the economics of obesity was focused on things that interest me. Getting fat involves external health costs because (unlike smoking or drinking) the activity is untaxed and there are health costs generated that are paid for by risk-pooling insurance arrangements. But, for certain, the private costs you incur from being a fatty are much bigger than the public costs so perhaps obesity is not so much of a public health issue. Two of the three papers presented focused on this issue. In the US health insurance is generally provided by your employer and fatties are paid less than people of normal weight. Indeed the lower wage probably more than compensates for the extra health costs imposed by being fat. So I am unsure if this analysis applies much to Australia. If health care funds in Australia could charge higher premia to fatties effects would differ.
I then went to a session chaired by James Galbraith (son of John Kenneth) on the economics of exiting from Iraq. It was chilling from the perspective of the US. Nobel Laureate Thomas Schelling argued that the war had ended and the issue was how does the US get out of an occupation? He generally thought that an exit would not occur until the Presidency changed – then an ‘if you break it you must pay for it policy’ should be used. Lynda Bilmes (co-author last year of a celebrated study with Joe Stiglitz on the cost of the war in Iraq) estimated the huge costs the US would continue to experience from disability payouts even if it withdrew now. For each of the 3,040 US troops killed there are 16 with injuries that need treatment (50,508 injured disability claimants) creating ongoing health costs of a $700 billion dollars. Lynda ideas are summarized here. By the way she has increased her estimated total cost of US involvement in Iraq at $18,000 per US household!
The most astonishing paper in this session for me was by ex-1991 Iraq veteran Col. Douglas MacGregor who argued that the US had lost the war in Iraq and was an irrelevant force in the region. He argued that the US politicians who had organized the war as well as their generals were simply militarily incompetent. His classic line with respect to the idea of sticking around and ‘building institutions’ was ‘Iraqi Muslims would not accept a cancer cure from an invading white Christian military force’. He rejected ‘break it you must pay for it policy’ and argued for withdrawal now without any attempt to transfer military prowess to the local US-backed administration which he described as ‘doomed’. He believed the US had mistaken impressions of its invincibility because of flawed perceptions of its role in World War 2. There was an urgent need to think about how to stage moderate interventions that did not involve ‘shock and awe’ attempts to annihilate a country.
A luncheon address on the case for the US Federal Reserve to continue combine monetary policy with supervision of the banks – on the basis of economies of scope- was provided by Governor Ben Bernanke. It was boring – better suited for a straight banking audience though I was curious to see Bernanke. It was well argued using agency theory and ideas of economies of scope.
I finished my day with a session on the economic contributions of Milton Friedman by Thomas Sargent, Gary Becker and Robert Lucas. There were no eulogies but a lot of emotion. All three economists identified Friedman’s skills as a teacher along with his superb economic insight. Becker is not a young man but said that Friedman had been his friend - and teacher - for 50 years. Lucas was an ex-student of Friedman. All three say Friedman’s strength as his love of argument and his respect for opposing views even as he sought to demolish them as among his strongest assets.
I have long lost my copy of Friedman’s Capitalism and Freedom so bought a new copy after this talk. I have been flipping through it during dull presentations - it is still a good read!
Day 2
The opening session I made it to was on economics and biology chaired by Gary Becker. Economic motivations for biological phenomena such as the demographic transition, other-regarding utilities and perhaps most interestingly of all piece by Arthur Robson on ‘why we die?’ and (with Larry Samuelson) ‘why nature might want us to hyperbolically discount/’. Generally I found the discussion a bit space-cadet-ish and abstract. The paper by Robson is good but requires careful reading.
The luncheon involved a speech by David Kreps on the contributions to game theory of Thomas Schelling and Robert Aumann with a response by Schelling who told some nice intuitive stories about focal points in game theory. He discussed his delightful story about two separated friends in a city might find each other by thinking where the other person might focus.
Then excellent presentations on the US productivity acceleration after 1995 – they have finally agreed there was an acceleration! Standard stories dominated about the role of IT. An interesting piece by Barry Triplett argued that the main source of productivity growth was growth in the services sector backed by IT. It was a neat argument. Since the 1960s and a famous paper by William Baumol economists have regarded services as a sector that will not benefit greatly from technological advance – it was Baumol’s ‘unbalanced growth’ thesis. But in the US this is no longer true – services are the sector where most productivity gains are occurring. Indeed as I noticed on this trip there are now not only automatic check-in facilities for air travelers in the US but also automated check-in facilities in hotels. (The Hyatt Regency Chicago also has a device that checks on whether the bottles in your room bar fridge move – if they do you are charged for the drinks even if you don’t consume them – the idea is to stop you stacking your fridge with outside supplies – if you do the supplies are confiscated and you are charged $25). A final paper on Europe finds that it didn’t enjoy productivity acceleration after 1995 because its use of IT, particularly in the services sector, was so low. I found this interesting.
Finally I went to what I thought was the best paper at the meetings so far, an AEA Presidential address by George Akerloff on the use of norms in macroeconomics – ‘The Missing Motivation in Macroeconomics’. All the big consequences of neoclassical macroeconomics (Ricardian equivalence, independence of consumption from current income, the Modigliani-Miller theory, irrelevance of monetary policy etc) are a consequence of ignoring norms about how people believe they should behave. Incorporating these norms restores the commonsense conclusion that none of these neutralities need hold and, indeed, restores the valuable insights of Keynes. Highly recommended reading - the full paper is here. This might be a new topic I pursue. Many of the behavioral economics I understand through my work on economics and psychology for the study of illicit drugs.
Day 3
The first session was on urban economics and sprawl. We had what I think was a trite paper on the game-theoretic economics of building skyscrapers which modified conventional building models by defining a benefit from being biggest. It suggested developers wouldn’t earn big profits since they would overdevelop. But often they do earn very big profits. Very large buildings often reflect the lumpy nature of planned expansions in office and residential space rather than skyscraper wars. Another paper looked at persistence in urban structures by examining Los Angeles. The pattern of urban concentrations could be better explained by patterns of highway networks many decades ago than current networks. Interesting – you cannot ignore history. I also liked a paper by Jan Breuckner on urban sprawl externalities that focused on the issue of population densities and externalities from being social – the intriguing result was that sociable people choose to live in denser environments but that density itself is associated with low social capital. Thus sprawl delivers positive externalities in terms of allowing people to be sociable – on this grounds it should be subsidized not taxed! Of course agglomeration an d congestion externalities interact in complex ways so this is not a particularly robust finding.
A subsequent session looked at mega-stores such as WalMart. Although Mum & Pop single stores remain about constant in numbers in the US – they remain an important force - many of them are exiting just as many are entering. It is the big chains however which are growing much more rapidly and which don’t exit (close individual stores) so frequently – there are 500 US retailers which operate in more than 14 US states. Some of the papers used standard economies of scope arguments (demands for ‘one stop shopping’) to account for such trends possibly fostered by an increased role of women in the workforce. On the supply side WalMart now uses satellite technology, new barcode and GPS technologies and benefits from lower trade barriers. One stop shopping might be part of the explanation for the success of the chain but my guess is that cheaper prices are as important. Many of these efficiencies won’t be realized in smaller markets such as Australia – at least to the same extent. But still it is the large Australian chains such as Coles and Woolworths that should do best given the US experience. This seesion feed into ideas about the next session - the greater stability of US mega-stoire chains may have contributed to the greater macroeconomic stability of the US economy over the past decades.
The final session I attended was mainly on the great moderation (the perceived reduction in macroeconomic volatility) and financial markets. The main idea is that financial innovation and the removal of credit constraints better enables households to consumption smooth and thereby reduces the volatility of aggregate demand. This is a hypothesis not a claimed regularity since better access to debt might conceivably destabilize things. But household and cross-country OECD studies confirm that greater stability has been associated with financial market liberalization.
Recreation
Chicago is architecturally a beautiful city with both attractive older and more modern buildings. Its centre has broad footpaths that give it spaciousness. The Magnificent Mile portion of Michigan Avenue is a buzz for tourists, like me, with elegant buildings and shops. I have been here early January before and it was freezing cold but this year it is mild – cool, sunny spring weather in the middle of winter – the result of warmer air masses flowing in from the west and southwest and the effects of an El Nino year.
Is this weather trivia? Perhaps but it has caused a downturn in US oil demands and the largest drop in spot oil prices in 20 months. At $55-59US per barrel it’s the lowest priced oil since June 2005. It shows the market power of US energy consumers! And in turn a big collapse in gold prices and, surely not, base metal prices as well. I was interested to note that the warm winter in Chicago seemed to be having effects on the resource sector of the Australian economy which has dropped dramatically while I was here!
I was jetlagged throughout my visit and spent a lot of non-conference time reading and watching US TV. If anyone has good ways of dealing ewith jetlag I'd be interested to hear. I have tried melatonin and tryied adjusting immediately to the new time zone but after 6 days I was still very jet-lagged.
TV in the US describes a different world. Apart from the medical ads, the endless get-rich-quick schemes (Donald Trump was performing in Chicago while I was here), the body-beautiful schemes, the boring god-talk-shows and the expanded range of commercial trash shows available here, there was TV of great interest. I watched a PBS show on the withdrawn book Hit Man which describes how to kill people. It was defended by the press here on the grounds on freedom of speech. On the same theme while here I read the chilling (though poorly written) Phillip Carlo account of The Ice Man – a ghoulish account of a Mafia contract killer’s trade that has won high acclaim – he claims to have helped kill Jimmy Hoffa – gripping as it is it lacks credibility – save your money.
I did very much enjoyed a Frontline show on PBS that examined how the weapons of mass destruction lies in Iraq were concocted with the involvement of VP Dick Cheney. Astounding documentary television and well worth watching. By the way Cheney is still making money out of Halliburton!
Meanwhile I’ve had a carnivorous time in Chicago in the evenings eating my way through some great NY-cuts, prime rib and two excellent lobster tails over the past few days. While I may have made a bit of a pig of myself I have remained alcohol-free now for 6 days – the world looks different! I am a bit steaked-out so on my last evening here tonight I’ll try some Asian food.
Friday, January 05, 2007
The death of quality public libraries?
You hear the story from university executives and VCs all the time. Science, mathematics and economics are out – sports management, media studies and marketing are in. The reason, they say, is demand. Students, as consumers, prefer the latter to the former.
I have never accepted this view for an instant since the two parties transacting (teachers and students) have asymmetric information. Suppliers of student services have much better information than students have as consumers of these services. This potentially creates a ‘lemons problem’ with universities offering inexpensive less intellectually challenging courses to clients who are in a poor position to judge their worth. Moreover, in the Australian university scene, any queries about academic direction get the same response – everyone else is doing it, why not us? A bad eventual equilibrium from such shallow thinking is that the ‘bad’ courses drive out the ‘good’ and universities end up teaching only poor courses. It hasn’t happened yet everywhere but it can.
Indeed, I have never liked to think of students as ‘consumers’. University teachers are in much the same position as physicians receiving patients who seek medical advice. The responsibility of a physician is not to meet any perceived demand for services but to offer accurate medical advice. Ditto for universities – it’s a moral responsibility not to offer a second rate educational product.
In this week’s Wall Street Journal (I can’t find an electronic link but a briefer blogged version of the main idea is here) an analogous point is raised in relation to public libraries. John Miller notes that, while ‘For Whom the Bell Tolls’ is perhaps Ernest Hemingway’s best novel, nobody has borrowed it from the Fairfax Public Library in Washington for 2 years. And now the ‘bell may toll for Hemingway’ – the library director will get rid of the book on the basis of such evidently low demand. Books by Charlotte Bronte, William Faulkner, Thomas Hardy and Alexander Solzhenitsyn have already been pulled.
Libraries will accordingly come to accommodate mainly cheapskates with mass tastes. They will not be cultural storehouses that contain the best that has been written but simply operate to subsidize the reading habits of a mass audience too cheap to buy their own low-level reading – mass circulation books are, after all, cheap these days. You can even download audio books into MP3 players. And, from this perspective, why have public libraries at all? Are libraries outmoded? Do they now provide mainly welfare for middle-class readers who are too stingy to shell out a few dollars for the latest Stephen King trash that you can buy discounted at Target?
John Miller argues that:
‘Instead of embracing this doomed model, libraries might seek to differentiate themselves among the many options readers have, using a good dictionary as the model. …New words come and old ones come out, but a reliable lexicon becomes the foundation of linguistic stability and coherence. Likewise, libraries should seek to shore up the culture against the eroding force of trends’
Miller sees librarians as experts who are teachers, advisors and guardians of an intellectual inheritance - not as clerks who fill their shelves with whatever their ‘customers’ want.
I agree. Libertarians and ideologically-disposed free market economists take tastes as something immutable and god-given that production emerges to satisfy. Tastes are not exogenous in this sense – they are determined, in part, by commercial interests and capricious fashion as well as by ‘lemons problem’ market failures. Libraries (and universities) should exist to help preserve what are valuable beliefs and preferences. Neither libraries nor universities should be run purely on the basis of demand signals from poorly-informed customers.
There are links between the two 'lemons' issues here - books and universities. The next time you visit a large university bookshop compare the number of books for sale on tourism, marketing (or, even worse, feminism or Marxism) with the number of books on mathematics or science. Its an important index of university quality though one that I am certain the market-driven ideologues running mmodern universities would be embarrassed to embrace.
I have never accepted this view for an instant since the two parties transacting (teachers and students) have asymmetric information. Suppliers of student services have much better information than students have as consumers of these services. This potentially creates a ‘lemons problem’ with universities offering inexpensive less intellectually challenging courses to clients who are in a poor position to judge their worth. Moreover, in the Australian university scene, any queries about academic direction get the same response – everyone else is doing it, why not us? A bad eventual equilibrium from such shallow thinking is that the ‘bad’ courses drive out the ‘good’ and universities end up teaching only poor courses. It hasn’t happened yet everywhere but it can.
Indeed, I have never liked to think of students as ‘consumers’. University teachers are in much the same position as physicians receiving patients who seek medical advice. The responsibility of a physician is not to meet any perceived demand for services but to offer accurate medical advice. Ditto for universities – it’s a moral responsibility not to offer a second rate educational product.
In this week’s Wall Street Journal (I can’t find an electronic link but a briefer blogged version of the main idea is here) an analogous point is raised in relation to public libraries. John Miller notes that, while ‘For Whom the Bell Tolls’ is perhaps Ernest Hemingway’s best novel, nobody has borrowed it from the Fairfax Public Library in Washington for 2 years. And now the ‘bell may toll for Hemingway’ – the library director will get rid of the book on the basis of such evidently low demand. Books by Charlotte Bronte, William Faulkner, Thomas Hardy and Alexander Solzhenitsyn have already been pulled.
Libraries will accordingly come to accommodate mainly cheapskates with mass tastes. They will not be cultural storehouses that contain the best that has been written but simply operate to subsidize the reading habits of a mass audience too cheap to buy their own low-level reading – mass circulation books are, after all, cheap these days. You can even download audio books into MP3 players. And, from this perspective, why have public libraries at all? Are libraries outmoded? Do they now provide mainly welfare for middle-class readers who are too stingy to shell out a few dollars for the latest Stephen King trash that you can buy discounted at Target?
John Miller argues that:
‘Instead of embracing this doomed model, libraries might seek to differentiate themselves among the many options readers have, using a good dictionary as the model. …New words come and old ones come out, but a reliable lexicon becomes the foundation of linguistic stability and coherence. Likewise, libraries should seek to shore up the culture against the eroding force of trends’
Miller sees librarians as experts who are teachers, advisors and guardians of an intellectual inheritance - not as clerks who fill their shelves with whatever their ‘customers’ want.
I agree. Libertarians and ideologically-disposed free market economists take tastes as something immutable and god-given that production emerges to satisfy. Tastes are not exogenous in this sense – they are determined, in part, by commercial interests and capricious fashion as well as by ‘lemons problem’ market failures. Libraries (and universities) should exist to help preserve what are valuable beliefs and preferences. Neither libraries nor universities should be run purely on the basis of demand signals from poorly-informed customers.
There are links between the two 'lemons' issues here - books and universities. The next time you visit a large university bookshop compare the number of books for sale on tourism, marketing (or, even worse, feminism or Marxism) with the number of books on mathematics or science. Its an important index of university quality though one that I am certain the market-driven ideologues running mmodern universities would be embarrassed to embrace.
Thursday, January 04, 2007
KKR on private equity
I was interested in the views of George Roberts (of Kohlberg Kravis and Roberts) on the rationale for the boom in private equity – equity not publicly-traded in a share market.
‘Managements want to take a long-term view, but they know they get clobbered in the short-term. A lot of companies want to start new projects but they can’t because they are afraid of the hit to quarterly earnings, even though it may be right in 3 to 5 years. When we say our average hold [before selling the company or taking it private] is 7 years they sit up’.
It’s a version of the ‘short-termism’ arguments often directed at private equity investors and bolsters arguments that private equity boosts the efficiency of capitalism by forcing investors under the cold discipline of unrelenting debt to rid companies of underperforming assets, ruthless cost-cutting, outsourcing of jobs and so on. It also means, of course, that we don’t need to be as concerned about possible excesses of such firms.
Indeed one argument for establishing corporations with many shareholders is that, by sharing risks it is possible to access the vast amounts of capital necessary to fund capital-intensive industries. Some of the earliest joint-stock companies were US railways which needed huge funding to be feasible and old-fashioned family-style businesses would not work. But this type of argument is increasingly irrelevant when firms such as KKR can mobilize investment war chests of over $100 billion US. Last year KKR bought 12 companies for a shade under $7 billion. Moreover, they can afford to lose $1 billion on a particular deal given their spread of interests.
Another argument for the rise of private equity that one can make is that equity premia mean that debt is cheap, at least for firms that don’t experience disastrous ‘long-tail’ events. I’ve put this argument before. It suggests that equity premia arise because debt holders ignore the prospect of severe ‘long-tail’ adverse circumstances. In this case it is important to be concerned about the rise of private equity since it all can ‘end-in-tears’ (particularly for the shareholders of banks and the stakeholders in pension schemes who fund such purchases) as the RBA and other groups warn.
Both views here may have some truth to them. Some deals will work out delivering great efficiency while others won’t, instead delivering much financial pain. In any even capital markets must be now modeling by supposing there is a mix of both public and private equity claims.
‘Managements want to take a long-term view, but they know they get clobbered in the short-term. A lot of companies want to start new projects but they can’t because they are afraid of the hit to quarterly earnings, even though it may be right in 3 to 5 years. When we say our average hold [before selling the company or taking it private] is 7 years they sit up’.
It’s a version of the ‘short-termism’ arguments often directed at private equity investors and bolsters arguments that private equity boosts the efficiency of capitalism by forcing investors under the cold discipline of unrelenting debt to rid companies of underperforming assets, ruthless cost-cutting, outsourcing of jobs and so on. It also means, of course, that we don’t need to be as concerned about possible excesses of such firms.
Indeed one argument for establishing corporations with many shareholders is that, by sharing risks it is possible to access the vast amounts of capital necessary to fund capital-intensive industries. Some of the earliest joint-stock companies were US railways which needed huge funding to be feasible and old-fashioned family-style businesses would not work. But this type of argument is increasingly irrelevant when firms such as KKR can mobilize investment war chests of over $100 billion US. Last year KKR bought 12 companies for a shade under $7 billion. Moreover, they can afford to lose $1 billion on a particular deal given their spread of interests.
Another argument for the rise of private equity that one can make is that equity premia mean that debt is cheap, at least for firms that don’t experience disastrous ‘long-tail’ events. I’ve put this argument before. It suggests that equity premia arise because debt holders ignore the prospect of severe ‘long-tail’ adverse circumstances. In this case it is important to be concerned about the rise of private equity since it all can ‘end-in-tears’ (particularly for the shareholders of banks and the stakeholders in pension schemes who fund such purchases) as the RBA and other groups warn.
Both views here may have some truth to them. Some deals will work out delivering great efficiency while others won’t, instead delivering much financial pain. In any even capital markets must be now modeling by supposing there is a mix of both public and private equity claims.
An inspirational story
An extremely brave man, Wesley Autry, a construction worker from Harlem, watched as a convulsing stranger toppled onto the rail tracks in New York’s subway system. A train was roaring towards the man and, without a moment’s thought, he leapt onto the line and pinned the stricken stranger to a groove between the tracks while the train passed over their heads with only centimeters to spare. At the end of it all Autry’s concern was for his young daughters who were waiting on the platform above – ‘let them know their dad’s OK’, he said.
Autry modestly denied hero status after the incident and says that what he did frightened him ex post. But his impulse was magnificent – a real hero.
Autry modestly denied hero status after the incident and says that what he did frightened him ex post. But his impulse was magnificent – a real hero.
Tuesday, January 02, 2007
Chicago and the AEA meetings
I am leaving for North America today. I’ll spend about a week in Chicago attending the American Economic Association meetings there.
Chicago is the third-largest city in the United States with population of 7 million and one of my favorite US cities – I first spent six months living in Illinois in 1982 while visiting the University of Illinois at Urbana-Champaign. I have revisited the ‘windy city’ several times since then and always find plenty to do. There’s a newspaper that comes out with a list of weekly events – the variety overwhelms me – there are 9000 restaurants and 4,000 clubs and bars. I’ll try to make it to 1 or 2 – the blues bars are unforgettable. It is freezing in Chicago at this time of year with mean maximum temperatures below zero. I’ll do some of the tourist bit while there and certainly visit the bookshop at the University of Chicago which is good. I’ll also enjoy the Chicago Tribune – a great newspaper.
The papers of the Conference are a nightmare to select between. It a vast meeting – the program is 191 pages and the number of concurrent sessions huge – in the first time slot, for example, there are 50 concurrent sessions. Many of the papers are on the web so one can preview which helps. But I will be busy and posts over the next week will be occasional.
Chicago is the third-largest city in the United States with population of 7 million and one of my favorite US cities – I first spent six months living in Illinois in 1982 while visiting the University of Illinois at Urbana-Champaign. I have revisited the ‘windy city’ several times since then and always find plenty to do. There’s a newspaper that comes out with a list of weekly events – the variety overwhelms me – there are 9000 restaurants and 4,000 clubs and bars. I’ll try to make it to 1 or 2 – the blues bars are unforgettable. It is freezing in Chicago at this time of year with mean maximum temperatures below zero. I’ll do some of the tourist bit while there and certainly visit the bookshop at the University of Chicago which is good. I’ll also enjoy the Chicago Tribune – a great newspaper.
The papers of the Conference are a nightmare to select between. It a vast meeting – the program is 191 pages and the number of concurrent sessions huge – in the first time slot, for example, there are 50 concurrent sessions. Many of the papers are on the web so one can preview which helps. But I will be busy and posts over the next week will be occasional.
Monday, January 01, 2007
85% support English language citizenship test
Despite widespread criticism of the proposed citizenship pledge and the test of knowledge of Australia to be posed in English The Australian newspaper reports that 85% of Australians support this test. My surprise is that the figure is so low.
The release of Cabinet Papers yesterday also shows that Liberal ex-Prime Minister, Malcolm Fraser, can be brought to account for what some euphemistically refer to as 'problems of multiculturalism' rampant among Lebanese Muslim communities in south-west Sydney. Fraser allowed into Australia, in the late 1970s, refugee migrants that then immigration authorities described as lacking requisite qualities for integration - many were illiterate, unskilled and had questionable characters (and even personal hygiene).
There were warnings at the time that terrorists and criminals could be seeking to enter Australia. The then Immigration Minister, Michael MacKellar, stated that the Lebanese refugee program was 'scraping the bottom of the barrel with regard to quality'. Even the local Lebanese community indicated they would not oppose more stringent requirements on Lebanese seeking entry.
The high-unemployment, high-crime communities established in Sydney’s south-west and the associated social problems are attributable to Fraser’s poor decisions. These migrants, and their progeny, are the same minority who cry out for jihad, participate in riots at Cronulla and generally hold in contempt Australia's democracy. As John Howard has stated, they have ‘attitudes utterly antagonistic to our kind of society’.
Fraser is a patrician hypocrite, loved by the left, who damns Howard for inducing divisiveness.
But Howard has increased the immigration intake and refocused it to include skilled migrants who add economically and culturally to Australia. It was Fraser’s inept policies, not John Howard, that has led to the fiasco in Sydney’s south-west.
The release of Cabinet Papers yesterday also shows that Liberal ex-Prime Minister, Malcolm Fraser, can be brought to account for what some euphemistically refer to as 'problems of multiculturalism' rampant among Lebanese Muslim communities in south-west Sydney. Fraser allowed into Australia, in the late 1970s, refugee migrants that then immigration authorities described as lacking requisite qualities for integration - many were illiterate, unskilled and had questionable characters (and even personal hygiene).
There were warnings at the time that terrorists and criminals could be seeking to enter Australia. The then Immigration Minister, Michael MacKellar, stated that the Lebanese refugee program was 'scraping the bottom of the barrel with regard to quality'. Even the local Lebanese community indicated they would not oppose more stringent requirements on Lebanese seeking entry.
The high-unemployment, high-crime communities established in Sydney’s south-west and the associated social problems are attributable to Fraser’s poor decisions. These migrants, and their progeny, are the same minority who cry out for jihad, participate in riots at Cronulla and generally hold in contempt Australia's democracy. As John Howard has stated, they have ‘attitudes utterly antagonistic to our kind of society’.
Fraser is a patrician hypocrite, loved by the left, who damns Howard for inducing divisiveness.
But Howard has increased the immigration intake and refocused it to include skilled migrants who add economically and culturally to Australia. It was Fraser’s inept policies, not John Howard, that has led to the fiasco in Sydney’s south-west.
Sunday, December 31, 2006
New Year’s Eve
It was rather depressing to read the summary of the main events of 2006 in The Age today. Quite a bit of the coverage related to show business, the antics of talentless actors and TV personalities as well as the usual tedious politics and sports hero-worship.
As much as I love Shane Warne I am tiring of his adulation and of hearing how great the Australian cricket team is. Australia won a good game where you hit a ball with a chunk of wood and its time to now just shut-up. Paris Hilton’s shopping sprees in Sydney and Melbourne have got detailed coverage in all the national media so maybe I am a bit sensitive to the ‘celebrities’ issue – she seems to me to the essence of the forgettable, dumb, chick.
As we all marked one more year in the step towards permanent oblivion - on boot hill - there was surely more to 2006 at the macro level than that. Wasn’t there?
For some, there were more serious things to contend with as 2006 closed:
My New Year’s resolutions for 2007? To get fit by exercising and watching my solid and (more important) liquid diet. Modest objectives that as a matter of course I set every year and fail to keep. But I’ll try once again. I also want to get back into academic life after 3 years of being primarily an administrator.
Best wishes for a great New Year to my readers. Thanks for contributing to my blog in its inaugural year.
As much as I love Shane Warne I am tiring of his adulation and of hearing how great the Australian cricket team is. Australia won a good game where you hit a ball with a chunk of wood and its time to now just shut-up. Paris Hilton’s shopping sprees in Sydney and Melbourne have got detailed coverage in all the national media so maybe I am a bit sensitive to the ‘celebrities’ issue – she seems to me to the essence of the forgettable, dumb, chick.
As we all marked one more year in the step towards permanent oblivion - on boot hill - there was surely more to 2006 at the macro level than that. Wasn’t there?
For some, there were more serious things to contend with as 2006 closed:
I was touched by the words of despair and the look of utter despair on ex-NSW Premier John Fahey’s face as he attended his youngest daughter’s funeral – it is every parent’s nightmare and I empathized with him. My sympathies go out to him and his wife for what will be a difficult New Year. John has had a difficult time recently involving a struggle with cancer and this is a terrible blow.On the brighter side, even though it looks like raining tonight, I have arranged a good perch for viewing the early and late fireworks displays in Melbourne with good wine – the Wendouree 1990 shiraz. (An outstanding, massive red that is just moving into late adolescence – it will be good drinking through to 2025 at least and, yes, I have more than enough tucked away to see me through). Two of my kids are out of own tonight with their friends so a diminished family will welcome in the New Year.
John Fahey is a moral, decent man. At the other end of the spectrum – but equally tragic in its own right – the evil thug Saddam was hanged. Indeed, a reader sent in a video recording of his death (the video of the killing of Saddam) with the instruction ‘enjoy’. However I can’t enjoy this at all. We should all watch it however – it is wrong for this barbarous behavior to be hidden and sanitized as an ‘execution’. A New
Year’s bad.
My New Year’s resolutions for 2007? To get fit by exercising and watching my solid and (more important) liquid diet. Modest objectives that as a matter of course I set every year and fail to keep. But I’ll try once again. I also want to get back into academic life after 3 years of being primarily an administrator.
Best wishes for a great New Year to my readers. Thanks for contributing to my blog in its inaugural year.
The gains disappoint
Over at my misleadingly-labelled, much neglected and generally ignored Moneybags blog I summarise my investment performance on a notional portfolio over the previous 9 months.
The overall gross return was 8.7% - an annual return of about 10.9% - which wasn’t that wonderful given the 19% growth in the ASX over the full year 2006. I did exceptionally well on a few stocks but dud specs dragged back returns. David Hazelhurst, at The Bulletin, recorded a 186% gain for the full year – he doesn’t have to fear for his job from me. He enjoyed these gains partly because he took much greater risks than I ever would- more than half my investments were in bluechips.
As I always told my mum and dad when I got 'Harry could do better' reports at school my pleadge is to try harder next year. And I will, promise.
I’ve tabulated a new nominal portfolio for 2007 and will see if I can do better. It is based on the presumption that the mining boom will contiinue through 2007 and that the price of gold will remain strong because of unwarranted fears over the US economy - warranted fears would, of course, upset things. I believe interest rates and inflation in Australia will ease during 2007 which should help.
The dud specs that hurt me in 2006 I have retained on the fairly unconvincing grounds that they look cheap.
Your comments/criticisms very welcome.
The overall gross return was 8.7% - an annual return of about 10.9% - which wasn’t that wonderful given the 19% growth in the ASX over the full year 2006. I did exceptionally well on a few stocks but dud specs dragged back returns. David Hazelhurst, at The Bulletin, recorded a 186% gain for the full year – he doesn’t have to fear for his job from me. He enjoyed these gains partly because he took much greater risks than I ever would- more than half my investments were in bluechips.
As I always told my mum and dad when I got 'Harry could do better' reports at school my pleadge is to try harder next year. And I will, promise.
I’ve tabulated a new nominal portfolio for 2007 and will see if I can do better. It is based on the presumption that the mining boom will contiinue through 2007 and that the price of gold will remain strong because of unwarranted fears over the US economy - warranted fears would, of course, upset things. I believe interest rates and inflation in Australia will ease during 2007 which should help.
The dud specs that hurt me in 2006 I have retained on the fairly unconvincing grounds that they look cheap.
Your comments/criticisms very welcome.
Saturday, December 30, 2006
Saddam hanged
Saddam Hussein was hanged last night. Why am I not cheering? A thuggish strongman who caused so much misery but who could have done so much good. I wonder if his killing will improve things in Iraq. Somehow I doubt that the justice of the victors will prove much - I hope it does.
Update: This NYT article carries both possible responses to whether or not the death will improve things - Sunni who see vengence as the response and Shia who see a diffusing of the power of the Sunni militia.
Update: This NYT article carries both possible responses to whether or not the death will improve things - Sunni who see vengence as the response and Shia who see a diffusing of the power of the Sunni militia.
Hamilton on immigration
Clive Hamilton has a piece on congestion in Sydney and its implications for immigration policy. Responses came from Jason Soon at Catallaxy and Phil at LP.
I agree with Hamilton that Australia should be seeking quality immigrants with good moral character and not riff-raff who don’t share our values. I also agree that congestion is a serious cost to our society – although it is a cost that tends to be exaggerated – figures for Melbourne of up to $3 billion annually are bandied around by groups, such as the Productivity Commission, when the correct figure is closer to $700 million. But I disagree with Hamilton’s conclusion that we necessarily cannot have more migrants without reducing our living standards because of congestion effects – we can if we price the congestion away. This is a simple proposition that I propounded with Kwang Ng from Monash University more than 10 years ago (Harry Clarke & Yew-Kwang Ng, "Population Growth and the Benefits From Optimally Priced Externalities", Australian Economic Papers, June 1995, pp. 113-119).
We are better off with efficient pricing of un-priced resources such as roads (with or without immigration) provided transaction costs of pricing are not excessive - and with some qualifications they probably are not. We also get welfare gains from immigration provided all resources subject to external costs are priced. Indeed efficient pricing amplifies the benefits we get from migration.
But immigration which increases congestion costs enough because the congestion is un-priced will not make preexisting people better-off – they will necessarily be worse-off. In this case Hamilton is correct. Moreover he is correct more generally that we will lose with immigration if natural resources (such as water) are under-priced enough.
The inferences by Jason Soon and moral guardian Skepticlawyer in their comments that Hamilton’s observations are borderline racist are offensive and I tire of this type of attempt to muzzle the immigration debate. The argument suggests that if, as an Australian, one seeks any limitation on migration to Australia – the country comprising the citizens of Australia – you are a 'racist' who should be excluded from any civilized debate. That piece of dodgy logic has seen better days - particularly here when Hamilton made no reference to ethnicity.
To be clear. Hamilton’s views are correct if road pricing is ruled out and this is not a bizarre position. No city in the world, other than Singapore, has ever introduced comprehensive road pricing and many countries under-price water and other natural resources. Moreover, it is not racist to say that we prefer immigrants with good moral character who share our values – most Australians do.
Phil gets the main point about pricing correct (to be fair Jason recognizes this) and it is certainly true that cities much larger than Sydney have much appeal. But some commentators to Phil’s post are effectively asserting that Australia has no right to determine who we admit as migrants at all. As I say this seems to me such a ridiculous claim that I would not bother responding to it except that it gets raised so frequently in immigration debates. As Australians we have every right to decide who comes here – open door immigration policies, no way – most Australians want active policies to guide our immigration program and ideologues on the left or libertarian right of politics won’t change this.
I agree with Hamilton that Australia should be seeking quality immigrants with good moral character and not riff-raff who don’t share our values. I also agree that congestion is a serious cost to our society – although it is a cost that tends to be exaggerated – figures for Melbourne of up to $3 billion annually are bandied around by groups, such as the Productivity Commission, when the correct figure is closer to $700 million. But I disagree with Hamilton’s conclusion that we necessarily cannot have more migrants without reducing our living standards because of congestion effects – we can if we price the congestion away. This is a simple proposition that I propounded with Kwang Ng from Monash University more than 10 years ago (Harry Clarke & Yew-Kwang Ng, "Population Growth and the Benefits From Optimally Priced Externalities", Australian Economic Papers, June 1995, pp. 113-119).
We are better off with efficient pricing of un-priced resources such as roads (with or without immigration) provided transaction costs of pricing are not excessive - and with some qualifications they probably are not. We also get welfare gains from immigration provided all resources subject to external costs are priced. Indeed efficient pricing amplifies the benefits we get from migration.
But immigration which increases congestion costs enough because the congestion is un-priced will not make preexisting people better-off – they will necessarily be worse-off. In this case Hamilton is correct. Moreover he is correct more generally that we will lose with immigration if natural resources (such as water) are under-priced enough.
The inferences by Jason Soon and moral guardian Skepticlawyer in their comments that Hamilton’s observations are borderline racist are offensive and I tire of this type of attempt to muzzle the immigration debate. The argument suggests that if, as an Australian, one seeks any limitation on migration to Australia – the country comprising the citizens of Australia – you are a 'racist' who should be excluded from any civilized debate. That piece of dodgy logic has seen better days - particularly here when Hamilton made no reference to ethnicity.
To be clear. Hamilton’s views are correct if road pricing is ruled out and this is not a bizarre position. No city in the world, other than Singapore, has ever introduced comprehensive road pricing and many countries under-price water and other natural resources. Moreover, it is not racist to say that we prefer immigrants with good moral character who share our values – most Australians do.
Phil gets the main point about pricing correct (to be fair Jason recognizes this) and it is certainly true that cities much larger than Sydney have much appeal. But some commentators to Phil’s post are effectively asserting that Australia has no right to determine who we admit as migrants at all. As I say this seems to me such a ridiculous claim that I would not bother responding to it except that it gets raised so frequently in immigration debates. As Australians we have every right to decide who comes here – open door immigration policies, no way – most Australians want active policies to guide our immigration program and ideologues on the left or libertarian right of politics won’t change this.
Labor rudderless in the uranium debate
I agree with The Weekend Australian’s Steve Lewis – the Labor Party’s Kevin Rudd has enjoyed an early electoral honeymoon but is gradually showing himself to be a lazy populist. My guess is that the Australian electorate will sense that he lacks ticker and that Rudd will not be our next Prime Minister.
Rudd has reaffirmed Labor’s total opposition to nuclear fuels in the face of Ziggy Switowski’s report which presents a sensible (and very conditional) case for considering the nuclear option. Key findings of the report:
1. Downstream steps of uranium conversion, enrichment and fuel fabrication could add $1.8 billion of value annually if all Australian uranium was processed domestically. Commercial and technology barriers could make market entry difficult and current legal and regulatory impediments would need to be removed. Even then there may be low opportunity for Australian companies to extend profitably into these areas.
2. Nuclear power is between 20-50% more costly to produce than power from a new coal-fired plant at current fossil fuel prices. This gap may close but nuclear power, and renewable energy sources are only likely to become competitive if costs of greenhouse gas emissions are recognised. Even then, private investment in the first nuclear reactors may require some form of government support or directive.
3. The earliest that nuclear electricity could be delivered is 10 years with 15 years more probable. Deployment of nuclear power starting in 2020 could see 25 reactors producing 1/3 of our electricity by 2050.
4. New reactor designs are safer and more efficient with lower volumes of radioactive waste. The future holds the promise of significant further innovation.
4. The greenhouse gas emission reductions from nuclear power could be 8-17% of national emissions in 2050.
5. Many countries have implemented straightforward solutions for disposal of low-level radioactive waste. Disposal of high-level waste including spent nuclear fuel can be achieved by deep (500–1200 metres underground) repositories. Australia has areas suitable for such repositories, which would not be needed until around 2050 should nuclear power be introduced.
In all 30 countries already use nuclear power to provide 15% of the world’s energy needs. Australia has 40% of the world’s uranium reserves but Rudd has affirmed that Australia should not be allowed to value-add to this resource. The claim is that nuclear fuels are too ‘dangerous and expensive’. Both of these issues are addressed in the Switowski review. Safety issues seem not to be a concern and yes there are problems with the economics of nuclear if we do not accept carbon pricing. But these emissions should be priced.
Rudd can look to the opinion polls which will give short-run support to his lazy line. According to The Weekend Australian only 35% of Australians support a nuclear option, 50% are against it and 11% are uncommitted - women and Labor voters dominate the opposition. But these figures will change and an old-fashioned fear campaign (Rudd and Australia’s worst state premier Beattie have already demanded to know ‘where will the reactors be located’ – there will be none at Noosa apparently!) is inconsistent with the facts on nuclear power and is easy to respond to. Indeed, even though Rudd opposes the stupid 3-mines uranium policy (the ‘clean’ and ‘dirty’ uranium policy) he will not force the Labor states to allow uranium mining – a blow for Western Australians in particular - they will love Rudd come election time. John Howard will be smart enough to exploit inconsistencies between a Labor Party committed to dealing with global warming and with promoting Australian manufacturing but unwilling to even consider the nuclear option. Howard has already begun to attack both the Labor ban on uranium mining as well as the opposition to clean nuclear power.
Rudd is proving to be a bland, populist and protectionist clone of Beazley. He won’t budge on either industrial relations or on uranium mining – the key foolish policies of Labor that mark it as a party of the past. Howard knows that Rudd won’t win with this stance and will throw inept Labor nuclear (and other) policies back at Rudd.
Rudd has reaffirmed Labor’s total opposition to nuclear fuels in the face of Ziggy Switowski’s report which presents a sensible (and very conditional) case for considering the nuclear option. Key findings of the report:
1. Downstream steps of uranium conversion, enrichment and fuel fabrication could add $1.8 billion of value annually if all Australian uranium was processed domestically. Commercial and technology barriers could make market entry difficult and current legal and regulatory impediments would need to be removed. Even then there may be low opportunity for Australian companies to extend profitably into these areas.
2. Nuclear power is between 20-50% more costly to produce than power from a new coal-fired plant at current fossil fuel prices. This gap may close but nuclear power, and renewable energy sources are only likely to become competitive if costs of greenhouse gas emissions are recognised. Even then, private investment in the first nuclear reactors may require some form of government support or directive.
3. The earliest that nuclear electricity could be delivered is 10 years with 15 years more probable. Deployment of nuclear power starting in 2020 could see 25 reactors producing 1/3 of our electricity by 2050.
4. New reactor designs are safer and more efficient with lower volumes of radioactive waste. The future holds the promise of significant further innovation.
4. The greenhouse gas emission reductions from nuclear power could be 8-17% of national emissions in 2050.
5. Many countries have implemented straightforward solutions for disposal of low-level radioactive waste. Disposal of high-level waste including spent nuclear fuel can be achieved by deep (500–1200 metres underground) repositories. Australia has areas suitable for such repositories, which would not be needed until around 2050 should nuclear power be introduced.
In all 30 countries already use nuclear power to provide 15% of the world’s energy needs. Australia has 40% of the world’s uranium reserves but Rudd has affirmed that Australia should not be allowed to value-add to this resource. The claim is that nuclear fuels are too ‘dangerous and expensive’. Both of these issues are addressed in the Switowski review. Safety issues seem not to be a concern and yes there are problems with the economics of nuclear if we do not accept carbon pricing. But these emissions should be priced.
Rudd can look to the opinion polls which will give short-run support to his lazy line. According to The Weekend Australian only 35% of Australians support a nuclear option, 50% are against it and 11% are uncommitted - women and Labor voters dominate the opposition. But these figures will change and an old-fashioned fear campaign (Rudd and Australia’s worst state premier Beattie have already demanded to know ‘where will the reactors be located’ – there will be none at Noosa apparently!) is inconsistent with the facts on nuclear power and is easy to respond to. Indeed, even though Rudd opposes the stupid 3-mines uranium policy (the ‘clean’ and ‘dirty’ uranium policy) he will not force the Labor states to allow uranium mining – a blow for Western Australians in particular - they will love Rudd come election time. John Howard will be smart enough to exploit inconsistencies between a Labor Party committed to dealing with global warming and with promoting Australian manufacturing but unwilling to even consider the nuclear option. Howard has already begun to attack both the Labor ban on uranium mining as well as the opposition to clean nuclear power.
Rudd is proving to be a bland, populist and protectionist clone of Beazley. He won’t budge on either industrial relations or on uranium mining – the key foolish policies of Labor that mark it as a party of the past. Howard knows that Rudd won’t win with this stance and will throw inept Labor nuclear (and other) policies back at Rudd.
Friday, December 29, 2006
Memories are made of this da-da da-da-da-da
The Xmas edition of The Economist has a survey of neuroscience. It is a useful overview which gets you to the frontiers of the area quickly. I was particularly taken by the discussion of memory. Like many (of my vintage) I worry about the strength of my own memory.
The part of the brain that is concerned with memory is the hippocampus. With Alzheimer's disease, the hippocampus is one of the first regions of the brain to suffer damage - memory problems and disorientation are among the first symptoms.
But my currently imprecise memory (of names? faces?) might best be viewed as an adaptation to my vast knowledge rather than an age-induced defect. To start off, understand that there are two types of memory - autobiographical memory which provides a record of particular past episodes and semantic memory which generalises from these experiences. While autobiographical memory is stored in the hippocampus, semantic memory is consolidated in the cerebral cortex - that foldy-foldy piece of 'grey matter' that regulates thinking.
Dr Matthew Wilson of the Picower Institute for Memory and Learning argues that as people age memory becomes more semantic and less autobiographical. Thus old guys, like me, are notorious for being able to remember every detail of our childhoods but often forget what they did last week. This inability to remember detail is often seen as a failure whereas eidetic (or photographic) memory - of the type enjoyed by Wolfgand Amadeus Mozart or John von Neuman - is regarded as an ideal.
But Dr Wilson thinks this might all be wrong. An ideal memory would be able to generalise from experience without recalling specific events. My vast experience means that I do not need to add extra episodic junk to my valuable and limited information storage levels to improve my survival prospects. If I don't remember the specifics of your name or face please be aware that this is a sign of evolutionary adaptation that results from my vast experience. I am not heading downhill! I am just exercising my intelligence. Its a hopeful thought as we zoom towards 2007 and I continue the (so far) long march of life towards boot hill.
The part of the brain that is concerned with memory is the hippocampus. With Alzheimer's disease, the hippocampus is one of the first regions of the brain to suffer damage - memory problems and disorientation are among the first symptoms.
But my currently imprecise memory (of names? faces?) might best be viewed as an adaptation to my vast knowledge rather than an age-induced defect. To start off, understand that there are two types of memory - autobiographical memory which provides a record of particular past episodes and semantic memory which generalises from these experiences. While autobiographical memory is stored in the hippocampus, semantic memory is consolidated in the cerebral cortex - that foldy-foldy piece of 'grey matter' that regulates thinking.
Dr Matthew Wilson of the Picower Institute for Memory and Learning argues that as people age memory becomes more semantic and less autobiographical. Thus old guys, like me, are notorious for being able to remember every detail of our childhoods but often forget what they did last week. This inability to remember detail is often seen as a failure whereas eidetic (or photographic) memory - of the type enjoyed by Wolfgand Amadeus Mozart or John von Neuman - is regarded as an ideal.
But Dr Wilson thinks this might all be wrong. An ideal memory would be able to generalise from experience without recalling specific events. My vast experience means that I do not need to add extra episodic junk to my valuable and limited information storage levels to improve my survival prospects. If I don't remember the specifics of your name or face please be aware that this is a sign of evolutionary adaptation that results from my vast experience. I am not heading downhill! I am just exercising my intelligence. Its a hopeful thought as we zoom towards 2007 and I continue the (so far) long march of life towards boot hill.
Thursday, December 28, 2006
Placebos
I am interested in the idea of placebos and of specific social beliefs – such as religion – which operate as placebos. But the most interesting modern placebos are associated with medicine. Despite the obvious huge advances of modern medicine, like most people, I am skeptical of its claimed powers. So too is psychiatrist Patrick Lemoine.
He claims that 35-40% of prescriptions are impure placebos – placebos with a tiny amount of some active ingredient that is insufficient to have any clinical effect. Use of impure placebos is what remains of the witchdoctor’s craft. And good witchdoctors need to sell a patient on a placebo cure – a white coat and a mysterious unintelligible script handed to a pharmacist (also wearing a white coat) can help.
You must know the idea - magnesium for nervousness, antibiotics for viruses and so on. It often seems impossible for a general practitioner to send a patient away without a prescription – and dangerous to prescribe such drugs as antidepressants for mild depressions because of their side-effects – a placebo does less harm and may help.
Of course we should be rational enough to understand that there are various paths for healing. Sport or romance might be more helpful than pills and potions. Or going to Holy Communion and doing the cannibal bit.
He claims that 35-40% of prescriptions are impure placebos – placebos with a tiny amount of some active ingredient that is insufficient to have any clinical effect. Use of impure placebos is what remains of the witchdoctor’s craft. And good witchdoctors need to sell a patient on a placebo cure – a white coat and a mysterious unintelligible script handed to a pharmacist (also wearing a white coat) can help.
You must know the idea - magnesium for nervousness, antibiotics for viruses and so on. It often seems impossible for a general practitioner to send a patient away without a prescription – and dangerous to prescribe such drugs as antidepressants for mild depressions because of their side-effects – a placebo does less harm and may help.
Of course we should be rational enough to understand that there are various paths for healing. Sport or romance might be more helpful than pills and potions. Or going to Holy Communion and doing the cannibal bit.
Wednesday, December 27, 2006
Winning the war on illicit drugs
The United Nations, 2006 World Drug Report is the most comprehensive qualitative and quantitative analysis of the global illicit drug situation. It is a 2-volume report with the first volume analyzing problems and the second providing an impressive global data base.
The general message is optimistic. Over recent years humanity has reversed a quarter-century-long rise in illicit drug consumption. There are now much lower levels of drug consumption and production than 100 years ago. A global drug pandemic has been averted. Despite the claims of skeptics coherent drug control strategies have worked to reduce illicit drug usage.
Specifically the area of land cultivated for coca and opium cultivation is lower than a few years ago and dramatically lower than 100 years ago. Specifically opium production is 80% less in a world that is more than 3-times bigger in terms of population. The number of addicts worldwide has stabilized over the past few years and is declined dramatically over the past 100 years.
On the positive side the infamous Golden Triangle could become opium-free within a few years and Andean coca cultivation has fallen by one quarter in recent years. After years of strong increases the market for amphetamine-type stimulants is stabilizing. On the negative side the reductions in opiate production in Afghanistan could easily be reversed, cocaine demand is growing strongly in Europe and the cannabis consumption problem is worsening just about everywhere. Cannabis is the world’s most abused illicit drug.
Of course too the abuse of licit drugs such as tobacco remains serious – about 28% of the world’s adult population use tobacco which greatly exceeds levels of illicit drug use (4% for cannabis, 1% for opiates, cannabis and amphetamine-type stimulants combined).
The main policy messages are that attention needs to focus particularly on demands for cannabis and amphetamine-type stimulants. Treatments appropriate to these types of drugs need to be made more widespread. There is the urgent need to continue focusing on the spread of HIV/AIDS by injecting drug users.
The report is available online and I commend it.
The general message is optimistic. Over recent years humanity has reversed a quarter-century-long rise in illicit drug consumption. There are now much lower levels of drug consumption and production than 100 years ago. A global drug pandemic has been averted. Despite the claims of skeptics coherent drug control strategies have worked to reduce illicit drug usage.
Specifically the area of land cultivated for coca and opium cultivation is lower than a few years ago and dramatically lower than 100 years ago. Specifically opium production is 80% less in a world that is more than 3-times bigger in terms of population. The number of addicts worldwide has stabilized over the past few years and is declined dramatically over the past 100 years.
On the positive side the infamous Golden Triangle could become opium-free within a few years and Andean coca cultivation has fallen by one quarter in recent years. After years of strong increases the market for amphetamine-type stimulants is stabilizing. On the negative side the reductions in opiate production in Afghanistan could easily be reversed, cocaine demand is growing strongly in Europe and the cannabis consumption problem is worsening just about everywhere. Cannabis is the world’s most abused illicit drug.
Of course too the abuse of licit drugs such as tobacco remains serious – about 28% of the world’s adult population use tobacco which greatly exceeds levels of illicit drug use (4% for cannabis, 1% for opiates, cannabis and amphetamine-type stimulants combined).
The main policy messages are that attention needs to focus particularly on demands for cannabis and amphetamine-type stimulants. Treatments appropriate to these types of drugs need to be made more widespread. There is the urgent need to continue focusing on the spread of HIV/AIDS by injecting drug users.
The report is available online and I commend it.
Tuesday, December 26, 2006
Killing Angel Nieves
The ghastly practice of killing human beings for claimed crimes is something I have always opposed. Apart from the probability that innocent people (however innocence is defined) may be put to death, killing people for serious crimes, such as murder, simply repeats the crime. Capital punishment damages societies that carry it out by cheapening the value of life.
1,052 US prisoners have been given a reprieve from the lethal needle after the grotesque death of Angel Nieves recently: The 3-drug cocktail supposed to sedate Nieves and kill him painlessly and quickly instead left the inmate conscious, grimacing in pain and struggling for breath. It took half an hour and a second round of injections before the spectacle ended.
But what is really obscene here is the idea that there is a technically humane way for the state to execute people. The reason for the reprieves is that the killing of Nieves was untidy – if the death had been quick and neat, the claim seems to be - there would be no problem.
But it is capital punishment itself which is ghastly and unnecessary. It should be abolished everywhere. I am a strong supporter of Amnesty International on this one.
1,052 US prisoners have been given a reprieve from the lethal needle after the grotesque death of Angel Nieves recently: The 3-drug cocktail supposed to sedate Nieves and kill him painlessly and quickly instead left the inmate conscious, grimacing in pain and struggling for breath. It took half an hour and a second round of injections before the spectacle ended.
But what is really obscene here is the idea that there is a technically humane way for the state to execute people. The reason for the reprieves is that the killing of Nieves was untidy – if the death had been quick and neat, the claim seems to be - there would be no problem.
But it is capital punishment itself which is ghastly and unnecessary. It should be abolished everywhere. I am a strong supporter of Amnesty International on this one.
Monday, December 25, 2006
Penalising drunks who kill
More interesting analysis from the law and economics, Becker-Posner blog. This time B-P address drink driving penalties. I like this blog so much because it addresses significant issues of social importance using the sort of economics any well educated person can understand.
Gary Becker estimates that the cost per drunk driver arrested of drunk driving in the US is about $10,000. This is the order of magnitude he asserts should be levied as ex ante fines on drunk driving – or the ‘equivalent’ in license suspension costs or imprisonment. He argues that such hefty penalties would reduce the scale of alcohol-induced deaths on US roads to the levels of European countries where very heavy penalties are standard.
Richard Posner responds that the Becker ex ante penalties makes sense only if the theoretically more sound proposal of penalizing ex post those drivers who do kill an innocent by the cost of the innocent’s life fails to deter drink-driving deaths. He estimates the value of a statistical life at $7 million so, if 10% of drink driving offenders fail to be convicted, he argues that any driver convicted of killing an innocent should be penalized $7/0.9 = $7.8 million.
The case for ex post penalties is hardly convincing to me. Although it is true that most drink driving does not involve the death of an innocent party, motorists exaggerate the extent to which they can manage risk-less driving when drunk. The general point of each author’s analysis however is that the external costs of drink driving are huge.
It would be a simple matter – and I might do it myself as a 2007 New Year’s resolution – to compute the optimal scale of penalties in Australia (from ex post and ex ante perspectives) for drink driving. Penalties here are currently higher than the US. Compared to the US where 40% of road accident fatalities involve drunkenness the figure in Australia is ‘only’ 31%. But still the Australian courts are increasingly reluctant to imprison even repeat drink-driving offenders and sentences for killing innocents on the road are often pathetically small.
Gary Becker estimates that the cost per drunk driver arrested of drunk driving in the US is about $10,000. This is the order of magnitude he asserts should be levied as ex ante fines on drunk driving – or the ‘equivalent’ in license suspension costs or imprisonment. He argues that such hefty penalties would reduce the scale of alcohol-induced deaths on US roads to the levels of European countries where very heavy penalties are standard.
Richard Posner responds that the Becker ex ante penalties makes sense only if the theoretically more sound proposal of penalizing ex post those drivers who do kill an innocent by the cost of the innocent’s life fails to deter drink-driving deaths. He estimates the value of a statistical life at $7 million so, if 10% of drink driving offenders fail to be convicted, he argues that any driver convicted of killing an innocent should be penalized $7/0.9 = $7.8 million.
The case for ex post penalties is hardly convincing to me. Although it is true that most drink driving does not involve the death of an innocent party, motorists exaggerate the extent to which they can manage risk-less driving when drunk. The general point of each author’s analysis however is that the external costs of drink driving are huge.
It would be a simple matter – and I might do it myself as a 2007 New Year’s resolution – to compute the optimal scale of penalties in Australia (from ex post and ex ante perspectives) for drink driving. Penalties here are currently higher than the US. Compared to the US where 40% of road accident fatalities involve drunkenness the figure in Australia is ‘only’ 31%. But still the Australian courts are increasingly reluctant to imprison even repeat drink-driving offenders and sentences for killing innocents on the road are often pathetically small.
Making money on Xmas day
As Santa departs this evening for the North Pole this evening my thoughts turn to repaying the credit card debt that was necessarily incurred to keep those near and far relatives of mine in good cheer over Xmas. So money raises its ugly head here on Xmas morn – though I have been collecting information for this post over the last week or so.
The significant mineral supply increases that are starting to occur in Australia should take some of the sharp edge of the commodities price boom. But still that part of the stock market that looks likely to do best over the next 12 months is the mineral sector. At the speculative end of this market segment Helena Keers (AFR, subscription only, December 16-17) listed 15 mining hopefuls that I will be keeping an eye on in 2007. All are speculative and most have increased dramatically in price already – when the ‘pass the parcel’ game ends you would want to be clear that you are holding onto something at the solid end of the spectrum – better still of course you would like to be holding cash but that is a pipedream isn’t it. Did you hear that little bell that rang yesterday warning you of a turn in sentiment that pre-announced the end of the market boom?
With these caveats these are the mining juniors Ms. Keers mentions the following:
Bannerman Resources, Capitalised at $108 million it grew in market capitalization 21-fold in 2006. Uranium - a Perth based ASX listed nickel exploration company that has acquired the majority rights to a major uranium exploration portfolio situated in the Southern African nation of Namibia and three prospecting licenses in Botswana. Price $1-63 at December 16.
Fox Resources. Capitalised at $206 million it grew 7-fold in 2006. Diversified - mining and exploration for copper, nickel and base metals. Price $1-85.
Albidon Capitalised at $250 million it grew 150 % in 2006. Diversified - Albidon is a nickel exploration and development company with a focus on East Africa . The Company has spent the past six years building a large portfolio of nickel sulphide projects ranging from development stage to grass roots exploration. Currently positioned to make the transition from explorer to miner. Price $1-67.
Felix Resources. Capitalised at $777 million and selling on a prospective PE of 17.9 it grew 112% in 2006. A Queensland-based coal producer, explorer and developer. Price $3-96.
Tamaya Resources. Capitalised at $202 million and selling on a prospective PE of 5.3 it grew 99% in 2006. Gold and copper with an interesting South American (Chile) prospect. Price 19.5 cents.
Arrow Energy. Capitalised at $528 million and selling on a prospective PE of 23.5 it grew by 74% in 2006. Energy. Interesting focus on coal seam gas. Price $1-25.
Incremental Petroleum. Capitalised at $88 million it grew by 43.2% in 2006. Oil and gas – based in Turkey and claimed to be a cheapie. Price $1-36.
Havilah Resources. Capitalised at $84 million it grew 28% in 2006. Highly diversified explorer. Price $1-14.
Petsec Energy. Capitalised at $343 million and selling on a prospective PE of 5 it grew 25% in 2005. Oil with focus on Gulf of Mexico. Price $2-33.
Roc Oil. Large geographically diversified producer and explorer for oil and gas. Capitalised at $914 million and selling on a prospective PE of 7.7 it grew 24% in 2006. Price $3-18.
Northwest Resources. Capitalised at $13 million it grew 19.2% in 2006. Gold. Picked by D J Carmichael analyst Paul Adams to have Australia’s richest gold mine – in the Pilbera - within 3 years. Price 33 cents.
Medusa. Capitalised at $73 million it has grown 16.9% in 2006. Gold – based in the Phillipines. Price 78 cents.
Kingsgate Consolidated. Capitalised at $362 million and selling on a prospective PE of 6 it grew 5% in 2006. Gold – based in Thailand. Price $4-09.
Agincourt Resources. Capitalised at $293 million and selling on a prospective PE of 42 it grew by 4% in 2006. Gold and other minerals. Price $1-35.
Amadeus Energy is capitalized at $181 million and fell in value by 12% in 2006. Oil amd gas – favoured recently by the Bulletin’s Speculator, David Hazlehurst. Price $1-00.
The following are speculative mining stocks that I have invested in:
Gindalbie Metals. Capitalised at around $500 million and more than doubled in price in 2006. Has a huge potential West Australian iron ore deposit. Price 67 cents.
Renison Consolidated. Capitalised low but has halved in price during 2006 due to two share issues of convertible notes. Mainly Gold. Price 15.5 cents.
I’ll update information in this post as it comes to hand. I’ll also post on other opportunities as I see them.
The significant mineral supply increases that are starting to occur in Australia should take some of the sharp edge of the commodities price boom. But still that part of the stock market that looks likely to do best over the next 12 months is the mineral sector. At the speculative end of this market segment Helena Keers (AFR, subscription only, December 16-17) listed 15 mining hopefuls that I will be keeping an eye on in 2007. All are speculative and most have increased dramatically in price already – when the ‘pass the parcel’ game ends you would want to be clear that you are holding onto something at the solid end of the spectrum – better still of course you would like to be holding cash but that is a pipedream isn’t it. Did you hear that little bell that rang yesterday warning you of a turn in sentiment that pre-announced the end of the market boom?
With these caveats these are the mining juniors Ms. Keers mentions the following:
Bannerman Resources, Capitalised at $108 million it grew in market capitalization 21-fold in 2006. Uranium - a Perth based ASX listed nickel exploration company that has acquired the majority rights to a major uranium exploration portfolio situated in the Southern African nation of Namibia and three prospecting licenses in Botswana. Price $1-63 at December 16.
Fox Resources. Capitalised at $206 million it grew 7-fold in 2006. Diversified - mining and exploration for copper, nickel and base metals. Price $1-85.
Albidon Capitalised at $250 million it grew 150 % in 2006. Diversified - Albidon is a nickel exploration and development company with a focus on East Africa . The Company has spent the past six years building a large portfolio of nickel sulphide projects ranging from development stage to grass roots exploration. Currently positioned to make the transition from explorer to miner. Price $1-67.
Felix Resources. Capitalised at $777 million and selling on a prospective PE of 17.9 it grew 112% in 2006. A Queensland-based coal producer, explorer and developer. Price $3-96.
Tamaya Resources. Capitalised at $202 million and selling on a prospective PE of 5.3 it grew 99% in 2006. Gold and copper with an interesting South American (Chile) prospect. Price 19.5 cents.
Arrow Energy. Capitalised at $528 million and selling on a prospective PE of 23.5 it grew by 74% in 2006. Energy. Interesting focus on coal seam gas. Price $1-25.
Incremental Petroleum. Capitalised at $88 million it grew by 43.2% in 2006. Oil and gas – based in Turkey and claimed to be a cheapie. Price $1-36.
Havilah Resources. Capitalised at $84 million it grew 28% in 2006. Highly diversified explorer. Price $1-14.
Petsec Energy. Capitalised at $343 million and selling on a prospective PE of 5 it grew 25% in 2005. Oil with focus on Gulf of Mexico. Price $2-33.
Roc Oil. Large geographically diversified producer and explorer for oil and gas. Capitalised at $914 million and selling on a prospective PE of 7.7 it grew 24% in 2006. Price $3-18.
Northwest Resources. Capitalised at $13 million it grew 19.2% in 2006. Gold. Picked by D J Carmichael analyst Paul Adams to have Australia’s richest gold mine – in the Pilbera - within 3 years. Price 33 cents.
Medusa. Capitalised at $73 million it has grown 16.9% in 2006. Gold – based in the Phillipines. Price 78 cents.
Kingsgate Consolidated. Capitalised at $362 million and selling on a prospective PE of 6 it grew 5% in 2006. Gold – based in Thailand. Price $4-09.
Agincourt Resources. Capitalised at $293 million and selling on a prospective PE of 42 it grew by 4% in 2006. Gold and other minerals. Price $1-35.
Amadeus Energy is capitalized at $181 million and fell in value by 12% in 2006. Oil amd gas – favoured recently by the Bulletin’s Speculator, David Hazlehurst. Price $1-00.
The following are speculative mining stocks that I have invested in:
Gindalbie Metals. Capitalised at around $500 million and more than doubled in price in 2006. Has a huge potential West Australian iron ore deposit. Price 67 cents.
Renison Consolidated. Capitalised low but has halved in price during 2006 due to two share issues of convertible notes. Mainly Gold. Price 15.5 cents.
I’ll update information in this post as it comes to hand. I’ll also post on other opportunities as I see them.
Sunday, December 24, 2006
Trans fats
Over at the Becker-Posner blog, Richard Posner posts on the New York City ban on trans fats (TFs). This is a possible policy for Australia (the prohibition has been introduced in some Scandinavian countries) and is of interest.
Posner generally supports the ban while Gary Becker, in a separate post, opposes it. This divergence in views has general relevance in thinking about claimed ‘nanny state’ interventions to protect the public against itself.
TFs are synthetic fats used in fried and baked goods. NTC’s Board of Health will ban TFs in restaurants from mid-2008. There is evidence TFs are significant contributors to heart disease (increasing heart disease by up to 6%). About half of NYC's 20,000 restaurants use TFs and a third of the caloric intake of New Yorkers comes from restaurant meals.
A libertarian analysis sees the ban as inefficient. The restaurant industry in NYC is competitive so, if consumers will pay more for meals without TFs, the industry will oblige. To force a ban is unnecessary and forces people to pay higher prices even if they would prefer to pay less and experience increased risk. Some consumers would rarely eat in restaurants and avoid TFs when they cook at home, so their health risks are small. Others would be people who disbelieve the medical opinion or think that TFs improve the taste of food. Finally, enforcing the ban will increase costs of government.
Posner. Posner argues that what is missing in this analysis is the absorption cost of information. The direct cost of informing consumers about TFs is trivial - a restaurant would tell its customers whether or not it used TFs and if it lied would invite class action suits for fraud. But there is a difference between disseminating information and absorbing it. Many people have never even heard of TFs and don't know they are probably harmful to health or by how much. They do not know what a dangerous level of TFs is, what their own consumption of TFs is and how much restaurant-going increases risks. Therefore even those who distrust government regulation of the economy should be open to the possibility that the ban on TFs would produce higher welfare.
Cost-benefit analysis suggests that the ban will reduce annual heart attack deaths in NYC by 500. Then using a value of life of $7 million gives a benefit of $3.5 billion. Cost side effects are not large - half the restaurants in NYC have already phased out TFs, without a big jump in prices. The only advantage of TFs is that they increase the shelf life of foods somewhat – an important but not critical issue.
The NYC restaurant industry has annual sales of $9.5 billion. Assume, conservatively, that restaurants that use TFs account for $6 billion of the $9.5 billion. Suppose the ban increases costs by 1% or $60 million . A $3.5 billion benefit is much greater than this.
Becker. Sees the ban as ‘nanny statism’ with government wrongly presuming consumers are too ignorant to make decisions in their own interests regarding health.
Posner’s main concern is the difficulty consumers have in ‘absorbing’ information about TFs. Specifically, consumers do not absorb the alleged fact that expected benefits of cutting TFs far exceed their costs. Becker agrees the evidence is strong that TFs contribute to heart disease, but the degree of harm from different levels of consumption is doubtful. See e.g. ‘Trans Fatty Acids and Cardiovascular Disease’, New England Journal of Medicine, April 2006. These authors find estimated mean effects of common levels of TFs on cardiovascular disease are large, but in one of the best data sets that they analyze cannot reject (at the 95% confidence) that there is either no effect.
Evidence cannot disprove Posner's claim about consumer ignorance of information about TFs. But half of all NYC restaurants did not use TFs even prior to this ban, many foods sold in ordinary supermarkets have become TFs free in a short time period, we do not know much about whether consumers who eat high TF foods in restaurants eat little of these fats at home, young persons are the primary consumers of heavy TF diets, and other unknowns should make us skeptical of the ignorance argument. It is remarkable how the food industry and restaurants have responded to the greater evidence that TF in sufficient quantities contribute to heart disease. There is evidence elsewhere that consumers respond quickly to health news - studies have documented the rapid reduction in salt intake in response to evidence in the 1980's - now considered exaggerated - that high salt levels have been an important source of high blood pressure.
The prominence of young persons among the big consumers of TFs may be due to an unarticulated awareness that when they reach older ages where heart disease and other diseases are more common, drugs are likely to have been developed that offset the negative consequences of what appears now to be unhealthy diets.
Posner's estimate of the benefits from eliminating TFs is $3.5 billion and he takes $60 million as an estimate of the cost to restaurants from becoming TF free. Then the cost of TF consumption would exceed the expected benefits from lower prices in restaurants with TFs, even for quite but not completely ignorant consumers who attach no more than a 2% chance to the likelihood that these fats have serious consequences for health (0.02 x $6.5 billion > $100 million). These largely ignorant consumers too would only go to restaurants that are TF free so other restaurants would adjust or go out of business.
Posner also gives a kind of lower bound estimate of the benefits as $100 million, and also suggests a much lower cost to restaurants of becoming TF free - take this as $30 million. With a small ‘taste benefit’ from TFs - the New England Medicine Journal article admits positive effect on ‘palatability’- the total cost of the ban would equal or exceed total benefits. For example, suppose 1 million persons on average eat 200 meals per year in NYC restaurants with TFs. If they value tastes of TFs by only 35 cents per meal, the taste cost to consumers of the ban would be $70 million per year. Then total cost would equal benefits.
Becker therefore asks whether one really wants to go down the road of a ban on TFs when the net gains to consumers are dubious, and probably negative and when reversing directions is politically difficult. Hence governments should continue to help provide the best information available about TFs on health but market forces of supply and demand should determine fats consumed. Otherwise, we encourage further attempts to legislate fat and calorie content of permissible foods not only in restaurants but also in the home. There are just too many opportunities for ill-considered attempts to override, on limited evidence, individual judgments about what people want to consume.
Summing up. In my view (largely based on the nutritional claims of Robert Atkins that I have followed for many years) TFs are probably dangerous from the viewpoint of heart health. But doubts about their costs suggest that public bans on such fats are an overreaction. KFC and McDonalds – firms that in the past have produced a lot of TF-rich food have agreed to voluntarily cease using them anyway – these are market forces at work. There are not huge amounts of TFs in the average Australian diet anyway. Nevertheless, publicity on the possible costs is worth providing particularly and consumers are entitled to know TF content of foods they eat, particularly since the main foods in which TFs are used – biscuits, fried fast food and that disgusting replacement for healthy butter, margarine, are rubbish foods that are best avoided anyway.
Posner generally supports the ban while Gary Becker, in a separate post, opposes it. This divergence in views has general relevance in thinking about claimed ‘nanny state’ interventions to protect the public against itself.
TFs are synthetic fats used in fried and baked goods. NTC’s Board of Health will ban TFs in restaurants from mid-2008. There is evidence TFs are significant contributors to heart disease (increasing heart disease by up to 6%). About half of NYC's 20,000 restaurants use TFs and a third of the caloric intake of New Yorkers comes from restaurant meals.
A libertarian analysis sees the ban as inefficient. The restaurant industry in NYC is competitive so, if consumers will pay more for meals without TFs, the industry will oblige. To force a ban is unnecessary and forces people to pay higher prices even if they would prefer to pay less and experience increased risk. Some consumers would rarely eat in restaurants and avoid TFs when they cook at home, so their health risks are small. Others would be people who disbelieve the medical opinion or think that TFs improve the taste of food. Finally, enforcing the ban will increase costs of government.
Posner. Posner argues that what is missing in this analysis is the absorption cost of information. The direct cost of informing consumers about TFs is trivial - a restaurant would tell its customers whether or not it used TFs and if it lied would invite class action suits for fraud. But there is a difference between disseminating information and absorbing it. Many people have never even heard of TFs and don't know they are probably harmful to health or by how much. They do not know what a dangerous level of TFs is, what their own consumption of TFs is and how much restaurant-going increases risks. Therefore even those who distrust government regulation of the economy should be open to the possibility that the ban on TFs would produce higher welfare.
Cost-benefit analysis suggests that the ban will reduce annual heart attack deaths in NYC by 500. Then using a value of life of $7 million gives a benefit of $3.5 billion. Cost side effects are not large - half the restaurants in NYC have already phased out TFs, without a big jump in prices. The only advantage of TFs is that they increase the shelf life of foods somewhat – an important but not critical issue.
The NYC restaurant industry has annual sales of $9.5 billion. Assume, conservatively, that restaurants that use TFs account for $6 billion of the $9.5 billion. Suppose the ban increases costs by 1% or $60 million . A $3.5 billion benefit is much greater than this.
Becker. Sees the ban as ‘nanny statism’ with government wrongly presuming consumers are too ignorant to make decisions in their own interests regarding health.
Posner’s main concern is the difficulty consumers have in ‘absorbing’ information about TFs. Specifically, consumers do not absorb the alleged fact that expected benefits of cutting TFs far exceed their costs. Becker agrees the evidence is strong that TFs contribute to heart disease, but the degree of harm from different levels of consumption is doubtful. See e.g. ‘Trans Fatty Acids and Cardiovascular Disease’, New England Journal of Medicine, April 2006. These authors find estimated mean effects of common levels of TFs on cardiovascular disease are large, but in one of the best data sets that they analyze cannot reject (at the 95% confidence) that there is either no effect.
Evidence cannot disprove Posner's claim about consumer ignorance of information about TFs. But half of all NYC restaurants did not use TFs even prior to this ban, many foods sold in ordinary supermarkets have become TFs free in a short time period, we do not know much about whether consumers who eat high TF foods in restaurants eat little of these fats at home, young persons are the primary consumers of heavy TF diets, and other unknowns should make us skeptical of the ignorance argument. It is remarkable how the food industry and restaurants have responded to the greater evidence that TF in sufficient quantities contribute to heart disease. There is evidence elsewhere that consumers respond quickly to health news - studies have documented the rapid reduction in salt intake in response to evidence in the 1980's - now considered exaggerated - that high salt levels have been an important source of high blood pressure.
The prominence of young persons among the big consumers of TFs may be due to an unarticulated awareness that when they reach older ages where heart disease and other diseases are more common, drugs are likely to have been developed that offset the negative consequences of what appears now to be unhealthy diets.
Posner's estimate of the benefits from eliminating TFs is $3.5 billion and he takes $60 million as an estimate of the cost to restaurants from becoming TF free. Then the cost of TF consumption would exceed the expected benefits from lower prices in restaurants with TFs, even for quite but not completely ignorant consumers who attach no more than a 2% chance to the likelihood that these fats have serious consequences for health (0.02 x $6.5 billion > $100 million). These largely ignorant consumers too would only go to restaurants that are TF free so other restaurants would adjust or go out of business.
Posner also gives a kind of lower bound estimate of the benefits as $100 million, and also suggests a much lower cost to restaurants of becoming TF free - take this as $30 million. With a small ‘taste benefit’ from TFs - the New England Medicine Journal article admits positive effect on ‘palatability’- the total cost of the ban would equal or exceed total benefits. For example, suppose 1 million persons on average eat 200 meals per year in NYC restaurants with TFs. If they value tastes of TFs by only 35 cents per meal, the taste cost to consumers of the ban would be $70 million per year. Then total cost would equal benefits.
Becker therefore asks whether one really wants to go down the road of a ban on TFs when the net gains to consumers are dubious, and probably negative and when reversing directions is politically difficult. Hence governments should continue to help provide the best information available about TFs on health but market forces of supply and demand should determine fats consumed. Otherwise, we encourage further attempts to legislate fat and calorie content of permissible foods not only in restaurants but also in the home. There are just too many opportunities for ill-considered attempts to override, on limited evidence, individual judgments about what people want to consume.
Summing up. In my view (largely based on the nutritional claims of Robert Atkins that I have followed for many years) TFs are probably dangerous from the viewpoint of heart health. But doubts about their costs suggest that public bans on such fats are an overreaction. KFC and McDonalds – firms that in the past have produced a lot of TF-rich food have agreed to voluntarily cease using them anyway – these are market forces at work. There are not huge amounts of TFs in the average Australian diet anyway. Nevertheless, publicity on the possible costs is worth providing particularly and consumers are entitled to know TF content of foods they eat, particularly since the main foods in which TFs are used – biscuits, fried fast food and that disgusting replacement for healthy butter, margarine, are rubbish foods that are best avoided anyway.
Saturday, December 23, 2006
Equity premia and the debt-junkies from Macquarie
Are the private equity moves so much discussed in the press of late – the proposed $11 billion takeover of Qantas is an instance – a consequence of equity premium issues?
In short, if equity is relatively expensive way of financing firms – that relies on excessively risk-averse investors - does this mean there is a market opportunity to substitute debt for equity? The case for this type of substitution is bolstered by the fact that, as with negative gearing, interest costs are tax deductible which reduces some of the pressure to meet debt repayments. It is further encouraged by the huge fees merchant banks enjoy from raising the debt for private entrepreneurs, from arranging 'asset-stripping' sales and from eventually re-floating privatized firms as public companies. Many of these fees are payable even if debts are not eventually repaid – in the case of the Qantas sale some analysts believe Macquarie could earn up to $500 million in total fees from this deal.
It seems to me extremely dangerous, in a macroeconomic sense, for firms to be acquiring extra debt as a way of gearing up to avoid moves by private equity to gain control. This is so because I believe the equity premium is not a sign of irrational investor behavior but, rather, is a consequence of the notion that in real markets returns are distributed with very long tails – disasters and stock market slumps such as the 1987 slump do occur and investors are right to be cautious about them. With this in mind, when such slumps do occur, the costs of the leveraged buyouts will fall on the shareholders of the banks that are providing the vast amounts of credit necessary to fund them. Moreover, attempts by the RBA to offset such risks by trying to dampen down credit markets through higher interest rates will leave us all worse-off.
I am not a finance expert but retain enough knowledge to retain an interest in these issues. I note that better informed monetary authorities such as the RBA do likewise.
On the specific Qantas deal, methinks, Qantas CEO Geoff Dixon should extract the digit and, if he can, continue working on the job of building a growing national carrier – a job that his shareholders have paid him (and Margaret Jackson) large amounts to do. Given Australia’s geography Australia needs (and can sustain) a strong vigorous national carrier – not a protection-reliant monopoly run by a bunch of financial engineers. Opportunities to build a strong, growing business are not improved by turning Qantas into a highly geared flunkey of the financial cowboys at Macquarie who don't produce anything. In addition, Dixon’s claims to preserve for its future owners the monopolized privileges that Qantas has enjoyed for decades are disgraceful.
The real failings in the Australian markets are not in our capital markets but in the market for executive skills. Qantas has self-evidently had poor executives without imagination and with the inability to do anything for Australia’s national airline than to propose flogging it off to a bunch of debt-reliant financial spivs.
In short, if equity is relatively expensive way of financing firms – that relies on excessively risk-averse investors - does this mean there is a market opportunity to substitute debt for equity? The case for this type of substitution is bolstered by the fact that, as with negative gearing, interest costs are tax deductible which reduces some of the pressure to meet debt repayments. It is further encouraged by the huge fees merchant banks enjoy from raising the debt for private entrepreneurs, from arranging 'asset-stripping' sales and from eventually re-floating privatized firms as public companies. Many of these fees are payable even if debts are not eventually repaid – in the case of the Qantas sale some analysts believe Macquarie could earn up to $500 million in total fees from this deal.
It seems to me extremely dangerous, in a macroeconomic sense, for firms to be acquiring extra debt as a way of gearing up to avoid moves by private equity to gain control. This is so because I believe the equity premium is not a sign of irrational investor behavior but, rather, is a consequence of the notion that in real markets returns are distributed with very long tails – disasters and stock market slumps such as the 1987 slump do occur and investors are right to be cautious about them. With this in mind, when such slumps do occur, the costs of the leveraged buyouts will fall on the shareholders of the banks that are providing the vast amounts of credit necessary to fund them. Moreover, attempts by the RBA to offset such risks by trying to dampen down credit markets through higher interest rates will leave us all worse-off.
I am not a finance expert but retain enough knowledge to retain an interest in these issues. I note that better informed monetary authorities such as the RBA do likewise.
On the specific Qantas deal, methinks, Qantas CEO Geoff Dixon should extract the digit and, if he can, continue working on the job of building a growing national carrier – a job that his shareholders have paid him (and Margaret Jackson) large amounts to do. Given Australia’s geography Australia needs (and can sustain) a strong vigorous national carrier – not a protection-reliant monopoly run by a bunch of financial engineers. Opportunities to build a strong, growing business are not improved by turning Qantas into a highly geared flunkey of the financial cowboys at Macquarie who don't produce anything. In addition, Dixon’s claims to preserve for its future owners the monopolized privileges that Qantas has enjoyed for decades are disgraceful.
The real failings in the Australian markets are not in our capital markets but in the market for executive skills. Qantas has self-evidently had poor executives without imagination and with the inability to do anything for Australia’s national airline than to propose flogging it off to a bunch of debt-reliant financial spivs.
Monday, December 18, 2006
Summer sloth grabs me by the throat
William S. Burroughs, the author, once formulated a 'don't have to do exercise' aimed at breaking down old associations and habits of thought - he saw it as a 'path to liberation'. I am very much in favour of breaking out of disciplined work habits. On holidays it normally takes me a week or so to achieve this state of sloth but achieve it I have. Moreover, the transactions costs of writing posts at the local public library here in Ulladulla add to my incentives to be slothful.
This means posts on Kalimna will be irregular through to Xmas when I retreat to Sydney to join my family there. I wish all my readers and Kevin Rudd the compliments of the season.
Please use this post as a site for voicing any concerns you have about the world or to say hullo. What are going to be the big issues of 2007?
This means posts on Kalimna will be irregular through to Xmas when I retreat to Sydney to join my family there. I wish all my readers and Kevin Rudd the compliments of the season.
Please use this post as a site for voicing any concerns you have about the world or to say hullo. What are going to be the big issues of 2007?
Friday, December 15, 2006
Recruiting labour for the ADF
PM Howard has just announced a series of financial moves to boost recruitment into the Australian military from a total of 51,000 to 57,000.These include retention bonuses, possible recruitment bonuses, allowing introductory ‘gap year’ programs of 1 year service in the ADF, reducing service entry requirements and reducing the time taken to achieve entry. As yet there are no proposals for simply increasing salaries offered – the immediately most effective way of improving the attractiveness of serving in the military.
It is interesting to consider the long-term labour recruitment issues facing the military in Australia, the United States and in other countries – particularly those poorer countries supporting international terrorism. The threats of terrorism, and unconventional or asymmetric warfare, clearly indicate that technology alone is not enough to resolve future military conflicts – terrorists will fight on their terms not ours. In addition, Australia’s ADF have recently had substantial police-military roles in East Timor, the Solomon Islands as well as their partly peacekeeping roles in Afghanistan and Iraq. All of these activities are labour not technology intensive.
Australia, like the US, is a high income country with good future social and economic prospects and relatively low, though increasing, fertility. Women have substantial gender equality and over 60 per cent are in the paid workforce – this increases the opportunity cost of having children and helps create low fertility. A family’s children have high human capital and consequently, the cost of a death of one of them in terms of foregone human capital, is high to the individual concerned and to their family. In wealthy societies, apart from high living standards, young men and women enjoy a variety of recreations, healthy sex lives and normal male-female relationships. Australia is a society with few strong internal conflicts, few direct external military threats, moderate religious views and moderated libidos and an eminently sensible national contempt for religious and ideological fanaticism. It is predictably difficult to motivate young men to risk their lives for political or religious objectives given the possible opportunity value of benefits foregone.
The countries that support terrorism and religious fanaticism have almost none of these characteristics in common with Australia. For the most part they are low income countries with failed social and economic development programs and joyless, repressive social mores. All are undemocratic dictatorships, failed states or have subversive, militant, undemocratic groups within their fledgling democracies. In almost all, fertility rates are among the highest anywhere, in part because the only role for women is to raise children - they have low levels of education and low levels of workforce participation. A family’s sons have low human capital, poor economic and social prospects – unemployment prospects are, for example, very high. Young men and young women have sexless, joyless lives that trigger male aggression/fanaticisms and female fatalism. The cost of death is relatively low to individuals and to their family particularly if the death can be rationalized in terms of martyrdom or other religious myths. The joyless, low-living-standard societies containing such families are wracked with internal conflict, external military threats and religious fanaticism. In such settings it is much easier to motivate people to risk their lives for bizarre religious or political objectives than it could ever be in countries such as Australia or the United States. Those serving in the military have less to lose and the prospect of a good life in the hereafter makes sense to those whose current lives are worth little to themselves.
In David and Goliath conflicts between rich societies with advanced technologies and poorer societies without either technology or future prospects, terrorism is an equilibrium strategy for those without technology in dealing with international conflict.
Then labour rather than capital-intensive military responses to terrorist threats are called for by wealthy countries particularly if, as has become standard, the poorer societies use their local populations as hostage to technologically-based military responses. Civilian casualties matter relatively little to societies who value their own live children at relatively low levels whereas, those in wealthy countries, feel pain at seeing even their enemy’s civilian populations being subject to attack, even if they are clearly being used as hostages. The winging of left-leaning Australian intellectuals over Israel’s aerial bombardment of southern Beirut, even while Hezbollah was launching almost continuous daily missile attacks on non-military targets in Israel, was a recent instance of the hypocrisy of the left.
Australia and the United States need to meet their military human resource needs by taking advantage of their wealth by paying incomes to service-people that compensate them for the substantial economic and social benefits they put themselves at risk of losing by joining the military. Wealthy societies have the financial capacity to provide such benefits and do not need to rely on such things as conscription. The Australian military has an excellent reputation for being well-trained and effective – they need to continue to be intensively-trained to retain their military edge.
It is interesting to consider the long-term labour recruitment issues facing the military in Australia, the United States and in other countries – particularly those poorer countries supporting international terrorism. The threats of terrorism, and unconventional or asymmetric warfare, clearly indicate that technology alone is not enough to resolve future military conflicts – terrorists will fight on their terms not ours. In addition, Australia’s ADF have recently had substantial police-military roles in East Timor, the Solomon Islands as well as their partly peacekeeping roles in Afghanistan and Iraq. All of these activities are labour not technology intensive.
Australia, like the US, is a high income country with good future social and economic prospects and relatively low, though increasing, fertility. Women have substantial gender equality and over 60 per cent are in the paid workforce – this increases the opportunity cost of having children and helps create low fertility. A family’s children have high human capital and consequently, the cost of a death of one of them in terms of foregone human capital, is high to the individual concerned and to their family. In wealthy societies, apart from high living standards, young men and women enjoy a variety of recreations, healthy sex lives and normal male-female relationships. Australia is a society with few strong internal conflicts, few direct external military threats, moderate religious views and moderated libidos and an eminently sensible national contempt for religious and ideological fanaticism. It is predictably difficult to motivate young men to risk their lives for political or religious objectives given the possible opportunity value of benefits foregone.
The countries that support terrorism and religious fanaticism have almost none of these characteristics in common with Australia. For the most part they are low income countries with failed social and economic development programs and joyless, repressive social mores. All are undemocratic dictatorships, failed states or have subversive, militant, undemocratic groups within their fledgling democracies. In almost all, fertility rates are among the highest anywhere, in part because the only role for women is to raise children - they have low levels of education and low levels of workforce participation. A family’s sons have low human capital, poor economic and social prospects – unemployment prospects are, for example, very high. Young men and young women have sexless, joyless lives that trigger male aggression/fanaticisms and female fatalism. The cost of death is relatively low to individuals and to their family particularly if the death can be rationalized in terms of martyrdom or other religious myths. The joyless, low-living-standard societies containing such families are wracked with internal conflict, external military threats and religious fanaticism. In such settings it is much easier to motivate people to risk their lives for bizarre religious or political objectives than it could ever be in countries such as Australia or the United States. Those serving in the military have less to lose and the prospect of a good life in the hereafter makes sense to those whose current lives are worth little to themselves.
In David and Goliath conflicts between rich societies with advanced technologies and poorer societies without either technology or future prospects, terrorism is an equilibrium strategy for those without technology in dealing with international conflict.
Then labour rather than capital-intensive military responses to terrorist threats are called for by wealthy countries particularly if, as has become standard, the poorer societies use their local populations as hostage to technologically-based military responses. Civilian casualties matter relatively little to societies who value their own live children at relatively low levels whereas, those in wealthy countries, feel pain at seeing even their enemy’s civilian populations being subject to attack, even if they are clearly being used as hostages. The winging of left-leaning Australian intellectuals over Israel’s aerial bombardment of southern Beirut, even while Hezbollah was launching almost continuous daily missile attacks on non-military targets in Israel, was a recent instance of the hypocrisy of the left.
Australia and the United States need to meet their military human resource needs by taking advantage of their wealth by paying incomes to service-people that compensate them for the substantial economic and social benefits they put themselves at risk of losing by joining the military. Wealthy societies have the financial capacity to provide such benefits and do not need to rely on such things as conscription. The Australian military has an excellent reputation for being well-trained and effective – they need to continue to be intensively-trained to retain their military edge.
Thursday, December 14, 2006
Qantas, Macquarie Bank & open skies
Qantas looks likely to pass into the hands of Macquarie Bank and its backers for about $11 billion or about 25 times current earnings. On the face of it the price looks very good and I am curious about the source of value – which I am fairly sure will be there – for the scrounging, superhero debt creators at Macquarie and its backers – and of course, tidbits for senior executives in Qantas who cooperate and who continue to have a role in the 'new' Qantas.
It’s the usual sort of financial engineering deal – if control shifts to Macquarie debt levels of Qantas will more than double – unhelpful longer-term if Qantas seeks to expand or if things turn out to be difficult in the industry. You can’t help thinking that the long-discussed possible partnership with Singapore Airlines or one of the quality, efficient Asian carriers might have made better sense both for Australia and for Qantas’ long-suffering shareholders.
As I discussed the other day a consequence of Qantas’ privileged position in the Australian aviation industry is the opportunity to earn monopoly rents visa restrictive Air Service Agreements on key routes such as the Australia-Japan and Australia-US routes. The difficulty for Macquarie and its US backers in this deal is that there will be little incentive for Australian governments to continue to protect Qantas from competition if Macquarie and the US-owned Texas Pacific and Onex end up owning something like half of Qantas. Its hard to see the national interest in protection even without an ownership change, as I argued earlier, but if ownership does change the protected environment that Qantas has operated in will end.
Moreover, it is difficult to see how Macquarie et al can protect themselves from such deregulatory risks and consequent deregulatory costs. Perhaps they could scream with financial pain if their debt servicing costs became too onerous - 'need to protect the national carrier' etc. But I doubt it.
As with any takeover however implicit contracts within the target firm are certainly likely to change. Unprofitable regional routes are likely to be closed, offshoring of aircraft maintenance is likely and the budget operation JetStar expanded. The intractable problems CEO Geoff Dixon has had in reducing staffing costs on Qantas flights might be more easily dealt with by the new owners. I would refer to all of these gains to Qantas as x-inefficiency cost reductions where I use the term x-inefficiency to describe the managerial losses stemming from managerial or organisational inefficiencies associated with having monopoly power.
My guess is that to Macquarie and its backers the deregulatory costs from placing Qantas in a more competitive environment must be much smaller than the x-inefficiency cost reductions that can be secured with a change of ownership – hence the sense of this deal to the non-financial cowboys. But x-inefficiency losses can be addressed by a revitalized management team - a takeover which leaves Qantas highly geared seems unnecessary. However this deal will almost certainly go through on the basis of a myopic assessment of short-term gains to current shareholders.
It’s a pity that a key national asset can only have its value enhanced through the intervention of the financial engineering cowboys at Macquarie. The management and Qantas Board should have been able to do a better deal for their shareholders.
It’s the usual sort of financial engineering deal – if control shifts to Macquarie debt levels of Qantas will more than double – unhelpful longer-term if Qantas seeks to expand or if things turn out to be difficult in the industry. You can’t help thinking that the long-discussed possible partnership with Singapore Airlines or one of the quality, efficient Asian carriers might have made better sense both for Australia and for Qantas’ long-suffering shareholders.
As I discussed the other day a consequence of Qantas’ privileged position in the Australian aviation industry is the opportunity to earn monopoly rents visa restrictive Air Service Agreements on key routes such as the Australia-Japan and Australia-US routes. The difficulty for Macquarie and its US backers in this deal is that there will be little incentive for Australian governments to continue to protect Qantas from competition if Macquarie and the US-owned Texas Pacific and Onex end up owning something like half of Qantas. Its hard to see the national interest in protection even without an ownership change, as I argued earlier, but if ownership does change the protected environment that Qantas has operated in will end.
Moreover, it is difficult to see how Macquarie et al can protect themselves from such deregulatory risks and consequent deregulatory costs. Perhaps they could scream with financial pain if their debt servicing costs became too onerous - 'need to protect the national carrier' etc. But I doubt it.
As with any takeover however implicit contracts within the target firm are certainly likely to change. Unprofitable regional routes are likely to be closed, offshoring of aircraft maintenance is likely and the budget operation JetStar expanded. The intractable problems CEO Geoff Dixon has had in reducing staffing costs on Qantas flights might be more easily dealt with by the new owners. I would refer to all of these gains to Qantas as x-inefficiency cost reductions where I use the term x-inefficiency to describe the managerial losses stemming from managerial or organisational inefficiencies associated with having monopoly power.
My guess is that to Macquarie and its backers the deregulatory costs from placing Qantas in a more competitive environment must be much smaller than the x-inefficiency cost reductions that can be secured with a change of ownership – hence the sense of this deal to the non-financial cowboys. But x-inefficiency losses can be addressed by a revitalized management team - a takeover which leaves Qantas highly geared seems unnecessary. However this deal will almost certainly go through on the basis of a myopic assessment of short-term gains to current shareholders.
It’s a pity that a key national asset can only have its value enhanced through the intervention of the financial engineering cowboys at Macquarie. The management and Qantas Board should have been able to do a better deal for their shareholders.
Don’t forget Europe
The strong decline of the US dollar against the euro – it has fallen to a 20 month low – has put renewed focus on problems facing the US economy.
The unsustainability of US consumptions funded by enormous current account deficits, the slowing of housing demands, continued low savings and hence the likelihood of future US interest rate cuts in 2007 are among the factors widely – and correctly – cited as explanations of the weakness of the US dollar. A plausible story is that emerging economies are becoming reluctant to fund high levels of US consumption by purchasing US debt. The implication is that the US economy will have to go through a sustained period of lower growth – a non-catastrophic event provided the dollar does not undergo a sharp plunge.
But there is a second side to any exchange rate story since an exchange rate says something about the relative performance of economies. A widespread perception is that the US economy has outperformed the world’s other rich economies – notably Europe - in recent years because of much higher productivity growth. But as The Economist December 2-8 (subscription required) has pointed out recently, once real GDP growth rates are computed in real per capita terms, productivity growth in the euro area is about the same as in the US over the past decade.
Moreover Europe has not been forced to rely on huge public sector deficits to ‘steroid pump’ its economies – nor have its domestic savings rates collapsed. Europe is hobbled with inflexible product and labour markets but that, if anything, indicates potential for future one-off gains from liberalization. Some European economies are beginning to contemplate reform and investors spotting this are likely to assume the euro is a better long-term bet. Strengthening this view, while the US Federal Reserve has not raised interest rates for 5 months, strong recent growth in the European economies suggests more interest rate hikes. Europe’s biggest economic force – the German economy – for many years a poor performer – is starting to look stronger.
Australians when looking at their global economic environment tend to look at Asia and at the direct implications of US economic problems and their indirect implications via effects on Asian economies. It is important not to ignore developments in Europe and not to take a stereotyped view of the failures of Europe as an overregulated set of economies which have ceased to be significant drivers of global demand.
The unsustainability of US consumptions funded by enormous current account deficits, the slowing of housing demands, continued low savings and hence the likelihood of future US interest rate cuts in 2007 are among the factors widely – and correctly – cited as explanations of the weakness of the US dollar. A plausible story is that emerging economies are becoming reluctant to fund high levels of US consumption by purchasing US debt. The implication is that the US economy will have to go through a sustained period of lower growth – a non-catastrophic event provided the dollar does not undergo a sharp plunge.
But there is a second side to any exchange rate story since an exchange rate says something about the relative performance of economies. A widespread perception is that the US economy has outperformed the world’s other rich economies – notably Europe - in recent years because of much higher productivity growth. But as The Economist December 2-8 (subscription required) has pointed out recently, once real GDP growth rates are computed in real per capita terms, productivity growth in the euro area is about the same as in the US over the past decade.
Moreover Europe has not been forced to rely on huge public sector deficits to ‘steroid pump’ its economies – nor have its domestic savings rates collapsed. Europe is hobbled with inflexible product and labour markets but that, if anything, indicates potential for future one-off gains from liberalization. Some European economies are beginning to contemplate reform and investors spotting this are likely to assume the euro is a better long-term bet. Strengthening this view, while the US Federal Reserve has not raised interest rates for 5 months, strong recent growth in the European economies suggests more interest rate hikes. Europe’s biggest economic force – the German economy – for many years a poor performer – is starting to look stronger.
Australians when looking at their global economic environment tend to look at Asia and at the direct implications of US economic problems and their indirect implications via effects on Asian economies. It is important not to ignore developments in Europe and not to take a stereotyped view of the failures of Europe as an overregulated set of economies which have ceased to be significant drivers of global demand.
Tuesday, December 12, 2006
Citizenship test & affirmation of values
Prime Minister Howard’s citizenship test requiring those seeking citizenship to demonstrate an understanding of English and to pass a test on Australian history, culture and values is a sensible way of promoting integration and of signaling to those electing to become Australians that our society is not an empty slate – a cultural void without history – that is always enriched by having greater cultural diversity. It isn’t – some forms of diversity and some cultural values we should not accept.
Australia is a remarkable country with high living standards, a soundly-functioning democracy, high levels of gender equality and low levels of religious and political conflict. These are not negligible achievements and need to be appreciated by migrants coming from cultures without such achievements. Moreover, Australia does have a history of white settlement that has played an important role in conditioning the national character. Australia’s aboriginal history, extending back 40,000 years or more, is one of the oldest on earth and needs to be appreciated by all those who live here.
Likewise the need to confirm a signed agreement to adhere to the Australian way of life and to Australian values is a useful way of signaling to migrants that Australian residents do place value on our cultural successes. People who come from cultures that are thousands of years old but who still see women as pieces of meat and those who see it as reasonable to kill women seeking to gain an education or to kill those who seek to practice their own religion are not welcome here whatever the cultural ‘enrichment’ they can transfer. Nor do we want migrants in Australia who are prepared to use violence to thwart Australian government policies, including our foreign policies.
Labor’s immigration spokesperson, Tony Bourke, almost predictably described the proposed test (without having seen it) as a ‘trivia night’ test. Like other Labor politicians (and those on the left) he apparently sees Australian history and culture as a blank slate and hence as ‘trivia’.
The citizenship test and the signed affirmation can be criticized – it will not screen out the religious nuts and fanatics who can deceive their way around the test and affirmation - but it will signal to them the Australian intent to affirm certain values.
There is the legitimate claim that some useful people will not seek citizenship because of the test. This is partly true because citizenship in many cases – for example with respect to British citizens living in Australia - does not increase advantage over simple residency. This is another policy failure that needs to be addressed. But the citizenship test and the affirmation fill an important gap in our citizenship procedures.
Australia is a remarkable country with high living standards, a soundly-functioning democracy, high levels of gender equality and low levels of religious and political conflict. These are not negligible achievements and need to be appreciated by migrants coming from cultures without such achievements. Moreover, Australia does have a history of white settlement that has played an important role in conditioning the national character. Australia’s aboriginal history, extending back 40,000 years or more, is one of the oldest on earth and needs to be appreciated by all those who live here.
Likewise the need to confirm a signed agreement to adhere to the Australian way of life and to Australian values is a useful way of signaling to migrants that Australian residents do place value on our cultural successes. People who come from cultures that are thousands of years old but who still see women as pieces of meat and those who see it as reasonable to kill women seeking to gain an education or to kill those who seek to practice their own religion are not welcome here whatever the cultural ‘enrichment’ they can transfer. Nor do we want migrants in Australia who are prepared to use violence to thwart Australian government policies, including our foreign policies.
Labor’s immigration spokesperson, Tony Bourke, almost predictably described the proposed test (without having seen it) as a ‘trivia night’ test. Like other Labor politicians (and those on the left) he apparently sees Australian history and culture as a blank slate and hence as ‘trivia’.
The citizenship test and the signed affirmation can be criticized – it will not screen out the religious nuts and fanatics who can deceive their way around the test and affirmation - but it will signal to them the Australian intent to affirm certain values.
There is the legitimate claim that some useful people will not seek citizenship because of the test. This is partly true because citizenship in many cases – for example with respect to British citizens living in Australia - does not increase advantage over simple residency. This is another policy failure that needs to be addressed. But the citizenship test and the affirmation fill an important gap in our citizenship procedures.
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