Wednesday, August 30, 2006

Gambling in WA

As Sam Ward pointed out to me in a comment (he has made further points here) it is not true that WA has no gaming machines. They do but they are restricted to the Burswood Casino or to slot machines in pubs that do not dispense coins. Indeed, Premier Carpenter announced yesterday that another 250 machines will be installed at Burswood which should yield the casino an extra $21.9 million per year. The number of machines at the Casino will eventually be 1750. The payment for this increase seems to be a $15 million environmental conservation program funded by Burswood over 5 years plus an increase in the levy on gaming from 1-2%. Sounds like a great deal for James Packer!

According to the WA Government the number of machines in WA is 1 for 1000 of population which is 12X lower than the national average. The level of gambling expenditure relative to income is also claimed to be the lowest in Australia.

According to Australian Gambling Statistics 2006 WA has the lowest per capita expenditure on gambling of any Australian state. In 2004-05 it was $520 per head compared to the national average of $1097. That there is not widespread of availability of pokies has not lead to a substitution towards other forms of gambling. For example total expenditure on horse race betting per head in WA is $145 which is lower than the figure for NSW and Victoria.

This seems to me powerful evidence for restricting the supply of poker machines if you believe they cause social damage. Restricting supply reduces losses overall as people do not substitute alternative forms of gambling and do not seem to search out distant machines. The same point has been mooted in Melbourne and elsewhere and is the basis for restricting the supply of pokies in poorer areas of Melbourne – further restrictions of this type are mooted in today’s Age. People tend not to drive across town to play the pokies – an explanation could be that playing them is partly cue-related - so if they are not around you forget about them or don't think about playing them. So you can deal with pokie –induced social problems in a particular area of social disadvantage by limiting the supply of pokies in that area.

Jihad Jack's romance

Tuesday, August 29, 2006

Odd spots: Coffee fungi and feral burgundy

I heard on ABC radio this afternoon that it is fungi that give coffee its distinctive flavor. I have no reason to think this research is wrong. Indeed it rationalizes the fact that the half-drunk cups of coffee that I discover, after several days, in nooks and crannies around my office, are often encrusted in a mattress of mould. It also explains the response made once to me in a café when I asked the proprietor how he made his coffee so well. The claim: the trick is never to wash the coffee-making equipment.

Well, maybe...but I have been fooled...

Years ago I heard that great French burgundies were enriched by throwing a shovel of cow manure into each barrel. The claim was it gave wines that element of French pong (more correctly, 'feral characteristics') so appreciated by burgundy lovers - this is distinct from burying female cow horns full of the stuff in fields where burgundy is produced. I naively believed this preposterous claim for years until I asked a knowledgeable wine-maker what effect this additive to pinot noir was likely to have.

His laconic (and, with hindsight, obvious) response: It would probably kill you!

Monday, August 28, 2006

Gambling in Australia

I have just managed to get Australian Gambling Statistics 2006 prepared by the Queensland Treasury. This data is not available on any website (why?) and costs $175 for the CD rom. It is the most comprehensive aggregate picture of gambling in Australia, providing consistent time series reporting since 1979-80.

Gambling expenditure measures total losses while gambling turnover measures the total amount wagered. The figures for 2004-05 are surprising,

1, Australians overall gambled $142 billion in turnover of which 72% was on gambling machines (pokies). In NSW, Victoria and Queensland gambling on pokies is about 90% of total wagering.

2. The biggest gamblers on average in terms of turnover are in NSW ($11,880 per head), Victoria ($9,627) and Queensland ($7,846). But never fear Queenslanders - your gambling turnover is increasing faster than any state at 10.4% with 18% growth in pokie turnover.

3. Total gambling expenditure in Australia is about $16 billion with the average NSW citizen losing about $1336 annually, average Victorian losing $1133 and average Queenslander $1003. The majority of losses are on pokies - in NSW these comprise 71% of all losses, and in Victoria and Queensland about 55%. Again Queensland, take heart, your losses are growing strongly - again mainly from pokies.

4. Racing, Lotto and Casinos are fairly static or declining markets. They are small fry. The big growth area is pokies.

Sunday, August 27, 2006

Demise of Earth Sanctuaries

I was deeply saddened, though not surprised, by news this week of an offer for all of the outstanding shares in ESL Holdings Ltd by the property development group Prudentia Investments Pty Ltd. Directors of ESL recommend that its shareholders accept this offer. The future of the few remaining biodiversity conservation sanctuaries in the ESL stable seems very uncertain.

The former Earth Sanctuaries Ltd was set up by John Wamsley to provide a private sector vehicle for the conservation of biodiversity, specifically mammals, in Australia. As the current Chairman K.P. Lynch says in his letter to shareholders '...our experience has shown that the ESL model, while successful in a conservation sense, is not commercially viable'.

I agree with this. Many of the outputs provided by ESL - in particular biodiversity benefits - were public goods and standard economic theory suggests that private agents will undersupply resources to support provision of such goods. This is particularly problematic if the public sector provides access to substitutable biodiversity resources via national parks and reserves at close to zero cost. Moreover, such parks and reserves receive subsidised infrastructure provision and have most of their operating costs met from the public purse.

The market for viewing our rare flora and fauna is a narrow one and there is simply not a sufficiently 'level playing field' for ESL operations to survive. A final difficulty in promoting private conservation efforts in Australia stems from the prohibition on the sale of captive bred native species.

Does it matter if ESL collapses given that public parks and reserves survive? I think it does because individuals like Wamsley were innovative in terms of developing captive breeding and feral proofing programs - ESL bred the first platypuses in captivity and achieved a number of outcomes with respect to feral-proofing that were more innovative that public management schemes.

Given the success that Wamsley and his group enjoyed it is difficult for me to understand why greater public sector support was not forthcoming. Wamsley has not been associated with ESL since it was delisted but I salute him as its prime mover and as a man of vision who had the guts to have a go at something intrinsically very difficult. Those of us who are interested in conserving Australia's biodiversity have learnt something from this experience.

Saturday, August 26, 2006


I have long opposed the privatisation of Telstra. There are, in my view, too many natural monopoly elements involved in the non-retail part of Telstra and the effective provision of an efficient, low cost message market in Australia is an overriding social priority. Such provision is a much more effective way of bringing together our geographically dispersed population than ad hoc regional programs based on National Party pork-barrelling.

But with the Government's current stated policy intention to sell off a further $8 billion of its 51.8% holding and to place the remaining $24.4 billion into the Future Fund no-one is now interested in arguments that involve retaining or to taking back into public ownership some of Telstra.

Telstra will become a pure regulated private firm which should mean that government policy will be primarily based on consumer interests rather than considerations of dividend income or the income to be gained by increasing the extent of its privatisation. (By the way, placing a large slab of stock with the Future Fund seems almost inconsistent with the privatisation idea and with intended non-political management of the FF).

Selling at a share price of only around $3-50 suggests that the government expects to be increasingly tough on Telstra in terms of ACCC regulatory environment. Telstra will not enjoy the types of anticipated monopoly powers it was anticipated to have when T2 was floated when shares fetched $7-40. Joshua Gans points out that purchases of shares at this price might perhaps be seen as deserving of compensation given the changed regulatory view but that this will not happen with the current moves. Telstra will now be purchased for its utility income-generating prospects not because it is seen as a vehicle for growth.

Now should I buy a few thousand Telstra shares? They are good buying if early next week an over-supply and FF-overhang panic drives the pre-issue stock price to around $3 and if Telstra maintains its current dividend payout.

Friday, August 25, 2006

Risky boozing

I am having a quiet Friday night after an academic seminar and a 'big' lunch. Earlier this evening I had a quick (and somewhat hypocritical) flip through a just released ABS survey of Australia's drinking habits.

Levels of risky drinking have increased 50% over the past 10 years. 15% of male adults and 12% of female adults in Australia drink at 'risky' levels. Women are catching up to men with their risky drinking growing much faster than for men.

Adults in the age range 45-54 drink most.

There are no statistically significant differences between levels of risky drinking between indigenous and non-indigenous Australians. Important to get our facts right on this.

Alcohol is the second largest cause of drug-related deaths and hospitalisations in Australia (after tobacco) which beats it by a mile and the main cause of deaths on Australian roads.

In 2004, the age standardised rate for male deaths due to alcoholic liver disease as the underlying cause was 5.5 per 100,000 and 1.5 per 100,000 for females.

In 2004, the age standardised rate for male deaths with mental and behavioural disorders due to alcohol as the underlying cause was 1.9 per 100,000 and 0.4 per 100,000 for females.

From 1998-99 to 2004-05, the overall number of hospital separations with principal diagnosis of mental and behavioural disorders per 1,000 population increased by 39% for all ages (by 41% for those under 20 years).

The largest number of alcohol-related hospital separations among both men and women in 1998 was due to alcoholism and alcoholic liver cirrhosis. The second-largest number due to road injuries for men and cancer for women.

31,132 Australians died from alcohol-caused disease and injury from 1992-2001; of these 75% were male and 25% female. From 1993-94 to 2000-01, there were over half a million hospitalisations due to risky and high-risk drinking in Australia.

Thursday, August 24, 2006

Local retailing monopolies

I have been reading Alan Moran's The Tragedy of Planning which argues that having too few land releases with too many urban planning restrictions has driven the sky-high house prices Australians now experience. I've already posted on this general thesis.

One of Alan's remarkable claims is that:

'Metropolitan Development in Victoria is controlled under Melbourne 2030. Not only is housing development constrained, but retail activity is being increasingly concentrated in a limited number of existing large centres. This is reinforced by existing planning laws which require new retail developments to prove that they will not have a deleterious impact on existing retail centres in their region - in other words that they will not compete with existing centres. The planning laws also require that new centres provide the same level and character of public amenity and access as existing facilities irrespective of their client's desires and nature.' (p. 32,my bold).

As an instance of this Alan cites the thwarted development of the Essendon airport site as a 120-store retail centre. I assume N-I-M-B-Y considerations partly drive such outcomes. We don't like to have to drive far to the shops and prefer a higher density of retail centres provided that they are not located next door to us!

The general consequence of such development restrictions nationwide is that we are undersupplied with shops compared to, for example, the US. Moreover, shops that do exist facing higher occupancy costs and less competition so consumers face higher than necessary prices. Additionally, with low density, use of motor cars in the periphery of urban areas to carry out shopping trips becomes that much more essential.

Retailing is one of the most important sectors of our economy since it is where we spend most of our incomes. Many of the features of retailing (warehousing, distribution and the actual selling) involve substantial economies of scope and of scale. There has already been a Senate inquiry into the effects of concentration in this sector.

Australian economists have devoted little effort to thinking about Australian retailing. They should devote more. I am unsure Alan Moran's claims are completely sound - though I have no specific query in relation to them - but they seem persuasive and have strong implications.

I am interested in views on these claims. More generally I would like to see a PhD student spend a few years getting to the bottom of what is happening in Australian retailing. How well are customers being serviced in Australia by the concentrated retailing structures we have and the apparently relatively sparce distribution of retailing shopping centres?

Wednesday, August 23, 2006

William's blog

My son William has his blog here. Please pay him a visit!

And please make a comment!

Addiction treatments that worsen health

Standard economic explanations of addiction (such as the rational addiction model of Gary Becker and Kevin Murphy) do formally allow for drug users to invest in rehabilitation. They can spend money to undo the effects of an addiction – e.g. Mel Gibson can devote time, effort and dollars to dealing with his alcohol problems in an outpatient program attach to a rehabilitation clinic. Unfortunately Becker and Murphy do not analyse the implications of such treatment technologies.

For example, what happens if the cost of treatment becomes very low and the probability of successful treatment very high? Suppose, in the limit, that you can undo an addiction at zero cost. Two situations arise (i) when the addiction can be undone as well as the harmful medical/psychological effects of having used the addictive substance for a sustained period and (ii) when the addiction can be undone but not the harmful effects of past cumulative use.

In case (i) optimal addictive consumption involves heavier use of the drug followed by immediate detoxification, with this coupled process being repeated endlessly. Higher steady state levels of use of a drug will be generated by the existence of a zero cost cure. Bulemia nervosa might almost fit into this pattern of consumption with binge eating followed by the 'cure' of purging. I say 'almost' because cumulatively this pattern of consumption is presumably damaging – high mortality is associated with binging. But individuals might themselves see purging as a way of undoing the effects of binge eating at low cost.

In case (ii) damage is generated as you cumulatively consume some product. For example as you continue to consume alcohol you suffer liver damage. Here the damage is cumulative but the extent of additional damage is not increased significantly by a single additional usage. This is a problem in the economics of procrastination and self control. An additional single usage does no substantial damage in itself and yields much pleasure so the incentives are to procrastinate. The appropriate response by an agent depends on how sophisticated they are with respect to their self-knowledge of their incentives to procrastinate.

If they realise they will always procrastinate they might invest in some precommitment technology that will make future use impossible or costly – for example they will go bushwalking in a forest where the drug is unavailable. Alternatively they might be able to formulate an internal personal rule that they will never again use. Their incentives to do these things are based on their knowledge that they will otherwise procrastinate. On the other hand, if they know now that they will always be tempted and are unable to commit to a technology that prevents them from using or an internal personal rule they might immediately abandon all future attempts to cease using and just continue using for ever. Why bother they will tthink - we are weak-willed and it is pointless to try to limit use. This is a very standard story: See for example Ted O’Donoghue and Matthew Rabin.

If they are myopic (and just maximise current benefits) they will use and then detoxify repeatedly and, in the longer-term, do themselves damage.

The general finding is that regardless of how sophisticated they are with respect to the self-control problems they face, if there is no pre-commitment technology or internal commitment device that forces them to stop using, they will continue using at a high level indefinitely. Developing treatments that deal with addiction problems may therefore lead to sustained higher levels of consumption indefinitely and thereby make an individual worse-off longer-term.

These types of stories have an empirical correlate in the advertising literature. David Prentice points out to me a recent paper by Toshiaki Lizuka and Ginger Zhe Jin which shows that advertising the availability of tobacco cessation products increases the tendency of people with a college education to smoke. The idea is coincident with that expressed above - if you know you have access to cheap means of abandoning a harmful addiction you may have incentives to use more.

Tuesday, August 22, 2006

Miracle cures

Over the years I’ve gobbled more than my share of supposedly health-promoting pills that could, from a cynical viewpoint, be seen as a fairly pathetic attempt to boost my flagging health in the face of aging, near-legendary sloth and a persistent overindulgence in red wine.

I’ve eaten vitamins A, C, bioflavonoids, B-complex, inositol, beta-carotene, E, D and minerals such as calcium, selenium, chromium, magnesium and zinc. I’ve also eaten echinacea, garlic, ginger, carnitine, co-enzyme Q10 and ginkgo biloba. Finally, not to forget the fatty-acids, I have religiously taken fish, flaxseed and, when I visit the US and can buy it cheap, borage oils. If I cannot sleep I take valerian and, to boost the sex drive – fortunately a seldom needed affliction in my case, boron seemed reasonable – the name alone should be enough to drag you up to attention.

Finally, when (as a decorated S.N.A.G.) I go off to do the weekend shopping I’ve been known to grab a shot of wheat grass to bolster my health credentials – anything that tastes this utterly disgusting and foul has just got to be good for you.

What have I learnt from this obvious consumption folly? Probably not a lot. I have found that vitamin A in large once-off doses of about 100,000 units coupled with stacks of vitamin C (up to 4 grams per day) plus zinc and echinacea will thwart the impact of the common cold if you hit the symptoms early. It has worked for me for more than a decade. I suffered from colds, flu and bronchitis for years and this concoction of chemicals ended problems whenever I took it at the first sign of a sore throat or the symptoms of a viral infection – I have had only a single cold infection in the past 10 years and that was when I did not have access to this amazing chemical mix. But a sample of one, namely myself, is inconclusive. I am happy to experiment on myself but cannot in confidence recommend you follow me!

I have also learned that consuming a batch of minerals, vitamins and oils is expensive. Probably $40-$50 per month and much more than that if you consume carnitine or co-enzyme Q10 regularly.

So I always get very irritated when a scientific publication suggests that all this cerebrally-inspired pill-popping is wasteful. And NewScientist does just that – right here – for a large slab of the chemicals I have so religiously consumed, namely the antioxidants. These include many of the vitamins mentioned above (A, C, bioflavonoid, beta-carotene, and E) and minerals such as selenium.

Antioxidants are a component of green plants. Many diseases are caused by destructive chemicals called free radicals which cause oxidative damage. Antioxidants can neutralize free radicals by donating electrons to them. Therefore (almost as if we are getting to the punch-line of a great theorem) eating pills or foods rich in antioxidants should provide sponges which mop up free radicals and make us live longer.

The New Scientist – and a number of other sources – are suggesting this focus on antioxidants, at least as supplements, is wrong. The suggestion is that you should stick to food high in anti-oxidants (red wine, tea, fruits and vegetables) but lay of the pills until we know a lot more.

On the specific chemicals:

Beta-carotene. This is a carotenoid that the body converts into vitamin A. Unlike vitamin A itself this is not toxic in larger doses. It is claimed to prevent heart and artery disease and to strengthen the immune system. A major claim is that it can reduce the risk of cancer – a claim now disputed at least among cigarette smokers where it is shown to increase lung cancer risks. If you are foolish enough to smoke cigarettes and hence are at risk of lung cancer you probably shouldn’t touch this stuff.

Vitamin C. Among the most discussed of all substances it is claimed to be the nutriment that helps with almost anything. In fact the empirical evidence has proved mixed. Consumed in large quantities it does reduce the duration of the common cold a bit but might worsen atherosclerosis in some people with diabetes. My general assessment is that generally it seems harmless if not obviously beneficial.

Vitamin E. The world’s most popular anti-oxidant achieved its fame on the basis of claims that high consumption of Vitamin E among 87,245 nurses produced a 41% reduction in cardio-vascular disease. Subsequent studies give mixed results with a few suggesting high consumption of Vitamin E may very marginally worsen mortality.

Zinc. Claimed to be useful for colds, skin problems and even sexual healthg and eating disorders. Mot much evidence although it is an important mineral. At issue is whether deficiencies do occur and whether the best way of dealing with them is via supplements or just by eating a balanced diet.

Selenium. This is a toxin in large enough quantities but at low levels has been claimed to reduce the incidence of various cancers. There is some evidence in support of this claim.

One of the reasons people seek these types of expensive ineffectual alternative medicine solutions is the poor service we get from the medical profession. Doctors these days often seem to exist largely to prescribe antibiotics for illnesses they know in advance they don’t work for. There are good doctors but many seem to exist to maximize their Medicare-generated incomes not to provide useful health advice.

Are you gullible enough to gulp down this stuff? What a waste! How hypocritical of me to use this stuff when I give religious beliefs, in general, no time at all.

Monday, August 21, 2006

Fatter but healthier

Australia’s Health 2006 has just been released. On the health risks I am interested in studying (smoking, booze, illicit drugs) and the obesity issue it makes these points.

• Smoking rates continue to fall, with 1 in 6 Australians aged 14 years or over smoking tobacco daily in 2004, compared with 7 in 10 men and 3 in 10 women in the 1950s.

• About 1 in 12 young people aged 12–19 years smoked daily in 2004. Interestingly there were more females (9.3%) than males (7.3%).

• Between 1993-2004, the proportion of Australians aged 14 years or over using illicit drugs during the previous 12 months decreased with few exceptions; however, the proportion using alcohol increased.

• In 2004, about 5 in 6 Australians aged 14 years or over had drunk alcohol in the previous 12 months. About 1 in 12 had drunk at levels that risked harm in both the short and long term.

• From self-reports in 2004, about 1 in 7 Australians aged 14 years or over had used an illicit drug during the previous 12 months, with 1 in 9 using cannabis.

• An estimated 2.5 million adults were obese in 2004–05, about 1 in 5 males aged 18 years or over and 1 in 6 females. A further 4.9 million were estimated to be overweight but not obese.

• In 2004, about half of Australia’s adults did not undertake leisure-time physical activity at levels recommended for health benefits. Females reported less leisure-time physical activity than males.

Despite some of the bad things we do Australian’s mortality experience is among the best in the world.

• Australians continue to live longer. Babies born today can expect to live for over 80 years on average among the top 5 nations in the world. For females, life expectancy at birth in 2002–2004 was 83 years and for males it was 78 years.

• Almost 80% of Australia’s deaths now occur in those aged 65 or over; and almost 31% occur in those aged 85 or over.

Our health in terms of various indices is also generally pretty good.

• Across numerous important health indicators, Australia ranks among the top 10 of the world’s developed countries.

• In 2004–05, 56% of Australian adults and young people in a national survey rated their health as excellent or very good, more than in surveys in 2001 and 1995.

• Death rates for cardiovascular disease continue to decline.

• Australia’s overall cancer death rates declined by about 14% between 1986 and 2004
and these rates are low compared with other Western countries.

• Despite improvements, cancer is Australia’s leading cause of death among 45–64 year olds and causes more premature deaths and overall disease burden than cardiovascular disease.

• Mental ill health is the leading cause of the non-fatal burden of disease and injury in Australia. Also, it is estimated to have caused about one eighth of the total Australian disease burden in 2003, exceeded only by cancer and cardiovascular disease.

• An estimated 1 in 5 Australians will have a mental illness at some time in their lives; and about 2.1 million people have a mental or behavioural problem as a long-term condition.

• But the overall suicide rate for males in 2004 was among the lowest since records began in 1907 (excluding the World War II period) and for females it was similarly one of the lowest ecorded.

• At age 65, Australian men in 2002–2004 could expect to reach age of 82.5 years on average and women to reach 86.1 years - about 6 and eight 8 more than their counterparts in the early 20th century.

You can get carried away with health and obesity concerns. We should seek to reduce unnecessary mortality but not be despondent. Overall Australia is doing well.

Sunday, August 20, 2006

Urban spawl & house prices

An idea increasingly posing a challenge to State Governments is that house prices in Australia are high not because interest rates are relatively low but because State Governments have been excessively stingy in releasing land and are charging new settlers too much in upfront infrastructure provision fees.

The Reserve Bank’s Ian Macfarlane argues that high prices are due to these inappropriate policies and PM Howard has been quick to seize on these remarks blaming the States for high house prices. Macfarlane's remarks follow recent publication of a Housing Industry Association study and a report by Alan Moran from the Institute of Public Affairs that make similar claims. The issue is important because, as the OECD has reported, Australian housing is the most 'overpriced' in the world. Something is amiss and we need to work out what to do.

I am trying to sort out my attitudes to these views for a forthcoming seminar on urban congestion to which I have been invited. I have several provisional observations and welcome comments on these.

For economic efficiency, marginal infrastructure (and indeed pollution and congestion) costs due to development on an urban boundary should be levied on those settling on the boundary. This provides incentives for people to settle where social costs are lowest and inhibits the sprawl that is so damaging in Sydney’s west, for example. This seems to me an absolute. Past generations might have got away with inefficient infrastructure subsidies but that is no reason to stick with such bad policies. New settlers should pay for the costs they impose.

Land shortages will increase the price of housing. But house prices are responding to various influences. People over–capitalize housing from a social perspective because it is a tax free way of investing their wealth. McMansions are a fact of life because of our tax system. Moreover, because the favorable tax treatment of housing has persisted for a long time, the use of housing as a successful investment has become a self-fulfilling prophecy. Consumers over-invest in housing, in a way that almost exhausts their inter-temporal budget, since this seems like (and has proven to be) a sensible way of accumulating wealth free of capital gains tax. It is not just the supply of labnd but also the inappropriately excessive investment in housing on developed land which creates high house prices.

As argued before, urban sprawl has an undeservedly bad press. Large cities which include high quality housing for a substantial majority of the population are to be lauded not condemned. Travel costs might be higher in a spawled out city but the availability of facilities in much of what is described as urban sprawl is socially and economically advantageous. To be specific – my local suburb in metropolitan Melbourne (Banyule) has a symphony orchestra, an excellent local library, fantastic restaurants, good public sporting facilities and golf-courses, a university, private and public schools, substantial biodiversity conservation zones and a major public hospital. Snobs do contemptuously describe 'suburbs' distant from the CBD as urban sprawl but often residents don’t see it that way. Often we are doing well, thank you!

Congestion is an evil and should be priced but large sprawling cities might reflect rational choices by smart people interested in enjoying the good life. Urban intensification policies need to be based on externality considerations not snobbish resentment of the fact that ordinary people can enjoy the good life that was previously reserved for the gentry. There is no a priori expectation that compact urban structures are the best way to organise our lives in cities.

Issues of conserving the environment and preserving nature are important in large cities. Indeed
conservation can be consistent with profit-seeking land development policy. But this is separate from the issue of having large 'sprawling' cities. Indeed, with significant attention to biodiversity conservation, cities might be more ‘sprawling’ than they otherwise are.

Land supply policies need to reflect marginal costs of development and the potential benefits from both more compact existing cities (if any) and the decentralisation advantages of developing new regional cities or cities in other lower cost environments. Extracting rents from land developers and from new home buyers should not be the basis for urban land-release policy.

Saturday, August 19, 2006

Terrorism prosecution failures

The nits at Larvatus Prodeo are celebrating the release of Jihad Jack. The left generally does anything it can to apologise for what I would call Islamo-Fascism. Sympathy for victims of terrorism - well there is not much of that. On Jihad Jack I much prefer The Australian’s response today – his release is a failure that should be corrected.

At times the one-sideness on the part of the left in supporting groups who support terrorism is open. Comrade Anthony Lowenstein even seems to justify the killing of American troops in Iraq. Under the caption ‘Killing Americans’ I quote Lowenstein:

‘How much longer will Bush, Blair and Howard deny reality? Until there is a full withdrawal from the occupied country, foreign troops are a legitimate target of the resistance’. (my bold)
And even in more moderate non-rat-bag Australia there are attempts to make David Hicks’ paternal adviser Australian ‘Father of the Year’. What a great job he did!

My parochial Melbourne-based bias has made me focus on the trials of suspected terrorists here – an excellent general review of the allegations against the current batch of alleged Islamic terrorist suspects in Australia is provided by the Jamestown Foundation. But I focus on a single person in the group, Mr Benbrika.

Abdul Nacer Benbrika is a member of an alleged Melbourne terror cell currently appearing before a preliminary hearing in the Melbourne Magistrates Court. During the presentation of evidence it was claimed he told his wife that during the leadup to these charges he was going away for ‘terrorist training’. The court was told that ‘he liked explosives’. Moreover, it has long been known that Benbrika was a Osama Bin Laden fan (‘a great man’). For Benbrika, Jihad and opposition to all other religions is an inevitable part of his faith. It was reported in court he claimed that, to kill 1000 Australians, would ‘please Allah’.

Benbrika had missed the opening hearing he said because he had previously been ‘terrorised’. Detectives claimed yesterday he had lied about recently being kidnapped and illegally detained by ‘rogue’ police. It is a complex mix of stories.

Benbrika seems to have a unique approach to disciplining his children:

‘Detective Murray said that on August 23, 2005, Benbrika's wife, Rakia, revealed that he had left home with his sleeping bag after striking one of their children with a telephone. In a telephone call to her mother-in-law, Mrs Benbrika said her son was traumatised as a result of the incident’.
Citing these claims is so culturally insensitive that I almost feel the need for a Yobbo-type apology. Indeed my heart aches for Benbrika who is even being denied the opportunity to pray in a group of three each Friday while jailed. And this man needs to pray. At least Larvatus Prodeo are campaigning to protect Benbrika and his lot. It is hard on Benbrika and his associates being stuck in isolation but lets face it they would not last long unscathed in the general prison population. And the claim is that they were attempting planned mass-murder.

Would the LP scribes continue to support him if the terrorism charges are dismissed but he is instead charged with child abuse?

Update: David Flint makes telling comments on the failure of the legal system in the case of Jihad Jack here. The Courts in bending over backwards to secure the rights of the accused are devaluing the role of juries:

The fact is that the average Australian serving as a juror is just as capable as any lawyer to know and to weigh all the evidence. The criminal justice practitioners are not some priestly caste with superior skills beyond that of the public they are meant to serve. The average Australian understands and accepts that the accused can be found guilty only if that is beyond reasonable doubt.

Take the Thomas case. His interview in Pakistan was crucial. But the appeals court says the jury should not have been told of the interview. This is ridiculous, and if it is a correct application of the law, then the law should be changed. The jury, assisted by the judge, would be quite capable of deciding whether the absence of a lawyer, or any other factors, diminished the value of that evidence.

Juries should be allowed to hear and see more and, with the non-binding advice of the judge, decide what weight they should give to all the evidence. Only by putting confidence in the good sense and fairness of the rank and file Australian sitting on a jury will we begin to restore public confidence in our increasingly biased and inefficient criminal justice system. (my bolding)

The Australian's editorial concerning Jihad Jack makes the issues transparent. Mr Thomas trained with terrorists in the use of automatic weapons and explosives and took money from the terrorist group before returning to Australia. He may be a misfit and even a crazy but he 'betrayed Australia by travelling to Afganistan to serve the cause of terror. In avoiding punishment for this evil act, he has done it again'.

Friday, August 18, 2006

A likely bid for Coles-Myer

An announcement by Coles-Myer management yesterday suggests CM is likely to be subject to a takeover bid. A $16 billion bid for CM (a massive bid by international standards!) would have enormous Australian political implications.

CM is Australia's biggest employer and its staff are mainly vulnerable, low income retail workers so trade unions will be concerned. In addition, there will be the usual bout of jingoism based on the false perception that Australian assets vaporise when purchased by foreigners. The purchase price implied by the current CM share price is 20 times earnings which makes it look pretty expensive - retailing is a very tough business because, even though it is rather concentrated industry structure, margins are low. There are strong, comparatively new sources of competition from discount retailers such as Aldi.

It could be that there is just lots of surplus cash in international markets seeking a home. Alternatively, the high apparent price might also reflect a predator's views that there remain huge inefficiencies within CM - it does perform far worse than Woolworths on various measures. CM chief John Fletcher has publicly revealled his strategy for improving its bottom line and foreign managers may just have made the judgment that they can do a better job at this.

Should we be nationalistic about such moves? In terms of economic logic probably not. The assets won't shift location and we will probably be left with a more efficient retailing giant that will better compete with Woolworths. Mass scale retailing along Wal-Mart lines has huge potential for productivity growth via logistical and organisation reforms that offer better deals for consumers by cost-cutting. And of course the $16 billion will end up in the hands of primarily Australian shareholders which will provide a massive boost to local equity markets and enable other investment opportunities in Australia to be taken up by Australians.

But we get tend to get 'taken to the cleaners' in these types of international deals - MIM, North BH and other miners come to mind. Australians are not good at purchasing foreign assets and seem to sell their own assets too cheaply - BHP-Billiton has not, as far as I know, ever publicly eaten humble pie over its sale of a 40% interest in Woodside for a song. The Treasurer Peter Costello has said he will look at any proposed deal involving the sale of CM and he should.

Thursday, August 17, 2006

Politics of pokies

At Crikey Charles Richardson discusses proposals to restrict poker machines. A Morgan poll released yesterday shows that a majority of Australians want local councils to be able to prohibit pokies on their territory - 57% of Australians favour giving councils the right to ban machines.

Richardson claims that the policy will fail for the same reason that prohibitions by councils on prostitution and alcohol failed. People will simply travel to venues where the facilities are located ignoring local council restrictions. He does acknowledge there are problem gamblers who need help and that government dependence on gaming revenue is unhealthy. But to Richardson a ban would offend personal freedom and be counterproductive.
‘…gambling is a matter of personal choice. We do not normally think that local democracy should extend to prohibitions on otherwise lawful activities. If they can ban pokie venues and brothels, why not mosques or synagogues?’
The ‘freedom of choice’ issues do not make a lot of sense for problem gamblers who cannot control their gambling compulsion but addressing such concerns with restrictions will penalise those who can gamble sensibly. Given the scale of gambling problems in Australia the loss of liberty in restricting sensible gambler’s access to pokies doesn’t worry me that much. The scale of the problem is indicated by statistics collected in the Morgan poll which suggest 10% of Australians (around 1.6 million) aged 14 and over identify gambling as a problem within their family and about 1.6 million who admit they sometimes gamble more than they should.

To the extent that problem gambling is cue-driven, and hence supply-determined as suggested by Doughney, banning machines should alleviate it. And, of course, giving councils the right to make choices does not mean that pokies will be banned. But the strong community opposition to machines suggests this is a plausible outcome. Why not give councils the choice and find out?

Generally I am pleased again that following the initiatives of the Greens and the Liberal Party, gambling is becoming a political issue in Victoria. The Morgan poll should help to make it a national issue.

Wednesday, August 16, 2006


Three propositions:

1. In one of my earliest posts on this blog I argued that religions have positive placebo value. They may be the ‘opiate of the masses’ that acts on the brain as an endogenous opioid but religion makes people less ill, suffer less mental illness and provides a convenient social glue. Praying for someone will not help that person but it might help you. So, while I am an atheist, I don’t resent or dislike the fact that friends and colleagues have religious beliefs. Good luck to them – they’ll probably outlive me, have more friends and almost certainly be more sane.

2. Religious belief is so widespread in different societies that it is presumably hard-wiredthe Supernatural Enforcer guides most people in most societies. Some have asked whether there is a God gene.

3. Although religious conversions seem fairly common in western societies (I could not dig up confirmatory data) my guess is that most people adopt a religion that is reasonably close to the religion of at least one of their parents. It is not an adopted as an act of choice.

Point 3 by itself makes the choice of religious belief seem arbitrary to me but, in conjunction with points 1. and 2., suggests that disputing people’s religious beliefs is unlikely to be a productive communication. It also suggests that while war is presumably a generally a quite irrational response to dealing with conflict generally in terms of its harmful consequences (John Quiggin has reminded us of this recently) that it is particularly pointless when it is derives from differences in religious belief.

I am motivated to make these remarks by the recent horrific suicide bomb attack in Iraq where one sect of Islam attacked another in a marketplace killing 125 people. The street became a river of blood. The input was hatred and the outputs generated were death and hatred.

Dealing with terrorism effectively

Somewhat inconclusive thoughts based on recent press arguments.

Stephen Morris on recognising the problem. ‘…we in the West are at war with a hydra-headed and barbaric enemy that has not a shred of humanity and relishes the bloodletting on tens of thousands of innocents, including other Muslims…Should any of its constituent elements - the Iranian Government or al-Qa’ida – acquire nuclear weapons it will likely create genocide against Israel and create devastation in the West of an unprecedented kind’. This is the easy bit and I agree with this characterisation.

Lord Stevens suggests that it is the British Islamic Community that is responsible for Islamic terrorism in the UK not UK foreign policy. British Muslims he claims are not the ‘victims’ of terrorism but its basis of creation in the UK. I am unsure. Most terrorists are Muslims but how can Muslims (which are a much larger group) can be held ‘responsible’ in any meaningful sense? Can you blame Australians for crime committed by Australians? How, anyway, does attributing blame in this sense help? Furthermore, attributing blame may alienate Muslim community support for counteracting terrorism.

Muslims must aid the anti-terror fight. I agree – it sounds more positive than holding Muslims to account although it is close to the 'responsibility' argument. A starting point is to encourage Muslims to look at their own religious education practices and some of the fanatics who seem to get involved in such teaching rather than blaming the foreign policy of their host country. They also need to seek ways for disaffected youth to express their views without trying to kill people.

Profiling passengers at airports. Lord Stevens points out that most plausible candidates to be terrorists have particular backgrounds and ethnicity. So they should be screened most intensively as potential terrorists. Again I am unsure. As a practical matter it sounds sensible and avoids inconvenience to thousands of low-risk travellers but if terrorists discover the profiling might not they take steps to ensure that terrorists planted on planes escape the profile. Two of the recent British suspects were Europeans who at first sight would not look like plausible terrorist suspects. Moreover racial profiling may alienate Muslim community support needed to deal effectively with terrorism.

Tuesday, August 15, 2006

LPG conversion grant

The decision of the Howard Government to provide a grant of $2000 towards the cost of converting existing cars to LPG, a a grant of $1000 for installing LPG in new cars, is a political decision designed to offset community perceptions that the Government is not doing enough to protect motorists from rising petrol prices.

The Government cannot really do anything to change petrol prices since these are determined by (i) international oil prices and (ii) the Government's 38.1 cent per litre fuel excise policy. The former cannot be controlled and the latter cannot plausibly be cut - a 10 cent cut per litre would blow a permanent ongoing hole in the public sector budget - a hole that will be hard to refill were petrol prices to ease. And an easing in petrol prices seems certain - Paul Higgin's sees a fall in prices to less than $40US per barrell within 3 years as increased supplies come onstream and conservation measures bite- there is a dramatic potential for conservation in low income countries such as China and India where fuel efficiencies are low.

Essentially the grant transfers income from those who do not make LPG conversions (including those who don't drive, those already with LPG and those with fuel-efficient cars who don't need to convert) to those to do. This type of transfer is inequitable.

It was not the case that consumers were unaware of the possibilities for conversion - there are excess demands for conversion already as motorists scamble for cheaper fuels. Markets were already working - oil imports had already fallen strongly with these pressures, public transport usage had increased as had the use of small cars and LPG conversions were up 116% from last year. (Thanks to Andrew Norton for these links).

But as political moves go it is still not the worst thing that could have happened. Consumers still have to face up to high petrol costs and will make fuel and car-purchase decisions reflecting this fact. A petrol subsidy would have been more defibitely the wrong way to go - small mercy for being saved from this.

Of course LPG prices are likely to rise internationally as people around the world make LPG conversions. The pressure to do this globally is fostered by LPG's better ability to deal with pollution and global warming concerns. LPG prices have increased at 4 times the rate of increase in the CPI over recent years. Moreover, the government has already announced that excise on LPG will be levied at 50% of the rate of petrol from 2012 but if LPG becomes increasingly popular the excise may shift beyond this.

There is a good discussion of the LPG subsidy by Andrew Norton at Catallaxy.

Monday, August 14, 2006

Sam Ward apologises

This is memorable. SW apologizes to yours truely as well as other paternalistic health Nazis, Qantas stewardesses, Greenpeace, animal rights campaigners and the masses suffering under the yoke of John Howard's rule.

Beazley bombs

Kim Beazley was asked for comment on Ian Macfarlane, the Reserve Bank of Australia Governor, who had suggested in an article in The Weekend Australian that the days of low interest rates were coming to an end.

Mr Beazley had not read the article but, having made sallies recently at the federal Industry Minister, also an Ian Macfarlane, assumed this was who was being referred to. He said:
'It's all very well for people who are well-off to go around lecturing middle Australia on their need to pay more money'.
'They are paying through the nose at the moment ... now Macfarlane can do something about that and instead of telling Australian people they ought to pay more he ought to do his job'.
His office later explained he had not heard the question and was in fact referring to the Industry Minister the Treasurer, Peter Costello was quick off the mark.
'For Mr Beazley to go out and gratuitously insult him because he does not even know his name is just another indication Mr Beazley understands precious little about economics'.
The last part of this makes little sense but his point about the insult is spot on. Presumably economist MacFarlane is a reasonably wealthy man so does this criticism in fact apply to him even if it was misdirected?

Poor old Kim has made more than a few gaffes lately . It is surprising that before he makes public statements on events of the day without using the press-cutting service he presumably has delivered. His verbal exchange with Wilson Tuckey a few days ago on the steps of Parliament House left neither man with a lot of credit. But, as PM Howard so pithily observed, Tuckey isn't selling himself as a potential PM while Beazley is. I cannot imagine John Howard being involved in this type of altercation or making the stupid gaffes.

Sunday, August 13, 2006

Doubts about the ceasefire

Like Prime Minister John Howard I am pessimistic about the prospects for a durable peace in the Middle East on the basis of the current United Nations Resolution to end fighting tomorrow. The resolution, despite its complexity and length, is vague on the issue of disarming Hezbollah - the key to thwarting Iran's objectives in Lebanon.

The crux of the problem is that Hezbollah sees itself as gaining some sort of 'victory' over Israel in contrast to repeated past Arab failures. It sees itself as having been able able to sustain continued opposition to the military might of Israel. It may be that ordinary Lebanese returning to their shattered homes and a ruined economy may inject a sense of realism into Hezbollah's fantasies but the fear is that for many, hatred of Israel and celebration of this pyrrhic 'victory', fostered by the bearded religious fanatics in Iran, will turn this ceasefire into something only temporary.

This ceasefire will only provide a lasting peace if Hezbollah is disarmed and its military influence in Lebanon nullified. The real danger in the region is Hezbollah’s patron, Iran and specifically the threat of a nuclear-armed Iran. Iran seeks nuclear weapons and has repeatedly expressed the view that it will use such weapons on Israel. Their leader Mahmoud Ahmadinejad is a fanatic who would see millions die to further his fanatical brand of Islam. Hezbollah's leader Sheikh Hassan Nasrallah has similar goals - 'If Jews all gather in Israel, it will save us the trouble of going after them worldwide.' (NY Times, May 23, 2004, p. 15)

Even though he has brought devastation to Lebanon, Nasrallah is a much-admired men. His threats to the Jews parallel those of Hitler in Mein Kampf and he has a reputation for keeping his promises. Israel will see this more clearly than any country and Israel has nuclear weapons that it will use to ensure its survival.

It is in the interests of non-fanatical Arab countries, as well as Israel, to secure a durable peace. Like P.M. Howard I am unsure this UN resolution will do much.

Saturday, August 12, 2006

Southern bluefin tuna & Japan

International common property problems (Greenhouse gas emission, ozone use, pelagic fishery harvesting, biodiversity conservation destruction) have the game-theoretic structure of a (repeated) Prisoner's Dilemma.

It is in the interests of all parties involved in the use of common property resources to reach an international agreement restricting use of the shared resource. But, given such an agreement, it can be in the interests of each party to cheat on the agreement by taking advantage of the conservationist actions of others to use more of the stock than agreed to. In the case of a fishery, each country has incentives to harvest more fish than agreed to while other countries comply with the international agreement. Such countries are cheaters. Moreover, other countries may have long-term reasons for complying - they may seek long-term solutions rather than short-term gains from cheating - these are the compliers.

In the early 1980s, Australia, Japan and New Zealand set up the Commission for the Conservation of Southern Bluefin Tuna (CCSBT) to manage that overexploited fishery. The nations also agreed on a quota system to prevent further depletion of tuna stocks, which had been damaged by overfishing. World stocks of SBT are critically endangered.

But a report by the CCSBT says Japan has never stood by this deal. It seems Japan has caught up to up to 3.3 times the legal quota under the deal and hidden this obverfishing. The fish are being caught on Chinese or Thai boats and are then going through the 'back door' into Japan where they are recorded as species like big eye tuna or northern blue fin before going to market. Reuters sumnarises the recent CCSBT claims:
'.. on a 6,000-tonne national quota, Japan's been catching anything between 12,000 and 20,000 tonnes for the last 20 years, and hiding it. And that has probably killed the stock'.
The claim is that Japan has stolen at least $2 billion (and up to $5 billion) worth of fish from the international community and 'have been sitting in meetings for 15 years saying that they're pure as the driven snow'.

The allegations have angered the fisherpeople of other countries and provides increased incentives for the latter to cheat and distrust the Japanese in formulating future agreements. Moreover, this distrust will spill over into distrust of Japan on other global environmental issues such as the blatant lies Japan tells about its scientific whaling efforts.

I heard a TV report that news of the Japanese deception was leaked during a classroom presentation by an academic at the Australian National University. If I can get more details I'll update this. For the moment one can only reflect on the stupidity, myopia and poor international citizenship shown by these Japanese actions. Longer-term it is in the interestts of a seafood-dependent country like Japan to conserve this stock.

Friday, August 11, 2006

“We'll all be rooned," said Hanrahan

In more bad news for the Labor Party, Australia’s trade deficit narrows more than was expected and our unemployment rate hits a record low. The improved export performance is due to massive investment in infrastructure and the mining industry.

While the boom is concentrated in mining there was also strong growth in manufactures. Meanwhile the unemployment rate hit a 30 year low as employers took on an extra 153,000 workers over the past 3 months of which 28,000 had been previously unemployed. Workforce participation levels have risen to record levels of 65%. The path to continued growth in employment lies in supporting the government’s WorkChoices IR reforms.

Watch the silence on these remarkably positive developments in the primarily left-wing blogosphere. The main focus there I'll bet will be to echo the Labor Party’s foolish claims, 'in accents most forlorn', on the likely implications of these positive developments for higher interest rates. But the Australian’s editorial today correctly observes:
‘While Labor's policy remains to scrap the workplace reforms and reregulate the workplace, it has little real credibility in its interest rates attack’.

Thursday, August 10, 2006

Israel expands its military effort

Hezbollah is firing missiles from civilian areas in Lebanon into civilian areas of Israel. It seeks a double bonus since it wants to kill Jews and to claim the propaganda rewards from dead Lebanese civilians.

Hezbollah is skillfully exploiting missile technology to realise these 'rewards'. As Greg Sheridan in the Australian remarks:

Missiles, like most weapons, are becoming more sophisticated yet, paradoxically, simpler to operate. Thus, Israel has technology that can trace the line of an incoming missile and hit the point from which it was fired. But missile launchers are almost throwaway items now.So Hezbollah can set up a missile launcher with a couple of soldiers, move them away from the launcher, then fire it by remote control. When the Israeli retaliation hits, the Hezbollah fighters are well out of range.

Even worse, in a way, they can set up the missile launchers in areas, especially civilian areas, where they know that an Israeli hit will cause Israel big political damage.

Missiles are fascinating because they are a weapon of conventional warfare and, increasingly, a weapon of terrorism. They are used in symmetric warfare, between powers of comparable military strength, and in asymmetric warfare. In other words, they are a weapon that a weaker power can use to inflict unacceptable damage on a stronger power.
Israel is justified in expanding its ground-based military operations in Lebanon to prevent missile attacks on its territories. However justification is becoming of secondary importance. The issue is can it win with these tactics at acceptible cost? Hezbollah might not be widely loved among non-religious fanatics but its popularity is increasing in some circles.

The bad guy can win.

Wednesday, August 09, 2006

Fallacious arguments for low levels of tariff protection

The argument that Nicholas Gruen has propounded, and which John Quiggin seems to have supported, that low levels of tariff protection are justified by the existence of market power in export markets, is just wrong.

I think they have in mind a simple two good model where the Lerner symmetry condition implies that it doesn't matter whether you levy an export tax on goods in not perfectly elastic supply or instead levy equivalent tariffs on imports. In this simple two good model it doesn't matter which traded good you tax in order, for example, to exploit the optimal tariff argument. The argument here suggests that restricting output in export markets will raise price sufficiently to increase a nation's advantage. Specifically levying a tariff on imports in a two good world will drag resources away from the export sector, reducing output there and potentially advantaging the economy from an optimal tariff viewpoint.

But in a model that even broadly captures the features of the Australian economy this argument breaks down completely. For example if you have market power only in wool exports and you put an import tariff on car imports, then in general, that tariff will draw resources away from all sectors, not just the wool sector. Lerner symmetry disintegrates and doesn't help design policy.

And given the vastly different production technologies in play here in the Australiuan economy a tariff on car imports may not draw any resources at all from the wool sector - instead it will draw resources away from industries with no exporting market power at all. In this case the economy will be worse off with any non-zero tariff on car imports since the tariff will be distortionary.

In general you can't draw any conclusion about a case for low level tariffs without paying attention to the nature of complementarities and substitutabilities in the use of inputs in the economy as a whole. To suggest there is some general argument for low tariffs is an erroneous conclusion.

And to present the rejection of this fallacious argument as a kneejerk rejection of any argument against free trade is unfair. The optimal tariff type of argument can only ever be a very specialised argument that will only ever work in the most restricted circumstances. The difficulty with such fallacious arguments is that they create the impression - on the basis of an inapplicable 2*2 trade model - that there is a general argument for low levels of tariff protection in any economy with some market power in exporting. Since this would apply to almost any economy it suggests a general case against free trade.

There is no such general case and, in particular given the lack of input substitutability between the car industry and those industries where Australia does have market power, there is no specific argument for low levels of import tariff protection in this particular setting.

There is a well-known argument that cutting low tariffs to still lower levels will confer almost no national advantage in terms of output gains. This argument is correct but it has nothing to do with the fallacious argument that optimal tariff arguments on the basis of claimed monopoly power in exporting creates a general case for low level tariff protection of industries such as the car industry.

Mid-week review

It’s been a busy week for me and blogging has had to come a poor second to the pursuit of other work-related things. The multiple postings on smoking policies reflect some reading I am doing on the subject – not a lot of extra blogging effort.

I have been thinking about the issue of the amount of time I do spend blogging. In my case blogging is primarily a recreation - though a purposeful recreation.

I’d be very interested in reader’s experiences in terms of time spent blogging generally and perhaps in running their own blog. Do you worry about the impact of time spent blogging on time available for other things.

By the way, I thought the use of blogging software, by Tim Lambert , as a ‘content management system’ for teaching was neat. His specific illustration of a course he teaches on Computer Graphics is here.

Using the Wordpress blogging software Tim can password particular parts of the site such as solutions to problems. He also includes video clips and pod casts as well as information about the subject and links to background reference material. The comments facility can be switched on and off – clearly for small groups you could set online exercises that could be addressed in the same way that WebCT and other online teaching tools work. Snippets of mathematics can be added to posts by means of a Wordpress add-on.

‘So what’ you might say. Can’t you put all this material on a webpage? You probably can but this is approach is very easy to set up and update. I also like the temporal feel of the approach – this is what we are doing this week.

Again I’d be interested in reader‘s experiences using blogs in a teaching setting.

Tuesday, August 08, 2006

More on smoking

Two anti-smoking policy announcements:

1. The Victorian Government may sue tobacco companies for millions of dollars if they are found to have broken The Tobacco Act that prohibits giving ‘any sponsorship, gift, prize, scholarship or like benefit in exchange for the promotion of, or an agreement to promote, a tobacco product’. Breaches of this provision carry fines of up to $5 million per offence, according to lawyers for anti-tobacco lobby Quit. This follows claims that companies have been buying exclusive rights to sell their products at pubs and clubs.

On the face of it buying the exclusive right to sell your product at a particular venue does not encourage smoking or impose extra external costs associated with smoking.

2. Among a draft of anti-smoking measures the South Australian Government plans to introduce a law that punishes smoking in cars if children are present. Parents will no longer have the right to inflict passive smoking damages on kids (it is very dangerous for kids) and will be hit with an on the spot $75 fine if they smoke in a car with children aged 16 or less. Thanks Yobbo.

This seems a more sound policy since smoking in a vehicle imposes high passive smoking costs. Parents don't have the right to poison 'their' kids and kids don't generally have the option of taking alternative modes of transport.

But there seems to be no obvious way of stopping concentrated passive smoking damage within the family home other than by educating parents on the damages they are doing to themselves and their children. The positive step of encouraging parents to step outside if they want to injest carcinogens is a useful message.

Passive smoking

An commentator on an earlier posting pointed to an excellent paper (by Jerome Adda and Francesca Cornaglia) looking at the implications of taxes and bans on smoking in public places. To quantify passive smoking impacts data on cotinine concentrations are measured in populations of non-smokers. Cotinine is a metabolite (byproduct) of nicotine as it is processed by the human body. It is an indicator that nicotine has been inhaled or otherwise introduced into the body and can be used to measure the impact of passive smoking.

As background Adda/Cornaglia point out that while 15% of Americans smoke that 84% have detectable levels of nicotine in body fluids. Such passive smoking kills 35,000 Americans annually from heart disease and about 3,000 from lung cancer.

The main findings are that excise taxes have significant effects on passive smoking – particularly among children - while smoking bans do not reduce the average incidence of passive smoking. Bans in public transport or in schools reduce passive smoking impacts but bans in bars, restaurants and recreational facilities in fact increase the incidence of passive smoking. The latter bans displace smokers to private places where they contaminate non-smokers – and particularly young children – even more severely. If smoking is banned in a bar then smokers may be more inclined to stay at home to drink and smoke thereby inflicting increased damage on children.

Furthermore bans increase the exposure of poorer individuals to passive smoking but decrease it to more wealthy people.

This suggests outright smoking bans in pubs cannot be justified on the grounds of reducing passive smoking. They might induce a less smelly and more pleasant environment for non-smokers and they might be one factor that helps support smokers quit by limiting smoking-booze complementarities but, if the analysis is sound, bans will not reduce the average incidence of passive smoking. Bans work best if alternative places – such as an outdoor bar area - are offered where smokers can turn to but where children are not exposed to smoking.

Monday, August 07, 2006

Invisible hand on the keyboard

The Economist runs a typically punchy article on blogging by economists.

The post discusses the blogs of Brad Delong, Becker-Posner and Greg Mankiw all of which are on my blogroll. A blog that I hadn't come across before is by Brad Setser .

It also discusses the impact of blogging on academic productivity. Following Han Kim, Adair Morse & Luigi Zingales's, 'Are Elite Universities Loosing Their Competitive Edge' The Economist asks whether the internet's ability to spread knowledge beyond particular universities has decreased the value of elite faculty hires.

The answer is that it does which is what you would expect. There is also the suggestion that those with influential blogs will command a good market price - microphones can be turned into megaphones. So please read my blog and improve my marketability!

Frank Zappa clips

My attention was drawn today to these video clips on the late, lamented, Frank Zappa. The first is of a very youthful Frank 'playing bicycle' on the Steve Allen Show. Its a classic.

The best rock concerts I ever went to were of Frank Zappa performing at the Hordern Pavillion in Sydney in mid 1973. I've been a devoted fan since.
Thanks David Prentice.

Going native

This post was motivated by a discussion I got involved in at Pavlov’s Cat. I want to present an argument for growing Australian native plants in urban gardens and, specifically, native plants native to the specific area lived in.

This is becoming increasingly possible as local councils provide information on the plants that originally grew in particular suburbs and even in particular streets. For example, I live in the City Council area of Banyule in Melbourne. The Council has an environmental program that identifies soil and original vegetation types by area. Although my house is in the middle of settled suburbia, I know that it was previously in open woodland with grasslands near the southern boundary of my street and that the soil-type is medium-heavy clay. (In some cases these inferences about original vegetation are drawn by correlating soil and terrain types from adjacent areas of 'remnant' native vegetation).

There are, in addition, several local native plant nurseries that sell, at low cost, tubes of plants that originally occurred in the local area. In my case, there is an indigenous plants nursery (Keelbundora) at La Trobe University and one associated with the Victorian Indigenous Nurseries Cooperative at Fairfield.

Why make the effort?

1. Native plants are cheap to buy and cheap to maintain. Buying a shrub in tubes costs about $2-50 compared to a cost of at least $8-$12 for a small potted exotic plant from a commercial nursery. I re-established a front garden after a major house renovation for a few hundred dollars.

2. Native plants attract native birds and animals to your garden as well as butterflies and frogs by providing seed, berries, perching sites and protection. This environment also tends to discourage introduced bird species such as Mynas and Spotted turtle doves. More generally, planting natives in your garden helps to restore wildlife corridors, linking parks, habitat areas, remnant vegetation and flight zones. In my area the wildlife corridor that runs along the Yarra River Parklands feeds interesting bird species into urban habitats that maintain populations of native plants close to the centre of Melbourne - at my house in urban Ivanhoe I have seen over 50 bird species in recent years - including Yellow-tailed black cockatoos, Gang Gang cockatoos and Eastern spinebill. If you enjoy observing Australia's wildlife this adds to the pleasure of urban living.

3. Native plants indigenous to a local area and suited to local soils and climate grow well and look healthy. They tend not to die! To make the point specific I have tried several times to grow Banksia marginata in my garden. Although it is considered one of the easier banksias to grow I always failed – until I grew the local subspecies. Then, without difficulty, the plants grew successfully.

3. Native gardens while not maintenance-free generally require less watering, maintenance, less pesticide and less fertilizer. Animal fertilisers that are required in large quantities to sustain European gardens with camellias and rhododendrons impose extra nitrogen load on our waterways. Less maintenance means less effort looking after a garden and more time enjoying it.

4. Native plants look better than exotics. Many will disagree with this claim but I think it is sound. Australian natives such as banksias and grevillias are long-flowering and even those natives that are not prolific flowerers often provide a more elegant and interesting landscape in terms of attractrive foliage and plant structure than the simple lolly-pinks and bland-whites of European weeds such as roses and azaleas. To appreciate Australian natives it is often just a matter of opening your eyes and seeing what is in front of them. Preconceptions about what a garden should look - it does not have to correspond to a formal English garden - can bias perceptions. For example many of the Australian native grasses (such as the poas, dianellas and lomandras) look attractive when mass-planted. Furthermore, even if you are committed to a traditional formal garden native plants can be used to good effect.

5. Our native plant species are of intrinsic interest to those fascinated by the Australian environment. Most are endemic to Australia and the variety is huge.

It is not necessary to be a native plant Nazi. I have exotic plants in my garden - mostly planted before I arrived - and I also have native plants from other parts of Australia - a few years ago I grew about 50 Kangaroo paws from seed and they certainly are not a local native. But when exotic plants fail I try to replace them with natives.

I am surprised that when I ask students in my environmental economics classes about the soil and (original) vegetation types at their homes they invariably don't know anything. Often these students are busily involved in worthwhile campaigns to save the whales or to prevent global warming but they don't know much about their own backyards. But it is useful to act locally as well as globally. Enjoying native gardens and having respect for local urban environments is a sensible 'state of mind' and not just for nurds.

Sunday, August 06, 2006


This blog is 6 months old today. From an uncertain start on February 6, 2006 this is my 422nd post - a surprising 2.3 posts per day.

Generally I have enjoyed the blogging experience.

Positive comments on my blog with an overwhelming (or even moderate) sense of appreciation are very welcome on this solemn occasion. Negative comments also welcome - although less so.

About the only interesting news item to arrive on time to help me celebrate today was the report in today's Age that abolishing state governments would save Australians about 5% of its GDP or about $30 billion annually.

These proposals for a binary governmental structure – strong federal and strong regional - have surfaced and disappeared over the years. I don’t believe the 5% figure and assume that such a binary system would essentially increase power at the centre. The reform would be approximately realised if responsibilities for health and education were transferred to the Commonwealth. As I have posted before I am unclear of the advantages of such centralisation - particularly with respect to education. I'd be interested in observations on this. My guess is there is some efficiency cost in retaining the state governments though not a large one. In education, and perhaps even in health, there are some virtues in retaining competition in the provision of these key public goods.

Saturday, August 05, 2006

Cigarette companies encourage the booze-smoking link

Smoking companies are subsidising the provision of outdoor drinking facilities - such as open air rooftop gardens - so that smokers can be accommodated in pubs and clubs when restrictions of smoking come into operation in July 2007 in Victoria. One can draw several conclusions about this action by these multi-national cancer vendors:
It is a rational type of investment on their part given the synergies that accrue to the cancer vendors. Apart from encouraging continued smoking it should prove to be a sound investment in the entertainment industry. Smoking and drinking are complementary products so that it is particularly attractive for cancer vendors to invest in booze.

The move is socially advantageous since it should cut down on whatever dangers do accrue from passive smoking - these are debateable though there are likely to be costs for children - and might even cut down on the health damages to smokers by reducing their exposure to smoke-filled air. Certainly workers in these environments - such as bar-people - will experience a lower sustained exposure to carcinogens.

While the long-term objective should be to phase out smoking altogether, intermediate steps which make smoking more expensive and more of a hassle for smokers are useful. They protect the rights of those addicted to cancer-causing drugs as well as those who cohabit the world with them and the rights of those who have to earn their living by working with them.

Friday, August 04, 2006

Doctors taking bribes

How do big pharmaceutical companies sell drugs? Some of the time they bribe doctors. The ACCC’s Graeme Samuel pointed this out in a recent opinion piece and this has now been backed up by an Australian empirical study (here).

The general issue of physicians accepting bribes (lunches, travel, books and employee wage bills) has surfaced around the world – a recent US commentary is here and a NYT editorial on the issue here. The dimensions of the US problem are vast.

While short-sighted greed seems to have replaced ethics in the specialist medical profession an attractive recent development is that some doctors regard their own profession’s behavior as disgusting. For example the Journal of the American Medical Association says doctors should stop accepting bribes.

Doctors used to be among the most trusted and respected professionals in the community. Consumers who transact with doctors do so under conditions of asymmetric information –doctors have the best information about a client’s health and clients rely on their medical judgments particularly in relation to the prescription of pharmaceuticals.

Taking bribes biases professional judgment and endangers the community’s health. The doctors who accept bribes and the companies who pay them are equally complicit in unethical behavior.

Threatening noises

Australia's Muslim Community Reference Group told Prime Minister Howard that the Israeli Government was a terrorist organisation but Hezbollah was not. Hence they claimed Hezbollah should not be banned as a terrorist organisation in Australia. Dr Ali, Chair of the MCRG claimed 'even the military wing (of Hezbollah) is not a terrorist organisation' . JWH predictably rejected these claims and admonished the MCRG for not criticising the terrorist actions of Hezbollah.

One hopes the following remarks from MCRG are not a veiled threat:
The group told Mr Howard that in order to prevent hostilities in Australia, the Government needed to display an even-handed approach in its condemnation of the loss of innocent lives. (my italics)
These comments are topical given that South East Asian jihardis have been dispatched around the world for a global war on Israel. The leader of the Jakarta-based Asian Muslim Youth Movement, Mr. Suaib Bidu has warned Australia that his group would 'monitor' the position of Australia towards Israel's current military operation in southern Lebanon, and that it too could become a target for suicide attacks.
'We have a lot of support, including in Australia, from people who don't believe Israel's attack (on Hezbollah) is just', Mr Bidu said.
Terrorism experts have warned that the AMYM had the motivation and the backing to organise a campaign of terror. A foremost scholar on militant Islam, Zachary Abuza, described the group as a dangerous threat that deserved to be taken seriously.

'These people are willing to martyr themselves and that just feeds on itself', Dr Abuza said. 'Events like this (the Lebanon conflict) are superb tools for recruiting and indoctrinating people'.

Threats of suicide attacks in Australia that derive from the Australian Government's verbal support for Israel demonstrate a lot about the values our country should defend and the values we should always reject. We should not forget these threats or the people who made them. Particularly as we know some Australians currently financially support Hezbollah terrorists. Australia currently has 162,000 first and second generation Lebanese migrants of whom about 10% are Shia Muslims likely to support Hezbollah .

Thursday, August 03, 2006

Interest rate rise

The 25 basis points rise in official interest rates to 6.00% announced yesterday by the RBA shows the RBA is concerned about inflation and believes that past increases in interest rates have not yet bitten. Indeed credit growth is rocketing away at about the highest levels for more than a decade. New loans for housing grew at 25% in the year to May. Even ignoring fruit and fuel price increases inflation is drifting out of the RBA's comfort zone of 2.5-3%. The market is also attaching a high probability to a further interest rate hike later this year.

The higher interest rates - and higher fuel prices - will cut into spending and will mean that many Australians will be unable to afford to live as well as they would have expected given the July 1 tax cuts. The RBA however still see the $9 billion tax cuts as having a net stimulatory effect. Indeed it is this effect that might be seen as the villain driving the interest rate hikes.

The RBA are concernmed about strong growth in the world economy - particularly in China and Japan - though there has been lower than expected US growth.

There is also RBA concern with trade unions building price increases into wage demands thereby generating a wage price spiral. Jobs will harder to get as a consequence of the hike. To compensate those on fixed incomes will be better-off and house renters at least won't be worse-off - at least in the short-run.

One suspects that the interest rate hike will hit hardest in the low growth states such as NSW and Victoria - WA and Queensland have resource booms driving rapid growth.

I looked at a number of newspapers this morning and most gave the RBA a tick of approval. There were a few rumblings about possible long-lags in monetary policy effects that might tip slow-growing states into recession though this would be a consequence of recent interest rate tightening generally rather than this single small increase - interest rates have risen 7 times in 4 years.