Tuesday, October 31, 2006

Three old reds

I was fortunate enough to drink three well-aged, red wines over the past few days. I’ll bet you are all glad to hear that and to have the opportunity to share, if only vicariously, in my pleasures. Its kind of ‘Will you buy me an ice-cream? No, but I’ll let you watch me eat it!’

Besides I love posing as a knowledgeable wine critic when, if the truth, be known, my major abilities are to be able to open bottles and drink the stuff.

1. First was a 1992 Campbell Bobbie Burns Shiraz, a high alcohol (14.5%) block-buster from Rutherglen. As a youngster this had fruity, fortified characteristics and was a great drop but, as a 14 year old, it was a little past its prime although it did have some pleasant, slightly gamey, characteristics. Current vintage sells for about $20 – a quality cheapie but don’t hang onto it for as long as I did. Particularly as current vintages have more water in them. Ranking from this guzzler 84/100.

2. Next was a 1990 Penfolds Bin 389 which was a delightfully robust young wine but which, after 16 years was pretty much a faded version of the original. A good drink but, like most of the aged Penfolds wines I have drunk, no real complexity. Tastes like wine, constructed by a committee without great personality - although still very much above-average drinking. Retails for around $60 a bottle and is probably fully priced at this. Current vintage sells for about $35. If you must fall for the Penfolds hype, drink their wines young – they don’t improve much and there are much better cellaring options. Ranking 89/100.

3. Finally, a 1990 Yarra Yerring Dry Red Number 1, mainly Cabernet blend. One of Dr. Bailey Carrodus’ Coldstream Hills absolute classic reds from the Yarra Valley. A magnificent drop which shows no signs of fading with age. Intense coffee fragrance, magnificent colour without the slightest trace of brown and with intense, complex sweet fruit flavors. An absolute beauty. I bought 2 dozen of these in 1990 as a reward (unremarked on to the rest of my grasping clan) from a well-paid consultancy. I paid $20 per bottle and have about 12 left.

Now the current vintage sells for $50+ a bottle and the 1990 for about $100 which to me is again not excessive. The wine snobs have seized this beauty and I can’t afford to take the trip out to Coldstream to buy more at these prices - this is definitely an exhaustible resource. I’ll drink a bottle every 2-3 years until it starts to fade and then will guzzle the remainder. A memorable drop – I always enjoyed Bailey’s Dry White which never got great rankings from the wine pros. Ranking 95/100.

By the way, with respect to these, market valuations (greater cost) are consistent with my preferences (stronger preference).

Sheik yet again

Sorry to harp on this but there is a real problem here.

A point made by the Treasurer Peter Costello in relation to the 'cat meat' Mufti Sheik al-Hilali is that he made this obnoxious speech a month before it was reported and yet no-one in the Muslim community spoke out against it. Indeed 5,000 Muslims have recently demonstrated their support for the views of the Sheik. And Costello makes the obvious point (that I also made in the immediately preceding post) that the Sheik's followers were likely to have been among those involved in the Cronulla riots. Costello's statements are contained in an insightful interview with Alan Jones.

This confirms my impression that while the usual stream of Muslim representatives are rejecting as intolerable the views of the Mufti a substantial number of Australian Muslims agree with them. This was certainly my impression in looking at the Muslim Village website and is reinforced by two articles in The Australian today (here and here).

Isn't it time we addressed what is a serious problem in Australian society?

Monday, October 30, 2006

Urban traffic congestion & the boom

This is a draft of a paper on urban traffic congestion I will present at The Australian-Melbourne Institute 'Making the Boom Pay' Conference, November 2-3, 2006. Comments are very welcome.


Demand-based economic policies, such as congestion tolls and market-based curb-side parking charges, should be tools for addressing congestion in Australia’s large cities. These policies are particularly important because Australia is a highly urbanised society possessing a handful of high population, low-density state capital cities, where most citizens live. Poor urban policies will detract from the quality of lives of most Australian citizens. Moreover, the transport sector in the cities is a significant part of the total Australian economy.

The resource-driven economic boom that Australia looks like enjoying for the foreseeable future should double Australian incomes over the next 20 years. Over this period, increasingly affluent city populations will grow by 4 million to 20 million and overall vehicle traffic flows will grow 40 per cent, with urban freight increasing by more than 70 per cent. The benefits of the present boom will be more keenly enjoyed in the major cities if citizens can travel using efficiently-utilised urban infrastructure. A failure to adopt sensible policies towards urban congestion will inevitably mean increasing congestion costs even as our prosperity increases and our cities grow.

Moreover, congestion costs will become increasingly hard to reverse using conventional road supply measures as land supply constraints increasingly come to bite. Without effective pricing, congestion costs will treble over the next 20 years and travel in major cities will become subject to general not just local congestion. Gains in living standards will be less than they could be without efficient and convenient travel in the cities.

The benefits of the current boom should spill into the provision of efficiently-designed roads and urban infrastructure. But for the most part these supply-driven infrastructure investments are not considered here. The reason is that supply issues have been overemphasised in the past relative to demand-oriented pricing policies. For the most part demand-based pricing measures are considered that will increase the efficiency with which we can use whatever stock of physical infrastructure we have.

To be specific, I discuss ways of ensuring that journeys taken within large cities are efficient. The ‘urban sprawl’ debate is also discussed. If there is no serious attempt to price congestion then sprawl will continue to grow exacerbating current congestion problems in our city peripheries. A popular approach to dealing with such sprawl is to set firm and binding city boundaries thereby increasing land values and encouraging more intensive development. Such policies are shown to be not nearly as effective as pricing in addressing urban congestion issues in our cities. We must bite the bullet and price journeys in cities so they reflect the full social costs of taking them.

Traffic Congestion

Traffic congestion is a miserable wasteful use of valuable time that reduces national productivity. While often considered to be an inevitable curse of modern life congestion is a well-understood resource misallocation concern that can be effectively addressed at low cost. Increased urban populations and affluence-driven increased vehicle ownership and use of the existing vehicle stocks, mean that traffic congestion will be an increasing problem. While free flow traffic speeds might be improving as urban transport surfaces and signalling technologies improve, this will be counterbalanced by much slower travel under widely-prevalent congested conditions. The deadweight losses that accurately measure the costs of congestion, I estimate were around $700 million in Melbourne in 2005.

In the past congestion issues have been addressed by supply-side measures that include building more roads and by upgrading the public transport system. Civil engineers have forecasted transport demands when socially-costly journeys by car are heavily underpriced or subject to no direct charges at all. The forecasts will not be inaccurate on this account but they will involve too many low-valued vehicle journeys and a demand for public transport that is distorted both by the underpriced road travel and low density urban sprawl that is a consequence of underpriced congestion.

The difficulty here is not private vehicle travel but underpriced travel. Indeed congestion per se is not the problem. We all voluntarily accept congestion as an acceptable cost of modern living that is counterbalanced by improved urban lifestyles and agglomeration economies. The problem is specifically inefficient congestion – congestion that we must put up with even though a change in policy could make us all better off. Inefficient congestion arises because congestion is underpriced.

That underpriced congestion generates economic inefficiencies has been recognised for 50 years by economists, following William Vickrey’s suggestions for pricing urban auto travel in downtown Washington. But the impact of these theories on public policy has been disappointingly low. For the most part it has taken the form of the single policy recommendation for ‘first best’ efficient pricing at social marginal cost where all private travel externalities (congestion, parking, noise, accident, pollution) are captured by levying charges on all roads and where all mass transit is marginal cost priced. Then urban transport planning is greatly simplified. Urban trips on the basis of these correct pricing signals are efficient – journeys are only undertaken when the private benefit from the journey exceeds all social costs. In this case even the dynamic issues of expanding road networks are simplified. Road expansion decisions can even be mechanically determined given forecast net returns by looking at payoffs from existing roads – as in a private business, if roads display constant returns to scale and are turning a profit they should be expanded.

But, as mentioned, this very comprehensive policy proposal has had little policy impact overall. Apart from Singapore, which has stronger central government than is practicable in Australia, this type of policy advocacy has seldom been employed. Indeed, authors such as Richard Arnott, claim that first-best congestion economics has generally failed to contribute usefully to policy debates. Why? This question has direct policy relevance since it points to the factors that we need to account for if we are to satisfactorily introduce road pricing.

In what follows I discuss issues that the simple efficient pricing prescription fails to address. These modify the way we need to think about pricing roads and accounting for them helps provide a package of demand management policies for large cities that can be successfully used to manage congestion.

Distribution issues

The efficiency gains from efficient pricing are real but often rather hidden whereas distributional impacts are painfully obvious. Without monetary compensations, those prevented from using roads because of pricing (the ‘tolled off’) are worse-off with pricing as are those who continue to use at toll-inclusive costs(‘the ‘tolled-on’). Compensations here are feasible using the income generated by pricing but this connection is difficult to sell politically since, while congestion tolls are a direct hit on the hip pocket, possible tax relief from compensations may be less keenly felt.

For pricing to be politically feasible governments must demonstrate that tolls are not a tax grab. Governments must show that all groups are advantaged with efficient pricing. Economists know that with appropriate compensations they can be but this needs to be spelt out to those affected. Tolling charges can be explicitly linked to tax savings elsewhere or to ear-marked infrastructure improvements, such as improved public transport, that benefit transport consumers.

The net benefit of a revenue-neutral switch to congestion pricing roads in the cities stems from the ‘double dividend’ green tax advantages of such charges. Congestion charges yield a revenue dividend but target a social ‘bad’ congestion rather than other taxes which target work effort or savings. Congestion charges can reduce reliance on socially dubious gambling taxes that depend on revenue streams that generate considerable community harm and which are widely despised in the community. Finally, congestion charges can displace reliance on stamp duty charges on housing which diminish labour market mobility and lower the efficiency of labour markets.

In thinking about introducing congestion taxes it is important to focus on promoting their distributional acceptability. This is a major policy design concern not a detail that can be swept under the carpet.

Other aspects of improving policy acceptability include providing alternative travel opportunities to those ‘tolled off’ roads because they are unwilling to pay tolls. This can mean providing options to travel under congested conditions as an alternative to travelling on low congestion tollways. It can also mean ensuring that public transportation reforms provide substitute public services although, again, these do need to be provided at efficient prices.

Finally, on distributional concerns, Donald Shoup has argued that market-determined curbside parking policies gain greater local political support if revenues are returned to local communities. This helps obviate their immediate cost impacts on local users and help ensure their local political acceptibility.

Second-best issues

Comprehensive pricing of all the roads in any Australian city is probably infeasible at present. Tolls are more likely to be applied only to major motorways or to CBD areas using cordon pricing schemes. These partial pricing policies will inevitably direct traffic flows from priced onto unpriced roads where the resulting congestion will reduce the gains from the piecemeal pricing reform. These ‘second-best’ constraints modify desired pricing and road expansion plans.

The economics of ‘second best’ suggest that, if there are constraints on efficient pricing of all resources, so that only piecemeal policy reform is feasible, that attempts to price the resources that can be priced at social marginal cost may not improve economic efficiency. To make this clear consider, for example, the situation where a major road can be priced but where transactions costs of monitoring traffic flows prevents pricing roads carrying lower traffic volumes that run nearby to it. Then pricing the major road at marginal cost may divert traffic onto these substitute roads – a phenomenon referred to as ‘rat-running’. This may even lead to a worse overall congestion problem than when the major road was unpriced. Similarly a cordon pricing scheme around a city’s CBD may create severe congestion problems on its boundary that undoes the advantages of pricing within the cordon.

Pricing Major Roads Alone. Piecemeal pricing of major roads alone will direct traffic towards unpriced roads where resulting congestion reduces the gains from pricing. Therefore charges on priced roads should be ‘adjusted lower than they would be with comprehensive pricing to reduce traffic spill-overs. Traffic diversions can be further reduced by ‘traffic calming’ – by reducing travel speeds along unpriced roads with street architecture, restrictions on turning and so on, so that travel along them is inconvenient for longer journeys. Thus tolls should be set low enough so that the relative expense of traffic diverting to travel down unpriced roads is too high to make it worthwhile compared to the cost of just paying the toll.

In a city like Melbourne there can be selective pricing of all major radial arterials and ring roads with traffic calming used to minimise ‘rat-running’ onto substitute roads. Details of such a proposal are set out in a recent paper by Harry Clarke and Andrew Hawkins.

Road tolls should be set at adjusted social marginal cost (adjusted downwards to optimise traffic flow spill-overs onto unpriced roads). Tolls should not be set at average costs in order to recover project costs. While cost-recovery provides distributive justice by charging in accord with ‘user pays’ principles, prices will be too high to ensure efficiency. Pricing at average cost has two disadvantages. First, it means prices will be too high which excessively discourages traffic, particularly when traffic can move onto untolled roads. Second, with average cost pricing tolls will not depend on current congestion, a prerequisite for smoothing peak traffic flows. The desire is to encourage motorists to switch from travelling during peak periods of high congestion to off-peak times where congestion is lower. This is ideally achieved by pricing travel less during less congested periods. Zero charges should be levied if traffic is operating under free flow conditions,

Thus while the role of the private sector in constructing and designing toll-roads is not seriously disputed by anyone, the requirement that tolls be set at short-run marginal cost means that private sector should not manage such operations. It may well be that efficiently-operated tollways operate at a loss. Where poorly-designed contracts have already been set, as they have on most of Australia’s toll roads, they should be ethically renegotiated to make certain that motorists are paying only adjusted short-run marginal cost for journeys.

Second-best constraints that limit pricing to a subset of a city’s roads do diminish the gains from efficient pricing but they do not provide a convincing case against pricing at all. They simply provide a case for adjusting downwards the tolls that should be levied. The extent to which tolls need to be adjusted downwards depends on the extent to which traffic diversions can be limited onto un-priced roads by using traffic calming and other measures.

The approach of pricing major roads alone can be viewed as an interim step before cities move towards comprehensive electronic pricing of all road use, based on GPS or other technologies. It introduces citizens to the notion of pricing and makes the final transition to more comprehensive pricing less abrupt.

Pricing Within a CBD Cordon. Cordon pricing means that charges are levied on travel within certain highly congested areas of a city. Periphery cordons levy tolls on motorists entering a city’s CBD and make sense for cities such as Melbourne and probably Sydney where sound parking policies are in place. Area cordons which levy charges that depend on the time spent in a CBD are less relevant in Australia than in other world cities, such as London, where congestion problems are more directly related to the duration of a car’s stay within the cordon.

Periphery cordons will create ‘boundary problems’ on the cordon periphery since motorists have incentives to park in this periphery and to either walk or take other means of public transport into the CBD. This problem becomes less important the broader is the scope of the periphery and the more effective are market-oriented curb-side and off-street parking policies there. Parking policies are discussed below. Given market-based parking policies, a broad enough cordon should encourage ‘park and ride’ policies that involve less car travel even from areas distant to the cordon. If a CBD worker who lives in a city’s periphery understands they will face hefty charges for entering the CBD or for parking on its boundaries, their incentives will be to drive their car to a convenient radial public transport link close to their departure point rather than to attempt to achieve most of a city-directed journey by car. It is precisely these types of incentives that cordon pricing seeks to foster.

A significant advantage of cordon pricing is that spill-over costs are smaller with it than with the selective pricing of major tollways because the substitution options involving private travel by a vehicle are less.

Although cities like Sydney and Brisbane possess multiple foci which induces greater complexity in designing cordon pricing approaches, the difficulties with these more complex city structures are not insurmountable. Cordon pricing schemes have been successfully introduced in Stockholm and London and Australia can learn from these experiences.


The congestion pricing models used by economists are often too aggregative even when ‘second-best’ constraints are admitted. On the supply-side planners do not typically focus on aggregative capacity per se but on a myriad of supply related decisions. On the demand side, parking until recently has been a neglected issue with congestion pricing studies downplaying its role by treating it simply as a fixed fee for taking a trip. Transport economists have emphasised that higher parking charges impact mainly on terminating traffic thereby encouraging greater ‘through traffic’ which can swamp congestion-reduction effects.

Recently Donald Shoup has focused attention on the role of off- and on-street parking and on the congestion caused by cars cruising for parking. Free or underpriced curbside parking provides analogous incentives to encouraging excess travel as unpriced roads and leads to an excessive allocation of space to off-street parking and to excessively disagglomerated CBDs. The correct pricing of parking is a major factor in managing urban traffic congestion. Shoup shows that, in the United States, 99 per cent of all automobile trips involve ‘free’ parking which is, in fact, anything but free – it has high social cost. The average US parking spot costs more than the average car occupying it. Underpriced curbside parking distorts transportation choices, debases urban designs, damages the economy and degrades the physical and aesthetic environment.

Free curb parking constitutes an urban commons so that society devotes too many resources to it. Parking occupies an excessive fraction of our urban landscapes and cities and reduces the social and economic agglomeration benefits derived from living in dense urban structures. As a consequence of free parking and free roads, motorists travel too much by car. For example, a free parking spot is equivalent to a 22 cent per mile subsidy to the average American making his journey to work.

Most significantly a significant fraction of American and Australian urban traffic congestion is associated with cruising for a parking spot. Thus subsidised parking encourages motorists to do things that harm other people and may even harm the motorists themselves. Shoup estimates than an average 30 per cent of traffic in a selection of 11 large cities is cruising for a parking spot with the average motorist taking about 8 minutes to find a spot. Moreover, motorists attach high disutility to this activity – in Sydney they will pay 3.5 times their wage rate to reduce search time.

Some parking opportunities are precluded entirely by the desire to optimise traffic flows. Where curbside parking is permitted, charges should be set so that markets for parking readily clear. The basic idea is that cruising for parking is socially wasteful so charges need to be set that anyone, anywhere can promptly find a parking spot. Traffic engineers normally recommend that about 15 per cent of parking spots should be kept vacant. Setting variable parking charges during the day so that this is vacancy rate is approximately achieved will avoid sociially wasteful cruising.


It is difficult for politicians to embrace the idea of comprehensive road pricing. The distributional and second-best constraints are difficult to reconcile with concerns in the electorate where despite the best efficiency and compensation arguments, citizens may resent paying for something they have previously enjoyed without explicit cost. Pricing major arterials and cordon pricing a city’s CBD can help relieve congestion if comprehensive pricing is impractical but even this limited pricing response is often ruled out political considerations as opposition to the Bracks Government’s move to price the Mitcham-Frankston Road makes clear.

If roads are unpriced then such things as travel to work and driving kids to school will be socially underpriced. This means that citizens, who make home and school siting decisions and indeed, work choice decisions, will pay inadequate attention to commuting costs. The result is excessively disagglomerated cities and excessive urban sprawl with insufficient respect paid to travel costs.

An alternative approach to promoting a more sensible city structure is to regulate directly the ‘sprawl’ consequences of unpriced congestion by setting definite city boundaries to foster urban consolidation. This will increase land rents and provide incentives to reduce ‘sprawl’ – here defined as car-dependent, low-density urban communities. Increased rents will foster agglomeration benefits from non-market exchanges and reduce the disutility of taking lengthy congested private car journeys in the suburbs by facilitating provision of effective public transport options.

It is thus claimed that pursuing compact cities reduces the average costs of providing infrastructure and particularly public transport. The economies of scale required to make this argument work can be thought of as a second-best constraint requiring a planning intervention since, in this situation there is a market failure induced by the implied monopoly power. This claim is contentious generally but particularly so with respect to urban travel by public transport. Rail requires huge numbers of users to achieve an efficient scale of operation – these are economies that are very unlikely to be realised in sprawled-out Australian cities. With respect to bus travel there are limited scale economies so that the argument is irrelevant here – except to make the general point that bus travel is likely to be much more cost efficient than rail in most such settings.

It should be emphasised that, in any event, the case for regulating city size requires a second-best constraint such as the inability to price roads or economies of scale in public transport. Without such a constraint setting limits on city boundaries will not improve efficiency. For example if land, travel and parking markets work effectively then individual agents will select the type of housing and residential choices that suit them best so there is no need for a public intervention.

But even if there are second-best constraints, there are problems with the policy of setting boundaries as a substitute for effective transport pricing.

One difficulty lies in the fact that there are various externalities operating. There are, for example, opposing centrifugal (moving from the centre) and centripetal (moving towards the centre) city externalities. The dominant centripetal forces are the agglomeration benefits that arise from the non-market exchange of information and informal contracting – interaction externalities - that occur in concentrated business areas such as a city’s CBD. The centrifugal externalities are transport costs which are increased by traffic congestion. When interaction externalities cannot be subsidised directly, so that there are insufficient incentives for agglomeration, a second-best policy is to reduce transport costs by reducing congestion charges to encourage interactions. The difficulty in accounting for agglomeration benefits is that little is known empirically about the size of interaction externalities.

As argued by a host of authors, such as Bruegmann and Moran, the case for curtailing sprawl is uneasy because the desire to encourage compact development need not reflect choices made by free agents. In part the desire to live in apartments in compact cities is a desire by planners not the desire of most citizens who prefer free-standing houses with gardens. There can be a selfish and elitist type of resentment towards the ‘nouveau rich’ who settle into luxurious so-called MacMansions.

If compact cities are provided even though people prefer stand-alone housing, the consequence will be the high land and therefore house prices that we have seen in Australia over recent decades. Since these high prices reflect a failure to deal directly with congestion by imposing charges, which provides efficiency in making travel decisions, they impose unnecessary social costs.

This same argument applies to alternative approaches to ‘compactify’ a city. Corridor development might permit an expanded use of rail or even tolled radial roads but the difficulty is that most journeys in a city’s periphery are cross-town. Journeys might involve travel to destinations to deposit people or goods cross-town and will often be by car. In this case corridor development along major train lines may still leave high levels of congestion in the periphery. The imperative again is to price the congestion.

Other Issues

Traffic planning issues are not only a matter of congestion pricing. Other means of addressing congestion should also be considered and congestion modelling should become more down-to-earth and specific.

Second-best constraints mean that specific urban freight delivery policies, staggered working hour policies, incentives for designing more congestion efficient cars (such as cars less prone to accidents), efficient road design, encouraging bicycling and the role of land use taxes and controls are all useful policy options in a second-best world.

Different forms of congestion also need to be considered - not only those related to traffic volume (or link congestion) but also congestion at intersections and freeway exits (nodal congestion), pedestrian-car interactions and gridlock stemming from the physical length of cars.


Most Australians live in cities where they are subject to increasing traffic congestion and diminishing opportunities to address congestion using supply-side measures. Comprehensive pricing of all roads in our cities if impractical for the moment so that pricing of major roads and CBD areas using cordon pricing schemes make sense. This means pricing at lower than social marginal cost in an environment where all roads are priced to optimise traffic spill-over effects. It also suggests a case for restricting traffic flows onto unpriced roads by using traffic-calming and other policies and for pricing parking on the boundary of city cordons. Distributional impacts should be addressed by promoting tax-neutral policies with beneficial double-dividend properties.

Parking policies are often assigned a minor role in overall congestion management. This paper argues that market-based curb-side pricing is crucial for achieving efficiency.

Attempting to deal with congestion indirectly by imposing constraints on sprawl has various secondary costs. Most notably it will raise land and housing prices. Piecemeal pricing policies will outperform urban planning attempts to drive more compact cities.


R. Arnott, T. Rave & R. Schöb, Alleviating Urban Traffic Congestion, The MIT Press, Cambridge 2005.

R. Bruegmann, Sprawl: A Compact History, University of Chicago Press, Chicago, 2005.

H. Clarke & A. Hawkins, Economic Framework for Melbourne Traffic Planning, Agenda, 13, 1, 2006, 63-80.

M. Fujita & J.-F. Thisse, Economics of Agglomeration: Cities, Industrial Location and Regional Growth, Cambridge University Press, Cambridge, 2002.

A. Moran, The Tragedy of Planning: Losing the Australian Dream, Institute of Public Affairs, Melbourne, 2006.

Donald Shoup, The High Cost of Free Parking, Chicago: Planners Press, 2005.

Sunday, October 29, 2006

Migration policy & the mufti

It is inevitable than the remarks of the 'cat meat' Mufti will reignite Australian migration debates - Michael Baume has made a start in today's AFR (subscription only). The issue of changes in Australian migration laws are already being recognised in the Middle East and are implicit in the remarks of Pru Goward that the Mufti should be deported - as a matter of law he probably cannot be.

The difficulty is that the Mufti and his supporters hold basic values that diverge from those of most Australians. Leftwing skeptics and the multiculturalists will make foolish remarks about the absence of real Australian values beyond booze and a bet. I have never agreed with these foolish caricatures of our national identity - at least Australia has a highly prosperous society remarkably free of political violence and civil strife.

More intelligent commentators will focus on the difficulties of characterising some of the less tangible Australian social values and I agree it isn't easy. But one thing is certain - most Australians completely reject the contemptible views of relations between men and women (as well as the intolerant social values) espoused by the Mufti. We don't support intolerant religious views and support for Jihadism and terrorism.

John Stone stated recently in an issue of Quadrant, in an article on immigration policy, that once policy-makers find that they have dug themselves into a hole they should at least stop digging. Its time to think seriously about the types of migrants we accept. The unrestrained pursuit of diversity via multiculturalism policies is failing.

This is not my kneejerk reaction to recent events concerning the Mufti although his statements do make me focus on the migrant selection issue. For more than a decade I have argued that Australia has an absolute right to determine what sorts of people are accepted here as migrants. Our lands are not an international common property resource that is at the disposal of social romantics and multiculturalists. Our society is not a social experiment.

People who clearly support international terrorism, who show open contempt for democracy and for core Australian values of tolerance and respect for women, should not be welcome in this country. Let us end self-destructive immigration policies that threaten our long-term social cohesion and which populate our country with people whose values most of us reject. Let us think seriously about being more selective at the immigration gate.

Saturday, October 28, 2006

Boundedly rational dope fiends

The paper by Suren Basov & Svetlana Danilkina, 2006, 'A theory of boundedly rational addiction' is the latest output of our drugs project. In my view its a nice piece that relaxes the constraints of the rational addiction model intelligently.

Much more to come at this site soon.


I picked this up from the Crooked Timber website (who got it from Reddit ) – it is a bit of fun if you have 3 minutes to spare - and probably really good if you have something to smoke – as an anti-dope campaigner I don’t!

Click here.

Thursday, October 26, 2006

Disappointing inflation number

Inflation in Australia at an annual rate of 3.9% over the 3 months to September continues a streak of relatively high inflation figures well outside the RBA’s targeted range of 2-3%. The press have focused on the role of food and house prices – food prices should continue to increase due to the impact of the drought.

The price increases are troublesome because they are broadly-based. As David Bassanese points out in today’s AFR (subscription required) in the year to September 2004 only 30% of the 90 odd goods and services in the CPI basket increased in price. Over the past year 60% of foods recorded inflation above 3%.

Hence the Reserve Bank’s ‘underlying inflation rate’ is now a bit over 3%. It is only gentle inflation but is nonetheless disappointing given the historically low unemployment and the amazingly good prospects for the Australian economy generally.

The Sheik’s views of women (and men)

I received hostile comments when I recently posted that the veil and the hijab reflected repressive attitudes of Islam towards women. I was told that wearing these clothes was an act of free fashion choice by Muslim women. I didn’t accept this claim then and still don’t.

According to Australia’s most senior Muslim cleric, Sheik Taj Din al-Hilali, women are abandoned meat that attracts male, voracious animals. Indeed the Lebanese-Muslim gang rapes of Australian women in Sydney were, according to the Sheik, partly the fault of the women concerned – they ‘sway(ed) suggestively’ and wore ‘makeup and immodest dress’.
‘If you take out uncovered meat and place it outside on the street, or in the garden or in the park, or in the backyard without a cover, and the cats come and eat it ... whose fault is it, the cats or the uncovered meat?’

‘The uncovered meat is the problem’.

‘If she was in her room, in her home, in her hijab, no problem would have occurred’.

Women are ‘weapons’ used by ‘Satan’ to control men.

‘It is said in the state of zina (adultery), the responsibility falls 90% of the time on the woman. Why? Because she possesses the weapon of enticement (igraa).’
What atrocious views of women and indeed of men. Lock the temptresses up in their rooms and men won't rape them. Pru Goward argues that this man should be deported and I have sympathy for this view. The Sheik has made statements like this in the past and evidently supports Jihad and terrorism.

A key question is how widespread these sickening views are. The response of Muslims in Australia to such statements is typically to suggest that the spokesperson has been ‘misinterpreted’ or has distorted Islamic teachings. There is always an excuse offered and never, it seems, a willingness to face up to what seems to be a real problem. It is, as I posted earlier, a deliberate blindness, an unwillingness to see what is obvious. The sick attitudes of men like the Sheik deserve unreserved condemnation. A quality blog discussion that centres on the record of this appalling man is here.

Wednesday, October 25, 2006

Rhino versus human values

In the Congo a remnant population of rhinoceros are being killed by hungry human militia. The population of rhino has fallen from 22,000 in the past to 900 today but 400 have apparently been killed in the past few weeks.

Obviously the future of the population looks bleak. This raises the partly (though not entirely) hypothetical question of whether acting to ensure the survival of the rhinos outweighs the survival of the starving militia. One could duck this question by supposing (a) that external food supplies could be provided as a substitute for the rhino, (b) that we can’t do much to save the rhino population anyway so, by a triage argument, we should be unconcerned with their fate and, finally, (c) that killing the rhino will only ensure the survival of these people on the basis of rhino meat for a few weeks anyway. But supposing objections (a)-(c) are not valid, my own view is that survival of the rhinos is far more important than that of the militia. The reason is basic economics – we value things on the basis of their scarcity value at the margin not on the basis of a priori attributes. There are 6.5 billion humans and only a small rhino population. The rhinos have non-negligible charismatic value and while human life is important it is much more abundant so its scarcity value is lower.

Human beings in this instance seem to have lower social value than the animals they are feeding on. I’d be interested in reader views on my contention about this. The same ethical issues are increasingly arising around the world as the needs of human populations conflict with the desire to conserve biodiversity – an example on the Foreign Correspondent show was the conflict between elephants and villages in Sri Lanka. Again, in my view, a optimal social decision maker should give priority to elephant populations and for much the same reasons.

Tuesday, October 24, 2006

A stunning poll on pokies

It looks likely according to current opinion polls that Labor will government again in Victoria.

The main prospect the opposition has to stage an upset is to promote its policy of substantially cutting back on poker machines.


87% of those surveyed supported Mr Baillieu's policy — rejected by Labor — to cut poker machine numbers from 27,500 to 22,000. Only 6% opposed it. Even among Labor voters, 86% supported the Liberal proposal.

And in another hopeful sign for the Liberals, the latest poll shows the proportion of voters who say they are undecided about who they will support at the election has doubled over the past two months to 14 per cent.

The Greens are doing well in the polls and look like taking 1 in 8 votes. And guess what... the Greens are interested in really slashing pokie numbers from 30,000 to 10,000. Whatever the Bracks Labor government mistakenly believes, the issue of pokies will remain a central one in Victorian – and presumably Australian politics. It has become a permanent political issue and won’t cease to be.

The Labor Party politicians and hacks are far too close to the gaming industry. Even if scandals do not blow-up over these unfortunate connections the Labor Party’s gambling policies are a vote loser. Good.

Monday, October 23, 2006

Free public transport for the young

I am ambivalent about Mr Baillieu’s proposal to offer free public transport to young people and full time tertiary students in Victoria.

Fares on buses and trains in Victoria are well above marginal cost (and a long way above social marginal cost given un-priced congestion externalities) but I do not believe these marginal costs are zero so this measure will induce inefficient travel – this is the reason I have opposed zero priced public transport in the past.

But these transport costs are a heavy burden for young people on low incomes who benefit, in any event, from concession fares already. At an estimated cost of $70 million annually it is not an ideal policy but not the worst either. It would be costly to means test it so the sons and daughters of wealthy parents will benefit from the policy. But, as handouts go, I am less annoyed by this proposal than I normally would be. The Bracks Labor Government seems on a par with most of the debt phobic state governments in Australia, recently achieving a state budget surplus of $825 million.

The ‘free fares’ policy does nothing to improve service frequency or to rid the bus system of foolish regulations regarding route choice. Nor will it provide improved incentives for the private sector to enter these markets and provide better alternatives to travel than the use of a private car. Anonymous Lefty likes the policy but not the fact that it is made by the Liberal Party.

Sunday, October 22, 2006

Economist to head LaTrobe University

I've just heard that Professor Paul Johnson of London School of Economics has been selected to be appointed as the new Vice Chancellor at LaTrobe University. The appointment is subject to approval by the University Council. His CV is here. Professor Johnston is an economic historian and was formerly Deputy Director of the LSE. Background to the appointment is here.

These senior appointments are increasingly important in a modern university. There have been comparatively few economists heads of Australian universities so it is an interesting move.

Friday, October 20, 2006

I am concerned

I’ve been so worried lately. Hair greyer gut bigger memory increasingly unreliable unhappy with world isn’t producing enough Mozarts lots of affluence mediocre economics amok greenhouse gases climate change disappearing rainforests war in Iraq crumbling higher education excess taxes dangerous foods soft-drinks declining health social security inadequate old age care indigenous Australians nuclear family homosexual marriages downhill just watch dismay.

Politicians rule manipulative mass media exploit pre-pubescent girls sell unwanted gadgetry declining quality TV commercialism media concentration trashy novels hacks churn city architecture promote concentration-camp functionality aesthetics rotten Hollywood Tom Cruise favoring Nicole narrow debased unworthy fleshy tart first generation dies before parents obesity diabetes HIV coronary youngsters in prime don’t listen parents religion work alienating creativity insecure scorching pace modern life drug abuse mental illness never-ending complaints neuroticisms busy don’t read self-help guides or listen to Oprah increasing population environmentally ravaged people pollution imperfect world nuclear power an economies-of-scale death population pressures North Korea Pope => nun.

Complaints refreshingly Sunday writing letters to world leaders positive from excrement-orientation kids are alright liked this op-ed in New York Times.

Corporate crooks

Paul Krugman has this short piece providing perspective on how corporate executives are cheating the system. Its a welcome relief from political scandals and the war in Iraq.

In the 1960’s and 1970’s, CEOs of the largest firms were paid 40 times the average worker. But professors at business schools provided a theory that justified even higher pay. Executives had to be given a stake in their companies’ success to encourage performance so boards gave stock options. Executive pay rose to 367 times average worker pay. Options rose when the market as a whole rose, irrespective of performance, and after a downward move in the stock price could be repriced or swapped so the price at which the executive had the right to buy stocks could be reduced to the new market price. The CEO got another chance to 'flip the coin'.

The backdating scandal shows even this wasn’t enough. To ensure executives profited, companies pretended options had been issued when the stock price was lower. Executives were effectively paid for just showing up at the office.

But of course everything must be OK since the DOW has hit records lately – but as Krugman wryly remarks prices rose even faster in the 1990’s and the 1920’s. A good brief survey of the backdating scandal is here .

Modesty & lust

I got caught up in a discussion on a Muslim blog, Austrolabe on veiling women. It didn’t get very far. I see the veil as a form of oppression primarily directed by male religious crazies who can’t handle their sex drives. Those on this blog see it as a free fashion choice by women who ‘seek to be closer to Allah’ and who wish to not be ogled by men.

The commentators deny my premise that Islam is systematically prejudiced against women with the veil being a particular instance of this oppression. This denial seems to me simply contrived blindness. Flogging supposedly lascivious females, unequal rights for women under the law, lower education opportunities for women, genital mutilation and honour killings may be a consequence of culture and psychology but an awful lot of this horrific activity occurs, by some coincidence, in Muslim countries. To me this is undeniable and a major reason that cultures in the West, while open to Buddhism and other non-traditional Western faiths, are more closed to Islam.

But one commentator cited an article, promoting wearing a veil as a release from the tyranny of having to wear excessively sexualized fashion, which interested me. Quote:

One common view is that by wearing a veil, a woman reclaims her beauty as her own, rather than surrender to the prying eyes of men seeking sexual pleasure.

In this context, the veil is not an oppressive tool of fundamentalist Islam but something that liberates women from body fascism and fashion fundamentalism.

As society gets ever more sex-saturated and the pressure increases on young women to follow the latest trends and constantly look groomed and sexy, pockets of defiance will grow in the most unlikely places.
I am not sure I agree with this. Women can dress modestly and attractively without being subject to the tyranny of fashion and without inviting excessively prying eyes. But, more to the point, I don’t think there is that much wrong in accepting that both men and women are sexual beings for whom physical attractions are a dominant theme. Society does not fall apart in accepting this.

I suppose too - and this is probably my age-prejudices revealling themselves - I find the fashions worn by young Australian females unattractive and non-sexy even though a lot of flesh is often on display. Partly this is a consequence of the increased weight of young women that makes their fashion choices look like attempts to stuff an overinflated beachball in a sock. Vast cleavage displays, bouncing bra-less boobs under cheap teashirts and bum cracks - that make me think of hydro-electric power possibilities as solutions to climate change issues - and which detract from the real beauty of a female rear end, are major complaints.

Of course I am no movie star myself. But having given up on the task of winning beauty contests years ago and having had beach sand kicked in my face by the school bully I don’t care. Age has the single virtuous effect of making us ‘wrinkled and white’ males (as one of my Muslim co-commentators remarked) effectively invisible to lust-seeking females. Thank god for that! I don’t need to wear a veil and baggy duds to prevent that pair of boobs sitting in front of me in the bus from exploiting me sexually.

Thursday, October 19, 2006

Access Economics on obesity

The Access Economics report on obesity in Australia was funded by Sanofi Aventis one of the world’s largest pharmaceutical companies.

SA markets the new ‘wonder’ anti-obesity drug Acomplia (Rimonabant) which some reports suggest is a fairly limited way of attempting to lose weight. SA is also, helpfully, active in the market for diabetes medications – useful since, as Access Economics report points out, obese people have 3X the chance of suffering Type 2 diabetes than the resident population. There are numerous other health consequences of obesity that SA can help with.

Why does this trouble me? Isn’t it reasonable that a pharmaceutical company like SA should be involved in promoting such research and generating demands for its products? The report itself states that the research was carried out independently of the sponsor.

Maybe but the report does produce astoundingly high total obesity costs of $21 billion. Of these $17.2 billion were ‘burden of care’ costs and only $873 million were direct health system costs. These BOC costs are based on the estimated value of a human life of $162,561 annually or $3.7 million over 40 years. These estimates seem very high – they include the mortality and morbidity costs of those affected by obesity less any costs the individuals bear themselves. The costs are borne primarily by poorer people who suffer most from obesity issues for which the annual BOC costs seem high. In addition, are these costs really costs? Is obesity the primary factor that drives the claimed health problems? The difficulty is that while we have collectively got fatter as a country we have also got fitter (see here and here) partly, no doubt due partly to improvements in medical technology.

These issues do not seem to be discussed in the Access Economics report.

Incidentally the report does favourably review the drug Acomplia (page 109).

Wednesday, October 18, 2006

Fat kids and leftwing supporters of laissez-faire

Teachers, principals and student councils oppose moves to restrict the sale of unhealthy foods in schools partly on the grounds it was important not to end up being ‘a nanny state’.

The proposal involved, among other things, restricting the availability of greasy junk food to two occasions per term. One of the arguments was that kids eat only 5 meals out of 21 per week so it won’t make a significant difference – the partly contradictory claim is that the school canteens will lose too much money as a consequence of restrictions. These are interesting arguments from these predominantly left-wing groups – even libertarian-inclined economists like Gary Becker and Richard Posner were prepared to entertain the value of such restrictions when they bore on children. The right being outflanked on the right by the left!

Kids do not make informed food choices and, at school, the possibilities for parental direction and supervision are limited. There is a clear and strong case for intervention here to restrict choices to foods that will not damage the health of kids.

Fat Aussies

Access Economics' estimate of the cost of obesity in Australia at $21 billion (about double the annual cost of Medicare) deserves careful scutiny but the final report has not yet been released.

From snippets in the press concerning the report:

Obesity now afflicts 3.2 million Australians but might more than double to 7.2 million within 20 years with current trends. Most obese people are aged 55-59 with 159,000 men and 203,000 women affected.

The main chronic diseases associated with obesity are (as expected) Type 2 diabetes, heart disease, stroke, osteoarthritis and cancer. Obese people have a 3X higher chance of suffering Type 2 diabetes and a 2X chance of getting cardiovascular conditions including heart disease, high blood pressure and stroke. Their risk of cancers including colorectal, breast, uterine and kidney cancer rises by 1.75X and by nearly 2.5X for osteoarthritis. More than 700,000 Australians suffer these diseases directly as a result of obesity.

The heaviest losses. about $17.2 billion, result from this burden of disease. These represent the non-financial costs of disability, loss of wellbeing and premature death caused by obesity. (These computations are based on a value of life of $162,561 a year and for a whole of life $3.7 million - these figures seem high given that obesity is concentrated among low income earners). Cardiovascular disease generated the highest costs of any disease group, $12.6 billion, followed by cancers, $3.9 billion and diabetes $2.3 billion.

The next biggest loss is in productivity, estimated at $1.7 billion a year, flowing from the fall in output caused by reduced employment and premature death.

Direct health costs are a relatively minor cost. Obesity generates $873 million in health spending and $804 million in carer costs.

This relatively small direct health cost versus the estimated massive indirect costs cause concern. Of course I need to read the final report. I welcome reader comments on this.

Monday, October 16, 2006


I am spending a couple of days in Sydney enjoying myself. Sydney is my home town and, despite my affection for Melbourne, I always get a kick out of this place. Sydney Harbour is spectacular enough to make the city comparable to other great harbour-based cities I have visited (Vancouver, San Francisco, Stockholm). But the presence of Sydney's great beaches makes it better than these competitors.

I went to my old undergraduate university, Macquarie, today and then had lunch at a spectacular nursery-cum-restaurant, Eden Gardens on Lane Cove Rd. Its a shame that, in providing a whole set of gardening design templates, that Eden Gardens don't make an effort to incorporate Australian native plants into formal garden designs. This involves some effort but it can be done. Let's hear it for foliage and texture and end the tyranny of water-hungry European weeds with their insipid lolly pinks.

In the evening I had a great Vietnamese meal in (of all places) Marrickville.

I'll get back to some serious posts later this week. In the meantime please use this post as a site to express anything you like on any topic. I am reading my blog even if I am taking a well-deserved 2-day break from posting.

Saturday, October 14, 2006

Becker and Posner on fat taxes

I have posted before on the questionable obesity tax (here, here, here) argument. Gary Becker and Richard Posner make similar points. Both both largely endorse my suggestions regarding soft-drink sales in schools (public schools in Victoria will ban such sales from the end of this year).

Becker. A tax on saturated fat would raise the price of fatty foods, and would reduce their consumption. The elasticity would be reasonably large for teenagers and low income families who have highest obesity and are more sensitive to prices. But there are doubts whether this is good public policy. Consumers get pleasure from high fat foods and good policies require that these pleasures are more than offset by strong negative public consequences. In addition, obesity is related to increased time spent at sedentary activities and reduced time spent exercising. For an analysis of the growth in weight of teenagers that concludes that increased sedentary activities is the culprit see the 2006 PhD thesis by Fernando Wilson, Economics Department, University of Chicago. There are also doubts about the medical evidence connecting excess weight and medical problems like cardiovascular diseases, diabetes, cancers and other serious diseases.

The consumption of fats may 'crowds' diets richer in fruits and vegetables. Then a more direct and powerful approach than taxing fat consumption would be to subsidize fruits and vegetables.

Is it irrational for teenagers and other young persons to ignore the recommendations of nutritionists and medical associations, and to consume diets heavy in fats and gain weight? Not if they recognize the trade off between present pleasures and future harms. In the next 20-30 years will probably bring improved medical knowledge and new drugs. Even inactive teenagers unaware of these medical trends will still benefit from these medical advances .

Yet even if medical progress slowed and heavy saturated fat consumption significantly raised the probability of contracting a major disease. Are public policy interventions justified? A common affirmative answer relies on the fact that overweight people who get serious diseases use health resources partly financed by taxpayers. This argument has merit. But the major flaw is in the design of the health system that could be corrected by providing stronger incentives to economize on health spending through encouraging health saving accounts, and requiring compulsory private catastrophic health insurance. These changes in the health delivery system would give individuals greater incentive to reduce their health spending by getting into better shape, eating better diets etc.

Even aside from this externality argument there is little reason for governments to intervene in eating decisions, with some important exceptions. The main ones might include policies to give greater publicity to the health advantages of better diets, and policies that kept unhealthy foods and possibly soft drinks out of school cafeterias and school dispensing machines.

Posner. Posner shares Becker's skepticism about a fat tax though he supports a tax or ban on soft drinks. He also notes that if obesity is positively correlated with poverty, reducing transfer payments to people of limited income might result in more obesity.

Indeed high-caloric 'junk food' might turn out to be the first real example of a Giffen good, a good the demand for which rises when the price rises because the income effect dominates the substitution effect. A heavy tax on high-caloric food might so reduce the disposable income of the poor that they substituted such food for healthful food, since fatty foods tend to be very cheap and satisfying, and often nutritious as well. However, this is unlikely because food constitutes only a small percentage (<20%).

Deaths in Iraq

This is the grim report from the Lancet.

An extract:

‘In Iraq, as with other conflicts, civilians bear the consequences of warfare. In the Vietnam war, 3 million civilians died; in the Democratic Republic of the Congo, conflict has been responsible for 3·8 million deaths; and an estimated 200,000 of a total population of 800,000 died in conflict in East Timor. Recent estimates are that 200,000 people have died in Darfur over the past 31 months. We estimate that almost 655,000 people—2·5% of the population in the study area—have died in Iraq. Although such death rates might be common in times of war, the combination of a long duration and tens of millions of people affected has made this the deadliest international conflict of the 21st century, and should be of grave concern to everyone’.

There is a broad range of error in the Iraq estimates but the sampling methodology seems sound. It does not seem to me a valid criticism to say that the estimate is much greater than other estimates. There is, however, no implication at all, on the basis of these findings alone that the US should withdraw from Iraq (despite the views of one of its authors) – things might well get worse given that 2/3 of the killings have been as a result of sectarian terrorists killing each other - but there it is important to gain an idea of the scale of the overall disaster taking place in Iraq and the need for policies toward Iraq to more adequately address the issue of civilian casualties.

While these arguments do not imply a case for withdrawal there is an increasingly widespread argument even within the military that the Coalition face the prospect of almost no chance of meaningfully winning this war. This increases pressures for a planned withdrawal although a prompt withdrawal, again, could be disastrous. Apart from casualties US military prestige would take propaganda battering from the terrorists in Iraq who are currently inflicting such mayhem. One option is for a phased and gradual withdrawal perhaps preceded by a partition of Iraq into Sunni, Shia and Kurdish regions.

Victorian pokie politics

Premier Steve Bracks has wimped it again on the poker machine issue.

In the leadup to the forthcoming state election Bracks has announced:

  • 540 machines to be shifted from poor to richer areas – less than 1/3 the level recommended by their own investigatory committee,
  • ATM’s in gambling venues restricted to dispensing less than $400 per day,
    maximum bets to be cut from $10 to $5,
  • restricting the amount initially paid into a machine from $10,000 to $1000,
    a cap of 10 machines per 1,000 adults,
  • winnings greater than $1000 payable only by cheque,
  • local councils being given the power to limit new poker machines,
  • spending $132 million on problem gambling over the next 5 years.

Better policies than doing nothing but not enough. When Bracks was asked why he didn’t introduce a more stringent cap he replied that it wouldn’t work since people would just play machines more intensively. If this is so it won’t harm the Gaming Minister, Tattersalls or Labor’s mates in the gambling industry. The truth is that with restrictions on pokie availability per capita gambling spending falls dramatically. Despite the substantially forthcoming budget surplus, Labor's mates in the gambling lobby have successfully limited any serious attack on this social menace. Heroes of the working class always!

The Bracks policies contrast with the stronger Liberals policy of cutting Victoria’s 30,000 machines by 5000 and the Greens policy of introducing cuts of 20,000. The Greens have rightly made gambling an issue in Victorian politics – the pokies have proven to be a social disaster in Victoria. The bidding war will eat into the Labor Party’s stranglehold on Victorian politics.

Thursday, October 12, 2006

Expensive water?

A cheeky post from Robert Merkies at Benambra questions the economics of Victorian Opposition Leader Ted Baillieu's proposal to construct a dam close to Melbourne on the Maribyrnong. Ignoring the environmental costs, which Robert mentions, the cost per delivered megalitre of water from this planned project seems to be about twice that from the proposed Perth desalination plant. If there are significant environmental costs, and these calculations are correct, the project looks a dud The project had previously been rejected as uneconomic by Melbourne Water.

This valuable post provides a reality check on the costs of this project. It is interesting that it occurs in the blogosphere. It is a punchier and more relevant commentary than that provided by the mainstream media.

Macroeconomics brief

The Treasury is optimistic about the continued role of China in fostering the long Australian expansion. The Treasurer Peter Costello warns of the consequences of the worst drought ever with the edge disappearing from commodity prices. Also of interest is his linkage of adverse climatic conditions in the ‘driest continent’ with Greenhouse problems. Meanwhile, the RBA’s new boss Glenn Stevens believes that despite a slowing in the US economy and less pressure from petrol prices, inflation remains a problem which makes a further interest rate hike this year more likely than not.

The complete Stevens address is here – it is an excellent summary of factors bearing on the Australian economy. The usual RBA line that continued prosperity is impossible without a low inflation focus is reinstated.

Later today the return in the unemployment rate to a 30-year low of 4.8% was announced. I was interested in the (seasonally adjusted) state and territory unemployment breakdowns:

Tasmania: up to 6.8%.
Queensland: Up to 4.8%.
NSW: Fallen to 5.5%.
Northern Territory: Fallen to 3.6%.
Western Australia: Fallen to 3.5%.
South Australia: Fallen to 4.7 %.
ACT: Unchanged at 2.7%.
Victoria: Currently 4.7%.

Details from ABS are here.

Wednesday, October 11, 2006

Greeks bearing gifts?

I reported earlier on how Labor Party post-political careers are being fostered by the gaming industry in Victoria. Opposition Leader Ted Baillieu has recently accused John Pandazopoulos, the gaming minister in Victoria, of meeting secretly with officials from Intralot the huge Greek firm bidding for gambling rights in Victoria.

Intralot is seeking to displace Tattslotto whose exclusive lottery licence is up for renewal. When quizzed on Bailleu’s claims in the Victorian Parliament Mr Pandazopoulos did not directly deny them.

Several commentators have suggested that Intralot does not always walk the straight and narrow. Intralot is also attempting to expand its business in South Africa but has faced lottery-rigging charges in Greece and is being sued by the Russian Government.

Mr Pandazopoulos has been one of the weaker ministers in the Bracks Government line-up. In the past he has correctly rejected Tattslotto’s claim for an exclusive gaming licence in Victoria on the grounds that competition was needed.

While this is commendable could Mr. Pandazopoulos, like his colleagues, also be thinking of a career post-politics? While the critical claims made by his critics are only innuendo at this stage it will be interesting to see how things evolve over the coming months. I'll watch.

Tuesday, October 10, 2006

Sharper visions & the North Korean bomb

The global response to the North Korean nuclear test yesterday has been interesting. The fact of the test is of little practical consequence assuming no environmental damage. After all, it was widely-believed, prior to the test, that North Korea did have nuclear weapons.

But the test has had significant impacts in sharpening focus. China will now more clearly fear a nuclear arms race in the region centred on Japan. South Korea will more definitely understand that it cannot win over its fanatical neighbour with love and so on.

The issues that I gained increased focus on were:

(i) That a technologically-backward nation like North Korea can acquire nuclear weapons. Thus any country with the will to possess nuclear weapons can.
(ii) That North Korea's hatred of the US could lead to it supplying nuclear weapons to terrorist groups. This is a plausible, not a pessimistic, scenario. North Korea could blackmail the free world by threatening to supply terrorists with nukes.
(iii) The world should not stand by and allow Iran to mimic North Korea. Iran's leader has spoken of wiping Israel off the face of the earth should not possess nuclear weapons and will certainly be emboldened by the North Korean move.
(iv) That, as game theory suggests, for example in the 'game of chicken', an irrational opponent, like North Korea, can be a dangerous opponent. There is good reason to fear irrationality.

I suppose it is largely now minor and an issue of irrelevant sunk costs but that Dr A.Q. Khan, who supplied North Korea with nuclear weapons, is now peacefully living in Pakistan more than irritates me. Khan also sold nuclear technology to Libya and Iran. What a noble contribution to humanity from the 'father of the Pakistani nuclear industry'.

A Prairie Home Companion

I have been following the remarkable films of director Robert Altman for 30 years. His early films shocked us all with their zany eccentricities and his latter work, while retaining the eccentricity, does so in a more moderate and artistic way. I have been waiting for months to see A Prairie Home Companion and finally did last night.

It’s a joyous, comic piece primed by Altman’s free-wheeling approach as director. Altman allows actors to act and to interpret. He doesn’t ever rigidly stick to script. Provided the plot flows he claims he can sleep while a scene is being filmed (or do his accounts) and check afterwards on basic cohesion issues. When you have actors of the calibre of Meryl Streep and Kevin Kline you can afford to be trusting.

The actual A Prairie Home Companion is a live radio show that has run continuously in the US for over 30 years and created and hosted by Garrison Keillor. It comprises delightful faked ads (‘Bebop-a-reebop Frozen Rhubarb Pie Filling’), bluegrass music and light comedy as well as some more serious material.

In Altman’s movie, the actual radio show is portrayed as an entertaining, if low key, art form facing its final performance. Its theatre has been purchased by a Christian, Texan corporation who will turn it into a parking lot. The film focuses on the behind-the-scenes gossip and a highly entertaining mix of droll country music, bluegrass and comedy. The film is an ode to the medium of radio and the sort of entertainment that will get people like me back into the theatre anytime. The actors have fun and the fun is infectious.

The film has no political point and none of Altman’s early biting satire. You probably won’t enjoy it unless you can appreciate the low key and unless you can occasionally enjoy loitering. I thought this film was most entertaining and recommend it. But for a whole batch of more professional (and sometimes critical) reviews look here. I'd be very interested in your views.

Monday, October 09, 2006

Federalising Iraq?

The Iraq Government has talked about it and now the American Congress seem prepared to embrace the idea: Iraq to be split up into three autonomous regions (Shia, Sunni and Kurd) to limit the potential for currently escalating sectarian conflict to spiral completely out of control with a phased US withdrawal. Given that the Kurds already have an autonomous region the split would mainly need to be designed to limit the potential for a devastating civil war with bloodbath between Sunni and Shia should the US leave – leaving seems to be sought by the majority of Iraqis and implicitly by the US also.

A civil war in Iraq would almost certainly involve increased intervention by Iran and increased instability throughout the Middle East because of fears of Iran’s increased regional role. Federalisation of Iraq looks inevitable anyway – the task is to achieve it with minimum bloodshed while at the same time limiting Iran's ability to expand its regional hegemony.

Sunday, October 08, 2006

Personal bravery milestone

Even though the recent warm weather helped (a positive feature of global climate change?) I can report that yesterday I broke my Melbourne record by swimming in my backyard pool earlier in the season that ever before. I beat my earlier records by more than a month.

I am no iceberg swimmer - I suffer from a high sensitivity to pain and discomfit. But, along with my son, I have extended our swimming season in Melbourne from 3-4 months to 4-5 months, an achievement. Today it was 15 degrees C - I chickened out but my son went in.

Parking economics

'They paved paradise and put up a parking lot'.

I have been reading the acclaimed study by Donald Shoup, The High Cost of Free Parking, American Planning Association, 2005 ($59US) 734 pps. This is a lengthy study of parking economics written partly from the viewpoint of economics but more directly for city and urban planners. It is a clearly written and easy to read and there is repetition of material which makes things clear.

As someone interested in traffic congestion I have generally treated parking issues casually. Parking restrictions only deter terminating traffic in a city and, by reducing the demand for terminating journeys, have the unfortunate effect of releasing additional through traffic demands.

I have also been comforted by the notion that cities I am interested in, such as Melbourne, have not increased their supply of on-street parking though they have increased off-street parking. This has in the past seemed to me a good idea but after reading Shoup I am unsure.

Shoup's basic argument is that 99% of all US automobile trips involve ‘free’ parking which is, in fact, anything but free – it has high cost. The average US spot costs more than the average car occupying it. Providing free curbside parking distorts transportation choices, debases urban design, damages the economy and degrades the environment. Basically free curb parking constitutes an urban ‘commons’ that means we devote too many resources to parking which occupies an excessive fraction of our urban landscapes. We also then, as a consequence of free parking and often free roads, travel too much by car – for example, a free parking spot is equivalent to a 22 cent per mile subsidy to the average US journey to work.

The cost of parking is not borne by the commuter who travels but impacts on the cost of everything purchased – housing, restaurant meals, everything. The implied subsidy given to motorists who park free in the US is about the US Medicare or national defense budgets.

Shoup’s basic proposition is that curbside parking should always be priced at a level ensuring motorists never have to cruise to seek parking. Cruising for parking contributes heavily to congestion and is socially wasteful. To ensure cruising does not occur prices should be set so only about 85% of parking positions are filled. With adequately priced curbside parking, regulations on the required extent of off-street restrictions on parking that a new facility must supply are unnecessary. You wouldn’t legislate to insist that restaurants provide a free desert so why legislate that they must provide a certain minimum level of free parking? Developers should be entitled to offer as many or as few parking spaces as they choose. Then the required number of unbundled parking places can be delivered by the market.

On this basis charges for on street parking in Melbourne are too low and parking restrictions on Lygon Street too lax – I have given up on attempts to park in Lygon Street after extended periods of cruising for parking. .

In an interesting table Shoup shows that Melbourne has the second highest ratio of parking area to total land area (the ‘parking coverage rate’) in the world - at 76% we are just eclipsed by Los Angeles at 81%. Shoup takes this high ratio as an index of ‘lack-of-vibrancy’ and as a draw card for traffic that will create congestion problems. The lack of vibrancy argument stems from the reduced agglomeration benefits in having a great deal of space devoted to parking – instead of buildings set in a park we are seen to have buildings set in a parking lot! This does not seem descriptively accurate for Melbourne and I assume this flawed perception stems from the fact that there is almost no free parking in the city. Shoup would reply that Melbourne is attracting too much traffic through under-priced parking and through its largely un-priced roads.

Introducing curbside pricing faces the same political opposition as road pricing and Shoup’s resolution of this real problem is the same in each case – redistribute revenues from parking back to local residents.

This book added to my understanding of the role of markets in regulating traffic flows. It has a specific focus but the inefficiency costs it focuses on are substantial.

Friday, October 06, 2006

Centralised educational curricula for schools?

I am as frustrated as Education Minister Julie Bishop is with the quality of high school curricula in Australia. But as previously argued I do not favour centralising curriculum determination as she again advocates today.

There is value in retaining competition between curricula. While we may rage short-term when we uncover Marxist or feminist interpretations of Shakespeare inflicted on school students and feel despair at the pathetic adherence of social scientists to long-discredited (and superseded) Marxist paradigms for thinking about economics and society, the best way of dealing with such stupidity is via the public debate not by seeking to correct a corrupted system with a centralised solution.

In my own area of concern, economics, I see how poor syllabus design leads to an under-appreciation of the role of markets, to deficient business-relevant skills, to pervasive left-wing biases favouring interventions rather than freedom and to confusion rather than learning in the economics area. The VCE economics syllabus emphasises incoherent macroeconomics and discussion of practical policy issues without basic microeconomic analysis. This syllabus is partly responsible for the decline in economics enrolments in schools and universities in Victoria. It is a tragedy fostered by unthinking university advisors on school curriculum committees.

But in the longer-term rationality will surface through competition in the market for ideas. How I would detest a uniform national curriculum prepared in any discipline area under the guidance of a populist nit like Jenny Macklin. I think Julie Bishop is one of the better Education Ministers we have had in recent years, but, sorry, there are too many daft things going on in the universities today to allow me to place my trust in any centrally designed curriculum design procedure.

Thursday, October 05, 2006

Silly policy proposals this Thursday

1. In the most self-interested and silliest pleading I have seen for a while, a lingerie retailer has argued that lingerie should be subsidised, or its purchase made tax deductable, to sustain men's sex drives and to thereby reduce the divorce rate.

The obvious retort is that not all women (or men) look good in skimpy underwear - subsidising might increase the divorce rate.

2. Meanwhile Kim Beazley has proposed giving priority access to parking and bus transit lanes for green (hybrid and alternative fuel) cars - inappropriate policies from the perspective of the major external cost in our cities, namely, congestion. Green cars in themselves don’t cause less congestion than standard cars and, even though they might pollute less, this is a more minor externality in our congested cities.

If governments do wish to encourage less dependence on oil, then high petrol prices will steer noses in the right direction. Subsidies on alternative fuels will create incentives to switch to such fuels but congestion pricing needs to favor transport modes that congest little – public transport and bikes. The costs of running a bus fleet and a train system have large fixed components so marginal cost pricing at low levels provides efficiency gains anyway.

Wednesday, October 04, 2006

North Korean nuclear test?

North Korea announced the intention of a nuclear arms test today. This is serious news since it undermines security in the Asia Pacific region and increases the prospect of a nuclear arms race there.

Let us hope this is sabre-rattling and that they are bluffing. But if a test does occur it will unify a number of countries, such as China, Russia and South Korea in their resolve to halt the expansion of North Korea’s nuclear program. So far these countries have made only limited responses. It also firms up the case by US hawks for an attack on this rogue state. The US could readily launch attacks from Guam and Japan.

The prospect of a North Korean test is a frightening development in the context of the ongoing international war on terrorism. Kim Jong-Il keeps slave labour camps and has a population facing mass starvation as he spends up big on military technology. It will be interesting to see what the United Nations will do - they seem to be essentially powerless.

I am also waiting to how Iran will react to these dangerous developments. Some believe Tehran may buy plutonium directly from North Korea to short-cut the process of gaining access to nuclear weapons. The behaviour of the crazies in Pyongyang draws attention away from the key Iranian crazy although Mahmood is just as dangerous as Kim Jong-Il with these weapons.

Monday, October 02, 2006

My troubles began when they decide I am executive timber

I am vanishing for a couple of days for a (managerial) Strategic Retreat at The Mansion Hotel, Werribee. If I come back goggle-eyed and muttering that L. Ron Hubbard is my personal saviour you will know that I have ended up on an errant sample path. If however I return with piecing eyes and the cool look of Humphrey Bogart chatting with Ingrid Bergman at Ricks (that’s me above) you will know that I have been transformed onto a plane of managerial excellence that might mark me as a future Vice Chancellor, Pope or Prime Minister.

But either way I doubt I will post much over the next couple of days.

Climate change news

The practical implications of global warming for our everyday life are being increasingly emphasized. John Quiggin discusses effects on Australian water supply planning of lower rainfall as a possible consequence of warming (a broader perspective on Australia's future weather is here) while, the Bushfire Cooperative Research Centre focuses on enhanced risks of bushfires (here). As I have remarked in an earlier post, we need to undertake policies to try to both reduce warming and to deal with the consequences of warming on the assumption that preventative policies have failed and will continue to fail to some degree.

In my environmental economics classes I mention the possibility of sustained releases of methane from vast sub-Arctic forests and bogs as a potential catastrophic event that could rapidly cause global warming problems to gallop out of control. The current issue of New Scientist summarizes studies suggesting that warming is concentrated in tundra areas with some parts of Alaska having warmed by 2 degrees C since 1950. Further warming of about 1 degree C, it is claimed, could initiate the feedbacks. Serious stuff.

Sunday, October 01, 2006

Making money from the desparate

Medical insurance in the US now costs businesses $8,500US per family. But nearly 50 million have no insurance and US health status indicates health sector underperformance.

One medico-entrepreneneur has devised a way of charging women $4,200 a dose for a new version of an old anti-breast cancer drug. It has helped make Dr. Patrick Soon-Shiong a billionaire but, in so doing, women with breast cancer are left with some difficult choices.

If a cancer sufferer is desparate enough a drug vendor can offer salvation by bankrupting them. The demand to live is about as price-inelastic as any - a fact recognised by entrepreneurs who understand the pricing implications of someone desparately seeking to survive.

My impulses as an economist are to support free markets but - sometimes - we need to devise ways of organising production that depart from adherence to the profit motive. In relation to health the following quote from one of the greatest modern economists is potent:

'The very word, 'profit,' is a signal that denies the trust relationship'. (K. J. Arrow).

Inconsistent case for fully privatising Telstra

In view of the ongoing disputes between the Coalition Government and Telstra over what is sensible commercial and social conduct – in this morning’s Age it is renewed bickering over Telstra’s plan to cut numerous non-profitable pay phones and last week it was the issue of appointing Geoff Cousins to Telstra’s Board of Directors why is the government in such a hurry to complete the privatization of Telstra? It does not make sense – a move towards buying out the private shareholders and bringing Telstra back into public ownership would make more sense. A proposal along these lines has been provided by John Quiggin and I support it though it seems to be a political impossibility at this late stage.

But still my questions about the Government’s motives for moving towards a quick sale of its remaining shareholding remain. Why does John Howard want to put himself in the position where he can no longer readily influence Telstra’s future when he has (legitimate) questions about its direction now?