Tuesday, December 30, 2008

Iranian Presbyterians to fight in Gaza against Zionism

These Presbyterians have offered to fight Zionism from a base in Gaza. They are part of a movement to establish democracy, women's rights, liberal educational values, business acumen, economic progress and freedom in one of the world's worst current trouble spots.

Progressive (often nappy-crested*) idealist followers in Syria, Yemen, southern Beirut and Sydney have voiced their support. Shaking their fingers they have warned the Zionists not to respond provocatively to freedom-fighting missiles directed at them. If the Zionists continue to fight back the Presbyterians warn that they will jump up and down and get annoyed. They won't like the Zionists any more and will whip their asses like they did last time....err the time before that...well you know when.

* Mr Natural - below - forgot his nappy and has not yet learnt how to goosestep.

Pharmaceutical market failures?

This review in the New York Review of Books shows how drug companies pay bribes to medical doctors and psychiatrists to have new drugs publicly endorsed and promoted and how research activities into new drugs are given a positive spin through the input of drug company money.  Quote:
'No one knows the total amount provided by drug companies to physicians, but I estimate from the annual reports of the top 9 US drug companies that it comes to tens of billions of dollars a year. By such means, the pharmaceutical industry has gained enormous control over how doctors evaluate and use its own products. Its extensive ties to physicians, particularly senior faculty at prestigious medical schools, affect the results of research, the way medicine is practiced, and even the definition of what constitutes a disease'.
Consider Dr. Joseph L. Biederman, professor of psychiatry at Harvard Medical School and chief of pediatric psychopharmacology at Harvard's Massachusetts General Hospital.
'Thanks largely to him, children as young as 2 years old are being diagnosed with bipolar disorder and treated with a cocktail of powerful drugs, many not approved by the FDA for that purpose and none of which were approved for children below 10 years of age.
Legally, physicians may use drugs that have already been approved for a particular purpose for any other purpose they choose, but such use should be based on good published scientific evidence. That seems not to be the case here. Biederman's own studies of the drugs he advocates to treat childhood bipolar disorder were, as The New York Times summarized, "so small and loosely designed that they were largely inconclusive."
In June, Senator Grassley revealed that drug companies, including those that make drugs he advocates for childhood bipolar disorder, had paid Biederman $1.6 million in consulting and speaking fees between 2000 and 2007. Two of his colleagues received similar amounts'.
In an interesting twist after this was revealled the president of the Massachusetts General Hospital and the chairman of its physician organization sent a letter to the hospital's physicians expressing not shock over the enormity of the conflicts of interest, but sympathy for the beneficiaries! "We know this is an incredibly painful time for these doctors and their families, and our hearts go out to them."'

The conflicts of interest here are clear enough for prescribing doctors and pharmaceutical regulators to appreciate.

Update: This article in NYT records that US pharmos have agreed to stop issue branded trinkets - Vioxx pens and so on.  Quote:
“We have arrived at a point in the history of medicine in America where doctors have deep, deep financial ties with the drug makers and marketers,” said Allan Coukell, the director of policy for the Prescription Project, a nonprofit group in Boston working to promote evidence-based medicine. “Financial entanglements at all the levels have the potential to influence prescribing in a way that is not good.”

Monday, December 29, 2008

Israel attacks terrorist bases in Gaza

The UN have condemned Israel for 'overreacting' in their airstrike attacks on the Gaza Strip*.  I think in fact that Israel have acted decisively and have not overreacted at all. The attacks have real ferocity and regrettably have killed an estimated 290 Palestinians - many of them civilians.  It is a miserable outcome for a poverty-stricken people living in what amounts to a large prison camp.

Hamas provoked the airstrikes by launching sustained missile attacks on Israel.  The horror of civilian deaths is real but irrespective of any moral arguments the core issue is how else a country like Israel could respond to missile attacks from a group which seeks to anniliate it?

Likewise while the Palestinians grizzle about travel restrictions into and out of Gaza the culprit here is Hamas which sends suicide missions into Israel.

Residents of Gaza gave a political victory to the Hamas terrorist group which seeks the destruction of the neighbouring state that, in fact, exited the occupied Gaza in 2005.  The Gaza residents are now paying a terrible price for their choices. The Hamas cowards are launching their missile attacks from civilian areas inside Gaza essentially using the civilians as human shields.  To some Hamas seem to be preventing the treatment of injured Palestinian civilians in Egypt while to others Egypt has closed the border with Gaza. Both Egypt and Jordon generally don't have much of a stomach for the short-sighted and callous Hamas stupidity.

Israel is asserting a display of military might that reminds its enemies that it does have teeth after the seemingly bungled dispute with Hezbollah in Lebanon in 2006 - hence the decisiveness of the current attacks. Hezbollah like Hamas is a terrorist organisation committed to the destruction of Israel. Indeed the current Israeli successes are reminiscent of the early claimed successes against Hezbollah.  Hopefully the current tit-for-tat efforts will have the longer-term conclusion of forcing Hamas to negotiate a new more binding peace. The more damage that can be inflicted on Hamas the greater the likely success.  indded the more damage that can be inflicted on the terrorist Hamas the better the prospects for the Palestinian people.

* Our acting PM Gillard has unhelpfully urged both sides to avoid fighting although, to be fair, she does recognise Hamas as the origin of the current problems. The real morons of the left adopt the usual 'sins on both sides' posture which again suggests Israel has no right to oppose those who seek to destroy it.

Friday, December 26, 2008

Capitalist fools

Who is to blame for the current global financial mess? Joseph Stiglitz in this Vanity Fair classic identifies 5 key mistakes made by 3 US Presidents. 

(i) Appointing an anti-regulator (Alan Greenspan) to the position of Federal Reserve Chairman was a basic error - Greenspan did nothing to prick two asset market bubbles and refused to intervene to regulate derivative markets when many knew they were instruments of financial mass destruction.   Spiv economic culture was promoted.

(ii) Tearing down the walls and repealing the Glass-Steagall Act which separated commercial banks (which lend) from investment banks (which organise the sale of bonds and equities).  More spiv culture.

(iii) Applying the leeches - providing tax cuts to mainly upper income earners did little to stimulate the economy which was driven by a wash of liquidity and incentives which favoured capital gains over hard work.   Giving the spivs a chance in life.

(iv) Faking the numbers proceeded partly through gaps in the Sarbanes-Oxley Act which excluded executive options gave firms incentives to fiddle the books and partly through the operations of rating agencies who were paid by firms whom they were rating - financial overseering failed.  Spiv-related industry assistance.

(v) Letting it bleed - the bailout package is a confidence trick that forces ordinary Americans to bailout the rich but which will fail to restart lending - the core issue.  The spivs did well.

The issue to Stiglitz revolves around the need for regulation and for what I have elsewhere called the failure of free market fundamentalism:
The truth is most of the individual mistakes boil down to just one: a belief that markets are self-adjusting and that the role of government should be minimal. Looking back at that belief during hearings this fall on Capitol Hill, Alan Greenspan said out loud, “I have found a flaw.” Congressman Henry Waxman pushed him, responding, “In other words, you found that your view of the world, your ideology, was not right; it was not working.” “Absolutely, precisely,” Greenspan said. The embrace by America—and much of the rest of the world—of this flawed economic philosophy made it inevitable that we would eventually arrive at the place we are today. (my bold)
HT to Sir Henry Casingbroke

Wednesday, December 24, 2008

Harry's Xmas message

I’ve been slack over recent weeks with meandering posts and important issues (such as Rudd reneging on meaningful climate change targets) going undiscussed*. In part this is because it is Xmas and I feel like being non-committed and because pissing into the wind has often in the past involved my boots getting splashed. It’s what I’ve described in the past as the need to go dum-dum. The blogosphere (and the press) tend to slow down at this time of year which is probably as it should be. It is a ‘don’t-need-to-do’ period.

I also feel dum-dum because I am on holidays, playing golf and really enjoying the prospects of Xmas. I wonder if I am the only atheist in Ivanhoe who loves Xmas carols – this is my favourite Xmas carol and a great performance. This version of Silent Night moves me.

Generally last years’ post on the meaning of Xmas expresses my attitudes toward this happy time.

Happy Xmas to all my readers! With probability p = 0.9998 I’ll be back in force in a week or so rejuvenated, replenished and with a long list of soon to be foregotten resolutions.

*I stopped on this one though I did give warnings to all and sundry that it would happen.

Rudd greets world at Xmas.

 In a Xmas message released yesterday:

Rudd urged Australians to spare a thought for troops serving overseas as they enjoy their Xmas break. People should remember Australia's troops serving in Iraq, Afghanistan, the Solomon Islands, East Timor and elsewhere. Many of them have little kids of their own but they won't be with them this Christmas. "We acknowledge the sacrifices they make and thank them for serving our nation with such courage and distinction abroad".

Rudd paid tribute to police, firefighters and other emergency service workers who are on duty and away from their family to help the community on this most special of days.

Rudd said Christmas was a wonderful time of celebration and recuperation with family – a time of reunion for families that have been separated for reasons of work, study and travel.

Rudd said it was a special time for kids, whose experiences of Christmas are among the happiest memories they carry throughout their lives. It was for him.

Rudd urged compassion for people dealing with the death of loved ones.

Rudd said people should support those around them and take care if they were travelling. "Please, please, drive carefully and please be considerate in sharing the road with others”.

Rudd said whether you are in a city or the suburbs, the beach or in the bush, at home or abroad, that he wishes all Australians a very safe Christmas, a very happy Christmas and a very happy and peaceful new year.

The world listens to your every banality Kevin. The world will vote for you Kevin. Your winning smile and hyoperactivity provide a model for us all Kevin.

Pope's Xmas Message

Homosexuality is a bigger threat than climate change.  My question: Why do people listen to this sanctimonious old shit? I'd say ratbag religions and the bigots who promote them are a bigger threat to the planet than people who prefer to have sexual relations with their own gender because that is the orientation established in them on the basis of their genes.  But maybe some corpse-like ex-Nazi who's never had a root in his life knows better.

The Pope (and the Catholic Church) are far from espousing the message of love preached by the man Jesus Christ.  The values of Christ provide a possible, useful moral code for humanity.  The message of the Catholic Church is one which glorifies the pale virgin shrouded in snow. The Corpse Hour with Commandant Benedict. Arise from your graves you ignorant bigots and go where the sunflower wishes to go!

Update: the relevant section of the Pope's message.

"What is necessary is a kind of ecology of man, understood in the correct sense. When the Church speaks of the nature of the human being as man and woman and asks that this order of creation be respected, it is not the result of an outdated metaphysic. It is a question here of faith in the Creator and of listening to the language of creation, the devaluation of which leads to the self-destruction of man and therefore to the destruction of the same work of God. That which is often expressed and understood by the term “gender”, results finally in the self-emancipation of man from creation and from the Creator. Man wishes to act alone and to dispose ever and exclusively of that alone which concerns him. But in this way he is living contrary to the truth, he is living contrary to the Spirit Creator. The tropical forests are deserving, yes, of our protection, but man merits no less than the creature, in which there is written a message which does not mean a contradiction of our liberty, but its condition. The great Scholastic theologians have characterised matrimony, the life-long bond between man and woman, as a sacrament of creation, instituted by the Creator himself and which Christ – without modifying the message of creation – has incorporated into the history of his covenant with mankind. This forms part of the message that the Church must recover the witness in favour of the Spirit Creator present in nature in its entirety and in a particular way in the nature of man, created in the image of God. Beginning from this perspective, it would be beneficial to read again the Encyclical Humanae Vitae: the intention of Pope Paul VI was to defend love against sexuality as a consumer entity, the future as opposed to the exclusive pretext".

Tuesday, December 23, 2008

A Xmas present from America?

The insincerity and deceit of PM Grub Rudd partly mirror the views of the Australian electorate and also Rudd’s perception of international political opinion. Politicians like Rudd just don’t get it – we need massive cuts in carbon emissions and an end to the use of carbon based fuels soon if the earth is not to very likely to experience catastrophic (2 degrees plus) climate change*. Rudd is not alone in his stupidity. The Europeans have reneged on commitments to address climate change seriously despite the leadership role of Germany’s scientist leader Angela Merkel.

French climate scientist Philippe Ciais argues the earth will experience 2 degrees warming even if all emissions stopped today. There is even one notable forecast by NASA scientist James Hansen of record global temperature highs during the first term of President Obama’s office and of the possibility of runaway warming with the destruction of all life on earth and in the oceans.

These are fearful scenarios and will be derided by climate change sceptics but the outcomes they point too as serious scientists are very adverse and are worthy of weight on that account alone. It is not alarmism but prudent regard for a serious risk that endangers life on earth.

Some of Obama’s appointments suggest a new US respect for science. Obama is committed to serious climate change policies and has:

...pledged to create 5 million green jobs and break U.S. dependence on foreign oil, investing $150 billion in the next decade to build an energy economy that relies on renewable sources such as wind, solar and geothermal energy.
Moreover, despite US economic problems these sorts of policies seem like a plausible and reasonable vision. Already the appointment of serious climate change scientists to key positions in his administration has led to forecasts that this will have a positive effect of Indian, Chinese and Brazilian climate policies.

The old US ‘enemy’ may yet arise to save the day - I have already posted that there is a conceivable economic rationale for doing just that. It would be a great Xmas present for the world for Obama to establish his position as a great US President by getting the world’s political leaders to take seriously climate change.

* My own work as an economist interested in climate change policy will emphasise adaptation policies on the assumption that (regrettably) mitigation policies are likely to be ineffectual.  I am also completing work on strategic aspects of mitigation policy.

Sunday, December 21, 2008

Chinese biodiversity

I've got in trouble before commenting on Chinese attitudes to nature and non-human life but, to return to a theme, many Chinese attitudes are, from a Western perspective, appallingly destructive despite official Chinese ideological claims about the need to live in 'balance with nature'.  Historically many of the forests of China were cleared in the 'great deforestation' and animal and plant species are often seen in Chinese culture purely in instrumental terms as things that can 'serve' people in the narrow sense of providing food or material products or caged amusements.  This has had dramatic consequences for the environmental history of China. China has also long been intensively cropped rather than ranched - an activity particularly inimical to biodiversity.

Marine and aquatic environments have been subject to particular damage. The probable extinction of the Yangtze River Dolphin was a notable loss. Historically Chairman Mao's policy of wiping out bird species because they ate grain was a supreme example of short-sightedness since a disasterous locust plague immediately followed as well as an errie bird-free silence in many Chinese cities.

China has high intrinsic biodiversity - for example 1329 bird species out of a global total of about 9000 - but a biodiversity which is under severe threat from rapid Chinese economic development, harvesting and pollution.  This affects non-Chinese because existence values on biodiversity are global. Non-Chinese experience discomfit when biodiversity is wiped out in China. In a more immediate  sense the conversion of mudflats and wetlands into commercial sites is endangering bird species that migrate between the northern and southern hemispheres along the East Asian-Australian Flyway.

A colleague working on conservation issues in the Flyway told me how angry he got when fellow Chinese 'conservationists' immediately discarded into the environment any litter they had generated - this view of the environment as an inexhaustible sink is clearly inappropriate in a Chinese setting.  I winced when he told me that the migratory waders the Chinese collect as food are attracted into nets by posting captured birds in wetlands with their eyes stitched together so they do not make alarm calls. OK these practises do reflect different values but, for sure, Chinese attitudes towards nature, create external costs for many non-Chinese.

This article on the critically-endangered Chinese crested tern (pictured above) sets out the issues well in terms of issues surrounding the conservation of an individual species. It is a good general read.

Things are improving in China due to official government policies but I question whether the improvements will offset the pace of so-called 'progress'.  It is pointless for the Chinese people to seek to become rich by living in a barren rubbish dump.

Friday, December 19, 2008

Madoff economies

Paul Krugman asks a basic question. While everyone is tutt-tutting about Bernard Madoff's amazing fraud (how come the SEC never saw it even though it had been denounced as a Ponzi scheme in 1999? How come knowledgeable investors fell for it? etc etc etc) isn't Madoff not really just a symptom of what is endemic in the US (and perhaps global) finance industry? Madoff was an explicit crook but large sections of the US finance industry as a whole are crooked.  They have destroyed value, distorted individual incentives (including those of politicians!) and ruined lives while making those who operate the industry incredibly wealthy. 

Spivs invest in worthless mortgage contracts (or ultra-high risk investments) and make millions just before the contracts turn toxic.  Doing this yields the practitioners more wealth in a short period than a skilled scientist or engineer can earn in a lifetime. Indeed, American wages generallly have stagnated over the past few decades while the salaries of the spivs and bankers have exploded. Moreover, it is not the equity issues that are of major concern but the sheer illogic of believing that such outcomes have economic rationality.

Thursday, December 18, 2008

Real bonuses & phoney profits

For years in business school courses I have taught that incentive contracts - fancy language for 'bonuses' or 'performance pay' - are a way of motivating extra effort from business managers or of elimating principal -agent problems between managers and shareholdersw.   Sometimes this is true but the devil is in the detail of how such contracts are designed.  Sometimes the contracts increase risk-taking unreasonably particularly in an investment setting where rewards from sound decision making accrue through time and where the costs of poor investment decisions are not identified immediately.

The NYT  discusses the interesting recent case of Merrill Lynch.  To quote their former CEO E. Stanley O'Neal in March 2008:
“As a result of the extraordinary growth at Merrill during my tenure as C.E.O., the board saw fit to increase my compensation each year.”
When he left Merrill, O'Neal was awarded an exit package of US$161 million.

Moreover, benefits of huge magnitudes were made further down the line. For one employee in 2006, on a salary of US$350,000, total compensation was 100 times that at US$35 million. A 20-something analyst with a base salary of $130,000 collected a bonus of $250,000. And a 30-something trader with a $180,000 salary got $5 million. Many of these bonuses were in cash not equity so employees had little reason to take a longer-term view.

These huge payouts were intended to reflect huge earnings but they did not.  Quoting the NYT:
'...Merrill’s record earnings in 2006 — $7.5 billion — turned out to be a mirage. The company has since lost three times that amount, largely because the mortgage investments that supposedly had powered some of those profits plunged in value.

Unlike the earnings, however, the bonuses have not been reversed'.
The losses Merrill made exceeded all the profits they had made for 20 years.

Furthermore banks like Merrill will dole out bonuses even after they have had to be propped up with billions of dollars of taxpayers’ money.

These bonuses should never have been so big because they were based on 'ephemeral earnings'. They encourage employees to act like gamblers at a casino who can collect their winnings while the roulette wheel was still spinning. Employees contiunued to pursue risky deals even as the housing and mortgage markets weakened because what happened to their investments was of no interest to them - they have already been paid.

Sir Henry Casingbroke's amusing - though pointed - account of the US auto bailout provides further observations on crazy US incentive contracts.  I assuime the business school gurus will publish a whole rash of learned papers pointing out that refining the way incentive contracts are designed can perfect their operation. But something more fundamental seems lacking - corporate morality for one thing.

Wednesday, December 17, 2008

The US Auto Bailout....

Guest post by Sir Henry Casingbroke

A Japanese company (Toyota) and an American company (General Motors) decided to have a canoe race on the Missouri River.

Both teams practiced long and hard to reach their peak performance before the race.

On the big day, the Japanese won by a mile.

The Americans, discouraged and depressed, decided to investigate the reason for the crushing defeat. A team made up of senior management was formed to investigate and recommend appropriate action.

Their conclusion was that the Japanese had 8 people rowing and 1 person steering, while the American team had 7 people steering and 2 people rowing.

Feeling a deeper study was in order; American management hired a consulting company and paid them a large amount of money for a second opinion.

They advised, of course, that too many people were steering the boat, while not enough people were rowing.

Not sure of how to utilize that information, but wanting to prevent another loss to the Japanese, the rowing team's management structure was totally reorganized to 4 steering supervisors, 2 area steering superintendents and 1 assistant superintendent steering manager.

They also implemented a new performance system that would give the 2 people rowing the boat greater incentive to work harder. It was called the 'Rowing Team Quality First Program,' with meetings, dinners and free pens for the rowers. There was discussion of getting new paddles, canoes and other equipment, extra vacation days for practices and bonuses.

The pension program was trimmed to 'equal the competition' and some of the resultant savings were channeled into morale-boosting programs and teamwork posters.

The next year the Japanese won by two miles.

Humiliated, the American management laid off one rower, halted development of a new canoe, sold all the paddles, and canceled all capital investments for new equipment. The money saved was distributed to the Senior Executives as bonuses.

The next year, try as he might (and having no paddles), the lone designated rower was unable to even start the race, so he was laid off for unacceptable performance, all canoe equipment was sold, and the next year's racing team was outsourced to India.

The End.

PS: General Motors has spent the last thirty years moving its factories out of the US , claiming they can't make money paying American wages. Toyota has spent the last thirty years building more than a dozen plants inside the US.

The last quarter's results: Toyota made 4 billion in profits while General Motors racked up 9 billion in losses.

Monday, December 15, 2008

Golf & the Australian Open Championship

I attended the final day's play of the Australian Open at Royal Sydney Golf Club.   I endorse entirely Robert Allenby's criticisms of the organisers of this event and of the attending Aussie print media.  The hounding of the visiting American professional John Daly because he smashed a spectator's camera against a tree was stupid.  The foolish fan rammed the illegally-held camera (cameras were supposed to be banned at the event) in Daly's face while Daly was taking a difficult shot.  Also stupid was the positioning of a booze-centre at the back of the 17th green from where offensive, drunken louts hurled insults and hooted at players who hit bad shots or indeed anyone who they took a dislike to.  It was an  ugly interlude in what was otherwise a fascinating day.

I followed Allenby for a while that Sunday. What a great golfer and what a genuinely decent guy he is. He chatted amiably with spectators and played entertaining, aggressive golf - Allenby is a star and hardly a prude.  His comments should be taken seriously by golf officialdom and the gutter press.

Why is it that so many Australians cannot enjoy watching sports without getting aggressively and moronically drunk? Why cannot the Aussie media ever resist the temptation for a bit of cheap scandal?

Saturday, December 13, 2008

Keith Windschuttle on acceptable climate change papers for Quadrant

My paper criticising what I saw as the foolish climate change 'denialist' views that have been repeatedly put forward in Quadrant magazine was rejected by its editor Keith Windschuttle on the grounds that an earlier draft of the paper had been published on this blog. This seemed to me a totally spurious grounds for not publishing the paper - there may have well been non-spurious grounds not set out in the email to me by Keith - so I emailed Keith requesting a rethink. Everything I publish in academic and popular journals I pre-circulate first in working paper form or as a post on a webpage. Most academics I know do the same. For whatever reason Keith did not respond at all to my email.

Now I learn from Tim Lambert's Deltoid that Keith has rejected another paper by David Karoly criticising the same 'denialist' climate change views without any apparent review or consideration on the grounds that:
...at the moment Quadrant is focusing on offering a platform for the sceptical position on this issue. We find that the pro-IPCC position is very well represented in almost every media outlet in the country, including academic journals and websites, but it is very difficult for sceptics to find any outlet for their voices to be heard. Hence, in the interests of balance, we believe the sceptics deserve a fair go in a little journal like ours. If the current position changes, we will be glad to consider pro-IPCC articles such as yours. 

But, as a fellow conservative, I am really just really disappointed in Keith Windschuttle. The disappointment goes well beyond not having my article reviewed and considered for publication in Quadrant. It is the festive season so I'll simply say to Keith that his behaviour seems to me appalling and short-sighted and hope that eventually he will see this and allow Quadrant in the future to present a more truthful, balanced and accurate picture of the consequences of anthropogenic climate change.
I wonder had I not published the draft on my website whether Keith would have applied this alternative reason for rejecting my article. If he had I would still have rejected his view as inappropriate. Journals such as Quadrant are misleading the public by presenting only climate change 'denialist' views and ignoring the overwhelming alternative views of mainstream science. Moreover, the consequences of Quadrant getting it wrong are serious.

Friday, December 05, 2008

The end of free market fundamentalism not of the mixed economy (revised)

My earlier lengthy post under this title has been published in terser form over at Online Opinion.

Proposed Qantas BA merger

The predictable outraged sense of nationalism of Labor toward the proposed merger between Qantas and British Airways is only exceeded in stupidity by its commercial stupidity.

Keating was the first of Labor’s economic ‘geniuses’ to stamp his mark on Qantas’ adventurism by thwarting a tie up between Qantas and Singapore Airlines. He ‘saved’ Qantas by instead fostering Grandma BA’s acquisition of a 25% stake in Qantas (which they subsequently flogged off at a big profit to cover their own financial difficulties) and prevented Qantas from aligning itself with a star performer in the Asian region - the obvious choice was Singapore Airlines - that could perhaps have engineered real synergies and efficiencies. Now Qantas who were originally opposed to the BA move, and favoured an Asian connection, are clamouring to get into bed with unprofitable, debt-ridden Grandma once again.

Are there further realisable synergies on routes between ends of the world in Europe and Australia? Qantas and BA already coordinate fares and schedules on the Australia-London route. What synergies can Australia foster on flights between London and Stockholm? Between the UK and the US? You are joking. But, yes ’ll bet Grandma BA is hot to trot with the coltish flying kangaroo on this one. Wouldn’t you? BA would at least then gain the stupid protectionist advantages now assigned to Qantas on Australia-Japan and trans-Pacific routes.

BA and Qantas have comparable operational costs although BA’s are higher – a ludicrous op ed by Jemina Whyte in yesterday’s AFR suggested a basis for synergies lay in the fact that both carriers had unionised work-forces – but an carrier like Singapore Airlines has significantly lower costs. An Asian carrier would realise economies with Qantas in terms of being a regional hub and in terms of pressuring the featherbedding of the Qantas workforce. If a deal is not currently on then that is no reason to hop into bed with aging Grandma.

But whatever the stupidity of outraged Labor nationalism any moves to prevent the unseemly liaison between Qantas and BA can only be welcome.

Presumably there is a price at which the merger makes sense but it is a price that BA will not accept. Currently the proposed deal is said to involve ‘no premium’ and that in itself is revealing. The British are being generous enough to admit that low debt Qantas which will probably halve its profits to $250 million this year does not need to pay a premium to acquire heavily indebted BA which will be lucky to break even this year in intensely competitive international markets. BA are also ‘prepared’ to entertain the notion of a rotating CEO! The combined entity will thus be mis-managed at least 50% of the time.

I have often felt that many university bureaucrats should be offered memberships of local golf clubs or paid holidays for 48 weeks per year rather than ‘manage’ universities by trying to regulate how working academics teach or do research and in devising strategy documents that literally nobody reads. Given the political impossibility of sacking these cretins damages and costs would be smaller if these hapless bureaucrats could simply be kept off the street. Cannot new Qantas CEO Alan Joyce be offered something similar? Just run an airline Alan, pay Qantas’ bills in these difficult recessionary times and forget about trying to be a Master of the Universe -with an aging, crotchety and broke Grandma BA.

Since I wrote the above remarks the stock market has voted with a resounding thumbs-down to this foolish proposed deal.

Wednesday, December 03, 2008


The middle class radicals who have forced the end to democratically-elected governments* in Thailand have not done Thailand any long-term favours.  Recent events in fact constitute a middle-class coup that has driven a popularly elected government from office.  That is true even if the government was not entirely saintly.

When I lived in Thailand 20 years ago there were periodic military coups (2 in the 8 years I was there) which shuffled the deck chairs and occasionally produced significant violence. At about the time of my departure there was the optimistic feeling that the military would occupy a more traditional military role that largely lay outside of politics and business.  For a few years this seemed to happen and the strong growth that Thailand enjoyed continued unabated up until the 1997 financial crash.

Now PM Somchai's party has been found guilty of electoral fraud and dissolved. Somchai has been barred from politics for five years and Deputy Prime Minister Chaowarat Chandeerakul has become acting prime minister. Anti-government protesters have declared victory and say they will vacate the airports that they occupied to force this issue.  It is difficult to judge the extent to which the Thai military passively stood to one side to allow this to happen.

The best way for the Thai people to strengthen their democracy is to vote out poor politicians at election time.  Coups whether launched by the military or by a Bangkok-based middle class are a short-cut that will never be a successful longer-term solution.

The Thais are one of the most pleasant of peoples. Friendliness is ingrained into the national character.  But there is a dark side to the country - high murder rates and a proclivity to settle everyday disputes with the gun - that cannot be ignored.  The current elitist coup may settle some immediate political scores but has disinfranchised a majority of the Thai population.  It is a dangerous precedent that could lead to significant violence.  Of course I hope I am wrong in this but I fear I will not be.

And of course the real development problems that Thailand still continues to face will not be improved by having a permanently threatened democracy.

*The recent PM (Mr Somchai Wongsawat) was admittedly nominated by the Thai Parliament but his party (and that of his predescessor Mr Thaksin), repeatedly were endorsed by a majority of the population.

Monday, December 01, 2008

Heroin on prescription

The Swiss have legalised the prescription of heroin to addicted users. The measure apparently has 68% Swiss community support although 63% oppose the legalisation of cannabis.

This move is poor policy since it reduces the user cost of heroin to addicts and therefore reduces their incentives to cease using. To the extent there is any inelasticity in supply of illegal heroin it will reduce the price and increase the incentives to use of new users. It will reduce the heath costs faced by the given pool of addicted users but - to the extent that demand curves slope downwards - will create a larger pool of users who will be exposed to lower risks. Even if supply is perfectly elastic - so Swiss users face an internationally given price - those selling illegal supplies face increased incentives to secure new users. At best new users face no immediate increased incentives not to use but increased incentives by virue of the fact that new users now have a low cost escape into government-provided heroin should they become addicted.

Those in the drug treatment industry will cheer at this legalisation partly because it secures the size of their long-term client base. The policy will fail to resolve the heroin abuse problem since it leaves unaddressed the usage incentives faced by new users. It simply ensures that existing users remain so.

Supporters will say that abolishing these laws reduce health and law enforcement costs. The first point is unclear for reasons advanced above while the second argument applies to any criminal activity. It is only sound if heroin use is considered victimless. I don't.