State Government funding of 'special events'

Billionaire Bernie Ecclestone threatens to take the Formula 1 Grand Prix away from Melbourne unless it runs the races at night. This is apparently because Ecclestone wants to see the live TV coverage in Europe. The current contract runs out in 2010.

It has never been made clear what Victorian taxpayers contribute to Ecclestone to stage the Grand Prix here in Melbourne – the size of the fee is private information although for the life of me, as a taxpayer, I cannot understand why any government should agree to this. Currently Ecclestone is negotiating with Valencia, Spain to run a single annual event there and this gives some idea of the transfers being made to Ecclestone:

Valencia's Partido Popular has agreed to pay €26 million ($42.2 million) a year for the rights to hold a F1 event, which might give a good indication of what Melbourne
will have to fork over.

Gulp. One does not know the size of the public component of this transfer although the overall public subsidy for the Grand Prix was $21 million last year. It is forecast to be close to $30 million this year We also know that $66 million is allocated in the 07/08 Victoria budget towards tourism promotion. A further $34.2 million is allocated to Special Events promotion in the State over the next 4 years. The Victorian Auditor General has called for more analysis and less spin in assessing benefits from these events.

Mr Bracks seems unwilling to give Mr Egglestone what he wants. Opposition Leader Ted Baillieu wants the Grand Prix retained on terms which accord with Mr Ecclestone’s desires. Excuse me but, as a supporter of the conservatives, I feel ill. If you are making a loss on a dumb deal and the party making the gain threatens to take the loss away from you, well....

A report was tabled yesterday in the Victorian State Parliament that examines benefits from the 2005 Grand Prix event. It claims that overall Victoria made a loss from the Grand Prix and that the Government had overstated benefits frtom the event by more than $100 million. It also claimed that that the methods used by the National Institute of Economic and Industry Research to assess the economic impacts of the report were questionable.

‘Key to the differences between the Auditor-General's figures and those of the National Institute of Economic and Industry Research are projections of full-time employment created by the grand prix.

The institute estimated these at 3600, while the Auditor-General’s report suiggested the event would create between 400 and 600 jobs. Tourism revenue from the event was $9.1 million according to the institute, but the Auditor-General found it was of uncertain value’.

Disclosure: I provided input to the Victorian Auditor-General’s Report. I think the Auditor General's report is a fair one and a valuable input.

Farmers kill endangered species & destroy wetlands of international significance

Two firms producing almonds and two almond plantation workers were charged over the shooting of more than 40 rare Regent parrots in Victoria's northwest late last year. The birds were shot near Robinvale, on the Murray River 470km northwest of Melbourne. The regent parrot is a nationally-threatened species. The Eastern subspecies killed by these workers is endangered. Only about 2400 are left in the wild. The birds are protected under Victoria's Wildlife Act.

The maximum penalty for killing a single bird protected under the legislation is a $5350 fine and six months' jail, with additional fines for each subsequent bird killed. Yesterday the workers were fined a total of $740 each. This works out at $37 per bird killed. The case against the firms involved has been adjourned until next month.

As a fine this is a total joke and shows the courts are not serious about conserving endangered species. Maybe the workers were acting on the instructions of the firms. Even so the fines seem absurdly low. I’ll watch to see what happens when the firms go to Court – if they directed the workers to carry out the killings they should be slugged with heavy fines and penalties and forced to contribute to restoration of the species in the wild.

Meanwhile a NSW farmer has cleared 750 hectares (about 750 football fields) of the Gwydir wetlands in what is regarded as one of the worst examples of illegal land clearing in Australian. It was a wetland of international significance and was Ramsar-listed – it is now a ruin which will take decades to regenerate. The site had thousands of birds nesting there.

The farmer faces a $1 million fine although the NSW’s Government’s record of prosecuting such incidents is woeful. In my view, again, a $1 million fine is woefully inadequate for this scale of destruction! The law should again target massive fines and seek the fullest possible farmer-funded environmental restoration.

Many farmers are ardent conservationists who have an affinity for the environment. Some are socially irresponsible vandals who destroy Australia’s valuable biodiversity heritage.

A bigot on private education

Catherine Deveny is more than usually prejudiced in today’s Age. Her claim: It is wrong for government to provide any funding for private schools . Parents wanting to give their children a private education should pay for it 100% themselves. Moreover, Deveny claims it should be compulsory for politicians to send their children to public schools and to only use public health care.

Would the latter be enforced by law?

The rants of this foolish woman would increase per capita education costs in the public system since private school contributions by parents substantially cross-subsidize such costs and large numbers of private school students would join the public schools with such a policy. On the basis of providing a better quality public education system with given public resources, there is a case for a public contribution to the private schools.

There is also the view that parents might not wish to have the educational choices they make for their children entirely determined by governments. Deveny takes the opposite view - 'one size suits all' for education and that size should be entirely publicly-produced. It is not only a foolish view given its economic implications, it has dubious moral implications as well.

There is so much stupidity in the Age these days that I usually just ignore it. Deveny's piece was so foolish I felt I had to respond.

E. coli conservatives

Paul Krugman blames Milton Friedman for promulgating the foolish libertarian precept that nothing should be regulated - not even the quality of the foods we eat. Why regulate food quality asked Friedman - firms will have sufficient incentives based on self-interest not to poison their customers.

That is generally a false claim - the incentives may be inadequate. Food providers may be ignorant rather than maliciously and myopically greedy.

Failure to regulate means that consumers are dependent on the quality protection services of foreign governments which might be asking quite a lot.

Some recent food imports into the US from China have made a lot of people very sick. The gains-from-trade in this case have taken the form of profits to the vendors and food poisoning of the unfortunate customers.

The Washington Post, reviewing F.D.A. documents, found that last month the
agency detained shipments from China that included dried apples treated with
carcinogenic chemicals and seafood “coated with putrefying bacteria.

The same has occurred recently with toothpaste and pet food exports from China, some of which ended up in Australia.

Of course there should be careful monitoring and regulation of the food trade.

We should also carefully monitor the views of libertarian fanatics who see the free operation of markets as the answer to everything. They are not. Information problems, ignorance, externalities and public good issues provide a host of reasons for intervening in real economies.

Conservative ideologues who advance arguments for minimal government are a deluded lot who have done much damage to contemporary America. They are catching on in Australia.

Advertising booze to kids

Crikey.com today discusses industry self-regulation of restrictions on advertising alcohol to kids. They claim this self-regulation is a farce – a proposition I agree with.

‘You need look no further than this ad for Tooheys New to see why Australia has a nasty drinking problem. The ad features a street party with giant inflatable figures in happy bright colours and could easily be mistaken for a toy promotion - until the beer truck arrives'.

The industry’s self-regulatory Alcoholic Beverages Advertising Code – is a joke. A recent study published in Drug and Alcohol Review in January searched 93 magazines popular with youth, two-thirds of which contained at least one alcohol ad or promotion (including one featuring skateboards). 51% of these items appeared to contravene at least one section of the code.

Voluntary regulation won’t work if firms have an intrinsic motivation to not enforce it. The industry emphasises flogging their drugs to kids because sustained growth in the alcoholic drinks market requires growing numbers of youth develop a taste for booze. Across age groups Australians are not drinking more. Moreover, youth are being successfully targeted by industry so their growth objective is being achieved through sweet-tasting alcopops and so forth that help youngsters graduate from soft-drinks to alcohol.

There are good theoretical foundations and abundant evidence that marketing booze to kids is very effective – US research suggests a complete ban on advertising booze could reduce teenage drinking by 25% and binge drinking by 42%. Moreover, there is evidence alcohol causes specific brain damage in youth. A blanket ban on advertising to youth is justified and industry self-regulation will not work.

Governments must intervene. Real leadership from Mr Howard and Mr Rudd (or a cooperative agreement!) would see them both agree to take on the liquor industry to reduce hazardous levels of drinking among youth.

State governments act foolishly on climate change

The NSW Government’s deal with BlueScope Steel undermines Australia’s ability to come up with a carbon tax which significantly cuts into CO2 emissions. Premier Iemma’s deal exempts BlueScope from any future carbon tax for 25 years.

According to the Greens the Premier has been conned by the promise of creating 6000 jobs at Port Kembla. Moreover, other firms will use the BlueScope deal as a precedent to pick up similar favoured treatment.

BlueScope is the largest greenhouse gas emitter on the S&P/ASX100 sharemarket index. The scale of their non-greenhouse gas emissions can be seen at their website.

Indeed the AFR today (subscription requires) suggests the NSW Government will consider exempting some of the country’s largest firms from any emissions tax in exchange for obtaining major investments. As in the BlueScope case, the State Government will be left with a huge and growing liability for the tax because it will compensate the firm for the tax.

The tax would give BlueScope a comparative advantage if other firms in their industry were subject to a tax. Also giving out exemptions from a tax in advance reduces the future ability of governments to control CO2 emissions. It increases the scale of the tax that would need to be imposed on non-exempt firms to meet given emission targets. It is poor policy.

The claim by NSW Environment - Climate Change Minister Koperberg that firms need a lead time to prepare for a tax implies, if anything, an initial case for being moderate in taxing all firms not for exempting the privileged few – it is a case for gradually scaling up the size of the tax. The claim that a carbon tax is something unexpected is ludicrous since this tax has been discussed for over a decade. Koperberg originally seemed to be an attractive appointment but now seems to be a hypocrite.

The Victorian Government has apparently discussed similar offers with Alcoa for a proposed $600 million expansion of the Portland aluminium smelter. One can imagine in the future a competition between the states for awarding greenhouse gas emitters to their states – a competition where the winner’s prize would, as usual, be paid by the state’s taxpayers.

Greed drives disaster?

Matthew Denholm in The Australian this morning records claims, from trapped miners and others, that the Beaconsfield mining disaster was driven by the goldminer’s rush to repay its debts to Macquarie Bank. Recall that Allstate Explorations, in administration, owned 55% of the mine but, in a 2002 deal, Macquarie Bank bought the $77 million debt of Allstate for $300,000. Macquarie has already reaped more than $27 million from the mine.

I posted on the nature of the Macquarie deal a year ago.

I maintain my view that a book-length treatment of this whole saga should be written. Maybe, it could be used as a case study in our business schools – how a merchant bank adds social value. Maybe, too, other lessons can be learned.

Of course, I hope that chief value-adder Allan Moss doesn’t choke on his recent $33 million annual reward from Macquarie. I assume that the deal Macquarie did with Allstate illustrates the financial expertise necessary to gain such rewards.

A Tasmanian inquiry into the tragedy is reporting in a few weeks. Let's hope those responsible pay.

Accounting for groundwater use

According to Bill Heffernan about 40% of the inflow into the Murray-Darling Basin comes from groundwater. Therefore accounting for groundwater and stream flows separately will overstate the availability of water supplies in the MDB by 40%. Indeed, in some river valleys, up to 90% of the river comes from groundwater. If the groundwater is pumped out then, ignoring recharge, there just isn’t much net contribution to the river left. But, as caps have been placed on licences to use river water, farmers have increasingly turned to harvesting groundwater.

Heffernan’s 40% figure seems to be a stab in the dark based on experience in the southern part of the basin and Malcolm Turnbull rejects the figure as being far too high. Indeed, the issue of determining the degree of connectivity between groundwater and stream flow supplies is complex. However there does seem to be an issue of concern here.

According to the AFR today (subscription required) hydrologist Richard Evans states that ‘if (groundwater) extractions continue to grow, by 2050 the loss to the River Murray will be around 711 gigalitres’. Such a loss is equivalent to half the water that needs to be put back in the River Murray to restore its health.

Recognising the link between groundwater and stream flows (something Malcolm Turnbull emphasises with his advocacy of the need to better map groundwater supplies) suggests the Federal Government’s buyback of water rights might need to be significantly increased from its current level of $3 billion. Predictably (though irrationally) the National Party oppose any further buybacks of groundwater licences. They will continue to claim that increased water supplies can be achieved by improved efficiencies in returning water to the environment - with these efficiencies funded in the main through publicd handouts.

The National Water Commission have found unsustainable extractions of water in Western NSW while the problem in Victoria and Queensland is less clearly known.

It is worth noting that water diverted from river tributaries and stored in farm dams also significantly depletes overall water supplies in the MBD. Farmers can build levies and dams to capture water flows without restriction in western NSW. Moreover, there are hundreds of thousands of such dams which divert water from rivers. A major part of the PM’s water initiative is to better calibrate such water uses via metering schemes.

A descriptive picture of the use of groundwater in the Murray-Darling is here. Of course, the use of groundwater not only depletes stream flow supplies but also increases the salinity of such supplies through rising groundwater tables.

Meeting the Dalai Lama

The hypocritical Mr Rudd as well as Mr Howard should both meet with the Dalai Lama. The DL is the spiritual leader of the Tibetan people regardless of what the Chinese invaders of Tibet say. The DL is also a decent person who receives and deserves respect.

Howard has met the DL but Rudd has not despite criticising Alexander Downer in the past for not doing so. Rudd is fearful of cantankerous, Chinese paranoia in relation to the DL. They fear the respect the people of Tibet – and people around the world – feel for this remarkable man. Rudd is a cowardly hypocrite who only changed his views once Howard declared he would try to meet the DL.

I agree that in international affairs cost-benefit analysis should be applied. But the costs of meeting the DL do not only include the costs of offending China. They also include the cost of accepting the implications of the Chinese invasion of Tibet and, as an occupying force, of subsequent Chinese attempts to repopulate Tibet with Chinese and to destroy Tibetan culture.

The latter is also very costly in terms of establishing precedents. Moreover, the benefits from cordially greeting this leader include the respect that most Australians feel for the DL. For once I agree with Bob Brown – Rudd is out of touch with the views of most Australians.

Questions also need to be raised about Rudd's foreign policy reliability.

Restoration ecology & the 'field of dreams'

Several restoration ecologists I have met recently have referred to the ‘Field of Dreams’ hypothesis* in relation to biodiversity conservation.

This is the notion that you can rebuild or reestablish a natural ecosystem replanting trees and so on whence the natural system will reestablish itself as organisms naturally re-colonize leading to ‘normal’ community structure and biological function. The ecologists counter that habitats will not reestablish because crucial ingredients are omitted from the reestablished mix so that key features of an ecosystem are irreversibly lost.

We value many things for their authenticity or genuineness. Most of us prefer a real diamond to a zirconium imitation, we prefer the original of a great painting to even a masterly prepared print. The same ethic runs through biodiversity conservation – those of us with a green bent have a strong preference for original, pristine habitats such as old growth forests rather than restored habitats.

Three comments are in order:

(i) There are some claims that many environmental systems can reestablished themselves. For example, NewScientist this week comments on destroyed tropical forest landscapes. Many of these that have been destroyed by forestry can be expected to regenerate with most species returning.

(ii) It is difficult to define what we mean by 'authentic' or 'pristine'. Environmental history suggests such terms are ambiguous since almost all habitats have been affected by human activities and it is difficult to decide how far we should look back.

By studying changing attitudes to nature and nature conservation over history we gain a better ability to appreciate how attitudes in the future might be unstable and change. In addition, understanding the history of the environment helps us to focus on the crucial issue of what aspects of the current natural environment we might wish to conserve. For example:

“When we talk about conservation of the Australian environment what are we really talking about? Do we mean conserving the environment as it was in 1788 –an environment which was created as a result of interaction with aboriginal people –or do we mean conserving the environment as it develops in the absence of regular, routine, low intensity burning; or do we mean conserving it in the absence of the dingo; or in the absence of foxes or feral cats; or in the absence of the rabbit, the goat, the pig, the camel and the donkey; or do we mean conserving it without any human impact whatsoever –by excluding people altogether from national parks?” (Kohen (1997, p. 128))

(iii) Generally we should seek ‘fields of dreams’ but not be disappointed should we fail. The issue is not whether authenticity can be achieved but whether at least some positive conservation outcomes can be achieved. We should be ‘satisfisers’ if restorations are inevitably inauthentic. The gloom of writers such as Stephen Meyer ('The End of the Wild') should be rejected as pointless defeatism.

(*) The notion of a Field of Dreams comes from the interesting 1989 movie of the same title starring Kevin Costner which I hadn’t watched but which I viewed this evening. ‘If you build it he will come’ is the central myth which gives rise to the key restoration hypothesis.

Indigenous involvement in crime

Via Andrew Leigh I got a link to this useful data base on ATSI involvement in crime. It is old (2002, why?) but as up-to-date as anything else available. It is a grim picture.

A quarter of ATSI had been subject to violent attack in the past 12 months. There are high rates of imprisonment and arrest also. These are closely linked to drug and alcohol abuse.

On the characteristics of those incarcerated:

• In 2002, 7% of ATSI aged 15 years and over reported having been incarcerated in the 5 years prior to the survey (11% of males and 3% of females).
• ATSI who had been incarcerated were more likely than those who had not been incarcerated to be unemployed (32% compared with 12%).
• Among ATSI who had been incarcerated, 30% reported risky/high risk levels of long-term alcohol consumption in the 12 months prior to the survey, compared with 14% of those who had not been incarcerated.
• In non-remote areas, 56% of ATSI who had been incarcerated reported using an illicit substance in the 12 months prior to the survey compared with 21% of those who had not been incarcerated.

In my view Don Weatherburn and Noel Pearson are right. It is not only that drug abuse is a symptom of social disadvantage – it is a substantial source as well. Isolated local ATSI communities should be helped to enforce 'dry areas' with blanket illicit drug and alcohol bans but these are impractical measures in urban areas.

More drivers test for drugs than for alcohol

Testing for drink driving has helped slash the number of fatal accidents involving alcohol from 40% of the total to 19%. The road toll has fallen overall also. But in an interesting twist of 1600 drivers tested in NSW one in 46 was found to have consumed illicit drugs – amphetamines, ecstasy and cannabis are popular. Random breath testing suggests only one driver in 130 will be over the legal drinking limit.

While random breath testing for alcohol consumption is widely applied there are negligible levels of testing for illicit drugs in NSW though higher levels of testing in Victoria. Moreover, the claim is that consumption of cannabis and amphetamines causes the same impairment to driving skills as exceeding the 0.05 alcohol consumption standard. Some evidence is here.

Rigorously policing the consumption of alcohol consumption among drivers but not penalising the consumption of illicit drugs creates incentives for drivers to strategically choose to consume the latter. Current arrangements represent a misallocation of detection efforts.

Incidentally the swab test used to detect illicit drug consumption only targets the 3 illicit drugs mentioned (and we know that injecting heroin users often drive, see also here) and it does not test for consumption of legally-prescribed drugs that may also impact on driving ability.

Big business flogs addictive opiates

Almost all painkillers can be abused and all opiate-based pain killers can be addictive. And markets are, yes, wonderful institutions – try to prohibit use of something which kills and damages people and, yes, markets will deliver an alternative. Profits will be earned, junkies will get the dope they want and a beloved 'welfare triangle' of gains will result for society.

But the positive consumer outcomes here require truthfulness. In a remarkable judgment PurduePharma, the manufacturer of the legally prescribed painkiller OxyContin, has been filled US$600 million for lying about this drug's potential to be abused and to be addictive. Three executives have been fined $34.5 million for 'misbranding' the product. The lies included spreading the message than the drug was less addictive than morphine and that it would not generate euphoria.

While drugs such as heroin and morphine remain illegal large pharmaceutical producers provide a variety of substitute products (e.g. methadone, buprenorphine) which are just as addictive. These producers skillfully exploit the market for legal addictive painkillers. Drugs such as OxyContin can also be used as substitutes for illegal narcotics. Demand for all of these products is often demand over a lifetime – they tend to be used indefinitely rather than as means to mend an addiction, demand is highly price inelastic because of their addictive character and a ready supply of addicts is provided from the ranks of addicted illegal opiate users.

Methadone is produced by Eli Lilly while buprenorphine is produced by Reckitt and Coleman.

Many of these drugs are rationalized by their pharmaceutical promoters as harm-minimization alternatives to drugs such as heroin. Maybe they are better alternatives but certainly they are far from being safe. Moreover their commercial promoters should not be allowed to lie about their properties and to conceal their dangers.

Soma-style solutions are always second-best outcomes. Humans have better ways of dealing with life’s problems than being doped to the eyeballs.

And doctors who suggest that a solution to drug problems can involve substituting one addictive drug, that kills, for another, that also can kill, should be cooked down into decorticated canine preparations.

Open thread

I am taking a few days off to talk to travel and to people with interests in biodiversity, water and land use management in the Murray-Darling Basin. My main interest is in thinking about water and land management policies with joint biodiversity and agricultural benefits. Eventually I will post on these issues.

Please take advantage of this open thread to raise anything that interests you about the world.

I will be interested to read the new electoral opinion polls on Monday. My tip is a small preference shift to the Coalition - one that will disappoint Coalition supporters but one that will give some comfort to Coalition supporters.

Taking of comfort one’s heart must go out to Mr. Rudd this morning for the unfortunate remarks of his foreign affairs spokesman, Robert McClelland. He argues publicly that we should not get too close to the US given the emerging power of China. Nor should we sign a defense treaty with Japan or enter into joint talks with allies such as India for the same reason. China might be offended by the notion we are trying to encircle it.

This is one of the clowns Labor wants the Australian people to trust with foreign affairs and the security of our nation.

Even the pro-Labor Age told him to shut-up on this one – in the world of diplomacy it is often best to say nothing.

But I suppose even McClelland’s stupidity must have caused Rudd less heartache than his strategist Rod Cameron telling him that he must indeed get tough with the unrepresentative union bosses.

Smoking censorship in movies

We know why persistent smokers smoke – they are addicted to nicotine – but why do adolescents start smoking? If you are not a smoker the taste of a cigarette is something unpleasant and seemingly something to avoid rather than repeat. So why do it?

Adolescents smoke for psychosocial reasons and because they seek peer approval. Deglamorising smoking and helping adolescents to achieve the status they seek without smoking is an important task. Advertising is particularly effective in promoting youth smoking and we know that unpaid advertising, through smoking by role models in the media such as the movies, also exerts a powerful influence.

I am pleased therefore that the Motion Picture Association of America is moving to R-rate movies which glamorize smoking. This is not a nanny-state intervention but a move that denies no-one freedom of choice but which prevents false images from influencing youth. It won't change things that much since, surprisingly to me, most movies that feature smoking are R-rated for reasons of sex and violence content anyway.

Humphrey Bogart looked so sophisticated blowing those smoke rings in Casablanca but he died of cancer of the esophagus.

I'll vote for Labor if they replace Rudd with Bindi

One of the more interesting features of the emergence of Kevin Rudd onto the national political scene is the rise of his popularity given that he has articulated few policies. The substantive policy difference from the government was the IR policy where he was reasonably specific but got a hostile reaction - everything else was non-specific. Last night’s ‘budget speech reply’ made past Labor Party ‘small target’ strategies seem like action-packed agenda.

The only way I can understand Rudd’s popularity is to accept that the Howard Government is in fact very unpopular - I don't like this but maybe it is a fact. It is difficult for me to understand given the strength of the economy.

Tim Blair did a beautiful job of summarising Rudd’s clichés in his budget reply speech.

This was a good Friday afternoon laugh after a complicated general equilibrium seminar on economics. Providing this speech (in leaflet format) could help the Australian economy economise on limited supplies of mogadon.

Mr Rudd said:

'I am an optimist when it comes to our country’s future.
Tonight I want to outline our plan for our country’s future.
We are truly blessed to be Australians.
We live in a stable democracy, when many in the world do not.
There is nothing to hold us back as a nation and as a people – except a lack of long-term vision.
We are part of a world that is changing faster than ever before.
Big changes are coming.
Big challenges are waiting around the corner.
They will dramatically influence almost every aspect of our lives – some for the better, others for the worse.
And some will be upon us in the blink of an eye.
We can either seize the great opportunities that have been presented to us. Or we can squander them.
The truth is the sun is shining right now on Australia.
We must seize the day and get our house in order.
Productivity is the measure of how efficiently we produce goods and services.
The better trained we are, the greater our productivity.
The better our use of technology in the workplace, the greater our productivity.
The better our management in the workplace, the greater our productivity.
Productivity is a bit like getting the best performance out of your engine for the least amount of fuel.
Sometimes the wind changes direction and there can be lots of turbulence. And the only way to get home is with powerful engines that can do the hard yards in any conditions.
The time for action is now.
The earlier you invest in a child’s educational opportunities, the better the result.
Good for the child.
Good for the country.
For business it is a tough and highly competitive world out there.
Our intention is to enable Australian businesses to take on the world and win.
We want to unite Australia, not see it divided'.

Yawn. A commentator on Tim’s blog suggested the, yawn, speech had been written and delivered by, yawn, Bindi Irwin! She'd be a good Labor recruit - and possibly a better choice than young Kevvie as she would help restore the genfder balance.

Andrew Bolt summarised the, ‘yawn’, press reaction to young Kevvie's speech.

Electronic fags

Smokeless tobaacos (snuff, nicotine replacemrent therapies) impose much lower health costs than tobacco smoking. But inhalents, which simulate the effects of a cigarette, have not become popular - they supply the nicotine and mimic the behavioural addiction smokers acquire. Maybe this electronic cigarette will do the trick.

The market is working to create safer alternatives to the deadly habit of smoking cigarettes.

Hedonic impacts are more muted than we think

New Scientist last week published an attractive article by Kate Douglas and Dan Jones on how to make good decisions. I liked the whole article but one point stood out for me. As decision-makers we routinely overstate the impact of decision outcomes and life events, both good and bad. If we understand this bias we can make better decisions.

We believe that winning the lottery or making love to a Hollywood star will make us happier than it actually will. Conversely we believe life would be completely unbearable if we were to lose our jobs, lose the use of our legs, our sight and so on. Thus we imagine it might be catastrophic if we choose the wrong career, the wrong restaurant or the wrong model car. No it wouldn’t.

The New Scientist authors quote psychologist Daniel Gilbert* from Harvard:

"The hedonic consequences of most events are less intense and briefer than most
people imagine."

For example, most people are loss-averse. Psychologist Daniel Kahneman describes this as the belief that a loss will hurt more than a corresponding gain will please. He showed, for example, that most people are unwilling to accept a 50:50 bet unless the amount they could win is roughly twice the amount they might lose. So most people would only gamble $5 on the flip of a coin if they could win more than $10. They fear losses.

However a recent paper has shown that while loss aversion affects people's choices, when they did lose they found it much less painful than they had anticipated. Quoting the paper's abstract:

“Loss aversion occurs because people expect losses to have greater hedonic impact than gains of equal magnitude. In two studies, people predicted that losses in a gambling task would have greater hedonic impact than would gains of equal magnitude, but when people actually gambled, losses did not have as much of an emotional impact as they predicted. People overestimated the hedonic impact of losses because they underestimated their tendency to rationalize losses and overestimated their tendency to dwell on losses. The asymmetrical impact of losses and gains was thus more a property of affective forecasts than a property of affective experience.”

The authors put down the lack of impact of a gambling loss to our unsung psychological resilience and our ability to rationalise almost any situation. By failing to account for this we make poor affective forecasts.

If you are so afflicted and therefore a poor affective forecaster and need to take an important decision that bears on your well-being a safer strategy is to try to find someone who has made the same decision or choice, and see how they felt with the consequences rather than look inwards and imagine how a given outcome might make you feel. Whatever the future holds, it will probably hurt or please you less than you imagine. So cool it!

This reduces incentives to always try to play it safe. The worst might never happen and, if it does, you have more psychological resilience to cope that you believe.

*Daniel Gilbert has written a best-seller ‘Stumbling on Happiness’ and has an associated blog.

Light on the hill

A few days post-budget, Sportsbet payouts suggest the Coalition is more likely than Labor to win the forthcoming federal election. Other betting firms are not indicating support for the Coalition - it is close to an even money bet. But as as Tim Blair shows, they all suggest the budget has improved the Coalition's election chances.

A sting in the tail for university business faculties

A useful piece by Catherine Armitage in The Australian yesterday discussed the $1.7 billion extra being paid to universities from the budget on top of the $5 billion endowment fund for capital works. The capital works endowment fund is worth annually the interest cost foregone on this allocation or around $250-$300 million. The $1.7 billion figure comprises the more crucial increase in publicly-funded university benefits.

Of this increase $557 million will go in higher funding per student place over 4 years. This almost meets the AVCC's call for an increase of $500 million per student place over 3 years.

The biggest increases go to mathematics and statistics and clinical psychology ($2729), followed by allied health ($1889) and medicine, dentistry and veterinary science ($1081).

The losing discipline group is my area of business (accounting, administration, economics and commerce) which loses $1030 per place. It now receives $1674, equal to law. With levels of per capita support of only $1674 annually universities teaching these discipline areas have been partly privatised.

Education Minister Bishop is quoted as saving “the change reflected the higher salaries that graduates in those disciplines received over a lifetime. Universities were free to decide whether they would raise the fees for these disciplines”.

These per capita funding levels therefore seemed to be based on equity considerations with respect to future salaries. The theory is that if these future salaries are judged to be high then students can take on more HECS debt to fund their programs.

Economics units increase in cost by $1030 annually while the costs of possibly substitute areas decrease by up to $2729 annually. Assuming these changes are translated into offsetting moves in HECS fees – there is every indication they will - disciplines like economics, that have been doing well but not that well with their enrollments Australia-wide, face a hefty, relative price increase for their programs.

For particular universities such as my own which recruit among their students many with low family incomes this change can be expected to have significant effects on enrollments.

Moreover, the change seems to be equity not efficiency-driven. High salaries for graduates from the business areas reflect skill shortages that are not experienced in some of the other areas receiving much higher per capita funding. In some of these latter areas enrollments are currently declining. In economics it is now extremely difficult to recruit research ot teaching staff. In areas such as finance it is becoming almost impossible to recruit local postgraduate students. Employers from the public and private sectors are desperate for graduate students in economics and accounting.

The current per capita funding moves will thwart the market-driven processes that are acting to increase numbers of students studying in these areas. The moves will reduce the net economic benefits generated by universities for the community.

Business graduates generate over 3 times the economic benefits from an undergraduate degree than are generated by tertiary undergraduates overall. Moreover, student/staff ratios in business areas are often among the highest in a university.

I am not opposed to areas such as mathematics and statistics achieving increased funding and generally receiving subsidy support. I do think however that this support should be additional to pre-existing levels of support to other areas. This would alter relative prices between business and non-business degrees but by less than has occurred with the present policy.

The budget

This budget is a political budget that delivers deserved rewards to many Australians and to the Government that helped provide the economic conditions creating its possibility. It is a budget that reflects the tremendous economic strength of the Australian economy - low inflation, dramatically low unemployment, dramatically high rates of private investment, fiscal surpluses and an expectation of continued strong economic growth at around 3.74%.

The $31 billion tax cuts target the low and middle income end of the income tax scale and are intended to both provide tax relief and address labour supply-side issues. The education moves – incentives for apprenticeships, vouchers for remedial education and bonuses for schools which improve literacy as well as a $5 billion fund for funding capital works (with a planned further $5 billion in the next budget) in universities – will also eventually contribute to the supply side. Boosting childcare payments will have the same positive supply-side effects. It is a sensible orientation for an economy operating at close to full employment. Costello claims that the combination of tax cuts and child care support should boost the labour supply by 45,000 while the 8,800 increase in the immigration intake will increase immigrants to 152,000.

I think overall it is an outstandingly good budget which will reduce the chance of a risky change in government later this year. The Coalition’s position will steadily improve in the polls as a consequence of it but the Coalition still has a long way to go. The budget steals the ground from Mr Rudd’s productivity-based education program and offers a more reliable, experienced management team.

The budget is good politics and good sense too.

I wondered how government critics might respond to the budget. The normal ‘wasted chance’, ‘not enough’ and perhaps even ‘finally’ verdicts were expected although I found mainly muted criticism. John Quiggin described the budget as ‘clever’, an interesting word with both positive and pejorative connotations. But he says the budget lacks ‘big ideas’ (the $5 billion education fund?). John thinks some of the remaining huge surplus will be spent as the election campaign progresses, which is obviously true. Larvatus Prodeo seems to want to find something critical to say but has problems collecting the intelligence. Polemica gives grudging approval to the budget because it makes things hard for Labor and Tim Dunlop follows suit.

On the detail I was pleased with the attempt to partially automate the submission of income tax returns for PAYE salary earners. It is a task I dread each year – Andrew Leigh has championed such reforms and comments on this here.

Biodiversity adaptation policies to climate change without probability information

I have been thinking about policies for dealing with the biodiversity consequences of climate change when, as seems realistic, a policy-maker has poor (or non-existent) probability information.

One approach is to use some classical decision theory which eschews use of probability information.

Suppose one is thinking about a potential biodiversity conservation problem that may be associated with climate change and one seeks some anticipatory adaptation response to possibly limit the damage. There are three policy-relevant states of the world:

S1 = when a disaster occurs as a consequence of climate change which is successfully dealt with by policy,
S2 = when no disaster occurs
S3 = when a disaster occurs even though policy actions have been taken.

If the cost of the disaster is L and the cost of dealing with it is C then the minimax payoff matrix can be constructed for the two policy options (i) Take action, (ii) Don't take action. According to the minimax criterion of trying to eliminate the worst possible eventuality it is best in this situation to take no policy action because, with S3 a possible state of the world, this avoids the chance of incurring cost C and at the same time the loss L. The payoff matrix (where taking action and dealing with the problem successfully is given base utility 0) is illustrated.

Another possibility is to use the minimax regret policy criterion - now one seeks to minimise the regrets future generations will experience through the current generation not taking action. The minimax regret payoff matrix is illustrated above. This gives the more sensible result that one seeks to minimise the regret experienced one will take action to avoid the threat if L-C > C or if L > 2C.

Thus, sensibly, one must weigh up the climate induced losses against the cost of policy. In particular, take action if - as seems sensible - C is small relative to L. This will be the case if the policy choosen is a 'no regrets', 'all weather' policy that yields some return even if the climate change disaster does not occur or if it does occur when the policy proves useless in offsetting it.

For example, biodiversity conservation policies in the face of climate change that involve tree planting or limiting clearing will reduce salinity problems. This is an 'all-weather' policy that might be advanced to improve the resiliance of biodiversity conservation but which also has spin-off benefits to agriculture.

Moreover, one can intuit arguments for policy promptness by thinking about 'no regrets' policies in a 'real options' framework. Here there are traditionally two 'irreversibility' forces that drag a policymaker in opposite directions with respect to the timing and intensity of greenhouse gas adaptation policy. Sunk-cost effects make one want to delay action (and to reduce the intensity of initial actions when taken) because the policy-maker can learn about the future. Other irreversibilities (such as species extinctions) make the policy-maker want to bring actions forward (and increase the initial intensity of actions). The net effect of these opposing forces on the timing an intensity of policy is an indeterminate mess.

But 'no regrets' options reduce the sunk cost effects here - they reduce sunk costs because they offer a payoff irrespective of the state of the world that eventuates. Hence they lead to more weight being placed on those irreversibilities that involve a case for prompt action. This overturns the bias others have deduced for waiting and motivates a prompt response.

One extension would be to allow different types of 'all weather' policies. Another would be to explicitly model agricultural sector benefits B(C) as a spillover consequence of spending C in addrtessing climate change. Then, I think, the minimax case for not taking action is weakened to B(C) less than C while the minimax regret argument for taking policy action is strengthened to L less than 2C -B.

Further extensions would allow for biodiversity and protection against climate change to be joint stochastic outputs contingent on investment in adaptation. This might suggest something about the desired overall scale of the adaptation intervention. I'll pursue these arguments in future posts.

Copyright H. Clarke.

Euthanasia

I watched the Four Corners show Final Call last night. It concerned the euthanasia debate and the right of elderly citizens to suicide when they feel their lives are not worth living.

The elderly people interviewed impressed me with the care of their planned exits and with their resolve to achieve this final act of self-determination. They seemed highly intelligent people who had thought through the consequences for their families and for themselves of suicide. For the most part they wanted to die peacefully by taking a dose of Nembutal. They were not depressed, they were enjoying life now to the fullest and were not making their plans on the basis of short-term discomfit or pain or because of concerns they might be a burden on others.

The strength of their convictions was illustrated by their journeys to Mexico to secure illegal supplies of Nembutal and by their organization into groups to home-produce the drug. When the interviewer asked one chirpy 96 year old whether he was worried about being sent to jail for being involved in illegal activities his response was simple ‘they won’t be able to keep me there long’. It was a great reply.

The views of the medical profession and the ethicists on the show were unconvincing and shallow to me. They were essentially trying to impose their values (and in the case of the medical profession to secure a valuable market) on sensible, independent people who seem to have a perfect right to choose – it is their life.

Denying the right of such people to painlessly die forces citizens to unnecessarily experience pain and suffering. It is asserting the value of extending life as an absolute ideal irrespective of the views of the person whose life is being extended.

I am in favor of developing a pill, such as Nembutal, that provides a painless death to well-informed adults who seek to die. A concern is that the pill might come to be abused by adolescents and others who experience transitional emotional or other difficulties. Such deaths are unnecessary and impose enormous costs on others. I am absolutely not in favor of an open access regime to death pills for all. The difficulty of avoiding suicides by irrational youth or those needing urgent transitional care can be dealt with by prescribing the pill only to those people who are judged by a knowledgeable councilor to be well-informed and not acting irrationally on the basis of short-term problems.

It seems to me perfectly reasonable to suppose that elderly people make a rational judgment that their life is not worth living. It is their ‘Final Call’ and I cannot think of good reasons why their choice should not be respected. Of course those who choose to live their lives to the end even in the face of pain and suffering also deserve to have their views respected.

I am interested in the views of readers on this long-standing debate. I must acknowledge that I have not searched hard for counterarguments to the pro-euthanasia position and I would be interested in thinking about such arguments.

Political motive fallacies

An introductory book on logic I keep returning to is Jamie White’s, Crimes Against Logic. I have already discussed its demolition of the ‘everyone is entitled to their own opinion’ fallacy. Another fallacy he disposes of is the ‘Motives Fallacy’. This is a special case of the ad hominem circumstantial fallacy – it resonates with me because I see it everywhere. The fallacy involves believing that exposing the motives behind an expressed opinion shows that the opinion is false.

In assessing testimony in a court of law motives are important. Elsewhere they are less so and yet they pervasively affect our attitudes. As White notes: ‘The Motive Fallacy is so common in politics that serious policy debate is almost nonexistent.’

Some examples.

Opinion 1: George Bush was morally justified in invading Iraq.

Motive Fallacy: George Bush invaded Iraq because he wanted Iraqi oil; because he wanted to do the work of the Jews; because he wanted to finish the work of his father; because he is a bloodthirsty militarist.

Analysis: All these claims about George Bush’s motives for invading Iraq might be true but still he may have been morally justified in invading Iraq.

Opinion 2: The WorkChoices legislation will improve labour market outcomes for Australian workers.

Motive Fallacy: John Howard is ‘just’ trying to destroy the trade unions, John Howard introduced WorkChoices because he wanted to do the work of the BCA, John Howard hates low income workers. (The word ‘just’ here is seen by White as a giveaway for spotting the Motive Fallacy. He is ‘just’ trying to destroy the trade unions so his claim that WorkChoices will increase worker welfare must be false. But ‘just’ is only a word – it does not help us to refute anything).

Analysis: All of these claims about Howard may be true but WorkChoices may still improve the labour market outcomes of Australian workers.

The problem with falling prey to the Motives Fallacy in a political debate is that attention is turned away from the analysis of policy consequences. Policies just become part of a political game that seeks to establish who might win or lose. The specific effects of policies remain unanalyzed by the person who says ‘X is only just saying that because of Y’ where Y has nothing to do with the effects of the policy.

This is an exaggeration but not much of one. I recently commented on the blog response to recent IPCC reports that many commentators discussed the politics of these reports rather than their substance. I had to search hard for commentary on the latter.

Further examples of motive fallacies include.

• HC tells his pianist daughter who is practicing a piano sonata for a forthcoming competition. ‘You played that piece as well as I have ever heard it played’. Daughter: ‘You are just saying that to give me encouragement, so I am not playing well’.
• Gillard attacks WorkChoices as unfair to families because she wants to bolster the trade union movement (implied self-criticism here!).
• Climate change denialist views should be ignored because the denialists are paid by big oil.

These last fallacy here is less straightforward if the premise is true. I am not sure that these statements cannot be construed as testimony so a non-expert evaluator might be rationally interested in motives.

Insulting Julia Gillard

The statements by Liberal Party MP Ken Smith criticizing Julia Gillard’s hairstyle and jewelry and linking these criticisms to her understanding of industrial relations – the substance is that she is more style than substance – is ad hominem abuse. They come shortly after Liberal MP Bill Heffernan’s description of Gillard as ‘deliberately barren’ and hence unsuitable for high political office – also ad hominem abuse.

Julia Gillard’s hairstyle and her jewelry have nothing to so with her understanding of IR issues. Nor does her decision, if it was a decision, not to have children have any relevance in determining her fitness for office. Note it is irrelevant whether these claims are correct or not. I point this out because a number of radio commentators raised the issue of whether Gillard chose not to have children or not. The answer to this question cannot conceivably bolster the strength of Heffernan’s claim since, while it might help establish the truth or falsioity of the premise, the premise itself is irrelevant to the issue at hand.

These comments by these Liberal politicians seem to have an ugly anti-female aspect to them. They are also offensive - most people are at least somewhat concerned about their appearance and decisions to have (or not have) children are intensely personal issues that involve obvious sensitivities. The remarks clearly can cause offense even if they are used in an illogical way.

I liked the analysis of these issues at a new blog I came across The Thinker’s Podium - on Ken Smith here and on Heffernan here. The anonymous contributor, Bruce, also has a nice general piece on the declining art of ad hominem attacks.

Of course Labor politicians have long loved the art of ad hominem attacks. The Paul Keating insults page documents the exploits of one noted contributor. Recall:

• ‘The little desiccated coconut is under pressure and he is attacking anything he can get his hands on’
• ‘What we have got is a dead carcass, swinging in the breeze, but nobody will cut it down to replace him.’
• ‘...the brain-damaged Leader of the Opposition...’
• ‘I am not like the Leader of the Opposition. I did not slither out of the Cabinet room like a mangy maggot...’

The intensity and inventiveness of some of Keating’s remarks made me laugh and Tim Blair points out that Labor often attempts to damage John Howard with compliments. But they are still irrational attacks that prove nothing beyond Keating's dislike for his target.

They remain a diversion from the political debate.

Qantas fiasco deepens

The on-again, off-again $11 billion bid for Qantas is in limbo. The time deadline for 50% acceptances for the offer had expired Friday but a late acceptance, after the deadline, took the tally to 50.06%. If the next stage of the takeover is allowed to proceed we will have developed a whole new meaning to the term bid ‘deadline’.

The word around town is that, of the $5-45 offer, about $4-00 will be transferred back to the private equity acquirer Airline Partners Australia (APA) over the next couple of years. This will transfer most of the debt APA has incurred in acquirinng Qantas back onto a now highly-geared Qantas. This will leave an equity share in Qantas valued at about $1-50 but giving control over a giant highly-geared airline that will pay almost no tax.

I hope the takeover bid fails but, irrespective of what happen, CEO Geoff Dixon is a failed executive who should be given his marching orders. Board Chairman Margaret Jackson should also disappear. Given the huge salaries this pair has gained it would be unreasonable to see their management failures rewarded further. If APA gains control they should also appreciate the ineptitude of the pair that have done so much to drive the case supporting this buyout.

Qantas will be left as a debt-ridden shell with a chance of earning a huge speculative profit for its private equity purchasers not because of any special knowledge they bring, but because Qantas will avoid paying much tax. And Geoff Dixon sees this arrangement as an efficiency-based, debt-driven way of driving through the reforms in Qantas that he wanted to introduce but could not. Why couldn't he? Why the need to sell out the interests of current shareholders to APA so it can make the structural changes to Qantas that have long been needed?

It is a consequence of the equity premium puzzle that pure buyouts of equity by debt of this type can work. And shareholders will only fall for this pathetic line if they sell out for a short-term gain leaving the chance of a really big gain – on the basis of inexpensive amounts staked – to the big end of town to groups such as Macquarie Bank.

One possibility if APA does gain control is to totally deregulate the Australian domestic and international airline markets. While restrictive Air Service Agreements made dubious sense in terms of providing shareholder value, they make zero sense if the stakeholder is a private equity speculator seeking a quick buck on the basis of poorly-advised current shareholders..

In my view deregulation is essential. No mercy! Let whoever runs Qantas face genuine competition and let Aussie customers and tourism suppliers everywhere reap the gains.

Update: The deal seems to have fallen through - the Takeover Panel rejected requests for a deadline extension - though their remains talk of a further bid. The AFR (today, subscription required) guess that the deal collapse was initiated by one ofv the arbitrageurs (Samuel Heyman) holding out in the hope of a sweeter price at the next stage of the bid approval process. SH's hope was to get a premium as the 'holdout' guy. Qantas shares were suspended from trading this morning so we don't know the losses.

Two older Australian shiraz wines

I have enjoyed two good older Shiraz wines over the past few days. By coincidence both were from the 1993 vintage. In my budget-constrained middle age (school fees, viagra bills etc) I am constrained to drink off my vineous wealth so there might be a few more of these types of posts over the next year or so.

The Craiglee Estate vineyard was established at Sunbury - 15 minutes by car north of what is now Tullarmarine Airport, Melbourne - in 1863. Craiglee produced an outstanding 1872 shiraz (no, the date is not a misprint!) which drank well after a century. It was one of the great early wines that Australia produced and an early indication that shiraz could be a centre-stage wine. The vineyard was ripped up and returned to dairy farming in 1928 but nearly 50 years later, in 1976, Patrick Carmody took over the old winery and replanted it with Shiraz, Cabernet Sauvignon and Chardonnay.

Sunbury itself can be a fairly bleak and cold place – it doesn’t have much rainfall - but, like Victoria’s western districts, it produces a medium-bodied, though peppery, shiraz wine that is, again, one of the great wines of Australia. Incidentally the 1872 apparently had the same peppery characteristics – terroir rules.

In the early nineties I was smart enough to buy a dozen of the 1993 shiraz. A glorious wine after 14 years, that probably won’t improve much, but which will remain sound drinking for another decade. Color slightly faded purple without browning. This wine is pure sophistication and elegance with intense peppery flavors plus sweetness. A very un-Australian wine that does not overpower you - it has French sophistication. I couldn’t get a price on it – I imagine it would be difficult to find at auction but would be around $120.

The current vintages of this wine retail at around $50. They are good immediate drinking and, as noted, aged well despite their early approachability. Great wine and far better value than the ridiculously priced Penfolds and Hensche flagship wines.

At the other end of the spectrum is a purely commercial Wynns Shiraz 1993. This is the sort of reliable moderately priced wine, for everyday drinking, that many of us purchase or consume at a restaurant when the wine list is nothing special. The only twist here is that I cellared.

At around $12 for the current vintage I have always thought Wynns shiraz was a little above its rather humble stature. But this aged beauty convinces me that, like its legendary black-label cabernet brother, this wine is worth cellaring. It does come from the Coonawarra and critics, like James Halliday, have always pointed to the excellent cellaring potential of the shiraz wines from there.

Initially the Wynns seemed washed out and almost insipid although it had some quaint gamey characteristics that kept you entertained. After an hour or so the wine blossomed into an aged beauty. Intense very sweet fruit only slightly faded with intense sweet again, slightly feral, perfume. Color – browning just a little but still very strong and vibrant purple. Is there another bottle? The wine would probably last another 5-6 years but won’t improve. Why should it – an outstanding drop right now!

It is often worthwhile shoving a couple of the Wynns type wine for a decade or so to see what happens. To be reasonable cellaring prospects they must have a bit of acidity but they do not have to have overly aggressive tannins. You may uncover a gem as I did in this case. I couldn't get a price on the Wynns but a pure guess is that it would be about $30 at auction.

NRT promotion can increase incentives to smoke

While I retain my view that smokeless tobacco and nicotine replacement therapies (NRT) are a more healthy way for a nicotine addict to access their nicotine, a crucial difficulty in promoting such products is that they may reduce disincentives to smoke. Thus if the constraints on initiating a smoking habit are the anticipated long-term health costs that stem from an anticipated addiction to nicotine that is costly to reverse, any substance, such as NRT, which reduces the cost of quitting, might increase the incentive to initiate use.

In the past I have made much the same point in relation to drugs such as heroin. Successful low cost treatments for heroin addiction might encourage use which then worsens aggregate public health.

A recent NBER paper by Henry Saffer, Terry Wakefield and Yvonne McElrath, The Effect of Nicotine Replacement Therapy Advertising on Youth Smoking, abstracts its main findings as follows:

NRT advertising could decrease smoking by informing smokers that the product can make quitting easier and thus inducing more smokers to try and quit. However, a moral hazard is created because NRT advertising increases the expectation that cessation is relatively easy. NRT advertising could thus induce youth to smoke, to smoke more and/or to delay quit attempts. Data from Nielsen Media Research (Nielsen) and the Monitoring the Future Surveys (MTF) have been used in the empirical work. The Nielsen data are matched to the MTF data by month, year and market. The availability of lagged advertising data allow for calculation of an advertising stock variable. The Nielsen data also measure exposure to national advertising on a local level which allows for use of national advertising data. An exogenous shock allows for bypassing problems of endogeneity. The results indicate that NRT advertising has no effect on participation but increases smoking by youth who do smoke. The elasticity of smoking with respect to NRT advertising is about .10 and the elasticity of smoking with respect to price is about -1.03. Since average youth smoking is about 5.77 cigarettes per day, an increase of 10 percent in NRT advertising would increase this average to about 5.82 cigarettes per day. It is also estimated that a ban on NRT advertising would be equivalent to a 10 percent increase in cigarette prices.

This is a very interesting argument and suggests the need for caution in endorsing NRT and smokeless tobacco products. Moreover it is difficult to see how the adverse incentive effects discussed here can be negated because their effects operate through the consequences of forward looking behaviour on new smokers. I welcome comments from readers on this one.

Thanks to David Jeffery from Oikos for pointing out the SMH article which led me to the Saffer et al. reference.

Open thread

I haven’t tried an open thread for quite a while so I’d thought that I try one again. I am taking a break for a few days as I travel and also try to clear out a backlog of work.

To be honest I am also reading a couple of wonderful books that I want to finish. Les Carlyon's The Great War. Just great writing and very emotionally involving. Also reading Andrew Roberts, A History of the English-Speaking Peoples Since 1900. This is ideologically-driven but a welcome change from the usual anti-American, anti-British histories. George Bush liked it, JWH liked it and so do I. I'll post on both these books eventually.

A couple of points Lee pointed out to me in this morning’s press:

• Dr. Alex Wodak argues that John Howard is to blame for the emerging HIV epidemic in Asia because even though he utilises harm-minimisation policies in Australia he says that he doesn’t. Can I hear a fantail cuckoo calling in my backyard? Wodak to the rescue. Poor JWH!
• Drinkers who consume more than 14 standard drinks per week will have brains 1.6% smaller. So that's my problem.

I’ll comment on the situation at La Trobe University – and its purchase of the asbestos-ridden Argus Building - in a future post. Actually, no, I probably won’t - I wouldn't want to disturb Mr. Costello's beautiful unemployment numbers.

My blog is getting more visitors than ever before – numbers have trebled since last December. It would be great if some of you who lurk in the background would introduce yourself – pseudonyms are fine. Of course if you post repeatedly on this blog and wish to use a pseudonym please be consistent and use the same pseudonym.

As usual unrestrained praise for my work in maintaining this blog is welcome as is polite criticism and suggestions for future blog postings.

Victorian State budget

I didn’t have strong views on the Victorian State Budget but would be interested to hear those of readers. The $3.6 billion expenditure on infrastructure (schools, hospitals, transport) is welcome as is the decision to provide more public housing and the cuts to payroll tax, WorkCover premiums and land tax – the latter a consequence of the property boom. These are achievable because, despite the drought and bushfires, there is a strong, growing Victorian economy – doing much better than NSW.

The expected budget surplus will be $300-$400 million over each of the next few years.

Some in the press and the Liberal Party described the budget as ‘unexciting’ – that has never seemed much of a criticism to me. Spending only $280 million on water projects – and deferring decisions on new water supply technologies until 2008 has come under criticism but rushing to judgement on these important issues might not be sensible in the midst of a drought.

Dirty & unpopular views on Iraq

John Quiggin argues that with respect to the war in Iraq ‘Only after the governments of the Coalition countries admit that military power has failed, and that nothing good will be achieved by persevering can we make a serious assessment of what can be salvaged from this disaster.’ He buttresses his view by saying that lots of others share it. I assume John's post is linked to current events in the US - President Bush has vetoed a bill forcing US troops to withdraw.

I assume John means that things will become clearer if, in particular, the US declares (i) it has lost and (ii) that it pre-announces a date for withdrawal. Things certainly will become clearer for the US, at least in the short-term – their troops will go home.

I fail however to see how withdrawal will improve the clarity or quality of the situation in Iraq. Certainly it will give those factions seeking the overthrow of the Iraq Government a predetermined window of opportunity in which to act. Iraq might become a base for international terrorism, a client state of Iran or it might split ascender into regions that presumably would fight each other. In some of these situations a ‘serious assessment’ of what can be salvaged might emerge – in other states of the world the situation, even if it does become clearer, will become more desperate.

John is horrified by the scale of the killing in Iraq and by the magnitude of the consequent refugee problem. So am I and indeed who isn’t? But the question is how to improve things – not necessarily how to walk away from a situation which has soured and which has become intensely difficult. Most of the current killing is a product of insurgency actions with Muslim killing Muslim – the real issue is whether this scale of killing will increase or decrease if the US withdraws. Will the various groups of fanatics suddenly learn to love each other when the Americans leave?

One possibility is that the pre-announced withdrawal outcome might well prove to be a catastrophe with massive killings engineered by elements in the insurgency. That is the claimed viewpoint of the current Australian, British and American Governments. Certainly the defeat of the Coalition in Iraq would signal a key victory to the media-addressed killings of civilian innocents by terrorists. These killings reflect a short-term tactical initiative by the terrorists that might come to plague the US and the rest of the civilised world for decades.

Am I sure? No I am not and I don’t believe John Quiggin is either. But if John calls for an end to the war he is seeking peace and I guess I will, again, be portrayed as a warmonger. This is a dirty debate that one hesitates to enter into. But I’ll learn to live with the risk of vilification and restate my view that a pre-announced Coalition withdrawal from Iraq is probably unwise.

Rudd distances himself from Gillard

Julia Gillard’s threat to bash business leaders who dare to criticize her IR policy package has already come back to haunt her. A Labor frontbencher has accused her of launching a jihad on business.

The Australian Mines and Metals Association have argued that Labor’s moves will put $60 billion in projects at risk. Gillard has backed down and made the stupid excuse that her remarks represent a ‘botched attempt to use a sports analogy, not a threat to business leaders’. That’s not true – her meaning to business leaders was clear – dare to criticise our policy and we will hammer you if we gain office. Whatever Gillard is, she is not a complete fool.

Rudd realises he has a problem with his Deputy – he has signaled he will play a more forceful role on IR policy in the weeks to come.

Gillard is an agent of the trade union bullies who seek to re-establish their power base in this country. According to her it is fine for unions to spend tens of millions funding their own brand of propaganda but if business does so it should watch out. Her claims are all about trade union power not ‘fairness’ and supporting the union hacks who fund her party. Left-wing unionist Dean Mighell at the National Conference gloated about how much fun he would experience with Labor’s new IR laws would enable the unions by coercing employers into signing pattern agreements that ignore the needs of individual firms. This is ‘old Labor’ talking and it reflects the reality of this IR program.

If Rudd and Gillard want ‘balance’ in workforce arrangements they need to consult with business as well as the unions. That they have not done this has led to inept proposals which show what is really driving their IR agenda.

Mstislav Rostropovich 1927-2007 RIP

Considered to be one of the greatest cellists of the twentieth century as well as stern critic of the Soviet system. Farewell Maestro.

Try this (really something, even on my lousy computer sound system!) and if that wets your appetite look here.

Everything in the known universe tagged Rostropovich.

Labor's new star recruit

LABOR'S latest star recruit - its secret weapon in Adelaide - Nicole Cornes, is expert on:

• Men - 'they only want sex'. Jeez Nicole, that's 1 out of 6!
• Yummy mummies - 'too much pressure to be skinny'.
• Ageing paramours - 'greying sideburns can make older men hot property'.
• Tax cuts - 'I will have to take a raincheck on that one'.
• Climate change - 'I don't know all the answers about climate change but I know that we have to do something about it'.
• Pressing electoral issues - 'When I get out to the people and talk to them I'll have a much better idea'.

Nicole was not a member of the ALP or a union and confessed she has voted Liberal in the past so I guess she's not all bad. Mr Rudd has said. 'Every now and then you've got to make creative choices in terms of talent available.'

Think Maxine McKew and Mary Delahunty!

Julia Gillard’s threats over IR won’t conceal policy stupidity

Are the wheels finally falling off Labor’s dream run? Its share of the primary vote has fallen from 52% on March 16-16 to 48% on April 27-29. This vote would still give Labor a crushing win but it was taken before the Labor Party National Conference and before the flare-up over Labor’s IR policies.

Labor’s IR policies would restore a raft of minimum conditions to non-award workers, would turn the tide back to collective bargaining, would legitimise ‘pattern agreements’ across industries, would abolish AWAs replacing them with 'common law' contracts that must comply with awards and legislated conditions and so on.

Women will be entitled to seek 2 years unpaid leave while they raise children – Rudd presumably believes this will have no effect on the decision of firms to offer young women jobs. This is economic sabotage of Australia’s successful attempt to drive down its unemployment rate – at a time where workforce participation of young women is at an all time high.

Rudd has caved in to trade union power and attempted to dress up his IR stance as a ‘family friendly’ set of policies. The unions want a more centralised, less flexible workplace where unions retain a key role. It is a total cave in to the trade unions and a backward step for Australia that would increase unemployment and reduce productivity.

The reaction to Labor's IR policies in the business community has been overwhelmingly negative. Even the Premier of Western Australia opposes the move to abolish AWA’s. Sir Rod Ellington, the businessman Labor recruited to display its ‘business friendly’ new attitude, has refused to endorse Labor’s IR proposals.

Julia Gillard’s response to business: ‘I'd be concerned if the business community got itself into the political fray,’ she said.

‘I'd be concerned if they became, if you like, propagandists for Mr Howard. I don't think that is a wise position for Australian business to put itself in.’

Ms Gillard said that during an election year, the political contest was a ‘pretty hard, fast place to be’.

‘It's a contact sport, if you like, with a lot of injury,’ she said. ‘I don't think it's a wise place for Australian business to be out on the field in the fray getting those injuries on the way through.'

Gillard is the abusive mother threatening her recalcitrant child - ‘shut up or you will cop it worse’.

Mr Rudd has claimed that, after transitional arrangements to be devised are worked out, abolishing AWA’s will leave no worker worse off. All problems with our IR policies will be eliminated by future as yet unspecified actions.

Small businessman Fred McMurray summed up the costs of abolishing AWAs as follows:

‘Banning AWAs will cause chaos, and god knows what will happen if the construction watchdog is abolished. That really will be a return to the bad old days of the unions running amok, as they did when Geoff Gallop first won office.’

‘The thing is, the award just doesn't really enter into it any more. It's different horses for different courses. Workers want conditions and pay that suit them. We have plumbers in the east Kimberley who negotiate pay and conditions that are, and should be, much different from others working on construction projects in the cities’.

‘We must compensate people properly for doing such work in such areas. If we don't pay them well above award rates, we can't attract them in the first place'.

Normally reticent big business groups such as BHP-Billiton and Rio Tinto are scathing in their assessment of the IR policies:

‘As it stands, the ALP's proposed IR policy will not only abolish AWAs, it will also effectively get rid of the mining industry's ability to capitalise on the current huge demand for minerals,’ BHP said yesterday.

The comments place BHP, traditionally a moderate on industrial relations issues, at the forefront of a growing chorus of business opposition to Labor's proposed industrial law changes.

Last month Rio Tinto's Australian head Charlie Lenegan said Labor reforms would turn the industrial relations reform clock back ‘15 years-plus’.

‘We have some concerns about the ALP's industrial relations policy and the potential for it to adversely affect the continued expansion of the minerals industry. If the ALP is committed to abolishing Australian Workplace Agreements, it is critical that it comes up with an industrial relations system that promotes, rather than stymies, Australia's minerals industry.’

‘…employees and employers also have a right to choose which industrial relations instrument best suits their needs. We do not believe that mandating third-party involvement in bargaining, or mandating collective bargaining itself, is appropriate. This is a retrograde step that will only contribute to inflexibility for employers and employees.’

‘There's no one-size-fits-all approach,’ a BHP spokesperson said.

BHP is sensitive to the individual contracts issue since it lost out heavily to Rio Tinto when Rio used individual contracts rather than collective bargaining to drive much greater productivity gains.

Finally, private job agencies state that that it is the unemployed who will be hurt worst if WorkChoices is abolished. Firms are more willing to take workers on if they know they can sack them without fuss if things don’t work out or demand changes.

‘Unfair dismissal laws did really scare a lot of small business employers.’

Today’s Australian Financial Review (subscriber only) is about as scathing as I have ever seen it on the Rudd-Gillard IR package. The AFR editorial describes it as ‘economic idiocy’ and a ‘capitulation to the union leaders worse than Mr Latham’s’. It describes their chatter about restoring ‘balance’ and a ‘fair go’ as ‘Lathamite doubletalk’. Already unions have confirmed that the major Australian Banks would be forced to reach new collective bargaining agreements with the Financial Sector Union.

‘The real reason for Labor’s 20th century workplace policies is its deep psychological need to keep the unions on side, and the belief that demonising employers will yield electoral advantage. Regardless of whether this is good politics, it is appalling economics and a blow to Labor’s credibility on the No.1 election issue’.

Labor's IR policies are scary generally - particularly if you know can appreciate the reality of what it is to be employed.