The Wild West ... the outback ... The new world of the 1800s was a time of true liberty. People stood on their own merits. They won or they lost and they reaped the rewards or swallowed the consequences. There were no cubicle dwelling civil servants hell bent on saving you from yourself. No planning permits no licenses no permissions no heritage overlay no bylaw no regulators no inspectors. And guess what ... it worked

This site is set up to provide a forum for a number of like minded professional economists to post and comment on contemporary issues. There are a number of regular contributors whose bios are made available on the site. Most if not all of these contributors use a pseudonym for the simple reason that they are practicing economists who must take into consideration the commercial implications of posting their opinions.

While some may feel that this is a bit of a gutless approach it is the only way we can ensure free and open discussion without jeopardising our paycheques.

Monday, August 31, 2009

Deteriorating current account balance not a positive sign (Lone Ranger)

The latest Balance of Payments numbers are out from the ABS and they do not tell a pretty story. The current account balance on goods and services (exports less imports) has deteriorated markedly in recent months. In of itself this is hardly a surprise, as Australia has generally had a services and goods trade deficit for decades.

Of most interest is the balance of trade for goods, which deteriorated from surpluses in the Dec '08 quarter ($3.2 billion) and Mar '09 quarter ($4 billion) to a deficit in the Jun '09 quarter (-$633 million). This is a concern because while our imports have decreased slightly from $64 billion in the Dec '08 quarter to $48 billion in the Jun '09 quarter, the value of goods exports have collapsed from $67 billion to $47 billion in the same period. While volumes have not much changed (yet), export prices for coal and minerals are way down, and this at a time where China has been stockpiling and, if anything, fuelling demand.

This begs the question - is Australia likely to have a "recovery" at a time of falling commodity prices and, potentially, export volumes if demand remains weak? These statistics are not those of an economy poised for growth and we should be alarmed about what is says about the state of our key export markets. The fun may be just beginning.

Tuesday, August 25, 2009

More Ramirez (Roy Rodgers)

Monday, August 24, 2009

Are environmentalists retarded OR the unsustainable abuse of Mr Venn's diagrams (Roy Rodgers)

This blog goes out there for all those that have had to endure the pain of sifting through endless glossy sustainability reports that are stuffed full of meaningless graphics engineered by overpaid and under intelligent environmental consultants who are yet to realize that the phrase “visual learning” is simply code for stupid.

So what’s the beef … well, apart from everything else, I'm sick of the abuse these guys doll out to venn diagrams.

I can't begin to count the number of times I’ve decided to actually check out a graphic rather than turn the page only to find myself immersed in a five minute internal discussion regarding whether I somehow lack the cognitive ability to ‘get it’ or whether the enviro retard that wrote the report doesn’t actually know what a venn diagram is. To date most, if not all, of these discussions conclude in my favor.

I am not going to apologies for the use of the word retard. If you don’t get what a venn diagram is, then you are most definitely intellectually retarded. Venn diagrams are not difficult to understand. They are basically a graphical representation of sets (conventionally these sets are portrayed as circles, but can also be ellipses, squares or just blobs). Where sets overlap it indicates that some members of a set are also members of another set. Where a set is wholly contained within another set it indicates that the set is a subset of the greater set. NOT ROCKET SCIENCE.

Nor can these doyens of stupidity claim unfamiliarity. Venn diagrams are not new. They’ve been around for a few hundred years and their recorded use goes back to the 1600s, predating even Mr Venn himself.

Leibniz used them in the 1600s. This is no accident as Leibniz is one of the founders of propositional calculus (logic) and Venn diagrams are reported to have begun life as a analytical tool used to assist in the understanding of syllogistic arguments — all cats are black, kev is a cat, kev is black. The diagrams allow for the representation of universal and particular contentions (all and some).

So they are definitely not new. No excuses there.

The following website provides ample evidence of the abuse sustainability consultants inflict on venn diagrams (along with other diagrammatic tools). It’s worth a look, just for laughs. You should note that all the diagrams posted on the page are considered to be just grouse!

Let's take a couple of examples.

Example 1.

At first glance it appears pretty reasonable. I think we can safely say that families, schools and neighborhoods are all subsets of the broader economy.

But this is as far as reasonableness goes. From here on in things start to get real murky. For example:

  • the diagram indicates that only a proportion of the family is actually counted as a part of the neighborhood. Now assuming that family is normal, it is highly unlikely that it will be dispersed geographically across multiple neighborhoods. And while it would appear that all the children are actually participants in the neighborhood, the majority of the remaining adults appear to not be. So where are they? The only plausible explanation is that the majority of adults have been excluded from the neighborhood because they have been either chained up in the basement or locked up in the attic. Given that these non neighborhood family participants are adult we can also assume that they are being separated from their community on a voluntary basis (gimps perhaps).

  • a significant number of adult family members attend school. The word school generally refers to primary or secondary school; if the diagram were pertaining to tertiary institutions the set should be labelled education. This indicates one of two things a). the family includes a disproportionately high number of adults who are also teachers b). the family includes a large number of intellectually challenged individuals. Given the suspicion regarding the prevalence of gimps we most likely assume b).

  • The next notable observation is that the school is also not a subset of the neighborhood. This means that the school most likely contains members from multiple neighborhoods from which we can deduce that it must be a private school. Public schools are organized on a neighborhood basis therefore if the school were public we would expect to see it portrayed as a subset of the neighborhood. This supports the contention that the adults who are members of both the family and the school sets must be intellectually challenged. If they were teachers they would not be able to afford the tuition for a private school.

So what does the above Venn diagram tell us? Well I can only speak for myself and I must admit I don’t think the author was trying to provide a diagrammatic representation of a community of affluent but stupid gimps.

Example 2.

God save us ….

Example 3

Please shoot me…. No wait …. Just shoot the retard.

This is where my headache really starts to kick in. Economics is a science not a thing or collection of things, it is a field of study that looks at how participants (not even necessarily humans) allocate resources. So again claiming you can generate a set that encapsulates economics is fallacious. It's akin to having a set labelled physics or biology.

Granted, the term economy is often used to refer to the total system of things and how they interact, but the economy and economics are two different things, in just the same way that the physical world and physics are two different things.

Further confusion is generated by the contention that the environment, social and economic are separate and identifiable sets. After 9 years of formal economic training at both the undergrad and post grad levels I personally don't get it. How can something have a social or environmental benefit or cost and not be included in an economic framework. The retards seem to have missed the point that economics is universal.

The big concern is who exactly is paying for this rubbish and secondly if it's you ... I suggest your enviro retard consultants, by displaying such a base misunderstanding of how to use a Venn diagram, undermine any confidence you could possibly have in any advice they give based on quantitative evidence ... after all venn diagrams are not the hardest things to master.

Thursday, August 13, 2009

Starr quote (Lone Ranger)

I have just come across an alleged quote by Ringo Starr which I thought more or less summed up everything I have been trying to articulate:

"Everything government touches turns to crap".

There really is something in this for all of us.

A further comment on arts degrees (Lone Ranger)

As the holder of a Master of Arts degree, I would love to be able to refute Roy’s assessment of the modern Bachelor of Arts – but alas, I cannot fault his thinking.

Truthfully, far too many BAs in our time are complete drivel – gender, sexuality and diversity studies or white deconstructionism or media studies or peace studies or sociology and politics or whatever other rubbish the no-hopers who staff most arts faculties can invent. This is a shame as “humanities” as traditionally conceived really did look at the great questions of life – theology, history, rhetoric – and objectively tried to further the knowledge and moral stature of humanity. “Gender, sexuality and diversity studies” ain’t exactly up there with Gibbons or Aberlard. Indeed, this sort of study (aka “waste of space”) is entirely ideological, taught by losers who could never get a non-publicly funded job other than perhaps cleaning toilets, and who generally despise the following (in no particular order): the free market, capitalism, talent of any sort, freedom generally, the family, religion (especially Christianity or Judaism), people with a different point of view, national pride, patriotism, cheap consumer goods for the masses, anyone who can add up, tradition and the profit motive.

My own memories as an under-grad in the commerce faculty included the arrow pointing to a toilet paper dispenser in the men’s with the caption saying “arts degree”. Is it any wonder?

Tuesday, August 11, 2009

The arts graduates have taken over (Roy Rodgers)

My apologies to all those with arts degrees. I'm sure you're living meaningful lives, contributing to society, adding value and all the rest of it.

Its just that at uni you were quite unmistakeably the butt of our jokes over in the economics and commerce faculties. I've actually forgotten how the jokes themselves went, but I remember the punch line, which was always the same and went something like this ... whats an arts degree good for ... wiping your arse. Boom Boom.

Well how wrong was I. It looks like an arts degree qualifies you for much more. In fact it appears to be a prerequisite for entry into Australia's political elite. Not just labour but liberal as well. The attached tables outline the educational qualifications of both our current cabinet and our current shadow ministry.

Over 50% of ministers and shadow ministers hold BAs including both big kev and mighty mal. Big kev holds a BA with majors in chinese language and chinese history, and no post grad. Take a second to digest that ... our prime minister has a degree in saying ni how and the decline of the ming dynasty ... he has no formal training in politics, law or economics.

Mighty mal didn't disclose what his majors were but on the up side he has done some post graduate training and is a Rhodes Scholar (the only other Rhodes Scholar in the bunch is Tony Abbott).

The second most popular degree is law, with over 56% holding some form of law qualification. You'll probably notice that quite allot of them double up on both BAs and LLBs.

There are three things that are immediately obvious to the casual observer.

1. Nearly everyone holds tertiary qualifications (all labour and most liberal). While we would expect to see high levels of tertiary qualifications, I think we should also see a number of accomplished people without quals ... such as those that have worked their way up off the factory floor or alternatively the entrepreneurs who have driven economic growth over the last couple of decades.

2. Another striking observation is the total lack of science degrees, engineering degrees or medical degrees. Where are these guys? These guys that actually know how to do complicated stuff.

3. The other thing that slaps you in the face is a lack of economics. Only approximately 20% have undergone any form of formal economics training.

I don't care what anyone says, economics is not something you pick up casually. I have never encountered anyone with a deep understanding and appreciation of economics that didn't have some formal training. To understand it requires actual study. This apparent under representation is alarming as economics is the one field that deals with allocation, of how resources should be shared and of how to maximise welfare for the community......the whole economy. And you would think that that is the core activity of governement, how to put in place and maintain a framework that allows us all the freedom to pursue our own endeavours and live by our own merits.

Given that these guys are the self proclaimed economic managers of our little slice of the world, we should all be alarmed that they are basically arts graduates or lawyers. Its like putting a cap on my 6 year olds head and telling him he's now the bus driver. Fasten your seat belts ... adjust your nappy and sit back for the ride.

It actually explains a lot. Now I know why Joe Hockey can't really engage in any deep economic argument (he's an arts grad), now I know why mighty mal asks questions like "whats marginal cost?" (he's an arts grad). It goes along way to explaining why swan thinks its a good thing to go around proclaiming 'this is a robin hood budget' (he's an arts grad) . Apart from the fact that in the analogy wayne is actually the sheriff, the contention is economically obnoxious and symptomatic of someone who is totally ignorant of the economic harm they are sowing.

This explains why as a group they are easily bamboozled by an econometric study. Why they think it's such a good idea to put price caps on natural gas. Why they think grocery markets need to be regulated. Why price caps need to be placed on petrol. Why keynesian economics actually has merit.

It explains away that embarrasing 7000 word dribble big kev coughed up for the monthly and why he seems to just not get Hayek.

This explains every thing ... they are all BLOODY ARTS GRADUATES!

I didn't include in the table their work experience prior to parliament. The following high level summaries should suffice ....

By way of short summary. For Labour the bulk of ministers hold either a BA or LLB, all (without exception) followed the work path of uni, then union or union legal representation followed by political appointments (eg ministerial advisors). There are no ministers who don't hold degrees or have spent time working on the actual factory floor. The only exceptions are a couple of ministers who have a background in education, ie used to be teachers and an ex rock star.

While as with labour the bulk of shadow ministers hold BAs or LLBs there is a more diverse working experience ranging from company CEOs to milkmen and real estate salesmen. A small number of shadow ministers do not hold tertiary qualifications and there is more agricultural representation.

Its worth noting that both labour and liberal hold approximately the same number of ministers (shadow ministers) with economic training.

Friday, August 7, 2009

A difference of opinion (Roy Rodgers)

The hype has settled down and enough time has now passed that its worthwhile to start asking questions about the great recession (in our case the great almost recession). Although there are alot of different opinions floating around, we seem to be seeing the emergence of two different schools of thought. For convenience sake well call them the type1 and type 2.

Type 1

One school focuses primarily on "greed" and places the blame well and truly on the private sector. This school of thought inevitable avoids as much as possible any mention of fanny may or freddy mac and instead seems to focus on regulating financial instruments.

Type 1 cares more about why people bought dodgy financial instruments and not why the instruments were dodgy in the first place. The reason for this distinction appears to be that it allows them to claim that the inefficient actions of participants belie the efficient market hypothesis and as such provide an obvious invitation to increase centralised control. They promote the idea that more intrusive regulation would have saved us from the calamity.

Type 2

The second school of thought places the blame well and truly on the shoulders of regulators. this school of thought focus more on the genesis of the crisis rather than contagion. In particular it draws attention to a long history in the US of monetary expansion, making interest rates too low and the moral hazard associated with shielding investors from the normal ups and downs of a business cycle. The argument is that investors had access to artificially cheap money and also lacked the skills to properly manage risk. All of which feed into a spectacularly huge housing bubble in the US.

Alongside easy money was a bizarre push by government to promote housing mortgages on a welfare basis. This school often draws attention to fanny mae and freddy mac (both government sponsored entities) and the legislative changes made by Bill Clinton.

Put these two things together and BAM one subprime crisis coming up. And its this subprime crisis that made all those financial instruments dodgy.

At the end of the day

At the end of the day the truth probably lies somewhere between the two extremes of type 1 and type 2.

The following abstracts were lifted from the most recent version of Critical Review. This addition of the journal is dedicated to the crisis and I thought there would be value in reproducing the abstracts as they are illustrative of the breadth of argument regarding the cause of the recession.

Along with the mandatory economic haters they also represent the opinions of some very well respected economists including nobel laureates Smith and Stiglitz (ps I love the way Stiglitz cant help himself from putting forward a highly politicised viewpoint).

Its worth noting that those that spend their time knocking down markets never present a viable alternative, and those that call for regulation never seem to consider that the financial sector is already regulated at an extremely high level. So while the market may have produced an outcome they don't like, they should also acknowledge that the vast body of regulation all ready in place failed to stop the correction.

Jeffrey Friedman

ABSTRACT: The financial crisis was caused by the complex, constantly growing web of regulations designed to constrain and redirect modern capitalism. This complexity made investors, bankers, and perhaps regulators themselves ignorant of regulations previously promulgated across decades and in different “fields” of regulation. These regulations interacted with each other to foster the issuance and securitization of subprime mortgages; their rating as AA or AAA; and their concentration on the balance sheets (and off the balance sheets) of many commercial and investment banks. As a practical matter, it was impossible to predict the disastrous outcome of these interacting regulations. This fact calls into question the feasibility of the century-old attempt to create a hybrid capitalism in which regulations are supposed to remedy economic problems as they arise.

Daron Acemoglu

ABSTRACT: The financial crisis is, in part, an embarrassment for economic theory. Economists tended to think that severe business cycles had been conquered; that free markets require no regulations to constrain self-interest; and that large, established companies could be trusted to monitor their own behavior so as to preserve their reputational capital. These three beliefs have proved to be inaccurate. On the other hand, economists justifiably believe that as a process of creative destruction, capitalism requires institutions that allow for innovation and the reallocation of resources toward firms that have successfully innovated. This suggests that we should not condemn wholesale even the financial innovations that played a role in the crisis, which have been remarkably productive and will continue to be, given the right regulations. Nor should economists hesitate to say that political reactions to the crisis that hamper such innovation and reallocation may do far more harm than good.

Viral V. Acharya and Matthew Richardson

ABSTRACT: Why did the popping of the housing bubble bring the financial system—rather than just the housing sector of the economy—to its knees? The answer lies in two methods by which banks had evaded regulatory capital requirements. First, they had temporarily placed assets—such as securitized mortgages—in off-balance-sheet entities, so that they did not have to hold significant capital buffers against them. Second, the capital regulations also allowed banks to reduce the amount of capital they held against assets that remained on their balance sheets—if those assets took the form of AAA-rated tranches of securitized mortgages. Thus, by repackaging mortgages into mortgage-backed securities, whether held on or off their balance sheets, banks reduced the amount of capital required against their loans, increasing their ability to make loans many-fold. The principal effect of this regulatory arbitrage, however, was to concentrate the risk of mortgage defaults in the banks and render them insolvent when the housing bubble popped.

Amar Bhidé

ABSTRACT: Banks provide a valuable but inherently unstable combination of deposit-taking and lending functions that were successfully held together for several decades after the New Deal by tough banking rules. The weakening of the rules after the 1970s promoted the displacement of traditional relationship-based banking with securitized, arms-length alternatives that encouraged banks to undertake activities about which bankers lacked deep relationship-based knowledge of the risks. Ironically, this risky behavior, encouraged by loosened regulation, was reinforced by progressively tightened securities regulation, which promoted stock-market liquidity but also deprived large banks (and other publicly traded companies) of oversight by investors with “insiders’” knowledge. Both the underregulation of banking and the overregulation of securities were underpinned by economic theories that favored blind diversification in liquid, anonymous markets, and that ignored the value of relationship-based knowledge and case-by-case due diligence.

David Colander, Michael Goldberg, Armin Haas, Katarina Juselius, Alan Kirman, Thomas Lux, and Brigitte Sloth

ABSTRACT: Economists not only failed to anticipate the financial crisis; they may have contributed to it—with risk and derivatives models that, through spurious precision and untested theoretical assumptions, encouraged policy makers and market participants to see more stability and risk sharing than was actually present. Moreover, once the crisis occurred, it was met with incomprehension by most economists because of models that, on the one hand, downplay the possibility that economic actors may exhibit highly interactive behavior; and, on the other, assume that any homogeneity will involve economic actors sharing the economist’s own putatively correct model of the economy, so that error can stem only from an exogenous shock. The financial crisis presents both an ethical and an intellectualchallenge to economics, and an opportunity to reform its study by grounding it moresolidly in reality.

Steven Gjerstad and Vernon L. Smith

ABSTRACT: Asset-market bubbles occur dependably in laboratory experiments and almost as reliably throughout economic history—yet they do not usually bring the global economy to its knees. The Crash of 2008 was caused by the bursting of a housing bubble of unusual size that was fed by a massive expansion of mortgage credit—facilitated, in turn, by the longest sustained expansionary monetary policy of the past half century. Much of this mortgage credit was extended to people with little net wealth who made slender down payments, so that when the bubble burst and housing prices declined, their losses quickly exceeded their equity. These losses were transmitted to the financial system—including banks, investment banks, insurance companies, and the institutional and private investors who provided liquidity to the mortgage market through structured securities. It seems that many of these institutions became insolvent; it is certain that they became illiquid. Liquidity loss and solvency fears created a feedback cycle of diminished financing, reduced housing demand, falling housing prices, more borrower losses, and further damage to the financial system and eventually the stock market and the real economy. There are important parallels with the housing and financial-market booms that led up to the Crash of 1929 and the Great Depression.

Juliusz Jablecki and Mateusz Machaj

ABSTRACT: Capital regulations stemming from the Basel accords created incentives for banks to securitize mortgages, even risky ones; hold them at a correspondingly low Basel risk weight; or shift them off of banks’ balance sheets to obtain even greater leverage. Securitization was praised by economists and regulators for dispersing risks to investors across the world, providing greater resilience to the financial system. However, since in reality banks tended to hold onto securitized assets—either on their balance sheets or off of them, in off-balance-sheet entities—the accumulated credit risk remained with the banks, especially in the “shadow banking sector.” This explains the heightened vulnerability of the financial system to a sudden collapse.

Joseph E. Stiglitz

ABSTRACT: The main cause of the crisis was the behavior of the banks—largely a result of misguided incentives unrestrained by good regulation. Conservative ideology, along with unrealistic economic models of perfect information, perfect competition, and perfect markets, fostered lax regulation, and campaign contributions helped the political process along. The banks misjudged risk, wildly overleveraged, and paid their executives handsomely for being short-sighted; lax regulation let them get away with it—putting at risk the entire economy. The mortgage brokers neglected due diligence, since they would not bear the risk of default once their mortgages had been securitized and sold to others. Others can be blamed: the ratings agencies that judged subprime securities as investment grade; the Fed, which contributed low interest rates; the Bush administration, whose Iraq war and tax cuts for the rich made low interest rates necessary. But low interest rates can be a boon; it was the financial institutions that turned them into a bust.

John B. Taylor

ABSTRACT: The financial crisis was in large part caused, prolonged, and worsened by a series of government actions and interventions. The housing boom and bust that precipitated the crisis were enabled by extraordinarily loose monetary policy. After the housing boom came to an end, the Federal Reserve misdiagnosed financial markets’ uncertainty about the location and value of risky subprime mortgagebacked securities as being, instead, a liquidity problem, and it took inappropriate compensatory actions that had side effects that included raising the price of oil. Finally, in mid-September 2008, the government’s ad-hoc bailouts, and the unpredictable terms of the proposed TARP legislation, appear to have caused a sharp spike in uncertainty in the financial markets.

ABSTRACT: The underlying cause of the financial meltdown was much more mundane than a “crisis of capitalism”: The real origins lay in mostly obscure housing, tax, and regulatory policies of the U.S. government. The Community Reinvestment Act, the affordable-housing “mission” of Fannie Mae and Freddie Mac, penalty-free refinancing of home loans, penalty-free defaults on home loans, tax preferences for home-equity borrowing, and reduced capital requirements for banks that held mortgages and mortgage-backed securities combined with each other to create the incentives for both subprime lending and the housing bubble that eventually led to the financial collapse.

Peter J. Wallison

ABSTRACT: Though accused by critics of helping to cause the current financial crisis, credit-default swaps are blameless. The accusation is understandable, however, given misunderstandings about how a credit-default swap actually works. A careful look into its mechanism shows that it is not only simpler than thought, but that it is also vital to keeping the financial system strong by enabling financial institutions to better manage their risks. The risk taken on in a credit-default swap (CDS) is no different from the risk of making the underlying loan. CDSs allow risks to be spread more widely instead of being concentrated at vulnerable points, but they do not add to the total amount of risk.

Lawrence J. White

ABSTRACT: By means of the high ratings that they awarded to subprime mortgagebacked bonds, the three major rating agencies—Moody’s, Standard & Poor’s, and Fitch—played a central role in the current financial crisis. Without these ratings, it is doubtful that subprime mortgages would have been issued in such huge amounts, since a major reason for the subprime lending boom was investor demand for high-rated bonds—much of it generated by regulations that made such bonds mandatory for large institutional investors. And it is even less likely that such bonds would have become concentrated on the balance sheets of the banks, for which they were rewarded by capital regulations that tilted toward high-rated securities. Why, then, were the agencies excessively optimistic in their ratings of subprime mortgage-backed securities? A combination of their fee structure, the complexity of the bonds that they were rating, insufficient historical data, some carelessness, and market pressures proved to be a potent brew. This combination was enabled, however, by seven decades of financial regulation that, beginning in the 1930s, had conferred the force of law upon these agencies’ judgments about the creditworthiness of bonds and that, since 1975, had protected the three agencies from competition.

Monday, August 3, 2009

I want my 8 cents back (Roy Rodgers)

Gather round kiddies its story time.
oday’s tale is one of hope, dreams and productivity improvements.

Starting way back in our distant past ... the eighties ... governments across our broad land began a process of microeconomic reform aimied at shaking the shackels of governement owned utilites and achieveing efficiencies in service provision. Collectively our attitudes to government utilities had changed. No longer were we content to sit back and watch public servants sit around on their arses all day.

There was a broad recognition that the private sector was much more efficient and effective in providing people with they wanted when they wanted it. So our governments in a seemingly enlightened state of being jumped to the obvious and quite right conclusion that perhaps the public sector would be better at providing goods and services if it adopted some private sector practices.

The first step in this reform process was corporatisation. Governments from Darwin to Hobart set about corporatising their utilities. They established corporate structures that were separate and independent from government (to varying degrees of success). Thus utilities became corporations.

These new corporations were incentivised to behave in a commercial manner. And surprise surprise ... we got to experience huge bursts of productivity and masive increases in service standards. No matter how annoyed you currently are about customer service with Telstra, electricity retailers or water businesses, none of it compares to the past.

This is going way back (and ill probably lose all the gen y ers) but we should all have some dim memory of what it used to be like dealing with those monolithic old government utilities, of having to queue on phones for hours on end, of having to front up at dank musty offices and stand in lines a mile long waiting to get access to some nose picking genius who would inevitably turn out to be as helpful as an arse full of hemaroids (apologies I'm still carry around some scars).

The days of ping pong playing public servants are well and truly gone. Although they still cop a bit of stick most employees of these businesses now work quite hard and are in most cases just as productive as their fellow counterparts in equivalent private sector positions.

Once business had been corporatised the next step was for them to achieve full cost recovery. The idea being that people should pay for the services that they consume so that they themselves make better more efficient consumption decisions and so that their consumption does not (theoretically at least) infringe too greatly on others by demanding some form of cross subsidisation.

Other commercial practices were imposed on them. They were expected to earn a commercial rate of return, they were expected to face a commercial cost of capital, and they were expected to deliver annual productivity savings ... all good stuff.

In some cases corporatisation led to governments having to face the brutal truth that there was absolutely no reason they should have been in the businesses they were in. Thus we had privatisation. Privatisation still cops a bit of criticism from your leafy suburb types, but the only criticism that can truly be levied is that perhaps in their general rush to off load some of these business governments were a bit hasty and underpriced some of their assets.

But hey, at the end of the day its not the governments job to be entrepreneurial and if there are members of the private sector who are only to happy to provide the requisite goods and services then government has no business in competing with them by operating businesses and should simply get out of the way ... which (ignoring the burden of regulation) by and large they have over the last 20 years. Don’t get me wrong that regulatory burden is quite substantial and ever growing but thats really the subject of another post.

And life was grand ....... .... with one exception.

Our national broadcaster the ABC.

Let’s be upfront here. There is nothing mythical about the ABC. It provides TV broadcasting services. Some of it is good and some of it is bad. But at the end of the day it is just another form of government utility. And while aunty may be a corporation it is not one of the good modern sorts that pays for itself, responds to customers demands and continually seeks to better itself.

No! The ABC is an old school government utility .... one that’s totally dependent on budgetary funding, just as addicted to the public dollar as any addict is to his dealers junk.

The corporatisation of the ABC occurred in 1983, previously the C had stood for commission. with the benefit of hind sight its not actually clear why the utility was corporatised. In its own words it summarises the benefits of corporatisation as:

Since the Corporation was established the ABC has not only forged ahead in the areas of radio and television broadcasting, it has expanded its base to include the introduction and growth of a number of other functions. Major restructuring of the organisation occurred with radio and television being split into separate divisions. Senior management was reorganised and an overhaul of management, finance, property, engineering and equipment areas began

It would appear that the ABC itself sees its main achievements as being

1. doing more stuff

2. shuffling cubicles

There’s nothing in there about productivity gains or achieving some level of cost recovery. Nothing about standing on its own two feet.

And sure as day follows night the place would be full of no-hopers and loafers. The ABC is correctly characterised as a type of collective dole payment for 90% of Australia’s unemployable arts graduates. Although i know absolutely nothing about its expenditure profile, ill bet my little lunch that its in need of a serious haircut.

With the benefit of hind sight you may assume that the point of corporatisation was to provide the broadcaster with a degree of independence so that it would not be just the governments mouth piece. However, since the 80s it has become well and truly partisan. The views, agendas and spin coming out of it are wholeheartedly labour orientated. Point in case, the insiders on Sunday morning... not a bad show, but unarguably subject to systemic bias. There are always without fail two 'left commentators' and only one 'right commentator' thrown into this mix is Barry Cassidy who as an ex advisor to the Hawke government can only be viewed as 'left' ... that makes it three to one. Another example is Q&A, I cant begin to count the number of times I've tuned in only to witness the spectacle of Joe Hockey taking on every other member of the panel including Tony Jones the host.

Above commercialism

So what possible justification could there be for this state of affairs. Well I’m sure some would argue that the ABC needs to leach of the public teat because it is quite simply above having to earn a dollar, that advertising is too grubby and too corrupting. The only response any rational person could possible have to such a contention is GROW UP or #@$% off to North Korea. North Koreans are above grubby commercialism.

Gone are the days when most people were prepared to listen to winging arty wankas. Now days people are more concerned about why they have been put on a waiting list for non elective surgery, why their kids are doing their lessons in demountable class rooms, why there are not enough police on the streets to protect us. For god sake the government has allot more important things to spend our tax money on (ignoring of course the latest round of madness from the stimulus packages). And this issue is not going to go away, the whole concept of the ABC is becoming increasingly at odds with the values of a modern liberal Australia. It is only going to become harder and harder to justify a tax payer funded British content TV channel.

The ABC needs to protect and promote Australian culture.

a;lkszsdrtsdfgdzfgfdgjasfi .... that’s the sound of confused disbelief. Protect and promote our culture? and here i was thinking the ABC was just a franchise of the BBC. Lets see, favourite ABC shows - the bill, the goodies, silent witness, spooks, black books, mis marple, doctor who, life on mars, grand design and on and on and on. Aussie my arse!!

Just exactly what has been the ABCs contribution to culture? The closest it’s come to an iconic Aussie show was sea change. Other than that it’s been a long time between drinks.

At the end of the day it doesn’t matter where you sit on culture. If the aim of the government is to fund for whatever reason Australian content in the base belief that to do so somehow promotes our culture it does not follow that the government needs to fund an entire TV channel. It could simple subsidise or provide incentive payments to the privately owned channels to produce the content. This would have to be much cheaper because we could target directly the Australian produced content and could avoid having to spend tax dollars on paying for such crap as Foyle’s War. Given its seemingly never ending British programming our 8 cents a day has probably done more to promote English culture in Australia than it has to preserve and protect our own.

Supporting localised production

Other arguments such as the broadcaster providing a vehicle for more localised programming don’t wash either. If more localised programming is the objective, the Commonwealth would be better served by opening up licensing restrictions on the digital network to allow community channels like channel 31 make the transition from analogue to digital and to provide space for other community groups or enterprises to set up shop.

Given the massive leaps in production savings generated by cheaper good quality cameras and cheap good quality editing software, it would seem that the only remaining obstacle to people setting up local channels is for the commonwealth to removed restrictions on broadcasting. I don’t know about you but my TV has over 300 channels, which begs the question of why I only receive 4. Sorry that’s 5 now that 10 has set up one (a channel that seems to broadcast NASCAR racing 24 hours a day)

Content for children

Another argument relates to the programming of content for children, again as with culture there is no reason the privately owned channels can not provide this material, its not as if they don’t already, and again as with community there are plenty of spare channels floating round.

Universal coverage

The only other argument for the ABC is coverage. You could argue that the ABC has some type of universal service obligation, so that every Australian no matter how remote has access to the Bill. And thus feel connected at some level with the rest of the Australian population. However, this argument doesn’t wash either. Telecommunications is a much more important service and a minimum level of service is provided universally regardless of the fact that there is no national telecommunications company. Universal telecommunications is provided via a USO by Telstra predominantly and is funded by all carriers through a universal service fund. There is no reason this can’t be duplicated for TV services. And I should also say that I don’t really believe that there are parts of Australia that only receive ABC.

Free tv?

So putting aside our inability to justify the ABC. What else can we have a go at? For one thing I think it’s a total misdemeanour for the ABC to include itself in the Free TV group. There is nothing free about it. We pay and we pay allot. Unlike the commercial channels that adopt a negative production function, which sees content being funded through advertising. The ABC relies on us to pay for it. And pay for it we do and have been since amendments to the Broadcasting Act in 1948 meant that the ABC was no longer financed out of licence fees, but directly by a government lump sum appropriation ... by tax.

In the 80s the mantra was 8 cents a day.... the idea being that we should all be happy little farts that were getting such value for so little money. Well 8 cents a day adds up. 8 cents over a population of 20 million gives 1.6 million per day which gives $584 million for a year, over a 10 year period this amounts to $5.84 billion, after discounting the NPV over this period is $4.2 billion. That is quite allot of school rooms, nurses and police we are foregoing to keep aunty alive. And that number is unadjusted for inflation ... so were talking 80s dollars not money of the day.

Of course the actual budgetary spend has moved on since the 80s. In the 2009 budget the total appropriation for the ABC wasn’t $584 million rather it was $912.3 nearly double, this makes it one of the better funded government agencies. Even after taking into consideration inflation you can pretty safely say the ABC has not been able to achieve any significant efficiency over the last 20 years (unlike the vast majority of Australia). This is even more striking when you consider the economies that have been delivered to the sector through technological innovation. By the way the NPV of $912 million per annum over a 10 year period (6% discount rate) is $6.7 billion. The ABC now cost 13 cents per day and it is most definitely NOT free TV.

So why does the ABC exist? You tell me, I can’t work it out ... although I do have a suspicion that it has more to do with the political power of celebrity than it does with good governance. Heaven forbid that Geoffrey Rush might actually say something nasty about big kev.

Saturday, August 1, 2009

Public health care in the US (roy rodgers)

Theres been alot of talk recently in the US about Obama's proposal to introduce universal healthcare.... and a picture (toon) says a thousand words.