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.

Tuesday, September 29, 2009

Crime and punishment (addendum)

When I wrote the preceding article I sampled a dozen of the executed felons and in every case they made final statements consistent with my thesis.

However, my lovely wife just sat down to read the article and have a look at the database of last statements. As she did so it became apparent that a large number of the felons she sampled were not apologetic, thus totaly contradicting my contention.

Apologies ....

But we shouldn't let a little bit of sampling error get in the way of a good story.

Crime and punishment (Roy Rodgers)

All this talk of wowsers and their wowsery ways inevitably leads to the topics of crime and punishment. These two are perhaps the hardest concepts for anyone who takes liberty seriously to come to terms with. They provide an obvious conundrum. The libertarian has to somehow come to a position on the potential legitimacy of the state's use of coercive powers that range from simple fines, to incarceration, in some cases torture and in some countries all the way through to death.

Some laws where made to be broken...

Since the end of the second world war most developed economies in the west have seen an amazing boom in legislation. God knows what the page count is currently, there are laws and regulations for nearly everything.

I got fined $170 just last week for parking my car for longer than one hour in my residential street just outside my house during the day when the street was half empty .... apart from the fiscal pain this caused me, the law the I've broken or the crime that I've committed is obviously absurd. I got fined for simply parking my car ... there was no congestion issue, no one got hurt in any way. I was simply utilising a public asset (the road) in exactly the manner is which it is intended to be utilised.

And how about the guy in Port Melbourne who recently got fined $50,000 for demolishing his house which he paid for with his cash but which unfortunately had inestimable heritage value as an example of post war public housing. Yes that's right this guy got in the shit because he was rude enough to demolish the crappy public house that was standing on his $1million dollar block of land. ABSURD.

So the next time you've stepped out at 4am to get panadol for your loved one and you find your self sitting at a red light in a street that resembles the set of 28 days latter. Just ask yourself why the hell am i sitting here in my pjs like a big fat goose just because there's a red light. Ask yourself if i ran the light who would be to blame ... you or the idiot bureaucrat that forgot to turn the lights off when everyone went to bed. For god sake ... that light deserves to be run!

There is a legion of examples of laws and regulations that represent nothing short of state based abuse and should be canned immediately. Laws and regulations that have nothing to do with causing harm to others. Wouldn't it be good if someone had enough gumption to propose a libertarian day where it was the duty of every Australian to break some form of ridiculous law. A day where its your duty as an Australian to flip the bird to the cubicle dwelling bureaucrats. However, that person will not be me ... I'm sure it would be illegal to suggest such a thing.

the conundrum ...

Despite these seemingly pointless laws, it can not be denied that there are genuinely bad people out there .... or more correctly people out there who either want to, or are prepared to if the circumstances dictate, do serious harm to others. People whose utility functions include the disutility of others, who are totally indifferent to the utility of others, or those who take no heed of the reciprocity associated with doing harm to others.

The conundrum for the libertarian is that there are people who whether through circumstance, disease or stupidity represent a genuine risk to the rest of us. And the only way to effectively address this risk (at least in the short term) is to remove them ... to physically separate them from those to whom they wish to do harm. And as unfortunate as it sounds there is no institution better placed to do this than the state. The conundrum is that there may after all be a role for the state and it's not a very nice role. It's a role that involves using force and coercion, something any sane libertarian feels hesitant in allowing the state to use.

While there is a role for the state, it doesn't necessarily follow that it's doing a good job of it. In fact the state seems to be a bit confused about what its actually supposed to be doing. It would seem that the conventional approach to punishment and prisons is based on the notion that punishment is doled out to prisoners in the belief that it will reform them or rehabilitate them for their ultimate reintegration into society.

While noble, such a goal is not necessarily consistent with the idea of risk aversion. If you take the position that the state justice and prison system exist as a way of society managing the risks associated with it's criminal class, then you have to wonder how recidivists actually exist. If the system assessed their risk efficiently then they would not be released and they would not have the opportunity to keep perpetrating. In assessing the threat that a convict poses to society the authorities should reference the statistical probability that the prisoner will re-offend. Maybe they do?

It's worth recognising that rehabilitation itself is one way of addressing such risk. However, those that commit crimes that are highly recidivist in nature like pedophiles, serial rapists or serial murders are mostly likely highly probable to re-offend. So regardless of whether such individuals have found god and repent for their sins their actual release will also depend on the statistical likelihood of them re-offending. The point being that prisoners who have committed crimes or exhibited behaviour that indicate a probability of recidivism would not be released.

And I recognise that it doesn't sound anything like the rant of a libertarian and places a lot of power in the hands of the state .... when i said conundrum i meant it.

and now to the hangman ...

The following link takes you to an archive of the last words of executed inmates. The archive is maintained by the Texas Department of Criminal Justice. It's probably safe to assume its existence is due to a legislative obligation placed on the department.

As with the issues of crime and punishment, the archive presents libertarians with a conundrum. Included in the archive is the inmates rap sheet. I haven't gone through all of them but for the sample that i looked at based on their rap sheets and the horrible things they have done they can only be described as animals, nothing short of walking human excrement .... ... ... on the other hand when you read their last words you get the uneasy feeling that there is some humanity there. From the sample there was a universal profession of sorrow for the pain that they had caused others. Now I'm assuming that they are telling the truth and given that the statements are taken just before they get the needle there's no good reason for them to lie.

While in general crime and punishment is perplexing, one can form positions about some of the more extreme aspects, like capital punishment. Capital punishment is definitely something the world is better without. The primary reasons are:
  1. there has never been any form of government in human history competent enough to impartially administer a program of capital punishment, nor has any had enough nous to avoid the odd case of judicial murder
  2. I have a strong suspicion that given the appeals mechanism necessary in such systems and the opposition that such programs generate amongst your right for life types, the costs involved would far outweigh those of the alternative - long term incarceration.... and we pay enough tax as it is.
The economics of crime ...

One interesting thing worthy of note was that the last minute, seemingly contrite apologies, professions of sorrow and admissions of guilt were consistent with economic theories of crime and punishment.

One of the first economists to try and model crime and punishment was Gary Becker. Becker wrote a seminal paper imaginatively titled Crime and Punishment: An Economic Approach.

In his paper Becker argues that there is an optimal level of enforcement and punishment. More importantly Becker established quite convincingly the proposition that criminals are rational and that criminal behaviour follows rational decision making processes. The basic contention is that the criminals willingness to commit crime is a function of both the positive utility he/she derives from the crime (some of a pecuniary nature some of a non pecuniary nature) and the costs associated with the crime.

Under Becker's models the costs are a function of the probability of being caught and the value of the punishment. Sort of like analysis regarding contingent states of the world.

The paper is a good read. Becker proposes a framework similar to a classical one with the exception that its based on involuntary exchange. What would normally be the buyers are the victims and the sellers are the criminals.

It follows that (depending on the criminals level of risk aversion) the supply of criminal behaviour could be influenced by increasing the probability of being apprehended or alternatively by increasing the costs associated with penalties. Which is more effective depends on the criminals risk profile, for those with a risk affinity, increasing detection and apprehension is more effective than increasing penalty. Its less clear for the risk adverse, increasing either penalty or probability of apprehension would most likely do the job.

The interesting thing with the archive of last statements is that it would appear to represent a situation where the probability of apprehension and conviction is 100% and the cost associated with the penalty is as high as it could possibly be (assuming no one is suicidal). In these circumstances it would appear that all (or certainly all the ones i looked at) express regret and remorse. It would appear that when you reach the universal maximum for the cost of crime you may achieve some form of rehabilitation.

This universal expression of regret and remorse is dependent on the imminent penalty. We have no grounds for assuming that were the penalty to be removed or where we to introduce a probability that it would be removed, that we would get the same outcome.

Friday, September 25, 2009

2020 Health Overview (Doc Holliday)

Australians are living longer than ever before. In 2004-05, the average life expectancy (at birth) of Australian men and women were 79 and 83 years. This makes Australian among the longest lived people in the world. The cost of health care is, for the moment, quite modest by international standards.

Yet there is quite a clear agreement that Australia’s health care system is stuffed, that somehow it is failing to deliver the sort of results that we would like. We have too many fat kids, kids that don’t exercise enough, kids that eat too much, kids with bad teeth, kids that smoke too much, kids that drink too much, kids that pop too many pills. It was so much better in our days – when all we could eat were lard sandwiches, smoke cigarettes behind the shed, and play football barefoot on the street, while our mothers were in the kitchen quietly dealing with an unwanted pregnancy. But no, our kids are too soft and we know what’s best for them.

But don’t just pick on the littlies. Why not the oldies? They’re too demented to know what’s good for them. Why, if only they exercised more and ate properly, they wouldn’t fall over and hurt themselves or clog up our hospitals with renal dialysis.

Then you’ve got the old (ho-hum) rugby scrum between the stern-looking guys in white coats and the witch-doctors promoting alternative therapies: ‘You can’t trust them holistic types, there’s no science in them’. And finally, there’s always that big bogey-man everyone loves to hate: big fat rich corporations (health insurance, pharmaceutical and, wait for it, oil companies) and professional associations (greedy doctors and dentists) all seeking for ways to rip you off.

There is one personality type that permeates the baying crowd: the one who knows the Truth. In his view all Australians should hike before breakfast, ride a bike to work, eat sushi for lunch, and have a cup of green tea after work. This one wants to ‘educate’ you, regulate you, provide you with all the infrastructure and incentives you would need, and then tax you to finance it all.

There is no doubt that Australia’s health-care industry can be improved. The problems almost always arise from the strange horse-trading that masquerades as government policy. There is, for a start, a rather odd relationship between Medicare and private health insurance (PHI): why should anyone take out PHI if Medicare is available for free? But Medicare is a major of problems because taxpayers are shielded from the effects that their lifestyle behaviours have upon the cost of the system. Fixing health insurance should be our first priority.

2020 Health Submission 4313 (Doc Holliday)

I believe the Private Health Fund system is inefficient as there are too many funds which leads to much duplication of services. At the least the government should reduce the number of funds offering private insurance. This could be done by only allowing them. a reduced premium increase and letting market factors take their course. Those collapsed fund's members should be able to move to another fund without losing their accumulated benefits.

Better to put the several billions spent on private health insurance annually into public hospitals.

One of the great myths of the health insurance debate is that there is merit in having a single health insurer — that competition somehow leads to duplication.

The obvious extension of this logic is that all the clothes shops in Chapel St should be closed down, except one, since there is duplication. And while we’re at it, let’s close down all the souvlaki shops because, you know, there is duplication.

Where duplication does exist in health insurance, say in the number of actuaries employed, competition makes up for it through the innovation of new insurance products. Moreover, it is competition, not government mandate, that will eventually lead to lower insurance premiums — although the extent that this will occur will depend on how health care costs are controlled.

So if we have a single health insurer, why not make it publicly owned? And if we have a single clothes shop why not make it publicly owned too? Hell, why not combine clothes shops and souvlaki shops into Fur and Meat Emporiums and have the waif-thin fashionistas (‘That looks great on you’) teeter on high heels slicing lamb off the gyro.

Real reform to private health insurance can only be achieved by getting the right balance between private and public health insurance, and then deregulating health insurance to permit real competition. But we don’t like competition in health insurance.

‘Would you like yoghurt or sauce on your insurance policy, sir?’

Back of the envelope

  • Cost --- Many billions
  • Expected impact on average earnings --- Soviet era style living standards
  • Expected impact on economic growth --- Big cut in GDP from reduced competition
  • Impact on incentives --- Crappy customer service, poor health outcomes
  • Impact on government spending --- big increase
  • Impact on taxation --- big increase
  • Winners --- Party officials
  • Losers --- Everyone

2020 Health Submission 2015 (Doc Holliday)

Dear reader, I have discovered on my hard drive a couple more health submissions from the book that never was. I will post them and the health over view over the forthcoming week. For those that are confused I suggest you reference the very earliest posts on this blogsite. Doc

Major medical problems in Australia due to obesity, smoking and alcohol need greater preventive campaigns and free behaviour change assistance for all people at risk.

This statement single handedly captures the ridiculousness of Australia’s Medicare system. What does ‘free behavioural change assistance’ really mean?

Medicare is compulsory national insurance: everyone contributes to it and is covered by it. However, contribution is based upon not the risk one poses to the national insurance pool, but by how much one can contribute. Thus a person’s lifestyle choice (how much they exercise, how much they eat, drink and smoke) has no bearing upon his or her financial contributions. Instead, he or she is covered, no matter what they do.

So unable to influence behaviour through the insurance system, governments instead focus on other ways to change behaviour. Government tend to lecture you (say, a multi-million dollar television campaign telling you that a glass of vino after work is the work of the devil). Governments can even get tough: ‘if we catch you drinking, or not exercising or smoking, then you are in really big trouble …’. But incentives are still important, so of course, there are many examples of governments turning to their own citizens to enforce is dictates.

So if you, Tim, plan to head off to the race track tomorrow to place a few bets, tug on a few ciggies, you better watch out. Somewhere there is a little boy scout ready to dob you into the re-education camp Stasi. Instead, treat the problem at its source, by fixing health insurance.

Back of the envelope

  • Cost --- Multi millions
  • Expected impact on average earnings --- Unchanged average weekly earnings except for public servants enforcing the law
  • Expected impact on economic growth --- Big decrease in GDP as everyone lives in fear of little boy scouts
  • Impact on incentives --- Don't do anything remotely fun, in case your neighbour thinks you're behaving suspiciously
  • Impact on government spending --- big increase
  • Impact on taxation --- big increase
  • Winners --- re education camp managers, stasi officials and scouts
  • Losers --- TAB Tim at the races

Thursday, September 24, 2009

Five minutes on a friday.

Worth a look ... i think the boys put a fair bit of work into it.

This music video was created for an Economics Final at Frontier High School in Bakersfield (USA) by four classmates. It was written on Thursday, Song recorded on Friday, Shot in 5 hours on Saturday,

Id give em a distinction ... as good as the beasties

Wednesday, September 23, 2009

wowser, wowser, wowser (Roy Rodgers)

Lucky for us the good people over at the IPA have compiled a comprehensive list of all the new laws and regulations the task force put forward in its report.

As you can see quite a few!! enough to keep a whole armada of cubicles busy for the next 10 years.

All the economic consultants out there are going to start salivating the second they see this list ... wont be able to help themselves... just think of the revenue stream. But who am i to talk, the second i saw the list i decided to seriously consider the wife's contention that we just need that holiday shack on the beach.

New laws
1. Food and beverages classification
2. Junk food if self-regulation fails
3. Raise price of tobacco
4. Tobacco promotion ban
5. Tobacco out of sight in retail outlets
6. Plain packaging on cigarette packages
7. Ban smoking in public places "where children are likely to be exposed"
8. Ban smoking in cars
9. Second-hand smoke in workplaces, incl. outdoors
10. Second-hand smoke outside, "where people gather or move in close proximity"
11. Increase size of pack warnings
12. Tobacco brand names
13. further protections against sales to minors
14. Second-hand smoke outside, "where people gather or move in close proximity"
15. Ban vending machines sales, the internet, and at hospitality & other social venues
16. Nationally consistent liquor outlet opening times and density
17. Nationally consistent accreditation requirements for liquor licences
18. Nationally consistent late night outlet laws
19. Nationally consistent alcohol serving and training
20. Alcohol promotion regulation if voluntary regulation inadequate
21. Alcohol advertising during live sport broadcasts
22. Alcohol advertising during high adolescent/child viewing
23. Alcohol sponsorship of sport and cultural events
24. Alcohol promotion regulation
25. Alcohol availability restrictions, indigenous communities
26. Liquor licence hours restrictions in indigenous communities

New Programs and Frameworks
27. National Framework for Active Living
28. National Food and Nutrition Framework
29. National program to support Health and Physical Education in National Curriculum
30. Expand after-school health programs
31. Healthy and Active Families initiative
32. National Healthy Community Leadership and Education Program
33. Social Marketing Strategy
34. Multi-component community-based obesity programs in low SES communities
35. Multi-component community-based obesity programs in indigenous communities
36. National workplace health leadership program, and best practice guidelines
37. National accord for workplace programs and risk assessment
38. National program to alert pregnant and pre-pregnant women of dangers of excessive weight
39. National strategy to combat illicit tobacco trade
40. Multi-component community-based tobacco control projects
41. Develop further Framework Convention on Tobacco Control
42. Alcohol Diversion Programs, indigenous communities
43. Network of Alcohol-related programs
44. National Strategic Framework for preventative health research

New bureaucracies
45. Prime Ministers Council for Active Living
46. Healthy Food Compact
47. Regulatory body for required disclosure to government, communication to consumers and emissions
48. National Tobacco Strategy Steering Committee
49. National Prevention Agency
50. Preventative health strategic research fund
51. National preventative health research register

52. Research Program to inform National active living framework on economic issues
53. Commission review of economic policies and tax systems towards encouraging healthier food consumption
54. Work with industry towards food labelling
55. Voluntary industry scorecard
56. Nationally agreed accreditation standards for food labelling
57. Research: program to strengthen evidence of effective workplace health promotion
58. Research: legislative changes to encourage workplace health programs
59. Research: feasibility of grants and tax incentives for employees to encourage achievement of benchmarks
60. Health and PE in National Curriculum
61. Establish system to monitor policy of minimum 2 hours physical activity per week from K-10.
62. Research: How teachers promote health
63. Community Intervention Trials
64. Local Government Partnerships to encourage local councils to adopt health guidelines
65. Research: into effectiveness of the self-regulation of junk food
66. Expand allied health workforce
67. Clinical guidelines for allied health workforce
68. Carry out National Risk Factor Survey in 2010
69. National Children's Nutrition and Physical Activity Survey in 2012
70. Research: national research agenda for obesity
71. Research: ongoing research into obesity into indigenous communities
72. International agreements to combat illicit tobacco trade
73. Social marketing campaigns against tobacco use
74. Research into warning label effectiveness
75. Tobacco retailers licensing regime
76. Research: possibility of legal action by government and others against tobacco companies
77. All health services smoke-free, incl. Grounds
78. Patients quizzed about smoking status routinely
79. More money for: extra Quitline resources
80. Nicotine replacement therapy more affordable
81. Social marketing campaigns for indigenous smokers
82. Training in smoking cessation advice for indigenous health workers
83. Tobacco Control Workers in indigenous communities
84. Promotion to health professionals for Quitline
85. Poster advertising in disadvantaged communities
86. Increase efforts for anti-smoking for people with mental illness
87. Prisons and state-funded human services agencies smoke-free
88. Target parents to convey message to children to not smoke
89. Make smoking classifiable in movies
90. Constant alerts to public about dangers, and about new research findings
91. Tobacco surveillance system to assess whether anti-smoking targets are being met
92. Increase resources to develop and implement best practice for laws and regulations related to alcohol
93. Develop business case for COAG nation partnership on policing and enforcement
94. More money for: Drink-driving monitoring
95. More money for: Licence enforcement
96. More money for: Annual review of licences
97. Demerit points for licences
98. More money for: monitoring liquor laws
99. Social marketing strategy
100. Campaign to "build a national consensus on healthy alcohol consumption"
101. Campaign for awareness of alcohol guidelines
102. Campaign to de-normalise intoxication
103. Campaign to raise awareness of consequences of alcohol
104. Research: effectiveness of voluntary approach to alcohol promotion regulation
105. Research: alcohol modelling
106. Advocate: alcohol floor price
107. More money for: alcohol campaigns
108. More money for: healthcare providers, indigenous communities
109. More money for: staff training, indigenous communities
110. More money for: treatment programs, indigenous communities
111. More money for: coordinated case management, indigenous communities
112. More money for: responsible serving of alcohol provision
113. Community groups of indigenous to promote alcohol responsibility
114. Research: alcohol consumption, indigenous communities
115. More money for: health care for alcohol problems
116. More money for: health care for alcohol problems, disadvantaged groups
117. Nationally consistent principles regarding alcohol to minors without parental consent
118. Promotion of early drinking age discussion
119. Community support for parents and alcohol
120. Research: Alcohol use in families and with children
121. Research: nationally consistent collection and management of alcohol wholesale sales data
122. Research: National indicators on alcohol consumption

Link to IPA discussion

The good oil

The following pod cast gives a couple of alternative views about the lessons to be learnt from the great depression as they apply to our current global crisis. Worth a listen.

The New Financial Deal: What Do the 1930s Teach About Reforming Today's Financial Markets?

Speakers:John H. Cochrane, Myron S. Scholes Professor of Finance, University of Chicago Booth School of Business
Thomas F. Cooley, Dean, Leonard N. Stern School of Business, New York University
Charles Geisst, Professor of Finance, Manhattan College; Author of Wall Street: A History
Ingo Walter, Seymour Milstein Professor of Finance, Corporate Governance, and Ethics, Leonard N. Stern School of Business, New York University

Sunday, September 20, 2009

wowser, wowser, wowser (Roy Rodgers)

Skull puff n chew .... sounds pathetically like a new kids tv show, but its not.

Alcohol, cigarettes and mcdonalds. These are the sins that the new generation of wowsers have dedicated their lives to saving us from. All those little salvation army soldiers are out there right now doing push ups and polishing their tambourines ready to save us from too much of a good thing.

Only this time they're a little smarter than previous generations. They know that prohibition doesn't work, they know that no matter how hard they shake their little tambourines, they just cant deny al capone and mr asia.

So this time round they're going to be a bit smarter, they are going to try and use economics .. they are going to get government to tax us into salvation.

The rant

The preventative health taskforce has just released another report. The taskforce has a mandate to address three main evils: tobacco, alcohol and obesity. And how do they suggest we address these supposed evils, well mainly through increasing taxation on durries, stubbies and big macs.

No doubt they are also going to suggest the community also be educated ie. ban product advertising, spend heaps of tax dollars on gross television campaigns which try to shock and awe but do little more than turn you off your dinner (its amazing how the only time these bastards force me to watch a doctor squeeze fatty deposits out of someones artery is right around dinner time).

They will also undoubtedly push for the mandatory display of diseased and rotting body bits on packaging. Don't laugh but in a couple of years time i wouldn't be surprised if your big mac came in a burger box covered by a glossy graphic of someones anus being eaten out by cancer.

Do they have a point?

God knows why they are still making such a kerfuffle over cigarettes. I'm starting to feel nothing but pity for that small handful of poor bastards who have been reduced to standing out the front of the office in the rain and snow puffing away. Surely they'll all be dead within the next 10 years either from cancer or exposure. Surely we've won the war on fags so why the fuss?

As to alcohol. Could the wowsers please just piss off and leave us alone.

And then to obesity, I'm less than convinced were drowning in a wave of fatties. And if there are more than there used to be I'm less than convinced its down to fast food as the candidate. We all saw that movie a couple of years ago where the guy ate nothing but maccas for a month and surprise surprise got sick. Well so what? if you dined at Vue De Monde every day for a month you would also get sick. If you ate nothing but lentils all day for a month you would also get sick ... so what. We've also sat through countless hours of jamie oliver craping on about fast food. This is the guy i once saw fry a sausage, a handfull of fatty bacon (cause the fats where the flavour is) and a tomato in nearly a whole stick of butter and then crack eggs into it .... this guy thinks fast food is unhealthy?

If the general public is statistically putting on weight then i suggest it has something to do with some pretty basic economics ... the overall price of all food being lower than it was in previous generations coupled with a general increase in the peoples disposable income. Its not that we're eating more fast food, its most likely that we are simply eating more food, in which case targeting fast food will be ineffectual. This contention is also supported by the differential taxation thats been placed on fast food since the implementation of GST. Fast food already gets treated differentially than fresh food and we're still all apparently fat (although in my case i definitely am fat, and it should be noted I don't eat mcdonalds).

The dodgy economics

Putting aside these general high level concerns. Any analysis produced by the task force must be heavily qualified. The thing is (and theres always a thing and in this case its a biggie) is that basic logic of the preventative health argument is largely an economic myth.

Their argument goes something like this.

The preventative health body produces an economic study that estimates the costs of disease. This cost is then spun into a benefit by means of a counter factual. They become the costs that could be avoided if the rates of disease were decreased. For example, the report may find that obesity costs the Australian economy $10 billion per annum (note ... i made this number up), the reports then go on to say if the proposed measure is successful and reduces rates of disease by say 10% per annum then we should see an approximate benefit a $1 billion per annum in avoided costs.

Without fail the avoided costs are going to be greater than the anticipated cost of the program or proposal. So it then becomes a no brainier ... everyone wins.

In this case skull puff n chew, its even more insidious as the programs themselves will most likely be self funding as they include new taxes. I suggest you would probably find that they produce massive windfall gains to government. If cigarettes are anything to go by, the latest studies have found that the revenue generated by excise taxation on durries exceeds the associated cost of health impacts by a factor of ten. You wont find this mentioned in any reports but don't kid yourself it will most definitely be taken into consideration in the hallowed halls of treasury.

These preventative health studies are seriously flawed and ultimately fallacious. Apart from the usual dodgy statistical assumptions, they all make the mistake of ignoring a couple of major considerations:
  1. extending someones life isn't isn't all good.... old age is in and of itself a major driver of health related costs.
  2. all these studies universally ignore the benefits associated with consuming these goods
By ignoring the health cost associated with extending peoples lives you seriously bias any cost benefit study. One of the primary drivers of health related costs and publicly funded health related costs is age, or to be more precise, old age. As a result, extending longevity tends to increase overall health spending. The costs associated with diseases such as Alzheimer's, dementia, cardiovascular disease, osteoarthritis and osteoporosis far outweighs those associated with durries, stubbies and big macs. The above may sound heartless, but its not, its just economics, to ignore it is bad science.

These studies also routinely ignore the value of the benefits associated with whatever substance abuse led to the disease in the first place. I like alcohol, I'm not an alcoholic but i do enjoy the odd drink and the odd incident of inebriation. These things provide a definite benefit for me. So much so that i have been known to fork out a couple of hundred on a good bottle of wine or heaven forbid a good bottle of scotch. Stated explicitly, I enjoy booze and if anyone taxes it such that my consumption decreases below a level i would ordinarily consume then there will be an associated loss of utility which should be included in any good economic study, this is also true for cigarettes and big macs (although to be honest I'm more partial to a souvlaki).

Apart from these two, such studies are also subject to a number of less obvious methodological problems. In particular the relationships between disease, labour and productivity are reliant on incredibly strong assumptions relating to such things as time away from labour markets, rate of replacement and effects of productivity levels at work... tweaking any of these assumptions will generally have material impacts on the final number.

The analysis also generally includes a number of statistical techniques which are somewhat questionable, such as the adoption of things like disability adjusted life years (Dalys to those in the know). These tools are supposed to place a value on your loss of ability due to disease. They generally rely on estimates of the statistical value of life.

Don't get me wrong, we shouldn't be squeamish about generating estimates of a statistical value for life. However, they have to be used correctly. In cost benefit analysis the value of life is used to allow for comparison of costs across different projects. In doing so the value will be constant thus the comparative analysis is really only picking up on the number of lives saved or lost. This is good economics.

However the use of an estimated statistical value of life to generate estimate of the aggregate costs of disease to the economy is questionable economics. Although there are a number of different approaches to generating the estimate, most will put the value somewhere between two to three million. And while I have met many economists who regularly use these values (including myself) I am yet to meet any that have total faith in the numbers, nor have I met any that would feel indifferent between a three million dollar payment and death.

I should also mention that the way these studies usually produce results is that you do all the productivity, employment and direct health cost stuff upfront, you leave the Qalys (quality adjusted life years, a concept as equally dodgy as the Dalys discussed above) and Dalys till last, and they are usually able to transform the mere millions you've been working on into billions .. wow ... great if your producing a report for a drug company or government department ... but at the end of the day not really compelling economics.

And now to the conspiracy theory

Here's a further bit of ranting madness. I have absolutely no evidence but i do have a theory, that I suppose could loosely be considered 'public choice'.

I reckon that they whole anti smoking movement has produced a set of skilled professional lobbyists. These lobbyists are now facing the undeniable truth that they have effectively won the war on smoking.

Despite the hype there are hardly any smokers left. They have been reduced to a sad socially ostracised group of people whom most of us automatically assume are just trailer trash or teenagers.

These lobbyists and professionals need gainful employment and its too much of a convenient coincidence that this latest round of wowserism presents them with the biggest opportunity to keep doing what they do best ... ie giving the rest of us the shits.

Saturday, September 19, 2009

Telstra (Roy Rodgers)

Thought the following was worth posting ... its the first reporting of the gov attack of Telstra I've come across that raises some concerns about the private property aspect of the policy.

Ive got to admit I've never heard of the Brisbane Times, but I'll give em 10 points for bringing up an underlying issue that the rest of the pack seems to be ignoring.

I think there is a big story here about how far government will go to get what it wants without any form of compensation. Who's next after telstra ... are they going to break up any firm that holds 2/3 market share?

Granted it may make telco sense to break them up, and granted we may get more competition (although its worth noting that this does not necessarily mean well get cheaper prices). But what ever the reasoning, it should be abhorrent to all people and especially all economists that government would coerce a privately owned company through the threat of preferential treatment to divest itself of its privately owned assets. The whole thing smells more like Beijing than it does of Canberra.................... perhaps Canberra does smell like Beijing these days.

More Ramirez

Friday, September 18, 2009

Who would have thought (Roy Rodgers)


I hear you. Its time. Time to drop our pencils, slam down our keyboards and smack the hairy bitch!!

Someone needs to stand up to the wowsers, the regulators ,the preventative health nazis and tim costello.

its time!

The good oil

Twelve months after the failure of Lehman Brothers, introduction of TARP, a freeze-up of interbank lending, and the beginning of a stock market roller coaster ride, what do we know about what really happened? What really caused the housing bubble and how did that lead to the crisis? If the crisis was the result of many mistakes, how should we go about thinking about what kinds of mistakes were made and who is really at fault?

Russ Roberts, PhD and Arnold Kling, PhD present the findings of their in-depth investigations of the causes and nature of this unique economic event.

Link to pod cast

Thursday, September 17, 2009

Re: Who would have thought (Lone Ranger)

Further to your post, Roy, it really is laughable that "racism" is the depth of analysis attempted ABC journalists (and much of the mainstream media generally). The 2-3 million people that marched through Washington this week were protesting big government, socilaised health care and big brother, and were demanding freedom and the right to be left alone to live their lives. The libertarian movement is picking up steam for the first time in 100 years in the US, and the founders of the nation would thoroughly approve. This is a question of liberty - not race (why is the left so obsessed with race anyway?).

The tragedy from my perspective is that there is no such movement here. Let me quote from the 1909 Australia year book with regards to the Australian character:

The Australian at present is little other than a transplanted Briton, with the
essential characteristics of his British forbears, the desire for freedom from
restraint, however, being perhaps more strongly accentuated.

The key point is not the the Australian was thought to be like the Briton, but rather the emphasis on his (or her) dislike to restraint, of control. What happened in the intervening 100 years? From a freedom loving, independent people who were ashamed to take hand outs (ask your grandparents), we have become a nation of welfare dependent hand-out junkies, who seem to think that the "rich" should pay for our health care, schools, roads and everyhting else that Government does and probably should not. Where are the lovers of freedom? What happened to the independent Australian who supported himself and his family? What happened to the suspicion of big government? Where is our Washington? Where is our Ayn Rand?

This is how free people become enslaved.

Who would have thought (Roy Rodgers)

If you've been following this blog you would no doubt be familiar with the total disregard some of the contributors have for economic competence of the aussie media. Personally, I seem to be in a state of perpetual confusion ... its really my own fault ... i watch way too much ABC (or as its otherwise known the AlpBC).

The last couple of days have proven to be very perplexing.

For a start I cant begin to understand why my lovely little abc reporter felt he had to whole heatedly endorse the latest load of crap from the democrats in the states that attributes obama's growing unpopularity to RACISM.

At no point in the good five minutes of coverage this story got, did my lovely little red fisted abc reporter even mention that some of the protest against obama may result from his recent attempts to socialise a health system in what must be the most liberal country on earth. No way would that piss people off ... no they must be racist.

And is there any evidence to back this claim of racism? well no .. i didn't see a single white sheet or burning cross on any of the footage. But i did see allot of placards protesting obama's proposed health policy. If to simply disagree with obama's policies is racist, then the man is the single greatest threat to American democracy since FDR. It is basically akin to instituting an African American infallibility clause.

The other thing that has left me incredulous is the seeming lack of comment regarding the fundamental precedent set by the Commonwealth in showing total disregard for private property rights. I'm talking TELSTRA.

No one has yet mentioned that this week saw for the very first time in the history of the Australian Federation, a Commonwealth government demand a totally privately owned company divest itself of a significant proportion of its assets.

It doesn't matter if you love or hate TELSTRA. No matter how much more competitive you think the world is going to be, no matter how cheaper you think your phone bill will be, you can not ignore nor underestimate the importance of what the Commonwealth is proposing to do.

Never before has any Australian government ever forced through coercion a private company to effectively dissolve .... NEVER.

Whats more they don't actually have the power to do it up front. They have to do it via black mail. Gone is any pretense at procedural fairness any attempt to avoid administrative bias. They are basically holding the company to ransom, in such a way that would totally violate the procurement policy for any state government, you can't exclude a company from a tender simply beacuase you dont like its market share ( i didn't mention the commonwealth's procurement policy cause I'm assuming its okay with them).

Love TELSTRA or hate it ... you should still be alarmed at this attack on one of the fundamental building blocks of our modern economy ...

Monday, September 14, 2009

Obama the joker?

This is a little bit creepy ... heres the obama joker image thats become so popular in the states. ... One gets the feeling obama's honeymoon is over.