The Seditionists

Realestate deals in the USA

2010-02-26T05:31:00.000-08:00

for $2.3 million you could own this amazingly unique property

Writing speeches for Kevin (RR)

2010-02-24T23:41:00.000-08:00

Its very surprising to find this article in the AGE ... its definitely worth checking out, and as you go through the comments you'll find it comes as no surprise to anyone that has worked in government previously.

However, i do differ from some of the comment in that i think the liberals empowered their ministers much more than kevin does.

WRITING SPEECHES

thanks to IPA for pointing it out

Regulatory madness (RR)

2010-02-24T22:53:00.000-08:00

Hows this for regulatory madness.

I just heard from a reliable source that work cover NSW is seriously considering regulating pall bearers so that they have to wear hard hats ... apparently an open grave means that the site is considered dangerous ... ergo hard hats.

Its sort of hard to pull off a sombre funeral when you have six blokes standing around the coffin in bright yellow hard hats ... or perhaps there will be special black ones .... or white ones with doves on them .... or sky blue ones with pictures of the pearly gates on the front.

or for that special funeral ... hardhats covered in flames.

Whats next ... is the priest going to have to throw a safety harness around the gravestone?

I would like to see their regulatory impact statement, in particular i would love to see the stats on falling into open grave related accidents.

Its about time someone introduced kill a bureaucrat day!!!!

Bagwhati on Moyo on Aid

2010-02-24T20:44:00.000-08:00

Very good article from Bagwhati reviewing a book by Dambisa Moyo (an African economist)

DEAD AID

If your interested you should also check out White Mans Burden

10 Questions for 2010: 6 to 10 (Roy Rodgers)

2010-02-24T06:52:00.000-08:00

Endangered species.... how do they get listed? Have any species ever come off the list .... that is, has any species ever been deemed to be no longer endangered? How often is the list reviewed, is it subject to independent assessment? Can you appeal a listing? Is it an effective way of protecting wildlife? What constraints does a listing have for commercializing a species? If preservation is the end goal, commercialization is the one sure way of achieving that outcome ... look at cows, do you think they are in danger of extinction? How does the definition of endangerment deal with changes in demand from humans and substitution or technical obselecence? Whales would be a good case study. Some species have had up to 50 years of protection, so how are they going? can they now be delisted? Do we now have enough blue whales? Are their current stocks sustainable given that we would no longer demand whale oil in anywhere near the quantities we did prior to the development of substitutes such as petroleum?
This is a very Australian specific question ... when I turn on my digital tv and shuffle through my 400 available channels... what the hell is going on ... why are they basically all empty ... how come there are only four channels (sorry .. plus the extra re-hash ones that roll out the one program series for weeks on end!) ? Surely this is a massive government and policy failure. All that excess capacity just sitting there, all that opportunity for us to communicate, educate and entertain each other is just being wasted. How on earth does the commonwealth minister for broadband, something or other and the digital economy loudly and proudly declare that he will not let another any new entrants compete against the four incumbent tv channels .... why not? It's not as if there isn't enough space for a couple more? It's not as if competition would erode our appetite for such brilliant local content as funniest home videos and the 20 to 1... no way not under his watch. He seems to be boasting his credentials as a protectionist. Standing tall and screaming for all the world to hear ... Fk the consumer!!! And this guy is from the labour party.
Afghanistan ... I just don't get Afghanistan. How can a little piece of unproductive rock with virtually no redeeming economic value cause such a massive headache to the world? Why has the world been fighting for centuries in this place .... How does this country come to have the ability to engage the most powerful countries on earth in war? The English, the Russians and now the Americans. What can economics tell us about the seemingly unique ability of Afghanistan to compel the most powerful countries in history to invade it.
Why do heritage trams exist? You don't get heritage buses. How can there be any value in being forced to sit on a rickety, uncomfortable, unsafe tram? Why would you want to? Buses and trams are perfect substitutes (or as close to as you're going to get) Does the simple fact that trams run on rails while buses run on tyres mean trams are somehow more valuable, more endearing?
One more ... economics, globalization and cuisine. I would like to know how food cultures react to various changes in the resource availability that accompany mass migration programs. The most obvious example is Chinese. How does a cuisine evolve once it migrates to another country and as a consequence is subjected to a whole new bundle of available resources ... what makes a cuisine successful in its new environment, how do some cuisines manage to maintain their essential characteristics? Australian Chinese is obviously very different from Chinese Chinese which is again very different from American Chinese.

Ponder on .....

why is it American cartoonists get it?

2010-02-22T02:24:00.000-08:00

10 Questions for 2010: 1 to 5 (Roy Rodgers)

2010-02-17T04:59:00.000-08:00

We all love the dali lama ... but what would the political economy look like if he was actually in charge of Tibet. The dali is essentially a theological dictator, and while i understand hes reportedly a fairly compassionate guy do you really think you would want a religious leader of a strong monastic sect, with all that it entails in charge of government. How do you deal with a political leadership that sees the ultimate utility of a country as its devotion to a rigid religion and the realization of some form of spiritual enlightenment. Whatever fiscal or monetary policy these guys produced would have to be a complete farce. how would vested interests compete for policy outcomes. Do you really want a guy who believes in self denial and asceticism in charge of your essential infrastructure program. Very interesting public choice question.
Queuing behavior when boarding and alighting from airplanes. Lets start with boarding. I'm always in awe of how they manage to get people to queue in the first place let alone stand in the queue for 10 minutes while they fumble with the boarding passes. It's not as if getting in line early and standing there is going to get you to your destination any faster, it won't even get you a better seat (as these are already assigned). And then there's the question of why every one jumps up as soon as the plane lands. Why? There doesn't appear to be any benefit from doing so. Planes empty row by row so you don't get off any faster, at best maybe you can push in front of one of the guys from the row in front of you, but again what's the point, you all end up at the baggage carousel where you have to wait 20 minutes for the bags to come out, by which time you've lost any advantage from your pushing to get off the plan. Chillax (as my 7 year old would say!)
Why is popular media, particularly TV and the big screen, such a big bunch of lefties. Liberal media commentators are far and few between and liberal orientated movies are far and few between. I find this very perplexing especially when you consider that Hollywood would have to be one of the most merit based market sectors there is, why are businessmen always portrayed as greedy, and private companies as always corrupt. Why didn't Hollywood go the other way? What role does economics and incentives have and why isn't economics portrayed accurately.
In a similar vein, I would like to know how rock stars reconcile the obvious tension between their anti-capitalist herding behavior and the fact that they themselves are the robber barons of the modern capitalist system?I love spearhead, but i often wonder why if micheal franti was so sincere he hasn't released the intellectual property associated with all their music into the public domain ... why are those that scream so loudly about social ownership the first to protect their own property. Should they lead by example? In another related question ... why does the left produce all the good music? why is it classical liberals have to make do with Country and Western.
How come people are slow to realize the opportunity cost in their houses? By this I mean when you look at Sydney and Melbourne - two cities with the most unaffordable housing in the developed world ... how come there are still inner city suburbs like Footscray, where houses are worth 500 000 to 600 000 smacks and yet there are still heaps of bogans living in these expensive dilapidated shacks with their commodores parked dutifully on the footpath. Why haven't they realized the opportunity cost associated with their little shit heaps and buggered off? 500 000 buys a lot of cold chisel CDs.

I recently received some critical feedback from one of the two people (excluding fellow authors and associated family members) who follow this blog .... apparently I am a 'long winded bastard'. In the spirit of self betterment I've split the questions for 2010 into two separate articles ... so stay tuned and questions 6 to 10 will appear here soon.

Ramirez on global warming

2010-02-04T06:32:00.000-08:00

Green fallacies (Roy Rodgers)

2010-02-02T05:07:00.000-08:00

Environmentalism has really picked up over the last couple of years. Its influence on public policy has become all invasive. Environmental outcomes are now pursued with scarce regard for the associated costs and impacts on the wider community. Simple concepts of public benefits tests and robust cost benefit analysis have all but disappeared. Who cares about the bang for our buck ... if we can save an endangered frog we must do it (whatever it is) ... further to that, who cares if we are not confident that the frog is actually endangered or indeed that the frog actually exists, we must do it regardless just in case there is a frog and it is endangered ... we must take a precautionary approach if we are to ensure that sustainability is achieved.

Well on your bike you dreadlocked, no soap, no shoe red ragged feral ... enough is enough.

The time has come for environmentalists to start justifying their policy prescriptions. The time has come for the greenies to defend themselves. No more easy rides or free lunches. The vast bulk of environmental pap that has to date been blindly accepted by governments must be put under the microscope.

As an active participant in the development of policy, its implementation and its ongoing operation I can only cheer what appears to be an awakening of the public consciousness to the dangers of blind acceptance of environmental agendas.

In that spirit I thought there may be some value in trying to identify the main fallacies that underlie allot of environmental argument. Those that deal with government either in a consultative role or in an operational role would have encountered one or more of these fallacies, probably a multitude of times over the last 5 or so years.

The fallacies

Some of the following fallacies relate direct to the the thesis of globally-induced man made warming while others are more broadly applied over the wider environmental agenda. All of them are well known to anyone who has studied logic and argument.

Defending an argument by attacking your opponent personally is called a fallacy of abusive analogy which is a highly specialised version of the ad hominem argument. Basically the opponent or their behaviour is compared with something which will elicit an unfavourable response from the audience. It is a very simple tool for diverting attention away from the merits of the opponents argument.

The demonisation of any dissenting view is a fallacious approach. Sceptics are not equivalent to holocaust denialists. Sceptics are simply questioning the science and at the end of the day scepticism itself is a cornerstone of modern science. We don’t hang scientists, we don’t draw and quarter them, we don’t expose them to social ostracisation simply because they disagree.
Argumentum ad numeram wrongly equates the numbers in support of a contention with the correctness of it. Ideas which have mass support are no more likely to be right than those that don't. The validity of an argument is totally independent of the number of people who support its contentions.

The assertion that there is a consensus in the relevant sciences is equally crap and irrelevant. There is now more than enough evidence that the idea of consensus is blown. Enough notable scientists have spoken up and enough sceptics petitions have been made public that anyone contending there is consensus is full of it. There is consensus about gravity, there is consensus about evolution, there is consensus about the existence of dinosaurs ... there is no consensus about man induced global warming. And in any case consensus doesn't matter. Science is not about everyone agreeing with each other, its about the discovery of truth. Truth is true no matter who believes in it, or who doesn't.
Argumentum ad bullshitus. An outright lie ... a plain and simple false analogy.

Carbon dioxide is air ..... its not carbon, its not soot, and its not dirt. Put your hand up if your sick of hearing some idiot mention dirty air or show pictures of some black sooty monster in the sky. Carbon dioxide is air, its an integral building block for life as we know it. As a simple experiment cup your hands in front of your face and breath into them. Now quickly have a look .... that’s the stuff that’s killing us ....air. I know its hard to believe but what you are now holding in your hands is literally the very stuff that all this current drama is about ... air.
This is a modern fallacy so lacks a swank Latin title ... it is a mix of the fallacy of blinding them with science, with a bit of ex-post-facto fallacy (that the past dictates the future) and generous lashings of false precision. The false precision fallacy is an attempt to impart more confidence in the assertions than the evidence for them actually merits. The next time you read an article that says global temperature will increase by 3.5 degrees over the next 20 years, ask yourself why not 3.6?

Models are right? As an economist i can tell you outright that anyone who believes they can model human behaviour and forecast it accurately over the long term ie the next 100 years has been sniffing too much glue. No one can accurately model human behaviour over the short term let alone the long term. Human beings especially those in modern capitalist democratic societies are unparalleled in history in terms of their ability to innovate and create. For example, consider fossil fuels or actually just consider one fossil fuel ... petroleum .... how many times have peak oil nut jobs had their say. Ever since the sixties there has been a steady procession of modellers predicting oil reserves to run out within the next 3 years (i don’t know why the always go for 3 years but they do). The reality is that oil is nowhere near being depleted.

What these modellers fail to predict is the ability of the market to adjust to increased price ... growing scarcity ups price, increased price generate greater levels of investment which increase supply through innovation, price goes down. Despite the constant threat of depletion oil prices have remained relatively constant over the last half century (in real terms). The modellers shouldn't be ridiculed for not being able to predict oil prices but they should be ridiculed for not possessing enough self awareness to recognise the inherent inability to meaningfully model such technological development. The problem with man made global warming models is the unpredictability of the man made part which is only exaggerated by the long term view these models take.
The fallacy of composition, what it true for one member of a set is true for all members and subsequently for the set as a whole. For example ignoring the south pole and focusing on the north implies that of course the earth is heating if the poles are melting ... self evident.Picking individual members of a set of environmental outcomes as indicative of the outcome for the set as a whole is fallacious.

They seem to cherry pick their results. For example, a couple of weeks ago a group of principles IPCC authors released a paper (coincidentally just in time for Copenhagen). The report makes a big thing about low ice coverage in the arctic. However it gives no coverage to growing ice coverage in the Antarctic, I don’t know about you but for me to be convinced that the lack of ice in the north is global warming they need to explain why this is more important than the net global gain in ice coverage or the seeming exponential growth of ice in the Antarctic ... does the south not matter.
The classic fallacy of reification. The environment is an abstract concept much in the way that a firm is an abstract concept. All a firm is, is a collection of of labour and capital, just as an environment is a collection of Flora and fauna. It fallacious to treat the firm as a thing. the firm doesn't think, the firm doesn't produce things, and the firm doesn't play soccer. High level executives may undertake strategic decisions, production line workers may use capital to produce products and both executives and underlings may play soccer. But the firm itself is nothing more than an abstract concept.

Just as GIA is nothing more than an abstract concept. GIA doesn't weep, GIA doesn't morn the good old days when dinosaurs farted their way into global warming and GIA most certainly doesn't play soccer.

The environment is not some big breasted female entity that is feeling slightly hurt because we have discovered intensive cropping techniques. The environment is a bundle of physical actualities regarding soil, water, weather, flora and fauna. It is not some god that needs to be worshipped. All animals seek to control and influence the environments they live in. The environment does not need to be saved or preserved as a moral imperative. We along with every other living thing should seek to manage our environments to the degree we can to benefit us as a species.
The false dichotomy. Man Vs Nature. A dichotomy is a splitting of a whole into two non-overlapping parts. In set theory terms its basically taking one set and splitting it into subsets that are mutually exclusive and jointly exhaustive. In the context of an argument these sets are seen as opposites ... its either one or the other. As discussed, this fallacy totally ignores the fact that man is part of the environment ... we are in fact natural.

Man is a part of the environment. We are the apex species. It makes absolutely no sense to proposition a world without man. We evolved on this planet, we didn't come here in big space ships. We are part of the environment. Given the existence of man the proposition of a world without man (nature) is an inherently unnatural thing to do. It doesn't matter how special we think we are, we are part of the ecosystem.

When was the last time you turned on the discovery channel to find a documentary that considered the Serengeti without lions or the pacific without sharks ... obviously there would be more gazelle and more tuna ... but whats the point, sharks and lions are part of the environment and man is also part of that very same environment. That concrete tower I work in most days is no more unnatural than the big termites nests I used to always be in awe of every time i went bush with my dad as a young boy.

Further, it makes absolutely no sense to proposition that nature without man is the optimal environment ... Optimal for whom? Definitely not for us ... is that also true of the pacific without sharks or western Queensland without termites.
Celebrities are not climatology experts. Rock stars and actors have no more credibility when it comes to the environment than you or I. Just because they had a string of hits in the 90s doesn't mean they have their finger on the pulse. I personally cant stand the celebrity global warming attracts. Al Gore and Bono are wankas ... 100%.

This is an extreme version of argumentum ad verecundiam. An appeal to false authority.... its an appeal to celebrity. Bono is an expert at rock music 90s style. Just because he is famous does not have any bearing on the validity of his statements in regard to the environment. Advertisers have long been aware of this fallacy, in fact its kept many Australian Olympic swimmers financially afloat long after they start to become fat and non competitive.
Stop consuming or there will be nothing left for the rest of us. This fallacy is an economic one, its the fallacy of the the Malthusian trap. While the reverend Malthus is widely regarded by economists as somewhat of an embarrassment, his thesis that economic growth is not only constrained but ultimately unsustainable due to the physical availability of resources is to environmentalists as junk is to junkies.

While on the face of it the Malthusian contention that we will all eventually starve may seem to have some merit, it makes the fatal error of treating resources and their associated productivity as static. It take no account of how markets operate to signal investment and depends on a very simplistic definition of scarcity that does not allow for innovation to drive changes in efficiency in use. The discussion under fallacy 4 in relation to peak oil also serves as a good example of the Malthusian fallacy.
Risk aversion is better than risk neutrality or risk affinity. This is the precautionary fallacy, there is absolutely no reason a risk adverse approach will result in better outcomes.

A perfect example is the banning of DDT, which goes something like this ... a whole mess of bureaucrats read a well intentioned book called silent spring, they all jump up off their collective backsides and declare ... wow we better stop spraying mosquitoes with DDT, otherwise it may be the case that we inadvertently kill innocence wildlife ... granted there's not a lot of data to support the idea, but hey we better ban it or we may just create an ecological disaster .... millions of Africans die from malaria. Who said being risk adverse didn't have costs.

The other problem with the precautionary principle is just how precautionary do you want to be. Unfortunately in life everything has risk associated with it. Doing something may be risky, not doing something may also be risky. Ultimately someone has to pick what risks matter and what risks don't, and when they do the precautionary principle becomes nothing more than an expression of their own prejudices.
The sustainability fallacy, there seems to be a growing contention that all natural resources need to be managed in a sustainable manner, otherwise we are creating inter-generational inequities. Rubbish, the desirability of treating a resource sustainably as opposed to just letting it deplete should be dictated by the net value associated with each approach. Its not inconceivable that some resources are just too expensive to treat sustainably or alternatively, that some resources run the risk of technical obsolescence and as such should be depleted as much as possible prior to obsolescence.

Some resources by definition can't be treated sustainably ... eg oil.
The doomsday fallacy, environmentalism is permeated with the idea that disaster is just around the corner. That if we don't act now we are stuffed. The doomsday fallacy is a fallacy simply because in real life as we converge on a true crisis point we inevitably invest more in addressing the issues and finding solutions or alternatives. That is free markets will if left to their own devises, just simply deal with it. Doomsday never arrives.

The interesting thing about this fallacy is that Australia along most of the developed world has been aggressively implementing environmental policy for the last 30 years or so. If we are still dangling over the precipice of environmental collapse, this would imply that none of the previous policy was effective in any way. Have we just witnessed nye on 30 years of collective policy failure.

Given that the vast bulk of these policies and prescriptions are the direct result of the lobbying of the environmental movement, we must ask both ourselves and the dreadlocked losser standing on my doorstep, all well intentioned in his chuck yagger rip offs , nose piercing and little shiny plastic green peace badge ... why in the name of all thats holy would we want to pursue more of the same.

If what you are saying is true and we are all being flushed down the poo hole of environmental disaster ... you and your dreadlocks are not the answer, you are by your own admission part of the problem. So bugger off and lay your intellectual cable on someone else's doormat

Give it a burl

Now that we've identified a set of fallacies we should see if we can find some in action.

The following link references a forum on recycling. LINK (thanks to sparker for providing the link)

Its a great discussion. On one side you have a rational headed German engineer and on the other you have a couple of emotionally motivated greenies. See how far in you get before you can identify a fallacy. The most obvious one is the Malthusian Trap Fallacy . And this is a superb example of it being played for all its worth. The user of the fallacy has even brought in props to illustrate the point.

Its also worth watching because its one of the few forums Ive seen that actually has a critical audience with an intellect capable of participating in the discussion.

iPad

2010-01-29T05:22:00.000-08:00

Hitler's take on the iPad

More Ramirez

2010-01-28T05:58:00.000-08:00

Ramirez on Obama

Ramirez on Global Warming

Ramirez on the Economy

Does green = red? (Roy Rodgers)

2010-01-28T04:34:00.000-08:00

Have those sneaky red little bastards crawled back under the bed?

When Fukuyama predecticted that we had just witnessed the end of history in 1992 what he was refering to was the death of socialism and the triumph of the classical liberal system. He was brave enough (or silly enough) to theorise that the battle of the great 'isms was over.

Fukuyama thought that the overthrow of communism meant that classical liberal democracy combined with technologically driven capitalism were end points for the collective evolution of society and of the politic. In other words they were in themselves final forms of government and economic organisation.... thus end points in history.

I'm going to go out on a bit of a limb here and suggest that while it's bleedingly obvious to everybody that socialism lost the battle last century, all those skivvy wearing , beret donned old red raggers (I swear to god they wear berets, I've only been to one Fabian presentation down at trades hall, but the beret count was at least 70%) and the dreadlocked, no shoe, no soap brigade of new stinky red raggers didn't just pack up their misguided 'ism and become accountants. NO NO NO ... they went out and found themselves a whole new cause... a whole new 'ism.

What Fukuyama didn't forsee was the rise of the next great 'ism ... environmentalism.

On the face of it, environmentalism would appear to be apolitical. Anyone can want to save the planet, you don't have to be a closet Marxist, a leafy suburbs labourite, you don't have to be a democrat, you can be a free marketeer, you can be a clasical liberal, you could even be an anarco- capitalist. After all, Abbot is a commited environmentalist ... he's going around talking about raising a green army no less (obviously an approach that would leave all his truly liberal supporters scratching their heads thinking '..what the hell is going on?').

The thing is ... any analysis of the proposals, policies and positions of the green movement and the broader environmental agenda leads to the obvious observation that it has no appreciation of the power of markets, no grasp of the ineffectiveness of centeralised planning and an apparent abject hatred of property rights. Environmentalism is fixated with the idea of market failure, greenies see externalities everywhere. And their answer is fairly straight forward ... socialise environmental assets (whatever the hell 'environmental assets' are) and directly control people's behaviour through regulation.

All the trappings of the socialist system appear to be dutifuly reproduced in the environmental movement. Don't get me wrong, I'm not saying there are reds under the bed and that we need to invade Vietnam. What I am saying is that there appears to be an incredibly strong relationship between the policies of groups such as WWF, GreenPeace, guys like Al Gore and Oxfam (although these guys appear to have the conflicting objectives of being green and promoting economic growth? work that out ... nut jobs) and the policy approaches previously adopted by just about any failed socialist state you wish to name.

And at the heart of this approach is an apparent faith in the power of centeralised control.

Just as an aside ... it's quite ironic that the environment fared much worse under socialism and communism than it did under the capitalist liberal democracies. How's that for an inconvenient truth.

Why we need to drag the reds out from under the bed.

While being more or less the child of socialism, environmentalism is much more ambitious than its predecessor. It lays claim to not just saving humaniy but saving the very planet we live on.

The grandioseness of its ambition is matched only by the inevitability of its failure. And the reason its doomed to fail is quite simply that it has chosen to ignore the lessons from the demise of socialism and has centred itself yet again on the idea that burecrates in cubicles can, through the powers of coercion vested in them, produce effective outcomes. This is an absolute crock of an idea, always has been an absolute crock of an idea and always will be an absolute crock.

So who cares? ... the reason it matters is that, while history has shown us that liberal societies are very robust and can over time reject such destructive ideology ... the process shouldn't be considered inevitable and if it does occur, it takes time. It took a good 30 years for Australia to shake off its social democratic chains and become a liberal democracy. It took the prime ministerships of Hawke, Keating and Howard to get Australia to the point where it's at now. Despite the dribble of big kev and the seemingly endless burden of the nanny-state we are still much more liberal than we were under prime ministers such as Fraser.

The added danger is that once embedded you may never be able to roll it back. Only the abrasive bullheaded strength of Margret Thatcher was capable of dragging the UK out of its socialist funk. And it took the gun-swinging cockiness of Ronnie Regan to halt the seemingly inevitable slide of the US into social democracy. People like this don't come along every day and it's not advisable to pin your hopes on one of them magically appearing at just the right moment to ensure that the bad 'isms are all swept away. France never got its Thatcher and subsequently is still unable to raise its head above the stink of its own socially democratic system.

Yes Australia was lucky enough that it got its silver headed little bodgy, but I think its fair to say that if he actually knew what he was doing he may not have done it.

Once entrenched, 'isms are very hard to get rid of (...if they can be gotten rid of). And the longer it takes us to get rid of the bad 'isms the more costs we will accumulate. In the case of environmentalism, those costs will be a suppressed economic growth (meaning incomes will be lower than otherwise) and ironically it probably means were not going to be able to deliver the strong environmental outcomes that liberal capitalist economies have to date.

One saving grace may be that unlike previous manifestations, environmentalism is associated with a set of objectives that are at lest in theory measurable. This gives its opponents ample ammunition to hold the ism to account. If you want to go and save lovely tree frogs, we should be able see just how effective you are by simply counting frogs. No matter how much you believe in global warming, unless the temperature actually goes up the thesis is doomed.

We need to deal with environmentalism. And one of the very first things we need to do is to stop treating it as the 'holy of holies' and subject it to some cold hard critical analysis, much as we do everything else. Environmentalists need to defend their arguments, justify their policy .... greens need to come clean and face the public in an open and transparent manner.

One way in which to do this is to examine the fundamental assumptions underlying their aruguments.

Here we go (Roy Rodgers)

2010-01-19T00:04:00.000-08:00

Big kev is back and he is back in a big way.

Yesterday’s declaration of kev's next election winning platform is guaranteed to bring on the laughs. 100%

Here is, the next self declared saviour of social democracy, announcing that Australia needs to return to the productivity levels of the 90s. That we need to pull our socks up and work that bit extra.

See the Australian

Big kev has said its all up to us, only we the workers can save the economy. We need to achieve the 2% annual productivity gains that were delivered under the Hawke, Keating and Howard tripartite.

Well smack me over the back of the head, am I missing something or isn’t it true that these productivity gains were the result of one of the most liberalising eras in Australian history? These productivity gains were the direct result of microeconomic reform, of privatisation and corporatisation, of tax reform of labour market reform ... reform as in liberalisation ... reform as in the freeing up of markets. It was the 80s and 90s that saw Australia transform itself from a social democracy into a liberal democracy, and it was this transformation that gave us the wealth we have now.

Obviously this simple observation is totally lost on big kev. Or is big kev now going to change colours ... is he no longer going to be the pinkly tinged social democrat of his dreams? I doubt it, I’d say he just hasn’t twigged that the 90s productivity growth is solely attributable to stuff that he doesn’t want to and is not ever prepared to do.

Let's have a look at his run on microecomic reform to date;

Removal of work choices ... the very first roll back of a liberal reform in the last 30 years
Re-union-ification (I know there’s no such a word) of the workforce. This year, for the first time in a decade or so we were subject to the labour phenomenon of Christmas strikes ... thank you santa
Promotion of protectionist policies ... see recent decision in relation to Australian publishing and anti dumping laws
Selective handouts to industry ... here go and make me a green car, oh you were already making one ... well you might as well take the cash anyway!
Reintroduction of progressive taxation and payments ... see the robin hood delusion wayne swan is currently suffering under
Reintroduction of the welfare orientated approach ... see response to housing affordability crisis ... ie more public housing

The list just goes on and on. While I have to admit big kev is very hard to pin down on anything the one thing we can say with any certainty is that he is NOT a microeconomic reformer.

Do you think for a second that big kev may seek to address our current issues in the provision of health services by decentralising health planning, privatising assets, empowering consumers to make their own choice ... I DOUBT IT

Do you think for a second that big kev may want to reform the tax base by removing exemptions from GST, moving the focus away from income based taxation or instituting flat rate income taxes, abolishing distortions such as negative gearing, abolishing company tax, distributing mineral royalties through positive tax returns, getting rid of absurdities such as payroll tax and stamp duties.... I DOUBT IT

Do you think for a second big kev will want to reform the labour market by abolishing the minimum wage, promoting individual workplace agreements, abolishing unfair dismissal ... I DOUBT IT

Do you think big kev has the stomach to tackle issues associated with the provision of basic services such as water and sewerage (can you honestly see any privatisation in these areas). Do you honestly think big kev has an agenda of reducing government service provision. If we need money lets sell the ABC, that would free up approximately a billion a year in budgetary funds and would also provide government with some ready cash to retire the mountain of debt it now has.... I DOUBT IT.

Do you think for a second that big kev will want to address housing affordability by removing constraints on land supply, abolishing hidden taxes such as developer charges, abolishing stamp duties, removing heritage overlays ... I DOUBT IT

That’s not to say that Mr Abbot has the necessary where-with-all either.

Undoubtedly big kev's form of reform is going to be regulate ... interfere ... coerce ... spend money. None of which is going to have a positive impact on productivity.

The hilarious thing is that he is going to ask us to deliver productivity growth similar to that associated with the advent of market based reforms by .... wait for it ... wait for it .... wait for it .... doing exactly the type of things those original reforms were aimed at addressing.

More Haiti (Roy)

2010-01-18T18:01:00.000-08:00

Just came across this reuters article

You cant help but begin to be concerned about the effectivness of the response when you read things like this

Five days after the earthquake, scores of untouched corpses, now bloated and stinking, remain on streets. Red Cross officials have repeatedly said no one should fear disease from dead bodies after the earthquake that is believed to have killed up to 200,000 people.

"I don't understand why everyone is worried about a disease risk," Haitian Red Cross President Michaelle Amedee Gedeon told Reuters. "Do we have cholera in Haiti? No. Do we have the plague in Haiti? No. Rodents, water will not get contaminated. The only bad effect from the corpses is the smell."

On Sunday, more bodies appeared overnight, with locals saying they were thieves burned and shot by lynch-mobs, gangs and police. They said about 20 people were killed like that.

Lets hope for the best (Roy Rodgers)

2010-01-18T14:01:00.000-08:00

Haiti is an absolute disaster, and i wish nothing but the best for those that have fallen victim to the recent earthquake.

However, I would be interested in knowing how the humanitarian effort is going. Whether its getting food and supplies to those who need it as quickly as possible.

The following is an excerpt from Haiti's 2009 poverty reduction strategy.

Strategic-level entities: the Strategic Orientation Investment Council (COSI), the Donor Advisory Committee (DAC), and the Priority Arbitration Committee (CAP) are not yet officially up and running. At the operational level, the Interministerial Committee for Implementation Coordination and Monitoring (CICSMO) is up and running and is chaired by the Minister of Planning and External Cooperation. The Executive Secretariat of CICSMO, the key entity for the entire implementation mechanism, the Interministerial Subcommittee for Sectoral Coordination and Monitoring (SCTICSMO), and the Departmental Subcommittees for Implementation Coordination and Monitoring in the regions (SCDCSMOs) have been established. SCTICSMO is holding its ninth monthly coordination and monitoring meeting (thanks to a fist full of euros).

wow ... what a load of bureaucratic crap ... do all those committees seriously give anyone any faith that they have the whole development thing under control.

Poverty reduction strategies apparently describe a country's macroeconomic, structural and social policies and programs aimed at promoting economic growth and of course .. reducing poverty. The strategies are prepared by government and 'development partners' such and World Bank and the IMF.

Lets hope the disaster relief effort is better organised than the poverty relief effort.

My burning ring of fire (Roy Rodgers)

2010-01-09T06:39:00.000-08:00

My apologies to anyone who has been following this blog ... we have been pretty quiet for the last couple of months. It's safe to assume that like myself the rest of the posse have been swamped with end of year real work and family commitments. So apologies for the lack of content but I’m sure you’ll understand. And I'm sure the new year will bring plenty of well informed insightful comment from the seditionists (as an aside I am laying it on a bit thick... other than the other contributors and my mum I am fairly sure no one is actually following the site).

That said, I now find myself on a job in regional Australia suffering through one of those sleepless (slightly itchy) nights in a lovely regional motor inn. The brown brick and crap Win TV programming are miles away from the comforts of home. The rattly air conditioner and the moldy $5 mars bar in the mini fridge are dismal compensation.

I must admit that the sheets are crisp, if not exactly pearly white, but the pillows cases were rather crumpled and I’m not convinced they were crumpled in the not ironed but washed sort of way. And can someone please explain why there is a spa big enough to accommodate 5 truck drivers sitting in the bathroom.

Enough whinging ... this blog is about the environment and man made global warming.

Where I currently stand

Rather than start preaching about the pros and cons of the global warming debate, I thought there may be value in declaring exactly where I stand on the issue straight up, just so that we clear that there is no hidden agenda or undeclared philosophical position behind the rest of the blog.

I am not a climatologist, I have no idea how the environment works in a physical sense, and I admit that I remain to date uncommitted one way or the other. By uncommitted I mean I am still open to the idea were it to be presented in a convincing manner. I am probably best characterised as an agnostic global warmist.

Our policy response

On the other hand I am quite clear about what I think our policy response should be. Regardless of the accuracy or validity of the underlying science Australia needs to adopt some form of emissions policy. The reasoning has absolutely nothing to do with the environment but quite alot to do with trade.

We are a small, incredibly open economy, our welfare is wholly dependent on our ability to trade openly and without restrain with the rest of the world. If we were not to implement some form of policy we would inevitably see a backlash from our trading partners in the form of foreign carbon taxes and quotas placed on our exports. A new form of protectionism dressed up as carbon neutralisation. The thing is that it doesn’t matter so much whether it's true or not but rather whether the rest of the world believes it, and if it does we need to make sure our windows are dressed accordingly.

It follows from this pragmatic view that we would be best served by pursuing policy that can be removed once it is recognised not to be of any further use. For example, were the world to continue to cool rather than warm we may at some point come to the conclusion that global warming as a hypothesis is invalid, in which case we would wish to discard those policy instruments we implemented to combat warming. Instruments like a carbon tax would be relatively easy to discard. All one has to do is simply cease collecting the tax. Regulation would also be relatively easy to discard ... we just abolish it or to use the right wording to reduce the regulatory burden.

The trick is to avoid implementing policy that can’t be readily discarded. For example, it won’t matter if we no longer believe in climate change, if we have implemented an emissions trading scheme you can bet your bottom dollar that we will never get rid of it. History shows that once you have granted people rights to property (in this case the right to emit) and those people have made significant investments in these rights, it is incredibly difficult for democratic government to roll back these rights or to abolish them.

To borrow a phrase from the environmental lobby ... we should take a precautionary approach to policy.

Economics and the warming sceptic?

One of the most confusing and to be honest, confronting things about global warming is the manner in which very well educated people approach the theory of man made global warming as if it were a matter of faith (faith defined as belief not based on evidence). The reason that this is so surprising is that most of the people I know are economists and are by definition sceptical of just about everything.

Climatology and economics may seem to be a world apart, but both disciplines share a number of similar traits. Neither science is a lab coat science. Both attempt to model complex systems (granted the climate is much more complex than the economy). Both base future expectations on a collection of a wide range of historical data which is inevitably cobbled together from a variety of sources.

Both are intimately concerned with human behaviour. While economics deals directly and almost exclusively with the modelling of human behaviour, its pretty safe to assume that any long term modelling of human induced warming must also have at its core a model of human behaviour. If it doesn't then we are in real trouble.

While there are alot of similarities we should also note that Economics has been around longer, has better data and has developed its own advanced from of statistical analysis. So while economics may be somewhat less ambitious as climatology, it's reasonable to assume it's more mature as a science in what it does.

If you presented most economists (such as my mates) with 100 year forecasts generated by an extremely complex economic models , they would immediately assume the results were at best totally unreliable and at worst absolutely totally unreliable. The thing is that economists are incredibly sceptical about their own science and its ability to generate long term reliable forecasts, and especially so in the macroeconomic field. There are even quite well established branches of economics (such as the Austrians) that hold such modelling in complete disregard. We know intuitively just how fragile forecasts can be.

By way of example, its worth considering the forecasts of Paul Samuelson (a celebrated Nobel prize winning Keynesian Economist) who in the 1961 edition of his famous textbook of economic principles, wrote that GNP in the Soviet Union was about half that in the United States but the Soviet Union was growing faster. As a result, Samuelson contended that one could comfortably forecast that Soviet GNP would exceed that of the United States by as early as 1984 or perhaps by as late as 1997 and in any event Soviet GNP would greatly catch-up to U.S. GNP. The following graph is lifted from the textbook.

As your probably aware ... to call this a poor forecast is like calling Bob Ellis an intellect --but it gets worse because in subsequent editions Samuelson presented the same analysis again and again except the overtaking time was always pushed further into the future so by 1980 the dates were 2002 to 2012. How wrong we he ... and he was one of the smart ones (thanks Marginal Revolution).

The confronting bit is that if you present these very same sceptical economists who don't trust their own analysis with a 100 year forecast from a climate model that predict significant and material change (no less than the end of life as we know it), they will all drop their calculators in a state of abject panic and start hoarding tins of baked beans for the forthcoming Armageddon. This seeming unquestioning acceptance is despite the fact that climate models are by definition trying to model something infinitely more complex than any single economy, and that the data the models are being fed is nowhere near as clean as economic data.

Ask yourself this simple question, as an economist, what would you say to your friend if he she came to you one day and said ...

Friend: ....hey Roy, I've developed a model of the global economy that can predict macroeconomic outcomes over the next 100 years... and guess what, my model says were all going to die. Say why don’t we start implementing massive policy change based on the outcomes of my model.

Roy: on your bike buddy

Granted economics as a science has been around allot longer than climatology. It has more runs on the board and more embarrassments to contend with (hopefully this translates into lessons learnt). Maybe that is why we are much more modest about the reliability of our models than our fellow scientists the climatologists. We know from bitter experience that 9 times out of 10 you will inevitably be wrong. ... just like the joke says ... Economists have successfully predicted 9 of the last 3 recessions.

Maybe it's time climatologists learned a little bit about intellectual humility.

Maybe the joke will go something like ... Climatologists have successfully forecast the warming associated with the last ice age (or something equally as lame) ... the inconvenient joke?

I'm not saying climate change is wrong ... I simply don't know ... all I am saying is next time someone comes knocking on your door telling tales of doom PLEASE PLEASE be a little bit sceptical.

Regulation gone crazy

2010-01-07T18:17:00.000-08:00

Well Christmas has come and gone and now its sale time.

Awhile ago we posted a blog regarding the absurdity of predatory pricing. While the content of the blog was 100% accurate, the blog itself was very much tongue in cheek. After all how stupid would a regulator need to be to go down that road … surely no one would … not given the ready availability of so much good economics.

Well they have, and as anticipated the outcome is nothing short of absolute lunacy.

Where did they do it? Where else, but that bastion of anti capitalism, social democracy and good cheese. France!

Sales in France are governed by specific legislation. Laws supposedly designed to stop unfair competition and protect small shopkeepers from those "all year" sales by large stores who can afford to sell some items at a loss. In France out of the sales period, it is an offence to knowingly sell goods at a loss, again a measure designed to protect small shopkeepers from large retail groups

Trading laws stipulate that there are two periods for sales in France. Winter sales from January to February and summer sales from June to July. In each case, the sales last for five weeks. All goods on sale must have been in the shop for a minimum of thirty days prior to the sale date. No buying in cheap stock and selling it as a sale item. Reductions’ must be visibly displayed in percentage terms. labels must also show the old pre sale price and the new sale price. Retailers are allowed to reduce their prices three times in the sales - after the first fortnight, and again in the final week.

Outside the official sale periods, retailers are allowed two weeks in the year, to use at their discretion, for extra sales such as pre-Christmas sales or spring sales. Shops are allowed to run "special offers" on certain items of stock throughout the year i.e. - a rack of cheap "end of line" clothing. Shops that are closing down, or refitting are allowed to hold sales - "everything must go" with written permission from local authorities.

Yesterday morning many shops (with permission from their local trading authorities) were open at 7am. Needless to say that the starting date is a national one decreed by the government. (thanks to fabfrog.com for these nuggets of info).

It never ceases to amaze me how blatant anti competition laws are often dressed up as pro competition rather than what they truly are …. Articles for Government sponsored cartel governance arrangements.

Aside from mad Frenchmen, its also worth noting that the American fiscal stimulus bail out framework has just started to produce some dodgy results

Bailout hearing

More follies

2010-01-07T06:28:00.000-08:00

Sorry ... couldn't help myself ... heres another folly from 2007

aint goin to go to econ

Start Friday on a high note (Roy)

2010-01-07T06:13:00.001-08:00

Start Friday with a laugh.

I've recently discovered the spring follies that American business schools seem to love producing. Youtube is fantastic.

Here is a link to a 2009 spring folly from Columbia School of International and Public Affairs.

the most beautiful girl in the lobby

Santa Hates Me (Roy Rodgers)

2009-12-26T15:32:00.000-08:00

Santa hates me ...

I've never done anything to Santa. I've always had a good word for the bloke. Despite a general distrust of altruistic institutions, the cult of personality and total aversion of the welfare state I have always made an exception for Santa.

I know he wears a big red suit and rules his own little fiefdom of socialist oppression where little elves (obviously deprived of their full nutritional requirements) are made to wear bizarre little uniforms and toil endlessly in factories producing purely consumptive goods that bear no reference to any sane economic output.

I've never been to the north pole but sure as hell there is a statue right in the middle of town. A nice big one of Santa toiling away. Just like the statues Mao was so fond of. Just like the statutes Stalin loved to build, just like the ones Saddam Hussein commissioned.

Despite all this I have stood by Santa... but no more ... this year Santa crossed a line that should never be crossed ...this year the bastard stuck a copy of "the capitalism delusion" by Bob Ellis in my Santa sack.

To be fair it wasn't actually Santa but my father who did the deed, and to be fair he did offer the critique that the only improvement the publishers could have made was to print it on extra soft double ply. However, at the end of the day he is still responsible. And while he is currently revelling in the hilarity of watching me foam at the mouth every time I read a passage from Bob's masterpiece, my father will rue the day he decided to take the micky on this one.

Bob's masterpiece

After reading a couple of pages I was beginning to come to the obvious conclusion that Bob, god bless his soul, was just another in a long line of delusional nut jobs who spend their lives rallying against the progression afforded the human race by the somewhat radical idea that people should be free ... free to choose what they want to do, when they want to do it and how they want to do it ... somehow, through some sort of twisted illogical process, people like Bob equate freedom with the extension of monopoly powers of coercion to a centralised state that then by definition has to direct people on what to do, when to do it and how to do it.

Here's a hint Bob ... the thing about free markets is that they are free. The thing about socially democratic economies or socialist economies is that they are not free.

But rather than rant and rave I thought there may be some value in having a look at exactly what Bob is saying and providing some rational evidence based discussion on Bob's little gems.

Before we start there are a couple of things that should be mentioned, so that the conversation will make more sense.

Bob appears to define capitalism as free markets, he also appears to take that definition to the extreme of free markets = no government (anarchy by any other name).

Bob's grasp of economics is fairly loose, the manner in which he fails to grasp some very basic economic principles and theories make the discussion particularly unsophisticated.

Bob does not appear to have provided any evidence anywhere for any of his musings, I suspect the research conducted for the book consisted of reading some Naomi Kline and watching Mike Moore's 'Sicko' (both acknowledged in the prelims) ... so don't expect any well informed or defendable arguments.

Before we start, its worth noting that most of these types of books are based on a core fallacy that is the fallacy of the false dichotomy. The arguments put forward will be framed in the following manner ... capitalism is crap ... it did this, it did that, it lead to this outcome, it lead to that outcome. It then follows that because capitalism is crap.... socialism must be good.

Well not really ... obviously no country has ever existed free of government and as anyone with any interest in politics knows, the difference between social democracy and liberal democracy is not one of absolutes but rather is one of degrees of government intervention. Liberal democracies have an explicit faith in their own people to make choices that benefit themselves and everyone else if they are by and large free to do so. Socialist economies think people are stupid and must live at the behest of vastly more intelligent cubicle dwelling planning bureaucrats. Liberal economies focus on market-based outcomes and will tolerate government intervention where markets cannot be established. Socialist economies favour planned outcomes and will tolerate markets where plans don't seem to be working (i.e. most of the time).

So it is worth mentioning that for all his bluster on the evils of capitalism, Bob never once outlines how his beloved socialist system would do it better. And that is the point most libertarians make ... we realise the world isn't perfect and allowing people the freedom to do as they wish when they wish to, may sometimes lead to outcomes that appear to go against the grain of what experts view as our collective aspirations. However, no matter what the outcome, you can reasonably assume (based on past experience) that it is better than the alternative that some pimply 30 year old wearing a polar fleece vest in a government cubicle somewhere in the wasteland of the civil service could provide (the socialist alternative, Bob's alternative).

Bob's little gem for the day

The best place to start is the very beginning, page 1.

If i were to say to you don't worry about the tsunami the free market will sort it out, you might think me a little mad.

Bob's problems start here with the very first sentence of the very first chapter. No the free market can not undo the tsunami but I personally would not think Bob mad at all to suggest allowing people the freedom to allocate their resources as they see fit in response to the tsunami as opposed to a centralised response, would provide for an effective response. Centralised disaster management has come under alot of scrutiny and criticism in recent times, especially given the what can only be labelled government failure in response to Katrina and the destruction of new Orleans. One of the primary criticism of centralised disaster responses is that it is often slow and ineffectual, primarily due to information problems.

Or if I were to say the Chinese earthquake, it isn't a problem. The issues arising from a schoolhouse falling in and the one child of a one child family being killed and his father having had a vasectomy and his mother wanting another child to replace him are issues that markets will easily fix, you wait and see

This is the second sentence and again Bob has a few problems. All of the schools that collapsed during the earthquake were government owned and run. They were designed and built to government specs, and as any architect who has worked in China will tell you, those specs are quite considerable. Further to this the fact the father has been neutered is a requirement of his socialist government's one child policy. So Bob's problem is that he seems to have put forward an example of the ineffectiveness of free markets that has absolutely nothing to do with free markets but is totally down to the absurdity of a socialist government. Of course that's not to say that the earthquake would not have had such horrible consequences for a market based economy, but one thing we can say with certainty is that the notion of compulsory neutering is not consistent with notions of a free market, and the prospect of thousands of childless families would not be as big an issue in a liberal free market economy.

Or if I were to say to you the killing of three hundred children by Israeli bombardment? And the destruction of fifty thousand buildings? Don't worry. The deregulated free market unguided by government interference will quickly fix all that.

Bob ... what in the name of sweet Jesus are you trying to say? The decision by a socialist leaning government to bombard it's neighbour over an apparent dispute centred on contested land and the demarcation of national boundaries, tied into an ongoing conflict between two sets of religious fundamentalists ..... has absolutely nothing to do with the free market. And the contention that the adoption of open boarders, open markets and free trade has no role to play in any future peace is idiotic.

The next little gem isn't the fourth sentence, but it's close. It's the central point of Bob's fourth paragraph.

.... or the killing by machete of eight hundred thousand harmless Rwandans, are well within the power of the free market to sort out ...

Well Bob ... given the blatant ineptitude of the centralised response provided at the time by the United Nations who sat idly by watching the slaughter ... one would have thought that, contrary to your dribble, this is a perfect example of an instance where free markets would not have hurt, if a defendable system of adequately defined property rights had been in place then maybe just maybe the world could have avoided the macabre result of tribal feuding and nepotistic governance that Africa so often produces.

What can we say about Bob and his book?

Well, based on the first four paragraphs .... I think he's an idiot. Let's hope as we get further into the book that he is a least an amusing one!

Five minutes on a friday or monday (Roy Rodgers)

2009-12-05T18:25:00.000-08:00

So its Sunday and I've spent the last 2 hours in at work trying to cattle prod the biggest most mindnumingly boring financial model to work. The only way I've been able to stay conscious is by running youtube on the second screen.

If you have five minutes spare I though you may enjoy sharing in the fruits of my youtubing.

The following tunes are mostly parodies of the GFC.

My favorite

Total collapse of the street

Every breath Bernanke takes

Worth a listen

The market crashed on me

Lyn on the docs bout my pay

The subprime mortgage blues

The bailout rap

Here comes another bubble

Regulate

Totally unrelated but nevertheless amusing ... heres a couple for the lads (theres even a mention of porters 5 forces)

Consultants vs bankers

Baby got WACC

More Ramirez

2009-12-05T17:55:00.001-08:00

SORRY I CANT KEEP IT IN ANY LONGER ... I MUST RANT (Roy Rodgers)

2009-11-12T18:16:00.000-08:00

WARNING The following blog contains explicit language, sexual references and is unfair in its treatment of the intellectually disabled.

I don’t know if its just me but I pretty sure I saw Lindsey Tanner saying the most incredible thing yesterday ... he said that Kzedong and the gang of four had decided to maintain protection for the Australian publishing industry on the grounds... wait for it ... on the grounds that the protection was rendered ineffective by Internet competition.

Please smack me in the head ... no not enough ... smack me again ... I just don’t get it.

Saying the current arrangements are ineffectual is an argument for giving them the arse, not for keeping them. And it also begs the question as to why publishers and authors fought so hard to retain protection if at the end of the day it was ineffectual and therefore provided them with no benefit.

This decision totally contradicts the advice given by the Productivity Commission, seems to ignore the last 30 years of microeconomic reform, and is at total odds with the idea of increasing productivity within Australia.

Surely they realise that protecting inefficient businesses (and if they cant produce at a market based competitive price they are inefficient by definition) helps no one. Consumers pay more and the sector itself suffers in the long run as it becomes fat and lazy. SHIT ME ... its not as if this is rocket science, its basic industrial policy. Exactly of the sort that has seen Australia’s productivity skyrocket from the mid 80s to now.

The massive increase in productivity attributable to microeconomic reform over this period is the basic foundation upon which our current wealth is derived. The reason we can all afford foxtel and all have 50 inch LCD tvs is because we stopped doing this crazy protectionist crap.

While Kzedong is currently reviling in the perception of his macroeconomic prowess (which is another blog in and of itself) he is starting to rack up an impressive list of microeconomic blunders that include the:

The implementation of price caps on gas (amazingly absurd)
Grocery watch (otherwise known within the hallowed halls of commonwealth gov as grocery botch)
Fuel watch (what can I say)
Supporting protection (see Tim Winton)
Rolling back labour market reform (thanks Julia)
Providing public guarantees for privately generated risks (to a select few)(see the bank guarantees)
Funding the liabilities of private companies (see James Hardy)

The idiocy of all this stuff is generally dealt with in the first year of an undergraduate economics course. Its not rocket science, its basic science.

The depressing things is that they seem hell bent on making these mistakes and the amazingly uncritical responses they seem to be getting from the media indicate that we are going to experience alot more of these before the electorate responds.

Here's what Kzedong had to say for himself when questioned about this latest microeconomic lunacy relating to publishers.

"When it comes to our micro-economic reform agenda, it is vast, it is comprehensive, it is across the entire regulatory agenda of the commonwealth and the states ... It is proceeding apace."

SMACK me in the head ... hard .... do it again .... once more just for fun ... I don’t get it.

There is no way Kzedong can be that self delusional. He is shaping up to be the biggest architect of anti-reform in the history of the country. Don’t get me wrong, i don’t think hes doing it intentionally, its simply the result of pursuing an unprincipled populist approach to governance. That and he is in the words of Peter Walsh (former Labour heavy weight and one of the primary architects of the Hawke/Keating reform agenda} economically illiterate.

http://www.theaustralian.com.au/politics/pm-kevin-rudd-branded-an-economic-illiterate/story-e6frgczf-1225797124334

Lets not be too harsh ... what do you expect from a prime minister with no formal economics training and an arts degree majoring in Chinese language and Chinese history (after all the Chinese are such bastions of economic knowledge).

The uplifting thing is that its consultants like myself and my mates that get paid to fix these things up when they comes to tears (and they will all come to tears). So while I lament the idiocy of the current regime I also thank them for providing me with enough coin to pay the kids tuition at Melbourne Grammar.

Apart from furnishing consultants with a future work stream, one of the other major unintended benefits of this decision is that it allows you to readily identify the economic retards in cabinet. The question of whether to remove protection is such a black a white easy question that anyone who opposed it must by definition be economically retarded.

Its the economic equivalent of a basic physics question, something along the lines of taking someone up to the 13^th floor and asking them whether they would like to test the theory of gravity. Jumper = retard. Maybe retards a bit strong. Jumper = arts student.

So which little campers are sitting up the back of the bus? Apparently those in the cabinet most vehemently opposed to the removal of protection were:

Arts Minister Peter Garrett,
Attorney-General Robert McClelland
Industry Minister Kim Car
Finance Minister Lindsay Tanner,
The chairman - Kzedong.

Well boys ...here is your head protection and there’s the back seat.

As an interesting aside, I’m sure the complete dismissal of the Productivity Commissions recommendations is causing Gary Banks and the lads a fair degree of heartburn. The sale of quickeze at the newsagent down in Collins Place has probably gone through the roof.

The interesting thing is that, while the PC is independent and its commissioners are holders of public office, it is still a government body that depends by and large on the support of government to exist. The PC depends on inquiries, inquires are its reason for existence and it follows that its existence is dependent on government feeding it its inquiries. These inquires cant be generated independently they need to come from the Treasurer.

It is far from clear that there is a space in the new regime for genuine independence. Like any good little dictator Kzedong has been very successful in muzzling discontent in the public sector. If the chairman decides the PC needs to go (or to be brought to heal) he can do this quite effectively by simply starving it of attention ...no inquires, no terms of reference = no reason to exist = budget cutbacks = bureaucratic death = bye bye PC.

While the PC may currently be a little nervous about its place in the world it should at least be applauded for standing up for common sense and economic rationality. It s inquiry report by law must be tabled in parliament, and in doing so it provides the opposition with a wealth of well thought out, authoritative analysis of why the government’s policy on protection is shit ... its like a little pre Christmas present for big mal (lets hope he has the brains to use it).

In closing ... Amazon have some terrific sales on at the moment.

Are people wising up? (Lone Ranger)

2009-10-22T15:07:00.000-07:00

Not in Australia, alas, but in the US it seems that the voters are finally getting the measure of their new President.

Who are these guys? (Roy Rodgers)

2009-10-14T15:02:00.000-07:00

This years nobel in economics went to Elinor Ostrom and Oliver Williamson. If your wondering who these guys are then you may find the following links helpful.

CATO ... defending their apparent liberal bents.

The Harvard Crimson ... seems Harvard are skirty that Oliver Hart didn't get it.

Vernon Smith on Ostrom ... good background on Ostrom

George Mason ... also has a number of Ostrom links

John Nye (Forbes) ... good background on both winners

Marginal Revolution on Williamson ... background on Williamson's major contribution

Its interesting to note that they both appear to be fairly free market based economists ... which makes you wonder how they got nobels in the current climate.

Health insurance and the tragedy of the common risk pool (Doc Holliday)

2009-10-14T01:58:00.000-07:00

In my earlier posting (8 October 2009) I discussed the adverse effects of community rating on the efficiency of health insurance markets, and put forward a case for a modified voucher system for health care (which in the Australian context, I will call Medicare Savings Accounts or MSAs). In this posting I examine the tensions between health insurers and medical care, and propose some policy solutions.

A heated point of discussion in the health insurance debate is how to reimburse (that is, pay) doctors and hospitals. The traditional method of payment is the ‘fee for service’ – in which a doctor and a hospital is paid for the services they render. To an economist, this model appears to be fairly obvious – as a fee for service is basically the price of providing a service. Yet in the context of health care it has created all sorts of strange notions and policy prescriptions which are ultimately ill-conceived and self defeating.

The case against fee for service is that, put simply, doctors have an incentive to over-service their patients. The economics of this incentive is rarely put forward with any clarity by its proponents. They generally appeal to notions of ‘information asymmetries’ and ‘market power’. But none of these are adequate explanations. For example, market power assumes that doctors reduce their supply of services - but this is the opposite of what has been observed. Similarly, information asymmetries lead to adverse selection (Akerlof’s lemons problem), something which the medical colleges seem to adequately addressed.

The only explanation that makes sense to me is that over servicing is part of the wider problem of contractual enforcement - doctors have an incentive to charge and serve ‘that little bit more’ because insurers are unable to closely monitor doctors’ actions. Another way of looking at it is to think of pooled insurance being a 'tragedy of the commons'. The insurance pool is a common resource which doctors do not have any incentive in preserving. Rather, they have an incentive to encourage consultations and prescriptions believing that they are acting in the interest of their patient.

This problem is not unique to health insurance and examples can be found in other insurance markets. Consider the analogy of an automotive panel beater. I have lost count of how many times I’ve approached a panel beater and asked him to give me two quotes for the same job – a cash job and an insurance job. The quote for the insurance job is always more costly and extensive (in terms of work undertaken). The same logic applies in medicine. This phenomenon is analogous to moral hazard, but whereas moral hazard is normally associated as the patient's response to imperfect contractual arrrangements, this squarely puts it in the lap of suppliers.

One obvious implication is that free-riding on the insurance pool will give each patient additional care, but it is not clear whether the additional services necessarily lead to valuye-for-money. Another implication is that the logic of the tragedy of the commons applies to both private health insurance and to single-payer government fund insurance schemes.

My observations are not in any way new. Commentators have long observed the expansion in supply, and it has been dubbed as 'supplier-induced demand'. However, this explanation seems to have the best ring of truth to it.

But if fee for service in a pooled insurance setting leads to free-riding / supplier-induced demand (these terms should be used interchangeably), what have been the policy responses? In Europe, the United Kingdom and the United States, supplier-induced demand has led to the changes in the reimbursement of doctors and an increased monitoring of doctors' practices. In the United States where fee for service arrangements are commonplace, health management organisations (HMOs) have emerged. HMOs enter into contractual relationships with patients and doctors alike, and set limits on the practices of doctors. They can, for example, refuse to fund a course of treatment if it believes is not fiscally responsible. In the UK, the National Health Service has long salaried doctors in hospitals and has recently been changing the reimbursement of GPs. Now, doctors are reimbursed in terms of the number of patients on their books not how frequently they see their patients. In Europe, mutual sick funds have long operated their own hospitals and salaried doctors, and have closely monitored the prescribing behaviour of doctors.

There are similar pressures in Australia. Public hospitals in Australia have traditionally been funded on a capped budget basis, and doctors in public hospitals are salaried. Though some jurisdictions have increasingly adopted casemix funding of hospitals (such as Victoria) (which is essentially a fee for service arrangement) to improve productivity, in NSW at least, a public hospital is now funded according to how many people there are in its catchment area.

However, these policy prescriptions have two obvious deleterious effects. First, the close monitoring of the practices of doctors is in effect equivalent to regulating doctor behaviour. While it might be argued that it is welfare enhancing (relative to free-riding) it is not a first-best policy solution. Telling a doctor he can not give medicine x to a patient with condition y is a blunt (inefficient) instrument and misses the point that patients are highly individual and what might be an appropriate course of treatment for one patient may not be effective for another.

Second, paying doctors and hospitals fixed amounts reduces their productivity. As a community, you want doctors and hospitals to be as productive as possible (technically efficient) as they are very scarce and valuable resources. Yet paying a doctor on an hourly-basis will yield lower levels of productivity than if you were to pay them on a piece-work basis. Consider for example asking two house painters to give you a quote to paint the house: the one that gives you a fixed price quote will get the job done quicker than the one that quotes you an hourly rate. If doctors in public hospitals work long hours, it may not be because of the excessive workload they face, but because of the internal inefficiencies of the hospital caused by the financial incentives the hospital and doctors face.

This is not to say that regulating doctor behaviour and paying doctors on a salaried basis (or funding hospitals with fixed budgets) has no role in the community. But these are at best second-best solutions.

What then is the first-best policy solution? If it is the case that supplier-induced demand is simply free riding by another name, the answer is to ensure that the financial implications (market failure) of doctor behaviour are fully internalised. There are two complementary solutions to this. The first is to empower patients to resist over servicing. In my previous posting I put forward the case of governments creating Medicare Savings Accounts, abolishing community rating and making governments pay the actuarial risk premia to patients into MSAs. Under these reforms, patients will directly directly face the costs of their own health insurance, and will have a strong incentive in protecting their portion of the insurance pool. Doctors will not over service if the patient believes that the additional activity will not yield any additional benefits.

The second approach is not to employ and salary doctors but for them to own the health insurance business. Once doctors own the health insurance arm, they in effect internalise the costs of their own tendency to over service. Indeed, not only do patients have an incentive to look after their own health, but doctors will change their own behaviour away from simply disease treatment to disease prevention.

There is nothing in legislation or regulation that prevents doctors from starting their insurance fund, so in principle, it is possible. In Australia, however, there are a number of financial disincentives that inhibit such an institutional arrangement from arising. Two come to mind. First, there is little incentive for new businesses to enter into the health insurance industry. The presence of Medicare alone has severely curtailed the profitability (and degree of competition) among health insurers. When was the last time you read in the news of the start up of a new health insurer in Australia?

Second, since Medicare arrangements provide doctors with a nice little earner there is no incentive for them to champion a new world order of competition. You can bet your pretty penny that the Australian Medical Association will resist any attempts to reform Medicare. Replacing Medicare with MSAs implies greater competition for health insurance, which of course, doctors will not necessarily support.

This is not to say that doctor-owned insurance businesses do not exist. One standout example is the famous Kaiser Permanente of California. But a case study of Kaiser Permanente is for another posting.

regards

Doc Holliday

Futures in everything (Roy Rodgers)

2009-10-12T05:08:00.000-07:00

Sick of trying to predict the end of the world or how about something less mundane like the probability that Israel will bomb Iran … well has Roy got the website for you!

INTRADE

Intrade is a futures market based on political and current affairs predictions. It allows you to speculate on the probability of an event occurring. The exchange is structured around a group of trading categories, such as politics and current events. Each category has a set of contracts listed. A contract being an event that will have an unambiguous result, like will obahma be assassinated by a ranting libertarian nutjob before June 30 2010.

You then trade on what you think the outcome of that event will be. Each event has a time constraint at which point the contract will close. For example if obahma gets assassinated on June 30 the contract will close at 100 points, if he lives to socialise another day the contract will close at 0.

Until he is either assassinated or the deadline is reached the contract will fluctuate between 0 and 100. The price at anyone time is representative of what probability the market places on the event occurring. You can trade in and out of the contract as many times as you like prior to it elapsing.

Like any good futures market … if you want to max your profit, so you can buy that little 9 hole golf course up at Port Douglas, you need to take positions against the market … buy when the market thought an outcome was unlikely and sell when the market thinks its very likely.

Good luck …. Just remember futures have the capacity to make you either extremely wealthy or extremely poor … no risk no return.

Ps ... if this is your thing id get in quick before big kev or the grand o try and ban it!!

Insurance, the Market and those pesky wowsers (Doc Holliday)

2009-10-08T03:19:00.000-07:00

Now that my work has lightened up, I too will part a few shots at government and wowsers.

Health care puts forward a number of dilemmas for economists and policy makers. In this posting, I will consider the incentives and distortions that have arisen from government intervention in the provision of health insurance. I will also put forward a solution.

In any laissez faire insurance market, insurers charge insurance premiums that reflect the risk that people impose on the pool of insurance premiums. This is true for all insurance markets that I can think of - cars, houses, luxury boats, personal property. If you are 18 years old and park your Subaru WRX in Broadmeadows overnight, you pay the price!

Unfortunately, this doesn't occur in health. Instead, in every developed country that I can think of, everyone pays the average (pool) price - not the marginal cost. This is not because of a decision by health insurances but because of government regulation. The objective of community rating regulation as it is called, is to ensure that even the poorest can access affordable health care. Its effect is to smear insurance costs so that the rich and healthy subsidise the poor and the sick.

Community rating regulation appeared first in countries where private health insurance was the norm. But it also operates in the government-run single payer schemes (consider the National Health Service in the UK, Medicare in Australia and Canada). In these schemes, the costs of health insurance are smeared across tax-payers, not those seeking insurance. (The medicare levy surcharge is an exception, but this is only effective when we consider the role of Australia's Lifetime health cover rating system).

However, this has some rather unintended consequences (hello hello!). One is that it removes any incentive for individuals to adopt healthy life-styles. Why drink green tea and ride a bike to work if you know that someone else is paying for your healthcare?

In a laissez faire market, there would be a variety of insurance companies each offering slightly different products. Some might offer health-management organisation type contracts: you agree to change your behaviours (eg give up smoking) in return for discount insurance. (Funnily enough, the earliest health insurance schemes (organised by many religious and charitable organisations) at the turn of the 20th century did offer just that.)

But under community regulation, no one has an incentive to change their behaviour. This is a problem for both private health insurance schemes (as in US, Switzerland and Greece) and single-payer schemes (UK, Canada and Australia). In bid to protect the insurance pool against the threat of smoking and drinking geriatrics, wowsers step up to the plate to start issuing edicts: that shalt stop drinking, smoking, and growing old etc. The number of regulations that Roy posted are indeed scary. But in a dysfunctional market without marginal prices, the number of regulations can not but grow as bureaucrats scramble to change behaviour. Any market in which there are no prices will grow increasingly dysfunctional as successive layers of regulation are introduced to control it.

Is there a role for the market? I believe there is, and Australia already gives us an example. Some years ago (in 2000 I think), Australia introduced Lifetime health cover (LHC). It was introduced by the Howard Government in response to the adverse selection taking place as healthy people opted out of private health insurance to be covered by Medicare. LHC in effect penalises people incrementally the longer they remain privately uninsured. It acts like a second-best market price for private health insurance (PHI). The older and more likely you are to get sick, the more private health insurance will cost, so join up when

you're young. It doesn't give you the same incentive to change your lifestyles as an actuarially fair premium but its close. But it did influence PHI membership dramatically. It also demonstrates that people are sensitive to market prices - even for health insurance.

Back to my dilemmas for economists and policy makers. How do we get a healthcare system that is offers all the economic efficiencies that is currently lacking yet addresses the equity concerns of providing care for the poorest in the community? The obvious response is to introduce a voucher-type system. Governments provide individuals a voucher (it may be means-tested) to be spent on health insurance. The amount given to the individual reflects their risk-rating (so high risk individuals get paid more). Individuals can get to keep some of that voucher if they can demonstrate a reduction in their risk-rating (credited back to a Medicare Savings Account for use on a rainy, sick day). Individuals can use that voucher money to purchase private health insurance from any number of competing health insurers on the market.

There is another dilemma in health care that needs addressing - market power of medical professionals (doctors and surgeons). But that is for another posting.

regards

Doc Holliday.

Re: Re: Wowser's worst nightmare (Lone Ranger)

2009-10-07T21:04:00.000-07:00

Just found another clip by Serge.

I should add that I hate smoking and will lock my daughters up if they ever try it....

Re: Wowser's worst nightmare (Lone Ranger)

2009-10-07T20:59:00.001-07:00

Not sure about Tom Waits, but the great Serge Gainsbourg was more than happy to smoke on stage.

Could not find a live performance on youtube that fitted the bill, but you get the picture from this one..........

Stuff (Lone Ranger)

2009-10-07T20:43:00.000-07:00

This has nothing to do with anything on this site, but I thought I would post it for amusement value. What this link does tell us, however, is what happens to a society where:

the middle classes becomes progressively poorer through the debasement of the currency and outright theft by major investment banks of public monies
everyone loses their dignity
it becomes socially acceptable to wear track suits in public.

This could be Australia. Check out www.peopleofwalmart.com.

Another argument against wowserism (Lone Ranger)

2009-10-07T02:12:00.000-07:00

In support of Roy's recent posts on wowserism, I came across this from Time magazine (I hasten to add, I do not read this magazine as a matter of course...). Apparently, non-drinkers are more anxious/depressed than those is us that imbibe.

Needless to say as the father of two small children, alcohol is now a necessity rather than a luxury (contrary to what the do-gooders say, alcohol DOES make things better). Those annoying ads on TV that claim drinking in front of kids is a bad example for them get up my nose - kids need to understand that they cannot always do what the adults do. For God's sake. I wish the wowsers would stop trying to control our lives. The trouble is, they seem to congregate in government....

Wowser's worst nightmare.

2009-10-06T22:23:00.000-07:00

The question --- Why are the wowsers wrong?

The answer --- Tom Waits

What do you get when you mix tom waits, 1/2 a bottle of scotch , a hand full of anonymous prescription drugs and packet of cigarettes on a stage with nothing but a microphone ... answer one of the greatest live performances of the last half century .

If not the greatest ... you have to admit the coolest. I'm a middle aged economist with a bad haircut. I don't smoke and like any true libertarian there is no way on earth i am going to allow my children to smoke... but i have to admit deep down that there is something cool about guy like tom puffing away while he belts out a tune.

The master at play

The positive value created by this one performance must equate to at least 50 disability adjusted life years.

Alcohol and other mood altering substances have a long and proud history, they are a a fundamental part of the human experience and its about time that the positive externalities associated with their consumption be factored into cost benefit analysis and more specifically preventative health studies.

Will Farrell goes into bat for Obama

2009-10-06T19:28:00.000-07:00

Dont you love it when celebrities get all political. Will Farrell recently jumped to obama's defense, airing the following tv ad.

It is so endearing watching extremely wealthy celebrities complain about corporate incomes? Whats the bet that will is one of those guys that quite proudly and self righteously declares himself a prius owner, and forgets to disclose that he parks his little underpowered rice burner right next to his gold platted hummer.

http://www.youtube.com/watch?v=wFsgVkFUPxo

The following links are to parodies of wills ad. If your time poor the first one is is the funnier of the two.

http://www.youtube.com/watch?v=AJ9Te1XP8RM

http://www.youtube.com/watch?v=PwmkCVa0u1w&feature=related

The beauty of the web is that it gives everyone a voice not just the celebs.

Crime and punishment (addendum)

2009-09-29T04:24:00.000-07:00

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)

2009-09-29T02:29:00.001-07:00

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.

Link to archive

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:

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
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.

Link to full text copy of Becker's paper.

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.

2020 Health Overview (Doc Holliday)

2009-09-25T06:44:00.000-07:00

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)

2009-09-25T06:37:00.000-07:00

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)

2009-09-25T06:23:00.000-07:00

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

Five minutes on a friday.

2009-09-24T20:53:00.000-07:00

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,

The economic breakdown song

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

wowser, wowser, wowser (Roy Rodgers)

2009-09-23T00:25:00.000-07:00

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

Recommendations
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

2009-09-23T00:19:00.000-07:00

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

Link to pod cast

wowser, wowser, wowser (Roy Rodgers)

2009-09-20T04:48:00.000-07:00

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:

extending someones life isn't isn't all good.... old age is in and of itself a major driver of health related costs.
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.

Telstra (Roy Rodgers)

2009-09-19T18:48:00.000-07:00

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.

Link

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

2009-09-19T06:03:00.001-07:00

Who would have thought (Roy Rodgers)

2009-09-18T06:10:00.001-07:00

Lone,

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

2009-09-18T06:00:00.000-07:00

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

Re: Who would have thought (Lone Ranger)

2009-09-17T15:31:00.000-07:00

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)

2009-09-17T00:10:00.000-07:00

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 ...

Obama the joker?

2009-09-14T06:38:00.000-07:00

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.

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

2009-08-31T19:41:00.000-07:00

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.

More Ramirez (Roy Rodgers)

2009-08-25T00:40:00.000-07:00

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

2009-08-24T23:30:00.000-07:00

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!

h ttp://computingforsustainability.wordpress.com/2009/03/15/visualising-sustainability/

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.

Starr quote (Lone Ranger)

2009-08-13T22:47:00.000-07:00

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)

2009-08-13T03:10:00.000-07:00

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?

The arts graduates have taken over (Roy Rodgers)

2009-08-11T06:31:00.000-07:00

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 ....

Labour
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.

Liberal
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.

A difference of opinion (Roy Rodgers)

2009-08-07T17:40:00.000-07:00

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.

INTRODUCTION: A OF POLITICS, NOT ECONOMICS: COMPLEXITY, IGNORANCE, AND POLICY FAILURE
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.

THE CRISIS OF 2008: LESSONS FOR AND FROM ECONOMICS
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.

CAUSES OF THE FINANCIAL CRISIS
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.

AN ACCIDENT WAITING TO HAPPEN
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.

THE FINANCIAL CRISIS AND THE SYSTEMIC FAILURE OF THE ECONOMICS PROFESSION
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.

MONETARY POLICY, CREDIT EXTENSION, AND HOUSING BUBBLES: 2008 AND 1929
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.

THE REGULATED MELTDOWN OF 2008
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.

THE ANATOMY OF A MURDER: WHO KILLED AMERICA’S ECONOMY?
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.

ECONOMIC POLICY AND THE FINANCIAL CRISIS: AN EMPIRICAL ANALYSIS OF WHAT WENT WRONG
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.

CAUSE AND EFFECT: GOVERNMENT POLICIES AND THE FINANCIAL CRISISPeter J. Wallison
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.

CREDIT-DEFAULT SWAPS ARE NOT TO BLAME
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.

THE CREDIT-RATING AGENCIES AND THE SUBPRIME DEBACLE
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.

I want my 8 cents back (Roy Rodgers)

2009-08-03T03:30:00.000-07:00

Gather round kiddies its story time.
Today’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.

Public health care in the US (roy rodgers)

2009-08-01T03:20:00.000-07:00

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.

Roy Rodgers Vs the Nursey lady from red cross

2009-07-30T21:53:00.000-07:00

Big kev has declared 2009 is the year of the blood donor. He wishes to raise awareness of the need for blood and the importance of voluntary donors.

Fantastic you may say, bloody good you may think … what possible smart arse comment could Roy Rodgers possibly impart on such a worthwhile endeavour.

Lets unpack his wishes the need for blood. I’ve got to admit that this sounds reasonable to me. Given my lack of medical training I’m more than willing to believe that modern medicine and modern treatment practices do require blood.

Wish number two is to raise awareness of the importance of voluntary donors. This is the bit that gets me. Why are volunteers so important? And by volunteers they are referring to hapless altruists with enough spare time that they can spend an hour or so freely giving their own life juice to the state or in this case the state sponsored entity.

Don’t get me wrong, there is nothing wrong with donating time or money to causes you find attractive enough to sedate whatever degree of altruism you have imbedded in your own utility function. There is nothing wrong in giving food to the homeless. I myself always throw junkies a couple of bucks whenever I see them begging. I see it as my contribution to supporting the anti prohibition movement.

The bit I query is whether this is the right approach to take to blood. The thing is, blood is not a charity, people can afford it (or most people could) so the idea that giving blood is somehow charitable is a crook.

The other worry about blood is that if its so important and if its availability literally saves lives, why in the name of the almighty are we satisfied to limit our source of supply of the stuff to a small group of altruists. Not only satitisfied but have actually provided the Red Cross with a legislative monopoly/monopsony. The absurdity of the situation is only highlighted by the apparently never ending shortage of the stuff. According to that annoying bloodhound they keep abusing in their advertising we are living in a perpetual blood drought.

I find this state of affairs so annoying, that during the recent blood drive associated with the Victorian bushfires I decided to conduct a little experiment. I thought i would try and find out how much the Red Cross values a pint of blood and by extension how much they value the life that it saves. I donned my polar fleece vest, neil diamond tshirt and a sturdy pair of Rockwell shoes (my imagined blood donor uniform) and waddled down to the donor centre.

Nursey type : do you wish to donate blood.

Roy: yes I would love to …. whats the going rate per pint?

Nursey type: (face shows confusion and a slight look of concern) there is no going rate.

Roy: okay in the absence of an observable market price ill give you a pint for 20 bucks.

Nursey type: 20 dollars? … you misunderstand we don’t pay for blood

Roy: wow, haggle hard …. Look a lobster is as low as I’m prepared to go.

Nursey type: are you serious people are dying?

Roy: ok … that’s a 50 then (thinking, nursey heres a hint, in a bargaining situation never disclose you have near perfectly inelastic demand)

Nursey type: (with an angry tone) how can you be such a tight arse, profiting off dying people …. Please leave

Roy: me tight? … hey you’re the one that wont fork out a lousy pineapple to save a life ... tell you what, Ill give you a pint for $50 and if i dont pass out, ill give you another for $45 .... and i wont avail myself of your free mouldy sandwiches.

Nursey type: please leave

Roy: hey Im only trying to save lives ..... right then, I'm off to the hospital to see if i can scalp some fresh stuff!!

Why have we not established markets in blood? It’s a basic fact that markets and prices are much better, more efficient and more fair allocative mechanisms than any centrally controlled system would be.

There is nothing about blood that makes it inherently unmarketable. There is rivalneous in consumption, there is full excludability, there are no information problems and we have quite clear frameworks for property rights. If its my juice then its mine.

If we had markets we wouldn’t have shortages.

It makes you wonder just what the human cost of this seeming aversion to the comodification of blood actually is. To my mind one life lost is one life too many, especially if that loss could have been avoided for the sake of a lousy $50.

Thanks for the insights Glenn..... (Lone Ranger)

2009-07-28T23:00:00.001-07:00

The RBA Governor, Glenn Stevens, has warned about the possibility of a bubble in housing prices:

Equally surprising was the strong warning in his speech that a housing bubble could be on the cards "in the near term" if the low cost of housing finance failed to translate into more dwellings being built.

He said this would put Australians at risk of being denied affordable housing while household balance sheets could become over leveraged and asset prices could eventually deflate.

"Given the circumstances - the economy moving to a position of less than full employment, with labour shortages lessening and reduced pressure on prices for raw material inputs - this ought to be the time when we can add to the dwelling stock without a major run-up in prices," said Mr Stevens.

"If we fail to do that - if all we end up with is higher prices and not many more dwellings - then it will be disappointing, indeed quite disturbing."

(See link here).

What is a housing bubble? What is any asset price bubble? Well, one definition is that it is a sustained and rapid increase in the price of an asset, significantly in excess of other related variables, particularly income. Classic bubbles in history have included “tulip mania” in the 17th century Netherlands and the Mississippi bubble in early 1720s France. A bubble bursts when the price of the asset becomes unsustainable (i.e. it gets so far out of whack with incomes and/or its true market value, that the prices begin to fall).

Glenn, mate, what do you call the run-up in house prices over the last decade if not a bubble?

Please see the attached chart courtesy of http://www.whocrashedtheeconomy.com/. The Australian data for the chart was from Nigel Stapledon at the University of NSW.

What this tells us is that, compared to the long term average, Australian house prices are about three times what they would otherwise be. Three times!! Traditionally, average house prices in Australia were around three times the average income – they are now around 8-10 times. Does this qualify as a bubble?

I borrowed the following chart as well, as it demonstrates the rapid growth of household debt compared to GDP. I am no statistician, but the growth of household debt and housing prices over the last thirty years are looking curiously correlated to me.

And what caused the bubble Glenn? Could it have been the RBA misreading the economy and keeping interest rates at below real market rates? Could it be the out of control growth in the money supply that saw Australians borrowing heavily to purchase rapidly appreciating houses? Is it that the RBA is the problem? Could it be that the RBA Governor would not recognise a housing bubble if it was dropped on him from a very tall height?

The Australian housing bubble looked like it was beginning to correct in 2008, but timely intervention by Government to “save” housing prices appears to have kept at least the bottom end of the market bubbling along.

The Australian housing bubble must surely qualify as one of the greatest asset price bubbles in history. As someone with a mortgage, I can already tell you that housing prices are way beyond the sustainable level and will, eventually, deflate. Many Australians are already locked out of the housing market because of this asset price inflation – that the RBA Governor cannot apparently recognise that we have already been through a housing bubble probably means that he should look for another job.

I love nut jobs (roy rodgers)

2009-07-28T19:35:00.000-07:00

If you've been following this blog, you probably would have noticed that some of us have a love for nutjobs. I really do love them, they are the highlight of many of the consultation programs I was forced to endure when working for government.

To tell the truth I find their capacity for irrationality bundled with their blind passion and horrendous grammar totally seductive.

Since Ive started blogging Ive found that you don't need to be engaged in some mindless round of consultation to find these guys, you don't need to shift through reams of pointless submissions. All you need to do is read the comments attached to blog sites. Particularly sites that exhibit a good base understanding of economics. For some reason these sites seem to attract the pearlers.

So in the spirit of sharing life's joys ... hear is this weeks pearler nut job

The site it comes from relates to an article/opinion by John Stossel, covering the prohibition on markets for organ transplants and the inevitable rise of criminal activity resulting from the prohibition.

Stossel link

and here it is reproduced exactly as posted ... enjoy

SELLING KIDNEYS ORO ANY BODY PART SHOULD BE BANNED AS ILLEGAL ACTION!

My friend, selling Kidenys will only create a world filled with people who are not capable of moving or enduring pain and stress to create their own destiny!Selling Kidneys is not a Christlike selfless act but a desperate act to stay alive living in mediocrity that the dictators create spending billions of dolloars in hollywood financing films against me and spending billions of dollars for making atomic weaponry while their own people are dying of hunger having to sell Kidney! That is why my Leadership Excellence Program enforced by United Nations will disqualify the incompetent dictators like Ahamadinejad and that is why I am censored and hundreds of young people are being encouraged to martyr themselves so that the dictator could live on behind their dead bodies on the stick for I can talk & they cannot!That is why they kill the living and worship the dead historically not to loose the toxic control of the bully dictator who must be the one stealing lifework of others to make the dead wrong decisions by himself bringing cenosrship from the East blocking democracy in and from the West!

Re: Roy Rodgers vs the Hairy Bitch (Lone Ranger)

2009-07-24T05:00:00.000-07:00

Roy’s posting a little while ago got me thinking about primary schools, as my oldest daughter will soon be attending our local school. In my younger, stupider days, my wife and I purchased a house in a seedy but yuppifying inner city area, without thinking through the consequences of things such as schools.

Our local school, which will remain nameless, has the following on its website:

The school is founded upon these core values:

confident, life-long learning
integrity and self-esteem
trust and co-operation
respect and resilience
leadership and excellence in learning

I was rather hoping that there would be an explicit reference to literacy and numeracy, but no. What the hell is “resilience”? Thanks, but I would rather you left that particular value to the parents.

All a school has to do is teach kids to read, write and add up – and maybe a little history for the heck of it. Why is this such a difficult concept for teachers to grasp?

Home schooling is looking better and better.

Call me a hypocrite........ bureaucracy gone mad

2009-07-24T04:35:00.000-07:00

We have recently found ourselves in the unfortunate position of having to put our two girls in childcare, so we have begun the process of being properly registered for approved care, thus entitling us to claim half the cost of childcare as a tax rebate (I may be a libertarian, but I am not stupid - well, not that stupid).

It has been a labyrinthine undertaking, not least the 22 pages of application form we filled in two days ago. To hand it in, I waited 20 minutes in the Family Assistance Office, only to be told that I need to bring in the original birth certificates for both girls (I can't fax them - the originals need to be sighted). "It won't happen overnight but it will happen", as they say.

I went away wondering whether this is just bureaucratic inefficiency or a deliberate strategy to cut costs......

The endless search for new victims or the raison d’être of the modern leftie (Lone Ranger)

2009-07-24T04:26:00.000-07:00

The constant and growing socialisation from all our lives through the expansion of Government and the ever increasing volume of regulations and laws cannot be separated from the socialist goal of using “equality” (whatever that means) as a way of controlling society. This desire for equality can manifest in a variety of objectives and goals, including:

High levels of taxes on the middle classes and the “rich” which are then used to subsidise the lifestyles of the poor – the “disadvantaged”, the “less fortunate” and the “victims”
Ever increasing efforts to legislate thought control, through a variety of “anti-discrimination” legislation (anti-racism, anti-sexism, anti-creedism, anti-heightism etc)
Ironically, the desire to shove the concept of “diversity” down our throats as if it must be a positive. Note that diversity does not run to diversity of thought – what is envisaged is a group of multi-gender, multi-coloured, multi-linguistic and multi-age “diverse” people all thinking exactly the same way
The growth of more “essential services” without which people will die (e.g. subsidised taxis for the “disabled”). This entails (a) a lot more public servants to administer programs and (b) when Governments decide that more public servants appear to be a bad look, through (entirely publically funded) not for profit agencies
The growth of the bizarre concept that no aspect of life is taken seriously unless there is a Minister responsible. This helps to explain why the Victorian Government has a Minister for Community Development (can’t communities develop themselves?), a Minister for Financial Services (Minister for the banks and super funds) and a Minister for Innovation (an oxymoron, surely). The problem arises when Ministers want to be seen to be doing something (the need for a press release is strong – call it a substitute for achievement), and hence new and imaginative regulations and programs must be dreamed up and funded

All of which adds up to the need for a constant stream of disadvantaged and victims that the lefties can “help”. This allows them to tax and spend more, provide jobs for their leftie mates in industries deemed socially “aware”, and pretend that, unless we want throw more and more of our hard-earned at a bunch of no-hopers, we are right-wing thugs and so on.

I mentioned Ministerial portfolios earlier. Indeed, the number of portfolios for victims is extensive – Ministers for Women’s Affairs, Aboriginal Affairs, Pacific Island Affairs, Multicultural Affairs, old people, youth, children, disabled and veterans. And you do not even need to be human to be a basket case in need of help – Ministers for manufacturing are a case in point.

So what does all this mean? Well, the bitter truth is that, despite all the protestations of love, peace and harmony, the whole leftist approach is driven almost entirely by self interest. The left needs a constant flow of new victims to keep it employed (with public money, of course) and to make the rest of us guilty enough to cough up more and more of our income in the form of tax to fund these whims.

Why do you think leftists love refugees who have almost no hope of integrating into Australian society any time soon? Not because they believe in racial equality – indeed, anything but. The refugees are so helpless, apparently, that they need the help of the lefties to get by. Whole industries are dependent on the constant flow of these people – social services, health services, interpreters and translators, educators, advocates – you name it. And all funded from the public purse either directly or indirectly.

The whole welfare state is, in many ways, a giant scam cooked up by lefties to provide well paid careers for them and their cronies. Government support for the unemployed and “less fortunate” grows over time, thus obviating the need or desire for many to ever work again or take responsibility for their families (helped along by minimum wages locking them out of the workforce). And see what this lack of responsibility causes – broken families, broken societies and a permanent underclass of no-hopers who have come to expect – nay, demand – a constant flow of hand outs from Government. It makes me laugh when I hear people talk about “free” education or “free” health since it might be free for them, but not for the poor sods who have funded it. By what moral right should Governments determine how any of us use our hard earned?

Think of the lack of logic that Government interventions generally have. For instance, Governments tax the billy-o out of gambling, and then use some of the proceeds to assist “problem gamblers”. If gambling is such a problem, outlaw it. Or better yet, get out of the way and let the losers and their families live with the consequences of their actions. Whatever happened to free will and taking responsibility for the consequences of your actions?

In their search for victims (aka the meal ticket), these people will stop at nothing. You too can be a victim, as long as you are prepared to find an advocate who looks convincing on camera.

Until we collectively stop this rubbish, it will continue to get worse. A better approach can be summed up, I think, in that classic refrain “just get over it”. Liberty is not yet dead, but I think it is on life support.

2009-07-23T05:42:00.001-07:00

(post by Roy Rodgers)

I’m sure macroeconomists are very nice people its just that I’m starting to think that the economics they are proffering may be pure snake oil. The stinky slimy kind of snake oil.

What they taught us in school

I sat through the macro lectures at uni and even managed to get pretty good grades. But all I can remember from undergrad is some overly simplified flow charts that somehow magically added up to GDP and aggregate demand and supply curves with some sort of pretence to grandness … the all important ISLM.

What I do remember quite clearly was macro at honours where we were duly informed that all the hours spent learning this ISLM framework were a great big conspiracy. Apparently it had been abandoned long ago by all self respecting economists. We were duly informed not to be too cranky for although it was all rubbish, apparently we were all the better for it, better intellectually for having sat through three years of the crap.

And then there was postgrad ...

Well, I don’t know about you, but post grad macro for me was two models a lecture, two lectures a week over 14 weeks and a final exam that covered all of the models. That’s 56 models that our sadistic bastard of a lecturer required us to memorise. When queried on the educational value of such an approach his response was “I spent my post grad crying myself to sleep, and I’m a better man for it, so you will be too”.

This particularly loathsome human being prepped us for our final exam with the following statement “the exam is composed of three questions, don’t read the third until you’ve completed the first two. I have set the question so that it’s impossible for anyone in this theatre to answer and if you read it before you complete the other two you will most likely freak out and not be able to complete the exam at all”. When queried how he intended to grade us if the test was set so that we could only achieve a maximum of 66% he responded with “don’t worry … the bulk of you will actually fail the exam … and I’ll have to adjust you all upwards anyway”. There is a special room in hell put aside for this arsehole, a bare cold room where he has to spend all eternity being examined on stuff he can’t possibly answer … again and again.

That was the mandatory macro postgrad component, needless to say I stayed the hell away from anything remotely macro in the electives. By the way I got a distinction for postgrad advanced macro (despite the fact that I’m pretty sure I only got 40/100 for the final) and to this day I have absolutely no idea what he was trying to teach us other than how to do calculus. All I know is that I never want to see another Hamiltonian in my life.

Are we picking up on a bit of a theme in Australian tertiary education? Paternalism as a mask for sadism or paternalism as a mask for lazy teaching … take your pick.

Trust me… I am a macroeconomist and I’m here to help….

This brush with macroeconomics has left me with a deep rooted distrust. I don’t trust macroeconomics, its theories, its models or its policy prescriptions. And given the policy responses to the global credit crisis … I’m starting to believe its pure snake oil.

On what planet does it make sense to squander money on purely consumptive rubbish when your smack bang in the middle of a recession? If you ran a business and you started to experience a contraction in revenue, would you think to yourself, ‘now would be a good time to spend a couple hundred thousand on that feng shui consultant’. No of course not! Collectively our nation’s macroeconomists seem to be advocating history’s most massive spendathon and none of them to date seem to have registered any concern for what this will do at the microeconomic level.

At the end of the day it doesn’t matter what a macroeconomist says, the truth is that all economies are driven by their microeconomic health. If you want to increase income then you have to increase productivity … and this is well and truly in the domain of microeconomics. But these macro guys just don’t seem to care about the micro.

Macro vs Micro

The vast bulk of economics falls under the category of microeconomics. Micro is your basic classical liberal economic approach. Most microeconomists tend to agree on all the important issues. All of the fundamental theorems are readily observable in everyday data, and we know that its policy prescriptions by and large work to the betterment of an economy. Microeconomics has been tried and tested.

Macro on the other hand is a small sub branch of economics whose participants don’t seem to be able to agree on anything. Its theories and hypothesis are not readily observable in the data, in fact in some instances they are non testable. All a macroeconomist has to do is admit that there is no humanly possible way to model the actual complexity of an economy and they have a get out of jail free card. After all, you can’t prove my theory false if you lack the statistical sophistication to adequately test it (then again, you can’t really prove it to be true can you?).

10 reasons to feel a bit uneasy

There are a couple of basic fundamental characteristics of macro that really get under the skin. Given my general level of ignorance on the subject I could be totally wrong on this, but I suspect not.

1. In Macro, there seems to be a universally held belief that people are stupid. I don’t know how else to explain their dogged determinacy that you can fool people into thinking that consumption resulting from a government pork barrelling stimulus actually represent real demand. Our macro colleagues ask us to believe, ‘Hey, if I owned a factory producing widgets and gadgets I would have just bought four new expensive widget machines because of that unanticipated percentage point increase in demand over Christmas.’ Who are they kidding? Mr Widget knows Christmas was a big kev special and most likely a one off. The other thing is that stimulus are founded on the assumption that you are so dumb you won’t realise that although the government is giving you money now, at some point someone has to pay, and given that the governments main source (only source) of income is taxation that means you are going to have to pay for it at some point in the future.

2. The seeming indifference between government spending and private spending. Just because you have some crappy formula stating income equals the sum of investment, consumption, net exports and government expenditure, doesn’t mean a dollar spent by big kev is the equivalent of a dollar spent by your local entrepreneur. When big kev spends money its called pork barrelling, it goes to his mates or his mate’s mates. Not every one got a big kev Christmas bonus … I certainly didn’t. But big kev made sure the traditional labour party base got their goodies. In the same vain it also appears that a major requirement for a bailout package is that your industry be heavily unionised, cars get money but hospitality gets to suck its thumb. Not only does big kev lack the proper commercial incentive for investment he also lacks a base respect for money. Big kev doesn’t have to make money, he takes money and he takes it for free without asking … at the end of the day he doesn’t care if it’s well spent… after all, he can always just take a bit more. Your local entrepreneur on the other hand is usually living off the skin of his arse, respects money like you wouldn’t believe and only invests in things that people actually want and will voluntarily pay for … unlike big kev he/she has no power to take. So on average, a dollar spent by an entrepreneur is most likely to go towards something much more meaningful than a dollar spent by a bureaucrats.

A perfect example of this is the June government spending rush. At around June every year, whether you know it or not, busy little bureaucrats all over the country are trying to spend as much money as they can to ensure they make budget. You see… the incentive structure for government isn’t to do what you do as cheap as you can, it’s to make darn sure you spend every last dollar of your budget before the end of the year. Other wise Treasury is going to take it away from you next year. Law firms with government clients love this time of year, all of a sudden bureaucrats are seeking legal opinion on just about anything they can.

3. There doesn’t seem to be an explicit recognition that all economies are primarily driven by microeconomics. Macro is only good for the short term and I’ve got to say, as a microeconomist, after you consider all the market distortions resulting from subsidies grants and bailouts, any macro gain we get comes at a not insubstantial micro cost. You get the feeling that we may be cutting our own nose off to spite our face.

4. The science of it seems to be driven by political agendas not by scientific inquiry. Guys like Krugmen and Stiglitz are undeniably political.

5. They don’t seem to be able to cobble together a reliable model. One of the oldest running jokes is that economics has come so far its been able to predict nine of the last two recessions. Coupled with this failure at producing reliable models is a bizarre faith that modelling is the answer to everything and the more complex the model the better it is. Macroeconomists appear fully committed to the idea that you can engineer an economy, they actually appear to have whole heartedly swallowed that philosopher king rubbish.

6. Other than agreement on their own importance, macroeconomists don’t seem to be able to agree on much else. Of course the proposition that consensus is necessary in science is fallacious, but these guys have been at it a fair while and you would think that if they had uncovered any fundamental truths that there would be some level of agreement. This bunch of slippery buggers can’t even agree on a definition for what constitutes a recession. Are we having one or aren’t we, is it real or not blah blah blah.

7. Macroeconomics seems hell bent on promoting intervention. Any good economist should have a healthy dislike for government intervention. We know that time and time again the government with all its good intentions invariably stuffs things up. With this in mind, it’s quite alarming to encounter a stream of thought that holds intervention as one of its basic foundational building stones. Where are the macroeconomists that believe less is more?

8. Macroeconomics doesn’t seem to want to allow markets to operate. Most, if not all, macro policy prescriptions are aimed at softening the blow, protecting people from the downturn etc etc…. Well that’s all fine and dandy but what if the down turn is the market seeking to correct. By blocking the correction you become part of the problem not the solution (see FDR and the new deal). It was Joseph Schumpeter that said “Gentlemen, a depression is for capitalism like a good, cold douche.”

9. The consequences of their actions are so large they are downright scary. The scale of the stuff they are working on is so large that the risk associated with their failure makes the hair on the back of your neck stand up. It sometimes looks like they lack the humility you would expect of someone whose advice has the potential to not only effect one firm or an industry but an entire country. You would expect some of this humility to come through when you consider that to date this approach of kick starting an economy through stimulus packages has met with universal failure. Stimulus packages have not helped Japan, they did nothing for Germany post unification and the current consensus amongst economists is that they played a large part in putting the great in the great depression. By and large history has shown that the best you get from a Keynesian stimulus package is a short temporary burst in consumption.

10. I’m sick of people at BBQs asking me what’s going to happen to the interest rate. Most if not all non-economists think macroeconomics is economics … so I worry that when everyone wakes up from the heady intoxication of spending money they didn’t earn and realise that the only outcome from the latest round of stimulus is a deep and long lasting state of perpetual debt and higher taxation, my problem at BBQs will not be trying to explain how I’m an economist with no idea what is going to happen to interest rates, rather it will be trying to dodge the fist of the hairy ape that thinks I’m just another snake oil salesman.

Funding research (Roy Rodgers)

2009-07-21T20:16:00.000-07:00

Its not often you come across a case of publicly funded research that ticks all the boxes.

So I thought it worth while bringing to your attention the following.

NZ study of bogans

2009-07-16T23:44:00.000-07:00

Buffalo Bill on wealth and happiness

Roy Rogers has rightly pointed out the absurdity of measuring happiness according to the method used by the New Economics Foundation. The tragedy is that our own Fairfax journalists could be so uncritical as to accept the report - complete with the conclusion that Australia is a less happy place than various impoverished, war-torn and corruption-ravaged corners of the earth.

A simple look at the study's methodology reveals that the index does not actually measure happiness at all. Since it arrives at its rankings by dividing measures of happiness and life expectancy by a measure of ecological footprint, the best that could be said of the index is that it seeks to arrive at some measure of the average ecological efficiency with which different nations achieve a given level of happiness. If we assumes that there are diminishing marginal returns in this space - i.e. that the effect on happiness of a rise in national income gets smaller the richer a nation becomes - then it would come as no surprise that some of the poorest nations, using low levels of ecological resource to generate low levels of mateiral wealth, would score well on this measure.

That doesn't make them happier. In fact it makes them considerably less happy than their more developed counterparts.

Economists might point to a simpler measure of the relative happiness between nations - revealed preference. Where do people wish to live? If Costa Ricans are the happiest people on earth (as the survey suggests) then we would expect to see a steady flow of (say) Americans getting the first available flight. We might expect illiegal immigration by Americans to become a big political issue in Costa Rica. I am not aware that this is the case.

But it is worth asking what the bigger issue is here. The study so breathlessly reported by the SMH is part of an increasingly cliched attack on policies which seek to improve national incomes. At times, the attack is directed at the economics profession itself. The basic claim is that money doesn't make you happy. That richer nations aren't really any happier than poor ones (once you adjust for ecological footprints etc.).

One of the key findings relied on by attacks of this type is that measures of happiness do not appear to have changed much in the last 60 years, despite considerable gains in global wealth over that period. The conclusion drawn by anti-growth activists is that money doesn't make you happy and that the best approach would be to give up on the goal of boosting growth and incomes.

Money does not guarantee happiness, but poverty is a fairly reliable route to misery. Cross-sectional surveys generally indicate that richer people are happier than poor, and that richer nations are happier than impoverished ones.

But the the claim concerning the lack of increased happiness in the last 60 years can also be clarified through another fundamental economic principle - the distinction between marginal and average effects. It might be true that average happiness is no higher today than it was 60 years ago. But what if the issue was assessed at the margin? That is, what if the choice confronting society was whether to maintain existing levels of income and lifestyle or whether to revert to the levels prevailing 60 years ago?

Given the choice, virtually no one would prefer the levels of income and wealth of 60 years ago - in other words, over this range, there is an increase in marginal happiness associated with increased income and wealth. The same is true in relation to the small-scale actions and decisions made by individuals every day: people take a number of decisions - to go to work, or do some overtime - not because they believe money will buy perfect utopian happiness, but because they have worked out that having a few additional dollars is better than not having them. Of course, this is not to exclude the reality that the quest for material goods also comes up against limits. Few would always pursue monetary gain at the expense of other human needs like social interaction or emotional intimacy.

The fact that measured happiness has not increased over the last 60 years does not show the worthlessness of material gains, but rather points to another eternal human behaviour pattern - the tendency to take things for granted. We all do it from time to time, whether it be our health, friends, family or good fortune in general, we are notorious for forgetting or ignoring how lucky we are. For all our advantages, we still conjure up problems, challenges, complaints. But this is not actually the same as saying that we are indifferent to all our blessings - that they bestow no happiness or that we would just as soon not have them.

It is one thing to say I take my friends for granted. Another entirely to say I wouldn't miss them if they were gone.

There is always someone worse off than yourself...... (Lone Ranger)

2009-07-16T23:35:00.001-07:00

After a bit of a hiatus (sick kiddies, sick wife, lack of sleep, stressful time at work), I will now try to blog a bit more regularly.

This caught my eye, to the point that I almost choked on my cup of tea (thus causing a colleague to ask whether I was trying to impersonate a coffee perculator, but I digress. Not that I would be reading the internet at work much less posting at work).

The following is cut'n'pasted from Mish's site (globaleconomicanalysis.blogspot.com). Mish is a free market/Austrian economics advocate and is required reading. If I can ever work out how to link sites, I will link his site to this one. Anyway, back to the quote (which Mish links from a news site). US Vice-President Biden, already reknowned for his way with words, has come out with a corker:

Vice President Joe Biden told people attending an AARP town hall meeting that unless the Democrat-supported health care plan becomes law the nation will go bankrupt and that the only way to avoid that fate is for the government to spend more money.

“And folks look, AARP knows and the people with me here today know, the president knows, and I know, that the status quo is simply not acceptable,” Biden said at the event on Thursday in Alexandria, Va. “It’s totally unacceptable. And it’s completely unsustainable. Even if we wanted to keep it the way we have it now. It can’t do it financially.”

“We’re going to go bankrupt as a nation,” Biden said.

“Now, people when I say that look at me and say, ‘What are you talking about, Joe? You’re telling me we have to go spend money to keep from going bankrupt?’” Biden said. “The answer is yes, that's what I’m telling you.”

Link to whole thing is here.

While the economic literacy of Government in this country is appalling, at least no one has (yet) attempted to claim that the only way to avoid bankruptcy is to spend. Although.....

One of the key differences in the stupendous levels of debt in Australia compared to the US is that nearly all debt in Australia is privately held (households, businesses, banks). Is the stupidity exhibited by Biden much different to our fearless Prime Minister urging heavily indebted households to get out there and spend? Wonder what the Commonwealth Government deficit will be in 2010-11?

2009-07-15T20:50:00.000-07:00

The predator Vs the regulator (Roy Rodgers)

When I was a postgrad I was lucky enough to take a subject called industrial organisation. Our lecturer was Nisvan Erkal. I’ll never forget the subject, it was the first time in three years of propositional calculus that I was able to sit in a theatre and think my god this stuff does bears some resemblance to the real world.

Nisvan was a fairly good lecturer and one of the best moments during the semester was when she spent a couple of hours going over classic economic fallacies. One fallacy that we spent a bit of time on was that of predatory pricing.

This lecture served as a bit of an awakening. Up until that moment in time it had never occurred to me that predatory pricing was in fact an absolute load of bull. Nisvan informed us all quite calmly that the actual conventional position of the vast bulk of economists was that it is absolute crap.

At this point its worth noting that our government appointed protectors the ACCC have yet to come to this conclusion. As embarrassing as it is it is true, the ACCC believes whole heartedly in the theory. Not only that, they have the powers necessary to intervene and protect us from it. The regulation will save us!

http://www.accc.gov.au/content/index.phtml/itemId/816375

While the ACCC does believe in it, it also notes that it is difficult to prove…..apparently

the initial signs of predatory pricing are pro-competitive and there is often no written evidence of anti-competitive purpose with which an allegation could be upheld.

Heads up boys …. Maybe its sooo hard to prove because it’s a load of baloney.

What is predatory pricing? The theory holds that a dominate firm will price goods at below cost (that is below their costs) in order to force other firms/suppliers to lower their prices … effectively engaging them in a price war. The theory holds that for some strange magical reason the dominate firm is able to sit out its subsequent losses whereas its smaller competitors can not and go broke. Once the little guys are broke (or in eco speak exit the market) it is theorised that the dominate firm can increase its prices to a higher level (than pre price war) due to its new found market power. Ultimately these inflated prices should provide our newly monopolised firm with more than enough profit to compensate for the losses incurred during the price war.

Sounds sort of a little bit compelling doesn’t it?

However, the reality is that its loony bin territory and just because the ACCC says its true doesn’t make it so. It belongs to that same school of bizarre bullshit economics that anti dumping regulations comes from (anti dumping is a sort of predatory pricing theory with a bit of xenophobia thrown into the mix). They both belong to the school of protectionism dressed up in strangely illogical and yet somehow bizarrely enforceable pro‑competition drag.

The theory also appears to pander to the insecurities of anti capitalists and big business haters whose formal economics training usually amounts to nothing more than a couple of lectures they gatecrashed halfway though their arts degree.

At this point its worth noting that not once in the last 100 years of research has an economist been able to produce a single example that serves to validate the theory.

In reality there is nothing pro competitive about predatory pricing regulation. It is purely and simply a vehicle for small inefficient firms to shelter themselves from aggressive price competition. The theory of predatory pricing is in fact a tool for anti competitive behaviour. Let me reiterate … this is not some libertarian anti government ranting it is in fact the main stream economic opinion.

If you believe in predatory pricing you probably did your economics degree sometime around 1950.

There are three main reasons the theory doesn’t stack up (note that I am relying on my somewhat hazy memory of a single lecture that occurred a number of years ago … so apologies if I’ve left something out):

1. In order to engage in predatory pricing the dominant firm needs to supply goods at below cost prices , that is prices below not only the prey’s costs but also the predator’s costs. This is a very important point. If the dominant firm is pricing below competitors costs but above or at its own average cost it is not engaging in predatory pricing it is simply engaging in old fashioned competition.

The problem with the theory is that the predatory firm by virtue of its own pre-existing dominance has a lot more to lose from underpricing than its smaller competitors.

The following highly exaggerated example should shed some light … If the dominant firm produces 1 billion units and sells them at $10 below cost it has lost $10 billion. On the other hand the small competitor that produces 1 thousand units is only out of pocket by $10 thousand, Who do you think has the better deal?

2. The second issue is temporal, just how long does the alleged predator have to endure these losses before the competition does the honourable thing and bugger off. Bit of a risk, the smaller competitors by definition are incurring much less loss and may be able to weather the storm much better than the actual predator. It may be even worse than that …. what if the competitors decide to run a skeletal production schedule or alternatively temporarily cease production until the price war is over. After all forgone revenue may be a cheaper option for the smaller firm given that they potentially lose $10 per unit if they continue producing.

3. The third and final issue is that the whole thing is doomed to fail even if the predator actually triumphs over his prey. For predatory pricing to stand the predator has to engage in monopoly pricing once the prey have gone. The problem is that this implies they will earn abnormal profits and abnormal profits tend to attract new entrants.

And guess what if you’re a new entrant you have access to some bargain basement priced capital. When the prey exited the market they would by definition sell off their capacity/capital goods (its usually not sound commercial practice to abandon assets). These capital goods are priced to reflect the lowered expectations of future benefits that results from the price war. So at the end of the day not only does the predator find himself competing with new and keen entrants, these entrants have lower costs curves that reflect the price war and thus are able to compete aggressively with the predator, and if I was an entrant this is exactly what I would do because I know the predator is carrying massive liabilities resulting from his stupid pricing policies.

To the best of my recall this is what Nisvan taught us all those summers ago, and I have to thank her for one of the most memorable economics lectures Ive sat through.

ACCC to probe big fuel discounts

2009-07-14T05:06:00.000-07:00

ACCC to probe big fuel discounts

Is it just me, or has anyone else noted the absurdity of the Australian COMPETIION and Consumer Commission investigating what can only describe as excessive competion. Although I dont really know what that means ... too much competion? prices too low? too much benefit to that other C word .. Consumers?

Maybe it means no one is looking after the little guy, the small local petrolstation, the one that bob from the footyclub runs. The one that cant compete effectively with the big boys .... For gods sake who is PROTECTING bob and his overpriced petrol from competion!

This is all rather suboptimal from a governance point of view. I mean how confusing is it for an organisation to be chartered with the protection of competition and consumers and then have to act for special interests.

If society wants to enforce inefficiency then we really should establish a new commission one with clear objectives ... the Australian Protection and Subsidisation Commission ... their mandate could be to represent vested commercial interests and block mergers on the grounds they would create too much efficiency and too low prices.

The APSC could stand against subadditivity. Its charter could be the advancement of diseconomies of scale and scope.