I have been reading Thomas Cathcart’s, “The Trolley Problem or Would You Throw the Fat Guy Off the Bridge”. This is one of two popular book length accounts of this well-known problem in ethics. It’s a fun read that taught me a lot about utilitarianism and its problems. Many books on moral philosophy are dull and dense – this isn’t that.
Philosophy asks unanswerable questions (the answerable questions become science) but in this moral mine-field progress can be made in understanding issues even if the final analysis falls short of definitively answering them. One of the nice things about philosophical discussions is that no-one need win! Continue reading Trolley Problem (269)
The move by the Abbott Government to provide $320m to farmers experiencing drought is terrible, not merely inconsistent, economic policy. The move undoes 5 years of reforms to drought assistance arrangements initiated by previous governments although the Gillard Government did some equally daft things. Australia experiences regular “droughts” as a part of its normal climate. It is essential that farmers come to internalise this fact particularly given that, with climate change, we can expect more droughts and more severe droughts. Most of the $320 million is in the form of low interest loans which have the moral hazard consequence of reducing the incentives of farmers to prepare for drought. It also discourages de-stocking in the face of drought which has adverse environmental consequences.
In its report on drought assistance the Productivity Commission recommended abandoning all drought assistance or (if assistance was to be retained) tightening the “exceptional circumstances” motivation for it. I agree. (290)
I enjoyed and (I hope) personally profited from Roy Baumeister & John Tierney’s Willpower: Rediscovering the Greatest Human Strength. The link gives a better book review than I could hope to write but this a special book. It analyses our ability to say “no” to temptation (to use heroin, to eat excessively, to fritter our lives away on pointless internet searching, to procrastinate etc etc.) and to work and play effectively. It is a popularisation of a stream of work in psychology that rescues that quaint old-fashioned idea of “strength of will”. It is, the authors’ claim, the single most important personal strength to develop. Moreover, you can strengthen your endowment of this resource which, however, remains in finite supply so use it wisely. I liked the discussions of Eric Clapton’s alcoholism and Henry Morton Stanley’s treks through the Congo*. This is an academic “self-help” book that can improve every aspect of your own life. An enjoyable well-written work as well.
B & T link the supply of willpower to glucose supplies that power the brain. A reasonable question is whether diabetics experience particular self-control issues. Eating (and sleeping) well augment your willpower. Ignoring small willpower depletions and concentrating the focus on major one’s reduces willpower depletability and makes you more effective. Self-control capabilities are the single most important determinant of capabilities in kids and hence strongly condition the way we should raise them.
* An amazing man whom I had always treated as a caricature of what he was. I want to read his biography. (200)
It is incorrect to simply say (as Clive Hamilton does) that Chinese purchases of Australian homes disadvantage Australians because local consumers have to pay more for their homes. The error lies in considering only the consumer surplus losses to local consumers but not recognising the gains in seller surplus to local sellers and the latter must be larger. (A bit of price theory shows that the gains in seller surplus exceed the losses in consumer surplus). It is true to say that wealth is distributed away from local home buyers to local home owners but there is an increase in total local wealth. What is true is that if it is the case that foreign buyers are driving up home prices that Australia can do better than allowing free trade in housing by imposing an optimal tariff on home purchases by foreigners – an optimal export tax that reflects Australian monopsony power in its property markets. Hong Kong has a 15% tax on purchase by mainland Chinese and this has this “optimal tariff” type of effect. Another reason for introducing such a tax might be to insulate Australia from the effects of a collapse in the prices of substitute Chinese housing assets which often seem to be caught up in a property bubble. But this will limit the current windfall gains locals get from Chinese paying too much for Australian properties.
Whether you want your housing stock in the hands of foreigners is not really the issue. If a Chinese pays a huge price for an Australian home then that can be used to build another home and, if the Chinese owner does not become a resident the first purchase will be most-likely be placed on the local rental market reducing rental costs in that market. Whether Australia wants many more Chinese immigrants is, of course, an issue for immigration policy. It is disconnected from the issue of whether we should have free-trade in our housing assets. (369)
I am going to a talk organised by ACIl Allen Consulting tomorrow on “Counting the Costs of Alcohol”. The main point made in their initial discussion paper is that some people believe the gross costs of alcohol should be targeted while others think that only the external costs should be included. This is a very old debate so I hope something new comes out. As a matter of fact governments do target reducing the gross costs of alcohol – these include, for example, the health costs that people pay for themselves. The external costs of alcohol consumption (and for that matter cigarette consumption and gambling) are low relative to the gross costs and to the taxes that governments collect. My attitude is “so what?” Consumers make many irrational decisions when they consume addictive and mind-altering alcoholic products partly because decisions are taken by the very young who have enormous discount rates that moderate substantially as they move into their twenties. To be fair ACIL Allen do recognise that people do incur costs that they don’t recognise – what most of us call “internality costs”. But the rational addiction model that provides a point of reference for them is a crock of nonsense – the theory is deficient (the optimal control techniques Becker and Murphy use are wrong) and the idea that agents internalise all costs of using products over their lifetime is a priori nonsense of a scale that only Chicago-bred economists could ever believe. (320)
Tony Abbott might be correct that climate change is not responsible for the current drought but he would be irresponsible to assert that future drought patterns will be independent of climate change.
There is, in fact, evidence published by our own Bureau of Meteorology that El Nino effects – and hence droughts – will have increased intensity under climate change. While studies from the UNSW Climate Change Research Centre suggest severe drought events will occur twice as often with climate change.
In the past various groups have been skeptical of the climate change-drought severity link – although the likelihood of a link during the Millennium Drought seemed strong – but the evidence is now becoming clear. (278)
I get The Guardian weekly and, over recent months, it has run an excellent serious of articles on global water (especially groundwater) shortages. I know a bit about the situation in China and India but the problems faced by California and the Middle East are also huge. The situation is grim and could lead to military conflicts. Food security is a major implied difficulty but simple issues of access to safe drinking water are already issues – one global citizen in 7 already has no access to safe supplies.
Generally if you are interested in environmental issues The Guardian is a good read.
Bob Solow comments on Greg Mankiw’s defence of the “1%” ers and Mankiw replies. I think Solow wins the day – most of the big fortunes these days stem from the finance sector and from trading. It is not from super-marketing, deal-making types like Steve Jobs (Mankiw’s hero) although even there are spivy oh so American traits. But my real gripe with Mankiw is covered in the first few lines of Solow’s letter. Why does Mankiw feel the need to come to the defence of this highly privileged lot? His blog does this sort of thing all the time. Why not defend the interests, at least occasionally, of the worst-off? My own view is that Greg Mankiw is a highly skilled technician and expositor of American-stylle modern economics. He sees this as economics. I tend to think of the Mankiw view as more of a selfish American aberration that gets the logic mostly right but the ethical priors mostly wrong.
In the current issue of NewScientist it is reported that in 2013 the US Sugar Association applied pressure on the US Congress to drop US funding of the WHO because its new food guidelines included strict suggested limits on the role of sugar in the diet. More information is in this Guardian report. Sugar is a nutritionally useless commodity – unlike fats, proteins and other components of food it is nutritionally redundant. There are strong beliefs however that it is addictive and hence fosters the global obesity problem as well as nasty metabolic diseases such as Type 2 diabetes. I have not intentionally added sugar to my food for 40 years.
The nasty lobbying here is yet another example of the way corporations suppress knowledge to promote profits. The cigarette companies lied their heads off for 60 years and large fossil fuel energy companies spread lies about climate change links with carbon fuel-based consumption. Groups such as the IPA and the Libertarians help to spread such lies – typically campaigning in ways that reflect the lies/marketing efforts fostered by corporate interests – we still have doubts, it is unproven, smoking is a “freedom of choice” issue etc.
A more trivial but still nasty episode was revealed again today when it was found that the Coalition’s Fiona Nash and her chief-of-staff Alastair Furnival pulled down a new “health star” rating site that provided ratings of different types of foods. Alastair Furvival is married to a lobbyist for the junk food industry. The Public Health Association and Choice have condemned the decision to take down the site.
OK maybe it is a coincidence but I am suspicious. Also I am becoming increasingly paranoid about the role of corporate interests in manipulating information flows that affect our health and well-being but which deliver private profits. (321)
What is happening in Thailand comes close to open class warfare – it can spill over into full-blown civil war rather than just sporadic gun fights unless the opposition Democrats back down and reengage with the political process. They refused to engage in elections yesterday because, even though they oppose the current government, they know it will win. The argument is that those who voted for the Government are deluded in supporting a corrupt government. The government has the support of the majority of Thai’s and particularly those poor farmers living in the north and north east of the country. The relatively wealthy Bangkokians have never had much regard for the lumpen-proletariat living in the countryside – the so-called “Issaan” but the latter are smart enough to make choices that improve their lot. Members of the Thaksin government are not angels but the obligation of the opposition is to point this out, to argue the case and not just refuse to participate. The elections themselves will not resolve Thailand’s difficulties. Results will not be known for a month because many could not vote yesterday so new polls must be held. The longstanding problems will persist for at least a month unless the Democrats reengage.
A country that has had sound economic development now faces real problems. Multinationals that dragged huge amounts of foreign investment into the country are threatening to leave and tourism is drying up. (339)
Claims by paid consulting firms for a firm producing cancer-causing tobacco products that “plain packaging” have failed are wrong. The evidence they produce is inconclusive in statistical terms. Other evidence suggests there have been negative effects on consumption levels and participation in smoking. The problem with the argument of London Economics is that they do not understand the concept of statistical significance. They, in fact, find evidence of a decline in smoking but assert it is too small to be statistically significant. They therefore assert there has been no effect. This is wrong – the conclusion should be that there is currently not enough data to determine an outcome. I am interested to note that the same stupid statistical reasoning was used by climate denialists (many of whom get funding from tobacco companies and who promote false claims about the harmlessness of secondary tobacco smoke) to deduce there has been no statistically significant warming since 1998. This claim is also false.
It is hardly surprising that the effects of plain packaging are as yet unclear. The policy targets young people initiating smoking not primarily the overall stock of smokers. It might take a few years for the aggregate stock data to show much response. On the other hand the data on a surge in calls to “quit” lines suggests the policy is having an impact. (1171)
David Jones needs to be explicit on what two of its directors knew about a merger offer from Myer that was made to the board of DJs the day before these two directors bought shares in DJs and before DJ’s had decided to reject the merger offer. DJs also announced an improved profitability outlook a few days subsequently. As a long-suffering DJ’s shareholder also a bit annoyed that more weight was not attached by the DJ’s board to the offer. Not a good look. (246)
I have sympathies for Mark Lawson’s preference (in AFR but unfortunately paywalled) for hotel swimming pools over hot, sandy Australian beaches where the sand burns your feet, there is no shade (apart from wind-vulnerable beach umbrellas) and where cold (genuine) gin and tonics are hard to come by – unless you are prepared to accept inferior canned varieties from an Esky. I can actually make do with my backyard swimming pool. If I swim diagonally across it I can just reach 3 complete swimming strokes but who wants to swim? My preferred position is lying on an inflated doughnut-shaped floating device (like a coloured tire inner-tube) with butt, feet and hands in the water. Pure bliss to be floating around the pool and using well-timed kicks from my feet to propel me to preferred pool locations. Early versions of the floating device had a stubby holder but I live in a tough world, these days, without such refinements. Definitely superior to a beach. Particularly if I can, on occasion, cajole my increasingly reluctant progeny to top up my drink. (308)
The Coalition-Newscorp campaign to muzzle the ABC seems to be gathering force with proposals to cut the ABC’s Asian news services. As a means of promoting Australia in Asia I think this news service is very good and not expensive – far better than the BBC. The premise that pursuing “soft diplomacy” by means of a news service is sound but that can be advanced by identifying poor reports and working with the ABC to correct them. I do not believe for a minute that the Australian military tortured “asylum seekers” (and apparently now neither does the ABC) but hammering the ABC’s foreign news services into oblivion is a short-sighted way of dealing with such problems. People in Asia like the ABC because it has credibility. This means believing that the ABC will tell the truth about issues and not just provide propaganda. The “torture” story did have serious adverse implications for Australia and seems to be both incorrect and based on sloppy journalism. It is this incorrectness that should be the target of policy not shortsighted actions that disadvantage Australia and promote the interests of the Newscorp propaganda machine. (395)
The major election concern at the last Federal election, after the economy, was the asylum seeker issue. It was the main reason Labor lost the election. The nonsensical view, propounded by social romantics who treat Australia as common property owned by the international community, was that relaxing the constraints on illegal entry that John Howard had imposed would not lead to huge levels of entry. This has been thoroughly and irrefutably discredited as could have been guessed – decrease the cost of illegal entry and, guess what, it will increase. What started off as an irritation under the strict policies of the Howard government had become a major crisis because of the policy-ineptitude of Labor.
As Bob Carr pointed out almost all of the so-called “asylum seekers” are economic migrants seeking a better life in Australia. If you talk to specific groups – such as the Iranians in Australia – the estimate is that close to 100% of the so-called “asylum seekers” are economic migrants. They don’t want to move to Indonesia or Malaysia because it does not meet their living standard requirements. They are not refugees seeking asylum but economic migrants who want to get to the head of the migration queue. There are established policies for assessing the case for economic migrants wanting to enter Australia – we do not want them all because there are potentially tens of millions of people in this category.
We have immigration restrictions for a host of good economic, social and political reasons. Free movement of Labor around the worlds ended 100 years ago. Those who argue it should be reintroduced – the muddle-headed ninnies who say we should accept every migrant legal or not provided they describe themselves as a “refugee” – would gain close to zero community support. Australia has a generous immigration program and most of the population increase in our country since WW2 has been based on immigration. Illegal entry threatens that program because it undermines the selective principles of the program. We are perfectly entitled as a sovereign nation to determine who comprise our population and to select those who match our national self-interest.
I am not generally a fan of Tony Abbott but the Abbott policy of restricting illegal immigration has so far been an outstanding success. No boats have made it through the Border Protection Command cordon to Australian waters in the past 5 weeks which is the longest period without boat arrivals since March 2009. The number of asylum-seekers detained on Christmas Island is now below that of 2000.
Labor has been relatively quiet on the Coalition policy partly because they recognise the ineptitude of their own policy approach. The critics of Coalition policy (and the fear-mongers who believe we should never offend Indonesia) might think about displaying sillier restraint. Indonesia too if it wants continued Australian foreign aid should recognise the serious intent behind the Abbott policy. Instead of sending naval vessels to inspect its border use the same vessels to stop the illegal migrants from leaving Indonesia to come to Australia. As none of them want to reside in Indonesia that will permanently end migration policy problems for both Indonesia and Australia. Indonesia should stop being a transhipment point for illegal migrants seeking to settle in Australia. Indonesia is acting irrationally in the current situation – the Coalition is not. (466)
Indonesia claims that once asylum seekers leave its territorial waters they become the business of other governments so that attempts to turn them back are inappropriate. This seems to be an attempt to thwart, or manipulate, attempts to resolve the asylum seeker/economic refugee/queue jumper problem. These illegal immigrants do not seek to reside in Indonesia but want to live in Australia. If they are prevented from making the last leg of their journey they will not attempt the earlier stages of their journey and neither Indonesia or Australia will face a problem.
If Indonesia wants continued economic aid from Australia and good relations with Australia then it needs to cooperate to end what is for Australia a significant problem. It is not a matter of Australia having to agree with every counterproductive Indonesian view. Generally the cringe in Australia towards Asian countries is foolish from the viewpoint of our national self-interest.
Nor should Australia feel it is on the back foot because it has intervened in the past to stop Indonesian terrorism in situations such as East Timor. Indonesia needs to look at itself (and its current behaviour in areas such as West Papua) rather than suspiciously casting its eyes on neighbours who are in fact reasonably good friends. Being prickly about issues which do require international cooperation is unhelpful. (200)
House prices in Australia are expensive because we live in a highly urbanised society that is subject to high rates of immigration. In the year to 30 June population grew by 407,000 of which 244,000 was net migration and 162,000 natural population increase. Deaths over this period were 147,000. Without the migration the supply of housing would come close to balancing the need for housing by new families – not quite since, over time, single more people are living alone and the size of the “family” unit is decreasing.
There are strict planning controls that limit the release of land supply but for the most part this is a good thing.The destruction of undeveloped land is a serious concern as is urban sprawl and the consequences of having huge mega-cities.
I don’t want to argue the economic case for migration (I have done it too many times both “pro” and “con”) except to say that the triangle of benefits from it are likely to be very small – particularly if capital is highly mobile internationally. The main effect of migration will be to drive up prices of fixed assets like land and rates of return on capital. These rates of return will not increase much if capital is highly mobile. The main effect will be to force lower weaves and to increase the share of income accruing to property owners. To worsen the functional distribution of income.
A long-standing argument however is that we need a strongly expanding housing sector to boost demand both for housing and for the consumer durables used in housing. This is necessary to keep the economy growing at 2%+. Indeed some economists argue that the business cycle itself is simply a function of cyclical trends in housing demands. In the short-run this argument seems correct. Private investment in housing is a major part of private investment so that fluctuations in it will have “multiplier” effects throughout the economy. But from a longer-term perspective the argument is nonsense. We should build houses to house families not to drive the macroeconomy. Housing investment is an instrument of policy but not a target. We can invest in many other things that also provide social gains. The idea that we must commit to 2%+ growth is infantile – let’s enjoy the fantastic uncrowded, unpolluted environment we have and tell the gnomes from the Business Council to go away.
Instead of relying on a never-ending flow of migrants to boost the economy via its effect on housing demands we can settle for a relatively fixed housing stock which is maintained and improved. It is unnecessary to have vast mega-cities with their attendant environmental problems. We can spend more of our existing resources improving distribution issues and spending on education and cultural development. Yes, I have become strongly anti-growth. The ethic is fallacious and, accordingly, most of modern macroeconomics is irrelevant to how we should live our lives. The pointless pursuit of a larger population is illustrative of a general class of macroeconomic fallacies. (421)
The cry has gone up from the BCA to privatize Australia Post. Its a weak argument from a posturing bunch of low-intellect phonies who are promoting self-interest, neo-con ideology and third-rate economics.
Australia Post is a natural monopoly. Its mail sorting and handling operations as well as its delivery and transport operations are characterised by considerable economies of scale and scope. You only want one firm carrying out these functions because the businesses cost function is sub-additive. Inevitably the issue of running it as a private firm inevitably raises difficult regulatory issues.
The BCA state that the letter business lost $218m last year and that these losses could have been avoided had the firm been privatised. That misrepresents the situation. These losses reflect the community service obligation (CSO) to charge a uniform postal rate irrespective of the source or destination of mail in Australia. It also represents the obligation of Australia Post to handle all classes of mail rather than the highly-profitable commercial bulk mail sent along Australia’s east coast. Finally too it reflects the increasing use of electronic mail services. Whether the CSO should exist – I think it should – the issue of these losses is not tied to Australia Post’s ownership structure but to whether a privatised Australia Post would be obliged to follow this CSO. Abolishing the CSO would enable a publicly-owned Australia Post to “cream skim” bulk mail deliveries just as well as any privately-owned firm. The decline in revenues diue to the growth in electronic communications is not an ownership issue either – it only means that private firms will bid less for the business.
The claim that the sale of Australia Post’s assets worth $4.2b would yield $3b is unconvincing without specifying the income the Commonwealth gets from the business and the role of CSOs in restricting that income. As it turns out the business earned $312m in profit in 2013 which would have yielded over a 10% return on the BCA’s anticipated sale price. Profits last year grew by 10.9%. A sale at a price of $3b would impoverish the Commonwealth and transfer several billion dollars of public wealth to the private sector. It would be a scandal.
An earlier post of mine on these issues is here. (640)
I’ll give a plus to Tony Abbott if he seriously pursues the suggestion of charging heavy trucks for the damage they do to roads by using GPS technology that measures the mass of the truck, the distance it travels and the roads it travels on. There are transaction cost issues here but this “telematic” technology is, anyway, already used by trucking operators to manage the behaviour of their fleets – checking that safety breaks are being taken and so on.
The basic economics is that almost all damage done to roads is caused by heavy vehicles and this damage is concentrated on roads with thin pavements. There are strong incentives to use ever-larger trucks to exploit economies of scale in trucking. There are also strongly increasing scale economies in investing in pavement thickness. However in a country like Australia, where traffic densities are low compared to European and American roads, there is no economic case for building all our roads with maximum durability like the Hume Highway.
The procedure of banning trucks from certain roads is inefficient. It is better to charge them the damage cost and then to leave it to the trucking operator to decide whether the road should be used.
Charging truckers high fixed registration fees to cover damage costs doesn’t work since these charges apply irrespective of distances travelled and road types employed. Moreover replacing these charges (which do cover damage costs) with efficiency-based charges should enable lower costs to be imposed on truckers – they should be able to share in the efficiency dividend.
A famous problem in trucking is the “last mile problem”. The benefit of using a truck rather than, for example, a train is that it enables “point-to-point” pick up and deliveries of goods. But should a truck be allowed to pick up or deliver on low quality roads using low quality bridges where possibly huge damage costs are imposed? With the pricing reform suggested the problem is solvable. A central agency assigns prices to using particular roads and agrees to pay these revenues to the local governments in charge of the local roads. Local government then does the cost-benefit calculations to determine whether it is desirable to allow large trucks to access local roads. Will the revenues generated exceed the increased damage costs or not? If so allow access. This is a much better solution than a blanket solution of always allowing or not allowing such heavy vehicle traffic.
Years ago COAG were close to agreeing to such pricing proposals. I don’t know what happened subsequently but the whole propose got put on the back burner. As I say, I’ll give Tony Abbott a tick if he puts this proposal back on the COAG agenda. Here is a longer piece I wrote on the economics of heavy vehicle pricing. (541)