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Fact check on plain packaging

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. (2355)

David Jones directors make astute share purchases

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. (687)

Awful beaches, good swimming pools

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. (577)

Muzzling the ABC

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. (668)

Getting towards a sound asylum seeker policy

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. (648)

Indonesian preciousness

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. (275)

Housing prices & migration

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. (582)

Privatising Australia Post

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. (812)

Pricing heavy vehicle use

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. (696)

Recreational maths

I have been getting into the puzzles section at the tail end of The Guardian newspaper which I get each week. Last week it asked you to prove that there are infinitely many different pairs of numbers (a,b) for which a+b=ab.

This is easy to prove but I admit I had to work at it while wandering around the golf course yesterday before the straightforward way of thinking about the issue presented itself. It is a few years since I have tried these sorts of mathematical recreational problems and I am rusty – as a school kid I went in maths competitions organised around the UNSW magazine Parabola which introduced advanced math thinking to school students.  One problem that I agonised over for a day or so until I saw a clear solution was to prove that in any group of N people there are at least 2 people who have shaken hands with the same number of other people.  I had a particular affection for such mathematical recreations that involved simple to state problems that involved real insight.

I remember reading in a biography of John Von Neumann that prior to WW2 the Hungarians held mathematics competitions in the parks of Budapest.

I worry a bit about is that I am so rarely forced to think things through carefully these days. University work can become routine because, as you age, you tend to draw on long-held intellectual capital rather than really taxing your brain.  You might even be more efficient at solving problems by drawing on this capital but it does make you more machine-like. (623)

Holocaust memorabilia

German concentration camps at the end of WW2.  I found this video valuable.  It would be wrong to ever forget or to forgive.  The incidence of disease and starvation and the revelation of its impacts on those German people who must have known what was happening – for the most part a guilty silence – is horrifying even apart from the organised killings by the SS and others. (554)

Warming & telling lies

2013 was the hottest year since records across Australia were begun.  9 of the warmest years on record have occurred in the past 12 years. That is what the Australian Bureau of Meteorology (BOM) states.

Of course it could be that Australia’s BOM are cooking the books to exaggerate the extent of warming. They could be selecting data which supports this view and ignoring data which does not.   That was Jennifer Marohasy’s claim in March 2013. Professor David Flint thinks the same.  Jennifer Marohasy will examine the recent high temperature claim when she has examined the data. I can almost anticipate the outcome.

It seems the conspiracy to deceive the world on climate change is not restricted to the thousands of scientists who contribute to the IPCC. Our own BOM is in on the act too.

There is something more than a genuine disagreement on scientific facts that is occurring here.  Reading Jennifer Marohasy’s blog (and her postings on Facebook) reveals a whole community of right-wing sceptics who have what seem to be bizarre attitudes to the way science is carried out.  Maurice Newman and other prominent people presumably have their views driven by this group.

The bottom line is that science has been captured by a left-wing bunch of environmentalists who, partly for career reasons, repeat scientific facts to us on climate that are false and known to be false by the scientists who state them because they are involved in falsification of data.  We know that politicians lie but now too, we are led to believe, scientists lie as well.  Moreover, these lies are enforced on a global and a national scale.  This capture has been identified by a keen-eyed group of skeptics on the other side of the political fence – the libertarians and the conservatives.  Groups in Australia chat are allied with the IPA and the “dry” part of the Liberal Party.

The cynical might judge that because such groups oppose the role of government in the economy, and that because climate change is a global externality – public “bads” issue,  that such groups are driven to disbelieve truths that would offend their political ideology.  That has been my critical view of such groups.  The view is “critical” because, in my view, political ideologies need to reflect the facts of our existence.

Markets will not resolve many – perhaps most – of the world’s most pressing problems – environmental and other.   Markets fail in many situations and we do need government action.  You cannot just wish this were not true and will it away.

 

 

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Negative gearing

The old chestnut of negative gearing is being raised yet again. There is nothing at all wrong with allowing asset owners to claim interest payments as a tax deduction if capital gains are fully taxed. Similarly there is nothing wrong with exempting the family home from capital gains taxes if, as is the case, interest payments are not tax deductible.

High house prices are not a consequence of either policy. They are in the main a consequence of our highly urbanised society, which puts pressure on land prices around major cities, and our relatively high population growth rate reflecting high fertility and a high immigration intake. Eliminating negative gearing but retaining capital gains tax on non-owner occupied housing would reduce housing supplies and act to increase housing prices. Imposing capital gains tax on the family home implies that householders would make mortgage repayments out of after-tax income and then be subject to a futher tax on any capital gains the asset might enjoy.

Such double taxation is not imposed on the acquisition of any other asset in the economy by consumers or firms.

The key policy causing problems here is the immigration policy. Although it realizes some efficiency gains to society as a whole (only “some” because there are significant unpriced external costs) the effect of immigration is to shift the distribution of income against labour. The chances of changing this policy are however slim – the business lobby stupidly see fostering a strong housing industry as an end in itself while the “left” (with equal stupidity) see any attempt to restrict immigration as lacking compassion and of even being “racist”.

My environmental concerns mean, I guess, that I lack compassion. (811)

Too much finance

I like this piece by Robert Shiller on the excessive allocation of resources to finance. About 7.4% of all US output goes here and between 25-50% of graduates from top business schools pursue finance careers – much of it pure rent-seeking activity that adds nothing net to national output. The same trends are evident in Australia with the disastrous overemphasis on finance in university curricula. Students who would previously have done worthwhile programs in economics are wasting educational resources by studying finance.  They are also wasting their own talents. Accounting is, to my mind, a form of intellectual death but at least it often does provide a service of value to the community.

Finance should mainly be about matching the needs of borrowers with those of lenders.  Elaborate and frequently wrong models of portfolio selection and the complexities of derivative contracts should not be mainstream university subjects.  Students would learn far more with courses on mainstream economics – on public economics, international trade and basic microeconomics.  They would also then be more socially useful and much better educated.

Finance subjects have become an out-of-control monster that is devouring quality economics programs and producing a generation of rent-seekers rather than productive members of the community.  Finance as a discipline should be brought to heel and recognised as the relatively minor part of economics that it is.

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Maurice Newman & foolish commentary

In The Australian today Maurice Newman is quoted as saying that Australia’s climate policies have decimated Australian manufacturing.  It is a foolish claim given that manufacturing in Australia faced problems even before we began to set a low price on carbon and before we began pursuing renewable energy targets.  The Dutch Disease consequences of the mining boom coupled with high wages have created difficulties as Australia competes with low wage emerging countries.

Newman’s remarks are wrong and characteristically intemperate. He sees interests in climate change as delusional and fraudulent and he rants like a right-wing crazy.

I don’t think The Australian can be criticised for publishing these views although it can be criticised for heeling to install the mob who propound them. Newman is PM Abbott’s senior business advisor and his views are, for that reason alone, worthy of citation.  The difficulty is that these views are just so self-evidently wrong.  We have a government being advised by people with low credibility who are careless with their words.  Even Abbott would not seem to be fond of people with Newman’s carelessness. Abbott himself is a cautious guy.  He should sack Newman and appoint someone with cautious intelligence to occupy Newman’s role.

Australia faces some difficult challenges over the next few years – many stemming from the appointments the Coalition have made to provide information to the Government. (565)

Thailand’s new fascism?

What is happening in Thailand suggests a possible move toward dictatorship. The Yellow Shirts (and their political representatives in the Democrat Party) are a fascist group who want to suspend democracy and replace it with an unelected council of their choosing. They oppose elections even being held because they know the Democrats will lose.

The poor and the dispossessed like Mr Thaksin because he did something for them. These people are looked down on by the elites of Bangkok as ignorant “Issan” and nothing much more than servant material. But unfortunately for these elites these Issan have the numbers and the sense to understand exactly how Thai political elites view them. They are not at all ignorant and know full well how they have been left out of the Thai development miracle.

It is a stalemate since the Yellow and Red shirts cannot agree on the “rules of the game”. The stalemate can eventually force a military takeover or a civilian dictatorship. It must be a dictatorship since the majority of the Thai population will oppose it.  A dangerous step.

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Support for plain packaging

Julia Gillard writes a strong and clear defence of the Australian plain packaging legislation for cigarettes. She is right – it will cost the Australian Government millions to defend this legislation against attacks from the carcinogen producers and their allies in the IPA (copyright protection, free trade etc) but these millions are a gift to humanity since they will probably induce stronger action against tobacco elsewhere in the world. For once Australia can pat itself on the back.

Unless consumption habits change markedly the WHO estimate 1 billion people will die from cigarette-related diseases in the 21st century. That’s about 1 in 8 deaths. (386)

Money, brainlessness & sex

I liked this piece from the SMH commenting on the Miranda Kerr-James Packer liason.  The hypocrisy demonstrated here in relation to the taboo on marrying for money or for reasons of sexual atractiveness alone are important social facts. Regardless of how unpleasant, boring and philistine a male is there is always a beautiful woman ready to have sex with him provided he has sufficient wealth.  It is the way (most?) women would think if they could.  In addition, regardless of the absolute shallowness and lack of intelligence of a beautiful woman there will always be a wealthy man interested in bedding her on the basis of a long-term contract that is expensive to exit.   This is how (most?) men would think if they could.  Miranda Kerr and James Packer you deserve each other.  James can count his billions and Miranda will have plenty of time to flutter her eyelashes and smoothe out any future stretch marks.

And of course in making these observations am I being a moral observer or am I exhibiting my own form of hypocrisy.  Would I if I could? Well, maybe, but probably not a Miranda Kerr.

I am still in Nepal and will resume serious blogging after Xmas. (726)

Nepal shifts to the right

Living in this fascinating country had lead me to focus on their current election.  The communist insurgency ended in 2008 but there really hasn’t been effective government in Nepal since that time.  There are signs that the election held a few weeks ago may have ended this nightmare.  A coalition between the pro-India Congress Party and the centrist Communist Party (Marxist-Leninist) seems plausible with the troublesome Maoists reduced to a tiny – though still influential – rump. The Maoists are lamely calling the elections a fraud and claiming that instead of an electeds parliament a consensus group reflecting the interests of all parties should vote on a new constitution.  The arithmetic of the final vote count is important – a 2/3 majority of the new parliament must approve the new constitution. A hopeful sign is that the Maoists have agreed to participate in the new parliament “subject to conditions”.

This country needs strong central government.  The road, public transport and energy sectors need massive coordinated investment.  Not even the weakest argument for a libertarian free-for-all here.  The externalities and lack of planning are obvious everywhere. (481)

Targeting ZPG

Australian fertility rates of around 1.88 babies per woman are quite high by developed country standards but still well below replacement fertility which many claim is around 2.1. Thus Australia could achieve ZPG simply by controlling the migration intake. The intake would still be non-negligible because Australia exports many residents each year who seek to return to their country of origin. The building industry claim that we need high rates of immigration to boost private investment in housing but this has always seemed to me to be a “tail wagging the dog” policy – housing investment should not be needed to keep the economy afloat. Housing should provide a place to live. The resources devoted to housing could instead be directed to education, leisure, improving the stock of existing housing and helping to deal with a population of existing people who will live longer. Continue reading Targeting ZPG (1399)