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. (658)
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. (547)
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. (438)
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. (439)
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.
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. (702)
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.
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. (523)
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.
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. (352)
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. (648)
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. (441)
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 (1146)
I switched to Mac computers a few years back after ingesting some “gateway drugs” – the IPhone and the IPad started me down this terrible road. An additional factor was virus infections – I picked up a corker at University of Melbourne and another at Peking University using Windows machines. The latter could have ruined my 6 month stay in China – fortunately I had triplicated copies of the lectures I had to give there. I now have Macs everywhere – IMacs at home and work and a Macbook Pro that I am writing this on etc.
Currently being forced to work on cranky, inconvenient Windows machines I am so happy I made the switch. My Macbook Pro has taken over from the massive Dell desk-top Window machine that sits in front of me. My lovely Macbook Pro delivers the goods even in an environment where almost no-one else uses them – instantaneous internet connections and no hassles. (346)
I am unhappy with the recent forecasts of population doubling for Australia by 2100. Not with the forecasts themselves but with the fact that the forecasters have “sniffed the wind” correctly and sense that the Australian mania for continued population expansion will keep running until, presumably, we experience the diseconomies that such growth makes inevitable. I am uninterested in being the richest nation on earth if that means I have to live in an overcrowded, congested rubbish dump. Continue reading Unnecessary population pressures (821)
Or, at least, giving your body a good workout in 7 minutes. Fitness presumably means sustaining this program. I do a simple set of flexibility exercises that takes 10 minutes each day – this is much more challenging regime (if done quickly it looks hard) but I’ll give it a try. Requires no more equipment than a wall and a durable chair. Convenient for the office, staying in hotels etc
HT Andreas Ortmann
Staying in Nepal I am witnessing first-hand the consequences of a Hobbesian breakdown in a national political consensus. To quickly recall history: A bloody Maoist led insurgency ended in Nepal in 2006 and in 2008 elections were held which the insurgents participated in. The resulting government was disfunctional and was unable to put together a new national constitution for the new republic – the monarchy was abolished in 2008. Appointees from the various parties eventually formed an administrative council which ruled the country ineffectively. New elections were held last Tuesday involving the moderate communists, the Unified Marxist-Leninist Party (known as the “cashists” on account of the extreme personal wealth of their leaders), the extremist United Communist Party of Nepal (Maoist) and the conservative Nepali Congress Party. Another ultra- extremist party, the Communist Party of Nepal – Maoist (known even in Nepal as the “dashists”) boycotted the election and called a 10-day strike in the leadup to it. This “dashists” are violent and dangerous – a few motorists were burned alive for defying the strike and driving their cars during this period. (The right to prevent the election was described as exercising “democatic rights” by this party’s leader, Mr. M Baidsya, who said that those burned were “committing suicide rather than being victims of terrorism”).
The election has been held and so far the Nepali Congress and the moderate communists seem to be picking up the overwhelming majority of votes. Predictably the UCPN is crying “foul” – the elections have allegedly been rigged by local and foreign manipulators! There were many local and international observers (including ex-US President Carter) who dispute this. The election seems to be fair with a high voter turnout and an overwhelming rejection of extremism.
The UCPN is now talking of re-joining the violent “dashists” who boycotted the elections and of “going to war”. This aggressive effort won’t succeed but would cause major problems for Nepal. Nepal remains one of the poorest countries in the world. It does need a fairly strong central government but, more than that, it needs a commitment to accept the outcome of the democratic process. John Locke needs to replace Hobbes. (542)
At least our PM says he does. From Crikey.com:
“…the Prime Minister stated “my government deplores the use of torture but we accept that sometimes in difficult circumstances difficult things happen”.
Australia does not merely “deplore” torture. We are a signatory to the Convention Against Torture, which states that no circumstances justify torture; the official position of the Australian government is that the prohibition on torture is an absolute right. “No circumstance justifies a qualification or limitation of absolute rights. Absolute rights cannot be suspended or restricted, even during a declared state of emergency.” Continue reading Daft (& evil) Coalition policy 9: Abbott’s support of torture (680)
Posting will probably be intermittent for a while as I am visiting the Asian Institute of Technology and Management in Katmandu Nepal. Its a fascinating visit that I am thoroughly enjoying. Continue reading Nepal visit (793)
Goodbye Kevin you waste of space. You are a limited human being who never had any grasp of his own personal limitations. You were a disastrous PM and spent most of the rest of your stay in politics facilitating the election of a feeble conservative Coalition government in Australia. Your existence disadvantaged Australia. (832)