Thursday, December 15, 2005

The Paris end of Cronulla beach

I am late to the piece, but for what it’s worth, here are my four cents on the Cronulla riots:
  1. The violent and random overreaction of the rioters is explainable. Lebanese gangs have been getting away with blue murder for too long. However, a cause is not a justification. Just because the violence was caused by some specific events does not justify it. Responding to violence through uncontrolled mob attacks is wrong and should be condemned.
  2. The proper response to violence is the full use of the law. People who were involved in violently attacking people should be rounded up and locked up. Those who engaged in revenge attacks should be treated similarly. Violence of this kind has gone unpunished for too long. A combination of a weak judiciary, inexperienced senior policemen and 'head-in-the-sand' politicians has let these thugs get out of control. Most of the violence has been perpetrated by Lebanese gangs (see Tim Priest’s extremely prescient article in Quadrant), but the Bra Boys (largely, but not completely, an Anglo-Saxon surfie gang) have also not been stood up to. Hopefully, the events on the weekend will bring a change.
  3. There weren’t enough police on the ground on Sunday. No matter what Iemma says the riots were predictable, increased in size as the day went on and preventable. It is perhaps excusable that not enough police were there in the morning, but more should have been sent in reaction to the large crowd that had gathered. It is amazing how few cops there are in the footage of the riot. Almost none of them appear to have any protective gear and many of them deserve bravery medals for their courage (hat tip: Andrew Leigh) in pulling some Lebs from the unforgiving mob, perhaps saving lives.
  4. Australia is not a racist country. No doubt the crowd included racists on the weekend. But many that did attend were not racially motivated, on the contrary they were attempting to stand up to racist harassment. And, as usual, the violence was conducted by a loud minority. But for the sake of argument let’s say the 5000 attendees were all culpable. That represents about a tenth of one per cent of Sydney; hardly an indictment against Australia’s biggest city or the country itself. The general condemnation from across the political spectrum should confirm Australia’s generally tolerant nature. All nations contain their extremists but I think Australia is lucky that it generally has fewer problems with such troublemakers than most.

Friday, December 09, 2005

Can tax cuts help the poor?

Bruce Bartlett, in an interesting article in the Washington Times, argues that lower marginal tax rates on the very wealthy can result in them paying proportionately more taxes. For example, in the US the top tax rate has fallen from 70 per cent in 1980 to 28 per cent today. Over that time the amount of income tax paid by the top one per cent of taxpayers has risen from 19 to 34 per cent (an increase of 80 per cent). Similar scenarios are observed in other countries, with a counter-intuitive, negative relationship existing between the amount paid by the rich and the marginal rate they face. So do lower tax rates increase equality?

Some explanations for this relationship would indeed answer yes to this question. For example, a reduction in the marginal rate would lessen incentives to engage in tax evasion, which would indeed move the tax burden in the direction of the rich.

However, there must also be other explanations for this relationship since in Australia the share of income tax paid by the rich has been increasing despite marginal rates not increasing over this time period. For example, in 1996-97, the richest 5 per cent of taxpayers paid 25 per cent of income taxes. By 2002-03, this had risen to 30 per cent (a 20 per cent increase) despite these taxpayers facing a marginal rate of 47 cents over the entire period.

Also over this period inequality was worsening. There was a 30 per cent increase in the income required to join the 5 per cent 'club' (the richest Australians) but only a 14 per cent increase in the income required to miss out on joining the 5 per cent 'duds' (the poorest Australians). Presumably, this increasing inequality would explain much of the higher tax burden placed on the rich, as more of their income is earned in the higher tax brackets.

Indeed, this same effect appears to explain much of the story in America. Since 1979, the richest one per cent of Americans have had income growth of around 200 per cent. This far out ranks the growth of any other income group and probably almost wholly explains the Bartlett figures.

This does not amount to an argument against tax cuts, simply that they are probably not effective at redistributing income. But this would only concern you if you thought redistribution was a good thing. Why should the people that are producing the wealth subsidise those who aren't?

Tuesday, December 06, 2005

Wolf, wolf!

Many years ago I remember reading some outlandish claims about rising sea levels, published in one of the many environmental propaganda tracts that are force fed to primary school students. The article sat beside a photo purporting to show what Sydney would like like in 2010. The ocean was halfway up Centrepoint tower!

I am not a scientist but similar outlandish claims, made by environmentalists, occur with such regularity that it makes me sceptical. In the past they have claimed that we are running out of food, the world is cooling and that pesticides are linked to cancer. Although there is generally some evidence for these views, the unequivocal manner in which environmentalists express them surely hurts their cause when events show them to be wrong. Paul Watson, the co-founder of Greenpeace, summed up their attitude when he said:
It doesn't matter what is true, it only matters what people believe is true ... You are what the media define you to be.

And, once again the environmentalists have been proven wrong. Remember salinity? It was the latest environmental scare story a couple of years ago. Well evidence now shows that the claims were way overblown. Unfortunately, governments have already committed $1.5 billion based on these miscalculations.

But these mistakes do not appear to temper the media's obsession with hyping the latest nightmare scenario. Recent reports suggest that an ironic consequence of global warming could be the freezing over of large parts of Europe. (An example of science imitating art, see the movie The Day After Tomorrow.) Some even claim that most of north-western Europe could resemble Newfoundland within a few decades. Despite the frenzy of media reporting these conclusions are based on two data points!

Perhaps this time they're right but responding to cries of wolf are not costless. Given their record, I think it is reasonable to demand a higher evidence threshold on such claims before resources are committed to abate them.

An aboslute disgrace ...

News has filtered through today that Sen. Campbell wants to continue the anti-competitive trade restrictions on flights between Australia and the West Coast of the USA.

The current Minister for the Environment (and ex-Parliamentary Sectretary to the Treasurer) stated that "We have to think very carefully about Australia's national interests when we're trading in access to a very lucrative world market."

In addition to this, we have Virgin Blue privately (!) lobbying the Government that an 'Australian' airline should have access rather than Singapore Air. Nothing like nationalist rent-seeking in action!

But, lets analyse the situation within the Minister's framework, i.e., what is best for Australia's national interest.

Is it best for Australia to protect a monolithic ageing airline and provide it guaranteed revenue irrespective of its performance or service level? Call me a kooky economic rationalist, but I seem to remember having tariffs for Australian motor vehicles. Remember the 1970s, what great cars we produced. And now, with little protection the Australian motor industry employs more, exports more, produces more than it ever did protected by tariff barriers. And us poor consumers have access to a massive variety of cars and at price levels never seen before!

OH MY GOD! Unilateral tariff reduction benefits Australia! No f**king sh*t!

If Sen. "I've got national interest at heart" really wants to improve Australia's national interest, he would support the government freeing up all Australian routes, forcing QANTAS to have full and fearless competition with other leading airlines. This will ensure that QANTAS is the lean mean fighting machine that will provide efficiency, cheap, well-serviced air services to Australians.

And hey, if it doesn't, I'm more than happy to fly Singapore Air to the US! Better service, and lower prices .... how does that damage the Australian public?

Thursday, December 01, 2005

Newsflash: lower prices cause more demand!

The Australian Institute of Health and Welfare have just released a report on the Welfare of Australians. News Limited has already run with the AIHW claim that child care is apparently becoming less affordable. This conclusion is based solely on the fact that people are spending more of their income on child care. Yet this tells us nothing about the price of child care services, clearly the price of something can fall but people can still spend more money on it in total. Computers and airline tickets come to mind.

Amazingly, in contradiction of their main findings, AIHW actually admit that child care prices (after accounting for government subsidies) have fallen over the last 15 years:
Over the last 15 years, policy changes have had a clear impact on trends in affordability of child care. Most recently, the Australian Government Child Care Benefit (CCB), introduced in 2000, resulted in greater affordability of child care services for many families.

They also show that demand for child care has increased. In 1991 there were 260 000 children in child care and by 2004 there were 650 000.

So prices have fallen, demand has increased but people have spent more of their income on it. Hardly groundbreaking results. For economists, it simply means that the price elasticity of child care services is greater than one, in other words that the demand for child care services is elastic. (This Japanese paper estimates the price elasticity at two.) This is not surprising since goods that have easily available substitutes (you can always look after your own kid rather than use child care) generally exhibit elastic demand.

In light of this, I wonder under what circumstances AIHW would concede that the affordability of child care had fallen. Their problem stems from trying to use the proportion of what people spend on a good to measure whether something is affordable. Using their guidelines, we could quite simply increase affordability by raising prices, causing the amount of income spent on child care to fall (remember the elasticity) and abracadabra suddenly households have less 'stress' since they no longer spend so much on child care.

Wednesday, November 30, 2005

Happy Holidays

In a farce the recalls the heavenly tabloid headlines damning Sydney Mayor Clover Moore’s rejection of Christmas decorations in the name of multiculturalism, The Drudge Report has broken a story that is sure to re-heat the tired old debate about bounds of church and state.

Apparently, some time in the 1990s the US Capitol’s Christmas Tree was renamed the Holiday Tree (here). It remains a whopping great big tree, with 10k lights, and 5k ornaments (it would be interesting to know if manger type ornaments and stars have been eschewed), so the name change has probably not disguised the obvious Christian reference.

I suppose this could be seen as a tipping of the institutional hat to the doctrine of the separation of church and state. I rather see it as a deliberate rubbing of Christian faces in the dirt. Ms Moore was too strident and was forced to recant. The name-changers are able to spit in our faces, because they only spit little.

Ms Moore responded by announcing a great big Christmas for 2006 – after discovering that the multicultural approach cost her votes. However, in Australia, the change is easy as we do not have a doctrinal separation of church and state to worry about.

The US does, though it would probably not be recognized by the founding fathers. To begin with, it’s a fair bet that by freedom of religion, they really meant freedom to practice Christianity as you see fit, and by separation they simply meant that the state would not tell you where to be and what to do on Sunday.

The founders were puritans and Quakers after all (though some say a few were deists); and were familiar with both oppressing and being oppressed – the puritans became expert at it under Cromwell. The puritans also experimented with oppression of non-Congregationalists in the early colonies, with unhappy results. Toleration of Christian variation was a necessary condition for the unification of the colonies (Quaker Philli was not about to accept mandated Congregationalism). Put simply, the reason it’s the first amendment is that it was a first order concern of the heavyweight god-botherers that made up the bulk of early American colonists.

It’s unlikely that religious traditions, such as putting up a Christmas tree, or opening Congress with a prayer, or maintaining congressional chaplains, would have been tolerated so long if their elimination was the object of the founding law.

The first amendment reads, "Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof..."; does this mean that congress shouldn’t have a Christmas tree (or shouldn’t call their tree a Christmas tree?). Jefferson, who drafted the constitution, and is at times cited as a deist (as though this proves the separation means not Christmas Trees), was also the origin of the separation of church and state moniker (pithy isn’t it?). He coined the phrase in a letter aimed at reassuring Baptists that Congregationalism was not about to be mandated; he wrote:

I contemplate with solemn reverence that act of the whole American people which declared that their legislature should "make no law respecting an establishment of religion, or prohibiting the free exercise thereof," thus building a wall of separation between Church and State.

So the question is, does erecting and naming a Christmas tree (or allowing a prayer to be said in School, or invoking the ten commandments via sculpture) constitute a law respecting the establishment of a religion, or prohibit the free exercise of a religion? As far as I can see, the only religion truly restricted is that of fastidious enforced-secularism.

Thursday, November 24, 2005

Technological pork

What is it with flash technology? Politicians seem to have an inbuilt attraction to promoting its use regardless of whether consumers are willing to pay for it. The last week has seen a flood of plans to deliver the best technology to ignorant people who refuse to pay for the latest invention.

First we had the story that the UN wanted to promote the supply of wind-up laptops to third world countries. Surely there are higher priorities in these countries than the supply of computers. I haven't seen these computers up close, but I imagine they're pretty useless at putting food on the table or supplying clean drinking water. And, for those countries lucky enough to have high levels of nutrition, the highest priority should be giving them opportunities to increase their income and then they can decide whether they want to spend it on laptops, ipods, or whatever they goddamn please. Anyone still deluded by the view that the technology helps development should check out this report from the Economist (subscription required).

Then we had the 'funny if it wasn't serious' suggestion of Helen Coonan (the Minister for Communications) that the government should pay for digital set top boxes. Just when you thought Australian broadcasting policy couldn't get any worse, Coonan shows that she is indeed the rightful successor to Alston. Allegedly the raft of restrictions that the Government already apply (limiting the number of TV channels, not allowing 'multi-channelling' and mandating the transmission of 'hungry' high definition signals) are needed to reduce the adjustment pressures that incumbent broadcasters are facing. Well Coonan's surrender on the issue shows just how much 'adjustment' is actually going on: the transition is going so fast that the switch off date has been put back and the Government has to step in with wads of cash to get things moving. Has it occurred to her yet that some of the restrictions may actually discourage buying a digital set top box? Because of these restrictions a box provides no extra benefit to the vast majority of Australians who get good analogue signals and have average sized TVs. Perhaps instead of having a switch off date we could just start progressively blowing up analogue transmitters, reducing signal quality and finally getting those recalcitrant consumers to see the light!

Finally, Big Kim came out and topped them all today. He wants the Australian Government to build a fibre optic network across the country. Telstra recently estimated that this would cost a whopping $30 billion. Some might say that the network is a natural monopoly and the Government should pay for it. But the fact is that no one knows if fibre is the best for Australia. It's a big, sparse country and other telco networks such as wireless, ADSL2+ and satellite might be much more cost-effective. And, these alternative networks also provide competition which reduces the 'monopoly' of fibre anyway. Personally, I don't want Big Kim taking on these risks with MY money, especially given his track record on telcos.

In sum, Governments should stop telling people how to spend their money by providing them with the latest technological craze. Consumers are much better judges of what they need and instead of spending money on 'grand visions' it should be returned to the people.

Tuesday, November 22, 2005

An objective approach to van Nguyen

Just in case you haven't heard, a young Australian man is about to be hung in Singapore for drug trafficking. Tuong van Nguyen pleaded guilty and was promptly given the mandatory death penalty.

Apparently, van Nguyen was trafficking in drugs to pay off a debt that his brother had incurred. Given these 'sad' circumstances, many do-gooders are now actively petitioning for clemency, demanding trade sanctions, and even attempting to pervert sovereign rule through the International Court of Justice.

Rather than condemning drug trafficking as the evil scourge that it may well be, I have a slightly different (and non-judgemental) approach to defending Singapore's right to carry out their punishment (even though I personally am against the death penalty).

Some simple facts before I continue. Singapore has had the death penalty for both murder and drug trafficking since formation. Further, the death penalty is applied where the appeal against conviction has failed. This ensures that any future drug trafficking knows the risk he/she faces when deciding to bring drugs into Singapore. Van Nguyen knew the penalty for his crime prior to him committing it.

If you look at these facts through a contractarian lens, van Nguyen entered Singapore with full knowledge of the consequences of his premeditated actions -- that is, he entered into an ex ante assessment of the probability of being caught and the cost of the known punishment against his personal benefits of his actions. He obviously found that either the probability of being caught was low; the pain of execution was low; or that wiping his brother's debt was of great personal benefit to himself.

My point is simple: van Nguyen entered into a 'criminal contract' with the State of Singapore with his eyes wide open. He fully understood what the consequences of his actions were. He obviously miscalculated the probability of capture (or was statistically unlucky). He played the game and he lost. Criminals do this all the time. In the vast majority of the time, criminals are not caught and do in fact win.

If we allow ex post amendments of the original 'contract' we are imposing significant costs on the other party to the contract, namely Singapore. Opportunistic behaviour can significantly increase the cost of contracting and can undermine otherwise rational bargains.

Lets put this another way, what if he was caught for drug possession in a western liberal country, and hence received a slap on the wrist. Would people be all for the State suddenly deciding that ex post it will revise the sentence and give the criminal life imprisonment? The answer would no doubt depend on your personal moral view of the crime of drug possession. However, objectively, it would be manifestly 'unfair' because it allows a party to a contract to opportunistically amend the terms of the contract ex post.

For these reasons alone, van Nguyen should hang. He took a gamble, and he lost -- now live with the consequences.

Always follow through!

I don't know quite where to put Michelle Leslie anymore. When she first came onto the scene, I wrote her off as non-issue: the washed up druggie that would Ralph Magazine would use to compete with the (and you know its coming) Schappelle issue of FHM.

But then when she reformed and conveniently found Allah, I had to move her off the junkie loser list, and onto my list of heroes. Her blatantly transparent conversion to Islam must have Schappelle kicking her cell walls screaming- “why didn’t I think of that.” It was not principled, it was not valiant- but it was enough. Leslie played the game and received her pass. She made a mockery of the Indonesian Court, and for that we should all admire her.

Taking offence to her emerging from prison in a mid-riff singlet and jeans, butarriving in court in full Muslim dress, the President of the Australian Federation of Islamic Councils told the Telly: “It looks as though she used Islam as a stunt to get a judgment in her favour." You think?

Now that she’s free, however, I’ve had to change her basket again. Her interview with the Telly is hilarious: "It's incorrect to say I am a fake Muslim and that is very upsetting to me;" "I'm a Muslim and I practise these beliefs in the best way that I can;" "I was a Muslim long before any of this happened. You can be a Muslim regardless of your clothes.” The picture says it all right? No wonder we invaded Afghanistan.

After that flip flop, my preamble for Leslie will now unfortunately have to include the phrases “sell out” and “wasted potential.”

The Indonesian Courtthat sentenced Abu Bakar Bashir to four years for “masterminding” the killing of 202 civilians, needed as Bob Francis would say, a punch in the face. And Leslie had that opportunity in her hands. Rather than treat us as suckers, as she poses for more nude shower scenes and her career sky rockets, Leslie should embrace what she has done. She should be calling for the Indonesians to get serious with their justice system. She should be telling the world: "I told them that I was a Muslim and got off scott free!"

For the record I think Schappelle is guilty as sin. But if four years for murdering 202 innocent people, treason, and plotting to turn the county into an Islamic State is your bench mark, then 15 years for drug trafficking pot is a little steep. While its too late for her I guess (although a Ramadan conversion may buy her a Presidential pardon), the Bali nine could lean a big lesson from Leslie champion chess move.

Thursday, November 17, 2005

The real hero is game theory

The Socceroos win last night was very exciting, largely due to the penalty shootout. Penalty shootouts are exiting because they are zero-sum games (one player wins, the other loses). Although zero-sum games are relatively rare in real life they are a common feature of popular 'artificial' games such as chess, rock-paper-scissors, etc.

Game theory suggests that when playing a zero-sum game you should keep your opponent guessing. For example, in rock-paper-scissors you should choose each strategy with a probability of a third, ensuring that your expected payoff is equal regardless of which 'tool' you use. Note that if they weren't equal, and you chose rock more often (since as Bart would say "nothing beats rock"), then your opponent could chose paper all the time and win more than 50 per cent of the games.

Penalty shoot-outs are very similar. For simplicity let's assume that a kicker has two options (shoot left or shoot right) and the keeper also has two options (jump left or jump right, where left and right are defined from the kicker's perspective). Like rock-paper-scissors, it will be best if the kicker keeps the keeper guessing and alternates between kicking to the left or the right. But, unlike rock-paper-scissors, the kicker will probably be better at kicking one way or another. Thus, to keep his payoffs equal he will kick more to his strong side than to his weak side (but he wouldn't make all his kicks to the strong side since the keeper can counter that by always jumping that way). Likewise, the keeper will jump more to the kicker's strong side, than the kickers kick that way, because he can be confident that the kicker is more likely miss the goal completely when kicking to his weaker side (remember the keeper must also keep his expected payoffs equal).

All this is outlined more rigorously (and probably more accurately) in a paper by Chiappori, Levitt (of Freakonomics fame) and Groseclose. They show that a right foot kicker's strong side is the left, and vice-versa for a left foot kicker. They also apply the predictions of game theory to a few seasons of Italian and Spanish football.

But how does the theory match up against last night's game?
The results show that the Australian players applied game theory more accurately (and eventually with more success) than their Uruguayan counterparts. Australian kickers did indeed choose their strong sides more than their weak sides (3-2), whereas the Uruaguayan kickers only kicked to their strong side once. Despite the praise being heaped on him today, Schwarzer went close to not applying game theoretic principles, but still chose the kicker's strong side twice more often than the Uruguayan kickers did.

As the stats show, ultimately game theory (and economics) were the winners. Australia can confidently thank its place in the World Cup due to its superior understanding (and application) of economic theory.

Wednesday, November 16, 2005

Who's marching for the unemployed?

Although I have never, and probably never will, take part in a protest march, protests themselves serve a useful purpose because they can reveal the strength of people's preferences. It is always difficult to judge what people are willing to pay for public goods (be they bridges, health care, restrictive IR regulations, etc) but a protest march provides an opportunity to measure this willingness. Plausibly, a rough estimate can be determined by the wages that protesters gave up to participate in yesterday's marches against the WorkChoices legislation.

Proceeding on this basis, and giving the ACTU the benefit of the doubt, there were 546 000 protesters yesterday. And, I'll even be more generous and assume that these protesters had a similar average productivity to the general Australian population (although the dominance of public servants among their ranks makes this highly unlikely). The average Australian produced $50 per hour last quarter and an 8 hour day means that across all the 546 000 demonstrators they gave up around $220 million in lost wages.

I have assumed that all protesters worked, which is probably a fair assumption since the beneficiaries of the IR laws will be the unemployed. For example, in the more liberal IR environments of the US, UK and NZ there has been an average unemployment rate of 5.9 per cent over the last ten years (compared to an average rate of 7.3 per cent in Australia). If our average over the next ten years lowers to 6 per cent, as a result of reform, then an extra 135 000 people will have jobs. Even if these new entrants just earn the minimum wage then they will earn an extra $13 500 over and above the dole. The average age of the unemployed is around 50 so, assuming on average of another 15 years in the labour force for the new employed, the net present value of these jobs is around $19 billion.

The upshot is that to offset these IR gains there would have to be the equivalent of another 80 days of action on the same scale as yesterday. In the face of these ratios, I don't think I will breaking my duck and joining a union march anytime soon.

Tuesday, November 15, 2005

Dear Media Watch

After watching the final episode of Media Watch for the season I am left confused as to when you deem free speech appropriate and when you do not. Last week in yet another bashing of the proposed anti-terror laws, you referenced Tony Jones’ point blank assistance of paperback icon John Pilger in promoting the deaths of Australians service men fighting in Iraq (wherein, Tony only asks the question because he knows the response he’ll get):

Tony Jones: “Can you approve in that context the killing of American, British or Australian troops who are in the occupying forces?”
John Pilger: “Well yes, they're legitimate targets. They're illegally occupying a country.”

On your own independent legal advice, the new anti-terror laws would (rightly) deem such an interview as seditious:

“In our view it would be open to construe Pilger’s words as urging or inviting any person to engage in the conduct of the forceful elimination of Australian troops and their defeat in Iraq. There would certainly be an arguable case sufficient to place the evidence and surrounding circumstances before a jury.”

Nevertheless, Lateline is content to give Pilger an uncontested platform (and then Media Watch staunchly comes to his defence when Foreign Minister Downer criticizes the ABC for airing it!). I understand that Lateline, Media Watch and the ABC’s producers have an agenda to promote, and that this agenda is in line with Pilger’s comments. My issue with Media Watch (today) however, is not with your agenda per se but rather your hypocrisy.

You seemed somewhat impatient to defend Pilger’s opinions and his right to voice them, but then last night in a story bashing radio presenter Bob Francis and his criticism of the judicial system you demand he apologize, be silenced and even locked up!

Bob Francis: “They’re even thinking about bail, the judge. The judge saying to "let him into the community without a psychiatric examination would be irresponsible". Irresponsible! Oh, smash the judge’s face in!”

Liz Jackson: “Threatening physical violence against a judicial officer is a serious criminal offence, and canvassing views about the guilt of people still before the courts can be contempt.”

I agree, threatening a judicial officer with violence is a serious criminal offence- but so is treason! Pilger wants Australian troops slaughtered in Iraq and you announce him a hero. Francis uses a colloquial expression and you want him locked up? My question then is: is free speech only to be defended when Media Watch agrees with the opinion voiced? Why are right wing opinions so less valued then left wing rhetoric?