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.