Friedman's influence

Milton Friedman had a great influence on my ideas. I started university as a communist  ... but then I met some. And, while other authors, such as Orwell, turned me off hadcore economic planning but effectively I remained a social democrat until I read Friedman.

I read Free to Choose and it was a life-changing experience. Like most good ideas, the thing I took from it most was perhaps the simplest: that individuals, despite all their faults, know better what is in their interests than anyone else. As a general principle it's hard to argue against, I've always thought of it as the 'Christmas' principle. Imagine, if instead of us buying our own products, everyday was Christmas and we had to rely on our needs through, well-meaning, gifts from others. This is what central planning is like and it is a disaster. I've had some terrible Christmas presents over the years.

I've also spent tonight reading some of the obituries on Friedman. Two things have struck me. 1, Friedman's contributions cover such a wide range of topics; including creating financial derivatives, consumption theory and the relationship between free markets and democracy. 2, in his prediction of stagflation  he is perhaps one of the only economists who designed a rigourous model that actually predicted economic outcomes. You often here about how Einstein's theory of relatively was demonstrated by the bending of light during an eclipse but it is rare that economics can create such controlled conditions.

SIngapore Slung

After the September IMF / World Bank meeting in Singapore, JP Morgan Economist Andy Xie wrote a ‘wrap up’ internal email, which (coincidently) was followed by his resignation from the venerable house of Morgan. Dr Xie had the temerity to suggest that ‘Singapore's success came mostly from being the money laundering center for corrupt
Indonesian businessmen and government officials.’ He followed it up for an explanation as to why Singapore’s GDP per capita has been stuck at USD25k per person for the past 10 years – ‘Indonesia has no money, So Singapore isn't doing well’

Newspapers have carried a few tidbits, but Mergeright has a copy of the three offending paragraphs.


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The dinner was turned into an Oprah with PM Lee Hsein Long at the center.The topic was on the future of globalization. People fawned him like a prince. Of course, he is. There are two reigning royalties in the world that the Davos crowd kiss up to, Jordan and Singapore. The Davos crowd are Repulican on economic issues and Democratic on social issues. Somehow, they manage to put aside their moral misgivings and kiss up to Lee Hsein Long and Abdullah.

I tried to find out why Singapore was chosen to host the conference. Nobody knew. Some said that probably no one else wanted it. Some guessed that Singapore did a good selling job. I thought that it was a strange choice because Singapore was so far from any action or the hot topic of China and India. Mumbai or Shanghai would be a lot more appropriate. ASEAN has been a failure. Its GDP in nominal dollar terms has not changed for ten years. Singapore's per capita income has not changed either at $25,000. China's GDP in dollar has tripled during the same period.

I thought that the questioners were competing with each other to praise Singapore as the success story of globalization. Actually, Singapore's success came mostly from being the money laundering center for corrupt Indonesian businessmen and government officials. Indonesia has no money. So Singapore isn't doing well. To sustain its economy, Singapore is building casinos to attract corruption money from China. These western people didn't know what they were talking about. Aside from the nauseating pleasantries, some useful information came out of it.
___________________________

The concentration of slander re: Singapore, suggests that Singapore applied pressure on JP Morgan to cut Dr Xie loose. You can’t blame Singapore for being annoyed – especially as there is probably a grain of truth; and you can’t really blame JP Morgan for protecting their own interests.

Still, it’s hard to see how a few Billion of dirty money each year could deliver their 4.5 million people an average of USD25k per year. Recall that GDP is VALUE ADDED. So 25k per person is about USD110bn of value added per year. Even if you take a massive cut of the dirty money, You’d have to washing a heck of a lot of it to skim that much.

According to the CIA world fact book, 2005 GDP was 110bn at market exchange rates, and 125bn at PPP. The working population is 2.3m, so average labour productivity is about USD55k per annum, after adjusting for relative prices (or 48k at market exchange rates).

The idea that money laundering could be driving all this growth is plain silly. However, there’s probably sufficient truth in the assertion to get up Singapore’s nose. Besides, if you can put pressure on folks who say annoying things, you do – don’t you?

Can the UN be any more useless?

Miloon Kothari, the UN Special Rapporteur on Housing (that is seriously his title) has spent the last fortnight in Australia evaluating the adequacy of housing. (I can't seem to find his report online but there are news reports here and here.)

Now he has some pretty bad things to say about outback Aboriginal housing. I don't know much about their conditions, but Miloon does not seem to recognise that it's a free country and they can move to the cities if the outback is such a raw deal. Instead, Miloon just wants us to give Aboriginal communities more handouts with no obligations: yeah that's really worked a treat for the last 30 years.

His other policy suggestions are similarly loopy. He thinks we should establish a "human rights-based national housing policy." What does that mean? He wants rent controls seriously considered. And I thought his grand title meant he was an expert on housing! Even Paul Krugman's against it, as he sums up, "Rent Control is a textbook case of Economic stupidity."

Kothari also wants the government to remove negative gearing and discounted capital gains. But these policies make it easier for people to buy and rent. Sure we could target them to low-income people but how is that going to engender a sustainable increase in affordability. Or should we be happy keeping people on welfare from cradle to grave?

More importantly, in the face of restrictive land release policies, such demand stimulants will simply raise the price of housing. A seemingly more useful report was released by the IPA recently playing up the importance of releasing land. I haven't had a chance to look at it in detail yet but at least it seems to have a basic handle on the concepts of supply and demand.

How to do spend a lot to do absolutely nothing

The chicken-winged Treasurer announced today the Government's response to the Redtape Reduction Taskforce Report. And what an absolute joke. If one wants an example of government-ese and how to say a lot with saying nothing, then this is the response to read!

The Government has agreed to token reforms of existing laws, including working to harmonise conveyancing laws ... man, what great reforms!!!! This is in the same league as floating the AUD, or reducing tariffs.

A more important aspect of the redtape reforms is the plan to address the flow of bad regulation. This is where the government-ese is at its best. The government has proposed to:

• include a cost-benefit analysis for new regulation;
• renaming the irrelevant Office of Regulation Review to Office of Best Practice Regulation;
• use of the business-cost calculator; and
• adoption of six principles of good regulation.

Call me kooky, but these requirements already exist in the form of a Regulation Impact Statement (RIS) !!!!! The RIS is a completely irrelevant document supposedly undertaken by government agencies to analyse the costs and benefits of proposed regulation. BUT, like all things government, it does nothing. The Office of regulation Review has no powers, is unable to provide any analytical rigour to RISs, and has done nothing to stop bad regulation.

Oh, but what about the fabled compliance cost calculator .... the glorified excel spreadsheet that the best minds of the Office of Small Business (I know it’s an oxymoron) miraculously thought up .... well, all it does is multiply hours taken to complete forms by the hourly wage rate .... and, wait for it, each of these elements have to be manually entered by the user. So, the Government, in its analytical best, has solved all regulatory problems by adopting an excel spreadsheet that is completely user dependent!!!! In fact, the only government-value-adding is to enter the =A1*A2 code!!!!!

The RIS has become irrelevant largely due to the incompetence of the Office of Regulation Review, and the absence of any consequences of failure to do a RIS. Hands up who knows that Treasury only did a RIS for around 60% of regulations? And what consequences are there? None!!!! So what is the response of Government? Let’s change the name of the ORR to the Office of Best Practice Regulation. Wow!!!! Who would have thought that the problem of non-compliance by government agencies could be solved by a name change. Can you imagine it? I mean poor public servants completely oblivious to the ORR, but the OBPR!! I can see them trembling over their morning teas.

Ah gosh, anyone who thinks the flow of crap regulation will be reduced is smoking the same stuff Costello was when he thought he'd be PM.

In all seriousness though, the Government cannot be serious that this is economic reform. It is a disgrace. And to think of the resources spent on the Redtape Reduction Taskforce, and in preparing the response. It amazes me how expensive hot air can be.

How to pay teachers

Judith Wheeldon argues that merit pay systems for teachers are flawed because:

Evaluating a teacher's work has many facets. The easy one, because it can be expressed in figures that naturally rank themselves, is exam or skills tests results. Unfortunately, these easy-to-understand numbers do not meaningfully reflect the job description of a teacher.

I agree with her that simplistic pay schemes that relate test marks to pay are not going to work. As Wheeldon points out, they will simply encourage teachers to teach to the test, or as demonstrated in Freakanomics, teachers will blatantly alter exam results to ensure better pay.

Her alternative plan to give principals more power to hire and fire is only a partial solution. Fundamentally, it does not provide the good teachers with any bonuses or extra rewards (instead it only punishes excessively bad teaching). The key problem with current arrangements is that the good teachers are also likely to be able to get rapid promotion in the private sector. So why would they go to a school where, no matter how well you teach, you might be waiting five years for a pay rise? No wonder most of my teachers were lemons.

However, it does get to the root of the problem of centralisation. As Friedman points out for the US:

When I went to elementary school, a long, long time ago in the 1920s, there were about 150,000 school districts in the United States. Today there are fewer than 15,000, and the population is more than twice as large.

If there was a functioning market at the consumption level then this would put sufficient pressure for the design of efficient incentives in input markets. But if we try and tack a merit pay system on to the existing centralised, beaucratic structure then, given their track record, departments will probably stuff it up. As Friedman argues, in the absence of market pressure, power needs to be put closer to consumers in some other way. Although, allowing principals to fire has some merit, vouchers have more.

PS: In other Friedman related links, his Free to Choose documentary is now available in full on google video. And, as Gregory Mankiw, points out here's another video that Milton would probably warm to.

Tricks for old goats

The bomber has been bellowing like on old bull 'bout broadband – but as usual, he was making little sense, and demonstrating a poor grasp of the broader issues. The proposed fiber investment was simply a shot at circumventing the declaration of the copper network, and only made commercial sense to Telstra on these terms. There are alternative broadband investments, such as ADSL2+, that make better sense from a purely economic point of view – however they are based on the declared copper network, and are therefore subject to existing access arrangements.

Sure, if Beazley can convince the electorate that there is a broadband crisis, and that it is the Government’s fault, then it may make good politics. However, he runs the risk of looking like he’s fighting Sol’s corner, not the consumer’s corner, which is not really the natural home of the labour party.

It the Government / ACCC had given Telstra the commercial assurances that they desired, Telstra would’ve pulled up the existing copper node-loop, and replaced it with fiber. This would’ve meant that the ‘declared’ infrastructure – the stuff on which the Government set the prices Telstra could charge its competitors – would’ve been replaced with ‘undeclared’ infrastructure – on which the Government did not set the prices Telstra could charge its competitors. This would’ve allowed Telstra to regain control of the bulk of the wholesale prices it charges – effectively guaranteeing Telstra a new piece of monopoly infrastructure from which it may earn its fresh stream of excess rent.

This investment offered only marginal technical benefits above what is available from copper local loop, and ADSL2+ enabled exchanges, but it had a valuable strategic advantage. Telstra was willing to pay $4bn (the investment’s cost) to get control of the wholesale price they could charge, even though it would not give them a significantly better product for the retail market. The fiber product is only a little better (technically) than the ADSL2+ product, so Telstra would’ve struggled to charge much more for it then they might’ve for ADSL2+.

The fiber investment would’ve given Telstra the power to charge competitors whatever it liked – which would’ve almost certainly led to higher prices for broadband, regardless of the speeds on offer.

Sunk already

Beazley ought to have a sinking feeling.

The May and June employment reports appear to have saved the Govt’s Workchoices bacon – certainly smirky pete was looking like the cat that got the cream when doing the post employment gloat on Thursday afternoon. In the previous two months, 99.7k jobs have been added: 72.5k full time jobs (+1%), and 27.2k part time jobs (+0.9%). The unemployment rate is 4.9%, on both trend and seasonally adjusted estimes, and vacancy data points to ongoing employment gains.

The Industrial relations laws had the potential to be the undoing of the government. Had the economy been headed into a downswing, freer ability to sack employees might’ve been a disaster. As it stands, I expect that the unemployment rate will be 4.5% before the 2007 election, and that real wages growth will be about 4%y/y. The Govt is not yet willing to attribute the gains to workchioces – for fear that the economy may turn, and that the downturn may be blamed on the policy, however we at merge-right need not be so coy.

Howard will beat Beazley in 2007. Unemployment will be at 30yr lows (prob below 4.5%), wages growth will be 4%y/y, and the Liberal campaign will be that unemployment is always higher under a labour govt – when the unions kick outsiders out of jobs, to the benefit of their members (who will be 15% of the private sector labour force by this time). By the 2010 election, it will be too late for a third round of roll-back.

Bye bye Beazley.

Milne miscalculates

One thing that the phoney war between Howard and Costello has proven was that Latham was right. From The Latham Diaries:

The Dwarf [Glenn Milne] is just a frustrated politician; fancies himself as a player, not just a commentator: Circa 1997, he told me how he backed Keating over Hawke and planned to do the same thing for Costello over Howard. He should stick to his day job. (p. 189)

Milne kicked off the whole story in an article in the Sunday Tele. However, if Milne is really trying to use Walletgate to get Costello into the Lodge then its been a spectacular disaster. What did he think was going to happen? Even if he could prove that Howard lied that hasn't stopped Honest John in the past. And since the whole story hinges on the interpretation of a private meeting that happened over ten years ago, who gives a stuff?

Costello's own confused words proves this. On Monday afternoon he said:

He told me that he intended to do one and a half terms as Prime Minister and then would hand over. I did not seek that undertaking ...

That doesn't sound like an undertaking to me. Howard oulined what he planned to do and those plans have changed. So what? Costello should ask Milne to stick to his day job indeed.

Update: Having just watched Milne on Lateline it is clear that the strategy is to set up a credible threat. That is, if Howard goes to the next election, Costello will challenge and bring them both down together, ruining Howard's legacy. Basically, Costello is saying that since I can't have the leadership on a platter I'll extort it out of you; anything but having to actually gain the support of my colleagues.

Is the threat credible, though? I still think Costello has greater payoffs from sticking around and waiting for Howard to leave. Howard may want to reevaluate how quickly he promotes Turnbull though.

WWII redux

What a great game last night! Especially entertaining was the historical parallels with the Second World War.

The Japs got out to an early lead with a surprise, illegal strike and then tried to hold their early gains against an ever-expanding attacking force. (With the odd kamikaze attack by a lone striker.)

I thought Australia's new passing based game (directed by coach 'Guss your Daddy') was very akin to Macurthur's island hopping strategy in the Pacific. I give credit to Graham Arnold, a Pacific theater buff, for exposing the Japs' historical weakness to long supply lines.

And, finally, just when you thought that the game was going to deteriote into an ugly, drawn stalemate, the Allies dropped a couple of bombs (see right) to finish the Japs off!

Overworked and underpaid

Jealousy is still alive and well in Australia. Only a week after the left were pointing out that cutting taxes actually means giving more tax back to those that already pay a lot, we now have the same hand-wringers whinging over the $21 million a year (or $1.8m/month, $400k/week, $60k/day, $2500/hr, $40/min or 67 cents per second) man, Alan Moss.

Poor old Mossy. This bloke works hard to get to the top. Starting at Mac Bank's predecssor in 1977. He worked his way up, playing a key role in the formation of the Bank. And, instead of lauding him as an example for all Aussie kids to aspire to, our journos just pour forth envy and complain that surely $21 mill is far too much.

But how do we know how much is too much? Far from being overpaid, could Mossy be getting less than he is worth?

The sin of jealousy is not confined to the Antipodes, over in the States there has been a similar controversy over the six fold increase in executive pay since the 1980s. Two economists have recently shown that there is a perfectly rational reason for this growth.

Their basic thesis is that a manager's value is a function of his talent multiplied by the size of the firm he is managing. Thus, a manger who adds 5 per cent value will be worth $45 more in a $1000 firm than managing a $100 firm. This is why the MD of your local fish and chip shop probably gets paid less than Sol Trujillo.

So applying this analysis to Al's pay packet it is clear that Mac Bank shareholders are getting him at a steal. Back when Big Mac first listed in 1996 it's market capitalisation was $1bn. Benefiting from Mossy's oversight, the firm's capitalisation has increased by a factor of 15, to $15bn. Unfairly, Alan's only recieved a just under 1000 per cent increase in his salary, from $2.3m back in 1996. The gap is so great that even the 8k/week ($1.1k/day, $48/hr, ...) donation from the Treasurer can't make up for this massive injustice.

Howard's steady hand

A very close friend has often said to me: ‘yeah, well Howard’s OK, but what’s he done? Nothing!’. To some extent it’s true, other than the GST, and staying in power, Howard has not taken the nation forward with the same sort of aggression as Keating. Then again, he’s not had the bipartisan support that Keating and Hawke enjoyed. In any case, the best answer I can muster is not to underestimate the value of a steady hand on the tiller.

Plenty of nations mess up. And the more prosperous the background factors, the more major the stuff-ups: so during a commodities boom, you get the biggest stuff ups of all. The risk from Labour, and the distinction between the Labour and Liberal was put to the fore in the liberal budget, and the Labour reply. Whereas the liberal party offered an uncapped subsidy of childcare places, the Labour party promised $200m for Govt owned childcare centers on school grounds, placed in locations of their choosing. The talk about not putting them in places where there were already sufficient places (in contrast to the liberal scheme, which might see ‘chaotic, and wasteful, competition’) was telling.

The contrast between the two parties is sharpest on this number. The liberal party, which simply promised to fund places, of whatever type, and in whatever location, that mums and dads prefer. Or the Labour party, which is going to build the centers it likes, in places it chooses: I bet a Labour Govt would deliver places to marginal electorates, give control to teacher’s unions, and use the threat of socialized competition to cajole political donations from Mac Bank (Childs Family Kindergartens) and ABC learning.

The pattern repeats itself with broadband, where the Labour party is making plans for a major Govt funded broadband investment: about $3bn, but you know how these publicly funded projects go over budget. While the Liberal Govt has a stupid one-time slush fund for the national party (from which Beazley is pinching $2bn), at least it is not using the proceeds of the Telstra sale to diversify back into the stinking telecommunications sector. Imagine Govt ownership: Telstra would still provide a shitty service, but it would employ triple the workforce, and be further overpriced service. Beazley has form on this, Keating won the fight to privatize Telstra over the top of Beazley’s protests in the 1990s.

Beazley made promises of an infrastructure taskforce – which is really a vehicle to spend government savings. From the previous budget, we know that the plan is to use the future fund to directly invest in infrastructure: yes, that means more Govt owned assets. Just when you thought we’d finally got rid of all that inefficiency, the Labour party is promising to invest the future fund in Govt controlled infrastructure. Given the choice, I’d sooner invest in Mac Bank or Babcock and Brown (in fact, I have) – and I think that the future fund should be given that choice. Instead, Beazley wants to spend the money on jobs for the CFMEU and associated unions.

And the Beazley formula for the skills crisis – banning foreign workers. We will, instead solve the current problem by training ‘our own’. Only problem with this is that 1. training takes time, and 2. the bulk of those not currently in training are beaten by the foreigners as the foreigners are considered to be a superior employees. Training the less able domestic dross will take more time, and banning the foreign supply will put more pressure on capacity.
The difference between the Beazley and Howard budgets testifies to the value of value of having a steady hand on the economic tiller. There may not be much really big reform left to do, but there is always the chance that a govt awash with cash will make some really big mistakes – like reinvesting in telecommunications, or socializing childcare. The difference between 10 liberal and 10 labour budgets is a vital, efficient, and productive economy – with only minor stuff ups.

Ok, to finish with, the confessions: I'm a card carrying member of the liberal party; I'm an economist; and I don't like Beazley. The first, I figure, disposes me to a certain amount of parochialism, and you’ll just have to live with that. The second, I hope, is the clear foundation for my argument. The third, well, that’s the place from which I draw the vitriol. Let’s face it, there’s not much to like about the big bellowing cow – he’s got only two settings, boring gas-bag, or wanna-be Churchill.

Gin for warming

When I think of doomsday, when I read of a catastrophe to come, and when I listen to the prophet’s of doom on global warming, I imagine that something really dramatic is going to happen. I lack imagination, so it was with great interest that I started reading Michael Roux's Op Ed in the May 7th edition of The Australian Newspaper here. It boasted the dramatic (if silly) title ‘Heat’s on if we are to avoid the doomsday scenario’, so I’d hoped my starved imagination might get something to digest, if not much to chew on.

So what is the doomsday scenario? According to Michael, it is the: ‘hastened melting of glaciers; violently unpredictable weather as seen in the increased cyclonic activity in the US and the north of Australia and the unprecedented flooding in Europe; and the hole in the ozone layer over Antarctica that heightens the risk of skin cancers.’

In the boring stakes, everyone says drying paint is the winner – but you do not see crowds in the Antarctic either. I’ve never watched paint dry the whole way, but I’ve watched it on and off; and I’ve also watched the ice melt as I suck on a G&T: let’s face it, ‘hastened melting of glaciers’ is definitely less exciting than the G&T, and probably down there with drying paint in terms of drama.

The skin Cancer is not so exciting either, but Michael had a stab at linking Hurricane Katrina with the drying paint, and the skin Cancer. So if you will, imagine the doomsday scenario: we are watching the ice melt over a few thousand years (not necessarily with the G&T) reading newspapers about pregnant drugs dealers shooting each other in sports stadiums across the US, while waiting at the clinic for the annual skin cancer checkup.

Katrina was scary, but even the most Green scenarios and stats are boring in their doomsday potential. The hurricane link to global warming is a contentious area for scientists here, but even accepting the most sympathetic view here, and applying the stats used by Roux (a 33% increase in CO2 since the industrial revolution, and a doubling of C02 by 2100) we get a boring effect. According to Thomas R. Knutson, a 120% increase in C02 would lead to a 6% increase in maximum wind speeds; so the 33% increase in CO2 since the industrial revolution might have sped the wind up by, say, 1.6% And if Roux is right about CO2 doubling by 2100, we might see a 5% increase in maximum wind speeds – but only maybe, because no one’s sure about this stuff just yet...

Aware that this is hardly scary stuff, Michael gets out his dog whistle, and warns that we might have to be the Pacific’s solution to the possible refugee crisis. He reports that under a doomsday scenario, the slowly melting glaciers may lead to ‘rising sea levels that could force displacement of the population of the entire Pacific islands, most probably to Australia’. If Australia took every single one of these souls, with the exception of Fiji (which has some pretty high territory), and New Caledonia (which remains French), it’d amount to scarcely a million people; the whole lot is barely 2 million. One or two million would be noticeable, but realistic numbers would be lower than a million, and comparable to the Vietnamese intake Fraser authorized, in terms of a proportion of Australia’s population (anyhow, when did the greens turn against refugees?).

Roux, presumably, is trying not to gild the lily: but his doomsday makes me much more relaxed about doing nothing to combat global warming. Roux want’s a Carbon tax, but I suggest that if you’re worried, you might buy a house on a hill – and some extra gin to keep the heat at bay, and the tropical pests away. Both the high ground, and the gin will make a good investment regardless, and an excellent one if you’re worries are well founded. And maybe it'll even make the paint dry quicker...

Cereal Reform Laws Deliver

The Australian Council of Cereal Producers (ACCP) are outraged by the government’s new Cereal Consumption reform (CCR) laws. Under the new scheme, consumers are now able to purchase whatever brand and flavour of cereal they choose, regardless of how long they’d been consuming their old brand of cereal.

ACCP Secretary Greg Kellogg said “Under the old scheme, cereal rights were protected by the guarantees achieved by the Breakfast Award system. But now consumers will be able to pick and choose what they eat on a day to day basis.”

The first victim of the new CCR laws has been the Darren Hinch endorsed All-Bran. One consumer reportedly stopped consuming the cereal because he simply “didn’t like it.” Another cereal, Wheeties, was removed taken off a consumer’s permanent the shopping list and will only be purchased when desired. ACCP officials are claiming that this is simply a taste of things to come.

When asked whether or not ACCP officials believed that the high cost of cereal consumption forced many consumers to buy their breakfasts from other isles, ACCP heavy weight “Uncle” Toby argued back: “Buts that’s not the point. Cereal is vital to Australian breakfasts and to Australian families. Just think of where this system of choice will take us! Fruit for breakfast one day, toast the next. There will be no consistency whatsoever. A consumer could be eating dog food for breakfast.”

He added: “This government is filled with former consumers and toast-lovers. They’ve been buying breakfasts for years. We’ve all heard the stories of Howard having his breakfast in bed.”

Big Consumers see the reforms in a different light. HR Nicholl says: “We see the reforms as a positive step. The previous system, made breakfast a difficult and cumbersome task. Now, not only can consumers choose the breakfast they want, spend their money how they would like too, but they also have the option of getting breakfast on the fly or skipping breakfast altogether.

“Consumers have been complaining about this system for some time. We have one member who lost her four children because after they consumed metal pieces in the Fruit Loops. But because of the Breakfast Award systems, she is till forced to buy box after box after box.

“The scare tactics of the ACCP are absurd. Many consumers will continue to purchase the same box of cereal that they have for years.

“We’ve just removed the red tape from getting cereals off the shelf, and more importantly, on the shelf too. If consumers are worried about getting cereal off their shopping list, they may never put cereal on it in the first place.

“The bottom line is this. If the cereal is tasty, quality, value for money and fills you up. You’ll stay in the panty. If not, well you probably shouldn’t be there in the first place.”

Want to buy a pound of flesh?

In The Merchant of Venice Shylock, a Jewish usurer, enters a contract with a young lover's friend stipulating that if his friend fails to pay back a loan then he can claim a pound of his flesh. Since both parties entered the agreement voluntarily presumably it increased their ex ante welfare.

Arguing along similar lines, the latest Policy magazine leads with a proposal, by Joseph Clark, that there should be more opportunities to sell a portion of oneself. (Unfortunately the article is not available online.)

The basic idea is that I could sell someone the right to a percentage of my future income. Say, for example, I'm studying and expect larger income in the future, I could offer someone 5 per cent of my total earnings for the first 10 years out of uni. The value of this contract will be the net present value of the expected payments, further discounted by the expected risk that my income might not meet expectations. Effectively, it allows students to issue equity instead of just debt to finance their studies.

As Joe points out, such a new financial instrument would:

• allow people to smooth consumption;
• facilitate the financing of degrees that are more costly than current government subsidies provide for (if they deliver large returns); and
• provide clear signals on the potential financial payoffs of degrees ('better' degrees would attract less onerous terms).

Such benefits are also available in debt markets (for example less lucrative professions would presumably attract higher rates of interest). Yet, most debt markets are not fully developed because they are crowded out by government involvement. Why get a loan (on which you have to pay interest) when you get an income-contingent HECS loan only indexed to CPI? As a result, many of the claimed benefits of this instrument would largely come from simply reducing government intervention and allowing for the emergence of more mature debt instruments.

That said, equity does allow for a greater transfer of risk. A student taking out a loan takes on much of the risk that their future income may not meet expectations (collateral can be repossessed). Whereas the owners of equity, having no power to repossess assets, essentially take on the risk that incomes are sub par. Considering that investors would probably be able to diversify with such instruments, and hold a lower amount of average risk than any individual student, this is likely to increase welfare.

However, the transfer of this risk also lets the moral hazard genie out of the bottle. Once the equity issuer has less of an incentive to earn more, they will most likely sub to activities that have a lower income (but a greater level of net happiness).

Whether or not this problem will be fatal to personal equity issuance is an empirical question. Joe argues that such problems can be solved through contract design, limiting the amount of equity one can issue and perhaps including conditions that if you don't score so well at uni, you have to pay more.

I'm more skeptical. Contracts are difficult to cover all potentialities and may not be effective in this inherently uncertain case. (In this regard, it's important to note that Shylock failed to take his pound of flesh when a lawyer argued that the contract did not allow for bleeding and hence the flesh would have to be taken with no loss of blood. I can't recall, in this pre-Law and Economics world, whether the judge accounted for the dampening effect that such a literal interpretation would have on future flesh trades.)

Plus, there are already some methods to buy personal equity in a student. A firm could fund a degree on the proviso that the recipient takes a job with them. But, again, such contracts are usually hard to enforce and don't seem to be overly popular. Perhaps widespread equity issues would allow investors to more readily diversify risks and make them more attractive than these 'one-on-one' contracts.

However, opportunities to diversify risk would require there to be a large amount of students wanting to issue equity, from those of varying interests and ability. I am not convinced that the market is this deep. There is a substitute for the issuing of debt or equity: the use of retained earnings.

In the States most students, in the face of lower government assistance, appear to survive through inter-generational transfers from parents. This has the benefit of removing adverse selection (parents tend to know their kids quite well) and moral hazard (future costs won't be contingent on income). It also improves governance arrangements - parents tend to make a quite effective board of directors.

Overall though shares in people is a thought-provoking idea. It could probably serve at least a niche market and should at least be given a chance. Current government policies, not to mention 16th century Italian law, effectively mandate such innovations stillborn.

If you don't like Mergeright, Get F^KED

I love my Mum. She grew up in country NSW (Bourke), and made us kids her first priority. She has often said that all she ever wanted to be was a Mum – and she succeeded admirably at her primary goal. I hold her in high esteem, as in consequence, am disposed to similarly maternal women.

It has been hard finding the ‘right’ woman, as the women I meet are usually city types, who do not share the outback NSW values system that I’ve inherited. The good news for folks like me is that women like my mum will be in better supply in the future – the reason being that non-family oriented ones will, quite simply, die out.

This and that will be said about rebellion from family values, and other factors that will keep the women’s movement alive, but the facts are as compelling as the cliché’s. Meet an Australian family with 10 kids and you’ll meet a family that’s tired of jokes about their Catholicism – but that takes their Catholicism seriously. And their kids are Catholic’s too.

Or perhaps the family are Muslim; or evangelical protestant Christians; or perhaps they just love kids. All kinds will be found, but the stats suggest that they are more likely to be on the conservative side of politics. The high water mark for liberalism has passed – the simple reason is that the high priests of flower power did not ground their dynasty. They died, and those they vanquished ignored the slogans, reproduced, and left their kids to fill the empty posts.

The conservative movement in the US is evidence of this. According to Phillip Longman, fertility rates are 12% higher in the Bush states, than the Kerry states. Bush took 25 of the 26 states with the highest birth rates; Kerry took the 16 with the lowest birth rates. The Bush states are also the pro-gun, anti-abortion, evangelical protestant states. They oppose positive discrimination, UN membership, gay marriage, north-east intellectuals, and the rest of the democratic / liberal agenda.

If they reproduce republicans 12% faster than the liberal states reproduce democrats, the republican increase will be 300% of the democratic increase by the 2016 election – which suggests that the democrats will be pitching for the middle ground with someone to the right of George W Bush.

In policy terms, this means no abortion, no gay marriage, no to welfare, no to the UN, no to public education, and yes to unilateralism, the military, and the church. This isn’t necessarily the Mergeright consensus, but it is closer than the Democratic agenda.

This is the case the world over. Conservatives are having kids in the suburbs, while liberals are having latte’s in the inner city. Australia’s birth rate is 1.76 pre female – we’re only kept afloat by immigration. The bulk of the new kids are coming from large families produced by old fashioned, religious, folks. By sheer weight of numbers, they’ll become the majority.

The cultural clash between the West, and Islam, will also intensify – as western nations fight rear-guard actions aimed at preserving their nations from changing demography. Europe will die, and Islam will rise. The global top 3 reproducers are Islamic: Somalia (6.91 kids per woman), Niger (6.83), and Afghanistan (6.78). By comparison, old Europe is dying: Germany and Austria are 1.3, Russia and Italy are 1.2, and Spain is 1.1. In the past 30years Islam has grown from 15% to 20% of the world population – while the West has shrunk from 30% to 20%.

And these people like Liberal feminism a lot less than George Bush’s republicans – so you can forget about international law or treaties protecting liberal institutions.

The bottom line is, if you don’t like Mergeright, you’d better get busy having kids, because the conservative side has an army of kids who are about to transform the agenda.

Gold medal for freedom - not awarded

Something tells me I should have learned by now, but I’m always surprised by the hypocrisy of the Left. I mean come on guys, have your cake or eat it.

With no real competition allowed to face Australia at the Commonwealth Games, poorer nations are acting as poor substitutes. Without the Americans and Continental Europeans, we’re winning buckets of medals in athletics, and without the Chinese and Russians we’re dominating gymnastics. We’ve even won a silver medal in table tennis. There seems to be an unprecedented number of black swimmers in the pool, and an equally unprecedented number of white guys on the basketball court.

But who cares? The Australian anthem is played (and sung) 30 times a day, there are Australian flags everywhere and “proud Aussie” back slaps everywhere you go. It’s like the Cronulla riots against Kiwis with referees and medals awarded. (Mind you, if it were a case of screaming “F@#$ OFF KIWIS” instead of “F@#$ OFF LEBS” there probably would have been medals awarded.)

By brining in competitors from the undeveloped world, it really hits home the differences between the rich and poor.

This past week we’ve seen the disappearance of nine athletes, who’ve used their state sponsored trip to Melbourne to do a runner (pardon the pun). Seven athletes from war ravaged Sierra Leone, a boxer from Tanzania and a sprinter from Bangladesh are now officially missing. The Sierra Leoneans lost 3 of 4 members of a relay team that was subsequently unable to compete. The Victorian Police have launched Taskforce Diamond to track them down.

This is not a new phenomenon, and was certainly not an unexpected outcome. The Manchester games saw the disappearance of 21 athletes from Sierra Leone, a number of Bangladeshis and a Pakistani swimmer (not a typo). The Sydney Olympics misplaced a Tunisian weightlifter and a Gabonese boxer. Atlanta lost a Pakistani hockey player. The 2002 British Open lost an amazing 40 Nigerian golfers.

To combat the repeat of such controversy, the Sierra Leonean team officials held the passports of all athletes, and the Bangladeshis passed a law that can retain an athletes family if a member of their team deliberately overstays.

The response has also been predictable: of course they’ve done a runner, you would too, they’ve come from places like Sierra Leone. Tim Costello: “There is not an Australian who, if they were in that situation wouldn’t make a run for freedom too.” Incorrectly accused sex offender and former guest of the Sierra Leone judicial system Peter Halloran: “If you had ever been there you would immediately understand why anyone who had the chance would endeavor never to return.” Commonwealth Games Federation President, Mike Fennell: “We are talking about an issue that is broader than sport.” I say this response is predictable as after all Sierra Leone has just emerged from a civil war that lasted 11 years, has a life expectancy of less than 40 years, nearly 10 per cent AIDS infection rate, and a GDP per capita less than my (small) weekly salary. Its war ravaged, rife with ethnic conflict, extremely poor and has a government more corrupt than Saddam.

Hang on. As I read the CIA profile of Sierra Leone, it did read vaguely familiar. It read like every other third world country run by a despot. (In 2000, Sierra Leone held elections and returned to a civilian government- but something tells me it’d still be safer to visit Beirut in an I HEART NY t shirt).

I genuinely feel sorry for those who live under the tyranny and oppression of regimes, as I am sure so does Tim Costello, the Greens, the French and the other Leftist power houses. But the way I see it we have two options? The first is open our borders, and let anyone with a sore toe to walk on in: invite them in and enjoy the cheap labour along with the Jihad. That is, we accept the problems of sub-Saharan Africa, Central Asia, China, Indonesia, Vietnam, Cambodia, and the Middle East under the guise of harm minimization.

Alternatively, we could, visa vie Iraq and Afghanistan, go to the source of the problem and do something about it. Why are these would-be national icons were free press available fleeing their homes? Its not because of too much cotton candy. We’ve got it so damn good in Australia, the US, Britain, France, and Germany. But we sit idly by while people suffer in silence. We even shun those efforts to do the right thing. Neocon is a dirty word.

This brings me back to opening point. What is it that the bleeding hearts want? Is it just to observe that government and militia induced death at 40 is a fact for so many, but not do anything about it? I’m amazed.

Is Europe heading for a new dark age?

I remember having dinner, with the indomitable Matt Johnson and some dickhead DFAT grads. The conversation entered some pre-scripted DFAT talk about the importance of Europe, and its influence on Australian foreign policy. At which point, Matt dryly pointed out that Europe has a declining fertility rate, and decreasing productivity. In other words, without significant change, their economy will dry up and they’ll be the new Africa.

Of course the DFAT grads had no idea what to say to these new thoughts, and all they could come up with were more pre-programmed meaningless DFAT dribble. To which Matt replied, it's mathematics, it will occur. I think dinner ended soon after.

Anyway, just saw a few articles on smh.com.au:

• violence in Paris as 23 000 protest against making employment of youth easier, i.e., reducing long term structural unemployment;
• France making two of its utility companies to merge in order to stop one merging with an Italian company (in blatant breach of EU competition law);
• EU opposed to trade liberalisation, damaging EU productivity and stopping EU firms from access to cheaper inputs and hence, reducing EU exports.

What does all this mean …. well the EU, and especially the French, are trying their hardest to reduce European productivity. A very very interesting approach to economic policy when, given the EU’s low and reducing fertility rate, it needs massive productivity increases in order to SUSTAIN their current living standards … lets not even talk about the implications for INCREASING living standards!!!!

I wonder how these facts will affect DFAT dinner table conversation?!? No doubt something about how Nairobi is the new Paris.

Do the French look happy?

Recently, Clive Hamilton again argued that we'd all be better off if we consumed less. The reason we all want the latest plasma tv or fast car, according to Clive, is not because big TVs are better or driving a nice car feels good, it's simply because I want to make others feel jealous of me. If I pull into my driveway in my new Nissan 350Z, only to find my neighbour bought a just as good Alfa Romeo, then, despite the effort, allegedly neither of us are better off. In sum, there is a coordination problem: we should all just argee to be more lazy.

However, since it's unlikely that a whole country of people will cooperate, people like Clive generally advocate the government stepping in and doing it for us. Fortunately, most countries have not been crazy enough to implement Clive's ideas but there's one exception: the French.

In the late 1990s, the French Government decreed that, with few exceptions, everyone would be restricted to only working 35 hours a week. Ostensibly, it was introduced to increase employment (following a lengthy tradition of successful French labour policies), yet it also provides an interesting test of Clive’s theories. As a result of the laws, everyone in France simultaneously increased their leisure, so presumably they should all be better off.

Well, the results from the French guinea pigs are in and they are not good for Clive and his band of fellow ascetics. A recent paper from Marcello Estevao (from the IMF) and Filipa Sa (from MIT) show that French workers are now less satisfied with their working arrangements. As the author's state:

Overall, our evaluation of the effects of the 35-hours workweek law is negative ... The 35-hours mandate did not work as a coordination mechanism in the presence of strong complementarities in leisure. Instead, it apparently introduced a distortion in workers’ choices and made them less happy.

Indeed, many French actively tried to circumvent the laws. There was an increased probablity of a worker taking a second job (a proxy for wanting to work more hours) and of moving from a large firm to a small firm (small firms had longer to implement the changes).

So, not surprisingly, people seem to be happier if left to decide how to make themselves happy. As an aside, the policy also did not significantly increase employment and the immdeiate prospects for real labour reform in France seem to be interminably blocked by another great French tradition: riots.

Cyclone Bob hits soon after Larry

Nth Queensland Federal MP Bob Katter blew several gaskets last night on ABC news over the possibility of importing fresh bananas to deal with the destruction of Australian production due to Cyclone Larry.

Anyone watching Cyclone Bob might have been mistaken to believe that the importation of bananas is a fresh issue. But alas, it is another step in the long walk of protectionism that began afresh in 2000 after the banning of Filipino bananas (the Philippines is the world’s fourth largest producer).

Cyclone Bob crowed on the ABC that Larry will destroy up to 4 000 jobs in banana industry in Nth Queensland. Of course, this isn’t the first incidence of Cyclone Bob claiming job losses for the banana industry. In response to a draft proposal to allow Filipino Bananas in 2004, the ABC reported:

‘Federal Independent MP Bob Katter says Queensland producers have been dealt another blow, with the Government clearing the way for the importation of bananas from the Philippines.

Mr Katter says the banana decision could cost up to 7,000 jobs, many in marginal seats.

"It's dreadful news for the Australian economy, for the people of north Queensland, northern New South Wales and ... it's very bad news for the Australian Government politically," Mr Katter said.’

I don’t doubt the 4 000 job losses associated with Cyclone Larry. But it does put into perspective the ‘realism’ of claims that free trade would wipe out 175% more jobs than the actual physical destruction of 90% of Australian banana plantations. Apparently Cyclone Bob comes with a hyperbole warning.

Quarantine is all about risk management. However, if the risk of importing disease is above zero, it does not mean that a blanket ban is appropriate. Where is the detailed economic analysis of the true costs of import bans on bananas (like those done for TCF and motor vehicle tariffs). Experience tells us that there is little doubt that the consumer benefit outweighs the potential Australian producer detriment.

Quarantine restrictions are just another tariff. Unfortunately, the government has been unwilling to perform a true economic analysis on its trade restricting effects. Hopefully Cyclone Bob will quickly pass and we, the consumers, will have access to fresh, cheap and plentiful Filipino bananas.

Vouch for it

Jenny Macklin recently attacked the Government for the alleged failure of a voucher scheme aimed at helping kids struggling with reading to access tutorial services. The media release is noteworthy for two reasons: (1) it does not use the word 'extreme' in relation to the Howard Government; (2) it is blatantly hypocritical.

Macklin accuses the government of being wedded to ideology in preferring a market-based solution. So what? Markets work. Somebody tell Jenny that the Russians lost.

She then goes on to claim that the money spent on the vouchers should go directly to schools. Yet nowhere does she explain why money should be given to a school that presumably must take some of the blame for the poor kid failing in the first place.

Perhaps I'm being unfair to Macklin. Ideology assumes that you have a coherent framework guiding your judgments. Macklin's arguments are based purely on interest-group politics, in particular the interests of teachers over students.

Macklin's main claim is that the voucher initiative has failed because there has been a slack response in most states. However, this can almost entirely be blamed on State Labor governments, influenced by teacher unions.

To access the vouchers students had to be behind in their literary development. However, parents in some States didn't know how their kids' were going because Labor Governments refused to release results, so as to protect under-performing teachers. Eventually all relented but not until the rollout of the scheme was delayed.

Even then, many States refused to promote the scheme to interested parents. Queensland didn't notify parents at all, while Victoria sent out letters on September 12; the scheme closed on September 13.

And in NSW the teachers' union actively tried to inhibit the scheme. The Department of Education requested schools to provide facilities for tutors and students. The teachers unions responded by engaging in a campaign of 'civil disobedience' on the grounds of duty of care, security and cleaning arrangements (I kid not). Public education: "It's time to give student's less."

Fortunately, despite such 'extreme' opposition, the scheme is likely to run another year. Although take-up has been slow, the initial results are promising; nearly 90 per cent of parents are satisfied with the program. I've always thought that, given a chance, vouchers would be popular with the punters, hopefully this small scheme can start building a constituency.

How costly are tax cuts?

Peter Costello's recently announced tax inquiry is now 4 weeks in. By my calculations they would have just finished downloading the relevant OECD reports and now have a week to reformat the tables and graphs so they look like original work.

All in all the whole exercise is a waste of time and effort. Instead of looking at what other countries are doing we should instead examine our own recent history, applying Milton Friedman's dictum that, "if a tax cut increases government revenues, you haven't cut taxes enough."

Surely there is no better initial question to ask. If we can cut taxes without hurting revenue why don't we do it. Unless one believes there is something beneficial in paying taxes in and of itself, or there is something wrong with economic growth, then it's a no-brainer.

Looking at the Howard Government's record it appears that we haven't cut taxes enough: income tax revenue has increased by 25 per cent despite three income tax cuts:

• The biggest cut came with the introduction of the GST (according to Costello the biggest income tax cut in history). Treasury estimated that income tax revenues would fall by $12 billion. They only fell by $4 million and by the next year income tax revenues were back to their level before the cuts.
• In 2003-04, the Government delivered the 'sandwich and milkshake' tax cuts forecast to cost $2.4 billion. Revenues rose by $4.5 billion.
  
• Last year the thresholds rose and are to be lifted again in July. The cost was forecast at $1.9 billion this year and $3.4 billion next year. Data is not yet out on the true 'cost' of these cuts but given reports of another bumper surplus, revenues will probably rise again.
  

Quite simply, then recent tax cuts have not actually cut revenue. Although there are no doubt other effects I'm not controlling for (population growth, bracket creep and economic growth not itself caused by the tax cuts) there is a clear cut case on the relatively costless nature of the recent tax cuts.

This is important since many of the agitators against large tax cuts claim that it would cost too much, the good times won't last forever and we should put money away now for a rainy day. There are two things wrong with this argument.

First, the cost estimates that it is based on are flawed (as shown above). In the US they are making an effort to calculate the effect that cuts have on stimulating growth and simultaneously boosting revenues. This is not a simplistic Laffer argument (that all cuts raise revenue) it's just recognition that multiplying the size of the rate reduction by the size of the existing tax base is not a very accurate estimation of cost.

Second, you should never overfeed pigs at the trough. There is no need to shore up government future claims on our money since if we do they'll just spend the sinking fund and ask for more anyway. Plus if we do cut now and things turn really pear shaped, we can always raise taxes later. Or, even better, if there is a squeeze on then this will put pressure on government spending. Hardly such a bad outcome when government spending has been rising just as fast as its revenues.

In sum, let's stop navel gazing at our bulging tax revenues and start slashing away, at least until government revenues actually start falling.

Official Government Pronouncement

Quick update

The Australian Government has released its Discussion Paper on Media Reform Options.

It is official, according to the Australian Government, the decision about whether to allocate another free-to-air television licence is too important to be left to unelected bureaucrats in ACMA.

The Australian Government plans to amend legislation so as to make the government of the day the decision-maker.

So, logically, this means that according to the Australian Government, the decision to allocate television licences is more important than the decision to approve a drug that murders unborn children.

Interesting priorities .....

I never knew any pancakes that got nuked by India

That’s the punch line to a Krusty the Clown joke from an episode of the Simpson’s set in a future to come. The joke: “What’s the difference between Pakistan and a pancake?”

This past week, the world’s two largest democracies began constructing what could be the strategic alliance to define the 21^st Century. The United States has agreed, in principle, to cooperate in the development of India’s civilian nuclear energy program. The “deal” is to allow India access to US nuclear technology, and in turn, international inspectors will have access to India’s nuclear facilities.

Unsurprisingly there has been some criticism of US policy. (Mind you: “President Bush sneezing” would be met with some criticism). I thought international security, world peace, and finding a safer, cleaner source of energy was on the top of the left’s agenda? This even has a hint of multiculturalism. Is it a case of Bush-bash first, save the world second? Or are they worried that once the neo-cons achieve all “their” goals, they’ll be out of work?

Why not let India have better nuclear power? With 8 per cent growth in GDP, its hardly as if they’ll want to reinvent the bomb they already have. 1.1 billion Indians are on the verge of developing into a real economy. The only thing that will stop India from maximizing its potential is having access to enough cheap energy to do it (compare with China, who’s having the same problems now).

We spend billions and billions of dollars on exotic alternatives. We are polluting the earth to the nth degree, risking lives in cola mines and on oil rigs, and if you want - but only because it serves my argument - selling “blood for oil” in wars overseas. Nuclear energy is available, it is clean, cheap and safe but the “no nukes is good nukes” crowd keeps it out of our hands.

Part of President Bush’s rationale for the deal with India is to alleviate some of the pressure on oil demand. Rising energy costs are adding significantly to the cost of manufacturing, of shipping and of living. Substituting India’s oil with nuclear energy (in a market of 1.1 billion persons) will keep prices down world wide.

But that’s not what this is about. The deal is being criticized for supporting India as a nuclear power. This is, after all, the same India who hasn’t signed the nuclear non-proliferation treaty, and the same India that is on icy terms with neighbors Pakistan and China. The deal is being read as a shady act of power balancing against China in particular. (Despite India already having nuclear weapon technology, and having tested a bomb in 1998).

But again, so what? The proliferation of nuclear weapons was what stopped the cold war getting hot. So long as there was balance, there was peace. The strength of one super power stops the hostility from the other. Granted, the arms race was certainly costly, but at least we’re not all speaking Russian. No one wants war between China and India, especially not the Chinese nor the Indians. The US would suffer immensely from a war between two of its largest trading partners. But peace between the regions, benefits everyone.

Australia’s response to the Indian requests started as a Dawson and Joey: will they or won’t they. Viewers were denied when the verdict came out as no: we don’t sell to Uranium to those who haven’t signed the non-proliferation pact. This is a missed opportunity. Australians will miss out while the Indians will merely get there uranium from somewhere else. “Principled” our stand may be, but I’m not sure what principle we’re serving.

Mason dumps Terra Nullius

According to Blackstone, writing about settled law prior to 1788, there are three ways of acquiring sovereignty over land: you may acquire it by force, acquire it as a gift, or take land that has no owner. The latter, taking ‘vacant’ land, is often confused with the infamous doctrine of terra nullius, but it is not quite the same thing. Age is the easiest and best way to distinguish the two doctrines – Blackstone was inherited at foundation, whereas terra nullius arrived, via Algeria, in the 20th century.

The stench coming from the corpse of terra nullius has driven away the star attraction of the black-armband circus: the courts. Historian Michael Connor’s work on the origins of the legal doctrine has caused quite a fuss in legal and historical circles, and has forced the divorce of terra nullius and Mabo - the case that introduced Australians to the term.

Chief Justice Anthony Mason has denied that his court's Mabo decision had anything much to do with the doctrine. According to Mason, the decision was about the common law: but how, then, did this obscure Latin term appear in the public mind with more force than a Dan Brown novel?

The simple answer is that Mabo was about terra nullius. CJ Mason, and his court, at least enjoyed the limelight they shared with Reynolds - until that light turned harsh and exposed some uncomfortable problems with his historiography. Historian Henry Reynolds had constructed a historical narrative, with the dark secret of terra nullius at the heart; however the dark secret is Reynolds’ – terra nullius is a lie.

Now, no one is arguing the facts from Captain Cook onwards; everyone agrees that there were once only Blacks, and that there is now Australia, the English language and the English law. The law was settled prior to the discovery of Australia, and that law was Blackstone. The facts secured the acquisition of Australia for the British crown – at law. Though this may have been harsh or unfair, it was not because the land was terra nullius.

The term was a telephone booth into which the court shoved plain old vanilla law – and out from which emerged the anti-hero, terra nullius, freshly minted and ready for the court’s dismissal. The tragic thing about the excision of this error was that the High Court, in 1977, had dismissed Paul Coe’s terra nullius based case for aboriginal title, on the grounds that the doctrine was not up for debate in an Australian court. Justice Brennan said that the question of weather a territory has been acquired by the crown was a question of international law, and that an Australian court could not decide the issue.

The inspiration for Coe’s case was the advisory opinion of the ICJ in the Western Sahara matter. In it, the ICJ had found that occupation was a valid means of acquisition only if the territory was terra nullius. Whereas the ICJ would not find terra nullius in the case of nomadic and relatively backward inhabitants, the Australian High court had previously held that land was available for occupation if, by European standards, there were no civilized inhabitants or settled law.

The difference in the two doctrines is now immediate: the ICJ recognized acquisition by occupation only if the territory was terra nullius; Australian law allowed acquisition via occupation because the Aboriginal population was uncivilized, and without settled law. While this condition would be met if the land was, terra nullius, it did not require that to be the case.

In Mabo, the court cloaked the existing law in new language, and found an opening for native title. This may have been (morally) the right thing to do, but the decision will forever be burdened with the corpse of terra nullius. Legal sentiment is probably too fixed to allow for a reversal of Native title, however the stench from the historical and legal rip-off may make legislative restriction an easy sell in the electorate.

The loss of legal legitimacy will be the lasting body blow against the black-armband circus. Mason has hung Reynolds’ and company out to dry: terra nullius was not a part of our history, and the High Court no longer considers it a useful legal fiction. I guess it is back to the boring work of practical reconciliation.

Stay at home and watch the ABC instead

The last two movies I had paid to see were Cinderella Man and Munich. Both were quality films, easily in my top ten of all time. So my following rant on the snore that was Brokeback Mountain may reflect me my affinity for boxing and the cold blooded slaying of Palestinian terrorists.

I was never meant to like it right? It was a story of unrequited homosexual love. Bigotry and ignorance stood between the steadfast bonds between two horny men that knew each other for all of three seconds.

For the record, I was opposed to seeing it. The film’s tagline (courtesy of the IMDB) was “Love is a force of nature.” The Godfather, Blackhawk Down, Coach Carter, Gandhi, A Beautiful Mind (damn you Denzel and damn you Academy), Top Gun and a movie “based on the E. Annie Proulx story about forbidden and secretive relationship between two cowboys and their lives over the years” seems like a likely collection of favorite films.

I’m not homophobic. I don’t have any gay friends per se, but that’s more a product of statistical likelihood than a conscious effort. My understanding of homosexuals stems completely from their affectionate portrayal on Sex and the City, Oz and when I mistakenly flick onto Queer as Folk for those unfortunate 0.3 milliseconds. Why would I be scared of homosexuals (except for, understandably, the ones on Oz), most of them are a size 6. A story about the “forbidden and secretive relationship between two” anythings (with the exception of perhaps space pirates) would have turned me well off. But I went and saw nonetheless.

Independently of the gay element, the movie is a snore, its slow, too long, predictable, uninteresting and an outright bore. The characters are detestable, and the story has been told and retold time and time again.

Adding gay to the hype, adds nothing to the story, but has admittedly put bums on seats and will probably score it an Oscar. (I’m writing about gays, and have just used “bums,” “score” and a guy’s name in the same sentence without making a joke. I’m above that.) The story has been done with heterosexual couples who are “too young and too old,” white and black, white and Hispanic, white and Asian, and between Yankee and Mets fans. A and B want to be together, but society, stigma or responsibility keeps them apart. The only difference in Brokeback is that A and B are Adam and Bob.

The two main characters, played by Heath Ledger and some guy from Jarhead, come from miserable unloving families. They grow up in poverty in an era before the Sopranos, and suffer from extensive emotional abuse. This all happens before they hit their mid-twenties, and realize that they’re both gay. While camping, and with the sheep all rustled up, they kill the time by, to quote from the film: “stemming the rose.” Because they live in the backward-redneck-hick-Christian-non-Hollywood-states of Texas and Wyoming, they are doomed to live a life misery and unhappiness.

When the two met, Heath’s character had, by his own admission, barely spoken a word in a year, and guy from Jarhead had suffered from one too many Rodeo-induced head traumas. You can hardly say that the counterfactual for them living in a tolerate society with queer norms and a population growth problem would have meant that these two would have ended up happy and fulfilled.

Granted, there was (and is) an unfortunate amount of intolerance suffered by the gays. I can’t for example write this simple blog without mentioning the phrase “Velvet Mafia” (phew- I was wondering on how to work that in). But the movie comes across as a little (a lot) preachy and surprise surpise, anti-South. What first and foremost keeps these two apart, is not the anti-gay rednecks of the South, but their own responsibilities to their families. Heath’s character has a wife and two young girls. Guy form Jarhead has a son (who should have been in the film so much more) and a wife of his own. For them to run off to a ranch on their own, would mean breaking up both families, leaving them to fend for themselves. Secondly, they’re both unlikable miserable jerks anyways. Thirdly, their relationship was based on nothing but boredom (how ironic, that this is the premise for their relationship when the movie is so exciting).

You think instead of turning to each other for warmth on that cold winter’s night up the mountain, they had just taken another look at one of the sheep, then they’d be happy?

True, without family commitments, with personalities and a foundation for their relationship, they’d probably be killed, if not further isolated from their communities. But that in itself is systemic of the era the movie was set, not necessarily its Southern location. Instead, we’re left with the impression, that they’d be happy if it weren’t for just the Southern rednecks.

I’m not surprised that the critics who dumped on the equally-boring Passion of the Christ loved this film. I guess then, if you want to watch a movie that unnecessarily picks on the South and don’t mind a little gay lovin’, then this film is for you. Personally, I’d say save your $15 and just turn on the ABC.

How to rort a hurricane

In the aftermath of one of the worst hurricanes to hit the United States last year, politicians came under intense pressure to compensate for their initial slow reaction and provide significant assistance to the victims. The politicians didn't take too long to notice which way the wind was blowin' and in an orgy of welfare, promised so much money that it felt like election time.

We are talking about the government here, so invariably some of that money was going to be wasted. However, it now looks like that Katrina will not only now go down as one of the worst natural disasters in history but also as a supreme example of government waste and incompetence.

In the immediate aftermath, the main priority was to provide housing for the many who had lost their homes. So the US government decided to commission 26 000 mobile homes at the cost of $900m. Only 1200 of these homes are currently in use and some 11 000 of these homes are now in sinking in the mud in Hope, Arkansas (since regulations restrict the use of mobile homes in a flood plain). Isn't that a shame: government regulations thwarting government welfare.

In addition to the housing, FEMA (the body responsible for coordinating disaster relief), fast-tracked the payment of assistance (including no-questions asked $2000 debit cards or cheques). The Government Accountability Office has uncovered gross examples of fraud involving this assistance:

• It was able to recieve multiple $2000 cheques using bogus names and addresses via telephone. (It was possible to receive such money even if they had been rejected on the net using the same bogus names and addresses.)
• It visited a sample of 200 properties that claimants had listed as damaged; 80 of these were bogus, including some which were vacant lots or nonexistent apartments.
• A group of 17 used 36 different social security numbers to claim $103 000 in assistance. Thirteen of the addresses they used were in the same apartment building. The best evidence also suggests that they weren't living in the area at the time of Katrina.
• Another individual used 15 different social security numbers to claim only $41 000 in assistance (obviously a bludger compared to the above group). He used 3 different addresses, one of which was a post office box.
• The computer system automatically flagged applications using multiple social security numbers but FEMA largely did not review these and did not prevent payment from proceeding.
• Of the 11 000 debit cards issued, 5000 of these were duplicate payments.
• Some of the more 'essential' products that the debit cards helped finance included a .45 caliber pistol (worth $1300), $1200 of services at a Gentlemen's club, $400 of services at a massage parlour (that had previously been busted for prostitution), a $450 tattoo and $150 at 'Condoms to Go'. (See picture for more.) As the GAO understated, some of these items "do not appear to be items or services that are essential to satisfy disaster related essential needs."

In all some 900 000 of the 2.5 million who received assistance are thought to have engaged in fraud. In addition, to the FEMA rorting, the GAO has busted others for taking excess emergency food supplies (or military 'meals-ready-to-eat') and selling them on ebay.

You can only some it up as 'what a waste!' The only assistance measures that don't seem to have attracted criticism are the private schemes, such as Wal-Mart and Starbuck's quick delivering of water bottles and other supplies. What a shock: private money is more effective than public money (or in other words money that noone has responsibility for).

The only reason some of this waste has been uncovered is because debit cards were able to track purchases. It might be a nice experiment for the dole and the baby bonus to be paid by similar means. Somehow I don't think we'd get different results though.

I’m not allowed to have an opinion on abortion

“We never think about the results of our actions because we can’t, being so dim as we are. We love washing machines, running water and frozen food because they make our lives so much easier – therefore it follows that we will all be racing to the doctor the minute we know we are pregnant, and taking a pill to cure the problem… We used to head off in the mornings to our girly, waiting-to-get-married jobs – as business managers, lawyers, doctors, airline pilots – work out we were pregnant, file our nails until lunch, and then pop into casualty to have an abortion. And we got back to work in time to have a cup of tea and a biscuit before going home.”

Obviously, Harriet Veitch is being facetious. She’s misguidedly complaining, here in her op-ed for the SMH, about what she thinks the abortion debate is all about. She seems to think its about men keeping women at home. I’ve been told this personally: I have no say on this issue, because I’m a man.

She’s not alone either. Liberal Senator Judith Troeth: “…if women don’t go out and fight for the rights they have, we will regress backwards.” And Democrats Senator (they still have them?) Lyn Allison: “It is galling listening to the men, and it is mostly men, who have such contempt for women who terminate unwanted pregnancies…”

And that seems to be the defined debate for the pro-abortion case. What?

Clearly the defined debate should be that Australia is “aborting ourselves almost out of existence” and we’ll become “a Muslim nation in 50 years’ time.” I’m just kidding, but former Minister Danna Vale’s comments have to be repeated at every opportunity.

But seriously, the case of the pro-abortion case is about “women’s liberty.” They argue, that they are no pro-abortion per se, but will defend to the tooth and nail, the choice of having the option. Any one who disagrees with this “right” is an oppressor of women everywhere and a dinosaur from the 1950s.

Wrong. It’s about relative values. 100 per cent, I agree, this debate involves the restriction of a woman’s personal liberty. What the pro-abortion case fails to acknowledge is the infringement of the rights of the unborn child when it’s killed. And that’s the fight right there. Whose liberty should be more highly valued: mother or child? This incidentally is the grounds of the secular opposition to abortion. And neither the secular or religious objection to abortion is sourced from a misogynistic bigotry against women.

Lyn Allison touches on this issue inadvertently: “…we will act on our own set of values and can be trusted to make reproductive health decisions for ourselves…” Act on our own set of values. That can be read: we will allow individuals to decide whose liberties are more important.

If the question at hand were the infringement of one person’s liberty by another (tax, censorship, regulation, racism) then as a general rule I’m obviously opposed to it. But abortion is not analogous to slavery. In the case of abortion we must engage in a form of moral relativism, and consequently as a society we must choose between which is more important: a woman’s choice and baby’s life.

The decision to have an abortion, for 90 per cent of women is economics. And that’s probably a conservative estimate. “I’m too young,” “I’m too old,” “not at this point in my career,” “the father has run off,” “I just am not ready.” These are all economic decisions, they are choices between future outcomes. And personally, I think the “convenience” argument certainly does not cut it. We must live with the choices we make, and if that means we can’t realize all of our goals and dreams, then so be it too bad, its not enough to impose the greatest infringement of liberty: life.

Leunig gets virgin for Anti-Semitic Cartoon?

Cartoonist Michael Leunig found himself in a tight spot when his best anti-Semitic cartoon was selected for the Iranian ‘payback’ free speech cartoon competition. At stake in the inter-continental cartoon slag-off contest were gold coins, supplied by a lovely Iranian philanthropist.

Leunig’s cartoon was entered by a lovely Australian larrikin – Richard Cooke. It was another case of one of the Chaser crew making trouble (yet again).

Leunig complains that it’s unfair he will get picked on just because his cartoon was picked for the finalists by the Mad Mullahs. Now, should we go easy on Leunig because of his misfortune? There is no doubt that the cartoon was attractive to them because they though it had been submitted by a high profile Author

However, there is no getting away from the fact that it was the creation of a high profile Author. And there is no getting away from the fact that it was a highly dubious cartoon.

This kind of puts the anti-Iraq thing in perspective, doesn’t it. Who’s thinking ‘cookie-cut-left-wing, pro-Arab, anti-Semitic, Fairfax reading, tosser’?

Your bed Michael, you can lay in it. Perhaps the philanthropist might send you a few virgins for your show of solidarity – even if the blow up was accidental.