Thursday, May 18, 2006

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.

Monday, May 15, 2006

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.

Monday, May 08, 2006

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...