Tuesday, August 15, 2006

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.

Monday, August 14, 2006

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.

Tuesday, August 08, 2006

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.