Tuesday, February 27, 2007

Gambling on Rudd

The Sydney Kings won three of four championships and the Wollongong Hawks didn't make the top eight this year. Consequently I don't really gamble any more. I can't afford it. If I had a clue about what I was doing then maybe I would.
Punter on the other hand has no real job and lives a lifestyle of debauchury only his gambling habbit can afford him to do so.
Common sense has seemingly evaporated from political thought in this country and one cannot help but feel just a little sad. Then one realizes the magnificent opportunity for financial gain and most of the sadness dissipates like a Berocca hitting a glass of water on a seedy Sunday morning. For some reason, known only to the bookmakers themselves, the Australian Labor Party are favourites to win the next federal election.

Monday, February 26, 2007

The lights are on, but only Gittins is home

On Turnball's plan to phase out incandescent light bulbs:
Talk about high-handed intervention in a free market by the nanny state... Why the direct resort to command-and-control? ...why not apply the polluter-pays principle?
I was with you Ross, right up until you said:
Yes, I am kidding. ...Once you understand how far we mere mortals depart from the assumption of rationality, it's easier to see the justification for government interventions intended to counter this whole new form of "market failure" and save us from ourselves.
(I think this is also the first time I think I've heard Ross admit to being one of us mere mortals).

Tuesday, February 20, 2007

Salvation from carbon trading?

Alex Robson (who has a new weekly opinion spot in the Telly) has turned me right off carbon trading:

A carbon trading scheme will be similar to a tax on carbon emissions, except the size of the tax will be determined by the market and the government will receive no tax revenue.

Unless, of course, the states decide to charge stamp duty and the Commonwealth decides to levy capital gains tax on the sale of permits, just as they do on other assets. Then all levels of government will enjoy a massive revenue windfall.

Thats not to say I'm necessarily now bullish on Pigouvian tax either:

Politicians have announced that Australia's greenhouse gas emissions must be reduced or eliminated completely... Never mind that this will not change global temperatures by even a fraction of a degree.

Thursday, February 08, 2007

Free coffee anyone?

Interesing business model for this US cafe (via freakonomics). Essentially you pay what you like. The idea is that the honour system will cause most people to pay and some will overpay (for a warm glow) subsidising those who underpay.

I think it will succeed; not much different from other business models which undercharge for some goods (in this case the coffee) and then overcharge on others (the warm glow effects). I think it would also have to rely heavily on repeat business. Would you rip off your barista if you are going to him everyday?

What is to be done?

The economic response to the growing scientific consensus on global warming seems naive and inconsidered. After reading a Robert Samuelson op-ed, I can think of many reasons why a global Pigouvian tax (or cap and trade system) is not going to happen:

  • developing countries will not stand for it (and in any case economic growth is, rightly, much more important for them than global warming);
  • governments are subject to a time inconsistency problem (there will be incentives to lower energy prices in the future) which investors can forecast and hence will be reluctant to invest in new technologies; and
  • even if a global scheme is agreed upon I have not seen a convincing explanation of how you will measure how much carbon different firms are emitting.

In the face of this I think the simplistic arguments for cap-and-trade or a carbon tax are naive. Instead, governments have to rely on more direct and targeted interventions that do not rely on an unstable transmission mechanism. For example, governments could invest in clean-coal, nuclear or other carbon reducing technolgies (given the public good characteristics of innovation this could equally help 'correct' the behaviour of developing countries). For enforcement reasons, instead of putting an explicit tax on carbon it may have to tax products which use a lot of carbon (such as petrol, cetain metals, etc). I'm not really sure on the relative merits of such options but they seem much more attainable and realistic.


The Australian's editorial continues to cloud the debate by propogating the unproven claim that an emissions trading scheme is far superior to a carbon tax:

Such a system [carbon trading] would be far less punitive than a per-tonne tax on coal or emissions which would ultimately be paid by consumers and which would chase industry and jobs overseas to less restrictive regulatory environments.

Who do they think is going to ultimately pay for the costs of buying permits? And again:

Likewise, the market signals sent by emissions trading will help create the research and investment climate necessary to develop carbon-reducing technologies such as gasification and geosequestration.

But so will a tax. People seem to believe that cap-and-trade is better becuase it's a market-based system. But this is just argument by labels not a rationale in itself.

The only reason I can think of for preferring a trading scheme is that perhaps the appartus that goes along with it (auction markets, traders, etc) will make it difficult for governments to change policy in the future and thus reduce soverign risk. I'm not sure that this is the case though since presumably a government would also be addicted to the tax revenue that a carbon tax would bring in.

Wednesday, February 07, 2007


Tim Harford (aka the Undercover Economist) argues that the ubiquity of email, video-conferencing and other telecommunication media has increased the demand for travel (to conferences and meetings) and for living in big cities with networking opportunities. In essence:

... e-mail, internet networking and cheap phone calls have made it easy to maintain a lot of relationships. In principle some of them could be restricted to cyberspace, but how much fun is that? The same e-mail that allows you to maintain a long-distance business relationship also creates demand for more travel as people try to establish those relationships in the first place.

Although I think he raises a good point, surely at some point telco devices and face-to-face contact become substitutes. If more terrorist attacks cause large airfare hikes then surely people will rely more opn e-communication.

Also, having worked (rather unsuccesfully) in a telecommuting environment I can see the that face-to-face contact is very important in building relationships.

Perhaps then the effect that Tim is capturing is that Blackberry owners are more inclined to travel (and perhaps move house) for work purposes since they can more readily maintain their existing family/freind relationships through the use of email, cheap international calls, etc.

Howard's trippin

Howard seems lost on climate change. The other day he was saying that he does not support a tax on carbon but is happy to set a carbon price. But what's the difference? Now he is supporting a global emissions scheme but I don't see the big difference between a tax and cap-and-trade emissions target. Basic economics tells you that setting the price is equivalent to setting the quantity.

Much more important is how you are going to enforce either system, it would appear pretty easy for businesses to dodge the amount of carbon they emit; much easier than, say, minimising their profits for tax purposes. And even more worrying is how to discipline governments whose nations emit to much, perhaps lying about their emissions. What are we going to do to China? Invade them!

Turnball has the right message on the politics: sure it's a problem but there is nothing that Australia can do on its own. Even if we cut our production to nothing it still ain't going to materially change the warming to come. It's a global externality which requires a global response. Labor wants to play politics with a serious issue and is willing to put Australian wealth at jeopardy to score political points.