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Archive for July, 2002

Heath Gibson responds to my

July 24th, 2002 Comments off

Heath Gibson responds to my observation that, per bit transmitted, SMS is about 100 000 times as expensive as Internet or voice telephony. As he says, cost per KB isn’t everything. If you don’t have easy access to email, don’t have or want to use a home phone, only want to transmit a little bit of info and don’t need a reply (which doubles the cost relative to a voice call), SMS looks pretty good. But how can a niche like this account for 75 million messages a month?

The Telstra publicity Heath links to reveals the answer. Mum and Dad are paying the bill

Categories: General Tags:

Salon enters the world of

July 24th, 2002 Comments off

Salon enters the world of blogging with a commercial service (first month free!). Given that the redoubtable Dave Winer is involved, it might provide some competition for blogger/blogspot and perhaps a useful revenue source for the Internet’s best magazine .

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Bears rampant

July 24th, 2002 Comments off

Robert Gottliebsen writes that Recession in the US appears almost certain. My prediction in January that,

‘Despite the collapse of the Internet bubble, the state of the corporate sector remains dire. Bloated and overpaid management are the rule rather than the exception. More importantly, the corruption of Wall Street analysts and major accounting firms alike means that profit-and-loss statements and projections are now virtually worthless. It will take at least another year of recession or zero growth before this mess is cleaned up. ‘

was not looking too good after the strong growth (annual rate of 5 per cent!) in the first quarter. But both the analysis and the prediction now look over-optimistic, if anything.

Watch this space for an analysis of some of the really scary scenarios for the next few years

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Rationality and rationalism

July 24th, 2002 Comments off

Ross Gittins says: The economic dog has bitten its tail – and we are all hurting. A great column showing the difference between rational economics and ‘economic rationalism’. For more on this theme, take a look here

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Krugman slices Kaus!

July 23rd, 2002 Comments off

Paul Krugman writes on THE RHINOCEROS EFFECT I’ve quoted the piece in full (it’s short and sharp) but it’s worth following the link to visit his site. Now read on:

I don’t know how many people have read or seen Eugene Ionesco’s?? Rhinoceros , a parable about conformity and the authoritarian impluse. It tells of a town in which people begin turning, one by one, into rhinoceri – yet few are willing to acknowledge what’s happening. The most memorable scene is one in which the hero’s friend (famously played by Zero Mostel) begins making excuses for his neighbors – maybe it’s not so bad to be a rhinoceros, after all – and, as we watch, turns into a rhinoceros himself.

What reminded me of the play was a visit to my old publication? Slate .? I’ve pretty much restricted my blog reading to? Brad DeLong? and? Josh Marshall? – but I couldn’t help noticing that Zero Mostel had nothing on Mickey Kaus.

Meanwhile, some of us refuse to ignore the rhinoceri running the country.

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Big-bloggian or Little-bloggian

July 23rd, 2002 Comments off

Tim Dunlop and Gareth Parker have been debating whether blogs should have long posts (like the one below) or short ones with links to the relevant material. Rob Corr has another approach, giving the first para and a “Continue …” link. I don’t think there is likely to be one best way, but I’d be interested to hear people’s views about what they’d prefer for this blog.

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Bush gives a lead on race

July 23rd, 2002 Comments off

I got some interesting comments on mentioning my piece on Bush, notably from Tim Dunlop and, in email, from Jeff Hauser so I thought I’d post the whole thing:

One of the striking features of the aftermath of September 11 in the United States has been the absence of any significant upsurge in anti-Muslim or anti-immigrant sentiment. This contrasts sharply with the success of anti-immigrant parties elsewhere in the developed world.
American participants in the continuing ‘culture war’ between the US and Europe have been quick to seize on this point as proof of American cultural superiority. But even a cursory look at recent history shows that America is no more immune to racism than any other country. Contrary to the quasi-Marxist view that individuals make no significant difference to historical developments, the best explanation is one that gives a lot of personal credit to George W. Bush.
Not all aspects of Bush’s performance in office are creditable. Much of his campaign platform has turned out to be bogus. He ran as a self-made businessman, but owed his success to a combination of politically-motivated favours and dubious deals. His ‘compassionate conservativism’ has shown more compassion for the very rich than anyone else. But, despite campaign mis-steps like his appearance at the separatist Bob Jones university, Bush’s commitment to ethnic diversity and mutual tolerance appears to be quite genuine.
The Bush Cabinet includes two blacks, Secretary of State Colin Powell and National Security Advisor Condoleezza Rice, as well as Hispanic Commerce Secretary Mel Martinez. Bush himself speaks Spanish well enough to take questions on the campaign trail. (There is, inevitably, dispute over whether his Spanish is fluent, or merely adequate, but then, there is a similar dispute about his English).
All this might be regarded as tokenism, the product of political calculation. The tradition of assigning Cabinet and other positions to members of electorally powerful groups is as old as democracy itself. And with millions of Spanish-speaking voters to be won, a few phrases in a second language are not much of a price to pay.
But the fact is that the US Republican party has generally made the opposite calculation, preferring in the immortal words of Pat Buchanan (then an advisor to Richard Nixon) to “cut … the country in half” in the belief that they would be “left with the larger half”. The fruits of this policy of “positive polarisation” may be seen in the Republican delegation to Congress. Out of 250 or so members, only one is black (JC Watts of Oklahoma), and he has announced his retirement, largely because of disillusionment with his Republican colleagues.
Similarly, while Bush pitched for the votes of Spanish-speaking immigrants, fellow-Republicans like Pete Wilson, former governor of California, ran hard on border protection and preservation of the status of English as the dominant language. Wilson’s successful campaign in 1994 was based on ads showing grainy video footage of ‘illegals’ crossing the Mexican border, with the voiceover, “They keep coming.” Wilson hoped to ride anti-immigrant sentiment all the way to the White House in 2000, but, thankfully failed.
Leadership is a much-abused word. But the fact is that racism and prejudice are issues on which leadership, or the lack of it, can make a lot of difference. In most countries, hard-core racists make up a small part of the population, perhaps 10 per cent. At the opposite pole, perhaps 20 per cent of the population is consistently opposed to racism. Between these poles, most people basically agree with the idea of a multicultural and discrimination-free society, but are nonetheless prone to varying degrees of prejudice about other people who look different, speak differently and have different religious beliefs and cultural practices.
The current world situation is one in which appeals to such prejudice can yield significant political payoffs, at least in the short run. For a variety of reasons, this kind of appeal is easier for parties of the political right. The leaders of these parties are therefore faced with the temptation of making such appeals themselves, or of colluding with racist political forces. Sadly, the majority have succumbed. Apart from Bush, Jacques Chirac in France is the only significant right-wing leader to stand firmly against collaboration with racism. Many on the left have either failed to take a firm stand on these issues, or capitulated completely by adopting ‘me-too’ or ‘small target’ positions.
Some aspects of the Bush administration’s response to September 11, such as its unilateral approach to international action, and the cavalier treatment of civil liberties have been less than constructive. But in this crucial respect, Bush has set an example of leadership that others could well follow.

Categories: General Tags:

Don't forget about unemployment

July 23rd, 2002 Comments off

Tim Colebatch reminds us of Australia’s poor performance on this vital issue and says, Someone should explain why good people are jobless

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They didn't believe in natural monopoly either

July 22nd, 2002 Comments off
Categories: General Tags:

In a scathing discussion of

July 22nd, 2002 Comments off

In a scathing discussion of the State Liberal parties, Chris Textor writes:
“They [the Labor state Premiers and Chief Ministers] tend to be level-headed, well-spoken leaders rather than the wretched socialist handbags of Federal Labor, who’s every word and policy speech sounds like they were cobbled together from the How to be an ideologically correct leftie manual.”
Is this Kim Beazley and Simon Crean we’re talking about? I agree that Federal Labor is an awful mess, but “socialist?”

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25cOK4U?

July 22nd, 2002 Comments off

A PS on the great telecoms debate. Vodafone, which gave Scott Wickstein a ‘wicked good deal’ a while back, just *raised* its price for SMS messages by13 percent, mtching Telstra and Optus.

As an aside, SMS must be about the worst value in telecommunications history, in terms of cost per unit of info. As I understand it, the typical message contains less than 25 characters, and costs 25 cents, i.e. 1 cent per byte. A typical ISP will offer a $30/month service with a limit of 300MB. I make the price ratio 100 000 to 1.

Or you could compare voice telephony at, say 20Khz, which is 2.5Kb/sec. At SMS prices, a 1 minute telephone call would cost $1500.

Despite what Scott says, I’m not quite old enough to remember the days of Morse code. But I’d be willing to bet that, at least in nominal terms, even telegrams were cheaper than SMS.

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Illfare

July 21st, 2002 Comments off

Mickey Kaus tries to bluster his way past the fact that, after six years of apparently successful welfare ‘reform’,Welfare Rolls are On the Rise Again . Of course the real problem is that the rise in recipient numbers hasn’t kept pace with the rise in unemployment, suggesting a lot of families with no (legal) income at all.

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Optional extras

July 21st, 2002 Comments off

Holy Joe Lieberman, point man in Congress for the Big Five (make that Four) accounting firms, still claims that stock options are The Best Way to Spread the Wealth. And Congress apparently agrees, thanks to some massive corporate donations. The US is looking more and more like Japan in the early 90s. The bubble has burst, but the corrupt practices that went with it are alive and well.

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What I'm reading this week

July 21st, 2002 Comments off

The Wind’s Twelve Quarters by Ursula Le Guin. I really like this kind of SF, but it’s drowned in sea of sword, sorcery and space opera these days. If anyone knows of anyone recent who’s comparable to Le Guin, please let me know.

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Natural monopoly and unnatural passion

July 21st, 2002 Comments off

Scott Wickstein comes back for another round on natural monopoly in telecommunications, saying :

“So why was it that phone prices fell with the introduction of competition? I know I’m not an economist, however, I do know something about phone bills. ”

Something, but not enough. For example, Scott is apparently unaware that:
(i) on average, the real cost of phone calls has fallen by about 5 per cent per year, for the last fifty years at least, under both monopoly and ‘competition’
(ii) Telstra’s prices are determined not by market forces but by a regulatory price cap requiring the same average rate of price reduction that prevailed under the Telecom Australia monopoly
(iii) In most years, Telstra has met the price cap exactly. That is, it has reduced average real prices by the minimum amount required by law.

Jason Soon also has some comments. He says, correctly, that economists have disagreed about whether telecommunications is a natural monopoly. However, this is an issue on which market outcomes speak louder than econometric studies. For example, Business Week, scarcely a leftwing source, observesIt’s “Merge, Buy, or Die” in Telecomand predicts a US industry dominated by two or three regional monopolies.

Jason also makes some hasty assumptions about my position (and Ken Davidson’s) on these issues.

I analysed the issues and policy options at length in an Agenda article entitled The premature burial of natural monopoly: Telecommunications reform in Australia My conclusion was that
“Much of the potential benefit to be derived from reform of the telecommunications industry has been dissipated in wasteful and technically unnecessary investment in duplicate networks. This is the natural result of policies based on a naive enthusiasm for competition and wishful thinking about the death of natural monopoly.”
I expanded on this point in a rejoinder to comments by Rod Maddock
But this does not, as I observe, rule out options like an access pricing regime or even a breakup of Telstra, something which I have advocated as a route to renationalisation of the core network..

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Scott Wickstein is unhappy with

July 19th, 2002 Comments off

Scott Wickstein is unhappy with me for saying that telecommunications is a natural monopoly industry. Scott disliked the old Telecom and prefers competition. The problem is that ‘natural monopoly’ is a technological fact, not a statement about preferences. An industry is a natural monopoly if its services can be delivered most cheaply by a single firm.
To be fair to Scott, who regularly reminds us that he is not an economist, the same mistake has been made by people who ought to know better. The idea that competition can be wished into existence has been the source of most of the silly policies that we have seen in the last decade, policies that are now sending telecoms broke on a daily basis.

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Quiggin praises Bush!

July 19th, 2002 Comments off

Paul Krugman had a piece a while ago saying that a colleague had asked him to write something positive about George Bush, in the interests of fairness, but he couldn’t think of anything. The colleague suggested Bush’s support for free trade, but shortly after that Bush slapped tariffs on imported steel, so Krugman wrote about that.

Always eager to emulate Paul Krugman, I thought about the challenge. It struck me that there was something positive about Bush – he seemed to be genuinely non-racist, and had not gone after racist votes. The contrast with Australian and European rightwing politicians (and many alleged leftwingers) was, I thought, striking.

All this was in my piece in Thursday’s Financial Review. Unfortunately, you need a subscription to read it on the AFR site, but it will be on my site soon.

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Telstra

July 18th, 2002 Comments off

Ken Davidson is spot-on regarding Telstra. Bob McMullan makes some interesting points, but fails to recognise that the era of competition in telecommunications is basically over. Any sensible policy must take account of the natural monopoly characteristics of the industry. Meanwhile, the Oz continues mindless cheerleading for privatisation.

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Take a look at the not-so-super power of America

July 18th, 2002 Comments off

This piece from the Guardian beat me to the punch. The idea that America is “the worlds only economic and military superpower”, and can therefore do what it likes, belongs with the rest of the rhetoric of the bubble era. Like all societies, the US has finite resources.

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Kevin Phillips ('of 'Emerging Republican

July 17th, 2002 Comments off

Kevin Phillips (‘of ‘Emerging Republican Majority’ fame) has an interesting piece onThe Cycles of Financial Scandal

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Buddy can you spare a dime

July 17th, 2002 Comments off

A long thread in f**kedcompany deals with the Resurgence of begging in the US. As usual with this site, you have to wade through a lot of foulmouthed drivel, but most posters agree that beggars have returned to US streets in large numbers. In a country with no real welfare system, this is a sensitive economic indicator. When I lived in the US, during the 1990 recession, there were beggars almost on every corner in DC, but on subsequent visits, the numbers declined steadily, and by the late 90s, only a few, clearly mentally ill, remained.

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Mandates

July 17th, 2002 Comments off

Mandates
The notion of a ‘mandate’ has played an important role in recent debates about the role of the Senate in Australia. However, the discussion of this topic has been, to put it mildly, confused. One important source of difficulty arises from the fact that the term ‘mandate’ can be derived from two, very different, sources.
The first, deriving from English debates about the role of the House of Lords, arises when a popularly elected government faces resistance from an unelected, or unrepresentative, Upper House. In the English constitutional arrangements of the 19th century, there was no way of resolving such a deadlock. Even if the Parliament was dissolved, and the government re-elected with a clear majority of the votes, the House of Lords retained its veto power, and used it to defeat bills for Irish Home rule and social-democratic reforms.
The only solution was the use of the Royal Power to create large numbers of new lords who would pass the necessary legislation. This solution was justified by the notion of the ‘mandate’, that is, the idea that the House of Lords was acting in defiance of the clearly expressed will of the people.
The second notion of mandate arose in a very different context, that of Imperial China. As in other autocracies, Chinese political theorists faced a conflict between a theoretical structure that demanded absolute obedience to the Emperor and the empirical fact that emperors were regularly overthrown. The solution was found in the notion of the ‘Mandate of Heaven’. The idea was that the requirement of obedience was conditional on the Emperor’s possession of the mandate of heaven. Once this was lost, rebellion was justified.
In practice, the success or failure of rebellions determined whether the mandate of heaven had or had not been lost. The same reasoning is reflected in the English aphorism ‘Treason never prospers: whats the reason. If it prosper, none dare call it treason’.
In most recent Australian debates, it is the Chinese version of mandate theory that has been at issue. No government in the last two decades has received a majority of the popular vote, rendering the popular mandate theory moot at best. In many cases, such as the proposed privatisation of Telstra, parties opposed to the policy have received a majority of votes, so that popular mandate theory justifies Senate resistance.
The basic claim of Chinese-Australian mandate theory is that, having secured executive power in the form of a majority in the House of Representatives, a government is entitled to unconditional obedience from the Parliament and the courts. This theory has been advanced with equal assurance whether or not the government in question received a majority of the ‘two-party preferred vote’, further emphasising the irrelevance of popular mandate theories.
The obvious problem with Chinese mandate theory is that it has no answer to successful defiance. If some provincial warlord or democratic republic ignores the Emperor and repels his armies, the Mandate of Heaven ceases to apply. Similarly, if the Senate rejects government legislation year after year, and is re-elected in much the same form, what does it matter whether there is a mandate or not. Since the theory has no ethical foundations, it is little more than a decorative adornment. If the government fails to get its legislation passed, mandate theory is useless, and if the government succeeds, it is superflous.

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The Hauser Report picks up

July 15th, 2002 Comments off

The Hauser Report picks up Mickey Kaus on the same point as me, regarding his dodgy comparisons of US and German unemployment (the figures are distorted by the former East Germany), and adds some new ones.

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Sgt Schulz at the helm

July 15th, 2002 Comments off

Salon.com has a nice piece on CEOs who claim ignorance of large-scale fraud being carried out under their noses. These guys are undermining 1990s-style turbocapitalism more effectively than any left-wing diatribe.

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50 per cent increase in US business honesty

July 15th, 2002 Comments off

The number of major US corporations reporting their profits honestly has jumped from two to three with the news that Coke is to Report Stock Options as an Expense. The others, for those interested, are Boeing and Winn-Dixie.
Meanwhile, other US corporations are learning a lesson long familiar to Soviet planners. If you give people a strong enough incentive to meet a target, they’ll move the target if they have to. One of many examples is the idea of Linking Executive Pay to Sales

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What I'm reading this week

July 14th, 2002 Comments off

Holiday brochures for Mission Beach, NQ. It’s the time of year in Canberra when everyone who can, gets out, either North to the sun or up to the snow. I’m going to try and get a bit of both, if I can manage it.

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Private, public or mixed

July 14th, 2002 Comments off

Henry Ergas has an interesting piece, defending privatisation in general, while criticising the sale of Sydney Airport. Henry nominates me as ‘the most perceptive critic of privatisation’, and I’ll return the compliment by observing that Henry is the most persuasive advocate of the case for ‘light-handed regulation’ of privatised monopolies such as Telecom NZ and (assuming Howard gets his way) Telstra.
Henry’s basic point about Sydney Airport is the same one that I’ve made. While the sale looks like a good deal for the public at first glance, the price was boosted by raising the monopoly prices the airport is allowed to charge, relaxing regulation and ruling out any competition from a second airport in the foreseeable future.
The more general point is that privatisation cannot be assessed simply by looking at the effect on the net worth of the public sector, that is, the difference between the sale price and the value of the earnings that would have been achieved under continued public ownership. If privatisation is accompanied by policy changes that make the market more or less competitive, or changes in working conditions, quality of service and so on, these effects must be taken into account in working out the total effect on the welfare of the community.
I’ve focused on the net worth test in assessing past privatisation because most advocates of privatisation have got it wrong – claiming that privatisation has been good for public finances when as Ergas notes ‘many past privatisations would have failed the net-worth test’. But the net worth test provides an evaluation of privatisation on an ‘other things equal’ basis (economists like the Latin version, ceteris paribus).
For a complete evaluation it’s necessary to take account of regulatory changes and so on. In my assessments of privatisation, I’ve tried to do this. Nevertheless, the net worth test is still relevant.
In the Australian context, many of the changes that are commonly associated with privatisation have occurred separately, as a result of the corporatisation of government business enterprises and the introduction of regulatory systems designed to be ‘competitively neutral’ between public and private firms. Corporatised government business enterprises have employment conditions more similar to their private counterparts than to old-style government departments. In particular, they have shown themselves willing to undertake labour-shedding on a large scale. On the other hand, private enterprises that are subject to extensive regulation necessarily become responsive to political pressures rather than pure market forces.
As Ergas says, the differences that cannot be eliminated are those associated with ownership. He notes:
For example, before Telstra was partly privatised, each Australian citizen could be said to own a non-tradeable ‘share’ in Telstra.
Because shares are non-tradeable government business enterprises are not subject to the threat of takeover, and the associated capital market discipline. But estimates of the costs and benefits of takeovers vary widely. In the mid-1980s, a lot of Australian commentators were very enthusiastic about the market discipline imposed by raiders like Bond, Skase and Elliot. When their jerry-built empires collapsed, more realistic assessments suggested that, even where there were benefits, they had been greatly exaggerated. The recent scandals in the US, which have particularly affected ‘serial acquirers’ like Tyco and Worldcom, are leading to a similar reassessment there.
Moreover the costs and benefits are not all one way, as Ergas implies. Public ownership of Telstra is a form of social insurance – the risks associated with profits and losses are spread through the tax system.
Like other forms of social insurance, this is a ‘one size fits all’ solution. As Ergas notes, ‘This means that people who wanted to take on the risk of owning more shares in return for greater reward could not do so’. The disadvantages of inflexibility must be balanced against the fact that compulsory risk-spreading through the tax system is much more cost-effective than market alternatives. The superiority of is reflected in the difference between real rate of return required for typical private investments (around 8 per cent, even in relatively stable areas like infrastructure) and the real rate of return on government bonds (generally less than 4 per cent).
Whenever costs and benefits of alternative approaches must be balanced, the optimal outcome is likely to be a mixture of the two. The mixed economy, in which some goods and services are produced by the private sector and others by the public sector has historically outperformed the alternative extremes of pure socialism and free-market capitalism. In recent years, some lessons have been relearned the hard way. The wave of privatisation in the infrastructure sector (telecommunications, electricity, roads etc) has been followed, in many cases, by a return to public ownership, as the defects of the privatisation model became apparent.

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Mickey Kaus continues the US

July 11th, 2002 Comments off

Mickey Kaus continues the US vs Europe culture wars, relying on the tried-and-true argument of lower US unemployment. He writes
” German Chancellor Gerhard Schroeder is entitled to a bit of schadenfreude, but generalizing from the U.S. accounting scandals to the general inferiority of U.S.-style shareholder-oriented corporate governance seems a leap. (“Now it has been revealed that egotism practiced at the top under the catchphrase ‘shareholder value’ is worth less in macroeconomic terms, but also as far as the companies themselves are concerned ….”) What’s Germany’s unemployment rate again? Oh, yes — 9.5 percent. [Thanks to kf reader A.E.]”
Unfortunately, going to his source, The Nando Times, we find:
“Last month’s increase was exclusively due to the former communist east Germany. Western Germany, which accounts for most of the nation’s economic output, reported a 7.6 percent jobless rate for June, unchanged from May. ”
The US (5.9 per cent) still looks to have an advantage, but add in 2 million mostly unemployable people locked away in prisons and jails, and the difference is pretty much zero. This was a great argument for the late 90s, when the US rate was 4 per cent and falling, but it’s run out of legs today.

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Unsafe at any IQ

July 11th, 2002 Comments off

Gareth Parker weighs in on the question of ads for fast cars, posing it as a question of personal responsibility.

“The problem is this. Every time someone else decides for us what is “safe”, our personal responsibility is diminished. Every time someone else makes the decision, it becomes someone else’s fault when something goes wrong.

I crashed my car. Car ads are to blame. Individuals are no longer culpable, and that is just wrong.”

Gareth may not have noticed but, when motorists who think they are racecar drivers crash their cars, they usually crash them into somebody else.
If these cars were used only for motor racing, the ads for them would serve as fine candidates for the Darwin awards, helping to remove stupid genes from the pool. Unfortunately, they usually take others with them.

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What if they threw a political party and nobody came?

July 11th, 2002 Comments off

A couple more pieces on the future of the ALP. Ken Davidson describes it as a “self-perpetuating” oligarchy, and attacks John Brumby for ignoring a party conference that criticised the government’s approach to public-private partnerships (PPPs). I’ll write more on this subject later. But Ken’s point about the ALP is right. There’s no point in reforming the structures of a party that no-one would want to join. ALP membership has collapsed in the past two decades. In part this reflects general social trends. But the big question is why anyone would want to spend evenings in drafty rooms discussing policy ideas when all the decisions are made by a closed circle of politicians and party leaders. The result is that, for the most part, the only people who join are those looking for a political career or the friends and relatives they’ve signed up to vote for them.

On the role of the unions, this piece points out that the big issue isn’t whether the ALP wants ties to the unions, but whether unions should want to be tied to the ALP.

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