Archive for March, 2004

Monday Message Board

March 15th, 2004 5 comments

It’s time for the Monday Message Board, as usual. Please post comments on any topics (civilised discussion and no coarse language please). My suggested discussion starter – is the housing bubble bursting

Categories: Regular Features Tags:

A sensible tax policy

March 14th, 2004 4 comments

One of the oddities of the past week is the belief, apparently near-universal among the Press Gallery, that Peter Costello scored a win over Labor last week as regards tax policy. In the boxing-match view of politics favored by the Gallery, Costello did indeed win several rounds – Labor shadow ministers contradicted themselves, appeared confused, and so on. But by Wednesday, thanks to Bob McMullan, Labor had a clear line, refusing to rule out new taxes and charges but promising not to increase the ratio of tax revenue to GDP. Three days of sneers and innuendo from Costello haven’t dented this line or produced any sign of a backdown from Labor. There’s no reason to suppose Labor can’t carry this line to the election. As McMullan points out, the endless sequence of special purpose levies introduced under this government, not to mention the GST, make any commitment of the form “no new taxes or increases in existing taxes” (literally) incredible. A commitment to a constant ratio of revenue to GDP leaves plenty of room for financing new spending initiatives simply by holding some existing programs constant in real terms.

Labor was always going to have trouble coming to a defensible form of words on tax and expenditure, and they had an uncomfortable couple of days. But the period of greatest danger in these things is the first few days after the position is taken, and this period has now passed. The effect of Costello’s attacks has been to solve Labor’s biggest problem six months before the real campaign.

Categories: Oz Politics Tags:

If only you knew the whole story …

March 13th, 2004 2 comments

In the case of the dismissal of tenured professor Nona Gerard from Penn State (details here, Brian Leiter cites the generic response

Thank you for your email. President Spanier is out of the country so I am responding on his behalf. I will be sure he is aware of your opinion. I can assure you that there is much, much more to this than you are reading in the papers. I hope you realize that the University is also limited in what it can say publicly about this case at this point in time, especially given that the faculty member has already indicated she plans to file a lawsuit. I can also assure you that the University’s hearing process was followed explicitly at every step of the way.

“We have never taken away anyone’s job for criticizing the quality of a program, and we never will. You should also know that when five members of the University community who heard over 40 hours of testimony in what was a quasi-legal proceeding would vote unanimously that the faculty member was guilty of grave misconduct, there is not just smoke but a lot of fire. For the faculty member to make public statements about due process not being served is understandable in her circumstances, but simply untrue.

“What you have been reading in the press has simply not reflected the whole story.”

As it happened, I recently received an almost identical letter in relation to a property dispute in which I am peripherally involved. In both cases, I’m tempted by the simple response MRD> But I think it might be worth exploring the issues a bit further.
Read more…

Categories: Life in General Tags:

Terrorism and guilt

March 12th, 2004 22 comments

There’s a lot of confusion about the perpetrators of the Madrid terrorist bombings, with a letter, purportedly from Al-Qaeda, claiming responsibility, and leaders associated with ETA disclaiming it. There’s evidence pointing both ways and, of course, it’s possible that more than one group was involved. Meanwhile, another letter, also purportedly from Al Qaeda, disclaimed responsibility for the even bloodier atrocity in Karbala last week.

I don’t think it’s necessary to come to a conclusive finding as to who set up which bombs. All groups and individuals that embrace terrorism as a method share the guilt of, and responsibility for, these crimes. Both in practical and symbolic terms, terrorist acts by one group provide assistance and support to all those who follow in their footsteps. The observation of apparent links between groups that seemingly have nothing in common in political terms (the IRA and FARC, for example) illustrates the point. Denials of particular accusations are beside the point unless they are accompanied by a renunciation of terrorism.

This point isn’t only applicable to terrorists. For example, governments that engage in, or endorse, torture in any context share in the guilt of criminals like Saddam, whether or not they were directly complicit in particular crimes.

Categories: World Events Tags:

Iraq, yet again

March 10th, 2004 8 comments

I’ve been meaning to post more on the situation on Iraq, but the complexity of the issues, and the rapid alternation of good, bad and ambiguous news makes things difficult. I’ve decided the best way to deal with things is to start with the big picture, and work down. At this stage, I don’t see any reason to change the prediction I made last November that the most plausible stable outcome in Iraq is, in fact if not in name, a two-state solution, with an Islamist Shiite majority government for Iraq as a whole, and the Kurds maintaining effective autonomy in the areas they already control. The recently-announced constitution contains various measures that are supposed to constrain this, but it’s already clear that they will be ineffectual. The Shiite leaders, most notably Sistani, have already stated that a document drawn up by an unelected council can’t constrain a democratically elected government. In any case, as long as they don’t challenge the regional autonomy of the Kurds, the Shiites will have all the votes they need to make the changes they want, particularly an enhancement of the role of Islam and the removal of requirements for power-sharing at the national level.

A second problem, pointed out by Alan at Southerly Buster is the attempt in Article 59 to maintain US military control until a permanent constitution is ratified, and a government elected pursuant to that constitution. This is the same kind of thinking that brought us the proposed regional caucuses. Faced with an elected government demanding the repudiation of this article, what are the Americans going to do? The article will fail in its intended purpose, but may cause a lot of trouble in the meantime. I predicted such an attempt, and its failure when I looked at the situation some months ago , and I see no reason to change this view now.

Despite these difficulties, and the still-real risk that the situation will collapse into civil war once it becomes clear that the historically-dominant Sunnis have been demoted to, at best, a subaltern role, I think the odds are in favour of a reasonably stable outcome.

Does this mean the war was justified? To answer this question, we need to ask two others: Compared to what? and Justified for whom?
Read more…

Categories: Philosophy Tags:

Johnny gets one right

March 10th, 2004 10 comments

Howard’s sudden announcement of a proposal that the Commonwealth should take over the hospital system may be the result of desperation for a “Big Idea”, as some say. Still, since I have long advocated this idea myself (see the AFR article below), I’m happy to endorse it. The mixture of state and commonwealth funding for health is a recipe for cost-shifting and administrative duplication. If the Commonwealth took over health completely, and somehow managed to hand the GST properly to the states, it would also largely resolve the problem of vertical fiscal imbalance.

While we’ re in the business of tidying up spheres of responsibilities, I’d suggest getting the states out of the university and TAFE sectors (although they get almost no state funding, most universities operate under state acts of Parliament) and the Commonwealth out of school funding.

Update: It appears that I overstated the definiteness of this proposal. Here’s a semi-denial from Howard. In the current quasi-campaign environment, it’s increasingly hard to tell what’s policy and what’s not.
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Categories: Philosophy Tags:

Optional preferential dominates approval voting

March 9th, 2004 2 comments

I thought I’d said my last word on voting systems, but it’s a topic that’s hard to exhaust. The comments thread to Brian’s latest post raised the notion of Approval voting in which you cast a vote for all candidates of whom you approve, the candidate with the largest number of votes being elected. I suggested that “the appeal of approval voting is mainly to people who can see the inadequacies of plurality (first past the post) but are worried about the supposed complexity of preferential” and the site linked above, with its frequent references to simplicity, supports this view.

I now want to make a stronger point. Approval voting is, for nearly all purposes, dominated by the “optional preferential” system, in which voters can list in order all the candidates whom they wish to give any support, leaving the remaining candidates unranked. In effect, optional preferential is an approval voting version of the preferential system, with the desirable property that voters don’t have to give any support to candidates they dislike. Given the data from on optional preferential ballot, it would always be possible to implement approval voting by disregarding the rankings given by voters, but its hard to see when this could ever be desirable.
Read more…

Categories: Philosophy Tags:

Who wants to be a semi-demi millionaire

March 9th, 2004 8 comments

Although parenthood pushed him into blogging hiatus eighteen months ago, David Morgan has had time to attempt become a millionaire. He faced the $500 000 question last night, on the length of Mercury’s rotation, picked the right answer (88 days), but wisely decided not to risk the $250 000 he already had.

Congratulations on his success!

In another manifestation of the mysterious BlogGeist, my thought processes watching the show were almost exactly parallel to David’s. I had the same guess, and a similar calculation that the expected utility[1] of backing my judgement would be less than that of the certain quarter-mill.

fn1. Rank-dependent, for those who care about exactitude in these things.

Categories: Metablogging Tags:

Trapped ?

March 8th, 2004 4 comments

Brad de Long picks up my post on opportunities and outcomes in which I argued that the achievement of meaningful equality of opportunity in a society with highly unequal outcomes would require extensive government intervention to prevent the development of inherited inequality, and says that I’m falling into Irving Kristol’s trap, which he describes, accurately enough, as

an ideological police action designed to erase the distinction between Arthur Okun and Mao Zedong, and delegitimize the American left.

I agree that many people, particularly critics of social democracy like Kristol ,use the outcome/opportunity distinction in a dishonest way. This is particularly true in the American context, since anyone honestly concerned with the issue would have to begin with the observation that the United States performs just as badly on equality of opportunity (as measured by things like social mobility) as it does on equality of outcome (see the book by Goodin et al, reviewed here for one of many demonstrations of this). So if Kristol were genuinely concerned about equality of opportunity he’d be calling for at least as much intervention as the liberals and progressives he’s criticising.

On the other hand, there is a genuine debate within the social democratic/socialist movement[1] which I was addressing. On the basis of fairly limited knowledge, I identified Blair and Brown as proponents of equality of opportunity and outcomes respectively. In a long comments thread, no-one picked me up on this point, so maybe my judgement on this was accurate. My comments were addressed to the fairly large group of social democrats who genuinely think that, as long as you equalise opportunity, for example by providing good-quality schools for all, it’s not a problem if income inequality increases. To restate my point, that might be true for one generation, but in the second generation the rich parents will be looking to buy a headstart for their less-able children, for example by sending them to private schools where they will be coached in examination skills and equipped with an old school tie. Given highly unequal outcomes in the previous generation, it’s much harder to prevent the inheritance of inequality, and the achievement of equality of opportunity requires more, and more drastic, intervention rather than less.

In the real world, no-one advocates either perfect equality of outcomes or perfect equality of opportunity. My point is that, in the same real world, these two are complements, not substitutes. The more progress you make on equalising outcomes in one generation, the easier it is to equalise opportunities in the next. I don’t expect Irving Kristol to embrace this insight with hosannas, but then it’s a long time since I expected anything positive from Irving Kristol.

fn1. I’ll post more on this distinction soon, I hope.

Categories: Philosophy Tags:

Monday Message Board

March 8th, 2004 2 comments

It’s time for the Monday Message Board, where you get to post your comments on any topic (civilised discussion and no coarse language, please). My suggested discussion starter – Peter Costello, soon-to-be PM?

Categories: Life in General Tags:

Ideas and interests

March 7th, 2004 8 comments

One of the justifications I make for the time I spend blogging is that it gives me a chance to try out arguments I use in my work. With that in mind, I’d very much appreciate comments on this short summary of the role of ideas and interests in explaining policy outcomes.
Read more…

Categories: Economic policy Tags:

An unbalanced panel?

March 7th, 2004 13 comments

Reader Mike Martin points to an initiative called the Copenhangen Consensus being promoted by The Economist and Bjorn Lomborg’s Environmental Assessment Institute in which nine economists, including four Nobel prizewinners, are supposed to set priorities for global challenges, notably including global warming and sanitation and water. As regular readers will know, one of Lomborg’s favorite arguments is that money spent on mitigating global warming would be better allocated to clean water, a point on which I’ve repeatedly challenged his consistency and sincerity. (Start here and work back).

So who’s on the panel. The list is (with Nobel prizewinners indicated by asterisks)

1. Jagdish Bhagwati
2. Robert Fogel*
3. Bruno Frey
4. James Heckman*
5. Justin Yifu Lin
6. Douglass North*
7. Thomas Schelling
8. Vernon L. Smith*
9. Nancy Stokey

What can we say about this list? The Nobel prizewinners are obviously eminent, but they’re not the names that spring to the front of my mind when I think about a question like setting global priorities for development and the environment. Heckman is a micro-econometrician, Smith is an experimenter, focusing on micro issues, and Fogel and North are economic historians (North’s ideas are relevant to the big-picture issues of growth and development, so he’s a partial exception, but only a partial one).

The problem becomes clearer when I consider the names of those Nobelists who would be obvious candidates, including Kenneth Arrow, Joseph Stiglitz, James Mirrlees, Robert Solow and Amartya Sen. All of these economists have made extensive contributions to the theory of economic growth and development, and all have been keenly interested in environmental issues. Unfortunately for Lomborg, though, all except Mirrlees[1] are strong supporters of action to mitigate global warming. Having looked at the absentees, I look back at the list of inclusions and note that the one thing they have in common is that they are all generally regarded as right-wing.

It might be argued that Arrow and the others, having already expressed a viewpoint, have been excluded for that reason. But Schelling and Bhagwati have been equally active in the debate, Schelling arguing that global warming is not a big problem and Bhagwati on the free-trade side of the trade and environment debate.

Of the remaining panellists, Frey is a public choice theorists whose views are consistent with those I’ve mentioned above. I’ve only seen one paper by Lin (on reform in China) but that also seemed consistent. I’ve only ever read technical papers by Stokey (very good ones, I should say) so I can’t comment on her views.

All things considered, I will be very surprised if this panel comes up with the conclusion that mitigating global warming should be a high priority for the world.

Update: As several commentators have noted, we have yet to see what conclusion the panel reaches. If, contrary to my expectation, the panel correctly concludes that a global emissions trading system for greenhouse gases would both contribute to the mitigation of global warming and, by transferring tens of billions of dollars to poor countries, facilitate meeting the other challenges, I’ll happily, if a bit shamefacedly, take back everything I’ve said in criticism of Lomborg.

fn1. Mirrlees was very critical of the Club of Rome as I recall, and this might lead to the supposition that he would support Lomborg’s viewpoint. But it was pretty hard for an economist not to be criticial of the Club of Rome. Perhaps readers can advise if Mirrlees has taken a public position on the issue of global warming.

Categories: Environment Tags:

A challenge on Telstra

March 7th, 2004 5 comments

For about the fiftieth time, Saturday’s Fin editorial (subscription required), bemoans the unsustainable state of Telstra with its absurd mixture of public and private ownership. Yet at the time this structure was proposed, it was supported by the Fin and lots of others. When I observed that partial privatisation was the worst of all possible worlds, I copped plenty of flak for my pains. Although it was obvious enough that partial privatisation was a stalking horse for full privatisation, its proponents were quite clear at the time that it was a sustainable and desirable policy in itself, whether or not full privatisation ever came in.

So here’s my challenge, in two parts. First, is anyone who supported the partial privatisationof Telstra now prepared to admit they were wrong to do so? Second, is anyone at all prepared to defend the partial privatisation of Telstra [as an improvement on full public ownership in itself, not as a step towards full privatisation].

PS: I linked to the article above because of the discussion of Telstra, but I hope readers will forgive me for gloating a little about the accuracy of my analysis of the National Electricity Market, and the poor understanding of basic economics shown by many of its boosters.

Categories: Economic policy Tags:

The equity premium and the mixed economy

March 6th, 2004 8 comments

Brad de Long correctly summarises the argument of my papers with Simon Grant. If you accept that the equity premium (the large and unexplained difference between the rate of return expected by holders of private equity and the rate of interest on low-risk bonds) is explained in large measure by the fact that capital markets do not do a good job in allocating and spreading risk, the the natural solution to all this is the S-World: Socialism: public ownership of the means of production This is because risk can be more effectively through the tax system, and through governments’ capacity to run deficits during economic downturns than through private capital markets. A very robust implication of the observed equity premium is that a dollar of investment returns received during a recession is worth two dollars during a boom – this provides governments with a huge arbitrage opportunity.
Read more…

Categories: Economic policy Tags:

Stocks, bonds and social security

March 5th, 2004 3 comments

Brad DeLong has had a string of posts referring to the possibility that some or all of the US Social Security fund should be invested in stocks rather than, as at present, in US Treasury bonds, of which the most pertinent is this one. This idea first came up in a major way in Clinton’s 1999 State of the Union speech, and has since had some play on the Republican side, especially now that privatization individual accounts seem to be off the agenda.

The key fact that makes the idea attractive is the equity premium, the fact that, historically the rate of return to investment in stocks has been well above that in bonds. This used to be explained by the fact that stocks were riskier than bonds. But ever since the work of Mehra and Prescott in the 1980s it’s been known that no simple and plausible model of the social cost of risk that would be generated by efficient capital markets can explain more than a small fraction of the observed premium. The immediate response, that of finding more complicated, but still plausible models hasn’t gone very far. The alternative explanation is that capital markets don’t do a very good job of spreading risk. For example it’s very hard to get insurance against recession-induced unemployment or business failure, even though standard models imply that this should be available.

Simon Grant and I have done a fair bit of work on this, with some specific attention to the Social Security issue. In this paper (large PDF file), published in the American Economic Review, we argued that substantial gains could be realized by investing Social Security funds in the stock market. We didn’t put a number on it, but I don’t find Brad’s half-embraced suggestion of $2.4 trillion in present value implausible.

An important point, though, is that investing in stocks will generally not be the best way to go, at least if the amount invested is large. A government agency holding, say 20 per cent of the shares in Ford and General Motors, would seem to have big problems. Leaving aside the specific institutional issues of the US Social Security fund, the obvious implication of the equity premium is that, unless there are large differences in operating efficiency between private and public enterprises, government ownership of large capital-intensive enterprises like utilities will be socially beneficial. The case is strengthened if monopoly or other problems mean that the enterprises have to be tightly regulated in any case. Again, Simon Grant and I have written this up, this time in Economica (PDF version available here)

Categories: Economic policy Tags:

The natural party of government?

March 5th, 2004 10 comments

Federal Labor’s recent resurgence in the polls doesn’t surprise me. Even when Labor was at its lowest ebb last year, I pointed out the baselessness of the idea that Howard had captured the hearts of the electorate and argued that Labor has become, in the absence of foreign policy crises or spectacular incompetence, the natural party of government in Australia. I think we are seeing in part the same phenomenon as in 1996. Having won an election against the better judgement of the voters, the government now has six years of sins to atone for instead of just three. But over and above this is the fact that, on tax and expenditure issues, the electorate is well to the left of both major parties.

What’s more striking than the Federal results in many respects is this Newspoll on the Carr government, which, I think it’s fair to say, has displayed some pretty spectacular incompetence over the last couple of months, what with the rail and hospital crises and the botched attempt to railroad the (spectacularly incompetent) former Communications Minister Michael Lee into office as Lord Mayor of Sydney. Carr’s personal popularity has taken a beating as a result of all this. But

On the two-party-preferred vote, however, Labor still remains in a much stronger position than the Coalition. Labor has 54 per cent support, slightly down from 56 per cent at the state election, while the Coalition is at 46 per cent, slightly up from 43.8 per cent.

This suggests to me that it will take a truly catastrophic display of incompetence by Labor for the Liberals to win a state election in Australia, as long as they remain the party of small government, privatisation and tax cuts.

Categories: Oz Politics Tags:

The pursuit of happiness

March 5th, 2004 3 comments

My view of the US is probably overly influenced by Hollywood, but I had the impression that the right to marry your high school sweetheart was a crucially important instance of the inalienable right to the pursuit of happiness set out in the Declaration of Independence. If so, it seems as if there’s a contradiction between this and this.

Categories: Politics (general) Tags:

The ABC listens

March 4th, 2004 13 comments

Following complaints by readers, which I shared, I emailed my contact at the ABC about the fact that the sound from ABC programs is available only in RealPlayer. As I said in my email

The sound version of the talk is available on the ABC Website only in RealPlayer format. RealPlayer is a real pain – it’s hard to download the player without being harassed about paying for it and it seems to need upgrades every other week. If the site is going to have a single choice it should be Quicktime, but a better option would be to offer all three major formats. I can’t believe that this would be a huge effort compared to the cost of producing the content in the first place, including the time contributed by the ‘talent’.

Having complained about websites before, I expected, at best, an autogenerated reply. I was very surprised therefore, to get an immediate phone call from Paul Bolger of the ABC who explained the situation. Quicktime is ruled out because it can’t be operated in a way that stops downloading, which is problematic for the ABC because their programs typically contain copyrighted music (yet another thing wrong with copyright, IMO, but I digress). The initial choice of RealPlayer over WindowsMedia was based in part on the commendable desire not to extend Microsoft’s monopoly any further, but it’s likely that WMV format will be made avaiable sometime soon.

Meanwhile, there are more exotic possibilities such as MP3 (the problem again being the need to excise music content) and Icecast, a format derived from Ogg Vorbis an open free format of which I was vaguely aware, but have never used.

If anyone has any other suggestions, I’ll be glad to pass them on. In the meantime, I can only say that if this kind of responsiveness was par for the course, consumers would be a lot happier.[1]

fn1. The snarky economist at the back of my brain points out that, if this kind of responsiveness was par for the course, we’d all pay more. But I’m not convinced that the cutback in customer service symbolised by the rise of the call centre and automated phone response systems is economically efficient. First, I think there’s an externality effect. It’s hard (or at least I find it hard) to keep track of which companies and institutions are particularly bad and which are just having a bad day, so the general effect is to increase general dissatisfaction rather than dissatisfaction with a particular company. By contrast, I find it easy to remember and react (maybe overreact) to bad service on the premises. A second point is that you mostly call when you’re having problems, so the company has an incentive to get rid of you. In effect, by cutting back on consumer service after the event, it’s reneging on an implied term in the sale of contract, but you can only detect this if you already regret entering the contract in the first place. The cost for the company is that people with minor problems, who’d be grateful for having them fixed and would be a source of repeat business, are also annoyed by their bad treatment.

Categories: Metablogging Tags:

Blog Jam

March 4th, 2004 1 comment

My blogtwin, Tim Dunlop will be writing a roundup of what’s happening in the blogworld for Margo Kingston’s Sydney Morning Herald Web Diary (which is already sort-of a blog, but also sort-of not – I can’t quite classify it). The name for Tim’s piece isn’t quite settled yet, but Tim’s leaning towards Blog Jam, which I also like. First appearance scheduled for next Wednesday.

Categories: Metablogging Tags:

Some unsolicited advice for John Kerry

March 4th, 2004 3 comments

My post a week or so ago considering (and ultimately rejecting) the hypothesis that the 2004 election might be a good one for the Democrats to lose raised plenty of eyebrows, but the ensuing debate helped to sharpen up my thinking on the underlying issue, that of the unsustainability of current US fiscal policy and the appropriate Democrat response.

In the original post drew the conclusion that the only campaign strategy that would give a Democrat, once elected, any real chance of prevailing over a Republican congress, was that (supported by Dean, Gephardt, Kucinich and Sharpton) of repealing the entire Bush tax cut and starting from scratch. To the extent that primary voters considered this issue, they didn’t see it this way. With the possible exception of Lieberman, Kerry was the candidate most supportive of the tax cuts.

Like Bush, Kerry promises to cut the deficit in half over four years. He proposes to scrap the cuts for those earning more than $200 000, but to expand them for ‘middle-class families’, a group normally taken to include about 95 per cent of the population[1]. When other spending proposals are taken into account, the Tax Policy Center (a joint venture of the Urban Institute and Brookings Institution) estimates that Kerry’s proposals will yield a net increase in the deficit of $165 billion over four years , or $40 billion a year. (Of course, Bush will almost certainly spend more once the unbudgeted costs of higher defense spending and even more tax cuts are factored in). As I show below, this is relative to a baseline of around $550 billion.

I think it’s safe to say this won’t happen. The problem for Kerry, then, is when to discover the deficit. There are three basic options:

fn1. It’s evidence of the startling lopsidedness of the Bush tax cuts, and the explosion of income inequality over the past two decades, that there is, nonetheless, a substantial revenue gain from repealing the cuts for the rich and ultra-rich. About half the benefits of the Bush tax cuts go to those on incomes over $200 000 per year.

UpdateBrad de Long points to Kerry’s appointment of Roger Altman as his budget priorities advise as evidence that Kerry will choose Option 1. Kevin Drum is underwhelmed. He supports Option 2 and expects Opinion 3.
Read more…

Categories: Economic policy Tags:

The Borda voting system is fatally defective

March 3rd, 2004 2 comments

Before I argue that the Borda voting system is fatally defective, it may be worth considering what kinds of weaknesses could justify such a verdict. We know from Arrow’s Impossibility Theorem that any nontrivial voting system will encourage strategic/insincere voting in some circumstances and will not always elect the right candidate (unless ‘right’ is defined to coincide with the outcome of the voting system in question). So a fatal defect must be a lot worse than this. I claim that the Borda voting system is so vulnerable to strategic manipulation that it would be completely unworkable, provided only that there are no restrictions on candidacy.

Note: I did a Google before writing this and couldn’t find anything similar, but of course, when I checked again after doing the work, I found this almost perfect anticipation of my counter-example. But having done the work, I thought I’d post it anyway.
Read more…

Categories: Economic policy Tags:

HECS and flexibility

March 3rd, 2004 12 comments

I didn’t get around to posting on the recent higher education reforms at the time, but they seem to be working out pretty much as I expected. In particular, the outcome of HECS flexibility is that (nearly) all universities are raising charges across the board by the full 25 per cent allowed under the policy. The explanation is simple. The top universities want the money and all the others need it too desperately to forgo it. Given that there is a lot of unfilled demand, and that the changes to repayment rules have lowered the effective cost to students (particularly those who don’t expect to earn lots of money after uni), there’s no economic reason not to increase charges.

The exceptions to the general pattern are essentially ideological and fall into two classes. First, some universities that oppose the whole idea have refused to increase charges, effectively betting on a change of government before the new charges apply. This group particularly includes those who see themselves as serving relatively low-income communities. If the government is re-elected, though, I expect most of them will raise charges over the next few years and mostly by the full 25 per cent.

Second, some universities that support the changes have made token exceptions, for example by selecting a few ‘socially desirable’ courses and offering free or low-cost entry to those courses. As regards these exceptions, three points are worth noting
1. In every case I’ve seen, the number of places affected is small or negligible
2. The discounts have nothing to do with any notion of responsiveness to student demand
3. This is just a rebranding of the existing practice of offering scholarships to appeal to currently dominant ideology

Looking at the substantive merits of the policy, I’d regard it as a second-best option. The match between HECS contributions and net social cost was pretty good before the increases, so an increase in the government contribution would have been a preferable policy. But since that wasn’t going to happen on an adequate scale, there was no real alternative to higher charges.

Categories: Economic policy Tags:

Manifestation Part II

March 2nd, 2004 10 comments

Well, I forgot to listen to myself on the radio, talking about older workers and superannuation. However, the ABC has the whole thing on its website in both text and audio versions.

Categories: Oz Politics Tags:

Condorcet rules?

March 2nd, 2004 1 comment

The comments thread on the Crooked Timber edition of my last post led me to this site (hat-tip: novalis), advocating Condorcet voting and presenting a critique of the instant runoff/single transferable vote , the core of which is

IRV has serious problems. It allows a sufficiently small minority of voters to safely register “protest” votes for minor-party candidates–but only as long as their candidate is sure to lose. As soon as their candidate threatens to actually win, they risk hurting their own cause by ranking their favorite first, just as they do under our current plurality system. IRV is therefore unlikely to be any more successful than plurality at solving the classic “lesser of two evils” problem.

It’s straightforward to show, however, that this problem can only arise if your preferred candidate would be the loser in a Condorcet system. Hence, voting strategically yields the preferred Condorcet outcome.
Read more…

Categories: Oz Politics Tags:

Does Australia exist?

March 1st, 2004 5 comments

Eric Maskin and Partha Dasgupta are smart guys, and it’s hard to believe they are totally ignorant of what happens in the Southern Hemisphere. So how can they justify writing a piece promoting a system of “rank-order voting” as superior to the existing American (plurality) and French (top-two runoff) systems, without mentioning that Australia has had this system (in a range of variants) for many decades[1].

A minor side point is that, in addition to having the world’s most complicated voting systems, Australia also has compulsory voting[2]. Typically more than 95 per cent of votes are formal, that is, list all candidates in order of preference, with no missing numbers or repetitions. In Dennis Mueller’s generally excellent book on Public Choice, he discusses the single transferable vote and suggests that, while attractive in theory, it’s too complicated to work in practice. Either Australians are a lot smarter than everybody else, or public choice theorists aren’t as smart as they think they are.

fn1. To be precise, Maskin and Dasgupta advocate the Borda weighted vote, whereas Australia has the single transferable vote (called preferential voting in Australia), but nothing in their argument distingushes the two.

fn2. More precisely, compulsory registration and attendance at the polling station – there’s nothing to stop you casting a blank ballot.

Categories: Oz Politics Tags:


March 1st, 2004 5 comments

I’ll be giving a Perspective on Radio National tomorrow (Tuesday) just before the 6:00 news. Also, I missed it but sometime blogger David Morgan was on Who Wants to be a Millionaire a week or so ago. Can anyone tell me how he went?

Meanwhile, in a much more significant and substantial manifestation, NSW #1 blogger Gianna has given birth to a son (story but no pictures)

Categories: Life in General Tags:

Monday Message Board

March 1st, 2004 14 comments

It’s time for the Monday Message Board, where you get to post your comments on any topic (civilised discussion and no coarse language, please). My suggested discussion starter – Malcolm Turnbull, future PM??

Categories: Life in General Tags: