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Archive for May, 2006

The system works

May 12th, 2006 22 comments

A couple of days ago, I pointed out that a claim by Janet Albrechtsen that New Zealand had far fewer public servants than Australia seemed dubious, and called for a factoid check Almost instantly, readers of this blog were able to get the correct figure, showing no significant difference. Thanks particularly to Katz, Tom Davies and Sir Humphrey on this.

Terje Petersen emailed Janet Albrechtsen to ask for a retraction, a course I thought likely to prove fruitless. Yesterday however, she emailed him to advise that the error would be corrected, and Today’s Australian includesn:

Correction

IN her column on Wednesday (�Big government addicts can’t afford tax cuts�, page 24), Janet Albrechtsen compared the size of the public services in Australia and New Zealand using figures put out by the Australian Bureau of Statistics and Statistics New Zealand. The comparison was incorrect because the figures from SNZ did not include some public sector areas that were included in the ABS figures. As a result, the size of the public service in New Zealand is much larger than indicated in the column.

I also got an email from Tom Switzer, opinion editor at the Oz, thanking us for picking up the error. I worked with Tom while he was opinion editor at the Fin, and while our politics couldn’t be more different, he was always very professional.

Albrechtsen and Switzer have done the right thing and should be congratulated for this. And the whole story is a case study in how blogs can be effective in both challenging and improving the mainstream media.

Categories: Economic policy, Metablogging Tags:

Superannuation: the good, the bad and the cosmetic

May 11th, 2006 31 comments

Like a lot of people, I suspect, I’ve been putting off the task of working out my situation in relation to superannuation. The rules are so complex, and have been changed so often, that it seems easier to just keep making the automatic payments, pick a reasonable looking investment strategy from the four or five on offer and hope that something comes along to clarify the issues.

In one sense at least, that strategy has paid off. Costello’s Budget speech announced what are claimed to be the most radical reforms ever to superannuation policy. At the very least, they are big changes, and render most previous calculations obsolete, so I’m glad I didn’t make any. Moreover, Costello’s claim to have simplified the tax treatment of super appears to be correct, although we’ll have to wait for the devilish details of cliche to be sure. Given that complexity entails a wide range of social costs, simplification is good in itself.

The bad is that the simplification has been achieved by greatly reducing the tax paid by those with large amounts of super, while doing nothing much for the rest. The likely outcome, I suspect is an increase in import-intensive luxury consumption.

The cosmetic part of the story is the claim that this will encourage people to stay in the workforce longer. Like a lot of other commentators, I doubt this. The income effect (more money makes retirement more affordable) seems likely to outweigh any substitution effect from higher expected net returns.

Categories: Economic policy Tags:

Becker and Murphy on advertising (crossposted at CT)

May 11th, 2006 7 comments

During the discussion following the death of JK Galbraith, the issue of advertising came up. In the Affluent Society Galbraith dismissed the idea that advertising is informative, and argued instead that it was used to manufacture demand for goods and services people would otherwise not want. The NYT obit suggested that Gary Becker and George Stigler had disproved this, a proposition that attracted some attention, mainly focusing on the work of Becker and Murphy.

Although Becker and Murphy don’t present it this way, their model actually supports Galbraith in most respects.
Read more…

Categories: Economics - General Tags:

Factoid check

May 10th, 2006 59 comments

In her Budget column today, Janet Albrechtsen makes the following claim:

NSW has about 380,000 state and local public servants servicing a population of 6.7 million people. And that’s not counting more than 40,000 public servants working in government-owned businesses. With a population of about four million, that should mean that New Zealand should have about 225,000 public servants. Right?

Wrong. According to Statistics New Zealand, our cousins across the Tasman have fewer than 69,000 public servants. That’s one public servant for every 58 New Zealanders, compared with one NSW public servant for every 17.5 NSW residents. The comparison only gets worse when you realise the NZ figure includes almost 12,000 defence force personnel and other public servants who, in Australia, would be working for the federal Government.

I’m too busy to check myself, but this seems highly implausible to me. NZ seems to have much the same mix of public and private schools and hospitals as Australia, and presumably local councils perform much the same range of tasks (maybe with a bit more contracting out). Can anyone do a factoid check here?

Update 2:31 pm An amazing team of unpaid factoid checkers has solved the puzzle almost immediately and the answer is “The number you first thought of”. According to the NZ government,

The public service makes up a small proportion of total state sector employment, as measured by Statistics NZ. In 2004 the Public Service made up only 14 per cent of the 275,000 state sector jobs

suggesting that, after netting out people doing federal government jobs, the NZ and NSW public sectors are almost identical in size, relative to the population. Albrechtsen’s entire piece is based on a difference in statistical classifications. Thanks to everyone who helped dig out the facts.

The obvious question is, if readers of this blog can find this kind of thing out for free, and in a matter of minutes, why is Albrechtsen getting paid for not bothering to make such obvious checks?

A couple of commenters have suggested emailing and asking for a retraction, and anyone who wants to do so is welcome to. My past experience with such things is that any correction is so grudging and qualified as to be worthless, but maybe Albrechtsen will surprise us.

Categories: Economic policy Tags:

Another amazing survival story

May 10th, 2006 14 comments

While everyone was focused on the Beaconsfield miners, three Torres Strait fisherman, lost at sea for three weeks, were living on rainwater and raw squid. They saved their mobile phone batteries until they were back in range, then sent a text message and were rescued yesterday. The search for them had been abandoned after five days. I didn’t even notice the story, which barely registered with the national news, but my wife, who follows Queensland regional news pretty closely, picked it up, and pointed out the obvious contrasts.

It will be interesting to see whether the current affairs shows rush up to Torres Strait with open chequebooks to get the exclusive on this one.

Categories: Life in General Tags:

Misleading income tax scales

May 10th, 2006 44 comments

Every time the budget comes out, we get little spreadsheets showing how much different kinds of households get in tax cuts. Something that struck me about last night’s budget was the fact that people on $30 000 got a smaller cut than people on $25 000. As far as I can see, no one has commented on this (feel free to point out exceptions) but on the face of it, there’s a puzzle here. As Costello said last night, if you cut the marginal rate on low incomes, (or raise the threshold), everybody gets the cut. So unless a rate is raised somewhere, people on higher incomes always get at least as big a cut as those on lower incomes.

The answer turns out to be something called the low income tax offset, which has been around for a while, as this factsheet from 2003 shows. As the name implies, low income earners* get an offset against their tax, but this is phased out as incomes rise from $20 000 a year to $30 000 (with this budget the phaseout starts at $25000 and runs to $40000).

Effectively, this is much the same as raising the threshold at which tax is paid (to around $9000, compared to the officially published $6000) and increasing the marginal rate on incomes between $25 000 and $40 000. I haven’t checked out how much, but I estimate it’s equivalent to around 2.5 percentage points, raising the effective marginal tax rate from 30 per cent to 32.5 per cent.

So, where the official tax scale suggest that low and middle income earners face the same threshold and lower marginal rates, the truth appears to be pretty much the opposite. It’s an open question as to which is better, but it would certainly be good for the tax scales to reflect reality instead of obscuring it.

*Another group of beneficiaries, far from low-income, are the children of those (probably including quite a few Cabinet ministers) who dodge tax through family trusts. The offset raises the threshold at which the income nominally assigned to them becomes taxable.

Categories: Economic policy Tags:

Why Budgets are boring

May 10th, 2006 12 comments

Budgets used to be big news once, both in the leadup and in the aftermath. Now, they’re front page news for a day, and even that’s not secure. If the Beaconsfield mine rescue had been a day later, I suspect at least some editors would have pushed the Budget to the inside pages. Why the decline in interest?
Read more…

Categories: Economic policy Tags:

CB Radio

May 9th, 2006 15 comments

One of my very first posts back in 2002 looked at whether blogging was a fad like CB radio and came to the conclusion that it wasn’t[1]. Four years and tens of millions of blogs later, Guy Rundle at Crikey asks the same question and reaches the opposite answer (reprinted at Mark Bahnisch). The main evidence he offers is the proliferation of dead and still-born blogs. Rundle draws an analogy with 17th century pamphlets, which he presents as a transitional technology, paving the way for newspapers.

A much better analogy, and one that’s obviously in Rundle’s mind as an editor of Arena is the “little magazine”. If you go through the stacks of any good library, you’ll find huge numbers of dead magazines, with lifespans running from decades to a single optimistic issue. There are almost certainly far more dead magazines than live ones. But the little magazine form has persisted up to the present, and is now migrating to the Internet.

Reading between the lines, it seems clear that Rundle hopes and expects that the future of online publishing will belong to magazine-style publications “well-edited moderate circulation outlets [that] can charge and get subscriptions” rather than to blogs. There are a few examples, including Crikey itself, New Matilda and Gawker and Salon in the US (also Opinion Online, but that’s free). Still, there’s very little evidence that such publications are displacing blogs, and serious doubts about whether the model as a whole is viable. The biggest attempt to organise a bunch of blogs into a media empire has been, as far as anyone can see, an expensive disaster.

It would be a pity for the little magazine format to disappear, but it seems likely that some fairly radical changes are needed if it is to survive the shift to the Internet, which renders many of the traditional gatekeeping functions of editors obsolete. Rather than bagging blogs, Guy Rundle would be better off thinking about questions like this.

Update While I was thinking about this, I looked about for a bit of evidence and found this survey on people’s familiarity with Internet terms. Unfortunately blogs weren’t included, but 9 per cent of respondents claimed to have a good idea what an RSS feed is (compared to 13 per cent for podcasting, which is new, but also much more directly accessible to anyone with an iPod). Blog reading isn’t the only use for an RSS feed, but it was the first big one, and still probably the most important, and using an RSS feed is still a sign of a hardcore reader. Of course, some people may have answered incorrectly, but I was still favorably surprised by this.

fn1. Mind you, I thought, and still think SMS is like CB radio, so all opinions should be taken with a grain of salt.

Categories: Metablogging Tags:

Back above ground!

May 9th, 2006 14 comments

Finally, after fourteen days, Todd Russell and Brant Webb are free from the mine in which they’ve trapped. It’s a great achievement for the rescuers, and an amazing story of unlikely survival. Watching the TV coverage, it looked like they were both careful enough to clock off on leaving the mine – think of the overtime!

Meanwhile, the funeral of Larry Knight, killed in the cave-in, will be held today. Our thoughts will be with his family and friends.

Categories: Life in General Tags:

The elephant in the corner

May 8th, 2006 61 comments

I got the conference volume from the Reserve Bank of Australia 2005 Conference quite a while ago, but I’ve only just read them. The main focus is on the decline in the volatility of the business cycle observed in the English-speaking countries since the mid-80s (or in Australia’s case since the end of the last recession).

There’s a lot of discussion of monetary policy, micro reform and so on, but no mention of what I would see as the single most important factor – the abandonment of the external balance objective. For most of the postwar period, economic policy makers juggled the desire to keep the domestic economy stable with the constraint imposed by the balance of payments. Not surprisingly, this was a difficult job and promising economic expansions were regularly choked off because of emerging current account deficits.

Now we have a deficit of 7 per cent of GDP (as do most other English-speaking countries) and no one worries. The assumption is that borrowers and lenders are consenting adults who can make their own decisions. Right or wrong, this assumption makes macroeconomic management an awful lot easier.

We may well be about to find out whether policymakers have been right to view trade deficits with benign neglect. The US dollar seems to be beginning its long-awaited depreciation against the euro and other trading partners (even against the $A) and long-term interest rates are rising. Some combination of the two should sooner or later bring the US back into trade balance. The question is whether this adjustment will be smooth or painful.

Categories: Economic policy Tags:

Monday message board

May 8th, 2006 22 comments

It’s time, once again for the Monday Message Board. As usual, civilised discussion and absolutely no coarse language, please.

Categories: Regular Features Tags:

Karate in Brisbane & the Gold Coast

May 7th, 2006 2 comments

If anyone in Brisbane & the Gold Coast is interested in learning karate in a traditional style, with a genuine All-Japan champion, Seiyushin karate is the place. All welcome!

Categories: Life in General Tags:

Wikipedia economics category project

May 6th, 2006 19 comments

I’m getting involved in Wikipedia and my big project is to set up a categorisation system for economics based on the JEL Classification system.

I think this scheme is robust enough to allow for an expansion of Wikipedia to compete with specialist works like the Palgrave Dictionary of Economics, though this is obviously a long way off. As mentioned in previous posts, I’m very optimistic about Wikipedia’s potential, but the economics section is a long way short of being a comprehensive reference source at present. One side effect of the project is to reveal that there are whole categories in the JEL system for which Wikipedia doesn’t have an article – Computable General Equilibrium models for example.

Anyway, I could do with a bit of help on this from readers with at least some knowledge of economics. Basic Wikipedia editing skills (or willingness to acquire them) are desirable, but if you just want to write articles on gap topics, I could wikify them for you. Contact me by email or in the comments thread, if you want to help.

UpdateThanks for the positive response. I’ve got a starting list of articles that don’t seem to exist:

Exchange economy
Factor income distribution
Atlruism in economics (section in existing altruism article)
Expectations (with link to existing articles for rational and adaptive expectations)
Economics of contract law
Stochastic games
CGE models

and also some stubs (existing article is just a starting point)

Incomplete markets
Social choice theory
Economic methodology

THere’s a larger list of stubs here (though many seem not to need much more than a stub) and requested articles here. In terms of my particular project, if people could try to work out the appropriate JEL category and use that (if it exists already) or advise me (if it doesn’t) that would be great.

Categories: Economics - General, Metablogging Tags:

Repost on organ banks

May 5th, 2006 5 comments

Over at CT, I’ve reposted this piece from 2003 on thought experiments in ethics.
Read more…

Categories: Philosophy Tags:

Weekend reflections

May 5th, 2006 42 comments

Weekend Reflections is on again. Please comment on any topic of interest (civilised discussion and no coarse language, please). Feel free to put in contributions more lengthy than for the Monday Message Board or standard comments.

Categories: Regular Features Tags:

Souffle rising a third time ?

May 5th, 2006 38 comments

The resignation of Victorian Opposition leader Robert Doyle has produced widespread suggestions that Jeff Kennett should return to politics. While Kennett could scarcely do worse than Doyle, there’s not much reason to suppose he would do a great deal better.

The core of Kennett’s political appeal in the 1990s was the claim that, thanks to Labor’s mismanagement, Victoria was in a state of crisis that could only be remedied by the radical free-market reforms he advocated. Voters bought this story in two successive elections, but had tired of it by 1999, when he was narrowly defeated. Although some claimed at the time that voters had merely intended to “send the government a message”, a string of Labor victories in by-elections suggested the opposite message – once the possibility of getting rid of Kennett became a reality, voters embraced it with enthusiasm.

Kennett’s biggest problem though, is that everything the Bracks government has done can be seen as preparation against a possible Kennett comeback. On the one hand, they’ve been obsessed with avoiding anything that would smack of fiscal irresponsibility. Official debt levels have been held down through expedients like Public-Private Partnerships (the apparent benefits are bogus, but Kennett can scarcely argue this, having been a pioneer of the PPP mania). On the other hand, they’ve restored a lot of the cuts to schools, hospitals and so on made under Kennett. As a result, Bracks can easily run a scare campaign against Kennett, but not vice versa

It’s hard to see Kennett winning in the election due in about six months, though presumably there will be some clawback from the 2002 disaster. In the longer run, anything can happen. But if he comes back, I’d say this implies a commitment to stick out a full parliamentary term as leader, and it’s not obvious that he’d be willing to do this.

As for Doyle, he will only be remembered, if at all, for his irresponsible campaigns in favour of speeding (more precisely, against any effective measures to curb speeding). His departure from politics is long overdue.

More on the souffle question from Rank and Vile

UpdateSo much for that idea

Categories: Oz Politics Tags:

Canal rejected

May 3rd, 2006 3 comments

Colin Barnett’s canal proposal, discussed several times here has been rejected. More on this at the RSMG blog.

Categories: Economics - General, Environment Tags:

The unpleasant arithmetic of compound interest

May 3rd, 2006 134 comments

For the last decade or so, most of the English speaking countries have been running large and generally increasing trade deficits, and therefore running up increasing foreign debt. At the same time, until recently, both real and nominal world interest rates have been falling, which has made debt more affordable. This has produced a sense of security which is about to be reality-checked.

Short-term interest rates have been rising for the last couple of years, and now long-term rates are rising as well. The US 10-year bond rate is now 5.1 per cent, and has been rising fairly fast in recent weeks. The effect is to add a rising interest bill to a large and growing trade deficit. Brad Setser does the math for the US and it isn’t pretty.

If the average rate [on private and government debt] should rise to 6% — roughly the interest rate the US paid back in 2000 — the 2008 US interest bill would reach $420b. That is more than three times the 2005 interest bill.

Unless the trade deficit starts turning around fairly sharply, this would imply a current account deficit close to 10 per cent of GDP, which no country has ever sustained (please point out exceptions in comments).

The story for Australia is broadly similar, though the picture is complicated by the effects of commodity prices, which still seem to be generally rising. As long as that continues, our trade deficit should decline. But, high commodity prices have rarely been sustained for more than a few years at a stretch.

Categories: Economics - General Tags:

Finally, the organ grinder

May 2nd, 2006 57 comments

We’ve had a string of monkeys, but finally the organ grinder appears. Alexander Downer has a deplorable piece in today’s Oz, attacking John Curtin yet again. Downer quotes Wurth’s piece from last week, managing to omit Wurth’s observation that Menzies was the worst appeaser of all.

It’s pretty unedifying stuff, but if Downer wants to compare personal and historical records, it certainly won’t be to the advantage of Menzies or the Liberal Party and its predecessors.

Rather than dive into this yet, let’s look at the current debate. Downer is promoting the credentials of the Liberals as the war party, against Labor’s pacifism. Right now, we have a disastrous war in Iraq, which has immeasurably strengthened the forces of global terrorism, while dividing and weakening the democratic world, and leading to the commission of crimes including torture and murder on a large scale by those who are supposed to be defending civilised values. On the horizon, we’re promised new wars with Iran, Syria and, if you listen to the government’s most vociferous supporters, the entire Islamic world. Pacifism may not always be the answer, as John Curtin recognised, but it’s greatly preferable to the warmongers who are in charge today.

Categories: Oz Politics Tags:

Folding @Home

May 1st, 2006 8 comments

Among the fun and useful things you can do with your computer, distributed computing (using spare cycles on lots of personal computers do do big jobs) has always interested me, and I’ve now signed up Folding @Home which models the folding process needed for proteins to function. Misfolding contributes to diseases such as Alzheimers.

Folding @Home encourages team efforts and I can see why. After a week, my G4 Powerbook has only managed 18.25 per cent of the first job (the program doesn’t impose any perceptible load on the processor). So I’ve set up a team called “Ozploggers” and I hope some readers or fellow bloggers will join it. The team number is 50303. To join just go the Download page pick a user name, and nominate this team. Feel free to notify me in comments or by email.

UpdateWith a few readers joining in, the pace has picked up noticeably, reaching 29 per cent today. So please, some more volunteers. It’s fun to watch the simulations, you can get a screensaver if you want to, and there’s a pretty good chance that you will help to save lives.

Categories: Science Tags:

Monday message board

May 1st, 2006 70 comments

It’s time, once again for the Monday Message Board. As usual, civilised discussion and absolutely no coarse language, please.

Categories: Regular Features Tags: