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Sandpit

November 12th, 2010

Another thread for lengthy debates, off-topic exchanges, long posts on regular hobby-horses etc.

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  1. Alice
    November 20th, 2010 at 17:58 | #1

    @Fran Barlow
    Let me try gto understand where your mind is coming from

    Is it this? “oh deareee me – the government has a deficit – we havent got too much money – we have to watch what the government spends because – well we can all contribute but we must be obsessly careful the government doesnt spend too much and doesnt raise taxes…therefore we will put a pricing model on education and that will save us two pounds od the governments budget deficit because some people cant afford to go and we will catch the rich kids whi can afford to go to uni”

    Smart. real smart…no its not.

    You want the education system to catch all smart kids, rich and poor because we will make more from education later because of its collective intelligence and maximising that… for all of us, for society and for its citizens.

    Plus you two just blatantly ignore the bigger threat – the already higher levels of private debt – much bigger than a measly bgivernmet deficit in most nations.

    Whats needed is private sector relief. Take the pressures off families ad youth private debt or your rich clever bondholders will go bankrupt no matter what austerity measures they care to dish up to Mums and Dads. It wont save them.

  2. paul walter
    November 20th, 2010 at 18:02 | #2

    Its no use, Alice.
    Remember Hobsbawm’s quote concerning “death of memory”.
    It’s like the NBN proposals, none of them will put up final costings, not because the costings are right, wrong or non extant, but because of the need to uphold the new dogmas of secretive government by fiat.
    Once upon a time that would have been unacceptable, in a healthy civil society of apparently, bygone times.

  3. Alice
    November 20th, 2010 at 18:04 | #3

    Please excuse all my spelling mistakes a) because its Saturday night and b) because I cant type fast enough and I havent got the patience or inclination to correct sics.

  4. Alice
    November 20th, 2010 at 18:07 | #4

    @paul walter
    Its no use Paul at all – Iget to argue with people who want to split hairs over costings and minutiae of economic definitions but who cant think and cant speak and dont have a noble idea between two of their synapses…and think normative economics is for fools (at least its not for bores) and robotic economics is the go. I think I should go now.!!

  5. November 20th, 2010 at 18:29 | #5

    Does this free education extend to the full cost of apprenticeships? Professional certification? Articulated vehicle driving licences for truckies? Dangerous goods handling courses for fuel pump attendants?
    Surely free education that is so beneficial to society doesn’t end at plain old simple university book learning?

  6. Alice
    November 20th, 2010 at 18:36 | #6

    @Steve at the Pub
    No it doesnt extend to apprenticeships – people like you can pay for those. They work in your pub Steve.

    Dont ask silly questions. Ditto to the rest of your questions.

  7. Fran Barlow
    November 20th, 2010 at 18:37 | #7

    @Alice

    Perhaps you could outline why people who have benefited from education AND are also very well off after tax as a result (and can thus afford to do so) ought not to put a modest something back each year into the common pool so that others who are not so well off can also benefit.

    It seems to me that the only difference between this and progressive taxation (which I also support) is that in this case there is a direct quid pro quo.

  8. Alice
    November 20th, 2010 at 18:41 | #8

    @Steve at the Pub
    Just so as I spell it out for Steve at the pub.

    What are you trying to sat SATP? – if you go to guitar lessons or spanish cooking classes at the age of 36 as a hobby after work or you go to a day course to get your forklift license or your responsible service of alcohol that should be included in my free education?

    Nonsense – claim a tax deduction.

    Primary, secondary, Tafe and Uni but Im not surprised at all I have to spell it out for you.

  9. Alice
    November 20th, 2010 at 18:49 | #9

    @Fran Barlow
    Thats just what I epected of you Fran – use rpays all the way.

    No – I said Free (capital F) education and I meant it. Not a “little contribution if they can afford it”. Sorry Fran – way too vague – and left in the hands of every two bit bean counting middle manager to implement eforce and incrementally increase (plus the paperwork cost). Wont work and nor should it.

    Ive already had a silly query from SATP. Im not going to get bogged down with quibbles. It requires a longer term mindset than yours, Jarrahs or SATPs. Ive explained it already. Im not going to revisit. What do I say? Refer my post at 1 on this page?

  10. Fran Barlow
    November 20th, 2010 at 19:22 | #10

    @Alice

    So should people on “seven figure salaries” pay back the cost of their education?

    What of people on “six figure salaries” or high “five figure salaries”?

    Why should they get off?

  11. November 20th, 2010 at 20:15 | #11

    That’s one way to evade a point where you got totally defeated. Declare it “silly” !!!!

  12. Alice
    November 21st, 2010 at 07:26 | #12

    @Fran Barlow
    says
    “So should people on “seven figure salaries” pay back the cost of their education?

    What of people on “six figure salaries” or high “five figure salaries”?

    Why should they get off?

    They should “get off” the cost of education because we all pay it with our taxes, because its a worthwhile beneficial public good, because it adds to the knowledge base, skills level and increases the employability and productivity of employees and it keeps them free to use their skills when they graduate instead of taking the safe option due to a tertiary debt chained to their necks. They are also free to use that money to eg house themselves. Tell me Fran – do banks take tertiary debt into account when they think about lending for property purchases or business reasons? If so then you can remove more than a few jobs from the construction sector because of it.
    Seems to me that people like you are happy to shackle new graduates to a lead weight yet still expect them to work and contribute as efficiently and productively as they can.

  13. Fran Barlow
    November 21st, 2010 at 08:55 | #13

    @Alice

    They should “get off” the cost of education because we all pay it with our taxes, …

    So what you are saying is that relatively wealthy people should be subsidised by poorer people?

    because its a worthwhile beneficial public good, because it adds to the knowledge base, skills level and increases the employability and productivity of employees, …

    That’s a wave of the hand. It is a public good, but it is also a private good yet the questions are surely about the balance and about the maintainability of the system and about equity.

    it keeps them free to use their skills when they graduate instead of taking the safe option due to a tertiary debt chained to their necks. , …

    More handwaving Alice. Modest debt repayment obligations don’t constrain people from using their skills any more than does progressive taxation, which, presumably, you support. Throwing in rhetorical terms like “debt chained to their necks” and later “shackling new graduates to a lead weight” doesn’t make this any less the case.

    Tell me Fran – do banks take tertiary debt into account when they think about lending for property purchases or business reasons?

    No. They do examine repayments that must be made out of salary for existing personal loans, garnishees, and so forth, but taxation is not asked about. From personal experience HECS was not an onerous imposition — about 1.5% IIRC so if applied to someone on $80k pa about $23 per week. That’s about what hubby and I earn now. You certainly aren’t going to be able to support a mortgage on it. You probably can’t do much more than pay your water rates on that sum. I know because despite renting, that is about how much I pay each week on water rates. Claiming that th imposition of a modest HECS repayment schedule would harm the construction industry is simply more emotive handwaving.

    Seems to me that people like you are happy to shackle new graduates to a lead weight …

    They would only be “shackled” to a modest balloon, and then only if despite being “new graduates” they were earning enough to get the balloon. Most new graduates would not qualify. Personally, I’d favour making it possible (at their discretion) to supply FT undergrads with loans covering some of their lving expenses too — perhaps up to about 30% of AWFTE for 3 years so as to reduce the pressure on them to work while studying. It makes sense to lend them money while they are impecunious and to recover it when they can afford to part with it. I’d also make it possible for them to elect to repay early with substantial discounts on the principal. Those who elected to repay above the threshhold schedule would get deemed to have paid that differential plus the overnight cash rate prevailing during the previous year.

    It sounds fair to me.

  14. November 21st, 2010 at 09:07 | #14

    Alice has some deep reason, waaaay beyond “it is good for society” for uni students to have a free ride in life. Full declaration of interest please.

  15. Alice
    November 21st, 2010 at 12:48 | #15

    @Fran Barlow
    re you ask “So what you are saying is that relatively wealthy people should be subsidised by poorer people?”

    When it comes to education of our youth – yes aboslutely and yes relatively poorer people should be subsidised by wealthy people. Vice versa also applies and if you like relatively middle people should be subsidised by relatively middle people.

    Yes – education should be a free publicly provided good paid entirely from the public purse to which everyone contributes with their taxes.

    I dont know why I have to keep repeating myself for you Fran. I have clearly stated my views in previous posts.

  16. Alice
    November 21st, 2010 at 12:50 | #16

    @Steve at the Pub
    Whatever that deeeep reason is waaay beyond “its good for society” it is a construction of your own fertile imagination and nothing to do with me.

  17. Fran Barlow
    November 21st, 2010 at 13:13 | #17

    @Alice

    I dont know why I have to keep repeating myself for you Fran. I have clearly stated my views in previous posts.

    I’m merely clarifying that you are indifferent to which way equity flows go. If the total effect of “free” tertiary education is a benefits transfer from poor to wealthy, you are OK with that because of the nebulous “good for society as a whole rubric”.

  18. November 21st, 2010 at 13:46 | #18

    So Alice, what is so special about uni students that they should get a free education? They aren’t as valuable to society as apprentices, nor are they as likely to use their education once they have received it.

    If uni students want to be paid more in their career, what is so special that prevents them from paying for their education?

    One (among many) benefits to society from user pays uni would be the elimination of all those claytons degrees & degrees by people who never intend to use them. (Big saving, not having to pay for something which is never used)

  19. Alice
    November 21st, 2010 at 14:08 | #19

    @Steve at the Pub
    re yr comment ” They (uni students) aren’t as valuable to society as apprentices, nor are they as likely to use their education once they have received it.”

    Your ill informed prejudices are showing again Steve as well as the fact that studies indicate the value of a uni education is higher to both the student and to employers and society…but you can think a uni education isnt valuable and uni students arent as valuable as apprentices if you want. Im not at all surprised.

    And Fran – its you who is narrowly focussing on a one way transfer from poor to rich. I dont really think I have to explain to you the benefits of publicly funded education do I?

    Its your choice to mislead by having a narrow view that some rich will get a positive education benefit for free. So will many poor. So will many in the middle. So will employers and society.

    Broaden your mind Fran.

  20. Fran Barlow
    November 21st, 2010 at 15:29 | #20

    @Alice

    And Fran – its you who is narrowly focussing on a one way transfer from poor to rich. I dont really think I have to explain to you the benefits of publicly funded education do I?

    Of course not. Yet the question remains: if “free” education in practice merely exaggerates inequality, whereas HECS-paid reduces it, would not an egalitarian prefer the latter?

    You could, if you wanted, see this as a kind of education support levy on wealthy people since the poor and even those on low middle incomes will never pay it.

    Would you not want a higher proportion of GDP to go into education? Don’t you think wealthier people should contribute more?

  21. Alice
    November 21st, 2010 at 17:18 | #21

    @Fran Barlow
    Fran says “if “free” education in practice merely exaggerates inequality, whereas HECS-paid reduces it, would not an egalitarian prefer the latter?”

    No. There is a strong benefit to public education. Any exaggeration in inequality from pure public education vs a hecs based system is an extremely dubious hypothetical Fran.

    The poor and middle greatly outnumber the rich and it would be free for all. The rich that you speak of with 6 and 7 figure salaries are greatly in the minority and are likely to send their darlings off to an elite Oseas uni anyway. Those sort of salaries dont mind paying. Let them pay if they choose, but let everyone not pay if they choose for public education here.

    The practice of micro managing government investment on a micro scale of industry by industry, firm by firm, department by department for its “competitive market status” and / or profit levels and or micro efficiency is wrong and ignores the generation of social benefits and their flow on effects in other industries completely.

    Education has positive advanatages for many industries. Thats why its worth the investment. Plus students are set free to use it immediately after graduating and not burdened by debt.

    However, given that we have moved from closer to this view in Australia towards the private market dictates that only those who can afford to pay should attend…I have no doubt this will play out in the same fashion here as it is playing out in the US. …along with the removal/ereduction/privatisation (asset stripping by governments) of other public services and subsidies that tradiionally helped the poor and middle classes.

    Free public education is only one method to redress rising inquality and it needs to be addressed – here and in other industrialised nations. There are plenty of other methods to do this as well, but it involves everyone taking a step from the fallacious user pays philosophies of the market oriented right back to the middle and some common sense.
    I have no doubt it will come to that but not before a lot of damage is done along the lines of exactly what is happening in the US.

  22. November 21st, 2010 at 19:44 | #22

    My prejudices aren’t ill informed Alice, I was just using the marketplace to value apprentices & uni graduates.
    I know who gets paid the most, who employers are clamouring for, and who is more likely to actually utilise their education.
    There are no idle tradesmen here, but plenty of girls who soaked up several years of free education then never used it. (they got married).

    In my experience, when a dunny breaks a tradesman will fix it. Uni graduates tend to talk a lot, but aren’t much use in actually getting things done.

    There is one helluva lot of sour grapes on show as tradesmen buy power boats, big houses & go on expensive holidays, whilst uni graduates scrabble along on less than I pay bar staff.

    Deal with it.

  23. Alice
    November 21st, 2010 at 20:46 | #23

    @Steve at the Pub
    I suggest when it comes to sour grapes Steve you should deal with your own first. I detect a certain inability to either understand or handle professional people. Anyone who comes out with sweeping statements like this “uni graduates tend to talk a lot but arent much use in getting things done.”

    Well one of them probably had something to contribute to the industrial design of the beer delivery system you pull on every day except that you wouldnt even notice let alone give credit, stuck as you are in a web of bias. Many uni students are in fact bar staff. Im surprised you havent noticed. You sure youre even responsible for who gets paid in the pub Steve or are you really the dunny fixer?

  24. BilB
    November 22nd, 2010 at 06:39 | #24

    Ernestine,

    Optimal security in an unstable economic environment such as in the US at the moment for lower incomed Americans, comes from secure living environment with minimal overheads. Our primary needs are for food, shelter, communication/mobility. In our lives as we have framed them we also need energy. GenIPV is a piece of hardware that integrates into a building to provide electricity, heating and cooling, and in conjunction with electric vehicles provides sufficient electricity to operate several of these. This enables decoupling from oil dependency at a personal level. In the so doing the dwelling (shelter) becomes 10% more expensive, but it also provides a small amount of income from exported electricity (incidental).

    So having removed one of the key external world dependencies the exercise here is to find the best way to remove the next, payment for the dwelling, in the shortest possible time. I am arguing that the 9% compulsory superannuation, for a young family unit (a very long way from retirement) would be better served by their superannuation accruals if these funds were used to reduce the payment duration of their dwelling.

    This can be done under current legislation. So what are the implications of such a scheme.
    The first is that if people have higher paying power when the approach the purchase of property they usually purchase the most property that they can capture over the longest possible payment period with the smallest deposit. This has the effect of inflating property prices as prices rapidly adjust to absorb the increased purchasing power. That would nullify the effect of having extra funds available to short payment terms, so the first requirement is that the 9% superannuation must not be taken into consideration when undertaking the property purchase and mortgage. So the mortgage calculation must be made on the basis of the purchasor’s primary income. There possibly could be a settling in duration of perhaps 2 years before the supperanution could be applied ot the mortgage.

    The next thing to be understood is that once a property becomes part of a self managed superannuation scheme part of that property is no longer available to “spend” in a cash up situation, the part of the property value obtained by using the superannuation contributions must be deposited elsewhere until age 65. This does allow for relocation where properties are sold in one area and repurchased in another. It is also possible to divide property in the event of divorce as the superannuation component is simply divided.

    So the question to you Ernestine is how does the calculation of payment term look where the 9% compulsory is applied to mortgage payment against the staus quo where funds are paid into an investment fund. Does the average superannuation fund return more with its fees and variable return in a volatile economy compared to self investment? What is the best strategy when advancing towards a “wall of economic tradgedy”.

  25. Alice
    November 22nd, 2010 at 06:49 | #25

    @BilB
    Bilb – I think you mistook this sandpit for the radioactive sandpit.

  26. BilB
    November 22nd, 2010 at 09:23 | #26

    No, Alice. We’ve given up on half lives, we are going for a new full life over here.

  27. Alice
    November 22nd, 2010 at 09:28 | #27

    @BilB
    Dont blame you at all Bilb. Amazed you stood it so long.

  28. Ernestine Gross
    November 24th, 2010 at 08:51 | #28

    BilB, I’ve replied to your specific question. My reply doesn’t show even though I got a message of repeat submission.

  29. BilB
    November 24th, 2010 at 09:05 | #29

    Thanks Ernestine,

    I’m sure that it will turn up. I’ll keep an eye out for it.

  30. Jarrah
    November 24th, 2010 at 10:40 | #30

    “My reply doesn’t show even though I got a message of repeat submission.”

    Ah, so it doesn’t just happen to me. It’s very frustrating, isn’t it? Bloody WordPress. It will never ‘turn up’ despite BilB’s optimism. Your best bet is to try again.

  31. Ernestine Gross
    November 24th, 2010 at 16:12 | #31

    I’ll wait a day.

  32. Ernestine Gross
    November 25th, 2010 at 21:47 | #32

    BilB, I have made minor changes to the text to test whether some words caused my post to not get through.

    The specific question you asked is a straight finance question rather than a financial economics question, IMO.

    The finance question is:
    Given a loan amount L, gross annual income Y, a fixed interest rate, r, for a loan period of t=25 years and a compulsory superannuation of 9% of Y, by how much could the loan repayment period be shortened? The answer depends on the parameter values. In general, the way to answer this questions is:

    1. L = X[1/r-1/[r(1+r)^t], where X is the mortgage payment at t = 1, 2, …, 25 if annual payments (if monthly payments then t=1, 2, …,(25*12)

    Solve for X.

    2. L = X+.09Y[ . ].

    Solve for t (trial and error; annuity tables or a mini-iterative program)

    From a purely financial point of view of a decision maker, who is not under financial distress, a shorter repayment period for a loan used for the acquisition of an asset (residential property) is strictly preferred if the home loan interest rate is greater than the rate of return on a portfolio in an accumulation superannuation fund with a similar risk characteristics.

    I couldn’t find a long enough time series (25 years) on portfolios in my superannuation fund (industry fund). But I have enough data for 10 years; annual data only. Housing loan interest rate data is available from the RBA. In the following Table I list the two portfolios for superannuation (cash and balanced) and a housing loan indicator rate for the years 2000/01 to 2009/10. The superannuation crediting rates are net of investment expenses but gross of account-based fees (ie they are a little overstated).

    Period Cash Balanced Housing interest rates (variable Banks; average monthly rates)
    2000-01 5.3% 5.9% 7.61%
    2001-02 4.3 -2.8 6.32
    2002-03 4.28 1.01 6.55
    2003-04 4.75 14.17 6.86
    2004-05 5.08 15.08 7.13
    2005-06 5.50 14.48 7.34
    2006-07 6.11 14.92 7.95
    2007-08 4.98 -6.03 8.79
    2008-09 3.72 -9.12 7.27
    2009-10 3.70 9.57 6.55

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