Weekend reflections

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.

44 thoughts on “Weekend reflections

  1. Raising my head from the task of chewing through attack on Stern no.156, I am beginning to wonder, why the stampede? Stern came out at the end of October, I think, and the attacks began within hours. By the time the papers like the UK ones or the US WAPO and NYT got into the act you could hear the hooves of a herd of acadmenics led by the ponderous Tol, the measured Nordhaus, and the disgraced outlier, Lomborg. Within weeks the air was full of screeds on blogs, the third or fourth round of replies, and it may be just the noise of that activity woke up the slow moving denizens of the popular press who did not seem to clear on what to say at first, but I guess the advertisers wised them up to the party line:Stern bad.

    Stern is 575 pages, and that ain’t just a scientific report. It took a year and had direct contributions from about a dozen scholars There were further studies as requested, the science papers reviewed were very many. It was more like a survey of the current scene than a separate report, and it was prepared in response to a specific government request. Naturally, since it exists, we have to assume the authors were willing enough to prepare a report pursuant to the existing government policy, which was, in turn, supported by earlier government-science. reports. All seem to agree, or not fight much about it, that the report is based on current science, used the correct economic approaches and methods, and was at all times within the bounds of what can reasonably be said. The strongest attacks came from mere opportunists who were forgotten pretty well as soon as they spoke–there was a batty Lord something or other; the bottom dragger Lomborg–or a few who spoke so severely they lost their own cool (Lol). But after while it seem the only real claim of error was from a scholar in one of the English Universities, who noted what he admitted might be a typo.
    Why then, the all the clamor? The “criticisms” (I believe I dignify them by this) really had to do with weight or emphasis. Yes, Stern could use this number or that limitation but someone thought it might be better to say this or that about it. There was a lot of that. Again and again one finds, in reading these sorts of comments, that one shakes ones head and thinks: so what? How does that change anything?
    Stern said better get going since it is real, dangerous, and will cost a lot more later. Who is dumb enough to challenge that? Opponents said it will cost less than you say, or we can leave it for someone else to pay for later, or a slew of arguments to minimize his high numbers, raise up his low ones. Since we do not know what the full cost, however measured, will be, it would be pretty stupid to guess low, one would think. There was a lot of this extremely selfish and short sighted, let others or the rich or those who might be rich later, pay, talk, most of which is not suitable for mixed company.

    All in all I do not see much in the way of any successful attack on Stern, just a bunch of petty niggling.In fact most of what he had to say is pretty obvious, forseeable, and not really subject to much doubt on common sense grounds. I have learned that maybe economists should not be allowed to wander loose lest they frighten people in the park with their selfish lunges, but that is about it. There is one of the tribe somewhere in the Australian desert who figured Stern could have been a bit wider here, a bit narrower there….well. But he did write up a super tour d’horizon.

    So this lay reader figures it is Stern 1 Visitors 0. And I wander off still wondering what that was all about.

  2. Garhane says: “All in all I do not see much in the way of any successful attack on Stern, just a bunch of petty niggling”. Ah, but don’t forget the wonderful opportunity offered by a high-profile report like Stern for getting your name in print as a “commentator” or even “expert”. It all helps with the CV, and maybe impressing some grants board or even tenure committee. And maybe Exxon/Mobil will offer you a contract to do a bit of PR!

  3. There are bits from all over the blogosphere suggesting an attack on Iran will happen soon. Interesting times ahead.

  4. An escalation into war against Iran will mean lots of things will change, somewhere about there the free world will have to go onto a war footing, with all the consequent ramifications for civil society.

  5. Memo to John, for the attention of your students, and their reading on the philosophy of economics, Mark Blaug has done a 180 degree on the Austrians.


    For the uninitiated, Mark Blaug made a significant reputation in the history of ideas in economics. And his 1980 book “The Methodology of Economics” put the philosophy of economics on the academic map. One of the features of his position in those days was his robust expression of contempt for the approach adopted by Ludwig Mises. He famously wrote with reference to Mises that “His later writings on the foundations of economic science are so idiosyncratic and dogmatically stated that we can only wonder that they have been taken seriously by anyoneâ€?.

    However, by 1989 Blaug moved a long way in the direction of the Austrians. In the wrap up of the second Greek Island conference on the philosophy of economics he wrote.

    “I have come slowly and extremely reluctantly to the view that the Austrians are right [to dismiss the static reasoning connected with Walrasian multimarket equilibrium] and that we have been wrong. To imagine, as do Arrow and Hahn that General Equilbrium theory makes precise an economic tradition that is as old as Adam Smith is to commit a category mistake: Adam Smith’s invisible hand referred to the dynamic process of competition and not to the static, end-state conception of perfect competition that came into economics with Cournot [who wrote about thermodynamics]…Whatever the analytical virtues of GE theory, it is of little help and is perhaps a positive hindrance in explaining the true merits of competition.”

    That is the point made about competition by Hayek some decades ago. Blaug went on, to answer the rejoinder that not all economists are emulating the work of Arrow, Debreu and the GE cohorts, from people who might say “It is only one kind of economics after all�.

    “On the contrary, it is the most prestigious economics of all and it has absorbed an entire generation of some of the finest minds in modern economics. And yet despite the enormous intellectual resources that have been invested in the endless elaboration of GE theory – it is extremely questionable, to say the least, whether these efforts have thrown any light at all on the way economic systems function in practice.”

  6. I hereby submit the following proposition: university is a rip off and not worth it.

    Lets examine the following comparison of a law graduate and a plumber. I will assume inflation is always zero. The figures below are from my real life research.
    Both finish high school in 1988.
    Law student starts law school in 1989. Does 4 years of law, cannot work full time -lets assume can work to earn 5k per year. HECS at 2k per year, books and sundries at 0.5k
    Net position at end of 1992: 10k up
    Plumber starts apprencticeship in 1989. Earns 12k net in first year, 20k net in second year, 25k net in third year, and 25k net in fourth year.
    Net position at end of 1992: 82k up (Plumber 72k ahead)
    Due to high unemployment, law student studies and is unemployed through 1993. Plumber works through 1993 and earns net 30k (Plumber 102k ahead)
    Then from 1994 – 1999 inclusive law student gains work as solicitor , earns average of net 35k
    From 1994 – 1999 inclusive Plumber earns average of net 50k
    Thus at 1st Jan 2000, the Plumber is 177k ahead, and is in fact coming in to ever higher demand in the new millenium due to the shortage of skilled tradesmen.

    So why is the University con still going on ?

  7. Henry, How many of the lawyer who you know would you want messing with your pipes:)?

    Serious point taken, but if there were twice as many plumbers, how would the figures stack up?

  8. “I hereby submit the following proposition: university is a rip off and not worth it.”
    My take Henry is that universities are now great at churning out more silly leftist buggers who want to ‘make the community more aware’ about all the problems of the world, but very few with the real technical expertise to do anything about it and make a difference. This Saturday’s Adelaide Advertiser has a couple of articles in the Careerone liftout that graphically illustrates the issue.

    “Moves by Flinders University to drop two Engineering courses in 2007 is bad news for SA’s shortage of skills. SA faces a dire shortage of engineers and other skilled professionals.
    Yet, falling enrolments are forcinf Flinders to consider withdrawing its computer and electronic ebgineering, and biomedical engineering undergraduate degree courses.[New enrolments have been suspended for this year due to lack of numbers]
    The University of SA previously scrapped its mining engineering course- just as the state’s resources sector has embarked on an expansion spree.”

    ..and Jason Kuchel from Electronics Indust Assoc goes on to bemoan the lack of maths and science grads coming out of our school system to feed the demand for uni grads in this field, etc, etc. Basically lazy softcock schools are feeding lazy softcock universities with the ultimate hospitality fodder nowadays.

    A couple of pages later the Recruitment and Consulting Services Association reports on its 2006 survey of skills shortages. Their Top 20 skills shortage list begins-
    1 Non-building professional engineers
    2 Non-building eng associates and technicians
    3 Electrical trades (bldg)[Lucky boy Master O]
    4 Business prof.
    5 Building prof.
    6 Building assoc and prof.
    7 Non-building electronics trades
    8 Carpenters and Joiners
    9 Metal trades
    10 Plumbers
    11 Health prof
    12 Nurses
    13 Bricklayers
    14 Roofers
    15 Receptionists and telephonists
    16 Wall tilers
    17 Vehicle trades
    18 Medical techs
    19 Other clerks
    20 Mobile plant operators

    Not too much demand for making the community more aware in that little lot and the hospitality fodder could only think about categories 15, 19 and perhaps 20 as in demand areas where they could perhaps get thir foot in the door reasonably quickly with their lack of skills.

  9. What are you suggesting Henry? That universities are only there to serve those employed there? My brother-in-law has been gainfully employed in a university for 28 years and agrees that less than 1% of students go on work in that discipline.

  10. Henry,

    Once the plumber has spent six years and gained his licence he has the option to become self employed. This gives him/her added tax benefits plus the option to say a job is 10% cheaper for cash. (I am not condoning tax evasion, just stating the GST reality). Plumbers charge around $80 per hour around my way (i.e. $166k pa).

    My Brother has a Arts law degree majoring in economics from Sydney Uni. 15 years ago he purchased a taxi and drives it full time. He has the same view you do.

  11. Econowit It is a common misconception to say that plumbers(and tradesmen in general) offer less for cash.The question usually comes from the client.If half the job is for materials and half for labour,then the tradesmen ends up paying half the GST anyway.

    On your other point, I heard of a survey in the UK where a large percentage of university graduates were doing the same job as people without a degree.So if you follow Henry’s excellent reasoning, the graduate would be up to $100,000 worse off when you take into account HECS fees and loss of income.

  12. Regardless of who brings it up; his/her income will be lower if he doesn’t declare the cash and his deductions will be higher. If he purchased $55k in materials he would get $5k back when he did his BAS if he received all his income in cash and did not declare it.

    If his material bills exceed his sales he will always claim the GST back plus rake up losses. The GST is just one aspect of it.

    A $1.47 in the hand cash is better than $1.47 gross.

  13. And how do you propose he applies for a bank loan? I don’t think a negative income would impress even these new fangled mobile lenders.
    Traps for the unwary

  14. Ã…las Henry does not sound like he has migrated from one the the other. The thing is, today you can choose to be a plumber (or carpenter in my case) or a professional and make good money in either, more in some professions. There is still a very decided class thing and most of us are far too driven by other people’s thinking when we are young to choose boldly,
    but you can do it. The choice will not likely be on money grounds, the fact you can do OK in either just makes it reasonable to choose either. I well remember winter number 12 as a carpenter, big money but cold, cold, cold for 7 months. Jesus, I thought, there has got to be a better way to make a living than this. There was, and I did find it.

    Oh,by the way you will probably find the plumber persuading his daughter to go into the syhmphony or h is son to go into law. That is history, class, and stuff.

  15. I’m not going to waste my time taking apart the weak assumptions and misconceptions about HECS and other things made by Henry. But I do have a couple of points – any self employed tradesman who takes cash and doesn’t declare it, not only reduces their borrowing capacity, as stated above, but is lowering the enterprise value of their business if they wish to sell it in the future. They are also taking on a completely new risk-reward relationship in their business. Is it really worth the risk of being convicted of tax evasion for the few measely extra dollars? Another demonstration of human irrationality.

    While the average plummer is making a good coin at the moment, I just don’t see the top end of the plumbing trade having the same earning capacity as Law Firm partners, QCs and large company In-House-Counsel, especially international firms.

    And as for econowit’s brother’s lifestyle choice – so what – each to their own. If he was unable to unlock the potential of his human capital, that is his problem.

  16. econowit Your annual wage for your plumber assumes no holidays and a 40 hr week! Hah
    The figure of $ 80 per hr includes all expenses including super, equipment,advertising and insurance(and much,much more).It is his total cost of employment. If you have a few spare minutes at work tomorrow why don’t you work out your own total cost of employment(i.e. all the things your employer provides) and see how close to $80 per hr it comes to.Don’t forget to include the shiny seat you sit on.

  17. ChrisL: The thing is plumbers charge much more than $80 an hour.

    It cost me $225 to get my hot water system connected and took less than an hour. And I rang 7 plumbers before I found one who could do it in that week. The other 6 were fully booked for the next fortnight.

  18. I have mentioned before that a Latrobe history PhD once told me that the only Latrobe history PhD she knew to have become a financial success did it by starting up Jim’s Mowing.

  19. Yobbo. That shot me down in flames. Blame the mining boom and the law of supply and demand. By the way the lawn mowing people around here are mowing dust and losing their mowers down the cracks!

  20. “I just don’t see the top end of the plumbing trade having the same earning capacity as Law Firm partners, QCs and large company In-House-Counsel, especially international firms.”

    And there are plenty of jobs for really highly paid lawyers like these.

  21. Razor, as to your statement:
    “While the average plummer is making a good coin at the moment, I just don’t see the top end of the plumbing trade having the same earning capacity as Law Firm partners, QCs and large company In-House-Counsel, especially international firms.”

    There are very very few jobs like these available in law, and they are tightly held by the ‘elites’ ; the people who’ve worked at the right ‘big six’ law firms (also note they are very rarely handed out on merit).

    The only big earners in the legal profession are the insiders who work for big firms who, ironically, get most of their income from governments and public companies – people spending other people’s money.

  22. SO the real question here is ,why the obsessive focus on ‘going to uni’? Why are the newspapers full of ‘students miss out on places’ story (they should be celebrating).

    My thoughts are:
    – The Unversity’s themselves have well funded lobbies to promote the benefit of going to uni – and of course keeping university funding up. Ie Graduate Careers Council.
    – That Bob Birrel? guy (John Quiggins rival?) always gets quoted in the media saying Uni is the best
    – Of course, some university courses do very well. Notably the hard ones that require maths/science such as engineering often lead to good jobs. Most of my mates with ‘hard’ degrees like engineering etc, have done very well. A law degree is an utter bludge, and of course the ‘law’ is the most vague topic just about possible, where any opinion is as good as any other.

  23. Because it is important to society that all these new people are kept off the jobless totals as long as possible, hence you keep them in higher education as long as possible. MOreover, graduating with debt ensures that they have little choice but to work for the rest of their lives, and thus they are chained into the system.
    Or is that just a touch too cynical?

  24. Henry The first news item on the radio this morning was the fact that 20,000 people missed out on university places and the Federal Government ought to “do something”
    The first thing they should do is start working through observa’s list(above)

  25. How about the idea that there’s a bit more to a vocation than how much you earn?

    I don’t think I would have wanted to be a plumber (I’m not a lawyer, but I am a professional). I think there are lots of plumbers that wouldn’t have wanted to be a lawyer or work in an office or write a bunch of stuff.

  26. Isn’t this all about supply and demand?
    There are between 30 and 40 law schools in Australian universities. They produce far more graduates than can be employed as lawyers, whatever the earnings.
    There are half as many geoscience departments in Australian univiersities as there were in 1990. Just what we need for the ‘stronger for longer’ mining boom.
    As a mathematical statistician, I could have earned a reasonable amount in industry but would probably have ended up in management. As it is, I went into research and ended up in management, but not earning a huge amount (public sector). In retirement, I do research but people are always bothering me with consulting jobs. There aren’t a lot of us about so demand is always high.
    Universities have failed in supplying sufficient graduates with so-called ‘difficult’ skills (like mathematical statisticians). They’re not difficult; they just require normal numeracy and a high level of interest and involvement.
    Government has failed in effectively requiring universities to use HECS in an anti-market fashion i.e. they can do just about nothing to curb senseless demand for unneeded courses by raising prices and cross-subsidising ‘difficult’ courses to get more students in.
    How many plumbing schools are there in Australia? Could they oversupply plumbers? If so, how? If not, why compare training/education of skilled tradespeople with university education?

  27. O6, while most of today’s law graduates will never practice law, the study of law is now a generalist degree, the way Arts used to be. Law graduates learn general skills like the ablity construct a reasoned argument. Of course law graduates very greatly in ability, but that is true of all graduates.

    As for universities setting up course to meet demand for specific skills, the problems is it takes years for these courses to be set up, by which time the need has often passed. During the dot com boom, there was a severe shortage of IT graduates. Universities eventually responded, but now the boom has passed and there are too many IT graduates (who unlike law graduates don’t have generalist skills they can apply elsewhere).

  28. There is still plenty of good money to be earned in the law, with six figure salaries available for people under 30, and they really don’t have to be that special, merely have the right attitude.

  29. wilful is spot on – and the UK are paying heaps to any employable Aussie Law Graduate that wants to move.

    06 – what are you going to do with the unemployed graduates produced by a non-market orientated tertiary sector.

  30. o6 There were plumbing schools in Australia. They were called technical schools.Now everybody is shoe-horned into high schools whether they are academically minded or not.If they don’t get a high enough score there isn’t a clear path for them.At the technical schools students were able to try a variety of trades and perhaps settle on one they were suited to. Bring them back I say!

  31. Razor – your comment:

    wilful is spot on – and the UK are paying heaps to any employable Aussie Law Graduate that wants to move.

    no they are not. They are paying big money to the small number of ‘big six’ lawyers (lawyers who have worked for the overpaid big six law firms who dominate government/public company work in Australia). They will not hire on merit, only on where a candidate has been (in a market where services are overcharged because of misplaced status, your background becomes essential).

    If that sounds like a bitter rant, thats because it is.

  32. Roger Pielke Jr. is linking to some article in the Boston Globe written by some writer for Reason Magazine. Why is that only conservatives and skeptics seem to find Pielke so appealing, and how much money has Reason taken from Exxon Mobil?

  33. Razor said;
    “any self employed tradesman who takes cash and doesn’t declare it, not only reduces their borrowing capacity, as stated above, but is lowering the enterprise value of their business�

    With very few exceptions the enterprise value of a plumber is book value, there is not much good will as the future earning capacity is the plumber himself. Not many of them sell their businesses when they retire. How much is a beat up ute and a box of tools worth?

    With regard to borrowing capacity haven’t you guys heard of Lo-Doc loans where income is self declared? His borrowing capacity isn’t inhibited.

    “The figure of $ 80 per hr includes all expenses�

    No it doesn’t. What about the service fee, mark up on materials, hire of his equipment? Etc . Those sorts of charges cover expenses. Plumbers would probably gross $300k or $400k pa a lot of it cash.

    You get a plumber to give one of your pipes a blow job with his “high pressure water jetter�; spending less than an hour at your place, you would be lucky to get change from $300.

    Admittedly he is dealing in a lot of crap but so does the legal profession.

  34. Econowit You claim that a plumber grosses up to $4oo k but when he retires he has only a beat-up ute and a box of tools. The same tools he hired out to cover his expenses! The ute is probably clapped out because of all the cash he carts away from the job.

    I don’t know where you get your figures from but your last line gives a clue.

  35. Re: Corporate Governance and Private Equity

    The proposed Alinta management buy-out demonstrates that management does not act in the interest of shareholders of publicly listed companies and corporate governance of publicly listed companies is deeply flawed. (It’s just that instances of corporate governance failure are usually not observable.)

    Is the rise of private equity a response of the equity market to the failure of corporate governance rather than to “excessive” regulation?

    Is the cost of moral hazard lower for private equity than for public equity?

  36. KY Choong,
    Do you have any evidence of this suppossed failure to act in the best interests of shareholders or is this just unsubstantiated drivel? Alinta has done very nicely for its shareholders over the last few years and, except for the last few days (where it has jumped up substantially) it has largely tracked the ASX200. Where is the issue?

  37. Chrisl said:

    “your last line gives a clue “

    Are you implying that my figures are crap?

    A Plumber could easily ‘turn over’ $300K plus pa (correcting the word ‘gross’ above). Generally small business people work 60 to 80 hours per week, add to this apprentice or labourer charges, his sundry charges, weekend and after hour penalty rates, call out charges, plant hire, material bills and mark ups etc. If you deny this figure could easily be reached, you must be living in a different country from me.

    Following Henry’s reasoning using the ‘crap’ analogy:

    A Plumber provides an essential service that prevents us wading knee deep in the by-product of the previous day’s meals. His services will always be in high demand. (Not many people find his line of work ‘desirable’, thus the perpetual shortage)

    Members of the legal fraternity on the other hand and also many other professions (not all) produce reams of ‘it’ both verbally and in the written form, just to perpetuate their own income. We learnt this the hard way when we had a prominent barrister charge us $10,000 for a one day court appearance. Hopefully we can structure our affairs to alleviate the necessity for his services again. (The only people that win when going to court are the lawyers).

  38. Econowit I wasn’t implying your figures were “crap” but you are very very warm
    I think you are exaggerating and double counting some of the earnings of a plumber;for example, they hire IN equipment, they don’t hire it OUT.
    80 hrs per week equals 16 hrs per day (no lunch) from 7am to 11pm plus weekend work
    I agree 100% with you regarding legal eagles. If it were mathematically possible I would agree 200%
    Am I right in thinking you have had both a very bad legal experience AND a very bad plumbing experience?

  39. It would be safer to say my figures “are very very warm�

    Yes, I have been ripped off by both, but I don’t begrudge the plumber too much, he seems earns what ever he gets. Conversely the lawyer should be on the other side of the dock.
    I surmise a lot of small business operators do indeed work 7 days a week and spend many years without holidays. (7 x 11.42 hrs = 80hrs pw is feasible)
    They do hire IN equipment they do not own, but they then hire it OUT with a mark up. The smart ones own it and then hire it out at retail.

    Suppose the plumber purchased a drain clearing machine for $5,500 GST inc. He charges $50 each time he pulls it out, which happens to be 5 times a week. After 20 weeks he has paid it off. He gets to claim back $500 in GST. He can depreciate it over 4 years giving him a further $1,375 tax deduction for each of those years depending on whether he goes prime cost or the diminished value methods. After 20 weeks he has $13,000 going straight to his bottom line. Add to this jack hammers, compressors, backhoes, jet trucks and what ever else you can think of etc; Imagine how much he could theoretically earn – I have actually meet a few millionaire plumbers.

  40. Judging by the number of speed-boats, jet-skis, 4WDs etc choking the beaches this summer, I’m buying econowit’s analysis.

  41. Econowit you have used the words surmise,suppose and theoretically. Where is the economist’s favorite, assume?
    It is all very well having all that equipment but you can only use them one at a time, the rest is sitting in the shed unproductive.
    Millionaires are pretty thick on the ground these days. I know of some pretty unlikely millionaires. It takes luck, timing and of course hard work.

  42. “Where is the economist’s favorite, assume?�

    Plumbers have the saying, “can’t tell the ‘crap’ from the clay�. I surmise that they “assume� it’s all clay, but their nose might tell them it is something different.

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