Wednesday, March 11, 2015

Housing Affordability

Let's start with the obvious. I am not a fan of neoclassical economics for most of the standard reasons cited by heterodox economists.

Firstly it doesn't account for the formation of preferences. Individual preferences are usually constructed as part of the social system - they aren't just individual preferences. They are also shaped by experiences, which explains the "endowment effect"- we value losing something we have more than we value gaining it in the first place.

Secondly the obsession with mathematics. Not because using maths is wrong, but because the assumptions made are made with a view to keeping the maths tractable rather than the model accurate. The worst case of this is the use of structural forms of equations for econometric studies that bear no relationship to any established theory.

But bear with me because I'm going to talk about the "housing market" for a moment as if it really was a theoretical market.

Today the Master Builders Association said "The latest housing finance highlights the urgent need for a national housing affordability agenda to increase the housing supply and ensure first home buyers are not locked out of the market,”

I'm fine up to the word "agenda". Let's just question whether "supply" is the issue everyone claims it is. If supply is constrained below a notional equilibrium level that means the price of houses is higher than it needs to be to reflect the cost of construction. That means in new housing someone is really cleaning up...and that can only be the suppliers of construction or the suppliers of land.

Why then does the Master Builders Association want to increase the supply? Wouldn't it result in a loss of margin and hence return on investment?

There is one perfectly good explanation - and that is that the MBA doesn't want us to look at the real problems. The first of these is the geographic question - our housing market is highly distorted by the huge increase in prices for property close to where the jobs are as recently detailed in an RBA paper.

The second is the presence in the market of speculators rather than investors. The former expects to get their return from the increase in the asset value rather than the income stream from the asset. You don't invest in residential real estate for the rental income.

Unless, of course, you are part of the third limb of the problem - an uneven playing field when it comes to the cost of investing. An owner/occupier pays their mortgage out of post tax income - an investor pays it out of pre-tax income, often arranging negative gearing.  Sure the investor pays capital gains tax - but only at half the rate they should. Either the CGT discount has to go, the possibility of negative gearing, or both, to take this cheap money out of the housing market.

What we don't need to do is pour petrol on the flames of the roaring house prices - which is what diverting super funds would do.

The answer to housing unaffordability is to change the geography of our cities - spread the jobs and change the transport infrastructure, end negative gearing and end the CGT discount.

Maybe once those priorities are addressed we can address adding supply - without them adding supply only continues to provide super profits to developers and builders.

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Monday, February 23, 2015

National Security

It is with some trepidation that I comment on the Prime Minister's National Security Statement this morning, but I feel I cannot let it pass.

Let me first just comment on the timing and style of the announcement. When commenting after surviving the spill motion Mr Abbott said "I suppose last year I was so focused on economic security issues, on national security issues, that I didn't have enough time to talk to my colleagues." But just to be sure he didn't take all the blame he sacked Phillip Ruddock as Chief whip - and went straight back to worrying about national security.

When Mr Abbott last made a National Security Statement it was in Parliament in September last year. His central theme then was "On questions of national security, it’s always best if government and opposition can stand together, shoulder to shoulder."

Today he made his announcement surrounded by security agencies and not in Parliament. His earlier letter to Labor leader Bill Shorten on data retention had been labelled by the recipient as "seeking to politicise the process for bringing in anti-terrorism laws."

Today's statement left no doubt about that. It called on the Senate once to pass legislation and support for data retention (without addressing any of the Labor and community concerns) and changes to citizenship laws.

But let's analyse some of the elements. Of the "terrorist threat rising" we are told "We have seen the beheadings, the mass executions, the crucifixions and the sexual slavery in the name of religion."  I will take Mr Abbott seriously when he addresses Saudi Arabia about beheadings for sorcery, when he treats every mass execution everywhere in the world with the same revulsion not just those by IS.

He said "We have seen the tactics of terrorists evolve...Now, in addition to the larger scale, more complex plots that typified the post 9/11 world, such as the atrocities in Bali and London, sick individuals are acting on the caliphate’s instruction to seize people at random and kill them. These lone actor attacks are not new, but they pose a unique set of problems." But nowhere does he address the actual question of scale - or proportionality. Lone actor attacks are still almost as scarce as the large scale attacks were - only with far less victims. This is what victory looks like, not defeat.

On proportionality I note that on average one woman a week dies in Australia as a result of domestic violence. But his response is to put domestic violence on the COAG agenda.

Mr Abbott in his speech noted "All too often, alienated and unhappy people brood quietly." But his response is to ensure adequate policing once these youths have become radicalised and threats. Wouldn't it make more sense to wonder why they are alienated and unhappy?

One of the reasons is economic disadvantage. One of the causes of that is that not all households make the assumptions about the value of education that we assume.

Part of the attention of the Gonski funding formula is to recognise that you need more school resources where you do not have family support (whether by inclination or capacity) of education.

Unsurprisingly, domestic violence contains some common elements.

Perhaps it is time we asked ourselves how and why we are failing so many young Australians.

The Liberal philosophy that 'you are on your own' is part of the problem. Labor, and old style Christian, values of 'we are all in this together' demand action.

Finally Mr Abbott said "For a long time, successive governments have been concerned about organisations that breed hatred, and sometimes incite violence. " This is not true. There are many Christian groups breed hatred against honest law-abiding Muslims. That includes the Rev Fred Nile and the Christian Democrats.

It is time the Prime Minister woke up to the fact that the issue is not just Islamic theocracy, it is theocracy of any kind. There should not be a Christian Prayer said at the commencement of Parliament. Religious names should be prohibited for political parties.

We need to place religious tolerance for all religions that respect it, and maintain a strong secular state.

But Mr Abbott - as is his natural instinct - is just trying to play politics.

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Sunday, February 01, 2015

Election timing

The turmoil in the Australian Government at the moment has people talking about an election as an option. They need to get a grip.

Firstly a double dissolution isn't currently an option, as no legislation has been twice rejected with three months in between as required by the constitution as a trigger. Indeed, and oddly, Chris Pyne decided to reintroduce his university reforms rather than set them up as a trigger.

We then get to the timing of an election. A House of Reps election can be called at any time. One must be called within ten days of the term of the house expiring, which it does three years after it first met after the last election. The house met on 12 November 2013, so election needs to be called by 22 November. If it was called that late we'd be voting on Christmas Day.

But to keep the house elections aligned the timing of Senate elections comes into play. A Senate election cannot be held more than twelve months before the term of the Senators expires, which is 30 June 2017! So a combined Senate and HoR election is only possible in the window between 1 July 2016 and the requisite period (I think 42 days) after 22 November. My money in on some time in October or November 2016.

Of course, were the PM crazy brave and decide to go for an HoR only NOW he could wait much closer to 30 June 2017 and have simultaneous elections. That would have been a great strategy now if he was facing Senate obstruction AND was leading in the polls. It wouldn't unblock the senate but would set up a great 2017 strategy.

Who knows ... Maybe he will convince himself that an election would focus the electorates mind. 

Saturday, December 13, 2014

The 'Fair Go' Party exists - it is called the ALP

An interesting Facebook post today said:

Australia needs a new political and social movement. Left/Right, Labor/Liberal - it doesn't matter any more. They're two sides of the same coin and the currency is counterfeit.

We need advocates for us, the citizens of Australia, who will speak on our behalf against the lawyers, accountants, political lobbyists and fundraisers, stenographers in the media, corporate comms people and miscellaneous shadowy henchmen who dominate public discussion and decision making today.

Call it the party of the 'Fair Go' for wont of a better term. It would give physical form and action to what that term has traditionally meant to Aussies. Fair Go party would include in its manifesto:

  • Respect for all people irrespective of how they identify their ethnicity, religion, cultural heritage, age, sex or any other trait that wreckers use to create division in society
  • Equality means equal access for all to the legal system, health, education and telecommunications including broadband
  • Striving to be a society that lifts people up instead of kicking them when they're down and seeking to oppress them
  • An immediate return of Australia to the world stage as a constructive global citizen including honouring our obligations under humanitarian treaties
  • Acknowledgement that climate science is a legitimate way to heal our planet and promote prosperity through emerging science and technology
  • An end to government for big corporates and interest groups that tramels the little guy
  • An immediate review of all international trade treaties and a commitment to publishing them for public comment.

These are just some ideas of what Fair Go would hold dear and promote.
What would you add to the manifesto?

Comment on the post ranged from my observation that this sounded like the ALP, others claiming it was the Greens and others suggesting that maybe instead of a party this could be a credo to hold the parties to.

Let me just break down the whole post a bit.

Firstly the claim that Left/Riht and Liberal/Labor doesn't matter any more - they are just "two sides of the same coin and the currency is counterfeit."

Let's just note that this isn't the claim that the two parties are indistinguishable, but that there is something wrong with major party politics. But just so we can dispel the myth about sameness I'd use the words that Bill Clinton used at the 2012 Democratic Convention when he said:

We believe that 'We're all in this together' is a far better philosophy than 'You're on your own'. (Note 1)

And that is the same distinction that applies here between Labor and Liberal.

Certainly both parties suffer from a surfeit of professional politicians - young people entering Parliament with little non-political life experience.

That is true of the current PM, it was mostly a description of the immediate four predecessors.

But were they bad politicians on that account? Were any of them really driven by a desire for power rather than an ideology.

None of them were good at expounding their ideology, or being consistent in its application. But no one can doubt Tony Abbott's genuine commitment to the idea that when it comes to life you are on your own.

Both Rudd and Gillard at times laid out their belief that we are all in this together, the value of collective action and that we are all in this together. James Button in his book Speechless even tells us that Rudd was insisting the phrase "We are all in this together' be the theme of his speeches in the depths of the GFC.

The next suggestion is that Australians need advocates to speak up against a litany of various professions, the majority of which are the paid henchmen of politicians.

On this let me first note that one such group is the army of ordinary Australians who actually join political parties. If you haven't tried it then you should. There are surprisingly many ways to get your voice heard.

But let me also note that the influence of these people on politicians is greatly overstated - it is just that these people themselves proclaim their degree of influence.

We then move to the guts of the party of a 'Fair Go.' As has been said of the claimed distinction between left and right that the former is about equality, the fact is the right also claims to be about equality. The left and right promote different standards of equality because they have different views about human nature and society. (Note 2)

But despite both espousing their views of equality the phrase 'a fair go' is more commonly associated with Labor. (see Note 3) However, it is in the substance of the points made in the stem "manifesto" that the ideas really display a description of the ALP.

Respect for all people irrespective of how they identify their ethnicity, religion, cultural heritage, age, sex or any other trait that wreckers use to create division in society

Let's start with sexual orientation. We know that the marriage equality is all the rage - but the Rudd government did amend all Federal law so that gay couples have all the same rights under law as heterosexual couples. Marriage equality is ALP policy, but in recognition of the tightly held views of some, it is a conscience vote.

Labor championed the concept of multiculturalism starting with Gough and has defended it ever since. Gough oversaw the equal pay case.

Equality means equal access for all to the legal system, health, education and telecommunications including broadband

Well let's start at the end. Labor's NBN was universal in scope and universal in prices - both now abolished. Labor introduced medicare and introduced the concept of equality in access to tertiary education. And it was Labor that pursuied the Plan for School Improvement (Gonski) and its commitment to ensuring every school had the resources it needs.

Striving to be a society that lifts people up instead of kicking them when they're down and seeking to oppress them

This is Labor's core principle. It always becomes problematic when the need to target assistance is considered. Labor are the first to admit they got the policy wrong with the approach to encouraging parents on pensions back into the workforce as children reach school age. But we have never had a policy as draconian - or simply mean and uncaring - as the idea that under 30s have to be unemployed for six months before they get welfare.

An immediate return of Australia to the world stage as a constructive global citizen including honouring our obligations under humanitarian treaties

It was Labor in the 1940s that got us on the world stage in the first place. Firstly by enacting the Statute of Westminister so we became responsible for our own Foreign Affairs, and then playing a leading role in establishing the UN. In more recent years it was Rudd who secured our place in the G20, and secured our spot on the Security Council.

If the "honouring treaties" piece is a reference to the refugee convention it is worth noting that the intent of that convention was to enable people to flee persecution and then stop. Refugees were then to be processed from those first place camps. Australia has (I think) one of the highest intakes of refugees direct from camps. Labor did pursue policies to try to discourage people from continuing to travel as this was unsafe. But the solution to the refugee problem is to be found in stopping the reasons why people flee in the first place. Labor's record is far better than the Liberals, and is as aggressive as budget circumstance permit.

Acknowledgement that climate science is a legitimate way to heal our planet and promote prosperity through emerging science and technology

Labor won and lost an election on climate policy. If the Greens had voted for the original ETS it would still be in place today. Labor is also committed to going into the next election with a policy for a price on carbon.

An end to government for big corporates and interest groups that tramels the little guy

I don't think you will find any big corporate - not the miners, the tobacco companies, the media companies certainly - that would argue Labor in office governed for them.

I may detect in this comment the thought that acting on copyright infringement over the Internet is acting in the interests of corporates. That would be fine, except for the fact that lots of Aussie artists and performers have lobbied Government on this in their own right.

An immediate review of all international trade treaties and a commitment to publishing them for public comment.

This is the only point on which I would have to agree that Labor has fallen down on. But it is symptomatic of a wider problem which is the theory that "free trade agreements" make any sense at all. Because they simply are misnomers - they are at best agreements to change the distortionary affects of existing trade barriers and replace them with new ones. 

Anyone who would like to try out what belonging to a political party that stands for the values Nate espoused JOIN HERE.


Note 1: As quoted in Mark Halperin and John Heilemann Double Down
Note 2: For a longer discussion see Alain Noel and Jean-Phillipe Therien Left and Right in Global Politics
Note 3:

  • Tony Abbott on Insiders "So I think the fair go principle, which is very important for our country, continues in this budget."
  • Bill Shorten wrote a short op-ed for the Tele on the impacts of the Budget on working families and how this Budget seeks to end the Australian fair go.
  • Anthony Albanese wrote one for The Gaurdian  "Kiss the 'fair go' goodbye: Tony Abbott gives individualism absolute priority."
  • Bill Shorten in his Budget Reply speech said "The Government forgot you in its Budget – and it forgot what makes our country great. It forgot opportunity. It forgot reward for effort. It forgot the fair go.  Well, Labor hasn’t forgotten. We still believe in fairness. We still believe in an Australia that includes everyone, that helps everyone, that lets everyone be their best, that leaves no-one behind."
  • Kevin Rudd started his 2013 campaign policy speech "In this election we are now engaged in the fight of our lives. It is a fight about the values which underpin Australia's future. And for those who say the fight is up, I say they haven't seen anything yet. Because we have something worth fighting for. And that's the jobs of all Australians. The pay packets of all Australians. And an Australia which still believes in a fair go for all. These are the things worth fighting for."
  • Julia Gillard in her first press conference as PM said: "t's my intention to lead a government that uses that spirit and that will to do even more to harness the talents of all of our people. To do even more to make sure that every child gets a fair go in life and a great education.
  • Julia Gillard in her 2011 Australia Day speech said "don’t let go – we will hang on to our Aussie mateship and our Aussie fair go in the worst of times and in the best because we are Australians."



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Thursday, December 04, 2014

Tax, capitalism and dodgy research.

Try this quick quiz. Given the scale efficiencies in running any Government service would you expect - all other things being equal - that a large economy would have a higher or lower tax to GDP ratio? Clearly you would expect it to be lower.

As a consequence if you were to average the tax to GDP ratio of a number of countries using both an unweighted average or a GDP weighted average, would you expect the weighted average to be lower or higher than the unweighted on? Clearly you would again expect it to be lower.

Finally, would you expect the tax to GDP ratio of a developed economy to be higher or lower than that of an undeveloped economy. Clearly you would expect it to be higher.

So when the IPA publishes a paper that simply confirms those outcomes it really only becomes news if you are The Australian.  Also if you are the Oz you write the story all about the comparison to the OECD average but use the graph that compares Australia to to the Asia-Pac countries.

The headline of the story though was really about whether in doing tax to GDP comparisons compulsory super contributions should or should not be included. The really good news is that even when they are included we come out below the OECD unweighted average.

It is actually a pretty amazing outcome because under this calculation we are measuring a tax system that is paying the cost of supporting the aged twice - once in current pensions and again in super for the future.

However, the benefit of the superannuation system isn't only in the future funding of the aged. It made a dramatic difference to the national savings story - which itself had been one of the economic crises of the 90s. (Unfortunately the story gets distorted by net household debt in residential property - but tat is another story).

The IPA has never liked compulsory super - not because of its economic effects but because of the "c" word.

The IPA paper is also amazing because it carries a section titled "Australiaʼs heavy reliance on high direct taxes leads to fewer taxpayers doing the heavy lifting." This is part of the new attack on a progressive tax system.  Apart from the usual trite economic arguments about "efficiency" this introduces a new argument based in public choice theory - arguing:

Lower and middle income earners, in particular, would tend to be less responsive to changes in public sector costs. Other things being equal, there is also the risk that tax progressivity ensures that the less wealthy may discount the importance of taxation cuts, as a fiscal and economic competitiveness reform strategy.

So now we have it - only the rich can be trusted to know what is good for the country. Before we know it the IPA will be arguing for the reintroduction of a property qualification for the vote!

Finally let me comment on the concerns by Tony Shepherd in the Oz article about the continued increase in Government expenditure. The role of government was expanded by capitalism, not in spite of it.

The first big welfare reform - the age pension - was introduced by Bismark in Germany. Though it was here initially a Labor cause it gained wide support because the change to family circumstance caused by mobile labour finding work meant families no longer existed to care for the old as they had in agrarian societies.

Today we see a similar trend as the economy tries to press more women into employment. It was a G20 goal to close the gender participation gap by 25%. That requires more government funding of the child raising function, just as earlier generations saw the shift for the aged, then the unemployed, then the infirm.

It is pretty pathetic to whinge and moan about the size of government if you are a capitalist - it was you that caused it.

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Wednesday, December 03, 2014

The market for education

A comment on radio this morning got me thinking (2UE breakfast). Committed Liberal voters are angry about the proposed Higher Education reforms (fee deregulation and until yesterday bond rate instead of CPI interest).

These people have already paid expensive private school fees and now face an extra slug. My own observation has been that many parents who pay for private schooling don't pay their children's HECS fees as they do the (correct) calculation it is cheap money.

Interestingly, there would be two differently affected groups. The first are those who have already made most of the commitment on secondary education who would experience a double whammy. They would simply be angry.

The second are those yet to make a commitment on secondary schooling. Making University degrees dearer will make this group reconsider the correct distribution of their expenditure and can be expected to see reduction in demand for private schools. I doubt that the school sector has factored this into their assessments yet.

This provides the opportunity to again mention my recent exercise in measuring the real movement in the sector price indices within the CPI. Education and health are the two fastest rising price indexes.

The education one should be unsurprising given the movements recorded in the SMH's annual news story on private school fees. However, there is also a question of whether there is also a "quality" effect here - that with reduction in other prices people are choosing better "quality" products. (I've put quality in brackets because this is perceived quality - of a product consumers can't accurately assess).

Thursday, November 27, 2014

How wrong can one politician be?

Reality is hitting the Abbott Government in the face like a swinging door in an American sitcom.

On the day after the election Andrew Robb appeared on the ABC's Insiders and I was struck by just how cocky he was. When confronted by the challenge of the budget deficit Robb said:

But the other part of it is this campaign has focused overwhelmingly on one side of the ledger. What it hasn't, what it hasn't focused on is what we can do on the revenue side.

As of today the mining boom will be rebooted, right. Under Labor it was finished because of the cost uncompetitiveness that we now have. We will change that. There's $150 billion worth of projects there to be grabbed. We can do so much. We can get Australia open for business. We'll restore an appetite for risk and investment, people's jobs will grow massively. Small business will come out from under the huge shadow that they've had for the last two years.

The mining boom has done the complete opposite of being "rebooted." ANZ economists were reported to be forecasting a slowing in the middle of this year from as early as January. 

Today the Bureau of Resources and Energy Economics is reporting that investment in new mines is at its lowest level for ten years. The Australian observed:

During the height of the resources boom, it was a common complaint that the state and federal approvals process for resources projects was causing a backlog of projects ready to move into the committed stage.

But according to BREE, the backlog is now at the feasibility study stage, not because of government delays, but because of a reluctance to commit to new capital expenditure because of the slump in commodity prices.

So when Joe Hockey next blames the revenue side for a poor budget outlook he should be reminded of what Robb said. It is no wonder that one of the few changes the PM made in the move from Opposition to Government was to remove Andrew Robb from Finance.

And Robb's second prediction was all about business confidence.


The NAB Business Survey supported a contention that it would surge after the election, as it usually does when uncertainty of the outcome is removed. But trend is dipping rapidly.

Maybe all this is because Robb was so wrong about what his own PM would be like. On Insiders he also said:

He will be methodical, I mean that's what he has been. When he says there'll be no surprises and no excuses, that's the sort of fellow he is. I do think that he will … We've got a major agenda. You know, I hear what Bill says but I don't think Labor should kid themselves what's gone on here. People did vote for change.

The last six years has been marked by a highly dysfunctional government, a massive waste. In many respects the biggest mining boom in 150 years has been wasted. So many people say 'what have we got to show for it?' It's not just a question of how we are in relation to the rest of the world, it's how we have treated and responded to the great blessings that we've had as a country compared to the rest of the world. And it is those sorts of things that we've got to fix.

We've got to fix so much. Tony is a fellow who has laid out a very clear first term agenda. We've also got a series of things like a tax review, which will give us a second term agenda. And you know Tony, I think will stay true to what we said we would do coming into the election.

As Anna Burke said on Kitchen Cabinet "Government is really, really hard." 

I got into trouble for a cheeky tweet I made earlier this year responding to a claim by Christopher Pyne that the Liberals were the only truly "national" party because they don't seek to represent a sectional interest. But that isn't how they have goverened.

Too much of the Abbott Government has been implementing an ideological agenda that comes from outside the Coalition parties - mostly from the IPA and the BCA. It is a mistake to think that either of these is representative of even the business community - let alone the general community.

No wonder the Prime Minister is doing a repeat of Howard in 2007 and begging the business community for support

It is no wonder they won't support him. To thrive business needs customers with disposable income. Cutting the real wages of the defence force and public sector does nothing to help business. Wasting political capital on a GP co-payment to build a health research fund does nothing to help business. And cutting access to tertiary and vocational education does nothing to help business.

It is more than a few barnacles that need to be knocked off - this Government needs a whole new boat. I wonder if Andrew Robb has worked that one out yet.

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Wednesday, November 26, 2014

New posts on telecommunications prices

I try to post my more serious professional work in the DigEcon Gazette blog.

Today I have posted on competition in the UK and competition in the ITU.

I wasn't subtle!

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Tuesday, November 25, 2014

How the ABC Charter was changed "quietly"

The commercial media hates the ABC.

They don't hate it when the ABC trains staff for the commercials to post.

But they really hate it anytime the institution does anything that might impinge about the commercial media's ability to make money. And right now that means digital content.

And so the commercial media has been outraged that when faced with budget cuts the ABC hasn't cut its investment in digital - in fact it has said it will be expanded. The ABC Board found justification for this in the ABC's Charter - which is enshrined in section 6 of its Act.

In The Australian today they howled:

The ABC’s foray into digital media services has been going on for a decade. But it was only last year that the Gillard government quietly changed the ABC charter to formalise the digital surge by Scott. Digital is now “a core function” of the ABC according to its board. Clearly, the charter needs a rewrite, to rein in the excesses of such digital mission creep and to refocus the board on the role of a modern public broadcaster.

In the AFR yesterday they howled:

Last year, the ABC’s Charter was quietly changed in Parliament to formally allow it to provide digital media services, which in fact it has been doing since the 1990s.

For reference, the legislation that amended the Charter was the Broadcasting Legislation Amendment (Convergence Review and Other Measures) Act 2013. This was far from legislation that was dealt with quietly.

It was part of the six bills in the media reform package introduced by Senator Conroy that caused howls of outrage, that Bob Carr claimed was the basis of his changing his leadership support and led to the aborted leadership challenge of March 2013. Seldom has a package of amendments achieved so much attention.

That News, Fairfax and the rest of the commercial media failed to note the change to the Charter reflects their continued limited understanding of the process of Government and of governance in the public sector.

The inclusion of the amendment to the Charter (together with the amendment that said the only broadcaster that could be funded for an overseas service was the ABC) shows just how much smarter Senator Conroy was than his opponents give him credit for.

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Mr Abbott and White Ribbon Day

Yesterday in relation to the cuts to the ABC and SBS Shadow Communications Minister Jason Clare put to the Prime Minister a question from the1957 movie called Witness for the Prosecution. In the movie Charles Laughton plays a crusty old barrister called Sir Wilfrid, and in cross-examination he says to the witness, 'Were you lying then, are you lying now, or are you just a chronic and habitual liar?'

Yesterday the Prime Minister attended an event where Police Commissioners made a stand against violence on women. In Mr Abbott's brief remarks he said:

I speak as the father of three daughters, as the brother of three sisters, and I say that nothing is more horrifying than the knowledge that there are women and children right around our country today who are living in fear because of some male who is in their household and instead of being the love of their life, the apple of their eye, or the hero of their being, that person has become their tormentor.

Domestic violence isn't the only violence women have to suffer. Some even have to suffer it in student politics.

Let's just recount what we know about the allegation (first made by David Marr) that a young Tony Abbott threw a punch at Barbara Ramjan. The ABC carried a neat summary that basically says Mr Abbott first said it would have been "profoundly out of character had it occurred" but subsequently states that "I have no recollection of it - because it didn't happen."

Mr Abbott then said he expected more smears to surface as part of an orchestrated campaign by a Labor dirt unit. This proved to be false prophecy.

What we do know is that since Mr Abbott's denial a witness to the punch did come forward - referred to in David Marr's update of the book.

What's more both News Ltd and Andrew Bolt have apologised to Ms Ramjan for claiming that she made up the claim.

Perhaps it is time for Mr Abbott to also apologise - and White Ribbon Day would be a good day to choose!

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Tuesday, November 11, 2014

Television rots your brain

When I was younger we were warned that television rots your brain.

Now Baroness Susan Greenfield tells us that digital technologies and social media do the same, as summarised in her book Mind Change: How digital technologies are changing our minds. As Susan (that's what she asked us to call her) was the guest on this week's QandA I rocked along - and even asked a question.

The question I wanted to ask Susan but didn't get chosen for was in her original field of study - degenerative brain disease. The question was, simply, in the light of the Government's proposed health research fund whether we spend too much researching cancer and coronary disease and avoiding death, and not enough on the degenerative diseases that affect people for a long time alive.

But that isn't the kind of hip topic they like on QandA.

As I have the luxury of this blog I thought I might explore the issue I raised at greater leisure. (At the time of writing the transcript hasn't been posted so I'm relying on my recall from last night and one reviewing.)

Firstly I had never really paid much attention to Susan before last night. I only bought the book on Kindle on my way in on the train and read bits of it (actually using the Kindle app on my iPad). And it was the fact that I'd read her comments on how multi-tasking and continuous input/output processing were putting pressure on the ability to think that I cared.

Unfortunately things all got a bit blurred on TV last night between two disparate strands on digital technologies. The first was at the level of sociology and psychology and the concern about how the technology changes social interaction - the chain that leads to the whole discussion about narcissism.

The second and more interesting is that digital technologies and social media actual change the way we think. In essence being more immediately reactive rather than reflective, and dare I say, cognitive.

As readers of my columns in iTnews and the AFR would know I am very concerned about the decline in STEM skills. That concern suggests a question "Are students finding maths and science harder than it used to be?"

That's why I'd highlighted in the book as I read Susan's comment that the "ability to make connections where they didn't exist before, to connect the dots, could account for talents in a number of academic areas, including philosophy, mathematics, science and music."

So to me it was a bit of a recursive exercise when Susan had talked about the impact of the tech on thinking to have a non-scientific answer.

Now, let me remind readers that though I am a great fan of science, I am not a great fan of the phrase "the science says" as I observed in the context of climate science. Science is "privileged knowledge" built by a repeated process of application of theory to observable events and adapting, or even abandoning, the theory id the results are anomolous.

Real world science is done by real people and so all the characteristics that Tom Kuhn identified as normal science abound, there is group think. The fact that a paper appears in a peer reviewed journal does not mean the paper's method, data and conclusions are correct - just that they are not totally wrong.

And quite frankly, despite the way I framed my question, one person's personal experience can be enough to destroy a well verified theory. If I see the first black swan it is my experience that confounds the the previous "law" that all swans are white.

But that wasn't what was happening last night. As I said part of the difficulty was that there were two simultaneous strands of discussion going on - one about the overtly social impacts and the other the neuroscientific.

And I wasn't expecting the lawyers and economists to argue science with the scientist. I was, however, expecting that they might acknowledge that it is science. It is the inability of the non-scientific to recognise science when they see it that is of concern.

I wasn't really trying to pick on Laura John, but I was critical of the lawyerly debating tricks. To respond to science with "Susan makes some good points..." and then disregard anything Susan actually said indicates Laura has a great career ahead of her.

James Patterson was as equally dodgy, but then again he is a disciple of the totally falsified (to use the Popperian term) theories of neo-classical economics. (And in fairness to my former boss Albo - he said he supports markets over a command economy, but he doesn't believe in the infallible self-creating market of neo-classical theory).

Finally I wasn't necessarily myself making a call on the science that Susan is referencing. But I do want to comment on the criticism made by Tony Jones on air and in the Facebook discussion that Greenfield has not done any peer reviewed research here and that if she believed the theory she should.

That is an incorrect understanding of the process and progress of science. It is the discussion of the outcomes of many pieces of research that creates new patterns, new theories. It is the kind of discussion Susan is leading that establishes research programs. (And to be fair to Susan - that is exactly what the blurb on the book says "What could this mean, and how can we harness, rather than be harnessed by, our new technological milieu to create better alternatives and more meaningful lives? Using the very latest research (up to the end of 2013), Mind Change is intended to incite debate as well as yield the way forward."

My very simple conclusion on limited evidence is that yes the higher use of digital technologies by young people mean their brains - at least their minds - are very different from those of my generation. To say they are different does not alone say they are better or worse. There are good reasons to think they are worse (the behavioural characteristics and thinking being two examples), but there are also reasons to think they are better (multitasking does get through voluminous quantities of stuff).

And if they are worse, the only solution isn't to say that social media needs to be used less. There are other options including that the processes by which ethics are learnt need to adapt (e.g. because you can't see the reaction you need to think harder about the golden rule of treating others as you would like to be treated), or utilising the increased I/O approach to increase thinking by algorithm rather than proof.

What isn't appropriate is to decide to do nothing simply because you don't like the conclusion - that's what climate change deniers do.

(Did TV rot my brain? Yes and no. My experience of the world is far more visual than was my parents - and that includes from Vietnam on seeing the horror of war directly. But the trade off has been he decline in descriptive language. And you can see that on the nightly news - what is defined to be "newsworthy" is something they have footage of. Completely inconsequential car accidents in the US are featured more highly than an earthquake in a developing country because that is where they have cameras.

But TV also created a world of drama not previously matched, especially comedy. I find the whole world a lot more amusing than I would have without these opportunities. Satirical writing and black ink cartoons are no match for Mad As Hell.

And finally when Albo used his analogy of the person at the concert watching their device record the event I was reminded of the Leunig cartoon of sunset.)

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Monday, November 10, 2014

Andrew Bolt - still demented and unhinged?

There is a special place in the Universe reserved for Andrew Bolt. It is a place in which conspiracy theories run deep, and things that were once black are now white, and those that were white are now black.

This isn't Orwellian speak of "blackwhite" - it is more Humpty Dumpty, but not that words mean exactly what he wants them to mean, but because events happen because of causes that only Bolt can divine.

Today in his column Bolt returns to one of his favourite themes, bagging the ABC. The column was mostly a repeat of his introduction to an interview with The Australian's Media Editor on his News Corp produced TV show.

I didn't watch past the start of Markson's opening statement - it was the most egregious example of interview subject being in violent agreement with interviewer that is usually so mercilessly (and correctly) mocked by Gerard Henderson in his more lucid critiques of some ABC presenters.

Apart from the usual diatribe about the ABC not having enough balance, no right wing voices and it is way too unfair on the right, Bolt ended with a classic.

Not for Bolt any acceptance that John Howard appointed a Chair and Board Members to curtail the ABC. No acknowledgement that the Howard Government appointment current MD Mark Scott, nor that his career began as a NSW Liberal Party staffer.

The resilience of the ABC is because it actually fulfils its charter.  Do the commercial media really want the ABC to compete with them for the majority audience? What would Fairfax Media or Macquarie Broadcasting to think if Radio National were to program 702 as a clone of 2UE or 2GB?

Gerard Henderson once criticised the replacement of one ABC presenter with another because the original presenter wasn't rating well enough "did not rate well enough in inner-suburban Leichhardt. Meaning, apparently, that she did not appeal to Green-voting-leftist-luvvies or to the Labor left and, horror-of-horrors, was just too middle class." 

But if that is the audience, is it not right to appeal to it? 

The one thing that is certain is that no Minister of any government has had any success (nor should they) in trying to direct the editorial approach of the ABC. 

That is, according to Mr Bolt, until now!

He ends his column:

How much longer will the Abbott Government endure the ABC’s insults and abuse of power? Why so meek in response? Is it because ambitious ministers of the Liberals’ Left know that defending the ABC guarantees them the ABC’s support in any leadership battle against Abbott or, say, a Scott Morrison?

If so, may I suggest Communications Minister Malcolm Turnbull be replaced by a minister more prepared to enforce the ABC’s own charter on an ABC now completely out of control?

There we have it - Malcolm Turnbull has entered into an implicit pact with ABC management to back him in a leadership context. This being the same Minister that Mark Scott has attacked in the last month over the ABC budget cuts.

But this is Bolt land - the land in which any dinner becomes a plot, the Bolt that Minister Turnbull wisely noted "borders on the demented" and "is quite unhinged."

Please spare us all from both this kind of right commentator just as I wish to be spared from sermonizing leftists commentators who will patronise every progressive cause.

The best commentators are those who can start with "Its complicated" and end with clarity. Ideological diatribes of either ilk are simply pointless - and Andrew Bolt is a master of the art.

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Wednesday, November 05, 2014

Politics and our future

The latest IPCC report says that the world will need to stop using fossil fuels by the end of this century. Even The Australian reported it!

Managing our climate future will require reducing reliance on fossil fuels by 80% by 2050. Managing the CO2 load will also require the use of bio-mass to take more of the gas out of the atmosphere.

The question is no longer if this will need to occur, but how it can.

And this, ultimately, is the great shame of the mismanagement of the politics of climate change in Australia. The book Power Failure makes a compelling case that the Rudd government wasted the opportunity to take action through a number of related elements. The first was to spend too long preparing a detailed policy in the background without continuing to bring Australians on he journey. The second was to fluff the originally drafted proposal so that what was first rejected could not be reintroduced in unmodified form. The third was to try to play politics on the issue and embarrass the Coalition rather than bring them on the journey.

The consequence was a policy that was rejected by the Senate on Greens votes, rather than one being passed using Coalition votes given that both major parties went to 2007 with an ETS as policy.

The initial failure was then compounded by Rudd's post Copenhagen funk, and then ultimately the deal brokered with the Greens being exactly the one that as easiest to attack.

But far bigger was the failure to paint the response to climate change in economic terms. Irrespective of whether Australia "took action" - played to by the whole we are such a small proportion crowd - the world IS going to take action by consuming less fossil fuels.

Neither Tony Abbott nor Christine Milne is right on coal. It is neither a friend of humanity nor an evil to be stopped immediately. It is somewhere in between, a historically important energy source with a significant role to play in our immediate future, but it is not a sustainable long term source.

As a major coal producer our interest is in utilising the resource for now, but preparing our economy for the point in the middle distance future where it needs to be replaced.

While the Gillard Government talked of a "clean energy future" it was never translated into the important part - making the investments today to replace

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Saturday, November 01, 2014

Australia leads the US

THE US Federal trade Commission is suing AT&T for speed throttling customers on its "unlimited" plans.

All you can say is that the ACCC has been there and done that!

Nevertheless the ACCC continues to need to prosecute providers.

I keep hearing telcos complaining about over-regulation and the need for regulation to be pitched at the "average" consumer yet issues like this keep occurring. Go figure!

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Monday, October 27, 2014

Let's not be whimps on constitutional reform

Tony Abbott over the weekend has framed the work of his Federation White Paper by proposing we fix the federal vertical fiscal imbalance by increasing the States revenue raising to match the functional responsibilities.

It is a significant change of stance by Mr Abbott, as he acknowledges. In his book Battlelines - written to make him seem credible - he stated that "as long as particular levels of government continue to exist, it's important to give them meaningful tasks to perform." From this he said that it should be possible to move responsibility for an area of activity from one level of government to another.

He went on to note that "it's almost an iron law of politics that voters will demand action from any level of government with a realistic prospect of making a difference." He went on to note "The states have legal responsibility for issues that only the national government has the political authority and financial muscle to resolve."

One is left to wonder what has changed since he published this in 2009 and today. The relevant extract from the weekend's speech is:

Now I remain a pragmatic nationalist – but the states exist, they have wide powers under the constitution and they can’t be abolished; so – rather than pursue giving the Commonwealth more authority over the states, as I proposed in my 2009 book, Battlelines – better harmonising revenue and spending responsibilities is well worth a another try.


Back then, my thinking was that the states should become subordinate legislatures to the Commonwealth: in a parallel to the way local councils are subordinate to the state governments.


But I now doubt that any such constitutional change could succeed; and, in any event, it’s a good principle to propose the smallest change that will actually tackle the problem – that’s why resolving the mismatch between what the states are supposed to deliver and what they can actually afford to pay for is worth another go.

It is seldom that Tony Abbott so brazenly declares himself to be a whimp. The mechanism he proposed in Battlelines was an amendment to section 51 to enable the Commonwealth powers under section 51 to be expanded by act of the Commonwealth alone.

His mechanism was by a law passing the House twice not less than six months apart. A more democratic version would be a law that was passed by successive Parliaments. That is, the people would get to vote on the proposed expansion of powers as part of the overall consideration of a Government's program.

It is worth recalling that Mr Abbott started talking about reform of the Federation in the year before his book in an address in the same town - Tenterfield - as his most recent contribution. In that he said:

I appeal to the distinguished academic political scientists and professional students ofgovernment here tonight: don’t assume that changing the constitutional position of the statesis mission impossible. What’s the point of political science faculties if they merely analysethe system rather than help to make it better?

What has changed in the six years between these two speeches? Did the academics let Mr Abbott down, is that why his Government hates Universities?

Maybe it is as Guy Rundle suggested that Mr Abbott is Australia's greatest sycophant. His sudden embrace of federalism can probably be traced to some business leader or lobby group. Much of the Prime Minister's program seems to be incorporated in the BCA's July 2013 paper on tax, fiscal policy and federation. Is it any wonder that the BCA's Jennifer Westacott has been included in the new "group" to advise on the Federation White Paper.

The BCA view is somewhat surprising, and I suspect that they use the federation argument as a means to argue for the GST increase and nothing more. But business that complains of "red tape" not ony are confronted by overlapping powers from Federal and State Governments. They also confront eight different state and territory administrations.

National co-ordination and uniformity is what they crave - both for their own costs and to facilitate labour mobility.

The national curriculum is an instructive policy area in this regard. Why was there a need for the Federal Government to get involved in curricula? To create an education system that made it was for parents of school age children to move interstate.

The history of "vertical fiscal imbalance" is also instructive. At Federation the Commonwealth Government only had excise and tariff revenue. The imbalance worked the other way - especially as the newly formed national Post Master General needed capital to extend the telegraph and telephony services.

The massive shift in the reverse occurred in the Second World War, and if there ever was a Government that had the opportunity to address the imbalance it was Menzies from 1949-1966.

He didn't. He used the Commonwealth;s financial power and section 96 grants to take over University funding and form the University Commission. He used the same powers to provide state aid to independent schools - notably the first "Building the Education Revolution" building science blocks and libraries.

Whitlam used the mechanisms Menzies had established to, under the Karmel scheme, increase and redistribute Federal school funding on a needs base. (In other words - Gonski isn't all new).

Fixing the fiscal imbalance only has meaning if the States get to set the rates at which their taxes are raised...in this case it would be differential GSTs. This is a nightmare for national businesses. And it creates the negative prospect of inefficient interstate competition on tax rates.

The Queensland Government - relatively wealthy on skewed commonwealth contributions and mining royalties, abolished death duties. This forced the other states to follow, despite not being able to fund their programs.

The only reason GST revenue is tied to the States is because it was the Federal compact to eliminate a raft of State taxes. The compromise with the Democrats reduced the GST take and hence not all taxes went away.

Let's hope Mr Abbott is sparking a genuine national debate on Federation and he doesn't get away from undertaking serious reform.



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Monday, October 13, 2014

Vanstone unloads on "the politics of envy"

Nothing is surer than that once a week someone, somewhere will berate Labor for either attempting to reignite "class warfare" or criticise Labor for "the politics of envy."

Today it was Amanda Vanstone's turn writing in The Age.

Vanstone starts by saying "All this stupid rich-versus-poor debate does is stir up the politics of envy."

She complains about the media coverage given to the rich and suggests the way to "get some perspective" is to look at tax contributions. Because the top 2 percent of individuals pay 25 percent of the tax we are told we should be "delighted these people have done so well economically."

This, of course, simply ignores the fact that were the distribution of income more equal, then so would be the distribution of tax.

Vanstone then runs the trope that old-style Labor reviled big business, then had a period of embracing it as the source of wealth. But, we are told, "old anti-rich and anti-big-business mantras have crept back into the Labor lexicon." Paul Kelly devotes almost the whole of Triumph and Demise to stating and restating this thesis.

Vanstone then runs the usual guff that the only hope for the poor is for the rich to keep making more money. This is really nothing more nor less than the Randian thesis espoused in Atlas Shrugged, a pernicious book that has had far more influence than it would ever have had if written as a one page economic theory than it has as hundred pages of fairly tortured prose.

This theory - that the rich create jobs - is of course simple rubbish. As the very excellent video below shows what creates jobs is consumers spending money.



Vanstone finishes by passing over the technical reality of increasing inequality and instead focussing on the degree of social mobility in Australia. The un-stated message is that it doesn't matter if you are poor today because you can be rich tomorrow. But as Andrew Leigh notes in his book Battlers and Billionaires research he conducted (with Dan Andrews) in 2009 found evidence that nations with more inequality in the mid-1970s were less socially mobile in the ensuing quarter-century.

That is, as inequality increases the social mobility offered as hope decreases. (Leigh cites other research to back this).

Unfortunately this guff about the politics of envy or class war really plays well with the audience it is intended for - the 'aspirational'. They are sold a proposition that their life can be better but it is the concern with inequality that is holding back their (and this is usually a very personal "their") chance for a better life.

Unfortunately the wider Left just reacts to this stuff with a degree of incredulity - "What you expect us to feel sorry for the rich?" It needs, however, to be more directly critiqued on the fundamentals.

The first is to focus on the fact that increasing inequality has a negative impact on growth. As the video says growth comes from cashed up consumers, not wealthier capitalists.

The second is to remind the rich what a poor underclass means for society, most notably the direct threat to the security of the well off.

These were the factors that motivated true Liberals - from Deakin to Menzies - to embrace the concept of the state as a deliverer of economic and social security, not just national and personal security. This is what differentiated the Australian Liberals from the historic concept. It is why the original Australian Liberals look more like what American conservatives decry as 'liberal' - what we would call social democrats.

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Friday, October 03, 2014

Burqa and niqab

Seldom has there been so much fury directed at an item of clothing. That is perhaps not since the bikini first arrived on Bondi beach.

While the sanctimonious amongst us lecture on the idea of freedom in clothing it is worth remembering the history of the requirements in Australia over appropriate bathing attire. The old "neck to knee" costume was mandatory, and Annette Kellerman's athletic version was banned in 1906.

As Waleed Aly points out in this morning's SMH, as with others, highlights the fact the public debate about the burqa is really about the niqab. The Wikipedia entry (though weak in parts) is a good start http://en.m.wikipedia.org/wiki/Niqāb. 

He goes further and explains this attack isn't just based on ignorance, it is also sexist. As he says "whatever the outrage, whatever the fear, and whatever the cause, it is women that must suffer first and foremost." 


Thursday, September 11, 2014

Can you pick the inconsistency?

Media concentration/diversity was big news in Australia last year. The ALP proposed a "media diversity test" (under the name public interest) be included in laws controlling mergers and acquisitions.

Its sternest critic was News Ltd (as it still was) headed by CEO Kim Williams.

The good gentleman was on QandA this week, He said two things about media that are worth noting.

On print media he said

And one of the things that I personally have difficulty with is that as media, particularly print journalism, which is still the major generator of news and news coverage in our media - all of the electronic media tend to be clients on the print media, in terms of story sources and investigations, with some notable exceptions, but I don't think even Tony would disagree with that...

On media diversity he said

I don't agree with Sam at all about there being fewer voices because there has never been such a proliferation of voices in relation to the vast array and empowered array of bloggers, of social discourse that occurs in all manner of things.

So the world according to Kim Williams has a proliferation of voices, but it is still print which is the major generator of news coverage in our media.

And he is absolutely correct. What he is saying is that the proliferation of outlets doesn't create diversity - it does the reverse. It generates even more voices to amplify the messages of the print media - despite their declining circulation.

I still stand by my analysis that the Murdoch media is not as influential as it claims.

However, out of his own mouth we have the admission that the Murdoch media is as dominant, if not more so, than it has ever been.

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Crisis in NBN land

The ACCC's decision not to take action against TPG's plans for fibre to the basement creates more of a crisis for NBN Co than might first appear.

The decision not to take action is based on the ACCC's interpretation of the law, in particular that TPG could avail itself of the level playing field exemption. This conclusion is that the existing assets were capable of providing superfast broadband and that the investments are only a less than one kilometre extension.

It is always somewhat unsatisfying to have to rely upon a regulator's interpretation of the law, rather than a court's. As a non lawyer I thought an argument could be made that none of these assets had ever been used before to provide VDSL to residential buildings so they weren't technically capable. TPG is doing something new - it is not just an extension of the capability.

Unfortunately the ACCC is also bound by the Model Litigant rules in Appendix B of the Legal Services Directions 2005.

I suspect this is the source of my long running concern that the ACCC is far more inclined to seek new powers than to test the powers it has in an actual court. It would seem to be far preferable to move to alternative solutions on the basis of a court determination rather than an ACCC interpretation that will have been necessarily conservative because of the model litigant rules.

That said, and since neither the Minister nor the ACMA who could also initiate action seems prepared to do so, we are back to the telco regulation merry-go-round. The simplest and most obvious remedy would be to amend the legislation to remove the per se exemption. To deal with genuine cases of simple network extensions it could be replaced by an authorisation regime for network extensions.

Instead there will be a two part process. Firstly, the VDSL service inside buildings will be subject to a declaration inquiry as outlined in the ACCC release. Such a process could take up to a year. Secondly, the Minister will commence consultation on a carrier licence condition that "would require owners of high-speed networks affected by the ACCC's declaration process to functionally separate their wholesale operations, and to provide access to competing service providers on the same terms as it is provided to their own retail operations."

This is much weaker than the obligation that would have applied to TPG if it was not exempt from the level playing field rules; they require structural separation. These rules also - in common with the level playing field rules - ignore the important questions about where an access seeker is required to interconnect with the  TPG network. If it is at somewhere other than the NBN Co Points of Interconnect this creates a potentially higher cost for access seekers than TPG.

The impact on NBN Co if this is proceeds is immense. If NBN Co chooses not to compete (by building FTTH) with TPG then it has a significant financial impact. TPG will see merit in pricing its services at the same price points as NBN Co's - that is the "market price." TPG will have a monopoly on the buildings for FTTB because two providers can't both use the copper for vectored VDSL. But TPG will only build where its costs are sufficiently low to make a profit.

So NBN Co will lose low cost premises but average revenues.

If NBN Co chooses to compete with TPG by building FTTH then NBN Co also loses relative to the MTM base case because it incurs higher costs (but it may get slightly higher revenues).

But the damage does not end there. While some like Stephen Bartholomeusz think that the functional separation requirement will deter Telstra and Optus, a lot will depend on the actual drafting of that instrument. It is hard to imagine that the functional separation requirement will extend beyond the operating business that provides the actual VDSL service.

Indeed, Telstra and or Optus could go one better to provide a structurally separated by wholly owned vehicle that invests in the VDSL boxes and the fibre to connect to pre-existing fibre assets. This wasn't an attractive business proposition when NBN Co was going to build FTTP.

To be clear - this is a problem entirely created by the decision to deploy FTTB rather than FTTH.

Worse, the instrument being proposed by the Minister could give Telstra the opportunity to rethink what role it plans to take on FTTN. Would functional separation of only the FTTN business satisfy the Minister. The costs of functional separation that Bartholomeusz quotes were the cost of a separation of the existing business, not a prospective separation of a new business.

We see yet again the wonderful intricacies of telco regulatory policy. How the establishment of independent regulators that aren't actually empowered to decide law creates a chimera of oversight, and how once you change one thing how repercussions are felt through the rest of policy.

(A good case study for my CommsDay presentation on 9 October)


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Funding of Terrorism

Excellent report on ABC News 24 just now on how ISIL has achieved its estimated funding of $2bill

Start was donations from Kuwait and Saudi Arabia, from private citizens, to causes in Syria. While some given for humanitarian uses diverted to military causes.

When it broke from Syria it gained other sources. $425 mill in good from bank in Mosul. Then theft from citizens. Next is extortion - otherwise called taxes - from areas colonised. Then black market trade in oil from wells captured. Lastly proceeds of ransoms from kidnapping. Claims the ransom demanded for US journalist was $75 million. US never pays but some Europeans do.

While security analysts spread fear of a caliph are stretching from Spain to Indonesia, the issue comes down to how sustainable that is. All such empires based only on force eventually fail, but it could be messy.

The core strategy has to be to get the Sunni States to identify IS as a threat rather than an ally. The vision of the caliphate needs to be converted as a threat to Saudi Arabia, Kuwait and the other Arab States.