Prayers and Politics

The question of the appropriateness of The Lord's Prayer for the opening of Parliament has been raised again. New Federal MP Rob Oakeshott wants recognition of aborigines while the Australian Federation of Islamic Councils has suggested something more inclusive. The Islamic spokesman in fact said "I have no problem with a Christian prayer -- any prayer is better than no prayer at all".

This reminds me of a debate that was conducted at Ryde City Council some years ago. At that Council one of the local Ministers of Religion is invited to open each meeting with a prayer, and the issue was raised over whether the remit should be wider than just Christians and include Muslim prayers. This was before 2001 but I recall that my thoughts then were that any faith should be welcome so long as the relevant preacher could demonstrate that he/she had preached in favour of religous tolerance in their own place of worship recently. Many of the Christian Ministers may have struggled on this one.

In the Federal parliament the issue is over the choice of prayer rather than the choice of preacher. I am here mindful of the approach of the international Credit Union movement that has historically opened all meetings with the Prayer of Saint Francis of Assisi (or the Peace Prayer of St Francis) which reads;

Lord, make me an instrument of your peace.
Where there is hatred, let me sow love;
where there is injury,pardon;
where there is doubt, faith;
where there is despair, hope;
where there is darkness, light;
and where there is sadness, joy.

O Divine Master, grant that I may not so much seek
to be consoled as to console;
to be understood as to understand;
to be loved as to love.
For it is in giving that we receive;
it is in pardoning that we are pardoned;
and it is in dying that we are born to eternal life. Amen

I for one would be very happy if our parliamentarians were to start their daily deliberations with this invocation - and then act accordingly.

PS Evidently the prayer is not the work of St Francis, but dates from World War I.

The last Hurrah!

The Ryde by-election on Saturday is probably the last hurrah for the party that Gordon Barton started.

I know popular mythology is that Don Chipp started the Australian Democrats, but the reality was that Don Chipp was the long sought after "high profile" candidate that galvanised the Australia Party and SA's Liberal Reform Movement into a viable force.

On Saturday the Democrats candidate Peter Goldfinch scored 1.7% of the vote. This should be contrasted with the 11.6% to the Greens. While as usual the Democrats struggled to mount a campaign, this is an election in the kind of environment that might suit "third party insurance" campaigns - Labor is imploding but there is nothing about Barry O'Farrell's team that inspires confidence.

Meanwhile up on the North Coast an independent held Port Macquarie, showing there is still capacity for the electorate to look beyond the major parties.

As is on the public record I joined the Democrats late in the piece and contested the 2007 State election in Epping. I also encouraged Peter Goldfinch to run in Ryde - if ever the Democrats could have found a bounce this was it. My interest in the Democrats position began back in the early 70s when I broke away from my parents support of the conservatives and found a first home in the liberal and libertarian Australia Party. Much of the Democrats platform and almost all their rules had its genesis in the Australia Party of that era.

My own political journey took me into the ALP twice, leaving the first time because of a lack of time to contribute and the second time because (biazrrely) I had read Graeme Freudenberg's history of the ALP. The lesson I learnt in the Freudenberg book was that the ALP had never changed fundamentally from the inside, only from outside. The piece the Liberals keep hating about Labor, its strong union links, are becoming the ALPs biggest weakness, as the party selects its "stars" from a small gene pool of full-time politicians with limited additional experience to draw upon (the excellent Fabians lecture by Rodney Cavalier on Could Chifley win Labor preselection today made this point well.) The institutionalised factions are as much a problem - because the factions are no longer means of contending philosophical positions but separate patronage pools.

The other bizarre part of the NSW by-elections is the extent to which they play out as contests between management teams not political philosophies. Who can run the hospitals better, rather than why public health care is an equity issue. The Liberals campaign theme was "Start the Change" - but to what?

This results in the experience of general elections being the selection of a electoral college to choose the Premier and little else. Out of this the occassional independent thrusts through - picking up the despair of the citizenry about the hollowness of organised politics.

So where to for the great democratic experiment of the Australia Party/Australian Democrats? The short answer would appear to be that they should adopt a position as a political society rather than a political party. A place to promote discussion and at times support candidates, but not to try to wear the mantle of party. By being a non-party the society can better criticise parties. By being a non-party they can advocate real reforms like an elected executive President that therefore creates a meaningful legislature.

Peter Goldfinch has served the Democrats well, hopefully his greatest service will be in delivering the message - 'The party is over".

Delusions of the unsuccessful job seeker

Wow. Janet Albrechtsen does take the cake. Today she writes a perfectly reasonable piece about banks and politicians, and points out the irony of the ALP supporting the private banks while the Turnbull/Bishop show was trying to promote a run (or so it seamed).

But she "had to go and spoil it it all by saying something stupid like" the story she gives about her interview with the SMH. She says that the interview went icy after she commented that the then commentary on banks was one-sided. In this shejoins that horde of unsuccessful job applicants (of which I have recently been one) in deciding their lack of success is all about the hirer not about them.

We don't know if the job was as a lawyer or as a journalist. But my feeling is that either way Fairfax dodged that bullet well.

This is a first!

I want today to agree with the comments of both Gerard Henderson and Janet Albrechtsen - and that is a first! They are both right in pointing out that there has been a Government policy dimension to the crisis in the US, that being the policy promoting home ownership through non-recourse loans increasingly made to people unable to pay, but fuelled by ever increasing asset prices.

They could have added, however, that the latter part of this was promote by the central banker from hell - Alan Greenspan - who kept US interest rates low through two booms. This not only created the asset price inflation that made house lending look like a risk free bet (so what if the owner can't pay the loan - the house is always worth more) but has left the US without anywhere to go on interest rates to stimulate the economy.

I am, however, not as sanguine as they are about the suggestion that because we can find this fault we can therefore deflect all criticism from the process of deregulation and the overall embrace of market capitalism, what Joseph Stiglitz has called "that grab-bag of ideas based on the fundamentalist notion that markets are self-correcting, allocate resources efficiently and serve the public interest well."

In part this is because of the three crises identified by Scott Birchill under the heading Capitalism in Crisis. These are a crisis in confidence, systemic crisis and a legitimation crisis. As an example we should consider the mark to market rules that result in asset bubbles being systemically moved through the whole financial system. Similarly we should question the role of institutions like the credit ratings agencies that rated the securities that created the crisis.

AFP - Global Police?

I feel incredibly sorry for the Lapthorne family over the "disappearance" of Britt in Croatia. But Mr Lapthorne is quoted in The Age as saying he had been reassured by his briefing with the detective, but he remained disappointed with the Australian Federal Police. "All I've heard from their officer is PR," he said."


I fail to understand what role the AFP is supposed to play in this case, I don't think they have jurisdiction in Croatia.

The same comment can apply to the criticism that journalists were able to interview "persons of interest" in Portugal that Croatian police hadn't. Does anyone know the difference between a news interview and a police interview? The latter to be of any use in a subsequent prosecution will need to be conducted within the framework of the law.

The current expectation of global citizens about the reach of their home nation's lgal system smacks of the "extraterritorial" rights that the British and other Europeans claimed for their nationals in China in the nineteenth century. That didn't end well!

Vale Phil Burgess

My former colleague Dr Phil Burgess (in the sense that everyone in telco public policy is a colleague)has been busy talking and writing as he prepares to leave our fair shores. This has included an article in the SMH and a speech at the Lowy Institute.

I thought it was appropriate for someone to write a valedictory. It was too long just to include here, so you'll have to follow the link.

I conclude with "Phil I think will understand if I say (in the Australian vernacular and the Fullbright sense) “Mate, you are a great Australian patriot, but you’ve been wrong about a few things.” To understand that you'll need to read the item and listen to the Lowy speech.

Poor Kevin

Glen Milne reports criticism of Kevin Rudd that he is too much of a micro-manager, while Phillip Coorey reports complaints that the Ruddbot shouldn't be travelling to New York "when the work is mounting up at home".

The latter includes the delightful criticism that Kevin in 10 months will have met UN Secretary-General Ban Ki-moon three times and SA Senator Nick Xenophon not at all. Bizarre really - Ban Ki-moon represents all 205 or so countries in the UN, Xenophon represents about 14% (a quota) of the citizens of South Australia who are also represented by a host of Labor Senators, Penny ong among them. Plus Nick has actually been a Senator for under three months. And really the PMs message to the opposition and cross benches at tis stage should be "bring it on" - it is the PM who would be suited by a double dissolution.

As for the Milne piece, I'm trying to figure out how he has a report about a meeting carried out under what he (incorrectly) calls "Chatham House rules". There is only one rule. That, for the record, is;

"When a meeting, or part thereof, is held under the Chatham House Rule, participants are free to use the information received, but neither the identity nor the affiliation of the speaker(s), nor that of any other participant, may be revealed".

Get it right.

Strange Silence

The Senate Select Committee on the NBN has published the submissions received by the closing date (which had been extended).

The list is noteworthy for the absence of Telstra amongst the submitters. Is this because they feel they don't need to as they are in "the box seat", because they decided that to submit to an opposition committee might raise the Minister's disapproval or because they still can't really figure out their own strategy on the NBN bid.

Telstra will spin it as a version of one or two, but I wouldn't be really surprised if it is number three.

Telstra's difficulty remains that they have a position of not wanting any money from the Government but probably can't make the commitment on the 98% build on their own.

A very tricky dilemma.

What is a big share of the "innovation system"

The Government has received its report on innovation from Terry Cutler and his committee. I haven't waded through it yet - but note that no hard copies of the report are available only the online version, and the Criky story with the Cutler comment on copyright.

This blog post is about the interview Dr Cutler gave on Lateline Business. In the interview he said "First of all, focus on your strengths. I mean, Australia is a small economy in global terms; we're roughly two per cent of the world's innovation system."

I'm assuming Dr Cutler thinkks that one's share of the global economy is the same as one's share of the "global innovation system". For this he uses the 2% number most commonly used. However if you use World Bank numbers the figure and go to two decimal points the number is 1.51% (on a table revised on 10 September 2008).

While that sounds small, when you realise there are some 200 countries it makes us three times the size of an "average" economy. By rank we are the fifteenth largest economy on the planet - ahead of Sweden on 19(Ericsson, Volvo, Saab), Denmark at 27 (Lego), and Finland on 32 (Nokia).

The reality is that Australia faces another disadvantage compared to these economies in being more remote from sizeable markets. However our biggest disadvantage remains our ability to be fat dumb and happy on the back of resource endowments.

What we don't need is people writing innovation reports perpetuating the myyth that this is a small economy.

Grocery Review

The ACCC review of grocery prices came in for mixed reviews. In fact Frank Zumbo gave it a bollocking in a piece he wrote and as quotes in another.

I have only just got around to getting a copy of the report and the skim reading disappoints me. There are so many ways. But most importantly it is the complete failure to deal with industry structure in a meaningful way. Two small examples:

The report disparages the idea of greater transparency in pricing in the supply chain as it creates the opportunity for implicit collusion or explicit cartelisation. This ignores the power of information assymetry to entrench market power and ignores the fact that the best remedy against collusion is industry structure without a small number of large players.

The second is the extent to which the report treats speciality stores as competitors to supermarkets, as if the authors have never read about so called "imperfect competition" or monopolistic competition built around no-price differentiation.

But by far the worst is that the ACCC has now concluded a grocery and a petrol enquiry and hasn't discussed the "shop a docket" fuel voucher system. So let me explain how that works to increase prices.

Assume I need to buy $100 worth of groceries and $100 worth of petrol a week. ($100 worth means that much assuming the goods are priced at cost - i.e. competitively). When I go to buy my groceries I know they will give me a voucher for a 4% petrol discount. So I'm prepared to pay $103 for my groceries because I'll still be a dollar in front.

Having bought my groceries I'm prepared to pay $103 for the petrol because I'm a dollar in front on my purchase over buying petrol at cost elsewhere. Therefore the "discount" entices me to pay $206 less my $4 discount thus spending $2 more than if I'd purchased at cost.

Each decision of the consumer is rational. Unfortunately most cases of product bundling result in this kind of outcome. Bundling does not benefit the consumer, it benefits the firm with sufficient market power in one or ideally both firms to induce customers to pay too much.

By the way - ending shopper dockets is entirely within the power of the ACCC.

National Consumer Law and Mobile Phones

This is a tale from the Australian Financial Review so I can't do it with links. So I need to simply quote.

AFR 16 August David Crowe
Customers will gain new rights to quit unfair contracts with businesses ranging from fitness centres to phone companies under an agreement between Canberra and the states for a single consumer protection law to apply nationwide....

Minter Ellison partner Richard Murphy said the concept of what was unfair remained "woolly" but it was a major step forward to have a single national law. He cautioned, however, that companies not operating in Victoria would have to review their contracts to ensure they complied with the new regime.

In Victoria, for example, AAPT was found to have used unfair contracts because its terms allowed it to vary phone charges without notice, apply reconnection fees for any reason, charge customers for suspended services and end a service unilaterally....

AFR Letters 20 August David Havyatt
In the item on proposed changes to consumer protection laws you note that AAPT was prosecuted in Victoria for unfair contracts (“National laws to protect customers” AFR 16 Aug). While this is factually correct the manner of its reporting is misleading.

While AAPT’s contracts were found to have unfair terms, in the judgment it was noted that the terms had never been used and no compensation or restitution was due to any customer. Nor was AAPT required to make any changes to its contracts as they had been fully revised by the time the judgment was made.

In fact Consumer Affairs Victoria was fully aware that AAPT was in the process of changing its contracts when they commenced the litigation in December 2004, and was fully apprised of progress the week following the action being brought. AAPT, along with all other telcos at the time, had been dealing with the need to comply with the Victorian legislation and to meet requirements being introduced through an industry code.

Uniform consumer protection laws will be welcome by all in industry. However, this should not come at the expense of incorporating poorly designed legislative provisions such as the Victorian unfair contract provisions.

AFR Letters 21 August David Cousins
David Havyatt's [letter of 20 August] complains about "misleading reporting" of the AAPT case and then puts his own nique spin on that case.

He suggests the judge found "no compensation or restitution was due to any customer" when Consumer Affairs Victoria did not seek such relief. I was director of CAV and initiated the action against AAPT.

The public interest declaratory and injunctive relief sought by CAV was not granted only because AAPT had included, in the changes to its consumer contracts (that were prompted by the CAV action and still did not come into effect until four months after the proceedings were started), a provision that applied the new terms and conditions retrospectively.

The critical fact is the judge found that many of the terms of AAPT's contracts, as identified by CAV, were unfair terms and, therefore, void. Rather than being poorly designed as suggested, the law was shown to be effective.

After refusing to deal with the regulator, AAPT recognised finally the writing was on the wall about its unfair contract terms and chose to fix the problem with retrospective effect. As far as the industry code is concerned, it was made to conform with Victorian law only after CAV had intervened in the code development process.

The Victorian unfair contract terms law has been designed to ensure a minimum appropriate stanard of commercial conduct for the protection of Victorian consumers and businesses.

Effective unfair contract terms provisions are essential for Australia's national consumer law.

AFR Letters 25 August David Havyatt
While your original article on the prosecution of AAPT for unfair contracts was misleading, David Cousins’ [letter of21 August] contains simple untruths.

The most specific of these is his claim that the changes in AAPT’s contracts “were prompted by the CAV action” and that AAPT “recognised the writing was on the wall…and chose to fix the problem.” The facts of the matter were that AAPT was already in the process of making these changes, a fact that CAV was aware of before initiating the action and was reminded of on the day they informed us (and the media) of the action.

He engages in his own sophistry by suggesting that the basis for there being no compensation or restitution was due to CAV not seeking such relief. My recollection is that CAV did not seek the relief because there were no customers for whom they could seek relief as none of the clauses had been used.

Victorians might like to contemplate whether they got value for money from a prosecution that ultimately had no impact on telecommunications contracts. They might also like to contemplate whether the attitude of the Victorian Government in pursuing the pointless prosecution had any impact on AAPT’s decision to relocate its call centre from Bendigo to Sydney.

Summary and other points
For reasons of space the second AFR letter was shorter than I first submitted. That included the following points.

Cousins provides as a reason why AAPT was singled out for the prosecution rather than one of the other providers of mobile services who had similar contracts at the time, his assertion that AAPT refused to deal with the regulator. The facts were that the telecommunications industry at that time had already instituted a guideline on contracts, and all operators including AAPT were in the process of revising contracts and had adopted a practice of not using any contract terms outside the guideline. The industry regulator, the Australian Communications Authority, required the industry to strengthen the guideline to a code, so AAPT paused the implementation of new contracts pending the finalisation of the code.

It was in the middle of this process that CAV approached AAPT about its contracts, and AAPT advised the process we were going through and that it was wasteful to duplicate the process. To ensure the message wasn’t misunderstood I visited the Chief of Staff of CAV’s Minister John Lenders to explain the AAPT position a week after replying to CAV (I was unable to see Lenders himself because of probity issues in relation to TPAMS).

When CAV launched its action in December it was Minister Lenders who issued a press release to trumpet the prosecution of the “giant phone company AAPT”. At the time AAPT had 2% market share, and CAV did not prosecute the other mobile providers with the same contract terms.

Throughout the process of CAV trying to make a case of the telecommunications industry they refused to meet with the industry through its industry ssociation or collectively. After commencing its litigation CAV refused to meet with AAPT with a view to terminating the proceedings.

Finally it is worth noting that the recommendation of the Productivity Commission on unfair contract terms was for a version that would only see prsecutions brought in cases where customers had suffered detrimental outcomes from the unfair terms. The CAV action against AAPT would not have been brought in these circumstances.

Henderson and the "Culture Wars"

Gerard Henderson has written an epitaph for John Howard, "Despite the views of some left-wing commentators, Howard did not get to the front line in the culture wars, let alone win a medal."

His basis for making an assertion of defeat for Howard is the suggestion that Howard failed in his "expressed aim" to reform the ABC. The question for me is why Henderson fails to really question whether it really was a Howard aim, and if it was whether it can ever succeed. Howard appointed his own Chair (twice)and a number of Board members. There were two selections of CEO (Shiers and Scott), and still "no change".

Could it perhaps be that the issue lies with the charter and not with the staff? The charter has as its objective the provision of programs that "contribute to a sense of national identity and inform and entertain, and reflecting the cultural diversity of, the Australian community". But the ABC is also required to "take account of the broadcasting services provided by the commercial and public sectors".

That is, the ABC is not required to achieve the diversity of broadcasting within itself, but to provide diversity in the whole sector - that is including what is broadcast commercially. In that context it is not unsurprising that the ABC contribution is slightly left leaning given that the remainder is slightly right leaning.

Maybe Henderson would like to suggest a different charter?

Postscript. Former ABC director Ron Brunton has written a piece for Henderson's Sydney Institute Quarterly that has been reported on in the SMH. It is an interesting spray that in the coverage alleges that board members couldn't acvhieve much against the ingrained culture of the staff and their lying or "spinning" information for the Board.

It is an incredible claim. At its core it is Brunton admitting that Howard appointed Board members not up to the task, that is they couldn't do what Boards do - set direction, measure performance.

A more charitable interpretation though is the one above. To change the ABC you don't need to change the Board you need to change the charter. But to what?

What is a "European-style metro" system

Commentary on rail options in Sydney continue to mention a preference for a "European-style metro system".

I want to know what kind of rail system this is meant to be describing. Typically rail is described as "light" (like trams - think the light rail to Glebe)or "heavy" (which incorporates all the rest of the passenger and freight rail networks). Fundamental differences relate to the number of carriages, the kind of inclines they can handle and the frequency of service.

As far as I can tell the proponents of "metro" are really talking about the same thing as Asians would call a "rapid transit" system. Its features are, typically;
1. Carriages designed mostly for standing not sitting.
2. Carriages with lots of doorways for speedy exit and entry - some systems use one side of the train for boarding and the other for alighting.
3. Very frequent trains.

Sounds awfully like the early rail carriages I was still riding as a school boy with four doors per carriage. Then some idiot decided to deal with the congestion problem at city stations by building double deck trains - which are idiotic beasts that are impossibly slow to load, have very little functioning standing room (compared to any single deck carriage I have ever ridden on except for amn intercity style train).

So Sydney can be converted to a "metro" on this definition if we simply change the trains - and do something about creating another line through the city and/or improving the platform functionality at Wynyard and Town Hall (e.g. can we use both sides of the train at Wynyard? Could the Eastern suburbs line be dropped lower at Town Hall and have three sets of dual lines not two sets of three? Or perhaps could the city circle be rerouted under Town Hall and not stop there at all?)

The original North-West rail plan met many of the requirements, including a new Harbour Crossing. Let the engineers get on with it.

Leadership

Having come from the Corporate world I'm used to their being lots of talk about leadership and its distinction from management. However, I'm currently doing a stint in the public service and I'm getting to look at the question all over again.

My public service obsrvations can wait for another day. Today I wanted to simply point to a really great article by Cynthia Banham. As readers might recall Cynthis is a journalist who only just survived an Indonesian plane crash. I actually knew Cynthis some years ago as a journalist, very good at her craft but not yet standing out as a potential leader in the field.

Her tale is about more than leadership, but I do like her three main ideas about leadership.
1. One does not need an official title to be a leader.
2. An ethical leader must draw on a set of values and, to comprehend those values, must think and talk about them. A good leader treats others as the leader herself or himself would want to be treated; suggesting equality, egalitarianism, compassion, empathy (the Golden Rule is found in most religions).
3. The importance to good leadership of moral courage. It may manifest itself in willingness to speak the truth, even when others - more powerful people, perhaps - do not want to hear it. It is about making difficult and unpopular decisions because you know they are appropriate.

The article is well worth reading.

Climate Change Sceptics

Don Aitken has got coverage in today's The Australian for a speech he gave on climate change.

Aitken has done a remarkably good job of dealing with the justifiable doubts about anthropogenic global warming. In particular I support his eminently justified critique of the attempt to be doctrinaire about the so-called consensus. I could also quibble about his description of Paul Feyerabend as a political theorist rather than a philosopher of science, and to simultaneously assuming there is an established “scientific method” while also quoting approvingly from Feyerabend’s Against Method, which was an argument that there is no privileged scientific method.

In the end all we can have are theories, and we can have theories that are largely useful or theories that have been useful but are now less so, and eventually some of those theories may become “discredited”. With climate change we have a theory of the Greenhouse Effect; a theory I first heard at an ANZAAS conference in 1975 as an argument for nuclear power and hence treated by me with excessive scepticism.

It is a plausible theory, it is a difficult theory to fully demonstrate and model; primarily because weather patterns are what we now call chaotic systems. To the extent that there is evidence to support the theory it is “patchy” – the ice core correlations don’t prove cause and effect, short run warming measures are hard to interpret.

But Aitken also wants to discount a “precautionary principle”, based on a simple criticism of Pacal’s reason for believing in God – namely that in doing his expected value analysis the father of probability theory left out some other possible future states. However, in this case while there are multiple alternate theories there is still a simple binary choice between the “Greenhouse Theory is correct” or “it is not correct”.

The matter is very like the Pascal’s though in pay-off – acting to reduce emissions has a relatively low cost compared to the catastrophic outcome if the theory is correct. And just like Pascal, we can’t wait to make the decision. If we wait to see incontrovertible evidence of warming then we are too late to stop the process escalating. The one thing we do know is that the CO2 concentrations in the atmosphere are already at monstrously high levels.

I have elsewhere likened the issue to a General who refuses to believe the intelligence reports of a paratroop invasion until he sees the first invader on the ground. By then the other thousands are in the air on the way down and there is nothing he can do about it.

Finally, climate change reaction may in the end be just what we need. The theory known as “peak oil” is that the global economy will receive a massive shock when energy demands keep increasing at the same time as oil supply starts to decrease. The steps taken to reduce reliance on fossil fuels will also ease the risks of that shock.

What I find a pity is that the climate change discussion has become clouded in the same kind of pointless dialectic as the so-called culture wars - where persons on either side seem to think direct attacks on the other as being wrong in method are productive or useful. Aitken is right to raise his concerns about the climate bandwagon - but his proposed solution of a giant process to decide the "right" scientific answer is also wrong. We have to accept that at this point multiple theories have degrees of evidentiary support - the question is how to act in the face of that, not on how to decide "the truth".

Double Vision

The good news is the gas bubble (with its edge of blood) has gone now. The bad news is that I seem to now have "fourth nerve palsy" which means my left eye doesn't point the same way as my right.

This means I see two images, and as my left eye vision improves the second image is getting stronger. The doc thinks it might have been pre-existimng but that my brain always compensated for it - but now we just have to wait to see if that is the case.

If not it is either glasses with a prism effect or surgery to remove a bit of muscle. What fun?

No Hope for Liberals

There is now conclusive evidence that there is no hope for the Liberal Party. They have announced that Henry Ergas will be undertaking a review of their tax policy.

Ergas in the article is given a title that I don't think he is entitled to, but the absebce of that qualification alone is insufficient to invalidate his role. It is more that his only area of expertise is really regulatory economics, not macro policy issues and certainly not tax. He has no access to a General Equilibrium model to assess the affects of any proposed tax changes across the economy. And most tellingly, his last foray into this territory was embarrassing.

In 2007 Ergas prepared a report for the Menzies Research Centre (no active website!) on the issue of State and Commonwealth expenditures. This was designed to underpin the Costello claim that it was the States putting pressure on interest rates with an old-fashioned crowding out argument. This ignored the fact that the capacity constraints in the economy were in part due to lack of infrastructure spending by the States.

But worse, he tried to argue that the GST windfall to the States had been frittered away on "unearned" wage increases, that is wage increases not tied to productivity improvements.

His analysis was flawed because the evidence was the States had to respond to the general movement in wages in the labour market, and in a tight labour market with skills shortages it was the private sector that was leading in wage settlements. This was not an era of Whitlamesque government led wage increases.

His second problem was that he had blessed little meaningful data on productivity in the major employing areas in the States - health, education and policing. Further he had no idea of how productivity gains (usually achieved through the introduction of new technology) could be achieved in those sectors.

It should be an interesting tax policy when it is released.

Sydney and Plans

I had my first success in getting a letter published in the SMH for quite a while toda; Don't mess with the heart and soul of this great city. (You have to dig a bit.)

It was editted from the original which I share with you below.

It is remarkable the faith people have in the mythical Ability of planners to write wrongs. Supposedly in the city of Sydney those wrongs include the “chaos” created by the unplanned environment of the 50s and 60s.

It is fascinating that the same Premier who planned to give us an Opera House planned to give us the Cahill expressway. Fascinating that the citizenry continues to complain about The Toaster without reflecting how much more open the Opera House is now than it was with the original collection of East Circular Quay buildings.

And the politicians and media get seduced by the nice clean lines of the impressions of the new designs, without looking at the pieces of the impression that are areas that don’t change. The bulk of the improvement is like fashion magazine “before and after” shots, though in this case the after shot is the one improved by not colouring it all in.

Cities grow like organisms, their functions change and morph. Sydney is no longer a bustling wharf town to the disappointment of sum. But messy railways, aerial freeways and busy ferry wharves are visual expressions of the vibrancy of the city. It is not some airbrushed picture postcard of sentimentality. Please Clover and everyone else, let Sydney quietly evolve and banish your sterile visions.

The editted version really missed the bit about how misleading all the artists drawings of the "future" city look. I'll save that for another day.

Gans and Housing

Unfortunately I can't link to Australian Financial Review stories but I thought I'd share this with my few loyal readers. The following was a letter submitted to the AFR Thursday that might I suppose still get a run.

The proposal by Joshua Gans and Christopher Joyce for the creation of an ‘AussieMac’ (“Home loans need an AussieMac” AFR 27 March) is based on the false assumption that mortgage lending is “as safe as houses”. The creation of a AAA rated credit pool to create competition in home lending makes sense if the asset, residential mortgages, really are that secure an investment.

The unfortunate reality is that house prices can be subject to price bubbles like any other asset. Once the bubble goes too far prices will fall, and frequently (or very frequently as now occurring in the US) the owner has negative equity, and the securitised mortgages contain more risk than ever envisioned. The problem with an AussieMac is that it compounds the problem by introducing moral hazard; no one really cares about the quality of the underlying loans if they are using Government guaranteed credit.

The way to stop bubbles is to increase the funding cost to acquire the asset, but in general raising interest rates is a very blunt instrument as it suppresses productive as well as speculative investment. If all housing finance was derived from deposit taking institutions one way to control housing price bubbles would be to reduce the 100% risk weighting given to residential mortgages in calculations of capital adequacy. This is not only effective, but logical, as it reflects the fact that prices now might not match prices in the future.

Securitised mortgages while increasing competition took away the effectiveness of the strategy. A Government backed securitised mortgage market may be worthwhile if it could also include a similar mechanism for dealing with housing price inflation.

Of course I'm jealous that Joshua got an invite to Australia 2020 - but I'm glad he is there, as is John Quiggin. A couple of economists who usually (not always) make sense. Meanwhile poor Malcolm Turnbull and the Liberals are relying on Henry Ergas for their economic advice. I guess he and Malcolm both know how to turn a quid from building and then selling advisory businesses - the search party is still out trying to locate Ergas' other expertise.

A Funny Thing Happened on the Way to the Forum

A classic 60s slapstick-style comedy - but my blog is about Australia 2020.

You see I was vain enough to nominate for one of the committees, disappointed that I didn't receive a letter of invitation and then stunned when the final list was released today.

You see I nominated for what was announced on 3 February as "Economic infrastructure, the digital economy and the future of our cities". With the announcement of the steering committee on 26 February it was announced that Warwick Smith would chair the committee - on "Economic infrastructure, the digital economy and the future of our cities". And that was certainly the name of the committee in the on-line form I completed.

I was a bit concerned when the first twenty members were announced on 23 March, because none were listed for the committee on the digital economy, though at the bottom of the release it still said "Economic infrastructure, the digital economy and the future of our cities" was one of the ten critical areas for discussion at the summit.

But with the final release of the full 1000 participants today the first item "Future directions for the Australian economy – including education, skills, training, science and innovation as part of the nation’s productivity agenda" in all the earlier lists was morphed into two separate committees of 100 - one on the "Future directions for the Australian economy" and a separate one on "The Productivity Agenda (education, skills, training, science and innovation)". On the official lists Warwick Smith is now shown to be chairing this.

What we don't know is whether the original committee was dropped because of lack of interest from potential participants, or it was thought to be too diverse a group of topics (though I can easily link the three), or whether it was because the weight on nominations for the big headline "future directions of the economy" resulted in a need to find a way to accomodate them all.

But in the process the whole "critical area" has simply disappeared. So there is no explicit reference to economic infrastructure - it hasn't been added to one of the other economic lists. There is a whole committee to talk about the minority of Australians who don't live in cities - and no committee for those who do. And meanwhile - the digital economy doesn't exist - and it hasn't even been explicitly added to the 'productivity agenda".

I haven't had the time to go through the list in detail - but I do note the media coverage that James Packer has been added. That might be good because Packer and Lachlan Murdoch together perhaps equals one synapse. But heavens he's on the committee to talk about future directions for the Australian economy. We know his answer - gambling - or, as they call it down on the farm, "Prosperity through Probability" - a great slogan for the side of the barn.

To paraphrase the Bill Clinton 1992 election slogan "It's D-Economy, stupid." So much for Kevin Rudd "getting it" as his Minister for the Digital Economy keeps telling us.

(Note: It is also interesting to note how the order of the committees has changed - with health being top of the list now whereas the economy was originally. Was this designed to make it harder to note the change, or just playing to the warm inner glow of talking about health.)