fatvegan

So it looks like the ACCC lost it's "unconscionable conduct" case against Woolworths. The judge didn't think there were any laws which covered the behaviour, so even if the behaviour of the Woolworths seemed harsh it wasn't actually illegal. However, I think the ACCC fought the wrong case. It was a classic case of extortion, no different in any fundamental way to organised crime groups extorting local businesses.

It seems that Woolworths wrote to it's 821 "Tier B" suppliers, demanding one-off payments to "support" Woolworths. The payments were not part of any contract or agreement. They were motivated by missed profit targets, that Woolworths had set for themselves. They demanded around $60 million and apparently received around $18 million.

In Australia, extortion is defined in the 1899 Criminal Code as:

    (1) A person (the demander) who, without reasonable cause, makes a demand— 
        (a) with intent to— 
            (i) gain a benefit for any person (whether or not the demander); or 
            (ii) cause a detriment to any person other than the demander; and 
        (b) with a threat to cause a detriment to any person other than the demander; 
    commits a crime. 

If following through on the threat "would be likely to cause, substantial economic loss in an industrial or commercial activity conducted by a person or entity other than the offender", then the maximum sentence is life imprisonment.

The nature of the detriment doesn't need to be defined. The threat doesn't need to be made privately.

Woolworths said this practice is quite normal in the retail industry. The ACCC said if it's not illegal then it should be. "Competition experts" said to win the case, the ACCC would have had to prove that the behaviour went beyond industry norms. However, Coles has been to court for the same things and the two companies are over 70% of the industry. Which would suggest their behaviour largely dictates industry norms. Imagine if the ethics of all behaviour was determined purely by narrow peer group norms.

So in summary, they should have ran an extortion case.

The model American puts in 1600 hours to get 12500 km: about 8 km per hour.

Energy and Equity

I always wondered about the economics of buying a car and paying for petrol. This book is from a while ago and rather gendered, but I like the fellow and his funny turn of phrase. And boy do I love ball bearings. Apparently the human walking is already one of the most efficient animals - less efficient than rats but. With a bicycle we are by far the most efficient movers. Except for possibly dingos....

Bicycles are not only thermodynamically efficient, they are also cheap. With his much lower salary, the Chinese acquires his durable bicycle in a fraction of the working hours an American devotes to the purchase of his obsolescent car. The cost of public utilities needed to facilitate bicycle traffic versus the price of an infrastructure tailored to high speeds is proportionately even less than the price differential of the vehicles used in the two systems. In the bicycle system, engineered roads are necessary only at certain points of dense traffic, and people who live far from the surfaced path are not thereby automatically isolated as they would be if they depended on cars or trains. The bicycle has extended man’s radius without shunting him onto roads he cannot walk. Where he cannot ride his bike, he can usually push it.

Today has been such a hilarious day for me. I find it so thoroughly entertaining to listen to the unfathomably rich talk about how hard their lives are. It seems to have become regular Budget week sport actually. Each year the newspapers take up the fight of empowering the rich, and plaster their hysterical pleas for respite all over the front page. For the first time today I heard the term "mortgage poverty", which describes people who are technically super-rich, but have convinced themselves they are poor. I plan to use this term and its variants regularly.

As funny as I find it all, if any of those poor battlers threatening to move overseas are actually serious, I would support them with all my heart and soul. In fact, I think I would even be willing to sponsor part of the purchase price of a one way ticket to anywhere else.

I've just had my first real experience of foreign exchange risk. I bought a bike from the UK about three weeks ago. It was worth a bit over £2000. I paid a deposit when the exchange rate was AUD 1.65 = GBP 1. Now it's 1.75 dollars to the pound, which adds an extra $300 to the cost of the dear bike. Gosh and gosh.

I don't even believe in the modern business-like notion of "efficiency". It dovetails with totalitarianism, facism. People say, "If it's decentralized it will be inefficient." I think that's fine. Let it be inefficient.

Arundhati Roy

These are some numbers from Afghanistan.

US military expenditure for the war against (estimated): US $66 billion
GDP (Purchasing Power Parity): US $22.27 billion

So about three quarters of all money spent in that country is used for smashing and killing stuff. One quarter is used for everything else.

It seems that the insurance market for carbon storage is finally starting to get up and running. Obviously, it only insures companies for the low danger of the first 50 years, and not the rather more difficult to insure period of eternity. Luckily for the corporations the life expectancy of a Fortune 500 corporation is only 40-50 years, so they don't need insurance for eternity.

Stupid stupid stupid.

Yesterday, our morning bible reading was The Parable of the Workers in the Vineyard. It's a nice little piece about gratitude and the virtues of property ownership and worker exploitation. It's not often I get upset with stuff Jesus says, and I'd never thought about this passage but when I read it yesterday I got cross.

The idea is that workers who negotiate a wage should be grateful, even if the value of their work is far more than the wage. In the case of this parable workers are clearly being employed for a fraction of the value of their work to the landowner. But if they are desparate for work and only have the social power to negotiate a small wage, according to Jesus, they have no reason to complain. If there are others who don't need the money and can hold out for a better wage, then good for them. The landowner is apparently entitled to spend his money however he chooses.

I have largely felt that the New Testament does not serve power, and that is why I find it so confusing and compelling. This parable clearly serves power, using the familiar rhetoric of demanding gratitude for whatever scraps the powerful decides to throw your way. It is even surprisingly transparent. Jesus is clearly saying that a rich man has the right to distribute money however he chooses. On one level it is reasonable to argue that people can negotiate a contract for any wage, but price-discrimination as Jesus is suggesting would probably be illegal in Australia at the moment. Although it probably approximates an AWA.

The outcome of this mentality is fairly clear and until unions came along was basically how wage negotiations worked. The powerless worked for a subsistence wage and the powerful worked for the value of their contribution (however difficult that is to figure out). Those who needed the money to feed their children were certain not the get it and those who didn't need the money were showered with it. It's a perverse situation, but was totally pervasive for hundreds/thousands of years. This parable is almost a perfect case study for how the powerful will always do whatever they think they can get away with and why we need (and probably will always need) unions.

I think this article on the "crisis" of housing oversupply is an excellent example of a number of things rather wrong with capitalist economics. It suggests that somehow too many houses have been built. That is now causing problems because housing prices have dropped (which makes house owners sad) and there are too many empty houses scattered about (which also makes the house owners sad). There is another problem with all the construction workers who were building those house. They no longer have jobs because nobody is building new houses anymore.

The ingenious solution to this problem, is to pay all those construction workers to knock down all the houses they have just built. This is presented as a solution that, at face value, sounds absurd but in practice is a solves the problem wonderfully. I certainly agree that it sounds absurd at face value. But I would go further than that. I would say that the idea is absurd in every respect. The solution also suggests a wondrous contentedness with the original problem. The core problem was that the time horizon relevant to decision-making in our economy was about six months. The decisions made were totally stupid and invested money in all the wrong things and almost none of the right things. The solution is not to waste a lot bunch of additional effort undoing all that work. Our economy is now facing a whole lot of real problems far more substantial than wealthy people having to cope with lower asset prices that were fictional anyway.

We don't have a problem finding work for people. If we need to keep people busy so they don't get sad (which we do), we can keep building solar power stations. Or fix up our existing houses to make them better. Knocking down houses can only "create value" if you're a perverted individual who has managed to link his own happiness to the House Price Index. Some people might get excited at the idea that knocking something down can make prices go up, but I doubt it's most people. Prices are not the issue. Despite all their magic, they didn't get us anywhere good when we thought they were working. They're certainly not going to save us now we've realised they were wrong the whole time. And fucking around with the real world purely to give us some sense of financial planet stability is not what we need.

People just like this fellow were and are in charge our of economy and society. What the hell are we doing?

There are rumours that the government is going to cut the private health insurance rebate. If that happened, it might be my favourite real policy the government has done. That's is not just a regressive policy but it's totally inefficient. Not only is it getting those without private health insurance (the poor) to pay for the health care of those with private health insurance (the rich) but I'm not sure it even saved any money.

We're are going to go to my cubby house and we are going to stay there. We are going to live there. We are going to my C-U-B-B-Y-H-O-U-S-E for our birthdays. We won't leave. We are not going to sell. No. We are not going to S-E-L-L.

Most of the coverage of the KFC has been absolute megacrap, but some of it is quite good. I read an article by William Buiter the other day called Zombie solutions: The Good Bank vs Bad Bank approaches and it was great. I agreed with most of his suggestions and he doesn't seem to get sucked in by same old bail out justifications.

For instance, most articles assume we have to bail out all the banks et al because not doing it it will be too messy and having a whole bunch of formerly rich people begging on the streets is too unseemly. They take the Lehman Brothers as the example of what happens when the government doesn't bail someone out. People act like the panic it caused was the government's fault - as though it was panic that could have been avoided. Lehman Brothers may have affected the exact timing of the start of the KFC, but it certainly didn't affect it's eventuality. It was inevitable. The panic that flooded through the markets after the Lehman Brothers collapse was a totally rational response to the discovery by traders that tax payers wouldn't cover every single dollar lost in the impending crash. It was when they all first realised that bluffing the government was not going to be bulletproof insurance against losses. It has been remarkably effective insurance so far, but not perfect.

I'm inclined to think that had the US government abandoned all the flaky institutions who'd earned above normal profits during the last decade, and invested more money in everything else then we'd be in better shape. William Buiter's suggestion is similar. Instead of the government buying all the dodgy assets, whose values aren't known, he suggests the government only buys the healthy assets. The result would be a massive goverment-owned bank and a whole lot of mostly insolvent but fairly irrelevant former banks. The shareholders and creditors would be left with the bad assets their banks had bought. They could sell them for a massive loss (probably), or they could sit on them for as long as they wanted waiting for a liquid market to appear.

The only real downside of this is that rich people would get slightly poorer and the government would become the biggest bank in the country. If you consider how bad a job the rich have done of being rich lately and how bad a job the free market has done of running banks, then I don't think either of these problems are terribly bad.

The article is worth a read. It makes sense of some stuff that I haven't heard other folk talk about and it's pretty free of madness.

I'm not sure if the government is going to give me $900, but I have been thinking about the best way of spending it. I'd been planning to pay back my Tasmanian wilderness debt which is very large. However, I've been wandering about Campsie a lot the last few days and thinking that it would be better to spend it very slowly over six months on lunches in Campsie. Lunch is about $10 at most of the places. Today Kyung and I paid $12 each for a spectacular Korean feast. It seems like good value and it's putting money into the local economy.

I don't want to spend the money on things where the profits will go straight to the rich. It's good if we can keep the money circulating amongst the poor for as long as we can. If we tried harder to buy things from the working class and tried to avoid buying things produced by the intellectual class, then it we'd shift a bit of economic power away from the rich. So I've been trying to think of things I value that are made by the working class. Probably food is one of the best things. Although it obviously depends on what sort of food. But it probably excludes a lot of the imports I like, such as computers and digital cameras. A lot of those things are probably made by working classes overseas, but I suspect most of the profit goes to rich middle-men.

My compromise might be that I don't buy any digital cameras or computer upgrades, but I spend half the money on local food and the other half on debt. It's always nice to pay off debt.

Those of us who have looked to the self-interest of lending institutions to protect shareholder's equity - myself especially - are in a state of shocked disbelief.

Alan Greenspan, Former Chairman of the US Federal Reserve

This is hilarious. A very large part of this man's job was acting as a check to the self-interest of lending institutions. The real question, though, is why the extremely important job of maintaining stability in the US finance sector was ever given to somebody who didn't think his job was at all necessary.

The cover story of today's Australian is about the minimum wage and some of Ian Harper's thoughts on the subject. He's worried that linking maternity leave pay levels to the minimum wage will be a disaster because middle-income mums would have to survive on working class money. He doesn't want to have any more people with a vested interest in the level of the minimum wage. It's hard enough convincing the working class they aren't getting a bum deal, but if you have to start persuading everyone else you'll have no chance.

It doubles the constituency of people with a vested interest in the minimum wage from 150,000 to 300,000. Now half of them are low-paid people. The other half would be saying: 'How can I pay for all this baby gear on this miserable wage?'

Our concern is what this does is conflate, to confuse, two policy objectives which are very, very different. Some of those mothers will be low-paid but many aren't.

I still get surprised sometimes that folk can come out and say shit like this without any sense of self-consciousness. For Ian Harper, the thought that high-income mums might have to make do on minimum wage for what he calls a "brief period", truly is a horror.

Spending a bit of time in Alice Springs has got me thinking about economics and unemployment. The unemployment rate amongst indigenous people is probably not as high as it feels, but it's still pretty high (19% for NT in 2006). There's an overwhelming sense of needing to shift the culture to make people more employable. Education needs to increase. English skills need to improve. People's work ethic needs to improve. We need to "skill people up" to cope with the challenges of a modern economy. There are some efforts to instead change the labour market, to reduce the burden of change placed on the community, but these efforts appear pretty minor. CDEP was probably the most ambitious (and successful?) example and that's being rolled back in favour of a conventional labour market. There is the idea that CDEP wasn't real employment, because it was subsidised and the wages weren't market wages.

So while no one really wants to label the indigenous communities as "failing" it feels like that's what everyone is thinking. That's sort of what the Intervention is about. The communities are supposedly so screwed up that the government needs to roll in and fix things up.

But it seems to me that the real failure in the Northern Territory is the labour market. We have backed it 100% but it hasn't delivered. The idea is that the labour market allocates work and incomes to the majority, and all those who benefit from it look after the people who get shafted by it. It's most fundamental promise is that it will find people jobs that are a better alternative than poverty. But here that hasn't really happened. For a lot of people in the Northern Territory, poverty is still a more appealing option than any of the available jobs. There are obviously different levels of poverty and if you removed welfare the incentives would change slightly, but not dramatically. I wonder if white onlookers are exaggerating the burden of income poverty and/or the appeal of the jobs there are. After all, for Quite a Long Period, indigenous people lived pretty merrily on consumption far lower than they do today and only worked a few hours each day.

So I don't perceive there is a problem with the work ethic of local communities or with indigenous people at all. I don't think work ethic is even a factor here. I really think it is more about the options available to people. And that is a failure not of the people but of the economy. It's a failure that I suspect is mostly the fault of relying on a market to distribute work. I think that most indigenous people value the resources and services that Europeans have introduced. But I don't think they value them as much as Europeans and I don't think they always value them enough to sign up for one of the jobs on offer.

People are already talking a lot about this sort of stuff, which is great. But I don't feel like they have stopped being exasperated with indigenous people, which is possiblly just as important. We still offer welfare begrudgingly, even though I think it's a necessary component of our preference for market solutions.

I reckon we need better jobs and a more deliberate effort to find jobs that people want. We need jobs that are a better option then welfare and/or income poverty. That definitely isn't easy. If it was then the market would probably have done it already. And it's probably a harder solution than just brainwashing kids through the schools. But I think it's a better solution.

I don't know much about the science of clean coal, but I've been rather skeptical of all the clean coal skeptics. It tends to be framed as an enormous waste of investment with no returns and all. It's possibility of "clean" coal is supposedly a total myth. But I tend to doubt that kind of black and white analysis. I don't think the government would put $500 million into something with no prospects at all. I'm a little cynical about the government, but not that cynical yet. Still, I have only skeptical friends but I wasn't fully convinced by them.

But I recently read an article about clean coal subsidies from government, and specifically government insurance of long-term storage facilities. So companies would have to insure their storage against accidental release for a decade or so, but if anything went wrong after that the government would step in and pay for it. Or at least the government would cover the costs of insuring against accidents. The argument for this subsidy is that the industry won't be viable with out government support. And we're not just talking about short-term viability - but viability over 50 years. Which is surely reason to be suspicious. The industry apparently cannot be profitable if it has to cover all the costs of long-term storage.

The Greens were asking in parliament why the government should subsidise the industry. The government responded that we need to have clean coal, and the subsidy is the only way we will get it. That is rather strange. I suspect the solar power industry would flourish, completely absent of any subsidies, if the government stopped covering the arses of coal power plants by allow them to pollute for free. They're talking about solar power that will be cost-competitive with coal power in 10 years and that's with a slow carbon tax phase in.

MP Dick Adams claims "we need to find ways to assist the industry to begin." I don't think that insuring a company forever, against any cost shortcuts and mistakes it makes now is really a reasonable way of doing that.

Another interesting comment from Dick Adams was that since a lot of the clean coal operators would cease to exist, the government would assume long-term liability by default. If he really thinks the free market works so poorly, that a company can't assume long-term responsibility for it's infrastructure, then he probably needs to reflect a little hard on why he's supporting private industry here to begin with. I'm inclined to agree that free markets are only functional in the short term, but I'd suggest that the government run or regulate anything that needs a longer-term perspective. Just absorbing the long-term costs while allowing the immediate benefits to accrue to the private sector strikes me as rather stupid.

Once again, I'm surprised to discover that the Greens have given the economics of an issue a lot more thought than the other guy.

I've written about Coase Theorem before. But I had another thought about it. The idea of the theorem is that it doesn't matter who gets the right to decide what happens to things (or who gets the property rights), the outcome should be the same. Theoretically, the two (or more parties) will negotiate and the optimal use of the resource will be figured out. The benefits of using the resource as well as it can be used mean that everyone can have a bit more stuff. There are plenty of issues with it - unequal incomes, difficulty monetising the "vibe" of things that people enjoy, and the fact that people don't really negotiate with each other that much. But even so it does have some sense to it and it is used a lot by governments to justify their decisions.

The government will use it to say that it doesn't matter if they give land rights to indigenous people or mining companies. If indigenous people get it the mining company will just pay them to leave. If the mining company gets it they will make people leave without paying them. The second option might not seem "fair", but of course, in economics there is No Such Thing as fair. And even though it isn't fair the economists are happy because the land really should be used for mining because that is clearly its most productive use. Or at least that is the reasoning.

I think that is all quite silly, however even if you think it's reasonable I don't think you can be indifferent between who gets the property rights in the first place. The government largely assigns property rights arbitrarily. There is really no way around this, which I suppose is one of the dumb things about property in the first place. When the government assigns rights to one party, it is effectively imposing costs on the other party. They're either going to have to forgo a whole lot of benefit or buy that benefit from the other party. Often those costs are enormous, as in the case of communities moving to make way for big developers.

I'd suggest that those costs (which should of the same magnitude for whichever party doesn't get the property rights) are more difficult to absorb for the less organised party. Even if you think they can both negotiate equally, the more organised party will be better able to insure themselves against large, uncertain costs. Mining companies do it by distributing shares amongst a large number of people. Indigenous communities have to just get up and move.

It's hard to imagine an aboriginal community insuring itself against the possibility of losing a court case which forces them to move to another town. It's very easy to imagine a mining company insuring itself against the possibility of losing a court case which prevents them from mining somewhere they hoped to mine.

The ease with which a mining company can adapt to change makes the cost of that uncertainty or the arbitrariness of the government's/court's decision far more manageable. It is also a purely monetary cost which is easier to distribute over time or amongst others.

So I would suggest that in a disagreement between two parties, the property rights should always be given to the party least able to protect itself from the costs of not having those rights. According to Coase, this shouldn't affect ease of development at all. The mining companies can still buy the right to mine from the little guy if it's really the most productive use of the land. But by biasing your decisions towards the weaker party society can benefit from better risk distribution which comes entirely for free.

I was reading the paper today and I found yet another article about how decreasing prices are putting more pressure on people's mortgages. Which seems to me very weird. As prices go down people possibly feel more stupid for paying so much, but it doesn't have any impact on their ability to pay the mortgage. Unless they're possibly doing some silly leveraging thing where the bank gets scared about equity and repossesses the house (or probably several). But the battlers these articles like talking about don't tend to own many leveraged properties, so I don't think this affects them.

If anything, dropping house prices reduce the burden on the average house owner. More people are able to buy houses with smaller mortgages. I don't understand how journalists think the price boom can be bad for home-buyers, and then the price crash is also bad.

There was an article in the Epoch Times called "Falling prices increase mortgage burden", which prompted this rant. But they definitely aren't the only ones saying this kind of thing.

Economists from across the political spectrum understand that one of the major factors driving health care costs is our third-party payment system that insulates consumers from the cost of their health care decisions.

More Than A Theory: Medical Savings Accounts at Work (CATO)

I'm not sure what CATO considers the full range of the "political spectrum" to be, but this statement is pretty much just wrong. There are plenty of economists who don't believe this, and if I count as an economist then I am one of them.

You could conceivably argue that the reason we have "high" health expenditures is because our system "insulates consumers from the cost of their health care decisions". But I can't understand how a system that has scarcely changed in 30 years accounts for the rapid increase in health care expenditures over that same period. The US system has probably became less socialist in that time, and yet health expenditures are increasing a lot. It seems to me that it's less a problem of overconsumption and more a "problem" with the income elasticity of demand for health care. As people get richer they look after themselves better and spend more on health.

But it's still a crisis the economists will say. Health expenditures can't grow faster than income forever. It's true, but isn't necessarily a problem for a long time yet. If our income increases by 5% each year, it's really no problem if our health expenditures increase by 10% each year. Obviously that can't happen for ever, but we don't have to worry about it just now.

Using that example, we have another 60 years before we have to be concerned. If health expenditures continue to grow by 10% and total income continues to grow by 5%, the amount of money we have left over after health care won't actually drop until 2070.

And if health expenditures grow by 15% a year (instead of 10%) then we still have 30 years before our residual income will drop. At that point we'd be spending 77% of our income on health care and we'd still have more money to spend on other stuff than we have now.

Alternatively, if income only grows at 2% (instead of 5%) and health care costs grow by 10%, we also have 30 years.

So I really feel like it's not a big deal. When they make scary claims like "health care costs are rising by 15% every year" you forget that we only spend 5% of our income on health right now.

My original point was mostly just that CATO are silly. And they are. But they're not the only ones. Every research paper or news article about health insurance or health system finance seems to include some spiel about the impending health funding crisis. Sometimes I wonder if economists and bureaucrats just love having crises to make themselves feel important.