Don't let bridge designers near our buses!

It has come to my attention that buses in Brisbane are, by international standards, slow.  There’s really no other way to put it.  And I think I have found a way to improve the speed of bus services at the smallest of costs.

Remove bus stops.

I know it’s a bit counterintuitive, but it needs to be done.  My local bus route to the city is around 3kms.  There are 15 stops.  That’s one every 200m.  In fact, some are so close that you can talk to people at the next stop!  Realistically, half of these stops can be removed.  I have actually walked past 12 stops on this route while waiting for a bus – I was so close to where I was going I simply completed the journey on foot.

This absurd situation is not uncommon around Brisbane. 

And while I’m having a whinge, what is with bridge designers these days?  In the past, a bridge would take you across a river.  Now, designers set you a maze of bollards, loops, and swirling paths at each end as some kind of challenge to ensure that only worthy bridges crossers may pass.  The most recent example is the Tank St Bridge.  Instead of landing the bridge is some central and easily accessible place in front of the art gallery, the entrance is underneath the bridge so that you have to walk past the point where any normal bridge would land, then navigate through a tight corner in the middle of a bike path intersection, squeeze between some funky traffic calming posts, and then walk an extra 100m up a loopy ramp to get you back to where you were before.   

You would think designers would learn.  The UQ Bridge has its own nifty challenges.  To get down to the bike path by the river on the Dutton Park side, cyclists must turn right, right again, then left, left, then left again.  One simple path from the bridge directly to the bike path would have been simpler and much shorter.  At the other end of the bridge, pedestrians are faced with curious challenge.  Instead of a path from the bridge directly to the existing path network, a garden has been planted as an obstacle to navigate.  Walk though the garden and it’s about 10 metres.  Walk the loopy path around, and it’s about 20m.  Not surprisingly, the garden became trampled, and after a year a new direct path was built.

And of course there is the Goodwill Bridge, which has a large garden bed blocking the entrance at the Southbank end funnelling cyclist and pedestrian through narrow congested paths.

Are there people who enjoy these little challenges? 

My theory is that designers like to feel they have power.  When they see their designs forcing people to behave unnaturally it is a sign of success, rather than the reverse, where design would complement human behaviour.

“See how my design guides people through the maze. It’s ingenious!”

My economic philosophy of town planning

At the most broad level, the rationale for regulating land use is to minimise negative externalities to neighbouring owners of immobile property assets. This is why even ancient civilisations had strict rules attached to land.

Modern planning continues this tradition. There are few, if any, countries in the world that fail to regulate land uses (maybe the Vatican?) due to town planning’s success in addressing this fundamental externality problem. By regulating land use you can exclude development that will produce impacts such as noise, pollution, traffic, over-shadowing, and other externalities on other land owners. Protecting land rights, and subsequently land values, is essential to a functioning market economy.

This most basic principle is probably forgotten by many 21st century planners. It is one of my reasons for objecting to the proposed South Brisbane / West End plan. Allowing 30 storey developments creates severe externalities in terms of traffic, overshadowing, and use of public space such as parks. Another reason is based on the following second principle.

The second principle links planning and the property market and might be described as flows: the market is the engine and the brakes, while planning is the steering wheel. Development of property is simply one type of capital investment which is driven by broad economic conditions. Planning controls can therefore do little to influence the rate (speed) of development, but have much control on the physical location (direction) of development. While highly successful plans may eliminate some costs and risks associated with investment in property, this elimination of market friction will have only a minor impact on the overall rate of development.

Consider the following situation. The town of Rockhampton rezones the whole city to allow for 20 storey high rise buildings. Will a change to the town plan alone actually generate investment and population growth in Rockhampton? Will we see Rockhampton transform to a densely populated metropolis because the town plan allows it? I would answer these questions in the negative. 

A third principle is that each time planning changes the rights of land owners it chooses winners and losers. Winners are often more easily identified. Those properties where rights to develop have been extended, or those that benefit from restrictions on the use of neighbouring properties, are generally clear beneficiaries in terms of impacts on land value. Losers are often properties that have had restrictions placed on their rights. But many other losers are hard to identify.

Remembering that the growth in demand for ‘space’ occurs at a rate determined broad economic factors external to the plan, allowing an increased density of development to occur in one area may siphon off demand that would have allowed profitable development elsewhere.

This elsewhere can be broad and include many individual parcels of land. A simple example of a remote loser might be Springfield – from the Metroplex development on the former Wacol Army Barracks. If the planning scheme allows Metroplex to go ahead and develop a business park, it will siphon demand for office space in the western corridor away from the Springfield CBD, slowing the rate at which Springfield can profitably develop office space. This effect might flow on to the Ipswich CBD, and other business parks in the Southern and Western corridors.

To reduce politicisation of selecting winners and losers, a plan should be amended infrequently; lest its changes become a continuous stream of political gifts to winners.

So there you have and economist’s view on planning philosophy. At its core, planning should reduce negative externalities. It selects where developments of different types may occur, if in fact the market desires them, and finally, each time a plan is changed it selects winners and losers. Therefore changes should be infrequent. In light of the current practice in Brisbane and South East Queensland, I would suggest that plans (local and regional) last a minimum of 10 years.  There is more to come on how planning may provide fore more organic growth, even in light of the projected rapid population growth in Australia.

Thought of the day

I was intrigued by this question:

What are some examples of successful government bureaucracies?

Defining success in order to answer this question is the same problem that ultimately results in serious inefficiencies within government bureaucracies.  Without clear goals, governments end up stirring the pot but never actually cooking the meal.

To make matters worse, even unclear goals change unexpectedly on a political whim.

Imagine Steve Jobs one day promising in the media that Apple is now going to make running shoes and car tyres.  The whole Apple company would have to learn a new business, and the transition would be costly.  Then 3 years later, he is replaced by a newcomer who declares the shoe and tyre business a failure, and decides instead that Apple should run an airline.  Furthermore, the newcomer decides that the success of the new airline enterprise will not be defined by profits, but instead declares that success will be defined in terms of how much the airline is 'giving back to the community'.  It would be a disaster.

But that's the problem you see.  Tasks that have clear long term goals are no longer implemented by government, but by private contractors.  Governments are left with those tasks that are subject to pot stirring and political whim.  Hence, government bureaucracies never seem to get more efficient relative to private enterprise.

Town planning and organic growth – can we reconcile the two?

After a rather challenging discussion with a close friend last week about the necessity of town planning and the degree to which planning constraints impact property markets, I have decided to embark on what might become a detailed rant on the matter. This may the first of many posts on the topic.

The trigger for this planning discussion was a conversation about the proposed increase in height restrictions on former industrial land in the South Brisbane / West End area of Brisbane (see map below). Currently this area is a mix of light and heavy industrial uses, office and warehouse space, and new apartment developments. The area is earmarked as a new growth precinct, in the same vein as Newstead's transition from industrial to a mix of medium density urban uses.

The reason for the ensuing debate is that I oppose the 30 storey height restrictions being proposed in the neighbourhood plan, even though I support densification as a planning strategy. Instead, what I propose is a plan to allow for flexible organic growth.

There are multiple reasons for my objection, for example;
1.  Allowing for greater development scale per lot will not accelerate the rate of development – the absorption rate of new dwellings and commercial space is determined by other factors.

2.  It is a gift to land speculators who currently hold land with development potential of 5 or 7 storeys.

3.  Even if the plan intention is to greatly increase the land values of heavy industry sites to encourage industrial users to relocate, it may still fail to acheive this outcome. 

4.  A plan already exists which allow 5-7 storeys to be built - enough to easily accommodate the proposed future population of the area.

5.  Given uncertainties about the future, we should be hesitant to plan for a single potential future outcome. Imagine in 1979 planning for Brisbane in 2009.

The ideas that lay behind this reasoning I hope to develop further in future blogs.  For today let me just raise my two reasons against this scale of development that are specific to the South Brisbane / West End area.

First, 30 storeys is a big high-rise – the Hitachi building is 30 storeys, for example, and is 110m tall. There are currently only 28 buildings that height in Brisbane, and maybe it is just my taste, but it would be a pity to see this scale of development across the road from 2 storey character housing.

Second, the justification for allowing 30 storey developments is to have the ability to accommodate an extra 25,000 residents. Currently the population in West End is 6,200, and in South Brisbane it's 4,285 - around 10,500 in total. Allowing the ability for the population to triple is fine, but with a developable area of 38Ha and 30 storey limits, an extra 126,000 people could be accommodated (assuming a plot ratio of 20, and 60sqm per person). Seems a little over the top.

There is, however, one more important thing to consider. Stepping up from a 7 storey to a 30 storey limit is a big leap in anyone’s book. I would not be surprised if the dramatic 30 storey figure has been used simply as a negotiating tool. Knowing that the community would reject any further increase in height limits, council planners (under political duress) proposed a ridiculous height, in order for concession of a much lower height, say 15 storeys, to appear reasonable. If they had simply started with 15 storeys, there would have been much less scope for negotiation, and even if they had ended up with 12 storeys, it would have created much community resentment.

There is much more to say about town planning issue - stay tuned.

Lobbyists: If they are always wrong, why are they so influential?

The Property Council of Australia (PCA) is one of those lobby groups with a blatant disregard of the facts and a history of political influence – the kind we love to hate.

Just yesterday the PCA made a submission to the Queensland government outlining how planning laws that promote densification are likely to increase greenhouse gas emissions compared to planning for more urban sprawl. This is not a joke.

They cite a 2007 Australian Conservation Foundation study to give their position merit, but what the study actually says is that environmental benefits from increased density are wiped away by the wealth and consumption effect. Essentially, the data shows living in smaller dwellings closer to conveniences reduces households’ greenhouse gas emissions, but generally, these households are wealthier, and thus have higher greenhouse gas emissions overall. No surprises really.

But when the PCA get wind of this, they conveniently neglect to mention that fact, and commission a report that produces a number of pretty tables and graphs to show how urban sprawl has positive environmental benefits. They then use this report to lobby the Queensland government to change their Climate Change Management Plan, and no doubt it will be added to the arsenal of biased reports used to influence the development of the SEQ Regional Plan, and planning documents in other states.

I may as well start by stating the obvious. The group commissioned to produce the report are called Wendell Cox Consultancy – I assume it is the same Wendell Cox who wrote the book, War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life. Surely we are to expect a thorough independent analysis of the data from someone who is known as an itinerant anti-public transportation gun-for-hire – surely the outcome of the research was not predetermined! My god!

Second, the report quite simply misrepresents the data. Plotting one variable at a time against per capita or household greenhouse gas emissions (as shown below) neglects all the other variables that have an impact. This type of analysis suffers from omitted variable bias – that is, the key variable that explains the greenhouse gas emissions is left out (that variable in this case is income, by the way).

When we do some actual statistical analysis on the same data we find that income is the main determinant of personal or household greenhouse emissions (when emissions are measured using life-cycle analysis techniques).

After controlling for age, persons per household, State, degree of urbanity (capital city or other), we find that dwelling type (a proxy for sprawl, proximity to CBD etc) is significantly correlated with total household greenhouse gas emissions from consumption – ceteris paribus, the smaller or more dense the housing type, the lower the household greenhouse gas emissions. The table below summarises the potential greenhouse gas benefits of densification when using this type of analysis (where separate house is the baseline).

Clearly, the arguments of the Property Council are based on a misrepresentation of the data by a seasoned pro-urban sprawl, pro-car, gun for hire.

I want to finish with a question. Do our elected officials and senior public servants actually give submissions from lobby groups any credit at all, or are they simply pawns in a much larger strategic game?

Unbelievable

Only this week I wrote about cyclist resentment in Australia, with a detailed look into the arguments of the emotional cyclist v motorist debate that happens down under (but not in continental Europe I might add).

In today's local rag there is a snippet of news in the business section that epitomises the anti-cycling attitude of the typical Australian. For the life of me I can't find it online, so I will reproduce it here verbatim. 

You have to imagine this accompanied by a cartoon of a smiling Neil Summerson running over a cyclist, with bike parts, helmet and limbs flying out from under a precious collectable antique Mercedes.  It's true I swear - look on p40 of The Curious Snail. 

In the fast lane
Bank of Queensland chairman Neil Summerosn had a traumatic encounter of the cycling variety prior to fronting the media and analysts at the bank's record results presentation yesterday morning.
Summerson, a keen car buff with several automobiles in his garage, suffered the indignity of having a cyclist pass his car as he headed into the city for the press conference, estimating the speed of the cyclist at well over 40km/h.
The BoQ chairman pulled up at a stop sign only to see the cyclist whiz through the sign, prompting Summerson to call out, "Don't you obey road rules?" The two-finger salute followed and Summerson then pulled up alongside the bike rider, smiled, and put his foot full down on the accelerator of his Mercedes E500 V8, leaving our rider behind in a cloud of dust. Sticking to the speed limit of course.

My questions:
1. Why is having a cyclist pass you a 'traumatic event'?
2. Why is Summerson's hooning behaviour promoted as an acceptable response for motorists unhappy with other road users?
3. Is this how Summerson behaves every time he witnesses a road rule being breached?

Honestly, I couldn't believe what I was reading.

Coming up next - medicated air!

I couldn't think of a snappier title, but I wonder when we, as a society, decided that everything needs medicating.

Last year I wrote about Queensland's move to fluoridate the water supply, and how there are probably better drugs to put in water that fluoride.

It appears this is just the beginning.  It is now mandatory to add folic acid to bread flour in Australia.  You probably haven't even heard of this before.  Niether had I until I read this article, which argues why this heavy handed regulation is stepping way over the mark. 

The justification for the new regulation is that folic acid is necessary to reduce birth defects.  But surely there is a better way to target the dietary needs of pregnant women (about 1% of Australians or 222,000 women at any given time), than mandate that all bread flour has added folic acid?  How about free pregnancy multi-vitamins (at a retail cost of $60 per pregnancy)?  They are extremely popular with pregnant women anyway.

Why bread flour?  Why not in cheese, or milk? Why not chuck some folic acid in the water with the flouride? It seems a more efficient way of mass medicating to me.

And I wonder how a single chemical that reduces the risk of a single medical problem, warrants such important regulations that impinge on the freedoms of the remaining population.  Why not depression?  Around 800,000 people suffer from depression each year - two and a half times the number of pregnant women.  And 430,000 people a year are treated for skin cancer, but there are no calls to mandate sunscreen in the water (why not, we shower in it don't we), or Vitamin B in our ice-cream.  It is just absurd.

Where will this medication revolting-ution end? Medicating the air used to be called chemical or germ warfare, but no doubt, its time will come, and we will feel so much safer and healthier for it. 

100th post: Bicycle registration?

I wanted to write a beautiful piece reflecting on two years of blogging for this event – my 100th blog post. But instead, I’ll get down to some nitty gritty analysis of contemporary issues with an economic and environmental twist.

Today’s topic is cycling.

After a charity ride from Brisbane to the Gold Coast last weekend, the local rag has ignited the dry tinder of cyclist resentment present in the Australian motoring psyche (remember the Rex Hunt incident?). I want to deconstruct the emotional Cyclist V Motorist debate to see which positions hold merit, and what type of government intervention could provide benefits for all involved.

Here are some for and against positions offered in the reader feedback of the news article.

For cycling
1. Health benefits
2. Decreases congestion for other road users
3. Air quality improvements
4. Low impact on roads (less road maintenance)
5. Low cost transport method

Against cycling
1. Cyclists disobey traffic laws (not licensed so no enforcement)
2. Cyclists don’t pay for roads (no rego, etc)
3. Cyclists slow down traffic, therefore increasing pollution from slower cars
4. Bicycle mafia unleashed on Sunday morning in lycra and riding in groups (not sure what the criticism is exactly – looking silly?)
5. You don’t see horses and carts on the road – get the bikes off. (I really like this one)

So, let’s take an honest look here by eliminating 1, 4 and 5 from the against cycling list. Traffic infringements by cyclist are enforced – I’ve been booked once for no helmet in my own street, and once for no flashing front light. Drivers disobey laws, cyclists disobey laws – can we leave it at that? 4 and 5 were just for laughs.

I will also eliminate point 3 by simply posting a comment from here:
Traffic this morning coming into the city was at a standstill, and there wasn't a bicycle in sight. I'm sure if cyclists started paying rego, all the traffic problems in SEQ would be solved.

So, getting serious now, first, there is no baseline situation against which to compare these for and against positions. Second, there is no objective way to say that cycling is superior to car travel – one is cheap and good for short distances, but not so fun in bad weather, while the other is more expensive, but great for long distances, carrying children, and staying dry.

There are however, a few interrelated issues – health and air pollution. Higher cycling rates might have flow on effects to healthier people, and cleaner city air.

Governments have a choice – act to create a future where cycling is a common and useful transport alternative, or create a future where car transport is the sole option for most transport needs.

It appears that the main argument against cycling is that cyclists don’t pay to register their bikes, and therefore are free-riding on the public road system. So, there we have it folks. A simple solution. Register bikes and everything is solved. We no longer have a cultural animosity towards cyclists.

For some reason I don’t think this is the case.

For starters, this approach is the exact opposite of the effective approaches to offering cycling as a transport alternative used around the world.

Additionally, it assumes that registration fees pay for roads, when fuel excise and GST are the main funding sources.

Third it assumes roads are not public goods – should we have to register our shoes if we want to walk on the street too?

And fourth, it means that cyclists would expect some designated road space. Given that at least 6% of people commute by bike, and many more have bikes for recreational use, would drivers be happy to give up around 6% of their road space to bike lanes? I doubt it.

My recommendations would be exactly the opposite. Assuming you are a government who wants people to have a variety of transport options available you need to provide incentives for cycling, and disincentives for driving (here is a fantastic paper that makes this point).

I would do the following:
1. Get rid of the helmet laws
2. Close road lanes for bike lanes on a select network of urban arterial roads
3. Link together off-road bike paths to form a useful network
4. Have street sweepers regularly go along bike lanes (what is it with Australians and broken glass on the street?)
5. Introduce the Idaho Stop law
6. Increase vehicle registration
7. Include bicycle awareness training in the drivers licence test (and make the test more difficult and expensive)
 
In the end, a cultural change will take time, but incremental steps by governments could help build future cities with a variety of cheap transport alternatives (if that's what they want).

Most rewarding careers?

To my loyal readers,

I want to take a break from the usual blog topics and talk about something a little more personal.  For those who don't know, I am an economist working in the public service but find the work most frustrating, intellectually dull, and completely unchallenging.  You may say that this is no surprise, and that I really should have been expecting this situation.  But the pay and conditions are great and these things were very important when I started the job.

I am now contemplating my next career move and am seeking some advice.  My next move should meet the following criteria:
1.  Intellectual challenge
2.  Rewarding - in the way that you feel like you accomplished something at the end of the day
3.  Potentially ourdoors and active

Another idea is to simply sell up the traditional life, buy a sail boat, and take the family around the world - picking up some unskilled work as we go. If not now, when?

I would really appreciate any thoughts and ideas, no matter how 'out there' they are.

Cam

----UPDATE-----
I think the results of this online personality test sum things up, but don't know where that leaves me as far as a rewarding careers goes.

As a Groundbreaking Thinker, you are one of the extroverted personality types. Dealing with others, communication, discussions, and a little action are your life’s blood - and some of your strengths. You are very articulate and love variety personally as well professionally. New tasks, new projects, new people, fascinate you because you are always interested to increase your wealth of experience. Consequently, you have no problem dancing at several weddings; juggling parallel tasks to be accomplished electrifies you, and you are an accomplished improviser.

Your enthusiasm carries others along and enables you to create positive impulses in your team. Mountains of paperwork, endless e-mail correspondences, and solitary work tire you quickly, and bore and frustrate you. The appreciation of your work by others is more important for you than for the introverted Thinker types. You measure your own professional value by the admiring glances of your colleagues and superiors.

The psychologist Keirsey once described the Groundbreaking Thinker as the “soul of the company,” and that can be just as easily applied to an employee position, as to an independent chief of a company. Since risk represents less of a threat than excitement, freelance or self-employment are well suited to you. However, you must take care to have collaborating staff around you, or that you are able to work closely with other teams in order to satisfy your contact and communication needs. You are naturally suited for leadership positions because there you have the ultimate freedom making your decisions and choosing your tasks.

As a superior, you like to let your subordinates operate on a long leash as long as they do a good job, because it is not your thing to exercise power for power’s sake. Additionally, you don’t feel like worrying about the stuff of others. You much prefer that the person concerned disappears after you have handed him his/her task and later shows up with the finished (and naturally excellent) result. Based on your open way to communicate, then you are not parsimonious with praise.

If you are an employee, you should make sure that your company’s hierarchal structures are as level as possible because you have real trouble with authority for authority’s sake. Otherwise, you can handle critique or diverging opinions pretty well because you don’t take them personally, and are prepared to adapt if you can be convinced of the validity of an argument - if in your opinion it is “logical“.

The Value Problem

Economists believe they have solved the old Water-Diamond Paradox by showing how prices are determined at the margins. But how then do we value a large stock of resources when we only know the value of a marginal unit?

Consider this problem. A river catchment has 1,200 megalitres of tradeable water rights. The last trade occurred at a price of $2,000/megalitre. Essentially this means that the last megalitre (the marginal unit), out of the 1,200 megalitre stock of water in the catchment, is worth about $2,000. But are all the other 1,199 megalitres therefore worth $2,000 a pop? Quite simply no. If the government compulsorily acquired half of the water in the catchment, the 600th megalitre would be worth more than the 1200th megalitre – an example of declining marginal value.

We can see how the marginal value declines by looking at the water use going on in the catchment. Small amounts are used for domestic consumption, some for watering house gardens, some for watering stock, some for watering pasture for stock, some for irrigating land with good soils, some for irrigating land with poorer soils. If less water was available, we would cease using it for low value activities, but keep using it for higher value ones. The value of the first megalitre of water is extremely high, as it would be likely devoted to human consumption.

So, using the numbers from the graph, if the quantity of water resumed was 600 megalitres, the value of the new marginal megalitre, the 600th, would be $4,000/ML.

If we wanted to value the total stock of water before the resumption using unsound logic, we could have simply multiplied the marginal value by the quantity and found the water to be worth $2.4million. We could then do the same after the resumption, and find that 500megalitres was also worth $2.4million! Hang on. 600 megalitres of the resource cannot be worth exactly the same as 1200 megalitres of it unless the second 600megalitres was worthless, which it wasn’t, because the 1,200th megalitre used to be worth $2,000.

I know, it’s ridiculous, but that’s actually how the ABS treats the value of our residential dwelling stock.

But what is really absurd is that when you actually want to sell a large chunk of the resource, the total value declines! Rather than reveal these higher value uses, thus supply shock decreases the marginal value.

This apparent paradox is easily resolved. When a large chunk of the stock of resource is put up for sale, it is a sign that the demand for that resource has declined, by exactly the amount that is put up for sale. The seller no longer demands the resource, so the sum total of demand decreases.

The graph above shows what happens when 200megalitres are put up for sale. 200megalitres of the demand curve are removed, and the new demand curve shifts to the left. The value of the 1200th megalitre drops to $1,000. Using our flawed summation method, the resource is now worth only $1.2million.

It appears that economic theories of value, much like the theories of Newtonian physics, break down at the extremes. This is especially the case since the value of one good, like water or housing, is dependent on the value of other complementary goods, such as crops, labour, machinery, and energy.

We can leave this conversation with some interesting questions.

Imagine Australians decided to move to a newly discovered planet. We can sell all the land and capital to the highest bidder. What would the value of the land and capital be worth without the labour force?

And, is there a value to the total physical resources on Earth? If there is, does that value depend on the population and technology available at the time – does the Earth become more valuable with more people and more production? (strangely enough there's plenty of reading on this topic here, here and here)

Whether the weather increases volatility of markets

I recently read, and thoroughly enjoyed, the book Rigged. In one scene a young trader is asked what factor contributes most to changes in the price of oil - to which he responds, the weather. For example, a cold winter in North America or Europe signals an increased demand for oil and sends the price up. 

So my question is this. Given how weather dependent our agricultural industry, our energy industry, and other essential primaries industries can be, how much less volatile would financial markets be if we had predictable or constant weather?

Funnily enough, there are plenty of people out there studying this exact question. Really. You can find papers seeking to find weather effects on various stock exchanges around the world here, here, here, here, here and here.

Much of the research finds that cloudy days and sunny days do not impact the functions of the market. As a general rule, the more efficient markets, with traders from various locations, are more robust to the weather effect.

But the question here is not about whether the weather has psychological affects on trader behaviour (which is the focus of much research), but whether extreme weather has real impacts on the demand and supply of various commodities. One can imagine that an extremely cold winter in Australia would increase demand for energy, while at the same time decreasing the supply of winter crops, such as wheat, that are affected by frost. There must be an obvious link, but maybe not an obvious outcome.

No doubt there is a link between weather and the economy, and maybe that goes some way to explaining why the simplifications of economic theory provide such poor forecasts. If economists can stay ahead of meteorologists in their forecasting ability, maybe they are actually doing alright.

UPDATE - Turning points

Recently I posted about the spike in population growth experienced in Australia over 2008, and how we cannot simply extrapolate the trend, or we will miss important turning points. I predicted that the rate of population growth will fall from this level over the next few years as a result of

1) reduced migration, and
2) a decline in birth rates due to the ‘bringing forward’ of births encouraged by the baby bonus.

I didn’t have to wait long for some supporting evidence. The ABS today released overseas arrivals and departures data showing a significant increase in departures, and decline in arrivals, since April 2009.  It looks like migration is on its way back down.  When the June 2009 release of the population statistics is published on 3rd December we might just see the turning point in population growth I forecast back in September. 

iTunes v Foxtel

I know; there is no battle between iTunes and Foxtel (yet) but it seems like a good attention grabbing headline. The relevant point here is that Foxtel is releasing a new service where subscribers can download movies and TV programs. Although the service has its drawbacks, it sounds like the next big thing to me.

Whenever I see innovation like this, I can’t help but see it as another example of economics in action. It also makes me wonder what industries will be next to leap into the downloadable marketplace. Given that music and books have taken the leap, probably in response to pirated downloads, movies were an obvious candidate to jump soon. But what next?

This trend in downloadable consumption has me envisioning the possible future response by households and electronics manufacturers. In my future home, a large computer-like device – an all purpose downloading, storage, playing machine, hooked up to a nice widescreen, with decent sound system – will emerge to replace the current mishmash of home entertainment systems, DVD and CD players, computers, sound systems, phones and faxes. iiNet has made a significant step in this direct by combining a phone, modem and wireless router together in a reasonably affordable package. It is only another step to combine this with significant storage space and output to LCD screens, and sound systems, and a simple operating system to manage and play files, and we have my future. No doubt, the Nintendo, Playstation and other gaming consoles will merge with this all-in-one media computer.

While many of the functions of this future machine are available on current home computers (with some peripherals), developing a streamline way of combining this functionality that is accessible to the computer illiterate opens up a significant market. To make this centralised system work with multiple users, most householders will also have a laptop to use a secondary player that will access the home network.

While people may baulk at the excessive consumption of electionics gadgetry, this technology invasion actually replaces and streamlines previous consumption. No more wandering the aisles of bookstore, music stores, or wasting time channel surfing.

There must be significant welfare benefits to the shift to downloadable consumption, and that makes the little economist in me very satisfied.

Rebound effect in action

The image below is from an email sent by the Queensland Government Climate Smart program.  What an odd prize for a program designed to reduce energy consumption!

Move over horoscopes, forget cold reading, here is… economics!

Derren Brown, famous British magician, mind reader, and all round deceptive yet entertaining fellow, has often discussed the tricks used by psychics and fortune tellers. One particular method, cold reading, involves suggesting non-specific messages, and letting the subject of the reading provide the meaning to the message.

For example, a psychic using cold reading techniques might suggest that there is an old male, or a dog, or another such subject of emotional connection, and let the subject say something like, “yes, my dog Spot died recently”, to which the psychic replies with something like, “I can feel you have a strong bond with those, human or otherwise, that you share your life with”. Essentially, the psychic says nothing except that you are close to the people you are close to. But the delivery of the message makes it appear that the psychic knows something about you that they couldn’t have – unless they have psychic ability.

I will get to economists under the fold.

The same tactics are employed in horoscopes. They often say such bland and predictable things as “now is a good time to focus on finances”. My question would be – is there anyone to whom this statement does not apply? Those who struggle to save will interpret it as a slap on the wrist for not saving. Those who do save will see it a reassurance that they should be saving. Those who have just lost their jobs will know that they need to tighten their belts for some time, and those that just started a new job will see it as time to make better use of this new source of income.

My point is that the ongoing popularity of psychics and horoscopes is due mostly to our innate confirmation bias; not due to practitioner’s ability to hear voices of the deceased, read minds, or predict the future.

I wonder then, if economists are at the mercy of confirmation bias. Do those economists that predicted a collapse in the share market now get credit simply because the collapse happened - even though plenty of their other predictions did no eventuate? N. N. Taleb, superstar author and one of the few proponents who acknowledge the limits of knowledge due to chance and randomness, has been given enormous credit post GFC for predicting a crisis. But of course even he simply acknowledged that large unforeseen losses occur more frequently than we believe. If no crisis had yet occurred, he may have lived in relative obscurity for some time.

An economist can simply say such things as “Currently the market is rising on the back of new information on housing starts from the US. The bears, however, are looking towards another dip in the market, after a report released today showed home loan defaults rose for the second time this year. The next year could see rocky times for this market.”

Translation: “Things appear both good and bad, depending on your perspective. No doubt, they will continue to do so.”

How could you be wrong when confirmation bias allows the audience to give you credit no matter what happens!

Maybe it is a wise move for budding young economists to take some lessons in cold reading as a career development exercise.