Tobin tax for Australia?

But I see offhand no other way to prevent financial transactions disguised as trade

In 1972, after the collapse of the Bretton Woods system (where currencies where pegged to the USD, which itself was backed by gold), economist James Tobin proposed a tax on the conversion of currencies. As he says - 

The tax on foreign exchange transactions was devised to cushion exchange rate fluctuations. The idea is very simple: at each exchange of a currency into another a small tax would be levied - let's say, 0.5% of the volume of the transaction. This dissuades speculators as many investors invest their money in foreign exchange on a very short-term basis. If this money is suddenly withdrawn, countries have to drastically increase interest rates for their currency to still be attractive. But high interest is often disastrous for a national economy, as the nineties' crises in Mexico, Southeast Asia and Russia have proven. My tax would return some margin of manoeuvre to issuing banks in small countries and would be a measure of opposition to the dictate of the financial markets. (here)

A 1978 article where Tobin reflects on global monetary reform is here, and well worth a read. The relevance to Australia in 2011 is quite clear when he says -

National economies and national governments are not capable of adjusting to massive movements of funds across the foreign exhcanges, without real hardship and without significant sacrifice of the objective of national economic policy with respect to employment, output and inflation.

While Tobin originally suggested that all countries cooperate to implement a standard tax rate, with revenues raised pooled centrally, the idea is equally valid for a single currency-issuing nation to tax conversions of its own currency.

The logic behind the tax is quite sound. An influx of foreign funds only provides domestic benefits when it backs real investment in productive enterprise. And investing in a real business takes time. As Canadian economist Rodney Schmidt noted in 1994

In two-thirds of all the outright forward and [currency] swap transactions, the money moved into another currency for fewer than seven days. In only 1 per cent did the money stay for as long as one year

A currency exchange tax reduces the gains from short term currency trades, and for a single country, allows them to reduce distortionary taxes elsewhere in the economy leading to productivity benefits. It also means there is a strong incentive for national savings to be invested locally, and a cost to banks seeking offshore funding to support their capital requirements. It also provides local governments some degree of control over their economy, rather than being at the mercy of global conditions. These are all good things.

Of course, like any tax, the risk is that governments simply spend this extra revenue unproductively and do not reduce distortionary taxes elsewhere in the economy, which greatly reduces its potential benefits.

In 2009 Brazil implemented a similar financial transaction tax regime that applies to foreign investment in stocks and fixed-income securities at a rate of 2%. And it seemed to work -

Brazil's currency and stocks fell sharply yesterday after the government imposed a 2 per cent tax on foreign portfolio investments to stem the rapid rise of its exchange rate.

But only for a while. The chart below shows the Real regained its strength fairly quickly. 

(This is not to be confused with Brazil's former Contribuição Provisória sobre Movimentação ou Transmissão de Valores e de Créditos e Direitos de Natureza Financeira, or CPMF, which was a transaction tax levied at 0.038% on all bank transactions from 1993 till the end of 2007) 

Of course the empirical macroeconomic problem arises once again here - would the Real have been even stronger if not for the tax? Who knows? My gut feeling is that because economic agents adapt very quickly to new taxes, their offsetting behaviour can greatly reduce the intended effect. 

Since that time, the global battle to devalue domestic currency has resulted in many calls to implement Tobin taxes, from the British Prime Minister to the French President, with all political leaders seeking input from the IMF. The IMF is now coming around to the idea (recently releasing this working paper), and with DSK's likely replacement Christine Lagarde being a fan (here), chances have improved that this tax will be supported globally.

There is even strong support from the economics profession, with1000 economists writing a letter in support of the idea earlier this year. A good summary of the breadth of support (and not) for such a tax is here. Even economists at the Australian Treasury are talking about it. 

The cynic in me says that such a tax is unlikely because those who benefit from fast and cheap currency exchange are those with the most money, while those who bear the burden of a high domestic currency are usually the workers in marginally competitive industries.

For Australia I see only upsides to this tax. A lower Australian dollar and reduced foreign investment will help to slowly rebalance our economy to become more diversified and stable again. While the Henry Tax Review overlooked this type of tax, at least we have a backdrop of tax reform to accompany a Tobin tax.

The outcome of this political battle with the global financial elite is anyone's guess.

Gay marriage - questions

The gay marriage debate is extremely interesting. I have a few issues that never seem to be resolved, and are often bypassed in discussion on the matter.

1. Marriage is a religious institution essentially designed to encourage conformity to a norm of one sexual partner, and for specialisation of labour in raising children. Why do so many gay people want to acknowledge this ancient religious anti-gay institution at all? In Australia there are almost no external benefits (in the form of tax treatment, visas, welfare etc) for marriage over de facto relationships. Why not just promise each other you'll be faithful till death do you part? In fact, why do straight people continue to be married (I am, and have my reasons, but I'll keep them for another time).

2. If people want 'marriage equality' why can't I marry my sister? Or my mother? Surely to be equal ALL marriage between consenting adults must be allowed? After all, the main social problems of genetic abnormalities from inbreeding can be solved by IVF - the same way gay couples are having children. In fact, two gay men who happen to be brothers should also be able to marry, no? It is love between two adults, so what's wrong with it? I can't believe anyone could argue for gay marriage and not for sibling marriage, especially between gay siblings, since the arguments are all the same.

3. Any study showing the 'superior' outcomes of children from gay couples (of which there are a few - here's a starting point for some academic research) must control for incomes and other social factors. I have a hard time believing that the 'gay couples with children' sample of society has a similar income distribution to 'heterosexual couples with children' and we know this is a huge factor in child development.

4. Is the desire to have children not in any way related to the desire to mate with the opposite sex? I would have thought that the two are somehow related, which makes me feel like there is more of a 'conforming to social identity' issue at play over the desire to be a progressive gay couple with children.

5. Are children raised by gay parents more or less likely to be gay themselves? It seems intuitive that they would be far more likely, both because one parent would be a biological parent, and the nurturing and exposure to 'gay' behaviour. Is this good or bad? Are children really getting a choice? Will marriage legitimise being gay as normal? Is that a problem?

6. Should gay couples be allowed to adopt children? Why not? Should IVF treatment for lesbian couples be subsidised by Medicare? Surely not.  It isn't a medical condition. If they want to pay the full cost for privately provided IVF from a voluntary donor, so be it.  If they want to meet a guy at a bar and do it the old-fashioned way, that is fine too.  But what about gay male couples? What about married gay brothers? Will recognition of marriage be a stepping stone to more subsidies for gay families?

7. What legal rights exist for the biological parent of the child who is not part of the 'parent couple'? If the relationship breaks down, will the courts decide in favour of the biological gay parent, or the surrogate biological parent?  Will marriage affect this decision?

8. If two children from gay family each have one of the parents as biological, and the other parent a different surrogate (so they are not 'blood relations'), can they be married?  What about if these two children are gay?

In any case, I always wonder why people don't just say why they feel gay marriage is unacceptable instead of beating around the bush about 'equality'. And those who so strongly support gay marriage should think about the flow-on implications to the role of government, the courts, the rights of parents and health care.

If you can't tell, I see no good reasons in favour of gay marriage, and plenty of unresolved issues surrounding rights of married gay couples, particularly regarding children.  Of course, I have no problem with two adults choosing to have a relationship with each other, regardless of their gender.

Recycling Jevons Paradox

I have previously argued (here, here and here) that cost effective recycling actually leads to an increase in the demand for the resource being recycled. This is the opposite of what most environmentalists, and even most economists, believe.

What I probably didn't explain is that not only can recycling increase the demand for the resource being recycled, but it can also increase demand for all other natural resources used in the economy. Yes, a new technology that makes recycling car tyres cheaper than manufacturing new car tyres would increase our demand for tyres (because they are cheaper) and for other resources, like oil. The reason is simple. Automotive transport just became slightly cheaper due to the recycling technology, and the response to this price reduction, however slight, is to increase the demand for automotive transport and all the other resources required to provide it. 

This result usually seems counter intuitive at first. But we all accept that improving labour productivity does not decrease the demand for labour. And we all accept that improving agricultural productivity leads to an increase in land under cultivation, due to marginal lands becoming economically viable. So why not recycling? After all, if recycling is cost effective, isn't it also an example of improving the productivity of the material?

At the risk of being painfully repetitive (this is my fourth post on the matter), I will use the 'recycling of labour' as an example.

Suppose there is a task that takes two labourers a month to complete. Given the nature of the task, suitable labour can be found at $1000 per month per man. Now, a new technology allows us to 'recycle' the first mans labour at a cost of $500 per month. Given this is half the cost of employing a second man, recycling is an obvious profitable choice to get the work of two men achieved in a month with only one man. This new technology might comprise new equipment (power tools etc.), or simply the investment in teaching the man new skills.

In any case, one man is achieving two men’s' work for less cost. If I changed the terms a little it is clear how this is actually an example of 'labour recycling'. "Two bottles of cola can be provided with one bottle for less cost" would be a simple summary of the net effect of plastic bottle recycling.

But we know from centuries of experience that recycling labour increases demand for it. And we know that it leads to productivity gains elsewhere in the economy, since you can't improve economic productivity in isolation of the rest of the economy. As Len Brookes once elegantly noted, the 'principle of the indivisibility of economic productivity' means that any technology that improves the productivity (aka efficiency) of one resource, improves the productivity of ALL resources in the economy.

This post was partly inspired by one of Don Boudreaux's blog posts (originally published here). In it he describes recycling more broadly - 

After I awaken, I shower and dry myself with a towel that I’ve had for a few years. I don’t discard it after one use. When it gets dirty, I rejuvenate it by processing it through recycling machines that my wife and I own: a washing machine and clothes dryer.

Then I brew coffee and fix breakfast. Each day, I use the same coffee maker that I used the day before. I clean it after each use, recycling it for the next brew. My wife and I drink the coffee from mugs that have been used many times in the past. (One set of our coffee mugs was handed down to us after my wife’s parents used them for several years.)

We also eat our breakfasts using dishes and utensils that are recycled from countless past uses. After breakfast, we recycle our mugs, dishes, and utensils with the help of another recycling machine: an automatic dishwasher.

After breakfast, I dress in clothes that I’ve worn before and that I will wear again. My underwear, my pants, my shirt, my necktie, my belt, my coat, my shoes – all are recycled from previous uses. Indeed, I take my suits and coats to a store specializing in recycling such garments: my local dry-cleaner.

And from a later post -

When materials are worth recycling, markets for their reuse naturally arise. For materials with no natural markets for their reuse, the benefits of recycling are less than its costs – and, therefore, government efforts to promote such recycling waste resources

His use of the term waste in the final sentence is misleading. He means that no consumers will gain from government efforts to promote costly recycling, therefore the resources utilised in recycling are wasted, as they could have been employed elsewhere to better satisfy consumers. However, from a macro viewpoint, it is this very cost INEFFECTIVE recycling that reduces economy wide productivity (aka efficiency) and resource demand.

That is the key lesson here. If an activity in uneconomic, it decreases our total level of economic activity and our total demand for resources. If it is economically justifiable, it increases our demand for natural resources. Indeed, if we are concerned about the externalities associated with using our natural resources we need to restrict the supply of these resources at the source - restrict sand mining locations, reduce allowable mining rights to coal etc. Trying to achieve these environmental outcomes by the most indirect route possible, through the consumer and far upstream production processes, is completely misguided.

Queensland’s Strategic Cropping Land

I have been critical about the farming lobby’s reaction to the Murray-Darling Basin Plan, and I have also been very critical about the value of food security, especially when used as a justification for agricultural subsidies.

My general belief is that farmers should be treated like any other business and face risks from their investment decisions.  Because this belief I strongly support Queensland’s new Strategic Cropping Land Policy. 

The policy under development gives farmers a chance to opt out of mining and gas production on their land. Currently land owners must allow mineral and gas exploration and development on their land. The mining industry has legislative power behind it to explore for, and mine, the States mineral resources (have a look at your title deed and you will note that even freehold land owners don’t own the minerals under their land).

This means that miners do not need to buy any property rights from existing land owners to conduct activities on privately owned land. They do however need to provide some compensation for disruption to activities (as prescribed under the relevant acts).

In the greatest of ironies, agricultural policies in this country have protected farmers from their own business decisions (eg. subsidising water supplies, making drought and flood payments - I argue these events are part of the natural weather cycle and should be anticipated), yet have not protected farmers from external threats to from mining.

It took a while for the food security lobby to realise that the food production of the country rests in the land, soil and water, not in the individual businesses of farmers. If a farm business fails, the productive capacity remains for the next buyer of the property. But if land, soil and water is irreversibly damaged, then potential food production capacity is destroyed.

With these bizarre policies in place it is possible to have the situation where a farmer is receiving drought relief payments on the one hand to save his business, while the government is supporting the demise of his ability to farm on the other hand by allowing coal seam gas wells to be peppered across his fields.

In the Darling Downs the preservation of the water quality in underground aquifers is especially important. These aquifers are a significant source of water for agriculture and there is a reasonable probability that drilling through this aquifer many thousands of times to reach the deeper coal seam will contaminate the water. And unlike a river system which flushes water readily, underground aquifers may take hundreds of years to recover (or water users will need to treat the now contaminated water before applying to crops).

The irreversibility of mining and coal seam gas impacts is one of the key reasons that farmers should be given some ability to opt out of such activities on (or even near in some cases) their land.

The outcomes from this type of policy should satisfy a broad range of interests.

1. Land use conflicts are more easily resolved by given some powers back to existing land owners.

2. By protecting the land itself those who want food security and local food produce benefit.

3. Those who want ‘agricultural open space’ benefit (people actually like knowing there are farming communities and driving through the country).

4. Farmers who want to be free to run their own business, protected from irreversible land damage benefit.

5. Those who want mining can do so if the impacts on surrounding land owners are sufficiently low.

Of course there will be problems to overcome during implementation, but in principle the policy appears sound. An indeed, the minerals and gas remain in the ground should future circumstances require their extraction.

The telco confusopoly

The one frustration that started me blogging more than three years ago was the confusing pricing practices of phone and internet service providers. It was quite obvious to me that their 'plans' where meant to be confusing to ensure the consumer could not easily identify the cheapest provider. Today, the Australian Communications and Media Authority (ACMA) has released a report that recommends improving price information for telecommunications contracts to avoid a 'confusopoly' (here).  Amongst other things -

The authority also wants to prohibit what it says are misleading advertising practices, such as the use of the term "cap" on mobile and broadband plans.

"It's not a cap, it's not a maximum, it's a minimum," Mr Chapman said

"We want to prohibit that unless its a genuine hard cap, so that if you exceed your limit the service ends or you get the opportunity to upgrade." (here)

Most recently I have been comparing mobile phone plans. Some of the cheap plans don't allow you to call 13, 1300 and 1800 numbers under the cap, and they all have different call rates, flag fall and penalties for exceeding cap limits. To actually compare providers you need to know your calling needs in advance and have the mathematical skills to run this call profile, and other scenarios, through a model of each available phone plan. Insanity.

As I previously wrote -

By consciously manipulating these two criteria of a free market [low barriers to entry and perfect, or at least good, information], all firms in the market are able to avoid a state of true competition that would produce the most efficient allocation of services, and are able to artificially inflate the value of the commodity, hence producing more profit for each firm in the market.

This is not meant to sound like a conspiracy, because indeed each firm does not need to meet in back rooms with the other firms in the market and all agree to limit customer information and the comparability of their products. They each simply need to aspire to the great marketing ideal of product differentiation, a concept that is fundamentally designed to artificially eliminate direct competition by removing direct comparability.
...

The power of product differentiation, through its ability to remove comparability and create an information gap to distort what could be a perfectly competitive market, can be demonstrated by the case of the term life insurance market in the US in the late 1990s. There was a mysterious and dramatic drop in prices across all firms that did not correlate to price drops in other forms of insurance, which themselves where steadily rising.

According to economist Steven D. Levitt, this can be attributed to the realisation of a perfect market through the power of the internet. Although term life insurance policies had been quite homogeneous before this period of time, the process of shopping around for the cheapest price had been convoluted and time consuming, whereas websites such as Quotesmith.com suddenly made the process almost instantaneous.

In just a few years, the value of the term life insurance market in the US had dropped by USD$1bilion because of the new found ease of comparability. What insurance firm would want this to happen? Even if you were a small player in the market, say a 1% market share, your turnover had just dropped by $10million. It is perhaps one of the great recent examples of the power of perfect competition in allocating resources efficiently, yet possibly one of the greatest blunders by the insurance industry.

I believe that the power of private enterprise is its innovative response to the financial risks it incurs, but with very simple regulation the innovative confusopoly, which comes at a cost to cosumers, can easily be avoided.  Indeed, most of the pushback against the telco confusopoly is from webpages which keep up-to-date tabs on plans from each service provider and enable you to take some rough guesses about future use and compare the cost effectiveness of each offering (eg here)

Milk wars and Anti-Dumping

While there are many questionable assumptions in some economic theories, there are also many solid foundations to economic analysis. One of these was identified by Coles in its submission to the Senate inquiry into milk pricing (available in the Coles factsheet here).

The farm gate price dairy farmers receive is set by the world price because most Australian milk products are exported.


The first implication of this fact is that because prices are set by global markets, domestic buyers cannot buy at prices below the export market price - although they could perhaps be higher.

By following this logic Coles, or any other domestic dairy retailer, cannot exhibit bargaining power as a buyer from milk processors (or distributors). Dairy processors would simply sell all their products abroad, whereas the only alternative for retailers is to buy imported dairy products with associated freight costs.  Processors can then bargain the price up to the price of the retailers next best alternative of imported products. Thus, even though we are net exporters of dairy products we still pay a retail price for domestic dairy products very close to the retail price for imported dairy products.

And to provide further evidence against dairy industry claims, even if Coles did have market power, one must question why Coles would not already be getting milk for the lowest price anyone would be willing to produce for?

The sceptic in me might even go so far as to suggest that upsetting the political milk cart might have been a publicity strategy for Coles itself. News outlets have told the public that Coles is aggressively dropping prices for months now – all free of charge. You really can't buy publicity like that.

Of even greater concern than the media beat-up, and public perception of danger from falling milk prices, is that the law entrenches protection of local industries from international competitors through anti-dumping laws. As the Productivity Commission describes

Australia’s anti-dumping system seeks to remedy the injurious effects on Australian industry caused by imports deemed to be unfairly priced. It allows local industry to apply for anti-dumping duties on goods ‘dumped’ in Australian markets at prices below those prevailing in the exporter’s domestic market or to apply for countervailing duties on goods that have been subsidised by the government of the country of export. Where the dumping or subsidization results in material injury to local industry, anti-dumping or countervailing duties can be applied.

I would have thought that the Productivity Commission would at least understand that export prices cannot be above domestic prices.

In fact, I would have thought that the Productivity Commission would be more interested in local price impacts when the shoe is on the other foot – when it is our exporters who receive protections against foreign competition. For example, fruit and vegetable growers get massive protection from foreign food under the guise of pest and disease control. These producers get to sell to international markets at the global market price, but can sell to the local market at a higher price since there is not competition from imports. This explains why food in Australia and New Zealand can be so expensive even though we are massive food exporters.

The Productivity Commission’s second justification for anti-dumping has a lot more promise – that foreign government s have subsidised their own producers to give them an unfair advantage in global markets.

Yet I can’t help but feel that foreign producer subsidies give the same effect as foreign natural production advantages, such as mineral deposits, labour prices and skills, long term capital investments and so on. Such natural comparative advantages benefits all trading partners as well. So why are unnatural advantages achieved through subsidisation of one sector by others in that country not also beneficial?

These subsidies simply change the comparative advantages in production of different goods. Our response, rather than protect our now disadvantaged producers, should be to adapt to our new relative specialisation.

But what happens when the foreign country removes its subsidy?

The immediate impact is that the total level of production of both trading partners falls as the relative price of the subsidised good increases while the ability of other producers to increase production levels takes time to be realised through capital investments.

This shock will be felt in both countries but one must reason that such impacts will be mitigated by the subsidising country should they decide to cease their current policy. For example, they may phase out the subsidies over a long period of time to allow industry to adjust. The other trading partner also benefits from these decisions.

In this light we could argue that protection of industries from foreign subsidised competitors is a kind of economic insurance against foreign policy risk.

The final problem with anti-dumping laws is the enforcement. Don Boudreaux explains quite clearly how any subsidies other than a direct cash payment or tax break are almost impossible to define.

Another important reason springs from the fact that subsidies are surprisingly difficult to define and identify. The classic case of a government paying a producer a fixed amount of money per unit of output is straightforward. But beyond this blatant method of subsidizing producers, things quickly get fuzzy and foggy.

Does a government subsidize an industry if it cuts that industry's taxes?

How about if the government builds a first-rate system of highways, roads and bridges in proximity to the chief firms in an industry?

Is an industry subsidized if it benefits from a government-financed engineering school?

How about if some of the industry's firms are paid by government to build cutting-edge military equipment?

Are firms that depend upon export markets subsidized if their government provides a top-flight navy to ensure the safety of cargo ships sailing under that country's flag?

Do governments that use tax revenues to maintain law and order and ensure reliable enforcement of contracts subsidize businesses within their borders?

Answering such questions is surprisingly difficult. And, sad to say, if Uncle Sam commits himself to protecting American producers from foreign competition whenever that competition is subsidized, these producers will exploit the ambiguous nature of subsidies as they petition Washington for protection from competitive pressures. They will too freely and loosely allege that their foreign rivals are subsidized.

In the end, these laws and the controversy around milk prices is evidence that economic illiteracy is extremely common, and that political outcomes often override better economic outcomes. But we need to see these economic debates as they are – rent seeking behaviour of existing producers trying to avoid real competition.

Risk homeostasis, Munich Taxi-cabs and the Nanny State

There is an odd coexistence between two conflicting safety policies that may well be pursued by the same accident prevention agency. The first seeks to improve safety by alleviating the consequences of risky behaviour. It may take the form of seat belt installation and wearing, airbags, crashworthy vehicle design, or forgiving roads (collapsible lamp posts and barriers). This policy offers forgiveness for a moment of inattention or carelessness. The second policy seeks to improve safety by making the consequences of imprudent behaviour more severe and includes things such as speed bumps, narrow street passages, and fines for violations. Here, people are threatened into adopting a safe behaviour; a moment of inattention or carelessness may have a dire outcome. 

While these two policies seem logically contradictory, neither is likely to reduce the injury rate, because people adapt their behaviour to changes in environmental conditions. Both theory and data indicate that safety and lifestyle dependent health is unlikely to improve unless the amount of risk people are willing to take is reduced. (here - my emphasis) 

The above passage points out a common logical absurdity, and contains an important lesson for Australian’s with and overeager obsession of controlling personal choices through ‘nanny state’ regulations. More on the nanny state a little later. 

First, it is important to examine the hypothesis of risk homeostasis to properly understand the implication of the opening quote, since it claims that neither of the two contradictory policies aimed towards improving safety are effective. 

The essential argument of risk homeostasis is that humans have an inbuilt level or risk that they gravitate towards in response to their external environment. If we reduce the risk of an activity, people will compensate by finding other risky activities as a replacement, or undertaking the activity in a more extreme manner. For example, if we ban smoking tobacco, which doesn’t seem like such a remote possibility, do we really expect smokers to replace their habit with fruit snacks and yoga? Or might they compensate by increasing their alcohol consumption or perhaps smoking dope instead. 

Risk homeostasis is not to be confused with risk compensation, which suggests that individuals will behave less cautiously in situations where they feel "safer" or more protected, but that we don’t necessary return to a predetermined risk equilibrium point. 

Improving transport safety is an area where there is strong evidence risk compensation, and indeed of risk homeostasis. 

One reason I am against mandatory bicycle helmets is due to the increased dangers posed by this perception of safety. Not only do cyclists tend to behave more aggressively, but helmet wearing changes the behaviour of other road users. It decreases the rate of cycling, and the effect of fewer cyclists on the road is to increase the danger of the remaining cyclist, but it also makes vehicle drivers act more carelessly around cyclists. 

This study fitted a number of bicycles with video cameras and ultrasonic sensors to detect the proximity of vehicles as they passed cyclists on the road. They found that vehicles passed helmeted riders about 8.5cm closer than cyclists without helmets. The suggestion is that drivers perceive there is less risk from clipping a helmeted rider and that helmeted riders are more experienced and unlikely to ride erratically. They also found driver give female cyclists much more room! 

Of course this behaviour is all based on perceptions. Helmets themselves provide minimal protection in a limited number of head collisions, and can exacerbate brain injury for some other types of collisions where helmets can increase rotational acceleration during a collision. 

The best experimental evidence of risk homeostasis is the famous Munich Taxi-cab experiment, where for three years half the taxi cabs in a fleet had ABS brakes and the other half didn’t, and various monitoring and testing took place including fitting all vehicles with accelerometers. 

Among a total of 747 accidents incurred by the company's taxis during that period, the involvement rate of the ABS vehicles was not lower, but slightly higher, although not significantly so in a statistical sense. These vehicles were somewhat under-represented in the sub-category of accidents in which the cab driver was judged to be culpable, but clearly over-represented in accidents in which the driver was not at fault. Accident severity was independent of the presence or absence of ABS.
...
Subsequent analysis of the rating scales showed that drivers of cabs with ABS made sharper turns in curves, were less accurate in their lane-holding behaviour, proceeded at a shorter forward sight distance, made more poorly adjusted merging manoeuvres and created more "traffic conflicts". This is a technical term for a situation in which one or more traffic participants have to take swift action to avoid a collision with another road user. Finally, as compared with the non-ABS cabs, the ABS cabs were driven faster at one of the four measuring points along the route. All these differences were significant. 

To put this experiment in the context of our original two options for reducing risk, ABS brakes are an example of an action that reduces the consequences of risky behaviour. Hence such actions decrease total risk. 

But the study did not end there, and finds some evidence that the opposite type of strategy, increasing the consequences of risk taking, has quite an effect. 

In a further extension of their study, the researchers analysed the accidents recorded by the same taxi company during an additional year. No difference in accident or severity rate between ABS and non-ABS vehicles was observed, but ABS taxis had more accidents under slippery driving conditions than the comparison vehicles. A major drop, however, in the overall accident rate occurred in the fourth year as compared with the earlier three-year period. The researchers attributed this to the fact that the taxi company, in an effort to reduce the accident rate, had made the drivers responsible for paying part of the costs of vehicle repairs, and threatened them with dismissal if they accumulated a particularly bad accident record. 

My favourite example of different effects of increasing consequences of risk taking versus decreasing the consequences is here. 

Sometimes, students would deny that they drive more recklessly when wearing a seatbelt. Tullock liked to illustrate the idea of offsetting behaviour for them by asking what they'd do if a large spike extended from the steering wheel and pointed directly at their heart. Wearing a seatbelt is a mild form of that effect, but in reverse. Tullock's students came to call the thing the "Tullock Spike". 

Australian policy makers could learn some lessons from risk homeostasis. For any returning Aussie from time abroad the degree of over-regulation can be a shock. One friend recently returned from three years in Paris and said that it was the one thing that enraged them the most about coming home. 

Think about it. We can’t buy alcohol at the supermarket, nor drink it in a public place, nor smoke in a building even if the owner is trying to run a cigar smoking cafe. In fact the body corporate of an apartment building recently passed a by-law to stop people smoking in their own homes! 

With the recent surge in anti-smoking opinion, not only will smokers pay ridiculous taxes, cigarette producers will need to adorn their prized products with pictures of diseased organs, but not their own brand label. Luckily, alcohol is exempt from such measures which might make the Chinese communist party blush, yet arguable alcohol is a far greater public health concern. 

We can’t buy fireworks or ride without a helmet. There are now calls to ban topless bathing on NSW beaches and there is the infamous internet filter proposed my communications minister Conroy. Oh, I almost forgot the proposal to ban teachers from using red pens when marking because red is an aggressive colour!

We can’t be expected to navigate construction zones on the street without 17 different warning signs, stop-go lollipop ladies, flashing lights and orange fencing, nor, it seems, are we expected to navigate over treacherous cracks in footpaths, with councils often paying compensation to ‘victims’ of such treachery. We have the slowest speed limits yet many would say the worst drivers. 

Policy makers must believe the average Australian has both multiple personality disorder and signs of schizophrenia. Someone who can perfectly judge their own financial risk when taking on massive debt, can choose their own career, raise their own children, run their own businesses and judge the associated risks, yet when it comes to the basics of life, like having a beer, tanning your breasts, or navigating the street, we all become complete morons incapable of rational behaviour. 

I have no problems with governments intervening to protect people for the actions of others, but they should be make their own choices about their personal safety. The strongest argument in favour of this position is the theory of risk homeostasis. It seems we really can’t save people from themselves. In fact the parent in me suggests that all this molly-coddling decreases our ability to judge real risks when they arise.  

Rant over.

GDP only positive because of rain drenched agriculture

Today’s National Accounts figures were not a huge surprise - except, of course, to many of the mainstream economic commentators, some of whom continue to demonstrate their undying faith by stating that the decline is nothing to worry about.

Neither are the downward revisions to the June quarter figures worth a second look.  The June quarter growth trend down was revised down from 0.9% to 0.7%, and seasonally adjusted down from 1.2% to 1.1%.

And possibly my favourite lines from the ABS release –

In seasonally adjusted terms, Agriculture (up 21.5%) contributed 0.4 percentage points to GDP growth driven largely by strong forecasts for grain crops... GDP increased 0.2% in the September quarter, while non-farm GDP fell 0.2%

If it wasn’t for the surge in agriculture driven by last season’s strong rains, GDP growth for the quarter would have been negative, and for the year, just 2.3%.

Perhaps it is time to revisit some forecasts by our favourite economists back in September.

Peter Jolly, NAB - Our year ended GDP forecast has lifted to 3¼% from a little under 3%

Christopher Joye, Rismark - The economy is about to embark on a period of above-trend growth

Warren Hogan, ANZ - Hogan believes we are about to see a period of serious inflationary pressures thanks to the commodities boom's income wave

Michael Blythe, CBA - reckons the income surge will add 3 or 4 per cent to GDP over the next couple of years.

Yet the serious inflationary pressures and above trend growth seem to be a little hard to come by at the moment.

At least I can give myself a plug.  Heck, isn’t that what economists do?  My prediction from early September - Inflation and GDP will surprise on the low side in the September quarter.

Steve Kates explains much better how the data early in the year was deceptive due to the dramatic impact of fiscal stimulus, and that the private sector recovery is yet to appear. 

Prison, parenting, selection bias, and measuring success

In both parenting and the legal system one must carefully consider the role of punishment.  Recently, the discussion surrounding imprisonment has become focussed on rehabilitation, using recidivism rates inappropriately as a statistical measuring stick of success.  This seems to be the product of confusing success in parenting with success in crime prevention.

For seasoned criminals one must ask whether rehabilitation is genuinely the purpose of imprisonment.  Surely, a more effective way to rehabilitate offenders would to have a wholesome family adopt them into their home and demonstrate law abiding ways to live and prosper.  Imprisonment with other criminals for an extended period seems strongly counterproductive to a shift to a more law abiding lifestyle.

As one insightful commenter noted here, even low rates of recidivism would be not be a signal of the success of imprisonment  because they can be caused by factors other than reform or a desire ‘not to go back there.’

1.      Crime is committed mostly by young men. As a man gets older, he’s less likely to reoffend.

2.      Crime is sometimes committed as a one-off event (such as crimes of passion, or rare opportunity). These are unlikely to be repeated.

3.      Convicts are sometimes innocent. These people, too, are unlikely to reoffend

Clearly, the function of imprisonment is to act as a deterrent to all potential criminals, not just to those who have already been imprisoned. This is quite different to punishments set by parents for their children, where there purpose is twofold – prevention of initial offence of a single child (or few children), plus a deterrent to future offences, or what might be known as rehabilitation.

Recidivism rates after punishment are important for parents.  Repeat offences by children (it sounds odd to say it like that) signal that the punishment was not appropriate for either the initial prevention, or rehabilitation.  For parents to encourage appropriate behaviour in their children they need to adapt their punishments so that each child will respond to them.  There is usually no one-size-fits-all approach.

With criminals, punishment needs to be a one-size-fits-all approach, and if that is insufficient to prevent some crime, then those individuals will have to accept that punishment, often repeatedly. There is no room, unlike parenting, to adopt individual punishment regimes to rehabilitate the whole criminal populous. 

I want to leave you with a long excerpt on the inappropriate use of recidivism rates to evaluate the effectiveness of imprisonment from this article.

This is a peculiar objection to imprisonment—rather like complaining that your TV is not working because it does not defrost chickens. Reducing repeat offending is not the purpose of prison. Its purpose is to reduce offending. It does this in two ways: by deterring people from committing crimes and by positively preventing them from doing so while they are inside.

But doesn't the high recidivism rate show that prison is not an effective deterrent after all? It does not. Testing the deterrence effect of prison by observing the proportion of ex-prisoners who commit crimes is a bad case of the statistical error of "sample bias." Prisoners are, by hypothesis, people for whom the threat of prison is an insufficient deterrent to crime. That prison does not deter ex-prisoners tells us nothing about how much it deters the rest of the population, nor therefore by how much it reduces crime.

Once you think of criminal punishments as deterrents, 100% recidivism is unsurprising, because the first conviction is the most expensive for a criminal. This is when he incurs the one-off, irrecoverable costs of becoming a known criminal, such as diminished career and social prospects. If the chance of incurring these costs (in addition to the penal costs) did not deter him from committing a crime, then the inevitably lesser costs of subsequent convictions are unlikely to deter him. This is true whatever the legal penalty for crime—be it torture, prison or "community service"—and however effectively it deters first crimes. Recidivism is a red-herring.

Alas, those who complain about recidivism do not think of imprisonment as a deterrent. They think of it as being more like a medical treatment, aimed at "rehabilitating" people who have succumbed to a behavioral disease that they caught from our unhealthy society or, perhaps, from their genetic inheritance. Crimes are not the actions of people weighing costs and benefits; they are the symptoms of a condition, like the suppurating blisters of an impetigo sufferer. Criminals need to be cured, not punished.

To understand the mistake here, consider my misspent youth. I often achieved mediocre grades for my schoolwork. This would prompt my teachers to speak rudely to me, usually accusing me of being unacceptably lazy. Yet I noticed that when one of my notoriously stupid classmates achieved the same mediocre grades, praise was heaped upon him. This struck me as unfair because, as I pointed out to my teachers, I could no more help being lazy than he could help being stupid. And then they spoke rudely to me again.

Whatever the justice of it, my teachers' unequal treatment was justified. For, although we may all have dispositions that we did not choose, some of these dispositions still respond to incentives. Because I was lazy, I required more badgering than most pupils did. Nevertheless, enough badgering would make me work. We lazy people are not immune to incentives. No amount of badgering or other punishment, however, would have improved the mental powers of my stupid classmate. Because stupidity does not respond to incentives, scolding him for it would have been pointlessly cruel.

Many criminals may well have unchosen dispositions that incline them toward violence or disobedience, or that make it harder for them to find paid employment and hence incline them toward illegal sources of income. Discovering such causes of crime makes many people move into the anti-punishment camp. But it should not. Punishment would be misguided only if, like stupidity, such criminal dispositions did not respond to incentives.

Yet they obviously do. Imagine that some technological advance meant that every theft resulted in a correct arrest, and that the convicted thieves were brutally tortured. Can anyone doubt that thievery would go into sharp decline? Or, if you prefer real world examples, compare the amount of drug-related crime in the U.K., where convicted drug dealers are imprisoned, with the amount in Singapore, where they are executed.

Sin tax myths – why smokers reduce health costs

Smokers have been the target of Australia's latest sin tax. Meanwhile, debate continues over using sin taxes to reduce consumption of 'unhealthy' foods such as soft drinks and confectionary.

(The word unhealthy is used quite loosely due to the fact that there is sufficient uncertainty about health – Are eggs good or bad these days? Margarine? – and because it is typically not the food itself, but the quantity consumed of a single food that is unhealthy.  Almost any food item consumed in excess will be unhealthy).

The primary arguments in favour of sin taxes are that

1.      the taxes reduce ‘harmful’ or ‘unhealthy’ consumption, and

2.      the taxes raised offset likely health costs such behaviours incur on others.

Unfortunately neither argument is compelling.

The price elasticity of demand for a sin taxed good will determine the decline in consumption of the apparently harmful product.  If demand is highly elastic, meaning that quantity of the good people choose to consume is very sensitive to price, then a tax may significantly reduce consumption. 

However, demand is typically only highly elastic when there are many substitutes available.  For example, demand for petrol is inelastic because there are no alternatives, while demand for cornflakes is probably much more elastic because of the wide range of alternative breakfast cereals.

This means that if the tax is effective at reducing the ‘harmful’ taxed consumption, it is promoting consumption of some alternative.  So what alternatives are out there?  The following example is typical of the type of offsetting behaviour I would expect.

Research has shown that when the price of a "sinful" good increases, consumers often substitute an equally "bad" good in its place. For example, two studies found that teen marijuana consumption increased when states raised beer taxes or increased the minimum drinking age. Another study found that smokers in high-tax states are more likely to smoke cigarettes that are longer and higher in tar and nicotine than smokers in low-tax states. Specifically, they discovered that young adults aged 18–24 are much more responsive to tax changes than older smokers. For young smokers, the switch to cigarettes with higher tar and nicotine is so large that tax hikes actually increase average daily tar and nicotine consumption.

One could easily imagine how similar substitutions would occur with soft drinks, perhaps leading to increased consumption of alcohol (forget the Coke, give me a beer).

The second argument in favour of sin taxes is that people who consume in an ‘unhealthy’ manner cause a greater financial burden on society by forcing others to pay for medical treatment of conditions stemming from such consumption, especially in most first-world countries with government-funded healthcare, and should be taxed extra to pay for the costs of their treatment.

This is absurd for two reasons. 

First, the logical extension is that government should also tax other risk-taking behaviour, such as driving or lying on the couch all day, while subsidising healthy foods and ‘acceptable’ behaviours with the purpose of decreasing the financial burden of health care.  It is the greatest excuse for government fund raising discovered.

A line needs to be drawn between medical intervention and freedom of choice. I have noted before that when Queensland decided to add fluoride to the drinking water, that line was crossed – akin administering medical treatments without consent.

The second reason to oppose sin taxes is that health care costs are not typically reduced by living a ‘healthy’ life but are likely to be increased. This is best explained as follows (my emphasis):

It’s easiest to think of smoking as bringing forward a whole lot of end of life costs. Smokers die earlier than non-smokers. We know that. And the costs to the health budget of somebody who is dying are rather higher than the costs of somebody who is healthy. But everybody dies sometime and most of us will incur end of life costs that will be paid for by the public health system.

Suppose that a smoker will die at age 65 and a non-smoker will die at 75. Comparing 65 year old smokers to 65 year old non-smokers and calling the difference the cost of smoking then rather biases upwards the measured costs of smoking; we ought to be comparing the health costs of a smoker dying at age 65 with the health costs of a non-smoker dying at age 75. And, perversely, the deadlier cigarettes are, the greater will be this bias. The younger smokers are when they die of smoking-related illnesses, the greater will be the measured cost difference between smokers and non-smokers because a smaller proportion of comparable non-smokers would be incurring end of life costs.

The figures assume that in the absence of smoking, smokers would never have imposed end of life costs on the health system. But for their smoking, all smokers would have died of a sudden, and cheap, heart attack and would only have had average health costs up to that point. That’s clearly nonsense

So there you have it. Sin taxes are simply the latest revenue grab disguised as socially beneficial and fiscally responsible.

(No, I don’t smoke, and I eat a fairly ‘healthy’ diet, yet I don’t see why people need to be punished for the way they consume their calories, while being free to expend them in any risk taking manner)

Public and Private schools – evidence from economics?

As an Australian parent in 2010, the public versus private school debate is hard to avoid.  In a society where private schooling is becoming the norm, yet literacy and numeracy skills are stagnating, how does one objectively analyse the costs and benefits of school choice?

First, let me say that school choie is just one factor determining vocational, personal and emotional skills during adolescence.  Genetics, parenting, the home environment, peer groups, sports and other club activities, amongst many factors, all contribute to shaping young minds. 

Additionally, the composition of students at the school plays a strong role in determining academic outcomes.  Many private schools for example, offer academic scholarships.  If those students had instead attended the local public school, any difference in average academic results may be greatly reduced.

How then does one separate the impact of school choice from these other factors?

Without the opportunity to conduct controlled studies, for example, by studying twins who attend different schools while holding all else constant, the best analysis of the measureable benefits of private schooling would be a statistical test of various measures of ‘success’, controlling for external factors such as parental intelligence and education, household income and location, and child’s intelligence prior to arrival at the school.

Unfortunately, in this debate one of the most overlooked considerations is what measure of 'success' would potentially make private schools ‘better’ than public schools. Is it simply a matter of final grades and tertiary entrance scores, or do parents (and children) value a broader measure of success? Does a public school with more diverse student cultural backgrounds give a better social experience, or does a private school offer more valuable professional connections?

The results of any statistical study will necessarily be narrowly defined to reflect the impact of school choice on a single measure (such as academic test scores), ignoring social benefits and opportunities for extracurricular achievement. 

So what do economists and social scientists have to say?

Serious studies isolating school effects from external effects are rare, quite possibly due to lack of reasonable data and the expense and time associated with collecting data for this purpose alone.  One pioneering study showed that after controlling for demographic factors public schools were in fact better at increasing grades in mathematics during primary school years than private schools. 

A follow up study tracked student achievement through from kindergarten to eighth grade has this to say:

It is worth noting how little variation school type really accounts for in students' growth in achievement.

  

On the fringe of the issue, economists have examined the ‘house price premium’ in catchment areas of better performing schools.  A process which clearly reinforces the school performance divide through selection bias even between public schools themselves, furthering clouding the issue for researchers and parents alike.

Social scientists have also examined which factors lead to the choice of private schooling and, not surprisingly, found a bias towards private schooling by parents who attended private schools.

What astounds me is that any slim evidence on the subject shows that academic benefits of private schools are, at best, very marginal.  While at the same time the costs of private schools are extremely high and increasing rapidly.  Irrationality to one side, one must suspect that parents perceive benefits from private schooling far beyond any academic advantage offered.  

Is it that parents believe their children will be less likely to get 'caught up in the wrong crowd'? Is that really worth the cost?

In the end it appears that choosing private schooling may well be a signal of your socio-economic status, but is unlikely to yield significant academic benefit for the child, while there is a high risk of wasting your money.

Counterintuitive findings?

Pool fences

Could Queensland’s new tougher pool fence laws offer an opportunity to study the Peltzman Effect? Will we now feel that pools are no longer a safety hazard for toddlers and drop our supervisory guard? One man, who refuses to comply with the laws, has argued this exact point and is strongly supported in his views (if you can trust the newspaper comments).

In one case, a pool owner living on a canal has had to fence their pool, yet is not obliged to fence off access to the canal.  One does wonder about how far governments can go to protect us from our own behaviour.

Pool fences are only there to protect kids from parents who don't. There are no fences around all the lakes in Brisbane, Southbank's lagoons are not fenced, the Brisbane River is not fenced. Why? Because we are responsible enough to ensure our children don't get into danger in these areas.

What further astounds me is that lack of evidence in the pool fence debate. In one of the more interesting studies I could find, 52% of pools where toddler drowning events had occurred in Western Australia where compliant with the pool fence legislation (compared to 40% for randomly selected pools).  There was no further discussion of this key point – that statistically it appears more likely to drown in a fenced pool that an unfenced one (I would be very interested if anyone can find a more thorough study of the effectiveness of pool fence laws).

While this is just a small sample from one State, and I would question whether general conclusions can be drawn, some more rigorous examination of the effectiveness of pool fence laws is seems appropriate before toughening the laws.  Is the government really going to do the same thing and expect different results?

Cycling by the road rules

The Council is inviting CityCycle subscribers to undertake a Cycling Confidence Course to improve their bicycle skills and brush up on their knowledge of road rules.

Maybe that's a bad idea. Recent research suggests that people obeying road rules are more likely to be killed by trucks than those who disobey the rules by, for example, running red lights. 

Women may be overrepresented in [collisions with goods vehicles] because they are less likely than men to disobey red lights.

By jumping red lights, men are less likely to be caught in a lorry driver’s blind spot. Cyclists may wait at the lights just in front of a lorry, not realising that they are difficult to see.

In more than half the fatal crashes, the lorry was turning left. Cyclists may be deceived by a lorry swinging out to the right to give itself room to make a left turn.

I can’t agree more with these findings.  Every day I see cyclists waiting in the blindspot of a car or truck at traffic lights, and occasionally see a cyclist sneak up the left side of a bus while it is turning left.  I hope Brisbane City Council’s cycling confidence course acknowledges that sometimes it is safer to break the rules.

Congestion (queuing) as an efficient allocation mechanism

I have raised the idea in the past that road congestion is in fact an efficient allocation mechanism provided that there is prior knowledge of expected travel times.  Now, from The Australian we have this:

Sure, if we invested enough in roads, all cars could travel at the speed limit. But the costs of thus expanding road capacity would greatly outweigh the value motorists place on the savings in time and discomfort.

Exactly the same applies to road charging. With charges set sufficiently high, remaining drivers could go at speeds rivalling the Melbourne grand prix. But even Mrs Moneybags, rocketing in her Ferrari, would not value the benefits enough to offset the welfare loss to the peons forced by the high charges to walk to work. Add to their loss the costs of implementing the road charging scheme and the efficiency loss is all the greater.

Effective marginal tax rates and Australia’s welfare trap

Australia’s complicated social security system often leaves me baffled. There are so many forms of assistance for families, with rates of benefit and qualifying incomes changing annually, your entitlement (if any) is sometimes a lucky draw.

What I have noticed is the rate at which these benefits decline as the family income increases. So much so that I instinctively feel that earning a few extra dollars is generally not worth the trouble - unless of course my income was already high enough to be out of the qualifying range for family welfare benefits.

So I took the time to examine situation for Australian families, and it is quite revealing.

This recent paper, for example, shows that the effective marginal tax rate (EMTR), which estimates the change in take home income after tax and after accounting for reduced welfare payments, actually declines at higher income levels for almost every family type (see table below). High income families receive a greater percentage of an extra dollar earned than low income families, with middle income families suffering very high EMTRs.

For example, an extra dollar earned by a parent in a family with two dependent children and an income in the middle tax bracket will leave them with an extra 28c in the pocket, while for a high income family, they keep 67c out of any extra dollar.

There are even situations in Australia where the EMTR is greater than 100%! Low income families with dependents on youth allowance have an EMTR of around 110% - for every extra dollar earned, they get 10c less in their pockets.

Unfortunately, I fall into the group with the highest EMTR – families with dependents – where 15% of the group have EMTRs above 70%.

...families with children are more likely to face an EMTR of 50 to 70 per cent than other types of households, due to the accumulation of withdrawal rates for family related payments on top of income support withdrawal and income tax. This is observed even without including the withdrawal of childcare subsidies. On average, the EMTR is highest for couples with dependent children. (here)

After a quick bit of research, it appears that if I earn another dollar we lose 20c from family tax benefits, about 18c in the dollar from child care benefits, and 30c in tax – a 68% EMTR. If my wife earns an extra dollar we lose 40c in Family tax benefits (Part A and B combined), 18c of child care subsidies, and 15c in tax – a 73% EMTR.

In light of this outrageous situation, cutting down to part-time work (4 days/week) provides an extra 48days of leisure per year at a minimal cost to the family.

Also, if we factor in the extra expenses incurred due to extra work hours and time pressure – takeaway meals, remaining child care costs, driving instead of cycling, and splurging on treats because you deserve a reward at the end of a busy day, you quickly see the rational for staying in the welfare trap.

All this makes me wonder just how many families are trapped in high EMTR bands – all earning different incomes, but taking home much the same income ‘in the hand’.

Statistics lessons for property people

I have previously posted about the Property Council of Australia’s cowboy approach to statistics to argue for pro-sprawl planning policies on environmental grounds. Now Brian Stewart, CEO of the Urban Development Institute of Australia (UDIA) Queensland, needs a lesson in statistics.

In a recent bulletin to members he criticised the Local Government Association of Queensland’s interpretation of a report they commissioned on factors affecting home prices in South East Queensland.

He questions the conclusion that the AEC report commissioned by LGAQ refutes ‘for all time the spurious arguments of a so-called under-supply of dwellings in the SEQ market’. If he had paid attention in statistics it would be clear to him that this is exactly what the report does.

Although the report is far from an exemplary analysis of key determinants of residential property prices, the authors did estimate six econometric models to seek the determinants of real median house, unit and land prices in SEQ - eighteen models in total. If we quickly browse the report we find just one model, for house prices, not unit or land prices, where any of their supply-side variables is significant in explain real prices.

To be sure, Stewart’s interpretation of the report was poor, and his bulletin misleading, but I still have reservations about the report itself.

Particularly I have concerns about the choice of, and construction of, variables, including location bias in calculating the median prices and using ratios to total stock rather than sales volumes (particularly in the treatment of the FHOG). It seems odd that with 69 data points and 32 variables at hand they had trouble finding significant relationships in the data – could it be their selection was stacked with the wrong variables to explain prices?

One example of the construction of variable is ‘SEQ housing stock per capita’, which is total stock for SEQ at the beginning of the period at the beginning of the analysis (1991) of 734,126, less an allowance for depreciation (about 0.3%), plus new stock completed IN QUEENSLAND in the period. This variable then accumulates over time to represent the stock of housing.

I first hope that the new stock only includes new stock in the SEQ region and that this is a typo. Second, I can’t see how depreciating a dwelling is good accounting. What should be considered is a factor for demolitions, and it would be easy enough to estimate the demolition to new dwelling ratio based on past census data.

These types of errors abound.

Most importantly I wonder how this controversial variable could be negatively correlated with prices. In the section on housing stock (p13) it shows that dwelling stock per 100 people grew from 38.1 to 41.1 from 1991 to 2006, while real prices grew from around $100,000 to $250,000 in this period (below). Either a) the three other significant variables, the All Ordinaries, unemployment and mortgage rates, explained the most of the change, or b) the variable used in the analysis is the CHANGE IN dwelling stock per person, which was positive but declining over the period.

What is further surprising is the conclusion that the SEQ property market somehow behaves differently to other parts of the country. Given that the analysis failed to explain the behaviour of the SEQ residential property market at all (their final land price model on page 29 had seven variables but just two were significant), one wonders how such conclusions are drawn. I am happy for someone to explain why it is different here (cringe) if they have the evidence to support the statement.

Anyone looking to elastify the supply side should note the report concludes by noting how responsive supply has in fact been to prices:

...the lot stock for SEQ rose from 25,000 during the early part of the decade to reach 50,000 by December 2005 and has stabilised around 54,000 since September 2007. This progression follows the growth in land prices very closely, indicating that supply of undeveloped residential lots has responded to price signals.

Common sense and the CityCycle launch

I am pretty sure no one in Brisbane has ever said they do not ride for want of a bicycle. Nevertheless, Campbell Newman has spent $10million of ratepayers money on hire bikes to solve this none existent problem.  

I could be argumentative and say that if access to bikes was a problem, you could have bought 20,000 of them for Brisbane residents for that price (at $500 each – 33,000 at $300 each). 

After a dramatic week repairing bike stations that were installed backwards, today, Brisbane’s CityCyle scheme was launched, with 500 bikes at 50 stations across the inner city.  To my surprise there were actually some people waiting to use the scheme today.

There are few optimists left in discussion of bike hire schemes in Australia. Melbourne’s scheme, for example, is not quite off to a roaring start – 0.5% utilisation or 70 trips per day after three months.  I could repeat myself and highlight that the success of this scheme depends on its convenience to users.  Helmet laws and lack of road space are key impediments to convenience. Indeed, I proposed that a car hire scheme would be a better way to encourage cycling.

Brisbane is trying to overcome the helmet problem by giving away 2000 of them, but Council admits the helmet requirement shrinks the potential user base.  Tourists are apparently they are not a target market for the scheme. 

I have used these schemes in Europe and have only ever used a credit card swipe to join.  I can recall in Vienna the bike hire price was 2euro for two hours with no helmets, no upfront fee, and plenty of bicycle lanes.

These schemes are very popular with tourists who obviously want to explore the city and haven’t brought a bike with them.  If they are not a key user group, who is left? Who exactly will use the scheme? Has anyone conducted any surveys or background research into attitudes to cycling, and reasons for cycling (or not)?

I predict that bike use will be mainly from Central Railway Station to office buildings and the QUT campus in the morning, and back in the afternoon.  People riding the wrong way down one way streets will annoy drivers and make Courier Mail headlines, leading for call to register bicycles, crack down on all bike related laws (even though cyclist who run red lights are less likely to be killed).

I fear more anti-cycling scare-mongering like this in the press in the coming months –

In France, inexperienced cyclists have ended up crushed under the wheels of trucks

On a positive note, the scheme could really activate the inner city if some further supportive actions are taken.

1.      remove, or stop enforcing, the helmet law (see Sue Abott’s story)

2.      add bike lanes to CBD roads connecting to riverside bike tracks and other routes in and out of the city (take out one car lane on a few critical streets)

3.      remove the membership fee for the scheme and instead take a credit card swipe in lieu of a deposit

4.      adopt the Idaho Stop law

For some inspiration, maybe the Council can look to London’s cycle superhighways.  They are spending 24million GBP/year, or about 35million AUD/year which, if Brisbane matched that in per capita terms, would be about $11million per year.

The Queensland government is budgeting $14million for 19km of cycle network in the coming years for the whole of SEQ.  Not only is the amount low (given it is not an annual payment, but a lump sum for the planned works), they must be building gold-plated cycle boulevards at a cost of $730,000 per kilometre of bike path, or $730/metre of concrete! And some of that will just be a splash of paint on the side of existing roads.  Even making allowances for lighting, signage and paint, the per metre rate should be far less.  One suspects that for the same cost of the CityCyle scheme to Council, they could have built at least 20km of high quality bike lanes and paths.

I’ll leave you with a film explaining the new London Cycle ‘Superhighways’.