Thursday, September 28, 2017

Getting married is a surprisingly rational thing to do

So who'd get married? Typically, for the first marriage, it's a man aged 30 and a woman aged 28 to 29. That's a big advance on the early days of the contraceptive pill in the 1970s when, according to the Bureau of Statistics, the typical ages were 21 and 23. But even in recent decades, we've been doing it later. Twenty years ago we married at 27 and 25.

And we are staying together longer. The figures I am quoting are "medians", meaning half of all marriages last longer and half are shorter. Those that get divorced typically do it after 12 years of marriage, up from 8 years in the 1970s. And we're less likely to do it. Twenty years ago six of every 1000 married Australians got divorced each year. Today it's 5.3.

We're also less likely to get married in the first place. Forty years ago eight Australians per 1000 got maried each year. Now it's just 4.8.

All up, we're taking marriage more seriously. And we are declaring our commitment before the Australian nation rather than God. Forty years ago, 82 per cent of marriages were conducted by religious ministers. Today, it's just 25 per cent. Civil ceremonies overtook religious ones in 1999. Only 10,000 of the 113,600 couples who got married in 2015 did so before a Catholic priest; only 4700 did it before an Anglican one.

Australia is unusual in allowing churches the role they have. In most of the countries to which we normally compare ourselves, the marriage forms have to be signed in an office. They can't be signed in a church, no matter how grand the ceremony.

Who are we marrying? It's increasingly people like us. Forty years ago the mainstream thinking was that highly educated men married less educated (but better-looking) women. In a seminal paper, A Theory of Marriage, economist Gary Becker argued that those sort of matches would enable women to specialise in domestic duties while their men specialised in earning money. Whether or not it was true at the time, it's much less true since. Dishwashers and hired help have reduced the importance of homemaking, while the increasing value placed on educated children has increased the payoff for highly educated men who marry highly educated women.

In a paper just published in the American Economic Review, economists Pierre-Andre Chiappori, Bernard Salanie and Yoram Weiss find that "assortative mating" has become much more likely. High-income, highly educated men are more likely than they were to marry similar women, making it even harder than it was for poorly educated women to get ahead and increasing the financial returns from education to women beyond those that are apparent.

People who are married are, on average, happier than those who aren't. Until recently it was thought this might be because happy people got married rather than the other way around. The good news is that a detailed examination of British happiness surveys by two Canadian economists shows pretty clearly that, whether or not happy people get married, they do indeed become more happy after marriage. It had been thought that happiness blast didn't last – that married couples lost the sparkle after two to five years. Married couples do indeed become less happy over time, the researchers find, but that happens to everyone of marriageable age. The important finding is that at every age, married people are on average happier than ones who aren't married.

So which marriages last? Melbourne University demographer Rebecca Kippen along with Australian National University economist Bruce Chapman and researchers Pen Yu and Kiatanantha Lounkaew have attempted to track success by tracing the history of 2500 married couples who signed up for the Household, Incomes and Labour Dynamics survey, which records personal data and life changes over time.

They find that what helps most is being similar. Couples who are close in age have less than half the risk of separation as couples where the man is nine or more years older. Couples with different views about whether or not to have children are twice as likely to split. Couples where the man is much better educated than the woman are 70 per cent more likely to split. If one partner smokes and the other doesn't, separation is 75 to 95 per cent more likely. If the woman drinks more than the man, separation is two-thirds more likely.

What each partner brings with them matters too. If they bring low incomes, they are twice as likely to split. If the husband is or becomes unemployed, they are three times as likely to split. If one or both of the partners have divorced parents, they are 60 to 85 per cent more likely to split. If one or both brings with them children from earlier relationships, they are two thirds more likely. Differences in race and religion turn out not to matter at all.

Getting married is a leap into the unknown. There are no guarantees. But it works for most who try it, which might be why so many more want to.

In The Age and Sydney Morning Herald

Best odds in years. It's raining (vacant) jobs

It's easier to find a job than it has been in years.

The latest count from the Bureau of Statistics shows there were 208,400 vacant jobs in August, the most on record. With 714,000 Australians out of work, it means there were just 3.4 unemployed for each vacancy in August, the best odds since 2012.

The number of vacant jobs has jumped from 179,700 to 208,400 in the space of a year. Two years ago, when there were only 152,600 vacant jobs, the unemployed to vacancy ratio was 5.5.

Employment Minister Michaelia Cash said the news was in line with other data showing stronger growth across the economy, particularly in full-time employment.

"The contrast is clear - in the past 12 months under the Turnbull government, the economy has generated over 320,000 jobs, compared with just 81,500 during the past 12 months of the former Labor government," she said.

The Bureau's survey of job vacancies is regarded as more reliable than private sector counts because it asks employers about details of all vacancies, whether they are advertised or not.

NSW is by far the easiest of the big states in which to find a job, with 76,600 vacancies for 200,900 unemployed, meaning the odds of landing a job are 1 in 2.6. In Victoria there are only 55,900 vacancies for about the same number of unemployed, meaning 3.7 unemployed for each vacant job.

Tasmania is the worst state in which to find employment, with 6.4 unemployed competing for each vacant job. A Tasmanian who moved to Victoria or NSW would find it twice as easy to get a job.

South Australia is the second-worst state, with 5.2 unemployed competing for each vacant job. In Western Australia the ratio is 4.3 and in Queensland 4.2. Conditions in Queensland and Western Australia are much improved with the number of vacancies up 26 per cent and 11 per cent over the past year.

On paper, the Australian Capital Territory has by far the best odds with an unemployed to vacancy ratio of just 1.5, meaning there are two vacant jobs for every three unemployed, but the ACT figures are skewed by the number of ACT workers living outside of the ACT and the number of workers who come from interstate for ACT jobs.

Thirteen of the 18 industries identified by the Bureau recorded increases in vacancies over the past year. The biggest gains were in "administrative and support services", up from 21,900 to 32,000, and health care and social assistance, up from 20,900 to 24,200. Manufacturing, which was in decline after the global financial crisis, has 10,900 jobs on offer, up from 7700. Mining has 4200 more jobs on offer, up from 2700; the most in three years.

HSBC chief economist Paul Bloxham said the labour market was tightening as the drag from the end of the mining boom faded and as non-mining businesses powered ahead.

"Job vacancies, job advertisements and the employment intention components of the business surveys have all strengthened even further in recent months. The key question is whether this tightening will generate a pickup in wages growth."

"Keeping in mind that this is an issue in many other economies. Nonetheless, if history is a good guide, the recent boost to national incomes and corporate profitability should trickle through."

In The Age and Sydney Morning Herald

Tuesday, September 26, 2017

No easy answers as the world's second biggest gas exporter prepares to run short

Surely the world's second biggest exporter isn't about to run short of gas?

We are, according to the Australian Competition and Consumer Commission, although not for the reasons that are widely believed.

The conventional wisdom has been that when three big exporters opened six big liquification plants at Gladstone in Queensland and locked themselves into long-term supply contracts with Japan that they couldn't fulfil they had to commandeer gas that the rest of us would have used.

That did happen, but it's not the main reason we're about to run short of gas. It's that the exporters also shipped a lot of extra gas overseas, in addition to the gas they were contractually obliged to export.

It's easy to understand why. They spent billions building the liquification plants and they are trying to get a return. The ACCC has a particularly good insight into their thinking. It's used compulsory information-gathering powers to amass a trove of 20,000 industry board papers and reports.

The commission says next year the big three are planning to export 64.3 petajoules of gas that they are not contractually required to export. One petajoule is enough to supply the residential needs of a city like Warrnambool, Wollongong or Penrith for a year; or enough to supply one very big industrial user.

It says coincidentally 64.3 petajoules "accounts for the entire expected gas supply shortfall".

Next year's expected gas supply is 1901 petajoules. Domestic users – industry, business and households – will need only 642 petajoules. But the exporters are planning to ship out more than all of the rest: 1314 petajoules, resulting in a shortfall of 55 petajoules. (A worse-case scenario, also modelled by the commission, is a shortfall of 110 petajoules).

The ACCC says it would be possible for the exporters to ship out less than they are planning to without breaking contracts, and although they've made some moves in that direction, it is "unclear" why they haven't done more.

In the meantime, in a disturbing development for the businesses that rely on gas, many are being offered blind auctions. Rather than being given a price, they are are being asked how much they would be prepared to pay to keep the gas on. It's a one-shot game. If they don't offer enough they miss out.

One offered 20 per cent more than it had been paying and missed out. Those that get offers are being given very short deadlines to accept, often just two to five days, a "significant constraint for many large users who are required to obtain approval from company boards and executive management". Even when they accept offers, some have them withdrawn.

One A third of the commercial and industrial users the commission spoke to were considering either winding back production or closing down.

So it's understandable that Prime Minister Malcolm Turnbull is considering "pulling the trigger", using the new powers granted to him by Parliament to restrict exports from next year.

He hasn't pulled it yet because he would prefer persuasion. So would the commission. It points out that the big exporters are also big producers. If forced to wind back exports the big three might respond by winding back production. We'd be no better off.

In The Age and Sydney Morning Herald

Thursday, September 21, 2017

$220m per kilometer. Newcastle light rail burns cash

A fresh NSW transport leak reveals that the decision to shut down the last two kilometres of the Sydney to Newcastle railway line was taken before costing the light rail replacement and without an assessment of costs and benefits.

The cabinet-in-confidence report, prepared after the decision to close the line, refers to the decision as a "sunk cost" estimated at about $200 million.

The leak comes one day after Transport Minister Andrew Constance defended spending $200,000 hunting down the source of transport leaks, invoking national security.

The 2.7-kilometre light rail link that will replace it is costed at about> $250 million, bringing the total cost, inclusive of planning and development and urban renewal work, to about $600 million, about $220 million per kilometre.

The projected benefits nowhere near cover the costs. The cabinet-in-confidence document puts the benefit-cost ratio at 0.7, meaning it will only deliver 70¢ in benefit for each dollar spent.

If the value of the land released is excluded from the calculation, in line with a suggestion from the NSW Treasury, the benefit-cost ratio falls to 0.5, meaning 50¢ is destroyed for each dollar spent.

A separate, hypothetical plan to merely proceed with urban redevelopment without pulling up the rail line had a benefit-cost ratio of about 2.4, meaning that each dollar spent would deliver $2.40 in benefits.

A covering note, written by David Evans, chairman of the Newcastle Urban Renewal and Transport Program, notes that the business case takes "as given" the government's commitment to light rail.

It says the proposed light rail component "takes up a dominant and increasing share of available funding".

"This has the potential to greatly reduce the available funding for urban renewal and economic development activities which we believe are much needed," the note says. "The business case shows that a range of urban renewal initiatives have a substantially higher cost benefit outcome and could make a greater contribution to urban renewal objectives than light rail."

The document leaked to Fairfax Media and the ABC reveals that Restart NSW, the body established the NSW government to fund high-priority infrastructure projects, rejected the plan because of legal requirements that prevent it in investing in projects with a benefit-cost ratio of less than 1.

The bulk of funding instead comes from a general revenue fund known as the NSW transport capital plan.

About $44 million is to come from selling development land freed up by removing the rail line. The land under the rail line is believed to be valuable because it can take the weight of tall buildings, unlike surrounding land which is at risk of subsidence from mining.

The report notes the land is a long and narrow corridor "with a footprint that does not provide viable shaped or sized sites". It says fragmented ownership limits potential future consolidation. The land is contaminated with heavy metals and hydrocarbons.

In a departure from best practice the report does not examine alternatives to light rail including a shallow cut-and-cover rail tunnel of the kind used in Sydney's Hyde Park or a bus lane upgrade, which it acknowledges would cost $10 million rather than $250 million.

Transport Minister Andrew Constance defended spending the money on identifying the source of the leak.

"If you think information that resides within the Department of Transport being leaked is some sort of laughing matter in today's world ... in light of what's happening in the UK, in light of what's happening elsewhere around the world, you are kidding yourself," he said.

"We live in an era that relates to cyber terrorism and a whole raft of security issues."

Asked whether the government continued to maintain that the project was value for money in face of the benefit-cost ratios reported to cabinet of 0.7 and 0.5, Mr Constance said consigning Newcastle to further decline was not an option.

"Since the truncation of the heavy rail line, Newcastle has undergone a revitalisation that has seen population grow by 4.6 per cent and employment rise by 9 per cent," he said, adding the ultimate value of the project was in the revitalisation of the city. It had resulted in nearly $2 billion in private sector investment.

"The truncation of the line has also allowed us to commit to building affordable housing and the university in the corridor. We made a commitment to the people of Newcastle that we would return a portion of the port's lease to improving the city, and that is exactly what we are doing."

In The Age and Sydney Morning Herald

Death Spiral. Why electricity prices are set to climb

What's most terrifying the electricity industry isn't the threat of price control or a clean energy target or even being forced to keep open power stations that have long since ceased to work properly.

It's not even the government's inability to come up with a clear set of rules.

It's a fear more primal – the same one gripping the national broadband network, public schools, and private health funds.

Analysts at AGL Energy call it "the death spiral".

US economist Craig Severance popularised the term six years ago.

"In this nightmare, a utility commits to build a very expensive new power plant," he wrote. "However, when electric rates are raised to pay for the new plant, the rate shock moves customers to cut their use. The utility then has no way to pay for the new power plant unless it raises rates even higher – causing a further spiral as customers cut their use even more or walk away.

"In the final stages of that death spiral, the utility's more affluent customers have drastically cut purchases by implementing efficiency and on-site (solar) power, but the poorest customers have been unable to finance such measures. The utility is then left attempting to collect higher and higher rates from poorer and poorer customers."

It's been playing out in Australia since the late 2000s.

Most of each electricity bill is the cost of the network – poles, wires and transformers. The companies that own them are necessarily monopolies, often government-owned. What they can charge is regulated, but since the late 2000s, regulated to their extraordinary advantage.

It's a cost-plus arrangement. The monopolies forecast demand every five years, estimate how much they will need to spend to meet it, add a margin, and get a tick from the Australian Energy Regulator. If it doesn't give them a tick, they can appeal to the Australian Competition Tribunal which has given them more on 31 out of 52 occasions and has never given them less.

At the very end of the 2000s the network monopolies forecast big increases in demand and even bigger increases in their investment programs to cope, so-called "gold plating". It allowed them to demand big price rises. That mightn't have been that much of a problem had demand actually climbed as they forecast. Instead, in 2010, for the first time in history, electricity use fell. At first it looked like a response to the global financial crisis, but it wasn't limited to industry and it didn't stop. In 2010 demand per residential customer slid 4.4 per cent in NSW and 0.7 per cent in Victoria. Then 2.1 per cent and 5.4 per cent, and so on.

Seven years on, NSW consumers use 17 per cent less than they did in 2009, Victorian customers 15 per cent less.

The curious rules governing the regulator allow the monopolies to charge more per customer each time their customers use less, to recover the same amount. We've not only been switching to fewer devices, we've also been putting in solar panels and, increasingly, batteries. So far few of us have left the grid completely, but a downward spiral could start nonetheless.

Economists call it "adverse selection". The customers that remain are more likely to be poor, either renters or owners without easy access to finance. As prices rise and even those without good finance find it worthwhile to escape, those who remain get poorer still, and are charged still more.

Tony Wood of the Grattan Institute, who wrote a report on this in 2013, says there's no obvious way out. In a proper market, a business that produced such appallingly inaccurate and self-serving forecasts would fail and be taken over by firms that could charge less. But there's nothing free about the market facing the monopolies, as Energy Minister Josh Frydenberg knows full well. He is trying to abolish their right to appeal to the tribunal, which would be a start.

Competition and Consumer Commission chief Rod Sims told the Press Club on Wednesday that network charges were by far the biggest driver of electricity price increases, accounting for 41 per cent. Retail margins account for 24 per cent, generation 19 per cent, and green schemes 16 per cent. Yet it's the green schemes about which our leaders most often speak. Getting to grips with adverse selection is hard, but essential.

The national broadband network is about to face it big time. Costing billions to build and having to charge billions to break even, for many city users it'll be uncompetitive with 4G and 5G. As they go wireless, it will have to charge more to those who remain, and so on. It's a design flaw. Private health funds face adverse selection too. As their fees go up, they lose healthy customers who find them poor value, and have to charge even more to the less healthy, who also leave, and so on.

And public schools. They're losing the good students, leaving behind those that are harder to teach, making classes harder to teach and encouraging still more good students to leave. It's not only the electricity industry that wants a way out.

In The Age and Sydney Morning Herald

Lowe signals the end of the road for interest rate cuts

Reserve Bank governor Philip Lowe has handed over the baton of economic management, declaring in a speech titled The Next Chapter that there's not much more he can do to boost the economy.

Delivering the speech in Perth, Dr Lowe said "other forces" were likely to be more important than Reserve Bank decisions about interest rates from here on.

"Monetary policy has an important role to play in supporting the economy as it goes through the current period of adjustment," he said. "It can also help stabilise the economy when it is hit by future shocks. It can make for a more predictable investment climate by keeping inflation low and stable."

"Having a competent, analytical, transparent and independent central bank can also be a source of confidence in the country.

"But beyond these effects, monetary policy has little influence on the economy's potential growth rate."

In his first year in the job Dr Lowe has kept the Reserve Bank cash rate at 1.5 per cent, the record-low he inherited.

Although by no means signalling that he was preparing to raise rates, Dr Lowe said the period of extraordinarily low global rates was drawing to a close.

"Some normalisation of monetary conditions globally should be seen as a positive development, although it does carry risks. It is a sign that economic growth in advanced economies has become self-sustaining, rather than just being dependent on monetary stimulus.

"A rise in global interest rates has no automatic implications for us here in Australia. Notwithstanding this, an increase in global interest rates would, over time, be expected to flow through to us, just as the lower interest rates have. Our flexible exchange rate though gives us considerable independence regarding the timing as to when this might happen."

What would matter most for the economy was changes in technology and growth in Asia.

"In some quarters there is pessimism about future prospects for the global economy," Dr Lowe said. "The pessimists cite demographic trends, high debt levels, increasing regulatory burdens that stifle innovation and political issues. They see a future of low productivity growth and only modest increases in average living standards.

"It is right to be concerned about the issues that the pessimists focus on, but I am more optimistic about the ability of technological progress to propel growth in the global economy, just as it has done in the past. The challenge we face is to make sure the benefits of technological progress are widely shared."

The US had a crucial role to play. A retreat from the rest of the world would make Australia's future "more complicated".

The bank was worried about low growth in incomes, something Dr Lowe identified as a problem despite a claim from Treasurer Scott Morrison that incomes were improving.

"For much of the past two decades, real national income per person grew very strongly in Australia, Dr Lowe said. "We benefited from strong productivity growth, higher commodity prices and more of the population working.

"In contrast, since 2011 there has been little net growth in real per capita incomes. This change in trend is proving to be a difficult adjustment. The solutions are strong productivity growth and increased labour force participation.

"Over the past four years, the increase in average hourly earnings has been the slowest since at least the mid-1960s. This is partly a consequence of the unwinding of the mining boom but there are structural factors at work as well. The slow growth in wages is putting a strain on household budgets."

The bank was also concerned about high household debt and housing prices. Australians were coping well, but as debt had increased relative to incomes so, too, had the medium-term risks.

Households were less inclined to let consumption growth run ahead of income. Higher debt also meant that household spending was more sensitive to interest rates, something the bank was "paying close attention to".

In The Age and Sydney Morning Herald

Sunday, September 17, 2017

Chill. Electricity isn't that expensive, really

So you reckon you're paying too much for electricity. What if I told you that at the latest official count you spent no more on it than you would have in 1984?

Back then the expenditure survey showed the average household spent 2.9 per cent of its budget on electricity and gas. Three decades on, in the updated survey released this week, the figure is unchanged: 2.9 per cent.

Electricity and gas amount to just $41 of our total weekly spending of $1425.

So why the anguish? The size of the bill has been climbing (it had fallen as low as 2.6 per cent) and it climbed further in July, after the survey was conducted.

But even so, it isn't particularly big and it hasn't climbed dramatically. Compare it to "communication", a category that encompasses phones and the internet. That amounted to just 1.8 per cent of household spending in 1984. Now it's almost double: 3.3 per cent; bigger than electricity.

Compare it to housing. Rents, rates and mortgage payments amounted to 12.8 per cent of household spending in 1984. Now they're 19.6 per cent. Combined, the increases in what we are spending on housing and communications are three times what we're paying for energy.

And we're (apparently happily) spending more on other things as well. Education made up just 0.9 per cent of spending in 1984. Now it's three times that, and more than electricity at 3.1 per cent. In the early 1980s university was free and only one quarter of us sent our children to private schools. Now it's more than one third.

We spend more on health, up from 3.9 per cent to 5.8 per cent. It's now twice what we spend on energy. Some of it is because we are getting older. The above 65s spend 8.3 per cent. The above 75s spend 11 per cent.

And just about everywhere else we are spending far less. Food took up about 20 per cent of our budgets in 1984. Now it's 17 per cent. Alcohol has dwindled to 2.2 per cent, tobacco to 0.9 per cent. The money we've saved on those three combined are twice what we pay for electricity.

We're saving more than our entire energy bills on shoes and clothes. Their share of spending has halved from 6.5 per cent to 3.1 per cent. And we're saving more on household furnishings. Their share has shrunk from 7.7 to 4.1 per cent. We're even saving on transport. Fares, tolls and fuel are now 14.5 per cent of our budgets, down from 16.3 per cent.

So why the anguish about electricity? Why is the prime minister concerned that the bills could bring him down? It could be because, unlike communications bills, we can't see what we are getting for electricity bills. Since 1984 our communications spending has given us the world wide web, Snapchat and mobile phones. It's the same with houses. They're bigger than they were, and their rapidly rising prices buy increasingly valuable nest eggs. Bigger education bills buy us slots in private schools, which for some reason more and more of us seem to want.

It could be because electricity is invisible: like petrol, a grudge purchase. And it could be because we've become dramatically sensitised to its price. Until recently we didn't much seem to mind. For more than a century through two World Wars and the Great Depression we consumed more of it each year than the year before. Then from 2010 (well before the introduction of the carbon price) the price became suddenly visible, and for the first time in living memory we cut back.

Tony Abbott had sounded the alarm about a "great big new tax on everything". The Sunday roast was going to cost $100, Whyalla​ was going to be wiped out. Politics became about electricity prices. And it didn't stop.

In The Age and Sydney Morning Herald

Thursday, September 14, 2017

Power problem. Trust neither the generators nor the Prime Minister

In the lead-up to the 2010 election Tony Abbott managed to produce a climate change policy that was almost, but not entirely, unrelated to climate change.

It was to investigate moving high voltage power cables underground.

It was attractive (to people who don't like cables) and it may well have garnered votes, but it had almost nothing to do with climate change.

Now Malcolm Turnbull's doing it. Faced with a report from the energy market operator pointing to the need for more "dispatchable capacity" after the big Liddell power station closes, he has talked instead about the need for "baseload power", sometimes using the terms as if they are interchangeable.

They're not.

Dispatchable power can be quickly turned on and then off when the demand for electricity surges or at those times when the wind's not blowing. It's best provided by hydro-electricity, or gas.

Baseload power (usually provided by coal) isn't particularly dispatchable. It's always on, whatever the need. It's one of the reasons off-peak power is cheap overnight. Baseload generators needed to get rid of the stuff. As the energy market operator put it in the letter to minister Josh Frydenberg that Turnbull claimed to be acting on, baseload power is in general "not well suited to respond to rapidly varying energy system needs".

Turnbull said the closure of the Liddell plant in 2022 would create a huge gap in baseload power, something he would not allow to occur. The market operator's head, Audrey Zibelman, speaking to an industry audience only a few hours before Turnbull on Tuesday, said her job was to provide reliable power whether or not Liddell closed.

Nearly half a century old, Liddell is a special case. It's not even dispatchable in the narrow sense of the word. During this year's February heatwave as the temperature soared above 40 degrees, much of it broke down. It suffered "unforeseeable boiler tube leaks". Were it not for solar and wind, NSW would have suffered even bigger blackouts. In fact Liddell has been operating at about 50 per cent capacity all year, much the same as wind. Whether it fires up when needed is partly a matter of luck.

But, like burying cables underground, extending the life of an aging plant that's anything but agile is easy to understand. Most people get the concept of baseload. What they don't get is that new sources of intermittent power have made it less relevant. What's desperately needed is something that can fill the gaps when the wind's not blowing and the sun's not shining, something that invariant coal-fired power is bad at doing.

AGL, Liddell's owner, recognises this. It's planning to replace Liddell with wind, solar, gas, pumped-hydro and battery plants, the last three of which are eminently dispatchable. Some will be on the same site, which makes sense because that's where the cables lead. If the prime minister manages to bully AGL into keeping Liddell open, it won't happen as quickly.

And it will sweep under the carpet serious problems with the market that keep power prices high. Sun Metals refines zinc. When the wind drops or demand surges it is perfectly able to turn off its smelters for five minutes in order to help out. It'd like to be paid for doing that, in the same way as dispatchable generators are paid for helping out. That way we wouldn't need as much dispatchable generation. But it couldn't turn off its smelters for 30 minutes; its zinc would turn solid. Battery farms would like to do the same thing, but while they could run full-bore for five minutes, many couldn't do it for 30.

At the moment power is priced only every 30 minutes. Generators bid to supply power and are offered contracts every five minutes, but the price they are paid is only set every 30 minutes. It's an average of each five-minute block.

The energy market commission has agreed to scrap the 30-minute rule, but in deference to the squeals of suppliers, it won't do it until 2021.

The suppliers have good reason to like things as they are. It makes sense for them to withhold power, demanding extraordinary high prices, for the first five minutes of each half-hour block and then supply much more at genuinely competitive lower prices for the rest. That way they can get an unreasonably high average price for the entire half hour as well as big volumes. Sometimes they manipulate the price of the last five-minute block.

Until now, evidence that this happens has been largely circumstantial.

But for the past two years economists Mardi Dungey and Ali Ghahremanlou at the University of Tasmania have been examining five years worth of incredibly opaque bidding data and have determined that it happens, big-time. They're about to publish their findings.

"It's like in the US bond markets after the Salomon Brothers scandals in the 1990s," Professor Dungey says. "Traders were forced to provide data, but it took a long time for researchers to match it and work out what was really going on."

The industry has been claiming it's competitive. So far Dungey has only looked at the behaviour of individual generators. She is about to examine the behaviour of the corporations that own more than one - whether bid strategically with one generator in order to influence the price received by another. She says while such behaviour isn't illegal, it might be widespread.

In The Age and Sydney Morning Herald

Monday, September 11, 2017

Morrison, two years on

Two years in, voters feel much, much better about Scott Morrison's handling of the economy than they did about Joe Hockey's. And with good reason. Morrison doesn't make mistakes.

Which makes him dull. Hockey lived to entertain. Remember "the poorest people either don't have cars or actually don't drive very far in many cases", remember "higher-income households pay half their income in tax", remember "the starting point for a first home buyer is to get a good job that pays good money", remember his assurance that "if housing were unaffordable in Sydney, no one would be buying it", a statement that would have made sense were it not for the fact that investors were snapping up homes so that genuine buyers could not.

Remember his decision to take a holiday a few weeks after his first deeply unpopular budget? Remember his costly decision to sue Fairfax Media over reporting in the lead-up to that first budget? Remember the cigars?

They bought him notoriety, but not respect.

Morrison, on the other hand, began his ministerial career with an obsessively low profile. As minister for immigration and border protection he handed out no information and few quotes. As minister for social services he learnt the ropes, joining the budget expenditure review committee in what became an apprenticeship for the job of treasurer.

He hadn't studied economics, but neither had most treasurers. The Treasury and agency staff who brief him say he picks up ideas quickly and makes them his own. Some, he brought to the job. Within days of replacing Hockey he made it clear that he wanted to cut income tax. Bracket creep was punishing people who worked. Except that bracket creep was lower than it had been in decades. The GST had to be increased to make room for income tax cuts. Except that neither the numbers nor the politics worked and the Prime Minister told him so.

His budget decisions have been conventional. Instead of moving towards balance by cutting spending (most spending is in the form of grants and payments that can't easily be cut) he moved towards balance by forecasting increased tax revenue (ironically, much of it from bracket creep). There's no doubt that if he was put to the test, as was Labor's Wayne Swan during the global financial crisis, he would respond conventionally, and well.

Beyond not making mistakes, he is keen on a bigger legacy. He dropped a hint in his speech to a Bloomberg finance summit in Sydney last month. A year ago he directed the Productivity Commission to undertake five-yearly assessments of national productivity. He has had the first for a couple of weeks. It isn't the usual checklist of painful measures that will never be adopted. It's an entirely new approach, one that in the field of health would pay for outcomes rather than services. The gains in health alone might amount to $100 billion over the next few decades. But it'll need to be handled carefully. It will need the support of the states. When the report is released, he doesn't want to stuff it up.

In The Age and Sydney Morning Herald

Thursday, September 07, 2017

Practical love, or worse? Cashless welfare not as advertised

Drug testing is just the start. If you were going to make life much more difficult for people on welfare you'd want to be sure there was a point. You'd want to trial the indignities, you'd want to know they helped.

The so-called cashless welfare card has been tried before. It was called the Basics Card during the Northern Territory intervention. Back then 50 per cent to 70 per cent of each payment was quarantined and put on a card. It could be only be used at certain retailers and it couldn't be used for cigarettes, alcohol, pornography or gambling, or to obtain cash.

A searing government-commissioned evaluation of the $410 million program could not find "any substantive evidence of the program having significant changes relative to its key policy objectives, including changing people's behaviours".

There was no evidence of changes in spending patterns, no evidence of any overall improvement in financial wellbeing, no evidence of improvement in community wellbeing, including for children, and evidence of the kind of learned helplessness that flows from making people dependent on the decisions of others.

The review found that, "rather than building capacity and independence, for many the program has acted to make people more dependent on welfare".

Two years on from that review, the government has tried it again. This time as a trial of a "cashless welfare card" that differs from the Basics Card only in that it doesn't exclude pornography and tobacco and it is meant to be acceptable everywhere.

While that may remove one of the problems, the card not being useable at cheap retailers, such as Aldi, and the retailers that do accept it jacking up prices, it leaves in place many more.

The trial in the East Kimberley and Ceduna in South Australia quarantines even more of each payment: 80 per cent. It applies to everyone of working age who gets a government benefit. Most are Indigenous. Many aren't used to handling cards. Many are unable to use the helpful app that allows them to check their balance. Smartphones are rarer in the outback.

An extraordinary one 1 in every seven 7 transactions are declined, mainly because of "card user errors" or insufficient funds. It makes using the card potentially humiliating, as does the required use of a separate tills at roadhouses and pubs that serve alcohol, identifying card users to other patrons.

It's impossible to use the card to pay for bus fares, school lunches, or goods bought from other members of the community. It's impossible to send gifts of money. And it's darn near impossible to wade through its 80 pages of conditions. I've tried. Anyone who succeeds will find they've agreed to hand over their entire transaction history to the Commonwealth, not that they have any choice.

But it's a success. A report by Orima Research to the federal government is said to say so. Leaked to a compliant media organisation and then released on September 1 by the human service minister Alan Tudge, the report is said to have found positive health and social outcomes "almost without precedent". Forty-five per cent of the of the users surveyed found they were better at saving. Less publicised was that 50 per cent found they were not. Twenty-three per cent said it had made their life better. Less publicised was that 42 per cent said it had made their lives worse.

Forty per cent said they could better look after their children. Less publicised was that 48 per cent said they could not. The negative responses are brave, given the design of the survey. Social researcher Eva Cox found that the interviewers offered $30 and $50 gift cards in return for asking the questions. They recorded IDs. Given the presence of an authority figure, almost all of those interviewed said they didn't didn't drink or take drugs or gamble to excess to start with, which makes it hard to know how to read their assurances that they were doing less.

Melbourne University development specialist Elise Klein says some may have said yes to "consuming less" simply because they didn't consume at all and there was no option to reflect that.

Niceties of survey design and execution were cast aside on the day the survey was released when the Prime Minister declared the scheme an "exercise in practical love", and extended it to the goldfields region incorporating Kalgoorlie and Esperance in Western Australia.

There had been "a big decrease in alcohol abuse, in drug abuse, in violence, in domestic violence".

Except that there may not have been. The finding about domestic violence isn't in the report, and the earlier interim report found both a reduction in the number of injuries domestic violence-style injuries at hospitals and an increase in domestic violence orders. The appendix to the report indicates that the authors had access to police domestic violence records but chose not to include them. Klein is chasing them under freedom of information.

It would be awful if the cashless welfare card was as misguided and damaging as other interventions in Aboriginal Australia, food stamps among them. It would be as awful if our leaders didn't want to know.

In The Age and Sydney Morning Herald

Wednesday, September 06, 2017

GDP. We're spending more without earning more

Household spending is growing faster than household income, and has been for five quarters; the longest unsupported boom in spending since before the global financial crisis.

The steady increase in spending, funded by a steady decline in saving, has propelled economic growth to 0.8 per cent in the June quarter and a better than budgeted than 1.9 per cent in 2016-17, a result Treasurer Scott Morrison said showed the "better times ahead" forecast in the budget were beginning to emerge.

Australia's household saving ratio fell to 4.6 per cent in June, down from 8.7 per cent when the Coalition took office in 2013. Mr Morrison defended the slide saving saying it was a sign of improving confidence.

"It's how people see things out over the next 12 months, two years and so on and how they see things moving," Mr Morrison said. "There's undoubtedly lots of volatility in the global economy but the global economic position, as we've been saying now since the beginning of the year, has been improving and that's a positive thing. It's not surprising that households, families, businesses will reflect that in a lot of their own decisions and the actions that they're taking in the economy."

Wages and salaries grew just 0.7 per cent in the three months to June and by only 2.1 per cent over the year, an increase driven by a jump in the number of hours worked rather than pay increases.

Average compensation of employees (a broad measure of wages) declined 0.1 per cent in the quarter, and climbed just 0.1 over the year.

Real net national disposable income per capita, the best measure of potential living standards, slipped 1.4 per cent, in the first decline in six quarters.

National Australia Bank chief economist Alan Oster said household spending dropped at the end of the quarter in June and also looked to be weak in July.

While the increase in the minimum wage from July 1 would help, rising energy prices, high debt levels and the removal of penalty rates should weigh on spending.


Mr Morrison said a substantial lift in wages would have to wait until a sustained improvement in profits. The national accounts measure of profits climbed 19.5 per cent over the year in response the higher minerals prices, but slipped 4 per cent in the three months to June.

"There's no chicken and egg conundrum when it comes to wages and profitability in investment," Mr Morrison said. "What has to come first is companies have to make money to be able to pay more in higher wages. You can't get a pay rise in a business that isn't making any money, and you can't get a job in a business that's shut."

"We are seeing more people getting into work and that's a good thing, and that's the precursor always to seeing wages move. The precursor is also an increase in investment and an increase in profitability and we're seeing all of those measures heading in the right direction, and so long as we continue to make decisions and choices that push all of those indicators in that direction, then we can expect to see that flow through."

Labor Treasury spokesman Chris Bowen said without government investment – driven largely by the new Royal Adelaide hospital – and government consumption, the growth number would have been flat.

"It's ironic that we have the Turnbull Government trying to whip up fear of socialism while it relies on public spending to prop up the June quarter growth figures."

Victoria was by far the best-performing state, recording population-fueled growth in state final demand of 1.3 per cent in the June quarter and 4.7 per cent over the year. State final demand in NSW grew only by 1 per cent and 2.4 per cent.

Victorian Treasurer Tim Pallas acknowledged the role of population but Victorian spending was growing at almost twice the rate of Victoria's population. "Population growth not only brings economic activity, but it also brings demands on the state to make investments in infrastructure and provide services," he said. "The business sector is doing just as much of the heavy lifting and consumer confidence is growing in a virtuous cycle."

Demand in Western Australia went backwards, sliding 0.3 per cent over the quarter and 4.3 per cent over the year. Dem and in the ACT slipped 0.2 per cent in the quarter and grew 1.3 per cent over the year.

The national accounts show next to no growth in housing investment, suggesting homebuilding has peaked, and that the fall will weaken future economic growth.

New business investment climbed 1.1 per cent in the quarter and 1.5 per cent through the year, producing the first year growth since the Coalition took office in 2013 .

In The Age and Sydney Morning Herald

Monday, September 04, 2017

Remove Medicare levy loopholes: ACOSS

Australia's Medicare levy is riddled with loopholes and should climb with income, as do tax rates, according to a Council of Social Service position paper to be released as the Senate decides whether or not to boost the levy to pay for the National Disability Insurance Scheme.

The government wants to raise the levy from 2 per cent of income to 2.5 per cent to help fund both the NDIS and a "Medicare Guarantee" to better pay for Medicare.

Labor has agreed to raising the rate, but only for the one-fifth of Australians earning more than $87,000. In addition it would reintroduce the so-called deficit repair levy on very high earners on more than $180,000.

The position paper points to problems with both proposals, saying Labor's scheme would leave in place the same loopholes as the Coalition's' scheme. It would also create a sudden jump in tax for Australians whose income climbed above $87,000, taking an entire 0.5 per cent, sending backwards their take-home income.

"The current levy and the Medicare Surcharge are complex and lack transparency," ACOSS chief executive Cassandra Goldie said before the release of the report. "People on higher incomes with smart tax advice can avoid paying their fair share through tax shelters such as salary sacrifice and negative gearing."

The Medicare Levy is imposed on "taxable income", meaning tax deductions such as those associated with negative gearing can eliminate the need to pay it. The latest tax statistics show that 48 very-high-income Australians, each earning more than $1 million a year, paid no income tax or Medicare levy in 2014-15, even though some paid the more broadly calculated Medicare Levy Surcharge.

The Council of Social Service wants the levy calculated on the same basis as the surcharge, making it impossible to avoid through the use of trusts or negative gearing. It also wants to phase in the levy with income, as happens with income tax.

The most radical option in the paper is to combine the levy and surcharge and make them a set percentage of income tax paid. It would no longer be possible to escape part of the levy by taking out private health insurance. Setting the levy at 12 per cent of tax paid would raise about the same amount of money as a 2.5 per cent levy and the 1 to 1.5 per cent surcharge.

Economic modelling in the paper shows Labor's plan would hit high-income earners the hardest, and the Coalition's plan would tax low-income earners more than Labor's.

In The Age and Sydney Morning Herald

Sunday, September 03, 2017

Sexism. It's in the name, Keith

Who wouldn't rather be a man? Perhaps a man like Keith Mann, who makes things happen.

Here's Keith, chasing up a web developer: "You guys said this would be done, what's the status?"

His partners in a technology startup, Penelope Guzin and Kate Dwyer, had tried to negotiate with contractors by themselves. "It would take days to get a response," Dwyer told Fast Company this week. "But Keith could not only get a response and a status update, but also be asked if he wanted anything else or if there was anything else that Keith needed help with."

Contractors often referred to Mann by name and to Guzin and Dwyer not at all. One began a reply to the two senior partners with: "Okay, girls..."

Keith didn't exist. Guzin and Dwyer made him up to help get their startup off the ground. They even invented a life story. He was a "dude's dude", he played football in college. He was devoted to his wife and he couldn't wait to be a dad. "He doesn't really understand Kate and I," Gazin admitted. "But he's been happy to help us with our project before we find husbands."

A few months earlier two resume writers, Nicole Hallberg and Martin Schneider, accidentally swapped genders. They were working on the same project when Schneider mistakenly used Hallberg's signature block. The client became "rude, dismissive, ignoring my questions, telling me his methods were the industry standards (they weren't) and I couldn't understand the terms he used (I could)".



Hallberg told him it was always like that for her, so they did an experiment. For two weeks they switched names. He signed emails as her and she signed them as him.

It was like getting a vacation, it was amazing," Hallberg said. "Everyone thought I was a lot smarter, instantly. It's like I just woke up and was better at my job – I didn't have to prove anything, I didn't have to argue with clients, I didn't have to deal with the mansplaining and little digs and the little subtle sexist comments. No one was calling me 'sweetie' any more, that was great."

"They were calling me sweetie though," Schneider adds in a podcast about the experiment. "I realised it was taking me longer to finish with each client because I was having to prove myself. I was having to spend a lot of time just explaining that I knew what I was doing. And I was getting, not outright mean, but small, little condescending comments like explaining terminology that I had just used in a sentence."



"I realised the reason why it had been taking Nicole longer to finish with clients than me was because in the time it normally took me to get half way through, Nicole had just got the client to believe she knew what she was talking about."

"Suddenly I saw that it wasn't because I was better at my job than Nicole, it was because I'd had an invisible advantage I'd never seen before."

The advantage might have been worth paying for. Schneider was paid more than Hallberg, even though when he was handicapped by her name he didn't do as well.

It's rarely possible to tease out the effect of gender and gender alone on pay. "I don't pay you less because you are a woman, I pay you less because you are less senior," an employer of mine once explained to a colleague, in a circular piece of reasoning.

But it's sometimes possible. In 2006 American economists Kristen and Matthew Wiswall performed perhaps the ultimate test. They examined what happened to the pay of and status of employees who'd changed sex.

Although unchanged in any other respect, the women who had become men got paid slightly more, and got more respect. The men who had become women saw their average pay fall by one-third. Many were harassed, some were fired.

In The Age and Sydney Morning Herald