What extending the copyright term exterminates

If there was one episode in the ABC's weekday reruns of Doctor Who that was not to be missed, it was the one that should have been shown three weeks ago. In it the second Dr Who, Patrick Troughton, is put on trial by the Time Lords and banished forever to one point in space and time - Earth in the 20th century.

Although that episode sets up everything that follows, the ABC was unable to broadcast it. Its problem: copyright.

For just a few seconds as the doctor's life flashed before him the episode showed a glimpse of his most infamous enemies: the pepper pot-shaped Daleks.

Copyright to the Dalek design is shared between the BBC and the family of the late writer Terry Nation and the two have fallen out. London reports say that before he died Nation told his executors never to let the BBC use the Daleks again. As a result the BBC cancelled its plans to rescreen the series last year. (The ABC appears to have been allowed to show some of the earlier Dalek episodes by negotiating a separate deal directly with the Nation estate.)

The use of copyright to attempt to stifle cultural celebrations is more common than you might think.

Last year Samuel Beckett's nephew threatened to shut down a performance of Waiting for Godot at the Belvoir Street Theatre on the grounds that it had some music in it.

In June the James Joyce Centre in Dublin is to celebrate Bloomsday on the 100th anniversary of the date on which the novel Ulysses is set. But it may not be able to read the novel out loud. Joyce's grandson has banned public performances, saying he will sue for breach of copyright if anyone tries... Fortunately the organisers of Australia's Bloomsday celebrations are in the clear. In Australia Joyce's works entered the public domain in 1991, 50 years after his death.

But they might not remain in the public domain for much longer. Australia's draft so-called Free Trade Agreement with the United States includes a little publicised clause that would extend our term of copyright from death plus 50 years to death plus 70, the new US and European standard.

Works such as Ulysses and books by authors such as Joseph Conrad, Ernest Hemingway and D.H. Lawrence, as well as music such as Rhapsody in Blue, are at the moment on a par with Shakespeare in Australia. It is legal to print, adapt and perform them without permission. If the Free Trade Agreement becomes law as it stands they will return to private ownership.

Would this really matter? You might be surprised to discover that the economics profession believes it would. Economists, more than most people, support the idea of private property. And yet a couple of years ago 17 of the world's most respected economists (among them five Nobel Prize winners) petitioned the US Supreme Court in an attempt to stop the extension of the US copyright term.

They argued that extending the term by another 20 years would actually impose extra costs on authors while at the same time providing next to no extra incentive for them to write.

Here's how: it is true that increasing the copyright term from zero to 20 years would provide a good deal of extra incentive to write. But increasing the term from an entire lifetime plus 50 years to an entire lifetime plus 70 years would provide much less incentive at the time when the decision is being made to write. A lifetime plus half a century seems so far away, let alone additional decades.

The economists estimated the size of the extra incentive. They said the prospect of an extra 20 years of copyright protection would be worth about the same to a would-be author as an increase in income of one third of 1 per cent. As one of the Supreme Court judges noted: "What potential Shakespeare, Warton or Hemingway would be moved by such a sum?"

This is not to say that the sums involved are small in the years that they are paid. The extra 20 years of copyright payments now legislated in the US are set to cost Americans an extra $US300 million ($393 million). Most of the money will go to the owners of works already created. For them it will be a windfall, an unexpected top-up. But it will give them the right to lock up the use of their work for years to come.

Many, perhaps most, works of art are created by retelling, remixing and playing with older stories. Certainly several of the Disney Corporation's most popular copyrighted works were created that way.

But Disney and its ilk are not keen to allow the creators that follow them the same access.

Lawrence Lessig is the Stanford law professor who led the unsuccessful Supreme Court challenge. He chillingly notes in his new book, Free Culture, that while a million patents are set to pass into the US public domain in the next 20 years, no copyrights are now set to do so.

In Australia a government-appointed committee recommended against extending our copyright term as recently as four years ago. It also recommended that no extension be introduced in the future "without a prior thorough and independent review of the resulting costs and benefits". The Government accepted both recommendations.

But the Government has now agreed to extend our copyright term, and unless the Free Trade Agreement is blocked in either the Australian or the US legislature that extension is set to pass into law.

There is still time for some sort of review. The Senate committee inquiring into the FTA is accepting submissions until the end of this month.

It might take heart from Canada. That nation enjoys a free trade agreement with the US and retains Australian-style copyright laws. Last week it knocked back a bill that would have extended those laws.




If you want find out to more, and get much more angry try:

Professor Lawrence Lessig and his stunning new book Free Culture which is available both in hardback and free on line.

There's the Subverted Public Domain List which effectively tells you which works are in the public domain right now in Australia but are still kept private in Europe and in the US as a result of the Sonny Bono Copyright Term Extension Act of 1998. The Australian public will lose those works, among them Rhapsody in Blue when and if the US Australia FTA becomes law.

One implication of the list is that the first audio Mickey Mouse went public in Australia on January 1 2004. Anyone want to start showing Steamboat Willie?

Our Senate Select Committee on the Free Trade Agreement wants submissions by Friday, 30 April 2004.

On one side of the economic argument are five Nobel Prize winning economists, among them Milton Friedman. Their brief is as clear as it awesome.

Justice Breyer of the US Supreme Court thought it didn't go far enough.

Lessig says the other side in US Court case didn't call any economists as witnesses, let alone Nobel Prize winners.

On the other side is an economists report commissioned by the Australasian Performing Rights Association and others. Headed: Copyright Term Extension: Australian Benefits and Costs (shouldn't that be the other way around?) It has no named author, other than the Allen Consulting Group.

I have quite a few problems with it (on which I will write later), but perhaps they are explained by the Allen Group itself which describes its mission as being "to identify the benefits" of copyright extension first, and then to "consider whether those benefits are outweighed by any demonstrable costs."

The whole question of copyright extension has been looked at before.

In 2000 Professor Henry Ergas's Intellectual Property and Competition Review Committee recommended:

"The Committee is not convinced there is merit in proposals to extend the term of copyright protection, and recommends that the current term not be extended. We also recommend that no extension of the copyright term be introduced in future without a prior thorough and independent review of the resulting costs and benefits."

Our government agreed.

Great Australian sites on this are:

Weatherall's Law, from Kim Weatherall, Associate Director of the Intellectual Property Research Institute of Australia, and

Dead poets society from Matthew Rimmer at the Faculty of Law, ANU.

By the way, there are even worse things than copyright extension in the FTA when it comes to intellectuazl property. Wetherall and Rimmer outline them.

John Quiggin has written about the FTA as well, and it was he alerted me to the pickle the Dublin organisers of Bloomsday find themselves in.

The Wall Street Journal has a view. It argues that "Viewed up close," copyright "looks like a constantly expanding government program run for the benefit of a noisy, well-organized interest group."

Bizarre, depressing, but apparently true: Girl Scouts in the US have been threatened with lawsuits for singing "Happy Birthday to You" on their camps.

AOL Time Warner owns the rights and apparently earns $US2 million a year by harassing "performers" of this song for funds, and now will do so for another 20 years. Australia is set to escape from its clutches soon. The copyright expires in 2010. Of course if the FTA as it stands becomes law in Australia we will continue to be harassed until 2030.

(At least AOL Time Warner hasn’t banned public performances of "Happy Birthday to You" as it is presumably entitled to do.)

UPDATE:

A correspondent writes from Canada:

It would have been nice if (Canada's) Parliament had truly closed the door on copyright term extension in general.

The Canadian bill that was recently "knocked back" only concerned the copyright term for unpublished works by authors who died before 1949. Shades of Disney and Bono, it was largely the product of lobbying by the estate of Lucy Maude Montgomery ("Anne of Greene Gables" -- if you don't know, don't worry), who hoped to milk the long-deceased woman's diaries (not even her published books) for another 34 years. She died in 1942.

The extension, together with the broad scope of copyright (everyone's an "author", almost everything is a "work") would have locked up millions of historical documents, going back to the 1850s. Canadians would not have had the right to publish such material. Not even important records on their own community's history. Not even war letters by family members, given how copyright ownership can rapidly be diluted and made untraceable. Not even material out of the National Archives, which, for reasons unknown, gave its blessing to the copyright clause.

Then it got worse. The clause was originally restricted to authors who died after 1929. As later amended, it became open-ended. No matter how old the document -- from a "Dear John" email, 2004, to a Babylonian clay tablet, ca. 2900 BC -- it would have been "protected"! It was only a fluke of Parliamentary timing that prevented this draconian law from passing, forcing the government to withdraw.

The works in question became public domain in Canada on New Year's Day.

The forces that pushed Australia over the 50-year edge are still at work here. If Australia falls, it makes it harder for Canada, New Zealand, and
the dwindling band of nations with the minimum 50-year Berne Convention copyright term. Bad as it is losing your cultural sovereignty to the United States, it's galling to lose it to Walt Disney and Sonny (ugh) Bono.

I live in dread of the day our cultural glitterati, the shills of Disney and Bono, realize that our other NAFTA partner, Mexico, now has a 100-year term.

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Paul Krugman - The Fly in Bush's Ointment

My SBS Dateline interview with Paul Krugman. 

Mark Davis's introduction:

Now to one of George Bush's most persistent critics. Until the emergence of Democrat leader John Kerry, Paul Krugman had virtually become the leader of the opposition in America, an unusual position for an academic economist. His column on business and economics in the New York Times soon broadened into a scathing critique. Not only did he attack George Bush's economic record, but almost alone in the US media until recently, he became known as a vocal critic of the Bush social and political agenda as well. Paul Krugman has been speaking with our economics correspondent, Peter Martin...

STATE OF THE UNION: Members of Congress, I have the high privilege and the distinct honour of presenting to you the President of the United States.

PROFESSOR PAUL KRUGMAN, PRINCETON UNIVERSITY: They've made no secret, the Administration doesn't say this but the people behind it do, that they view the whole welfare state, social security and Medicare as illegitimate. They want to reverse the New Deal and the Great Society, which means get rid of the house that Franklin Roosevelt built. On the social-cultural religious side, they've made it very clear that the boundaries between Church and State are something that they want to tear down.

PETER MARTIN: Paul Krugman the 'New York Times' columnist is as blunt, and fearless, in his observations about the Bush Administration as Paul Krugman, the Princeton trade theorist, used to be about entire national economies. Back in the mid-1990s, at a time when just about everyone was talking up the Asian economic miracle, Krugman labelled it a myth. Three years later, those miracle economies collapsed.
Now, with a twice-weekly column in America's most influential newspaper, the economist and opinion writer has begun issuing similar warnings about the US itself.

PAUL KRUGMAN: As a share of GDP, our budget deficit is bigger than Argentina's before the 2001 crack up, as a share of GDP our current account deficit is bigger than Indonesia's before the 1997 crack up. Advanced countries get the benefit of the doubt from financial markets, because advanced countries are presumed to have the political will and the technical ability to resolve these very serious budget problems. We have the technical ability, I don't think politically we have any realistic discussion on the table.

PETER MARTIN: The political problem that Krugman points to again and again in his columns is the Administration's multi trillion-dollar unfunded tax cut. He says it's sending American tax collections to their lowest level since the 1950s. In their place are borrowings from Asian central banks. He's worried even more by the attitude of the Administration that has pushed those tax cuts.

PAUL KRUGMAN: The same tax cut that was proposed in 1999 at a time of surplus, at a time of a thriving economy, was the one that they pushed through in 2001 in the face of recession, and was extended and enlarged in the face of record budget deficits. The policy of tax cuts at the high end, permanent tax cuts at the high end, they sold it different ways, various things at various times, but it's always the same policy even though the economic situation and the budget situation is completely transformed.

PETER MARTIN: Krugman's critique of the Bush Administration now extends way beyond its approach to economics. He says in all sorts of areas it appears to regard itself as a revolutionary force not subject to the usual political decision-making process.

PAUL KRUGMAN: On foreign policy, they always wanted to get Saddam Hussein, and the fact that it was actually somebody else who attacked us didn't seem to make a difference. They decided, you know, the satirists do a better job of describing reality than serious journalists these days. And one satirist said that we sent a message to the world - "If you attack us, we will strike back with overwhelming force at someone else."

And the notion that there could be a legitimate transfer of power back to the Democrats simply doesn't occur to these people. A number of people who are closely connected with the Republican Party from the religious right have said: "God chose Bush to be President, even exulted over the fact that he became President with fewer votes than his opponent, saying that just shows that he was God's choice." Almost a kind of right-wing Leninism. These are people who really have a very strong view about the way things should be, and are determined to achieve it.

REPORTER: Are these sort of attitudes, dangerous ones in your view, that are easy to report on?

PAUL KRUGMAN: The very extremism of what's going on makes it very difficult for journalists to talk about what's happening.

REPORTER: Why is that?

PAUL KRUGMAN: Because the convention, if you're at 'Fox News', if you're with Murdoch, then the right wing is always right. If you are at another mainstream news source then the conventions is that there are two sides to every story, and it doesn't matter if one side is grotesquely untruthful, there are still two sides to every story. So, well, we had a spectacular example just a couple of days ago, we had new poll numbers which happen to have been shockingly bad for Bush, and most of the headlines in mainstream news reports on it had something like, "Poll shows weaknesses in both parties." And I've said that if Bush said that the earth was flat, the reporting in much of the mainstream press would be, "Shape of earth views differ."

REPORTER: Why do you think you are not bound by those conventions in your writing?

PAUL KRUGMAN: Well, first off, I am an opinion columnist. I have a little more... I write what I like, but beyond that I have another job. If my outrageousness causes me to lose my journalistic career, well so, I'll go back teaching and other things and so, I'm a little, and also I think I was just, because I am a trained economist, and can do my own arithmetic, I caught on to the fact that there was a lot of just raw dishonesty going on in this Administration before anyone else did, and have had the courage of my convictions because they're just grounded in arithmetic, which gives me a certain advantage over other people, but I'm much less alone than I was.

PETER MARTIN: In recent weeks, Krugman has swung back to economics in his columns, warning of a financial crisis in the US very soon, quite possibly within the next 4-year presidential term.

PAUL KRUGMAN: If the markets were to believe in us until the last possible moment we could have another 15 years before all hell breaks loose. I don't think it's going to work that way, but it could certainly happen during the next four years.

PETER MARTIN: Might this be a good election for the Democrats to lose, in other words, to let George Bush deal with the results of what you see as the coming results of his Administration's policies?

PAUL KRUGMAN: Well, I'll give you several thoughts on that. First was, that a lot of Democrats said during the disputed election of 2000, "Well, you know, whoever gets this is going to be handed a poisoned chalice, so it's probably better for us to let Bush have it," and that turned out to have been stark-raving mad, it turns out that the advantages of incumbency, the advantages of holding the White House are enormous, and Bush exploited that absolutely to the fullest, so, look, don't knock the advantage of being there. In particular, given the way things are trending in the United States, given the raw use of power to rig the political game that the Republicans have undertaken already, given the replacement of voting machines with electronic machines that leave no paper trail, given the extraordinary use of patronage to reward friends and punish enemies in the business community, I'm not sure that if the Democrats lose this election, they're going to have any chance of mounting a challenge in any future election no matter how badly things go.

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They've taken you for a ride, Mark.

That's the concluding line to Ross Gittins' assessement of Latham's superannuation promises in this morning's Sydney Morning Herald.

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Forget the spin! It's a record record.

The Australian recording industry should be congratulating itself. Both for pushing CD sales to an all-time record high and for keeping this fact out of the initial news reports.

The announcement from ARIA is (perhaps deliberately) hard to read.

For one thing, there are no comparisons with past sales going back more than a year.

But late last year ARIA blessed me with a spreadsheet showing sales by category going back to 1982.

Reading that, together with its latest press release, it is clear that:

Total sales (in all formats) climbed to a record high in 2003: 65.6 million, easily topping the previous record of 63.9 million set in 2001.

And the sales of actual CD albums climbed above 50 million for the first time (well above 50 million actually).

It's a real cause for celebration. Back before the advent of Napster and home CD burning the industry was selling fewer than 40 million CD albums per year...

In its announcement ARIA makes much of a decline in the sales of its (reportedly unprofitable) CD singles - down from 11.3 million to 9.4 million.

But if the industry reflected for a moment - it might see this as a good thing. CD singles were never an end in themselves. They were a promotional device - designed to feed listeners into buying the entire album.

Music downloads may be (slowly) replacing the CD single in this role.

They appear to do it much better (creating record sales of CD albums) - at virtually no cost to the record companies themselves!

The industry has fought, it has screamed, it has arrested, it has litigated. But it may just be stuck with the best device for promoting its product it never wanted invented.

See also: Forget the Spin, SMH 30.12.03.

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Tell me it isn’t true!

This reads as if I am angry.

Latham wants to cut the already hugely concessional rate of tax on superannuation to zero. [* see update]

The AFR deadpans: “The superannuation industry has reacted favourably.”

Well, yes – but the biggest winners would be Australia’s highest income earners. They are the people who put the most into super (both because they have the most to spare and because of its generous tax treatment, which Latham wants to make more generous still).

A zero rate of tax on earnings would be quite an achievement for Labor. It is a step not even John Howard was not prepared to take when he neutered the capital gains tax.

Here’s an idea – why not tax all earnings, even those from dabbling in financial markets, at the marginal rate.

It’s an idea that might have once come from Labor...

Despite what Latham is doubtless saying, it is a measure that would most likely not do much to increase the rate at which Australians save. Vince Fitzgerald notes in his landmark report (page 26) that “an increased return on saving is an incentive to save more, but also an incentive to save less.” “Save more” (through super) because it boosts the return on that sort of savings, “save less” because it makes it easier to reach a saving target.

And to the extent that a zero rate of tax on super earnings does push more of our money that way, history suggests that will happen at the expense of other (more reasonably taxed) forms of saving.

And what about Latham’s catch cry "65 at 65"?

It might be an understatement. Work the done by Anthony King at the National Centre for Economic Modelling (pp 27–29) suggests that a zero rate of tax on super fund earnings could give some Australians a higher standard of living post retirement than they had pre-retirement. [* see update]

(Assuming that the cut in tax on super earnings was paid for by increases in tax on other earnings in the working years, as it would have to be, otherwise his promised tax cut would be a cruel joke on retirees.)

As King says: “At this point, it would be fair to ask why one would want to aim for such high retirement incomes.”

We could ask as well: what would those high retirement incomes buy?

A higher retirement income for one Australian will buy that lucky Australian preferred access to the services of whatever working-age Australians are around during his or her retirement.

But a higher retirement income for all Australians would not buy all of them all preferred access to those services (except at the expense of working age Australians). It would bid up the price of the services they wanted access to. Another cruel trick, don’t you think?

Guess what? The best way to increase the purchasing power of our retirement incomes is to increase the number of workers around in our retirement years.

That's what Costello proposes. He wants us to work longer. And that's what the AFR says Latham opposes.

UPDATE: (18.03.04) It isn't true. In my anger I misread what Latham had promised. He has promised to eventually remove the (already concessional) 15 per cent tax on contributions, presumably leaving in place the (concessional) 15 per cent tax on earnings.

This blunts my criticism but does not change the thrust of it. The biggest beneficiaries would still be those Australians who earned the most. But the policy would not, as I feared, run the risk of giving some Australians a higher standard of living after retirement than they had before it.

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The four billion dollar man

For the two months or so I have been working on a story which went to air on SBS TV's Dateline on Wednesday 10 March. As you can see if you follow the link there is no transcript on the SBS site "on legal advice".

The story is about an Australian company, Commercial IBT Pty Ltd. It has a banking licence in the offshore financial centre of Labuan, Malaysia. It describes itself and the bank this way...

COMMERCIAL IBT BANK, Licensed Offshore Bank (030085C), a licensed bank in Labuan Malaysia (www.lofsa.gov.my) is involved in investment banking and provision of financial services including corporate finance and advisory, private banking, trade finance and fund and asset management.

We provide innovative financial solutions, support and auxiliary services ONLY to wholesale clients, sophisticated investors, substantial corporations and institutions globally.

Our commercial and entrepreneurial approach has seen success in our specialist divisions.

We have a good network in the Australia-Pacific, Asian and United States regions and specialise in providing investment opportunities in these regions.

We strictly observe and preserve our clients' confidentiality and as such we are very private. We therefore do not publicise nor advertise any deals or projects unless requested by our clients.

In Australia, COMMERCIAL IBT is a low profile financial institution involved in corporate finance, general investments and other financial services. For further information please go to www.cibt.com.au

We are a full member of the Asian Bankers Association (ABA). The Asian Bankers Association, one of the service councils of the Confederation of Asia Pacific Chambers of Commerce and Industry, is a regional association and membership of financial institutions based or have operations in the Australia Asia-Pacific region. The Association aims to provide a forum for advancing the cause of the banking and finance industry in the region and promoting regional economic cooperation.

Or that's what it used to say.

The morning after my story went to air that description vanished from its website, replaced with: "This page is currently being updated". Here is what is there now.

The website for Commercial IBT is here. The homepage for the bank here.

UPDATE 23.04.04:

Ratings Agency Malaysia suspends Commercial IBT's rating.

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The Economic Consequences of War with Iraq

I discussed on Life Matters this stunning paper by the economist William Nordhaus.

He compares the human and financial costs of wars past (and no, the Vietnam was not particularly expensive to the US) and then makes some very prescient predictions for Iraq.

I have given this paper to several friends. If you read one economic paper this year, this could be it.

He has also published a short and non-technical version in the New York Review of Books. Read it here.

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Love, marriage, contraception and money

More and more women are deciding to wait - for a Mr Right with a decent income, says Peter Martin.

What do Britney Spears and George Bush have in common? They both believe in the "sanctity of marriage". That's what Spears told MTV after her snap decision to get married and then unmarried in the new year, and that's why in today's State of the Union address President Bush will announce a plan to spend $US1.5 billion ($2 billion) promoting marriage.

It is actually Spears who is in tune with the times. Like Spears in the cold light of day, few American women now believe they are ready for marriage at 22. Most now wait until they are at least 25, and most Australian women wait until they are at least 27. But just a couple of decades ago marriage at Spears's age was typical.

Something has made us much more wary about getting hitched. Economists have come up with at least three explanations, one of which points some of the blame at the President himself...

(If you find the whole idea of economists analysing marriage offensive, I sympathise. My marriage is the result of deep love rather than a calculation of costs and benefits. Nevertheless, economists believe we act as if we perform calculations, and they say the financial ones account for about one third of a typical decision to marry.)

The advent of the contraceptive pill removed one big non-financial cost of not getting married. As the Harvard economist Claudia Goldin puts it, from then on you could "put off marriage while not having to put off sex". The marriage rate began falling and the marriage age began rising from the moment the pill became widely available around the start of the 1970s.

But the pill did more than make it easier to delay marriage. Goldin says it made it realistic suddenly for large numbers of young women to take on major university courses such as business, law, dentistry and medicine. Before the pill they faced a high chance of getting pregnant during a five-year degree and wasting their money.

One decade after the arrival of the pill the proportion of US dental students who were women had climbed from 1 per cent to 19 per cent; the proportion of law students had climbed from 4 per cent to 36 per cent. This pushed out the age at which those women made themselves available for marriage, and also increased the potential pay-off for men who waited. They might snare a doctor.

But something else is needed to explain the continuing slide in the rate of marriage in more recent decades. Since 1980 the marriage rate among Australian women has halved. It might be that Australian women are becoming more acquainted with some of the less publicised facts about marriage.

It is widely believed that people who are married earn more, are happier and live longer than people who are single or merely "living together". But a closer look shows that in most studies the increase in earnings applies only to men and that while marriage makes both sexes happier, men get the bigger benefit. And when it comes to longevity, marriage can actually harm women.

A landmark survey conducted by Warwick University in Britain concluded last year that married men were "a remarkable 10.6 per cent" less likely to die in any given year than men who had never married. Married women received no such protection.

Worse, women who had married and then got divorced were 7.2 per cent more likely to die in any subsequent year; women who were widowed, were 3.8 per cent more likely to die.

For women concerned about a long life the evidence suggests that it is best to either not get married, or if you have done so, stay married.

And here is the economists' third explanation for the continuing slide in marriage rates, the one with direct and uncomfortable implications for the policies of George Bush, and for that matter John Howard: incomes in the US and Australia are becoming less equal.

In the US Bush pushed the process along in 2001 and 2003 with very big tax cuts directed at the already rich.

Increasing inequality means, in the words of Hebrew University economists Eric Gould and Daniele Paserman, "an increase in the dispersion of husband quality". There is now a greater potential pay-off for women in Waiting for Mr Right, to use the title of the paper just published by Gould and Paserman.

They use census data to rank 300 US cities. The most unequal city is Stamford, Connecticut, just north of New York City. It happens to also be the city with the highest proportion of women in their upper 20s who are not yet married (waiting for Mr Right).

Gould and Paserman find that female singleness closely follows male wage inequality, both between different cities and over time. As US male incomes have become more unequal over the past 20 years, females have become commensurately less likely to commit.

They use statistical tools to show that the effect isn't due to men reacting to changes in female incomes, and it isn't due to women throwing themselves into work when and where male incomes diverge widely.

The finding expressed in numbers: "Increased inequality may account for up to 30 per cent of the overall decline in female marriage rates in the last few decades." And Bush has acted to increase that inequality further. In economic terms he has probably been anti-marriage.

A pro-marriage president or prime minister would use economic and taxation policy to make already successful men less financially attractive, rather than more so.

The very clear implication of the economists' work is that women are materialistic in their approach to marriage.

But that doesn't make me feel bad about women. Economists have shown that all sorts of decisions we make are based on prices, everything from wage rates to exchange rates - among those decisions: how long we sleep each night and where we choose to take our holidays. But much of the time we don't consciously think in those terms.

I prefer to think that women considering marriage don't realise what they are doing.

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Life's cheaper in the faster state

This year's holiday road toll was the worst in eight years. But it's not because we drive badly. When asked, more than three-quarters of us say our driving is better than average.

It is true NSW recorded more deaths than Victoria over Christmas (25 compared with 17), but that needn't mean we are bad drivers, either. In the reassuring words of the pro-free market Centre for Independent Studies: "Victoria has always enjoyed slightly safer roads per kilometre travelled compared with NSW."

Most of us are very easily reassured that the deaths on our roads are not our fault. Six out of 10 of us admit to speeding (which is presumably OK because we are better than average drivers); six out of 10 of us oppose attempts to make the road rules tougher.

Late last year the CIS offered encouragement to speeders. On the front page of its magazine it asked: "Speed Traps: Saving Lives or Raising Revenue?" Inside it argued that speed had little to do with road deaths and that those of us who speed moderately "tend to be the safest drivers".

Since then the CIS appears to have softened its stand. The latest edition of its magazine devotes equal space to both sides of the debate.

So in that spirit I would like to take a look at what is actually happening in Victoria and whether it has any lessons for us here in NSW...

It is beyond doubt that there are far fewer road deaths south of the Murray: 334 last year compared with 553 in NSW. Victoria's population is lower, but not low enough to account for the difference.

It is also beyond doubt that Victoria enforces its speed rules more rigidly. In that state you will be booked if you are caught driving just 3kmh over the speed limit. In NSW we expect to be allowed to drive up to 10 per cent over the limit.

And in Victoria the speed cameras are hidden. Nineteen per cent of Victorian drivers say they have been booked in the last two years. In NSW the proportion is only 12 per cent. (The tough approach has become a political issue in Victoria. The Opposition has promised to reset the cameras to catch fewer speeders.)

The CIS is right to say that these facts do not necessarily mean that Victoria's approach has brought about the lower rate of deaths. There could be something else at work. To conclusively determine whether getting tough on speed saves lives you would need to run a controlled experiment in perhaps as many as 50 states which were free to vary their road rules over a period of years.

Fortunately the United States has conducted just such an experiment.

During the energy crisis of 1974 the Carter administration succeeded in enforcing a low nationwide US speed limit of just 55 miles per hour (88kmh). Road deaths slid 15 per cent.

From 1987 each state again became free to choose to lift the limit on its rural interstate roads. Within a year most states had lifted their limit to 65mph. But seven left the limit unchanged.

In a paper soon to be published in the Journal of Political Economy, the economists Orley Ashenfelter from Princeton University and Michael Greenstone from the University of Chicago examine what happened in those states that lifted their limits. Their findings are surprising.

First, the actual increase in speed in those states was quite low, an average of only 2mph (3.2kmh) on the roads affected. The professors say that is because a lot of drivers on those roads were already speeding.

Second, the small increase appears to have pushed up deaths per mile on those roads by an astounding 36 per cent.

So the professors asked a question only economists would ask: what benefit had the drivers in those states gained in exchange for each of the extra deaths?

The answer was reduced travel time - about 125,000 hours were saved for each extra life lost, which valued at the average wage rate, worked out at a benefit to drivers of about $US1.5 million ($1.9 million) per life lost.

Did the states that pushed up their speed limits value life too cheaply?

Perhaps not. That value of $US1.5 million per life is curiously close to the average $US1.8 million per life which is to be paid out in compensation to families of victims of the September 11 terrorist attacks.

Those US states that chose not to lift their speed limits valued lives more highly.

If speeding rules are indeed linked to deaths in the way that the US data suggests, then right now Victoria is valuing human life more highly than is NSW.

Those of us who enjoy the more relaxed approach to speeding law enforcement in this state are perhaps fortunate that no one has done the calculation for Australia.

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Why Scrooge wouldn't take the cash

Conventional wisdom says we are self-indulgent but covert stinginess is all around, writes Peter Martin.

If your New Year's resolution was to go to the gym, to give up smoking or to get your finances in order, you are in good company. Most of us make resolutions requiring us to do things we hate. That's why resolutions exist. Or so we thought.

There's now a whole new school of thought among economists about a different type of resolution - one in which we resolve to force ourselves to do things we enjoy. And the implications are immense.

If the idea makes little sense to you, bear in mind that the entire concept of resolutions makes little sense to economists...

They have traditionally assumed that human beings are rational - always in control.

Rational people don't need to make resolutions because they always know what they want to do and then they do it. But many of us are not entirely rational. We fight with ourselves. A shopaholic will hide her credit cards in the freezer; an alcoholic will beg a friend to make sure that he doesn't drink; a friend of mine used to paint her fingernails with a bitter substance to stop herself biting them.

About 20 years ago economists began to develop a way of explaining this sort of behaviour. They said we each had within us two quite different personalities: a long-term strategic thinker, and a short-term hands-on fun-lover. The strategic thinker might want to save or exercise; the fun-lover wants to spend.

Most of the time the fun-lover makes the decisions. But from time to time (especially around the start of each year) the strategic thinker takes charge and tries to tie the fun-lover's hands. Flushing cigarettes down the toilet and hiring a personal trainer are among the preferred methods.

It is an idea that makes some sense to economists because it fits in with one of their core beliefs - that, left to our own devices, we prefer to enjoy ourselves now rather than wait. We are natural spendthrifts. That's why banks need to offer us interest to persuade us to lend them our money.

Or so it was thought. The new findings turn that thinking on its head.

Ran Kivetz and Itamar Simonson are professors at Columbia and Stanford universities. They have published their conclusions in a study entitled Self-Control for the Righteous.

Their belief is that about one in four of us acts quite differently. This "joyless consumer" seriously dislikes spending. Faced with a choice between spending on a luxury or on a necessity this person's instinctive reaction is to go for the necessity. Spending on luxuries appears to cause him or her something close to physical pain.

On a day-to-day basis this behaviour appears to make sense. As the professors note: "Spending on necessities has a distinct advantage over luxuries because one cannot do without necessities whereas spending on luxuries is often seen as wasteful, irresponsible, and even immoral."

But a life lived without ever spending on luxuries isn't responsible, and it certainly isn't enjoyable. The strategic thinker within such a person needs to trick the Scrooge into occasionally lashing out. Kivetz and Simonson set a trap to catch the strategic thinker at it.

They offered 6000 Americans the chance to take part in a lottery. They were given a choice of what to accept as a prize in the unlikely event that they won. They could opt for cash or a luxury prize of lesser value. One lottery offered the choice of either $55 in cash or a premium bottle of red wine (retail value $50). Another offered the choice of either $85 in cash or a one-hour facial (maximum retail value $80).

As financial decisions, they are dead easy to make. It is best to go for the cash. If you really want a bottle of wine or a facial you can buy one with the cash and have some money left over. And yet about a quarter of the Americans tested went for the luxury prize.

Asked why, they said things like: "If I chose the cash, I would probably spend it on something I need rather than something I would really enjoy" and "This way I will have to pamper myself and not spend the money on something like groceries".

The long-term planner within these people is desperate to get out from under the thumb of the short-term Scrooge. It may be one of the reasons why Australia's FlyBuys program is so popular, much more popular than it would be if it merely offered cash as a reward. (Incidentally, the professors have also discovered that one of the best ways to get FlyBuys users to take their rewards as flights rather than cash is to make the points harder to get - it makes the flights more acceptable to the Scrooge within us.)

I believe it is one of the reasons why so many Sydneysiders want to buy a second house down on the coast rather than (more cheaply) rent one when needed. The planner in these people knows it would be hard to convince the Scrooge to part with the rent.

It is also the reason my wife and I bought a season subscription to the Sydney Theatre Company at the start of last year.

We knew we would never lash out and treat ourselves to seeing a play each month if it meant parting with the money each time.

Instinctive Scrooges are all around us. They are doubtless far more common than Kivetz and Simonson's work suggests. Their experiment effectively asked people to admit to stupidity.

Entire national programs are based on the economists' stereotype that left to our own devices we won't save enough for our own good.

What if, instead, as many as half of us are inclined to save too much for our own good?

We would be able to get an idea if only we could find out what each of us promised ourselves on New Year's Eve.

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Forget the spin, taping is not killing music

Despite its song and dance, the record industry is in rude health, says Peter Martin.

For many of us, this Christmas marked the return of the homemade gift. By that I mean the lovingly crafted personalised compact disc, a sort-of high-tech car tape filled with what the giver imagines are your favourite (perhaps illegally downloaded) songs.

A Record Industry Association survey suggests that an astonishing 40 per cent of us have received homemade CDs as gifts, typically four each during the past year.

The industry wants us to feel bad about this. It says we are guilty of theft (or at least of receiving stolen goods). When three university students were sentenced last month for their role in creating a music download site the industry claimed they should have been treated as common criminals. "Clearly, if you steal this much music from the store you go to jail," a spokesman said.

But creating CDs is different from stealing CDs from a store, and the industry's figures bear this out...

The recording industry survey was carried out by Quantum Market Research using a sample of about 1000 people. It suggests that 31 million homemade CDs are given away as gifts each year (about four for each of the eight million Australians it says receive them). If, as seems reasonable, 31 million homemade CDs are kept rather than given away, the total number created each year would top 62 million.

When something is stolen there is normally something missing. A dent of 62 million in CD sales in stores each year should be easy to spot. Except for this problem. CD sales in Australian stores have hardly ever been that high. They peaked at 63 million in 2001.

If, as the industry suggests, each of the CDs made on a home computer was indeed created at the expense of one sold in a store the entire industry would have been wiped out.

In fact while 2001 was the industry's best year on record, 2002 was its second-best year, with sales only a few per cent lower.

So don't feel too guilty. The homemade CD appears to have brought us the best of both worlds - doubling the number of new CDs in circulation, without much harming sales in stores.

(The record companies will not like me saying this. They will make the point that the dollar value of CD sales is the lowest it has been since 1998, but that is because prices are lower, thanks in part to Allan Fels. The number of CDs sold is higher than it was back then, thanks in part to Norah Jones, Delta Goodrem and now Guy Sebastian.)

If the healthy state of CD sales in the face of massive do-it-yourself competition surprises you, you are in good company. Midway through last year the Chicago University economist Stan Liebowitz was warning of annihilation. The recording industry loved him for it. He said large-scale unauthorised copying could soon make it obsolete.

Liebowitz has since had a change of heart. In a new study entitled Will MP3 Downloads Annihilate the Record Industry? he concedes that the evidence for annihilation has failed to materialise. He says that "given the enormity of the whole MP3 download enterprise [as in Australia, roughly one song is downloaded for each song sold through stores] it should be easy to recognise its impact on album sales if the impact is large".

He concludes that the impact has not been large and says his best guess is that the worst of it is over, given that most homes that would want CD burners now have them.

CD sales in the US have fallen 20 per cent, but from an extraordinary high. Liebowitz says that during the history of the vinyl LP, sales rarely exceeded two per US citizen a year. Prerecorded cassettes did better - sales peaked at about 2.5 a citizen. Sales of CDs peaked a few years back at more than five per citizen a year. Even now US citizens buy more than four CD albums each a year, roughly twice as many as they ever did in the days of the vinyl LP.

The reason is that home taping, cassettes and CDs have made music more portable. In the days of the vinyl LP you were limited to listening in one room (usually the lounge room) and you certainly could not listen in your car. The advent of the cassette tape increased the amount of minutes available each day to listen to recorded music.

As a result the demand for recorded music went up, whether in the form of LPs which could be taped onto cassettes or in the form of prerecorded cassettes. The 1980s industry sticker "Home taping is killing music" couldn't have been less accurate.

The recording industry and its brethren have been crying wolf for years. At various times we have been told that the pianola was going to kill sales of sheet music, that radio was going to kill sales of records, that photocopying would kill sales of books, that the VCR would stop people going to movies, and that cheaper imported records would stop people buying Australian music.

Along the way we have been told that the use of the latest technology was immoral - everything from the photocopier to the cassette recorder to the VCR.

Liebowitz says we are in the middle of a "wonderful natural experiment" which will determine fairly quickly whether the latest high-tech copying machine causes the sort of damage the other machines didn't. He adds that from an economist's point of view it would be no real disaster if it did. The present recording industry would be replaced by something better able to make money in the changed environment.

But all the indications are that the recording industry we know will be around for quite some time yet - side by side with homemade CDs. In Australia CD sales through stores rebounded 5 per cent in the first half of 2003. The figures for the second half may well show Guy Sebastian has pushed the industry towards a near-record Christmas.

Peter Martin, a former Treasury official, is the economics correspondent for SBS Television.

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Australian Financial Planners are shockers!

As this ASIC investigation reveals.

I discussed this with Geraldine and also reported on it for The Business Show. In July 2003 I reported for SBS on analogous situation of mortgage brokers, also the subject of a report for ASIC.

A lot of the problem is commissions, particularly trailing commissions, and in the course of preparing my SBS report I was astonished to discover that neither ASIC nor the Financial Planning Association knew what proportion of planners accepted commissions and of what kind!

I also discussed with Geraldine this fascinating APRA report on the performance of superannuation funds. The industry funds, often run by volunteers did okay, as did the employee funds run by big corporations. The bad performers were the funds run for the employees of small firms and the professional and expensive retail funds. Price is no guarantee of quality!

Later in the year for SBS TV and Life Matters I reported on the success of Do It Yourself super funds. The DIYers have a catchcry: Why pay to have someone else lose your money, when you can do it yourself?

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Stealing money from very rich people.

It is so easy. A senior official at the Australian Securities and Investments Commission shared his theory as to why. These self-made businesspeople get rich by handshakes, one on one deals, and deals that are out of the ordinary. They get rich by letting their defences down.

We considered calling the SBS Dateline version of this story NABed because of the bit part played by Australia's National Australia Bank in the swindle.

In the end we called it The Big Sting. Read the transcript, or watch the hard-to-believe story.

Mark Davis's introduction:

The collapse of New York's twin towers two years ago tomorrow also marked the collapse of an international swindle that stole millions from some very prominent Australians. Not that many of them are keen to talk about it. Nor is the National Australia Bank, where the funds were deposited. Peter Martin reports. (Includes footage from The Profiteers, by Studio Hamburg Documentaries)

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Friday on my mind 17/3/2003

Economists have been so busy designing tests to determine what makes people happy that they have overlooked something basic:

It depends on what day of the week you ask the questions.

Mark P Taylor, at the University of Essex outlines what it is in his paper Tell me why I don’t like Mondays: Investigating calendar effects on job satisfaction and well-being.

Men and women interviewed on Friday report higher levels of job satisfaction and lower levels of mental stress than those interviewed in the middle of the week.

Fortunately he concludes that the results from earlier studies probably hold up.

On Life Matters I also outlined the preliminary results from a survey entitled: STRESSED OUT ON FOUR CONTINENTS: TIME CRUNCH OR YUPPIE KVETCH?

Evidence from Australia, Germany, Korea and the United States suggests that the more you earn the more you'll feel time-stressed. In the United States a move from the 25th to the 75th percentile of the income distribution raises time stress by half as much as an interquartile change in the amount of weekly employed work!

Gerry played “Friday on my Mind by the Easybeats.

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The Prime Minister’s Home Ownership Task Force 10/3/2003

When a really good idea comes along, a lot of people immediately assume that there must be something wrong with it.

The joke goes: Two economists are strolling down the street when they come upon a $100 note lying on the ground. One economist says to the other "Aren't you going to pick it up?" The economist from Chicago replies: "No, it's a fake. If it wasn't someone would have picked it up already.

It was like that with the Prime Minister's Home Ownership Taskforce. I have outlined the idea here and here. And also to Gerry.

The ideas derived by the Menzies Research Centre for the Prime Minister hold the promise of solving a number of problems very well. Why have Do It Yourself super funds done so much better than professionally managed funds in recent years? Because the DIY funds had housing in them, and the professionally managed funds didn't as much. How could they? There is no easy way for super funds to own houses. The idea of sharing ownership between financial institutions and part-owner occupiers ("managing partners") would give the funds access to the largest asset class on earth and would give would be home owners to ability to move in.

Critics say it would force up the price of housing. So would any move that makes it easier to get into houses. The Task Force has come up with ways to increase the supply of land for housing as well, using innovative techniques to stop NIMBY's complaining. For low income homeowners there would be government loans, repayable in the good times along the lines of the HECS scheme.

They are good ideas whose time is coming.

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Our love affair with Cash 3/3/2003

How much cash do you have about your person right now? When I asked Gerry shed told me the answer was less than twenty dollars. For most of us, it certainly wouldn't be $1,000. Yet according to the official figures around $32 billion in notes is out there in people's possession at the moment - that's about $1,600 for each Australian man, woman and child. That’s more than the typical American, the typical Canadian, the typical Brit, and about three times as much as the typical New Zealander.

RBA comparative figures from 1996 show Australians holding cash of $US870 each, yanks $US610, and NZers $280!

We are eclipsed by some European countries and Japan. The Japanese held at the time $US3,588 under their beds and in other places.

Which is understandable. Japan has deflation. The Japanese don't trust the banks, and for historical reasons neither do many Europeans. But how can we explain Australains love affair with cash?

Christopher Bajada, of the UTS attempts to and comes up with the conclusion that much of it is used to store the proceeds of crime.

The RBA figures suggest this may well be the case. Almost half of the cash we hold about our person is in the form of $100 notes.

Officially we each hold about as many $100 notes per person as we do $20 notes (six to seven).

You and I know this is not true, leading to the thought that perhaps most of Australia's 130 million $100 notes are stored away in suitcases somewhere unopened.

Reserve Bank figures on the life of the notes lend support to this notion. $100 notes last an estimated 70 years. $20 notes last twelve years.

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Bulk billing

The Australian institution is far stronger than the government that runs it would have you believe. I did this talk on Life Matters just ahead of a Health Report special on the same subject. Anyone would think that the percentage of services bulk billed was now low. It is still not that far short of 70 per cent. Not that low at all.

In fact it is higher than it has been at any time in the years leading up to 1992.

The percentage of services bulk billed climbed from 45 per cent in 1984 to a peak of 72 per cent in 2001 and has been coming off a touch since then. It was 67.9 per cent in March 2003.

The real story is one of how popular bulk billing has been with patients and doctors. Popular with patients because it costs nothing out of pocket, and popular with the doctors that bulk bill because that is a unique selling proposition for them.

But the unique selling proposition is only available if the doctor agrees to charge not a dollar above the scheduled fee. An extra dollar and that sales proposition vanishes, patients have to hand over $26 dollars or so of real money and engage in paperwork. That doctor becomes much less attractive.

That's how bulk billing has kept down doctor's charges...

The Howard government has undermined it - first by not allowing the bulk billing payment to doctors to keep pace with rising costs, forcing many doctors to either abandon bulk billing or try to fit in as many as (a reported) eighty bulk billing patients a day in order to make it work.

And now it plans to remove that unique selling proposition for bulk billing - convenience.

Under its proposals doctors will be able to charge an extra dollar or two and offer just as much convenience - a simple swipe of the card and the handover of only the extra dollar or two. Most most-probably will.

It’s an idea that seems almost calculated to kill bulk billing.

Introduced on the largely spurious ground that bulk billing is bleeding.

It is only bleeding because the government began knifing it when it came into office in 1996.

Mmm… Removing a break on what doctors can charge… whose interest would that serve?

Thank heavens the ‘reform’ is held up in the Senate.

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The US is surprisingly vulnerable. 24/3/2003

It is throwing its weight around militarily and in questions of trade, but its economic underbelly is very soft.

And, I told Geraldine, not just when it comes to being a very big debtor to the rest of the world.

Most of the US's exports are intangible, entertainment and drugs among them. I mention drugs because most of the value in them is the intellectual property.

The countries the US sells to don't actually need to buy US music, drugs, films, TV programs etc.

They could copy them.

Think about it. The bulk of exports from the US are only worth something if the rest of the world agrees to pay something.

Or the rest of the world could pay less, or less than the US wants. Against Australia's financial interest we agreed to extend the patent life on drugs a few years back. The US would like us, and the rest of the world, to extend the term on copyright.

We could refuse. And the more the US throws its weight around worldwide the more likely it is that that someone will.

The US has a very soft underbelly.

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Indulgence

Self-control is a problem for spendthrifts and drug addicts, right? People prepared to indulge themselves in the present at the expense of their welfare in the future. These people can get around their problem by precommiting to do good: locking alcohol away and hiding the key, or paying most of their salary into an automatic savings plan.

But self-control can also be a problem for people who are addicted to not spending on themselves. The papers I discussed on Life Matters conclude that about 30 per cent of people have this problem.

I and my wife have this problem. We won't spend on indulgences on any given day because it always makes more sense to save the money up for necessities later. But a life lived this way means no indulgences ever, which can hardly be optimal.

Ran Kivetz outlines the problem is a newish paper The Joyless Consumer: Pre-Committing to Luxury to Overcome the Necessity Compulsion.

The solution he offers to those of us who find it hard to be bad is the same as the chief solution used by people who find it hard to be good: precoimmitment.

At the start of this year my wife and bought season tickets to every show put on by the Sydney Theatre Company during 2003.

That forced us to get out and to stop worrying about the cost. We wore the psychological pain of our decision to spend on indulgence once at the start of the year, and then were forced to enjoy ourselves throughout the rest of the year.

Kivetz conducts hypothetical and real lotteries and discovers that a substantial segment of consumers choose the luxury prizes over the cash prize of equal or greater value. He says most explain their choice as motivated by the need to pre-commit in order to guarantee a luxury experience and to stop the money ending up in the pool used for necessities.

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Waiting for Mr. Right: Rising Inequality and Declining Marriage Rates

The thesis of this paper discussed on Life Matters is that women are waiting longer because there is now a greater potential payoff from doing so. When all the potential males earned pretty much the same income there was little to be gained (financially) in Waiting for Mr. Right.

Increasing inequality, say the authors, explains about 30% of the marriage rate decline in the US over the last few decades. They purport to show that this is not due to the labor force decisions of women in response to rising income inequality, or to the marital decisions of men in response to rising income inequality.

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Kill the rich.

Sell them cigarettes for far half the price you charge poor people.

On Life Matters on Monday I explained that a carton of Peter Jackson Extra Mild (10 x 25) costs $60.65 retail, but only $33.50 at a duty free store. Australians can only access duty free stores if they have a ticket to travel overseas. The top 20 per cent of income earners in Australia spend five times as much on overseas travel tickets as do the bottom 20 per cent.

The Australia Institute has published an analysis of the duty-free system in Australia entitled Tax Flight from which I drew heavily. I also quoted from a long forgotten Industries Assistance Commission report on Passenger Concessions released in 1985 and not available on the internet.

The whole idea of duty free started because of enormously high tariffs in Australia. Locals didn't mind paying them (they didn't know any better) but the few Australians who did travel overseas at the time could see what was happening and so were 'bought off' by being permitted to bring in a certain amount of overseas goods "duty free", a privilege not available to other Australians.

Logic dictated that if our jetsetters were able to buy duty free overseas they should also be able to buy duty free in Australia, so DF shops were set up at airports.

Then in 1972 a group of would be downtown DF stores took their case to the High Court and won the right to operate DF stores outside of airports. The number of DF shops in Australia exploded from four (in 1972) to 50 at present.

Helping along the way in the mid-eighties was a Labor Party election promise to allow "inward duty free" stores at airports to sell booze and fags to Australians upon their return. The Industries Assistance Commission pleaded with the government not to do it finding that "Inward duty free shopping does not assist the achievement of any of the objectives of passenger concessions."

It foresaw another High Court case using the same arguments as the earlier one to extend inward duty free shopping downtown.

On Life Matters I imagined it working like this: "You've just returned from overseas and you still haven't bought your carton of Peter Jackson, please come in and do it next time you're in town."

It would, I said highlight the absurdity of what happens at the moment.

Tariffs are now low, down to five per cent, and sales tax, once 30 per cent wholesale for electrical goods, is now also low (the 10 per cent GST). The original rationale for duty free stores no longer applies, if it ever did.

The only big savings to be made are on alcohol and tobacco, they are subsidy to the well-off costing upwards of $300,000 a year, and as I said on Life Matters, we may not like the rich, but do we have to kill them?

It’s good to be back.

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Back on air January 27

Life Matters returns to life on Monday January 27, as does Monday Economics with me and Geraldine.

Two weeks after that The Business Show returns to air on SBS TV at the new time of 7.30pm Fridays.

Seasons greetings.

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Yet another inquiry over summer

The House of Representatives Communications Committee is to inquire into worth of splitting Telstra into two.

It'll do so quickly.

Telecommunications analyst Paul Budde writes:

"The Structural Separation Inquiry is arguably the most important telco inquiry ever conducted by this government will take place in only five days in February - none of them in regional Australia - and the report is to be tabled on March 24.

"Given this ridiculous timeframe, I think the outcome of the Inquiry should be that more investigation is required.

"It is also frightening to observe the government's tunnel vision. Their image of the telco world is apparent in the following comment they made about the Inquiry.
'However, we are categorically and genuinely opposed to such an idea because it would have a disastrous effect on Telstra's competitiveness and the industry. We think the idea is just plain stupid.'

If this is indeed their view, then the government must believe that the OECD, the European Union, several European parliaments and Professor Allan Fels are stupid, since they all support the idea of structural separation. From its lofty position, the Australian government apparently believes it is the only one to get it right. But its track record proves the opposite. Competition in telco land is dying, thanks to the policies that have been implemented by the government since 1996/1997.

"Its digital TV policy is the worst in the world; its privatisation policy is in shambles; its regional policy has just been shot to pieces by the Estens Report - yet they take the high ground and call everyone else stupid.

"Structural separation is inevitable; the problem is how to identify the format that best suits us in Australia and how to implement it over a 3-5 year timeframe. This government continues to try to hold back the international tide in telco-land, they continue to fight battles that they are going to lose anyway, so why not at least try to follow the overseas trend and tap into the global think tanks that are operating on a much more mature level?

"The rest of the world doesn't privatise its telcos - only 3 out of the 30 OECD countries have fully privatised operators. Governments around the world consider telco infrastructure to be a national asset and accept the fact that long-term government involvement is required, at least for large sections of this network. We are still waiting to learn the government's position on this, as requested by the Estens Report, but up till now it has flatly denied any responsibility.

"We hold Inquiry after Inquiry, and the messages that come out of them are always pretty clear - yet the government is fighting progress every inch of the way."

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No gifts, just cash

That's what some economists say. The person who knows how to get the most for Geraldine Doogue out of $50 spent on her is Geraldine herself. Anyone else trying to guess what will make Geraldine the happiest won't hit the spot as well. That's I told her on Life Matters this week and I presented estimates from the US last Christmas suggesting that eight billion dollars of the 50 billion dollars spent on gifts is wasted as a result.

The debate has important implications for welfare payments. Should needy people be given cash that they probably want, or gifts in kind that they might not such as cheap bus trips, discounted housing etc.

But there's another side to the debate, and I said on Monday that I was reluctantly quite taken with it. The paper I quoted from had the intriguing title of Here's something you never asked for, didn't know existed, and can't easily obtain: A search model of gift giving.

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Inquiring all summer

On Life Matters 9 December I talked about the extraordinary number of important government inquiries taking place over summer and asked - why it is that John Howard (belatedly) seems in so much of a hurry.

By far the most important is the Prime Minister's Home Ownership Taskforce.

Set up at the end of November, with submissions due by the end of December and with a final report due by March the deadlines are tight.

But the work won't be as hard as it might have been. Virtually everyone on the Task Force and its subcommittees has already indicated that they support the idea that'll be investigated. (See John Quiggin for a note that suggests that this may have been a criteria for an invitation to work for the Taskforce.)

Malcolm Turnbull's Menzies Research Centre will run the Task Force. It is the group which has been pushing the proposal. As was once said about Allan Bond the Prime Minister appears to want his advisors to tell him how to do what he wants not whether he should.

Which worries me little. The idea of allowing individuals to buy houses through a limited partnership with financial institutions has much going for it...

Right now, many individuals are condemned to all of the indignities and uncertainties that go with renting because they can't afford to buy a house.

Almost as bad, most of those that can have put everything they own and more into "one property in one suburb of one city. No one who is engaged in any sort of responsible financial advice would ever advise someone to do such a thing, and yet most Australians do."

Super funds and financial institutions by contrast are crying out for an asset such as housing. In aggregate residential real estate is safe - a much-needed hedge against stocks and bonds.

The MRC wants stamp duty and other rules changed to allow financial institutions and individuals to buy houses in (say 50-50) partnership. The individual ("managing partner") would have the right to live in the house and make alterations etc to it for as long as they wished.

They would have an incentive to maintain the house well, because when they did decide to sell they would get to keep a certain proportion of the proceeds (say 50 per cent, or maybe 45 per cent).

Although the institution has no say in when the house is sold, in aggregate the resale rate will be predictable and will provide regular income, without the fund needing to lift a finger to manager the property.

Australia has led the way in financially innovative solutions before. We invented HECS, we invented the Child Support Agency ideas now copied elsewhere. This idea has the same sort of potential.

At least that's what the Prime Minister thinks. On Life Matters I said he is acting like a man who has little time, and wants to achieve something worthwhile before he goes. Curiously Ross Gittins arrived at the same conclusion (about little time) at about the same time.

Also inquirning over summer is the Dawson review of the Trade Practices Act which was due to report at the end of November but has had its deadline extended until the end of January. Allan Fels looks set to get much of what he wants.

And the HIH Royal Commission which has to report by the end of February. Its terms of reference do not include and have been interpreted not to include the political donations made by HIH and FAI. A pity. Because they may be part of the explanation for what happened.

And there's the hard-to-come-to-grips-with Prime Minister's review of the corporate governance of Commonwealth statutory authorities. John Uhrig ex of Westpac and CRA has been given until June to report on the management of organisations including the Australian Taxation Office, Australian Competition and Consumer Commission, Australian Prudential Regulation Authority, Reserve Bank of Australia, Australian Securities and Investments Commission, Health Insurance Commission and Centrelink.

What's it all about? The PM promised it during the election. He gives the impression it is about bringing the organisations which bug business under tighter control of Government Ministers. Which is probably exactly the wrong thing to do. As the Palmer Report into the collapse of HIH makes clear. If the relevant Minister (the then Treasurer John Howard) hadn't intervened to issue an insurance licence to FAI over the head of the Insurance and Superannuation Commission in late 1970's the HIH collapse may not have happened. The right answer is probably less Ministerial control over Allan Fels, Graeme Samuel and the lot of them. It must be said though that there was a failure of corporate governance at APRA. It was under funded and as the Palmer Report makes clear, its board members had a hands-off approach to their job.

I discuss here what appears to be a general laxity in these organisations when it comes to investigating complaints.

My fear is that the people to whom the Prime Minister promised the inquiry want more laxity not less.

Update/ Correction

A closer reading of Ross Gittins talk shows that he didn't suggest Howard was to resign in the year ahead. He canvassed the possibility in great detail before concluding that Howard wouldn't do it.

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The physics of peer pressure

Bracks. Listens. Acts. Econophysists have a cynical view of elections. They say that's the way the evidence falls. I explained on Life Matters this morning that according to econophysists Jozef Sznajd and Katarzyna Sznajd-Weron from the Polish Academy of Sciences and also Dietrich Stauffer from Cologne University a 'signature' in the pattern of voting at elections matches that found in the alignment of metal filings. The metal filings get that pattern through the simple decision-making rule of each aligning itself in the same direction as most of its nearest neighbours. In other words, the filings decide their alignment based purely on the alignment of the filings they happen to rub up against. They don't decide based on the strength of an argument.

There are circumstances in which the strength of an argument does matter for magnetically-charged particles. It is when they are in solution, and they cluster around 'seed particles'. The most convincing particles build up the biggest clusters. But the 'signature' pattern of the distribution of alignments that results is completely different to that that we see in the results of human elections.

Peer pressure appears to matter when we decide to vote. Considering the issues does not.

Bruce Schechter, the author of the New Scientist article concludes that "there's only one way to be sure that our future elections are not determined by the opinions of our neighbours. We need to abolish the right to free speech: it's undermining democracy."

Perhaps he is right. Perhaps we need secret and silent deliberation of the issues, in the same way as we need a secret ballot.

Then again, perhaps our decisions about how to vote at elections are no different from any of our other decisions. (Whether to buy Levi's jeans etc.. etc.) Most of the "decisions" we make may in reality be no more than simple responses to simple stimuli. Our minds may invent a rationale after the event to make us feel that we are in control.

Inventing explanations might be the hardest work that our conscious mind does. A bit like a section of the bureaucracy that devotes most of its effort to proving that it actually has work to do.

Just a thought... or perhaps a simple response to stimuli, or perhaps an explanation for a simple response to stimuli.

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Copywrong

Geraldine informed her listeners today that Mickey Mouse turns 74 this month. His debut was in a cartoon entitled "Steamboat Willie" on November 18 1928.

This means that next year he turns 75 and the Disney Corporation will no longer own the copyright for his distinctive image. Or it wouldn't have had it not been successful in persuading California congressman Sony Bono to introduce the Copyright Term Extension Act which blows the term out to 95 years. Mickey will now not be forced to leave home until he is 95 in 2003. The same for Donald who was due to enter the public domain in 2009. Disney will now continue to own his image until the year 2029. Bono and other legislators had support ass they drew up the Bill. Disney is reported to have spent $US 6.3 million in campaign donations in the leading up to the Act's proclamation.

Of course it affects everything. Documents and artistic works from the war which were about to become publicly available now won't for another 20 years. Unless of course Disney gets the copyright term extended again. And there's every reason to believe that it will. Sony Bono's widow Mary who now has his seat in Congress has foreshadowed extending the term of copyright again and again until it lasts "forever less one day".

Disney which itself has plundered the public domain for material (Cinderella Pinocchio, Alice in Wonderland, Snow White, The Jungle Book" etc) appears to want to make sure that it never has to give back to it...

To paraphrase Paul Keating (about tax) people who drink from the well should not complain about attempts to fill it."

And so there's a legal challenge before the US Supreme Court right now.

The US constitution says the Congress shall have the power "To promote the Progress of Science and useful Arts, by securing for limited times to authors and Inventors the exclusive right to their respective writings and discoveries."

The challenge asks how extending a term of copyright protection for a work already created can promote the progress of science and useful arts.

And anyway 95 years of exclusive rights seems a bit longer than is necessary to encourage people to draw cartoons. The US term of copyright used to be fourteen years. It's been extended eleven times since then, many of the extensions just as Mickey Mouse was about to enter the public domain. But Disney has continued to draw cartoons every step along the way.

Drug companies get by with patents of 14-15 years - and Australia's own Productivity Commission thinks that's too much.

Personally I am not sure copyright "protection" is needed at all. The internet (and blog sites) demonstrate that people are willing to create art and contribute ideas without the need for payment.

Elton John is unlikely to stop writing music just because he isn't given about 100 years in which to exclusively profit from it. It think one year would do him.

My Dad told me that many true inventors refused to have their inventions patented, believing that they belonged to the people.

Okay so my view is extreme and utopian. But what about the view attributed to the American Association of Publishers about Libraries. Libraries allow people to read books for free and so are apparently similar to "terrorist organisations" opposed to the basic principles of the US system.

My eldest daughter admires Walt Disney. She would like to emulate him. If the challenge to the Son Bono Act fails she is unlikely to ever be able to do so. The term of copyright will be extended and extended again way beyond the human lifespan leaving virtually nothing in the public domain to comment on or improve upon without falling foul of a lawsuit.

UPDATE January 17 2003 The constitutional challenge failed. Details here.

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Any complaints?

I am not a real blogger. I talk on the radio Monday mornings and (these days) take forever to blog what I have just said. When I started bogging I would go straight into the studio next door to Geraldine's and blog what I had meant to say within minutes of not quite saying it. Recently I have waited up to a week.

So here goes, to catch up.

LAST Monday 18 November I spoke with Geraldine about what happens when you try to complain.

When you see a fire and you report it, you expect the Fire Brigade to investigate. But that wouldn't be a wise expectation when you report something to the Australian Prudential Regulation Authority, the Australian Securities and
Investments Commission, the Australian Competition and Consumer Commission, or the Australian Tax Office.

The Palmer Report into APRA's conduct in the lead up to the collapse of HIH Insurance discloses an amazing mindset. "A company could not be considered to be in breach of the solvency standard until it had reported a breach in its returns." When HIH did fall below minimum solvency standards "no action was taken but to hope that it traded out of it." When in July 2000 APRA received an anonymous document that was a "road map" to HIH's troubles it warned its likely author that he was leaving himself open to legal action. HIH supervisors concluded that the comments should be treated with caution because they came from a disgruntled employee. Palmer appears to have been astounded.

APRA's attitude was partly cultural, the "London tea and bickies" approach in the words of APRA Board member Alan Cameron, and partly caused by very limited resources, according to Palmer. Only four people were supervising HIH and more than one-hundred other similar institutions, the man initially given hands-on responsibility for HIH was 24-years old with no general insurance experience.

So what?

Firstly APRA and its predecessor the Insurance and Superannuation Commission liked to give the impression that they were keeping our money safe. Some of us may have taken out insurance or extra supervision because we believed that they did.

And secondly APRA is not alone in, shall we say, a "selective" approach to complaints...

I quoted from annual reports that reveal that ASIC routinely investigates 2 to 3 per cent of the seven to eight thousand complaints it receives each year. It makes some contact with the complained about party in fifty per cent of the cases, and forty per cent of the complaints are merely "analysed, assessed and recorded."

Its lack of checking extends to prospectuses. Last year it inspected only 237 of the 913 prospectuses lodged with it. Not that the prospectuses lodged with it are squeaky clean. It had to issue stop orders for 67 of the 237 prospectuses it did examine.

The ACCC received 51,000 complaints last year. It investigated just 4,000 of them.

The copper isn't routinely on the beat.

The Tax Office copper no longer reveals in its annual reports the number of returns it selects for auditing.

The last time it did, in 1996 the number was -- 5,121.

Which isn't very many, in a nation the size of Australia.

Not that our tax returns are squeaky clean. No matter how many returns the Tax Office audits it seems the proportion that need correcting is about 70 per cent.

The last Budget gave the Tax Office an extra one billion dollars to start auditing again and the accounting profession is having kittens. They had grown so used to getting away with mistakes they'd forgotten that the act has grown just about too complex to apply, or so argues tax lawyer Michael Inglis in this and other brilliant pieces.

The Tax Office and its brethren bodies defend what they are doing by talking about "meta risk management". It is quite an interesting idea, but a bit like fighting the Taliban with technology and no troops or intelligence gatherers on the ground. And we know where that leads.

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Meaning

It may be as important to us as happiness.

After talking about happiness on Life Matters earlier this year, this week I returned to the subject and asked in the phrase made famous by Peggy Lee: is that all there is?

Our other big need appears to be meaning in what we do. We get it by having an identity and being true to that identity, or at least that is the persuasive argument made by two academics from the University of Connecticut.

Often the identity comes from religion. How else to explain the actions of people who don't eat or drink anything from dusk to dawn during Ramadan, or of people who don't eat pork without ever having tasted it, or of suicide bombers.

"They only do it in the pursuit of happiness" is an unsatisfying explanation. A better explanation is that most of the time people do such things in pursuit of meaning.

This means that changes in prices are likely to have very little effect on certain sorts of behaviours. I haven't eaten meat since I was 15 or 16 years old. A cut in the price of meat is unlikely to tempt me. A cut in the price of alternative leisure activities is unlikely to tempt a would-be suicide bomber.

And there are more issues raised in the paper. Traditional microeconomic analysis assumes that all our tastes are pretty much the same. (So much for classical economics celebrating the individual) Our behaviour is determined by our income and by relative prices.

The new approach recognises that different people have different tastes, and create different tastes as part of creating an identity. It means that behaviour is determined not only by changes in income and relative prices but also by who we are and who we have decided to be.

If taken on board it'd make economic modelling much more complicated (perhaps unnecessarily so).

But how else can we take seriously the actions of someone who won't eat or even drink water from dawn to dusk?

Worth a read.

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Unpalatable as it is, we need a bond market

I spoke about the threatened demise of the Bond Market on Life Matters on Monday, which is where you will find several good references.

I am philosophically inclined to agree with Alex Erskine who refers to bond traders as "basket weavers and candlestick makers" who almost deserve the same fate as they've been prescribing for others workers made redundant by the progress of technology and new work practices.

If they weren't so arrogant (arrogant as a bunch - a few individuals in the bond market are humble) it'd be easier to feel sorry for them.

BUT the more I thought about this preparing for Life Matters the more I realised that, unpalatable as it is, we need a bond market.

And more. We need, yes we really need, the government to invest for the sake of it, and to borrow to raise the money.

Nicholas Gruen of Lateral Economics makes the point in a paper not on the net, although a dot-point version of it is.

He says for the Australian Government, as for any organisation, there is an optimal level of debt and an optimal level of funds invested. These should be decided quite separately from the question of whether or not the government should own a phone company.

Given the government's long-term investment horizon it makes sense to borrow at around 5 per cent and invest for an average return over the longer term of 10 per cent. Who wouldn't?

More importantly: there can be big benefits to the wider economy from the government doing so.

Buy buying Australian stocks when they are cheap and selling when they look pricey (an sensible practice) the government can deepen and smooth out volatility in the Australian stock market.

This is what the Reserve Bank of Australia does in the Australian Foreign Exchange market.

To the extent that the arms-length government investor put funds into the Australian stock market it would also would be helping to raise equity prices closer to their true value, reducing the debt-equity premium.

Everyone wins? That's how it looks.

I can see no good reason why the government should deny itself the right to invest and deny itself the right to raise funds. Indeed, it seems to me that the business of government is too important to deny it these rights.

What if a real crisis arises and the government suddenly needs to borrow - without a bond market it would find it hard. Australian might well regret the boldness of the brash Australian Treasurer who paid off his debts.

Update: Nicholas Gruen's paper IS on the web - here.

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