Tuesday Column: Once upon a time the ACT was booming

Not now.

The ACT economy has stalled, seized up.

If you are looking for evidence drive south along the Kings Avenue Bridge to the St Marks National Theological Centre on the shores of Lake Burley Griffin.

Its director Tom Frame wants to boost his student numbers by 5 per cent each year.

He gets inquiries from all over the country. As part of Charles Sturt University he is offering a degree in theology that’s broad-based rather than conservative and evangelical.

But he is unable to increase his on-campus enrolments at all. They are stalled, like the ACT economy.

“I used to be able to invite students to come here from Sydney to live. I’d tell them it’s cheaper,” he told me...

But not now. “Its actually cheaper to stay in Sydney and live in Newtown near the Moore Theological College, even though its fees are much more expensive,” he said.

The on-campus students he does get live wherever they can. “Some share houses in Canberra, some live in Yass, some in Goulburn, some in Cooma. They use a lot of petrol.”

So concerned is Tom Frame that he has asked his university to consider building its own two-bedroom apartments in Barton to ensure that some of his students have somewhere to live. Otherwise he says St Marks might vanish.

Canberra’s trend economic growth as measured by state final demand slowed to zero in the most recent quarter. Trend jobs growth in the past year is also near zero (slightly lower actually).

That’s right. In trend terms there are no more ACT residents employed than there were a year ago. Not one.

At the same time nationwide employment has soared by 258,000.

The ACT has run out of new workers.

It isn’t that employers don’t want people. The Bureau of Statistics says some 6,000 vacant jobs are going begging here right now, more than ever before.

More than half of them are in the private sector. Chris Peters of the ACT & Region Chamber of Commerce says workers often come from interstate to start jobs, discover how hard it is to find somewhere to live here, and return home.

“They literally can’t find a house to live in,” he says. “They get a room in a motel and can’t find a home.”

The public service is attempting to get around the problem by including in some of its advertisements for senior jobs an assurance that although the position is based in Canberra the successful applicant “may choose to commute”.

It’s no way to run a country. It’s as if we’ve put a “full-up” sign on the entrance to the nation’s capital.

(We haven’t of course. Bizarrely, at a time when people who already want to come to the ACT can’t find houses, the government is funding a “Live In Canberra” promotion.)

It should never have come to this, and if the ACT had a better opposition the government would have been held accountable.

Canberra is surrounded by government-owned land already set aside for development. The government could have developed that land ahead of time before it was needed.

Instead - until it got a move on last year - it waited as the price of land in the ACT climbed.

The international consultancy Demographia this week published its analysis of housing costs in more than 200 English-speaking cities.

It rated Canberra “severely unaffordable” along with New York, London and Los Angeles. We hit the big-time.

It is often said in defence of Canberra’s high housing prices that our workers are paid more than the national average. (Demographia took this into account in its assessment of ACT housing prices and described them as severely unaffordable anyway.) But the other side of the coin is that our private sector workers get less than the national average, and our students much less.

Bec Adams runs Anglicare’s ACT Housing Program. She says the rental market is now so tight that even Canberra residents earning the average income or more are unable to get houses to rent.

“We have had people ringing up on our crisis line saying that they are earning $55,000, they have tried 100 different real estate properties and are not able to get any of them because they have two dependents.”

Many landlords don’t like single parents and the problems they feel they bring, whatever their income. She adds that some are sympathetic, but in a over-tight rental market they can pick and choose on whatever criteria they want.

Shared accommodation, once a traditional part of student life is hard to get and no longer affordable for some students.

Instead many students and many workers are “couch surfing”, moving from house to house begging favours from their hosts.

It’s not always pleasant, and it can put them at risk.

“When you are couch-surfing you have no tenant rights,” Bec Adams says. “It’s really volatile, there’s often abuse. Young people sometimes feel like they need to do stuff to maintain housing, and sometimes that stuff is abusive to their physical and mental well-being”.

Bec Adams is aware of sexual abuse and forced drug dealing as a result of couch-surfing. She says they are more common because there’s more couch-surfing.

Once when Anglicare got people out of emergency housing they stayed out. Now many keep returning.

Some have benefited from the ACT’s extreme housing shortage. Among them some existing home-owners. One of John Howard’s ministers once observed that “rising prices make for happy voters”.

The ACT government itself has benefited. It gets more stamp duty when prices are high and stamp duty is an important source of income.

Much of the boom in prices would have happened anyway. Prices have risen everywhere.

But in no other state or territory have they risen so high as to stop new workers coming in to take up jobs. In no other state or territory are there more job vacancies than there are people looking for work able to fill them – roughly twice as many at the moment.

Last year the Stanhope government belatedly indicated that it had learnt from its mistakes and acted quickly to release more land.

In time things will improve. Canberra’s educational institutions and employers will eventually be able to function more normally. And Mr Tanner’s razor gang will help as well by cutting the demand for public servants.

But it shouldn’t have come to this. A while back we were booming like Western Australia. We’ve stopped.

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Sunday dollars+sense: The war within ourselves, on DVD

Rented any good movies lately? You probably have. But you may not have watched them. If so, you are at war with yourself.

Don’t take my word for it. Get on the web and read a working paper from three Harvard University economists entitled “I Rented the Documentary First, but I Want to Watch the Comedy Now: Intrapersonal Conflict and Myopia in Online DVD Rentals”.

That’s its real title...

Katherine Milkman and her colleagues have been trawling through data from Quickflix, Australia’s second-largest on-line DVD rental company.

Quickflix allows its customers to rent up to three movies at a time for as long as they want without paying late fees. As soon as one is returned, the next on the customer’s list of favourites is posted out.

The team used on-line volunteers to divide films into “should watch” movies (“Scott to the Antarctic” was one) and “want to watch” ones (“Kill Bill” was amongst them).

And then they used four months of Netflix data to compare the order in which Australians requested movies to the order in which they actually watched them.

Guess what? The movies that we order first are highly likely to be those that we least want to watch first. We hang on to them, meaning to watch them, one day.

Typically, according to the researchers, we hang on to “Kodoka Frontline” for 17 per cent longer than we hang on to “Alien vs. Predator”, perhaps waiting for the right time to watch it, perhaps never finding it.

As economist Zubin Jelveh puts it, we watch the good-time movies the day we get them, “while the brain food stays in the envelope until we slowly come to the realization that we will never watch it and on a quiet Sunday morning open the package, tear off the perforated sheet, reseal it and put it back in the mail”.

If that’s behaviour that seems normal to you it’s probably because you’re not an economist.

Classically-trained economists don’t believe in “intrapersonal conflict”. Each of us is meant to know what we want and be rational about buying (or renting) it.

It’s against their belief system to think that a good-self would fight with a bad-self about what to watch, that the good-self would win when it came to ordering and the bad-self would win when it came to watching.

They’ve a lot to learn about how complex life inside our heads really is.


HT: Zubin Jelveh

Katherine Milkman, Todd Rogers and Max Bazerman: I Rented the Documentary First, but I Want to Watch the Comedy Now: Intrapersonal Conflict and Myopia in Online DVD Rentals. Article submitted to Management Science; manuscript no. MS-0001-1922.65

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Saturday Forum: The wisdom of Stevens

Not certain which way our economy is heading? Relax. You are in esteemed company. And spare a thought for the man who’s required to have an opinion and act on it when his board meets Tuesday fortnight.

Our Reserve Bank Governor Glenn Stevens shared his thoughts on the economic outlook with a business audience in London Friday night.

His conclusion: “At the moment we do not know.”

Yet on Tuesday February 5 he’ll have to make a decision. He’ll have to either decide to push interest rates up, potentially deepening a spreading financial crisis, or to leave them where they are in the face of inflation already running out of control.

If he is looking for guidance he’ll find none in the pages of our newspapers. The headlines alternate between news of a share market collapse and an economy so exuberant it can only be reigned in by higher rates...

Tuesday February 5 is highly significant. It’s first Reserve Bank board meeting for the year and the first after the quarter inflation figures due for release this Wednesday. All but 2 of the past 10 consecutive hikes in interest rates have been decided at the meeting immediately following a quarterly inflation result.

The decision-making process has seemed pretty automatic.

The Bank’s inflation target, set down in a formal agreement with the Treasurer, is to keep the annual rate of between 2 and 3 per cent.

The so-called “headline” rate of inflation reported by the Bureau of Statistics, sometimes high, sometimes low, doesn’t matter to the Reserve.

It concentrates on what it calls its “core” measure of inflation, designed to exclude prices that jump around.

If its quarterly core measure exceeds 0.8 per cent - enough to push the annual rate above 3 per cent - it pushes up rates.

If the core rate is 0.7 per cent or below, the Bank usually leaves rates where they were.

Usually. But right now things are anything but usual. The Reserve Bank is also charged with maintaining the stability of Australia’s financial system.

At the moment our financial system is unstable. Our share index has just fallen for 10 consecutive days – its longest losing streak in twelve years. $150 billion has been wiped off the value of Australian stocks – 15 per cent since November.

Several Australian financial institutions have all but folded, among them RAMS Home Loans lift high and dry by the worldwide shortage of finance. Shares in the Centro Property Group are down 90 per cent. Yesterday the share price of the property and tourism investor MFS plunged 70 per cent. Even the share price of the Macquarie Bank has fallen 10 per cent.

Australia’s consumer banks are surviving but in order to do so they have sharply pushed up their interest rates. And not just by the well-publicised 0.2 per cent or so they have added to their variable mortgage rates. They have pushed up other rates charged to businesses steeply.

When finance is becoming hard to get and when private banks are increasing interest rates of their own volition the argument for the Reserve Bank to push up rates even further, making finance even harder to get, becomes less convincing.

Private sector economist Rory Robertson worked with the Bank’s current Governor Glenn Stevens in the Bank’s research department in the late 1980’s.

He says that like him, Glenn Stevens would remember well that by pushing up rates too high in 1989, the Bank “inadvertently put its fingerprints” on what turned out to be the early-1990s recession. Inflation did fall but the unemployment rate soared to 11 per cent. One million Australians lost their jobs, something the Bank and its political masters have never lived down.

“Looking back, if the Bank had hiked a bit less aggressively in 1989 - and instead simply had waited - the global recession of the early-1990s ultimately would have delivered the inflation-dampening slowdown the Bank was gunning for.”
“Governor Stevens may hike again anyway, but you can bet the Reserve Bank’s fingerprints on Australia's early-1990s recession will be in the back of his mind as he mulls the policy options ahead of the 5 February Board meeting,” he says.

Robertson says there’s nothing for the Bank to gain by hiking rates after next week’s consumer price figures as it normally would.

(So wedded has been the bank to its post-CPI tightening schedule that it made history in November by hiking during the election campaign, because that’s what the consumer price figures told it to do.)

Global share prices have collapsed 8 to 10 per cent in the last few weeks, the United States is near recession and the international financial system may seize up.

“It's unknowable, but if the world is going to financial hell, the Bank will do best if it remains on-hold next month. Conversely, if the world actually is not going to hell, we won't know it as early as 5 February.”

Others disagree. Both Westpac and the ANZ are predicting an appalling consumer price result on Wednesday. They expect the Bank’s core measure of inflation to come in at 0.9 per cent for the quarter – 3.4 per cent for the year – “a doozy!” in the view of the ANZ’s Mark Rodrigues.

Westpac Bill Evans says it’s territory the bank has never been in before in the two decades that it has been targeting inflation.

“We don't expect there would be too much debate around the Reserve Bank board table,” he says.

Mark Rodrigues says nearly everything points to still higher inflation in the 18 months ahead. Food, rents, petrol, retail prices flowing from spending spurred on by higher employment and resource-boom induced wage rises.

He says to not hike when it is clear that the Reserve Bank’s target will be exceeded for the next 18 months could “only be interpreted as a breach of the target”.

The Bank has given both the Prime Minister and the Treasurer the impression that it will hike if core inflation is high next Wednesday. Mr Rudd and Swan left Tuesday’s meeting with the Bank Governor ashen-faced declaring that interest rates were under pressure and that they for their part would do all they could to restrain government spending.

The Treasury has told Mr Swan that it has bumped up the inflation forecasts in its pre-election Mid-Year Review, but has not much changed its view of the broader economic outlook, suggesting that it is more worried about inflation than it is a worldwide slowdown or financial turmoil.

And overnight in London Governor Stevens mused that if his Bank did not act against inflation when it knew it was rising it might itself cause a crisis.

“I would venture that the tolerance among some parts of the investment community for a cautious approach by policy is not high, if some of the commentary we read is any guide,” he said.

“Were trend inflation to rise as a result of too-ambitious an approach to supporting short-term growth, financial prices would actually be among those most vulnerable to adjustment as long-term interest rates rose,” he concluded.

But the financial turmoil emanating from the United States worries him deeply. He believes that a worldwide economic slowdown caused by a recession in the United States is the least of the concerns.

The bigger danger is a “common shock” where a number of credit crunches occur simultaneously around the globe as lenders of withdraw or charge much more for funds.

He says it hasn’t happened yet. Asian investors appear not to have been burnt or scared by bad loans originating in the US. But he says there is “no guarantee of plain sailing”.

He told the London audience that his “guess” was that China would cope with a slowdown in demand from the United States. It might even be welcome given the breakneck pace at which the Chinese economy had been growing.

Australia, being “abundantly blessed” with the mineral resources that China needed would continue to benefit from the growth in Chinese incomes already underway. It was pushing Chinese incomes “through those levels at which resource use intensifies”.

He said the prices at which Australia sells minerals to China looked as if they would climb higher still.

“If they do, Australia’s terms of trade, which have already risen by about 40 per cent over the past five years, would move higher still,” he said, referring to the “striking difference in confidence one encounters when traveling from the Pacific time zone to the European one”.

The Governor presents himself as a worried optimist about the year ahead. He has already demonstrated that if he believes that if he believes rates have to rise because inflation is on the move, nothing will stop him not even the presence of an election campaign.

But the choice he has to make in two week’s time is clearly one he would rather not have.

He turns 50 on Wednesday when the CPI figures come out. He’ll need all of his accumulated wisdom.

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The year ahead as seen by Glenn Stevens...

...in London.

The head of the Reserve Bank has warned of a “common shock” in the form of internationally coordinated credit crunches as worldwide share markets suffered another day of losses.

The Australian index slid for the tenth consecutive day – the longest run of losses in its 15-year history.

Only 14 of its 200 stocks rose in price as the index slid a further 2.1 per cent to close down 17 per cent from its November high.

Addressing a business function in London overnight, his first overseas speech since becoming Governor, Glenn Stevens said he didn’t know how the year would pan out but he was attempting to cope with an economy “operating at full stretch” amid “financial turmoil”...

The biggest risk facing Australia and the rest of world was not a
“spillover” from slow demand in the US, but a “commonality” of financial
crises throughout the globe.

“If, for example, it were the case that a credit crunch occurred
simultaneously in many countries, there would be a contractionary impact
around the world even before any spillover effects via trade got going,” he
said.

There had already been signs of a “common shock” in several of the world’s
leading economies in the form of “a rise in the market cost of finance and,
in some cases, perhaps, the possibility of a wider withdrawal of credit.”

“Even though it was American borrowers who could not repay, lenders much
further afield were affected.”

The Governor said that “to date” it appeared that the credit crunches would
not spread further. Asian banks appeared to have little exposure to US
sub-prime loans. But there was “no guarantee of plain sailing”.

China was just as important to the Australian economy as the US.

Indeed, for Australians “it will be just as important over the years ahead
to keep an eye out for imbalances in the Chinese economy as to watch the
problems of the US economy”

The Governor’s “guess” was that China would cope with a slowdown in the
United States because its own consumers were boosting their spending
rapidly. There was a widespread expectation that that contract prices for
some of Australia’s key commodities would rise further during 2008 pushing
Australia’s terms of trade higher still.

The resulting threat to inflation meant that the
Bank would need to act “delicately” in the years ahead, wanting to both
restrain inflation and keep the financial system in tact.

So far Australia had weathered the international financial storm well with
little disruption to its real economy.

“Firms whose business models relied on short-term debt funding have been
tested; a couple have, for practical purposes, left the scene,” the Governor
said.

But “all that could change if the credit tightening abroad takes a serious
turn further for the worse”.

Mr Stevens described Australia’s inflation outlook as “uncomfortably high”.
He said price increases were being synchronised “in a fashion eerily
reminiscent of the early 1970s” and that not to take action against them
could itself trigger a crisis of financial confidence.

The Reserve Bank will meet to decide to decide the immediate future of
interest rates on February 5.

After meeting the Governor on Tuesday the Treasurer Wayne Swan said that
Australia faced an extended period of elevated inflation that would put
upward pressure on interest rates.

The inflation figures for the December quarter will be released on
Wednesday.

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Unemployment in the ACT - almost extinct

A dramatic step-down in unemployment has pushed joblessness in the ACT to a record low and caused businesses to claim that for practical purposes unemployment no longer exists.

The news puts further pressure on the Reserve Bank to push up interest rates once again when it meets in three weeks time, something that is reluctant to do in the face of global financial turmoil.

The official labour force figures for December released yesterday put the total number of unemployed in the ACT at just 3,338 – the first time it has fallen below 4,000.

“Where are they? Give me their names,” said Chris Peters, the executive director of the ACT & Region Chamber of Commerce when told of the result.

“We’ve now got twice as many job vacancies as people unemployed. Unemployment no longer really exists. Many of those 3,338 people would be between jobs having already lined up another one; many more don’t really want jobs. We’ve got overfull-employment"...

The ACT’s unemployment rate hit 1.7 per cent in original terms last month, sliding below 2 per cent for the first time. Every other state and territory recorded an unemployment rate of at least 3 per cent.

The ACT’s smoothed “trend” unemployment rate slid to 2.4 per cent, also a record low.

The national unemployment rate slid from a seasonally-adjusted 4.5 per cent to 4.3 per cent after an extra 20,100 Australians found jobs in December, marking fourteen consecutive months of jobs growth - the longest run in 27 years.

The Employment Minister Julia Gillard welcomed the news but said it pointed to a national skills shortage. With the Prime Minister she announced immediate funding for an extra 20,000 training places on top of the 820,000 promised over the next ten years.

“This is core business for the new Australian Labor Government. We are engaged in a national war against inflation,” said Mr Rudd.

“That means a tight approach to budget management and a constructive approach when it comes to investing in critical skills.”

But Chris Peters said the extra training would do nothing to ease the ACT’s skills shortage.

“There aren’t people to train. That’s what the figures show.”

“And if you can find people from outside the Territory to train you can’t get them housing,” he said.

“We’ve seen cases where businesses have attracted people from interstate, brought them to Canberra, and then they literally haven’t been able to find a house to live in and have left. They got a room in a motel and couldn’t find permanent a home.”

“Until last year the ACT government simply wasn’t releasing land. The construction industry was happy to build houses, it just couldn’t get the land.”

Mr Peters said the worker and housing shortage was eating into the ACT’s economic growth.

The National Accounts show that demand growth in the ACT turned negative in the September quarter, the only state or territory in which it fell. Two consecutive quarters of negative growth mean a demand recession.

The ANZ bank’s industry economist Wain Yuen said that business investment was sliding in the ACT after growing phenomenally fast as a result of new government office developments in 2005-06. In November retail sales in the ACT actually fell “in marked contrast to the national scene”.

“Arguably, the ACT’s labour market has hit supply constraints,” Mr Yuen said.

The Chief Minister Jon Stanhope welcomed the employment news as “a sign of strength in the ACT economy and a positive sign for ACT workers.”

Bureau of Statistics figures released last week show that 5,900 jobs remain vacant.

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If the Reserve Bank does hike interest rates next month...

...don't say you weren't warned.

The Treasurer Wayne Swan has delivered a bleak assessment of Australia's inflation and interest rate outlook ahead of official inflation figures due for release next week.

After a day-long meeting in Sydney with the head of the Reserve Bank Glenn Stevens, the Prime Minister Kevin Rudd and the head of the Treasury Ken Henry Mr Swan warned that Australia faced an “extended period of elevated inflation” which he said would put upward pressure on interest rates.

The inflation figures to be released next Wednesday are expected to show that Australia's underlying rate of price movement has climbed well above the Reserve Bank's ceiling of 3 per cent...

The Melbourne Institute's independent measure inflation guage released on Monday suggests that the rate has already reached 3.7 per cent.

The current official measure of inflation released in October during the election campaign put the underlying rate at 3.0 per cent.

The Reserve Bank pushed up interest rates in November during the campaign in response.

Emerging from yesterday's meeting Mr Swan did not not attempt to put pressure on the Reserve Bank to hold rates steady in the face of next week's expected bad news and said nothing to indicate that he did not expect rates to rise again.

Independently of the Reserve Bank each of Australia's big five private banks has increased its rates this month, bringing the standard variable mortgage rate to somewhere between 8.67 per cent and 8.77 per cent.

Another hike of 0.25 per cent from the Reserve next month would take most standard variable mortgage rates to around 9 per cent for the first time since October 1996.

After speaking to the Reserve Bank and Treasury officials yesterday Mr Swan said that the coming “extended period of elevated inflation” had been bequeathed to Australia by the outgoing Coalition government.

His government would attempt to take pressure off inflation by being ruthless in the May budget, ushering in a “new era of fiscal discipline”.

The budget cuts would go well beyond the $10 billion in savings outlined by Labor during the campaign.

“It is critical we demonstrate restraint as we frame our first budget because that sends a clear message to the Reserve Bank that the Commonwealth Government will do whatever is in its power to put downward pressure on inflation,” Mr Swan said.

“It won't be easy. These inflationary pressures took a long time to build and it will take a lot of hard work and some time to turn them around.”

The Coalition's Treasury Spokesman Malcolm Turnbull called on Mr Swan and Mr Rudd to stop blaming the previous government and to start governing.

“Mr Rudd told us that when he was Prime Minister the buck would stop with him. We’ve heard no plans for keeping the economy strong,” he said.

“We’ve seen his new Treasurer, Wayne Swan, drop the ball and be treated like an utter mug by the big banks. Their welcome note to him was to put their interest rates up without any movement from the Reserve Bank.”

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Tuesday Column: Let's terrify our banks!

Worried about what’s happening to your mortgage? The Treasurer Wayne Swan is working on it. But in the meantime he is offering advice straight out of cloud-cuckoo-land.

It’s this: “Vote with your feet.”

As Mr Swan sees things: “The banking system in this country is competitive. If one of the major banks wants to increase its interest rates over and above other banks, then customers should take note of that and they should act accordingly.”

It sounds as if he’s been listening to Smokey Robinson whose 1960 hit song advised young women to “shop around”. Or perhaps to Adam Smith, the father of modern economics. Back in the 18th century Smith said that if everyone shopped around and voted with their feet and if the sellers responded, no-one would end up paying more than they had to.

On the face of it “shopping around” is good advice right now...

For the first time in years most of the big five banks are charging different standard variable mortgage rates. There’s no longer a single standard rate. The National Australia Bank is charging 8.67 per cent, Westpac 8.72 and (much to the Treasurer’s displeasure) the ANZ, the Commonwealth and St George want as much as 8.77 per cent.

As Mr Swan put it last week: “I would be reminding all ANZ customers that there is a competitive market out there, and if they’re unhappy they ought to vote with their feet.”

But voting with your feet and moving from, say, the ANZ to the NAB is difficult if you already have a mortgage. Mr Swan might like to try it.

First he’ll need to prove his identity all over again – it’s often a matter of driver’s licences, passports and signed statements from people such as church ministers who can certify that they know you. If it’s a joint loan his wife will need to do it as well.

And he’ll need to provide reams of bank statements demonstrating his spending and saving habits, as well as pay slips or group certificates along with perhaps a letter from his employer confirming that he works there. The bank might also ask for his child support statements and superannuation statements. He’ll most probably have to value his house (or agree to pay the new bank to do it) and get a copy of his rates notice as well.

Perhaps he’s organised. He might be able to get the package together in a couple of days. Or like many bank customers he might find the whole process daunting.

And he’ll face fees. Most banks charge an exit fee of around $700. (Mine would charge me $3,000.) They charge another $300 to release the title to the property and many seem to delay doing it, perhaps in order to hang on to their lucrative customers a little bit longer.

The new bank might want fees as well, perhaps $600 to set up the new account. And then he’ll have to switch all the paperwork over, filling out form after from - one for each direct debit. He’ll have to let his pay office know, and so on.

And for what?

Perhaps to discover a month or two down the track that the rates on offer have changed. His new bank isn’t the cheapest any more.

That’s why Australians don’t vote with their feet. The banks know this even if the Treasurer does not.

Each bank routinely charges its new customers less than it charges its existing ones, offering them discounts safe in the knowledge that their existing customers are rusted on and won’t attempt to get the cheaper rates by changing.

Customers who have become financially stretched or have lost their jobs are unable to change at all. New lenders won’t take them.

To his credit the Treasurer recognises that there is a problem. He has asked his department to examine the barriers to switching and report on ways to break them down.

It could do worse than examine the market for mobile phone calls.

These days mortgages, like mobile phone calls, are regarded as homogenous. The product is much the same whichever of the big providers you sign up to. What differs is the branding, service and price.

Until 2001 Australian mobile phone users were more or less stuck with the company they had signed up to, just as are Australian bank customers.

Changing your phone company involved changing your phone number, and in some cases changing your phone as well.

These days phone companies are compelled to provide you with an unlock code to switch your phone over should it be locked and to allow your new provider access to your old number.

As Professor Joshua Gans of the Melbourne Business School puts it: “You don’t even have to tell your current provider that you are leaving. Talk about an easy break-up!”

Gans wants it to be just as easy to switch mortgage providers.

He wants you and me to take ownership of our bank account numbers in the same way as we have taken ownership of our mobile phone numbers.

Technologically it should be easy to switch them between providers.

I would also make it easy to switch over identity and income and expenditure documents. Once you had been proved who you were and what you earned to one bank, you shouldn’t have to do it for the next.

Abolishing exit and entry fees might be more difficult. Lenders face genuine costs in setting up and closing accounts. But the fees they charge should be limited by the Competition and Consumer Commission to their actual costs.

Then those of us on variable rate mortgages could vote with our feet. (Those of us on fixed rates could not, but that’s what you expect when you sign a fixed rate contract.)

We would have real market power and we would terrify the lenders by using it. They could hardly object, it would be the free market at work.

I am looking forward to the Treasury’s report.

Update from Goshua Gans.

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Sunday dollars+sense: in praise of bribery

Desperate for your child to do well at school this year? From the world of economics comes an idea so crude, so anti-educational that the very thought of it probably revolts you.

But it can work.

A few years back my 16-year-old daughter needed help with her Maths.

She went to a tutor and within months had jumped from getting below 40 per cent in her tests to more than 90 per cent.

And she was getting to see her favourite bands.

Her tutor had bribed her... by promising to buy her a ticket to a concert each time her marks topped 90 per cent.

In New York mayor Mike Bloomberg is trying the same thing.

Since September students in more than 60 of his schools have been receiving performance pay for their Maths and English exams.

Turning up gets a Year 4 student $5. Doing well earns more up to a maximum of $25.

Year 7 students get double. $10 for turning up, up to $50 for a perfect score.

The ideas are being tested by a crusading young black American economist Roland Fryer who also developed a program in Dallas entitled “Earning by Learning.” It paid students $2 for each book that they read, up to a maximum of 20 books per semester.

The remarkable early results show that the students read an average of 23 books each, suggesting that after they caught the habit they continued reading for its own sake.

It's happening world-wide. In Britain the health service is handing out iPods to drug addicts who stay clean. In Mexico the government is paying pesos to poor families who send their children to school. The enrolment of girls in high school has soared.

The payments don't have to be big. A British experiment that paid pregnant women to stop smoking until birth found that 40 per cent gave up compared to 9 per cent who weren't paid. One of the researchers, Stephen Higgins told New Scientist the behaviour was crazy. “Why would a pregnant woman smoke, knowing it will affect the foetus, but stop because I offer her a couple of bucks?”

It's probably because people who smoke or don't study place a lot of value on immediate rewards and not much on future ones. Economists would say they discount the future, or “have a high discount rate”. Like my daughter they are particularly susceptible to bribes.


Jim Giles, Cash incentives: Worth every penny, New Scientist, November 22, 2007

Stephen J. Dubner, Toward a Unified Theory of Black America, New York Times Magazine, March 20, 2005.

Update: "They pay me there".

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And Obama's slogan is better as well

It sure beats Rudd's New Leadership. Fresh Ideas.

But then Obama's slogan might have been too much for Rudd, and for us.

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If only we had an Obama

He tells the truth.

Compare his answer to a question about emissions trading to the dishonest clap-trap peddled by Australian politicians. They try to give the impression that we can have emissions trading without higher energy prices. Everyone's a winner.

In the US where the political stakes are much higher Obama comes right out and says:

"..there will be a cost. Plants are going to have to retrofit their equipment, and that's going to cost money, and they will pass it onto consumers. We have an obligation to use some of the money that we generate to shield low-income and fixed-income individuals from high electricity prices, but we're also going to have to ask the American people to change how they use energy. Everybody's going to have to change their light bulbs. Everybody's going to have to insulate their homes. And that will be a sacrifice, but it's a sacrifice that we can meet."

I am awed.

HT: Greg Mankiw's Blog

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Sunday dollars+sense: You don't really want to be really rich

What if this past week you made the most stupid New Year’s resolution of them all You promised to make yourself really rich.

I’m here to deliver the bad news. You won’t do it - you don’t have the courage.

Let’s look at the behaviour of contestants on Channel Nine’s Who Wants To Be A Millionaire quiz show...

Until Sydney’s Rob Fulton took the prize in 2005 not an single contestant in a decade of shows had had the courage. Nine had been offered a chance to answer the million-dollar question. All nine had baulked, preferred to walk away with half that rather than risk it.

British economist Ian Walker examined the behaviour of UK contestants in a study entitled "Who Really Wants to be a Millionaire?"

He found that most of the 500 contestants he studied quit while they were ahead. Almost all quit when their winnings reached £125,000 (about $300,000).

Away from the pokies are notoriously and unreasonably cautious when we are offered even small gambles.

If I offer you a 50-50 bet: heads you win $200; tails you lose $150 – you should accept. It’s a brilliant deal. But most people won’t.

A few years back economist Baba Shiv and a team from Iowa University gave a roomful of locals $20 each and offered them 20 chances to bet with it on the toss of a coin, risking $1 each time but knowing they would make more than $1 each time it came up heads.

Another brilliant deal. But the locals accepted only half of the time.

Then he did something bizarre. He performed the same test on a group of Iowa residents who had either suffered a stroke or survived brain surgery. What they had in common was a damaged prefrontal cortex, the part of the brain that processes emotions.

The brain-damaged individuals turned out to be much better investors than the Iowa residents with brains intact. Given $US20 each and the same 20 chances to accept the attractive bet, they accepted more than 80 per cent of the time. They did better than their counterparts with undamaged brains.

When the study was published in the journal Psychological Science the newspaper reports were sensational. One asked: "Are successful investors emotionally brain damaged”.

But that’s not the point.

The point is that there is something about our emotions that makes us cautious when it comes to risking our winnings – too cautious from a coldly calculating point of view.

That’s why neither of us will ever be really rich.


References:

Hartley, Roger & Lanot, Gauthier & Walker, Ian, 2006. "Who really wants to be a millionaire? Estimates of risk aversion from gameshow data," The Warwick Economics Research Paper Series 747, University of Warwick, Department of Economics.

Shiv B, Loewenstein G, Bechara A, Damasio H, Damasio AR: Investment behavior and the negative side of emotion. Psychological Science Volume 16—Number 6

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Summer reading: Why Australia's Adelaide Bank and RAMS are screaming like hell

All explained here, without reference to these Australian institutions, by John Lanchester in an excellent beginner's guide to the financial crisis in this week's London Review Of Books.

His description of how banks make money is pure gold (so to speak):

"Imagine, for the purpose of keeping things simple, a country with only one bank. A customer goes into the bank and deposits £200. Now the bank has £200 to invest, so it goes out and buys some shares with the money: not the full £200, but the amount minus the percentage which it deems prudent to keep in cash, just in case any depositors come and make a withdrawal. That amount, called the ‘cash ratio’, is set by government: in this example let’s say it’s 20 per cent. So our bank goes out and buys £160 of shares from, say, LRB Ltd. Then LRB goes and deposits its £160 in the bank; the bank now has £360 of deposits, of which it needs to keep only 20 per cent – £72 – in cash. So now it can go out and buy another £128 of shares in LRB, raising its total holding in LRB Ltd to £288. Once again, LRB Ltd goes and deposits the money in the bank, which goes out again and buys more shares, and so on the process goes. The only thing imposing a limit is the need to keep 20 per cent in cash, so the depositing-and-buying cycle ends when the bank has £200 in cash – all the cash there is – and £800 in LRB shares; it also has £1000 of customer deposits, the initial £200 plus all the money from the share transactions. The initial £200 has generated a balance sheet of £1000 in assets and £1000 in liabilities. Magic! In real life, it’s even better: the UK cash ratio is 0.15 per cent, so that initial £200 would generate £133,333 on both sides of the balance sheet.

"Now let’s consider something a little more realistic: lots of different banks, with lots of different depositors and investments, many of them interlocking and overlapping. The specifics of who owns what, and who owes what, are almost unimaginably complex. Liquidity – the ability to get hold of cash easily – is crucial to this system, because your bank will often need money at shortish notice, to buy things or repay depositors. You know that if you lend money to another bank you’ll get it back without difficulty and they know the same about lending money to you. In normal circumstances, this isn’t a problem: banks lend money to each other all the time, with complete ease and transparency, and this keeps the entire system afloat. But this depends on confidence; and it is this confidence that dried up for Northern Rock in the summer, when other banks became unwilling to lend it money, and it had to go to the Bank of England for the emergency loan which then triggered a bona fide bank run – which is what happens when the people who own the £133,333 turn up demanding their money, and it turns out that the institution is in current possession only of its legally mandated £200 in cash."

HT: New Economist

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A gentler, more cautious Cabinet

The one in which John Howard first served, as seen in its 1977 Cabinet papers, released this morning by the National Archives of Australia under the 30-year rule.

Howard was Business and Consumer Affairs Minister and then Treasurer at the time.

Anyone can examine the papers here.

By 2007 the modern Howard government had completely overhauled Australia’s system of industrial relations, almost fatally weakened student unionism at universities and made economically-unwise tax cuts an annual event.

But 30 years ago the government of which John Howard was a junior minister adopted a far more cautious approach.

The 1977 Cabinet papers, released today by the National Archives, show that the Fraser Government considered decentralising Australia’s system of industrial relations but decided against it...

...noting that central wage cases “provided a focal point for government efforts to influence wage decisions” and provided employers with a “ready defence against industrial claims”.

Concerned that there was “an element in the trade union movement which has decided on a course of deliberate confrontation with the trade union moment” the Employment Minister Tony Street nevertheless advised his colleagues that while they might have to introduce emergency legislation (“already drafted”) they should first attempt to talk to the unions using the National Labour Consultative Council.

The President of the Australian Council of Trades Unions Bob Hawke was a member of the government’s reserve Bank Board (appointed by the previous Prime Minister Gough Whitlam). Prime Minister Fraser reappointed him when his term expired in 1978. The two held regular discussions about industrial relations and the Malcolm Fraser sought out the trade union leader whenever there were problems.

On student unionism the Education Minister Senator John Carrick acknowledged the “extremist” nature of university students’ union but warned against removing the compulsory fees that funded it.

Abolishing the fees “would be likely to have the effect of giving moderate and extremist students common cause,” he said.

Also it was “desirable that any solution should allow student political activities to continue as these form an important part of the tertiary educational experience”.

In any event it remained uncertain as to whether the Commonwealth had any power over universities outside of the two territories.

On tax cuts the Treasurer Phillip Lynch warned against them in January saying they would put upward pressure on interest rates.

“Major tax cuts now would add to the budget deficit and thereby compound the difficulties already confronting the effectiveness of monetary policy,” he said.

“In so doing they would be adding to – not subtracting from – the underlying problems of the economy and in the end, making their solution more difficult.”

The Cabinet decided against tax cuts for the August budget, but by November he had resigned from the Ministry over his taxation arrangements and been replaced as Treasurer by the Business and Consumer Affairs Minister John Howard.

The subsequent election promised big tax cuts promoted with memorable advertisements featuring a fistful of dollars. After the election in his first budget as Treasurer Mr Howard announced that the tax cuts couldn’t be paid.

Interest rates were set differently in 1977 as well. On hearing news of a drop in the rate of inflation in October 1977 the Prime Minister Mr Fraser asked for a report “by lunchtime” on how the government could “move quickly to reduce interest rates”.

The Treasury told him that it could be done straight away. Fraser asked the Bank to cut long-term rates by 0.2 per cent and short-term rates by 0.5 per cent “as quickly as practicable” with the cuts to be made “by Tuesday October 25 at the latest.”


Also from the Archives this morning:

As early as 1977, just a decade after Australia had introduced dollars and cents, they were becoming expensive to produce.

A Cabinet submission warned that the one-dollar note (eventually replaced by a coin in 1984) was no longer paying for itself.

Its short life meant it was “costing more to print and issue than it returns to the Reserve Bank by way of an earning rate on the investment.”

The submission, from the Mint and the departments of Finance and Treasury asked the government to introduce a law that could allow coins to be replaced by regulation rather than by a specific act of parliament.

Other changes the submission thought necessary would be the replacement of the 1c and 2c bonze coins with cheaper aluminum versions (instead the 1c and 2c coins were abolished in 1991) and the replacement of the 5c, 10c and 20c silver-coloured copper-nickel coins with brownish bronze ones.

The 50c silver coin, originally containing silver, had been converted to cheaper copper-nickel some years before.

The 1977 Cabinet also agonized over how rapidly to withdraw official sanction for imperial measurements such as the pint (about half a litre) and the foot (about one third of a metre) rendered redundant by Australia’s conversion to metric currency in 1970.

It decided to proceed quickly noting that “previous experience with and the withdrawal of units such as the reputed pint (425 ml) and the peck (9092 ml) suggests that when it has been done the change will be accepted with equanimity.”

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Sunday dollars+sense: When the hand nears twelve...

New Year ’s Eve is when you make a resolution to do something you won’t enjoy, right? That’s how it is for most of us. We decide to stop smoking, get fit, actually save money – to do the sort of things we won’t enjoy.

To help us we often pre-commit. We flush our cigarettes down the toilet, buy a long-term gym membership, hide our credit cards in the freezer - anything to lock us in to a pattern of behaviour that we normally can’t stand.

But for another smaller group of people it’s entirely different...

And until recently those of us who resolve to do unpleasant things at this time of year knew nothing about them.

They are called “joyless consumers”. They never spend frivolously, find it hard to pamper themselves and experience something close to physical pain if cash unnecessarily leaves their wallets.

Ran Kivetz and Itamar Simonson from Columbia and Stanford universities described them in a study entitled Self-Control for the Righteous.

On a day-to-day basis their behaviour makes 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 as a way of living every day their lifestyle sucks. That’s why they sometimes pre-commit to a splurge in order to break free.

Kivetz and Simonson caught them 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 should they win. They could pick cash ($85) or a luxury prize of lesser value (a one hour facial worth $80).

The best financial decision is to go for the cash. It’s worth more and if you really want a facial you can buy it with the cash and have $5 left over.

And yet an astonishing one quarter of the Americans they tested passed up the cash to go for the facial.

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”.

These people have a control problem every bit as serious as the people who can’t give up smoking, who can’t save, and can’t lose weight.

Some of them will be making their own resolutions tomorrow night, resolving to loosen up, be a bit bad - just for once.

Raise them a glass as the hand nears twelve.


Ran Kivetz, Itamar Simonson, Self-Control for the Righteous: Toward a Theory of Precommitment to Indulgence, Journal of Consumer Research 2002 29:2, 199-217

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Boxing Day is always a big news day.

And not only because it's the start of the Sydney to Hobart.

Believe it or not the number of pages of news in a newspaper is usually determined not by the amount of worthwhile news that has just happened, but by the total number of pages in the paper that day which is itself determined by the number of pages of advertising.

That's why Boxing Day is always a HUGE news day. There has to be a lot of it to fill the pages created to balance the advertising.

All through last week my colleagues and I have been spiriting away "holders" stories saved up for the big day.

Last year I did tax expenditures.

This year it's hidden unemployment (below the fold)

Have a great one!


Around 10,000 ACT residents are available to work, but haven’t yet found a job. 8,000 of them can start within four weeks.

The new survey from the Australian Bureau of Statistics casts doubt on the widely held belief that the ACT labour market is “as tight as drum”.

Officially there are only 5,374 people unemployed in the ACT residents, fewer than the 6,100 job vacancies on offer.

But the latest ABS survey on Barriers and Incentives to Labour Force Participation finds that there are another 9,600 ACT residents not working who want paid work but haven’t bothered to describe themselves as unemployed.

Nationwide there are about one million people not working and not regarded as unemployed who would like paid work - 720,000 of them available to start within four weeks.

In addition there are about 273,000 part-time workers who would like to work longer hours.

Taken together with the official unemployment numbers the figures suggest that around 1.7 million Australians are available for extra work, 1.3 million able to start within weeks.

Of those not able to start quickly the most important reasons are childcare and long-term sickness or injury.

85,700 would-be workers, mostly men, said they had given up looking because they were “considered too old by employers.”

77,000 would-be workers felt they didn’t have the right training, qualifications or experience.

The figures suggest that the pool Australia’s under-used workers has barely changed in the past few years of rapid employment growth.

Taken at face value they suggest that WorkChoices has been unsuccessful at enticing into the labour market people who have remained outside it.

They give ammunition to the new Employment Minister Julia Gillard who wants who wants to use training and job-ready programs to get more Australians into the labour force.

The previous government abolished Labor’s Working Nation programs shortly after taking office in 1996.

The latest employment figures show that jobs growth stood still in the ACT in 2007 with the number of Canberra residents in work actually falling over the year while increasing in every other state.

In November a net 52,600 new jobs were filled nationally, none of them in the ACT.

Over the year to November an extra 298,800 Australians found work, with substantial increases in every state and territory other than the ACT.

Over the year an extra 8,100 Tasmanians found jobs, an extra 7,100 Northern Territorians, an extra 15,900 South Australians, an extra 33,500 West Australians an extra 74,700 Queenslanders, an extra 92,200 Victorians and an extra 68,200 residents of NSW.

Amongst ACT residents employment fell by 895.

The results appear to indicate a mismatch between the type of jobs on offer and the people making themselves available to fill them.

With the ACT’s housing market tight it is difficult for the right candidates to find the accommodation that they would need to fill the jobs.

Recent Commonwealth Public Service job advertisements have stated that the successful applicant “may choose to commute”.

The latest national accounts suggest that that ACT economy stopped growing between the June and September quarters, possibly as a result of the stalled labour market.

The Territory's seasonally-adjusted state final demand slid 1.9 per cent between the two quarters. In trend terms it was flat.

Two quarterly contractions in a row would be regarded as a “demand recession”. The next quarterly national accounts are due for release in March.

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Sunday dollars+sense: The true cost of those twelve days: $100,000

Got a spare $100,000? That’s how much it now costs to get your true love the complete gift set for Christmas – more than ever before.

On the list are turtledoves, calling birds, geese-a-laying, maids-a-milking… everything immortalised in the song The Twelve Days of Christmas.

Each year the US financial services firm PNC totals up the cost of the list and its findings not only tell us a lot about inflation, but also about the changing nature of the things we value.

This year’s total for the complete list (including the repetitions in the song) is $US78,100 – about $100,000 in Australian money...

Most years it has moved up in line with the general rate of US inflation – a finding that might seem odd. Piper’s piping, partridges and pear trees aren’t the sort of things that usually make their way into the consumer price index.

But it has been found time and time again that unless a shopping list is extremely obscure its total will usually move in line with prices in general.

The best example is the price of a Big Mac.

We think of a hamburger as one product, but actually it is its own shopping list containing within it labour, rent, electricity, farm produce and so on.

When, noting its standardised nature, the Economist magazine began (as a joke) comparing price movements in Big Macs across nations it discovered that they closely tracked more complicated measures of prices.

That’s because if ever one part of a big Mac was to became especially expensive people would buy fewer of them, their price would moderate and the prices of things people spent their money on would climb.

The other thing that PNC has discovered about the Twelve Days shopping list is that the importance of goods and services has changed places.

Goods (in this case birds and trees) used to account for most of the cost. Back two decades ago seven swans-a swimming cost $US7,000. Now it’s only $US4,000.

These days it’s the services that cost the money. The lords a leaping (sourced from the Pennsylvania Ballet) used to cost just $US1,680. Now they cost $US4,285.

Goods have become relatively cheap to source. We have become so much better at making them. But in Western countries we have paid ourselves more as well.

That’s why it’s the personal things - be they pipers piping, ladies dancing, or any service that requires face-to-face contact - that have become valued and rather more rare.

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Summer reading: Could John Howard have formed the view that his Deputy, Peter Costello was not a fit person to ever become Prime Minister?

That appears to have been Eisenhower's view of his Deputy Richard Nixon in the US.

Andrew Probyn, political editor of the West Australian takes up my post-election story about Peter Costello's behaviour as Treasurer and asks whether Howard knowingly risked the Coalition's term in government and his own place in history in order to prevent Peter Costello becoming Prime Minister.

Maybe ex-PM knew best in thwarting Costello’s ambition

Losing office not only means you are out of a job. It also means you are no longer the chief storyteller of the Government narrative.

Before his November 24 election loss, John Howard predicted that Labor would seek to rewrite history should it win. He was pointing out the bleeding obvious, really. Victors always write history.

But so far it’s not been Labor that has been rewriting history, having made history by booting out a government when the economy was purring along quite nicely.

Rather, it’s been the defeated who have been rewriting history, not so much by giving us their spin on past events but by illuminating events which had until recently gone untold.

Nick Minchin told us that he had asked Mr Howard to step down as prime minister soon after the previous government celebrated its 10th anniversary in March 2006.

We’ve heard from Alexander Downer, who said he thought the government was doomed long ago (perhaps that’s why he mused to reporters from the Adelaide Advertiser in September that he would consider a switch to State politics to become the South Australian premier).

And on WorkChoices we’ve had all sorts of damaging circumspection from the Liberals too.

The minister whose last job was to sell the virtues of the industrial relations regime, Joe Hockey, would appear to be comfortable with the prospect of the coalition disowning the controversial laws, acknowledging Labor had a mandate to overturn them.

And there’s a story going around the traps that the fellow Mr Hockey replaced as workplace relations minister, Kevin Andrews, wanted protection from unfair dismissal laws to extend only to small businesses employing 30 or fewer workers but that he was overruled in Cabinet.

There have also been stories from outside government circles that have only come to light because of the Howard government’s defeat...

Chief economist at the ANZ Bank Saul Eslake gives a fascinating insight into the character of Peter Costello, the man who would have eventually been PM if Mr Howard had prevailed over Kevin Rudd.

It’s been known for ages that Mr Eslake had a testy relationship with the former treasurer over the past few years but few knew why. He vowed to keep it secret until after he left his job or Mr Costello left his, whichever came first.

Here is his tale, recounted this week to The West Australian. In March 2002, Mr Eslake was giving a presentation to a conference of chartered accountants in Hobart. From the floor came a question from a wire reporter asking whether, in his view, the Howard government had engaged in any creative accounting.

“I said yes they had,” recalled Mr Eslake, “and gave three examples of that: the way they accounted for the GST in the face of contrary advice from the Auditor-General and the stats bureau; the fact that on two occasions — although they since did it a third time — they had mucked around with the timing of the Reserve Bank’s dividend, delaying the receipt of part of it so that in cash accounting, as distinct from accrual accounting, they improved the Budget bottom line for one year at the expense of the preceding one.

“And third, that when they sold land and buildings, they classified that as negative expenditure rather than as they did with selling Telstra, an asset sale, and excluded from the underlying Budget balance.”

A few hours later, Mr Eslake was in a taxi coming back from Melbourne Airport when to his astonishment he got a phone call from ANZ CEO John McFarlane.

“He said he had had Peter Costello, the treasurer, on the phone complaining about what I had said and threatening to take what John McFarlane paraphrased as ‘regulatory action that ANZ would not like’,” he said. Mr McFarlane told him he was not going to tell the bank’s chief economist how to do his job but that it was important from the ANZ shareholders’ perspective that the bank got on well with the treasurer given that he might be the next PM. He asked Mr Eslake not to talk about the government’s accounting policies again and, if it was possible, to patch it up with Mr Costello. So Mr Eslake dutifully rang the treasurer’s office, told Mr Costello’s secretary to tell her boss that it was nothing personal and that if he was offended by what he had said, he apologised. He left his contact details hoping to put his case personally but Mr Costello never called. Meanwhile, a senior Costello aide, Nikki Savva, had sent a copy of the wire reporter’s story — with the “offending” paragraph circled — to ANZ chairman Charles Goode. “Given that Costello had known me personally at that stage for almost 20 years (they’d first met in the early 80s when they were both members of the Young Liberals), he could have, or he could have had one of his advisers, ring me to debate the point,” Mr Eslake said.

“But rather than debate the point, he sought to use regulatory powers conferred on him by virtue of his position as treasurer to see if he could get my boss to intimidate me, intimidate my boss to see if he would silence me, or worse.”

Mr Eslake says he is not the only person in economic circles to have got this sort of attention from Mr Costello while he was treasurer and he says he knows Mr Howard later became aware of the incident.

It’s his view that the former PM had marked Mr Costello’s card and that this had contributed to Mr Howard resisting his deputy’s overtures to step down for so long and, as it turned out, at considerable risk to his own place in history.

“Although John Howard has never lightly tolerated dissenting opinion in his own ranks, in his second incarnation as leader he was quite willing to work with people who had occasionally disagreed with him about things,” Mr Eslake said.

“Howard accepted that from time to time people he would see as being of sound judgment and friendly disposition would disagree with him or the government and have the temerity to say so, without that marking them as traitors for life.

“Peter Costello, on the other hand, appeared to have trouble operating within the same frame of mind.

“The Prime Minister had no doubt concluded that Australia is too small a place for its would-be leader to cut off from ever providing advice or counsel anyone who’s ever disagreed with him about anything.

“This kind of behaviour — because I was by no means unique in this regard — to Howard’s mind may not have been the kind of thing that you would want in the leader of the Liberal Party.”

When John Howard finally records his version of history, perhaps he’ll reveal even more about why he put his legacy in peril by clinging on to power. And Peter Costello may have to put his own thoughts to paper.

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Spare us! Where's the razor?

From today's Crikey, the last for the year.

This is an actual current Australian Public Service job ad. Not a hoax.

Closing date: Thursday, 20 December 2007. Apply now, before someone asks what the job actually does.


"The Design Leverage Director will be an important, contributing member of the senior management team and will have accountability for leading the integration of design thinking across the organisation, aligning design principles with business strategies that enhance operational performance and fostering a collaborative, innovative culture that generates creative solutions. Facilitating as the "voice of design", the Director will effectively embed best practice project management processes and procedures as required in an evolving, complex environment. In essence, the Director will champion design as an agent for change, innovation and collaboration. Our candidates will need to have a proven track record in a strategy-driven design executive position, with experience working in large, complex organisations. A holistic, highly motivated, creative problem-solver, they will need to be well rounded in terms of skills, project types, and work and life experiences. Our candidates will need to be able to demonstrate success in challenging the status quo, leading strategic and operational change initiatives, and adding value to business decision-making. The role requires excellent relationship management skills, coupled with strong project leadership expertise. Tertiary qualifications are highly desirable. In order to be eligible you must be an Australian citizen. The successful applicant will be required to undergo a security assessment. The position will be based in Canberra (though the incumbent may choose to commute). The appointment may be offered either on a career basis or a fixed term basis of up to 5 years."

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Multiplication

It's the name of the game.



Experience this entirely new way of doing it here.


HT: Joshua Gans, Bobby Darin

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Update: "WorkChoices is dead"

Brendan Nelson after thisafternoon's Opposition front bench meeting:

"We've listened to the Australian people, we respect the decisions they have made, and WorkChoices is dead."

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Chutzpah!

Unfair dismissals laws are coming back. Some exemptions are being removed (and others imposed).

From AM this morning:

JULIE BISHOP: Julia Gillard must now commission a proper independent inquiry of the impact of removing the current exemptions.

* See my account of history, below.

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Don't doubt it... the Reserve Bank wants to push up rates

Australia’s Reserve Bank would have increased official interest rates this month, lifting the standard variable mortgage rate to close to 9 per cent, were it not for a number of lenders beating it to the punch and lifting their rates first.

That’s the picture painted in the minutes of the Reserve Bank’s in the minutes of the Bank’s December 4 board meeting, released yesterday as part of the Bank’s new measures to improve communication.

The minutes say that the meeting attended by members including the Governor Glenn Stevens and the Treasury Secretary Ken Henry concluded that “higher interest rates were likely to be required”.

However, independent action by lenders in passing on higher borrowing costs to businesses had done some of the Bank’s work for it...

In time household borrowers were likely to face additional costs as well.

The minutes note that without those changes “there would have been a strong case on domestic grounds for a rise in the cash rate at this meeting.”

But they say that an increase by the Bank taken together with the actions of commercial lenders would have resulted “in quite a significant tightening of overall financial conditions over a short period. On the evidence currently available, and given the uncertainty over the global outlook, this did not appear to be immediately warranted.”

The Board decided to maintain the existing rate “for the time being, pending evaluation of financial market developments and new data at the next meeting”.

That meeting will take place on Tuesday February 5, after the release of the next inflation figures due on January 23.

The minutes say “the question to be addressed at that time will be whether the interest rates faced by borrowers as a result of the combination of policy action and market developments would exert sufficient restraint to contain inflation over the medium term”.

They describe the December decision as “finely balanced”.

The Treasurer Wayne Swan said he fully supported the Bank’s decision to release the minutes and that inflationary pressures had been building for a long time.

“They will take a long time to turn around, but with strict fiscal discipline and investments in the productive capacity of the economy, we can tackle inflation over the long term,” he said.

The interest rate strategist at TD Securities Joshua Williamson said the minutes suggested that the Bank dearly wanted to increase rates in order to restrain a rate of inflation set to climb to 3.5 per cent. But it was worried about whether the economy could withstand such an increase when piled on top of other increases.

The economics team at Westpac noted that the Bank appeared increasingly pessimistic about economic growth in Australia’s major markets calling attention to its statement that it was “uncertain whether the increases pace of growth in East Asia would be sustained in 2008.”

The ANZ Bank’s Mark Rodrigues said, “reading the minutes gives a strong sense that, one way or another, the Bank believes interest rates need to move higher to moderate inflation from unacceptably high levels. While heightened risks around the global outlook at present have prevented
it from tightening, it has not dented its inclination to tighten”.

The chief economist at JP Morgan Stephen Walters said the minutes made it clear that a February rate hike was “all but a done deal”.

“There is considerable pressure on capacity, the labour market remains very tight, the terms of trade is providing a boost to local incomes, wage growth has accelerated albeit modestly, and Australia is less affected by global credit market dislocation than elsewhere," he said.

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How to cut the price of petrol... the right way

The retail margin charged for petrol could shrink by 1.9 cents per litre within months under a radical scheme set to be introduced by the Rudd Labor government.

The “FuelWatch” scheme, already in force in Western Australia freezes the price of petrol at each service station for 24 hours each day and publicises it the evening before.

It allows drivers with access to the internet to know with certainty before they set out each morning which service station will be charging which price...

Assistant Treasurer Chris Bowen yesterday promised to investigate taking it national as part of a response to an Australian Competition and Consumer Commission investigation into fuel prices commissioned by the previous Treasurer Peter Costello.

He also gave the ACCC Chairman Graeme Samuel the formal power to monitor petrol prices and wrote to his state and territory counterparts asking them for nominations for the new post Petrol Commissioner within the ACCC.

FuelWatch, introduced in Western Australia in 2001, requires each service station to notify a central authority of its next day’s prices by 2.00pm. The prices are made available by an automated telephone service, by email and by the internet from 4.00pm and have to apply from 6.00am the next day for 24 hours.

The series of 24-hour price freezes makes it hard for stations to tacitly collude by pushing up their prices, seeing whether others follow and then quickly bringing them back down if they do not.

The ACCC Chairman Graeme Samuel said yesterday that in other states petrol retailers had an unfair advantage over consumers through the use of an information service called Informed Sources.

It allowed each station that subscribed to see minute-by-minute what each other station was charging. Sellers could lift their prices “with reduced risk.”

“If others do not respond the leader knows quickly and can reverse the price rise with little loss of price
sensitive consumers,” the report said.

Conversely retailers who might be tempted to cut their prices would know that that cut could be instantly matched making them “more reluctant to decrease
prices in search of greater sales than they otherwise would be.”

An econometric analysis conducted for the ACCC found that FuelWatch had cut the average price margin charged to Western Australian motorists by 1.9 cents per litre.

The scheme had not eliminated the weekly price cycle, but had made it less extreme.

The Assistant Treasurer Mr Bowen said he hoped to take FuelWatch national “within months”.

It would be a way of helping consumers through the provision of information rather than heavy-handed intervention.

The ACCC report found that while there was "no obvious evidence" of price fixing or collusion amongst retailers or refiners Australia’s petrol companies operated in a "comfortable oligopoly".

Caltex, BP, Mobil and Shell enjoyed “buy-sell” arrangements under which each undertook to supply petrol to the others in states in which they did not have refineries.

The arrangements reduced the incentive for the refiners to “take each other on” as wholesalers.

The Commission fund that while there was insufficient evidence “at this stage” to conclude that the buy-sell arrangements were illegal the refiners might “be well advised” to seek explicit authorisation for them under the Trade Practices Act.

The report also found that there ware significant impediments to the independent importing of petrol and recommended an audit of terminals suitable for importing.

It found that the use of Coles and Woolworths shopper dockets had on balance cut petrol prices. They were unlikely to have lifted supermarket prices.

Australia’s petrol was the world’s forth-cheapest and our taxes on petrol were the world’s third-lowest.

BP yesterday disputed the Commission’s contention that the West Australian FuelWatch scheme had lowered prices saying that its analysis showed it hadn’t cut prices at all.

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Tuesday column: Bring on the evidence.

"Labor’s guiding principle appears to be that any promise made during the campaign - no matter how stupid, no matter how dangerous, no matter how bereft of supporting evidence – will be kept."

To technocratically-minded types such as myself the new government is a dream come true. Its leader Kevin Rudd says his decisions will be “evidence-based”.

It’ll mark a change. The previous government axed what it said were “job-destroying unfair dismissals laws” without first asking its Treasury to find out whether they were in fact job-destroying.

It ordered its Employment Advocate to stop collecting information about the award conditions that were being stripped out of Workplace Agreements when it became embarrassed by the information that he was coming up with.

It introduced “media reforms” that hugely enriched moguls such as James Packer and Kerry Stokes without conducting a single piece of economic research on their impact and $10 billion worth of “water reforms” that hugely advantaged existing irrigators without even running the idea past the departments of Finance or Treasury until it was too late.

Its Treasurer Peter Costello derided the econocrats in his own department who could have given him advice about the best way to spend $10 billion of taxpayer’s money by declaring that his department was “no water expert”.

“Treasury is good at Treasury, but Treasury has not been engaged in water,” he said.

Until the Prime Minister changed course this time last year, the Treasury had also not been asked for an economic assessment of the impact of climate change.

Where Treasury advice did get through it was at times ignored, suppressed or misrepresented. The Treasury told the government in the lead-up to the May budget that Australia’s productivity growth had fallen to zero.

When asked after the budget whether he had received such advice the Treasurer replied with apparent pride: “Well, you can look all the way through the budget papers and you won’t find any figure like that”.

The centerpiece of the Coalition’s reelection campaign was a tax package that included a slashing of the top personal rate from 45 to 42 per cent and eventually to 40 per cent.

The Treasurer said he had access to Treasury modeling that showed it would “boost the estimated workforce by around 65,000”.

But he wouldn’t release the modeling. Last week we found out why. The new Treasurer Wayne Swan who had put forward an identical tax plan but without the cuts to the top rate said that Treasury modeling showed that showed his plan would also “encourage around 65,000 people into the workforce”.

It was the same modeling. What the Treasury had found was that there was no extra benefit to employment from cutting the top rate. None whatsoever. But the Coalition didn’t allow the design of its campaign centerpiece to be guided by that evidence. It preferred to misrepresent it.

So it’s a genuine relief to discover that from here on decisions are about to be evidence-based. Note the use of my qualifying words “from here on”.

The new Finance Minister Lindsay Tanner gave the game away in a Lateline interview last month...

He said he wouldn’t blatantly ignore Treasury analysis “like the previous government did, for example, announcing a $10 billion water program written on the back of a serviette yet after a long lunch without being adequately costed or assessed by Treasury or finance and without even being taken to Cabinet. We won't do that sort of thing, I can assure you.”

He was then asked whether he would keep the water program anyway.

His reply: “Yes”.

Labor’s guiding principle appears to be that any promise made during the campaign - no matter how stupid, no matter how dangerous, no matter how bereft of supporting evidence – will be kept.

The requirement for evidence relates only to the future.

Wayne Swan demonstrated last week that his $31 billion of proposed tax cuts were almost completely bereft of supporting evidence when he said they were good value because they would entice an extra 65,000 Australians into employment.

Right now employment is growing by an average of 22,000 Australians a month. Last month it grew by 53,000.

The new Treasurer is proposing to spend $31 billion over three years in order to buy (at most) an extra three months of employment growth.

At around $500,000 per job it’s expensive. That might be good value if there were other reasons for cutting tax, but as Access Economics made clear this week at the moment those tax cuts will actually do the economy harm.

Labor’s $2.3 billion Education Tax Refund is similarly bereft of supporting evidence. Labor says it will ensure parents spend money spent on books and computing equipment for children in need. In fact the parents who already spend that money will simply pocket the refund, and the ones who are too poor to spend it on their children will remain too poor. The partial refund won’t be paid until well after they spend the money they still won’t have.

There is doubtless evidence available as to how $2.3 billion could be well spent on education. Labor either didn’t seek it or didn’t publish it.

Labor has also been tardy in producing evidence to support its contention that every child in upper secondary school needs their own classroom computer.

In fact for years now study after study has failed to find any link between access to computers and classroom performance.

The most recent British study, released just last week after the campaign did find a link but only a slight one. A doubling of computing funding was found to boost the number of students doing well in English by 2 percentage points, the number of students doing well in Science by 1.6 percentage points, and the number doing well in Maths not at all.

Is it worth doing? Perhaps. Might there be a more effective way to spend the money on education? Probably.

And don’t get me started on solar cells on schools.

Labor’s election policies were shockers when it came to evidence.

The good thing is that from here on the new Prime Minister and Treasurer have promised to do things properly. I’ll remind them of it every chance I get.


Reference:

Stephen Machin, Sandra McNally, Olmo Silva New technology in schools: is there a payoff? 14 December 2007

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