May 2014 – Thomas the Think Engine

World Cup excitement kicks off!

I’ve spent the week scouring the FIFA website, making spreadsheets of the group stages, watching old videos on YouTube, and following Socceroos on Twitter. It’s a clear case of World Cup fever.

Ever since the 2002 edition, I’ve been hooked. I’m not a big follower of local or European soccer, but playing the game on a world stage changes it – not unlike how track and field suddenly becomes fascinating for two weeks every four years, during the Olympics.

I had a formative experience during the World Cup in 2002. I watched Brazil score 6 goals in a couple of early round matches, while other teams looked defensive and dour. That kind of attack was going to be hard to beat, I reckoned, so I popped $10 on them to win at 8-1.

A couple of weeks later I watched Brazil trump Germany in the final and took my winning ticket down to cash it in.

The next two World Cups were especially exciting because Australia was finally involved. I remember being awake and very excited in the early hours of 13 June 2006, when Australia scored three (three!) late goals to win their first world cup match in 20 years.

But expectations are a lot more modest for Australia in the 2014 Cup. Instead of having just one powerhouse of global football in our group, we have two. Spain and the Netherlands. The third group member, Chile, is actually ranked higher than the Netherlands on the FIFA tables. Australia is the lowest ranked team in the cup and Tim Cahill is no longer a sprightly unknown who is given space to score.

Still, World Cup 2014 sparkles with excitement, and that’s mainly because of the Calcutta.

I’d never heard of a Calcutta until last week, but now I am a believer.

It’s a bit like a sweep. You may have been involved in a sweep for a horse race – you put in $2 and get some beast that runs mid-pack the whole way, leaving you with a nagging sense of disappointment.

The Calcutta is designed to compensate for that. Teams are drawn from a hat and participants bid on them. If the team is a dud, there are few bids and it goes cheaply, allowing the possibility of turning a tiny bet into a large fortune.

Our Calcutta was run last night, in the salubrious confines of the Reverence Hotel, in Footscray. (I’d like to insert here, parenthetically, an enthusiastic endorsement of the menu at this establishment and the beef burrito in particular. If gentrification means a walnut and sweet potato salad with your burrito, then I am all for gentrification.)

Before the emerging writers festival crowd took over the back bar with a poetry slam, we auctioned off eight teams and six bundles of teams.

The eight teams were: Brazil, Argentina, Spain, Netherlands, Germany, Portugal, Italy and England.

The six bundles were:

Asia	Australia, Japan, Korea, Iran
Africa	Ivory Coast, Nigeria, Ghana, Cameroon
Americas	Mexico, Costa Rica, USA, Honduras
South America	colombia, chile, ecuador, uruguay
Europe	Greece, France, Switzerland, Bosnia
Europe 2	Russia, Algeria, Belgium, Croatia

Bidding began in a conservative fashion, when the Asian group was hammered down after only two bids, contributing $2 to the total prize pool.

The prize pool (and whole event) were designed by a local gaming impresario who I shall call Marty, since that’s his real name. 65 per cent to the winner, then 20, 10 and 5 percent for the next three spots.

The interest and excitement of the Calcutta auction process lies in the fact that the value of any team depends not only on its chances of winning, but the size of the prize pool. That’s an unknown. Basically the prize pool depends on how much people are willing to spend. I tried to wheedle this information out of some of my fellow bidders before the game began, but they held their cards close to their chests.

Bidding continued with the Africa and Americas bundles going to me for $3, the only sizeable outlay came when a gentlemen born near Birmingham put his heart into a bidding war and paid $9 for England.

I’d run some analysis in advance that told me bundles were the best way to get value, so I soon set a bidding record for the South America bundle, paying $15.

The feeling of winning an auction is not purely celebratory. What it tells you is nobody else shares your confidence. It can fill you with the fear that you may have just succumbed to the winner’s curse of paying too much.

The thrill of winning a bid was often followed, last night, with a small spell where the winner retreated into themself and stared in quiet contemplation at their ticket. After I bid my $15 (enough to buy 84 per cent of a really amazing burrito) I had my doubts.

But later, as bids rose, my $15 investment in Columbia (rank 5), Chile (rank 13), Ecuador (rank 28) and Uruguay (rank 6) came to seem pretty good. I smiled when Argentina (rank 7) sold for $36.

The auction was fun, involving at one point phone bidding that saw Portugal sold to an outside party. We joked about creating a derivatives market and on-selling our early buys at a profit to anyone who hadn’t been present.

But the big excitement of the evening was the auction of Brazil, host country and favourite. Nobody expected the way the bidding war would turn out for that.

Bidding rose swiftly above the highest price paid. Everyone could see Brazil still offered value, relative to previously auctioned teams and also to the total pot size. But with participants already having invested substantially, and budget constraints starting to loom (did anyone really want to go home and explain they spent $50 on a single bet?), syndicates quickly formed. Two syndicates – one of three persons and one of two – took the bidding up above $50, until finally the Calcutta auction was over with a total prize pool round $200. Markets work, people!

A most satisfactory way to spend a Thursday evening – plus I now have a dozen non-Australian teams to support in the World Cup!

(Back to that derivatives market. If you’d like in on this Calcutta, it’s not too late to buy a team! Make me an offer…)

Marvellous! An economic history lesson from Flinders St Station

I am completely entranced by this old photo of Melbourne’s most iconic intersection.

The shot tells a story of changes in technology and economics. For starters, there are four horse-drawn carts in the photo.

While a busy Friday night in 2014 might still see a horse and carriage at this intersection, in 2014 they’d be pulling regretful tourists, not valuable cargo. The decline of the horse and rise of the car coincides with the industrialisation of the fuel-making process. In 1927, oil company Mobil was just 16 years old.

Here’s a Google Maps image of the intersection today.

The tram stops also tell a story of change, not so much in technology as values. The tram stops of the jazz age – located in the middle of the street, amid a stream of traffic – amount to little more than a bit of paint on the ground. That has changed. Tram stops now are highly protected from traffic, probably because the value society places on human life has risen along with wealth and productivity.

One familiar thing in the shot is traffic. We see cars stacked three across and two deep, getting ready to hook turn from Flinders St onto Princes Bridge in the foreground of the shot. (For non-Melbourne readers, the hook turn is a unique form of torture inflicted by this city on unwitting drivers, for the purposes of mirth.)

The street at the top of the photograph – Swanston Street – is now closed to car traffic. The externalities associated with car traffic are very clear in this intersection, as early as 1927. (I am referring not to pollution, but the way the presence of one car on the road slows down all the others.) The proliferation of cars in the last 90 years means these externalities would have developed to city-threatening proportions had the use of cars not been limited.

The crowds suggest patterns of work is much the same. But it doesn’t show the city at night, which would reveal far more differences in society, in dress codes, and the purchasing power of young people especially. Zooming in would also reveal big differences in ethnic composition, thanks to the ease of global travel.

There are no bicycles in the shot, which is a surprise to me. Standing at this intersection now, you’d struggle to frame a shot without a bike in it.

Apparently cycling was extremely popular in the 1890s. That enthusiasm has seemingly waned by the time film was exposed for this shot. Will Melbourne’s current love affair with bikes also prove transitory, or is this shot just unrepresentative?

There have been a lot of technology changes since the 1920s. One of the most dramatic is in construction. Despite being a shot of the city, this photo, repeated today, would not show any sky scrapers. This area has heritage protection. Perhaps there were height controls even then – the shadows reveal bigger buildings lurk just outside the frame.

Most of the technology changes since the 1920s are at a smaller, human scale. The contents of the pockets of the people in the shot is probably where the most dramatic changes would be evident. The one clue we have in this shot to that sort of technological change is the fact it is shot in sepia.

There are a lot of lessons in this old shot, a lot of differences. But the biggest single point is probably the similarity.

The crowds swarming across Flinders St look exactly as they do today. That suggests the patterns of life – catch a train into the city, go to work, go home – have not changed too much. And three of those four corners – the railway station, the pub and the cathedral remain the same. Only the old Princes Bridge Railway Station in the bottom right is gone, replaced with Federation Square.

~~The trams in the shot are cable trams – they are not powered by electric wires but pulled along by a cable that ran beneath the street.~~ [edit: apparently cable trams were replaced by electric trams the year before this shot was taken.]

Despite the advent of electricity and computers, trams still follow these same routes.

This shows the way infrastructure and patterns of human life endure. Technology is often first used to do the same old tasks a bit differently. We don’t quickly end up in a Jetson’s future, but a sort of inverted Flintstones, where the objects are much the same and the technology behind them is different.

(Cable tram video you will find terrific if you like history, Melbourne or public transport.)

What else do you notice about this photo? Please leave a comment!

Should unemployed people be forced to take any job?

Tony Abbott is having a horrendous run. He’s now more unpopular than Bill Shorten, who holds an 11 point lead in approval ratings, a reversal that is truly spectacular.

His big problem is a tough budget that broke promises.

One of the Government’s signature policies is to push young people into taking work. Their policy is called “earn or learn.” It will deny the Newstart (dole) payment to anyone under the age of 25; and people aged 25-30 will not be eligible for the dole in their first six months of unemployment.

”There is no right to demand from your fellow Australians that just because you don’t want to do a bread delivery or a taxi run or a stint as a farmhand that you should therefore be able to rely on your fellow Australian to subsidise you,” said Employment Minister Eric Abetz.

The rationale is to stir up resentment at the welfare state.

“The bludger should not be our national icon.” – Rupert Murdoch, (American citizen)

It’s an entirely political, dog-whistle ploy to make underpaid workers of Australia target their resentment at the unemployed, not the managers that dine with their own remuneration committees.

But doesn’t mean the policy intent is all bad. Here’s why the policy can do good for some people (caveats follow).

Long-run unemployment is one of the most damaging things that can happen to a person. It causes not just a fall in skills (human capital). It is associated with worse health outcomes, including mental health issues, falling life expectancy, higher chances of dropping out of the labour market, and their children’s school performance.

Long run unemployment is also bad for the economy. Hysteresis is now an accepted fact of macroeconomics. It describes the way long periods of high unemployment make the minimum achievable unemployment rate creep higher and higher. An economy that can match people into jobs swiftly increases the welfare of future workers.

Sure unemployment is bad. But people know that and want to get themselves a job. No?

Well, a new paper from the National Bureau of Economic Research shows that unemployed workers set a reservation wage that affects their willingness to take a job.

“workers are 24 percentage points more likely to accept an offer that is equal to or exceeds their reservation wage than to accept a job with a wage below the threshold.”

This fits with some excellent new research by Australian economist Justin Wolfers. He found arbitrary thresholds are a source of important irrationalities in human behaviour, and illustrated it with marathon finishing times.

marathon finishing times — Source: NY Times

Wolfers’ article focuses on how arbitrary thresholds could cause irrational investment behaviour, especially the case of people being unwilling to sell their house for less than they bought it for. But the analysis could as easily apply to reservation wages, which can be set with reference to what you used to earn.

If you refuse a job because if pays $5000 a year less than your old job, but then spend months more unemployed, you may well be worse off.

These pieces of research are part of the new behavioural economics that finds predictable irrationalities in human behaviours.

It is not uncommon for social outcomes to be improved with a “nudge” toward the more rational course of behaviour. Traditionally, of course, conservatives oppose these kind of nudges, preferring to let humans remain “free”, while liberals tend to endorse them. In the case of “earn or learn,” it is more of a shove then a nudge, and conservatives are more likely to be fans of it.

I don’t want to stand up for the exact policies that the Coalition has brought in. I think they are too blunt to have a net good effect. But the concept that the labour market will reach equilibrium without intervention is also likely wrong – unemployed people should be encouraged to not just search for, but take a job.

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CAVEATS:

Geographic moves should not be encouraged. It is not smart to make people move away from their social networks and supports. Humans are not only economic actors, and as discussed in these very pages, jobs are found through people as often as through job ads.
The ABS covered, just this week, how much unpaid work is being done in the economy. It is estimated at 40 to 60 per cent of GDP. A focus on paid contributions could be said to be discriminatory against the people doing this work, often women.
Are all jobs equal? Sex work is legal – should young men and women be forced to take jobs as prostitutes if they are unemployed? Should young people be forced to join the armed forces, do coal mining or be prison guards? Some jobs can be really dangerous to your reputation – for example, not everyone would want to be a member of parliament.

Economics of territory. Ukraine, the South China Sea and democracy.

What motivates governments?

Economics has long struggled with this question.

Public choice theory argues government leaders want to create big organisations they control. The more money and people controlled by the leaders, the more powerful they feel.

Other theories argue leaders are motivated by the preferences of voters / citizens.

The question is extremely pertinent when a government decides it wants to expand its borders. What does a government gain by controlling more land? More sources of revenue, sure, but also more costs. How do voters weigh those?

In the case of Crimea, a little peninsula on the south side of Ukraine, Russia’s annexation has obtained it a sizeable store of energy deposits, making the adventure potentially valuable in cash terms. But the leading explanation of the decision to occupy does not revolve around Putin doing the math on oil.

Occupying more land – empire building – is a time-honoured strategy for leaders. From Rome via the Mongols and on to the British Empire a measure of greatness is territorial control. Perhaps the sort of people who can be bothered climbing the greasy pole of political leadership are never tired of attempting to gain more power. So when they rule, they feel they must rule more.

Invasions in order to annexe are now uncommon. (Invasions for other reasons remained popular in America until recently, and will probably swing back into vogue in time.)

Partly this is because the international community has arranged itself to try to raise the cost of territorial expansion and diminish the benefits. Sanctions can follow.

But partly it is because dictatorship is in decline.

The best way to prevent land grabs and invasions is probably democracy. The characteristic common to Putin’s Russia and China (with Tibet in its back pocket, the south China Sea Islands almost in its grasp, and its eyes on Taiwan), is that the leaders need not fight to win votes. Once in power, their will to rule more can only be fed by expanding the territory they control.

In democracies, empire-building is defined by ruling for more than one term. Gerry-mandering, pandering to voters and rorting electoral funding rules in order to win the next election might not be ideal behaviour, but it is less damaging than rolling squadrons of tanks over the border.

From the perspective of the global economy, land grabs are destabilising. Any chance they will spark a war makes them a major risk to global output and standard of living. The sinking of a Vietnamese ship in the South China Sea, for example, is a risk to the balance of power in Asia, a balance in which the US and Australia are involved.

The motivations of powerful non-democracies remain a threat to our well-being.

FOMO. The acronym that explains why you’re on LinkedIn.

LinkedIn is rubbish, we all know it. But we can’t stop using it.

Why?

We fear there are benefits of using LinkedIn that we’ll miss out on. Prospect theory calls it loss aversion, but the kids call it FOMO – Fear Of Missing Out.

Humans are wired to hate losses more than they enjoy gains. This is not strictly rational, and it means we make some bad choices.

Haunting LinkedIn might be among them.

At some level, we know LinkedIn is not worth it

I mainly visit LinkedIn when I get a reminder from the website. Maybe someone has looked at my profile, or maybe someone wants to be a connection.

I hover there for a few minutes, wondering what it all means. Sometimes I do get a phone call from a person that LinkedIn said was looking at my account. But would they have called me anyway?

LinkedIn has to taunt you to get you to network.

Congratulating people on work anniversaries is an alien concept, but the idea other people are doing it means we wonder if we should too.

LinkedIn plays on our fears that other people are getting ahead of us professionally.

It taps not into our desire to be better people, but our much more powerful fear that we will lose our rank and status.

We also imagine it will cushion our fall should we lose our jobs. In the newspaper industry, redundancy rounds were strongly correlated with LinkedIn connection requests.

It doesn’t hurt that making a LinkedIn account is quick and easy. People probably maintain their LinkedIn like an insurance policy. It’s not costly to have, but it helps manage the anxiety that might come with losing your job.

LinkedIn is the facebook of work. We know facebook doesn’t really help us make friends. So does LinkedIn work as a resumé?

I wrote, a few weeks ago, about how to get a job, and LinkedIn was not the top priority, and – this is important – it was not a substitute for actual networking..

Maybe LinkedIn is not good for the average guy, but if you’re trying to build a brand, it is awesome. Maybe?

I doubt it. (n=1). For example, LinkedIn scores below even Google+ as a referrer of visitors to my blog.

Of course, there are experts out there shilling for the many powerful strategies you can deploy to make LinkedIn work for you. I don’t doubt that there are ways that work brilliantly for a small percentage of people and firms, but they rely on LinkedIn maintaining a base of slightly nervous users checking in to make sure they’re not missing out.

But this emperor’s new clothes situation is not going to resolve itself with LinkedIn shivering nude and all of us turning away. We’d be too worried that even a nude emperor might be worth our attention.

I may be a LinkedIn skeptic, but I still like to make a new connection as much as the next person. Connect with me here!

“Hatchbacks on stilts.” Why SUVs are an arms race we must stop

There’s a lot of talk about how Australians are buying smaller cars, and how Australian car makers are stupid for pushing on with big petrol-guzzling cars nobody wants.

But Australians do want big petrol guzzling cars. They just want them to be tall.

The SUV category is going crazy. In April 2004, 12,351 SUVs were sold. By April 2014 monthly sales had doubled to 25350.

Meanwhile, “passenger vehicles” – your classic sedan, sold fewer. April 2004 saw 44,000 sold, but by April 2014 sales shrank to 39,000.

In 2014, even as the car market is having its worst year for a decade, SUV sales are creeping up.

When people buy an SUV, they’re purchasing the ability to go off road. Right?

Not if you look at the details. Companies are pushing out two wheel drive versions of their SUVs and they sell fast.

The AFR’s motoring writer nailed this in a review of the new $90,000 BMW, which is two-wheel drive.

“Some surprisingly large SUVs – including the X6 fastback from BMW – feel like hatchbacks on stilts,” he wrote.

And there’s the key.

People want to be high up. It’s game theory. If the car in front of me is small, I can see over it really well from an SUV. If the car in front of me is tall, I want to be in an SUV or I won’t see anything at all.

Externality would be a sweet name for the new Ford SUV. I imagine its prestige to come from being that little bit bigger, heavier and harder to stop than the Explorer, the Excursion and the Expedition.

As someone who drives a car that comes up to armpit height, I can confirm sitting in traffic involves looking at a lot of SUV bumper bars and having no idea what is happening in the traffic up the road.

An elevated position doesn’t just permit a better view of traffic, but of other people in the traffic. I can’t see what that Range Rover driver is texting from down here, but they can sure see what’s on my phone (at right).

The light commercial category also shows the change. You can’t easily sell a ute you have to step down into these days. The 1.74 metre tall Nissan Navarra tops the category, easily out-selling the 1.5 metre tall Holden ute.

Buying a tall car is what’s called a dominant strategy, if you want to be able to see. It’s also a dominant strategy if you want to crash into another SUV, according to research.

“In head-on collisions between passenger cars and SUVs … Drivers of passenger cars were more than four times more likely to die even if the passenger car had a better crash rating than the SUV.”

This is the classic game theory scenario of an arms race.

The arms race analogy is a good one. Like the proliferation of weapons, taller cars are costly and risky. They are heavier, take up more road space, cause more wear and tear to roads and emit more carbon. They may be more likely to roll in a crash. They’re exactly the kind of purchase decision in which a government might try to intervene.

For a long time, SUVS had lower import tariffs than passenger cars. That changed in 2010 when tariffs on cars fell. But by then, the proportion of SUVs sold was already steadily marching upwards.

Changes to the way we tax cars are possible in the next few years. The Henry Review recommends getting rid of the luxury car tax and fuel taxes, replacing them with congestion taxes or user pay systems. It is clear that our current system does little to deter SUV purchase. Could a well-designed licensing and user-pays system be better, or is the only stable game theory equilibrium one where we all drive cars like the Dodge Ram, that can barely fit in a lane?

One term? I wonder

Waleed Aly’s long piece in today’s Fairfax press about Tony Abbott is thoughtful, but the headline it carries: “No Way Abbott Can Now Budget For Second Term“ is too strong.

Every reader fell greedily upon that story, I assure you, but the headline hints at far more certainty than the excellent Mr Aly projects. Here’s three reasons why “one-term Tony” will win the 2016 election, and one reason he might not…

1. Parliamentary majority.

In the lower house, the Coalition leads Labor 90 to 55. Labor needs to peg back 21 seats to win. If you look at the pendulum, that means they need to win every seat that the Coalition holds be a margin of 4.3 per cent or less, while not losing any of their own seats. That’s a lot.

Winning a lot of seats will be hard for Labor, because it requires not just a swing but a lot of good candidates, a lot of organisation and a lot of money.

2. Sophomore surge

In theory, someone who was an unknown at their first election becomes familiar at the second (sophomore) election. They enjoy a surge in popularity. This effect, if it exists, will help the Coalition a lot – they introduced 19 new MPs.

As the name implies, the sophomore surge is a US concept. Is it real in Australia?

Some bloggers argue yes.

This book written about the 2010 election thinks so:

That means that even if Labor gets 51 per cent of the vote in 2016, it can easily lose a lot of important seats and be stuck in opposition.

3. Budget trickery

Tough budgets now lay the foundation for easy budget later. I wrote about this last week.

“To most people, the grumbling of early 2014 [will be] as relevant to the political situation as the result of the 1974 VFL Grand final. Labor can’t get over the broken promises and keeps talking about the past, while Mr Abbott is focused on the future. “

The evidence for the efficacy of this approach is mounting. Not only Victorian Premier Denis Napthine but also NZ PM John Key have unveiled more generous budgets on the eve of elections. (NZ is introducing free doctor’s visits just as we abolish them. Time to move to Wellington?)

4. But the polls are very bad.

55-45 is BAD.

I can see just one good example of a government coming back from that, in the early 90s. Keating took over a very unpopular government and won the next election.

Howard was losing by almost as much prior to the 2001 election. I also commend to you this graphic of the newspoll:

If this polling continues, expect newspapers to push the idea Malcolm Turnbull should take over from Mr Abbott. Not only would it likely help the Liberals, the media have clearly learned that a good leadership challenge narrative attract eyeballs and, crucially, elevates their (our?) own importance.

What we export now – advertising, etc.

The great saviour of the Australian economy arrives in a Porsche 911 convertible. The saviour’s professionally dyed locks are artfully disarrayed in order to best conceal an advancing bald zone. He whips his Raybans from his tired eyes and advances up the pavement to meet you, hand out-stretched.

The great hope of the Australian economy is the advertising man.

New data on services exports have revealed a whopping great leap in the export of salesmanship. No surprises really. As markets to our north develop there is more need for first world advertising expertise. And as the world’s developed markets become culturally more similar, Australian ads can play offshore.

Mumbrella has a list of a few Aussie ad exports, including this cat food sushi train ad, which we are apparently sending to Japan!

Regular readers of this blog will know that I am a giant fan of the services economy. I believe that in the future, politicians will idolise services as they now idolise “making things,” because the services sector will have provided the vast bulk of great jobs of their parents generation.

Almost any high-value service can now be provided across national borders.

I was talking to a consultant the other day who’d just signed a whole lot of what he hoped were visa forms for his staff – they were completely in Arabic. His medium-sized Melbourne business was sending people off to the middle east to work on a big project.

Great services export growth is happening not just in travel, but across the economy.

What would really happen if we gave more tax and spend power to the states?

I published this controversial piece a while ago: Four really awesome, quite left-wing ideas from the Commission of Audit.

I got a lot of thoughtful responses on the twitter.

The audit suggested giving ten percentage points of income taxation to the states to raise or lower as they pleased. I argued:

“Putting more tax and spending power in the hands of a demonstrably more left-wing level of government will likely lead to more spending on – and better outcomes in – health and education.“

ACTU economist Matt Cowgill wasn’t going to let that wash, and tweeted:

MattCowgillMay 02, 11:11am via Web

@jasemurphy I completely disagree that giving income tax powers to the states would be “left wing” or have progressive results.

A bunch of other comments followed.

This is what’s awesome about the information superhighway. You get to talk to super smart people who have done a lot of thinking, who compel you to think deeper and refine your views.

I concede my analysis was partial.

But today’s comments by Martin Parkinson, Treasury Secretary, have brought me back to this topic.

“the Budget flags that potentially significant changes in the distribution of responsibilities for schools and hospitals could arise from the forthcoming Federation and Tax White Papers.”

Is it a good idea to give more taxing and spending power to the states? Now I’ve thought more about it, I’m not going to die in a ditch for the idea. But I think it deserves to be considered, not dismissed out of hand.

Here’s a list of possible outcomes, arranged into pros and cons.

PROS

More tax and spend at state level

When I first wrote on this topic, nobody took issue with my point that letting states set taxes would lead to more tax and spend.

Just this week, My old boss Mat Dunckley published a piece about former premiers’ support for a higher GST. There’s mixed evidence, given Mr Napthine’s comments in the press about not raising the GST but it’s hard to imagine Labor state governments would not tax more – whether on income or goods and services – to spend more if they could.

If you believe publicly provided services are good, you may believe this would lift national living standards

Because Australia’s poor states are also small, I contend extra money for state schools in rich states would be more useful for the disadvantaged than extra money for state schools in poor states.

Sure, a smaller proportion of Victorians are very poor than Tasmanians. 15 per cent of Victorians rely on the government for 90 per cent of their income, compared to 21 per cent of Tasmanians.

But the absolute number of people in need in Victoria is seven times higher. (15 per cent of the population of Victoria is 750,000 people. 21 per cent of the population of Tasmania is 100,000 people.)

Keeping one’s focus trained on equalising between states may distract from equalising between people.

Self determination

Consider Europe. Would it really be a good idea to equalise funding between Sweden and Greece? You’d help Greece, but dim a beacon of quality in publicly-funded systems, and disenfranchise the people of Sweden.

I have in the past been accused of excessive parochialism, and I really do identify as a Victorian, but I think letting different states set different priorities can be good. Should not Victorians be able to set our taxing and spending policies without being compromised by Queenslanders?

Imagine if our federal government set health policy, but health funding came from ASEAN or the G20, along with a range of rules. Would that really be satisfactory?

More accountability for state governments.

State governments are a bit of a joke at the moment. A technocratic solution would be to kill them off and locate responsibility for everything with the federal government. Given that won’t happen, and we’re stuck paying state MPs salaries, can we not use them?

Politicians with big goals and deep skills play the game federally. Relatively little press attention is given to state governments. This is a shame because they have domain over much of what one thinks of as the role of government.

A system that really gave state governments power would simultaneously create an expectation for them to deliver.

More opportunity for innovation

State governments are bundled up inside the COAG system, and trussed with conditional grants. Their policy making freedom is curtailed, by decree of the level of government that holds the purse strings.

But smaller governments can excel. If this were not true, Malaysia would be a disaster compared to Vietnam, Switzerland a shambles compared to Germany.

Left alone to experiment, Australia’s states could model their education system on the Finnish system, the Korean system, a version of the Montessori method, or indeed become the next global model themselves. No doubt some would go backwards for a time, but neither is a the status quo an iron-clad defence against standards slipping.

CONS

Differences in outcomes between jurisdictions.

Matt Cowgill tweeted a link to a terrific story he wrote about the US school system. He uses the HBO show The Wire to demonstrate how a poor area can be left behind under a system where small jurisdictions each fund their own education system.

This is a powerful point. But Matt’s argument – People of equal means and need should have same access to services regardless of state – sets a bar we do not currently clear.

Poor states go into suffering spiral.

The reason we have “horizontal fiscal equalisation” is that without it smaller, poorer states will tend to get further and further behind the rest. Lacking both economies of scale and a wealthy population, they face a tough choice between high taxes and good services, or low taxes and bad services. Both options will hurt living standards and the outcome gap between a Hobarter and a Sydney-sider will grow even wider.

Sorting effect

After a few years of differential tax and spend settings, a possible “sorting” effect could emerge.

People who want more services move to left wing states (e.g. Victoria) and people who want less tax move to right wing states (e.g. Queensland). This could polarise the whole nation, a la Americana.

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I’m not going to try to tally the pros and cons column here. But I hope you feel, as I do, that this has been a useful exercise. Feel free to engage in another round of debate!

Welfare works – new research makes federal Budget look rather short-sighted

Babies are a problem for economics.

Economics says we must reward people for effort. If you train to become a teacher then work hard, society rewards you. This is both morally sound and economically important.

The flipside: if you could work but sit on the couch, you get nothing. This is both morally sound and economically important.

The moral and economic imperatives are aligned perfectly. Right up until birth.

Children crack the perfection of this theory. A child born into a poor household will be punished by material poverty they do not “deserve”. A child born into a rich household will be rewarded in ways they have not earned.

So we muddy the moral and economic imperatives for generation 1, in order to secure the moral and economic imperative for generation 2. A trade-off.

Decisions about this trade-off are shaped by a number of beliefs.

1. Does providing welfare hurt incentives for work?

2. Does raising taxes to pay for welfare hurt the economy?

3. Does welfare really help the second generation, or foster a culture of entitlement and dependency?

Just the other day I was snacking on this "coffee caviar" in a Fitzroy cafe. This Budget doesn't hurt me. Does our society have its priorities straight? — Just the other day I was snacking on this “coffee caviar” in a Fitzroy cafe, but this Budget doesn’t really hurt me. Does our society have its priorities straight?

The recent Budget by Messrs Hockey and Abbott reflects beliefs on all of these. It took an axe to welfare payments of all sorts.

So it was extremely timely to see new research (released May 12 by the US National Bureau of Economic Research) on the third point above – the effect of welfare payments on the second generation.

Researchers exploited a natural experiment to see the long run effect of cash payments to poor single-parent families in the United States. They compared the offspring of mothers accepted into a payment program with those rejected.

A stark effect is revealed:

“Male children of accepted applicants lived one year longer than those of rejected mothers. Male children of accepted mothers received one-third more years of schooling, were less likely to be underweight, and had higher income in adulthood than children of rejected mothers.”

The positive differential comes despite the boys who were rejected from the program being slightly better off on average prior to the government intervention. That means the effects are, if anything, likely to be an understimate. (The research is unable to track results for females over the long run because of their tendency to change their names. The use of a very old program allows them to more fully collect data on longevity.)

“While conditions today differ significantly from those at the beginning of the twentieth century, three important similarities remain. Then and now, women raising children alone (whether divorced, unmarried, widowed, abandoned, etc.) represent the most impoverished type of family. In fact, the income gap between children in two-parent versus single-mother families has only grown over time”

This research is very timely.

The 2014 federal Budget cuts a payment that goes to single parents: Family Tax Benefit Part B. The government has not only capped the rate of the payment from 2014 but reduced eligibility. Parents will now be cut off when their youngest child turns 6, not when it turns 18.

The Budget replaces Family Tax Benefit Part B with a new allowance, worth $750 per child per year. That will work out as less for many smaller single parent families. Family Tax Benefit Part B was worth up to $4,172 a year.

Single parent families will “manage” – buying cheaper groceries, scrimping on clothes and driving less. But these impacts add up. The cut to their incomes will likely be felt by their children for a long time, in educational attainment, income, and even longevity.

One company, six CEOs? The CEO is dead.

The titles that adorned my career are a source of sorrow and shame: Policy Officer, Budget Adviser, Economist, Reporter.

Nothing there that speaks to power and influence. Not a single occurrence of the word senior, let alone the words manager, director, or executive.

But I think I’ve found the perfect organisation to work for if I want a bit of prestige…

ANZ appointed a new CEO just this week. It made the papers, just.

The new CEO is ANZ’s sixth. He is also the first one to report to a CEO who is not even the real CEO – the new guy is on the third rung of the organisation. How long until every branch manager and every teller is CEO too?

[ANZ is the third-largest bank in Australia, worth $91 billion, putting it in the top 20 banks in the world by value. Is there a corporation out there with more than six CEOs? I checked the other Australian banks and ANZ has a big lead on them.]

The same rampant contagion happened with the title Vice President in America’s corporate hierarchies. Before long everyone was infected and nobody was impressed.

There are sound economic reasons for title inflation. It makes the employee feel better, and, unlike other forms of compensation, it doesn’t hurt the bottom line. But it only works as long as people still believe the old title has value. Much like inflation works to make people feel better off – but only if they don’t notice prices are rising as much as their wages.

Titles come and go. Even CEO is a fairly recent invention.

In 1955, just one Fortune 500 company was headed by a CEO. The term came into fashion in the 1970s, in the pages of the Harvard Business Review. Before that, bosses were presidents, chairmen or managing directors.

One thing is clear. As ANZ leads the proliferation, dilution and diminution of the title CEO, its future is sunk.

As this article suggests, it is not smart to follow Yahoo!’s lead of fun and funky titles, unless your branding strategy is to be on the fringe. (it works for Miami’s Feverish Ice Cream company, run by a Chief Popsicle. But I don’t see that taking hold at a bank.)

Here are four new title ideas for bosses that could take off:

In a back to the future twist, quite a few bosses on the BRW Fast 100 list identify as Managing Directors.

The term Director is also coming back. It has a certain simple resonance that a three-letter acronym can’t match. Director says: “I don’t need to cloud and complicate this role. I steer the ship and that is that. ”

Founder / Founding partner works pretty well for companies that want to keep their roots as an entrepreneurial small business.

And lastly, US company Zappos is getting rid of job titles altogether.

Have you come across title inflation in your career? Ever been a senior manager of making other people coffee? Seen a cool title that you think might be the next big thing? Leave a comment below!

Melbourne Uni or Sydney Uni? Which will become Australia’s Harvard?

It costs at least US$42,000 a year to attend Harvard University, and up to US$68,000. You get what you pay for, with average starting salaries of US$60,000, and rising fast.

With deregulation of higher education fees announced in the Budget, we will see Australian universities put their prices up. The prices charged to overseas students (around $20,000 a year) might only be a stopping point on the way to competing with the global “best”.

Putting up the price of an education won’t hurt demand as much as putting up the price of a textbook.

In a market like this, price is a quality signal that drives a virtuous circle – attracting better students and staff in turn attracts better students and staff. This is why the applications process for the world’s top universities is so competitive.

“Sandstone universities” are likely to be the first Australian institutions to move. But which will move most boldly?

Melbourne University knows something about its local student body. 70 per cent of them attended private schools, including 35 per cent who attended the kind of independent school where school fees can approach $30,000 a year.

It can probably raise prices without holding too much fear of empty classrooms.

Of course, average incomes in Sydney are even higher, and so are private school fees. But then Sydney’s rental market is tougher.

A uni that wants to call itself Australia’s Harvard needs to drag the best students in from across the nation and the world, not just the eastern suburbs. So far, only the tuition fee cost of university can be put on a HECS/ HELP loan, so living costs will be relevant for many.

I suspect Melbourne*, with its forays into the Melbourne Model, and its previous attempts at setting up a private university, has a lead in trying to distinguish itself.

And other proposed changes in the budget may cap student fees well below the US level, by making Australian students less willing to pay a lot for university.

The government is proposing that the HECS/HELP student loan system use a real interest rate (the government bond rate, capped at 6 per cent), rather than just indexing loans to inflation. This will make student debts rise faster. Experts have speculated that student debts could go over $120,000. Raising prices would only make that even higher.

Of course, higher headline fees can be matched with “generous” scholarship programs. US universities know that a $50,000 course and a $10,000 scholarship is a better marketing proposition than a $40,000 course.

But those scholarship programs don’t change the fundamentals.

The average income of the parents of current Harvard undergrads is $450,000 (source: Thomas Piketty)

— Felix Salmon (@felixsalmon) April 17, 2014

In fact, 10 per cent of students receiving financial aid at Harvard come from families with household income over $200,000 a year.

The US model of elite universities does not serve the goal of public education more generally. They do not help people get an equal start. They help the advantaged get ahead.

Whether it is Melbourne or Sydney University that takes the crown – and starts getting a lot more attention in our status-obsessed world – or whether it is ANU or UQ, the result will be the same. A more unequal Australia.

[*disclaimer: I went to Melbourne Uni, and I really liked it]

Is this Budget pushing 50,000 people out of work?

Australia’s economy seemed to be repairing itself, right?

Unemployment was finally falling.

Job ads were rising.

Growth was out of the doldrums.

Corporate profits were rising and the stockmarket too.

So how come the Budget forecasts the unemployment rate to worsen?

The documents released by Joe Hockey last night forecast unemployment rising from 5.8 per cent up to 6.25 per cent by 2014-15. That would represent around 50,000 people out of work.

It makes this forecast despite expecting a fall in labour force participation and a rise in growth in our “major trading partners,” from 4.6 per cent to 4.75 per cent.

There’s been plenty of good news recently. I thought unemployment forecasts might go the other way. In fact unemployment forecasts haven’t improved since MYEFO, despite this:

“Since MYEFO, the near-term outlook for the household sector has improved. Leading indicators of dwelling investment are consistent with rising activity, while household consumption and retail trade outcomes have improved recently, consistent with gains in household wealth.”

No change since MYEFO? That surprised me. Unemployment forecasts often change between a MYEFO and a Budget. For example, 18 months ago, that MYEFO tipped unemployment of 5.5 per cent in 2013-14. Twelve months ago – at the following Budget – the world looked worse and the forecast was 5.75 per cent.

This time, all the good news since MYEFO seems to be nullified by the government’s surplus rush.

The qualification in this sentence is perhaps important:

“The timing and composition of the new policy decisions mean that the faster pace of consolidation in this Budget does not have a material impact on economic growth over the forecast period, relative to the 2013-14 Mid-Year Economic and Fiscal Outlook (MYEFO).”

You could read that like this: ‘All the good news on the economy in the last six months is about to be wiped out by austerity.’

The Budget talks a lot about lower investment in the resources sector. It notes in passing that non-mining businesses are waiting to see what happens. It doesn’t note that a slashing budget might frighten them out of investing. (There are exceptions of course: a business selling new work outfits to School chaplains would be wise to get a new warehouse, ASAP.)

The Budget’s unemployment forecasts are higher than the consensus economics forecast (see chart at right). Perhaps because they wouldn’t cut so hard at the moment the economic recovery is gaining momentum.

All spending helps short-run growth, whether that’s government or private. That’s Keynesianism for you in a nutshell.

The government is apparently allergic to Keynesian concepts of economics. They rail against the spending that flowed during the global financial crisis: cheques for $900, funding for insulation, school halls. All they see is the years of deficits. They can’t see a counter factual where Australia’s economy hit the skids.

But this allergy is now apparently inflaming the ranks of unemployed.

This budget is austere:

“The headline annual pace of consolidation is 0.7 per cent of GDP over the forward estimates. Abstracting from the one‑off nature of the Reserve Bank of Australia transaction, the pace of consolidation is 0.6 per cent of GDP.”

If you’re thinking, “I’m okay because I have a job,” consider this:

“Subdued wage growth is expected to continue until the spare capacity in the labour market is absorbed. The wage price index is forecast to grow by a still subdued 3 per cent through the year to the June quarters of both 2015 and 2016.”

Also know that your taxes will pay more unemployment benefits. Despite cuts to access to the dole, total spending on it is forecast to rise because of the change in the unemployment rate.

Essentially the budget is pushing more people into a position where they need the dole, but then compensating by – for some – whisking it out of their grasp.

Core and non-core promises are actually a good idea

Politicians make and break more promises in one electoral cycle than the rest of us manage in a life-cycle.

We call them names and rant and rave. But really, we seem to forgive them, because we rarely vote them out. We know much of what politicians “promise” is actually contingent on several factors coming together.

It’s like hearing a footballer promising to kick four goals on the weekend – there are only a few circumstances in which they can deliver. We, the voters, form judgments about which promises are dependent on the most unlikely circumstances, and which seem more solid.

But even then we can be wrong. Politicians can be very inventive when it comes to wriggling out of promises.

It would be simpler for them to nominate the circumstances in which their promises will be kept, and the circumstances in which they will be abandoned.

John Howard spoke of “core” and “non-core promises” after his election win in 1996. I propose a more nuanced promise ranking, with three levels of political promise. Even the top level has plenty of political escape hatches.

1. Cross my heart and hope to die. Exclusions apply in the case of budget-stretching new priorities that may take the shape of major land wars, significant domestic earthquakes, sharp recession, nuclear attack, or mutations that create mega cane toads. Also not applicable in the case of a minority government. nb. Promised policy may mutate like a cane toad in the Senate.

2. Scouts Honour. Exclusions apply if revenues fall below $400 billion a year, or if expenditure on level 1 promises blows out by more than 15 per cent. Also, don’t expect this to happen if News Limited papers start to oppose it.

3. Best efforts. We will implement this if we can get the National Farmer’s Federation and Friends of the Earth to agree on terms of reference for a report before the winter sitting, and assuming the senate committee delivers its report into the issue before the end of the year. If that report aligns with the advice from the department, then the policy has a chance. But only if you deliver us a pliable senate and the rest of the legislative agenda goes smoothly, company tax receipts look healthy, and no other issues – oh, look, asylum seekers! – capture our attention. In fact, this is more of a second term promise.

I struggled not to write the above in a facetious fashion, but I honestly think this idea – contingent commitments – would be the fairest approach.

We elect leaders because we want people who can react sensibly to evolving circumstance, not just automatons who will carry out a plan long after it ceases to be a good idea.

Stop treating voters like goldfish who will forget not just what happened after the last election, but the very nature of political promises. Contingent commitments would hint at where the government’s focus will be, even in the case of major distractions.

If a political party opted for this, the initial headlines would be predictable. I imagine a media-cycle would obsess over the political party that no longer made promises! It would go global. Everyone from Fox News to Le Monde would get excited.

But if the innovation was developed long enough before an election, the brouhaha, the laughter and the op-eds would quieten down. After perhaps six months, the contingent commitments of one party would force the public to look closely at the promises of the other side and start asking questions like: Will you really deliver that expensive new social policy even if we have a recession?

Economics of Graffiti

Sometimes I ask myself if market forces are broken. All over my suburb I get art, totally for free.

An army of workers accept nil pay, terrible hours, and poor conditions to head out and paint each night.

Not only do they work without pay, but they are forced to buy their own materials and if they get busted, the justice system is not kind.

I guess the economists whose models rely on rational actors maximising their consumption never woke up to find this on their back fence:

What motivates these characters? Is it the cash??

Once upon a time, the notion would have been ridiculous. Graffiti was a way to raise your status among people who never had the chance to finish school or get the Benz. There was no money in it.

Is graffiti different today?

Piece by Putos.

The answer is both yes and no.

The graffiti economy works for guys like Cope2, who grew up in the Bronx and illegally painted subway trains for 20 years before cashing in. He sells pieces for around €3000. Banksy is the other case in point – probably the most notable street art millionaire.

Sheaprd Fairey (the HOPE guy) has also cashed in big time with his OBEY clothing line. Even Justin Bieber is dabbling in “street art.”

Then there’s things like this:

Royal Doulton puts these posters up in dodgy laneways near my house. — Posh dinnerware company asks: has street art jumped the shark?

How has graffiti gone from definitely underground to potentially lucrative? The difference is in the web.

Some graffiti really caught my eye when I was growing up but it was difficult to take interest in what was going on and turn it into understanding or appreciation.

Then the internet came along. I contend that it has done for graffiti what radio did for music. Made some superstars.

The first Melbourne artist I really googled is Rone, who paints pretty girls all over the place and is kind of a gateway drug for graffiti appreciation

Rone and wonderfresh street art - Won't Stop — Rone and Wonderfresh mural, Wellington St, Collingwood

Rone’s instagram reveals that he has recently been in Miami for Art Basel, after a stint in London painting in Shoreditch and being hosted by a gallery to paint a huge wall in Berlin.

The guys who I first noticed up around Collingwood and Fitzroy are from the Everfresh Crew. They have an extensive internet presence and advertise services for rent. Oh yes, there’s money in them thar walls.

Collingwood’s Backwoods gallery is also in the game. They bridge “the gap between the street and the gallery wall, whilst remaining authentic to their artists’ history and vision,” by selling prints for around $100.

There’s not heaps of cash in it, but there is certainly the opportunity for travel.

Some Melbourne artists I follow on Instagram (e.g. dvate) recently took off for the Tahiti Graffiti festival (sponsors include a hotel chain, a bank and the Alliance Francaise.)

Many were already Pacific-savvy after having recently gone to the Hawaii Graffiti festival (sponsors include an airline and a clothing company.)

It seems the internet lets the artists who patrol the night control their image, and helps make money from it.

So is graffiti just another culture co-opted by capitalism?

Not yet. Melbourne’s graffiti scene is arguably dominated by two names. Jetso and Pzor. And this is where you can go down the rabbit hole and end up like me, taking a photo of a dumpster.

If you start looking for them, they are everywhere. Their work tends not to be elaborate pieces but quick bubble-letter throw-ups, tags and stickers.

They have no website, no instagram, no representation in the gallery scene (as far as I know). Their art is not visually appealling at first. The art is in the effort. It’s hard to find a part of inner Melbourne, east to west, that shows none of their finger prints. Once you start to notice, it’s hard not to admire.

For these guys, there’s no money in it. And that tells you that for them, graffiti is not work. The question I asked above about market forces being broken is irrelevant. For these guys, painting is leisure. They’re doing it for the love of it. I respect that.

Melbourne is an amazing place, and it gets even better if you can appreciate the art that’s all around you. Here’s three amazing Melbourne graffiti artists you should know.

1. Rone

2. TwoOne

3. Lush (The artist behind the pirate cat. Also dabbles in cartoons. Often nsfw (not safe for work.))

Revealed: Australia’s manliest and womanliest foods and drinks.

The ABS have set up and released a brand new dataset on Australia’s food consumption. It’s a banquet, a buffet, an all you can eat smorgasbord of delight for data gluttons.

Apparently we consume on average 3.1 kilograms of food and drink in 24 hours. It’s gross to think about.

I’ve gone to the ABS website (or as I call it, the Sizzler of data) and brought you back a doggy bag of sample treats from this survey of 9500 dwellings.

For example, guess what demographic drinks the least water??

Proportion in each group consuming the item in the 24 hours before the survey

The aged! I always imagine them sipping tap water and doing the crossword while muttering darkly about Tony Abbott and their pension. So I’m somewhat amazed. I guess they’re not running 10km very often so perhaps they’re not that thirsty. (Meanwhile, the 14-18 year old bracket loves fizzy drink. No surprises there.)

How about this? Coffee is clearly for people with work to do, while the under-13s and over-71s are busy hosting tea parties.

And how about this one, which shows why you easily sell a bottle of wine for the same price as 24 bottles of beer:

I’d note the ABS probably did this survey during the week, and alcohol consumption is more skewed to the weekend.

Anyway, the dataset is big and quite amazing, and I was able to run some numbers to see what foods and drinks are more skewed to men and women.

1. The biggest skew in the whole dataset was for men aged 51-70. In that age bracket, men were ten times as likely to have chugged back a brew in the preceding 24 hours. 26.8 per cent of men, vs 2.6 per cent of women.

Differences between proportion of women and men consuming in 24 hours preceding survey

2. The next biggest skew in the whole dataset was from women aged 19-30. In that category, women were nearly twice as likely to have sipped a cuppa as men. 35.6 per cent of women vs 20 per cent of men.

3. For food, the manliest thing there is, is breakfast cereal, and this is especially so in the nutri-grain demographic, 9-13.

Differences between proportion of women and men eating the food in 24 hours preceding survey

(This fact also reminded me of this line in this song by this quite popular comedy folk duo from New Zealand.)

4. Meanwhile, and lastly For women, the biggest skew is in a little, tiny, unimportant category you’ve probably never heard of. Fruit. Across the age groups, 10 per cent more women had eaten fruit in the preceding 24 hours.

Damnit, men, why’ve you got to be so stereotypical, eating nutrigrain and beer your whole lives and toppling off the perch by having a heart attack?!

Anyway, it’s Friday so I should probably not lecture you any more about this. See you at the pub.

How all these taxes will help Tony Abbott win the 2016 election

Tony Abbott is throwing his promises under the bus with glee. He promised no new taxes and has now pledged a debt levy and an increase in petrol tax.

He knows how electoral cycles work. Pain and broken promises early in your term are forgotten later:

The 2014 Budget is full of taxes and cuts.

The 2015 Budget will have a few more cuts and be austere.

Then in 2016, election promises will start getting made. “How can we afford these?” people willl ask.

Finally, with an election probably just a few months away, the 2016 Budget comes out. Lo and Behold! Australia’s fiscal position is in surplus, taxes can be cut and the spending can begin.

The press goes into a fury of congratulation over Mr Abbott’s “strong leadership.” Lots of photos appear of him standing outside new hospitals, with a big smile on his face.

To most people, the grumbling of early 2014 is as relevant to the political situation as the result of the 1974 VFL Grand final. Labor can’t get over the broken promises and keeps talking about the past, while Mr Abbott is focused on the future.

Don’t believe me? Evidence for how this works is right under our noses.

The coverage of the Victorian government’s first Budget looked like this:

“THE Baillieu government has been forced to slash more than $2 billion in spending from its first budget in an attempt to insulate the state economy from looming financial pain and deliver on its election promises.

And with Treasurer Kim Wells’ budget predicting a $4.1 billion hit to GST revenue alone over the next five years, the budget also launches a tax crackdown, with 50 new jobs at the state revenue office to raise an extra $235 million.

The Coalition went to the election promising $1.6 billion in savings, but yesterday announced deeper cuts totalling an extra $638 million.”

Coverage of the pre-election budget looks like this:

Mr Abbott is playing the long con. But with a shorter election cycle than was available to Mr Napthine, (federal is three years, not four) it’s more of a gamble. Will it work?

Quit your job – The time is now!

Bosses should expect a sharp uptick in being told where to stick it, as job-quitting season is about to dawn.

(Job quitting season is a bit like El Nino. You’re never quite sure if it’s about to start until the heat is on. But early signs are good.)

1. Today’s unemployment data show the trend in unemployment is finally pointing downwards. The first time since 2012.

Today’s data were kind of big news. Of course, the unemployment rate fell a lot in March. All the way down from over 6 per cent to 5.8 per cent. So much that it seemed like statistical noise. The fact April has given the same result is amazing.

This means – maybe – you can quit your job and the unemployment rate gets better while you look for a job, not worse!

2. Unlike last month, this result is driven by a lift in full-time jobs, which rose by 14,000.

3. Unlike recent years, the improvement in the unemployment rate is not caused by fewer and fewer people bothering to look for work. The movement in the participation rate this month was rounded to zero.

4. The number of new jobs being advertised is on the up and up. For most of the past few years, Seek.com.au has been an ever more arid wasteland.

But now it is starting to blossom with opportunities. In each of the last four months, the number of jobs advertised in Australia has risen – that’s the best positive streak since 2010. Get amongst it.

Don’t feel bad about quitting your job. It could be good for the economy. This paper suggests you probably will self-select out of a job where your productivity is relatively low. The US even tracks the number of people quitting jobs as a measure of confidence.

Quitting your job could also be good for you:

“Yes, you should not worry too much about the consequences and you should definitely quit your job that you hate and it’ll probably all work out great. Job quitters are the happiest people around.”

And if you’re looking for a job, remember, advertised jobs are just the tip of the iceberg.

The real sovereign risk is that people are no longer sovereign

Until the mining tax debacle of 2010/11, the term sovereign risk was used in Australian political discourse very sparingly. The term traditionally refers to a government not paying back a loan, but now is used for all sorts of situations where government is a risk to someone’s business.

Now “Sovereign Risk” is not applied to Africa or Greece, but has become a political weapon to be wielded on policies – or indeed entire governments – with which one is unhappy. For example:

Damaged by growing sovereign risk (2011)
Warning. Gillard’s Australia makes investment risky (2012)
This unholy tripe (2012):

“BHP Billiton, Rio Tinto and most other world minerals and energy groups have now concluded that Australia is one if the most dangerous places in the world to invest. We are going to see a capital strike of immense proportions, which will take a long time and much effort to reverse. And when it is reversed miners will still require much greater returns from Australia because of the demonstrated sovereign risk of investing here.”

and

‘Sovereign risk’ warning on Coalition’s plan for energy funding (2013)

Most recently, the concept of Sovereign Risk has been used in a debate over whether contracts for a big road tunnel called east-west link can be torn up. This is a specific kind of sovereign risk, unlike the mining tax issue, where the sovereign is also party to your contract.

But the way governments work these days is in partnership with companies. From welfare to infrastructure via defence and health, government has become more and more entwined with private sector suppliers and implementers.

Governments should avoid flip-flopping, because it will raise the cost of contracting. But where policy change is desirable, changing contracts is also desirable. To fetishise sovereign risk is in many cases to say that policy change cannot happen.

If we make sovereign risk our key yardstick, a horrible political trick will become possible.

Say Labor is about to lose an election and the Libs are promising some expensive policy. All Labor has to do is enter into an expensive contract the Liberals have to honour. Then the Libs can’t implement their promise without going into debt. Liberals look bad, Labor gets back into power.

The Age has found experts who say tearing up the contract for the east-west link would not be a big issue: “Labor could tear up East West Link contract if it wins election”

To me that is obvious. There’s a big difference between cancelling a contract before any work has been done, and reneging on paying a bill after the fact. The latter is clearly bad for a state’s reputation. The former should be acceptable, given some compensation for preparatory work.

The Greens say they’d tear up contracts. Labor says that even though it opposes building the $8 billion road, it would honour the contracts. (The latter position is seen by some as a way of Labor eating their cake and having it too. They don’t actually want to be seen to deprive people of a new road.)

Sovereign risk in contracting with the government is one thing. But blaming the government for changing laws that hurt your business is another.

Anyone doing business in a democracy should know the law is fluid. A smart person can tell what laws might be about to change. (Tobacco supply laws – likely. Tariffs on textiles and clothing – unlikely).

Just as people manage their lives through changes to road rules and tax laws, so companies must manage their business around possible law changes. If a business exists to exploit one small loophole, like selling fireworks in the ACT, then their cost of capital should be higher than a business like Woolworths that will be more resilient to any single legal change.

Of course, changes to law can make investments worthless.

Of course prospective changes to law raise companies’ risk, and thereby their cost of capital.

Of course companies will try to make the legal environment as stable as possible – that delivers the biggest bump to their bottom line.

So of course they want to make the concept of sovereign risk current and valid.

We see this most vividly in the provisions of the trans-pacific partnership, a proposed trade deal that could let multinational entities sue the states in which they operate for any law change that hurts their investments.

But these companies should remember why they are headquartered in New York and Sydney, not in Beijing, or Havana. In the long run, a functioning democracy is the best environment for stable investments, and in a fast-changing world, policy change needs to be rapid too.

The real sovereign risk is that people are no longer sovereign.

How much coverage will we gain from the planned Fisherman’s Bend rail station?

The Victorian Budget, released today, sees the government replacing the planned metro rail tunnel with a “Rail Link” that will stop at Fisherman’s Bend.

The point of the Melbourne Metro rail tunnel was to take pressure off the loop and better serve the city. This does not do such a good job of that, but it does serve Fisherman’s bend.

Is that worth it? Let’s look at a map. The map below shows the redevelopment area, with the station in the middle of the Montague section of the Fisherman’s Bend redevelopment. The four yellow areas are the four sections of Fisherman’s Bend.

As you’ll see below, the new station is not quite as useful as you might hope for a suburb that will supposedly be home to 80,000 residents by 2050. I have followed planning protocol and put an 800 metre pedestrian catchment around the train station (black circle) and a 400 metre pedestrian catchment around the stops of the existing 109 tram (red circles).

Hey! That black circle barely overlaps at all with most of Fisherman’s Bend! What’s going on? [CLICK THIS MAP TO OPEN IT IN MORE DETAIL]

It seems obvious that a train station is most useful near the centre of a population cluster. But putting the train station on a link between South Yarra and Southern Cross Stations means it has to be at the eastern end of Fisherman’s Bend (or do a very sharp turn of the kind trains can’t ). That eastern end already has good tram and pedestrian access.

Civilised folk ought steer clear of the forums at railpage.com.au. That’s why bloggers get paid, to do that sort of work for you.

Digging through those forums, the idea came up that Fisherman’s Bend does deserve a rail link. But it ought not be on this train line.

“Fisherman’s Bend should be on a new line from Merri (Northcote) to Newport (Wydham Vale – Mernda line).”

Such a solution would permit the Fisherman’s Bend station to be nearer the middle of the suburb, and further from the area well-served by the tram. The rail link would then cross the river, linking fishermen’s bend to the west.

For a government that goes on and on about the need for another river crossing, this could be a tempting proposition.

Thoughts? Objections? Leave a comment below!

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