I wrote a book! Incentivology.

I started this blog 10 years ago, in what was probably the best decision in my professional life. I left my public service job and began what became a whole new career.

Now, with a decade of writing about economics behind me, at the Financial Review and as a freelancer, I’m happy to say that I have had a book published!

Writing it has been a heck of a process.

It started out like this, just a bunch of ideas on the wall.

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And after a lot of hard grind, today it looks like this:

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There were speed-bumps of many kinds. Including a terrifying moment when I tipped water all over my computer a few weeks before the book was due.

Rice didn’t rescue the machine. So I put it in the oven. That seemed to help a little bit and I was able to turn the computer back on.

The big mistake I made was what I did next – blasting it with a hairdryer. I melted half the keyboard and  the “I” key came off completely. I struggled through the end of the book with a warped and wobbly 25-letter alphabet under my fingers.

But it got done, and it got out, and now it is in bookshops, alongside a lot of very serious authors!

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Extracts of the book have been published in the Sydney Morning Herald, Crikey, the Australian Financial Review, The New Daily and at news.com.au. (They’re all different, we’ve practically given away the whole book for free!)

An enormous highlight of the post-publication period so far has been doing a few media interviews about the book. I got to chat on air with Australian media legend Myf Warhurst!

with myf

It’s extremely exciting to have it out there. You can get a copy in most bookshops, or online, through this link: smarturl.it/Incentivology .

Early readers are enthralled!

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Privilege, influence and Outliers

I just re-read Malcom Gladwell’s book Outliers – picking it up again with the goal of cribbing from it what is necessary to write a best-selling piece of pop non-fiction.

While I’m not yet clear on how useful it was in that sense, the book’s contents surprised me. What I vaguely remembered as a tome about the secrets to success is in fact anything but.

Sure, it contains the chapter on the “10,000 hour rule.” But the vast bulk of the book is framed around something far less like “self-help.”

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Gladwell (source: Wikipedia)

The book is really about why people succeed because of circumstances they did not create. My favourite example, the simplest and most arbitrary in the book, is to do with why professional Canadian ice hockey players are disproportionately born in January and February.

Canada groups junior ice hockey players by year of birth, so kids born in January play mostly against kids younger than they are.  At that age, Gladwell explains, a few months makes a big difference. The older kids are naturally the biggest, strongest and most coordinated. They get chosen first, then rewarded for their superiority with more opportunities, more games, more coaching etc. The rest is path dependency.

I like this theory (and not only because as the youngest kid in my year at school I was particularly unsuccessful at sport). It makes an intuitive kind of sense that success is to do with luck as well as talent. For example, while some very dedicated short people have played professional basketball, the luck to be born tall is a big part of your ability to make it in the game. The book is stacked with examples like this.

TIMING?

So the Gladwell book is basically about privilege. It’s about how successful people are the product of a confluence of factors they don’t control. There’s even a fantastic chapter on Gladwell’s own Jamaican heritage and how perceived light-skin tone helped his forebears.

 

Privilege in general, but especially white privilege and male privilege, are some of the hottest and most contested topics these days, this book is pretty much completely about them, and yet it wasn’t swept up in the debate.

‘It’s weird’, I found myself thinking. If this book had come out now it’d be part of a fierce partisan culture war. Gladwell would be reviled in the pages of 4Chan. He’d be a cuck  and an SJW and a whipping boy.

But it came out a while ago and so it missed that.

How, I found myself wondering, did this major book, that sold so many copies, miss the cultural moment so narrowly?

I did what I always do when faced with these sort of questions, and headed to Google Trends (where Google measures interest in various search terms). What I found raised my eyebrows.

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The privilege line kicks up to a new level in around late 2008, early 2009 –  the precise time the book was released. Is it possible, I asked myself, that we’re looking at cause and effect here? Did the book make people more interested in the concept of privilege?

Of course, people were googling the term both before and after the book’s release – but some of the traffic will be completely unrelated to this sense of privilege. (A fair part of it will be people trying to check the spelling).

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A tricky one.

The lift in interest in searches for privilege still needs to be explained. The 2008 US Presidential election and the identity of its winning candidate is definitely a possible explanation for a rising interest in the role of privilege in society at that time. But what makes plausible the attribution of at least some of the lift in interest to Gladwell is the incredible success the book had. Outliers hit number one on the New York Times bestseller list upon debut, and stayed there. It went on to sell over 1.5 million copies and on the way became a sort of cultural touchstone.

Nowadays, Malcolm Gladwell’s combination of popular style and popular success makes him unfashionable. (The public refutation of the 10,000 hours rule didn’t do wonders for his brand either.) Few would attribute their  awareness of the role of privilege in society to Gladwell.

While pondering that, consider this quote from John Maynard Keynes:

“Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.”

(For “practical men” you may substitute “insurgent cultural theorists with impressive numbers of twitter followers.“)

Now, I’m not saying that Malcolm Gladwell invented the concept of privilege. Clearly, the concept has been a part of the study of humanities for a long time. I’m not even saying that he introduced people to the academic sense of the term. The word is far from prominent in the book. But he does relentlessly slay the conception, so dominant until recently, that success depends solely on hard work or inherent talent.

Gladwell lays bare several structural factors that lift some people up while holding others back. And more important than that, he makes those factors memorable. In doing that, Outliers potentially opens minds to a more critical analysis of why some people – and some types of people – seem to be able to squeeze more out of society.

That may have prepared the earth for a rising interest in the topic of privilege as the years have gone by, and the more recent and far more dramatic upsurge in awareness of the concept of privilege when it comes to race.

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If this is even in some small way Malcolm Gladwell’s intellectual legacy, then Outliers was a particularly powerful book. If I can, using techniques stolen from him, write something with a fraction the impact I’ll be delighted.

Thomas the Book Engine

I’ve written three book proposals in the last six years.

The first one failed after an agonising process. The second one failed far more completely and spectacularly. The third one though?

The third one just turned into this…

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And I’m suddenly on giant roller-coaster of anxiety and excitement… !!

  • Seventy-thousand words to write by the end of the year. (Actually probably more to allow for editing down. Eek!)
  • Topic: incentives. (Suggestions for chapters gladly accepted…)
  • Goal: write something I’m proud of.
  • Sub-goal: write something lots of people want to buy!

How a cognitive bias is causing this tech bubble.

This post is not altogether different to my last one, on how we might be overestimating the capabilities of robots. The theme is the same. We are putting a frightening excess of faith in the future of technology.

We sit at an inflection point, extrapolating it to the stars.

Technological progress seems suddenly overwhelming. But there is reason to expect a breakdown in the recent rate of growth, reason to expect that we’ve grown deluded about the prospects of the silicon-based slice of progress we like to label “technology.”

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I wrote about this the other day in my regular column over at News.

Suddenly people are taking seriously all the following ideas:

Plans to colonise Mars;

Driverless cars taking over our cities within just a few years;

Flying cars;

Robots putting practically everybody out of work;

Artificial intelligence becoming so powerful it destroys us;

Cryogenics letting us come back from the dead;

Crypto-currencies taking over from money.

This is not just about people speculating on the future of a few companies. This is about believing the life of humans is about to change faster than ever before in human history. It is like a belief that we’re living through the agricultural revolution, the Renaissance and the Industrial revolution all at once — and all in fast forward.

Why so credulous?

Why do we suddenly believe technology will remake the future so utterly and swiftly? Partly because of a cognitive bias called the recency bias. We remember the recent past much better than the time before it. And in the recent past, technology has wreaked havoc on modern life. You’re reading this on a website that didn’t exist before 20 years ago.

In the past 20 years, the world has changed a lot. And technology has been a big part of it. But that doesn’t mean technology can change everything. The personal computing technology we all interact with daily has made it very obvious to us that technology can change very fast.

But this is a classic case of selection bias. If we try to measure the pace of technology by looking at the things that are changing very fast, we will get the wrong picture. We need to look elsewhere too.

If you tried to measure the pace of technology by looking at commercial aviation, say, what you’d discover is a lack of obvious progress. We used to have supersonic commercial aviation, but nowadays most of us fly around in Airbus A320s (a plane launched in the 1980s) and Boeing 737s (a plane first launched in the 1960s).

You can get a similarly glum feeling if you look at progress in fighting Alzheimers disease or Multiple Sclerosis. There hasn’t been any, despite a huge amount of effort. Likewise with the common cold — and we seem to be losing the battle against bacteria as they develop antibiotic resistance.

I don’t mean to say that technology won’t change. It can and surely will. Just to say that there is a certain wildness to the predictions of the future at the moment. People seem willing to believe just about anything, so long as it has a technology angle.

When the bubble finally pops, it will take with it not only the valuations of some of the biggest technology companies, but also a lot of utopian visions of the future.

In the News story I call it a recency bias but you might as easily call it an availability bias. We are very willing to believe technology can change the world utterly and quickly because in living memory personal computing has created very visible changes in our daily lives. (Maximally visible, but not necessarily maximally important – the famous hypothetical is whether you’d give up the internet before you gave up indoor plumbing.)

IT’S THE STUPID ECONOMY

These cognitive biases have been allowed to grow unchallenged because of the peculiar financial circumstances of the times.

Some people argue the loose monetary policy of the last decade does not explain high asset prices, but I think they’re wrong. The simultaneous global bubbles in property, bonds and tech stocks almost certainly trace their roots to the low/zero/negative interest rates across much of the world, and quantitative easing that left developed economies awash with liquidity.

The money flood provided patient capital that gave companies with scant profits a long time to experiment and expand revenues. If you’ve ever taken an Uber using a 50 per cent discount, you’re using some venture capitalist’s money to improve your own lifestyle, while simultaneously propping up the impression that new tech is destined to remake the known world.

(For what it’s worth, Uber is pretty big improvement over taxis! But its major advantage comes from taking on a regulated market with colossal rents, rather than being inherent to the app.)

The money flood has propped up some far more dubious beliefs than the prospects of Uber. The faith certain investors have in Tesla’s ability to win a giant share of the “shared mobility market” (fleets of driverless taxis) is intriguing to me.

Path to price target

Valuing a junior company on the prospects of winning a large share of a market that doesn’t yet exist, using technology that is in its infancy? It seems, um … more optimistic than is prudent. If this kind of thing works for Elon Musk, perhaps he should also set up Red Real Estate and start selling rights to land on Mars.

The NASDAQ chart above explains why the cognitive bias we’ve developed has been allowed to progress so far. It’s a feedback loop from confidence, to investment, to expanding revenues, to stock prices, to headlines, to confidence.

And Bitcoin?!  … . Actually no. Let’s not even talk about Bitcoin.

(Non-financial evidence that technology really is changing the world, in the shape of temperature records and CO2 concentrations, doesn’t seem quite so influential on the mass mood. I leave it to the reader to ponder why.)

Eventually, the technology cycle of misplaced confidence and out-sized valuations will find it has reached the highest possible equilibrium and begin to tack backward.

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“The trend is your friend, til it bends.” – Anonymous.

It is likely to do that even absent a macroeconomic reason, but one is coming anyway.

Interest rates are rising in the United States and inflation is lifting. The anti-Keynesian Trump stimulus – adding fire to a booming economy – looks set to intensify those trends. The Fed is now slowly soaking back up loose money. This represents a clear and present danger to any asset whose value is not based on making real money right now.

If the market values of all those tech stocks fall, the stories they told about the future will suddenly appear thin. A pin will prick the bubble of credulity and the stories of inevitable autonomy, existential AI risk and imminent interplanetary expansion will fade from our front pages. The distance between the pssible and the probable will lengthen again.

So I’d like to place a stake in the ground and say we will look back on this era – with a TV show called Silicon Valley; a plan for Elon Musk to become the richest man in the world; non-stop headlines about drone delivery; and a relentless faith driverless cars were just a few months away – with a kind of nostalgia for a simpler and more optimistic time.

 

The world’s smartest robot, falling down the stairs

This post asks if we are making a mistake in the way we anticipate the future of robots and intelligent machines. It is all based on my perceptions and understanding of how far our digital assistant/nemeses have got so far. Please comment below if you know of progress I appear not to be aware of!

I’ve been reading a lot about robots, artificial intelligence and machine learning. I am trying to weigh up what it all means. Will jobs disappear? Whose jobs? Who stays in work what do they do? Will we even need to work in future?

One machine I am definitely excited about is the new best player at chess. It dominates   because we demanded that it teach itself. Within a few hours it beat one of the top systems in the world. That is exciting and also terrifying.

And yet. Some robots are still utter rubbish.

The Jetsons’ robot maid is nowhere to be seen in my life. There is little evidence of robots coming to dominate in many of the domains people insisted they would.

Voice recognition, for example, remains underdeveloped, despite years of focus. And yet the machines can turn around and defeat us at Go, the one thing we thought we could edge them on for another few years.

It seems to me we are bad judges of what intelligent machines will be good at.

Often, the machines are better at things we consider hard than things we consider easy. One of the first things machines came to dominate at was chess (a game for the human intellectual elite). They remain truly appalling at soccer (a game for everybody).

We assume things children could do will be easy for robots. And we scream with laughter when they find them hard. Later, we are amazed when machines can easily outstrip us at things only the smartest adults can do. This paradox needs resolving.

Why are they smartest at hard things and dumbest at easy things?

Are we benchmarking things wrong? Perhaps we over-emphasise how smart the adult human is; how capable of operating effectively in the abstract world. And underemphasise how physically capable the average adult human is in the material world.

Maybe what we see as hard is just abstract; and what we see as easy involves manipulating the infinite variability of the real world.

From where I work I can watch two turtle doves improving their nest. One flies out, finds a stick or bit of grass, and brings it back. The other takes it and works it into the existing structure with a wiggle of its head. I doubt we could program two drones to do that, even with a decade and a multi million dollar budget.

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The nest in question. It is described by birdsinbackyards.net as “a loose platform of sticks” and is probably the worst nest in the whole avian kingdom, but still better than robots can do.

How different are we from the animals? Is it possible the animal parts of our brain are actually  far more advanced than the human parts of our brain? Our software has had aeons to work on things like navigating 3D space, recognising and manipulating never before-seen objects, hearing and identifying sounds. But only a few dozen millenia to work on the higher human plane of logic and abstraction.

Computers operate in that abstract world and are – mostly – killing us at it. Arithmetic is their bread and butter. Accounting, logic and other kinds of rule following that defined human intelligence until quite recently are firmly within their grasp.

Yet machines attempts to navigate the physical world are mostly poor. If you consider how refined those animal circuits are, is it any wonder that machines still can’t do these animal things? If what we can do easily is actually very hard, it might be less surprising that our first iteration at self-driving cars smashes into giant objects right in front of them. And we might approach the task of training robots to interact with dynamic real world space with more humility.

ROBOTS TAKING OUR JOBS

If we have misconstrued the extent of human skill in various domains, could that lead to confusion about what tasks can easily be automated? Everyone seems to think truck driving is due for immediate automation. What if that is because of a sense that truckies aren’t smart?

Many people assume a chess-playing computer must also be able to do everything a person of everyday intelligence can do. Here’s Tesla CEO Elon Musk, speaking at the company’s annual earnings call on 7 February 2018.

“I am pretty excited about how much progress we are making on the neural net front… It is also one of those things where it is kind of exponential. … It doesn’t seem much progress, doesn’t seem much progress and then suddenly: Wow!

“That has been my observation generally with AI stuff . And if you look at what Google’s DeepMind did with AlphaGo. It went from not being able to beat even a pretty good Go player to suddenly it could beat the European Champion. Then it could beat the world champion. Then it could thrash the world champion. Then it could thrash everyone simultaneously.

“Then they had AlphaZero which could thrash AlphaGo! And just learning by itself  was better than all the human experts.

“It is going to kind of be like that for self-driving. It will seem like this is a lame driver,  this is a lame driver, this is a pretty good driver … [then] holy cow this driver is good!”

It seems to follow logically, but it might not.

We value abstract cognition because it is rare in humans. But we don’t value what is profoundly and abundantly available to us – skill in moving through the real world.  That’s why the stock analyst gets paid more than the taxi driver.

Yet traders are already being replaced with algorithms. Taxi drivers – not yet. That could be a warning signal, and our model of intelligence could be impeding us from seeing it.

The smartest people applying neural nets to self-driving vehicles say they are still a long way off.

Those who think fully self-driving vehicles will be ubiquitous on city streets months from now or even in a few years are not well connected to the state of the art or committed to the safe deployment of the technology. For those of us who have been working on the technology for a long time, we’re going to tell you the issue is still really hard, as the systems are as complex as ever.”

And that’s just the driving part. There was a great post on Marginal Revolution last week about the complexity of a truck driver’s job.

“I wonder how many of the people making predictions about the future of truck drivers have ever ridden with one to see what they do?

One of the big failings of high-level analyses of future trends is that in general they either ignore or seriously underestimate the complexity of the job at a detailed level. Lots of jobs look simple or rote from a think tank or government office, but turn out to be quite complex when you dive into the details.

For example, truck drivers don’t just drive trucks. They also secure loads, including determining what to load first and last and how to tie it all down securely. They act as agents for the trunking company. They verify that what they are picking up is what is on the manifest. They are the early warning system for vehicle maintenance. They deal with the government and others at weighing stations. When sleeping in the cab, they act as security for the load. If the vehicle breaks down, they set up road flares and contact authorities. If the vehicle doesn’t handle correctly, the driver has to stop and analyze what’s wrong – blown tire, shifting load, whatever.

I’ve been working in automation for 20 years. When you see how hard it is to simply digitize a paper process inside a single plant (often a multi-year project), you start to roll your eyes at ivory tower claims of entire industries being totally transformed by automation in a few years.

COUNTERPOINT

Perhaps this argument is upside down. Perhaps we chose not to make computers good at the material word. Perhaps we  trained computers to do abstract things because only a few people can do them. To get the benefit of training a computer we must set it on tasks where human skill is rare. It is not that they couldn’t do what we can do, just that we haven’t put in the effort.

FINDING THE PATTERNS TO RECOGNISE

I suspect the problem is not so much in asking computers to process the data produced by manual tasks as getting them to identify it as data.

In an abstract world data is always in the right place and fully visible. In a spreadsheet, the data you need will always be exactly in the right place. And if not, nobody expects the spreadsheet to figure that out and fix it. In the physical world,  information might be harder to find. Where’s the label on this box? Where’s the face on this human? Where’s the road under this snow? etc.

We already know how you can get robots to take on jobs in the material world. You need to standardise the inputs. Robots do a wonderful job welding things that come down a production line. They do a great job driving trains in wholly separated systems. They do a perfect job of driving lifts up and down lift-wells, etc. In these cases we give the material world the standardised appearance of an abstract one. Take away the production line, the protected rails and the lift-well, and those systems are all at sea.

Neural nets will of course be much smarter than the computers that drive lifts. They will be able to parse information from the material world. Self-driving cars can use cameras, radar, lidar and 360 degree vision to get advantages over us in sensing. These systems should be able to learn fast.

But I am not yet  convinced we can apply the lessons from an abstract world which has only 64 different locations, to a real world which is infinitely more complex. Assuming those lessons will cross over  is the exact kind of intellectual trap a cognitively limited species would fall into.

 

 

OPTIMIST PRIME: TESLA IS IGNORING A TRUCKLOAD OF RISK

Was the problem a shortage of cool plans? I didn’t realise the problem was a shortage of cool plans.

Yesterday, Tesla announced two new vehicles – a semi trailer, and a roadster. The launch was awesome.

Musk does theatre like a natural. Adding to the happy vibe was that he spent no time covering Tesla’s big problem, which is delivering on existing plans. Instead, he added more plans.

Here’s the problem with plans. Not everything works out. The more plans you have the more chances for something to go wrong.

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When you have many independent systems, adding an additional system adds to your chance of one working.

However when each system is interlinked (by, say being in the same corporate structure, or worse, by being an input to another system) the rising chance of one failure increases the chance of mutliple failures.

For example, the gigafactory battery plant is an input to the Model 3 production line. Failures at the gigafactory are holding up production, imperilling the Model 3 and the whole company’s cashflow, and therefore its survival.

When you have interlinked systems, risk management is, in the long run, almost everything.

If you google “Elon Musk” and Risk, you find a lot about him worrying about the risk from artificial intelligence to human survival. And I could see nothing about him discussing his approach to risk management in business.

SELF CONFIDENCE

Elon Musk has a longstanding pattern of managing risk by insourcing. When something’s not going right he tries to solve it by doing it in house, or even personally.

Most recent example is the purchase of the tooling company Perbix. … Prior to that they sacked their self driving supplier MobilEye and rebuilt the systems from scratch. Before that they bought Solar City.

Is it clever to insource everything?

Nobody wants their supplier to go broke because they forced the supplier to take on too much risk. If it happens you’re short on inputs. But if you bring the problem under your own roof and find it can’t be solved then you’re short on inputs and in a financial hole.

A list of things Tesla is doing in house that a regular carmaker doesn’t is… eye-opening.

  • Fuelling stations
  • Dealers
  • Repair shops
  • Energy generation and storage systems. (solar panels and batteries)
  • Developing autonomous driving systems

All of these are tricky. They may cost more to do than expected.

Just because this looks like a car company doesn’t mean it has the risk profile of a car company. Building cars is not the only prerequisite for success.

And of course Tesla is having all sort of trouble building cars. It has had big hiccups making the batteries and doing the welding. It also likely can’t fit all the planned production inside its current factory, meaning it will need a new factory to hit 500,000 cars a year. Tesla is being broadly upfront about this, with Musk referring regularly and breezily to “production hell” – although without giving much detail.

Solving production hell will take management effort and money. But the two new vehicles will divert effort and money. A juggling analogy may be apt. When you add extra balls, the juggler trying to control them drops the lot, not just the new ones.

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You need every column to line up to win.

The recent release of negative stories about the culture inside Tesla may be an indicator a breaking point is near.

OPTIMIST PRIME

The Roadster has some serious technical questions to answer, but – if it can be built – of course they can sell a lot of copies. It’s the world’s fastest car from the world’s coolest brand.

The truck, however, is not certain to sell. While consumers buy on brand and image, the logistics industry is relentlessly optimised around cost. The range Tesla’s truck offers (500 miles) demands an enormous battery, which will make the truck expensive to buy and increase its weight by an estimated 12 tons. That weight matters for at least three reasons

1. The total weight to payload ratio changes, offsetting some fuel advantages.

2. Road damage increases exponentially on a weight per axle basis and governments are increasingly keen to get the logistics industry to pay road user charges based on weight.

3. Trucks are sometimes empty and carrying a battery at those times raises the cost.

The truck also means Tesla had to invent a whole new charger to make sure their trucks could be charged in a reasonable time (30 minutes for 400 miles). It is unclear to what extent this new Megacharger has been invented as opposed to just envisioned. It is further unclear how much they might cost to install, or if they are compatible with existing electricity distribution infrastructure.

Incidentally, the time it takes to charge a vehicle means Tesla may need to install a high ratio of chargers to vehicles on the highways. We’ve all pulled into a petrol station to find all the pumps are in use. You wait three or four minutes and they become free. If the person in front of you is going to take 30 minutes to charge, and then you’re going to take another 30 minutes, you’ve got an enforced one hour stop. God forbid it’s busy and there’s more than one person in line in front of you.

The way for Tesla to combat this inconvenience is by installing *a lot* of chargers at places where people are taking long trips. (This problem should not apply at home, where people can charge their vehicle overnight, but it would apply if you’re doing distance travel, and especially to semi trailer trucks.)

CAPITAL IDEA

The Tesla semi trailer and the roadster are, however, not just extra risk. They can help Tesla raise capital it sorely needs. Pre-orders of the first 1000 roadsters are available by putting down $250,000.  If they can find 1000 people willing to put 250k on ice for a few years, that will put $250,000,000 into Tesla’s pockets. Its most recent cash burn was $1.4 billon in a quarter, so $250 million would buy them an extra three weeks.

Every little bit helps!

Think I’m being excessively mean? Read why here: Why does Elon Musk make me so Cross?

 

 

 

 

 

Money for jams

Congestion charging is back on my list of good ideas

For a while there, I was influenced by the equity arguments against it. The lack of substitutes to travel, and the unique role of commuting to work in a person’s well-being tipped me against congestion charging. Good economic reform doesn’t throw out equity every time it can get an efficiency dividend, and I decided congestion charging equity problems made the policy unworkable.

I dreamed up a ‘clever’ scheme that was a halfway-house to full congestion charging, preserving the substitution effect of a price rise, but without an income effect.

But I’m swinging back to support for a simpler price signal. What has captured my attention is the following graph from a new Grattan Institute report. It shows the extent of congestion in Sydney. Amazingly, most people experience almost no congestion. Their commutes are swift.

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What this tells me is the the impact of a congestion charge is actually not likely to be widespread. Serious congestion, of more than ten minutes in a trip, is the purview of a small subset of commuters.

That  subset is likely to be going into the CBD, where congestion is real.

Screen Shot 2017-10-05 at 6.04.58 PMRemember that despite the importance of CBDs, most jobs are still in the suburbs.  If we know one thing about CBD jobs – especially nine to five CBD jobs – it is that they tend to be the good kind.

City centres are where the business services jobs are. The specialised jobs that pay big coin, as opposed to the population-serving jobs (pharmacies, florists, bakers, doctors, schools) that are found disproportionately in the suburbs.

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It looks like driving into the city in peak hour is an elite problem. No wonder it gets so much attention. The Grattan analysis makes it clear the congestion charging would really only have to be applied in a narrow area.

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This fact also counters the argument that congestion charging can’t be introduced until better public transport happens. Melbourne and Sydney have radial public transport systems that provide terrific CBD access.

 

Traffic is bad. The absence of price signals on the use of existing infrastructure causes crowding and delays. You end up listening to way too much FM radio. But that might not be the most costly effect. The big downside is probably the pressure to build yet more infrastructure.

Daniel Andrews has green-lit the West Gate tunnel – a big freeway that will not only soak up $5.5 billion but also lock Victorians into a regimented tolling regime (not a congestion charge system) for decades.

Big freeway projects have a lot of side effects.

One is making the places that they travel through less pleasant. Place-making is a big theme in urban planning now and a lot of money is spent on making areas seem nice. This “tunnel” which is actually an elevated road for a good section of its length,is kind of the opposite of place making.

A second side effect is city-shaping. You can cut travel times to the city, but that encourages yet more sprawl and inefficient urban form. (Thanks, marchetti’s constant._

If you want a policy that is likely to be equitable, can potentially conserve scarce government funds for more valuable projects, and prevent the paving over of the inner city, then congestion charging is your horse.

To finish with here’s some data to make you go “huh!” – rain, apparently, has no effect on traffic:

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Doctors and drugs: when we can’t trust the white coats

Sometimes you can see a policy change coming a mile off. For about the last two decades, drug legalisation looked like such a case.

The positive results of decriminalisation in Portugal, and the examples of marijuana legalisation in Uruguay and various states of the US were becoming more widely known. The Penington report in 1996 argued for decriminalisation of marijuana and when Victorian Premier Jeff Kennett ignored its recommendations it was seen as a stance justified only by retail politics.

It seemed only a matter of time before expert recommendations on decriminalisation and legalisation  were taken on board by Australia and nations across the world.  An armistice was about to be announced in the increasingly stupid war on drugs. So it seemed.

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Then the opiates crisis began. America is in the grip of a really shocking wave of premature mortality, caused by addiction to opiates. The scale of it is really awful – at 32,000 deaths a year, roughly equal to the numbers killed by firearms in that country.

(If you’d like your faith in journalism to be restored utterly while your heart is smashed into a million irrevocable pieces, I recommend this piece, Seven Days Of Heroin, from the Cincinatti Enquirer.)

The US opiates crisis has forced some hard thinking on the merits of legalisation (for drugs beyond talking about drugs beyond marijuana, mostly.)

The rethinking of legalisation has come from the left, like this piece at Vox: I used to support legalizing all drugs. Then the opioid epidemic happened.

And from the right, like this piece at the National Review: The Opioid Crisis Should Kill the Call to Legalize Hard Drugs

Opiates are not only a gateway to heroin abuse but a problem in themselves. Legal opiates accounted for 20,101 overdose deaths in the USA in 2015 compared to 12,990 related to heroin. If a legal drug, tightly controlled by law and available only under prescription, can be abused in a way that spirals way out of control, what does that say about the prospects of ending prohibition of drugs?

TOO MUCH TRUST

With legalisation, nothing is going to end up as available as buying flour at the supermarket. There will always be controls – regulation, licensing, etc. Choosing them is critical. But there is one shortcut we tend to take.

We love to rely on doctors as one of those controls. “Only available via prescription” sounds like a big barrier to drug availability. We have a lot of trust in doctors at a personal care level and that transfers over to a policy level.

But a look at the US medical marijuana system reveals that prescriptions are available ridiculously easily, over the internet, for trivial complaints. The controls in Canada are not much tighter. Doctors are like anyone and are subject to incentives. If they can make money writing quick and dirty prescriptions, some will.

Meanwhile, even the best-intentioned doctors are at the mercy of a pharmaceutical system that is itself far from perfect.

(If you’d like your faith in journalism to further cement while your faith in capitalism is smashed into a million irrevocable pieces, I recommend this piece, ‘You want a description of hell?’ OxyContin’s 12-hour problem, from the LA Times. It describes how a big Pharmaceutical companies lies about its products, got loads of people hooked on opiates and evaded a whole lot of systems designed to stop exactly that from happening.)

To some extent this is like the story on Elon Musk yesterday. It bothers me when too much trust is vested in an entity, person or institution that doesn’t deserve it. And nobody deserves as much trust as we invest in doctors without an panopticon of ombudsmans, review committees and inspectors.

I think we can move towards legalisation of drugs. But what is crucial in regulating anything is the fine details of the way they are controlled.

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Hoops to jump through

I wrote about this in The Right Amount of Smoking. Finding the exact sweet spot for control and legalisation is hard. You can fiddle with public and private ownership of suppliers, taxation, occupational licensing, sales licensing and controls on consumption.

At this stage, we probably don’t have enough controls for gambling, and we have too many of the wrong kinds for most drugs.

Finding the right kinds of control is hard and requires ongoing adjustment of the policy settings. Trying to outsource the difficulty we have in solving that to doctors is an attractive shortcut, but not the answer.

 

Why does Elon Musk make me so cross?

Elon Musk gets on my nerves. Whenever I see him in a headline my teeth start grinding.

But why? I agree with all his goals. I love the idea of clean energy. I want better batteries. I’m excited by colonising the universe and digging cheaper tunnels. So why does his every pronouncement get me upset?

I’ve been dwelling on this recently, and can only conclude it’s because of the lack of public skepticism he encounters.

Whenever I think about the future, I like to consider it in probabilistic terms.  So when I hear Elon Musk talk about using rockets to travel from New York to Sydney in an hour, I naturally try to imagine what the likelihood of this happening is. I generally come up with numbers awfully close to zero.

Apparently other people’s thinking goes off in different directions, wondering about comfort during take off:

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I don’t find myself thinking about g-forces. I’m too busy puzzling over why he should be able to make a roof including solar panels for less than the price of a roof. What does he think roof manufacturers have been doing for all this time?

Musk is not short of ambition or afraid to make his life more complex. For example, the original Telsa plan had nothing in it about automation or self-driving. He just bolted that onto the plan, presumably expecting it would be doable if the engineers just tried hard enough.

I remain skeptical.

When people think about the progress of science, they have an awful tendency to be swayed by survivor bias. They think especially about progress in personal electronics – because that’s where the progress is. They infer that technology can utterly transform itself with a decade or two.

But when you take a broader sample, you see something different. For every iPhone that did get invented, a flying car failed to be. While we beat back AIDS, cures for dementia and multiple sclerosis languished. And not for want of effort. You can’t tell in advance which fields will yield to effort.

I was a big fan of an old website called Paleo Future, which goes back and looks at old predictions of the future. They’re mostly silly.

In fifty years, most Musk plans will seem as silly. But they’re being repeated across all forms of media. That credulity, and the adulation that goes with it, really rustles my jimmies.

WHY SO CREDULOUS?

There’s a well-characterised cognitive bias where we think that a person who has success in one field will be able to translate it to another. It’s why former Olympic swimmers get hired by big financial institutions, say. It explains why we think Elon Musk can set up a dozen companies including in busy fields like automotive and tunnelling, and come out a winner.

The other relevant cognitive bias is the base rate fallacy. People ignore the fact that in a given domain (colonising space, say) background probabilities of success are very low. They prefer instead to focus on some other seemingly salient factor, like whether the person making the plan to do so is a genius. (And I’m perfectly willing to admit Musk is.)

Now, the charm of having so many cognitive biases running in your favour, is you can attract a lot of capital and hire a lot of good employees. You get to make a lot of bets at once.  Take one 5 per cent chance, you’re set to fail. But take ten and you have a 40% chance of one of them coming good.

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So I’d be surprised if everything Musk tries from hereon turns to poop. He can probably go down in history as a genius inventor. But at the moment he’s getting way ahead of himself.

STRATEGIC THINKER?

Musk’s strategic thinking has worked well so far for Tesla, but past performance is no guarantee of future performance. You only need to look back on his Tesla “Master plan Part Deux” from 2016 to get a sense of how iffy it can be. It contained a very peculiar section on taking the aisles out of buses to make room for more seats. Ignore for a moment that aisles are important to buses – the point is that that kind of fine detail has no place in a strategic plan. Shortly afterward, he walked back the whole section on buses anyway.  The whole thing made me wonder if his success came because of or despite his strategic vision.

It is possible that long before he has a chance to be proven wrong on intercontinental travel, Mr Musk will have a reversal of fortune.

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Tesla’s plan to ramp up production of Model 3s in a new facility looked risky to me from the start. Manufacturing is hard and Tesla is new to doing it at scale. Today we learned initial production of the smaller more affordable car has fallen short.

The company has identified ‘a handful’ of bottlenecks in its production systems and produced way fewer Model 3s than it planned (260 vs an expected 1500). I fear that for a company doing its first ever mass-production, solving that handful will only reveal another handful. Complex systems are interlinked and problems can cascade throughout.

Expecting to move smoothly to mass production was pure hubris – big new projects regularly have huge cost overruns and delays.  (I used to work on Defence projects so I’ve seen cost overruns and delays.) Furthermore, in making its new factory, Tesla skipped a step most manufacturers use, getting all its tooling made before they’d had a dry run. That will save time and cost only if all the systems fit together neatly and as expected.

I understand why they’re rushing. There’s two reasons Tesla must sprint to survive.

First, so much debt has been brought on that they need a lot of sales to pay the interest (with the share price so high I don’t understand why they wouldn’t just issue shares, which don’t need to be periodically refinanced).

So far Tesla burns cash just to stay running. Having big debt and negative cashflow is not sustainable. There’s not many times corporate finance is heart-in-your-mouth terrifying, but Tesla is making it like watching one of those guys in a wingsuit.

Second, the longer they delay the more competitors with proven manufacturing ability can catch up and steal the market. The Chevy Bolt is a proven success and we heard last week that even vacuum manufacturer Dyson is entering the electric car market. A Bloomberg article published today had a huge list of Tesla competitors. Fifty new electric vehicles are going to hit the market in the next five years, from companies with a strong history of making quality products.

I think the Tesla corporate structure needs careful steering to not end up on the rocks. The technology and brand could well be for sale within five years, and gleefully bought up by someone like General Motors or Google. That’d be awful for Tesla investors and employees but mostly fine for society, as the losses incurred in creating all this technological progress would be internalised by all the investors who’ve done their dough.

SHOULD I BE SO MAD?

So am I justified in being so cross at Elon Musk and all the people who believe in him?

One argument is I am not. To the extent that he is making great progress, I should shut up, and to the  extent he is selling risky bets, his main victims are private investors who are welcome to include in their portfolios a few risky bets.

While money will be wasted, technology will also be created. If it has value, that technology will presumably be up for grabs if Tesla (or SpaceX, or Hyperloop) ever needs to make their creditors whole, and society will still be able to benefit from them. From this perspective, the cult of Elon Musk is just a big scheme to get private investors to take the risks of moving science forward. And it’d be awfully pig-headed to be mad at that.

From another perspective, investor money is finite, and we should be careful to steer it toward those schemes with the highest chance of success.

So tell me, dear reader. Am I being too much of a grouch toward Mr Musk?

Have we found a way to finally get Australia to do preventative spending on health?

I love government. But it is not a blind love. Government is not done as well as it could be. I’m very much for the idea of achieving collective goals to improve society, and very much open to reforming how we do that.

Here in Victoria we have two of the most potent and innovative public agencies: TAC and WorkSafe. The Transport Accident Commission works to reduce injuries and deaths from transport accidents. Worksafe works to reduce injuries and death at work.

They do a lot of good preventative work. Both have been very effective.

Victoria has the second lowest workplace accident rate in Australia, measured by fatalities (after the ACT) and by workcover claims (after the NT), as these next two figures show.

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Victoria also has some of the best road safety performance in Australia. It has improved substantially over the last decade, as the next chart shows. (Of course, improvements in safety also come from improvements in cars themselves, but via programs like How Safe Is Your Car? the TAC encourages Victorians to buy safer cars, accelerating those positive changes.)

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What makes Worksafe and the TAC effective?

  1. Reason one is their independence. (The 2014-15 blip in Worksafe performance that you see in the above graph may be related to the state government meddling with its operations at that time. Independence matters.) They are statutory agencies free from direct ministerial control, giving them the ability to take extra risks.
    The innovations that are most visible to the public are their communications – Worksafe sponsors a football team while the TAC pioneered using TV advertisements to change culture and reduce the road toll. This kind of communications strategy is rarer in government departments, where ministers face tough questions over spending.
  2. The second, related reason is that these are not just policy agencies but insurers. Worksafe takes premiums from employers, and TAC from car registrations. They pay out when a worker is injured, or when a person is injured in a vehicle accident. This gives them not only a funding source independent of annual budget rounds, but also a clear financial incentive. (nb. Worksafe is also the workplace safety regulator and inspector, giving it further powers. TAC is not.)

These are both world-leading organisations which have had powerful positive effects on society, and organisations whose successes I have admired.  So I was excited to see, earlier this year, the head of the Productivity Commission throw up a powerpoint slide with a dot point that argued we should Address disease prevention as directly as we address workplace accidents.

I was immediately captivated by the idea of using the Worksafe model to try to fight disease. The upside looks to be huge. Australia’s preventative spending on health is fairly terrible, as is well-documented, and was again confirmed in a paper by two Public Health academics in July this year. 

“Treating chronic disease costs the Australian community an estimated $27 billion annually, accounting for more than a third of our national health budget.

“Yet Australia currently spends just over $2 billion on preventive health each year, or around $89 per person. At just 1.34 per cent of Australian healthcare expenditure, the amount is considerably less than OECD countries Canada, New Zealand and the United Kingdom, with Australia ranked 16th out of 31 OECD countries by per capita expenditure.”

Could we fix the preventative health spending deficit by setting up organisations akin to Worksafe and the TAC? Might it have the exact combination of novelty, innovation and actual prospects for success that could make politicians and public servants agree on it?

At a high level the opportunity seems to be there (for preventable diseases but not, so far as I can see, for non-preventable ones like MS). Does it persist when you dive down into the details?

THE DEVIL INSIDE

Imagine you were setting up a statutory insurer to fight against adult-onset diabetes. The insurer would collect premiums and pay for treatment after a person was diagnosed.

The big question is where the premiums would be levied.  There is a key difference between this scenario and the workplace safety situation. Employers opt in to insuring employees when they hire them. Likewise, road users opt in to the TAC scheme when they register a vehicle.

The sort of population-wide coverage required by a diabetes insurance scheme means the beneficiaries could not be expected to cover their own premiums. (i.e. not without undermining the public nature of the health system! This fact may motivate some skepticism towards this idea from people who fear it is a Trojan horse for dismantling public healthcare. I don’t think it is.)

IT ALL COMES BACK TO CANBERRA

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The only plausible premium-payer would be the federal government. That raises the question: How different, ultimately, would this be from Medicare? If the government is paying premiums into a public insurer and taking out the payouts to cover treatment costs, isn’t this just replicating an existing system?

The answer is it might be a replication. But if there is something in the culture, funding or control systems of the Health Department that makes it less than optimally effective, then there is a chance of improving outcomes by making a new organisational structure.

Following the Worksafe and TAC models, a good insurer would be focused on a single disease or group of diseases that we have at least some ideas how to prevent (lung cancers, diabetes, heart diseases). It would work on culture change and system changes to try to find the most cost-effective ways of reducing the incidence of that disease. (As an example of systemic changes, the organisation paying the premium might be more inclined to levy a sugar tax if it knew that would reduce its premiums for diabetes insurance). If it had success, the premium it would have to charge to the government for coverage would fall.

NDIS-ESQUE?

Any such systems would be different from the NDIS. The NDIS is far more about organising and coordinating the care for people who have disabilities. It is premised on helping people after the fact and is a vital service.

It does not seem, so far as my reading has shown, to have a focus on identifying avoidable disabilities and investing to avoid them. ( I am sure there are exceptions down in the details but at a high level NDIS is more about service-delivery than prevention.)

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Sometimes puppers are not relevant to the post so much as reward for reading so far.

ISSUES

I’ve painted a picture above that I find promising, but I’m not going to expire in the proverbial drainage channel for this idea. I can see its weaknesses.

For starters, this looks like a case of bower-bird problem solving. You spot a shiny thing (TAC, Worksafe) and take it back to your nest. Then you’re seeking out a good way to use it. That is different to taking a first-principles approach to figuring out how best to optimise preventative spending. There may be better ways. And it could be that the azure sheen of TAC and Worksafe blinds one to the inherent unsuitability of the model in other environments.

Secondly, I may have mis-identified the effectiveness of those two organisations. I know their existence correlates with big improvements in the outcomes they’re targeting, and I know they are well-regarded but I can’t show causation. Other jurisdictions have similar organisations that are not as effective.

Third, the advantages might all fly out the window when you have the federal government paying the premiums rather than other customers. That’s a powerful customer and it might be hard to fight for justified premium hikes in tough fiscal situations, in which case the independence of the agencies becomes blurry.

Having said all that, I’d love to see a superlong .pdf  getting into the guts of this idea and figuring out whether there is promise in it. If you work for a thinktank or a department and you’ve already written such a thing, please let me know!

Anyone else, please leave a comment sharing any insights or aspects you think are relevant!

Octagons and smashed avocado: a good Eixample?

I just got back from a little holiday that took me to Barcelona.

In Barcelona I was thrilled to stay in the famous Eixample district. In the kind of urbanism blogs I like to to read, Eixample has been used so often as an example of density done right, that I was pretty stoked to get a taste of the life it has to offer.

Eixample is famous for its donuts. Not the bready treat, but the shape of its blocks. (Spanish calls them manzanas, or apples, but I call them donuts.) They are octagonal blocks exactly 133m in length.

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The six to eight storey buildings of this “newer” part of Barcelona are often held out as a counterpoint to the fifty storey needles I can see piercing the sky above Melbourne. So I had high expectations of the experience I would get when I booked my airbnb in the heart of the region. It was amazing, as I expected. But my high expectations meant I came away with a few reservations.

First, the good stuff: there is lots of ground level retail, lots of restaurants etc, and lots of apartments above them, all arranged in a distinctive urban form. Public transport is abundant. The place is buzzing day and night, which means you want a quiet apartment facing the interior of the block.

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And it was the hollow interiors of the blocks of Eixample that were the site of my first disappointment. The cores are all built over.

Our apartment had a balcony facing the interior of the donut. It was nice and quiet, but rather than a green space below, we looked down on a bunch of roofs. The ground floor retail has been so successful they have basically all built out to the very back of their blocks, leaving very little open space inside the donut at ground level.

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There are one or two exceptions to this rule in the Eixample district –  I saw one tunnel leading through to a children’s playground. But Google Maps shows the interiors of the octagons mostly all built over.

The problem is compounded by the near total absence of open space in the district. Regular readers of this blog will know that I am no knee-jerk admirer of open space. But just as I think Melbourne can sometimes go too far in one direction, Barcelona goes too far in the other.

All those blocks, and none left open as a Plaça? Nowhere to sit and take your espresso without traffic whizzing by? The lessons of old Europe were not applied!

This becomes all the sadder when you look at the original plan for Eixample. (Eixample, which I found out is not pronounced remotely like the word example, means expansion. It was designed as a contrast to the higgledy piggledy old town of Barcelona.) The original plan shows not only were plaças dotted around, but the octagonal blocks were intended to be developed on only two or three sides.

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Developer interests have been making a mockery of density intentions for a long time.

One thing that has been preserved from the above map is the octagonal blocks. In contrast to the square corners of grids like Manhattan’s or Melbourne’s these mean the intersections have an open feel. Sounds great, right? And it is great, for drivers.

That open space is mostly devoted to road.

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They use some of the extra space for parking, some for huge dumpsters and some to make the footpaths slightly wider, but cars can still zoom around the corners. It reminded me of the lesson of the “sneckdown” – a lot of road space is often allocated to cars that they don’t necessarily need. You can actually see a colour differential on the road above where traffic rarely treads. That space could be better used.

The following picture shows a fairly typical scene at an Eixample intersection – crowded with vehicles.

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The octagonal design also means pedestrian crossings are shifted back up the street. To cross the road, pedestrians must divert from the shortest distance between two points.

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Walk far enough like this and you become a huge fan of squares.

The blocks are reasonably short, so if you’re walking a long way, that’s a lot of meandering. Some people don’t bother diverting to take the lights, and just wander out across the expanse of road instead. The pedestrian crossing placements mean the two at each corner are not adjacent, so if you just miss one light, you have to walk back across the chamfered corner to get to the other one. A small pain point, to be sure, but a real one when it is repeated so often.

In summary, the Eixample district charmed me, but was somewhat more car-focused than I’d expected.

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Motorbikes: everywhere. This street was traffic calmed, actually.
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The streets are also all one way, with no parking, which I find raises vehicle speeds.

Eixample is an expensive and desirable part of Barcelona. You can get some pretty fancy smashed avocado there, which says a lot. The part of the old town called El Raval, meanwhile, remains amazingly rough and ready.

So, Eixample was very easy and enjoyable to live in, but not quite the urban design paradise I’d imagined.  And in fact, some of the problems I’ve mentioned are currently being reviewed.

Have you been to Eixample? Any thoughts on its advantages and disadvantages? Leave a comment below!

Can we ever get road user charging to work?

PART 1 – WHY ROAD PRICING ISN’T WORKING

I’m an economist – I think I understand markets and am tempted to use them when they can do a good job.  Road user charging would do a good job of keeping people off roads at peak times and, used properly, could kill traffic congestion.

I’m reluctant to endorse road-building sprees before we even try to manage the use of the infrastructure we have. Taking, say, the least useful 10 per cent of traffic off roads could kill congestion for a while and mean we can wait another few years before making huge billion dollar infrastructure investments. That has big value to society.

(A small drop in traffic can make a big difference: While slow but steady traffic can be efficient, there is a tipping point where congestion is too high, the system overloads and it fails. At that point the effect of another road user joining the road is negative sum. We really want to be below that point. Also, a surprising share of trips are ones that could be moved around – less than a fifth of trips are commutes.)

However. Road user charging has serious problems. The big one is fairness.

Charging people to use existing roads is seen as unfair – and what’s worse, it probably is. (Perhaps not the most unfair policy in all of the Australian history but enough to pose an insurmountable political challenge to implementation.)

Yes: we charge for food, we charge for electricity, we charge for water, and nobody would deny those are more fundamental. But roads are different in a key way.

The big factor is that a group of people who are below and around the average wage consume a lot of road time, and they do so in ways they can’t avoid. Remember, most jobs are in the suburbs, which are not well served by public transport.

(This is not to deny Joe Hockey’s ‘controversial’ point that the very poorest people own cars less and drive less. He is right. I’m kind of displeased with this ABC fact-check that rates the comment misleading. It’s plainly fricking true, and he was pointing it out in the service of raising the petrol excise, which is good policy. n.b. All this is not to deny that Joe Hockey was a bad Treasurer. Also, he blocked me on Twitter for making a joke about the aforementioned debacle. The joke, shown below, is totally innocuous.)

Alack, I digress. The key point is that less well off people live further out and consume a lot of road time, so road user charging is seen as pure sadism. I wrote about it recently at Crikey and a commenter asked why I wanted to “penalise” people. I read the comments on these sort of pieces a lot and I very often see charging for roads described as a penalty or punishment.

If your policy solution is perceived as cruel, you have a big problem. I’ve written previously about a PR strategy for congestion charging (and gee it’s a good one) but I’m still not seeing much progress for the idea. Maybe, just maybe, we need more.

2. BREAKING IT DOWN

My Crikey piece tried to sort through the ways in which a market mechanism works to sort out why the market is seen as unfair.

A market mechanism rations demand, yes – and encourages supply too. It also incentivises suppliers to be efficient; tempts competitors who may do a better job to enter the market; encourages people to consume things that are cheaper; and also, reveals who wants or needs something most.

Well, it does that last one in theory. In reality, the buyer is not always the person who wants the thing most in any sort of objective sense. Budget constraints are the deciding factor: Rich people can afford lots of things while poorer people have to make a lot of tough decisions.

Of course, it is not just roads. Many consumer goods go to rich people even though poorer people would get more subjective value from them. This, we implicitly say in a capitalist world, is fine because the reason the system works at all is by rewarding the people doing the highest value work with a life of being able to afford more things and facing fewer tough trade-offs. (this implicit choice is an issue for another time.)

But work is not something we consume like other goods. Getting to work is not a reward for work, it is an input. If you make getting to work more expensive, you risk putting some people off going altogether.

If there is literally no other option for how to get to work, and no way to bargain with your boss for another start time, and you don’t think you can find another job, and all the more fuel efficient cars cost more than your current car would fetch second hand, then the effect of a higher road use charge is 100% income effect / 0% substitution effect and you can see why it might seem punitive.

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When household budgets are tight due to child care and high effective marginal tax rates, a road user charge might actually prevent a person from commuting. If we dissuade someone from working now, it can not hurt them only now, but damage their lifetime earnings, and the lives of the generations that follow them.

Even if most people are not at these extreme cases, the trade-offs that a road pricing mechanism forces are difficult ones over things that already seem hard.

So you can make a good case for a road rationing mechanism that tries to ration road use without putting a cash price on roads. I have previously proposed a system that might do that.

A recent article in The New York Times describes a food donation network that used a kind of pricing mechanism to solve an allocation problem. It created a big range of efficiencies via a points system — local food banks used points to bid for various items from each other.

A similar points system could overcome the fairness problem in pricing roads. People could be allocated points based on, for example, how far from the CBD they live, or their lack of access to public transport. Unwanted points could be sold off.

This system would totally eliminate congestion if few enough points were given out. It would also create incentives to use other kinds of transport. And it would do so fairly.

What it doesn’t do is reward the owners or operators of roads, or provide a funding stream for roads. Public provision and funding would still be necessary.

But perhaps waiting for the perfect market mechanism that can deliver all the potential upsides is unrealistic. Can road pricing advocates choose not to let the perfect be the enemy of the good?

The more I think about this, the more I see the devil is in the detail. Who would get the points?

This goes to another of the points I made in the Crikey piece. Market allocations of goods may not be fair, per se, but they are a sort of Schelling point – a way of allocating scarce resources that society generally tends to land on in lieu of other ideas.

I like the idea of giving them to households with worse public transport options or lower access to jobs. “I have no other options” is one of the big reasons road user charging is seen as unfair. Having no other transport options is also sometimes a proxy for socio-economic deprivation, although an imperfect one.

But an allocation based on geography would be tough for any government to operate without causing a fuss and furore that would see them voted out.

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While society doesn’t agree to market distribution of road space, yet, that doesn’t mean it agrees to some other rationing plan either. We have a few non-market rationing models in place in other parts of the economy: Income testing and asset testing are both known ways of allocating scarce, government-provided goods. Neither is an obvious fit for allocating road space.

So a geography-based allocation model would be wholly new. And in our geography-based political system, very much open for abuse. New allocations of road use credits would not be safe from the electoral cycle, although whether congestion would rise to previous levels is not clear.

We should also consider the unintended consequences of such a system. Would it reward sprawl if you gave road access credits to people with low public transport access? And punish people who’ve bothered to make the trade-offs to live in smaller spaces closer in?

The whole thing starts to look very difficult indeed. Is there another way to make a non-market rationing system work? Please leave your ideas below!

How the media gets things wrong. A mea culpa

The other day, I encountered a report from ABC’s Radio National that just didn’t look right to me.

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That claim, that expense entitlements are costing taxpayers more than half a billion dollars a year? I was pretty sure that wasn’t strictly accurate.

I’d looked into this myself. For an article for Crikey, back in 2015.

Here’s the headline on that article. See if you can spot the problem.

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That’s right. My article seems to be making the exact same claim as the Radio National piece.

I remember writing the article. I knew I had some interesting information – that the total cost of running all our MPs was $500 million a year, and that was a substantial multiple of their salary costs. The implication was that there was some fat in the system.

I didn’t know exactly what share of the $500 million was “entitlements” and what was other things, because the categories are partly bundled together. I didn’t claim all the $500 million was for entitlements. It definitely includes some things most people wouldn’t deem “entitlements”, notably MP salaries. I guess I could have been a lot more explicit on that fact.

Here’s what I wrote.

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Whatever interpretation readers might be left with after reading, I don’t know, but the headline above was put on the article. The headline turned out to be very powerful online and the piece was widely shared.

Including by this guy.

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(If you don’t recognise Paul Barry, he is the anchor of an Australian TV show called Media Watch, dedicated to keeping the media on the straight and narrow.)

The factlet embodied in the headline has apparently since become accepted truth. (Even though it isn’t strictly speaking, a fact). I’m pretty sure this is what the Radio National reporter drew on for the report above, although perhaps indirectly, as it seems to have been repeated in various places since.

I feel guilty. I actually remember looking at the headline at the time, and thinking  “that’s not quite right.” But I did not ask for the headline to be altered, using the bad faith justification of “people will read the article and know the truth, rather than relying on the headline.”

I suspect I’m not alone in having a slightly guilty feeling about some of the headlines that have accompanied some of my stories. In the modern environment, headlines play a role far greater than simply summarising the content, and that creates a tension.

I’ve sent an email to my pals at Crikey asking if we can get the headline changed. It’s obviously pretty late for that, but it might make me feel slightly better at least.

I asked the general public to contribute their ideas about Australia’s productivity challenges. You won’t believe what happened next.

The following is a submission I made to the Productivity Commission’s big new review of productivity.

Productivity is normally addressed top-down. Concepts are defined in the abstract and the debate proceeds from theory to practice.

I wanted to test inverting that approach. Could a wider than normal group could be made interested in the conduct and outcomes of this productivity review? And would they have much to offer?

On Wednesday 7 December 2016 I had published an article at news.com.au, entitled “What’s the stupid, inefficient thing that makes you mad?” It introduced the concept of productivity and the Productivity Commission’s rolling five-year review process. It then called for readers to contribute examples of inefficiencies in the Australian economy they’d like to see eliminated.

The responses were many (over 400 responses in various online forums) and diverse. (The most frequently mentioned was to get rid of politicians, which was amusing at first but paled somewhat upon repetition.) Nevertheless, the process turned up a large number of illuminating suggestions. I don’t propose to repeat them all here, but certain topics kept coming up in ways that suggested a pattern.

1. Centrelink. Few had anything nice to say about the administration of the government’s welfare services.
2. Australia Post. Delivery services were pretty much uniformly reviled.
3. Transport issues. The dispersed wisdom of the crowd has developed some suggestions for traffic flow that seem clever.
4. Duplication of levels of government. Not popular.

Notably, most of these relate to user-facing regulated entities. The ATO, Medicare and various license-issuing entities also came in for criticism. That represents a clue that for many Australians, an obvious location for productivity improvements might be in the non-market and quasi-market parts of the economy where productivity is hardest to measure.

I discuss each of the topics below.

1. CENTRELINK

“I waited twenty minutes for a duplicate form to be printed – that does not include the time to line up to be told the form they sent was incorrect so I needed a new one. I’m sorry but if any business was run the way centerlink is they would go broke in under a week.”
-Rachael Harvey

All organisations rely on the time and effort of their clients. When you shop for something you may have to learn about their offerings, attend their premises, wait in line and go through check-out processes. This is generally appropriate and efficient.

A problem only develops when the marginal value of the client’s time is higher than the marginal value of the provider’s time. In a free market scenario, this problem can be rectified via the entry of a competitor providing a better service.

In a government scenario, entry is not possible and so knowing how much client time and effort to demand is a challenge.

The results of this informal survey suggest the performance of Centrelink is considerably below that of a large, regulated private entity. Centrelink was mentioned approximately 30 times, banks only three times, Telstra once.

“I had to wait 1hr40 mins just to change my income amount ! This is not fun !! I actually have work to do but still have to wait a minimum 1 hr to talk to someone.”
– Jenni Pin

“Centrelink phone calls and waiting times the fact that you have to go in there 100 times before they sort out the issue”
– Beth McDonald

I have personally led a very fortunate life that has meant I never crossed paths with a Centrelink office. I suspect the same is true for many public representatives. This risks creating an out-of-sight, out-of-mind situation. Policy-makers doubtless prefer to consider the value of welfare payments and their targeting rather than the administration that delivers those payments to the targeted populations. Furthermore, it is easy to imagine that the people navigating the tortuous administrative processes are undeserving of better service.

Indeed, making the use of Centrelink services extremely inconvenient can serve a policy purpose if it deters over-use of welfare. But while the deterrent effect applies only at the margin, the burden of poor administration falls upon a wider group.

Unwieldy administration is likely to have the most material effect on deeply disadvantaged people for whom Centrelink services are vital. In many such cases, the person dealing with the challenges of administration is likely to be a relative or case-worker doing so on behalf of the beneficiary. These people have other responsibilities and the productivity advantages of lightening their workload is obvious.

“You ring to notify them of changes, spend hours on hold, use all your credit so you go to the office and get told to go use the phones and ring through… Why in the hell can’t you just sit with someone and say hey “I’ve got a job, yay me! Can you change my file accordingly please”? It takes 10 minutes!”
– Shylah Mundy

“I thought I had a miracle yesterday it only took seven, yes seven minutes to get hold of someone on the phone with Centrelink “
– Aaron Cosier

Spending public money to save the time of private citizens is considered an investment in the case of expenditure on public assets like roads. In the case of Centrelink administration it is accounted for as a recurring expenditure. This creates a categorical distinction that may be an impediment to raising Australia’s productivity performance.

Productivity enhancing reform for Centrelink might therefore require more measurement of customer satisfaction, better benchmarking to best practice, and balancing the marginal cost of public financial inputs with that of private time inputs.

2. AUSTRALIA POST

“We’ve caught posties just putting cards in the letter box without even coming to the door.”
– Paige Wiles

Australia Post, like Centrelink, relies on making demands on customers’ time to conserve its own resources. The practice of dropping off a card that announces the presence of a parcel – in lieu of attempting to deliver the parcel – is now infamous Australia-wide.

“Never get a card or notification, i just have to regularly go to the post office and check.”
-Nick Seam

This is a simple example of KPIs being ill-defined and incentives poorly implemented. Australia Post faces competition in parcel delivery and in theory, market forces should sweep the problem away.

Australia Post can get away with not demanding higher performance from its contractors because of cost advantages associated with the legacy letters monopoly, and its lack of downside risk – it knows it won’t go broke. This suggests even corporatised government-owned entities can fail to perform optimally and may be a place where productivity enhancements can be found.

3. TRANSPORT

The “obvious” solution to Australia’s transport problems is road user charging. Among the policy-making class at least. There is, however, no indication such a policy is yet obvious to most Australians. It was not mentioned once in several hundred replies to the above-mentioned article. Of course, there is some marginal benefit in another government-funded .pdf recommending the idea. A journey of a million miles must start with a single step, etc, etc.

But in the absence of a charismatic political leader committed to market-based solutions (and what an absence it is proving to be) permitting such a politically challenging policy proposition to crowd out other proposals might be unwise. In that case, the following suggestions from the comments section may be useful.

“In the US you can turn right on a red light which would[be] left on red here! Makes so much sense“
– Jade of Vic

In the domain of transport, time costs are often traded against safety. Uniform, unbendable rules contribute to a strong understanding of the law and so help ensure the law is followed.

But there remain ways in which transport administrations use the time of travellers to achieve their goals without perhaps placing enough value on that time.

“Waiting at traffic lights in the middle of the night when there are no cars around.”
– Athan Pittakis

Optimal access to public transport is one. The placement of entrances to stops and stations is rarely optimised. While transport operators aim to minimise travel time once passengers are aboard, they rarely consider the entirety of the passenger journey. This may especially be the case where rail services are provided by private operators but stations are owned and operated by government.

“Racing to catch the train and you have to run the entire length of a car park then half a station to the entrance. Or having to walk back through the length of a car park in the dark at night.”
-Peita Orlowski

4.DUPLICATION OF LEVELS OF GOVERNMENT

If Australians learn to be upset about their interactions with public entities, they will tend to become more upset as the entities, and so the interactions, multiply in number. This may explain the general sense expressed that collapsing Australia’s levels of government to a number less than three would yield advantages.

“Get rid of local Councils. They are petty, bureaucratic wastes. Full of pen pushers and people who have nothing better to do then lord it over the communities they are supposed to serve.”
– Therese Theil

The legacy of Australia’s federation has complex interactions with Australia’s productivity performance. While overlapping administrations create potentially wasteful static effects, competition between states and the possibility of experimentation create the potential for beneficial dynamic effects.

“Instead of three levels of government, how about just two. The federal govt can look after defence, health, education, anything that affects the country as a whole, and local councils can look after local issues. Less politicians, less duplication, less waste.”
– David Lewis

It may be possible to obtain some of the benefit of both if policy parameters can be varied while user-facing elements can be standardised. For example, national registers of licenses could be made compatible with different license requirements.

CONCLUSION

The productivity-enhancing reforms of Australia’s past have focused on the private sector. Micro-economic reform of the 1980s was a powerful enabler of prosperity.

However, much low-hanging fruit has been harvested in this field. The best options that remain are land tax (aka taxing grandma’s house) and road user charging (aka taxing people’s drive to work). It would be fair to expect that several five yearly reviews will pass before those two policies garner bipartisan support.

The responses collected in this process indicate that people are keen for better quality public service provision. They want it to be more efficient and more respectful of their time. Assuming for a moment that people know what they want, the question then arises of how to do so.

Reforming the delivery of public services faces a different set of challenges -conceptual, measurement challenges and political ones too. The political challenges only multiply if approaches that rely on outsourcing and competition are applied in popular public domains (see: “Mediscare”). In some cases, more competition will be the answer. In other domains, an alternative approach, and one worth contemplating, might be to design and fund the public delivery of higher-quality services.

House price omens

UPDATE DECEMBER 2016:

This post is miles off! It was all predicated on the numbers coming out of the ABS. What  I didn’t realise was the extent to which they would be revised. Because sales of dwellings are reported late, the data get revised up. Generally 3 months afterward.

So. Here we are three months later and I can tell you the number of houses sold in the 3 months to June 2016 got revised up by 26 per cent. The scary looking charts below represent missing data.  Sales have barely trended down at all.

I leave the post below for the sake of completeness.

When it comes to house prices, people usually just focus on the average price for sales in the last period. But a market is about more than just prices.

It is also about sales volume. And luckily, there is lots of detail in today’s official data on volume.

The market has suddenly turned skinny. Not so many homes are trading hands compared to recent history.

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That is a pretty steep drop, and when you break down the data you find that it is mostly centred on detached houses (as opposed to attached dwellings, which include units, flats and terrace homes.)

The fall in sales is concentrated mostly in Melbourne and Sydney, but also Brisbane.

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Now, there are reasons to not trust the newest, lowest datapoint. It will get revised upward as real estate agents hand in their data to the ABS. (Update in December: In retrospect this paragraph is the best part of the whole post.) Last year’s June quarter was revised up almost 50 per cent! If that happens again the results look less dramatic. But the fall is not all about the latest data point – it looks to have been going on since the start of the year.

If the apparent trend survives, this looks like a serious shift we should pay attention to.

The question is whether this information has any value. My quick analysis suggests it just might.

In previous times, plunges in the volume of houses sold have indicated the start of periods where prices faded away. The yellow periods in this graph go from the start of a fall in volumes traded to the end of the slide in median house price. You can see a house trading volume fall can mark a period of house price stagnation.

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For another look at those yellow periods, here’s the RBA’s housing prices graph. 2008 was a shorter sharper dip and mid 2011 was a longer one.

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Might we be about to see the lines head back below zero? And if so, how far below zero will they go?

Gun advocates: say what you mean, and mean what you say.

Originally published in the Australian Financial Review, December 2012 after the shooting at Sandy Hook Elementary School, which killed 27, including 20 children.

Following the school shooting in Newtown, Connecticut, there have been lengthy screeds arguing for more gun control legislation in the United States.

In response, the comment feeds and Twitter streams parrot one idea above all others: “If guns are outlawed, only outlaws will have guns.”

When I first saw this phrase, it rocked me back on my heels. It’s a strong argument, immediately powerful. It took me a long time to see it for what it is. Flourish.

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The original. I like it, but not the headline an anonymous subeditor put on it!

It invites one to think of a world where the law-abiding are defenceless. It suggests that arming the law-abiding inhibits crime. There is little or no evidence this is true. 

The reason it is so hard to see the emptiness of this phrase at first blush is, I reckon,

its structure. It’s what’s called an “antimetabole” – a symmetrical phrase that has been a rhetorical device since humans first began to write. The second clause is a mirror image of the first.

It has a peculiar effect on the human brain, short-circuiting reason and going straight to deep reserves of feeling.

Antimetabole is the device of choice for some of the best-known leaders of all time.

“Ask not what your country can do for you, but what you can do for your country.”

– John F. Kennedy, 1961.

“It is not even the beginning of the end but is, perhaps, the end of the beginning.”

– Winston Churchill, 1942.

“People the world over have always been more impressed by the power of our example than by the example of our power.”

– Bill Clinton, 2008.

“The first will be last and the last will be first.”

– Jesus of Nazareth, circa 0 AD.

But if they pay speechwriters well, the device is also available to lesser lights.

“In politics there are some candidates who use change to promote their careers, and then there are those, like John McCain, who use their careers to promote change.”

– Sarah Palin, 2008.

An antimetabole is an example of a chiasmus – a broader grouping of phrases that have “symmetry”.

These go back to ancient Greek writings: the word chiasmus comes from the Greek word for the letter X. Imagine two arrows crossing as they depict the structure of the second clause reversing the order of the first.

For example:

“In peace sons bury their fathers, but in war fathers bury their sons,”

– Croesus, circa 600 BC.

Australian politicians, operating in an environment deeply suspicious of rhetorical flourish, aren’t big users of the chiasmus, but there are Aussies deploying the antimetabole structure for their own ends.

Christos Tsiolkas, author of the best-selling novel The Slap, cites his authenticity using antimetabole: “You can take the boy out of the suburbs but you can’t necessarily take the suburbs out of the boy.”

What does this really mean? It doesn’t matter. In the work of persuasion, little lifting is done by logic. In fact, logic needs a little lifting. (See what I did there?).

Like an MC Escher painting, an antimetabole can join up concepts we wouldn’t normally be open to connecting.

Psychology professor James Williams in his 2002 book Visions and Revisions argues that antimetaboles fit right into the grooves of our thought patterns.

“Given what we know about the mind, it would be weird in the extreme if antimetabole were not legion,” he argues.

The human mind is apt to conflate beauty with truth. When Watson and Crick finally lit upon the idea of the double helix structure for DNA in 1953, Watson knew they had the answer to their riddle. The double helix was too beautiful not to be true, he argued.

Pop culture loves the antimetabole. It can be found on internet fan sites about washed up martial artists: “Chuck Norris doesn’t dodge bullets, bullets dodge Chuck Norris.

Football coaches rev up an inferior team with it: “A champion team will always beat a team of champions.”

Schmucks use it making small talk in the lift “Working hard, or hardly working?

But as fun as antimetabole might be in everyday life, we ought to be suspicious of it as part of persuasion. Fair is foul and foul is fair, when it comes to political communication. Antimetabole is part of the fog and filthy air.

How memes show us the future of news.

News stories were once true and substantive.* Now they often aren’t.**

Who chose this? Why has it happened? Who can we blame?

To begin the answer, let us take a quick detour into the world of memes. For a meme to spread, what matters is its shareability. Whether a chain letter or a Facebook video about sloths, certain characteristics of memes make them highly shareable. They go viral. They splinter and are adapted. The most memetically fit versions perpetuate and grow stronger.

In memes we can see very easily that shareability need have little to do with truth, little to do with substantiveness.

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Our collective future is being crushed in the shrinking blue ellipse like rebels in a trash compactor.

News is just the sharing of information. So why would we expect truth and substantiveness to be important in News?

Well (you may say) the history of the 20th Century! In that period, news sources that thrived – one could mention the New York Times here – were ones that invested in reputations for truth and substantiveness. There is precedent.

And, obviously, the human brain is adapted to crave true things. Mostly. This is evolutionarily adaptive on the whole. (It is worth pointing out that memetic fitness is not about the memes in isolation. The environment in which the memes live and die – the human brain and surrounding culture – is vitally important. )

So there is good reason to think truth, substantiveness and news can go hand in hand in hand. But they needn’t, if other incentives in consumption or production are more important.

For example More copies of Soviet newspaper Pravda were printed than the New York Times during the 1970s. (It may have been substantive but it was not always true.) And of course there have always been gossip magazines – which sold more copies than the Times, Washington Post, and Wall Street Journal put together.

The truth and substantiveness of those key western news sources in the 20th century seemed so crucial they would stay like that forever. But those features were actually always fragile, never universal, and only ever contingent on a happenstance combination of incentives.

What were those incentives coerced major news sources to be true and substantive? I don’t purport to know for sure, but I can think of several plausible candidates.

On the production side:

  • Time. Newspapers came out generally only once a day, or perhaps once a week. Facts could be checked. Re-using other outlets stories was simply a way to be a day late.
  • Money. There was no other good way to get people ads.
  • Advertiser influence: They wanted a credible environment to carry their spruiking.
  • Access. Politicians would not talk to newspapers that were non-credible.
  • Niches. A large profitable market meant gossip and political journalism were not all bundled in together under one masthead. Brands were clear.

On the consumption side:

  • A select readership. Over the 20th century, literacy skyrocketed. But reading the ‘important’ newspapers was still the preserve of the educated (and those who could afford them) for decades.
  • Your paper of choice was public knowledge. It lay on your front lawn each morning and on the train anybody could see what you were reading. The stories you knew about also depended on what paper you read. Reading a ‘serious’ paper was a status symbol.

Some readers may look at this list of little reasons and deem them beside the point – yes, yes but the fourth estate has a vital role in holding the mighty to account!

But the lesson of memes is we don’t get what is vital – we get what incentives allow.

“Any human with above room temperature IQ can design a utopia. The reason our current system isn’t a utopia is that it wasn’t designed by humans. Just as you can look at an arid terrain and determine what shape a river will one day take by assuming water will obey gravity, so you can look at a civilization and determine what shape its institutions will one day take by assuming people will obey incentives.”

-Slate Star Codex

We can fund the Press Council, lionise the ABC’s Media Watch program, read the remaining journalists we think are credible, cry at the Walkley awards, rant about clickbait in the comments and so on. But that won’t be more than a sandcastle against the tide. If we want to bring back large volumes of very good journalism we need to change incentive structures.

All this is why I try to avoid bashing individual journalists for the fate of the media. Some people – with the finest of intentions – try single-handedly to reshape the incentive structure of the entire industry. They use the internet to shame and berate journalists and outlets for producing what they perceive as low-quality content.

It’s a valiant attempt. In some ways these people are heroes. They are making themselves very angry and quite unpopular in an attempt to uphold the common good. I thank them. But they cannot do it alone.

The incentives are what matter. The question is whether the incentive change that came with the rise of the internet is permanent. I am hopeful that the recent dislocation is fleeting. Technology is not done changing.

COME-BACK?

A revival of news may even be inevitable. We may see experimentation in news production, distribution and consumption of news until someone hits on a model that pays for itself. This is why we have capitalism – if a product exists that people want, the market will reward handsomely anyone that can find a way to package and deliver it.

One possible form news could take is the trade press – boutique outlets for paying clients who absolutely want only the facts.  Alternatively, perhaps Facebook will fund reporting and investigations. Or online classifieds will add content to bring in more eyeballs and thereby accidentally reinvent the newspaper from the other side. (Or a combination of this second two – online selling groups on Facebook are seemingly huge now.)

More likely it will be something else entirely that brings back serious news. On the production side, the profit motive is an incentive that gives us reason to hope.

However. This will only be the case if technology hasn’t also changed something about the environment in which memetic fitness is determined – i.e. human brains. If we have been so affected by frolicking in the internet’s content fountain that we actually secretly don’t want news any more, then the party is pretty much over.

*Is this true? It seems to be but I admit to having no data.

** Is this true? If it’s not true and substantive, is it a news story? Is it worth comparing a buzzfeed listicle to a news story if all they have in common is being comprised of words? These questions are not pursued any further in the work above.

Bring back core and non-core promises

The election is no longer “on the horizon.” It’s close enough to smell the sausages. Everyone involved in politics is working hard, trying to get us to listen, trying to get us to believe, trying to get us to vote.

Most of what they are saying is lies. Or to be a little kinder, false predictions about what they will do in the future.

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Labor’s policy list

Labor has set out 100 positive policies on its website.They’re really quite interesting and I recommend having a look.

But will it do them all? No way.

Take its plan to cut capital gains tax and negative gearing. These are very bold reforms any party would struggle to get  through the Senate.

And – despite recent reforms – the coming Senate is going to be a particularly mixed one.

Psephologist Anthony Green predicts eight Greens, three Nick Xenophon Teamers, either Glenn Lazarus or Pauline Hanson, Jacqui Lambie and an associated senator, plus probably one other odd-bod from Tasmania.

It’s a volatile mix that would wreak havoc on the most carefully-planned legislative agenda and laugh heartily at the very idea of a mandate.

And there is no guarantee of a mandate, for anyone. A hung parliament is quite possible, with independents and Greens set to make good runs in a range of lower-house seats. Nick Xenophon Team is a huge factor because it is competitive in some classic Coalition seats in SA. One expert tips six cross-benchers.

The odds of a hung parliament are 4:1 against and the closer the two major parties get, the better the chance a couple of independents (Yes Tony Windsor, I’m thinking about you) could have the parliament in the palm of their hands.

What all this means is that words spoken before the election – however earnestly meant  – cannot all come true.

Why don’t politicians admit that?

Instead of having broken promises littering the field of battle, creating the impression  “they’re all liars”, why not explicitly admit some outcomes are state-contingent?

They could make promises contingent on election outcomes:

“If we win a Senate majority we will pass all our policies. If not we will make health and education our top priorities.”

Promises contingent on Budget outcomes.

“If company tax revenue rises above $100 billion, we will fund a new hospital in Launceston.”

Or promises contingent on other promises.

“If we can get our negative gearing reform bill through, we will fund the building of submarines in South Australia.”

Politicians demur on hypotheticals for a reason – adherents of the more cynical schools of political communication will insist the complexity is too high for voters. And I’m sure the first few weeks after adopting this approach would be full of mocking.

The Leader of the Opposition is a maybe man, a possibly politician, an if-then individual,” the PM would jeer. “He’s built an escape route into every promise!”

Perhaps most politicians would wilt immediately under such ripostes – and the bad press that would follow. Gallery journalists – whose expertise in reading the tea leaves might be slightly less valuable in such a scenario – might be unwilling to give the approach a decent chance.

But maybe, just maybe, a  contrast would eventually become apparent between one side explaining their priorities and the risks and contingencies while the other side baldly claims things that can’t all come true will all come true. It just takes one politician floundering when asked, “But what will you do if you don’t control the Senate?” for that to become the favourite question of press-packs everywhere.

If so, the pressure for truth-telling would ultimately fall on the party that over-simplifies their plan. If that party won an election and then failed to keep their promises the consequences would likely be harsher, given the good example set in advance.

There would still be plenty of opportunity for broken promises. Sometimes politicians simply do the opposite of what they say they will, as Tony Abbott demonstrated after the last election.

But without the cover of all those things promised that were only really deliverable under very particular circumstances, the flat-out lies would be much easier to see.

 

Treasury Island

Originally published in the AFR Weekend Fin, 7-8 September 2013.

“Nauru is quite a pleasant island. Nauru is by no means an unpleasant place to live.”– Tony Abbott, July 30, 2013

He might say that, but he’s never tried it. I have. I was sent to Nauru by the Australian government because of the mandatory detention of asylum seekers. I was part of a grand bargain. Your land as a prison, in exchange for our money and expertise.

So I flew to Nauru – courtesy of Australia’s aid budget and my job with the Department of Finance – to be budget adviser to the world’s smallest island nation. That was five years ago. At that time, the Rudd government was just nine months old and the Pacific Solution seemed over. No Afghans or Sri Lankans shared the tiny nation with me. One of my jobs was selling things the Australian government left behind, including bales and bales of pajamas, to raise revenue.

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At that time, 2008, Nauru was fading from the Australian news. Now, since the re-opening of the detention center, it is back in the headlines.

A hellhole. That’s what they call Nauru. The name conjures images of razor wire, of enraged Afghans and Sri Lankans rioting amid smouldering buildings. It is becoming a byword for cruelty and deprivation of liberty.

But Nauru is more than a detention center. It is a community. For around 10,000 residents of the world’s smallest republic, it is home. It was my home too, for five months in 2008.

I felt welcomed there.

My job was to put together Nauru’s 2008-09 budget. A duty that was almost derailed, at the last possible minute, by a softly spoken man named David Adeang.

In 2013, Adeang is back in the cabinet. But in 2008, when I was there, he had recently been kicked out and become an outsider; a fringe MP.

It was not my first time in Nauru. I’d been there once before, in 2007, in the last months of the Howard government. My first trip was alongside a contingent from the Department of Foreign Affairs and Trade (DFAT), laying the groundwork for a new agreement between the two countries. Aid would flow as long as refugees could be accommodated.

Adeang was the finance minister and also the foreign minister and widely respected.

We gathered around a big meeting table inside Nauru’s Parliament House. Nauru’s cabinet sat on one side, the Australian delegation on the other.

The room was warm, and sweat stains slowly spread across the shirts of the participants, Australian and Nauruan alike. Fluorescent light glinted off the polish of the big wooden table.

The meeting was opened by the head of the Australian delegation. The senior diplomat began with a monologue, covering the sweep of history: the relationship between Nauru and Britain, Australia’s period of stewardship and the nation’s independence on January 31, 1968. As he drew closer to the point of the meeting – the memorandum of understanding – he paid his respects to the efforts of the cabinet ministers present in combating corruption and trying to right the ship of state, bestowing on them plaudits earnest and subtle.

He concluded triumphantly and invited Adeang, as the highest-ranking Nauruan government minister, to reciprocate.

“Thanks,” Adeang said. “What’s the first agenda item?”

Only the tiniest trace of surprise registered on the DFAT man’s face before he began a long discussion about the measurement of progress in the education system, about moving Nauru from inefficient portable generators to efficient ones, and reducing reliance on Taiwanese-donated diesel.

Adeang, clad in slacks and a Hawaiian shirt, spoke on each topic, although very softly.

The meeting wore on, through bursts of tropical rain that occluded all sounds in the room. I had long given up on attempts to listen to Adeang through the rain. As a junior officer, I was seated at one end of a very long table, and I figured if the really important people couldn’t hear Adeang, they would have said something by now.

A lot of time was spent talking about diesel. Nauru’s power station burned 40,000 liters of diesel a day, and buying that diesel consumed around half the country’s budget.

The electricity’s most important use was at the desalination plant that gave the nation its drinking water. The rest of the electricity went to homes. The country was divided into districts. Half had power at any time, half did not. After six hours it swapped. Power was out for half of every day.

But, in 2007, increasing the amount of power supplied was out of the question. The price of oil was more than $100 a barrel and rising, meaning reform was crucial.

Part of Australia’s aid package was funding to get rid of the rented portable generators that were so inefficient and move to more efficient permanent generators. There was a bit of tension at the meeting about this. The process had been going for a long time but the installation of new generators had not been completed. Assurances were made but not wholly believed.

It was just as a burst of rain was beginning to clear that the fluoro lights inside the meeting room blinked off. With gray rain spilling off the gutters outside, the dull conference room was immediately grim.

“I guess this is part of the negotiating tactics?” our senior diplomat joked, as the cabinet ministers looked up at the lights, or out the window.

“This actually hasn’t happened for months,” Adeang replied, looking genuinely embarrassed.

The power did not come back, before or after lunch. A few of the Aussies used the toilets before word got round that they wouldn’t flush without power. A foul smell reached the foyer outside the cabinet room as the afternoon of discussions progressed, ticking off items in the memorandum.

Adeang was unflappable through the whole affair. I saw the way people deferred to him and his command of the issues, and assumed he would be president before long.

But by the time I returned to Nauru in 2008, he was gone.

Adeang had been unseated as foreign affairs and finance minister, as part of the purge of the regime of President Ludwig Scotty. In his place was a medical doctor who had been trained in Australia, Kieren Keke, under a new president, Marcus Stephen, a seven-time Commonwealth Games gold medallist in weightlifting.

No one could really explain to me what Adeang had done – in such a small country someone related to the subject of gossip is always in earshot – but everyone agreed Keke, the new minister, was an excellent choice.

It was without much more thought to David Adeang that I began my work in the Ministry of Finance, got up to speed with the issues and began making the 2008-09 budget add up. I’d worked on budgets in Australia, where items below $500 million were all but waved through. Here the bottom line was $38 million. Every cent counted, and it was my job to count them.

I remember an extended email conversation with Nauru’s United Nations representative about provisions for her car. Why did the car have to be washed weekly? Could we not wash it monthly? Why did we need a driver? Etc, etc.

Every day, I would wake up in my enormous, sparsely furnished cliff-top home, marvel at the view of the Pacific, eat muesli with long-life milk, get in my AusAID-funded Hilux, and drive the 2 kilometers down the hill, past the hospital, around the airstrip to the government offices.

Of course, I could have gone the long way and circumnavigated the whole country. That would have turned the five-minute drive into a 20-minute one.

The island is about 4 kilometers across, about 5 kilometers from north to south, and rises to a maximum elevation of 50 meters above sea level. The entire population is concentrated along the low-lying edge of the island, where the road is.

The interior has been marred by phosphate mining. All that remains are coral pinnacles. Occasionally a barge would pull up and be filled with crushed coral pinnacles, destined for much lower-lying countries in the region, as Nauru exported its own unwanted land mass to help its Pacific neighbours build bulwarks against rising sea levels.

They are what is left after the phosphate was mined from among them. They are sharp and inhospitable, so the population lives clustered along the seashore – except for the asylum-seeker processing center. “Topside”, as the camp is called, is surrounded, not just by fences, but by stark coral pinnacles.

On the southern edge of the island is a runway, built by the Japanese, and on the edge of the runway is a small cluster of buildings, including the Parliament and most of the government offices.

My every working day in Nauru was spent in a portable building that housed the Ministry of Finance. My boss was the Secretary of Finance. Like me, he was an Australian government official on deployment.

I worked most closely with the budget team – a crew of Nauruans in their 20s, including two who had graduated from the University of the South Pacific and were earmarked as the best and brightest.

Part of the theory of sending foreign staff into a place like Nauru is the training and mentoring effect. The reality for most deployed staff is that, upon meeting what look like non-stop crises, active mentoring takes a back seat to leading by example.

One of my responsibilities was signing every spending receipt in the whole government. This was a big reform that had stopped money leaking out of the Nauru budget. Every cent of expenditure was confirmed by the Budget Adviser. It made sense, but it was an enormous pain.

Hundreds of complex spending receipts came over my desk every week. And then there was public sector pay.

Nauru had thousands of public servants, and every pay cheque had to be signed, by me or the head of the department. The Secretary of Finance did exactly what I would have done in his shoes, and delegated.

I saw and signed everyone’s pay cheque, from the president down to the gardeners who controlled weeds near the airstrip. The lowest pay was $180 a fortnight; the highest only about $350 – even for the president.

Nauru lived large – too large for too long. Now it was being forced to live within its means. Meagre wages for top bureaucrats and the president were part of the belt-tightening to which the new Nauruan regime had agreed. They wanted to bring their budget under control and were prepared to make sacrifices – one of the things I found most admirable.

I signed a thousand cheques a week. It took hours, and over the months I lived in Nauru, I wrote my own name so many times that it almost provoked an existential crisis.

I used to, when watching tennis, think ill of players who refused to sign autographs. I thought they must be arrogant, unfeeling. Now I wonder if they fear falling into a vortex of solipsism if they focus once more on the sight of their own name unspooling from the nib of a pen.

My precision eroded. To this day, my signature is a blurry swirl that would make my primary school handwriting teachers weep.

Signing cheques was the grunt work. The hard work was making the budget for 2008-09 add up.

The entire 2008-09 budget for the Republic of Nauru was on an Excel spreadsheet on my laptop, backed up on a portable hard drive, which I kept locked in the drawer of the old mahogany desk I sat at.

Most of the revenues were from aid. Nauru was savvy at using its nation status to its advantage – not just by handling our asylum seekers. In the United Nations, Nauru’s vote counts as much as the United States’, and it is one of a few countries to recognize Taiwan. Its vote was also welcome in the International Whaling Commission, so Japan was a generous donor.

As budget day got closer, the budget got bigger and more unwieldy. We figured out revenues, the balance got better. We got better estimates of expenses, the balance got worse.

Budget day was a Tuesday – just one of the relics of Australia’s colonial history.

The Friday before the budget was due for release, I felt like it was almost done. I came into the office on Saturday to do some last minute things, and ended up spending eight hours on last-minute adjustments.

On Sunday, as the nation’s inhabitants filled its many Protestant and Catholic churches, I guided the Hilux back to the office for a last burst to make sure all the rows added up for Tuesday.

At 2am, I signed off on 15 hours of last-minute jiggery-pokery. I was exhausted, but knew there would be more to do on Monday – more last-minute confirmations of key spending items, triple checking the bottom lines, formatting pages – the whole gamut of stupid things that take twice as long when sleep deprived.

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After four hours’ sleep, Monday dawned bright and sunny. We worked until we went out for a quick lunch. We worked until we went out for a quick dinner. We worked until we went out muddle-headed, finding ourselves looking out over the airstrip at 2am.

In the middle of the night, I realised I should make a new “to do” list every 10 minutes; otherwise I’d start making changes to the document, notice something else I’d been meaning to fix and start trying to do that. Efficiency was at a low ebb.

When the sun came up we were still working.

At 1pm, the last page was finally printed, collated and handed to the clerk of Parliament. I was dizzy with fatigue and my stupefaction was probably a threat to the population of the whole island as I guided the Hilux round the bend and up the hill to my home.

“In the office all night?” asked the guard on duty outside my cream-colored door.

“Yep. Too tired.”

I went for bed like a parched man stumbles into a desert oasis: headlong, blindly.

I felt as if my eyes had not been shut for a second when I heard a voice. “Jason!”

I ignored it.

“JASON!”

I looked out my bedroom window.

There was my colleague from the office, Andy, walking round the backyard, yelling.

It did not make sense.

I lay down again.

“HEY JASON!!!”

It was Andy.

“What?”

“You have to come into the office. We need you. Now.”

He disappeared.

I went outside to see the guard, wearing just my shorts.

“Is this for real?”

He confirmed Andy really had been there. Something was up. They really did want me to go back to the office.

At this exact moment the wind blew shut my front door.

Slam!

I looked at the door, befuddled. My keys were inside. I wasn’t wearing a shirt or trousers. The guard intervened: “I can show you how to break in.”

He removed a bunch of louvres from one of the windows, gave me a boost, and I went through it, landing on the floor inside like a sack. I put on some clean clothes. Confusion was turning to anger as my focus returned.

If someone thought this was a funny joke to play on the Aussie, I’d be furious!

I helped replace the louvres, got back behind the wheel of the Hilux and went into the office.

It was no joke. The Finance Minister wanted changes that the Secretary of Finance decided only I knew how to make.

We went to visit the minister in his office. His changes made sense, even if asking for them at this stage seemed unreasonable. I went back to Excel and tweaked a few graphs, printed out replacement pages and had them inserted.

The document went to Parliament and I returned home again, turned on the TV and fell asleep on the couch at 6pm while trying to watch some rugby league.

I woke up 14 hours later and went for a swim. It felt good. I was free. Nauru’s fiscal future was secure. So I thought.

By Wednesday afternoon I had begun to feel human again, and visited the office.

Bad news. Parliament had not passed the budget. Parliament was not even sitting. The 19-seat Parliament was occupied by one man – David Adeang.

He was sitting in there and he refused to move. He was an MP, so precisely why his presence in Parliament – even on an immovable basis – prevented its business from operating was not clear to me. But I heard that the police were considering intervening, and that this was a big drama.

Eventually, wise words from former president Ludwig Scotty were enough to lever Adeang from the chamber, and discussion of the budget resumed.

But it was not passed that day, and as Thursday dawned, MPs found Adeang once again ensconced in the House, and he would not go. Once more a stand-off occurred before eventually Parliament resumed. The budget passed and was written into law, delivering a surplus of $120,000.

That night, in the members lounge upstairs in Parliament, there was a party with local delicacies noddy birds, which are caught with a lasso; small fish speared in the reefs; and cans of XXXX. The whole Parliament was there, and heads of departments.

I had a couple of drinks and watched everybody else celebrate the passage of a budget I was still a bit too tired to enjoy.

I left before the night got raucous, but all accounts and rumors pointed to one memorable moment. After a bit of lubrication in the wee small hours, the Speaker of the House apparently visited Adeang at his residence and invited him outside to settle things the old-fashioned way.

Adeang accepted, and despite his apparent advantage in sobriety he was defeated, the locals told me.

Was it true or just boasting? In the world of Nauru I was never sure. But after that point, I never saw Adeang again.

The day after that, we were having lunch with my budget team colleagues, Javan and Onassis, at Nauru’s best restaurant when we saw the Speaker roll up again, sitting in the back of a ute. He had a can of VB in his hand, evidently eking out every last bit of celebration the island could muster. His party was picking up some catering and he spotted us as he ambled in.

“F—ing finance team,” he said when he saw us.

He was normally a very nice man.

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Before it was a prison, Nauru was a prize. Germany arrived in 1888 and Britain wrested colonial domain from them in World War 1. Australia became the trustee in 1923, and was so until Nauru’s independence in 1968, except when Japan occupied the nation from 1942 to 1945.

The reason for the intense interest in this tiny, strategically null place is beneath the soil. Nauru is not the classic Pacific Atoll. It is rocky not sandy, and that rock is full of phosphate. I had known about Nauru’s phosphate since I was a small boy. In the center of Melbourne stood a building called Nauru House. One of the tallest buildings at the “Paris end” of Melbourne’s Collins Street, it was built in the 1970s and adorned with the 12-pointed blue star that represents the 12 tribes of Nauru.

My dad worked in that building when I was a child and I remember him telling me the story of a land rich in guano. So many birds had pooed there, he told me, that the whole country is made of poo, and they can sell it out from beneath their feet as fertiliser.

That Nauru is rich in guano is the most widely known fact about the country and one in which people delight.

It is not perfectly clear why birds – not renowned for control of their cloacae – fly the 1000 kilometers from the nearest substantial land mass with their buttocks clenched.

Geologists believe that the phosphate deposits are part guano, part limestone rock and part fossilised organisms from the seabed. Obviously, the guano component gets top billing in any retelling. My attempts at trying to inject geological accuracy into discussions of the island “made of guano” have disappointed enough people that I’ve learnt to let it slide.

Phosphate goes to make fertiliser and the price of phosphate rock has risen in line with the number of hungry mouths in the world to feed. For a long time, Nauru reaped the benefit of this trend. It was able to buy not just Nauru House in central Melbourne, but a global investment portfolio, including shopping centers in the United States.

Nauru’s standing and confidence was such that in 1991 it took a case to the International Court of Justice, forcing Australia to pay reparations for the phosphate mining during its period as trustee. Australia gave up $57 million in cash, plus an annual payment that was over $3.5 million in the year I had to balance the budget.

National statistics and bookkeeping have never been a strong suit, so the claim is hard to prove, but Nauru was probably once the richest country in the world. That makes it a very unusual “developing” country.

It has some terrific infrastructure, including a single road in excellent condition that encircles the island and a landing strip big enough to land a passenger jet on. The island is dotted with palatial houses, although many of them now house multiple families.

And people drive.

There are no traffic lights because there are very few intersections – remember, the only major road is a big circle – but Nauru has all the other trappings of car culture.

Despite having less than half the population of Alice Springs and, being just 5 kilometers across, Nauru boasts several petrol stations and a car hire company. When I was there, the roads were clogged with decrepit old Toyota LandCruisers, made into convertibles by removing the roof, and “postie bikes”, the little red Honda motorbikes used by Australia Post.

The President got around in a black limousine with driver.

Nauru’s money had disappeared. While bad investments don’t explain the whole story, they certainly play a part. The public height of Nauruan excess came in the 1990s. The country invested in a West End production. Leonardo the Musical: A Portrait of Love opened in 1993 . Nauru flew out members of Parliament for opening night, but reviews were far from supportive and the season lasted just weeks.

The government is now keen to avoid signs of excess.

I only needed to go to work to see why. Nauru’s government offices were nice and new. They were a two-storey block, with a really clever system of verandahs around it that meant you could navigate the whole place even under conditions of torrential rain. The Finance Department operated out of a portable building attached to the side of the main complex, but overall it was a highly satisfactory working environment.

Of course, the explanation for investment in exemplary workspaces was less uplifting. Deliberately lit fires had consumed the old buildings. Nauru’s motto was “God’s will first”, and the will of God was that displeasing things should be consumed by fire. The New Testament God wasn’t getting much of a look in.

The fall and rise of the mighty

My house was immediately next door to the grounds of the old presidential residence. It had evidently been quite something before the bright red flames of popular dissent removed its roof.

You could walk through the frame of the building and get a sense of its size but, where once lavish Turkish floor coverings had been, undergrowth was now shooting through, and a carpet of beer cans through the rooms showed that Nauruans were still keen to celebrate the fall of the mighty.

We had sunset drinks up there in the clifftop courtyard one night. The view over the suburb of Location below was expansive. Location has been described by some people as a slum. It provides the sort of obvious visual cue as to why the palace was rubble that any decent film-maker would leave out of the final cut for fear of patronising the audience.

The guards outside my house were there in case my AusAID Hilux and three-bedroom home provoked a similar feeling of resentment. But I felt perfectly safe the entire time I was in Nauru and when the guards were absent or in my garage lifting weights – which was often – it was not a concern.

In the years since there have been more than a few political bust-ups in Nauru.

In 2011, the president I worked for in 2008, Marcus Stephen, resigned. He was replaced by a man called Freddie Pitcher.

Pitcher, who had been resources minister when I was there, lasted six days before he was deposed in favor of Sprent Dabwido.

I remembered Dabwido from cabinet meetings. What had he been in charge of? I wasn’t sure. He lasted until a state of emergency was declared in May this year as Australia pushed to re-establish asylum seeker processing there. General elections were called.

Freddie Pitcher is gone but Keke and Adeang are in Parliament today. So are Scotty, Stephen and Sprent Dabwido. An MP called Baron Waqa, who I once saw fall asleep in cabinet, is now president.

Tumult caused by asylum seekers, a democracy that sometimes gets stuck, and a passing parade of leaders are just a few things Australia and Nauru share.

Nauru, in fact, is the only country where Australian Rules football is the national sport.

During my stay in the country, the Nauruan Chiefs travelled to Melbourne for the International Cup and took out fourth place, defeating the United States in the process. A proud moment.

Nauru’s obsession with Australian football goes beyond what would be considered normal in Australia. Some Nauruan children are christened with the names of their heroes. Judd, Akermanis, and Jesaulenko, all names of Australian Rules greats, could all be found on the football field together in Nauru.

The ties between the nations run deep.

Many Aussies have been to Nauru, from foreign ministers to taxi drivers, and almost all Nauruans had spent time in Australia during Nauru’s good years.

The Finance Minister to whom I reported had earned his bachelor of medicine from Monash University, and one of my colleagues in the budget team had attended Geelong Grammar.

Nauruans speak English with an Australian accent, which is lucky because the Nauruan language is all but impossible to decipher. I’ve managed to get my head around French and Chinese, and even picked up a little Japanese and Italian when I vacationed in those countries, but learning Nauruan was beyond me. The language has no links with other Micronesian tongues and many of its sounds can’t be mapped onto the 26 letters we are familiar with.

I was only supposed to be in Nauru for a little while. Aged 26 on arrival, I was younger and much more inexperienced than the kind of people that normally got sent in to do the job. But my replacement was delayed in his arrival and I ended up spending five months “on island”, as they say.

The easiest thing to do there was work. And after the budget, I found plenty more to do. After the budget became law, I took my place at my desk and looked over the budget papers. These were big initiatives: a bingo tax, and an auction of the goods that were being held at the old detention center.

I felt proud. We had put this transformational budget together. A budget that could help Nauru stand on its own feet. But I began to wonder: who would make sure these policies were implemented?

I knew the answer. Nobody.

That was the problem.

If this budget was to mean anything, the job was still not done.

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The trickiest policy was always going to be the bingo tax. Amid the constant phosphate royalties and the multiple streams of foreign aid (AusAID alone was worth over $30 million to Nauru in 2012-13), government had fallen out of the habit of taxing its people.

Deciding to tax was a big, brave move for a reformist government, but if Nauru was ever going to be in a position to survive without aid, it was necessary.

I wrote up a notice that explained the tax, and asked the most outgoing and socially gifted staff member to convey it to the bingo operators. The notice included the time and date of a public meeting that we would hold to explain the tax.

Next, I got on the phone with the police commissioner. He was a grumpy old Australian who rarely socialised with other expats. I went to meet him on the second floor of the government offices complex. He wasn’t ready and I had to wait.

“It’s not like we’ve got nothing else to do,” he complained when I asked for staff to visit the bingo operators and check they had their receipts. We parted with the agreement that he would visit some of the bingo operators, unless other matters of public order were more pressing.

Bingo was one of the biggest private sectors on Nauru. And it was by far the biggest operation run by Nauruans. Bingo was big business. The value of the prizes was often over $1000.

There wasn’t much other private enterprise. The restaurant sector was dominated by the few Chinese residents who made an ill-fated decision to migrate to Nauru during its boom. The other major going concern was Capelle’s: a supermarket slash car hire slash private accommodation business owned by an Aussie and a Nauruan.

The government, perhaps motivated by some anti-gambling feeling, decided bingo would be the focus of Nauru’s first tax. The tax was to be for 10 per cent of proceeds, but for simplicity, this was expressed as 10 per cent of the value of prizes. Simplicity in law-making is a trap, of course.

The value of the prizes was widely publicised before bingo nights, and big prizes were big drawcards, so it was assumed taxing the prizes would be easy.

The tax was a big risk for the government in many ways. It could have killed the whole bingo industry. It could have killed public bingo and led to even more “private bingo”, which everyone told me was happening in living rooms across the country.

It could have made some powerful and influential community members unhappy. It could have led to another outbreak of arson. It also could have been blamed on the Australians, and that was something I was keen to avoid.

We had a public meeting, at which 30 locals came to hear about the tax and ask questions. I was surprised at the number of bingo operators, large and small. My socially gifted colleague had done a great job relaying the importance of the meeting.

Parts were in Nauruan, so I couldn’t follow everything, but there were no raised voices. The whole thing took less than an hour and everyone assured me it had gone well. So the taxation began!

Revenue came in immediately. Bingo operations I’d never even heard of were tithing on a weekly basis, and from what I could hear (on Wednesday nights, a public address system announcing “legs eleven!” not far from my kitchen window), enthusiasm for bingo had not waned in the slightest.

Even better, receipts were up week on week. But then I noticed something funny. One bingo operator stopped offering cash prizes. The main prize one week was a motorbike.

I advised them we were taxing the value of the prize, and that if anyone offered a non-cash prize, they would need to submit a receipt, and we would take 10 per cent of the value from it. After a few more weeks of getting receipts for prizes, and seeing steady bingo tax growth, I was happy.

A loophole you can drive through

I moved on to other tasks, but the bingo operators hadn’t given up. One submitted a receipt for a used Toyota LandCruiser, bought for $100. I was not flabbergasted. The LandCruisers on the island were practically prehistoric, and most had been angle-grinded off at the top of the doors, so they were permanently convertible.

But the value of the prize pool was down. What was going on?

I checked with a colleague. He told me there was no way a LandCruiser, in any condition, could sell for $100 on Nauru. Cars were almost never imported, so second-hand cars sold at a premium.

He brought another piece of priceless local knowledge to my attention. The LandCruiser’s seller was the bingo operator’s partner.

I had a begrudging respect for the people outwitting me. I believe people respond to incentives. If you promulgate a set of rules, that creates loopholes, you have to expect people to clamber through them with glee.

We made a list of minimum values for non-cash prizes to govern the operation of the bingo tax, and the job of managing the issue eventually passed to my successor.

Worrying about tax administration was a sign of a relatively healthy and normal economy. In 2008, as the global financial crisis hit the rest of the world, Nauru was actually stabilising. But the process was never destined to be smooth.

After the July 2013 asylum seeker riots, Facebook messages posted by Nauruans were full of passion. Neither asylum seekers nor Nauruan politicians are universally loved.

Tensions are high, but by all reports, Nauru is now in much better shape than in 2008. The motto in 2008 was “your car is your phone”. If you wanted to talk to someone, you drove to find them. Now there is a mobile telephone network.

The start of asylum seeker processing means more aid and hotel rooms sold to foreign visitors. With that comes the hope to invest more in health and schools.

The future is not assured, warns Nauruan citizen Shonadeen Dowabobo. “Nauru has two major resources: phosphate mining and fisheries – the former being more scarce now than the latter,” she tells AFR Weekend by email.

Nauru is highly exposed to revenue fluctuation associated with asylum seeker processing, Dowabobo warns, and even investing the proceeds will not be enough to provide for the future if the Australian and Nauruan governments cannot agree to keep the processing center open.

“Nauru suffers from a history of corruption, poor leadership and mismanagement. It does not suffer from natural disasters or from fluctuations of the global market. It suffers from its leaders,” she laments from New Zealand, where she is studying accounting and economics.

But Dowabobo’s doubts about Nauru’s politics and economics do not get in the way of her love for the country.

As a long election campaign comes to a close and Australians go to the polls, her observations on what makes Nauru good are a reminder of what’s important.

“It is quite safe to go walk about at night and you can hitchhike almost anybody to go places . . . it’s not a ‘dog-eat-dog’ country’,” she says.

“I want to go back home.”

Paddling furiously below the surface

Sorry the blog has been so quiet! I swear I have been busy, just elsewhere.

Here’s a little slice of what I’ve been up to.

CRIKEY

Why the drugs backstage at music festivals are now for arthritis.

Has Keynes wrested Defence policy from Kissinger?

Why money means more to the poor.

NEWS

A nice story on the unexpected divergence of underemployment and unemployment.

A controversial piece bashing the idea of high-speed rail.

Some more truth torpedos about submarines.

THE NEW DAILY

The rise and rise of the SUV.

The rise and fall of the ATM.

Special bonus photos: 1. me (left) when they invited me on Lateline to talk the Federation; and 2. the blog’s editorial director, Susie Brown, making a few edits.