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.

DATA-FUELED GEELONG TAKING IT SEVERAL WEEKS A TIME

FOR CLARITY: This post was entirely fabricated for April 1. The joke is apparently indiscernably subtle unless you follow AFL football quite closely.

Geelong Football Club’s league-leading use of big data has led to findings that it hopes will give the club the winning edge in 2016.

In concert with Geelong’s Deakin University and a grant from the Victorian Department of Innovation and Industry, the Club has spent the summer feeding data on team and player performance over the last 100 seasons into a supercomputer capable of running at 100 gigaflops.

The results have been as impressive as they have been influential, according to Geelong General Manager of Football, Steve Hocking.

“This data has really opened our eyes to things you’d never consider pursuing when you’re in the cut and thrust of football operations,” Hocking said.

One of the most important findings relates to factors that have historically led to a win. Hocking was eager not to give too much away. But he was able to describe a few factors the calculations turned up.

“What was really eye-opening from the big data study was the influence of previous games on the next game,” he said. “That came through loud and clear, and in many ways. We’re talking injuries, motivation, six day breaks, suspensions, the impact of travel, etc. While there’s always been anecdotal evidence they mattered, clubs have never really acted on it.”

This has led to a revolution at Geelong against the time-honoured “taking it one week at a time” preparation strategy. The age-old mantra is going the way of a steak and eggs on the morning of the game.

“It was hard to accept at first because it goes against so many years of football thinking, but we had to accept that inter-temporal linkages were a compelling factor in determining on-field success.”

According to Hocking, football season will be rearranged from a football operations perspective.  No longer will the club prepare for each round as it comes, but it will prepare for “blocs” of games.

“The season has been broken down into blocs of games,” he said. Some of those blocs are two games long, some three games, and the longest is a five-game bloc. All as suggested by the outputs of the study.

This is leading to substantial changes in practice for coaching staff, catering staff, and of course the men who wear the club jerseys onto the field on game day.

Preparing in the new big data-approved way has been something of a mental hurdle for the team, explained Geelong Captain Joel Selwood.

“We’ve been operating for so long on the basis of ‘taking it one game at a time’,” the Cats star midfielder said. “It’s actually been really hard to break that habit, and the coaches have had to institute systems to make sure we integrate the, um, intertemporal linkages into all our training.”

That includes media training.  On the side of training, while the rest of the team did skills work, Defender Harry Taylor was practising the new system with a media department intern in a mock post-match interview.

“Yeah, nah, the boys done good tonight and we’re just taking it … three weeks at a time?” said  the key position player and Cats vice-captain.

“Perfect,” said the young intern.

The End of the Share House

I have a real soft spot for the classic sharehouse.

When I started this blog, back in 2010, I was living in a big weird house in Melbourne’s North Fitzroy. Scalding in summer, freezing in winter, the place was enormous, and yet had no street access. You could only get to it from a little cobbled laneway. It was perfect.

That seemed like a rite of passage at the time. The rickety rambling sharehouse is part of our shared culture, immortalised in books like Monkey Grip and films like He Died with a Felafel in his Hand.

But the future of the sharehouse is in doubt. The property market in the inner areas where young people mostly want to live is in flux. Big old houses are almost never just sitting round un-renovated these days. They can be made into multi million dollar luxury homes, their owners are doing so.

Take this home in “gritty” inner-city Fitzroy. I guarantee that if a 2nd-year arts student lives there, it’s at home with mum and dad.

former sharehouse

The decline of the classic sharehouse is only going to accelerate if the apartment market capitulates. And there are plenty of signs that might happen.

Rents in Australia are surprisingly low compared to property prices, meaning the yield on the investment is not especially high.

RBA shows yields are low.

This is largely driven by amazing property price appreciation.  That same inflation has pushed developers to try to increase supply of inner city homes.

Building more houses in the inner city is hard, obviously, so they are building mostly apartments. The number of new apartment developments in Australia at the moment is a source of concern for our central bank. The head of financial stability singled out property developers for special attention just last week.

Apt warningIt seems likely apartment prices are going to stabilise or even fall. And soon.

When they do it will have all sorts of effects, some immediate and calamitous, others longer-term.  Big apartment towers in the inner city will become cheap accommodation. Perhaps even very cheap.

Which will be pretty much spell the end of the classic sharehouse. Why would the young – often working part-time – pay extra to live in a house when they could live in an apartment cheaply?

Ordinarily I would argue the apartment market and the house market are linked. That a fall in the prices of one will lead to a fall in the prices of the other. But the housing stock being produced in apartment buildings is often far different to the many bedroom places that would work as a share house. Many of the apartments produced in the last decade are truly tiny.

The myths and culture of the next generation will probably centre on a lifestyle where young people have no housemates at all.

Class war and cognitive dissonance: do the rich pay enough tax?

In the SMH, Jess Irvine has written a post accusing the rich of not paying enough tax. Strong piece. Very clickable, quite memorable, and in places, very reasonable:

“It is right to think that rich people should pay more tax than the poor. Happiness studies show an extra dollar means a lot more to a poor person than a wealthy person. So, we maximise society’s wellbeing when we raise taxes from the rich, rather than the poor.”

In the AFR, an equally strong reply:

Screen Shot 2016-02-15 at 1.50.33 PMThis was written by the gossip columnist though, which suggests The Fin is passing up the opportunity to really take the bait.

All this has me thinking. Do the rich really pay enough tax?

Instinct says “No!”

There is, however, a bit of cognitive dissonance the average policy wonk faces in answering such a question.

Let’s face it. Most of us consider that question by imagining those richer than us paying more. Few readers interpret it as “should I pay more tax?” even though plenty of you find yourselves in a household making over $100,000 a year.

Secondly, the average policy wonk already knows the facts.  (The graphs that follow come from a terrific Productivity Commission report that is just a few months old.)

Those on higher incomes do pay the most tax in Australia.  The few families making $175,000+ a year contribute more total tax than the (far greater) numbers of households making under $100k.

Screen Shot 2016-02-15 at 2.48.55 PMThe tax burden is squarely aimed at the top of the income distribution curve.Screen Shot 2016-02-15 at 2.36.43 PMWhen you look by assets things get a bit more complicated, but the overall trend is still richer people tend to pay more.

Screen Shot 2016-02-15 at 3.29.19 PM Screen Shot 2016-02-15 at 3.27.41 PMn.b. for whatever reason the data above is by group not decile, and the groups aren’t evenly sized. Sorry. Here’s the distribution of actual households across those groups:

Screen Shot 2016-02-15 at 3.26.42 PMOne technique Jess Irvine uses to support her call for more tax on the rich is raising the spectre of widespread income tax rorting.

I wrote about rorting in Crikey last year after we learned 55 people who earned over a million dollars paid no tax in 2012-13. That fact went viral. But it represents just 0.6 per cent of millionaires.

Most income millionaires seem to pay a lot in tax – 93  per cent of them are in a group with an average tax rate of 42 per cent. Another 6 per cent pay an average rate of 35 per cent.

I reckon tax evasion is far more common in corporate tax than income tax. But Irvine’s article says we can’t do anything about that.

She goes on to argue we should institute a land tax. It’s a good conclusion to what has been a fairly odd argument. I support a land tax. I’ve been pleased recently to see it getting a fair bit of attention.

But it doesn’t really follow from her argument.

It seems to me the rich already pay a lot of tax, are fairly honest about it, and don’t actually complain that much. Is that the end of the argument?

I say no.

This “do the rich pay enough tax?” question is just a proxy – an emotive, perhaps even fun-to-think-about proxy – for a question about whether our society is fair.

So, is Australia fair?

That’s a better question, because it allows that bubbling pot of cognitive dissonance to simmer down for a moment.

The answer is probably a qualified yes. It could be fairer still, if we focus on eliminating disadvantage.

We can hold onto the fact the rich pay most tax, and permit the idea society could still be fairer.

There are many ways to eliminate disadvantage, and make society fairer. Minimum wages and strong public health systems are a big part of it.

When we look at America, we see what can happen without them. That is an economy much less fair than the one we experience.

Transfers are another major way to make a nation fairer. A basic income, or minimum income policy would go a long way to making Australia fairer. But I don’t see arguments for hiking taxes on the rich helping create the sort of consensus necessary for that change.

Screen Shot 2016-02-15 at 2.37.21 PMAmong the many charms of minimum wages, public health and transfers is they don’t discriminate. Everyone has access to them. It’s far harder for a Tory gossip columnist to mock the idea of Medicare than the idea of soaking the rich.

So thinking about areas of disadvantage that are important to eliminate seems to be a better way of looking at fairness in the Australian context. If higher taxes are required for such policies to be afforded, precedent suggests they will fall on those with capacity to pay.

Meanwhile thinking about ways to raise the same amount of tax more efficiently is probably the best argument for land tax.

For these reasons, I’d suggest dialing back instinctively appealing arguments the rich should pay more tax, in favour of more targeted arguments about avoiding corporate tax fraud or eliminating disadvantage.

Will Pedestrians be able to make driverless cars crash to avoid them?

I seem recently to have been reading about systems that can be exploited easily.

  1. A big one is the police. An increasingly common problem for US police is something called Swatting.

I’d not heard of swatting until a few weeks ago, when I read this most incredible article about an online troll who took his trolling to the real world.

He finds out the address of a young woman, then calls the police pretending to have taken hostages at that location.

The police arrive in a hurry, with a SWAT team (hence ‘swatting’). Doors get kicked in. The intent, the troll claims, is to frighten. But sometimes, innocent people die.

Swatting shares some similarities with framing another person for crime, but the difference is the police force does little to no checking before it reacts.

2. Pizza delivery is the same technique at the other end of the seriousness spectrum. The pizza delivery location doesn’t check the address you give them either.

The seriousness comes when you find a powerful system that is forced (or chooses) to reacts very quickly without doing much checking.

3. National governments responding to terrorist attacks are perhaps another example. In the aftermath of the recent terror attacks, dust had barely settled on Paris when French jets took off over Syria, bombing… things.

The attackers wanted that and got it.

Lesson is – we should be careful when we design powerful systems that have to respond quickly, without doing much checking.

4. This makes me think of driverless cars. These will be programmed to react quickly. They’ll (sometimes) be going fast, meaning their reactions could be powerful.

Driverless cars will avoid pedestrians. It is possible they will be extremely good at doing so.

But the more reliable they are at dodging loose humans, the easier the system will be to exploit. I can imagine a future where you can step off the kerb without even looking and be sure the cars will avoid you.

Sounds nice, right? It would be a relief. But I can think of two risks.

The low-level risk is pedestrians frequently step out and cars frequently screech to a halt, traffic gets worse, and eventually the two systems are segregated and pedestrians lose a lot of access.

The bigger risk is when the cars are travelling a bit faster, but a pedestrian can still trust them to react predictably.

If they knew cars would always swerve once they were inside a certain distance, a prankster who knew the right moment to step onto the road could cause five crashes on the way to work.

Much has been written about how driverless cars will have to choose between the lives of their passengers or other potential victims.  If they have a single best strategy they always follow in answering that question, they have a weakness.

There could be ways of behaving on or near the road that reliably make cars swerve into each other or off the road.

One solution I can think of is very low speed limits. Another is programming a random element into the systems so they don’t always react the same way. If they sometimes go left and sometimes go right, the system will be a little harder to predict and a lot less tempting to exploit.

Why do tennis players lie down when they win a tournament?

The Australian Open tennis is on again this summer. I’ve watched a lot of it over the years. I don’t focus much on tennis normally but when everyone else is excited it is fun to get swept along.

One thing I’ve become fascinated by is the invariable conclusion of the final. It ends with the victor flat on their back somewhere near the baseline, seemingly felled by emotion.

Serena_Williams_vs_Angelique_Kerber_CHAMPION_POINTE_2016

It happened last night when Germany’s Kerber beat Williams from the USA in the women’s final. I bet it will happen again tonight when Murray and Djokovic face off in the men’s final.*

Djokovic has form when it comes to touching his shoulderblades to the playing surface.

The_Greatest_Final_Ever_Australian_Open_2012.gif

Where did this peculiar celebration come from? It wasn’t always this way, as this clip of Federer’s 2003 Wimbledon triumph shows.

Roger_Federer_Wimbledon_2003_Championship_Point

Collapsing to his knees dates this footage almost as much as the Federer ponytail.

What is it about tennis and collapsing? Prostration is not standard celebration in other sports.

Mostly you get excited leaping, as we see in this other tennis-like sport (go to 11:37 in the video).

But the strange thing about gestures in sports is they are learned behaviours – as tennis players collapse so cricket players throw a caught ball in the air, and motorcyclists pop wheelies.

ESPN has a great history of the most iconic sports gesture, the high-five.

And over at Slate there is a fantastic article about the phenomenon of putting your hands on your head in College Basketball.

Wisc-Ariz-v2.gif

It’s a thing. Players do it and so do people in the stands.The journalist did a comprehensive review of the history of the gesture (which he refers to as a ‘disappointment situp’.).

“I decided to review footage from the closing seconds of March Madness games, going back to 1957. I chose 64 examples from among the most exciting games ever played, as determined by a set of lists like this one in USA Today.

Some things never change: As far back as I looked, losing players slumped their shoulders and stared off into space. They shambled from the court. Starting in the 1980s, I saw them huddle up, support-group style, for some mutual consoling. (You can find a hangdog Patrick Ewing in a huddle after Georgetown’s surprise 1985 loss to Villanova.) Also of long standing are the mopey hands-on-hips and the dejected jersey-tug. Fancier displays, which may be of somewhat more recent vintage, include the sad squat, the lean of languish, and the heartsick horizontal.

What about the disappointment situp? The earliest example that I could find comes from 1990, in a losing player’s flit across the screen, after Christian Laettner made a 14-footer to send Duke to victory over UConn. From there, the hands-on-head gesture slowly gains in popularity, showing up several times during the mid- to late-1990s, and much more often in the past few years.”

The weird thing is it happens when teams are losing.  Learned gestures cover the good times as well as the bad.

Wisc-Ariz-v2.gif

It makes me think of an iconic image from the end of an AFL Grand Finals. The losing team sits on the ground wherever they were, lonely and inconsolable. This is unique to AFL, as far as I can tell, so it must be learned behaviour too. (video link)

I find this fascinating. We think of raw emotion as real – immune to codification or fads. But actually humans copy each other – even in moments when we feel most affected by our profound emotions. Monkey see, monkey do.

So, from where does the collapse trend in tennis originate?

I think I may have found the answer, and it comes from a likely source – Federer himself, probably the greatest male tennis player ever.

Here, in 2003, when he wins his first US Open, we see a hybrid version of the drop-to-the-knees celebration above. He starts on his knees, then rolls onto his back, seemingly overcome with emotion at winning . (The video below should go straight to 5:19 if things are working correctly.)

That could be the point at which the trend was born.

Has anyone got any clues as to whether this stretches back further? if so, share them below!

*EDIT 10.49pm: Djokovic won the match in straight sets and remained on his feet before shaking the hand of his opponent, selfishly ruining my piece!

After that he briefly came back on court and kneeled down, kissing the playing surface.  I hoped for a moment he might roll over onto his back like a dog seeking a rub on the tummy, but he got up again.

Perhaps the flop down is reserved for hard-fought victories? Djokovic certainly had this one in the bag from the start. I’ll hope for better at the French Open in May!

The right amount of smoking

I’ve recently been watching two social trends, one with fear and one with relief.

Both are about the legality of “vices.”

Screen Shot 2015-12-12 at 3.29.54 PM.png

The first is gambling. I see betting ads everywhere. Gambling is taking over sports. It is also taking over our cities. Poker machines are proliferating across the poorest suburbs, while Sydney’s glittering waterfront is about to get a new casino. Packers new Barangaroo den is ostensibly for high-rollers, but of course will be for everyone within a few years of opening.

Given its corrupting influence and addictive properties, I think gambling’s reach has become too great.

Screen Shot 2015-12-12 at 3.34.41 PM
Found easily on Craigslist

The second “vice” I’ve been paying attention to is drug legalisation. I think we are on the brink of having marijuana made legal across the western world. A big part of the US has done it. Canada just voted for it. The UN itself has released a report saying the war on drugs is a really terrible idea, causing problems like the Mexican cartels.

Prohibition is a proven failed policy when it comes to alcohol – perhaps it will soon be abandoned as a policy for drugs too?

I see people very skeptical of drug control writing in the mainstream press often and I think we’re on the brink of a great relaxation.

That’s great.

But how to reconcile these two conflicting views? Banning is bad but full legalisation is bad too. There could be a slippery slope here. First society legalises a vice, then you get to the point where the industry tbecomes so rich and powerful it ends up controlling society?

There needs to be a middle ground. Smoking is a good example. We can’t ban it. The minute you do, the illegal trade pops up. And for that matter, you can’t even tax it too heavily. I’m actually a bit concerned about Labor’s plan to hike tobacco taxes so sharply.

According to research commissioned by the tobacco companies black market smokes account for 15 per cent of consumption. That research is disputed. Google Trends, however, suggests people searching for “chop chop” (a term for illegal tobacco) has risen, whereas interest in the top cigarette brand has fallen.

Screen Shot 2015-12-12 at 2.44.50 PM.png

The reality is – there has to be an optimal level of smoking. Setting policy to reduce use to zero creates black markets, with all the problems that entails.

We have to set policy – licensing, taxation, behavioural control campaigns, advertising laws, perhaps even government monopolies – to create a certain, appropriate amount of each vice.

With smoking, we’ve controlled it at a few key points – advertising, point of sale, pricing and packaging; and campaigned against it. The policy raises tax and also incurs costs, but is effective at raising money and reducing use, while, (hopefully) keeping the illegal trade at bay.

Would society be better if we legalised and controlled every vice under the sun? It seems crazy – I can imagine an ad break telling us not to bet, then how to quit opiates, and then the risks of starting to smoke methamphetamine, even though they would all be legal and all sources of government revenue.

The costs of so much policy seem high, and the risks of not getting the optimal amount of use right seem high. But policy can be tweaked, whereas an outright ban is a tougher thing to shift.

Figuring out the optimal level of smoking – and of drinking, sports betting, pokie machines, dope smoking and heroin injection – is a delicate question. It means society knowingly sacrifices some people to addictive behaviours that harm them.

But the alternative is to sacrifice people in an act of bad faith. I would rather make things legal and trust our policy-makers to eventually get the settings right.

 

 

Should the wingpsan of a hawk equal the wingspan of a dove?

Janet Yellen is in a tough spot.

The US Federal Reserve chair presides over a country in pretty good economic health. Unemployment is just 5.3 per cent. But even though the official interest rate is zero (technically 0 to 0.25 per cent), there is huge pressure to not raise that official interest rate.

Commentators are right to be cautious. There is plenty of evidence supporting being very cautious about raising rates.

Both Australia and New Zealand lifted interest rates from their GFC lows swiftly. Australia did so in 2009, NZ twice in 2011 and 2014. Both countries dropped rates again soon afterwards, as these graphs show, .

Screen Shot 2015-10-17 at 12.07.33 pm Being hasty in raising rates is unwise.  So Yellen’s cautious stance is probably appropriate.

But her position is especially difficult because her options are so limited. US rate changes, by convention, happen in lumps of 0.25 percentage points. Just like Australia’s and New Zealand’s.

She faces, by convention, a binary choice. Leave rates steady, or execute a 0.25 point hike that could frighten markets.

A quarter of a percentage point probably appeared vanishingly small back in those dimly remembered normal times, when interest rates were so much higher. But now a quarter of a percentage point looks like quite a hurdle.

The size of a standard rate move now raises questions.

A key one that nobody seems to be contemplating: Should rate rises be the same size as rate cuts? The obvious answer is no.

Economies tank hard.  Recoveries are slower and more tentative. Unemployment rises steeply, but it falls slowly, as this next graph shows.

Recessions send unemployment spiking. And so can low growth.

There is an implicit understanding that rate cuts can be bigger than hikes. The Australian government bundles groups of 0.25 together when things go bad particularly quickly. For example the RBA made a cut of 0.50 in 2012, and three cuts of 1.0 in late 2008 and early 2009.

But there is no explicit understanding that rate cuts could be smaller than 0.25 when they are rising.

Why? There is no apparent technical impediment to this.

Australia is now perfectly capable at holding rates at levels more tightly defined than 0.25 per cent intervals, as this graph of the target (red) and actual (black) rate shows:

Screen Shot 2015-10-17 at 12.27.37 pm

Whether Yellen should raise rates is a divisive issue. She can counter that political division with a bit of  arithmetic division.

Splitting her first hike into several small pieces is the answer.  Rises of 0.1 per cent – or even smaller – could be just the trick at difficult times like this.

Should we be more worried about the sharemarket, or housing?

Screen Shot 2015-09-30 at 11.56.28 am Screen Shot 2015-09-30 at 11.55.27 am

Is the housing sector so pumped full of credit it is about to explode? Or is the business sector so credit starved it is about to die?

Data sourced from today’s RBA financial aggregates.

Why people think tax reform is a knife, and why that’s a problem for Australia.

EDITED on Tuesday September 29 to make it better, fairer, more accurate.

My hypothesis is this: A large part of the Australian public does not understand the tax reform “debate” at all. a substantial part of the tax reform debate.

I hypothesise these people are smart, capable and have Australia’s interests extremely close to their heart. But they have no training in tax theory and therefore lack mental models to understand why, for example, Labor’s Chris Bowen, Shadow Treasurer, would be willing to consider cutting corporate tax to 25 per cent.

They just don’t see how tax affects growth.

The most mentally available model of tax is not one where tax is an ingredient in making the cake, but a knife to cut it up with at the end. This matches lived experience. As a worker and consumer, tax happens at the end of transactions. You get paid, then you pay tax. You buy something then you pay GST at the checkout.

So my hypothesis is the concept of tax as an input to the rate of economic growth is not one that is available to most people.

I’ve been thinking about this hypothesis for a while. Today I decided to test it. I chose the following four tax-related articles and read the comments in all of them.

The Age: Malcolm Turnbull halts tax white paper in major reset (163 comments)

Herald Sun: Imbalanced Tax system stunting growth, says Business Council of Australia (7 Comments)

The New Daily: Scott Morrison wants to give us tax cuts (22 comments)

SMH: Scott Morrison: Work Save Invest the Mantra for the new Treasurer (90 Comments).

If people understood that the tax reform was about boosting growth, I expected to see comments engaging on that topic – supporting the link or refuting it, talking about high-tax high-growth countries like Scandinavia, and low-tax low-growth countries too.

If people did not bring this frame of reference, I expected to see the comments focus on other topics, especially distribution.

I read about 280 internet comments. (Which – as you can imagine – meant deciphering a great number of garbled sentences and enjoying an even greater number of insults.)

I coded them according to whether they mentioned growth or output; distributional outcomes; loopholes; or ‘other’.  ‘Other’ accounted for over 200. The remaining results were crystal clear.

tax commentsDiscussion of growth was present in just over two per cent of total responses and was outweighed by discussion of distributional issues about 9:1.

I tried to be generous with the comments I coded as addressing issues of growth. Here’s one:

“The most important thing to do to fix the economy is to get the taxation right! Fact is the economy under Abbott and Hockey was a blatant disaster getting worse!”

Here’s another:

“Penalty levels of taxation combined with high levels of social welfare payments result in deficites, high borrowing costs and a downward spiral of he economy. That is exactly what is happening in Australia. Our economy is headed the same way as the Greek economy. To reverse this Australia needs to increase the incentive to work and invest and reduce the reward for not working.”

In the 61 comments about “loopholes” there were very many along these lines:

“No change in the policies, give the big end of town a tax cut, and spread the burden over everyone with an increase in the GST. Lower income people are worse off as a result.”

Please note that I am not criticising this last comment. Distributional issues are a crucial part of tax policy and that kind of comment is an important input to a well-grounded tax debate.

The point is we do not have a well-grounded tax debate until everyone is on the same page.

The broader tax debate does not address the impact of tax settings on the output capacity of the economy. It is far more focused on fairness.

The “elites” must work to understand the grip matters distributional have on the public imagination. If they still want to press on with tax reforms – and I think they probably should – they need to take two courses of action.

  1. Prioritise matters of distribution in their own thinking. No tax reform will be possible so long as it obsesses on output to the exclusion of fairness. Multinational enterprise tax reform was a very common thread in comments about fairness.
  2. Work to give people the mental models to understand how tax affects output. Without this very little tax reform will be possible at all.

Elites, building a case for reform does not mean repeating the phrase “We need reform!” It’s truistic to the people who understand it, while confusing and annoying to everyone else. It sounds like you’re talking in code, and that implies you’re plotting something.

Instead, talk about “changing tax law so businesses want to do more work in Australia and hire more people.”

If you hector people about tax by saying “it affects investment decisions!” you’re unlikely to cut through. “Investment decisions” sounds like it has something to do with Macquarie Bank.

The comments on the article about Scott Morrison’s “Work Save Invest” slogan showed “investment” was uniformly interpreted as being about buying shares. Many commenters pointed out they couldn’t afford to do that. “Foreign investment decisions” is probably even worse language. It conjures Chase Manhattan and Bank of China conspiring to rip us off.

Talk about economic growth in language people can understand. Use this language even among yourselves, so when it comes time to talk to “real people” it comes naturally.

One way to build capacity in the community is through using metaphors:

  • Tax is not just a knife, but also the yeast that grows the cake.
  • The economy is like a party and tax is adding water to the beer.
  • The economy is like a football match and tax is like adding more umpires ready to blow the whistle at any moment. They disrupt the natural flow of the game.
  • The economy is like a road and tax is traffic lights. If we put in too many in the road won’t be useful any more.

But that can’t be all. The explanation needs stories about business owners who expand their business once their returns meet a benchmark, and how returns are affected by tax. I can imagine an animation. A business owner making a business plan. Every time she does the maths she comes out in the red, until the tax percentage becomes lower. Then she opens her shop and hires some staff.

Understanding a concept requires knowing several mutually-reinforcing stories that illustrate the same point. The Australian people have not heard enough of these stories. And that is why Tax reform is going nowhere.
NB: In todays’ Fin Review, Laura Tingle talks about this exact issue:

Just as the tax reform debate threatened to choke itself on too many conflicting agendas – increasing the GST, lowering company tax, fixing bracket creep, doing something about superannuation tax concessions – our new treasurer has injected a rather important ingredient: the need to define a reason to do it all.Some of the contributors to the AFR Tax Reform Summit this week have made the observation that an organising principle for the tax reform debate has only rarely been seen amid the worthy, but perhaps too often repeated, calls for individual tax measures to be addressed.

The organising principle needs to be a political argument to voters about why you actually need to mess around with tax in the first place. An argument about corporate competitiveness isn’t really going to cut it out in the ‘burbs.

Yes, we all heard Tony Abbott and Joe Hockey talk ad nauseum about “lower, simpler, fairer” taxes. But they were never able to cut through to voters about why this was such a good idea: that it would – or should – help boost and transform the economy. Instead, it just sounded like a bit of conservative government ideology.”

So if Morrison wants to prosecute that case for tax reform he needs to formulate a story that’s as clear as “Stop the Boats” but for a much more complex concept. Good luck Scott.

Here’s a late-breaking caveat I decided to add.

Among the people who appear to not understand the nature of tax reform are a group who understand it perfectly well but oppose it. They fan the flames of the distributional arguments.

They’re not the only self-interested sorts in the debate.

The fact company tax cuts are now widely accepted  as the most growth-crucial tax cuts in our whole economy is very interesting. Of course cutting it would help growth. But at what revenue cost? And why is it #1? Self interest lurks in any issue where facts are complex.

How Malcolm Turnbull could be just what Labor needs

This post is a quick, simple game theory explanation of Australian politics. It’s not comprehensive. It cuts out a lot of detail. It simplifies radically. In doing so, it aims to shine a light on one interesting dynamic.

Please don’t get the impression I’m unaware other dynamics are running at the same time. This is just one strand in Australia’s politics – but an interesting one.

Tony Abbott learned a lot from John Howard. What he learned most apparently, was the lesson of the 2001 election – that an environment of negativity and fear and a focus on national security benefit the incumbent.

Abbott ran hard on national security. We have planes in the air over Syria because of those lessons – learned when Abbott was 43 and had been in parliament for seven years. Not to mention our new paramilitary Border Force. Even his elevation of the anti-methamphetamine campaign to a national level seemed to be part of a campaign to whip up fear.

Was he fundamentally wrong?

I say no. The reason Abbott couldn’t get an edge on national security was Bill Shorten stuck to him like sticky stuff to a blanket. Suffocatingly bipartisan on every issue, Shorten appeared to know that the slightest bit of space between him and the PM would be blown out of proportion.

Shorten refused to break his national security lock-step with Abbott even if it cost him. When “Border Farce” was announced Shorten was all for it. Shorten also supported boat turnbacks even though his party was very suspect of it.

National Security bipartisanship was not a rule of thumb for Labor under Shorten. It was iron law.

All this meant Abbott’s chosen strategy got no lift-off, and as he pushed it harder and harder (e.g. by begging the US to ask us to bomb Syria, and repeating the phrase Death Cult reflexively), he looked somewhat mad.

In essence, Shorten played the game of chess correctly, from a political perspective. Abbott’s fear and negativity strategy was absorbed perfectly and seen off.

Now the government is trying something different. Positivity. Malcolm Turnbull keeps repeating that it has never been a more exciting time to be Australian, and talking about opportunities. No more Death Cult.

I love it. This is the political discourse I crave.

But the person craving it even more might be Bill Shorten.

He’s been a strangled and ineffective communicator for the last two years. But that could be the result of being forced to play “small target” and match Abbott on the fear side.

Now the game is about offering competing positive visions? That’s Labor turf. They invented NDIS. They can offer a vision of Australia where we have not just wealth, but wealth with a bit of meaning and compassion.

Today even, Bill Shorten has been out announcing a policy. Labor will reverse the Government’s higher education cuts and offer tertiary education places to disadvantaged people.

People love to write Bill Shorten off. But if you look past the zingers to the chess game being played beneath the surface, you can understand why the Labor Party chose him.

The problem with online comments. Solved.

I read an article in the Guardian the other day calling for an end to online comments.

“On most sites – from YouTube to local newspapers – comments are a place where the most noxious thoughts rise to the top and smart conversations are lost in a sea of garbage.”

Prima facie, there’s something to this argument. There are a lot of downright scary comments online. YouTube is about the worst place for it. I figure that’s because videos are the main intellectual sustenance for people who can’t read well, so when it’s time for comment you get the blatherings of the intellectually incapable.

(Here, by contrast, the readers are shining beacons of erudition and compassion and the comments section is a delight. ;) )

So partly, the problem is that different sites have different readers and not everyone’s worth listening to.

But think about The Guardian. In theory it’s a thinking-person’s paper. But the comments section is a disaster. What’s the explanation?

(Nobody is going to die of surprise in the next paragraph as the economist reaches for the folder marked I for Incentives.)

The problem with online comments is the incentive structures! For some idiot with anti-social views, this is his one chance to get his views amplified. The pay-off here is high. Normally he can’t get anyone to listen. But if he quickly writes something inflammatory, he can spend a happy afternoon jousting with people he made angry.

The intelligent person looks at the animals head-butting each other in the comments section and can see no reason to get involved.

For the Guardian writer up above, there’s no solution to comments beyond chucking the whole system out. I know different because I spend a lot of time on Reddit. There’s a site with a wide variety of people on it, from all over the world, from all over the political spectrum, of all ages and of all levels of education. And the comments over there often genuinely brim with wit and intelligence.

Reddit is nominally a link-sharing site. But the value of it is actually in the comments. How do they do it?

Reddit’s comment section is ruled by two main incentive features. Upvotes and Downvotes. Users can upvote or downvote any link or any comment.

Upvoted comments rise to the top. Vile idiocy exists on Reddit, of course. But it sinks into the murky depths where it is little seen. And any comment that gets more than 5 net downvotes disappears from view.

So the incentive system is different. Instead of bad comments floating round riling people up, they disappear. That disincentivises trolls.

And good comments are rewarded.

Every user has a “karma” account that tallies their “karma” – simply the total upvotes they’ve ever received. This Karma is not exchangeable for gold, rubies or bitcoin. It has no value. But those status-seeking missiles we call human minds don’t give a damn. One of the problems on Reddit is actually people doing dumb stuff for karma.

While other sites do have incentives – e.g. the New York Times picks, the Reddit system is a more proven success.

Redditors can ask a stupid question on the site and see a dozen people go scurrying off to provide a well-written, well-researched answer provided with wit and goodwill.  Reddit’s growth is extremely rapid. The site has seen 1.7 billion comments so far.

This system is actually the goldmine lying beneath the land investors in Reddit purchased. They may have thought they were buying a succesful domain name or a winning web brand, but what they’ve got is a killer comment system they need to patent, ASAP.

And then preferably license out. The comment threads of the world need it desperately.

Recent work: A compilation of links

I haven’t been updating the blog quite as often as I would have liked but I haven’t been totally idle either. Here’s a few pieces I’ve written in recent times for other outlets.

Crikey

With Silk Road iced, budding entrepreneurs bluntly selling drugs online* (Still paywalled for now)
If oil prices are tumbling, why is petrol so damn expensive?
Stocks: hold ‘em, fold ‘em, walk away or run?
CEOs trump MPs for profligacy, but at least they’re not wasting our money
Pollies will spend $506m on entitlements in 2015-16 — $2.2m per MP
Would the ALP’s ‘Buffett tax’ put an end to tax-rorting millionaires?
If Greece defaults, it will join an illustrious club of debt welshers (including Australia)
It’s the end of the euro as we know it (and I feel fine)

news.com.au

The truth about running a franchise
Blender wars: Why sellers of stuff are stuffed [If you only click one link on this page click this one. It’s my favourite]
Australia? Japan? Canada? What’s really the best value place to ski?
Masters is the screw up that could hammer Woolworths – and the rest of us
Are Amazon mad? Or mad geniuses?
Is it time to start panicking about China?
Four ways a lower Aussie dollar will make your life better
Why house prices don’t need to be a consistent multiple of income

The New Daily

Babycinos, boutiques impact house prices
Even poor AFL clubs can enjoy finals glory
Forget the big city. We find homes for $12,000
Rising cost of private schools may be driving parents away
Uber’s bait and switch: passengers taken for a ride
Duty free shopping not always the bargain it seems

And here’s a really interesting story about being a freelancer in America. (Which I did not write.) It’s not so lucrative here!

And lastly, the view from my “desk”:

My PA is attentive but not that effective.
My PA is attentive, but not that effective.

Why do we need 3% economic growth to keep unemployment stable? – Part 2

This series started yesterday when I started wondering about the exact reason we needed economic growth to keep the unemployment rate down.

I wrote an introductory post then, explaining I was going to do some learning in public.  (The risk of embarrassing myself is real). Now I want to dive into this a bit more.

It’s true we need economic growth to prevent the unemployment rate rising. I checked and important people believe it.

RBA Assistant Governor Chris Kent has specifically linked changes unemployment to trend growth. “Since about mid 2012, Australia’s GDP growth has been a bit below trend and so the unemployment rate has been rising gradually.”

And he has given us this excellent graph:

Recessions send unemployment spiking. And so can low growth.
Recessions send unemployment spiking. And so can low growth.

Phew! That’s one thing I got right.

The link between economic growth and changes in unemployment is real and it has been formalised in a relationship called Okun’s Law.

Screen Shot 2015-09-09 at 8.47.18 pmI put the word out on Twitter for an explanation and I was swamped with awesome economists offering helpful explanations. Thanks to everybody.

This was the main thing I heard.  Basically:

  • Because of population growth you need growth in output to have jobs for the new people.
  • Because of labour productivity changes (people getting more efficient) you need more output or else you’ll employ fewer people.

This is a nice neat story. If you have 2 per cent labour force growth and 1 per cent productivity gains, you need 3 per cent growth. It’s mathematically sound. I learned something.

So is that it? Are we wrapped up? All silent?

I still find myself with questions. I want to understand things in more than just mathematical terms.

Productivity causes growth. It allows us to produce more, using the same. But we also need growth to compensate for it? This sends me into something of a chicken and egg loop.

I’m aware that chicken/egg scenario is why economics uses maths so much. Supply and demand need to be solved simultaneously. You can’t think through a market equilibrium slowly because you need an answer on both sides at once.

So I could stop here. But I have other questions.

If rising labour productivity is both cause and cure for unemployment, why is it spoken of in exclusively glowing terms? Would we not be as well off, in unemployment terms, without it?

And population growth causes economic growth too. This is what I believe, a belief reflected in articles like these:

Fewer people want to live in Australia in growth risk for RBA

RBA’s Glenn Stevens: Australia may need to rethink growth

If we did not have the population growth, would we still have stable unemployment? This remains my sticking point – my reason for wondering about the deeper reasons and implications of why we need 3 per cent growth.

Seems to me an important part of the existing population is employed creating space for the new population to live in.

While the productivity angle makes sense to me, the population one still gives me pause. Establishing the new capital stock to accommodate the lives of new babies and new migrants is a huge cause of economic activity. More roads, more shops for them to shop in, more buildings for them to live in, more pipes going to their houses, more hospitals for them to be sick in, etc.

New population consumes and works the same as the existing population; but also requires extra spending. I intuitively believe population growth causes a rise in employment so I can’t quite grasp that it’s a wash, unemployment wise.

Whenever I think about this question I think about Japan, where capital is being abandoned as the population shrinks, and (while unemployment is low) secure employment is a problem.

Perhaps I need to think about this differently? Perhaps I need some more empirical evidence? I’ll dive deeper and present what I find tomorrow.

If you have any thoughts on this topic or want to suggest some reading, please feel free to make a comment below.

Why do we need 3% economic growth to keep unemployment stable? – Part 1

I like to think of myself as not too stupid. When I don’t understand something, I like to dive into that.

  • Sometimes I learn new facts that help me make sense of what seemed like disparate and nonsensical data points.
  • Sometimes I learn what I thought were facts were not.
  • Sometimes I learn new theories of the world.
  • Sometimes I decide those theories are nonsense and the reason I didn’t understand the thing in the first place is that it makes no sense.

Searching out areas where I feel confused or uncertain is a useful way to figure out how to move forward. I try to shield from public view when these areas of uncertainty are to do with economics. But no more.

I believe we need high growth to keep unemployment stable. But I’ve never really understood why.

My economics education was a good one. But I never did honours – let alone a PhD – and it was a long time ago. They didn’t teach us everything, and I’ve forgotten plenty.

This is my way of saying I don’t know everything about economics. (Despite how obvious it is this is weirdly hard for me to type.)

What I’m doing here then, is going on a learning expedition. Trekking deep into territory that has been explored, but not by me. Maybe along the way I’ll learn something. Maybe even have some insights that are new to me. Maybe even have some insights that are new!? Most likely I will discover everyone else already knew something I didn’t.

This is part 1. I’m expecting to be able to put together a few more parts over coming days as I learn a bit on this topic. But for now, I’m going to write about a few of the preconceptions I have that give me the idea this is an important question to pursue.

  1. My sense is if the Australian economy saw population growth and productivity growth drop to zero it would have growing unemployment. But basic economic equilibrium theories would suggest that doesn’t happen. Why wouldn’t all the firms just produce the same again next year, using the same workers?
  2. My guess is that growth has in the past come largely from population growth. Which is weird. It suggests adding new people to the population / labour force creates so much new demand that it props up not only their own job but other people’s jobs too.
  3. The global population is growing fast. But it may stop doing so within our lifetimes. At that point, population growth will stop contributing to economic growth. If population growth causes econ growth causes employment, the end of pop growth could be the end of employment.  That’s a nasty scenario. We may have to choose between the limits of the planet or the employment of its workforce.

At the least this will be a quick two part series where I explain the answer in part 2 and am forced to revise the first thing I said in this post. ;)

Please leave any helpful comments or suggested reading for me in the section below. I’ll write more soon.

Ross Gittins swings at reform, misses, falls flat.

Ross Gittins has just published an article making a case against the reform obsession that grips the current political class.

I like Gittins and I’m always interested in a smack-down of a new religion, so I started reading eagerly.

But Gittins was unable to deliver a smackdown. Unable to deliver much at all.

See if you can spot the fallacy here:

“Simple statistical theory should be telling economists that a protracted period of below-average growth is most likely to be followed by a period of above-average growth.”

Whew, that’s embarrassing.

The nicest thing I can think of to say about it is there are economic models suggesting poorer countries grow faster than richer ones. They imply a degree of catch-up – perhaps those were the theories Mr Gittins was fumbling for?

But the problems with the article go beyond just one dodgy paragraph. His whole case against “reform” depends on the idea that the economy will grow just fine without it.

That’s certainly possible. I actually think the economy might well be about to bounce back a bit. But that doesn’t make a case against reform.

Economists know you get growth from adding more people and machines, and then you get extra growth for free via productivity gains. Productivity gains are the really good gains because they come without real trade-offs. You don’t need more ingredients, just a better recipe.

Productivity gains can come from two main sources.

  1. Better ways of doing business (innovative ways of combining inputs inside the firm), and
  2. Better-functioning markets (innovative ways of combining inputs outside the firm).

Why do we obsess over the latter one? It’s where we have our hands on the lever. Governments can’t really control innovation at the firm level. Not in the short-term at least. They do control market regulation.

So “reform,” that buzzword that’s as popular as a buzzard, refers to this latter issue. Making markets work better.

Sometimes they work better with less regulation (economists arguing against the taxi cartel, for example) sometimes they need more regulation (economists arguing for a carbon tax or higher capital requirements for banks.)

Whether or not you get the first kind of productivity improvement, there’s a chance you can bring growth into existence by focusing on the latter.

Growth matters.

The desire for growth is not about the hope of self-enrichment. The sad fact is growth remains the only way we know to ensure full employment. Unemployment is horrible. It hurts people and ruins lives long-term. Meanwhile higher growth can bring better standards of medical care, lower infant mortality, safer foods, more opportunities to work in satisfying jobs. So the hunt for growth is a humanist pursuit. Obsessing over it is a risk-averse social scientist’s way of trying to maximise human happiness.

Gittins seems to think gambling on future growth is a great idea.

When you convince yourself, as many economists have, that the only way we’ll see faster growth and further productivity improvement is for governments to engage in extensive reform, you’ve convinced yourself our economy is deeply dysfunctional.

Optimism is an endearing quality in a friend, not an economic policy-maker.

The great thing about market reform is it should work whether or not we’re getting the other kind of productivity inside firms. It’s additive. If Mr Gittins’ optimism is rewarded and we see a great surge of firm-level productivity unleashed, it won’t be a mistake to have unleashed market-level reform too.

There are strong arguments against reform. Arguments about the extent of economic encroachment into our lives. About materialism and reification. About market power. About whether we can shape economic growth in ways that brings us more of the good and less of the bad. These are good arguments we should all be engaging in.

It’s a shame those column inches didn’t attempt such an engagement.

Want a glimmer of hope? Look at this.

Things look bad.

Today, economic growth figures are coming out (at 11.30am) and for the first time in ages, people are predicting negatives.

Recession talk is in the air. I have my doubts about that. But the talk alone is very suggestive, and there are lots of reasons for it.

Chinese markets are falling, our own stock-market is in a sustained slide, and with all that bubble talk our housing construction sector looks weaker.

Screen Shot 2015-09-02 at 8.36.13 amIs Australia about to get a surge of growth, or a slump?

One way to answer that is to look at what business is up to. In May, we checked in with business spending plans and they gave me intestinal cramps. Things have changed, sort of…

Capital expenditure is what makes your business bigger, lets you employ more people, etc. It’s one of the big signals of future economic growth. And it’s going backwards.

The mining sector is in such a funk that it won’t bring us any growth. This next graph shows the plans the mining industry has for capital expenditure.

The grey bars show actual expenditure. The last one for 2014-15 is the lowest in four years. The white ones are plans for next year. The latest white bar (3rd estimate for 2015-16) is the lowest 3rd estimate in five years.Screen Shot 2015-09-02 at 8.25.14 amThat is having a seriously negative effect on Australia’s total capital expenditure. Check out the increasing steepness of that slope at the end.Screen Shot 2015-09-02 at 8.26.15 am  Manufacturing won’t save us.Screen Shot 2015-09-02 at 8.25.06 am But there’s other parts to the economy. Other selected industries are investing more than ever.

Other selected industries sounds like a miscellaneous grab-bag. But check out the labels on the vertical axes. This is a massive part of our economy. Not only that, it just invested more than it expected, which is more than ever. Plans for 2105-16 are more modest, but increasing fast.Screen Shot 2015-09-02 at 8.24.55 amOther selected industries* includes:

Electricity, Gas, Water and Waste Services
Construction
Wholesale Trade
Retail Trade
Transport, Postal and Warehousing
Information Media and Telecommunications
Finance and Insurance
Rental, Hiring and Real Estate Services
Professional, Scientific and Technical Services
Accommodation and Food Services
Administrative and Support Services
Arts and Recreation Services

In other words, a whole lot of important parts of our economy that we can actually believe in.

And there’s one simple reason why they might grow. Our falling dollar.

Screen Shot 2015-09-02 at 8.57.45 amThe fall in our currency is a bit like being a lobster in a boiling pot of water. Unlike stock market fluctuations it happens slowly and we don’t pay it so much mind. But it matters a lot.

The slow growth of non-mining industries in the last few years can be attributed to our high dollar. America’s incredible recovery from its recession in the same time period can be explained by its low currency.

A falling dollar could flip slow growth on its head. And we’d be too busy worrying about mining to notice.

The current mood of widespread gloom may prove to have been peak fear.

*This whole private capital expenditure data-set excludes healthcare and social assistance, which as we know, is one of the fastest growing sectors of the economy. In Melbourne, a billion dollar new cancer hospital is being built, for example. That’s not in the stats. Further reason to hope.

Amazon is lazy in the one place it should be hard-working.

The New York Times published a great story about Amazon 10 days ago. I’ve thought about it a lot. Amazon treats its employees harshly. It fires a lot and forces even more out by making their lives hard.

I wrote a story last week about how this won’t work well. Most people can’t hack 80 hours a week. Our productivity drops. But a tiny percentage thrive.

Amazon wants to hire the best and brightest. And that’s terrific.

red=smarrrrrt.
Top 2.5% of smart people are marked in red

There’s a bell curve of bright people. Amazon wants the ones on the right. The red group who represent the top 2.5 per cent. And it is prepared to pay for them. Pay is very good. Software engineers get $76,00 to $148,000 a year in salary. And there are big stock bonuses if you can hang around.

But it also wants to hire the people who want to work first and live second. The 80-hour a week crew. That’s great. Those people need a place to work that welcomes people like them.

Amazon has a right to target such people and it should expect benefits. Here’s a distribution of people by how much they want to work. Amazon wants the red people on the right.

red = diigent.
Top 2.5% of hard workers are marked in red. Emails after midnight! Woo!

But here’s the thing. The red group in graph 1 is not the red group in graph 2.

There is probably some correlation between the two groups, but it will be imperfect.

Here’s a hypothetical distribution of best and brightest, with the people from the top of the willing to work graph marked red.

red lines are tough bastards.
Where the hard workers might fall on the ability spectrum.

Amazon has a problem. The people they want to hire are very few. It can hire smart people, but they won’t all be willing to work hard enough. It can hire hard workers, but they won’t all be smart enough.

There are two ways of solving this problem. The easy way and the hard way.

The easy way is to throw people in the deep end and see who swims. This is a scatter-gun approach that says “recruiting candidates with a high chance of success is hard, and we are lazy.”

Screen Shot 2015-08-24 at 8.40.08 pmThe hard way to solve the problem is to narrowly recruit more people with a higher chance of success.

Rather than hiring “high volume recruiters” maybe they should look into hiring “high-accuracy recruiters.” This will cost money in the short-run. But it will probably be smart in the long-run.

Staff learn on the job. I’ve never had a job where I reached my potential in my first year. By burning so many staff so fast Amazon misses out on improvements. Working people to the bone in their first six months probably gets as much performance from them as they would achieve if they’d been there six months longer.

It’s not smart and the PR cost of hiring so many people that hate working there has blown up.

If you add the “externality” effect of lives damaged, marriages ruined and kids’ birthdays missed, then the cost of Amazon’s lazy recruiting strategy is even higher.

There is a moral imperative for Amazon to stop hiring so widely. Seriously. Stop it. Now.

The one piece of good news in all of this is that the New York Times piece will probably weed out some applicants who are unsuited for the company.

I suspect the names of journalists Kantor and Streitfeld are mud at Amazon HQ right now. But their expose may have actually done the company a favour.

The puzzle of where men outnumber women, and vice-versa.

The concentration of men and women in various parts of Victoria is stronger than you’d expect according to random variation.

There’s some real trends in place that seem like a genuine puzzle. (These charts are made from fascinating data released by the ABS this week.)

Screen Shot 2015-08-20 at 11.51.11 am Fully a third of postcodes have a gender ratio that’s skewed more than 5 per cent one way or the other. There are slightly more postcodes where women outnumber men by 5 per cent (79) than those where men outnumber women by 5 per cent (62.)

That’s to be expected because there are 99 men per 100 women in Australia.

But where men outnumber women they do so by a lot more.

The top result is Port Melbourne Industrial, which is a place I’m surprised anyone calls home. And indeed there are just 9 males to 4 females (ratio 2.25). Security guards who sleep among the containers? Who knows.

The next one is Braeside. A similar story with a ratio of 12 men to 6 women.  Then Alps East with 18 and 9. I’d like to imagine those 18 men have swags and wake each day to see their horse breathing steam under an old ghost gum.

Anyway, we can discount those three because the samples are tiny.

Screen Shot 2015-08-20 at 11.50.54 am
Female dominated suburbs include Chelsea and Rosebud. More men live in Seymour. Is this another case of nominative determinism?

Rosedale is the real thing. 2645 men to 1863 women (ratio 1.42). A little hamlet out in the Latrobe Valley, it is probably full of people working in the coal-fired electricity industry. A hard place for a fella to get a date, no doubt. Although the photos on the Rosedale Tavern’s facebook page suggest that’s where the local ladies go. (and it’s not as bad as East Pilbara where men outnumber women 350 per 100.)

It’s easy to explain some locations of high concentrations of men by reference to workforce pressures. They are found around heavy industries and agriculture.

Some are more tricky. Why is Footscray so full of testosterone? Why Docklands?

And why do women crowd into the expensive eastern suburbs? We see Burwood, Camberwell and Armadale in the top 10 with less than 90 men per 100 women.

Toorak, the suburb most emblematic of wealth, has a ratio of 91 men to every 100 women. Are there many young single women there perhaps? Or families whose daughters live with them for a long time?

The CBD , meanwhile, has a ratio of 107 men to every 100 women.

Perhaps we are seeing women self-select into suburbs they deem are very safe, while men are more willing to live in supposedly rough areas?

Do you have another explanation? Please feel free to share it in a comment below!

EDIT

Commenter Matt points out that women live longer, which is a very good point (that I wish I thought of). This is definitely part of the explanation as we can see in the graph for the most skewed suburb, Burwood:

Screen Shot 2015-08-20 at 1.21.51 pmBut it’s not the whole explanation. If it were, Footscray would look similar up til the mid-40s, when men start dropping off. Instead Footscray has more men at every age.

Screen Shot 2015-08-20 at 1.33.30 pmI think the puzzle has had a lot of pieces added, but there’s still some blank spots… Any further ideas?