Can we ever get road user charging to work?


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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

Screen Shot 2015-07-27 at 1.52.37 pm

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

How the media gets things wrong. A mea culpa

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


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

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

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


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

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

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

Here’s what I wrote.




Screen Shot 2017-01-13 at 5.28.05 PM.png

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

Including by this guy.


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

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

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

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

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

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

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

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

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

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

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

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

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

I discuss each of the topics below.


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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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


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

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

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

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

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

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

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

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


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

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

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

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

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


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

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

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

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

House price omens


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

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

I leave the post below for the sake of completeness.

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

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

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


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

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


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

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

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

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


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

Screen Shot 2016-09-20 at 1.01.30 PM.png

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

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

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

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

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

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

Screen Shot 2016-06-30 at 1.28.50 PM.png
The original. I like it, but not the headline an anonymous subeditor put on it!

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

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

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

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

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

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

– John F. Kennedy, 1961.

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

– Winston Churchill, 1942.

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

– Bill Clinton, 2008.

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

– Jesus of Nazareth, circa 0 AD.

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

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

– Sarah Palin, 2008.

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

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

For example:

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

– Croesus, circa 600 BC.

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

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

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

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

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

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

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

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

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

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

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

How memes show us the future of news.

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

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

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

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

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

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

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

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

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

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

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

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

On the production side:

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

On the consumption side:

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

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

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

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

-Slate Star Codex

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

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

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

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


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

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

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

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

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

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

Bring back core and non-core promises

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

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

Screen Shot 2016-06-23 at 9.56.44 PM.png
Labor’s policy list

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

But will it do them all? No way.

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

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

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

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

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

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

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

Why don’t politicians admit that?

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

They could make promises contingent on election outcomes:

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

Promises contingent on Budget outcomes.

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

Or promises contingent on other promises.

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

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

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

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

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

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

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

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


Treasury Island

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

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

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

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

Screen Shot 2016-06-17 at 5.09.12 PM

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.

Screen Shot 2016-06-17 at 5.15.56 PM.png

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.


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.


It was Andy.


“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.


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.

Screen Shot 2016-06-17 at 5.14.19 PM.png

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.

Screen Shot 2016-06-17 at 5.11.42 PM.png

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.


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.


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 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.


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.


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.


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


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.


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.


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.