Tag: economics

What is a “Christian” response to Australia’s foreign aid cuts?

Lets face it. I probably wouldn’t have voted for Labor at the next election anyway. Like millions of other Australians, I’m feeling completely disenfranchised by the major parties in Australian politics.

While part of this is because neither side is particularly likeable – and that goes double for the leaders of the parties. Another part of the problem driving my political apathy is that I don’t think it makes a huge difference who is in power in Australia.

Both major parties are essentially centrist. Both parties have pretty sound credentials. And while extremist pundits on either side of the spectrum want to run around saying that the sky is going to fall in if the other party gets/stays in power – it’s simply not true.

We’ve got it pretty good in Australia. Ridiculously good. Our first world conditions are improving. Yesterday’s luxuries are necessities, tomorrows luxuries are becoming necessary quicker than ever before. So complaining about the political scene in Australia where neither major party is out to oppress a minority, or start a war, is pretty much the epitome of a #firstworldproblem.

Because we’re a first world country there are many people – myself included – who think that the decent, and necessary, thing to do is to provide aid to developing countries to help raise the standard of living and save lives across the globe.

This is, if you’re not into altruism, good foreign policy. More stable countries around the globe means less wars, less refugees, less poverty. To channel Toby Ziegler’s “free trade stops wars” argument – we’re better off and more secure when other countries are better off and more secure.

The Labor party has been accused of back-pedalling away from their surplus promise faster than an off balance unicyclist. But at some point, a promise isn’t worth keeping. If the promise shouldn’t have been made in the first place. Sometimes you’ve just got to wear changing circumstances on the chin. Sometimes you’ve got to admit you were wrong – with a flat out mea culpa, a “deficit we had to have” speech, or an explanation that while economic times have changed, and while a surplus was the government’s best intention, certain other social and moral obligations have to be kept… any of these things is a better than the alternative the Australian Labor government has settled on.

How many foreign lives need to be cut short so that Labor gets its $1 surplus? What is it worth to gain that surplus, but forfeit our nation’s soul in the process.

Here’s what’s happening. Labor is cooking the books a little, to allocate $375 million of foreign aid spending to Australia’s refugee program. Ben Thurley, from the Micah Challenge, says this is allowable under Australia’s aid obligations.

He says:

“The Foreign Minister says this isn’t a cut to foreign aid, and in a strict sense he is right. Under Organisation for Economic Cooperation and Development (OECD) rules (pdf), governments are allowed to report the first 12 months of in-country support costs for refugees – the official term for “aid”. The Foreign Minister even points to three donor countries who claim more refugee assistance as aid than Australia is reportedly planning to claim, the US ($895 million in 2010), France ($435 million in 2010) and Sweden ($397 million in 2010).”

While it might not “strictly” be the case, it’s pretty clear what the government’s intentions are – a member of their own back bench is speaking out against taking the politically expedient route to a surplus.

This aid saves lives. It improves the status quo in measurable ways. Here are some stats from World Vision, via the Micah Challenge again:

World Vision has estimated that in the last year alone Australian aid money saved at least 200,000 lives, provided education for more than half a million children and gave disaster assistance to more than 10 million people. It is these outcomes that are threatened by this plan.

Aid works. It’s not enough to throw this burden to Christian charities, and support them with your dollars – the same charities, who have people at the coal face in these countries, are calling for the government to be more generous, not less. Compassion has this useful mythbusting post on the benefits of foreign aid.

TEAR Australia is also speaking out against the proposed changes.

They’re calling people to take action – and providing some tips and easy(ish) ways to do it.

Tim Costello, World Vision CEO, wrote this piece in The Agesumming up the situation nicely in terms of how the Australian public at large should respond…

“They know that funds designated for poor communities beyond our shores should not be plundered to support the government’s own political interests. Australians will rightly view this decision as a sleight of hand, not least because it is driven by a desperate political imperative to reach a budget surplus.”

Both he, and the Micah Challenge, point out that there’s a bit of a mystery in terms of what programs are going to lose funding via this move.

Each of these groups is a Christian aid group. Doing good work in less fortunate countries, in the name of Jesus. And making a difference. You suspect if they could do the job without government aid, they wouldn’t be all that concerned about the cuts. But concerned they are.

The Australian Christian Lobby has also issued a statement – calling for the government to rethink.

“The government certainly has an obligation to fulfil its commitment to asylum- seekers and refugees in Australia but to do this at the expense of poverty-stricken communities overseas is unfair,” he said.

He said it’s the second time this year the government has not followed through on its commitment to foreign aid.

“In May the government announced it would delay increasing aid spending to 0.5 per cent of GNI by 2015,” he said.

“Australia’s current commitment stands at 0.35 per cent of GNI – well short of what is needed to eradicate poverty and help developing nations implement poverty-reducing policies,” he said.”

Should Christians respond to these cuts?

Evangelical Christians have been rightly scared by the “social justice” or “social gospel” movement – a product of the approach to mission adopted by the ecumenical movement in the mid-to-late 20th century. Basically people from a bunch of different Christian traditions got together – and because they couldn’t agree on what the gospel was, decided to focus on what they could agree on – looking after the poor. So they saw gospel work, God’s mission, as work on social transformation, the liberation of the poor and oppressed. That’s a little simplistic – there was also a group who genuinely think looking after the poor is all we’re cared to do, with a mantra that goes something like “preach the gospel always, never with words,” it seems they collapse these verses from Luke 4 into just the bits I’ve bolded:

“The Spirit of the Lord is on me,
because he has anointed me
to proclaim good news to the poor.
He has sent me to proclaim freedom for the prisoners
    and recovery of sight for the blind,
to set the oppressed free,
19     to proclaim the year of the Lord’s favor.”

Evangelicals – and I’m one of them – are right to emphasise that part of the church’s role – the defining part – is to proclaim the good news. That’s how poor people, and all of us, are truly liberated.

But as is the case with most correctives – the pendulum has swung to the point where evangelicals now don’t want to touch anything that looks like social justice. Preferring “just to do gospel work.” I read a tweet just yesterday that basically wrote the whole movement off.

This is silly. How can we claim to love people if we aren’t seen to be loving them. This, again, is where ethos – our character, how we live, has to form part of how we communicate our message. We love people because God loved us. But if we want to be loving people by sharing the gospel, part of that means living in a way that makes it clear that we believe our message. That it shapes and excites us.

Social justice – provided it is performed by Christians, operating as Christians, is gospel work. It underpins proclamation. Social justice without this intent is still good work.

Social justice is there, as an imperative, for the people of God, in both the Old and New Testament.

The Micah Challenge, for example, takes its name from a cracker of a Bible verse – from Micah 6:8.

He has shown you, O mortal, what is good.
And what does the Lord require of you?
To act justly and to love mercy
and to walk humbly with your God.

Which, coupled with a little bit of James 1:27…

27 Religion that God our Father accepts as pure and faultless is this: to look after orphans and widows in their distress and to keep oneself from being polluted by the world.”

Jesus says looking after the poor is a sign that we belong to him… in Matthew 25.

34 “Then the King will say to those on his right, ‘Come, you who are blessed by my Father; take your inheritance, the kingdom prepared for you since the creation of the world. 35 For I was hungry and you gave me something to eat, I was thirsty and you gave me something to drink, I was a stranger and you invited me in, 36 I needed clothes and you clothed me, I was sick and you looked after me, I was in prison and you came to visit me.’

37 “Then the righteous will answer him, ‘Lord, when did we see you hungry and feed you, or thirsty and give you something to drink? 38 When did we see you a stranger and invite you in, or needing clothes and clothe you? 39 When did we see you sick or in prison and go to visit you?’

40 “The King will reply, ‘Truly I tell you, whatever you did for one of the least of these brothers and sisters of mine, you did for me.’

Looking after the poor is part of how Christians serve our king.

How should Christians respond to these cuts

If the charities who look after the poor around the globe – in the name of Jesus – are saying that foreign aid is necessary for making change, saving lives, and caring for people, and if caring for people is something that we’re called to do, then it follows that we, as Christians, should do what we can to see that aid continue… doesn’t it?

But what should we do? As Christians?

Pray. Definitely.

Give. Absolutely. The charities mentioned above do great work, in different and creative ways. So by all means – give directly to these charities. But they’re saying that’s not enough. The small government libertarian in me wishes this was an issue that could be solved without government intervention. By individuals. And there are plenty of generous individuals out there. But it’s not a level playing field – and libertarianism needs a situation where people are treated as equals, and where opportunities are essentially equal across the board – and that’s not the situation here.

Speak out. This isn’t just about awareness raising. This is about participating in a democracy. As Christians, but also as citizens. This is a political decision. The charities I’ve mentioned above have pretty much unanimously suggested that we respond by contacting our local federal members, and the leaders of each major party – which is as simple as googling their name and sending an email.

I think this is a good idea.

I realise I’m turning into a complete lefty at times – which is weird. I’ve only ever voted conservative. But I like to think that there are certain political issues that transcend a really arbitrary political spectrum that has been imposed on us through lack of choice, and the political reality of a two party system. So much complexity gets lost in that pursuit of political simplicity.

I’m hesitant to push hard and fast political conclusions here – but a truly Christian response is shaped by Jesus – who sacrificially gave himself up for those who follow him, out of love. At great cost. We’re called to imitate him. He calls us to love the poor. If the best way to love the poor, around the world, is to encourage the government to spend money on doing that – then we should. Right? You may think there are better ways to do it – and I’m more than open to suggestions. Perhaps these charities are unanimously wrong.

But I think Tim Costello’s right – the public knows this is a politically expedient move to save a stupidly promised surplus – so I wonder if a bit of public pressure, in the media, is called for. So don’t just send your email to your MP, send it as a letter to the editor of your paper, call a talk back radio station when this topic comes up. And if you’re in a situation where you can send a media release, on behalf of a Christian organisation – do that.

Here’s a brief sample. To finish. It covers the bits I’ll be including in my own emails to local members and party leaders. But this sort of thing works best if people are putting their own thoughts into their own words.

I really like something that a very wise friend of mine said on this front recently – he said it’s a real shame that Christians have a reputation for being conservative when it comes to this sort of political or social issue – it’d be great if we could be seen to be progressive.

Church X calls for government to increase, not slash, foreign aid commitment

Church X is dismayed by recent reports that the Federal Government is looking to slash foreign aid spending by $375 million to fund refugee care and in a bid to deliver a surplus.

Church X recognises that economic times are tough both domestically, and internationally, and suggests that wealthy countries like Australia should see this as an opportunity to generously invest, and increase foreign aid.

Church X spokesperson X said that while foreign aid is a smart investment in global stability, it also saves lives.

“We believe in the sovereignty of nations, but we also believe that God has generously provided our nation with wealth, and that this wealth presents an opportunity for Australia to be generous to fellow humans around the world.”

“We are dismayed that the government is looking to cut aid when it is needed most. Times of economic instability are precisely the times when wealthy countries should be concerned about the poorest of the poor.”

“We believe that all human lives are of equal value, because all humans are made in the image of God, and that if it is in our power to save lives – and if this is something our nation is obliged to do – we should be using the resources God has provided our nation to be generous to others.”

“As Christians we believe the ultimate display of generosity has been offered to all of us, through the death of Jesus, on the cross, in our place. This sort of sacrifice for others is the model we seek to follow, and a model that has led to significant social transformation in the last two thousand years.”

“Australian charities, with workers on the ground in those countries Australia’s aid benefits say that foreign aid is essential for saving lives. Our charities do great work. But it’s not enough.”

“On this basis, Church X is calling on the Federal Government, and our local member NAME, to increase Australia’s commitment to foreign aid to a level that makes Australia the most generous nation in the world, not decrease our aid spend in pursuit of a politically expedient headline, or a victory in a weekly news cycle.”


Tumblrweed: Stockbrokers looking dejected…

Here’s a sign of the times. Stockbrokers with their hands on their faces. It’s funny when you contrast it to the brash way stock brokers present when they’re giving stock tips or talking about the market when they’re on television.



The best things in life cost more than petrol

Crying over cheap milk

A long long time ago I posted about milk prices. I suggested they were too high. Or that people should complain about them, rather than about the price of petrol. Milk, is, afterall, completely renewable.

Pure Milk
Image Credit: Flickr

Now. I know farmers work hard to earn a living. And I hate that their prices are essentially controlled by our retail duopoly. And I know the margins are pretty low in milk farming because they are being, no pardoning of this pun, milked for every drop.

But I don’t share the dairy lobby’s angst when it comes to the price of milk (see another story where they call price drops “un-Australian”) in Coles and Woolworths (Update: Franklins and Aldi have joined the price war).

The supermarkets are having a price war. So what. This happens all the time in retail. But when it comes to milk, and the price of milk, this is a useful pawn in an economic game. Milk prices are determined by a contractual arrangement. And the contracts are up for renegotiation soon. That’s all these calls to boycott Coles and Woolies milk are. And they’re a little dumb.

Using milk as a loss leader to attract customers (and promising that they’ll wear the costs of dropping the price, rather than the farmers). Now, I am all for lobby groups looking to protect their interests. That’s how capitalism works. So I think it’s great that the dairy guys are out their suggesting Coles and Woolworths won’t wear the cost of a price drop for long. But this argument kind of misses the point of loss leading.

I’m sure the big two would love to have the farmers making no profit on their labours at all – but what they wouldn’t like – is for all the milk farmers to go out of business at once. Leaving them with no supply. Loss leading is essentially a marketing tactic, and I’d hope (perhaps naively) that the cost of dropping the price of milk to $1 a litre, is coming from the marketing side of the supermarket budget, rather than the procurement side. Choosing a staple product like milk to fight with a competitor who in just about every sense offers an identical product is a great move.

Unless there are farmers out there who like selling their milk at below cost (and already the lobby groups seem to be making noise about that being unsustainable) – I’d say the big two will wear the costs for so long as it is making them money to do so. There is no benefit to them if the milk industry dries up. There is benefit to them if they steal market share off one another. They’re targeting each other. Not the farmers. Obviously they want to cut down their overheads as much as possible – but it’s not a particularly sustainable business practice to be running your suppliers out of business in a price war. The whole idea of a loss leader is that they lose money there because nobody just goes to the Supermarket to buy milk, but they might pick one supermarket above the other if their milk is cheaper. It’s marketing. The money to do this probably comes out of a marketing budget.

If they figure out how much they’ll lose selling milk at below cost for a year (say 30c a bottle) and how much profit they’ll make per customer gained, across their whole basket or trolley of goods (say $50) then it’s a pretty simple question to answer… the idea that this will be passed on down the chain is a bit odd – especially since it’s only on their branded lines and the prices of the other, no doubt more popular milk (based on observation at the fridge in the supermarket) have not changed (as far as I know). This is just two companies trying to one up each other to get customers through the door. It’s marketing.

How to fight this battle
Calling giving the average Australian a bargain “un-Australian” is not a winsome PR strategy. It looks like whinging and whining. If the milk lobby really wants to fight against these chains, if they really want to hurt the supermarkets, they should team up with butchers and greengrocers and urge people not to boycott Coles and Woolies milk, but rather to embrace this as a chance to hit them in the hip pocket. If you want to punish them for being “Un-Australian” you should be encouraging people to snap up the cheap milk and buy nothing else from them in protest. The milk industry should embrace this as an opportunity for people to rediscover the joy of drinking milk. Start promoting making milkshakes at home. And then encourage people to get their veggies from a fruit market and their meat from a butcher – and see how long this lasts.

Seinfeld and Economics

While I’m on the subject of economics, if you like Seinfeld, and want a crash course in economic principles, then this is the website for you. It uses clips from the sitcom to teach economic principles. Who knew, the show wasn’t about nothing afterall – but about economics.

Here’s an example that teaches you about game theory, and cost-benefit analysis, and dominant strategy.

“George thinks he has been offered a job, but the man offering it to him got interrupted in the middle of the offer, and will be on vacation for the next week. George, unsure whether an offer has actually been extended, decides that his best strategy is to show up. If the job was indeed his, this is the right move. But even if the job is not, he believes that the benefits outweigh the costs. “

The site is called Yada, Yada, Yada, Econ.


It’s more than possible that I have posted this exact infographic previously. But I like it. It’s about coffee. And it is interesting.

From Mint.com.

Gay marriage, ethics and economics

The issue of gay marriage is probably going to raise its head again in the next term of government. It’s been on the periphery of this campaign, though the Greens and Family First are doing their best to bring it front and center. One of my friends emailed me yesterday saying:

“The fact we live in a country that doesn’t allow gays to marry I find completely baffling.”

He suggested any opposition is due to either homophobia or a belief in arbitrary rules.

I responded. I actually don’t have a problem with the government allowing gay marriage (what are they doing defining marriage anyway?). My concern is that churches be able to legally conduct marriages for Christians without having to also conduct gay marriages in order to keep their marriage licenses. I think there is actually a pretty sound economic argument for the government positively discriminating for stable heterosexual relationships. It turned into a bit of an email discussion – here are my points.

Why shouldn’t governments protect, incentivise, and legislate benefits for relationships that can produce children. Stable families with parental input from both genders are the “ideal” condition for raising children. Why shouldn’t positive legislation exist to promote that ideal? Economically speaking. After all, as Houston, W, says: the children are our future.

If the government moved away from defining marriage at all – and let anybody call themselves married – but maintained the benefits they provide for families and couples with children – then I wonder if that would defuse the situation? If they framed it not as “banning gay marriage” but as the provision of tax incentives for reproduction for heterosexual families.

It’s discriminatory and a restriction of the kind of freedom Christians should be advocating for to deny gay couples “partnership” rights when it comes to health and estate benefits.

I think the whole debate is framed really unhelpfully because the government has taken on more than its fair share of responsibility.

What the government should be doing is not discriminating against gay relationships, but discriminating for stable heterosexual families.

It’s comparable to indigenous benefits – I was not born indigenous, I had no say in being born non-indigenous. But I, mostly, have no problems with the government trying to incentivise better health and future outcomes for indigenous people by recognising a problem and providing financial incentives for education (Abstudy).

positive discrimination for a subset of the community is not necessarily the same as discrimination against another subset of the community. And governments do it all the time (abstudy and the other examples I mentioned before). Any policy adopted by governments comes at a cost to other proposals.

For example, the “Building Education Revolution” could be said to have discriminated against any public service that wasn’t an educational institute. A hospital couldn’t have a school hall funded under the program – because a hospital isn’t a school. It serves an important purpose and deserves government funding, but the funding will meet different needs because of the different nature of the buildings.

Equally, the program has been shown to be a lemon, because some schools (or education departments) have abused it. This abuse doesn’t mean that the program was bad for the schools that weren’t abusing it, nor does it make it a bad program (in the same way that some bad parents collect government funding). It was a policy designed to maximise the positive of schools having halls.

I also have no problem with the government positively discriminating for mothers (who receive family payments), retirees, the sick and disabled… one could argue that they should also incentivise being gay because gay couples are likely to both work, and generally1 take less time off to look after their children, and thus pay more taxes.

1I understand that some gay couples have children. I don’t think this is child abuse, but I also think different genders have different input into the lives of their children.

Benny on the mining super tax

Speaking of economics… my almost resident economically minded friend Ben has kindly produced a three part series on the Mining Super Tax that everybody keeps banging on about in the news. If you’ve been wondering about the economics of the issue, then wonder no longer… all will become clear.

The Resource Super Profit Tax (RSPT) falls into the deepest pit of my taxation system interest. Much has been written about it by the mainstream papers, much of it oddly conflicting. The source documents of note can be found in here (pdf) and here.

At present, mining companies have to pay royalties, which are payments made to the states for taking their resources. Comparatively, the RSPT will tax profits, or more descriptively, will tax the value of the resource at the taxing point (which seems to be a derived value at the mine gate) less all allowable costs in getting the resource to the taxing point, such as exploration costs, mine/well development costs, processing and haulage costs. The stated intention of the RSPT is to collect an appropriate return for the community from private firms exploiting non-renewable resources, via implementing a taxation system that responds to changes in profits. Fair enough.

The mining companies have complained the tax is too high, and that it will stunt business investment, and thus impact on economic output (and therefore employment). The Government was of the opinion the RSPT will “remove impediments to mining investment and production…[and] encourage greater investment and employment in the resource sector”. At face value, the logic would be that higher taxation or decreased profits would reduce investment, however it is the intricacies of the tax that suggest this might not be the case.

The real intrigue about this tax is its application to company’s losses. Articles have thrown around the idea that it is a brown tax, which isn’t the case, though it is understandable why the comparison is being made. Similar to a person’s income tax, a company will be able to use any of its costs of the project as a type of tax deduction. Importantly, as most mining companies are likely to spend the bulk of a project’s costs during the initial phases when setting up a mining process, which will likely also be a period where they make little revenue or profits to offset their costs against, they will be able to carry their costs forward to be deducted as a loss against future income (or deduct them against profits made elsewhere if available). Due to the delay between accruing costs and receiving the credit, the cost offset will grow at the long term government bond rate. This is all fair enough.

However, controversy has stemmed from the initial announcement which suggests that the RSPT system provides that if the company never makes a profit to offset these costs against, they can simply get this amount payed out when they wind-up the project.

This effectively means that the Government will be funding project start-ups, and effectively taking on some of the risk of the project. For example, a new project might be to develop a coal mine at the cost of $1 billion. Ten years later, the coal mine may not have ever made any profits, so the Government may not have received any revenue from it, but will have to pay the company 40% of the $1 billion (grown at the long term government bond rate, so the $1 billion may have grown to $1.1 billion over the ten years). However, this potential cost to the government will be offset by potentially higher revenues from decent mining projects (which, in Queensland’s case, given the absolutely booming situation surrounding global coal demand and prices, will be a lot).

What is a human life worth? $6.1 million

Behavioural economics fascinate me. Here’s a story about a guy named Cass Sunstein who’s a friend (and loosely speaking, an adviser) of Obama’s, from the University of Chicago, who wrote a book called Nudge, it sounds Gladwellesque. It might be my next holiday read…

Here’s a bit of a summary from the compelling NY Times profile.

In “Nudge,” a popular book that he wrote with the influential behavioral economist Richard Thaler, Sunstein elaborated a philosophy called “libertarian paternalism.” Conservative economists have long stressed that because people are rational, the best way for government to serve the public is to guarantee a fair market and to otherwise get out of the way. But in the real world, Sunstein and Thaler argue, people are subject to all sorts of biases and quirks. They also argue that this human quality, which some would call irrationality, can be predicted and — this is the controversial part — that if the social environment can be changed, people might be nudged into more rational behavior.

Libertarian paternalists would have school cafeterias put the fruit before the fried chicken, because students are more likely to grab the first food they see. They support a change in Illinois law that asks drivers renewing their licenses to choose whether they want to be organ donors. The simple act of having to choose meant that more people signed up. Ideas like these, taking human idiosyncrasies into account, might revive an old technocratic hope: that society could be understood so perfectly that it might be improved. The elaboration of behavioral economics, which seeks to uncover the ways in which people are predictably irrational, “is the most exciting intellectual development of my lifetime,” Sunstein told me.

Sunstein now works with OIRA – which, being an acronym, is a government department. A department that looks at policy ideas and ways them up economically using a cost/benefit analysis that controversially assigns dollar values to intangible things… it has previously used these values:

The office’s administrators require that federal agencies express the costs and benefits of their proposed rules (lives saved, swampland preserved) in dollars. Moral principles, filtered through this cost-benefit analysis, find their way into confounding little boxes. A human life, the E.P.A. figured in a 2001 rule about arsenic and drinking water, was worth $6.1 million. (If an environmental regulation would save one life but cost $4 million, it ought to be put into effect; if it cost $8 million to save that life, the regulation would be scuttled.) Each I.Q. point a child lost because of exposure to lead was worth $8,346 over the course of a lifetime. A lost workday was worth $83. Many of these estimates used data from surveys — taken at malls, among other places — that asked passers-by how much more they would need to be paid to take on a job that carried, for instance, a 1-in-10,000 risk of death. Richard Posner, who has the most magnificent and chilly mind in this realm, used similar projections to price the benefit of preventing the extinction of the human race at $600 trillion.

Sunstein wants to bring this utilitarian approach together with his “libertarian paternalism” which would be very interesting indeed.

Why you shouldn’t drink bottled water afterall

Bottled water is for dummies. Anybody who has held a bottle of Evian up to a mirror knows that. It’s a joke perpetrated and perpetuated on us by the major softdrink labels – for whom it represents a license to print money.

If you buy bottled water (and I do) for any reason other than the fact that it’s a hot day, the water is cold, and softdrink is sugary and bad for your teeth, then you should check out this infographic.

If you live in that Australian town that banned bottled water (or Magnetic Island) then you should read this graph so that you have great statistics to use in your next argument.

Presented by Online Education
The Facts About Bottled Water

Jobs for the boys

The New York Times has an infographic today exploring the impact of the GFC on different age groups and demographics in America. It’s pretty fascinating. But it probably doesn’t directly translate to employment in Australia.

Men in America are sitting at an unemployment rate of 9.0% across all demographics, while women are at 7.3%.

College graduates fair remarkably better than non-college graduates, and people over 45 report much better employment rates than younger workers.

I assume this looks at people who want to be in work and aren’t though. Which is the traditional measure of unemployment – despite what some stupid government departments might suggest. Yeah, I’m looking straight at the ones who take the total workforce and subtract it from the total population…

If it did I’d be fairing well – as would people like me – with only 3.9% of white, 25 year old (and over) males with university degrees looking for work.

Find out how you score here.

Market politics

SMH Economics writer Ross Gittins has written a great piece on the similarities between modern politics and commerce. He touches on the status quo bias and the fact that for politics to truly work voters need to pay more attention to the details – which he says is the same for consumers in the economic sphere. This raises a question about where this theory would lead were it to be fully applied to the system – and I think non-compulsory voting would be a likely outcome – then the disenfranchised and disinterested wouldn’t have to vote, and the interested would be rewarded with a greater per capita say in the election of the government. The alternative is to see a merging of the two – which is essentially the ideology pushed by “small government” market economists who want to see the “free market” take ownership of economic development. If that ideology was taken to its extreme it’d be a “no government” ideology where the market controls everything. Corporations could take the place of political parties, taxes could be wiped out and the “head corporation” could be the one that achieved the highest level of financial support from the public/customer – this financial support essentially equals power, and power is lost if the corporation fails to develop services for the customer. It’s not that different from the current system. But it doesn’t work – because Government has to play a role in delivery of essential services that have no real market value – or that shouldn’t. Like education, health, child protection, justice, and environmental protection. Gittins makes an interesting point about why the Government doesn’t really work as well as it should… and it’s precisely because we’re largely disinterested.

“In any case, they know that, should they actually fix a problem, we’d be grateful for about a week before moving on to the next problem on our list. Because we take so little interest in the details of problems and their solutions, because we rarely follow up yesterday’s concerns, because our emotions are so easily swayed by vested interests or the media, the pollies learnt a long time ago that appearances matter more to voters than the reality of the situation.”

Church sharing financial misery

There’s been a bit of online chatter about the impact that the financial crisis is going to have on churches – the Sydney Anglican Diocese is perhaps going to wear the consequences more than anywhere else – which is sad, given that they train and resource most evangelical ministries in Australia in some capacity.*

“THE world’s richest and largest Anglican diocese has lost more than $100 million on the sharemarket and is investigating ways to cut programs and ministries across Sydney.”

According to the SMH the losses have been compounded by the fact they borrowed to invest.

“The Anglican Archbishop of Sydney, Peter Jensen, has written to clergy warning that the global financial crisis has caused significant losses. He said the diocese had borrowed money to invest and used the profits to build churches in 2007.”

In hindsight it’s easy to throw stones at that strategy – but is this ever “good stewardship” – the SMH headline makes accusations of “gambling” – which would seem inconsistent with their approach to investment in the business section.

*Though in my opinion too much stays in Sydney (this is purely to preempt accusations of backflipping following the discussion with Izaac a few weeks back…

Things I don’t Care About: The fuel subsidy

Premier Bligh has decided to scrap the 8c a litre fuel subsidy. I don’t really care. Anything the government is subsidising is being paid for by us (the tax payer) anyway. So it seems that I’ll get taxed less and have more money to spend on the things that go up in price. Balance. Plus, there have been a number of price hikes in recent years to cover increased fuel costs – and I haven’t noticed decreases to cover the drop in fuel prices since. So it should all just work itself out.

That’s what I think anyway. I wonder why all the lobby groups in the world are up in arms about increased costs when we’re still about 22c ahead of where we were six months ago. I tried to make our line on the issue consistent with my thinking – but keeping the customers (the tourism industry wants the subsidy) satisfied won the day. Oh well. More fool them.

Protectionism: A guest post

I often preface my posts on economics by saying “I’m not an economist” – I also often have discussions with my friend Ben – who is an economist – and based on his uni results and work history, a good one, before posting things. Today, rather than rehashing his comments on protectionism and the economics involved I’ll just reproduce them verbatim.


Okay, you have a bunch of people working in for an Australian company in Australia. They get $20 and all profits remain in Australia. Assume a competitive industry so they receive the fair market price for their goods.

Compare with an overseas producer, who has labour costs of $5 a unit. There are arguments that offshore employees are less productive than domestic workers, but I don’t know about that. Anyway, they also have export costs of $2 to transport the items to Australia.

Thus, per unit the offshore company is always going to make $13 more per unit. In a competitive market, the price should come down to the opportunity cost of producing the item. Given as many offshore competitors should be able to enter the market as they want, the price of the item at market value will be somewhere around $15. There is no way that this item can be sold at a rate covering the value of the labour in Australia.

What does this mean? Well, most likely the level of protectionism we have isn’t just keeping shirt prices high, but also wages. If there were true globalisation, that should extend to a worldwide labour market, and a close level of parity of wages.

If the company went overseas, it would increase demand for labour upwards, and labour costs would go up to $6 per unit. Some Australians would now not be able to find employment at the same level, and would take jobs at $19 an hour.

So those are the first degree effects. If the market was always competitive, this shouldn’t have much effect on the market price of the good. if the level of protectionism inflated the market price, then there should be some drop in the price of item. In the current situation in Australia, the latter is the case, and there should be a drop in prices.

The idea of free trade is that people displaced from employment would move elsewhere, generally to industries that the nation has a comparative advantage in.

Let’s explain comparative advantage.

Country A:
wheat costs 2 units to produce
computers costs 5 units

country B:
wheat costs 10 units to produce
computers costs 50 units

In this situation, country A can produce both wheat and computers for less resources than country B. However, thought of differently,

country A:
wheat costs 2/5 unit of computers
computers cost 2.5 units wheat

country B:
wheat costs 1/5 unit of sugar
computers costs 5 units of wheat

Country A has a comparative advantage in producing computers, B in producing wheat.

now, for 100 resources:

A could make 50 wheat or 20 computers. B could make 10 wheat or 2 computers.

A focuses on making its comparative advantage, computers. It makes 20 computers. It trades 3 computers and gets 10 wheat. It now has 17 computers and 10 wheat, which it could not have produced before. And country B has 3 computers, which it couldn’t have obtained before. Any linear combination between A trading 0 and 4 computers for wheat can result in both countries obtaining a different level than otherwise obtainable.

So I guess that is the basis for why trade benefits all countries.

You mentioned farmers in your post. And in particular rice. Here is my comparative advantage of rice production for Australia vs. the world:

Rice costs 1000 units to produce
all other goods (a basket of other good) costs 10 units

Rest of world
Rice costs 1 unit to produce
all other goods costs 8 units.

Work through that example. Australia should never produce rice.

One good thing about free trade is our rice industry should take a dive, which is fair enough. I still think our farming industry retains inefficiencies due to our ridiculous farm protection policies. I think when you think farm protection, you are thinking maintaining farms. I think it would just result in a shift in farming to more efficient products/farming techniques.

But back to my point, and I touched on this in my thesis, when people nearing retirement lose their manufacturing jobs, they don’t really shift into other industries. There is less incentive for employers to retrain them given they only have a few years of working left, and the workers have low incentive for a range of reasons (including the fact they are angry hold men). And this grudge remains well into retirement, leaving a group of people who will always be anti-free trade.

I also don’t buy the whole ethical argument suggesting they are exploiting offshore labour. I think this is generally used as an emphatic argument that carries little weight but often thrown against companies who source labour overseas. The first point alone doesn’t make much sense, that the workers don’t get a lot of money for their work. On so many levels. If they weren’t getting much money they wouldn’t be working. True, their conditions may be worse than ours, but better than their current standard. Allowing full free trade should resolve this issue, as noted above. It’s only when trade trickles to these countries that their progress in workplace development is stunted. those people might not be getting a “fair” wage, but then you have to extend that argument to domestic matters, where it would appear the workers much by mirroring the argument also not be getting a “fair” wage (but a greatly inflated one). The “loss of traditional skills” argument I don’t think is relevant, again refer to the comparative advantage deal, and if it’s a free labour market there should still be a required allocation to the relevant markets. I don’t like to use analogy, but in the western world, the proportion of people today compared to prior to the industrial revolution, not many now know how to tend the fields, hustle cattle, build cottages, etc. why the developing world needs to be further stunted for the argument of losing traditional skills just seems like a kick in the face.