Catallaxy Files

What was the total of Commonwealth Government grants provided last year? Don’t know? Nor do I. You see, there is no consolidated listing of grants – one needs to go through each Commonwealth Government agency and department to sum the grants. A friend in Finance once did this for research grants (not arts grants) and came to $9 billion.

Here is one grant from the Australian National Preventative Health Agency

Tracy Comans, Griffith University $463,442

The cost-effectiveness and consumer acceptability of taxation strategies to reduce rates of overweight and obesity amongst children in Australia

Childhood obesity is a health issue with serious co-morbidities and is increasing in prevalence in Australia. Whilst this issue has been recognised for some time, it is still unclear what the best solution to tackle it is. This research seeks to find the acceptability and cost-effectiveness of taxation of junk foods in halting and reversing the problem of childhood obesity. This study is unique in that it will directly involve consumers in identifying what strategies are likely to be effective and what conditions will be acceptable to the public in the fight against childhood obesity. The challenge of how to effectively gain community perspectives is a crucial consideration in public policy at the moment, and is addressed by this study. To guide the feasibility and successful implementation of effective population based approaches in the prevention of obesity in Australia, it is essential to gather information about how consumers will respond to large scale, yet sensitive, reforms. The information gained from this study will be invaluable to governments in determining the most feasible and publically [sic] acceptable strategies for confronting this issue.

Now the Health Minister Tanya Plibersek has ruled out a ‘fat tax’ saying

We have decided to actively educate and encourage Australians to adopt and maintain a healthy diet rather than to legislate.

I can’t imagine a Coalition Government introducing such a tax, so one wonders about the efficacy for a $0.5 million grant. These types of studies – asking people what they think about a tax – depend on the questions asked and usually are quite leading questions. As Peter Dutton has  said, the grant should be scrapped. Ms Comans must have better things to do than asking people whether they want to pay a fat tax.

More generally, though, I would like a Coalition government to greatly increase the transparency and accountability of government grants. In health, several agencies provide grants: the National Health and Medical Research Council, the Australian National Preventative Health Agency, the Department of Health and Ageing, the Health Communities Initiative, Health Care and Social Assistance grants and others, not to mention also those grants from State governments.

Then we have grants for community, culture and the arts. Grants for the social sciences (including political science) and so forth. And of course those related to climate change.

Personally I think we could slash many of these grants. If anything, government grants have caused a significant decline in the quality of Australian art and literature. Governments grants can’t create a Beethoven or Da Vinci.

But at the very least, we should have a consolidated listing of grants across categories.

Late last week I got an email from a journo asking me about a paper forthcoming in Energy Economics.

This paper examines if the long-run relationship between retail and wholesale petrol prices is subject to adjustment asymmetric behaviour using weekly Australian data (2007–2012) across 111 locations. A short-run dynamic model is specified in which three feedback coefficients capture three different types of disequilibria: large and positive; large and negative; small positive/negative. Significant evidence of asymmetric behaviour is found in 28 locations, which are mainly in Tasmania, Queensland and New South Wales. In these locations when prices are conspicuously above the equilibrium path, retailers sluggishly lower their prices but when prices are substantially below the equilibrium values, the adjustment speed is significantly faster.

In layperson terms: prices rise faster than they fall and this is particularly noticeable in 28 locations. Okay. So far so good. The paper is very interesting and the author has done a great job and gotten published in a good journal.

But I was asked a very specific question:

Would you think it was worth [the ACCCs] while to consider Professor Valadkhani’s findings?

I look forward to your reply. I have brought the research to the ACCC’s attention.

My answer is “No”. This is what I wrote back.

I’d be very surprised if the ACCC were to act on the basis of this econometric evidence. It does not calculate equilibrium in real time (where actual pricing decisions are made) but suffers from look-back bias. So it considers what decisions should have been made if the petrol station owner had perfect information – but they don’t. The next thing it doesn’t take into account is the storage facilities available to different retailers in different locations. So they have to manage both pricing, the stock of petrol on hand, and resupply. That is likely to vary from place to place. So it assumes that facilities and cost structures are uniform across the industry and the country. These assumptions are easily violated. The data are weekly and not daily (or even intra-daily) so all sorts of smoothing effects are in the analysis and while many, many statistically significant results are reported I couldn’t easily find a discussion of the economic significance of the results.

So the next question was:

Could econometric analysis be used by the ACCC to target its price monitoring?

My reply:

No – not really. They could make use of deviations from long-term trends to provide indicators that may signal the need for closer investigation but I suspect that a nice neat econometric model that could provide clear cut evidence of “profiteering” is beyond what can be sensibly undertaken. The model would have to make use of very high-frequency data and could never incorporate local knowledge that business and consumers rely on for decision making.

So here is the resulting article in The Australian:

“Based on these results, one can argue that there is convincing evidence for the existence of the adjustment asymmetry,” Prof Valadkhani concluded.

“By identifying the locations in which asymmetric pricing is more prevalent, this paper can lead to the greater efficiency and transparency of the petrol market particularly in view of recent debates surrounding suspected profiteering in the petrol industry.”

The ACCC said it “welcomed” the research but would not be specific about whether the work would be used to give its monitoring greater focus.

The Australian Institute of Petroleum – which represents BP, Caltex, Mobil and Shell – did not respond to repeated requests for comment prior to deadline.

Prof Valadkhani’s research examined price variations from 2007 to 2012 and was funded by the Federal Government’s Australian Research Council Discovery Project.

Energy Economics is an “A-grade” journal, according to the Australian Business Deans Council.

However, RMIT institutional economics professor Sinclair Davidson – who has previously criticised petrol price modelling by the ACCC – said there were assumptions in Prof Valadkhani’s work which meant it could be “easily violated”, including that the data used was weekly not daily.

Prof Valadkhani acknowledged Prof Davidson’s point, but said it was completely unrealistic to get daily data for every station in Australia. Applying Prof Davidson’s standards, no-one would do any work on petrol, he said.

The problem remains an issue of assuming uniform cost structures and ignoring local conditions and local knowledge.

If you have a look at the interactive map at The Australian website you’ll notice one of two things. Most of the so-called gouging occurs in remote areas or in areas that are frequented by tourists. So cost differentials and local knowledge become very important. The other thing that the study ignores is actual sales. So we know what the price on offer was, but we don’t know if consumers were buying much petrol at those prices.

All up it is a fine study, but the policy implications are not as great as the article suggests.

This goes back to 2011 but has re-surfaced. Here is the original letter from Ben Eltham dated 28 August 2011:

Dear Steven

As someone who finds myself in consistent disagreement with your opinion writing on economics, I was wondering if you’d be interested in a public debate on some of the issues you’ve advanced in recent times, for instance concerning the effects of Keynesian stimulus.

I think it might be quite a fun event and I’m sure we could ensure a good attendance from interested parties from both the left and right of the political spectrum.

If you’re interested, let me know and I’ll investigate what venues are available. The Wheeler Centre might be interested.

Sincerely,

Ben Eltham

Leaving out the various emails in between, this was my last response dated 12 October 2011.

Dear Ben

When I had not heard back from you before, I just assumed that you had gone cool on the idea so I am pleased that you would still like to have it on. Seems like a potentially very festive occasion.

So please do go ahead and organise something. I am in Melbourne between now and Christmas aside from a week at the end of November. The Wheeler Centre or anything else would be fine. I do not expect either of us will change a lot of minds but for both of us there are serious issues involved in thinking through what needs to be done in the face of the inevitable downturns in the cycle.

I should also apologise for not writing back immediately when you sent your note. I am in what I not-so-whimsically call ‘marking hell’. I gave a test to my 180 students last week, which was the penultimate week of the course, and now I have been buried marking them so that they can have some feedback before they plunge into the final on Hallowe’en. Just finished an hour ago.

But please do organise something. And many thanks again for your willingness to take this on. BTW, we should also meet for a coffee if you are ever around the CBD.

Kind regards

Steve

From that day to this month I had not heard back. But now this dated 15 May 2013:

Hi Steve

We obviously let the idea of the debate get away for a time, but seeing as you seem keen to renew the discussion, perhaps its time to lay down some guidelines and set an appropriate date?

best

Ben

I am unfortunately more busy now than I was then. The claims on my time have reached crisis proportions, but nevertheless, last night I finally replied but only after five days which has been the time I have been doing the mulling:

Dear Ben

I have mulled over your original letter to me and the time just wandered by. I am not particular averse to debating the Keynesian issue. What has stayed my hand in replying is whether you actually understand enough of what I am trying to get at to make it a fair debate. But then again, not many others would either, specially if they have studied Keynes and take aggregate demand as gospel so why should I worry.

We were going to have this debate at the Grattan Institute or somewhere but it was not going to be at RMIT. I will leave that to you. The only stipulation I would make if you are actually interested in this, that this is the resolution we put to the floor:

That Keynesian economics is junk science.

I would then speak to the resolution and you could reply. After that, we could think about what to do next. One-on-one; two-on-two. Anyway, make a concrete proposal and I would be happy to be in it. Might be fun.

Kind regards

Steve

Which is where matters now stand. Will report when there’s more to report.

H/t Alan Jones. Today at Melbourne High School three outstanding athlests will be honoured, with the Governor in attendance, himself a Melbourne High alumnus.

Ron Clarke, Ralph Doubell and Merv Lincoln all attended the school the 1950s.

Clarke was the greatest athlete never to win Olympic gold. He could run world records but he could not kick home in the last lap against equally good runners. His finest achiement was in 1965 when he toured in Europe for 44 days. Asked about the short tour, he explained to Alan Jones that it was possible to claim expenses from the AAF for 30 days, with 14 days extra for special circumstances. [They didn't run for money in those days and there was no sponsorship].

In 1965, at the peak of his career, he competed 18 times in eight countries during a 44-day tour of Europe — and set 12 world records. Nine of those records were established inside 21 days. He lowered the world 5000 metres mark four times (by a total of 18 seconds) and the 10,000 metres record three times (clipping it by an overall 39 seconds).

His brother played for the Bombers, as did his father who also represented Victoria. After six years he transferred to Brunswick in the VFA (the Association) which payed better money than the VFL (the League) and Ron grew up in a house purchased with the proceeds of the VFA career. Ron said he turned to athletics because he wasn’t good enough at football. He told Alan Jones that nobody knew how fast he was running at school, he won all the events from the 100 yards up to the mile but it was only in his final year that he was clocked with a stopwatch. He ran a world record for schoolboys before he knew anything about world records.

Percy Cerrutty, the aggresive and confrontational coach, accused Clarke of having no heart, to explain his repeatedly failure at the Olympic level. In retrospect Carke recognised that he should have run better tactical races, and regretted not having a fulltime personal coach. After his sensational collapse at high altitude in Mexico City he did have a genuine heart problem. There is a beautiful story of Emil Zatopek slipping Ron Clarke one of his four gold medals at Prague airport.

Why did Clarke’s magnificence on the track not translate to Olympic gold? Largely self-coached, he won bronze in the Tokyo 1964 Olympics, and was placed ninth in both the 5000 and the marathon. His own candid assessment is that he ran bad tactical races, and that with the guidance of a good coach would have won the 10,000 and placed second in the 5000.

In Mexico City in 1968, when the high altitude gave a distinct, disgraceful advantage to distance runners who lived and trained in mountain country, he ran out of oxygen late in the 10,000 metres. He staggered on bravely, virtually unconscious, to finish sixth. He collapsed on the line and suffered heart damage which even now causes him to take daily medication.

Olympics aside, Clarke could hardly have had more successful careers in athletics and business. He now runs a resort on South Stradbroke Island that has set new marks for design and environmental management. And one of his greatest prizes is, yes, an Olympic gold medal. The athlete he admires most, Emil Zatopek, slipped it to him in a package once at Prague airport with the words: “Look after this. You deserve it.”

Zatopek owned four gold medals. This one was for the 1952 10,000 metres. The admiration was mutual.

Ralph Doubell had a short career at the top, crowned by unexpected gold in Mexico in 1968 when he ran a time in the 800 that has not yet been beaten by an Australian.

Merv Lincoln was right up there at a time when Australia had a heap of fine middle and long distance runners including John Landy and Herb Elliot. He managed a silver at the (then) Empire Games. John Landy will be speaking at Melbourne High School today.

Whenever libertarians talk about tax cuts and government waste etc. the lefties carrying on about roads, health care, police, and education. Yet is that really what our tax-dollars are being spent on?

Professor Bunyip draws our attention to some of the activities of the AUstralia Council (NSFW)*.

Appointed by Minister Tony Burke, Grybowski would almost certainly have lauded Little Boris as a creation worthy of generous public support, for such is the conclusion to be drawn from the $38,000 awarded one year after the Little Boris outrage to Linda Dement, who will use it for the

“creative development of an audio-visual performance responding to live data capture from an all-girl roller derby game.”

No doubt it will make compelling viewing.

So how much is $38,000 worth? Well in comparison to the federal budget it isn’t even a round error. But in the lives of ordinary taxpayers? It is heaps.

$38,000 is more than a couple on average weekly earnings with two children pay in income tax in a year.

This table from NATSEM shows the federal income tax paid by a series of stylised households.

The people in that table are not working to pay tax to pay for roads, nurses, police, teachers, or any of the things statist like to tell us.

* Yes – publicly financed art is not safe for work.

It seems to me that the best response to the GST scare campaign by Labor (which is a repeat of Labor’s campaign in 1998 and 2001) include:

• Labor has had six years to repeal the GST. It promised to rollback the GST and has failed to act on that promise. A Labor promise is worthless.
• The will be no change to the GST  - either in rate or coverage – before the next (2016) election. We will commission a broad study of taxation – local, state and federal – which will inform the Coalition’s tax reform policies to take to the 2016 election.
• In principle such reforms could include changes to the GST. Such changes might increase or decrease the GST rate; or narrow or widen the coverage. It might involve leaving the GST unchanged. But whatever policy is decided by a Coalition Government will be clearly articulated to the electorate providing sufficient time for voters to consider the proposals and cast their vote.
• There is a solemn Coalition pledge: taxation will always and everywhere be lower under a Coalition Government than under a Labor Government. We favour less distorting and more efficient taxes. We are committed to reducing waste and the burden of government spending.

In The Australian today:
“Last week’s budget seems the farewell card Labor had to have. It constrains spending, while funding DisabilityCare and the Gonski reforms; it projects sustained revenue increases, with receipts rising twice as rapidly as payments to 2014-15; it heralds a surplus in 2015-16; and it paints a strong picture of the outlook to 2023-24, at which time net debt will be negative and the government will be accumulating assets on behalf of taxpayers.”

This survey is about the Whitlam Government and Blue Poles.

CLICK FOR SURVEY

CLICK FOR RESPONSES

Chris Berg, writing in The Age, tears Wayne Swan a new one:

… almost every major problem of the Gillard government can be traced back to the Treasury and its Treasurer.
…
The role of the Treasurer has an oversized place in Australia’s political culture. Australia is obsessed with its economy. In no other country do minor shifts in interest rates dominate the political conversation as they do here. For the past few decades budget surpluses and deficits have been the measure by which we judge our governments.

Perhaps we’re too obsessed with the economy. But the obsession serves us well. If you want to see what a lack of interest in public finance fundamentals leads to, then have a look at the United States … or Greece.

So no surprise the roll-call of prime ministers is filled with former treasurers. John Howard, Paul Keating, Billy McMahon, Harold Holt, Ben Chifley and Joseph Lyons have all occupied the post. Other long-serving treasurers (read Peter Costello) have been prime contenders for leadership.

Then there’s Swan. Among all Labor’s leadership buffoonery, Swan’s name has been missing. He is not just Treasurer but Deputy Prime Minister. He ought to be at the front of the queue. Wayne Swan is the only long-serving Treasurer in living memory who has been diminished, rather than enhanced, by his job.