More Labor lies

A press release from Shadow Health Minister Catherine King:

The latest ABS National Accounts figures show tobacco consumption fell a further 2.2 per cent in the June quarter.

Tobacco consumption has now plunged 13 per cent over the past 12 months, and a staggering 19.6 per cent in the almost three years since Labor’s plain packaging laws came into effect.

This is a stunning vindication of the strategy Labor adopted in government under Health Ministers Nicola Roxon and Tanya Plibersek.

She should have checked that press release with the ABS first:

The ABS does not measure or estimate the number of cigarettes consumed.

Speaking of the ABS – yesterday they released Household Tobacco Expenditure data. As we have previously documented the ABS are doing a fine job in ensuring that the data are fudged. First they wouldn’t revise the data at all. Then when called on that, they rebased the entire data series. Yesterday’s data is extensively revised with some data as far back as June 2004 being revised. Really? New statistical information from 10 years ago as come to light?

The revisions, however, don’t change the overall story – after the introduction of plain packaging Household expenditure on tobacco rose and only fell again after a massive increase in excise.

Posted in Hypocrisy of progressives, Take Nanny down | 7 Comments

Waffle Street the movie is coming

Waffle Street the book is a true life adventure in which the author learns about the meaning of Say’s Law by going from an investment house to working the night shift at a Waffle House. Waffle Street the movie is now about to be released which, as it says, is based on a true story along the lines, no doubt, of what is found in the book. I have been following both book and movie from the start, and while I cannot take even an ounce of credit for any of it, I have to admit there is a very great pleasure in being able to tell you that my Say’s Law and the Keynesian Revolution is sitting on Jimmy’s desk in the final scene, right beneath a copy of Jean-Baptiste Say’s Treatise on Political Economy. To understand why you will probably have to read the book, which along with a great story will explain to you the meaning and significance of Say’s Law. But for a movie in the true Hollywood style, you should see the film as well when it comes out. How extraordinary it must also be for Jimmy Adams to find that being fired from his job in finance led to his ending up writing a book that was turned into a movie with Jimmy himself played by James Lafferty!

UPDATE: I’ve just had a look at the interview with Jimmy linked at the start. A good question from the interviewer, which led to this reply drenched in the logic of Say’s Law:

Too often, white-collar financial service workers forget that any given good or service can only be obtained by 1) producing it yourself or 2) by creating something of value which can be exchanged for it. Instead, we’re prone to think the major impediments to our individual and collective prosperity can be readily removed by tweaking interest rates, the tax code, or deficit spending.

My restaurant co-workers, in contrast, were under no such delusions. With the exception of the manager, I was the only person working third shift who hadn’t spent considerable time in a state or federal correctional facility. Most of them were extremely grateful for the opportunity to perform honest work at a market wage, and took a very proactive, customer-service-oriented approach to their financial lives after parole. Generally speaking, they were great examples to me. In the book, I use a number of my interactions with them as commonsense illustrations of economic principles. I really intended the narrative to be wholly humorous self-deprecation, but I had so many financial epiphanies on the job that I couldn’t help but share them with my readers.

FURTHER UPDATE: I am hesitant to mention it, but Jimmy Adams has himself put up a comment in the comments thread.

While Steve may be unwilling to take an ounce of credit for it, allow me to publicly recognize his “little red book” as being the most influential of all the economic literature that I referenced in writing “Waffle Street.” Say’s Law is the transcendent and ironically, least appreciated, principle of economics. And no one explicates it better than Prof. Kates. Thanks again, Steve.

says Why is it my “little red book”? That’s why. The most astonishing part is that around once every decade or so some economist ends up stumbling onto Say’s Law and realises what it actually means and then tries to tell everyone else. The list is not that long, but includes Benjamin Anderson, Henry Hazlitt, William Hutt, Thomas Sowell, Art Laffer and Murray Rothbard. Once you see it, everything about how an economy works suddenly changes shape, and most importantly, Keynesian forms of economic management seems utterly insane. No one who understands Say’s Law is ever surprised that some Keynesian stimulus didn’t work, or that the rise in public spending ever does anything other than pull an economy down. And each of us has tried to explain as best we can why Say’s Law is so important but no one gets it. They don’t even get it to the stage where they could really answer that I see what you mean but I disagree. They do not even understand this enough to be able to explain what it is they disagree with. If you think that “supply creates its own demand” covers it, you have to ask yourself why no classical economist ever said it. The phrase comes from a book published in 1933 by a critic of Say’s Law which was then purloined by Keynes in the General Theory published in 1936. Say’s Law is not even all that hard to understand: all economic activity is driven from the supply side; none of it is driven from the demand side. What is true for an individual product is not true for the whole economy. If there had actually ever been a single Keynesian success story, there might be some case for the continuation of Y=C+I+G in our texts. But a Keynesian stimulus has failed, and failed spectacularly, on every single occasion it has been tried. Yet Keynesian macro persists in our texts. If you would like to understand the entire sordid story, my little red book will explain it, and is also the only place you can find out how the Keynesian Revolution came about.

Posted in Classical Economics, Cultural Issues | 19 Comments

International students and the third law of demand

Here is a story that first broke on Monday:

Grattan Institute higher education expert Andrew Norton on Monday released a report on the deregulated international and domestic postgraduate markets that shows international undergraduate enrolments are clustered in the higher-charging courses.

In science, agriculture and engineering, most students take the highest fee courses.

But while the international market is abnormal in that the more expensive goods and services are the most popular, the report shows in the domestic postgraduate market there is more price resistance.

Andrew explains himself here.

So the story is that international students do more expensive courses. This, apparently, is “abnormal” and a whole bunch of conclusions are drawn. Those conclusions relate to signalling and the like. Domestic students have local knowledge, international students (and their employers) do not. That may well be true, but I’m not buying into those sorts of arguments just yet.

What is missing from the analysis – and the description of international student demand somehow being “abnormal” (to be fair that’s the Australian’s description not Andrew’s description) – is a discussion of the third law of demand.

My RMIT colleague Jason Potts has explained it in this article:

… the theory of demand that was first proposed by Armen Alchian and William Allen. They showed how an equal fixed cost that was imposed to both high-quality and low-quality goods alike caused a shift in consumption toward the higher-quality good, because it is now relatively cheaper.

How that works is as follows: All international students have to pay a fixed cost to come study in Australia (living expenses, medical insurance, etc. etc. etc.) that then implies that the more expensive courses are now relatively cheaper than what they would be without that large fixed cost. So that implies that international students will tend to do the more prestigious (in the university sector read expensive) courses relative to Australian students.

That is exactly what Andrew finds – proof of the third law of demand.

Whether or not that then can be generalised to speculate about what the market will bear in terms of fee deregulation for local students, I’m not sure.

Posted in Economics and economy, Education | 38 Comments

Refusing to update erroneous beliefs

So the national accounts are out today – GDP growth is looking a bit anaemic. But, as always, whenever the national accounts come out the luvvies are out in force defending plain packaging.

Just plain wrong. Here is the ABS explaining that Household consumption on cigarettes is not consumption.

The ABS estimates household expenditure on tobacco on a quarterly basis. To do this, the ABS uses aggregate sales data from relevant suppliers and deflates their values using a single price index for the cigarette and tobacco expenditure category. … The ABS does not measure or estimate the number of cigarettes consumed.

Greg Jericho is a bit smarter about his claims. But Chalky holds him to account.

The definitive, peer-reviewed, analysis of the plain packaging policy is here. As Ash de Silva and I explained at the time:

In mid-2014 a media debate erupted as to the efficacy of the plain packaging policy (see, for example, Kerr 2014; Kerr and Creighton 2014; Smyth 2014a, b). Tobacco industry sources suggested that tobacco consumption had increased following the introduction of plain packaging (Kerr 2014). Anti-tobacco activists pointed to Australian Bureau of Statistics (ABS) (2014a) data indicating that while household expenditure on tobacco products had increased over 2013, it had dramatically fallen in the first quarter of 2014. Those activists interpreted that massive 2014 first-quarter decline as evidence the plain package policy had worked (Smyth 2014a, b).

The difficulty arises in that those two observations may well be consistent with each other. The difference between consumption and expenditure is, of course, price. To most laypeople, however, consumption of tobacco and expenditure on tobacco appear equivalent. Economists know better – consumption is a quantity measure, while expenditure is price times quantity. Journalists, however, seem to not always understand the distinction; Smyth (2014a, b), for example, refers to the ABS as reporting tobacco consumption falling in his Financial Times articles. The ABS, of course, reported no such thing – it reported Household Tobacco expenditure falling.

(HT: Chalky – please blog more often).

Posted in Take Nanny down | 13 Comments

Wednesday Forum: September 2, 2015

Posted in Open Forum | 1,781 Comments

Dick Puddlecote smack down

The silliness burns.

Research carried out for the Irish Cancer Society and Irish Heart Foundation by leading UK business economist Dr Rob Branston of the University of Bath shows that tobacco multinationals are making combined annual profits of between €110 million and €150 million from Irish sales. This is gained from profit margins of 60% for Japan Tobacco International, which controls over half the Irish market, 41% for Imperial Tobacco and 24% for British American Tobacco – way higher than the normal profit margins for consumer staple industries of between 12-20%.

Dick Puddlecote responds:

This “leading UK business economist” seems to be blind to the fact that “normal profit margins for consumer staple industries” are dictated by many different aspects of the market. Most of these are driven by competition in the form of advertising, innovation, new entrants to the market and price wars. Now, I could explain, but I reckon I don’t need to. How many of those market mechanisms have been forcibly removed from the tobacco industry?

Ouch – that has to hurt. But wait there is more … read the whole thing.

Posted in Take Nanny down | 5 Comments

Does foreign aid dissuade asylum seekers?

imagesI came across this interesting article in which the argument is put that increased foreign aid runs the risk of aiding massive migration, rather than dissuading it, as it provides the resources to people both to realise that a better life exists elsewhere and provides the means of escape – by paying people smugglers.

This is of course not the view of the Left who see the mass migration – all migrants should be accepted into the migrant’s country of choice, of course -as being the fault of the West.  If only rich countries had provided even more foreign aid, then the push factors that seemingly compel so many to take perilous and expensive journeys  would be greatly diminished or so the argument goes.

Of course, most of the migrants to Europe are actually escaping war and violent and repressive regimes.  If anything, foreign aid has propped up these violent and repressive regimes eg. Eritrea.  It is interesting to note that the least worst regimes in the Middle East/North Africa are all monarchies – stability counts for a lot, particularly if you are from a minority group/tribe.

It’s impossible to fathom how Europe (read Germany and Sweden) can possibly absorb the numbers of asylum seekers who are coming without unacceptable costs being borne by the citizens  and without deep resentment building among them.

The only other temporary solution is to build large refugee camps in Lebanon and Jordan financed by Europeans.  Time is running out.  I’m just not sure that Angela’s proclamations about quotas and rules being shared by all members of the European Community are helping.

Here is the piece:

With every passing day, it becomes harder to have confidence in the Government’s flailing response to the tide of humanity seeking salvation in Britain and across Europe, when there has been such appalling lack of leadership.

Take the flip-flopping Foreign Secretary Philip Hammond. Last week, he strolled out of an emergency meeting on the migration crisis and claimed that the Government had ‘got a grip on the crisis’.

He was almost instantly slapped down by the Prime Minister, who said there was lots more work needed to improve security as events in Calais continued to dominate the headlines.

Now Mr Hammond is trying to sound tough, insisting Europe faces an invasion from ‘marauding’ migrants.

Divert

‘The gap in standards of living between Europe and Africa means there will always be millions of Africans with the economic motivation to try to get to Europe,’ he observed.

To me, this ramping up of the rhetoric sounds like an attempt to divert attention from the Government’s failure to find solutions to the social, political and humanitarian crisis that is confronting Europe.

Yet if there is one consistent strand in their cack-handed response, it is to offer us reassurance that the state’s generosity with our taxes through foreign aid will — ultimately — stem the flow of migrants.

It is for this reason that Philip Hammond talks about the gap in living standards, just as David Cameron discussed the need to tackle the causes of migration rather than the consequences. ‘That’s what we are using our aid budget for,’ he claims.

The Home Secretary, Theresa May, says targeted support will ‘help African countries to develop economic and social opportunities so that people want to stay’.

Michael Fallon, the Defence Secretary, says the £12 billion aid giveaway can ‘discourage’ mass migration.

In other words, they argue that if you send torrents of aid to help make a nation more economically and politically secure, then its previously impoverished people will be happy to remain at home and share in that success.

Yesterday, on Radio 4’s Today programme, the head of Oxfam UK backed the organisation’s state paymasters.

He argued that Britain’s ‘aid budget is making a major contribution’ to keeping people from leaving their own countries in Africa and the Middle East.

Unfortunately, this just reveals how depressingly little he and the political class understand about international development and the root causes of migration.

The more they are lifted out of poverty, the more these migrants are going to have the resources to escape their homelands and board those lethal boats across the Mediterranean in search of peace and prosperity

For the more people are lifted out of poverty, the more they are going to have the resources to escape their homelands and board those lethal boats across the Mediterranean in search of peace and prosperity.

Politicians say we should do more to stop the cruel people traffickers who charge a small fortune to send people across the sea — often to their deaths.

Yet those gangs are, however callously, responding to demand from people who have saved enough to pay those exorbitant fees.

This is why the migration issue is going to get bigger as the world keeps getting richer — and ministers would do well to stop duping their voters.

For a welter of studies has shown that migration from Africa and Asia increases as household incomes there rise.

Very poor people, after all, do not have the resources to cross continents. ‘The poorest cannot afford to leave,’ said Sir Paul Collier, the Oxford economics professor who has become the Government’s guru on this issue.

Most of the migrants at Calais are those with the skills, ambition and languages to succeed abroad, including students, academics, engineers and entrepreneurs.

Nor do they own television sets that constantly display alluring images of wealthy Western lifestyles, computers that facilitate websites where the safest routes to Europe are debated or the latest smartphones with online forums on how to breach borders and avoid the worst gangsters.

This explains why many of those risking their lives to reach Europe are from the best educated and richest segments of their societies.

These are also the people with the skills, ambition and languages to succeed abroad — which is why those at Calais include students, academics, engineers and entrepreneurs.

Last month, I joined the rescue of 414 people from a sinking boat off the Libyan coast. Most were refugees from carnage and chaos in the Middle East, though some were simply fleeing poverty and in search of better lives — just as we might do in their tough circumstances.

Afterwards, many told me they spent about $1,000 to board that stinking deathtrap; others had spent a similar amount crossing the Sahara Desert beforehand.

David Cameron is rightly focusing on trying to eradicate corruption in the countries where we send millions in aid.

This is a significant financial risk for families, especially when you consider that one-quarter of the world’s population lives in poverty on an income of less than $2 a day.

As incomes rise, more people are going to have the funds to gamble on getting to Europe.

Net migration from sub-Saharan Africa has doubled in five years — one more sign of the region’s rapid economic expansion.

It should be added, however, that most movement is within the continent, leaving many African nations with their own immigration concerns.

Contrary to the claims of Government ministers, the world’s least developed nations have the lowest comparative rates of migration.

But this changes as countries develop, with rates of emigration rising sharply. By far the biggest migration rates are from countries defined as having ‘high human development’, which includes the likes of Iran, Mexico, Sri Lanka and Turkey.

People here are almost three times more likely to leave than those who are living in the least developed countries, since they have the means and often the incentives to move.

So ministers should stop pretending their foreign aid donations of our money provide some kind of sacred panacea to the problems of migration. All they are doing is misleading the public.

In fact, those golden rivers of aid too often fuel the conflict, corruption and poor governance that also drives millions of people from their homes in the developing world.

Britain is not alone in making false arguments that aid will stem migration. Earlier this year, the EU approved an £87 million package for Eritrea on the grounds that development might stem the massive exodus from the country.

Eritrea — along with war-torn Syria — provided most of the migrants crossing the Mediterranean last year, since they were fleeing the most repressive regime in Africa.

It is simply beyond belief that the European Union, along with other bodies also heavily funded by Britain, is propping up a place that has been compared with North Korea for the scale of its human rights abuses.

At least Mr Cameron is rightly focusing on trying to eradicate corruption in the countries where we send millions in aid — though that does not answer the question of why Britain continues to support some of the most repressive countries in the world.

Our politicians would do well to stop hoodwinking the electorate by pretending the patronising aid giveaway offers any kind of solution to the migrant crisis, which is fast becoming one of the defining issues of the modern age.

Unfortunately, all these policies really reveal is the poverty of the Government’s response to a crisis of globalisation that only looks likely to get more intense.

Posted in Uncategorized | 42 Comments

It’s not just the BOM that gets it wrong

As the ABC was going into a lather this morning about the prediction of the worst El Nino effect  in fifty years – you know the sort of thing – drought, bushfires, climate refugees from Tuvalu – and invited David Karoly on the TV (I actually did turn it off at this stage) to spruik the crisis, I came across this piece.

You really have to conclude that this is all made up, this stuff.  Here was the Met predicting a hot, dry summer in the UK and what did they get – a cold, very soggy summer.  Oops, you might think.  But, no, they can be definite about how the climate will change over the next decade, fifty years, century, etc.  Hmmm

Here’s the piece:

Soggy summer was impossible to predict, says Met Office

The Met Office admitted that long term forecasts are ‘still in their infancy’ after it emerged parts of the UK had faced the wettest summer ever despite predictions for a dry, hot season

El Ninos occur in the Pacific every two to seven years as east to west trade winds drop, heating up ocean surface temperature and triggering global weather changes. In May the Met Office said that it ‘wouldn’t expect (El Nino) to be the dominant driver of our weather’ in the summer months.

Yet this weekend Met Office chief scientist Professor Dame Julia Slingo said that the El Nino phenomenon had disturbed weather patterns, which might have been predicted.

“No-one can deny that we have had a pretty disappointing summer with a lot of unsettled weather and only a few warm spells, especially through July and August,” she said.

“Looking back over past El Ninos, you could have expected that a more unsettled summer might be on the cards for the UK.

“Seasonal forecasts for this summer suggested that temperatures and rainfall would be near normal. However, as the season progressed all the leading models around the world failed to capture the signal for unsettled weather over the UK.

“We all know that forecasting months and seasons ahead is still in its infancy and much more research needs to be done.

Although figures are still being finalised, forecasters said Cornwall was on course to experience its wettest August since records began in 1912.

“Cornwall seems to have really borne the brunt of the bad weather over the last few weeks, so it could end up breaking records for rainfall, we’re keeping an eye on weather stations there,” said Met Office forecaster Stephen Keates.

The summer was also chillier than usual with June 1 to August 26 average 57F (14), a whole degree cooler than usual, and colder than all but four summers since 1988.

Summer rainfall was already up 13 per cent on average by August 26 at 11 inches (271mm) – with more to add from Bank Holiday weekend downpours

This summer is set to have been wetter than all but five summers since 1988 and the wettest since 2012’s wettest summer for 100 years, Met Office records show. August saw 22 per cent more rain than usual.

A band of rain lasting for 20 hours covered the country from Sunday into Monday morning with half a month of average rain, falling in some areas.

Jams built up on the main roads back to England as thousands of holidaymakers and trippers made an early start for home and the Environment Agency issued 35 flood alerts across the entire southern half of the country and the west coast.

A yellow weather warning for London, the South East, and eastern England, alerting the public to “thundery downpours”.

A rainy trip to Brighton pier

Britain now faces a cold and windy start to autumn with below-average temperatures and gales kicking off September.

Forecasters warned that a bitter blast from the Arctic will push thermometers close to freezing overnight with even a touch of frost likely.

High spring tides this week mean flooding will remain a risk in parts of Britain sparking warnings for “significant disruption” along the east coast.

However parts of the country could enjoy a late burst of summery weather at the weekend with temperatures returning to the 70Fs. (20Cs)

Last week it emerged that the Met Office had lost its contract to supply weather to the BBC.

However Prof Slingo said the agency would still play a role in the forecasts.

“Whoever the BBC chooses to deliver their weather services in future, you can be sure that Met Office observations and forecasts will continue to be at the heart of them,” she added.

Posted in Uncategorized | 24 Comments

Hayek at the Mont Pelerin Society 1984

Here is Hayek addressing Mont Pelerin Society on the issues that caused him to pull together liberal thinkers into the Mont Pelerin Society. At that time he felt the liberal views MPS sponsored had provided little practical political impact but were “absolutely fundamental in the movement of ideas”.

In 1984 Thatcher had been in office for four years, the collapse of Communism was coming, and the capitalist transformation of China was germinating. I suppose the general pessimism about political effect would now be greater.

But on another plain he recognised the potency of liberalism founded on property rights, honesty and the family (not sure what he’d make of gay marriage)  in generating efficiency He was pondering the book which he called “The Fatal Conceit” in which he demonstrated that the march of socialism had nothing to do with the proletariat but was totally due to the intellectuals, an observation that would also be true of socialism’s modern offspring, the green ideology.

Posted in Uncategorized | 3 Comments

Breaking news: Bank deposit tax not going ahead.

Posted in Taxation | 53 Comments