Viewing the broadband future

The latest cost-benefit analysis of various Australian broadband proposals is out. It’s part of a report from an inquiry chaired by former Victorian Treasury head Mike Vertigan.

And it says in essence that Australia’s expected growth in demand for bandwidth is big enough to make the NBN viable, but small enough to make the government’s alternative look better.

I would have expected to hear the report’s authors out there defending it, but Mike Vertigan has never been keen to put himself forward in the public debate. So today much of the media I saw has been dominated by critics, and they’ve mostly been saying that a useful cost-benefit analysis is impossible, so we should just build the NBN. Paul Budde was making the claim this morning on ABC Radio, and lesser-known experts such as Sydney Uni’s Kai Riemer have been saying the same thing.

This claim – that we can’t usefully analyse the NBN’s costs and benefits – is hooey.

We can’t do a precise cost-benefit analysis, given how much Internet use is likely to change over the next decade or two. And whatever analysis we do should be up-front about how much guesswork is involved. But cost-benefit analyses are not just helpful; they’re also inevitable. Indeed, everyone who says “we should just build it” actually is doing a cost-benefit analysis. Typically they’re just doing a really sloppy cost-benefit analysis in their head, and setting their median estimate of the benefits at, approximately, Unimaginably Huge.

And Unimaginably Huge is almost certainly an overstatement.

“We can’t begin to imagine what people could do with upload speeds on an industrial scale,” Riemer told News Limited.

But of course we can begin to imagine that. Here’s how. Continue reading

The Dunera: kicking off an exciting life

An excerpt from the Dunera News. (for those who don’t know, the Dunera was the prison ship on which my father was deported to Australia in 1940 with the Battle of Britain raging around them). The exerpt is an autobiographical sketch by Richard Sonnenfeldt (1923–2009)

I was brought up as a German boy but, being Jewish, was lucky enough to be sent to boarding school in England in 1938. I was deported on the Dunera, sent to Hay, but again lucky to be released along with six others, taken back to Sydney and on to the Dunera. The ship developed trouble, we were taken off at Bombay and freed – being left in the hands of the Jewish Relief Committee.
It took six months for the US Consul to verify my credentials and issue me with a US visa. I arrived in New York in April 1941 and joined my family who had caught one of the last boats out of Lisbon. I wanted to enlist but was not accepted due to being of German origin. But a further 18 months on in 1943, I was given US citizenship, drafted and served in the Infantry in Italy and France. Then with the third and seventh armies in Germany and Austria. I saw battle at the Bulge and was there at the liberation of Dachau concentration camp, something I never forgot. Continue reading

Libertarians and the privatisation of income management

Employers are prevented by law from subjecting workers to income management. What if they weren’t?

Libertarians favour freedom of contract. They believe the government’s role is to enforce contracts not tell people what should be in them. One way governments have interfered with freedom of contract is by insisting that employers pay workers in cash. Laws like the nineteenth century truck acts were designed to prevent employers from paying workers in goods or forcing them to spend their wages in company stores. This restriction on freedom of contract continues today through the Australian Fair Work Act 2009.

Recently Andrew Forrest has suggested that a Healthy Welfare Card could help welfare reliant families by preventing spending on alcohol, drugs and gambling. According to Forrest, the card could offer stability and "help the most vulnerable families manage the routines required to hold down a job."

Many people who make this argument seem to assume that once someone moves into paid work, their drinking, gambling and substance abuse problems disappear. Or alternatively, they believe that until a person manages to overcome these problems, no employer will offer them a job. But in reality there are plenty of people with full time jobs who abuse alcohol, take drugs and have gambling problems.

What if someone proposed a scheme that allowed employers to offer jobs to people on income managed welfare payments and pay them using something like Forrest’s Healthy Welfare Card? They could argue that employers would be more likely to take on someone with long standing alcohol or drug problem if they knew their wages would be spent paying off a car that they could use to drive to work rather than on beer. The card could allow more people to get jobs, stabilise their lives and become self sufficient.

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Don’t isolate Russia | Tom Switzer

Putin currently graces the cover of Time, Newsweek, Der Spiegel and The Economist, together with a host of lesser publications. Always unfavourably of course, with the possible exception of Time where the headline is “Cold War II” and the subhead “The West is losing Putin’s dangerous game”.

In the midst of this stampede, it’s refreshing to find authors who take a longer view. Two popped up today, both writing in conservative publications and from a realist standpoint.

In “Don’t Isolate Russia” over at The American Conservative, Tom Switzer implores us to “think clearly and, if necessary, coldly, about the underlying cause of the Russia-Ukraine standoff, which sparked the military blunder.”

It [the West] has repudiated the implicit agreement between president George H.W. Bush and Mikhail Gorbachev in 1990-91 that the Atlantic alliance would not extend into Eastern Europe and the Baltics, a region that Russia has viewed as a necessary zone of protection long before Stalin appeared on the scene. In so doing, the West has taken no account at all for Russian susceptibilities and interests.

For Moscow, unlike Washington and Brussels, Ukraine is a matter of intense strategic importance: it covers a huge terrain that the French and Germans crossed to attack Russia in the 19th and 20th centuries: [ . . .]

Since the collapse of Soviet communism, Western liberals and neo-conservatives have declared the demise of power politics and triumph of self-determination. But Putin’s calculations are based on an old truth of geopolitics: great powers fight tooth and nail when vital strategic interests are at stake and doggedly guard what they deem as their spheres of influence.

This is unfortunate, but it is the way the world works, and always has. Imagine how Washington would respond if Russia had signed up Panama in a military pact, put rockets and missiles in Cuba, or helped bring down a democratically elected, pro-U.S. government in Mexico.

In The National Interest, Dmitri Trenin considers Russia’s likely security strategy now that the West appears to have definitively turned against it. Continue reading

How academics, ministry experts, and civil society are losing: is the government now for the few?

The latest federal budget in Australia by the Liberal Party was a real break with the recent past in which politicians were reluctant to offend any large group of voters and in which the status quo with respect to entitlements was avidly kept. There was a bit of playing around with extra money under Labor – spent on projects like the NBN – and there were some attempts at taxing the richest sectors more, such as the carbon tax, but it was largely a case of ‘All quiet on the Western front’.

This budget was different and seems to herald a shift in orientation of our political elites, not just the Liberal Party. What seems to have happened is that the political elites now take their cue from well-organised interest groups, to the detriment of the unorganised majority, effectively trailing the US by about a decade. The US saw the same move towards a ‘money talks’ society about 10 years ago, including the lifting of the Glass-Steagall laws that were meant to prevent the kind of financial piracy that lead to the GFC. In the US the trend is again reversing, but here we are just getting to the crest of money-talks politics. This is dressed up as going towards ‘small government’, but in reality we are talking about Government for the few. It is an inequality increasing agenda that rewards topic-specific organisation. Let me expand.

As Ross Gittins has pointed out in a whole set of articles on the budget, the headline changes are quite dramatic for the majority, especially for young poor people: the Gonski reforms, benefitting the least able within the schooling system, have been axed; the Carbon Tax, a tax mainly on a couple of big firms (mines and electricity generators), has been repealed; the age-pension, which is one of the main transfer programs, has now been indexed to inflation rather than average wages, which implies a 2% reduction in relative terms per year and 25% within about 12 years; the public school system and the hospitals will similarly see their commonwealth subsidies indexed to inflation, ensuring the same 25% decline in about 12 years; the cuts in parenting support similarly hit large parts of the population, whilst the effective halving of the unemployment benefits for the young (via the 6-months-on, 6-months-off rules) are estimated by the Department of Social Services to eventually impoverish close to half a million people.

One might see all this as indications of a move towards ‘small government’ and ‘starving the beast of government of funds’. That is certainly the storyline kept up by the Coalition and one that business economists bandy around also. It was the story of the Bush years in the US. If you look closely though, you will find it is not about small government at all. For you would have missed all the areas where government just got bigger. Substantially bigger. So look at the other changes to see the full picture. Continue reading

Is the struggle for equality of opportunity over?

Equality of opportunity was one of the big themes of Gough Whitlam’s 1969 and 1972 campaigns. His 1972 policy speech promised "a new drive for equality of opportunities" through reforms to education, health and urban planning. He argued that opportunity depends on the kind of investments only government can make. In his 1985 book The Whitlam Government 1972–1975 he drew on Abraham Lincoln for support:

There is, of course, nothing novel in this idea of action by governments to promote community welfare. Before he became President, Abraham Lincoln wrote: "The legitimate object of government is to do for the people what needs to be done but which they cannot, by individual effort do at all, or do so well for themselves" (p 3).

Today we’re more likely to associate this Lincoln quote with Tony Abbott or his government’s Commission of Audit. But Whitlam argued that there were important things people could not achieve on their own. Equality of opportunity was one of them. According to Whitlam, for many Australians the doors to opportunity begin closing in early childhood. In the pre-school years "inequality is rivetted on a child for a lifetime", he said. He argued that "Education should be the great instrument for the promotion of equality" but "Under the Liberals it has become a weapon for perpetuating inequality and promoting privilege." According to Whitlam, only government can make sure every Australian has access to a quality education all the way from pre-school to university.

Continue reading

How to lie with statistics: the case of female hurricanes.

I just came across an article in PNAS (the Proceedings of the National Academy of Sciences) with the catchy title ‘Female Hurricanes are deadlier than male hurricanes’. It is doing the rounds in the international media, with the explicit conclusion that our society suffers from gender bias because it does not sufficiently urge precautions when a hurricane gets a female name. Intrigued, and skeptic from the outset, I made the effort of looking up the article and take a closer look at the statistical analysis. I can safely say that the editor and the referees were asleep for this one as they let through a real shocker. The gist of the story is that female hurricanes are no deadlier than male ones. Below, I pick the statistics of this paper apart.

The authors support their pretty strong claims mainly on the basis of historical analyses of the death toll of 96 hurricanes in the US since 1950 and partially on the basis of hypotheticals asked of 109 respondents to an online survey. Let’s leave the hypotheticals aside, since the respondents for that one are neither representative nor facing a real situation, and look at the actual evidence on female versus male hurricanes.

One problem is that the hurricanes before 1979 were all given female names as the naming conventions changed after 1978 so that we got alternating names. Since hurricanes have become less deadly as people have become better at surviving them over time, this artificially makes the death toll of the female ones larger than the male ones. In their ‘statistical analyses’ the authors do not, however, control adequately for this, except in end-notes where they reveal most of their results become insignificant when they split the sample in a before and after period. For the combined data though, the raw correlation between the masculinity in the names and the death toll is of the same order as the raw correlation between the number of years ago that the hurricane was (ie, 0.1). Hence the effects of gender and years are indeed likely to come from the same underlying improvement in safety over time.

Using the data of the authors, I calculate that the average hurricane before 1979 killed 27 people, whilst the average one after 1978 killed 16, with the female ones killing 17 per hurricane and the male ones killing 15.3 ones per hurricane, a very small and completely insignificant difference. In fact, if I count ‘Frances’ as a male hurricane instead of a female one, because its ‘masculinity index’ is smack in the middle between male and female, then male and female hurricanes after 1978 are exactly equally deadly with an average death toll of 16.

It gets worse. Even without taking account of the fact that the male hurricanes are new ones, the authors do not in fact find an unequivocal effect at all. They run 2 different specifications that allow for the naming of the hurricanes and in neither do they actually find an effect unequivocally in the ‘right direction’ (their Table $3).

In their first, simple specification, the authors allow for effects of the severity of a hurricane in the form of the minimum air pressure (the lower, the more severe the hurricane) and the economic damage (the higher, the more severe the hurricane). Conditional on those two, they find an insignificant effect of the naming of the hurricanes!

Undeterred and seemingly hell-bent to get a strong result, the authors then add two interaction terms between the masculinity of the name of the hurricane and both the economic damage and the air pressure. The interaction term with the economic damage goes the way the authors want, ie hurricanes with both more economic damage and more feminine names have higher death tolls than hurricanes with less damage and male names. That is what their media release is based on, and their main text makes a ‘prediction graph’ out of that interaction term.

What is completely undiscussed in the main text of the article however is that the interaction with the minimum air pressure goes the opposite way: the lower the air pressure, the lower the death toll from a more feminine-named hurricane! So if the authors had made a ‘prediction graph’ showing the predicted death toll for more feminine hurricanes when the hurricanes had lower or higher air pressures, they would have shown that the worse the hurricane, the lower the death toll if the hurricane had a female name!

The editors and the referee were thus completely asleep for this pretty blatant act of deception-by-statistics. Continue reading

What are the likely consequences of HECS fee liberalisation?

The Australian government education minister Christopher Pyne has made his wishes clear for the tertiary education sector: he is following the wishes of the GO8 Vice-Chancellors and wants to remove the caps from the HECS fees asked of domestic students. This seems to fit in a vision of greater competition for the sector, and hence the fee deregulation is accompanied by changes to the accreditation regime to make it easier for competitors to come in. There seems to be no appetite for changes in university governance, nor any attempt to remove the benefit that existing inner-city universities have in the sense that they don’t have to pay for their premises whilst newcomers would have to pay rent for their premises.

Let us presume that the minister gets his way, either this time round or next time round, and that we will hence see HECS fee deregulation for domestic students with easier rules for accreditation, and no significant changes otherwise to the current environment. Following on from the efforts of Rabee Tourkey and Rohan Pitchford on this blog, what are the likely consequences?

First off, we can look at the consequences of a similar fee deregulation in the UK in 2010: at least a doubling of fees at the top and a proliferation of discounters at the bottom.

Should we expect these things to occur here too? One should expect both elements to occur here even more strongly because in our case there are less alternatives for students and hence a greater potential to increase fees and have chaos as the bottom: the main differences between us and the UK in this market is that the UK is more densely populated and that students thus have many more universities close by them, allowing for far more real competition than will be the case here. Thus, given that distances between cities are so large in Australia, one should expect the price hike to be well above double in this country. So from Hecs fees of around 10,000 AUS per year, I expect we would go to 30,000 AUS per year at the GO8s, pretty much within a year or two following fee deregulation.

At the bottom, it will be chaos, just like in the UK. You will get all sorts of scams and desperate ploys, essentially because the government is writing a blank cheque via the HECS scheme. Many will come to collect. Continue reading