High density more cost effective for cities than urban sprawl

Emily Badger, in The Simple Math That Can Save Cities From Bankruptcy, looks at how some cities in the US are finding that regenerating their downtown areas can be financially advantageous.

We tend to think that broke cities have two options: raise taxes, or cut services. Minicozzi, though, is trying to point to the basic but long-buried math of our tax system that cities should be exploiting instead: Per-acre, our downtowns have the potential to generate so much more public wealth than low-density subdivisions or massive malls by the highway. And for all that revenue they bring in, downtowns cost considerably less to maintain in public services and infrastructure.

Problems with patent protection

Ross Gittins, in It's patently obvious that the system is broken, takes a looks at the issue of intellectual property. He finishes by noting that:

It's got so bad in the US that, according to the calculations of a leading campaigner for patent reform, James Bessen, of Boston University school of law, for all US patents bar those for chemicals and pharmaceuticals, earnings from their patents are more than exceeded by the cost of litigation to protect those patents. He calls this a ''patent tax''.

If he's right, the intellectual property system has degenerated to the point where it's actually inhibiting innovation. We're being forced to pay higher prices, but getting nothing in return.

Is a surplus good for us?

Tim Colebatch suggests in Swan's foolish surplus fetish that the Government should not be aiming for a surplus in its next budget. He argues that the cuts required could well tip much of the economy into recession.

Personally, I'm not sure Wayne Swan has much choice. I think a surplus is politically necessary, even if its not economically.

Health Care in the USA

Dr Jen Gunter writes about a women suffering from cervical cancer who can't afford the required treatment in Cancer v. the Constitution.

It's worth reading the comments as well.

Barbienomics

Barbienomics is the term coined for the fact that, although Barbie dolls are made in China, most of the value is captured by others (Mattel, who owns the intellectual property, the retailer, logistics). There are several interesting articles on the topic:

China's Barbie Doll Economics
Barbie and the World Economy

Barbienomics: the reality of manufacturing

The Global Mail on productivity

Over at The Global Mail Mike Seccombe has written an interesting article on productivity in An Unproductive Obsession. In it he notes the decline in productivity in Australia and some of the counter-intuitive aspects of it (e.g. declining labour productivity in the mining sector, increasing productivity in the manufacturing sector). He also notes how hard it is to measure productivity.

He concludes his report with:

But the summary message of both, under all the McKinseyite management-speak, was that progress lay not in the "labour market flexibility" as usually defined (i.e., driving pay and working conditions down) but in attracting a well-educated workforce and managing them better. Which might seem a bit obvious, but it is at least an advance on the usual cries of business. Instead of "Work harder, you lot" the new cry is "Work smarter, you lot".

Still, the central problem remains: measures of productivity are imprecise, and the prescriptions for improving it are contradictory, often self-serving, and vague.

In the words of Denniss: "Productivity is an important concept, about which much bullshit is spoken."

And those headline figures, which everyone keeps citing as evidence of a crisis, we ask him, do they tell us anything meaningful at all?

"No."

Bob Menzies on the creation of the Liberal Party

The ABC has dug up from its archives a speech by the founder of the Liberal Party, Bob Menzies, on the founding of the party. Quite interesting. I wonder how the values expressed t hen compare to the values espoused now?

US conservatives are less trusting of science

Kevin Drum reports in Chart of the Day: Conservatives Don't Trust Science as much as they used to. I wonder if the same holds for Australia?

A couple of links

Matt Zwolinski looks at Milton Friedman and classical liberalism and how it differs from the "20th century libertarianism espoused by Ayn Rand, Murray Rothbard, and Robert Nozick" in Milton Friedman’s Classical Liberalism. He finishes with:

There’s some mixed praise in there, to be sure. But the basic message is clear. Government has done a lot of good. And the implication certainly seems to be that government has done good in ways that the market on its own could not have done. For Friedman, that’s good enough. For Rand, Rothbard and Nozick, of course, it wouldn’t be.

It’s easy to assume that the practical difference between classical liberalism and libertarianism stems from differences in their underlying moral philosophy: Friedman is a utilitarian, while Rand, Rothbard and Nozick are all natural rights theorists. But notice that nothing in the passages I’ve quoted here commits Friedman to consequentialism at all, let alone a naive utilitarianism. You could agree with everything that Friedman said and still believe that liberty has intrinsic value (i.e. that it is not merely instrumentally valuable for the utility it produces). You could agree with everything that Friedman has said and still believe in natural moral rights. To say that government is a tool that we should use when it works is not to commit oneself to consequentialism. It is merely to commit oneself to the view that we face a variety of moral demands, the balance of which does not always preclude state action.

In Why Conservatives Are Still Crazy After All These Years Rick Perlstein postulates that "Conservatism is not getting crazier, and it's not going away, either. It's just getting more powerful".

Gillard discusses carbon pricing on election eve

The night before the 2010 Federal election Julia Gillard was interviewed by The Australian. In their report on the interview, Julia Gillard's carbon price promise, Paul Kelly and Dennis Shanahan wrote:

JULIA Gillard says she is prepared to legislate a carbon price in the next term.

It will be part of a bold series of reforms that include school funding, education and health.

In an election-eve interview with The Australian, the Prime Minister revealed she would view victory tomorrow as a mandate for a carbon price, provided the community was ready for this step.

"I don't rule out the possibility of legislating a Carbon Pollution Reduction Scheme, a market-based mechanism," she said of the next parliament. "I rule out a carbon tax."

This is the strongest message Ms Gillard has sent about action on carbon pricing.

While any carbon price would not be triggered until after the 2013 election, Ms Gillard would have two potential legislative partners next term - the Coalition or the Greens. She would legislate the carbon price next term if sufficient consensus existed.

So, it's now March 2012 and what do we have? We have a Carbon Pollution Reduction Scheme. What don't we have? We don't have a carbon tax. I think Julia Gillard has actually kept her word.

Australia's growth not to trend

In Trend growth truths Greg Jericho looks at the state of the Australian economy and suggests that the Reserve Bank needs to lower interest rates.

Edit 24/3: More graphs on his blog.

The new MRRT might not be so bad after all...

In Resources tax: what you may not know ... Ian Verrender suggests that even with the new Mining Resources Rent Tax Australia is a relatively low tax environment for the mining industry.

Despite all the hullabaloo, all the hand-wringing and the wailing from various sections of the mining industry, the passage of the Mineral Resources Rent Tax overnight confirms Australia as one of the world's most benign destinations for miners.

That's right. When it comes to taxing resource companies, Australia is a soft touch, a virtual tax haven.

He also writes:

For, almost every country with a resource base, rich and poor, has begun tightening the screws after witnessing in the past decade one of the greatest wealth transfers in history - away from the citizens who owned the minerals and towards the companies exploiting those resources.

It is a global trend that will make it increasingly tougher for the big resource houses to maintain their earnings growth, regardless of whether commodity prices continue to surge as they have done since the turn of the century. More on that later.

 And:

Given the diluted minerals tax is much lighter than proposed new tax regimes in Indonesia and across Africa, it is likely to be a big attraction. Add in a sophisticated and independent legal system, an advanced democracy, modern infrastructure and an open policy on foreign investment, and Australia wins hands down as a place to dig for minerals.

Investing in a post GFC world

Patrick Commins has given several tips on investing in Survive the new world disorder:

Economic conditions have changed so drastically that what once was viewed as common sense now threatens your financial wellbeing. Patrick Commins examines strategies to thrive.

1. Get real on returns, part I
2. Get real on returns, part II
3. Understand volatility
4. Forget 'set and forget'
5. Think global
6. Get in touch with your emotions

Why future surplusses are going to be hard to achieve

Ross Gittins in Revenue fall to keep any surplus thin looks at the reduction in tax receipts due to the GFC, its aftermath as well as income tax cuts to explain why the Australian Government has been having such difficulty returning the budget to surplus.

Parkinson said that since the global financial crisis, federal tax revenue had fallen by the equivalent of 4 per cent of gross domestic product [about $60 billion a year] and was "not expected to recover to its pre-crisis level for many years"

Ross goes on to write:

The fascinating question is why this economy/tax revenue disconnect has occurred.

One part of the explanation is that the 2008-'09 recession — the one it suits both sides to claim we didn't have — knocked an enormous hole in tax collections. The cumulative write-down in revenue against the forward estimates between 2007-'08 and 2011-'12 has been about $130 billion.

The global financial crisis put an end to asset price booms in the housing and share markets — with implications for capital gains tax collections — and in the post-crisis world it's hard to see when those markets will boom again.

He also looks at the revenue problems the states are having:

The problem for state budgets is structural. Their chief revenue source is the goods and services tax. During the many decades in which households were reducing their rate of saving, their consumption spending (and hence, GST collections) grew faster than their incomes.

Now their rate of saving has stabilised, consumption and GST revenue will grow no faster than household income. And household income will be constrained by the stable-to-declining terms of trade and weak productivity improvement.

Federal tax receipts are also being reduced by the accelerated depreciation that mining companies are now claiming as they expand their operations:

The first phase of the resources boom was more lucrative for the taxman because the main thing that happened was hugely higher coal and iron ore prices going straight to the mining companies' (taxable) bottom line.

In the second phase, the now stable-to-falling prices are accompanied by much higher accelerated depreciation deductions arising from the construction of new mines and gas facilities.

However, the real problem is with the tax cuts that we've received:

But all these things are just elements of a more fundamental explanation for the budget's new growth/tax disconnect: the Howard government's decision to cut the rates of income tax for eight years in a row.

This has robbed the income-tax scale of its propensity to bracket creep. It also represented a significant shift in the federal tax mix, greatly reducing reliance on personal income tax and greatly increasing reliance on capital gains tax and, particularly, company tax.

Get the point? This switch was made at a time when, for all the reasons we've discussed, the level of non-income tax revenue was artificially high. Now those temporary factors have evaporated, leaving us with a badly wounded tax base.

Of course, Peter Costello shouldn't get all the blame for this monumental act of fiscal vandalism. When he sprang the last three of those eight annual tax cuts on Labor in the 2007 election campaign, it unhesitatingly matched him. And it insisted on delivering them, even after their structural folly must have become apparent.

This means neither side of politics wants to acknowledge the huge hole they've driven into the budget. When the pollies won't admit it, the econocrats can't either. And all the rest of us sheep take our lead from whatever nonsense the pollies do want to talk about.

Ross Gittins is a must read as far as I'm concerned.

Better productivity via better education

Ross Gittins has a great blog post Want better productivity? Try better education. To quote from part of it:

The American con man Bernie Cornfeld's sales pitch was, "Do you sincerely want to be rich?" That is, are you prepared to pay a price to be rich? The question for Australia's business people is, do you sincerely want to raise our productivity?

It seems just about all our senior business people have taken to preaching sermons about the need to improve our flagging rate of productivity improvement, but I'm not sure how sincere they are.

Why not? Because the specific changes they say they want sound like a child's wishlist for Santa: industrial relations "reform" to reduce their workers' bargaining power, and tax "reform" to reduce the amount of tax they pay.

If chief executives were more sincere in their thirst for higher productivity - as opposed to things the government could do to make their jobs easier - they might have asked what the empirical research tells us about which changes would do most to enhance our productivity.

Had they done that, they would have found the biggest gains come from adding to human capital - that is, to the education and training of the workforce.

The easy days of economic management are over

Annabel Crabb looks at how economic policy is now much harder for the Government in End times for the addictive politics of easy money. She concludes with:

Now that the easy money is over, the responsibility returns to leaders to make difficult decisions either – as Mr Parkinson reports with the beguiling blandness of the bureaucrat – "to significantly increase revenue or reduce expenditure". Can they handle it? Can we? It remains to be seen.

My opinion. The Australian Government experienced a significant, and temporary, boost in revenue during the second half of the last decade. Both the Howard and Rudd Governments gave too much of this boost away in the form of personal tax cuts. That's put the Federal budget into structural deficit. Right now, as a modern economy, I think we're probably under taxed. As neither party seems keen on the idea of increasing income taxes we might well have to hope that bracket creep finally solves the problem. Unfortunately, I don't think that's likely in the medium term. In the long term the budget also faces issues of an aging workforce.

I have the feeling that future economists might well see the mining boom as a wasted opportunity.

The Government's drop in tax revenue

Jessica Irvine looks at the drop in Government tax revenue in Why the good times don't feel so great.

Big Government vs Small Government

In Don't judge government by its size Ross Gittins has taken a look at the idea of Small Government and the relative economic performance of countries with small and big Governments. It seems its not the size that matters, but how you use it.

Productivity Explained

Read Greg Jericho's blog explaining productivity: Productivity in a nutshell. It's very well done. Unfortunately it seems to be an issue that's not well understood, especially amongst the media.