Friday, November 7, 2008

ABC Learning Centres - too important to fail

The Australian government has decided to allocate $22m to bailing out the ABC Learning Centres, of which apparently 40% are not profitable.

Aren't we lucky to have a centralised government there to solve all our problems? Just let them fail. It's not the government's job to run businesses. They're no good at it, if they were we'd all be living in the People's Democratic Republic of XXX, instead seeing the collapse of communism.

Then the new Federal government complained that the previous government didn't manage child care better. Did I mention that centrally planned economies don't work? Letting the market run things seems ideal.

Even the unprofitable centres are probably worth more as going concerns. Sell them off, close them down, but don't subsidise them with our taxes. It seems the only reason they are being subsidised is because there are a lot of them. That seems stupid. Really this is bad policy, which is being followed because the effected group is big. If the effected group was smaller, they'd get ignored.

The big group should be ignored too. Their claim on the public purse is no greater than smaller groups.

Saturday, October 18, 2008

Global Financial Crisis - Too much Capitalism?

Apparently the financial crisis was caused by unrestrained greed and fear. You'e got to be kidding me.

The root cause, in the US, was centered on the failure of 2 institutions - Fannie Mae and Freddie Mac. But, wait, they were not ordinary private companies. They were both created by federal charter, had an implicit (now explicit) government guarentee, and a mandate act in a political way - increasing housing ownership rather than being purely profit driven.

So, the US government was manipulating US housing and mortgage markets, both through those companies, and through other actions. And not just the federal government, all levels of government worry about housing, affordabity, location, type, and so on.

So, the US government provided a mechanism for higher risk lenders to get mortgages, in order to increase home ownership. So, that increased the demand for housing. But the supply of housing is regulated, by land-use regulations, density restrictions, and anti-urban sprawl rules. The usefulness or otherwise of those rules is not the point, but the result is that the housing supply is not as elastic as it could be under un-regulated conditions.

Hmm, what happens when demand increases, and supply is not elastic. I know, prices go up. So, the net effect appears to be more primarily is the increased cost of housing. Since the cost of housing rises to meet the borrowing limit of those competing to purchase it. I don't think this helped the people that were supposed to being helped. Those people just had higher repayments.

The "rich" on the other hand had the opportunity to ride rising housing prices with multiple investment properties, or the rising value of they're own large properties.

And, after all this government manipulation, the government wouldn't just let things fail as they naturally would. Instead, the government itself borrowed more money, with the expectation of paying it back with future taxes, to prop up the poorly managed, and deny the well managed the cheap assets they otherwise would have been able to purchase.

What's the lesson we should learn? Well, certainly not that poitically-motivated management of the market is a solution for anything.

*shudder*. And, the only regulatary response needed for executive pay, is to make sure corperate structures allow the owners (shareholders) to control it. Even that should not strictly be needed, but, owners should be the one to decide, not the government.

Wednesday, September 10, 2008

Education Spending

In the car today, I heard a report on the Australian national broadcaster's radio station ( about the rate of spending on Government schools in Australia.

From this I learnt that as a fraction of GDP, Australia spent less public money on schools than all but one other OECD country. I also learnt that Australian teachers in public schools are paid less than many other countries.

Then, this comparative spend-rate was used as "evidence" that schools are under-resourced. What? I waited, and waited, but no one asked the obvious questions.

1. What are the results? Oh, they're pretty good.
2. Are we aiming to just spend money, or achieve education outcomes?
3. What are salaries compared to other public servants? This is just interesting though, if we can achieve educational outcomes spending less, why wouldn't we?
4. How is spending related to student numbers? My guess is Australia has a higher number of children in private schools, which would more than explain the increased fraction of public funds going to private schools.
5. Is private and self-funded education working? For example are disadvantaged socio-economic groups achieving as well here as elsewhere?

I am getting more and more concerned that government achievement is measured by how much they spend. I keep hearing "We spend a whole bunch of cash doing something, so we must be good." Most businesses and households don't work like that. We have to make complex cost-benefit trade-offs.

It's not clear to me at all that spending more public money on education is in the best interests of the students, the parents or the country as a whole. I admit that there may be benefits, but statistics like these are totally useless even in comparing how we are doing, rather than how we are spending, compared to other economies.

When the spend rate part of the report is used as "evidence" that we are "under investing" (code for spending, but it sounds better), then I begin to suspect there is no real evidence.

Friday, August 1, 2008

Governmet Ads

I saw an advert on TV tonight for the government. Here in Australia, it seems to be okay to advertise government policy. Not sure where that leaves dissenting political opinion. In the wilderness of opposition I suppose. Not that our Federal Opposition seems to have much of a clue on what message they want to put forth, even if they had a budget to spend.

Anyway, the thing they advertised was what interested me. The carbon trading scheme, that isn't even finalized. I struggle to see what benefit this will have. If we are really hitting peak oil, as the same gloom sayers say we are, then carbon production will naturally drop, as the price of oil goes up. Problem solves itself, no ridiculous government intervention.

Perhaps that's too easy.

Thursday, July 24, 2008

Free Pre-K Education

I see this on eduwonk:

But there is a bigger disconnect here: Where’s the big agenda and the resources? I’m hardly a throw money at the problem kind of guy, but big ideas do often have a commensurate price tag. Sara Mead’s bummed that McCain didn’t talk about pre-kindergarten education. Me too especially because pre-k is exactly the kind of public-private choice driven system Republicans claim to like so much. But I’m even more disappointed that while overall McCain says we need to get past conventional thinking on this issue, something I agree with wholeheartedly, he doesn’t provide a roadmap or the resources to do that.

What? Republicans want to spend more Federal tax dollars on education? Are they out of their minds?

The big agenda should be to get the Federal Government out of education. After all the primary responsibility lies with the (wait for it) parents. The Federal Government is the furthest away, and the least efficient provider of resources.

As for pre-K, the discussion I've seen indicates a short-term gain but not long term benefit. Surely such choices should be made by parents who have the most direct interest in their children's education, and the least likely to be swayed by savvy well-funded special interests and lobbyists. Teachers unions for example.

Disclaimer - I don't currently live in the US. Have, but don't. I also don't use public education. We home school. Imagine that.

Thursday, July 10, 2008

Fair Taxes

Scott Adams recently posted on "Fair" taxes. A suggestion was to tax the rich at 90%.

Apart from all the good arguments about removing incentives, there are a number of good reasons that everyone can agree on to not tax at 90%.

1. People will leave. Lots of people in your target demographic will change jurisdictions to a less punitive location. Even with the Draconian US laws, which tax US citizens on all their world-wide income, where ever they live. If you are aggressive enough, rich people will renounce their citizenship and move.

2. "Profit" per taxable dollar will drop. As the rates go up voluntary compliance goes down, meaning either a larger black market or increased compliance costs. Probably both.

3. Incomes will go down. People will find other ways to get satisfaction. Personal incomes will decrease as they transfer their earning power to produce other results than increased personal wealth. Perhaps this would benefit the poor, maybe not.

4. Tax avoidance (and evasion, but I already listed that) will become even more popular. The more money that the government takes the more money people will be willing to spend to stop them. One of the ironies of high taxation is the amount of intellectual horsepower that is essentially wasted avoiding it. Those people could be doing something productive.

5. Special interest groups will try to make the government treat things in tax-beneficial ways. Oh, that happens anyway, but the stakes will be higher.

6. It is likely this will result in lower GDP growth, which reduces the size of the pie, which makes the whole thing less effective.

The bottom line is you can't just keep increasing tax rates and get more. It is an inelastic system, and at some point returns go down. So even if you'd like to tax the rich at 90% and solve all your problems, you just can't. Sadly I heard a rumour that one of the US Presidential candidates would like to tax the rich more, even if that meant less Federal money, just because that would be "fairer". Only for tax lawyers. :-)

Sunday, June 15, 2008

18 Months Paid Maternity Leave

There have been a number of articles recently about the need to do more for women in the workplace. Amongst the ideas floated was this one - paid maternity leave for 18 months.

A number of ideas have been put on the table - 80% of pre-maternity wage, minimum wage (perhaps plus a little bit). Some other figure.

It all seems like the type of place we'd all like to live. Somewhere that woman who decide to look after their small children are valued and rewarded for that choice. I certainly think any mother who looks after their own children should be respected. It can be difficult, isolating and demoralizing. I also think those early years are important for forming the bonds of affection between parents and children. In other words, I am all for mothers looking after their own children.

But, who is going to pay? If it is the government, then the 80% of previous salary becomes hard to stomach, because it means the well off end up with more government money that the poor. Not the kind of welfare we normally espouse. If the amount is set at the minimum wage, then it is likely to act as an incentive for the non-working poor to pump out a baby every 18 months to be gain a stable, if small, income, and be excused from looking for employment.

Also, any time the government steps in with "special" payments, attempting to manipulate people's choices (socially engineering us through taxes and benefits), there is trouble ahead. The trouble is, that once the existence of the payments is accepted, there starts a political game of getting different special groups included or excluded. Should adopters get the benefit? Fathers instead of mothers? Other carers? Could it be 3 years for special needs children? And so on.

People should be able to make decisions based on the true costs, to most efficiently allocate their resources. Having the government differentially tax different activities, pay benefits in such a complex and means tested way already means that too many financial decisions are made based on the tax and benefit implications. People are effectively encouraged to make poor choices, because someone else will pick up some or all of the bill.

Okay, rant about tax over, for now. What if private companies were to pay the leave? If anything that seems worse. Large companies with hiring policies and HR departments who do not pay wages from their own pockets are likely to take it as part of the cost of doing business, but smaller concerns where the hiring manager pays the wages cannot help but have the potential for bankruptcy implicit in paying 18 months wages for no help. Or perhaps this is to be yet another penalty imposed on companies for growing too large. There are already a number.

Either way, government or private, the payment comes from everybody else. Either through reduced salary available, reduced profits leading to reduced investment income or directly through additional taxation.

The objective of this policy is to encourage women to remain in the workforce after children. It seems unlikely that this would be achieved. The truly ambitious would not take advantage of the break, too long away from the limelight, not gaining experience. Those wishing to stay home longer, would likely take advantage, only to resign at the end. The only "legitimate" beneficiaries are those who wish to return to work after the available time off. To those families, this plan must seem like manna from heaven. But unlike manna from heaven, someone has to pay, and ultimately it it is poor policy and please, let it not happen here.