Tony Abbott...

…believes that a high price of oil will encourage new discoveries, such that the concept of peak oil is not valid.  This is a classic example of what could be called ‘Price religion’.

Could I suggest that Tony Abbott (and I guess many ideological economic zealots) try and apply their logic elsewhere.

For example, if the price of fish goes up, does that mean that we will discover more fish on the Great Barrier Reef?

If the price of land goes up, will we discover more land?

Of course Tony Abbott and other followers of the Price religion don’t believe we will find more fish on the reef if the price goes up. But somehow, they will leave their logic at the door when it comes to oil or other fossil and mineral resources.

Then again, he could just be reiterating his party line – it is probably not a good time to let the media catch a glimpse of anything other than unity in the Liberal party these days.

Best of luck with that Tony.

*Note: I have grown to dislike all the current political parties, although I used to give support to the Greens. Maybe there is an opportunity for a fresh young political party in Australia these days?

Are the States simply an historical legacy?

Kevin Rudd seems to be taking Federal control wherever he can.  His latest move is take more control over town and regional planning.  (Does that mean more regulation or less?)

But why not scrap the States altogether?  Aren't States just historical happenstance?

It's an old question. As a State employee I have witnessed the inefficiencies of this bureaucracy first hand.  More importantly, I have witnessed the animosity between State and Federal governments where open cooperation should be the order of the day.  The States always complain about the lack of understanding of Federal officers. "They don't understand what it's like in Queensland" - true, they don't understand the getting things down the slowest and most expensive way is the how we do it.

But my questions are, what is holding back Federalism (for want of a better word)?  Is there not enough public frustration with the States, no political will?

If there was the political will, how would one actually start the process of removing State governments?

Maybe in my lifetime I will get a chance to witness these things.

PS.  I'll be in Canberra next week liaising with the Federal government, so the blog may be quite for a while.  Maybe when I'm there I can get some thoughts from Federal government officers on this issue.

A graph I promised to make

There is a lot of talk about population and number of new dwellings in the housing market debate.  What is generally overlooked is that at any point in time everybody is living somewhere.  Occupancy rate is fluid, prices change, and in the long term, population growth in an area can't happen without prior construction of housing. 

The graph shows the new dwellings constructed per new person (per person of population growth).  We do notice a recent decline in the number of dwellings being constructed nationwide compared to the population growth, which is reflected in the later graph showing increased occupancy rates.  The direction of causation amongst these variables remains unclear, and in all likelihood, they are interdependent.

Regression with net new dwellings per person of population growth as an explanatory variable for change in the capital city price index gives a negative coefficient (-0.011) but really, has no explanatory power (r2 of 0.006).

That means that analysis of population growth and dwelling construction figures has no power in explaining housing price changes.

Australia's most expensive house

The previous record for Australia's most expensive single dwelling (don't think it falls into the house category, nor even the mansion category) was a measly $45million.  Just this week that record has been smashed by a respectable figure of $57.5million for a Perth waterfront mega/super/ulltra-mansion.


(What was he askin'? $70million - tell him he's dreaming!)


It shouldn't be a surprise that the sale was from one mining baron to another.  In Brisbane mining companies have a reputation for sending lots of cash in a hurry.


What shocked me was the claim from the real estate agent the he had sold Australia's most expensive house back in 1980 - for just $2,150,000.


Times have indeed changed.

The sleepwalking defence

I state in my profile that we need to turn our ideas on their heads to gain understanding.

So what did I make of this report of a man who strangled his wife in her sleep? His charge of murder was dropped, but I would be surprised if he is not now charged with manslaughter.

But behind the headlines there is an interesting tale about responsibility. We humans are extremely susceptible to external influence. Stanley Milgram’s famous experiment showed many years ago how our rational decision making capabilities can be heavily influenced by our interactions with others. We seem to obey authority figures, and we are known to also conform to group behaviours.

Economists generally assume people behave in a perfectly rational way, and that decisions are made independently. Legal practice certainly seems to take decisions as personal and independent. But we only can make these decisions based on our past education and experiences – past external factors.

But just as we still believe that people are responsible for the decisions and behaviour, even though these arise from past external factors, we should believe that a sleepwalker is responsible for their actions.

Tax me, please

People hate taxes. But they are necessary, and some are better than others.

Henry George’s arguments in his 1879 book Progress and Poverty are that all benefits from progress accumulate to land owners. He proposed a single tax on land because the value of the unimproved land is unearned, neither the land’s value nor a tax on the land’s value can affect productive behavior. If land were taxed more heavily, the quantity available would not decline, as with other goods; nor would demand decline because of land’s productive uses.

I agree. A land tax is by far the least bad tax. Milton Friedman even agreed – “In my opinion, the least bad tax is the property tax on the unimproved value of land, the Henry George argument of many, many years ago.”

There are many reasons to prefer land taxes.

Fuel efficiency insights

I watched a Top Gear episode where Jeremy Clarkson raced a Toyota Prius and a BMW M3 around their test track for 10 laps. It wasn’t a race really. The BMW only had to follow the Prius as it drove the tack as fast as possible.

And what happened? The Prius, with its 1.3L engine used more fuel than the M3 with its 4L V8!

To make matters worse for the pro-hybrid lobby, Clarkson also drove a 1.7 tonne V8 Jaguar XJ6 from Basel in Switzerland to Blackpool in the UK on one tank of fuel – a similar result to the little VW Polo.

So what is going on here with fuel efficiency?

Australia, meet Dubai

The property market is Dubai is crashing and burning as we speak.  It was inevitable of course, but never underestimate the perseverance of a property boom.

On that note I want to talk about the future here in Australia.  In 2010 and beyond I foresee the following sequence of events.

1. Rate hikes of another 0.5%
2. Property prices will flatten and fall in some areas
3. The government will run out of ways to keep housing demand propped up – we had more cash injections and foreign buyers (although as yet I can’t imagine what else may be dreamt up).
4.  Inflation will be a major concern again – the USD will recover and the fuel price here will head up.
5.  September 2010 will lead to another correction on the share market, taking the ASX200 down below 4000 again.
6.  But then a strong rebound in November up to 4400
7.  House price will stabilise at 10% below their peak (in nominal terms) but real growth in house prices will not occur until 2015.
8.  A Current Affair and Today Tonight will has specials about house prices crashing in certain areas and people being forced out of their homes by mortgagees.
9.  Even while this is happening, people will continue to shout and scream about a housing shortage and argue for reduced taxes on developers (even though we have the world's biggest houses)
10.  The 2011 census data will show that demolition rates were less than expected and that the total number of dwellings in Australia is higher than expected (the remarks by the RBA’s Ric Battellino seemed a bit pushy on the supply constraint issue).

It’s not a catastrophic forecast, but it seems reasonable to me. Anything I've missed?

Why all this property market discussion from an ‘environmentalist’?

I have been thinking of changing the title of this blog—mostly because the term environmentalist is associated with fairly extreme views on the protection of ‘natural’ environments and other species, and partly because I also have a keen interest in the property market.

But in my mind, understanding property is the key to a reasoned approach to preserving our quality of life by preserving environmental amenity. Maybe I am more of a ‘quality of life’ economist who believes there are many non-market goods, including the quality of, and accessibility of, natural environments, and that these are major contributors to our well-being.

However the increasing fanaticism I have observed in some areas of the climate change movement, the lack of ability for some environmentalists to see the forest for the trees (pun intended) has led me to distance myself from some of the core environmentalist views.

Take the topic of the moment, climate change. Why don’t we hear about\

• Any potential benefits of climate change (crop yields, new land use opportunities, etc)
• The statistical reality behind some of the conclusions (high uncertainties)
• Other important environmental issues that are cheap to address and provide immediate direct benefits

I feel like climate change is crowding out other local environmental concerns that will immediately contribute to quality of life of Australians.

In my mind, a quality combination of land use and environmental controls in our cities and towns can contribute far more to the well-being of society than other popular environmental issues.

So what then of the blog title? Any ideas? Or does the economist part imply a rational approach?

Is road congestion the best allocation mechanism?

Congestion is a darling topic of politics and the media, and a topic of many conversations around the barbeque. But what is it? Is it a bad thing? Do we want more of it or less of it?

I define congestion as a condition of a network (of roads or other conduits) whereby the existence of extra users slows the rate of progress of all other vehicles. Given this definition, there can be a little congestion, where progress of road users is slowed a little, or plenty of congestion, where progress is greatly slowed.