Oil prices aren’t going anywhere

So while oil prices surge (any doesn’t our media love new words? I look forward to collective MSM embarrassment in a few years, pretending, so 90210, that they themselves, never used it. Or never really liked it, or whatever they think makes them sound cool), it’s worth keeping an eye out for why that trend isn’t going away.

Yes, Peak Oil is a big factor.

Here’s another: oil is an import, from the perspective of the US, and it is bought with the ever-of-less-value US dollar. As long as the dollar loses value, dollar-priced oil will gain it. Hence these manner of stories:

Australia’s central bank increased its benchmark interest rate for the second time in four weeks and said there are signs the highest borrowing costs in 12 years are prompting consumers and companies to temper spending.

Governor Glenn Stevens and his board raised the overnight cash rate target by a quarter point to 7.25 percent in Sydney today to stem the fastest inflation since 1991. Stevens said rates have risen “substantially” since mid-2007.

The nation’s currency dropped and bonds rose as investors bet the central bank may not raise rates again in the next 12 months. The 1 percentage point increase in the benchmark since August contrasts with the U.S., Canada and the U.K., which have cut rates to cushion their economies from slower global growth and credit-market turmoil.

Yes, a full percentage point. We had our sixth rate increase in 3 years during the election campaign, and this is the second again since thing – the commodities boom is simply very strong. Nor are we alone in our willingness to face inflation. More relevantly, though, capital is moving away from low-interest-rate US to other currencies (Euro, Yen – I certainly don’t imagine it’s all heading to Australia), and operating currencies (NGOs, multinationals, small governments) are probably quietly diversifying, removing an old source of over-value for the US dollar.

All of this means that the prices of things that are typically priced in US dollars are going to appreciate. E.g. Gold (’cause it’s easier to find):

Flattening it out:

We still see the US Dollar prices moving from the Euro price up towards the AUD price. Why? Well, see the price of the US dollar:

What do you think that will do to the percentage changes in price, USD, EUR and AUD? Exactly. Again, gold (or oil) is appreciating in price, but moreso when that price is denominated in a sinking currency.

How to keep an AUD30bn surplus

The short version: you can’t. Not (politically) tenably, at any rate.

The Federal Government could deliver a record budget surplus of between $26 billion and $30 billion under its new fiscal policy tactic for putting downward pressure on inflation.

As the Government faced calls yesterday from a business group to freeze spending, it is emerging that the surplus for next financial year is set to be much larger than the $18 billion flagged.

This would allow the Government to use the budget to sell its message that it is tightening fiscal policy enough to contain inflationary pressures despite keeping its promised $31 billion in tax cuts.

The Treasurer, Wayne Swan, said yesterday the Government would apply a “new era of fiscal discipline” for years to get inflation under control.

Mr Swan said a Business Council of Australia submission calling for no real spending increases correctly identified challenges in areas like improving workforce skills and infrastructure.

I don’t know how the government plans to pull that off. Our economy is under very serious inflationary pressure – as was well-presented only over the weekend by Ross Gittins:

When our real resources reach the point of being fully employed, the economy (gross domestic product; aggregate demand) simply can’t grow faster than aggregate supply is growing – which these days the econocrats estimate to be 3.5 per cent a year at most, and probably nearer 3 per cent.

When we attempt to grow faster than that we don’t succeed, we just generate imports and inflation.

If, for instance, the state governments decide it’s time to start making inroads into the infrastructure backlog, their extra spending is more likely to bid up wages in the construction sector than cause more roads and schools to be built.

…

So how do we reduce the likelihood of such an unhappy event? By reducing the need for the Reserve Bank to rely as heavily on the blunt instrument of further interest-rate rises by making more use of the budget’s braking power.

And that means Kevin Rudd not being so stupid as to keep his ill-considered promise to cut taxes in July.

Needless to say, now that they are in opposition, the liberal party has a different view:

the Opposition Leader, Brendan Nelson, defended the Coalition’s approach. “As a Liberal Party we take the view that those taxes [are] money taken out of the pockets of hard-working, everyday Australians,” Dr Nelson said.

“Once we’ve delivered on our commitments in defence and health, education and roads and all of the things that we need to do to look after pensioners, then that money wherever possible ought to be returned to the people who actually paid it.”

Actually, as a liberal party, you should not have set those tax revenues up in the first place, while allowing a now-probably-non-solvable export bottleneck to hold productivity back.

Budding Austrian economists! This is why (big G) Government isn’t supposed to take away more than the minimum required to do the things for which it was created. It always ends in tears, eventually. I don’t much look forward to another recession we will have to have had (I’m the Picasso of tenses, it’s true).

Given, as Gittins explains, that we are at (and, probably beyond) the non-accelerating inflation rate of unemployment, giving Australian households AUD31bn in negative taxation is not going to help much – irrespective of how much money the government isn’t giving back.

If today’s IHT is correct, the commodities boom could, soon, be boosting Australia’s income still further, as Latin America faces its own problems:

Argentina and Brazil are facing the possibility of short-term energy crises from a lack of natural gas, which is needed to fuel industries and generate electricity for residents. Bolivia is sitting in the middle, with the region’s largest gas reserves.

I’m with Gittins: the government should really consider holding onto that money for awhile. Pour it into the migration of labour within the economy, from low to high-productive areas/industries, if necessary.

This returns us to the notion of complexity, though. If you’d promised AUD31bn in tax cuts, and then I came along and explained the macroeconomic risks of delivering on that promise – the promise of tax cuts – what would you do? Unfortunately, the government is also in politics.

Want to get more people on public transport? Facilitate more driving

Which means facilitate more driving intelligently. But hey – now that you’re here…

A critical shortage of commuter car parking is forcing thousands of would-be train users on to the roads adding to Sydney’s already chronic congestion, an NRMA report says.

More than 40 per cent of motorists who otherwise drive all the way to work would rather park at a station and commute if there were an adequate number of parking spots at the station.

…

The NRMA’s audit of Park and Ride facilities, released today, shows some of Sydney’s busiest transport interchanges provide parking facilities so poor that public transport becomes untenable.

“Currently most motorists are left with no choice but to drive to work, which adds to traffic congestion, increases the weekly fuel bill and leads to more carbon emissions,” said the president of the NRMA, Alan Evans.

A report last year by the NSW Auditor-General discovered that in 2004, with so few dedicated parking stations at train stations, Sydney had the greatest number of cars parked on residential streets of any Australian city – 32,000 compared to 10,900 in Melbourne.

The report criticises the ad-hoc provision of these services, especially near poorer areas of Sydney where there are few effective public transport options.

I take issue with the suggestion that “most motorists are left with no choice but to drive to work”, but I’m an insensitive, non-driving, hippie scum. So.

I certainly understand the problem. Driving/parking and public transport are, in some ways, substitutes: we expect people to take the train to work, rather than drive. However, they are also, in other respects, complements: as more public transport is consumed, the demand for private transport (of a certain type, in this case passage to, and parking at, train stations) will increase.

People’s behaviour being what it is, we can see parking spaces being a necessary condition for the use of publc transport. People drive for convenience, for privacy – they will take a train to work, but they won’t (or won’t at all happily) take a bus to the station to take a train to work. In places like Woy Woy:

(and, yes, people commute that distance – crazy people, but people) that bus probably doesn’t exist. In most inner-city suburbs bus services exist but, having built our environments around our cars, many people just don’t live near these amenities (or, rather, sufficiently near for them to countenance using them).

Is this irrational? Oh, possibly. Driving to work, the frustration of the traffic and finding parking, the costs thereof – to me, the non-driver, the money, time and frustration are very high prices to pay. I’d sooner just take public transport and be a permanent passenger. People value their perception of “freedom” that their car affords them, though, and, if we want them to join our game, we do need to make the game itself appeal to them.

Just ask Tim Hartford (or any economist at all, actually – but he’s the famous one): for a driver, going through all the shit of driving to, and trying to park in, the city simply because it’s (most likely less) hard to do so 5 minutes from their house, is perfectly logical. If we can’t beat their logic, we need to accommodate it.

Complexity

So I was discussing the idea of complexity with my Eco 1 students, this morning. I got onto the idea proper of Complexity in Economics via this paper by Chantale Lessard, a PhD student at the University of Montreal (I think).

By taking for granted assumptions about actors’ interests and interactions, economists leave out a very important part of social reality. Social reality is complex, contextual and constructed. Because of their socially constructed nature, understanding preferences and behaviors requires serious attention to social reality (Bourdieu, 2005; Leander, 2001; Small & Mannion, 2005).

Complexity thinking contributes to develop awareness of issues including uncertainty, contextual issues, multiple perspectives, broader societal involvement, and transdisciplinarity (Albrecht et al., 1998; Healy, 1997; Van de Vijver et al., 2003). The ability of complexity science to detail the various perspectives and highlight their ramifications makes possible a more explicit description of the priorities and interests that are taking part in their realisation (Van de Vijver et al., 2003). Broader conceptions, and related representations, of uncertainty can enable the elaboration of fundamental value distinctions embedded in different types of knowledge. This will be particularly relevant for contextual knowledge (Gatrell, 2005; Healy, 1997).

Complexity theory suggests that many types of knowledge are valid and useful for economic evaluation, and not just knowledge produced by traditional science (Munday et al., 2003; Øvretveit, 2002). For the field of economic evaluation, the use of complexity theory will involve the acknowledgement of complex, interdependent relationships with broader contextual, economic, social, cultural, political, and other non-technical factors (Healy, 1997).

I broke up the paragraphs (and you can find the references here). As you can see, it is not much as Economics; social policy, maybe. It’s a hard bloody paper to get through, it really is.

Complexity, then, is basically this: Economic analysis employs Economics. However we’re just a part of the provision of information – the decision-maker has to consider the more complex ‘real’ world. Lessard’s argument is that we ought to consider this in our analysis, because the reality/practicality of our conclusions and recommendations should be a factor in the recommendations we make. Which seems fair enough (to a degree).

What brought this about was this article in the Sydney Morning Herald, yesterday:

Private school lobby groups are divided over whether the Federal Government should continue its controversial funding arrangements for half the nation’s Catholic and independent schools.

A secret review by the federal Department of Education, obtained by the Herald, shows Anglican schools are opposed to continued funding of schools above their entitlements under the formula. However, the powerful Catholic system – in which one in five students in Australia are taught – wants to retain the “funding-maintained” category, which entrenches higher payments to its schools.

…

The federal funding system measures each school’s need according to the socio-economic status (SES) of the regions where its students’ families live.

According to the department review, half of all private schools are in the funding-maintained category and are funded above their entitlements under the SES formula. The overpayments will cost up to $2.7 billion over the next four years. The funding-maintained category “entrenches purely historical inequities”, the review says. “It is not consistent with the Government’s objective of funding all schools on a consistent needs basis.”

How does this work? In Australia, we have public schools and private schools (our hospitals are similarly laid-out). Public education is an extra-welfarist good, and funded from general taxation (meaning you pay income tax, and this is just one of the things the government provides). Private schools are exclusive, usually religious/denominational and, in general, wealthier. From the report upon which the SMH managed to get their hands [PDF]:

Yes, non-Government schools currently receive, on average, 57% of the Average Government School Recurrent Costs (AGSRC).

Ah. This was our starting point for discussion. What do we think of this?

Is it fair for non-Government schools to get this much public funding?

Now I focus, in the first class of semester, on there being no such thing as “fair” or “unfair”, in a positive sense. So my students know this. Given that we all pay taxes, and given that those taxes are for specific ‘things’, including public education. If wealthier parents decide to opt-out of the public school system, should they still receive public money?

This is like giving them a refund on some of their taxes – should they be allowed to, in effect, opt-out of those taxes, or should that just be a part of the opportunity cost of buying a more exclusive, more highly-regarded education for one’s child?

Most students raised their hand for the “not fair” – either because they believed that or because they thought I believe that (it’s often hard to tell).

By this time, of course, they were on the hook.

Is it fair for parents, however wealthy, to contribute to a service that they will not need?

Actuarially, “equity” is defined as getting from something the same share as your contribution. If one pays loads of the tax money into the government, one gets the same share of their goods and services in return. Therefore, should families with children in private education not receive some of the resources from the government after all? Most of my students responded that they should.

The paradox is that this is a normative issue – when equity is simply redefined, the problem appears quite different to the same people (this is why the issue never goes away).

Is it more efficient for the government to underwrite non-government schools?

Education delivers a positive externality to society – we are better off, the more educated our people are. As a result, government subsidisation is important – our governments enter the market to add the social external benefit of education to the private (monetary) benefit of education. This boosts demand, and results in the efficient outcome. Should the government care about the distributional effects of this subsidisation? If the criteria is efficiency, no.

Following this, what might happen if, say, the money was removed? Suppose it results in more students moving from the private sector to the public sector. Now the government must pay 100%, not 57%, of the AGSRC for the pupil. Which is less efficient. Better, perhaps, to leave them in the private schools with less government resources (albeit more resources overall); public schools in fact may benefit from this system, even while we decry its distributional consequences.

At the end of the day, whether this system is equitable or inequitable is a function of normative perspective; whether it is efficient or inefficient is a function of positive, but entirely too difficult, analysis. So we wander around in the grey area, always arguing.

Complexity! A student asked what about just lowering the contribution? The perfect response! What would happen is that the schools would still pitch a fit. And wealthy parents denied their sense of entitlement won’t like the party in government, and will raise money for other people.

This is complexity: the politicians, the decision-makers, are only somewhat interested in the economics of the decision and its consequences. They also have to operate as politicians, and the political consequences are, for them, far more serious. What price a less efficient allocation of education resources, or a less equitable allocation of education resources, when it means they remain in government?

For the rest of us, what if, by making this concession, and therefore retaining government, a given group of decision-makers manages to do more good across more areas of our society/economy? Is it not also worth the cost for us?

By the end of the conversation, my students were wishing they’d joined the majority of their classmates and just stayed in bed (quite heavy snow, this morning).

Creative capitalism, comma, housing crisis

Creative capitalism, the spawn (or, rather, the latest, known, publicised articulation of which is the spawn) of Bill Gates.

As I see it, there are two great forces of human nature: self-interest, and caring for others. Capitalism harnesses self-interest in helpful and sustainable ways, but only on behalf of those who can pay. Philanthropy and government aid channel our caring for those who can’t pay, but the resources run out before they meet the need. But to provide rapid improvement for the poor we need a system that draws in innovators and businesses in a far better way than we do today.

Such a system would have a twin mission: making profits and also improving lives for those who don’t fully benefit from market forces. To make the system sustainable, we need to use profit incentives whenever we can.

At the same time, profits are not always possible when business tries to serve the very poor. In such cases, there needs to be another market-based incentive—and that incentive is recognition. Recognition enhances a company’s reputation and appeals to customers; above all, it attracts good people to the organization. As such, recognition triggers a market-based reward for good behavior. In markets where profits are not possible, recognition is a proxy; where profits are possible, recognition is an added incentive.

The challenge is to design a system where market incentives, including profits and recognition, drive the change.

I like to call this new system creative capitalism—an approach where governments, businesses, and nonprofits work together to stretch the reach of market forces so that more people can make a profit, or gain recognition, doing work that eases the world’s inequities.

Aquila non capit muscas, indeed. And so, creative capitalism. The market will not deliver kindnesses to us, yet government intervention to force kindness into a market is inefficient. Government, however, is corrupt: it plays favourites, it exercises prejudice. Why not beautify this congenital disorder politic by bending it to the purpose of favouring kindnesses?

Some say Gates is dead on; some say he’s dead wrong (we all can agree that he is, however, alive).

This isn’t new – the speech was delivered, and widely reported upon, quite a while ago. It bounced back into the selective attention switches of my frontal lobe with this story in today’s Sydney Morning Herald:

Homeless by default, through no fault of their own

On Monday Mr Osman, his wife Hannan Mohieldin, and their six children, aged five to 18, will be on the streets. The Sheriff of NSW is due to enforce the court order that requires the family to leave the house they have rented in Wentworthville for the past year.

Mr Osman’s landlord has defaulted on a mortgage to Perpetual Trustees Victoria Ltd, and now the company wants the property, free of tenants, in order to sell it.

It has given Mr Osman’s family two extensions since a first notice to leave at the end of November. But now, according to the Notice to Vacate from the sheriff’s office, the family’s luck will run out on February 11 at 11.45am.

“To find a big house for my family has been very hard,” said Mr Osman, a Sudanese refugee who arrived in Australia two years ago. “We have applied for many properties at many real estate agents but we have not succeeded. I am an innocent party in the mortgage problems.”

Mr. Osman is, not surprisingly, one of many, and one of many that are growing to many more. I would not be surprised (and, in fact, would be very interested) to see a modern-day Bonus Army marching on city council chambers. But back to the story. What set this off was this comment:

The principal legal officer at the Tenants Union of NSW, Grant Arbuthnot, said the root of the problem was a lack of affordable private housing and a scarcity of public housing.

“I am aware that Perpetual Trustees responded well to requests for more time but now they are going to enforce the court order they have obtained,” he said. “I would like Perpetual Trustees to help them further.”

He would like Perpetual Trustees to help them further. For Cliff’s sake, I would like Perpetual Trustees to help them further; you like Perpetual Trustees to help them further. That’s hardly going to help. Perpetual Trustees has no reason to help them further, but every reason to reclaim their foreclosed property. They aren’t landlords: they don’t rent out houses.

Why creative capitalism, here? Why can’t the State government just expand public housing? Because that is exactly the limit of Grant Arbuthnot’s sympathy – imposition by the state on Perpetual Trustees would mean buying that house and making it public. Why not?

First, it is inefficient – that’s why we have private housing markets. For the government to explicitly, and more or less permanently, expand public housing, would be to constrict private housing. It would just make things that much worse for the rest of us (sorry, them) – and more and more families would become “in need” of public housing. The cycle would be off and running, and the government would never get back to their starting-point (alive).

Second, it would be a political headache that no government would invite. So far the market is rationing housing according to price (more or less). The government rations housing by other criteria. Now: suppose the State government buys up this house. So it has a house, with a family in it. However, there are probably families already worse off – so Mr. Osman’s family is removed anyway.

Second, part 2: society-wide, there is always greater demand for than supply of public housing. Mr. Osman is a Sudanese refugee. I don’t need to email my parents and grandparents for their perspective on this one: Australian families first. That is a very ugly side of social welfare functions, but it is no less true in Australia than anywhere else on earth (England, for example).

The equity/efficiency trade-off is a lose-lose scenario, here: the government will not, cannot manage this efficiently, and it cannot hope to do it equitably because a politically stable (expedient, convenient, etc.) standard for “equity” will not be found in this case.

So, yeah, I think Gates’ “creative capitalism” has a lot going for it. Maybe. Without heavying the market, the government can, possibly, find some leverage within its own favourites-playing to offer Perpetual Trustees a quid pro quo. Do we want them to? I don’t know. It’d depend upon the deal offered, I guess. How “creative” our capitalism gets – that’s the dangerous part.

And here’s the part where Economics is the dismal science: all of this still leaves Mr. Osman and his family without a home. In the famous words of the Dillinger Four,

Thousands of us dead today, thousands went unfed today
And all we talk about’s the fucking weather

Commodities, sovereignty and vertical integration

Aluminum Corporation of China, (Chinalco), suprised everyone, buying into Rio Tinto yesterday.

China on Friday weighed into the bidding battle for the world’s minerals deposits when it launched the largest-ever dawn raid to snap up a 9 per cent stake in Rio Tinto, the UK-listed mining giant at the centre of a takeover battle.

Chinalco, a state-owned mining company, in a joint exercise with Alcoa, the US aluminium group, spent $14bn in a move designed to block a planned $119bn takeover bid from rival miner BHP Billiton.

Together they secured up to 12 per cent in Rio’s London-listed shares. This investment gives them a 9 per cent overall stake in Rio which enjoys dual listing in London and Sydney.

BHP had been expected to launch an offer of three BHP shares for each Rio share on Wednesday, the deadline set by the UK Takeover Panel. But the Chinalco gambit threw BHP’s plans into disarray. Marius Kloppers, its chief executive, will this weekend decide whether to plough on with the bid or walk away.

Surprising because, the last we heard, China had no real intentions of becoming so defensively involved, and no real aspirations as to being able to. Back then, though, I wrote about how in China’s interests such a move was and, clearly, Chinalco has agreed:

A person close to the deal said the Chinese government had been looking at ways to block BHP’s takeover ambitions since late last year, and had finally decided that Chinalco would be the best state-owned enterprise to use as a vehicle.

One leading Rio shareholder said “this is global capitalism for political gain”.

These are the fortunes of war, which – in the world of international finance and commodities – this is. Everyone wants the source material for production, and everyone wants it as inexpensively as possible. If China is frozen out of the bench-mark pricing negotiations, we can hardly grumble when she takes her own initiative to secure the supply of a critical resource. Hey – at least they didn’t invade us and build a bunch of walled sub-cities and the biggest embassy the world has ever seen.

With such a substantial level of foreign engagement it shall be interesting, too, to see how our bottle-neck’d ports go as an international economic/diplomatic complaint.

Building a ‘national savings culture’

Two Australian stories – inflation first. Prime Minister Rudd has worked out that, in order to slow the economy, C in the Y = C + I + G + NX has be attacked – and what better way than to boost Savings?

Householders could be offered incentives to cut spending and save more of their income as part of the Federal Government’s drive to control inflation.

Mapping out a five-point plan to fight inflation yesterday, Kevin Rudd said he wanted to build a national savings culture to help reduce demand pressures which were pushing up prices.

“Providing attractive incentives to save can help take the pressure off inflation, help people save for their future and help lift national savings,” the Prime Minister said.

While he did not give details, measures likely to be examined include encouraging higher superannuation contributions and tax breaks for savings.

Mr Rudd also promised to increase the budget surplus to around $18 billion next financial year and to speed up policies to train more skilled workers and get more people into the workforce.

“Householders” is a term of art – you don’t need to own a house in order to benefit (although you will certainly benefit more, thus). Rudd is also coming good on his technocrat’s credentials.

Cabinet also decided yesterday to go ahead with plans to establish Infrastructure Australia, a body to co-ordinate public and private investment in areas such as ports, roads and railways.

That should be interesting to watch – Lord knows, a lot of countries (the US in particular) could benefit from some thinking along those lines.

The news also comes at the same time as the demand factors behind Australia’s inflation are reinforced.

An official survey of the prices paid by businesses has found they are paying less than expected mainly due to falling prices for imported goods.

Prices paid by retailers, manufacturers and wholesalers rose by 0.6 per cent over the final three months of last year, nearly half the pace expected by economists.

…

But another survey of prices, those paid by consumers, is due out tomorrow and is still expected to show inflation running hot.

This is as opposed to, say, excess liquidity (I warned you) and cost-push, oil-and-food factors driving inflation elsewhere. Australia’s is a function of incomes: incomes increase, consumption increases. Demand increases, Prices increase (holding Supply relatively constant). Feeding back by way of information, Rudd’s plan to attack the propensities to save and consume (while the incentives further trim the budget) seems like a pretty smart move. We shall see.

Desalination

Again. The latest on Sydney’s foolhardy moves to extract sufficient fresh water from the ocean (original cost: AUD750m):

The cost of the unpopular Kurnell desalination plant has been revised to $1.9 billion after an increase in the cost of the pipeline that will connect the plant to the city’s water main.

The pipeline cost has been finalised at $650 million, much higher than anticipated due to extremely poor ground conditions at the former Tempe tip site, along Alexandria Canal and also at Sydney Park, which have resulted in the line needing concrete supports to hold it in place even though it is to be laid underground.

“The soil is soft with a lot of water in it,” the head of Sydney Water, Kerry Schott, a former senior NSW Treasury official, said.

The irony of which is, apparently, lost on the government. The criminally-negligent stupidity of not checking up on such a thing, first, is also, apparently, lost on the government (but, then, what is a government for?).

This hit my interest, today, because California has decided that it’s similarities with my fair isles are not yet extensive enough.

Water-short California’s search to satisfy its thirst is beginning to focus on a controversial source — the Pacific Ocean.

In November, Connecticut-based Poseidon Resources Corp. won a key regulatory approval to build a $300 million water-desalination plant in Carlsbad, north of San Diego. The facility would be the largest in the Western Hemisphere, producing 50 million gallons of drinking water a day, enough to supply about 100,000 homes.

…

The project has attracted big financial partners. In May, General Electric Co. said it had invested in it and would provide filtration technology. In September, Citigroup Inc.’s sustainable-development-investments unit became the lead investor in closely held Poseidon, formed in 1995 by former GE executives and private-equity firm Warburg Pincus. Andrew de Pass, the Citigroup unit’s managing director, says the need for long-term water sources drove the investment. He declined to specify how much Citigroup invested.

Here’s a prediction: this will not be ready in time, it will cost way more than promised (including a lot more money from the pockets of tax-payers, particularly once the private water is being pumped into households at far higher prices per unit than originally promised), it will use far more energy than predicted – it will basically do everything worse than promised.

We make a big deal out of how desalination is used all over – particularly, though, in the Middle East. I.e., where things like cost is far less of a concern in the first place and, moreover, where there is usually only desert and ocean in the first place. It simply isn’t a technology that ought to be replicated on any sort of practicable scale, yet, on our shores.

Be a nurse; get pregnant: make $10,000

According to the Sydney Morning Herald:

Nurses will be offered a $6000 cash bonus to rejoin the workforce and help fill more than 19,000 hospital vacancies across Australia – but the lure will not be enough to fix the health system, experts said.

The Prime Minister, Kevin Rudd, announced the scheme at Royal Prince Alfred Hospital yesterday, saying he hoped to attract about 7750 nurses back into the system in the next five years.

Nurses who have been out of the system for more than a year will be paid $3000 after six months’ work and another $3000 12 months later. Hospitals will receive $1000 for every nurse retrained.

The acting general secretary of the NSW Nurses Association, Judith Kiejda, said she hoped nurses “would come back in droves”. “If they do, it will ease the pressure on those already in the system and allow them to take a step back and catch their breath,” she said. “But it is not enough – we have 1300 vacancies in NSW and resources are very stretched. Our members are constantly covering these positions, so we want rewards for the nurses who have stuck it out.”

One wonders how this shortage of skilled labour could have arisen. I’ve written a couple of times about the policies of the former government, and their being structured (a) towards getting women out of the workplace, and (b) against them returning.

Hence a shortage of skilled labour, across the board (or, at the very least, a board made up of industries staffed predominantly by women).

The so-called “baby bonus” – originally AUD3,000, now AUD4,187, makes up the fee listed in the title.

This is all an excellent example of why the Austrians don’t like government intervention: offer a subsidy to (on paper) boost the birth-rate, but generate dis-incentives with respect to another very key component of our economic growth: labour force participation. What to do? Well, obviously, offer another set of targeted incentives for specific industries.

Now, the problem is not, necessarily, with recruitment: it is with retention:

“This is a good start, but it is a small part of what is needed. We need an overhaul of the health system and we need the Government to invest very heavily in primary and aged care to keep patient numbers down in public hospitals and take some of the pressure off nurses,” she said.

After 12 years out of the workforce, Karen O’Connor, a former clinical nurse specialist at Royal North Shore’s emergency department, will return to work soon – but refuses to re-enter the public system because staff “are not supported, the work is too stressful and the shifts are not conducive to family life”.

“There are few incentives to get back into nursing. I think the $6000 is a great start, but it’s not enough when you have no support and have to work shifts, including night shift,” Ms O’Connor said.

So what happens in a year or so when – specific to nursing, an under-appreciated and over-worked sector in the economy – nurses get/earn their $6,000, but realise they’re back to the position they were in originally (maybe they even want to have another child?). The government can reasonably be assumed to be containing costs by offering a signing bonus, rather than higher wages (which are dramatically more expensive, raising the costs of every nurse, even incumbent ones) – but short-term incentives usually produce short-term effects.

Student debts out of control

This is an Australian story (for those who followed the link, believing otherwise).

Graduates from private colleges and universities are costing taxpayers more than those from public universities, and new ministers of religion present one of the greatest burdens.

The architect of HECS, Bruce Chapman, has calculated that the taxpayer subsidy to privately educated graduates who deferred payment on their courses is 18 to 28 per cent on average. It is less than 5 per cent for public university graduates paying off HECS debts.

I had a conversation along these lines a while ago, with a colleague here. His argument was that HECS was fine for Australia, because we have so few people/students. And because our education costs are low (similarly with regard to health care). In the US the system would just cost way too much money, and provide way too much of an incentive for too many students to take degrees with too little payoff (private and social) at the end.

Seems that Dave’s argument is being proved by the very country I had used to support mine.

HECS allows students to wait until they have reached an annual income of nearly $40,000 before paying off their degrees. Past and present university students owe $14 billion in HECS debt, which is underwritten by the Commonwealth government.

Professor Chapman gauged that because education loans were interest-free, the taxpayer was effectively subsidising the students, and those privately educated students who paid a premium for their courses were costing more in foregone interest than their public peers.

…

“There was never going to be a worry with the HECS system because the debts weren’t big enough and the prices weren’t high enough,” Professor Chapman said. “But once HECS went into the private sector, some of those debts are $80,000 and the interest rates start to matter very much.”