ALS: thoughts on freedom

Milk

Coles recently announced it will sell milk for $1 a litre and now a bunch of politicians are sooking that it’s going to destroy the dairy industry.  Nick Xenophon announced a parliamentary inquiry today:

“I understand that consumers want cheap milk. But if cheap milk in the short term means the destruction of our dairy industry in the long term, ultimately consumers will suffer.”

I don’t think Xeno has thought this one out. The retail price of milk has no direct impact on farm gate prices. I don’t see why dairy farmers would care if Coles decided to sell the milk at 20 cents, or give it away for free, or pour it down the drain.

It’s not just Xenophon who doesn’t have his thinking cap on. Opposition agriculture spokesman John Cobb got quite emotional, accusing Coles executives of being “quite happy to get their bonuses over the dead bodies of farmers”. Greens Senate leader Christine Milne reckons “It’s time Australia’s dairy farmers saw something being done to protect their livelihoods.”

Possibly their reasoning is that if Coles cuts its retail price it will need to extract a better price when they negotiate with farmers. But that doesn’t make sense either. Price is determined by prevailing market conditions: demand and supply. Coles doesn’t improve its bargaining position by dropping its retail price.

Maybe they’re confused and they actually want to protect small retailers from the competition. But that doesn’t make much sense either. Small retailers don’t make that much money on milk. They provide it as service to customers who they hope will fill up their trolley with more expensive items. I doubt 7/11 owners will mind too much if Coles sells cheap milk because they’re not really competing in that market. They provide convenience and long trading hours and nobody’s going to stop going to the 7/ll because their milk is a few cents dearer than Coles.

So maybe it’s about protecting Woolies. Woolies stand to lose the most if shoppers switch to Coles instead because they get cheaper milk. So maybe the whole thing is a ruse to prevent our two major retailers from having a little price competition. Or maybe everyone involved with this is just a complete moron.

February 10, 2011 Posted by Joseph Clark | General | 26 Comments

A Very Pigouvian Christmas

If there’s an economic concept that can’t be explained through Dr. Seuss it’s not worth explaining. From here, inspired by this:

Every Who down in Whoville liked Christmas a lot.

But the Grinch, who lived just north of Whoville, DID NOT.

He stood and he hated the Whos and their noise

He hated the shrieks of the Who girls and boys

For fifty-three years he’d put up with it now—

He had to stop Christmas from coming, somehow.

He asked and he questioned the whole thing’s legality

Then his eyes brightened: he screamed “externality!”

He reached for his textbooks; he knew what to do

He’d fight them with ideas from A.C. Pigou

Read more »

December 13, 2010 Posted by Joseph Clark | General | 3 Comments

Julian Assange is a terrorist

Assange's useful idiots rally in Melbourne

Julian Assange has a plan. The plan is to leak lots of information so governments become fearful of leaks. As they become more fearful they become less likely to share information among their departments and appendages. The restriction of information flow will retard government operations and eventually cause their demise. Assange explains:

Conspiracies take information about the world in which they operate, and pass it around the conspirators and then act on the result … We can marginalize a conspiracy’s ability to act by decreasing total conspiratorial power until it is no longer able to understand, and hence respond effectively to its environment. . . . An authoritarian conspiracy that cannot think efficiently cannot act to preserve itself.

This is very interesting. Usually anti-state people see transparency in government as a good thing. Many have defended Assange with pro-transparency arguments, but they don’t understand that his objective is the exact opposite; he wants less transparency. He wants to encourage a highly secretive, paranoid government because he feels that it will be less effective in its various ‘conspiracies’ and more susceptible to overthrow.

I’m not sure if I’m sold on the logic but it certainly is logical. Paranoid repressive regimes usually fail and provoking them to become more paranoid and repressive might well have the desired effect. However transparency and accountability in government have been hard won, sometimes very hard. Terrorising governments into repression to incite collapse and revolution puts a lot at risk for a high-minded ideal.

December 10, 2010 Posted by Joseph Clark | General | 17 Comments

The Solution to Education

I was just thinking about schooling and I had a most brilliant idea. The problem with the current model is that students are required to work for no pay. Sure, they acquire education and that is a kind of pay. But the benefits of education are remote and this clearly provides only a marginal incentive to most. The low incentive is reflected in low levels of effort. If students were paid in cash for performance they would exert more effort, just like every other economic agent.

There are a bunch of ways this could be enacted. A simple design would be to pay students according to their rank in the class: The top student receives $1000, the bottom student receives $0, with a linear graduation between. Or the top student could receive a “prize” of $5000. The problem with prizes for exceptional performance is that they do little for the incentives of weaker students, who will rationally anticipate that they have no chance at the prize and so exert no effort. This is the problem with scholarships and other prize based incentive schemes.

The scheme could also be run in a revenue neutral fashion for private schools. Instead of having a fixed fee for each student, the fees would depend on the rank or absolute performance. This would be incentive compatible for parents, who could make substantial savings, or even a profit, if little Jimmy or Jenny put in a little more effort on their maths homework.

Children are generally quite poor. They have low productivity and a low opportunity cost for their time evidenced by their low wages. An additional dollar given to a child will induce more effort than an additional dollar given to a teacher or administrator. Why are we spending money on the most expensive inputs to education? Why has nobody thought of this before?

November 22, 2010 Posted by Joseph Clark | General | 77 Comments

Cool idea for the day: drug futures

Governments like to keep track of illegal drug prices as a measure of effectiveness of the Drug War and to brag about the street value of seizures. These indices can also be used as the basis for a drug futures market.

Futures contracts on illegal drugs wouldn’t necessarily be illegal themselves. Futures don’t need to deliver the underlying commodity or security; they can be settled in cash as the difference between the agreed price and the underlying. Thus it is possible to trade drug prices speculatively (or to hedge) without the need to deliver or receive actual drugs.

This would be good for the usual reasons futures markets are good: hedging, liquidity, and price discovery. It would also provide some very interesting incentives for governments, drug users, and drug sellers.

October 25, 2010 Posted by Joseph Clark | General | 11 Comments