2007 Slides (see below for the slides of 2006)
Should we increase funding for emergency health care and how?
Download the discussion slides of the October 25th meeting of the discussion forum.
The topic was introduced by A/Prof Uwe Dulleck, an expert in so-called credence goods (goods of which the consumer doesn't know he needs them, nor whether he received them. Some type of health care are like this: you may know you're sick but not whether you need medicine A or B, and even after having been cured you don't know whether you needed the treatment you got or have been swindled into a more expensive treatment than you needed).
The issue of emergency health care has just been on the political agenda. The Sydney Morning Herald reported on the case of a mother who gave a miscarriage in a toilet whilst the 28 acute beds in the emergency room were taken by 43 patients. Several such stories have been running for months (such as here). The politicians have varying spins on their reaction to this issue, with Labor promising an additional 2 billion in health care spending subject to greater bureaucratic control of hospitals to 'ensure' money is spent well.
The question Uwe raised was to ask whether there is any real objective economic reason to think anything is particularly wrong about the current system and what one could do about emergency health care. The first thing he noted as an economist, is that the decision about the number of emergency beds is taken in uncertainty: you don't know how many patients are going to turn up but they are expensive beds to have. Given that there are other worthy goals to spend money on, this already means that the optimal number of times that an emergency department is going to have more patients than beds, is non-zero. From an optimal planning perspective, you have to balance the loss incurred when patients get turned down by emergency departments with the loss incurred from expensive beds being idle when there are few patients. That idle capacity could be used to save patients' lives elsewhere. The notion that it would be better for patients to divert resources from non-emergency care to emergency care is not obvious at all. A second important economic element Uwe noted was that the doctors and nurses at emergency departments were strong substitutes for those in other departments. This means the 'solution' for emergency care may involve reducing the capacity needed in other health departments. Putting it simply, outsourcing most hip-replacement operations to Bombay (fly out the sick patients, treat them there, and then fly them back home) might very well be the most effective way to free resources for emergency departments which, by design, cannot be outsourced to other countries.
Markus Schaffner then argued that there wasn't any apparent reason for Australia to worry about emergency care. He based this assertion on 4 pieces of information. One, Australia has a relatively long-lived healthy population implying that our health service gets it right on aggregate. Second, the number of complaints per unit serviced regarding the health system and even the total number has apparently been going down the last 5 years, implying there is no 'impending crisis' at all. Third, health care spending is simply average compared to other OECD countries, implying no structural under funding of any kind. Fourth, the funding formula applied in this country for hospital care appears to be regarded as cutting-edge, again implying no obvious improvements could be made. Though there is scant information about what happens in emergency care, Markus noted that from the available figures there were appeared to say there was little to worry about.
Andrew McClelland on the other hand argued there should be more funding to emergency departments. His main argument was that private hospitals have an incentive to free-ride on the public system by not having emergency departments. This 'automatically' reduces the relative availability of emergency beds as the private sector expands. There are three ways to combat this. One, the asymmetry could be rectified by forcing private hospitals to have such departments. Second, the government is the logical entity to look to for more training of medical staff. At the moment, such training is heavily frustrated by the quasi-unions limiting the availability of training places, but governments could if it wanted to change that since medical accreditation is ultimately though indirectly based on legislation. Third, the government can change the amount it pays hospitals per emergency procedure giving them an incentive to provide more emergency care.
What I took from the discussion was how intricate the funding formulas for hospital care actually were: hospitals get paid on the basis of the severity of the illness as first assessed (with procedures in place to prevent hospitals from claiming patients have more severe problems than that they have). Also, the issue of the visibility came to the fore: patients whose under treatment is indisputable clearly matter a lot more politically than patients whose under treatment is not visible (such as when people don't get treated for diseases because they are not screened and hence neither they nor the doctors know of a problem), even though this distinction shouldn't matter economically.
Should there be a right to paid maternity leave?
Download the discussion slides of the early October meeting of the discussion forum. Paul Frijters introduced the topic of paid maternity in the context of the recent proposals by the Democrats and the Greens to guarantee women 14 weeks of paid maternity leave, with the payment being at the level of the minimum wage and provided by the government. Such a scheme would apply to about 100,000 women a year which would make the cost close to half a billion a year. The main reason we appear not to already have such a scheme is a deep seated anxiety on the part of many in the population about the whole notion of women with children being at work. Alison MacIntyre argued this scheme made sense from an economic point of view because of the benefits to the rest of society of having children to perpetuate the nation. The scheme is an effective subsidy from families without children (who pay part of the taxes paying for the scheme) to families with children. Since private employers do not take such beneficial social incentive effects into account they are not going to be in favour of maternity leave, and indeed would discriminate women if they as employers would have to pay for such a scheme. Hence Alison argued we needed a government funded scheme. Most other countries indeed have such a scheme, varying from 12 weeks to a whole year of paid maternity leave. She pointed out that women's groups support it and many large businesses already have such schemes anyway. Ben Ives on the other hand argued we should not have a scheme like this. His main argument was that having children strongly disrupts the worker-employer relationship, putting an unfair burden on employers of their employees taking time off to care for children, quite apart from the actual wage cost of a maternity scheme. The right to return to the same job when pregnant would furthermore add unfair costs on the employer of training temporary replacements who would then unfairly have to be gotten rid off when the leaver returns. Ben supported the idea that employers should be able to discriminate on the basis of expected pregnancy since this entailed a relevant business cost, and that in general the government should not try to achieve social outcomes (more kids) by labour relations regulation. Ben argued that the incentive to have more children was going to be quite small and probably only relevant at the bottom end of the wage distribution. Finally, Ben made the argument that there was no pressing reason to want a higher population in the first place and that we already have enough kids in Australia.
Should we use price signals for urban water management?
Download the presentation slides of the September meeting of the discussion forum. Clevo Wilson introduced the issue of urban water supply. The generic issue is that in the region of the major cities, rainfalls have decreased in the last 30 years whilst populations and the water usage per person have massively increased. Whilst urban water users are responsible for no more than about 10% of total water consumption (the rest goes into agriculture and industry), the urban water system is in many cases geographically separated from the other 2 main users of water in Australia and only at prohibitive costs could they be integrated by long-distance pipelines and the like. There is only a bit of farming that competes with cities for the same water. Clevo explained the main issues in urban water management to be the existence of a natural monopoly in terms of the distribution grid; the variability of demand and supply making marginal costs fluctuate widely; and the existence of other users of the same water (ecosystems) who were not well-funded and would not be able to outbid a city for water. There are two basic possibilities for limiting urban water demand: using price signals or appealing to social norms. At present, we mainly do the latter. Redzo Mujcic took the classic economic position that we should rely on price signals. Redzo noted that water-tanks were economically inefficient because the implicit value of water out of a water-tank is probably in the region of 2$ per Ml (=1000 liter) , about twice the actual price and above the price of generating water from desalination plants (which cost about 1.70$ per Ml). Redzo found that the literature suggested the demand elasticity to be about -0.4 implying that any serious reduction in water demand would need pretty draconic increases in water prices. Redzo finally noted that a private water supplier would probably over-charge for water because of the natural monopoly, in which case the artificial separation of the water market for urban and proximate rural areas would not be sustainable. Nevertheless, Redzo's recommendation was to enforce marginal cost pricing on all users of water simultaneously, including the bits of the rural community competing with the city . Because the fluctuations in supply and the importance of geographical location, this would entail a great degree of price differentiation: users in elevated areas would pay more; water would sharply increase in price depending on the level in the dams; there'd be a difference in prices for guaranteed water over the price of water-if-available; areas with more leaky pipes or areas further away from the source would have to pay more; etc. Prices would not necessarily have to rise to meet marginal costs, but rather in order to ensure sufficient capacity for droughts. Nemanja Antic on the other hand argued that we should simply give up on marginal cost pricing or any other pricing scheme because it would be too difficult, be perceived as unfair, would be open to abuse (people illegally tapping into other people's water), would be open to arbitrage unless we were willing to axe the part of rural Australia close to cities as a viable economic entity that did not received water at a lower price than cities; etc. Nemanja's argument was that an appeal to command and control was the only really viable option, and the most popular option by far in other dry areas of the world too. supplied by water
Should we outlaw Hedgefunds?
Download the PowerPoint slides of the discussion group meetings of August 23th 2007. Robert Bianchi introduced the background information to the issue whether we something should be done about hedgefunds. Robert explained hedgefunds to be investment funds with particularly big clients (money lenders) who as such were subject to less rules than banks. The main difference in behaviour is that hedgefunds borrow much more than they have in terms of own assets from clients, i.e. they sometimes have outstanding obligations up to 2000 times the amount of own money. This contrasts to banks who are bound to have a minimal amount of capital as collateral against their borrowing. Hedgefunds thereby run much more risk of bankruptcy. Robert argued the European central bank was getting quite nervous about hedgefunds and was considering limiting their activities, especially given the recent volatility of the sharemarkets due to bad loans on the mortgage market. Alex Stanley argued that no extra regulations were required for hedgefunds because their investors and business partners were all 'big boys' who knew what they were doing. Chris Coleman-Fenn on the other hand argued that hedgefunds should also have some minimal capital requirement or at least needed to be forced to disclose more about their activities. The market imperfections Chris claimed to exist were both the severe asymmetric information between the hedgefunds and their clients (whereby a hedgefund manager did not have full incentives in the sense of not suffering personally from huge losses), as well as the possibility that the large amount of additional borrowing hedgefunds engage in would be able to lead to contagion phenomenon (stampedes). The lack of disclosure made a proper assessment of this volatility-risk potentially caused by hedgefunds hard to assess.
Should Australia do something about housing affordability?
Download the PowerPoint slides from the discussion group meetings of August 9th 2007. Vlad Pavlov introduced the background information to the issue whether we should do something about housing affordability or not. Vlad went over all the recent economic data regarding housing prices, housing mortgages, the evidence (or lack thereof) of bubbles in housing prices, and what tax distortions were present. Josh Yeo argued that something should be done about housing affordability because of the problem that young people couldn't afford a decent place close to the city centre anymore. Archad Ali on the other hand argued little could be done, apart from housing bubbles being one possible reason for higher interest rates.
Should Australia have a national information policy?
Download the Powerpoint slides from the discussion group meetings of July 26th 2007. Nicholas Gruen introduced the background information to the issue whether we should have a national information policy and what it should contain. Ben Ives argued in favour, Tony Beatton argued against. Nick's basic observation is that the economy is full of asymmetric information about the quality of products and jobs. Individuals are ignorant of the death rate of their doctors; the success rate of their lawyer; the job-satisfaction usual at their next employer; and the relative price obtained by their mortgage broker. These providers will all pretend to be exceptionally good but us consumers have to rely on reputation and referrals from friends to gleam some of the hidden information.
To a certain extent, this asymmetric information is nothing new. Markets themselves gradually generate quality signals, such as certification of doctors or quality signals for cars (brand names and crash rates). Government's role is then often to just adopt the market-generated signal as the official standard to which new entrants have to comply. The policy issue is then whether the quality requirements improve outcomes by overcoming the asymmetric information or whether they lead to power on the supply side by allowing implicit entry deterrence. However, the stylised history of standardisation is that governments respond to a signalled market wish for common standards and either certifies what a market has come up with or on request facilitates the emergence of a new standard.
Nick's basic contention is that in some markets there is a failure to come to standardisation because the market is too thin and disaggregated, in which case the government has an economies of scale advantage to coordination. This would for instance be the case for certain medical services delivered by local monopolies with little interest in comparable qualities. A secondary contention is that the turnover time of products (including their maturisation) is now becoming shorter and that that requires a faster process of standardisation than hitherto seen, i.e. the process of looking for standards and enforcing them has itself to be speeded up just like the life cycle of products has been speeding up.
Ben Ives professed himself convinced by these arguments and strongly noted the economies of scale to coordination that a government has, as well as the coercive powers needed to enforce standards. His/Nick's suggestion was to set up a coordination system between industry leaders and government in order to streamline the process of standardisation. Tony Beatton on the other hand argued against such a national information policy for 2 distinct reasons. The first is that a lot of the information is sensitive and wouldn't be released because of privacy concerns (what does your doctor get up to in his spare time and what does he earn?) or political expediency (governments hiding performance information for fear of public embarassment). The second concern Tony raised was that a real National Information Policy (over and above the ones we already have) would simply introduce additional hurdles to entry; would introduce additional administrative requirements on business; and have in the past lead to a flood of uninterpretable information (i.e. the disclosure requirements made on firms has lead to huge documents being churned out at incredible rates).
Should Australia have a tax amnesty?
Download the Powerpoint slides from the discussion group meetings of May 31th 2007. Benno Torgler introduced the topic by giving many historical examples of tax amnesties, including the tax amnesties in Egypt that appear on the Rosetta stone, the tax amnesty in the UK in 2007, and the many tax amnesties over the years in the US. Mark Doolan argued against a tax amnesty because it would undermine the tax morale in Australia, yield very little revenue judging by the last one in 1988, and and would be a reward for previous bad behaviour. Mark instead argued that it might be better to give an amnesty to fraudulent accountants who would thereby reveal to the tax authorities the ways in which their clients had been evading tax. Joseph Jeisman on the other hand argued that now would be a good time to have another tax amnesty because of the opportunity it would bring of improving the tax system and because of the large amount of money (2% of GDP) that is currently estimated as being untaxed. Joseph argued that a 'once in a generation' tax amnesty was best-practise in the US and that the costs in terms of future loss of tax morale may be small if Australia would simultaneously increase the punishment for future tax evasion.
Tertiary Education Restructuring: abolishing fee controls or national course quality inspectorate?
Download Powerpoint slides from the discussion group meetings of May 17th 2007. Paul Frijters introduced the topic by showing how tertiary education (university, TAFE) has expanded to include about 50% of the population between 20-24, up from no more than 5% after World War II. This has transformed universities from elite places with high status autonomous teachers to schools for adults with low-autonomy low-status teachers. The need of universities to pass nearly everyone has lead to a race-to-the-bottom, which has reduced standards of education at universities. The long-term solution has to be quality differentiation of students, either by having elite universities or elite degrees within universities. Chris Coleman-Fenn argued that the way to encourage quality differentiation was to abolish fee restrictions on students, such that universities were allowed to charge HECS students whatever they wanted. This would then lead to more effective competition and would allow universities to charge for the higher costs that would come with higher quality. Andrew McClelland argued this could be inequitable since some universities have a monopoly position in their region/discipline and could extract rents. As an alternative, Andrew argued for a kind of university inspectorate that would rate courses between universities, thereby giving the market a strong signal that would allow quality universities and degrees to attract the better students, thereby engendering quality differentiation.
Merit pay for teachers: bright new idea or recycled old garbage?
Download Powerpoint slides from the discussion group meetings of May 3rd 2007. Paul Frijters introduced the bare facts of the recent trends in primary and secondary school teachers. He emphasised their reducing relative income, the reduced quality of entrants, and the apparent lack of merit pay in either public or private sector almost anywhere in the world. Alex Stanley then argued the government should introduce a form of merit pay to reward good teaching, preferably by remoulding schools on the image of businesses with the principal allowed to make hiring and firing decisions, as well as awarding bonuses. The discussion then revolved around how the incentives for principals could be optimally shaped and what to do in cases where whole schools failed. Josh Yeo on the other hand pointed out that there was a good reason for the non-existence of merit pay for teachers, i.e. they've always failed whenever implemented. He dragged the miserable failure of teaching reforms in 19th century England to the fore, and basically made the point that merit pay created highly distortionary game-playing behaviour amongst teachers (teaching to the test and selectively picking students) and would destroy morale.
New and small firm government subsidies: does it encourage innovation or subsidise losers?
Download Powerpoint slides from the discussion group meetings of April 19th 2007. Per Davidsson introduced the bare facts of the role of small and new firms in the economy and argued they were responsible for a lot of the employment creation and product innovation occurring in our economy. Ben Ives then argued governments should engage in subsidising promising new and small firms in order to overcome capital market imperfections and because individual firms cannot fully cash in on their innovations due to incomplete property rights over new ways of doing things. Redzo Mujcic made the classic economic case against subsidy, which is that subsidies crowd out productive investments elsewhere; subsidies attract re-labelling of losers into 'new firms' and argued the general difficulty of government picking winners. He argued in stead for creating a level playing field with good information dissemination institutions that would allow private financial borrowers to step in.
Drinking Recycled water in Queensland?
Download Powerpoint slides from the discussion group meetings of March 29th 2007 on the issue of recycled water in Queensland. Joseph Jeisman introduced the mechanics of recycled water and the current plans on the table for Queensland to adopt recycled water in years to come, both for industrial/agricultural use and for domestic use. His key observations were that recycled water was going to mean about 20% less 'new' water was needed per annum than without recycled water and that Brisbane was going to run out of reservoir water in 2008. Joseph also made it plausible that desalination plants seemed the political front-runner as the next source of more water, which would cost around 1.50 AUS per cubic meter which is the same as the cost of recycled water and roughly double the current cost. Mark Phoon then made the basic case for why Queensland should adopt recycled water, drawing on the overseas experience with recycled water. Arshad Ali argued against recycled water mainly on the basis that it wasn't a long-term fix since it ignored the allocation problem of water. He argued in stead we should be talking about water markets, water meters, and especially about letting the urban areas buy water from rural areas as the long-term solution to the water crisis.
Should we ban tuna fishing or kill rats?
Download Powerpoint slides from the discussion group meetings of March 15th 2007. Sean Pascoe from CSIRO talked about tuna fishing and sheerwaters. The tuna industry is a 50 million dollar industry that takes place mainly on the East coast of NSW, and then particularly around Lord Howe Island which is home to a colony of sheerwater birds. These birds now and then get trapped in the hooks of the tuna boats. The question is how the fishermen should alleviate this externality. One option, very expensive, is to outlaw tuna fishing in those waters. Another, cheaper, option is to eradicate the rats on Lord Howe island who eat the eggs and chicks of the shearwater. Alison Macintyre argued we should do the latter because what we should care about is the number of sheerwater and hence should focus on keeping the numbers constant at minimal costs. Elisabeth Richardson argued we should also put a value on not having humans killing birds, independent of the number of sheerwaters.
The private equity boom: bad boys needing to be regulated or the genius of the market at work?
Download Powerpoint slides from the discussion group meetings of March 1st 2007. In this discussion, Mark Doolan introduced the issue of the private equity boom in Australia. The guts of this phenomenon is that investment organisations have bought quite few companies previously traded on stock exchanges both here, in America, and elsewhere. The policy question is whether this is because these private equity firms can run these companies better than they could be run when owned by many shareholders, or if this represents a market bubble that exposes the economy to unnecessary risk. Nemanja Antic argued that the equity boom reflected the superior management that comes with private ownership: greater focus on the long-run and greater ability to identify and get rid of poorly performing managers (one shareholder has more incentive to find out what really goes on at a firm and react to that than a million separate owners). Chris Coleman-Fenn on the other hand argued that private equity firms resemble banks in that they have soft budget constraints - in case they go bankrupt the government will probably bail them out and the management would not feel the full cost of bankruptcy. This means they make overly risky investments at the expense of risk to the taxpayer which means that these firms, like banks, should be more tightly regulated.
2006 Slides:
Inflation targeting as interest rate policy: good or bad?
Download PowerPoint slides from the discussion meetings of Thursday 2nd of March, room Z1124, run and debated by Joseph Jeisman and Paul Frijters. This presentation was about the rationale and empirical validity of using interest rate policy to target an inflation level of between 2%-3% per annum. Recent experiences with inflation targeting were discussed, some hypothesised pathways via which interest rates might affect inflation (investments; consumption; trade balance; exchange rates; mortgage lending) were empirically assessed. The case was made why inflation targeting was the right thing to do and a case was made that the current policy would be blown away by the next recession after which a different policy may well emerge.
Obesity taxation?
Download PowerPoint slides from the discussion meetings of Thursday 16th of March. The debaters were Paul Frijters, Joseph Jeisman, and Mark Doolan. This presentation discussed the current increase in obesity in Australia and elsewhere in the OECD. A case was made for having taxes based on Body Mass Index (BMI); allowing health insurers to charge on the bases of BMI; and a realistic appraisal was made of what was likely to happen given that close to 40% of the voters are obese. The US Health and Retirement Survey (HRS) was used to illustrate the empirical regularities than someone who is obese costs about US$2000 more in health costs than someone who is not obese, whilst it was also shown that the obese do not die younger.
Global warming: econometric and political issues
Download PowerPoint slides from the discussion meetings of Thursday 30th of March. The debaters were Stan Hurn, Joseph Jeisman, and Chris Coleman-Fenn. The presentation discussed the issue of global warming: the fallibility and time series properties of the most important variables in this debate (CO2, temperature, long-run climate cycles, Antarctic ice sheet densities), the issue of whether the observed increase in temperature was man-made, and the issue of whether and how mankind should try to avert global warming. An argument was made that global warming existed and was man-made, and the counter-argument was made that we couldn't really say this with certainty and that the issue of CO2 was a minor one anyway compared to other influences on global climate, such as dimming and nitro-emission. The broader issue of whether we should react to every possible future threat or not was also raised.
Home bias in investments: a reason for tax reform?
Download PowerPoint slides from the discussion meetings of Thursday 13th of April. The debaters were Michael Drew, Tim Sharp, and Martin Banjo. The presentation discussed the issue of home bias in asset portfolios, which is the curious phenomenon that the vast majority of the shares held in hands of Australians are Australian shares, whereas you would expect from a risk-sharing point of view that Australians would hold a balanced portfolio of international shares. The same puzzle appears in most countries. Michael Drew presented some background data on the extent of this puzzle, after which Tim Sharp argued this puzzle was entirely due to cost factors, such as transaction costs when buying something overseas and the preferential tax treatment of buying home shares via the franking system. Martin Banjo argued that while the puzzle may be driven by cost for Australia, this surely wouldn't fit the international evidence and that there had to be an irrational aspect to the observed bias. The debate ended with the open question of whether preferential tax treatment exist in nearly countries that would explain the home bias puzzle.
Smashing the medical cartels?
Download Powerpoint slides from the discussion meetings of Thursday 27th of April. The debaters were Joseph Jeisman, James Curchin, and David Curchin. The issue concerned the existence and effects of medical cartels in Australia. Joseph introduced the background to this issue, which is that in Australia there is de facto assortment of cartels in the medical profession, and then especially amongst medical specialists. Specialists are organised in their own professional association who control entry into that specialisation. The government not only accredits the resulting membership of that association, but also allocates benefits to such membership which is not allocated to non-members. These benefits take the form of subsidising training places, giving special tax rebates on the basis of being a specialist, and, most importantly, allowing only recognised specialists to charge under the Medicare system. In this way, the Government is protecting and organising cartels that allows specialists to make extraordinary high rates of return to the detriment of an efficient operation of the medical market and to the detriment of the tax payer. James Curchin argued this was not a problem because the alternatives would be worse. David Curchin argued the medical profession needed reforming.
The political economy of water in Australia
Download Powerpoint slides from the discussion meetings of Thursday 11th of May. The debaters were Christine Williams, Nemanja Antic, and Mark Doolan. The issue concerned the pricing and allocation of water in Queensland. Christine Williams, who heads the resources branch of the Queensland Treasury, introduced the issue of water in Queensland and gave an idea of the political landscape with respect to water. Nemanja Antic argued that the current method of allocation, which is basically that the farmers have been allocated most of the water rights but can't sell them, was grossly inefficient and that there needed to be a large expansion of tradable water rights in Queensland, even though that would probably lead to the demise of most rural communities. Mark Doolan argued that there should be no reform because the inefficient allocation of water was the only way to prevent rural Queensland from disappearing.
Should we allow buybacks?
Download Powerpoint slides from the discussion meetings of Thursday 25th of May. The debaters were John Polichronis, Blak Ford, and Jayne Dillon. The issue concerned the increasing prevalence of share buybacks, where in stead of spending the profits of the firm on dividends or investing the profits of a firm into new projects, the firm uses its profits to buy back shares and destroys them, thereby increasing the value of the outstanding shares creating a capital gain. John Polichronis introduced the notion of share buybacks, the legalities relating to them and some of the literature on their increasing prevalence since 1995. Blake Ford argued buybacks took advantage of tax loopholes and should thus be seen as tax evasion schemes. The key points he made were that the capital gain on the increased value of held shares only counts for 50% as income if the shares were bought more than 1 year ago, whereas dividends would count for the full 100% as income and be taxed accordingly. Jayne Ford argued buybacks had a sound economic rationale and their prevalence should not be discouraged by reforms in the tax law redressing this unequal tax treatment of capital gains and dividends. The discussion ended with hints that another reason for buybacks could have something to do with the consultancy fees paid to those advisers who push buybacks, or with the fact that managers who have options in their firms have a reason to artificially increase the share value.
Should we have more low-skilled migrants?
Download Powerpoint slides from the discussion meetings of Thursday 8th of June. The debaters were Paul Frijters, Joseph Jeisman, and Martin Banjo. The issue concerned whether or not Australia should expand the possibilities for more low-skilled migrants to enter. Paul Frijters gave an historical overview of migration into Australia and showed that at present Australia is a net importer of about 130 thousand relatively high-skilled migrants per year, which is historically speaking high in absolute terms and medium in relative terms. He also documented how other OECD countries are adopting the Australian point system to visas, effectively screening out low-skilled migrants. Joseph Jeisman argued that this emphasis against low-skilled migration was warranted and should be kept. For one, the industries that want low-skilled migrants to work on temporary projects do not have to pick up the likely costs of welfare dependency of the low-skilled migrant and his or her family, and industry's views should thereby not drive policy. Joseph supported his claim that many low-skilled migrants end up depending on the state by showing that the vast majority of humanitarian migrants (mainly low-skilled) and family reunion migrants (also relatively low-skilled) were welfare dependent. Martin Banjo on the other hand argued that a system of short-term visas for the low-skilled like the ones operating in the Arabian peninsula would take advantage of mutually beneficial opportunities for the migrant and the Australian economy. The discussion then hinged on whether migrants coming in for a temporary job were likely to want to stay or not and whether the Australian government was likely to be able to evict unwanted stayers or not.
Should we legalise insider trading in the stock market?
Download Powerpoint slides from the discussion meetings of Thursday 22nd of June. This meeting was about whether or not the laws on insider trading should be abolished or not. Joseph Jeisman introduced the issue of insider trading. He explained that the legal definition of insider trading is to trade on information which a reasonable person should know would affect the price of an asset but which is not publicly know. Mark Christensen discussed the argument of whether the laws against insider trading really made much sense. He suggested that the (stock) market would find its own solution to the asymmetric information problem of insider knowledge (where one side knows more than the other) and that regulation was not warranted. His analogy was the housing market where insider trading is common and not disallowed. Paul Frijters made the case for the current legislation, in essence arguing that regulation was the efficient market solution to insider knowledge in that it allowed many anonymous people to trade homogenous assets without requiring of each participant to invest huge amounts of resources in getting to know the person they traded with and whether that person was an insider or not. Having only one authority that invested in this knowledge and that was furthermore allowed to punish people long after the offense thus allowed faster, more intricate, and more efficient markets to emerge in which trades take seconds rather than the months it takes to trade houses. Rather than viewing the stock market as being hindered by regulation, Paul Frijters argued it only exists because of regulation.
What should the RBA have done on August 2nd 2006 in terms of interest rates?
Download Powerpoint slides from the discussion meetings of Thursday 2nd August 2006. The meeting discussed what the interest rate change should have been of the RBA that day in the light of all the available information about the economy. Nemanja Antic introduced the topic and discussed the various indicators of inflation and economic activity relevant for the RBA decisions. Blake Ford argued on the basis of the housing bubble that the RBA should have increased interest rates (which it did) and should probably raise them further in the future (which they did). Joseph Jeisman argued conversely on the basis of reduced business confidence and signs of reductions in underlying inflation that interest rates should have been kept steady.
International trade: friend or foe?
Download Powerpoint slides from the discussion meetings of Thursday 17th August 2006. This meeting revisited the issue of international trade: recent trends and figures on trade flows and active sectors were discussed by Paul Frijters. Jane Dillon then argued that on balance greater openness in trade was a good thing and that import barriers and tariffs should be reduced further, especially in the area of agriculture because that would benefit the poorer countries with a comparative advantage in agriculture. Tim Sharp conversely argued that trade does often not lead to improvements. He recalled the examples of the resource-export dependent countries (such as Nigeria) who seem to have suffered from their natural resources in terms of growth. Trade barriers no those types of goods would in his version be better. Also, a closer look at trade flows shows that many countries export very similar things to each other and hence the theory of comparative advantage does not easily apply (countries sending various brands of cars to each other can hardly be said to be trading on the basis of comparative advantage). Finally Tim argued that lowering barriers to goods and capital was unfair if it was accompanied by high barriers to the mobility of labour.
Should we give student grants on the basis of need or merit?
Download Powerpoint slides from the discussion meetings of Thursday 7th September. his meeting looked at the arrangements for student grants in the US and Australia. Susan Mayer from the University of Chicago introduced the system that currently operates in the US where most discretionary student grants are given to students on the basis of needs, i.e. on the basis of disadvantaged backgrounds. The item for debate was whether one should stick to that system or alternatively base student grants solely on the basis of prior school outcomes. Jane Dillon argued to keep the system as it was no the basis that it was more equitable to give the poor grants, that prior school outcomes were not all-informative, and that giving on the basis of school outcomes would lead to an inefficient status race between academic institutions eager to outbid each other for the best students to the neglect of others. Martin Snokes made the argument that grants should ideally be ability based on ability and hence advocated change.
Should we increase or reduce fuel excise duties?
Download Powerpoint slides from the discussion meetings of Thursday 5th October. Vlad Pavlov introduced the issue of fuel excises in Australia, showing how it was a sizeable item on the federal budget (some 7% of revenue), though relatively low by international standards. Vlad discussed how alternative fuels were going to be advantageously treated in tax terms in the future. Martin Banjo argued that the fuel excise entailed a double dividend and should be maintained and even further increased. His basic argument was that the responsiveness of fuel consumption to fuel price was very weak, even in the longer run, making the deadweight loss (loss of efficiency) very small for fuel. Additionally, since the environmental effects of fuel usage could be argued to be negative, any eventual reduction in fuel usage by increased excises would count positively. Joseph Jeisman on the other hand argued that the fuel excise system should be seriously reformed. Partially he argued that fuel is an input into other activities and as such should be taxed because that would distort the producer price signals (in principle you only want to tax final goods and the current system does have rebates for industrial users but that system is costly administratively and subject to abuse). Joseph also argued that the introduction of the GST should have been handed back in terms of reduced fuel excises.
Which laws to enforce and which laws to ignore?
Download Powerpoint slides from the discussion meetings of Thursday November 1st. Alan O'Hran introduced some basic aspects of law in Australia and gave us an idea as to the immensity of the current body of law, such as that there are 24 book volumes of income tax law which no one could possibly know inside-out and of which many laws will contradict the other. Ben Ives then made the argument that despite the impossibility of anyone (including the police) knowing all laws and implementing them, we should nevertheless enforce all laws to the letter. His argument was based on the notion that laws represented the opinion of parliament and presuming that parliament was full of benevolent wise people, then all laws made sense and would need to be implemented. Any law that wouldn't make sense would lead to a coalition against it leading to its removal from the statutes. Nemanja Antic on the other hand argued that this position sounds fine in principle but is untenable in practice. First he gave some examples of bizarre laws no-one would dream of enforcing, such as that is was long illegal in Queensland to wear hot pink pants after midday Sunday and that Taxi cabs were required to carry a bale of hay in the trunk. He argued that in practice there is a kind of 'trust' between the population and the enforcement agents to the extent that what is enforced are those laws that are thought most important at the time. Nemanja acknowledged that this meant that the police and other enforcement agencies had discretion as to what to enforce when but argued this was simply inevitable and that it was hence better to have vague and evolving social norms determine which laws to enforce rather than to insist on the impossible and unpractical.
The Da Vinci Code of fairy tales, economics, and finance.
Download Powerpoint slides from the discussion meetings of Thursday November 23rd. This was the last discussion meeting of 2006 and it tackled the issue of hidden meanings. Paul Frijters talked about the various possible interpretations of the Jack and the Beanstalk fairy tale, and then especially the close analogy with the Greek story of Oedipus. He pointed out the general importance of symbols in our daily lives, as well as the difficulty in knowing in what conscious and subconscious ways symbols and stories appeal to people. Joseph Jeisman talked about the social and religious values implicit in the formulation of general economic theory and the many arguments that have raged on this issue in the literature. Joseph ended by showing the extent to which many financial market analysts follow the belief that market ups and downs follow a Fibonacci pattern.