This is not about cycling

An Australian cycling magazine claims that you could save $3.5 million over your lifetime if you ride instead of owning a car. They say that their calculations are solid and we have no reason to doubt them, but this is not a story about how great it is to ride a bike.

Their calculations assume that you save every cent you don’t spend on a car in an account earning 6% interest. Unsurprisingly, the magic of compound interest — and probably a complete absence of discounting the value back to today — gives huge savings over a forty year career. Do cyclists really save all that money? No. Is it misleading to add interest on top of the savings and not discount the value back forty years to today? A bit. Does this really tell us much about the benefits of bike commuting? Not really, it’s just a story about how easy it is to make big numbers with daft counterfactual assumptions. Are they more misleading than most headline numbers in the newspapers? Probably not.

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Black markets, crime, and costs

Via Facebook I’ve been informed that our Australian friends have added an interesting interpretation to the costs of crime syndicates.

“Every dollar stolen through organised crime activity is a dollar that cannot be spent on education, health or any number of services,” O’Connor said.

Now on the face of it this statement is patently ridiculous – not every dollar taken by criminal syndicates would have gone to government for the government to spend on services.  However, we already know politicians struggle to think outside their own interests – so lets give them the benefit of the doubt here.

In that case, we may interpret this statement as saying “every dollar taken by a crime syndicate translates into a dollar taken from a ‘victim'”.  Ok, this is alright – its a tautology, but its still alright. Now this DOES NOT imply that the actual economy is any smaller as a result of the existence – simply that resources are being transferred from one set of people to another (sort of like with tax).  I would go as far as saying that we would not like some of the transfers to occur – I’m not a fan of people hacking into bank accounts and stealing funds.  But the claim that resources are being “is ripped from the economy by drug cartels and other crime syndicates” … they are part of the economy.

However, in of itself we still can’t get a feeling for the costs and benefits of what is going on – and the associated policy response – without actually thinking about what the syndicates are doing.  Luckily we are given such a list:

Increasingly sophisticated criminal operations included narcotics, money laundering, fraud, corruption, tax evasion, counterfeiting, identity theft and people smuggling.

Right.  So lets think about this.  We are being told that there is a cost to people smuggling, identity theft, corruption, counterfeiting – well no sh*t.  However, that is the cost to the individuals involved – we are being told here that some individuals lose out, and we may believe that is unfair.  Again, this isn’t a cost to the “economy” overall – this is a direct issue stemming from the crime having a victim, and this being seen as morally unfair.

However, that isn’t the case with all of these “crimes”.  The drug cartels they discuss exist BECAUSE of government policy.  When people voluntarily buy drugs this isn’t ripping money out of the economy – its actually creating value.  The cartels are IMPROVING economic outcomes by providing goods that people value – when government is trying to restrict individual choice.

Counting spending on illegal drugs as a “cost” to the economy is nonsensical – and that is what they have done hear.   If the Australian government is annoyed it isn’t getting the tax revenue from it (which seems to be their focus), the solution is to legalise drugs and tax them …

Thanks to the drug lawyer Perth as their expert team of attorneys are helping prevent more crimes by placing away criminals behind bars.

Do you need a personal consultation? Contact Lauren Campoli.

A note: Migration and the GFC

There have been claims by the Labour party that rising departures from NZ are the fault of the National party, and that the increase during their tenure was due to the global financial crisis (GFC).  Now this is a little bit untrue in terms of the way it is framed, I’ll just quickly point that out and then have a little chat regarding why we might be seeing departures rise, and whether it is really a policy relevant issue in of itself.

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Australian government: Ideology rules over evidence?

Now, I know we make a big deal of how Australians make more than we do.  However, it doesn’t matter how well or how poorly a country is doing – when policy is made it should be on the basis of evidence and costing, not ideology per see.  Redistribution and social goals are essential – but we should ask why we are going for them, and what is the best way to achieve them, rather than throwing ourselves around at selling points.

On that note Agnitio sent me this article.  The TVHE team is discussing it at the moment.  In the interest of having a post up today, I will put up my first response to the article.

Not fact checking properly was a pretty big fail on the part of the Economist to be honest – but I noticed that the Labour guy did not rebut, or explain why, the cost of the Australian project was 10x higher … especially given that he said the speed of the system would be the same.

And the justification may be that Aussie is much much larger – but in that case the marginal benefit associated with providing the service to low density areas would be pretty low.  It is useful to use a market mechanism in help figure out what the underlying value really is.

And that is where the Economist article was probably right with its “right-wing dogma”, and where the Australian government keeps messing up – along with setting maximum calorie counts on meals, and forcing power companies to pay above the price they can charge to households selling back to the grid 😉

If the Australian government is determined to keep implementing poor policies that directly lower the welfare of their citizens, then we probably won’t have to worry about New Zealanders continuing to flood over there will we.

Note:  I believe that a number of the reasons why Aussie is more affluent than Australia stem from their sheer advantage in terms of scale, their earlier TOT increase, the fact they are closer to their markets, and the fact that average tax rates are in fact lower over the ditch.  Given all this, I don’t see why catching Australia should be a goal for policy – simply making the best society we can, given what the members of society value, appears to be the only sensible target for policy right?

Rough 2011 predictions

I suppose I should make some falsifiable predictions for the year ahead – so I can explain at the end of the year why I was so wrong 😉

Lets go (note, these are my rough picks – they aren’t associated with anyone else, and they definitely don’t exist in a professional capacity) :

  • NZ GDP growth will near 4%pa by the end of the year.  Inventory accumulation will be a major contributor.
  • Consumption growth will be weaker than economic growth – but will accelerate during the second half of the year.
  • NZ unemployment will hold above 5% – but will be in the lower 5’s.
  • The housing market will remain weak.
  • The Reserve Bank will remain dovish on rates over the first half of the year – but then start hiking in June.
  • Farmers paying down debt on the back of high commodity prices, combined with increasing risk taking/confidence by investors, will see interest rates fall over the first half of the year.
  • National and Labour will compete over “savings plans” which will involve far too much in the way of distortions, compulsion, and poor “incentive” programs for my liking.  As a result I will post on them constantly.
  • National will win the election with effectively the same coalition government as we have now.
  • Aggregate commodity prices will peak in March, but will not decline significantly.
  • Oil prices will rise 10-15%.
  • Australian growth will fall slightly below trend.
  • The US recovery will be lower than expectations in the early stages of 2011 on the back of a slight run down in inventories – however, underlying activity will pick up sharply from the middle of the year.
  • The Fed will not lift rates or cut back on QE.
  • Israel will attack Iran to destroy any nuclear capabilities – and nothing will come from it (have put an entire dollar on this on iPredict – with an order to buy another 100 stocks)
  • Chinese growth will slow to 8%.
  • Portugal will teeter, but the essence of the debt crisis will be forgotten again over the year.
  • Japan will tighten policy too early.
  • Subsidies for solar power will become a more common policy around the world.
  • An international mission to Mars will be announced.
  • Update: India will win the Cricket World Cup.
  • Update:  France will win the Rugby World Cup after disappointing in group play.
  • Update:  Gold price will fall – say it will be lower on December 31 2011 than it was in December 31 2010 in US dollar terms
  • Update:  The NZ TWI will be volatile, but on average unchanged!
  • Update 2: Arsenal will win the PL in 2010/11
  • Update 2: LFC will be top of the PL in 2011/12 at Christmas (but will end up coming 4th)
  • Update 2: Wellington Phoenix will come in sixth in the regular season – but will make a semi final.  They will be in fourth place by the end of December 2011.

A step too far: The case against pursuing direct capital/trade/currency controls

To start off with I have to admit I like Bernard Hickey.  I like the fact he has got out there, written about New Zealand economic issues, and pushed to add an open debate type platform to the discussion regarding the New Zealand economy.  As a result, I may have not been critical enough when I read his posts in the past – as I did not see this coming.  In truth, the calls for exchange rate, trade, and capital controls is a massive step too far in what could well be the wrong direction.  Let me talk about the points Hickey has raised:

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