Wednesday, 30 September 2009

RIP quality journalism

The Gruaniad is a newspaper that seems to pride itself on notoriously poor standards of fact finding and editorship, but I have just been bowled over by a superlative piece of garbage that went up on their web site this week. No surprise that it appears in their "environment" section and no further surprise that it is yet another lame piece of climate change alarmism.

Have a look at the article and then do as much fact checking that you can in, say, nine tenths of a second.

Adelaide latest victim of global water shortages

Australia's fifth-largest city could be reliant on bottled water as early as next week as overuse and drought stretch the Murray river to its limit

Pretty self explanatory really, but also seriously alarming. Adelaide (the fifth largest city in Australia) must surely be in a state of emergency given such an imminent event. Can you imagine the logistics involved in the supply of a city with bottled water, the restrictions one would need to place on any water use at all in order to prevent all manner of disasters and even death?

Google must be running hot with links to local press warning the populace of the danger they face and the things they need to do....


9 potential news articles. Only one referring to this disaster, from the Gruaniad itself.

No bother, this means nothing. The Gruaniad journalists are quick off the mark. They get the scoops weeks before other inferior news hounds. A quick look at primary sources will reveal the astonishing speed with which these paragons of the news media have pounced on cold hard verifiable FACTS:


Adelaide reservoirs 90% full. Maybe they are filling the bottles at the reservoirs for distribution to this thirsty city.

Never mind, the South Australian Water authority are consummate professionals. They will be on the case and will be ensuring that water is being used for the most essential purposes only. Sure enough, they have put everyone on LEVEL 3 ENHANCED WATER RESTRICTIONS!!! This is definitely serious.

Dripper systems and hand-held hoses fitted with a trigger nozzle can be used for a maximum of 3 hours a week
What? Don't these dolts realise that there will be NO WATER NEXT WEEK? And they are still letting people waste it on their gardens!?! They are rushing headlong into this disaster.

I await the upcoming Gruaniad reports of this unfolding crisis in the coming days with great anticipation.

I received this disturbing e-mail today [I do hope this poor soul survives]:

Still waiting on the bottled water to arrive. Can't hold out much
longer. So... thirsty...

Thursday, 24 September 2009


Language is a powerful influence on the way we think. Take the word "jobs". An innocuous word in itself, used in many and varied context. Most people would be familiar with its use in forms such as:
"protecting jobs"
"creating jobs"
"exporting jobs"
"this will cost jobs"
"this government policy will cost jobs"
or my favourite at the moment:

"turning our back on Europe will cost jobs"
All leave a visual impression of a tangible object, like a book or a cup. Things that can indeed be "protected", "created" or moved from one place to another or even lost forever down the back of the sofa with all that loose change and lolly wrappers. The natural extension of such thinking is to believe implicitly that these things are fixed in number, that if I have it you can't. In economics speak, we would say rival in use, or consumption.

On those general impressions, reinforced by that language, the electorate in every country I can imagine believe they are involved in a global economic tug of war, fighting for these "jobs". This isn't good. For one, it provides the fuel for protectionist behaviour that adversely affects everyone's welfare.

The problem is, like many widely held beliefs about economics, this impression of "jobs" is wrong. It simply is not true that the relocation of output from one country to another (for example Dell moving from Ireland to Poland) will leave a hole created by a theft, or exportation, of "jobs". Nor is it true that some form of government policy (read public spending) is needed to fill such an imaginary hole.
And why is that the case? The reason is because there are no "jobs" per se, but an amount of labour that is needed to produce a given quantity of goods and services for the available technology and capital stock. And the amount of labour you use, relative to the amount of capital used (the level of known technology is simply a given at any point in time) will be determined by how much labour costs compared to capital.

If your production process requires you to open cans and labour is very expensive, you will buy an automated electric can opener and employ one person to operate it. If labour is cheap, you will buy 6 manual can openers and employ 6 people to operate them. The key is in the price of labour, or wages. "Jobs" will be there so long as wages are flexible and an economy is allowed to move from one state to another. They won't be lost, stolen, created, exported or anything else.

You can see the crux of the issue here though. It is all about the flexibility of wages; by which I mean the level of wages relative to everything else, including stuff in other countries. This is the only way that a shock to the economy, or any policy will "cost jobs" - if we refuse to allow wages to adjust.

So the only way that an economy is likely to be left with a shortage of "jobs" (i.e. persistent excessive unemployment) is if the price of labour doesn't adjust, or if some obstacle to movement of labour from one region to another, or from one industry or skill set to another is impeded. Note here that large scale government "training ", like the Irish FAS can in fact be such as impediment - but that is for another post.

What may happen is that wages might need to fall to restore full employment, which could imply a lower level of income on average. But there is no point in fighting that. It is a superior outcome to what would be a lower level of income and a larger number of unemployed people who are without employment for longer periods of time.

Here are the important implications of this that everyone should bear in mind:

A government does not, can not, "create jobs". Reject outright any rhetoric based on such a lie, it is usually a political ploy from the CEOs of the most dominant and powerful industry in the world, the political one.

Buying goods or services from abroad does not "cost jobs". Nor does buying domestic goods "support jobs".

Wednesday, 23 September 2009

When myth meets economics

Economists get a bad rap a lot of the time. And, on occasions it is well merited. But more often than is commonly imagined fault lies in alarming widespread and firmly held beliefs that support damaging policies by government.

Trade is a goldmine of examples. Take the experience of the Great Depression. One feature of the this tragic period in modern history was a descent into protectionism and an unwillingness to trade (i.e. import) goods and services from other countries. The graphic below is modestly famous, appearing in an Economist article on the Hawley-Smoot Tariff, that was arguably the catalyst to a general retreat into economic isolation around the world. Some think it ugly, or contrived, but I find the chart illustrates the annual contraction in the volume of trade. Each circle encompasses an amount of trade which gets smaller and smaller. Hawley-Smoot brought into effect more than 800 different tariff increases. Naturally, other countries followed suit. The result was less trade.

While supporters of these tariffs might try to maintain that the affect was as intended (keeping out foreign imports in favour of domestic production), they might baulk slightly when one explains that the chart below shows the decline in total world exports; most anti trade proponents tend to be of a mercantilist flavour and believe, no insist, that imports are bad while exports are good. Everyone was exporting less. This is of course a trick, every import is in fact an export, but the point is valid. There are no exports without imports. A type of Yang and Yin if you like.

What you don't see when you look at this chart is the loss in income and welfare around the world as we stopped trading with another.

That is an interesting trip down memory lane, but what relevance is it for today. Well there is more than one point to make.
  • Firstly, economists fight a never ending battle against the enemies of trade. Strangely, over time, this continues to be the overwhelming proportion of the population.
  • Secondly, trade protectionism is a classic knee-jerk response that comes at time of recession. It is intuitive, but badly flawed, to believe that you can "save jobs" by buying locally produced goods or services only or preferably.
  • Third, we are facing a rising specific threat at the moment. This is partly related to the point in the economic cycle in which we find ourselves, with unemployment high and rising nearly everywhere. But we also have to deal with Climate Change catastrophists who are lobbying and legislating for taxes on anything with a carbon-based energy component in it. Unfortunately, that is everything, because the use of energy has been the bed rock of our improving welfare ever since man lit his first fire and dramatically reduced mortality from hypothermia, nocturnal predictors and bacterial infection from eating raw meat. And given our present technology there is no cost comparable alternative.

One of the darrrrlings of the Climate Change Catastrophe industry is the Waxman-Markey Bill in the US which has plans to place an explicit or implicit tax on fossil fuel use. This would increase the cost of energy as a way of reducing its use. However, such a law introduced in the US would simply mean that production would move overseas. So the Bill has provision for tariffs to be applied to imports of goods from other countries. Bad news.

It doesn't end there, Nicolas Sarkozy is a fervent admirer of such an idea (what, an anti trade Frenchman???) as it could also help square the political circle for the EU thinking of doing something similar.

And people lap it up, keeping out those nasty imports.

I live in dread.

Tuesday, 22 September 2009

At last a "rock solid, steady" PC application

Is there some way we could convince these people to design a PC operating system?

The Conficker worm

"Conficker has proven to be the gold standard for botnets. It's rock solid,
it's steady
and it has mechanisms built in that have made it impossible for us to actually crack," Joffe said.

The next religious war

It is embarrassing to admit that this bloke is Australian. The stereotypical national character (perhaps self delusional) is of a skeptical, bordering cynical, nature. A person most likely to take a pause, look through the bullshit and call a spade a bloody spade; most usually to end in the appraisal of most situations with an assessment of "no worries".

I hope that strength of character isn't dead, because the country has bred the Flannery, a pale imitation of an Australian. A panicky scare monger who now foresees war, yes war, if countries don't toe his preferred line. That preferred line is a halt in the generation of income, goods and services as a way of stopping the production of a natural trace gas that is the very base of the food chain on this planet.

The only reason a war could come of this is over attitudes like Flannery's themselves. A self-fulfilling war arising out of demands by one group of people that everyone else adheres strictly to a set of punative and inequitable ideological principles and rules. Yes, we have been there before. This is just the threat of another religious war.

A note to Mr Flannery. I believe nothing good ever came from wilful subjugation. I will not bow to your destructive religious crusade and I doubt I am alone.

Thursday, 17 September 2009

Reap what you sow

Oxfam are now worried about the possible implications of diverting scarce resources from one problem to another.

Maybe they should have thought a little harder about their own actions when they started to spend their limited budget on political lobbying:


The reason I won't give to Oxfam. The road to hell is paved with good intentions and this mob are finding they might end up doing more harm than good.

Friday, 11 September 2009

Climate change madness

In the mad rush to avert that non-problem that is dangerous (man-made) climate change, we are told we need to pass laws, regulate and spend lots of taxpayers' money (glibbly taken by voracious government) to force the production of "renewable" energy sources. Stuff like wind, solar etc.

Of course the problem is the technology just isn't commercially viable yet. We would either have to pay a lot lot more for the power we use for transport, light and heat etc (especially nuclear, solar). or we would simply layer a another sum of capacity on top of fossil fuel (especially wind) because it won't be dependable enough to meet demand on it own.

If you dispute this, look at that paragon of sustainable energy, Denmark. After pouring a massive amount of taxpayers money into subsidised wind turbine production it finds it has to draw on foreign electricity production and charge the highest prices for electricity in Europe.

Compare Ireland - hardly a low cost electricity model. We pay more than twice as much as Americans and three times as much as Australians and Canadians. Consumers price is around 15 cents per kilowatt.

with Denmark, with its mass of windfarms consumers pay 24 cents per kilowatt.

I don't want to pay that. Irish electricity is too expensive as it is. But if individuals don't stand up to this madness that has captured the political agenda globally, that is what you face for no practical gain.

Wednesday, 9 September 2009

Now there's an idea

Smaller government and less social meddling. Why, it's soooo crazy, it might just work. I wonder if Peter Davies has any Irish grandparents?

This is an experiment worth keeping an eye on. Alas, I fear Doncaster might find their central government grant funding curtailed a bit more in the coming years.

Tax Commission report – water charges

This is the first of a couple of comments on the report by the Tax Commission, starting with the issue of water charges.

Some general points quickly to open. Why charge for water? Well, it is an efficiency thing. If you pay a fixed a price, or no price for a good or service, you will use an excessive amount. That is the efficiency argument. There is also an equity issue, in that heavy users might pay no more than light users.

Such is the basic premise behind the recommendation for the introduction of water charges in Ireland. But, as a grumpy old man, I find fault with most things and this is no exception. I have a short list of some of the difficulties I have with this proposal.

This is a charge that is going to be layered on top of charges (i.e. taxes) already levied to pay for water catchment, storage, treatment, distribution and maintenance. So in the guise of a more efficient and equitable approach to funding water supply we are actually facing a ramping up of cost. A ratchet affect.

Next is the efficiency point. And there are multiple problems here. Let’s start with the underlying commodity being delivered – water. As I mention above, the establishment of a marginal price for water use will lead people to use as much as the need/want and no more. Just like eating that extra Mars bar; the first one was worth the 80 cents you had to pay because you enjoyed it, the second one, not so much, the third one was worth a lot less than 80 cents so you stopped. In economics speak, they will align the marginal utility of water usage with the marginal price. The reason this is generally a good thing in economic is because it allows, in theory, for the most efficient allocation of a scarce resource. But water itself is not a scarce resource in Ireland. There have never been any water shortages in Ireland to my knowledge. It is for all intent and purpose unlimited in supply and hence should have zero marginal cost as a commodity. It requires no rationing by price or any other mechanism. To try and introduce a positive price would lead to an inefficient economic outcome by forcing people to under-use a resource that has no limit in supply. This case is certainly different in places where demographics, climate or geography do create a limit to supply (e.g. US, Australia, Africa etc.) but not in Ireland.

Next we turn to what is the more important point. It is not the water that needs to be allocated more efficiently (as I argue above it should have a zero marginal cost as an unlimited resource), but capital employed in its catchment, storage, treatment, distribution and maintenance. It is this inconvenient truth that creates a lot of the difficulties. I will suggest one here, but there are others. Consider that largely the capital required to collect, store, distribute water and maintain/repair the system is a large fixed cost for any population centre. Think of the water mains system. It doesn’t matter if you use 5,000 or 8,000 litres of water per day per household, you will still need the same pipes running the same mains pressure, with the same amount or maintenance. There is no efficiency to be derived from put a marginal price on water, making people use less in this instance. In fact, it could be detrimental, if you consider that it could lead to lower total revenues, which would impede the ability to meet the fixed cost of building and maintaining the distribution system.

Next, let’s consider the behaviour of the supplier. In normal circumstances the existence of a price allows for consumers not simply to choose the appropriate amount they want to consume (and not use wasteful amounts), but it also provides mechanism that allows for the more efficient use of capital. More efficient (hence lower cost) suppliers of a good can price at a lower point and entice consumers from competitors. Capital gets used and managed by the best companies. The desire to minimise costs and prices in order to attract customers is driven by a desire to maximise profits. But what are we considering here? The proposal is that a state owned monopoly will be setting charges for water usage. This can not be a sensible approach to achieving a more efficient allocation of capital when the two most essential ingredients are missing:

  • The existence of a profit motivation
  • The existence of competition.

For that reason this proposal will, if instituted, fail to produce more efficient outcomes. The state owned monopoly won’t be interested in maximising profits, so no need to work capital or labour more efficiently to minimise cost. With no competition it doesn’t matter how it prices (in fact it will need to be regulated), because it won’t lose any customers. Also consider that if the whole point of this exercise is to “save water” (use water more efficiently), this state owned monopoly will have no interest in reducing the greatest source of water loss – leakage during distribution. Why? Because the stuff isn’t scarce and so it doesn’t cost them if they lose a lot of it.
All in all this is a very lazy proposal. It will do nothing, where nothing is needed and simply ramp up household charges. And I am not stretching the truth to much to suggest that this format is simply a tax.

Finally, start totting up the extra costs that will necessarily be added to the provision of water in Ireland. Metering will be required for every household, which is a significant capital cost, billing and accounts sytems and employees will be needed as will yet another quango to regulate yet another state monopoly.

When the Irish economy is so broken, with poor policy and woeful insight from the supposed “professional economist” cabal, this is at best a distraction.

Life as a consumer

Sometimes it’s hard not to be cynical about business and their approach to their customers. No more so than in the telecoms industry, which in Ireland is a complete basket case. This is supposed to be a deregulated competitive market where the “local loop”, the line that runs to your door, can be leased via any available supplier on request. Theoretically, this opens up competition in stuff like broadband. Unfortunately this is more in theory than practice.

Take my current broadband experience for example. I am fed up now with my current provider of telephony and broadband services. No names or pack drills, let’s just call them GT Ireland. In the last 6 months they have left me without internet service for 4 weeks and presently are delivering a consistent 0.6Mb speed while charging for a 7.6Mb one. Yes, I know what contention is, but this is clearly not a contention issue – especially when you get 0.6Mb at 3am.

Thanks to the glories of competition (as drawn up by a raft of politicians) I can move to any number of alternative suppliers using a variety of technologies. Let’s investigate the possibilities:

Alternative DSL providers:

Yes sir, we would love to sign you to a 12 month lock in as a new customer. Yes
sir, you will actually be getting exactly the same signal down exactly the same
wires via exactly the same exchanges. No sir, we don’t actually have any
proactive technical support that will leave a call centre and take a look at the
situation on the ground. Just send us your money each month instead and if you
continue to get the poor service, just call our technical support, who would be
glad to keep you on hold for 10 minutes before patronising you and telling you
it must be a fault with the way you have set up your router, or don’t have
filters on telephony lines etc.. Oh yes, we can get an engineer out to check it.
That will be €99 plus VAT thank you.

Cable suppliers:

Sorry, we don’t “do” that well established suburb of the nation’s capital city.

Wireless suppliers:

Yes, our technology is great. You see no wires and exactly the same price as the
DSL alternatives. Well, yes it is true that if you want to have a telephone line
for something silly like a landline telephone, a monitored alarm, or a cable TV
box. You will need to pay an additional €25.99 per month minimum to someone else
for that.

Mobile suppliers:

Did you talk to the wireless guy?

So in practice, you are in fact left with the original state monopoly supplier. But you do get to choose the letterhead you would like on your bills. How lovely.

And a nice little anecdote to go with this moan. My much-loved supplier GT Ireland was fiercely marketing a “special offer” of a free upgrade to 24Mb service a number of months back. I thought I would like some of that and gave them a call. Unfortunately this 21st century technology had the strange quirk that had I been switching from a competitor they could switch me over seamlessly. But alas, I was only a humble customer of 5 years standing and so would have to have my service turned off for a minimum of two weeks should I want it. It didn’t make me hurry to take up the opportunity.

But lo, what now? GT Ireland has just announced that it has sold its household customers to another, unnamed telecoms company, let’s call them Modafone. And no sir we can no longer change your service. And we aren’t really interested in your problems any longer and your new supplier won’t be either until the sale completes next year some time.

You don’t suppose that 24Mb offer was a cynical attempt to boost subscriber numbers before a sale of the business do you? No, neither do I.

Friday, 4 September 2009

From the "how do they get away with that?" department

Just heard Michael O'Leary on the radio this morning. I don't think I have ever heard anyone who could rival O'Leary for the logical contortions he is willing to conduct to justify himself. This morning it was about the Lisbon Referendum and how he is campaigning for a Yes vote (is he using shareholders' funds???), when following the first failed referendum he was arguing that there shouldn't be a second one - because the people have spoken and they said NO!

His logic being; "well there is going to be one now, so I am going to tell everyone they should vote yes". When a more logical position would surely be "well, I was against a second referendum because people voted no and I don't like this idea of double jeopardy, so I would urge everyone to vote no again to effectively render it void". Maybe its just me.

But that is just some topical flavour of a man we all know and love. The meat of this post is the relatively recent change in Ryanair pricing. It is well understood that Ryanair are no frills and follow a business model where the strip out any frills from core fares and so deliver the core service at as low a cost as possible, while reserving the option of charging like a wounded bull where the can get away with it.

I admire that model. It is not the only model, but a strong one. And as a consumer it gives me ample opportunity to minimise cost by planning carefully (book well in advance) and studiously avoid the add ons. And when I see Ryanair trumpet some ridiculously low fare I know that it means without any of these "luxuries". I know that if I book ahead of time and plan my travel I can avail of the price advertised and only have to pay taxes on top.

But something has changed. Ryanair have made a small, but very significant change. At the end of my booking I get to select my preferred method of check-in. To check in at a desk on departure will cost €20. Fine, I can avoid that. Option 2 is check in on-line for €5. There is no option 3.

Here is the point at which Mr O'Leary is taking the piss completely and displaying another one of those yogaeque positions in logic. On one had he is saying I can buy a ticket for, say, €20 (subject to taxes). Then, with a completely straight face he is telling me that if I want to enjoy the luxury of actually boarding the plane it will cost a minimum of €5 extra.

I would call this a case of misrepresentation. Surely a "fare" must include full payment for the minimum services necessary for travel. In this case, some form of check-in. If it doesn't, then the "fare" quoted is a lie.

So how does he get away with that?