The Coalition lost because of broadband. Specifically, they had a policy of not doing anything on broadband when it turned out that regional Australia really wanted something done. This is ironic because the Coalition’s objection to broadband was the expenditure of public funds. Yet this was only done as a superior alternative to doing nothing and doing something half-baked as Labor had proposed at the 2007 election. For years, I had advocated using market design to get a National Broadband Network in a cost effective and flexible manner. But rather than think hard about the economics the Coalition abdicated consideration of the issue. They deserved to lose precisely because they refused to govern. Hopefully, they will take a long hard look at their appeal to mediocrity and think about whether that it is really working for them.

This is a turn-around for the company that during the 1990s resisted all such things. But one cannot help but acknowledge that over the past decade, Microsoft’s old monopolies have been broken down. Who would have thought back in the days of Windows NT that Microsoft, within a decade, would be challenged by Apple and a new start-up. Actually, Microsoft argued that at the time although we all took that to be just posturing. I’m still not sure they really believed it even though it turned out to be true.

But I think the narrative that is appropriate is that the antitrust action against Microsoft, while it didn’t end up breaking it up, actually worked. Microsoft has largely behaved itself since. It no longer aggressively bundles or bullies OEMs into exclusives. What is more, in its more competitive segments, it is actually a strong consumer performer. Think about video games, for one. And it is improving in its traditional monopoly areas too where it is forced to compete on products rather than with heavy handed contracting.

There is no better example of this than search. If you have used Bing — especially to do things like book flights or look for images or use maps — you will know that it is actually superior to Google. Competition is working there on Microsoft. The issue now is whether it will work on Google.

Here is the worry: Google’s new narrative in these actions is that this is a dynamic industry and they face lots of competition and potential competition — just look to Microsoft’s example! But if the correct story is that Microsoft faced real competition only because antitrust action tied its hands on anticompetitive acts, then Google’s line is incorrect and, what is worse, may lead to bad policy outcomes. Think to Google’s recent acquisitions in search in Japan that took it from a 70:30 duopoly to monopoly. This is not what we want.

In this regard, I can think of no better advocate for this narrative than Microsoft. Who better to tell the world that antitrust policy in high tech environments actually works. Yes, they are interested but it is not an argument against antitrust action to simply point to Microsoft involvement.

That said, it is useful to highlight some strange goings on in its release. First of all, it was released on iTunes, a full month before coming to theatres. Frankly, I might have seen it in a cinema if the timing had been the usual but I was quite happy to save the trouble. There is no big screen requirement here.

Second, today it was all over iTunes as a big deal with advertisements and a US$3.99 rental price point; the usual for rented movies. Then, by the evening, it was gone — ads and all. I searched for it and eventually found it here. But now it was US$9.99. For rental. Which is closer to the US$14.99 purchase price for new releases. I was miffed to say the least but then I thought of the fact that I was saving much more than all of that by not having to go to the cinema. It is worth a $10 rental regardless.

Finally, they maintain the whole ‘rogue scholar’ bit. I’m telling you, Levitt and Dubner are the most unconvincing rouges ever! And putting them on the ‘big screen’ with some first class directors has not changed that.

SOLID-STATE lighting, the latest idea to brighten up the world while saving the planet, promises illumination for a fraction of the energy used by incandescent or fluorescent bulbs. A win all round, then: lower electricity bills and (since lighting consumes 6.5% of the world’s energy supply) less climate-changing carbon dioxide belching from power stations.

Well, no. Not if history is any guide. Solid-state lamps, which use souped-up versions of the light-emitting diodes that shine from the faces of digital clocks and flash irritatingly on the front panels of audio and video equipment, will indeed make lighting better. But precedent suggests that this will serve merely to increase the demand for light. The consequence may not be just more light for the same amount of energy, but an actual increase in energy consumption, rather than the decrease hoped for by those promoting new forms of lighting.

The idea is that the cheaper lighting might so increase lighting purchases and energy consumption that energy use might rise.

Now this possibility interested mathematician Terence Tao and he wrote up a little example on Buzz. He then elaborated and that is when I chimed in (see this Buzz thread). My point was that solid-state lamps were hardly going to be a competitively priced good. Instead, they would likely, initially at least, be sold a patent holder at a monopoly price. Consequently, in Tao’s example, no dire increases in energy costs would arise. Nonetheless, as you can see from the exchange, there were some cases that could produce that and also some interesting differences in our language.

Anyhow, I have written up a short note that demonstrates the interesting things that might arise. In particular, a tax can be used to mitigate the problem but also that the tax has another cost — it reduces monopoly profits and hence, the incentives to innovate for these things. That said, I think it requires some more work to see if that result would stick. As Suzanne Scotchmer has shown, these models are subtle. Anyhow, if anyone wants to work through this, please feel free to link to any results in the comments.

Nonetheless, one thing is for sure. This conclusion in The Economist:

So, for those who truly wish to reduce the amount of energy expended on lighting the answer may not be to ban old-fashioned incandescent bulbs, as is the current trend, but to make them compulsory.

is deplorably wrong!

A Note on Environmental Taxes and Monopoly Pricing

While the actual answer would require evidence to adjudicate, there are theoretical counter-arguments to each of these points. I’ll put them here. First, news content is rarely paid for and, instead, is funded by advertising. But advertising lends itself to a lack of independence and also to demographic tailoring. The ABC can provide content precisely that would not be advertising supported. Take The Gruen Transfer as a case in point. Moreover, if the ABC in its subsidised form was crowding out private sources, where are the exits? Instead the mainstream online offerings look remarkably similar and still have persisted. If anything, the ABC is providing unfair competition against independent and new media sources — e.g., Crikey and of course Core Economics. So it is the small that might be the issue rather than the ‘old large media.’ Of course, for this reason, Stephen’s third point might be entirely valid.

Second, do we need the ABC for quality news reporting? Specifically, should it be tax payer funded? Now, here the US is an interesting case. Public broadcasting arguably provides quality reporting and has done so for decades. If anything, it has received a boost from the Internet in terms of reach. So the existence of a public broadcaster is probably crowding out a privately funded, non-profit option. The problem, however, is not whether that is possible but if it is decided that is the way to go, how do you transition to it? Do it slowly and it is hard to encourage donations. Do it quickly to show people what they are missing and so they pony up leaves us without these services for possibly a long time. And in the end, does it really change any set of resource allocations in the economy?

That said, the argument that because of the existence of the ABC, the Government should step in to protect old media seems to me to stand — although here I suggest it is for other reasons. Put simply, the alternative hypothesis is that the ABC is not competing with old media and its continued existence means we do not have to step in to support that media. The ABC’s existence means that the Government should be more vigilant in promoting competition and not protecting established businesses in this industry.

Apple has had ambitions on this for years and has offered a few contributions. First, it put TV and movies on iTunes so you could watch a computer connected to a TV. Second, it put TV and movies on iPads and let you play them on a TV. Third, it developed Apple TV — a glorified iPod — to do the same thing. Each has helped but each suffers from the overall flaws in the system.

People had hoped that Apple’s new Apple TV device might solve that. It hasn’t and so it is time to reflect on why. (By the way, it all sucks for Australians as there is no TV rentals anyway so my reflections here are for the US).First, Steve Jobs understands some of the big issues. Yesterday he pointed out that managing storage is a pain for people and that most people don’t want to hook up yet another computer to their televisions. He is right about those things. So what did Apple do? It created a very small device with an HDMI port and so you can plug it into your TV and go. It is connected to the Internet and the idea is that you will not worry about storage on it but stream content either from your computer, iPad/iPhone or just rent stuff and play on demand. For that last part, Apple has made it easy with 99 cent HD TV shows (although a limited selection) and a $99 price point for the device in the US. That’s cheap. What is more, you can watch YouTube or NetFlix straight from the device. Also good.

Second, Steve Jobs misses some even bigger issues. For one, simplicity is no solution unless it is a substitute. With a limited selection and without the ability to watch live shows like the news, you can’t get away from having a cable box too. That means complexity and so Apple TV just doesn’t give the user enough.

For two, for reasons that are hard to understand (but they exist) people like to control their own media. I know that I might watch a Star Trek episode once and so rational me should be happy to just pay 99 cents when I want to watch it and take the better deal. But that is not how it works. I want to own it and have the option of a zero marginal price when I want to watch. This is the big problem with micropayments and people worry they will add up. A subscription might actually do a better job but there still may be issues of control. I predict that Apple will go the subscription route or sub-contract to someone else (e.g., Hulu) to get there.

Third, there is the problem of navigation. I’m sorry but a dinky remote without keyboard entry isn’t going to cut it. You have to be able to search (something Tivo just worked out). This is something that Google clearly understands and it looks very much like they are going to fly ahead in the TV game. But this one is Apple’s own fault. It has a solution to the problem that people have their own preferred ways of organising and navigating content. It can provide apps. Apps such as the ABC’s iView or a myriad of others provide ways of viewing videos. Apple needs to let those get on the Apple TV. Include a browser and a keyboard option and they will be in the game. From my perspective, it is frustrating to watch a company with clear promise here flail so badly.

In summary, Apple TV will not succeed this time because it isn’t a substitute, micropayments won’t cut it and it has failed to solve the navigation issue. These things are solvable — especially the last two. The mystery is what is taking so long.

So I downloaded iTunes 10 and fired up Ping this morning and immediately realised a big problem: our iTunes account is a family account. Not only are the tastes of the two adults in the house mixed but we have the children polluting our preferences as well. If I let lose this on my friends, they will think I have a troublesome fondness for Hannah Montana. If my kids let this lose on their friends, I suspect they will suffer the social damage of people who still like ELO. Not to mention that your past interests are weighted the same as your current ones. This same issue has plagued Genius recommendations.

This is a longstanding issue that Apple needs to deal with. The simple solution would be to allow family accounts to break down into individually assigned ones more easily. I suspect there is a mess of copyright and hurt in the way of that but without it this social network I think is on a path to failure. For now, can I interest you in some Mika, Glee or OK Go? We all seem to like that in the Gans household.

News aggregators upset the newspapers because they lower consumer search costs and reduce barriers to entry.

Want to know the days top stories? Go to your aggregator’s page on the internet and you get the headlines from a vast array of alternative sources. Don’t want to pay? Of the hundreds of stories on any topic, a few will be behind pay-walls. But these are easy to avoid as there are a myriad of substitutes that you can click on instead.

News aggregators make the news accessible but make it hard for the news providers to charge consumers directly for stories. The aggregators underpin vigorous competition and this competition prevents the newspapers from raising both prices and profits.

The newspapers are fighting back. In the US, the Federal Trade Commission – supposedly the consumers’ watchdog – is considering proposals to stymie competition. It proposes changing the rules of copyright so that aggregators cannot republish newspaper headlines. Even more worryingly, it is looking at a competition law exemption so the newspapers can collude and collectively agree to set up internet paywalls.

It will be interesting to see if a similar push occurs in Australia. If nothing else it will give Graeme Samuel and the rest of the ACCC a good laugh.

The publicly funded broadcasters are the other enemy. And here the newspaper owners have a legitimate gripe.

The BBC and the ABC have been leaders in using internet technology to distribute the news. They were pioneers in downloadable content and in mixing text, audio and video news. They vigorously cross-promote their traditional radio and television outlets with their new internet outlets. The ABC’s dedicated television news station is simply the latest example of the powerful competition this public broadcaster is bringing against the private news media.

This competition is clearly unfair.

Unlike the private media, public broadcasters do not have to make a profit. Taxpayers underwrite their losses. So the ABC and BBC can experiment with the internet and news delivery without having to worry about making a buck. This makes it difficult for the private news providers to compete.

However, the argument goes further than unfair competition. In the age of the internet, the real question is whether there is any justification for having taxpayer funded media companies like the ABC?

Two public policy arguments traditionally underpin the rationale for public broadcasting. First, news is an economic public good. It is difficult to own a story. Investigative journalism is costly but the resulting stories can quickly be repackaged and redistributed by competitors. So, the argument goes, we need a public broadcaster to ensure that enough high quality news is produced.

The internet undermines this argument. We now live in a world with a surfeit of news coverage. Through our computers, we each have access to news content from thousands of sources around the world, taking every possible perspective. Many of these sources are as good or better than the ABC. We do not need public broadcasters to get quality news.

Second, supporters of public broadcasting argue that the main stream media is too narrow. It aims at the multitude, not at specialised interests. The ABC has traditionally helped fill this gap.

Again the internet has killed this argument. No matter what your interest or how oblique and unique your tastes, the internet means that you can find news and information to satisfy your demand. With the internet, there are no ‘gaps’.

If public broadcasters are no longer needed to fill their traditional role, surely it is time to ask if we need them at all. Should taxpayers be funding the ABC to compete against private providers who both want to and can do everything that the ABC can do?

There are two key issues for the next federal government. That government must stand fast against an anticompetitive push by the newspapers. The government will come under intense pressure to change the law and ‘protect journalism’. This anticompetitive push will have no economic merit and will be anti-consumer and anti-news.

The next government must also revisit the role of the ABC. Is it needed or has the internet made public broadcasters irrelevant? Again, the pressure from vested interests will be intense. But with the internet undermining the traditional role of public broadcasters, it may be time to pull the plug on the ABC.

When I travel I am faced with a difficult choice: which of the toilet booths to use in offices or hotels. I always try to guess which one is the least used.

Harford responds by appealing to the efficient markets hypothesis that suggests that there will be an equilibrium whereby all toilets will on average be equally clean. Of course, this equally suggests that there is nothing special about traveling: toilets will be on average equally clean at your own office too. Note that with a sufficient amount of use this will be true even if there are toilet choosing biases of the form Harford speaks about. After all, it takes a number of rational choosers to balance this out.

What he hints at but fails to see the gravity of is the insufficient incentives for people to investigate toilet cleanliness and the potential externality poses by dirty toilets being even occasionally overused. Anyhow, as ever, the issues here have not been fully worked out — certainly by hard nosed academic researchers. (Yes I intended the pun!) May be a good opportunity for someone to signal their lack of interest in Harvard.

Other signals seem perverse. Gambetta describes a convention in Italian academia for some established professors to celebrate the poor quality of their published work. This, he says, is a credible signal that they cannot jump ship for somewhere like Harvard – so will remain in Italian academia as powerful patrons.

That does seem perverse. It also seems a self-serving excuse for low productivity in a low incentive environment. Surely, the way to signal a commitment not to become a Harvard professor but to otherwise want to contribute to society is to publish exclusively in the popular press.

I will not speculate on the second question, but on the former, I think it would be a major loss for the ALP and for Australia if a post-election blood bath leads to a change in leadership for the ALP. Gillard was impressive during the election campaign. While there has been a focus on Abbott’s ‘surprising’ success, the campaign was very much about the two individual leaders (hey – there were not many policies to focus on). The campaign showed that the two leaders, despite there differing styles, could relate to the electorate and handle themselves well. Indeed, the campaign was notable for the lack of significant ‘others’ shining in either party. It was the Tony and Julia show. So even if the outcome of the weekend is a coalition government, I for one hope that our first female Prime Minister gets another chance to apply to the electorate for the job in three years time.

Also, mentioning that you read the ad on this blog will surely not go astray.

Andrew Leigh

Potential Member for Fraser

ELECTORATE OFFICERS

Applications are invited for several electorate officer positions, based in Canberra. This advertisement anticipates the formal declaration of the election result, which is expected to occur within the next week.

The duties of the positions include: community engagement, liaising with government departments, preparing and coordinating correspondence, media liaison, organising functions and meetings.

Applicants should possess the following skills and experience:

• A passion for community engagement
• Hard working and enthusiastic about addressing local issues
• Excellent oral and written communication skills
• Well developed office IT skills
• Strong organisational ability
• Ability to work as part of a team
• An understanding of Australia’s system of government and parliamentary processes

A commencing salary between $42,662 and $66,868 will be paid (plus allowances). A probationary period of 3 months will apply. Both part-time and full-time applications are encouraged.

Applications including a cover letter and a CV with the names of three referees should be forwarded to andrew.leigh@australianlabor.com.au.

Applications close on Friday 3 September 2010.

Blocking the Expats: It’s not my ABC

Joshua Gans, The Drum, 25th August 2010

There is an old Seinfeld bit where he notes, on a late flight, that the pilot announced that they will “make up time in the air.”

Seinfeld wonders, “well, isn’t that interesting? Why don’t they just go as fast as possible all of the time?”

I thought of that on Saturday morning (my time here in Boston) when a tweet from Mark Scott informed us that ABC News 24 online would be lifting all international copyright restrictions for their election coverage. I thought, “well, isn’t that interesting?”

The image accompanying this article is usually what I see from this distance. Now I had figured that the reason for the block was that sometimes the ABC broadcast news from other parts of the world that was copy protected and so could not just choose to block whenever it wanted. But the Election Night action demonstrates that is not the case.

So my question is: why not just go? Why doesn’t the ABC turn on and off blocking when it needs to rather than all of the time?

Some three quarters of a million Australians live outside of the country. There are surely others who might take an interest in Australia. But for some reason, our public broadcaster — for which my tax dollars still fund (by the way) — chooses to shirk that constituency. This is a constituency that does not have great alternative options precisely because the ABC is responsible for much of the self-produced news and talk shows. I am forced to sit reading 140 character tweets from Jonathan Green (The Drum‘s editor) in order to find out what is going on on Q&A. Suffice it to say, he tries but it isn’t really a satisfying or informative experience.

Public providers should occupy space that private markets do not cover. For international expats, surely there is a case to be made for under provision. After all, Aussie ads aren’t that relevant to me right now. And let me not get started on the content on iView. The same issue applies.

Surely it cannot be hard to work this out. For one, if I provide some proof of residency (perhaps a tax file number), maybe I could register to receive all content unblocked. Otherwise, can’t the ABC at least turn off the block for its own local programming? It is an issue of access.

The ABC needs to take a long hard look at itself and its mission. The technology exists for greater access and it should be falling over itself to utilise it. I vote and am even asked to comment on Australian economics for outlets such as The Drum. Can its readers really rely on someone who is blocked from consuming ABC journalism? Either that reporting is valuable or it isn’t. The ABC needs to make the call.

Joshua Gans is an economics professor at Melbourne Business School and a visiting scholar at Harvard University. This may be his last contribution to The Drum.

The reason that Tasmania has 5 seats is because the Australian Constitution guarantees each state at least 5 seats in the House of Representatives.  I didn’t know that until I went to the Australian Electoral Commission’s website to find out what is going on.  But the implication for this election is obvious.  The five seats in Tasmania are all in the Labour-Green column.  If the seats were allocated purely on the basis of population then NSW and WA would each have another seat.  WA has only 3 Labour seats out of 15.

This constitutional gerrymander may well keep the Conservatives out of power in this pivotal election.  This distortion should be brought to the people’s attention and rectified in a referendum.  None of the other states are in any danger of falling below the 5 seat floor.  South Australia, the next lowest, has 11 seats.

If we did change the constitution on this matter, then we should get rid of the relationship between states and federal electorates.  What have the state boundaries to do with Federal lower house seat boundaries?  For example, Queanbeyan, a town in NSW, is much closer to the centre of Canberra than many of the ACT’s outer suburbs.  Most of the Kimberley in WA is much closer to Darwin than to Perth.

On the matter of close elections, my vote could still decide the outcome of the whole thing.  I live in the electorate of Hasluck in WA.  Ken Wyatt (Lib) leads Sharyn Jackson (Lab) by only 300 votes and the gap is narrowing.  I am proud that the first indigenous member of the lower house may be elected in Hasluck.  Not by me though.  When I went into the polling booth my green paper showed  7 candidates for the lower house.  One was from the Global Warming Skeptics party, so I knew straight away who to put last.  Unfortunately, the Liberal Party itself is a party of global warming skeptics so I reluctantly had to put Mr Wyatt near the bottom too.

The Shapley-Shubik index seems to me to be appropriate for our current situation. Here are some scenarios. The last one is where the Nationals candidate wins O’Connor but decides to go independent. Notice that Tony Crook is far more valuable to the Coalition than he would be as an independent so you can see what will likely happen there.

Anyhow, this exercise demonstrates that the power of the independents changes little as there are more or less than them but who actually wins more seats amongst the majors matters alot. Specifically, if the major parties can sign on independents as ministers and lock them into their voting block that matters a great deal compared to an informal undertaking.

You can calculate these yourself on Dennis Leech’s website.

This exposes a key flaw in our current system. It is not simply that we have a Constitutional Monarchy but that the monarchy part is determined by the incumbent executive party. If the Governor-General were elected, this isn’t an issue because the people electing her would be the ones holding responsibility for any personal conflicts and their relevance.

Maybe some constitutional law experts can chime in but if a resignation occurs or even a temporary stepping down, then the Queen will likely appoint the longest serving state Governor as Administrator who will then adjudicate this. That would be Professor Marie Bashir of NSW so it looks like we are covered.

The informals are really the Latham informals. The Coalition actually moved north west during Turnbull and now has realigned with the movement Labor is taking.

What this shows is that there is a ‘north’ gap emerging in Australian politics and to some extent an ‘eastern’ gap too although I would gather that the Greens ascendancy is occurring precisely because they are moving ‘east’.

Anyhow I am not wedded to any of this, but I think this is the useful exercise to make sense of all of this stuff and perhaps for people to start thinking about what new parties we might need in the mainstream.

I have done a ton of media interviews, both on radio and for newspapers, in conjunction with Parentonomics. Most are of the “aren’t economists wacky” mode which can be fine but either lends itself to ridicule or a lack of seriousness. This week I did a long interview for National Public Radio in the US. I was contacted some weeks ago by a reporter, Chana Joffe-Walt. I had actually heard of her having been a regular listener of the Planet Money podcast for about two years. She was interested in the economics of allowances and I guess I was the go-to academic on such issues. There wasn’t much science to it despite a few studies in the Journal of Economic Psychology trying to understand whether pocket money had any effect: bottom line — it is hard to tell. There was certainly no facts and figures on the amount of pocket money kids get, etc.

Nonetheless, I could provide the theory and certainly reflect on my own experience on that. The end result was an hour in the studio alongside my 11 year old daughter to provide her perspective. It was a setting that could easily have devolved into a less serious piece that might have been amusing but little else.

But listen to the podcast. The basic angle is that economists complain all of the time that Governments never quite do what they want and if only they did things would be great. What happens then when an economist has control over his own little economy in the home? He runs into all of the same things that make economic policy hard to do in a democracy and for much the same reasons.

Now the podcast is light in tone but Joffe-Walt did many days of work and research on it and so was able to, in very short order, link parenting issues to serious economic issues. I was quite impressed with the end result and, indeed, wished I had thought of that angle when writing the book.

The point here is that when journalists complain that they have to do pieces under time pressure, I suspect that it does cause a large reduction in quality that they might otherwise achieve. Planet Money does a couple of podcasts a week using a team of three or four. So their story rate is well below what we put any of our journalists through in reporting for Australian newspaper, radio, the web and television. The end result is seriously high quality. I knew that before from Planet Money which is why I have listened to it but to see it put together from the inside was revelatory.

Here are a few other points that should be made:

• Politics drove the situation we find ourselves in. It destroyed Malcolm Turnbull’s chances of bringing sanity. And it led to Rudd’s ousting and it is almost surely the case that that cost the Labor party votes and seats (especially in Queensland).
• But more importantly, this outcomes exposes Labor’s problem is that it currently has no core values that it will stick to. This is in contrast to The Greens as John Quiggin has reminded us often recently. Labor failed to significantly improve educational outcomes. Labor did little to correct held. Labor abandoned the urgency of doing something on climate change. Labor moved on broadband and telecommunications competition and faltered with a narrow vision and inconsistencies (such as the internet filter). Labor failed to give Australia moral leadership on immigration. And finally Labor have done nothing to end the legislative discrimination against same sex marriage. If Labor is returned to power, my hope is that it will get this core back and start putting that above politics. My hope for that lies in a necessary coalition with The Greens keeping them honest.
• All that said, I worry about what this all reflects about Australia. No commentator seems to be saying this but I wonder if gender discrimination is more entrenched in Australia than many of us had considered. The media coverage, terrible though it was, in many ways surely reflects the tolerances and intolerances of its readership.
• On the real prospect of a Coalition government, the need to rely on independents will surely not help us improve matters. The hope is that it will be more like Ronald Reagan (with some good advisors) and less like George W. Bush but it is really hard to tell at this stage.
• What was going on with the informal vote? Many seats well above 5%
• Finally, and on a note of considerable hope, Andrew Leigh has won in Fraser and with a better performance than his peers.

The Gillard Labor Government’s Paid Paternity Leave will be government-funded, and will provide eligible working fathers and other partners with two weeks pay at the national minimum wage – currently $570 a week.

The current parental leave plan applies to fathers too but let’s face, if it can’t be shared, at least initially, it is the mother claiming that benefit.

In contrast to the other moves on parental leave, this one has the benefit in that it will not contribute to the problem of gender discrimination in the workplace — although, family-discrimination may be another matter. The issue is, of course, what role the additional payment is playing. I think it puts on the agenda that fathers taking parental leave is an expectation rather than a cost. But don’t think that it is a pure subsidy to parents. A workplace with a father of a newborn does not have as productive a worker. If there was ever a time you wanted your employee to take leave, it is then. Throwing $1114 extra dollars at the issue makes it more likely that employers will make such leave an expected part of the workplace which can go some way towards changing cultural attitudes.

That said, it only applies for households earning less than $150,000 per year. So while you might take paternity leave, your boss has no additional incentive to do so. As the boss sets the employment policies …

Nonetheless, it is a start and is far from perfect economically. Also, I can’t help but thinking that the benefits of this policy might be higher if the payment was contingent on nappy changes. That is, make the payment $80 per nappy change. Now that would have a cultural impact.

What I want to discuss is the implementation of this. Here is what the concern is:

The government is now making plans to require developers to submit their game apps to the Classification Board before they are released. This would cost developers between $470 to $2040 per game.

This would cause several things. First, literally thousands of overseas developed games would be removed from the various mobile application stores in Australia. Most of these do not cover the developer costs and even those that may have in the past may not do so in the future. Not to mention the cost of applying for classification. The effect on Australian consumers would be immediate. Second, this would have an impact on local developers. Fortunately, with regard to games, most of their sales are elsewhere. But we will see a headline within a year: “Australian teenager has hit mobile game but her friends cannot play it.” Nonetheless, there will be a disproportionately negative impact on developers who are trying to tailor games to the local market. Third, this will end up including educational games and books. For instance, Dr Seuss books on the iPad have little games in them. I assume that means they require classification. Maybe popular children’s books won’t be impacted but there will be many other educational apps that will be and this will spark further headlines. Fourth, apps that use Apple’s iAds will be impacted as these ads may include games in them. Finally, all of this will cause Australians to either pirate games in droves — indeed, they may do so just to get games that are actually free elsewhere! — or move to overseas app stores. My guess is that rules imposed internally by Apple and co that prevent purchases by Australians from say, New Zealand will be relaxed. This will alleviate the harm of all this but it will be a very bad look. Need I say, that this is as much a problem for Apple and Google as it is for developers and consumers. In other words, the doom and gloom forecasted may well occur.

The good news is that there is an easy solution to this. First, raise the fines for selling games in Australia with the incorrect classification; including on application stores themselves. Second, allow developers to self-classify their games. That’s it. The vast majority of games can be classified easily and, indeed, Apple already does this. There seems little reason to add another layer of review prior to an app’s launch. Instead, the onus would be on developers and publishers/platforms to review applications and make sure their content is rated properly. If they fail to do so and there are complaints — which there inevitably are — then the Government can prosecute. Anticipation of that and a large fine will keep this in check.

My point is that all of the dire consequences for the industry arise because Classification requires pre-evaluation. If it was made a self-evaluation process plus a later process to deal with infractions that would alleviate almost all concerns without sacrificing whatever public policy goals there are from the classification policy. And if developers are still concerned about taking that risk, then they can pay a fee and be pre-classified. See, this is one area where everyone can be happy so long as a little bit of common sense is applied. I guess we will have to see what occurs.

As for community forums, the latest journal to hit my intray from Berkeley Electronic Press is a new journal (I think) called Poverty and Public Policy. The first article in that online journal gives details about some Town Hall meetings in the US, designed to generate ideas to reduce the US budget deficit. As reported in the journal this is inferior to polls as ways of assessing public opinion, and at least as far as poverty is concerned lead to negative outcomes. 

I have been trying to write a piece on why policy proposals made during the current election campaign have been so weak. I think a lack of leadership is important, but so too is the strength of the economy. Forget the 50 economists story about stimulus pulling us through – Australia was in a great starting position because of 20+ years of consistent economic reform, and low debt. Stimulus helped get us through the GFC, but as usual the lucky country found a few rocks and a big buyer that still bought when the rest of the world was falling over. Now that the GFC appears to be mostly behind us politicians have forgotten the importance of ongoing reform – of making tough decisions. When our economy was weaker we had Malcolm Fraser telling us that “life wasn’t meant to be easy” (so take courage), Paul Keating giving us “the recession we had to have”. From the time that Whitlam cut tariffs until Howard’s introduction of the GST our leaders were willing to make tough decisions, despite the potential electoral cost, in the national interest. I think that it is no coincidence that the pandering to the swinging voter by both sides of politics in the past 5 years has coincided with the latest commodity boom. Natural resources may be blessing us, but they’re also a curse.

If developers were allowed to face directly the high land costs of providing so much parking, the number of spaces would be a result of a careful economic calculation rather than a matter of satisfying a legal requirement. Parking would be scarcer, and more likely to have a price — or a higher one than it does now — and people would be more careful about when and where they drove.

He couches it in terms of all of the mandated parking and subsidised parking that is providing freely alongside roads resulting in over-supply but actually, it is just a consequence of congestion and environmental concerns. Put simply, every time someone provides and prices a parking space, they are failing to take into account the externalities this causes. That is, parking is a complementary service to driving and so is underpriced. Each additional spot causes more driving and more congestion — neither cost is internalised by the parking provider. So this isn’t a regulatory thing as much as an overall environmental issue.

But is it as easy as putting a price on parking as Cowen advocates? I’m not sure. While San Francisco is moving in a good direction in terms of congestion pricing on meters, it strikes me that usage based pricing is a better way to go — that is, taxing petrol, road use or emissions. But I do wonder how the free parking issue interacts with such policies. Sorting that out will require a model; something I don’t have time to undertake in this post.

Now I think about that because when Labor, then in Opposition, came out with its fibre to the node, $4.7b plan (when that was considered a lot of money), I said much the same thing. See here, here, here, here, here, here, here, and enough already; I should put out a collected works volume. And I remember how tough an argument that was to put forward. It is hardly surprising that it has taken 4 years for a politician to do so.

The NBN, however, has the potential to be a public good and a justifiable expense on that basis. This is something Stephen King and I articulated recently in a paper published in the Australian Economic Review [over the fold]. First, it is the only proposal put forward by any Government in recent times that has a chance of breaking the competitive problems in telecommunications that have really held Australia back. The Coalition’s plan, ont the other hand, gives over broadband policy to Telstra. Second, a basic level of broadband service could be provided free with the NBN charging for faster speeds. This would allow broadband to be ubiquitous and remove a barrier to its use by private and public interests alike. Third, if the Government invests in public applications — notably, eHealth services and also Government services online (as recommended by the Cutler Innovation Review) — this will lead to additional savings but also a higher quality of public services. (I note that the PM announced a move in this direction today).

The Government are vulnerable to the Turnbull line of attack because they continue to sell broadband as a private good — as if it were a handout dressed up in economic and technological rhetoric. That sales pitch is flawed and the sooner it is pulled down as such, the sooner the Government will get serious about the NBN and actually develop it as a public good. At the moment, that development is surely lacking.

[Update: Malcolm Turnbull tells me he made the same argument in 2009.]

‘Big Bang’ Telecommunications Reform

First, it is never going to happen. Put simply, the political rationale for the NBN is a combination of two things. First, that a big push on broadband was not going to happen without a big push from Government given the virtual monopoly held by Telstra and the ineffectiveness of regulation to manage that. Second, there is the Yes Prime Minister Trident/Hollowmen/GFC Big Ticket/Shiny things rationale that is wonderfully captured by this piece in The Onion. You only want a comprehensive cost-benefit analysis if it is going to change your decision. The political rationale is so strong that that is not going to happen and so there is no point to attempts at quantification.

Second, even without a choice motive, there is a downside to the lack of clear analysis: that we can’t optimise the NBN and will inevitably end up causing some waste and inefficiency. I have already mentioned many times that by placing the policy sales pitch and broadband, and worse than that, on broadband speed, we leave that as the sole metric for performance. However, the NBN can potentially yield benefits of lower prices (virtually nothing in fact) for telecommunications and also a revolution in government services if basic broadband is freely available. The problem is that the Government is not being held to account for realising those benefits and this is very troublesome. That said, once the stuff is in the ground …

Third, and this is more worrying than the lack of a cost-benefit analysis, there has been no consideration whatsoever given to issues of market design. If we were serious about this, the NBN would be regarded as a platform that would allow telecommunications markets to evolve. Instead, it is regarded as a thing rather than an institution that sets the rules of the game. That is why we end up with fibre all over the place. That is why we end up with engineering criterion.

On that latter point, and with due respect to my colleague Rod Tucker, it may well be true that only fibre can deliver the fastest broadband speeds. But time and time again we find that people are willing to sacrifice engineering metrics for other things. The evidence is compelling that consumers will sacrifice speed for wires just as they sacrificed CPU power for portability (something IT people thought would never happen). For this reason, we need to be cautious in how we let technological choices be made and to provide rules to allow it to evolve flexibly. The problem is that that does not square with the one-eyed sales pitch on the NBN.

Finally, one thing we can’t quantify well in cost-benefit analyses is ‘future proofness.’ That provides a reason to push forward with the NBN but at the same time is the reason to ensure it is built in a flexible manner. You can’t simultaneously be claiming you are insuring Australia for the future without actually taking out insurance on the details.

Oh and by the way, there is no cost-benefit analysis for the Coalition’s plan. To do that would require a consideration of opportunity cost. So if the choice is between ‘do nothing’ and ‘do the NBN,’ as any first year economics student will tell you, you can’t justify ‘do nothing’ without first doing a cost-benefit analysis on the NBN.

I’m sitting here in the US at the moment on a 100Mbps maximum speed . But if I look at a website in Melbourne, my speed drops to 2Mbps. That is pretty much the maximum you will get from Australia to much of the internet, regardless of the theoretical maximum of your provider. This is because a key bottleneck is our submarine fibre link rather than our backbone network, or even the last mile.

It is worthwhile unpicking this. Broadband speeds and especially the user experience of those speeds is a function of a ton of stuff but is driven by an O-Ring quality. You will recall that the space shuttle Challenger blew up because a relatively minor component, an O-Ring, froze and broke. For broadband, your speed is limited by the weakest link.

At the moment, the weakest link for most people is their distance from the exchange unless you don’t even have ADSL in which case it is something else. Fibre to the Node and to the Home would alleviate that weakest link.

However, when I was in Australia, I was blessed with Australia’s fastest residential internet connection provided by Big Pond Cable Extreme. I received measured speeds of over 40Mbps but sometimes more. However, when I accessed overseas sites, it dropped to 2Mbps. By the way, for YouTube or a video download, that really wasn’t a constraint at all. I had to wait a little longer. Now there are issues of shared connections and network configuration and so I suspect you might be able to squeeze some more out of this with an NBN in Australia but the point is that the weakest link will soon become our overseas connections.

Now one thing to note is that this can be solved by moving the data. Data centres often play the role of hosting content locally. So that may come with the NBN because there would actually be a point to that. But if you are looking to have high definition video communications or things that might rely on it (like some fanciful remote surgery!) the interconnectivity issue will be there.

The question is: why? I have been contacted by some industry experts who claim to me that the capacity is, in fact, there and it is a puzzle as to why our overseas connectivity speeds are low. As I noted yesterday, it works both ways. Australia is isolated from the rest of the world. Thankfully, the only thing for which that would really matter for me is ABC News video and they block me from looking at it for ‘copyright reasons.’ (Hey, Mark Scott, I am still paying taxes and voting Mark Scott!)

I’ve asked these questions for years and have never received a satisfactory answer. Someone out there knows the truth but not even the Government has been willing to investigate even though at present it looks like crippling the NBN. I have long suspected that international carrier arrangements were to blame. They are still possibly high cost and local carriers possibly cripple overseas speeds to save on those costs.

One reason why that might be the case is that this phenomenon is not confined to Australia. Over the fold, you can see my results for a variety of countries including between the gold class network I am sitting on here in Cambridge (MA) and Japan and South Korea. You judge for yourself whether this is an issue worthy of official clarification.

Finally, I note, as always, that this is an issue because the Government refuses to consider the NBN as anything but broadband and is not structuring competition policy nor its own public policy to ensure the NBN becomes more.

Local transfer

To London

To Silicon Valley

To Japan

To South Korea

To Melbourne

There is a huge and unsustainable cross-subsidy in higher education in Australia. The subsidy is from international students to domestic students. In areas such as business, an international student can be paying three or four times as much as the university receives for a domestic student. Same seat, same lecture, vastly different price.

This cross subsidy has enabled successive governments to ignore their funding obligations to Australian universities. Australian students in undergraduate courses in business, arts or law simply do not pay the average cost of their education. As capacity constraints come into play – as they do in many business courses – Australian students do not even pay the marginal cost of their place.

Why is this a problem? Because Australian universities are competing in a highly competitive international market for education. We have been very lucky – in our geographic location, in our multi-cultural society and in the perceived intolerance of the US and Europe. But the GFC has led US and European universities to look more aggressively at attracting Asian students. And recent events, together with the ongoing debate about population and immigration, have undermined the view of Australia as a tolerant and open society.

Put simply, our competitors are playing hardball and we are throwing away our competitive advantages.

So two conclusions:

1. whoever is in government after August 21 needs to address the funding shortfall in Australian tertiary education. We cannot expect China and India to keep underwriting our domestic students; and
2. if you are an undergraduate HECS students and you are sitting next to a foreign fee paying student, turn to them and say ‘thank you’. After all, they are paying for your education.