Firearms - concealed or open? Both bad

While I dislike fire arms intensely, the arguments about concealed vs unconcealed weapons has taken my eye in recent times. None of it makes sense to me, but definitely the argument that concealing weapons makes it safer for Joe Blogs.

A mate of mine has just sent me a video of a fold-up machine gun. He wants one for Christmas. As often happens with this friend, our views differ. I find this sort of thing quite disturbing.

The argument between concealed vs. blatantly obvious weapons is an interesting one.

Clearly the chances of being mugged with a big Smith and Wesson on your belt are low. However, many firearm pundits argue that allowing concealed weapons make people safer, on average. Their view is that, while openly carrying firearms protects the carrier, it sends the message to would-be muggers that anyone without an obvious firearm is unarmed – the perfect victim. However, if all weapons are concealed, the would-be mugger is unable to separate the persons that are armed from those that are not – thus making mugging anyone more risky.

But, if you are in a location where you are allowed to conceal weapons, and you are the sort of person that feels that they need a weapon for self defense, why would you conceal it? Surely you would want to make your 'protection' as obvious as possible*. Yes, the would-be mugger might be be hesitant to mug someone if he/she was unsure if they were carrying a weapon, but someone who might be carrying a weapon has to be far more attractive to mug than someone that definitely is.

Wouldn't then, it be in everyone who is carrying a weapon's best interest to carry it openly? if so, the mugger would soon enough work out that anyone carrying a gun is carrying it openly, and anyone who is not carrying a gun openly is also not concealing a gun either. Thus making laws that allow concealed weapons on the basis of self defense pointless.

Worse still, the only persons that would have an incentive to conceal his weapon is the would-be mugger - because he would want others to see him as harmless until it's too late.

I’d prefer if people just didn’t carry guns. I'm glad to live in Australia where they are uncommon.

*picture Rambo out shopping – big gun, knives on belt, little daughter sleeping peacefully in a baby bjorn on chest

Politics - a dirty word

Why won’t our leaders lead? And, how could they expect us to believe in them if they don’t hold any beliefs?

I regularly hear other people talking about politics at work and I can’t seem to get interested in it. The problem is that I see politicians as conniving weasels that will do and/or say whatever it takes to win the next election. Politicians, in my mind, do not appear to believe in anything. They appear bereft of any individual thought – being only able to tow the ‘party line’.

But here’s the problem, the ‘party’ line is no longer based on any central tenet. With potentially the exception of the Greens, I can no longer base my voting decision on a set of ideals that both the party and I share. Tenets such as economic liberty or worker protection are largely gone from our political system.

For instance, surely the shadow treasurer, Joe Hockey, as a Liberal Party member, should oppose government intrusion in the financial system, and yet he is always going on about how the current Government should increase regulation in the banking system to reduce the rights of banks to increase interest rates (here).

Whether there is a need to intrude in the banking system or not, surely the impetus for this type of policy should be coming from the workers party – the ALP – rather than the Liberal Party.

Populist and median voter policies frustrate me to no end. If you want to lead a country – work out what you believe in, choose a party (or not) that suits those beleifs, grow some balls (figuratively, ladies) and stick to your guns.

Don’t be one of those snivelling little people that are so scared of losing their job that they don’t speak up when they see something that is wrong or against your beliefs. Instead, try your hand at leading.

Simplicity Through Complexity

I just watched this interesting presentation on TED by Eric Berlow. Eric is a biologist that researches complex ecosystems and he has found that taking a step back and looking at the big picture often enables simple conclusions to be drawn.

Good economists follow a similar approach. It is important to expand your field of vision in order to understand a whole market, or a system of markets. Only once the whole system is understood can you draw conclusions about what is happening on a micro level.

The most important line I got from the presentation was:

'the more you step back and embrace complexity, the better chance you have of finding simple answers, and it's often different to the simple answer that you start with...(if you had not taken a step back)'

So next time you are faced with a complex issue, take a step back and try to understand the big picture. You might find that the answer you are looking for is more forthcoming in a big picture analysis, and you are likely to come to better conclusions as you will understand the flow on effects of your potential actions.

Where does the future start?

When forecasting or planning for the future, is our vision irreparably blurred or skewed by the present?

This morning I read the beginning of Keynes' 1919 book The Economic Consequences of the Peace. Keynes wrote this book because he was unsatisfied with the resolution of the first world war - he felt that the political and economic decisions made in the wake of the war were so one-sided and unfair that they would result in Germany rising up in anger once again.

He was right too.

But what struck me was Keynes’ observation of human nature – that we expect the status quo to go on forever.

I found the opening lines quite moving - it made me question what the future holds for Australia. It seems like Australians are happy to chug along in their lives, satisfied that the economy will continue to turnover at a great rate. This national resolution to relax and wait for the commodity royalties to trickle though the economy has won us plenty of attention throughout the world, but how long can the commodities be relied on?

The power to become habituated to his surroundings is a marked characteristic of mankind. Very few of us realize with conviction the intensely unusual, unstable, complicated, unreliable, temporary nature of the economic organization by which Western Europe has lived for the last half century. We assume some of the most peculiar and temporary of our late advantages as natural, permanent, and to be depended on, and we lay our plans accordingly. On this sandy and false foundation we scheme for social improvement and dress our political platforms, pursue our animosities and particular ambitions, and feel ourselves with enough margin in hand to foster, not assuage, civil conflict in the European family.

Are we basing our plans for the future on sandy and false foundations? Are we too caught up in the present to realise how fleeting the present really is...was?

Thinking about it in modeling/forecasting terms, it appears that our estimates of the future rely too heavily on our most recent experiences. While we understand that the logical starting point for the future is the present, we may fail to recognise if the present is an outlier (not along the long-term trend line). If the present is an outlier, then it is not a good base for a forecast.

But is this the myopic nature of the human race? I find it somewhat ironic that our minds have sufficient power to know that we have to plan for the future, but they are not powerful enough to net out the effects of our current situation in order to make our future plans more realistic.

This bias for the present affects everything that we are; our mood as walk down the street, our ability to perform at work (or elsewhere) and our plans for the future (it can even affect our memories of the past). Everything that we do, see and perceive is affected by our present or our immediate past.

I wonder how I can best net out my current perceptions in order to better understand the future?

More importantly, how do I start planning for the future if the future doesn’t necessarily start with the present?

Breaking Telstra - Is the Government looking for a better market structure, or just buying a monopoly?

Is Telstra being denied procedural fairness through the forced splitting of the copper network from the retailing and mobile networks? And, is the government forcing the split for the right reasons?

The front page (and pp 50-51) of the Fin Review today spouts off against the splitting of Telstra, suggesting that the telephony super-power has been denied ‘procedural fairness’ and suggesting that the government is forcing the split purely to ensure a monopoly over the broadband network? The Opposition is trying to stop the split or at least put discussion of the split off to next year.

And, for once, I think I’m probably sitting on the opposition’s side of the fence.

Whilst I’m all for the splitting of Telstra for the competitive benefits stemming from the split, I’m the whole situation smells a little to me. Is the government forcing the split to promote competition in the telecommunications industry, or is it forcing it to ensure it has a monopoly in the future broadband network? Moreover, how dare the government sell Telstra off and then institute this type of reform. If I were a Telstra shareholder, I would be livid.

As briefly touched on yesterday, there is considerable benefits from splitting up vertically integrated companies trading in non-competitive markets. However, the Government’s bill to force Telstra to sell its copper network is just shifting the monopoly from the telephone industry to a monopoly in the broadband industry. If Telstra does not sell its copper network to the NBN Co. it could become NBN Co’s largest (and only) competitor. This, to me, is anti competitive behaviour that the ACCC should look at very carefully before it allows any such changes.

Clearly shareholders are suffering too. The Telstra Share Price has dropped significantly since ‘Conroy’s convoy’ first entered the arena. As seen below, Telstra’s stock price has depreciated strongly, even in light of an upward moving market.

Australian Securities Exchange 2009

Whilst I think that the move to split Telstra is a good one, I this is another example of mediocre policy, crap timing and poor planning. The split should have been completed prior to selling Telstra. Telstra should be allowed to keep its copper network; if for no other reason, it should be able to keep it to promote competition in the new broadband network. If nothing else, Telstra should only sell its copper network at a price that is acceptable/beneficial to shareholders – just like any other acquisition.

The green light for vertical integration in the energy market

At what stage in the development of a competitive industry does vertical integration become a good thing?

This question arises as the NSW Government enters the process of selling off their electricity generators, and the energy retailers are expected to be the buyers.

Today the Australian had an article discussing the sale of about $6 billion worth of NSW state-owned electricity generation assets. Whilst the sale process will be open to all investors, the article suggests that interest will come from major electricity retailers including Origin Energy, Integral Energy, TRUenergy and ERM. Yet, governments and regulators across Australia have put in so much work to remove vertical integration from the energy market. So why would we be allowing this shift back to vertical integration? Because it can reduce electricity prices.

Vertical integration often leads to market inefficiencies (particularly in monopoly, monopsony, oligopoly or oligopsony markets). This has been highlighted in the recent discussion regarding the de-vertical integration of Telstra (vertical disintegration is a different thing altogether). Vertical integration in market structures where a few participants have price discrimination power enables the vertically integrated company to price gouge in the monopoly/oligopoly components of the business. The company can then cross-subsidise those components of the business that are open to competition - effectively opening up a cartel pricing scheme. So why then, if vertical integration these markets is a bad thing, would the government be happy to allow for re-vertical integration of the energy market?

To my mind, there are three reasons why this re-integration is a positive (or at least an acceptable) outcome:

1. The perfect hedge – currently, retailers and generators minimise their risk through over the counter transactions. This enables retailers to purchase the majority of their load at a pre-arranged price, rather than facing the volatile NEM price. It also enables generators to guarantee demand even in low-consumption periods. Whilst this is a good system, the contracts are agreed to ahead of time and any variance between the agreed contract consumption and the actual consumption has to be bought on the NEM at an unknown price.

When retailers and generators merge, they are able to better hedge their demand and price risks. So long as the price the generator offers the NEM is low enough so that the generator’s offer is accepted and dispatched, the retailer and the generator can have a perfect hedge.

2. The market structure of the NEM – the NEM is not a typical Oligopoly or Oligopsony, rather, it is both. There are a few large generators and there are a few large retailers. Having both the buyers and sellers in a market with considerable power in some ways removes any price discrimination power that could occur in a standard oligopoly/oligopsony.

3. The regulation of the NEM – even with vertical integration, the dispatch system used in the NEM ensures that the energy needs of the market are met by those generators willing provide the energy at the lowest possible price.

There is still considerable room for gaming on the margins of the market, but not considerably more than is currently going on.

The Economics of Babies - 2

Babies cost money! But does anyone care?

It appears that the world (wide web) is devoid of real economics on the economic impact of a baby entering the world. I may have to do some if I ever go back to Uni. In the mean time, I’ve done some ‘back of the envelope’ calculations on the impacts of a baby in the first year, and have been quite surprised by the outcomes.

I’ve found various websites stating the costs of having a baby. These costs ranged from $125,000 to around $400,000 for the first 18 years. With the first year anywhere up to $20,000.

I was astounded when I used the Babycentre cost calculator. I estimate that our baby will cost in the order of $8,000 over the first 12 months (inclusive of birthing and prenatal care). And that’s assuming zero food costs (breast feeding), no day care (saving thousands) and using re-useable nappies (saving around $1,000).

By applying the ABS methodology for Industry Value Added (IVA), I estimate the Baby Value Added impacts for our baby at some -60,000 to our family in the first year. The majority of these are due to loss of income.

The impacts on the economy as a whole are very different. Using the ABS IVA methodology again, I estimate the net impacts at $33,000. The difference is driven by the transfer of my the wife’s income to another employee and the boosts received in the retail, health and service sectors.

Not rigorous, but interesting all the same.

I was surprised by the outcomes of the calculations. I wonder at what financial cost I would stop having kids? What about you?

The Economics of Babies - 1

One little baby can have such a big impact on the economy. When I look around at the amount of things Anna and I have amassed so far, I am blown away by the impact one baby could have.

When I first started the baby making process I had a discussion with my Anna about how I think lots of people go over the top with babies, and that we should try to source as much second hand stuff as possible. The decision wasn't a fiscal one; as TINKs without a mortgage, cash was not an issue. Rather, it was about trying to rectify some of the wastage that comes from babies - taking some second hand stuff off people's hands. cheaper for us and saving them the trouble of storage or getting rid of the items.

I think it is fair to say I falied.

The whole baby miracle has been taken up by a consumerist nature. Having a baby, for many people, is no longer the deeply spritual and special gift that it once may have been. Rather, in the same way that weddings have gone before, it's now about showing off your prosperity. And I'm sad to say, it appears as though I have been caught up in it too.

The best pram, the timber cot, the whitest white bassinette, the rocking chair for mum, the rocker for baby, the baby backpack for dad, the baby bjorn, the baby bjorn rip-off, the sling, eco friendly nappies, eco unfriendly nappies, bottles, clothes, rugs, hooded towels, video cameras, swiss balls.... the list goes on.

Laying in bed this morning, I started to think, what is the economic impact of one baby? Is this an area of economic study that my insular mind has never entered?

In the absence of any real research on my behalf, here is some political hokeypokey on the impacts of the baby boom. I'll get to some baby economics over the next few posts.

A long time coming

I’ve been planning on starting a blog for years but somehow never got around to it. Sometimes too busy, other times too lazy. But, for some reason, I’ve been thinking about it more and more over the last few weeks. Additional to my own fixation on the idea of blogging, I’ve met a number of people lately who have told me about their blogs, and when I’ve gone to them, I’ve really enjoyed the insight that you get from a chronological series of thoughts. I’ve found them both very useful.

Tim Kastelle is an academic at the UQ Business School who specialises in networks. http://timkastelle.org/blog/

Cameron Murray is one of my Young Economist cronies. http://ckmurray.blogspot.com/

As such, I’ve decided now is the time.

I guess I have a range of objectives for the blog. I would like to have somewhere to store and share my thoughts. I would like to have an outlet to practice my writing on a regular basis. I’m also hoping that forcing myself to blog on a regular basis will ensure I stay on top of topics that I should really be on top of. Finally, and probably most importantly, I like to think that others might find interest, enjoyment and/or use in the lamentations of my mind.

Whilst I find it intimidating that people may disagree with my points of view, I like the idea of being challenged. My thoughts and points of view are things that I hold dear, so I should make sure I can back them up, and I should not shy away from letting the world know.

I’ve named the site the Social Economist for a couple of reasons. Firstly because I’m a serial socialite. And secondly, because the thing that really turns me on about economics is the social/psychological side. I love to get together with other people and find out what makes them tick. And I have a penchant for late boozy nights with colleagues.

On a more personal level, my wife is rather pregnant with our first child right now. The baby (we do not know the sex) is due in 25 days. I’m very excited about becoming a father and just hope that I’m up to the job.

Anyway, I’ll try to put some meat into the next Blog rather than just writing guff.