What was unexpected about Syria and Egypt?

Middle-East watchers have been surprised by the events in Syria and Egypt the last 2 years. The betting markets in 2011 and 2012 expected the collapse of the Syrian regime, but it didn’t happen. The West and most Al-Jazeera commentators thought the coup that deposed the Morsi-government was unsustainable and that some accommodation with the Brotherhood would have to be found. Even Israeli analysts, who by and large were against the Morsi-government, predicted that the new military regime could not survive. Both judgements seem incorrect so far: the Syrian regime looks safe and the Egyptian military junta is now as firmly in charge as ever. What did the watchers miss, ie what should we pay more attention to in the future that we didn’t see before?

And let me honest and say that I too was wrong on both counts: I have been making a point of giving predictions on many aspects of European and Middle Eastern politics for about 4 years now. I called lots of things right, from the chaos in Lybia, to the continued Greek bailouts in the EU, to the rise of the Egyptian brotherhood. Nearly everything, except for the developments in Syria and Egypt. As I said in December 2013, I thought in 2012 that the Americans would arm some part of the Syrian opposition and thus bring down the Assad regime. The betting markets scored it around 85% likely that Assad would be gone by the end of 2013. Similarly, in August of 2013 I thought there was no way the Egyptian army could so clearly assume total economic and political control (I thought this alongside 15 Al-Jazeera commentators at the time and, apparently, the Israeli intelligence community thought the military junta very fragile too). What did I/we fail to see?

In the case of Syria, it now appears that the missing ingredient was the psychology of the US president. As expected, the US state department did indeed want to pick a winner in the Syrian civil war. At least, Hillary Clinton claims to have argued for it strongly. But Obama vetoed it according to her, apparently not able to see the tremendous disruption that would ensue in the whole region of a failure to interfere. Obama might have been following his father’s belief that to interfere was neo-colonial and would only lead to more future trouble. Obama might have thought that others in the region, such as the Turks, would not tolerate any mayor disruption and take control. Obama might have simply miscalculated the brutality that the Syrian regime was willing to inflict on its own population, or the brutality of the many groups who were being sponsored by other countries. Whatever the reason, it seems Obama won the internal fight and kept the US out of it.

The muddled strategy of the US was pretty hard to foresee in 2011/2012 and it seems to have involved the particular psychology of the president, so on that one the main lesson is that some presidents mean what they say and can deliver when they say they don’t want to involve the US in foreign adventures. To see that coming would require an intimate level of knowledge of the actual psychology of lots of world-leaders, something that is not reasonable to expect from any individual observer because politicians and their entourage make a point of creating an appealing image of themselves which makes it nigh impossible to know what they are really like, so as a mis-predictions go there is little structural to be learned there: a particularly unusual draw of the statistical error term!

In the case of Egypt, what was missed seems more fundamental: no ‘random error’ in sight to explain what has happened. No single individual has behaved unusually, rather the Egyptian population has reacted differently from expected. At least, no one I have read called all the developments before they happened.

Before the Morsi-government came into power in 2012, the military had failed to quell two popular uprisings against its power, once leading to the overthrow of Mubarak and once leading to the old military establishment giving way to younger generals (the failed Supreme Council of the Armed Forces, SCAF). Following the analogy of European pro-democracy movements in the mid-19th century, it seemed that on an ideological level the battle for democracy was won and that restoring a military junta would lead to mass-opposition and couldn’t be sustained. The widespread popular support for the Muslim brotherhood and the many decades of discontent with the military ownership of much of the economic resources of the country surely would not fade by the way-side?

Well, fade it did, and spectacularly so. The new dictator was ‘voted’ in by a 96% ‘popular mandate’; thousands of Morsi supporters have been sentenced to death without any real evidence, or were simply gunned down in the streets in an apparently deliberate bloodbath to show who was boss; new provincial governors from the military establishment were installed almost overnight and the judiciary became a puppet of the regime. Worse, it is now clear that the supposed popular uprising against Morsi was to a large degree orchestrated in that the business part of the regime was deliberately creating shortages, electricity outages, and frustrating any reform that the Morsi government was pushing through. The popular discontent that was the excuse by the army to overthrow Morsi was thus only partially due to mismanagement by the Brotherhood, as it was also partially pre-cooked by the military establishment.

Whilst the Morsi-government was genuinely unpopular with the majority of the population, and many ordinary Egyptians seem happy to go along with the indiscriminate killing of Brotherhood supporters, the mystery remains why the general population has been so happy to accept a new and more brutal military dictatorship wherein even more of the economy is under control of the generals and there is even less hope for the millions of young unemployed.

One school of thought has it that the military never truly did relinquish control at all and that there was effectively a changing of the guard within the military: the story goes that the old guard, led by a Mubarak who wanted his son to take over, was purposely abandoned by the younger generals when it came to suppressing popular discontent. Whilst the older generals got the point and made way for the younger generals, the rest of the population was allowed to squabble and argue about the future of Egypt. Once firmly in charge though, so the story goes, the new military leadership systematically plotted the overthrow of the Brotherhood under circumstances that would make the military both popular and undisputed: the unpopularity of the Morsi regime was seen to be useful to the younger generals in order to secure support from the business community, from rich Muslim countries ideologically opposed to the Brotherhood (like the Saudis), and large parts of the population whom it had previously alienated in the failed attempts by the old generals to sow discord (such as via the oppression of the Kopts). In this version of things, the West was caught napping and completely blind to the real power balance in Egypt, leading it to protest at the coup and to demand negotiations with the Brotherhood. Western governments must have seemed like ignorant fools to the generals.

Jim Rose, to his credit, pushed this line of thought immediately after the military coup at the end 2013 on the Club Troppo blogs. I didn’t think it likely because the repression by the military (SCAF) in 2011/2012 (post-Mubarak but pre-Morsi) seemed pretty real and brutal to me, and the population weathered that oppression, making the ‘revolution’ real. The intergenerational dynamic within the military might have played a role, but the idea that some group of generals thought through everything in 2011 seems too much of a conspiracy theory to me: you can’t convince hundreds of business leaders and military leaders to let go of power for 2 years under the promise that you will get it back with interest 2 years later. Your co-conspirators wouldn’t believe you and would fear that what was given up wouldn’t come back. Also, it negates the real hold that the old generals had on the military: they had the torture chambers on full throttle in 2010/2011, so the supposed reluctance of the younger generals to dirty their hands was not that strong. So yes, the changing of the guard within the military would have given rise to a new group of generals who were happy to drag their feet a bit when it came to the interests of the elderly generals, but part of the story has to include the true disappearance of the belief in democracy within Egyptian society.

Another school of thought has it that the experience of the Morsi government was traumatic for the general population and that the population concluded that democracy was merely a recipe for trouble and that you were better off with a clear dictatorship than with the constant upheaval and conflict that you got if you had democracy: a disillusionment of the masses with the democratic experiment. Within this version, even the liberals and the many state bureaucrats who wanted change pragmatically recognised that real elections were not going to be won by competent and liberal political managers, and simply opted for the better of two evils: autocratic control by elected religious zealots or autocratic control by unelected economic parasites.

What ‘jars’ with this version are the indications that many in the population are not happy with the extreme repression of the Al-Sissi regime: it has a very slim current support base following the jailing of human rights campaigners, journalists, social media activists, students, and other members of the intellectual elite. The army didn’t just declare war on the Muslim Brotherhood, but on Egyptian civil society at large.

The quick acceptance of the new regime and hence the abandonment of the previous dreams of inclusion, jobs and bread for the poor, are puzzling. The regime is prepared to jail children and has now freed the hated former dictator. That regime seems to be able to survive without support from anyone but what they call the ‘deep state’, ie the security apparatus and the businesses associated with the army. Apart from the usual followers of fashion, the rest is just oppressed, but they dont just seem to be ‘living with it’, many seem to be surprisingly supportive.

So what is the fuller story? As far as I can ascertain, there are two competing stories that are roughly equally probable from my information set: one is that the military regime is riding its luck at the moment, creating internal enemies all over the place, surviving on foreign money and the desperation of its core supporters, with its seeming popularity being a mere front without real substance. Within that version of events, Egypt could be heading for a civil war – a real shake-down between the entrenched elite and the disenfranchised majority, with religious, ethnic, and social class fault-lines. This seems to be the scenario the Israeli security analysts are thinking about. From that point of view the surprising stability of the military junta is due to its willingness to use extreme violence, as well as having the generous backing of some Gulf states who are bankrolling the regime.

The alternative ‘somewhat probable story’ is that the economic realities in Egypt do not yet conform with a large support base for power-sharing and that the military regime is not as friendless as it may seem: that Egypt is (still) a winner-takes-all society at all levels whereby the identity of the persons at the top are relatively unimportant and where it has simply returned to normality after a brief experiment with a political power-sharing system that did not fit any local habits and conspicuously did not work out.

Things that would have to be true in this second story is that whilst some of the urban intellectuals may dream of Western-style democracies, on the ground, most jobs would still be allocated on a clientelist basis; almost nothing truly would get decided on a democratic basis in cities and villages; and the security apparatus would be a coalition of the winning local militias, each individual militia supported by the local power-brokers. The flirt with democracy was then a curiosity, born from a desperate youth and a momentarily complacent military junta that has now got its act together again and re-established the political system that fits the reality in Egypt better.

I honestly do not know enough about Egypt to say which of those two stories of the Egyptian population, repressed-but-biding-its-time or welcoming-the-return-of-the-masters, is true. Perhaps a third story explains what has happened in Egypt the last 2 years. Observations on the ground might make it possible to discern between those stories, so the main lesson I take from the all-round failure of pundits such as myself to foresee the dynamics within Egypt in the last 18 months is that observers had unrealistic views of local power habits in Egypt. This includes the Egyptian pundits I read at the time (including the 15 pundits Al-Jazeera paraded in August 2013), who all failed to foresee events as they happened and thus were either also oblivious of the strength of various factions and ideologies, or didn’t say what they really thought.

The reasons for the internal Egyptian dynamics thus remain mysterious to me. General historical knowledge and awareness of Egyptian political theories, and even of its internal debates, was not enough: something about Egyptian power culture is not captured by what is generally said about it.

Does increasing the legal age for buying alcohol reduce traffic accidents?

Does increasing the legal drinking age reduce traffic accidents caused by young drivers? The idea is that if you increase the legal age at which people can drink, young people are going to quietly abide by the law, not do anything stupid, read the bible, contemplate their sinful natures, and stay out of trouble.

Hang on though, one thinks: drink-driving is already illegal at any age, so what exactly does one expect to change when one restricts the sale of alcohol to 21 years and over, instead of having the current age limit of 18? If you were worried about them breaking the law before, why would you think changing the drinking laws would help? Breaking 2 laws is harder than 1?

In a recent letter to the Medical Journal of Australia, Jason Lindo and Peter Siminski, two economists from Texas and Wollongong respectively, point out that the more recent and more authoritative economics studies find that raising the age limit on buying alcohol does not help reduce serious traffic accidents at all. They do this in reaction to a completely one-sided account by medics who call for the drinking age increase, citing mainly cross-sectional studies (find attached the letter by the two economists and the reply of the authors of the offending article, which basically admits the cherry-picking that they originally engaged in:Lindo and Siminski 2014 with Toumbourou et al reply).

Lindo and Siminski point out that in New South Wales, changes to drinking laws did not change the accident rate of young people. Neither did a recent reduction in the drinking age in New Zealand, where the drinking age reduced from 20 to 18, increase accident rates amongst the 18-19 year olds (their behaviour was changing already, but not after the law change). Moreover, they point to studies that show that people indeed do substitute alcohol for other drugs that also affect their driving, which helps explain why there is on balance neither a positive nor a negative effect on traffic accidents from changing the age drinking laws. The studies they quote, which include the only studies on Australia on this topic, used the latest techniques based on analysing changes in behaviour of young people just before and after the introduction of the laws, which is what one wants to do. Prior studies are less convincing because they compare behaviour between regions within a country or over long time periods, which comes with the problem that regions and periods differ for many other reasons than merely the drinking age.

More generally, one can doubt the wisdom of a puritanical attitude to alcohol simply by looking at differences across countries. Central Europe, and in particular France, Italy, Spain, and the other Southern European countries, have much more relaxed attitudes to alcohol, with kids learning much younger to be responsible with alcohol. The more repressive attitude in the UK and here in Australia, on the other hand, is associated with binge drinking, very high rates of teenage pregnancies, and extreme risk behaviour. Once the kids do get access to alcohol, often by illicit means as the forbidden fruit is made so enticing, they dont hold back, which should make one wonder about the wisdom of declaring the fruit so forbidden.

Lando and Siminski thus try to inject a bit of common sense and self-reflection into our debates on alcohol laws, apparently having to fight a rather puritanical bunch of medics that insists we cannot trust young people and should ban them from buying alcohol till they are 21. Yet, we allow those between 18 and 21 to drive, to vote, and to die for us as soldiers in foreign battles, but we are supposed to declare them incompetent when it comes to drinking?

Lando and Siminski are hence right, both on the latest science that says there is no real relation between the drinking age and traffic accidents, and on the larger issue of consumer choice: if we abandon the idea that all voters are equal and that we should proscribe the behaviour of some of them, where do we stop? Should we lock up all young people from the age of 15 to 25 to prevent them from doing anything we did ourselves but do not want them to do? I have heard medics argue this at conferences….

So it is a very paternalistic and holier-than-though brigade that wishes to control the lives of others, without any regard to the joy they are destroying, using selective studies to argue their case. Why did the MJA publish the original one-sided piece by medics, one wonders? Economists are right to resist such reckless and blinkered destruction of consumer surplus.

PhD Scholarships on “The Behavioural Economics of Undesirable Cooperation”

Some people engage in socially disruptive behaviour on their own, such as when they free-ride on paying taxes. Others cooperate with others though when they are socially disruptive: cronyism, corruption, nepotism, gangsterism, and favouritism are all examples of cooperative behaviour that benefits a clique but comes at the expense of larger organisations and societies. How does such socially detrimental cooperation arise and is it done by the same people who would be disruptive on their own? What adverse consequences does it have for other members of society? What can be done to counter such behaviour?

An international team of top scholars at the University of New South Wales, the University of Queensland, and Duke University has obtained an Australian Research Council Discovery grant to find out. Fully funded PhD scholarships are available for students interested in these questions.

Students would be involved in devising and running laboratory experiments, as well as possibly running field experiments in developing countries. There will also be opportunities to help construct theoretical models of clique formation in diverse contexts, and to conduct micro-econometric modelling of the incidence and consequences of undesirable cooperation. Outcomes of interest might include output, income, mental health, happiness, social cohesion, job mobility, and entrepreneurship.

Successful applicants will need to have at a minimum an undergraduate degree with Honours in economics, good written English, and excellent analytical skills. Proven interests in experiments, panel data econometrics, micro-models, and/or behavioural economics are desirable. Willingness to travel internationally and conduct research in developing countries would also be beneficial.

Students would be based in Sydney, though supervision would be shared with the University of Queensland. PhD scholarships of up to AUD$30,000 per year for 3 years are available.

Applications should be sent to Dr. Gigi Foster at [email protected]. Want more information? Contact Ben Greiner ( bgreiner/at/unsw/dot/edu/dot/au) or Paul Frijters ([email protected]).

Where are we with Geo-Engineering in 2014?

Geo-engineering is increasingly looking like the only politically viable way of averting temperature rises above 2 degrees in the coming century. This is for three interlocking reasons: i) Any mayor country can try geo-engineering on its own without permission from anyone else, meaning one does not need a world coalition sustained for centuries to have an effect; ii) It holds the promise of immediate relief because ‘natural Solar Radiation Management’, ie volcanic eruptions that add lots of light-reflecting particles into the atmosphere, were found to cause immediate worldwide temperature drops, which compares favourably with the lags of decades and centuries that hold for CO2 emission reduction plans; and iii) It might be exceedingly cheap compared to any policy involving emission markets. For instance, according to a 2012 piece by McClellan and co-authors, we could keep the planet at current temperature levels at a cost of merely 10 billion dollars a year by having a fleet of planes deliver reflective particles high in the earth’s atmosphere.[1]

Given that continued global warming is predicted to happen in the next century no matter what emission policies are adopted, geo-engineering by some impatient large country is starting to look nigh inevitable. I reported in 2012 on the research efforts funded by the Royal Society, the Gates Foundation, and others. You now have dedicated institutes on this issue (eg. http://iagp.ac.uk ), and lots of new proposed experiments. With a large glut of published studies in recent years, it is time for an update: how far are we now in the world of geo-engineering?

The honest answer is that the scientific community is pussyfooting around when it comes to geo-engineering. Field experiments are largely stalled as scientists are awaiting regulatory frameworks that will protect them from criticisms of other scientists and environmental groups. Proposed regulatory frameworks designed to deliver this, such as by Nordhaus and colleagues, find it hard to get much political traction because politicians seen to support regulatory frameworks themselves become targets for criticism, both by those who pretend there is no climate change and by those who insist there is climate change but who also insist on emission reductions as the only way to return to our current climate some 300 years from now. Voters who agree the world is getting too hot and who would like it cooled down in their own lifetime rather than that of their great-great-great-great-grandchildren are still too rare to bother with for politicians.

This does not mean there is a lack of bright ideas. The engineers looking into this really are a very creative bunch, talking about whitening clouds, aerosol sprays, reflective shields, and artificial trees. One new idea that I hadn’t heard before is to genetically alter our crops so that they reflect sunlight better than the current crops. I don’t know whether this has any chance of getting serious traction, but one has to admire the ingenuity of the idea. Still, ominously, almost no field tests or large scale long-term testing is underway as scientists are waiting for societal approval to go ahead.

A good example of the ‘adverse climate for studies into geo-engineering’ is the reaction to the experiment with iron fertilisation off the coast of Canada in 2012: two businessmen/scientists dumped 100 tonnes of iron into the oceans in the hope of stimulating huge algae blooms that would capture a lot of carbon. The algae blooms failed to materialise, showing that iron fertilisation on its own was not as effective as once hoped for. Yet, these scientists were denounced as ‘rogue’ and there were widespread calls for legal action. This reaction was absurd once you think of the puny scale of the experiment: they only dumped 100 tonnes of iron ore into the oceans. Given a yearly world iron ore production by humans of around 3 billion tons per year, the experiment was insignificant compared to the amount of human-processed iron that flows to the oceans on a daily basis in terms of rust! You don’t hear equal amounts of complaints whenever an old ship is deliberately sunk to form an artificial reef, even though that is a similar amount of iron being ‘dumped’! The reactions hence were silly, vindictive, and essentially irresponsible. No wonder that the scientists looking at geo-engineering are waiting for official societal permission in the form of regulation that could sanctify their experiments and thus insulate them from the moral crusaders.

So at the moment, the scientific debates about feasibility and costs are mainly fought by means of computer simulation studies, with the usual claims and counter-claims that one gets when there is no real data. Typically, published reviews of this literature are critical of any form of geo-engineering that would have the potential to have immediate effects, usually saying the unknown risks are unacceptable. A good example is a recent paper by Cussack and others in 2014 that grudgingly admitted that Solar Radiation Management is indeed likely to be cost-effective at cooling the planet down quickly for relatively little money, but nevertheless says would entail unacceptable (but unknown) high risks, leading the authors to advocate broad-scale application of carbon-sequestration.

Carbon-sequestration is an oft-quoted darling in the literature critical of Solar Radiation Management, but is really a pretty hopeless technology as soon as you realise that coal is a beautifully compact form of sequestered carbon. To go from digging it up and burning it, which is what we do now in greater amounts than ever before, to re-creating it and then burying it seems rather costly, doesn’t it?

Re-sequestration would thus need to be done on a huge scale to have any effect, essentially undoing 2 centuries of digging up coal, oil, and gas, by putting similar substances back into the ground, preferably just as deep. The volumes involved would be such that we’d be talking decades of enormous industrial efforts to do it, which raises the question who would pay for it. Apart from the cost question though, the time-frame is off as it would not reduce the temperatures quickly but, once again, would only see its ‘benefits’ felt decades later. You might hence say that the world is still ‘unsequestering’ as fast as it can and ‘resequestering’ would only seem likely to happen if current populations were willing to expend huge efforts to aid their great-great-great-great-grandchildren. Not very likely, is it? This is typical of the studies critical of geo-engineering: they have little appreciation for the role of impatience and opportunism that are pervasive aspects of voters and their politicians.

We are thus a bit in scientific limbo-land at the moment, with moral crusaders preventing real progress: on the basis that the planet is hurtling towards disaster, we are asked to change our way life dramatically now, yet we should also accept that the damage takes centuries to undo and that we should just live with the climate change caused by our past sins. Solutions with immediate effect are seen as a form of cheating on our just deserts, and are said to involve unacceptable risks, with research designed to find out about those risks seen as unethical and already too risky. Why it is apparently more ethical to rejoice in the US-China announcement that they will keep increasing emissions for decades to come, is somewhat of a mystery: how can anyone truly fearing irreversible climate disaster see such non-binding agreements of sustained high emissions as real hope? It’s bizarre.

The stalemate that we see now in the science of geo-engineering would not seem sustainable though. Research funds keep being poured into this and the scientists involved will find ways to have real experiments in order to give the funders a real return. Also, at some point large groups of concerned voters will wake up to the absurd level of patience and altruism that the IPCC is currently asking of them, at which point they are going to force their politicians to cut through the fog of political correctness and experiment on a wide scale, moralising crusaders be damned. How far are we away from this? Hard to know, but I would be surprised if we need to wait more than 5 years for big experiments to see the light of day.

[1] Justin McClellan, David W Keith, and Jay Apt, “Cost Analysis of Stratospheric Albedo Modification Delivery Systems,” Environmental Research Letters 7 (2012).

Scottish independence: a good idea or a bad idea?

Today the people residing in Scotland can decide whether they want to see an independent Scotland or to have Scotland remain in the UK. The betting markets concur with the opinion polls and favour the status quo: the markets give roughly 20% chance that the ‘yes’ vote will win and that Scotland will become independent.

The majority of economists talking about the referendum have focused on whether or not the Scots would be financially better off with their own country, debating things like North Sea oil revenues and currency unions. I think that is a distraction: looking at small and large countries in Europe, you would have to say there is no noticeable advantage or disadvantage to being a small country and that the Scots are hence unlikely to be materially affected in the long run by independence.
Independence is more about self-image and identity than it is about money. Even though the push for independence might well come from politicians and bureaucracies that gain prestige and income if they ruled an independent country, the population deciding on the vote will probably vote on emotional grounds, not economic. Young male Scots appear overwhelmingly in favour of independence; females and old people prefer to keep things the way they are. The latter groups are bigger and are expected to sway the day.

Personally, I have two related reasons to oppose the breaking up of larger countries in Europe into smaller ethnically defined states, not just Scotland, but also Catalonia, the Basque region, the Frisian province, Bavaria, and all the other regions of Europe:

  1. These independence movements are ethnic and hence by definition exclusionary. This is a big concern: large nation states have slowly moved away from the story that they exist for people of the ‘right’ bloodlines and with ancestors who lived in the ‘right’ place. The UK, the US, France, Australia, and even Germany and Spain have moved towards an identity based on stories about what it means to be British, American, French, Australian, etc., rather than a ‘blood and earth’ ethnic nation state story. Speaking tongue-in-cheek, the Brits have an upper lip story, the Americans have an exceptionalism story, the French have been convinced they like reading Proust, the new Australians are told in their citizenship exams that they believe in a fair go, etc. These stories contain treasured national stereotypes, complete with imagined histories. The key thing is that are inclusive, ie any newcomer from another place can participate in such stories. The Australian national anthem is a beautiful example of this super-inclusive attitude as it, almost uniquely, mentions neither ethnicity nor religion as a basis for being Australian. The ethnic stories of the independence movements are, in contrast, exclusionary and hence harmful to the self-image of any migrant. It is a move to a past that we have little reason to be proud of, as it marginalises current and future migrants. The story surrounding Scottish independence is thus not that the Scots are people who like to wear kilts and enjoy haggis, but that they make up the people who have suffered 700 years of oppression by the English. What is a recent newcomer from, say, Poland to do with such a self-image but conclude that they do not really belong there?
  2. The mixing of populations inside the UK due to factors like work, marriage, and retirement, now means that large parts of the ‘Scots’ live elsewhere and large parts of the population living in Scotland come from elsewhere. So there are reportedly close to a million Scottish-born people living elsewhere in the UK, and half a million people living in Scotland who were in fact born in England. Becoming independent from those ‘evil English that oppressed us for 700 years’ means marginalising both the 10% of the resident Scottish population actually born in England and putting a traitorous label on the million that decided the supposed oppressors were people you could marry and work with. If we consider the fractional heritage that nearly every UK citizen has, with some ancestors from Scotland and some from elsewhere, nearly every UK citizen will then almost arbitrarily be ‘forced to choose’ whether their fractional Scottishness counts as 1 or as 0. This is a problem: the roughly 5% of my ancestry that is probably Scottish does not want to be alienated from the 45% that comes from other parts of the British Isles!

These two reasons amplify each other: the damage that an ethnic-story based independence movement does gets amplified if the mixing is very large and is somewhat less of a factor when there is very little mixing.

What goes for Scotland goes doubly for many other regions in Europe: for instance, I believe some 40% of the people living in Catalonia are born outside of Catalonia and in other Spanish regions. The population mixing between regions of France and Germany is similarly large. The reality of a joint national economy is that the populations have internally mixed and artificially going ‘back’ to supposedly ethnically pure groups that define themselves in terms of adversity to the others is a regression.

It is of course these mixed populations that provide a counter-weight to any break-away movement, and they provide clear policy prescriptions for those who want to keep their countries intact: mix the population around to emasculate those who want to pull any geographic ethnicity card.

So I will be hoping that the betting markets are right, that mixing populations over the last few decades has done its integrative job, and that the ‘No’ vote wins.


How academics, ministry experts, and civil society are losing: is the government now for the few?

The latest federal budget in Australia by the Liberal Party was a real break with the recent past in which politicians were reluctant to offend any large group of voters and in which the status quo with respect to entitlements was avidly kept. There was a bit of playing around with extra money under Labor – spent on projects like the NBN – and there were some attempts at taxing the richest sectors more, such as the carbon tax, but it was largely a case of ‘All quiet on the Western front’.

This budget was different and seems to herald a shift in orientation of our political elites, not just the Liberal Party. What seems to have happened is that the political elites now take their cue from well-organised interest groups, to the detriment of the unorganised majority, effectively trailing the US by about a decade. The US saw the same move towards a ‘money talks’ society about 10 years ago, including the lifting of the Glass-Steagall laws that were meant to prevent the kind of financial piracy that lead to the GFC. In the US the trend is again reversing, but here we are just getting to the crest of money-talks politics. This is dressed up as going towards ‘small government’, but in reality we are talking about Government for the few. It is an inequality increasing agenda that rewards topic-specific organisation. Let me expand.

As Ross Gittins has pointed out in a whole set of articles on the budget, the headline changes are quite dramatic for the majority, especially for young poor people: the Gonski reforms, benefitting the least able within the schooling system, have been axed; the Carbon Tax, a tax mainly on a couple of big firms (mines and electricity generators), has been repealed; the age-pension, which is one of the main transfer programs, has now been indexed to inflation rather than average wages, which implies a 2% reduction in relative terms per year and 25% within about 12 years; the public school system and the hospitals will similarly see their commonwealth subsidies indexed to inflation, ensuring the same 25% decline in about 12 years; the cuts in parenting support similarly hit large parts of the population, whilst the effective halving of the unemployment benefits for the young (via the 6-months-on, 6-months-off rules) are estimated by the Department of Social Services to eventually impoverish close to half a million people.

One might see all this as indications of a move towards ‘small government’ and ‘starving the beast of government of funds’. That is certainly the storyline kept up by the Coalition and one that business economists bandy around also. It was the story of the Bush years in the US. If you look closely though, you will find it is not about small government at all. For you would have missed all the areas where government just got bigger. Substantially bigger. So look at the other changes to see the full picture.

In terms of small fry, the government has increased its budget for infrastructure and armament by several billion a year, benefiting a few large construction companies and arms dealers.

The more radical increase in government spending comes via the liberalisation of the Hecs fees though: this can be expected to double if not treble the government subsidies for education in terms of new loans, which is currently a flow of around 6 billion a year. The government could thus quite possibly lend out an additional 10 billion AUS a year in coming years, or 50 billion over the next 5 years. That is an increase in the size of the government that dwarfs all the other changes, cuts or increases. It will not be counted as new government debt because of the presumption that these loans will be paid back in the future, but, as the UK experience suggests, non-repayment rates can easily go to 30-40%, particularly when the loans are indexed to nominal interest rates and hence blow up quickly for anyone who cannot repay them fast. A 40% non-payment rate would mean an effective cost blow-out of 4 to 7 billion a year, much bigger than any other item on the budget!

So just on the proposed changes to Hecs alone, one should see this budget as a massive expansion of government, not a move towards small government at all.

And one should be clear as to whom the winners and losers of this expansion will be: the losers will course be the students and their parents, which is the whole of the middle classes. The winners will be a quite small but well-organised group of top-administrators at the top 10 universities in the country who have lobbied for these changes for years. So for the benefit of a few hundred people, who wield large bureaucracies inside their universities that help them lobby politics on this topic, this government is expanding its involvement via government-backed loans quite massively.

Similarly, the axing of the Carbon Tax (something I don’t actually mind because the Carbon Tax was never going to have the effect it was supposed to have) benefits large generators and rich shareholders in London and New York and other overseas places (who own around 85% of all the shares of our biggest 3 mining firms).

The same theme of how the budget benefits very small but well-organised groups at the expense of millions of voters pertains to many other changes. Private schools for instance have not been affected by the reduced subsidies to public schools as their implicit subsidies (via tax write-offs) have been untouched. Indeed, with the temporary increase of the top rate of income tax, private schools are now subsidised more by the government, not less!

The reduction in Corporate Tax will also primarily benefit a few very large firms that make lots of profits, including those big three foreign-owned mining firms (BHP, Tinto, Extrata).

Then think of what has not been affected: there has been no move to reduce the tax write-offs used by the Super-rich; no move to unravel the medical cartels; no move to reduce the fees charged by the superannuation firms; no move against the fuel subsidies for the mining industry; no increase in accountability of financial advisers.

Worse, down the line, Gittins expects that we are looking at reductions in the marginal rate of taxation about $200,000, something that will benefit only a few percent of the population but will cost the other 99%.

We are clearly looking at the effect of years of lobbying of interest groups behind the scenes and a fundamental shift in the orientation of political elites on both sides of politics towards this lobbying, ie towards the ‘stakeholders’ they hang out with.

The writing was already on the wall in 2010 when the Labor government did not manage to push through a mining tax which would essentially have meant a grab for the profits of largely foreign shareholders (!!). It was obviously beneficial to the Australian population, but could not be pushed through due to concentrated lobbying and media efforts of the big foreign-owned mining companies. It also revealed the failure of civil society, top ministry advisers, and of academics who were caught off-guard by the media-blitz. The politicians saw ‘us’ lose.

This loss heralded a short period in which the Labor government effectively was in tax limbo-land, unable to push through any major change that would adversely affect the well-organised and the well-funded. Worse, it was co-opted to fund fanciful and inefficient projects like the NBN, which also benefited the few over the many. There were many other examples.

The shift in power that was hinted at following the battle over the mining tax in 2010 has now become much more apparent and ingrained: it seems to have become the actual policy of the government in power to do the bidding of the few. Like many newspapers, politicians are simply going with the stories that they get bombarded with, offered for free, which are the stories by the well-funded few (as well as the baby-boomers). These are our ‘Bush years’, whether or not the changes survive the Senate.

So we are looking at a shift in political influence in this country, away from the masses and towards the well-funded and the well-organised. For the moment, academics, ministry experts, and civil society, still oriented towards the wellbeing of the many, have no answer. Ministry experts who could formulate alternatives are being fired, left, right, and center. We are losing. Big time.

But what are the underlying reasons for this shift in our political elites to do the bidding of well-organised vested interests? What has eroded the relative ability of the many to have their needs represented and championed in our democracy? Where is this ‘regulatory capture’ of the government by the well-funded and the well-organised leading us as a society?

How to lie with statistics: the case of female hurricanes.

I came across an article in PNAS (the Proceedings of the National Academy of Sciences) with the catchy title ‘Female Hurricanes are deadlier than male hurricanes’. It is doing the rounds in the international media, with the explicit conclusion that our society suffers from gender bias because it does not sufficiently urge precautions when a hurricane gets a female name. Intrigued, and skeptic from the outset, I made the effort of looking up the article and take a closer look at the statistical analysis. I can safely say that the editor and the referees were asleep for this one as they let through a real shocker. The gist of the story is that female hurricanes are no deadlier than male ones. Below, I pick the statistics of this paper apart.

The authors support their pretty strong claims mainly on the basis of historical analyses of the death toll of 96 hurricanes in the US since 1950 and partially on the basis of hypotheticals asked of 109 respondents to an online survey. Let’s leave the hypotheticals aside, since the respondents for that one are neither representative nor facing a real situation, and look at the actual evidence on female versus male hurricanes.

One problem is that the hurricanes before 1979 were all given female names as the naming conventions changed after 1978 so that we got alternating names. Since hurricanes have become less deadly as people have become better at surviving them over time, this artificially makes the death toll of the female ones larger than the male ones. In their ‘statistical analyses’ the authors do not, however, control adequately for this, except in end-notes where they reveal most of their results become insignificant when they split the sample in a before and after period. For the combined data though, the raw correlation between the masculinity in the names and the death toll is of the same order as the raw correlation between the number of years ago that the hurricane was (ie, 0.1). Hence the effects of gender and years are indeed likely to come from the same underlying improvement in safety over time.

Using the data of the authors, I calculate that the average hurricane before 1979 killed 27 people, whilst the average one after 1978 killed 16, with the female ones killing 17 per hurricane and the male ones killing 15.3 ones per hurricane, a very small and completely insignificant difference. In fact, if I count ‘Frances’ as a male hurricane instead of a female one, because its ‘masculinity index’ is smack in the middle between male and female, then male and female hurricanes after 1978 are exactly equally deadly with an average death toll of 16.

It gets worse. Even without taking account of the fact that the male hurricanes are new ones, the authors do not in fact find an unequivocal effect at all. They run 2 different specifications that allow for the naming of the hurricanes and in neither do they actually find an effect unequivocally in the ‘right direction’ (their Table $3).

In their first, simple specification, the authors allow for effects of the severity of a hurricane in the form of the minimum air pressure (the lower, the more severe the hurricane) and the economic damage (the higher, the more severe the hurricane). Conditional on those two, they find an insignificant effect of the naming of the hurricanes!

Undeterred and seemingly hell-bent to get a strong result, the authors then add two interaction terms between the masculinity of the name of the hurricane and both the economic damage and the air pressure. The interaction term with the economic damage goes the way the authors want, ie hurricanes with both more economic damage and more feminine names have higher death tolls than hurricanes with less damage and male names. That is what their media release is based on, and their main text makes a ‘prediction graph’ out of that interaction term.

What is completely undiscussed in the main text of the article however is that the interaction with the minimum air pressure goes the opposite way: the lower the air pressure, the lower the death toll from a more feminine-named hurricane! So if the authors had made a ‘prediction graph’ showing the predicted death toll for more feminine hurricanes when the hurricanes had lower or higher air pressures, they would have shown that the worse the hurricane, the lower the death toll if the hurricane had a female name!

The editors and the referee were thus completely asleep for this pretty blatant act of deception-by-statistics. Apparently, one can hoodwink the editors of PNAS by combining the following tricks: add correlated interaction terms to a regression of which one discusses only the coefficients that fit the story one wants to sell; then make a separate graph out of the parameter one needs in the main text, whilst putting technically sounding information in parentheses to throw editors, reviewers, and readers off the scent.

And the hoodwinking in this case is not small either. In order to accentuate what really is a non-result, the authors in the main text claim that “changing a severe hurricane’s name from Charley (MFI=2.889, 14.87 deaths) to Eloise (MFI=8.944,41.45 deaths) could nearly triple its death toll.” This, whilst in the years since 1979 the average death toll for their included hurricanes is 16 for both ‘female hurricanes’ and 16 for ‘male hurricanes’ (own calculations)! The authors conveniently forgot to mention in their dramatic result that Charley would have had to have been a hurricane that did immense economic damage but that had a very high minimum air pressure, ie was actually a very weak hurricane. Only for such an ‘impossible hurricane’ would their own model predict the increase in deaths from a female name. Put differently, I could have claimed that if the hurricane was very strong in terms of low air pressure, that changing the name from Charley to Eloise would have halved the death toll!

The authors also quite willingly pretend to have found things they have not in fact researched. They thus write “”Feminine-named hurricanes (vs. masculine-named hurricanes) cause significantly more deaths, apparently because they lead to a lower perceived risk and consequently less preparedness”” and the conclusions even speak of “gender biases”! Where do they try and measure this supposed bias in actual preparations? You guessed it, nowhere. PNAS should really clean up its act and not allow this sort of article, with its fairly blatant statistical artefacts, to slip through the cracks.

Let me explain the trickery in a bit more depth for the interested reader: air pressure and economic damage are highly related (the correlation is apparently -0.56), which means that one gets a strongly significant interaction between femininity and economic damage only because one simultaneously has added the interaction with minimum air pressure. One then talks about the interaction that goes the way one wants and happily neglects to mention the other one. And one needs both interactions at the same time to get the desired result on the interaction between the names and economic damage: without this interaction with minimum air pressure, what you get is a whole shift upwards of the male death prediction and a loss of significance on the interaction term with economic damage. You see this in the ‘additional analyses’ run by the author, in very small font after the conclusions, wherein the whole thing becomes insignificant for the first period and the reduced coefficient for the later period on the interaction with air pressure coincides with a halving of the coefficient on the interaction with economic damage as well. Hence, without including both interactions you would probably get that the female hurricanes are predicted to be less deadly than the male ones when the economic damage is small and more deadly when the damage is large (to an insignificant extent). So you need the interaction that is almost invisible in the main text and the conclusions to ‘get’ the result that the headlines are based on.

There is another, even more insidious trick played in this article. You see, with only 96 hurricanes to play with, which really only includes 26 to 27 ‘male’ hurricanes, the authors are asking rather a lot from their data in that they want to estimate 5 parameter coefficients, three of which based on names. If you then only use a simple indicator for whether or not a hurricane has a male name, you have the problem that you don’t have enough variation to get significance on anything.

So what did the authors do? Ingeniously, they decided to increase the variation in their names by having people judge just how ‘masculine’ their names were. Hence many of the ‘female’ hurricanes were ‘re-badged’ as ‘somewhat male hurricanes’. So the female hurricanes of the pre 1979 era had an average “masculinity index” of 8.42, whilst those of the new post-1979 era had an average of 9.01. Simply put, according to the authors the female hurricanes ‘of old’, which were of course more deadly as they occurred earlier, were also more masculine, contributing to the headline ‘results’.

Supposedly masculine female names included “Ione”, “Beulah”, and “Babe”. And who judges whether these are masculine names? Why, apparently this was done by 9 ‘independent coders’, by which one presumes the authors meant colleagues sitting in the staff room of their university in 2013! Now, even supposing that they were independent, one cannot help but notice that the coders will have been relatively unaware of the naming conventions in the 1950s and 1960s. How is someone born in 1970 sitting in a staff room in 2013 supposed to judge how ‘masculine’ the name ‘Ione’ was perceived to be in 1950? These older names probably just sounded unusual and hence got rated as ‘more probably male’. Similarly, it is beyond me why ‘Hugo’ would be rated as less masculine than ‘Jerry’ or ‘Juan’.

The authors’ own end-notes called ‘additional analyses’ indeed show that you get insignificant results without this additional variation begotten from making the names continuous. So the authors need to fiddle with the names of the hurricanes, pool two eras together whilst not controlling for era, and add two strongly correlated and opposing interaction terms in the same analyses to get the results they want. It is what economists refer to as ‘torturing the data until it confesses’.

Finally, for the observant, there is the following anomaly telling you something about the judgements made in this research: the masculinity of names is judged on a 1 to 11 scale (only integers) by 9 raters. Yet the averages reported in the authors’ appendices include such values as 1.9444444 (Isaac) and 9.1666666 (Ophelia). Note that if it were true that there were indeed nine raters, then all values should be an exact multiple of one-ninth, ie 0.11111111. The discrepancy indicates that either there were not always nine raters, or else that not all coded values were integers (an impossibility according to the main text). The 9.16666 for instance is a multiple of one-sixth and thus suggests only 6 rates were used for ‘Ophelia’. the 1.9444444 is a multiple of one-eigteenth, suggesting that there were twice as many raters for ‘Isaac’. Alternatively, in both cases, there were nine raters but one of the nine raters picked two values simultaneously (one even and one uneven) and thus added 0.055555 to a multiple of one-ninth in the displayed average. It is not a big thing as this kind of judgement is made all the time but I can’t find the footnote that owns up to this in the paper.

What are the likely consequences of HECS fee liberalisation?

The Australian government education minister Christopher Pyne has made his wishes clear for the tertiary education sector: he is following the wishes of the GO8 Vice-Chancellors and wants to remove the caps from the HECS fees asked of domestic students. This seems to fit in a vision of greater competition for the sector, and hence the fee deregulation is accompanied by changes to the accreditation regime to make it easier for competitors to come in. There seems to be no appetite for changes in university governance, nor any attempt to remove the benefit that existing inner-city universities have in the sense that they don’t have to pay for their premises whilst newcomers would have to pay rent for their premises.

Let us presume that the minister gets his way, either this time round or next time round, and that we will hence see HECS fee deregulation for domestic students with easier rules for accreditation, and no significant changes otherwise to the current environment. Following on from the efforts of Rabee Tourkey and Rohan Pitchford on this blog, what are the likely consequences?

First off, we can look at the consequences of a similar fee deregulation in the UK in 2010: at least a doubling of fees at the top and a proliferation of discounters at the bottom.

Should we expect these things to occur here too? One should expect both elements to occur here even more strongly because in our case there are less alternatives for students and hence a greater potential to increase fees and have chaos as the bottom: the main differences between us and the UK in this market is that the UK is more densely populated and that students thus have many more universities close by them, allowing for far more real competition than will be the case here. Thus, given that distances between cities are so large in Australia, one should expect the price hike to be well above double in this country. So from Hecs fees of around 10,000 AUS per year, I expect we would go to 30,000 AUS per year at the GO8s, pretty much within a year or two following fee deregulation.

At the bottom, it will be chaos, just like in the UK. You will get all sorts of scams and desperate ploys, essentially because the government is writing a blank cheque via the HECS scheme. Many will come to collect.

What kind of scams can one expect? Well, a HECS loan is effectively money from the government that the individual is supposed to pay back from her income in decades to come. If the person cannot pay back because she is abroad, not employed, or starts earning too late, then the loan never has to be paid back. There are many ways to exploit this.

One scam is to have large HECS-fees with almost no education whereby the institution and the student share the money. This can be quite overt, such as the ‘Cashpoint colleges’ in the UK, but can also be done in quite subtle ways that are very hard to police. For instance, one can have a degree in ‘car engineering’ whereby the institution provides a free car to the student, supposedly to ‘practise on’. In return, the student gets a hefty loan from the government that goes straight to the institution. The student eventually leaves the institution with a worthless degree but with a nice car and the institution makes off with the HECS money.

Which kind of student would go for this? The kind that does not think about the long-term future and the kind that doesn’t expect to ever have to pay back anyway, such as those who expect to be unemployed or working abroad.

Another type of scam is to promise students a great degree but have very low entry-criteria, and then charge hefty fees but deliver very poor yet very cheap education. Which kind of student goes for that? This sort of scam attracts the not-so-smart students who think they are much more brilliant than their high-school scores suggest. Sounds like most not-so-bright high-school students I know! This group is big in the UK and in the US and you have lots of universities in both those countries that fleece such students. Here, one should expect the fleecing to be much worse because here it is the government that foots the bill. One should thus also expect the number of students to increase quite strongly in the medium term and for an enormous blow-out in these loans, ie low repayment rates, just like in the UK.

Both these scams are of a similar ilk in that they exploit the least able members of society to defraud the government out of money. Interestingly, this will not immediately show up on the government books as the financial disaster that it is because the government can include the HECS-loans as equity on its balance sheet, even when the odds of getting full repayment are minimal. So it will only become visible as a financial disaster for future governments.

So at the bottom end of the market, we should expect the outcome one historically gets with unregulated personal services: snake-oil salesmen taking advantage of people, this time at the expense of the whole community.

What about the impact on academics? Well, I think in the short-run it will turn out pretty well for myself and my colleagues at GO8s. It will be a great time, at least for a few years. The higher fees for popular courses that lead to good jobs, such as economics, finance, medical specialisms, law, etc., will feed into greater demand for good teachers and good researchers. The teachers will be more popular with the university administrators and the students, and the good researchers will be even more important to advertise the merits of the institution. Me and my colleagues expect significant pay increases in the years to come!

It will also be a boon for university managers and administrators. You see, even though the universities are officially non-profit organisations owned by the community, the managers and administrators have the actual control over the money streams in the universities. That is why their salaries and numbers have gone through the roof in the last decades, such that a university manager in Australia easily earns three times what they earn in other countries. With more money flowing through their hands, their personal cut should also be expected to increase.

So it is a big win for VCs of GO8s whose lobbying is paying off handsomely. They should renegotiate their bonuses as soon as possible so that it increases with more university revenues, which is easy to do because they effectively negotiate with themselves! Similarly, the whole administrative layer will get a big influx of money, which they will spend on higher salaries for themselves and an increase in their ranks. Christopher Pyne will probably become a revered ‘market guru’ amongst them.

The medium term knock-on effects of this glut of money will mainly be in terms of protecting these benefits flowing from domestic student money. Given that most students don’t want to go to other cities for their education, the main thing to do is to keep them happy about their learning and confident that they will get a decent job later. So there will be some pressure to keep up reasonable standards, but the efforts to keep them happy and docile will also increase, meaning that universities will become more paranoid about bad publicity and tough teachers. So over time, the universities will try to attract more docile teaching staff.

In terms of the impact of these reforms on ‘academia’, ie on ‘communities of scholars dedicated to truth finding’, I am less pessimistic than most of my colleagues. Whilst academic values will be entirely unwelcome and ousted from undergraduate degrees, simply because independent academics are seen as a potential threat to students, the even greater importance of research excellence will mean that academics will retain and expand their own little playgrounds in the graduate education and research realms: academia will simply become even more divorced from undergraduate education, which will become more and more like an extension of secondary school.
Having said this, it is possible that a few universities will specialise in re-creating an academic environment for undergraduates if there is enough student demand to be ‘educated by the true experts’. Perhaps there is demand at the elite level, but the Australian market is too small to sustain many such places.

What can we expect in terms of innovation and competition for students? I would actually expect quite a bit of innovation and competition to occur in the medium run, simply because it is suddenly much more worthwhile to try and pinch the students of other universities. Even though students are unlikely to move cities, it is quite reasonable to presume that they will be willing to move to a franchise university in their own city with courses delivered by a university in another city.

So I expect the GO8s to try to pinch students from each other by means of opening up franchises in the major cities, possible co-opting the existing lower-tier universities already there. One can thus imagine the University of Melbourne trying to muscle into the Brisbane market by having a franchise agreement with Griffith on particular degrees. One can imagine the University of Queensland trying to muscle into the Melbourne market by doing deals with RMIT or Latrobe. There are also foreign high-status universities that might try a similar franchise deal, basically because there is far more money on the table to make this worthwhile.

So if the current plans for reforms go ahead and there are no knock-on reforms, then I would expect an explosion in fees at the top, pretty devastating snake-oil activities at the bottom, and real competition to gradually emerge between the surviving high-status brands.

Given that this trajectory involves a major increase in the government debt though, via an increase in Hecs-loans that wont be paid back, I very much doubt that this first round of reforms would be the last one: I expect that the first round will lead to later rounds that provide band-aids to the emerging problems. Given that the government and the ministry of education seems to take its cue from the top administrators of the GO8s, these later rounds might well be anti-competitive and hence primarily designed to undo the potential benefits of the current reforms, such as via new regulation that makes it harder for foreign universities to come in or that outlaws competition between GO8s in the form of domestic franchising. That kind of trajectory may be good for me and my colleagues, but not so good for the majority of the Australian public.

Piketty questions on Australian Inequality

The French economists Thomas Piketty recently published a long-prepared book on the growth of inequality in the Western World over the last few centuries. His main contention, as I see it, is that wealth inequality is rising rapidly again and that we are returning to 19th century levels of inherited inequality, complete with ‘upper class’ behaviour and dismissive attitudes towards the poor. His work finds an echo in this recent book by Andrew Leigh on Australian inequality that similarly notes the increase in inequality over the last few decades.

From a research point of view, the main questions Piketty’s views raise for Australian economic scholars who are worried about inequality, are:

  1. How do the super-rich in Australia actually make their money? Did they make it ‘on merit’ by inventing new techniques, or did they make their money by ‘grabbing it’ from the public purse by means of political patronage? The easiest way to answer this question is to go over the list of wealthiest Australians and look how they made their fortunes: by being innovative geniuses or by cosying up to political power and thus get away with stuff others did not. Pikketty very much points to the second source of wealth as a key mechanism for the explosion in the pay of super-managers, like bank-managers, whose pay is not truly linked to ‘performance’ but much more to what they manage to grab from their heavily-subsidised institutions. The same goes for CEOs in many major companies: they often did not build them up or add much to their productive value, but are in the position to grab the wealth created by these organisations anyway, no matter how incompetent they might be. In Australia there is an argument to be made for run-away ‘political rent-seeking’ as the prime cause of increasing inequality, but more extensive data on this point is needed.
  2. What institutions and tax arrangements would actually work to reduce the importance of political patronage if that is indeed the main cause of the rising inequality? Australia, like much of the Western world, already has quite a few institutions dedicated to fight the abuse of (market) power, such as the ACCC and the many public utilities regulators, but it might be the case that we are nevertheless in a period of reduced vigilance because the nature of the economic system has changed. The ‘old institutions’ that worried about abuse of power in manufacturing and public utilities might not be so relevant for an economy in which over 70% is service based, meaning one needs to think about what institutions are appropriate for the more murky world of property development, education, and financial services, in which government regulation is both inevitable and creates tremendous opportunities for rent-seeking. The recent proposal in Queensland to prevent the Crime and Misconduct Commission from looking into political misconduct, undoing the key part of the Fitzgerald reforms following an earlier period of rampant political corruption in Queensland, is in that sense a clear move backwards.
  3. How detrimental is inequality based on patronage for the wellbeing of the vast majority of Australian? Does it lead to a culture of compliant acceptance of the majority with a low station in life and low opportunities for their children too; or does it not matter much because even the poorest still get a pretty decent life? Can Australia as a small country ignore the World-wide effects and opportunistically base its economy on catering for the whims of the super-rich within the Asia-Pacific region, effectively making a world-wide change work for us? Those of us who are not super-rich themselves then can be their educators, cleaners, plumbers, gardeners, nail polishers, call-girls, security guards, and superannuation consultants. Somewhat our current trajectory.

I merely have strong suspicions on these research questions, no evidence that would convince a reasonable skeptic. Anyone who already thinks they have an educated answer to these questions should thus share their wisdom in the comment thread!

The future of online courses?

My own university, the University of Queensland, has around 6 flagship courses that it puts online for free, in a deal that involves universities from around the world who put up the courses that they excel in. It typifies the current reality of online courses: it is free; it is relatively high-quality; and almost no-one uses them because it is not material that is worth something.
Online courses currently are much like bootlegged high-class literature: it enables those who are self-driven to learn something about everything without paying for it, but it does not tap into the money streams of the education market, which, after all, is a market of diplomas and accreditation. Until online courses come with accreditation, there simply is no money in online courses and we are looking at the academic equivalent of owning horses: a gentlemanly way to get rid of your money.

What would a future with accreditation look like? Since students want high-name brands, it would involve many thousands, perhaps millions, of students doing the same exam by a top-brand name at the same time, and receiving a diploma from that top-brand name based on the exam results.

How would this work? Well, since it is important for a top-brand name to maintain confidence in its brand, that top-brand would have to control the examination as it happens all around the world simultaneously. This means it will only send out the exam seconds before the start of the exam, but much more importantly, it will mean that the people doing the exam will be monitored by cameras and brand-accredited examiners all around the world.

In effect, we would thus be looking at a system of world-wide examination rooms in which one can do, say, 1st year biology from Harvard, 2nd year physics from Oxford, and 3rd year economics from a conglomeration of Dutch universities (like the Tinbergen Institute). The material on which the exam is based will then be online and for free, but local universities will have provided tutorials in which students get trained and in which their misconceptions get ironed out so that they understand the material: the ‘low-tier’ universities start to become a franchise of the high-tier universities and they mainly offer feed-back on the learning of their students.

What is in it for the high-tier universities? Lots and lots of money. One might think that Harvard is filthy rich now with reported endowments in the tens of billions of dollars, but think of what Harvard would be worth if 1 in 10 students on the planet took its exams at a designated fee? At current population levels, that would be in the vicinity of 20 million students per year, each worth several thousands of dollars. The market value of teaching 20 millions students per year would then easily run in the hundreds of billions. That’s a lot of money on the table and some high-class university is going to go for it.
What is in it for the low-tier universities? For the first-mover ones, a greater market share. A third-tier university can make a real jump quickly by pre-empting. For the later-movers, it will be a question of survival. Simple market pressures will force many low-tier universities to abandon their own courses and opt for franchise status once the franchise game gets going.

How can local universities and local academics rescue some degree of market power? By offering content that is not generic and that thus involves something unique, such as the biology of the area, the economy of the particular country, or the geology of the local mines. Universities and national academies of scientists will have a strong incentive to exaggerate the importance of that local content, but in the end it will be the market that decides how important it really is. And of course if this market becomes well-established the emerging big brand names can easily add in some national and practical content where needed, just as international car manufacturers can vary the side they put the steering wheel and the colour of the cars they produce.
What should one think the time-frame of all this to be? Well, the technology needed to do it is already there and the networks in which to trial such franchising are pretty much established as well. So all that we seem to waiting for is a top-tier university that grasp the bull by the horns and finds local partners. It needs a Bill Gates, a Steve Jobs, a Richard Branson, or some other such entrepreneur at one of the top places. And once this train is in motion it is easy to see that the market pressures can move things along very quickly.

For those in universities that do not have a top brand-name, it is a matter of either waiting in trepidation or jumping the gun and offer oneself as the meek follower of overseas fashions. In economics in Australia, it has been the norm for years now to meekly follow the big overseas textbooks (whether spruced up a bit with minimal local content or not). The next step is for the overseas suppliers to cut out the middlemen, the local academics, entirely.