US - Politics and Game theory. It doesn't get any simpler than this.

For anyone who has any doubts about the merits of considering politics in terms of game theory should look at the debt ceiling negotiations. If one or the other political side backs down on their demands, the opposite side gets a considerable "win". If neither side backs down in time, everybody loses.

Classic Game of chicken.

The most important thing to consider is why people play this silly game when the livelihoods of millions of people are at stake? The first question is why do people play chicken when their own life is at stake?

Obviously the perceived political rewards are so huge in having the opposition back down in humiliation.

My hope is that if one side or the other backs down, that they get rewarded at the ballot box rather than punished - Hopefully changing the political perceptions for next time. I don't hold out much hope.

Send us your young..... rich.... intelligent....

I have thought about this long and hard, but the development that the Higher education system (including private universities) is being transformed into a vehicle for "filtered" immigration (see previous entry is one which we should be finding positives for. It has not happened by design, but I couldn't have thought of a better way to both have a large immigration intake and have it roughly filtered - by youth, finances and intelligence. If we take a holistic approach to the higher education system, rather than pigeonholing on what form a "good" university should take, the advantages of encouraging and utilising this trend should be obvious - especially to someone with a commitment to open borders.

I feel that there is only a few tweaks required, and the Higher education system can be a model of how immigration can be regulated such that it is fully funded, reasonably inclusive of the different source nations, and allows a good amount of time for the would be immigrant to be "tested" - with University exams and the whole Australian experience being a test as to whether they really want to stay here, and whether their peers who help them with their red tape etc. really want them to stay here.

Pricing Signals

There are really not enough of these in the world. Consider these situations:

1) Person who is on a phone plan does not have a direct cost feedback even if the bill goes up to alarming 6 figure sums.

2) A farmer gets their bill for water, but doesn't know how much their neighbours could have gained by buying it, nor if he could have gained more money selling it than keeping it.

3) Consumers cannot gauge how much petrol is costing them for the car air-conditioner or to get to the petrol station with the cheaper petrol.

4) Polluting coal burning power stations don't know how much local residents would be willing to pay to shut it down or modernise it. Nor how long they would be willing to put up with blackouts to achieve that.

5) Consumers considering whether to hang up their worn clothes or put them in the wash + dryer + ironing. What is the cost/benefit analysis.

At what resolution do pricing signals benefit cost/benefit analysis the most. Would a computer that could make calculations about every single activity throughout your day and have an indicator go off regarding your most inefficient activity be useful?

Would it tell me that (buying and) drinking a can of orange softdrink is the most inefficient because a) it costs a fair amount per calorie
b) They are empty calories that could actually reduce your life expectancy.
c) Sugars will stick to and damage your teeth leading to much higher dental bills.
d) contains preservative 211 which is dodgy at the best of times.
e) contains no caffeine so is ineffective at improving concentration.
f) actually dehydrates you to some extent.
g) is energy intensive to create, can, store and refrigerate, compared to alternatives such as coffee or water.

Suffice to say that any improved pricing signals about anything we care about is a net benefit to resource allocation. Whether it is the environmental cost of the ghg's associated with activity or the amount of money an STD call costs, if there is an efficient market to generate a price which reflects all known information and demand, resources WILL be allocated better. Thus money spent on strategic pre-fire season burn-offs in the outback of Australia may be way, way more efficient than investing the same amount in solar panels or planting trees. Being that people will spend the money anyway, pricing signals cut the wastage for everyone's benefit.

The main danger is not that we will be less efficient ignoring/underutilising cheap fossil fuels, but that we will completely ignore cost/benefit analysis and spend the money in a way which makes us feel good, or which buys our vote without even being in line with the goal central to what the money is being spent on. Thus European countries may use the money on pointless subsidies, Americans may give tax breaks on hand-picked industries. Thus, without even giving themselves a chance at meeting self-imposed targets, they are busy regulating in a way which will reduce their growth prospects.

Collective Political Decisions

I am still trying to make a reply to Anonymous's comment

A much more robust and satsifying system than American or Australian 'democracy' with a proven ability to function in a multicultural environment. referring to the very democratic Swiss model.

There is some things we can learn by How animals make collective decisions, and the point I was trying to make was that I judge collective systems by how regularly they come up with the "right" decision over how regularly they reflect majority opinion.

The recent Australian stimulus package wrangle was a case in point. With the Swiss model they would be wrangling longer, and come up with a worse "populist" decision in the end anyway. The Australian senate is unequalled in both investigating policy and in coming up with appropriate amendments quickly.

Nick Xenophon is RIGHT

What better time is there than RIGHT NOW to buy off (by buying their water allocations) farmers in the Murray-Darling. The most likely thing that they will do with their windfall is to move to somewhere more sensible, like the Burdekin, Atherton Tablelands or N.T. farming areas, bringing their farming experience, and getting cheaper water allocations, and lower fire risks.

Electoral Math - US vs Australia

The esteemed Dr. Clam and I had discussed the differences between the electoral math between the US and Australia and Dr Clam came up with something I couldn't have said better myself:(context here)

Preferential voting and proportional voting in the senate makes minor and single-issue groups not associated with a major political party much more important and successful in Australia. Third parties can play a constructive role,not just act as spoilers to cause civil wars. If there had been just one Democrat candidate in 1860 , that extremist yokel would never have gotten in with 39.8% of the vote.(Australia wins!)

*On the other hand, compulsory voting reduces the importance of single-issue groups associated with major political parties, which are valued in the US because they can get out the voter base. This means single-issue groups have less influence on the policies of the major parties here, and the parties better reflect the mainstream. (Australia wins again!)

* Finally, the US has been comprehensively gerrymandered on the state and federal level so that there are very few marginal seats, and parties can concentrate their resources even more disproportionately. (Australia, once again, wins!)

Basically, the jist of point two is that candidates on the extreme ideological edge of the major parties are an asset in the US, while they would have absolutely no chance in Australia (and would have to try for minor placings in the senate)- the mainstream would eat them up for breakfast.
Thus Sarah Palin, by dint of her being more of a wing ideologically compared to the mainstream, appears to be a blunderous choice (as it would be, in Australia). Any political commentator with any nous for the US electoral mathematics would realise that the mainstream just has to not hate her enough to be bothered voting against her.
I've been meaning to add an entry in Principia Marconomica about electoral maths, as I have done for a few other tidbits of late, the jist of it being that it doesn't matter so much that elections give spurious results, but that in the long run the electoral system is self-adjusting and stable.

The advantage of being black...

.. in chess is that you get to see what the opponents move is before committing to a strategy. Thus when the Democrats selected Joe Biden for VP nomination, this opened up the current strategy of the Republicans to fill a vacant niche of "woman on a presidential ticket". I think the Republicans looked several moves ahead on this one, and the current Republican plan bears no resemblance to that which would have been the case had Hillary been the VP nominee (see p-K4 vs p-Q4).

Stringing another "West Wing" analogy, I think the best chance for Obama is for McCain to have been a well known supporter of [big oil] energy (don't know? is he?) - and for there to be a big [oil installation] scary incident at a crucial stage in the election campaign.

Sarah Palin

For months, I have had nothing interesting to say about the US election....Now suddenly I have so much I want to say that I can't keep up with my brain.

Having watched *All 7 Series* of "The West Wing", I am convinced that there is a serious case of Reality imitating art in the US at the moment. This article seeems to concur - eg.

One of The West Wing's team of writers, Eli Attie, admitted that the character of Congressman Santos was based on a young rising star of the Democrats, one Barack Obama.

On Sarah Palin, I don't even know where to start: Her *Fifth Child*, the fact that she's a dead ringer for Arnold Vinick's campaign manager (Sheila Brooks), her pro-life stance... her love of guns and hunting....

Maybe I'll start with her fifth child: Expecting our own fifth child at the more advanced age of 38 - at the forefront of our mind, is the increasing risk of Down's with age. Even more prominently, having Googled "Fifth Child" just to see what would come up, came a novel by Doris Lessing about... a life shattered by the unexpected fifth pregnancy turning out a disabled child. This on top of the fact that the birth of a severely disabled child is a particular nightmarish fear for me. Sarah's acceptance of her fifth child having Downs syndrome is a poignant message to me. I am in awe that she would be going for VP.

Back to cold war style imperialism

It appears there is a resurgence in cold war strategy that is apparent in Georgia. Russia had always preferred bullying in the old "East Bloc" and "Soviet Union". These were not necessarily voluntary unions but ones that were enforced from time to time. The US tended to use money handles to get "client states" on side, and eventually, this proved to be the key to the breakdown of the soviet empire. Communism was an inferior economic model, and its lack of democracy meant it could not adjust appropriately through succession of leaders and failing economies. Thus it appears that although the borders have changed dramatically, the upgraded economics and transformed country altogether have allowed Russia to actively assert its geopolicy of old, which seems to only require a strong military, and complete control over its media. The only tactic that is plausibly optimal for the US is also the Cold war tactics of old - ie. money and military support for client states. There was a nash equilibrium for a long time throughout the cold war with the stalemate perpetuated by Mutually Assured Destruction (MAD). The stalemate only ended when the USSR no longer had enough money to continue its strategies. Russia may yet again be vulnerable from say, a commodities bust economically, or a leadership succession issue politically, but these really cannot be counted on in the short term. Thus I foresee a solidification of the front line of the cold war in the Caucauses, and veiled threats of Great escalation as a way to manipulate policy in the future - virtually a return to MAD, in fact. China may well join the fray in imperialism of its own with its front lines of Taiwan etc.

What does Marconomics say about who is to blame for the war in Georgia?
Marconomics states that that is the wrong way to think (see principle 6). Blame in this case implies that there exists an impartial international court that can *both* judge and enforce its findings. Attempting to come to conclusions based on evidence as to who is to blame is putting the cart before the horse. The rules of the game in this case have as the highest court the UN security council. Thus if any of the veto-wielding members are part of the conflict, they cannot be effectively policed, except via threats by one of the other veto-wielding countries.

How did Russia "Win"
There are several strategic masterstrokes that Russia has made in the leadup to this conflict. Of course, in the long run, by the mere dint of the fact that they were "surprise" tactics which humiliated "the west" this will hurt Russia dearly (eventually).

One masterstroke was to give Russian citizenship to South Ossettians who wanted it. I have often thought that giving US citizenship easily to Iraqis (or Bosnians, Kosovars...)under occupation etc. could be easily turned to the US's strategic advantage.
Another smart move was to use the media cleverly to demonise Georgias leadership. As a "nominal" democracy, it is clear that the Russian population is right behind Putin, and think that the Georgian leader (Saakashvili) should be crushed like a bug because they believe him to be a tyrant. It wouldn't surprise me if in ten years, Russians rue the fact that they didn't go all the way and finish the job, much as the US rue the fact that Saddam Hussein wasn't brought down back in Gulf War I.
The tactical masterstroke was to predict Saakashvili's moves, and swiftly orchestrate counter-moves which included extensive propaganda. Staged and prepared propaganda from media fully under your control will always play better than even "nominally" fair and free western style press. Nobody believes the media to be impartial anyway, so it is better to go the whole hog and be as brazenly biased as people can believe.

Given that "true" democracies with "free" press have such a strategic liability over a system like Russia's, does this mean that the political/media systems in Russia (and China) are better than the west's?

No. The long term adaptability of true democracies and the truth-seeking nature of private, free media are decisive in the long run, even given their short term strategic liabilities.

Forget the Olympics. Who's winning the Geopolympics?

Unfortunately, it seems to be the "bad" guys :(.

Georgia (after being provoked by Russian interests within its borders) launched its military into an offensive and has provoked an even more disproportionate military attack from Russia. This has the unfortunate consequence of making Western-backed Georgia still look bad for "starting" it, while Russia gets a free hand due to tacit Chinese approval in the UN. A sheer reluctance from the "west" (US or anyone else) to fight a war on the Georgians behalf against Russia means that Georgians are pretty much dangerously exposed and isolated.

In China, its huge economic success of late, and the legitimacy it has gained just by staging the olympics, has resulted in fairly rampant nationalism, in which the population has started to believe that its political system is "better" than democracy. This may embolden it for otherwise unwise military adventures of its own.

Strategic analysis of Global warming

From Marconomica Principle #5 I've grouped entities strategically as countries. In the global scale, it is countries leaders making the commitments on behalf of all their citizens. The Dillemma's leaders of democracies face is that signed committments get votes now, but may lose them votes if they fail to achieve them later, or if it ends up costing more than voters are willing to pay. The over-riding strategic concern must be "the tragedy of the commons". I have imagined scenarios in which generalised fears cause emmissions to accelerate, with every country more or less blaming every other country. Individual countries obviously try to make any committments at such a long term as to ensure they won't lose personally by failing. As the long term committment nears maturity, the gap between the committment and reality will be so wide that no Government would accept responsibility. The proposed targets are framed in such a way that it is only the end result that is being argued over - not anything in between that will necessarily have to happen to get there (eg goals within an electoral term window). Examples that perhaps ought to be copied if we were serious about it, have their own horrors associated. For instance, Russia is the only Kyoto ratifier to obviously achieve their goal. Clearly, having an economy tank is an obvious way to reduce emissions, but no environmentalist is seriously suggesting it (except Peter Garrett before he became a politician:)). Also examples of rich countries with a very low carbon intensity exist (France), but this contradicts heavily with environmentalists hatred of Hydro and Nuclear power (and hatred of France). Having all but strategically ruled out strategies with proven records, my prediction is of a 10% increase in emmissions in developed countries by 2020 (from 2000 figures)

Lesson: Do not throw snowballs at AMERICANS

Australian Andy should have learned the lesson I did almost twenty years ago.



















Trust me! It can never end well. This goes for Islamic extremists who like to throw something more substantial... eg. Suicide bomber, Aeroplane etc. etc.

Even if you lead a country and even hint at suggesting America may have asked for it, you are seen to be fair game.

What our energy policy should be

There has been a lot of talk about what our energy policy should include. Running themes are global warming, energy security, privatisation of utilities, subsidies and taxes.

- Global Warming: (*disclaimer: Carbon strategy should be about one countries standing and reputation to achieve things cheaply while others spend heaps with nothing to show for it. Therefore other countries (and global) failure is as much a positive as meeting domestic targets*)A dual strategy of long term goals, GHG metering and measuring in the short term. I see no economic harm in signing treaties that are not binding, such as Kyoto. We should also not fear "exporting" our emissions to third world countries. This will help them develop in a market-friendly way, and they may be better able to adjust to sea rises etc. with less fatalities/burdens. (We should be) Reducing subsidies on carbon intensive energy sources but not be tempted to waste money on new subsidies (on solar/wind). Subsidies are way less efficient than direct investments in the carbon market. When the carbon market becomes more trustworthy, this will be the cheapest way to meet targets. Carbon taxes and reducing fossil fuel subsidies will be the cheapest way to reduce emissions in the long term.

- Energy Security: The absolute highest security must surround all fissile materials handled in Australia. The biggest security risk to the world is nuclear blackmail and mega-terrorism. With such a bright future for nuclear, one must not forget its security-risk implications which dwarf its cost per KW as an associated input cost. As far as energy imports go, ethanol from Brazil is preferable to oil from the middle-east, and subsidies should not be used to favour domestic energy sources, but only to favour lower risk sources if at all.

- Privatisation of Utilities: Retail energy supply should definitely be privatised, but associated infrastructure MUST remain Nationalised (NB. price controls on infrastructure access count as near-nationalised). Privatised energy supply is the only way to account for demand/supply unbalances fairly (if this unfairly punishes the poor, the poor should be singled out and helped. No point rewarding the rich with cheaper power just to marginally help the poor)

It's the one-dimensional political continuum

Back when I was researching what was meant by "left" and "right" in politics, I realised that peoples political views are highly correlated, and that the position on a one-dimensional line that you reside in determines the kind of political authorities and peers one believes and therefore debates tend to try to push a swinging voter one direction or the other along the line, ignoring all possible tangents.
This is especially true for the global warming debate, the imaginary line having alarmist, environmentally conscious, act locally kind of view on one end, and highly "skeptic", globalisation friendly, optimists on the other end. Unfortunately, the skeptic end is associated with some rather dodgy pseudo-scientific arguments that global warming is natural, cyclical and unrelated to human activity, as described in the "Great Global Warming Swindle" show I watched part of the other day. This rather annoys multi-dimensional thinkers like myself, and that is why I tend to debate along the action axis, debating which actions are sensible and which are not in terms of energy and environmental policy.

Education - Nationalise or privatise?

My simple rule of thumb is: that for the longer the term of the investment (before being profitable), the further it should be towards nationalisation on the continuum. Pre-school children are basically a very long term investment before what they have learnt makes an impact on society. University students, however, in a few short years, can go from being smart to being an asset to an employer, society or whatever. Therefore, the efficiency of competitive private finance is critical for universities, but almost meaningless for kindergarten. This is why I think "The Economist" is correct when it states that governments should deregulate and privatise higher education.

No! It is nothing like New Orleans!

Re: Australian outback alcoholism, child abuse in remote communities.
The comment by the prime minister is quite irresponsible. Let's see, Sending the army and police whom know little about the regional culture, don't really know which are the worst criminals because most crimes have been done in high secrecy; The problems are not amenable to "one-off" surge of interest, intrusion and intervention. Really, the only hope of "fixing" the problem would take 35 years and billions of dollars. This is more like IRAQ than New Orleans! I guess the political technique is, move out after a few months, claim victory, then re-bury our heads in the sand.

Marconomics predicts longterm failure to reduce CO2 emissions

Going straight from my axioms,
- The judgement on policy is essentially which country does well in a typical competitive environment in the ideal where the policy concerned is the only point of difference.

Policies which involve ignoring, lying about, or failing to meet targets will put countries at a competitive advantage economically. Geopolitics, for good and ill, is optimised such that any policy which gives a distinct competitive advantage to any country, becomes policy in competing countries. The average citizen is completely oblivious but complicit, just by their own cost-benefit analysis in their own head. This process for say fifty years into the future is pretty much immune to global targets of any sort. The trick is to globally constrain the economy such that "doing well" CO2 reduction wise, is going to be "doing well" money-wise. This is just not going to happen without a global government with teeth. A global government with teeth is not compatible with the benefits gained from the competitive aspect of nations. Basically for the future 50 years or so, we will all be talking about CO2 global targets, but have no chance of meeting them. Regional CO2 targets will occasionally be met, but only by accident of say economic ruin, or accident of geography (eg. Soviet breakup, France's love of Nuclear/hydro)

Privatisation/Nationalisation Axioms

* - Continuous Spectrum. For any "Stuff" there is a continuum of policy of ownership from Government-owned monopoly all the way to unregulated competitive private ownership. Some markers being Highly regulated private monopoly, Government owned but some private subcontracting, majority owned near-monopoly competing with private enterprises, Government services competing in a fairly level field with private. Conveniently economists can come to a consensensus on where on the spectrum a policy puts itself.

* - Independent nation-states able to individually pursue and experiment with policies without being able to impose such policy on other countries or be imposed on from the UN or other supranational entity.

* - The judgement on policy is essentially which country does well in a typical competitive environment in the ideal where the policy concerned is the only point of difference.

* - There is little or no interdependence between different "stuff" being privatised. ie. if A is privatised, and B is privatised, the net effect will be approximately the sum of the effects of each.

* - Price controls on "Stuff" which is nominally privatised has the effect of removing a large chunk of control from private interests and should be considered in the nationalisation end of the spectrum.

The Budget

I remember now I was going to say something about the Australian Budget. In the two extremes, the superannuation co-contribution policy built up over the last few budgets is nothing short of pure genius. I may need to explain why this is so but it is a little long-winded. On the other extreme, the resumption and expansion of solar cell subsidies is throwing good money in the bin. The amount of carbon reductions per dollar spent is pathetically small + it distorts the green economy such that private enterprise will flourish chasing the subsidy and not the underlying carbon reduction goal.

Unfortunately, the government has not specified how it will achieve desired higher unemployment for those complaining about the worker "shortage". Even the labor party has twisted the problem around by saying it is a "skill" shortage. It is not. There is just not enough of the trained unemployed like we had in the Keating era.

Vote Labor???

We need a higher unemployment rate. It's not just that I like Kevin Rudd somewhat, and that the economic action is concentrated in water trading (and carbon trading). I am being selfish in this instance because a higher unemployment rate is good for small business owners. Ok, so it's not so good for the country as a whole, nor for the newly unemployed, but quite frankly, that's their problem. Kevin Rudd's IR policies are not laid down in stone, but the noises are in the direction of winding back selected workchoice legislation. What would be typical in Australian election campaigns is that the wind back is "minimalised" by the policy wonks. This is a strategy to maximise votes. Why advertise a complete windback when any windback more than the Liberals are promising will achieve the vote of the interested individual.
The "Labour supply shortfall" is an illusion based on the "lump of labour" fallacy. Low unemployment rates have the tendency to give that illusion. The difficulty in finding employees is real, and scaring (all the other) employers away from hiring is the only realistic avenue to making it easier. The unfair dismissal legislation is the obvious choice for a minimalist windback. This will scare the bejeepers out of most small businesses from employing (or even to dismissing while it is still legal) while my own analysis shows these fears to be somewhat overplayed or irrational. This is why on balance it would play in my individual favour.