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Climate Change is the Biggest Driver of Disruptive Innovation

 

So Australia wants to become innovative. The Lucky Country wants to become the Smart Country. It wants to embrace disruptive innovation, face the future boldly and feed the teeming masses of Asia with our clean and green food. Yet, when the choice was there for Australia’s leaders to either choose to grab the opportunity with both hands or to pretend ‘she’ll be right, mate’, they chose the latter. In fact, they chose the latter with such alacrity that at least three Prime Ministers have fallen over the issue. Yet, now our leaders are telling us that we have to become more ‘risk-taking’, ‘entrepreneurial’ and willing to tolerate failure. All good sentiments, but our leaders have been found wanting on the greatest economic challenge of our time: climate change.

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The Economic Case for Reducing Indigenous Disadvantage in Australia

In Australia, the Australian Football League celebrated the contribution of Indigenous Australians to the game. This year’s ‘Indigenous round’ will be remembered for Adam Goodes’ war dance after kicking a goal. It was also reconciliation week, that is the week where Indigenous people were counted in the census and the historic Mabo decision that recognised Native Title. Yet, despite the mainstream acceptance that the past treatment of Indigenous Australians was shameful, there was little discussion that Indigenous Australians are still living with the effects of European colonisation. Indigenous Australians have a 10 years shorter life expectancy than non-Indigenous Australians; they make up 26% of the prison population in 2008 whilst making up 2.5% of total Australian population in 2006; 17% were unemployed in 2011 compared to 3.6% of non-Indigenous population; and Indigenous people account for 9% of homelessness. These social, health and economic indicators have budgetary consequences for both Federal and State governments. While there exists a strong moral case to reduce Indigenous disadvantage, there is also a very strong economic case for Australian governments: reducing Indigenous disadvantage could save both Federal and State governments $450,000per person over their lifetime.

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Nash Equilibrium and the Real World

Prof. John Nash, one of the intellectual parents behind game theory died with his wife in a car accident on the night of 23rd May 2015. Tragically, his death occurred after returning from Norway where he received the Abel Prize, the equivalent of the Nobel Prize in mathematics (fun fact: there is no Nobel Prize for mathematics). He also has a Nobel Prize in Economics. It was for his work in game theory that won him this award, specifically in defining what is now called a ‘Nash Equilibrium’.

Game theory existed before John Nash, but the only equivalent equilibrium concept was the MinMax theorem formulated by John von Neumann (another fun fact: apparently he inspired the mad scientist character in the movie Dr Strangelove). Unlike the MinMax concept, the Nash Equilibrium was a broader solution concept that could be applied outside of zero sum games. For me, what inspired me to study game theory was that it could help explain why we live in an imperfect world. Without the Nash Equilibrium, game theory and economics wouldn’t have the power it has today. We would all believe that somehow we can’t do better than competitive markets. Well, game theory and specifically using the Nash Equilibrium concept allows us to look at the choices that face people, firms, politicians and see whether or not we could have done better. In this article, I want to examine some specific cases that we can all observe. But first, what is the Nash Equilibrium?

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Is Australia’s Health System Financially-Sustainable?

Introduction

One of the great social policy achievements of Australian governments was to establish a health system that is able to deliver world best health outcomes at relatively modest cost to almost all Australians. According to the Organisation of Economic Cooperation and Development (OECD), Australian life expectancy is the 6th highest in the OECD at 82 years at birth in 2014. This cost Australians the relatively modest amount of 9.1% of GDP (21st highest in the OECD), which compares favourably to the OECD average of 9.3% in 2012. As impressive as this success is, is it financially sustainable? Can Australia continue to achieve these impressive health outcomes for a relatively modest amount? Or will Australia’s demographics and emerging health challenges force Australians to spend more of their tax and income on the health system?

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Procrastination and Carbon Pricing: the Real Option of a Carbon Price on the Economy

 

Introduction

A couple of weeks ago, after I posted “Was it Worth It? The Benefit-Cost of Air Pollution in China“, I was asked by Ecoscore to think about the benefit-cost of Australia procrastinating on a carbon price.

 

So, using my understanding of Australia’s carbon policy and economics what do I think? Has it been good for Australia? What can the rest of the world learn from Australia?

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Does Tough on Crime Actually Reduce Crime?

 

Introduction

“Do the crime, do the time”, is the common attitude towards criminals. Surely it is reasonable to expect convicted criminals to be punished? Yes, that is certainly a reasonable assumption to show society is serious in punishing anti-social behaviour such as assault, rape, murder and corruption (to name a few). But many of these criminals will be released back into society after “doing the time”. I went to a one-day conference organised by the Lentara UnitingCare to learn about these issues. What struck me was how much resources are being wasted by a reactive approach to crime. In today’s post, I want to explore the economics of a tough on crime policy. What are the benefits and costs on tough on crime? Is there an alternative? If so, is it a more efficient approach to being tough on crime?

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Was it Worth It? The Benefit-Cost of Air Pollution in China

 

Introduction

My brother sent me a link for Under the Dome and asked me what I thought of it. Under the Dome is a brave documentary on how China’s policy of develop at any cost is costing the people it is meant to benefit. It is made by Chai Jing, a former investigative journalist of CCTV (the State-owned TV network), and was originally hosted on the People Daily’s (another State-owned media organ) website until the Chinese Government ordered its removal. What I find most interesting about the documentary is how personal it is: this documentary rams home the point that the cost of environmental pollution is deeply personal, not an ideological preoccupation of the rich, Western global elite.

Environmental impacts have been depicted as a rich world obsession. But we can see in China that the people most affected are ordinary people, not the elite of the business and political cadres. Ultimately, people will suffer the costs of pollution. The costs to people are the result of environmental degradation and should be weighed against the economic benefits of development in public policy analysis. This blog post will ask the question, was all the air pollution worth it?

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Does it Make Sense to Increase Labour Supply to Stimulate Economic Growth?

 

Introduction

The Australian Government recently released the 2015 Intergenerational Report in an effort to educate the Australian public on the challenges facing the government and society by 2055. According to Treasury’s modelling, net debt would increase from 15.2% of GDP to 60% by 2055. Per capita income growth would increase from 1.7% per year to 1.5%. What does the Australian Government propose to do about it? Their answer is to increase participation and productivity – i.e. increase the quantity and quality of inputs used in economic growth. The government seems to mean increasing labour supply and improving labour productivity. But does this policy prescription actually make sense?

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Lucky Money and Information Revelation

Happy Lunar New Year! Or if you want to impress your Chinese friends, in Mandarin you could say, xin nian kuai le (新年快乐) Or in Cantonese, gong hei fat choy (恭禧發財). Handy tip: find out what dialect your friend speaks before showing off your cultural expertise (I’m assuming you know they are Chinese). For some of you, you may partake in the celebrations at a family home or in a Chinese restaurant (food is always involved when the Chinese celebrate anything). If so, you may witness the bizarre tradition (to non-Asian people) of older people giving money to the younger generation in red envelopes. You may also witness three generations stuffing their faces with unseemly haste, don’t worry it’s polite in Chinese culture to eat too much and complain afterwards. Some Western people think giving money is a materialistic way of gift-giving since you couldn’t even bother to invest time and effort to get a proper gift. Actually, a lot of thought has gone into it. How much you give reveals private information on what you really think of your younger and unmarried relatives. Here is a useful guide for those of you new to giving ‘Lucky Money’.

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Love: the Biggest Investment You Will Ever Make

 

Valentine’s Day is almost upon us. This is a special day for some of us. It could mark the start of an exciting contractual arrangement to co-invest in each other’s labour productivity and future financial security. It could result in significant future stream of ongoing financial commitments such as mortgage repayments and educating and caring for children. Hopefully, you have thought of all of this as you checked out that hot guy/girl in real life or Tinder. As the passion wears off, you may want to consider conducting a rigorous due diligence process to assess if that person you have nicknamed ‘Snookie’ would be the ideal investment partner in your home, retirement and children. Also, you would want to assess if you would have economic complementarities that can allow both of you to smooth out economic uncertainty such as unemployment, starting new business ventures or looking after your parents. If you’re still not convinced on the value of due diligence, maybe just being happier will make you scrutinise your potential life partner a bit more closely. This article will explain some economic and financial concepts that will be useful in implementing your due diligence. Happy Valentine’s Day!

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