Sam Hurst

The Curse of the Mimics’ Claw originally appeared on Overthinking It, the site subjecting the popular culture to a level of scrutiny it probably doesn't deserve. [Latest Posts | Podcast (iTunes Link)]

Letters to the Editor
As published in the AFR
April 7th

It is absurd to say switching from income tax to GST improves work incentives.

Consumption equals income minus savings. A 20% GST is much the same as a 20% flat rate income tax with no tax-free threshold but with unlimited superannuation deductions.

But it’s a worse than that. It is a wage tax more than an income tax. Capital owners get GST refunds (equivalent to a 100% deduction for replacing plant and equipment). Workers and families get no GST refunds for replacing and investing in the future labour force. Worse still, GST does not tax income spent outside Australia by foreign buyers of Australian land and resources.

Treasury says Australia has a demographic fiscal problem. But only a seriously stupid country would punish its workers, especially for breeding and investing in the future workforce, while exempting foreign landholders. I doubt Australians are that stupid.

So here’s a counter proposal for Treasury. Can we please sack our Treasury and outsource the job to the Brunei Treasury? The Brunei company tax rate is 20% and there is no personal income tax or GST – all because they collect a decent bit of their land income as public revenue.

Dr Terry Dwyer
Canberra ACT

With the announcement that Toyota will stop its manufacturing in Australia in 2017, Australia has become one of the few wealthy nations on the planet without a car industry. But there’s a good argument that Australia never had a car industry in the first place.

The mass production industry began with General Motors Holden’s FX model in 1948, with GMH being a 100 per cent-owned subsidiary of General Motors in the United States. The same pattern followed with Ford, then Chrysler, and at one time up to five foreign-owned car manufacturers were producing almost exclusively for the Australian domestic car market. This is very different to all other car-producing nations, which normally began with domestic manufacturers expanding output, firstly for a local market and then for exports. Many of these were subsequently bought out by the major US and Japanese producers during the Age of Globalisation, but for at least three decades after WWII, most car producers were nationally-owned affairs.

Except in Australia, where the car industry was shaped more by government policy than by the evolution of local manufacturing.

The government policy motivation for inviting foreign car manufacturers to set up shop here was employment. The early post-WWII economic ideology was a very different one to that which prevails today, best epitomised in my favourite phrase from the 1945 White Paper, Full Employment in Australia. The emphasis was, it said:

“To maintain such pressure on employment as to guarantee a shortage of men rather than a shortage of jobs.”

This could have been done by encouraging locally-owned manufacturing, but it was faster to entice foreign manufacturers to either expand existing plants (as with GMH) or set up shop here (as with many others including Leyland, Volkswagen, Renault) via the carrot of a largely captive local market and the stick of high tariff barriers.

This employment strategy had many Achilles heels, but to me the outstanding one was economies of scale.

As usual, the fact that Australia’s policy was blindsided to this Achilles heel was the fault of conventional economic thinking, which is dominated by a fantasy that fixed costs are relatively unimportant. Instead, it sees variable costs as the key factor that determines how many units a given factory will produce. The standard drawing of this fantasy is shown in Figure 1 – and any economic textbook.

In this drawing (I don’t think it deserves the title of a model), there are two key costs of production: fixed costs, which are independent of the level of output (factories, buildings, etc), and variable costs which depend on how many units are produced (employment, raw materials used in production, etc). Fixed costs per unit of output fall smoothly as output grows: with one unit of production per year, average fixed costs equal the entire cost of building the factory; with 1000 units per year, average fixed costs per unit is 1000th of the cost of the factory, and so on.

Variable costs per unit of output instead are normally drawn as falling per unit early in production, and then rising steeply after that. The key cost here is the 'marginal cost': the cost of producing one more unit of output.

The rationale here is poorly conveyed to students, who often think it’s because the cost of buying these inputs rises as output rises. Nope: the drawing assumes that the firm pays exactly the same price for the 10,000th ton of steel as it did for the first. The entire rationale for drawing rising marginal cost is that the productivity of each additional variable input is assumed to fall, due to 'diminishing marginal productivity'.

Figure 1: The textbook fantasy of the costs of a typical firm

What’s that? It’s a fantasy is what. Economists imagine that if a construction firm has, for example, four jackhammers and one worker, the firm will get the one worker to dig a hole using all four jackhammers at once – really low productivity. Then if demand for holes rises it will hire a second worker, so each worker handles two jackhammers at once – an improvement but still low productivity. If demand rises again, they might hire four workers – and get the highest level of productivity. But if it rises further, they’ll have five workers operating four jackhammers – and productivity starts to fall, so that 'marginal cost' rises.

That’s bollocks of course, as Piero Sraffa argued way back in the 1920s: firms employ workers and fixed capital in a fixed ratio – one worker per jackhammer. If there isn’t enough demand, then fixed capital is left idle; if demand exceeds capacity then they either rent additional capital or build it (well before capacity is reached).

Almost a century of empirical research confirmed Sraffa’s argument, with one researcher arguing that economic theory was an insult to engineers, who are the people who actually design factories (not economists, thank God). Their design objective is:

"To cause the variable factor to be used most efficiently when the plant is operated close to capacity. Under such conditions an average variable cost curve declines steadily until the point of capacity output is reached."

What this means in practice is that costs actually look more like Figure 2. Variable costs remain constant (or even fall) so that production gets cheaper as output rises – not more expensive, as economics textbooks claim.

Figure 2: What costs are actually like

This is especially true for products like cars where the design and tooling costs – the costs of making the machines that make the cars – are enormous. The result is that a factory producing, say, 365,000 cars a year – like BMW’s plant in South Carolina – has an enormous cost advantage over a factory producing 36,500 cars a year.

The problem with Australia’s old 'employment at any cost' car policy was that, with as many as five manufacturers (and often more than one plant each), per-unit costs were high because output per factory was so low. Even at the peak of Australian production – back in 1970 no less (see Figure 3) – the biggest factory produced well under 100,000 cars a year.

There was never much chance of 'Australian' car manufacturing holding out against that scale of cost disadvantage, even with high tariffs, which were ultimately systematically reduced as a new ideology emphasising efficiency (as economists define it – wrongly of course) won the day over trying to ensure full employment.

Figure 3: Australia's total output of cars by decade and years

And it’s more complicated than just scale economies too. I had thought that these meant that Australia should only have ever tried to produce one or two car models, but working with car designers back in the days of the Button Plan disavowed me even of that: they claimed that the design industry needed between three and five models to be produced to guarantee that the machine tools industry had sufficient work to make it viable. That may well have changed today (and may change more in the future if large-scale 3D print-manufacturing becomes viable), but it shows that manufacturing is more complicated than simply whacking up tariff walls and encouraging every Tom, Dick and Ford to set up local operations.

Then again, it’s more complicated than relying upon 'market forces' to do the job alone too. Today’s most innovative car manufacturer is undoubtedly Elon Musk’s Tesla, and on the surface that looks like a victory of innovative capitalism uber alles. But even that archetypal capitalist innovator got going via a half-billion-dollar low-interest loan from the US government. Maybe the problem with Australia’s failed attempt to establish a car industry was not that the government tried to do so at all, but that it did so ham-fistedly.

Much like the way it has let the industry fade away, really.

Steve Keen is author of Debunking Economics and the blog Debtwatch and developer of the Minsky software program.

Douglas Adams’ brilliant comic farce The Hitchhiker’s Guide to the Galaxy describes Earth as residing in sector ZZ9 Plural Z Alpha, one of “the uncharted backwaters of the unfashionable end of the Western Spiral Arm of the Galaxy” and being inhabited by “ape-descended life forms” who “are so amazingly primitive that they still think digital watches are a pretty neat idea”.

Sometimes when I return to Australia, I feel that I’ve arrived in the planet’s sector ZZ9 Plural Z Alpha. Here the economic debate is so primitive that people still think the economy can be controlled by tinkering with the rate of interest.

Is inflation rising? Then put the rate of interest up one and a half times as fast as inflation is increasing. Is output falling below trend? Then drop the rate of interest by half as much as output has fallen. Then adjourn for drinks.

This formula, known as the Taylor Rule, was all the rage in Central Banks from the early 1990s until the mid-2000s. Economists were so confident that they had economic management nailed that they invented the phrase “The Great Moderation” to describe the Goldilocks state of the economy, and took credit for bringing it about:

The sources of the Great Moderation remain somewhat controversial, but as I have argued elsewhere, there is evidence for the view that improved control of inflation has contributed in important measure to this welcome change in the economy (Bernanke 2004, emphasis added).

Then in late 2007 the world went to hell in a handbasket when the global financial crisis began. Mainstream economists were forced to abandon the belief that getting the rate of interest right was all that was necessary to keep the economy on an even keel. Instead, the rate was dropped to near-zero to in an attempt to stop the economy sinking below the waves.

The USA? A cash rate of 0.13 per cent. Japan? 0.1 per cent. Europe? 0.25 per cent. The UK? 0.5 per cent. No-one asks what the central bank will do to interest rates at its next meeting at one of those more fashionable sectors of this planet, because the conceit that the central bank can fine-tune the economy by varying its interest rate is long dead.

Figure 1: Cash rates around the world.

But not in Australia. Here, what the Reserve Bank will do to the interest rate at its monthly meeting is big news. And because it’s big news, every month Sky News asks about 20 economists three (and lately four) questions about the RBA rates meeting on the first Tuesday of the month:

1) Do you expect the RBA to move on Tuesday? And if so, in which direction and by how much?

2) Where will the official cash rate likely sit by the end of the calendar year?

 3) One thing you're looking for in the RBA statement?

4) What do you THINK the RBA should do on Tuesday? (we're asking for your opinion)

The first question I’ve likened to betting on which cockroach will get outside a circle first in Changi prison; it’s just gambling. On the second, I’ve consistently called for rates to be lowered, because in my opinion the main impact of our high cash rate – compared to the USA, Europe, UK and Japan in Figure 1 – has been an overvalued dollar that has decimated Australian manufacturing.

On the third and fourth, since March of last year, I’ve added a call that the RBA to introduce loan to valuation ratio controls to stop a property bubble forming. (Strictly, APRA would make such a call, but if the RBA said jump, APRA would do it.)

My answer to Sky News’ poll in March 2013 was:

1) I think the RBA will hold, but if there is any move it will be down;

2) 2 per cent

3) Realisation that (a) the cash rate is the main factor keeping the Australian dollar overvalued and (b) it has to do something to stop a housing bubble forming if it lowers rates--for example, reintroduce a maximum level for LVRs of say 90%.

But that’s all so yesterday. For last week’s poll, I changed my answers in a rather radical way:

1. Zero
2. 3.5 percent [1 per cent higher than today]
3. Realisation that they are stuck with 4 competing goals: declining employment, rising inflation, a housing bubble and an overvalued dollar, and whatever they do with rates will stuff up at least 3 of those 4 things
4. Introduce loan to valuation controls like those in NZ (via APRA), persuade the government to introduce limits on non-resident buying of properties, raise rates by half a percent to help burst the property bubble they've allowed to develop. 

The answers were partly in exasperation, since the whole idea that all the Reserve Bank can and should do to control the economy is vary the interest rate is nonsense. I felt rather like Ford Prefect, livid at the inability of the Golgafrinchans to design the wheel:

‘And the wheel,’ said the captain . ‘What about this wheel thingy? It sounds a terribly interesting project.’ ‘Ah,’ said the marketing girl, ‘well, we’re having a little difficulty there.’ ‘Difficulty?’ exclaimed Ford. ‘Difficulty? What do you mean, difficulty? It’s the single simplest machine in the entire Universe!’ The marketing girl soured him with a look. ‘All right, Mr Wiseguy,’ she said, ‘you’re so clever, you tell us what colour it should be.’

So I answered that the colour should be “square”. And, by analogy, the interest rate decision is about as useful as a square wheel in controlling the economy. There are at least four factors the RBA should care about, and they’re giving conflicting signs:

1. The economy: this has been heading down for some time, and is still generally heading down—which indicates that rates should be cut. So tick the 'down' box.
2. Housing: We now have a housing bubble because of the RBA rate cuts since 2012—rate cuts that it didn’t expect to make since against its expectations, the economy has been going down (check Figure 1 again: the RBA was alone in raising rates from 2010 since it falsely thought that the economic crisis was over and inflation was about to rise once more). Since the RBA has been and remains too gutless to introduce prudential controls on mortgage lending—unlike the New Zealanders, who did so in August 2013—then it should put interest rates up to prick the housing bubble. So tick the 'up' box.
3. The currency: this has been overvalued for the last four years, thanks to our high interest rates, and though it’s fallen it is still above the RBA’s comfort level, let alone where the actual economy needs it to be (around 70 cents in my opinion). So tick the 'down' box.
4. Inflation: though this has been consistently lower than the RBA has expected, it is now potentially moving up because the currency has fallen. So tick the 'up' box.

That gives us two “up” signals and two “down” signals. So what to do? Sit on our hands, or stay in a bath for 5 years, like the captain of the Golgafrinchans.

Bugger that, I thought. The one thing the RBA has done courtesy of its primitive belief that interest rates alone can control the economy is allow a housing bubble to form once more. So let’s prick that – hence my call for a 3.5 per cent rate by June 30 (this month’s question asked for the rate by the end of this financial year).

Of course, if the RBA did that – which it won’t – then the currency would fly back over a dollar for sure. There’s no way I actually thought that would be the rate. But please, let’s stop being digital watch fans, and join the rest of the world in realising that there’s more to managing the economy than tinkering with the rate of interest.

Now I think I’ll go have a drink with Marvin…

Steve Keen is author of Debunking Economics and the blog Debtwatch and developer of the Minsky software program.

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Crikey today highlights some Newspoll research today that highlights what Australians generally think about ABC news and bias:

Those results speak for themselves. On individual programs the results were similar. Here are the 7.30 Report (left) and News:

Newspoll also cast some light on whether Australians think the ABC is un-Australian: 

Essential also shows how ABC credibility stands head and shoulders above other outlets:

Question: How much trust do you have in what you read or hear in the following media?

I broadly agree that the ABC isn’t biased. That’s not say that it shouldn’t be kept on its toes and could be run more efficiently. But this line of attack will do the PM no favours in the polls.

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It was thirty years ago today that Sergeant Jobs taught the band to play. Sergeant Jobs together with Privates Smith, Atkinson, Kawasaki, Crow, Espinosa and the rest of the Apple Macintosh team, not to mention all those back at Xerox’s Palo Alto Research Center (PARC) and the crew at Stanford who had built the first computer mouse, and back before them, of course, all the geniuses in a line back from Steve Wozniak and Gordon Moore to the original pioneers like Von Neumann and the great Alan Turing.

I like to claim that I bought the second Macintosh computer ever sold in Europe in that January, 30 years ago. My friend and hero Douglas Adams was in the queue ahead of me. For all I know someone somewhere had bought one ten minutes earlier, but these were the first two that the only shop selling them in London had in stock on the 24th January 1984, so I’m sticking to my story.

I didn’t see Ridley Scott’s legendary Macintosh commercial until it crept onto English television screens way past its dramatic Superbowl debut, but it has become as much a part of the story of Macintosh’s arrival as the subsequent sacking of Steve Jobs by Apple President John Sculley, the man Jobs had brought in to put Apple into the kind of fighting shape that could make it go head to head with the great enemy: Big Blue, IBM. Steve Jobs saw many things but he did not see that it was the business manoeuvrings and manipulations of Bill Gates in buying for $50,000 an operating system called QDOS that would outsmart Apple and IBM and see Microsoft take over the 80s and 90s as the great giant and cause Bill Gates and his MS partner Paul Allen to be rated the richest men in the world. IBM isn’t even in the PC business anymore. They sold that out to the Chinese company Levono. That was how complete Gates’s victory was.

QDOS (Quick and Dirty Operating System) was renamed by Gates MSDOS (Microsoft Disc Operating System) and he licensed it to IBM who sorely needed a new OS, for its original operating system CP/M and its creator had, not to put too fine a point on it, cracked. Crucially, Gates insisted that he could licence his MSDOS not just to IBM but to other computer manufacturers and plumb spang into that trap IBM fell. They had thought the money was in the box, not in the OS.

The Macintosh on the other hand was a revolution. Yes, it took the best bits of many people’s other ideas, just as the Model T Ford and Spitfire did, but it was the first home consumer or small office computer with a graphical user interface or GUI and that had to be the way forward, unless you were a cretin. Your screen was a white representation of a virtual desk, office icons and wastepaper basket (or trashcan if you prefer) included. There were folders, windows, pull down menus, all of which could be operated and manipulated, not by keyboard commands but by this mystical magical mouse, a rolling pointing clicking device that completely altered the way you related to everything you did on your computer.

The first Macintosh had a monochrome display, the footprint of an A4 piece of paper, offered 128K of RAM and a single disk slot, a new kind of a square stiff disk, not like the black cardboard floppies still being used in IBM and the new wave of IBM compatible machines that were exploiting Gates’s licensing deal with IBM and running MSDOS on their machines, which whether IBM or not, relied on a phosphorous glow of green or orange text and the keyboard for inputting instructions.

The difference was astounding, and the refusal of corporate Systems Analysts to see that Macintosh was the way forward absolutely baffled me. I wasn’t married to Steve Jobs. I had no shares in Apple. I just couldn’t understand why people would sweat away at an ugly, inefficient, head-ache inducing monster like an ICM PC when they could be writing books, publishing them even (by the end of the year the Apple LaserPrinter came out opening up the world of Desk Top Publishing) and enjoying it. Yes, having fun and working at the same time.But it was not to be, we were sneered at, derided, told our devices were toys for people with too much money and not enough business sense. WIMPs (Windows, Icons, Menus, Pointers) PC users gleefully told me over the years, were for wimps.

By Leith van Onselen

The December quarter consumer price index (CPI) data, released today by the Australian Bureau of Statistics (ABS), revealed a continued moderation of rental growth at the national capital city level.

According to the ABS, rents nationally grew by 0.6% over the December quarter of 2013: the equal lowest quarterly rate of growth since September 2005 following the same result in the prior quarter:

On an annual basis, rental growth nationally slowed to 3.0% in the latest quarter, which was the slowest rate of rental growth since the June quarter of 2006:

The outlook for rental growth is unclear.

On the one hand, population growth is running strong, which logically suggests that rents should soon be on the rise. However, as shown below, rental growth appears to have recently decoupled from population growth (see next chart).

One explanation for the above divergence is that rental vacancies nationally are trending up, which usually suggests rental growth may weaken (see next chart).

Add to this the soft labour market (see next chart), and the outlook for the rental market is mixed, at least at the national level.

unconventionaleconomist@hotmail.com

www.twitter.com/Leithvo

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By Leith van Onselen

Australian Property Monitors (APM) has today released its rental report for the December quarter of 2013, which revealed a sharp divergence in rental price growth across Australia and between houses and units & apartments:

As shown above, Sydney house rents have flatlined whereas unit rental growth is powering. However, the opposite is the case in Melbourne, where house rents are finally recording growth after years of stagnation, whereas unit rents declined sharply over the quarter for a flat result over the year.

According to APM’s Andrew Wilson, “Melbourne has even more supply coming on this year and there is not enough demand to keep up with it”, suggesting that unit rental prices will continue to come under pressure.

This view is supported by the next chart from the Australian Bureau of Statistics (ABS), which shows that unit & apartment approvals in Melbourne has been running at an elevated level for an prolonged period of time:

Not surprisingly then, Melbourne also has the lowest rental yields on offer, although this has been the case for quite some years now:

It’s also worth noting from the above that Sydney’s rental yields have fallen significantly as price growth has far outpaced rental growth.

The full APM release is available here.

unconventionaleconomist@hotmail.com

www.twitter.com/leithvo

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By Leith van Onselen

New South Wales Labor Senator, Sam Dastyari, has today slammed a proposal to include the family home in the pension assets test, claiming that it would result in “a new tax on Sydney”:

NSW Labor Senator Sam Dastyari has called for the government to rule out the proposal included in a submission from the Business Council of Australia to Tony Abbott’s Commission of Audit, claiming Sydney families would be hit the hardest because of higher property prices…

“It needs to rule out any means testing of the family home for the pension or any other benefit. We all know the family home in Sydney costs more than anywhere else in the country. We can’t risk a new tax on Sydney.”

The asset test proposal was submitted to the Commission of Audit by the Business Council of Australia. BCA president Tony Shepherd is also the head of the commission…

Mr Dastyari said he would demand Mr Shepherd rule out the proposal from his own organisation…

“The BCA makes a submission to this inquiry, being chaired by its own president, calling for the family home to be included in any means test to determine if someone is eligible for the pension.

As argued previously, a key concern with Australia’s retirement system is that the exclusion of the family home from the assets test for the aged pension, combined with the ability to withdraw one’s super as a lump-sum (instead of an annuity), has created an incentive for households to borrow to purchase an expensive home in the lead-up to retirement, retire at 60, withdraw their super tax-free as a lump sum, use the money to pay-off their mortgage or to fund consumption, and then go on the aged pension from 65 years of age.

In such instances, the taxpayer is left wearing the cost of superannuation concessions throughout the individual’s working life, and then again once that same individual goes on the aged pension.

Such a system also encourages an inefficient use of the housing stock by encouraging retirees to stay in their large family homes because the minute they sell it they will fail the assets test for the pension.

More broadly, it is is particularly unfair and absurd that the biggest asset most households retiree with – the family home – is excluded from their capacity to fund their retirement. It is then especially unfair to turn around and expect younger generations, who are already struggling under the weight of expensive housing and high mortgage debts (fostered onto them by their parents’ generation), to bare the full cost of their parents’ retirement.

That said, I agree that including the family home in the pension assets test could unfairly disadvantage Sydneysiders. For this reason, a fairer (compromise) approach could be to only tax the proportion of a retirees home valued above the city’s (or town’s) median value.

Regardless, with the proportion of aged set to escalate relative to the working-aged population, reforms of this nature will need to be undertaken sooner or later. Maintaining current arrangements is simply not sustainable.

unconventionaleconomist@hotmail.com

www.twitter.com/Leithvo

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By Leith van Onselen

The Guardian has published an interesting report on why Australia’s electricity pricing system is both unfair and unsustainable, citing particular concern how the expansive network of “poles and wires” – required to ensure “peak load” (uninterrupted power supply during massive short-term spikes in demand) is spread evenly across all users, rather than paid more by those using the most power during peak periods. Network costs comprise nearly 50% of average household power bills:

Research by the Centre for Policy Development released late last year concluded that the 30% of Australians without air conditioners are subsidising the cost of the electricity network needed only to supply power to those with air conditioners by at least $250 a year. A similar study by the Productivity Commission, which also took into account the cost of generating the power, put the effective subsidy at $350 a year…

“The current system is unfair,” he says, likening it to building a multi-lane highway across the Sydney Harbour bridge so there were never traffic jams even at peak hour but charging everyone, whether they used it or not…

According to the Energy Supply Association of Australia (ESAA), 73% of Australian homes had an air conditioner in 2011 compared with 35% in 1999. The Committee for Economic Development of Australia found that air conditioners bought for $1,500 frequently imposed a $7,000 cost on the energy system.

The inequitable increase in electricity costs has been exacerbated by the huge uptake of rooftop solar panels, the ESAA and the Grattan Institute argue, because solar households avoid the high network charges levied evenly across units of power used, but actually demand power from the grid just as much during those peak times which contribute most to the costs of the network.

“Households with solar end up paying less for the network because they generate some of their own electricity and import less from the grid…

“Most solar households end up only paying a fraction of their fair share of the cost of maintaining the network. They’re not doing it deliberately, it’s just the way the billing arrangements for electricity were set up, long before rooftop solar reached the scale we see today.”

The ESAA and the Grattan Institute say that if the government does nothing, power bills could rise even further as the market enters a “death spiral” – where fewer customers are forced to pay the high fixed costs of the electricity network, encouraging even more customers to turn to rooftop solar to reduce their bills, increasing still further the inequity in the electricity billing system…

“The ‘death spiral’ is a term used to describe the situation where declining demand, technology changes and rising prices may interact in a way that induces large numbers of consumers to disconnect from the network. In that case the whole funding model of Australia’s regulated power networks is under threat … and falling demand keeps pushing up power prices.

Similar concerns were raised recently by Professor Stephen King from Monash University, who argued that declining residential power demand – caused in part by an increased take-up of solar panels – is leading to higher prices to cover fixed costs (the dreaded ‘death spiral’). King also claims that the problem has come about because of policy that has turned fixed costs into variable charge, leading to nasty outcomes:

When consumers install PV [solar] systems, their demand for traditional electricity falls. These consumers reduce the amount they ‘use’ the network. But the fixed network costs do not change. So these fixed costs are spread over a smaller volume of electricity. And this means that the price of that electricity has to rise for everyone else.

Of course the rise in price encourages more consumers to adopt power-saving technologies and to install PV systems. So these consumers also reduce their consumption of traditional power. But the network costs are still fixed. So the price of electricity has to rise for everyone else.

And so on…

More likely, it will lead to a group of haves and have-nots. The well-off, who can afford to install PV systems and buy power saving appliances will avoid much of the high power prices. Those who cannot afford solar systems and new energy efficient appliances will pay a high electricity price.

The Grattan Institute claims that the solution lies in implementing some form of differentiated pricing, whereby the portion of an electricity bill earmarked to pay for network costs is no longer levied uniformly per unit of power used, but rather increased for those who use more power at times of peak demand, such as homes with multiple air conditioners.

By comparison, Professor King argues that network charges should be turned back into fixed charges that can only be avoided by disconnecting from the electricity grid. Installing a solar system would, therefore, not reduce one’s network charges, only their power charges. As a result, the have-nots will not have to pay higher network charges because the haves cannot avoid those charges.

Whatever the case, the electricity pricing system looks in dire need of reform.

unconventionaleconomist@hotmail.com

www.twitter.com/Leithvo

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Before a car goes on sale to the general public, its manufacturer performs many tests. Examples are driven in slow motion into walls and other obstacles to make sure they are safe. Doors are opened and closed thousands of times to ensure they won't fall off. And engines are tested in the vast heat of Arizona as well as the frozen wasteland of an Arctic winter.

Then, when a robot has turned the radio on and off four billion times, and sensitive acoustic devices have established it's still making exactly the right sort of click, the finished product is shipped to the Nürburgring where men in cheap trousers pound round and round and round, ordering stiffer sidewalls and harder suspension until the ride is totally ruined. But the car can tear a driver's face off before it starts to slide.

The result of this exhaustive testing is remarkable. Because, by and large, cars are totally bulletproof. Drop your mobile onto a pillow, and the screen will smash. Leave your laptop unattended for a day, and its systems will jam. Ask your coffee machine to make you a cup of coffee, and it will demand a full service before it will even think about obliging. And then it'll decide not to anyway.

But your car? You can drive it down a track so rutted that your teeth all fall out one by one. You can drive it through rain that's so heavy it's no longer see-through. And you can leave it parked in the midday sun. And still, all of its things will work. Most remarkably of all, cars can even survive the toughest environment in the known universe - a week on a TG film shoot.

I'm not talking now about the cars we're filming. They're mollycoddled and looked after. I'm talking about the cars used by the people doing the filming.

Let me give you an example. Top Gear's big cheese arrived on a shoot one morning this month in a brand-new Mercedes E63 estate. A car that had been meticulously prepared for his appraisal by Mercedes-Benz. It gleamed. It shone. And it bristled. Because it had no idea that it was in for the worst week of its life.

Within an hour of its arrival, it had to be moved, and, unfortunately from its point of view, this job was given to a girl. And as we know, no girl will consider driving a car, even 40 yards across a car park, without first making sure she has enough bottles of water for the journey. These are half-drunk then left in the footwells for the rest of time.

When the shoot was over, the Mercedes was driven to the overnight hotel by someone who was plainly going for a new world record - how many sticks of chewing gum can I eat in half an hour. Judging by the wrappers that were cluttering up the centre console the following morning, he managed somewhere in the region of 4,500.

The next day, someone suggested The Stig should be given the job of driving the Mercedes to the second location in Wales. Needless to say, he arrived exactly three minutes before he'd set off. And you could feel the heat from the brakes and tyres over in Nova Scotia.

Of course, because we were in Wales, it rained. And this turned the whole site into something that could easily have been used as a location for a film called Planet Mud. All of which was transferred from the Earth into the car by a selection of cameramen, sound recordists, producers, researchers and assistants.

We know that many of them must have been girls because, half-buried in the thick, cloying soil, were another 2,750 half-drunk bottles of water.

We know, too, that many of them will have been BBC employees because of the way this car was being driven. It is a little-known fact that on the day you are issued with your BBC identification card, you completely lose the ability to drive a car. You lurch from pillar to post, quite literally. And then you mount the kerb.

In the filming world, all people carriers are called Previas. At home, you know full well you're talking about a Galaxy or a Sharan, but when you are at work, it's a Toyota. Similarly, a Range Rover is a vehicle. Unless it has a camera in the back when it becomes a camera car. In the filming world, there is filming. AND NOTHING ELSE.

By the end of day one, the Mercedes was starting to look rather forlorn. Maybe because it sensed that James May had just said: "I'm going to drive back to the hotel in the Mercedes."

James is a very good driver. He really is. A bit slow perhaps, but smooth and safe and a pleasure to be with. But he does break wind a lot. So, by the time we arrived back at the aforementioned hotel, I was pretty much dead. Also, a lot of the soil in the footwells appeared to be boiling. But the car? Actually, I have no idea how it was faring. It had become impossible to see.

The next morning, a female assistant brought it round to the front of the hotel, via a bush and a golf course, which meant another 200 bottles of water were rolling about under the seats. And there was something sticky on the door linings. Also, a bottle of glue used for attaching fake moustaches to people's faces had leaked onto the handbrake. And worse was to come.

There's a rule known to everyone in TV. Never let a film crew into your house. This is because they'll break it. It applies equally to a car. Offer to run a cameraman a hundred yards up the road, and, when you get there, you'll have no rear-view mirror, no interior trim and a shattered instrument binnacle. After two days, the Range Rovers they use to make TG look like they've been torn apart by a monster.

For the whole of the third day, a crew used the Mercedes as a Previa. And not since Nagasaki has the world seen such devastation. I used the poor car that night to drive back to the hotel and have never felt so ashamed. How could we have turned a gleaming press demonstrator into this in just three days? And why, all of a sudden, was there a sausage roll in the ashtray?

It went on like this for days until it wasn't a car so much as a favela. A steaming, pungent, teeming mass of rotting food, bacteria, disease and soil. Which was producing its own new forms of life. If you treated any other machine like this, it would break. If you treated a person like this, they would die. And yet here's the strangest thing.

When the shoot was over, before the big cheese reclaimed his car for the drive back to London, it was taken to a car wash. And in just five minutes, it was returned to a state of showroom freshness. The carpets. The seats. The boot. The paintwork. All looked new. You could not achieve similar results with your furnishings, fixtures and fittings at home, that's for damn sure.

I'm not singling out the Mercedes for special praise here, because over the years I've seen countless other vehicles and Previas recover from a few days in the hands of a BBC film unit.

Apart from Peugeots, obviously.

‘A Guide to Property Values 2012’ by Victoria’s Valuer General was released July 5.

It has been comprehensively ignored.

The report dissects property transfers and prices lodged with the titles office. This dataset is the actuals, the definitive historical record, and is what scholars of the future will use to examine The Great Australian Land Bubble.

Fresher data is more appealing to commentators and the media, who love to point to new emerging trends. This bias has them clustered around factoids like auction clearance rates and endless misleading anecdotes.

There are substantial delays between sale date to lodgement to collation. Records are provided to the Valuer General thirty days after settlement, which is typically sixty to ninety days after price is agreed and then aggregated and released quarterly. Five per cent of 2012 sales still remain unrecorded in June 2013. I have condemned this time gap elsewhere.

Let us look at what has actually happened.

“The property market in Victoria showed an overall downward trend during 2012.”

Robert Marsh Victorian Valuer General

Indeed it did. Median house prices peaked in 2010 ($420,000) and 2011 ($420,000). They have since fallen – yes, fallen – to $412,000 in 2012 and $370,000 in the ‘snapshot’ of the first few weeks of 2013.

The Victoria-wide data is blurry and disguises as much as it reveals. The municipal data is clearer, and still statistically valid. I follow Boroondara, Maroondah and Wyndham.

Alert readers will know I rent in leafy Balwyn North, a 4 bed 2 bath double garage house worth $1.2 million (my estimate) when I moved in 2010. The rent is $600pw, which the owner did not seek to increase on renewal. The owner is making a 2.5pc gross return. Net rental return would be less than half that, say, 1 pc.

Balwyn North is part of Boroondara municipality, a very affluent area inhabited by professionals and business owners. Overall education levels are very high and local schools, both private and government, consistently rank among the best in the state. Transport links and community facilities are fully developed and excellent.

Median property prices peaked at $1.32 million in 2010. They are now $1.15 million, down $170,000 or 14.7 pc. The 2013 datapoint comprising 111 house sales is statistically valid.

Maroondah, on Melbourne’s Outer East is a developed dormitory area. Eastward expansion is constrained by the Urban Growth Boundary. Educational levels are state-average, schools are good, transport is adequate though it is a long commute to the CBD, community facilities are good due to the early foresight of local leaders but now declining.

Median prices peaked in 2010 at $510,000. They are now at $470,000, a decline of $40,000 or 8.5 pc. The 2013 datapoint comprising 157 house sales is statistically valid.

Wyndham, on Melbourne’s South West is a new, rapidly changing dormitory area adjoining a heavy industry zone and without physical limits to the west and north. Education levels are below average; schools, community facilities and transport links are comprehensively overwhelmed by rapid population growth and are in serious infrastructure deficit.

Median prices peaked later, at $359,000 in 2011. They are now at $340,000, down $19,000 or 5.5 pc. The 2013 datapoint comprising 387 house sales is statistically valid.

Vacant land, limited in Boroondara and Maroondah, is plentiful and actively offered in Wyndham. Median land prices were $220,000 in 2011 and are now $202,750. This figure probably understates the price movement as developers seeking to maintain margins have likely reduced the size of newly subdivided lots as well as restricting new supply in the face of weak demand. Wyndham land sales volumes peaked at 6,338 in 2009 and were a mere 1,383 in 2012.

The Valuer General was kind enough to supply a 25 year price history, which includes the last land price downturn in 1989-91. That downturn was mainly a commercial price retreat. Some juicy highlights of that commercial bust can be found here.

In 1989, Boroondara median house prices were $250,000 and fell 13.1 pc to $221,000 in 1991. Maroondah had a longer downturn, prices fell 10.9 pc from the 1989 median peak of $132,000 to $119,000 in 1995. Maroondah next matched the 1989 peak a long nine years later in 1998. Wyndham house medians topped in 1990 at $107,500 and retreated 7.5 pc to $100,000 in 1995. Inflation and interest rates were much higher then and the real price change – particularly in Maroondah – were more damaging that these bare figures suggest.

So, the current price retreat almost exactly matches the 1989-91 experience. Were prices to turn up in the upcoming ‘Spring Selling Season’, landowners, the FIRE sector and government could breathe easy.

In my opinion, the land price downturn has barely begun. Australians are saturated in debt. Land prices are still at record levels in relation to incomes. Successive interest rate cuts are having less and less impact. The key valuation tool, rent to price, is wildly drunk on its own success. Please, do your own assessment, draw your own conclusions. I say:

Don’t Buy Now!