When I did my economics unit at University I learnt that if you tax goods at a rate higher than other goods, you will discourage consumption of that good. This is the basis of all “Sin” taxes on alcohol and cigarettes. A corollary is that investment in producing that good will similarly be discouraged.

This elementary fact is lost on the Federal Government’s treasury chief, Ken Henry:

The review reportedly tabled by Australia’s Treasury chief, Ken Henry, and leaked to media last week, recommends scrapping individual Australian state royalty taxes on mining projects in favour of a 40% uniform national resource tax.

For the record, the corporate tax rate is 30% of profits. Thus Ken Henry is proposing a 33% tax rate hike (from 30% to 40%)  just “because you are a miner.” Apparently this is to help fund the aging population.

Here are just a few unintended consequences:

1. Small to medium sized businesses in the mining sector now find it harder to attract capital, as investors will now be attracted to other companies with a lower tax rate. In other words, the return on investment for miners is now 33% lower.
2. Shareholders in mining companies now get 33% less in dividends, meaning less money to re-invest, save or spend, leading to reduced economic output.
3. Replacing the state royalty taxes, now means that states will find it harder to compete for mining businesses to set up in their states. Competition between states reduces royalty tax rates in the long term.
4. Mining exploration is discouraged, thus leading to lower rates of mining activity, thus leading to lower economic output (including lower exports).
5. Superannuation returns from funds invested in mining companies will be lower, thus actually adding to the problem of funding the aging population that it is purportedly trying to solve!
6. Mining companies will have greater incentive to explore overseas and not in Australia.
7. Discouraging mining activity may actually reduce tax receipts due to the Laffer curve effect.

On Saturday, I swam (along with 4,300 participants) the Lorne Pier to Pub 2010, a 1.2km open water swim that I have been training for the last few months. My goal was 22 minutes and my result: 20 min 49 secs. So I was pretty happy with my effort.

Lorne Beach with the Pier in the background

It was a beautiful 34 degree day and so too was the turquoise blue southern ocean. Upon registration I received a wireless tag to measure my time and place. I squeezed into my new steamer wetsuit (with help from my wife and a touch of Vaseline).

We stood aside the famous pier and were marshalled into the water. The course ran parallel to the beach and then a left turn to the shore towards the end. It was a short 2 minute swim to the starting buoy – just what was needed to calm the nerves and get the cobwebs out. I was so excited and nervous that I forgot to put my goggles on. Eye protection rectified, I soon hear the 15 second count down and subsequent gun – and we were off!

The first few hundred meters were tough. I had never swum in a wetsuit below, but was impressed with its added buoyancy and glide in the water. In my “wave” there were about 300 odd swimmers so there was the inevitable body clashes and kicks to the head. Once we were a few minutes in, things settled down and I got into my usual rhythmic stroke and tried to enjoy the experience. I also remembered my training drills to look up every twenty strokes or so to ensure that I was still on course. I don’t think I strayed too far away, it is hard to tell. One difficulty I had was knowing how far left I had to go, which made it had for me decide when to switch to a higher gear.

I finally made it to the penultimate buoy which required a left turn towards the shore. Not long to go. I start to increase my stroke and kick rate, but I began to fatigue – damn that lactic acid! At the final buoy I looked up and about hundred metres away I saw swimmers standing up and running onto the shore. Must be close now.

Finished! Time to suck in some O2. Me closest to the camera.

As my fingertips start to scrape the sand on the ocean floor, I realise that it’s probably time to stand up and sprint to the finishing line. The only problem is that the finish line is about 150m away. As I emerge from the ocean, my head is spinning, my mouth gaping trying to suck the precious oxygen in, water streaming down my face. Legs are jelly as I try to run from the water onto the shore. Try to imagine yourself in COD4: Modern Warfare when you are shot a few times and your vision goes blurry. That’s what it felt like and the finish line was my cover.

As I reached terra firma, I sprinted to the finish line, overtaking a couple of people. Thank goodness for my beep tests and sprint sessions – they definitely helped me there. At the finish line I am spent and there a few people lying around on the sand exhausted. A friendly official helps me unzip my wetsuit. It was then that I realised I had done it!

I then met up with my beautiful family and held my daughter, Ava, in that celebratory pose you see professional athletes do all the time with their kids.

The Klass Family

Mel, Ava, I dedicate this race to you.

Helen Lovejoy approves of the Internet filter

I never thought my country would resort to this. Under the guise of “won’t someone think of the children” the Australian Government, led by Communications Minister Stephen Conroy, have green-lighted the use of Internet filters:

The Federal Government will introduce compulsory internet filtering to block overseas sites which contain criminal content, including child sex abuse and sexual violence.

Communications Minister Stephen Conroy announced the changes today following a controversial trial* to filter the internet which was conducted earlier this year.

Senator Conroy says some internet content is simply not suitable in a civilised society.

Read that last sentence again. That should make one shudder. Individuals decide what is decent and right about a civil society, not an authoritative government.

For the record I am completely against child pornography. These filters will be easily circumvented by paedophiles and scum who get off looking at such stuff. We should be investing in better law enforcement and linking with international police agencies to catch these guys and throw them in jail. Having an Internet filter with rules set on the whim of a government bureaucrat simple impedes our freedom without making a substantial difference to stopping child pornography.

Let’s hope the Opposition, Greens and Independants put a stop to it in the senate.

*Results of the trial can be viewed here

Much of our political discourse focuses on the left/right divide in a simple one dimensional domain. If you’re not left, you’re right. If you’re not right, you’re left. There is a third way: Libertarian. As a way to describe where libertarianism fit I have created this two-dimensional chart to help explain:

The vertical axis describes the economy; on the horizontal, the civil society.

Free markets or “laissez faire” capitalism allows business and individuals to freely trade and undertake voluntary exchanges for good and services. State control occurs when the government or central authority is the primary decision maker on what good and services are traded amongst its people.

On the civil society side, puritanism is the support of a “morally correct” way of living and generally has it’s roots in religious fundamentalism. On the other side, we have civil freedom where an individual is free to choose how they live their life without interference from other groups.

It is not surprising then, that libertarianism, lovers of liberty, are in the top right quadrant.

UPDATE: I am not sure what to call the ??? quadrant  – but I would sure hate to live in that world.

Have a look at the opening film of Copenhagen Climate Summit:

All the elements for a good old fashioned scare mongerin’:

• Poverty. Check.
• Scared Children. Check.
• Polar bears threatened. Check.
• Floods. Check.
• Drought. Check.
• Earthquake. Check.
• Storms. Check.
• Tornadoes. Check.
• “Expert” Testimony*. Check.

These people have no shame.

* Includes the renowned scientists, Archbishop Desmond Tutu and UN Chief Ban Ki Moon.

I am participating in the 2010 Pier to Pub at Lorne on January 9, 2010. It is a 1.2 km open water course. I heard that the rule of thumb is that for every 1km of open water swimming is the equivalent of 2kms in the swimming pool. Thus my target is 2.4km in a swimming pool (48 laps of a 50m Olympic sized pool). My progress via Google spreadsheets (which is automatically updated) is below:

I love Easter Eggs. Type in “mario” in the ThinkGeek search form and…

It’s great to see entrepreneurs follow their dreams and start their own businesses. It is even better to see them succeed. I am proud to have been a part of the initial formation of Shock and Oar, founded by Brendon and Deirdre Westerhout. They have established their Nautical and Leisure Wear company a couple of years ago and has an excellent online store and a flagship store in Fremantle, Western Australia.

Here is their latest news release:

Shock & Oar, the Australian Nautical & Leisure Wear Brand, has celebrated six months of trading in its flagship store in Fremantle, Western Australia. Yet another milestone for the Aussie Brand as it establishes itself in the international clothing and lifestyle market.
Shock & Oar Managing Director Brendon Westerhout says the brand has touched-down in almost every continent in the world.
“So far our customer base has stemmed from six of the seven continents, with overseas visitors keen to take home a piece of Aussie nautical style,” he said. “We are yet to greet customers from Antarctica, but given our proximity to the southern-most continent, it’s just a matter of time!”
In spite of opening its door amid the global economic downturn, Shock & Oar has been well received by locals, national and international visitors alike.
“Our customers have likened our store’s look and feel to a Polo Ralph Lauren store,” said Brendon. “This is a great complement that captures our mix of classic style and casual elegance.”
“We consider Shock & Oar as the unique Australian equivalent of overseas brands such as Nautica, Crew Clothing Company and Paul & Shark. And where better to start than Fremantle, a beautiful and vibrant port city renowned world-wide as home of the successful 1983 America’s Cup team and ’97 Cup defense,” he said.
With an enthusiastic and loyal customer base, Shock & Oar is well on its way to becoming the iconic Australian Nautical & Leisure Wear Brand.
The Shock & Oar store is open 7 days at 9 William St Fremantle, Western Australia. International customers can see the range and purchase online at www.shockandoar.com or contact us at info@shockandoar.com

For those that have an interest in the code of the recently hacked emails and documents from the Hadley Centre, I have written a little program to automatically extract comments from the source code and text from “readme” text files*. This makes it a little easier to search through code comments.

You can download this file here.

What I discovered is this (documents\harris-tree\briffa_sep98_e.pro):

; PLOTS ‘ALL’ REGION MXD timeseries from age banded and from huge
; standardised datasets.
; Reads Harry’s regional timeseries and outputs the 1600-1992 por
; with missing values set appropriately.  Uses mxd, and just the
; “all band” timeseries
;****** APPLIES A VERY ARTIFICIAL CORRECTION FOR DECLINE*********

yrloc=[1400,findgen(19)*5.+1904]
valadj=[0.,0.,0.,0.,0.,-0.1,-0.25,-0.3,0.,-0.1,0.3,0.8,1.2,1.7,2.5,2.6,2.6,$
2.6,2.6,2.6]*0.75        ; fudge factor

Later in the code:

;
; APPLY ARTIFICIAL CORRECTION
;
yearlyadj=interpol(valadj,yrloc,x)
densall=densall+yearlyadj

The fudge factor above does not seem to have a basis in any physical reality. I have done many computer models previously and I recognise that this is a classic example of the programmer trying to massage the data to their needs. What this code does is apply a rudimentary filter to the data. What effect this code actually has is unknown at the present. I am still analysing the code to try to get some sort of filter coefficients so that we can plot the frequency response of these filters to get a better understanding of what is actually going on here.

Watts Up With That has a list of source code comments describing the need to “avoid the decline”.

*Postnote about the program:

• program comments that start with ; or ! (these are FORTRAN comments tags)
• any text document with readme, read.me, read me or read_me in the filename is included
• .pdf’s and .docs are not included.

I stumbled across an interesting analysis of a new technological process, horizontal drilling and extraction of shale natural gas. Read the whole thing here but here is the key chart comparing horizontal vs vertical wells:

Comparative production from a vertical and horizontal natural gas well (Chris McGill).

Production Volume

One thing that did strike me is that the horizontal peak production is well above the vertical well but has a shorter life span. Horizontal wells do have significant technical challenges (as seen in the article), but perhaps we can analyse the above chart to give us an idea of the benefits of horizontal drilling. Now to do this is a little tricky, as I do not have the original chart. However, using Photoshop, I was able to extract the area of the chart and the scale to get us total volume (note these are approximations only, but it gives us a “back of the envelope” view):

• Vertical Well (Yellow): 3547 MMFC
• Horizontal Well (Orange): 6097 MMFC
• Horizontal to Vertical Well total production gain: +72%

Judging from the chart the horizontal well extracts and extra 72% more oil in 10 months versus 100 months for vertical wells.

Production Value

Now to estimate the total value of the well let’s assume the price of natural gas is stable (at Henry Hub) at $8.00 per MCF:

• Total value of the horizontal well is  6097*1000*$8.00 = $48,776,000
• Total value of the vertical well is 3547*1000*$8.00 = $28,376,000

Time Value of Money

This is where we get to use some basic financial models to determine the value of horizontal wells compared to vertical wells. The time value of money is the value of money figuring in a given amount of interest earned over a given amount of time. As an example, with an interest rate of 5% per annum, 100 dollars received today is equivalent of receiving 105 dollars in a year’s time.

Note that the horizontal well lifetime is 10 months compared to the vertical well lifetime of 100 months. Thus to be fair we need to compare the value of the horizontal well and the vertical well after 100 months. This is where the Time Value of Money comes in. Let’s pretend we bank the $48,776,000 that the horizontal well extracts, thus after 100 months (assuming 5% interest rates):

• Total value of horizontal well at 100 months: $70,913,392
• Total value of vertical well at 100 months: $28,376,000
• Horizontal to Vertical well gain: +150%

Extraction Costs

I do not know, in detail, the relative difference in extraction costs for these two methods. However, we now have the Horizontal to Vertical Well gain to use in our decision making. If the Horizontal to Vertical well cost is less than Horizontal to Vertical Well gain (+150% in our example), then it becomes economical to use the horizontal well method.