Wednesday, August 26, 2009

A chronic housing shortage: Myth or reality?

What I really want for me and my young family is a nice big house, well located, with a shed, in a quiet street, with shops close by, and parks all around. Damn the housing shortage!

But let us be serious for a minute. If you are going to claim a housing shortage, a chronic one at that, you will need some pretty solid economic justification.

This article is targeted squarely at the claims of protagonists Christopher Joye and Jason Anderson. I do this not to provoke, but to share ideas and present some theoretical arguments. I read Joye’s columns in Business Spectator, and am a fan of his general rigour and respect for evidence. But for some reason, he repeatedly claims that Australia suffers a chronic housing shortage. Maybe it is just his enthusiasm coming through, but surely to make such a claim he would need to define both chronic and shortage. Setting the definition of shortage aside for a moment, I think we can first ignore the use of the term chronic, as it implies long-lasting and ongoing. Maybe this term is used to make the point that Joye foresees the scale of future housing shortages to be quite severe.

Anderson makes these same claims, and challenges those who deny a housing shortage to explain to me why it is that in the 2008 calendar year we had the strongest rental growth in nominal terms for more than 20 years and in real terms for more than 30 years. He further claims his analysis revealed a housing shortage in 2006, and proposed that this would result in large increases in rent. While the rent rises did in fact happen, Joye’s own RP Data-Rismark Hedonic Index shows that house prices in capital cities have only just recovered their losses to return to the levels of early 2008. Are we to believe that a chronic housing shortage resulted in a decline in prices of 4%? If we adjust this index into real terms, that is a significant reduction (although I’m not certain whether this is already factored into the index). In any case the house price index in the figure below has grown at an average rate of 5.6% pa since Jan 2007. Over the period, the weighted average inflation in capital cities was 3.4% for 2007/08 and 3.1% for 2008/09.

Joye also makes the following claims as he tries to make the case for a chronic housing shortage, and I quote:
1. House prices have only just recovered their 2008 losses.
2. The rate of house price growth is not accelerating – in fact, it is decelerating. 3. Australia has had very low rates of appreciation –currently and since 2003.
4. Indeed, Australian house price growth since the end of 2003 has been well below household disposable income growth and nominal GDP.

I still can’t see the chronic housing shortage.

This article is also aimed at the antagonist Kris Sayce, who wrote an interesting piece that attempted to challenge the claims of Joye, Anderson and others. One of his key foci is the research that quantifies the shortfall of dwellings, which to me misses the point entirely. Dwelling counting, like job counting, is meaningless to an economist without regard to the profile of demand and supply and subsequently the price. These figures, as far as I am concerned, are a communication tool for planners and politicians; for those who get lost in more abstract economic concepts.

But Sayce does finally focus on the issue at hand – supply, demand, and price. He makes the poignant point that house prices during a bubble (if you want to call it that, however mild) begin to carry a growth premium. People begin paying a premium on the price for the expected future capital growth. The elimination of this growth premium may explain the decline in prices observed over 2008.

But this article is not about discrediting the two main protagonists, nor is it about supporting Sayce and the pool of antagonists, of which Steve Keen is probably the most extreme. In the end, I think we all agree (apart from Steve) that an upswing in residential property prices is certain, but I think we disagree on the timing and the severity of the boom.

Let us turn then to the details, which I believe get lost or forgotten in discussions of this nature. First, we need to define shortage in some meaningful way. Second, we need to examine the reason for the disconnection between rents and prices to answer Anderson’s question. And third, we need to consider the role of expectations and behaviour in response to broader economic circumstances.

First, shortage, or scarcity, of resources is THE economic problem. Most economists believe that prices are the best way for resources to be rationed amongst competing demands. In the residential property market, prices really do reflect a point where the supply and demand curves meet at a given point in time. Either the term shortage is used as a proxy for high prices relative to some subjective normal price level, or there must be some barrier that is stopping the market from functioning; some barrier that makes buyers unable to participate even though they have the financial means.

I await a meaningful definition of housing shortage from Messrs Joye and Anderson.

Second, the response to Jason Anderson’s challenge of explaining the dramatic rental increases in 2008 is deceptively simply. Any individual, family or other residing group, face two options for housing: renting or buying. The trend observed over the past 7 years or so has been an early rise in house prices, with a less substantial increases in rent, and a late fall, or plateau, in house prices, and an increase in rents. Buying and renting each have their benefits. If on aggregate, people tended to see buying as preferable in the early part of the decade, having seen significant price increases, and factoring in this growth premium to their decision, we would get the pattern observed. If in recent years, that growth premium has been lost, and job uncertainty has increased, people may feel like renting is relatively more attractive. Hence, we have seen significant rental gains since the end of 2007, but flat or decreasing house prices. At some point, rents will increase to the point where buying seems an attractive option again.

To clarify, the demand for housing is the sum of the demand for rental accommodation and owner-occupied accommodation.

Third, there is plenty going on in the economy more broadly that will impact the housing situation; lingering uncertainty (about a W-shaped recovery), expected interest rate rises, and a new generation entering housing with different attitudes.

Uncertainty is, in my opinion, going to hold back price growth for residential dwellings for some time yet. While there is much media attention to those who claim the end of the recession, but there are still warnings about a W-shaped recovery. Too much exuberance too early in global stock markets could be a big mistake, and another big fall would postpone a sound recovery. While this may make residential property appear a more stable investment, I suspect the net effect will still be a reduction in demand from both investors and owner-occupiers.

More closely related to the residential property market, the likelihood of interest rate rises next year will be holding back many moves from the rental to the buying market. Coupling this with a potential W-shaped recovery, and the potential for greater job disruptions should that occur, I would hesitate to call a house price boom until after 2010.

Taking the focus back to the home seeking individual or family, how do these uncertainties change their accommodation decision? For starters, it delays the decision to go from renter to owner. It also delays the decision to even become a renter. Young adults will choose to stay much longer with their folks. Importantly, and this is often overlooked, it may increase the occupancy rates in an effort to consolidate space and increase savings. For example, Grandma may move in with her children’s family and rent her own house. Or families may take boarders in their spare rooms, and group households may decide that rents can be shared better by having someone occupy the spare room. All of these points describe my network of young professional friends – the next generation of home buyers.

This brings me to my final point. The next generation of home buyers have different values to the Baby Boomers, or even Generation X. Generation Y travels, they see a mortgage as a burden, and the opportunity costs of homeownership to be very high. In my own case, the difference in costs for me to own the house I currently occupy, or to rent, are about $20,000 per year. The Generation Y attitude is to see the choices as
a. Buy a house and commit to continuous work for a lengthy period of time with little opportunity for saving or an extravagant lifestyle, or
b. Rent, stay mobile, and use the $20,000 difference on a year long trip to South East Asia, or a spend 6 months motorcycling through South America, Che Guevera style. And do this year in, year out.

My own prediction is that the housing market, in terms of prices, will remain fairly stable for the next year, while rents may continue rising at a slower pace. Should a second economic slump occur next year, governments of all levels have incentive to prop up prices temporarily, prolonging the plateau. It is likely to be another year until increasing rents and prices combine to provide the incentive, and the certainty, for developers to bring housing stock to the market. The recent population growth also points to the fact that housing will remain a reliable investment in the medium term, as the current ‘baby bonus children’ grow out of their bassinets.

I often wonder where the incentives lie for making such dramatic claims about the housing market. The obvious reason is that making claims that hit the middle ground are not particularly newsworthy. A second obvious reason is that maintaining confidence in the market is very important, and claims such as this do dilute the uncertainties discussed above. But really, developers are savvy operators, and many have large financial and land reserves, leaving them ready to build and profit when the market is ready. There is no need for alarm.

Tuesday, August 25, 2009

In good company on a W-shaped recovery

These blog entries are my ideas. I have them, then I write them down. And when I find my ideas are being taken up by others (most likely independently), or my predictions prove accurate, I like to take some credit by posting a little reminder.

It seems my prediction of a second share market crash is now shared by a number of prominent economists. I'm not certain whether their predictions are based on oil supply considerations, but that is the fundamental basis for my own.

If we could get economic forecasting like this, where a two week range was proposed for a Chinese stock market crash, and was off the mark by only a week, economics would gain some serious social status.

Sunday, August 23, 2009


It’s weird word, and one that I hear much too often from the environmentalists in my social circle. We should care for the environment, we should turn off the lights, we should drive less, we should eat organic food, we should should should should. Where does it end?

And isn’t it amazing how many people are happy to should you without a solid principle upon which to base their assertion.

I had a guy once pull up next to me on his push-bike at traffic lights after he saw me roll through the previous red light. He told me I should obey the lights, and clothed his statement in the authority of his role as a bike shop attendant who hears drivers complain about cyclists flaunting road rules. “No worries” seemed like the most polite palm off I could manage, considering I felt like telling him to mind his own business and wishing he’d get knocked off his bike.

That afternoon, returning home along the same stretch of road, I followed another cyclist who happened to run a red light. I stopped, as there was traffic coming. But I caught up to him a couple of intersections later. I didn’t think there was anything to say, he was acting as I would expect a cyclist to act but it was the same guy who gave me an earful in the morning! Want a hypocritical bastard.

I wasn’t in the mood for confrontation (I rarely am) so I just said g’day, and rode on my way. I hope he felt like a tool, because it must have been fairly obvious I’d seen him run the light.

I thought originally his should proposition was that we should all obey road rules. But by evening, it looked like his should proposition is that we should look after our personal safety before road rules, but make sure everyone else is doing the 'right thing'.

But it brings me to my point about should. Where does the authority to should someone come from? Most of the greenies get their best information from the hippie papers, and unwashed websites, and very few would understand an academic journal should they ever learn how to find one. A loose translation of should is “let me tell you how to behave” – but that wouldn’t go down so well.

But the real problem is that the ‘should-ers’ generally have the best intentions. They genuinely believe what they say, and that they are on some kind of mission to rescue the world from the ‘unshould’; those who independently determine their behaviour.

I should resolve never to should anyone again. My wife would appreciate that.

Tuesday, August 18, 2009

Close the Gap

I’ve wanted to write about the Federal Government’s Close the Gap campaign for quite a while. But I am going to use this opportunity to raise a much bigger issue that underpins the campaign, and other calls for equality, such as women’s salaries, gay rights, and racial equality to name a few. That issue is fairness.

When I hear of calls for equality, I always ask, why would you expect equality? I never hear calls for more white guys in basketball or more black guys in swimming. I never hear cries of outrage when women in sport never seem to make the speeds, heights, of distances of the men; or even fury over gay fellows being far more fashionable than the rest of us straight guys. It is just plain UNFAIR!

So why do we suddenly decide that equal outcomes are important when it comes to other things?

For a start, we can only observe outcomes, not opportunities. What most of use really want are equal opportunities. But how can we know? When we look at nationwide data we can’t know how many women chose to work less, chose not to continue their education, or chose to do more housework?

Let’s take a closer look at the Close the Gap campaign. For starters, why would we expect life expectancy of a single race, to be the same as the average life expectancy of all other race in our society combined? And what about mixed race people? Are they an average of the racial heritage in their bloodline?

I’m pretty sure the data is out there for a real comparison which would isolate race from a number of other factors that are likely to have a large impact on life expectancy, such as alcohol and tobacco consumption, hours of exercise per week, occupation, family history of illness, location and so on. Somehow my instinct tells me that it’s highly unlikely that after all these factors are considered, that race has any impact on life expectancy.

“Why, but of course not!”

That’s the response I would expect from Close the Gap advocates.

“Of course it’s not race exactly that is the cause of shorter life expectancies (because if it is, there’s not much anyone can do about it), it’s all those other factors that are more prevalent amongst Aboriginal people.”

So? They also prevail to varying degrees in people from all races. This campaign is ONLY about improving conditions for Aboriginal people. Closing the gap gets a lot more difficult if you are helping the other races as well. How is that fair? If we were really to be fair we would ignore race altogether. Not one single policy should require the identification of race. Our new campaign would be called Let's Live Longer, but I don't think it would appeal to our emotions so much.

But when it comes to government social programs, fairness appears all the rage. Those people who oppose markets in human organs probably epitomise misdirected notions of fairness. They imagine for example, that a world in which kidneys must be donated, and where 1,000 people (these are arbitrary figures) die each year awaiting a donor organ, is better that a world where kidneys are bought from willing donors and where only 100 people die waiting for a kidney - based on the notion of fairness. They cry that rich people will have an advantage over poor people for access to kidneys. True. But that's no different from the markets for food, clothing or housing. The point is that donors will be able to accept rewards, thus encouraging donations. And every extra kidney will go to someone, rich or poor. The fair scenario in this case treats people differently, while the unfair case treats them all the same. It's the kind of backward logic that bugs me all too often.

But before I move on from the racist livespan campaign and unfair view of life saving surgery, I will reiterate that we can still only observe outcomes, not opportunities. If more Aboriginal people choose to live in shanty towns in the desert, choose not to seek medical attention, choose to abuse alcohol and smoke like a chimney, than who are we to intervene?

My gut instinct tells me that the remote location of many Aboriginal people is a key factor, which itself captures level education, access to health services, diet, exercise, and probably drug abuse. But does that mean that we should supply all the modern services available in the big smoke at every little tin-pot shanty town in the desert? No way.

Anyway, that’s enough about very popular but completely racist campaign; on to the ever-popular issue of equal pay for women. Again, we have an opportunity vs outcome problem here. Did you know that tall people earn more on average as well? I want equal pay for short people!

I won’t continue. I feel frustrated by the absurdity.

Monday, August 17, 2009

Health costs revisited

In July 2008 I wrote how preventative health care, such as screening and early treatments, actually increase the total cost to society for medical treatments.

Now, there is some more evidence in my corner. The US Congressional Budget Office is now on my side, with plenty of research to support the claim that preventative medicine adds cost to the health care system, rather than reducing costs.

Who would have thought that my original ideas (I had not read any of the studies that this letter refers to) would reflect reality!

I stated it like this:

What has happened is that improvements in medical treatments have enabled us to live longer lives, and because of much of the preventative treatments, we die less suddenly then ever, increasing these 'death postponing' medical costs. Because we can diagnose more problems, we can visit doctors more readily, and we treat more medical conditions then ever. Thus, it is because of the very efficiency and effectiveness of medical technology that our demand for it has grown, both during our lives, and in our ‘prolonged death’.

And the CBO summarise one study like this:

The researchers found that those steps would substantially reduce the projected number of heart attacks and strokes that occurred but would also increase total spending on medical care because the ultimate savings would offset only about 10 percent of the costs of the preventive services, on average.

Remember, we all die. If you prevent someone from having a heart attack, although you may prolong their life, they will die from something else, and most likely, they will need further medical treatment for that ailment.

And now the economics blogosphere has picked it up here.

Sunday, August 9, 2009


We all know that predicting is very difficult, especially about the future. Google tells my I should attribute that saying to the Danish physicist Neils Bohr, who won the Nobel Prize for physics in 1922, but I’m sure even he borrowed if from someone, because we are all in essence simply human prediction machines.

For the speculators out there, here are mine:

1.Oil will rise again. Maybe we’ll get to $200/barrel this time. Other raw materials will follow the boom.

2.We will have another crash in prices – shares, commodities, and possibly housing will come along for the ride this time.

3.People will point the finger in all directions except to the finite oil supply. Only the lone fighter on this blog will point out that we are in an adjustment period where we are going to have the change the way we do many things. But we will adapt, and we will look back at all the scaremongering and wonder why anyone thought it would be a difficult transition.

4.They say it’s all in the timing, but I am least confident about this point. The next crash will happen after Sept 2010, but before Dec 2012.

5.The crash is unlikely to be as sudden next time, although I wouldn’t rule out a surprisingly fast price free fall. I would expect some more restrained reactions by market actors after the 08/09 experience.

6.There is money to make in the next 12 months, but it might be wise to take profits when you can, phasing down exposure to financial stocks and commodities late next year.

7.For Capricorns, next year is a good time to focus on love, but also to gain control of your finances.

All but number 7 I reckon have merit. I just want to post this now so that if I am proven correct, I take credit for having amazing insight. If my predictions prove wrong, I’ll find reasons why and try and pass the blame. Although number 7 is a certainty!

Tuesday, August 4, 2009

Aussie husbands fair – not world’s worst

Many things piss me off. One of them is when the media misinterprets technical material, be it scientific, legal, economic or anything else they can find that appears to have a populist twist.

I recommend for those who hate scientific research being totally abused by the media to pay attention to Ben Goldacre’s blog here.

For those who hate it when the media tells of a British economist who finds that Aussie blokes are the worst husbands, please read on.

Within a day of what I suspect was an innocent media release, I could google aussie bloke worst husband and get 107,000 hits. Most news sites, including all the major Aussie TV networks, and print newspaper sites, even local papers, had their articles flashing on their front page, but with 90% of the article text in common.

The same research was also used to claim that Amercians make the best husbands. I am now waiting for a Today Tonight special on the secret lives of Aussie husbands!

I will bet my house on the fact that not a single reporter read the original research paper, and if they did, had no clue what it meant. If you read it, you will see that it is a dense and technical document. That's apparently an excuse not to fact check in news reporting these days. A simple email to any university economics department in the country would have resulted in a good analysis of the findings, and some interesting broader social implications. I know a number of professors who love that kind of thing.

So, what did the now infamous paper actually find? Let me use Sanz’s own words:
Empirical results support the predictions of a house-hold formation model where less egalitarian social norms decrease the supply of men in the household market by increasing a man's cost of providing household labor. Both men and women living in more egalitarian countries have, everything else equal, a higher probability of forming a household. Furthermore, consistent with the theory, individual attitudes run opposite to social norms for the case of women. Whereas ceteris paribus a more egalitarian woman has a lower probability of forming a household, a woman living in a more egalitarian country has, everything else equal, a higher probability of forming a household.

To translate:
1. Societies with a culture of egalitarianism (equality) have higher rates of cohabitation or marriage, than less egalitarian societies.
2. The more egalitarian a women, the lower her chance of finding a mate
3. The more egalitarian a man, the higher his chance of coupling up.

What we don’t know is who is the best or worst husband. There is no difference between married and cohabitating males in the survey data, so that claim of relevance to marriage is bunkum.

But we do finally find details on housework, from a survey conducted in 1994 and 2002. Australian respondents (both men and women) stated that women always or usually do the laundry, cooking and shopping, 74%, 66%, and 60% of the time respectively. That seems reasonable to me for a society wide average, when you consider the average man’s ability to shop or cook! And it’s a lot better than Japan, where women apparently do laundry, cooking and shopping 94%, 94% and 80% of the time!

If we weight these chores equally into a housework index, we find Australia is actually 8th out of the 12 countries in the survey. The European countries only beat us because their men do more shopping! And surprisingly (because it makes at least one media report appear legitimate), US men do the most housework when measured this way!

The main results of the study should not surprise anyone. A man finds a woman more attractive when he believes she will contribute more to the household, while a woman finds a man more attractive when she thinks he will contribute more to the household. But is that news? At least the lucky author now has some attention on their work.

Another 24hours of media circulation brings the Google hits up to 1,310,000 for the phrase aussie husband worst. Still the only website that actually reports what the original research actually reveals is this one.

It was also a topic of discussion in '7pm', the new chat show on channel Ten, last night. Must be a slow news day!

Tuesday, July 28, 2009

Random and poorly linked observations

Can Generation Y, those twenty-somethings often labelled by baby-boomers as bludgers who had everything dished out to them, actually take credit for the ‘soft-landing’ of the current recession (can we call it that yet)?

I say this after a weekend catching up with friends. Some had been involuntarily retired from their previous jobs, but being tech savvy, were on the books for temp work within hours, and within days had started new jobs. That friction economists love to talk about when discussing unemployment seems non-existent. So my friends continued to earn and spend just as they had before. I wonder if those older generations (whatever you want to call them) would adjust so quickly.

And what of the healthcare system? Are we stuck with a baby-boomer health system in a Gen Y world?

Recent debates have been streaming in from both Australia and the US about reforming the ‘health care system’. It makes me wonder two things that are rarely discussed:

1. What exactly is the boundary of the system?
2. Wouldn’t a system designed to prevent death always seem to be poorly performing?

There have been great comments from the blogosphere about US health reform. In particular, the fact that much health care actually resides outside ‘the system’ – panadol, vitamins (if you believe they actually have health benefits), bandages, etc – you know, stuff a pharmacy sells. If we had concerns about the widespread, affordable supply of these goods, what we we do about the 'allied health system'.

I think what is clear is that while regulation of quality, labelling, etc. is important, regulation of the distribution of services may be overstepping the mark and lead to poor services.

If you want my opinion, there is nothing wrong with healthcare in this country as far as I can see. We have the option of private health cover, and are penalised for not taking it up if our incomes are particularly high. If we don’t have private cover we should expect a baseline of care and nothing more. Even then, the poor are still looked after. Many of you wouldn’t know this, but you can get a doctor to visit you at home, 24 hours a day, and bulk bill. We’ve used this service a couple of times. To me this is medical utopia!

So, since we’ve now solved the ‘health crisis’ by revealing that, in fact, there is no crisis, we can move on other things. Like child care.

Why is it that government feels the need to subsidise the costs of child care? I took my young son for the first time to child care yesterday and for $50 you can have him looked after and fed for 10 hours. But with the child care subsidies, it works out more like $20! So, when weighing up the alternatives of my wife staying home to look after our son, my mother looking after him, and child care, it gives a huge advantage to the latter. Should I be king for a day, this is one of many subsidies I would scrap that appears to be encouraging fragmented families, and the culture of children being raised by ‘the system’.

Finally, I would like to announce that today 29th July 2009 is the official 1st January 2000 of climate change. That date represents the date that we all realised that the millennium bug, Y2K, was actually just symbol of repressed fears being expressed en masse. I feel that climate change is simply an outlet for our caring side in the apparently uncaring world we live in. While I have spent the past few years examining the mechanisms for action to reduce GHG emissions, I am coming to the conclusion that there are many other immediate problems that should be the focus of attention.

A departing thought (from here):

NYTM: Have you ever seen “American Idol”?

Arlo Guthrie: No, I have never watched it. But I’m thankful we’re living in a world where we can actually afford to waste your time. What a great thing that is.

Until next time.

Thursday, July 23, 2009


It's been a long time between discussions on this blog- probably because I am yet to have any unique insights worthy of internet fame since my last post. Instead, I'll direct your attention to the website of Michael Crichton, deceased author, writer of Jurrasic Park and other such things. After spending hours reading his essays and speeches on the website, I feel he must have been a very insightful man, and worthy of mention on this blog. A must read is his speech on complexity.

Tuesday, June 2, 2009

Solar island challenge

The debate about the environmental benefits of solar power is not dead. This short story is intended to raise serious issues about how we can evaluate the environmental degradation attributable to any choice of technological alternatives.

There are two identical islands, untouched my humans. As part of a real life experiment a group of participants is sent to each island and given the following instructions:

You are to produce 1,000kWh of 240v AC power and send it along a copper wire provided at each island. This wire leads to a remote sensing facility where your electricity output will be measured.
You must generate this electricity with the minimum environmental disturbance.
Your island does not produce any other goods, so all resource use will be attributed to the electricity you generate.

The first group, the ‘Nasties’, agreed that using coal to fire turbines, which would in turn drive a shaft through some coiled copper wiring, would be the simplest and quickest way to go.

The other group, the ‘Greenies’, decided that love child of the green movement, solar electricity from photovoltaic panels, was the obvious way to go.

Neither group faced any knowledge barriers. Each group was full of technical experts who understood all the aspects of metallurgy, pottery, mining, engineering, even agriculture and plant breeding.

They both began their plans in earnest while their impact on the environment was observed via satellite from a remote location.

Both groups need to first establish a reliable water supply, build some shelter, search for edible plants that could be farmed, and manufacture some tools. By the end of the first week, both islands saw a striking transformation in a protected cove as the groups built shelter, cleared land, gather food, planted seeds, and diverted springs. Both groups were confident they would use the least resources on the electricity challenge.

Once water, food and shelter were reliably established, the next major step was to manufacture tools. The island was not short of rich metal ores, and each group began building clay furnaces to extract the metals, which would be used for both tools and later for their own choice of electricity generation.

A few months on, and both islands are occupied by a happy, productive workforce. Each individual member is spending every waking moment contributing to the electricity project. There is no such thing as recreation!

Kilns have been running for some time, and tools have been cast from the metals, such as axe, shovel and pick heads, which are now being used to by the ‘Nasties’ to mine coal. The Nasties feel close to the end of their project. Once they have extracted some more copper for wires, some steel for building pressure vessels and shafts, they will see victory!

The Greenies across the ocean are facing some tough decisions. While they can make fairly impure metals with their furnace, they must be further refined if they are to become part of a photovoltaic panel. Also, the group realises they need a low impact way of growing pure crystal silicon blocks that can be later sawed into wafer thin pieces if they are going to finish their project soon.

The Nasties have cast their pressure vessel, with intake and outlet holes. They have filled the vessel with water, and have joined the inlet and outtake with a long cooling tube. The strands of copper that were roughly beaten and rolled into wire have been built to a crude alternator on the shaft that leads out of the turbine, which itself is a rudimentary contraption on the side of the pressure vessel.

As the winter approaches, the pattern of habitation on the two islands is clearly diverging. The Nasties have a simple network of tracks between their protected domestic dwellings on the lee side of the island, and the coal and ore reserves to the east. A small area of land that was cleared during their first week was yielding native crops that were feeding the group. They have a built their makeshift powerstation just metres from the exposed copper wire that disappears through thick plastic tubing into the ocean. A steady stream of workers brings more coal and ore and they realise that quality of their metals needs to be improved, before the turbine will generate power.

But the Nasties are confident. They had generated some power. A boat had arrived that brought a multimeter so that they could refine their generator to produce the required electricity. After current was detected on the wire, and the device was sent to both islands to assist in the final refinement.

The Greenies thought the delivery of such a device was a little premature. They had been trying to use as little coal as possible, but soon realised that to generate the 2000 degrees Celsius necessary to extract silicon from sand, which is much higher than they need to extract the metals, they would need lots more coal, and a better insulated furnace.

The pattern of habitation on the Greenies island grew rapidly around their original settlement. They were in a period of growth, expanding their abilities to extract metal, and silicon, and expanding their mining to include sand. They worked hard both physically, and intellectually, with their greatest minds devoted to establishing more efficient methods of silicon extraction and growing.

It was exactly 10 months after their first footsteps on the island that the Nasties had met their electricity generating goal. Another boat arrived this time to collect them and observe the environmental conditions on the island. While there was obvious disturbance around the settlement, and cleared tracks leading to ore deposits, as well as smaller tracks that were used when foraging for wild food, most of the island remained untouched. The observers estimated the total consumption of timber, coal, and mineral ores by the Nasties.

We will stop the story there. The point here is that we would need such an experiment if we were ever to really know the environmental impact attributable to single consumption decision. My gut feeling is that the Nasties would have an easy time of outdoing the Greenies at their own game.

Of course, there are plenty of issues with the design of this type of experiment in the first place - what's the major one?