Clik here to view.
Asylum seekers will not only end up paying more to people smugglers but will be forced on to less safe boats
The Liberal party's new policy to buy fishing boats in Indonesia is the best stimulus plan Indonesian fishing villages will have seen in a long time.
There once was a time when, according to the Liberals, stopping the boats was nice and easy. All that was required was bringing back the Pacific Solution, temporary protection visas and then turning around the boats (with the usual caveat of "when it is safe to do so").
But this election has seen the Liberals introduce a few more policies into the mix. The latest one today involves buying boats from fisherman who otherwise would have sold them to people smugglers.
It's an odd way to go about it, because it rather defies economic sense. Usually governments attempt to stimulate the Australian economy – all this policy will do is create an economic boom in the second-hand Indonesian boat market.
Think of it like this. Imagine if shadow immigration minister Scott Morrison put an advert in the weekend paper letting it be known that he will buy every old LP record for sale in garage sales. Do you think people selling records will keep the price at $2 per LP?
Nope, suddenly you only need someone else to say they are willing to pay $20 for it and Morrison will pay $22. And not only that; because the price has gone up you are now willing to sell things you were not going to sell. And Morrison needs to buy them.
Right now there are fishing boats in Indonesia that are not very seaworthy, but they sort of get the job done. But the fisherman actually values his life and so sells the boat to a people-smuggler and uses the money to help buy another boat.
Now along comes Morrison saying he will buy any boat that is being planned to be sold to asylum seekers.
And of course to do this, as with the garage sale records, he'll have to offer a higher price – otherwise why bother sell to him?
Now this might sound good to the fisherman – he can now sell his boat to Morrison and get more money. But the people-smugglers' demand doesn't go down just because they didn't get a boat.
So they can raise their price higher to get your boat, or because Morrison needs to get your boat, the people-smuggler doesn't even need to pay more, they just need to let it be known that they will pay more.
Best of all, the people-smuggler knows that because of the demand from asylum seekers he can either raise his prices in a pretty inelastic market, or he can just increase the number of people on each boat he charters.
So the higher the prices people-smugglers have to pay, the less safe it will likely become for asylum seekers because it's pretty clear that the more people on these boats the less safe they are.
But also all Indonesian fishermen now know there is a ready buyer for their boats. They also know those boats will be sold at much inflated prices than there was before.
And so suddenly, as with the garage sale record seller, there is now an increased supply of boats because (to use economic speak) the demand curve has shifted out. There is now more demand and at a higher price for each boat than there was before.
This won't stop people-smugglers buying boats, but it will encourage people who had never before thought of selling their boat to asylum seekers to now do so, because they know that, if they intended to do so, Morrison is there with his cheque book to buy them.
And the difference between Morrison and a normal buyer is that Morrison needs to buy your boat. If you sell it to the people-smuggler he fails.
That creates a heck of a price boom in boats.
But Indonesia is rather big. The one thing it is not suffering from is a shortage of boats, and certainly not now that there is a ready buyer for boats.
But this new policy also creates a demand for boat repair, because any old boat already unfit for sea journey that was never going to be sold to a people-smuggler, if repaired, can now be sold, and it is worth paying the repair now because the price you can sell it for has increased.
And thus Morrison's policy is increasing the supply of not just boats but poor quality boats.
So the asylum seekers will be likely paying more money to people-smugglers, or being forced to go to sea on poorer conditioned boats with more people on them.
News Corp has reported that Morrison "declined to say how many boats could be bought back or for how much, saying he did not want to encourage owners to take advantage of the scheme".
The problem is the mere announcement has already ensured that will happen.
Clik here to view.
