I’ve been working for quite a while now on a book which will respond to Henry Hazlitt’s Economics in One Lesson an adaptation of Bastiat for a modern US audience that was issued just after 1945 and has remained in print ever since. The planned title is Economics in Two Lessons. In my interpretation, Hazlitt’s One Lesson is that prices are opportunity costs. My Second Lesson is that, in the absence of appropriate government policy, private opportunity costs (market prices) won’t reflect social opportunity costs. Here’s a central piece of the argument, responding to Hazlitt’s exposition of Bastiat’s glazier’s fallacy.
The ABC has yet another story about economists warning on the need for more productivity. It’s a mixed bag. First up, this from Professor James Giesecke from Victoria University’s Centre for Policy Studies
“We’re going to need a growth rate in multi-factor productivity more like the rates that we saw back in the ’70s and ’80s, about 0.7 per cent per annum, in order to begin increasing per capita living standards going forward
appears to mark an abandonment of the mythical 1990s productivity surge, though he goes on to talk about micro-economic reform. More clearly positively, a bit of attention paid to bloated and lazy management rather than telling the rest of to “work harder and smarter” Many economists are turning their eyes to the business sector to take the productivity baton from the labour market to galvanise growth. Finally, there’s this from Peter Harris of the Productivity Commission who has
nominated energy, health and education and other parts of the non-traded sector as candidates for reform. (emphasis added)
Wow! I would have thought that, 20 years after the Hilmer report, the Australian energy sector has been as thoroughly reformed as it can possibly be, short of going back to oil lamps. We’ve had corporatisation, privatisation, pool markets and full retail competition. And of course, the results are evident for all to see. Apparently, though, we are in need of more.
I was very pleased with my post on this topic, making the point that standard microeconomic analysis only works properly on the assumption that the economy is at a full employment equilibrium.
But, it turns out, exactly the same point, using the same title, was made by David Colander 20 years ago
Colander (1993), The Macrofoundations of Micro, Eastern Economic Journal, Vol. 19, No. 4 (Fall, 1993), pp. 447-457
And he wasn’t the first. The term and the idea have a long history, including a contribution by my UQ colleague Bruce Littleboy
The term macrofoundations, I suspect, has been around for a long time. Tracing the term is a paper in itself. Axel Leijonhufvud remembered using it in Leijonhufvud  . I was told that Roman Frydman and Edmund Phelps  used the term and that Hyman Minsky had an unpublished paper from the 1970s with that title; Minsky remembered it, but doubted he could find it and told me that he used the term in a slightly different context. I was also told by Christof Ruhle that a German economist, Karl Zinn, wrote a paper with that title for a Festschrift in 1988, but that it has not been translated into English. I suspect the term has been used many more times because it is such an obvious counterpoint to the microfoundations of macro, and hence to the New Classical call for microfoundations. While he does not use the term explicitly, Bruce Littleboy , in work that relates fundamentalist Keynesian ideas with Clower and Leijonhufvud’s ideas, discusses many of the important issues raised here.
It’s time for another Monday Message Board. Post comments on any topic. Civil discussion and no coarse language please. Side discussions and idees fixes to the sandpits, please.
Another big loss for the Newman LNP government here in Queensland, with a swing of nearly 19 per cent in the Stafford by-election. I did my little bit for this, speaking at a public forum on asset sales. However, since only the Labor and Green candidates showed up, and no-one in the crowd seemed inclined to vote for the LNP or Family First anyway, I doubt that my contribution to margin was noticeable.
Like Newman’s previous drubbing, this by-election was caused by the resignation of the sitting LNP member. However, whereas in the previous case, the resignation resulted from personal financial scandals, the member for Stafford was a doctor who resigned as a result of disagreement with Newman’s health policy. So, the outcome may fairly be interpreted as a rejection of the government’s approach, both in terms of policy substance and authoritarian style.
There is so much disillusionment with politics at present that just about anything can happen. My own guess is that the state election, due in March next year, will see Newman lose his own seat of Ashgrove (held on a margin of 5.7 per cent) and that no party will secure a majority. After that, who knows? Informed or uninformed speculation welcome.
So, I finally broke 4:00 in training. In fact, I managed 3:54. Admittedly, I have a lot of advantages. Training methods, nutrition and shoes have all improved a lot since Roger Bannister first ran the four-minute mile
I have a piece in The National Interest, looking at various recent events including the latest round of the Argentinian debt crisis, in which a New York court ruled in favor of a group of ‘vulture’ investors, led by a New York billionaire, and the agreement of the US Department of Justice and Citibank, involving a financial settlement to avoid a lawsuit over bad mortgage deals and CDOs in the pre-crisis period.
My central observation is that while legal forms are being observed, these are obviously political processes, with outcomes reflecting relative political power rather than any kind of neutral application of the law. So, the world financial system is part of international power politics: it matters a lot that Citibank is a US bank, while BNP Paribas is French and so on. This is very different from the picture of a global financial system independent of, and standing in judgement on, national governments that seemed to be emerging in the 1990s.
As an illustration, I found this ad put out by the ‘vultures’. To see my point, try interchanging “US” and “Argentina” throughout and assuming an adverse judgement by an Argentinian court against the US government.
So, after some farcical manoeuvres, the Senate has passed Abbott’s legislation removing the carbon price. I hope and believe that this outcome will be reversed in due course, but those who brought it about will stand condemned by history.
It’s not merely that this is a bad policy, which will impose large and increasing costs (depending on how long it takes us to get back on track) on Australia and the world into the future. Even more damning is the fact that this action is entirely based on conscious lies, embraced or condoned by everyone who has actively supported it.
First, and most obvious, no one (least of all Tony Abbott) believes that the government’s “Direct Action” policy is a superior alternative to the carbon price, one that will deliver emissions reductions more rapidly and at lower costs. It is, as everyone knows, a cynical ploy put forward simply to allow the government to say that it has a policy.
In reality, Abbott and the rest want to do nothing, and the motives for this desire are entirely base. For a minority of the do-nothing group, it is simply a matter of financial self-interest associated with the fossil fuel industry. For the majority, however, it is the pursuit of a tribal and ideological vendetta. Their position is driven by Culture War animosity towards greens, scientists, do-gooders and so on, or by ideological commitment to a conservative/libertarian position that would be undermined by the recognition of a global problem that can only be fixed by changes to existing structures of property rights.
Most of these people would describe themselves as climate “sceptics”. There is no such thing. That is, there is no one anywhere who has honestly examined the evidence, without wishful thinking based on ideological or cultural preconceptions, and concluded that mainstream science is wrong. Most “sceptics”, including the majority of supporters of the conservative parties, are simply credulous believers in what their opinion leaders are telling them. Those opinion leaders are engaged, not in an attempt to determine the truth, but in a cultural vendetta against their enemies or in an ideologically-driven attempt to justify a predetermined do-nothing position.
This is a sad day, but one that will come back to haunt those who have brought it about.
A large part of my blogging career has consisted of attempts at zombie-slaying: finding ideas that have been refuted by the facts, but that remain undead. Zombies are hard to kill, but one I thought had been permanently dealt with – the myth that Rachel Carson brought about a worldwide ban on DDT, leading to millions of deaths from malaria. Although quite a few people helped to show that this wasn’t true, the lion’s share of the credit, at least in the blogosphere, goes to Tim Lambert (who stopped blogging a while back, though his site still runs a montly open thread). Tim and I laid out the facts in a 2008 piece in the English magazine Prospect which made the following points
* DDT has never been banned in anti-malarial use
* The failure of DDT to eradicate malaria was due to resistance, promoted by overuse in agriculture and elsewhere, exactly as Carson warned. Bans on agricultural use of DDT helped slow the growth of resistance
* The attacks on Carson were undertaken by tobacco industry lobbyists, seeking (among other things) to pressure the World Health Organization not to undertaking anti-smoking campaigns in poor countries
Whether due to our efforts or not, the DDT ban myth seems mostly to have died. Milloy, whose links to tobacco have thoroughly discredited him, seems to be out of the pundit business altogether. He still has an adjunct perch at the Competitive Enterprise Institute but his web page there shows only two opinion pieces since 2008. AFM is also quiescent – its website doesn’t show any research activity since 2011 and its staff all appear to have paying jobs in free-market thinktanks, suggesting a zombie organization.
But the zombie plague always recurs and just now I’ve seen (via Ed Darrell) another instance, oddly enough in an environmentalist magazine Greener Ideal. The author, one Mischa Popoff is described as ” former organic farmer and USDA-contract organic inspector” and repeats the standard DDT myth before a segue into a defence of GMOs. But, as Ed Darrell points out, Popoff is being a bit cute here. DuckDuckGo reveals that he is in fact a Policy Advisor for The Heartland Institute and a Research Associate for The Frontier Centre for Public Policy (the latter being apparently a Canadian version of Heartland, as is the IPA in Australia. The site is down now, so I can’t check).
As long as Heartland lives, zombie ideas will never truly die.
fn1. As usual, the Australian right commentariat bought this one hook line and sinker. Miranda Devine excelled herself, but Blair, Bolt, Quadrant, the CIS and the IPA were all along for the ride.
A new sandpit for long side discussions, idees fixes and so on.
It’s (long past) time for another Monday Message Board. Post comments on any topic. Civil discussion and no coarse language please. Side discussions and idees fixes to the sandpits, please.
Tristan Edis has a nice piece in Climate Spectator contrasting the many statements made by Tony Abbott and Greg Hunt (echoed by Bolt, Blair, Devine, McCrann etc) before the election about the impact of the carbon tax on the price of everything from airfares to supermarket goods with the reality that this impact was minuscule. The implication is that removing the tax won’t have anything like the broad effects on the cost of living that Abbott has promised.
It was this gap between rhetoric and reality that produced last weeks fiasco and the Senate, and may yet derail the government’s entire policy. Taking the government at its rhetorical word, Clive Palmer wanted the ACCC to ensure that all major firms, including airlines and supermarkets, rolled back the cost increases imposed as a result of the carbon tax. Greg Hunt assured everyone that the legislation would do so but it turned out there was no specific reference to anything but electricity. This was for the obvious reason that, in other industries, there was no cost increase to roll back.
All of this gives Clive Palmer, if he wants it, the opportunity to make whatever mischief he chooses. There’s no real way the government can deliver on its rhetoric about reducing the cost of living, so he can demand whatever he wants in the way of add-ons to their legislation.
I ate at my local Italian restaurant just now and, as often happens, the credit card call didn’t go through, so I signed instead of using a PIN. Given that the banks have announced this won’t be possible in a few months time what will they do about this fairly common problem? Any experts out there?
Most people misrepresented by the tabloid press have little recourse. Defamation actions are slow, risky and don’t in any case produce a proper retraction. The Press Council and similar bodies are self-defence clubs for the media. And letters to the editor are a waste of time, if they are printed at all.
But if you’re a major celebrity like George Clooney, your response is newsworthy. After the Mail Online published a false claim about his impending marriage, followed by a weaselly apology, Clooney called them out, making it clear that this website (and its associated print version ) have the same degree of credibility as the National Inquirer and similar rags.
Of course, anyone who was paying attention already knew that. The Daily Mail runs all kinds of nonsense, from baseless gossip about the famous, to anti-science on all kinds of topics, from antivaxerism to “Frankenfoods” nonsense about GM crops , to climate denialism.
My guess is that most readers are aware of this, much like followers of professional wrestling. They enjoy malicious/salacious gossip that panders to their prejudices. If some it is true, so much the better. If not, it’s still entertaining.
Only a fool would actually believe anything printed in this rag. But climate denialism makes fools out of its adherents, who have to believe a nonsense conspiracy theory to make any kind of sense of their position. So, it’s not so surprising that people who would correctly dismiss 90 per cent of what’s published in the Mail credulously reproduce what it prints on climate change.
The leading sucker in this respect is Andrew Bolt (unless he’s in on the joke, too in which case his readers are doubly suckered). But he’s followed by the usual suspects, notably including the Oz, Tim Blair and Miranda Devine.
fn1. Apparently the Mail tries to maintain a multiple branding model in which the print version is supposed to lie only occasionally while the online version lies all the time. I can’t see this working for long.
fn2. As previously discussed, there are plenty of serious issues around GM food. But the kind of nonsense implied by terms like “Frankenfoods” has been thoroughly debunked by now.
La Trobe University is in serious financial difficulty, which is not surprising given the pressures on universities, and particularly newer universities operating in a “competitive” market that is in fact rigged in favor of the traditional sandstones (like UQ, where I work). Also unsurprising, given past experience, is the decision to make sharp cuts in the economics program. Cutting out economics to focus on business degrees seems to be a routine response of second-tier institutions. But it seems to me to be shortsighted, even in marketing terms. The presence or absence of an economics program is one of the clearest signals of whether or not an institution aspires to be in the top rank.
This is going to be a long and wonkish post, so I’ll just give the dot-point summary here, and let those interested read on below the fold, for the explanations and qualifications.
* The dominant model of unemployment, in academic macroeconomics at least, is based on the idea that unemployment can best be modelled in terms of workers searching for jobs, and remaining unemployed until they find a good match with an employer
* The efficiency of job search and matching has been massively increased by the Internet, so, if unemployment is mainly explained by search, it should have fallen steadily over the past 20 years.
* Obviously, this hasn’t happened, but economists seem to have ignored this fact or at least not worried too much about it
* The fact that search models are more popular than ever is yet more evidence that academic macroeconomics is in a bad way
Along with nearly 60 other Australian economists, notably including John Hewson, Justin Wolfers and Harry Clarke, I’ve signed my name to a public statement urging agreement on a fair, economically efficient and environmentally effective policy to price and limit carbon emissions.
I’m not naive enough to expect that this will have much of an effect, any more than previous statements of this kind I’ve signed. The problem is not, as you might think, that there is serious disagreement among economists on the issue. Opponents of market-based policies to limit carbon emission have tried in the past to organize counter-statements, and have failed miserably. Outside the set of IPA hacks, most recently seen defending the ludicrous claims of the tobacco lobby, there is essentially no disagreement on this (although there is plenty of dispute about the best design, the optimal price and so on).
The problem is, rather, that there is no evidence, and no clever way of framing the issue that is going to convince the tribal right to go against their shibboleths on this issue. If there were, the actual experience of a carbon price of $24/tonne would have done so. In the leadup to the introduction of the carbon tax/price, Tony Abbott described it as a ‘wrecking ball’ that would destroy the Australian economy. Two years later, the economy is still here and not even the government pretends that removing the carbon tax is going to yield any significant benefit.
And the same is true more generally, notably in the US. This NY Times article by Brendan Nyhan makes the point
Once people’s cultural and political views get tied up in their factual beliefs, it’s very difficult to undo regardless of the messaging that is used.
While this is always true to some extent, it’s far more true, at present, of the right (in English speaking countries) than of the left, and far more true of the right today than in the past.
In the end, there’s no way to persuade those on the political right to accept factual truths about (for example) climate change, without also persuading them to abandon the political right.
Over the fold, a piece a posted in Crooked Timber on the miserable position of the “Reformicons” – conservative writers who are trying to put some intellectual lipstick on the pig that is the Republican Party.
This isn’t a problem in Australia – there are, as far as I can tell, no intellectually serious conservatives left at all. The dominant thinktank is the IPA, a mirror of the US Heartland Foundation, which is utterly discredited, even on the right for its embrace of delusionism on everything from economic policy to climate change. Quadrant, once a serious publication, is now a sad joke.
And then there’s the Oz. Enough said.
I argue in this review of John Edwards’ After the Boom that it’s neither mining, nor macro reform. The reason our economy has done so well over the past 20 years is that policymakers have made the right macroeconomic policy calls when it mattered, during the Asian crisis of the 1990s and the GFC.
It’s 100 years since a political assassination in the Balkans set in motion the Great War which, in one form or another, has continued ever since. In destroying themselves, and millions of their subjects, the German, Austrian and Russian empires brought forth Nazism and Bolshevism, which killed in the tens of millions. After 1945, the killing mostly stopped in the developed world, replaced by the threat of instant nuclear annihilation, which remained ever-present for decades and has by no means disappeared. Instead, the War moved to the Third World, and a multitude of proxy conflicts. The fall of the Soviet Union saw the renewed outbreak of the War in Europe, most bloodily in Yugoslavia and more recently in Georgia and Ukraine.
Meanwhile, the British and French imperial War plans, embodied in the (secret) Sykes-Picot treaty and the contradictory assurances offered to Jews and Arabs in the Balfour declaration and the McMahon-Hussein correspondence[^1], continue to work their evil consequences long after all the original participants have gone to their graves. Syria, Iraq and Israel-Palestine are all products of the Great War, as is modern Iran (the product of a revolution against British and later American suzerainty imposed after 1918).
And, after 100 years, nothing has been learned. The architects of the most recent catastrophe in Iraq are still respected commentators, as are the many historians and others who defend the conduct of the British-French-Russian imperial alliance in the 1914-18 phase of the Great War (most British and French apologists ignore or explain away the alliance with the most oppressive European empire of the day, but I imagine there are now Putinist historians hard at work producing defences of Tsarist war policy).
More fundamentally, despite 100 years of brutal and bloody evidence to the contrary, the idea that war and revolution are effective ways to obtain political ends, rather than catastrophic last resorts, remains dominant on both the right and the left.
Perhaps in another 100 years, if we survive that long, the world will have learned better.
[^1]: In addition to these, there was the secret Constantinople agreement with the Tsarist empire, and the Treaty of London and Agreement of Saint-Jean-de-Maurienne with Italy, none of which came into effect. These secret deals (and similar agreements made by the Central Powers) make it clear that all the major participants in the Great War were committed to the pursuit of imperial expansion, even as they all pretended to be defending themselves against aggression and pointed to the crimes of their enemies as justification for their own.
Responding to the latest attempt to breathe some life into the zombie of “reform conservatism”, Matt Yglesias noted a revealing silence on climate change. As he observed
The thought process that ended with this approach is easy enough to understand. Whether climate change is a massive conspiracy orchestrated by Al Gore, 99 percent of scientists, and a dazzling array of foreign governments or a genuine problem is hotly debated inside the conservative movement. Whether or not fossil-fuel producers should be hampered in their activities by regulatory concern about pollution, by contrast, is not controversial. For smart, up-and-coming conservatives to mention climate change, they would have to pick a side on the controversial issue. Do they sound like rubes by siding with the conspiracy theorists, or do they alienate the rubes by acknowledging the basic facts and the coming up with some other reason to favor inaction?
The optimal choice is not to choose.
I made much the same point a year ago in response to Ramesh Ponnuru’s plaintive observation that “To be a good reformer [in liberal eyes] a conservative has to agree that the vast bulk of conservatives are insane.”
I’m in the US at the moment, working on papers and experiments involving unforeseen contingencies. I just woke up to the news that Clive Palmer has had a meeting with Al Gore that has led him to support the renewable energy target and an emissions trading scheme (the latter contingent on other countries taking the same route). And, relevant to me personally, he is to oppose the abolition of the Climate Change Authority.
I’ll wait for more news on this. In the meantime, at least I now have an ideal example of an unforeseen contingency.
The Minerals Council of Australia has just published a report it commissioned from Sinclair Davidson of the Institute of Public Affairs, responding to campaigns to encourage divestment from coal. What’s most interesting is the suggestion that Corporations Act and the anti-boycott provisions of the Trade Practices Act could be employed to silence critics of the coal industry. The relevant section, from the conclusion
Finally, the campaign may contravene the letter or the spirit of the Corporations Act. While activists argue that wealth portfolios without fossil fuel stocks perform just as well as those with fossil fuel stocks, the reality is that failing to hold a well-diversified portfolio has substantial economic costs in the form of higher risk and lower returns. So if investors make valuation errors based on the divestment campaign and relinquish high-performing stocks, a breach of the Corporations Act may have occurred.
There is a potential role for the Australian Securities and Investment Commission to examine whether the stigmatisation of the fossil fuel sector via the divestment campaign is a breach of the [Corporations Act].
The divestment campaign would amount to an unlawful secondary boycott if environmental activists were covered by those [anti-boycott] laws. They are seeking to restrict coal mining in Australia by targeting a critical supplier to the sector.
There are quite a few points of interest here. The most obvious is the threat to freedom of speech, something that ought to be of interest to Freedom Commissioner Tim Wilson, formerly of the IPA. In this context, it’s worth noting that campaigners against wind farms (notably including the IPA) would be potentially subject to the same kinds of penalties.
More generally, there’s the question of the anti-boycott provisions and the Trade Practices ACT in general. These provisions involve fairly substantial infringements on freedom, primarily for the benefit of business. The law originally focused mainly on protecting small businesses against a variety of anti-competitive practices of big firms. That sounds good, but there’s an equally good case to be made that the market should be left to sort itself out in such matters, or replaced by public provision when it can’t. The extension of Trade Practices Law to cover unions (under the Fraser government’s Section 45D) and public services (under National Competition Policy) makes the Trade Practices Act one of the central legal instruments for the imposition of market liberalism.
Note: Again, no personal attacks, please. There’s more than enough to criticise in the substance of this piece.
I have a piece up at The Guardian looking at Hockey’s adaptation of the “47 per cent” line made famous by Mitt Romney. The focus is not so much on demolishing the claim (Greg Jericho did a more comprehensive job on this) but on the state of delusion that would allow Hockey to think that this kind of claim would be favorably received. After all, even Romney didn’t use the 47 per cent line in public: he was caught on video talking to rightwing donors.
A while back, I commented that the Oz was turning into a dysfunctional group blog, like Catallaxy on a bad day. Now, it appears this piece of mild hyperbole has become literally true. The Oz has turned into a print version of Catallaxy, recycling their posts in support of tobacco industry propaganda. This really is Catallaxy at its predictable worst. The IPA, well represented there, started its career in science denialism with attacks on health scientists and, in particular, denial of the dangers of passive smoking. Like so many other tobacco industry fronts, it diversified into climate denial in the 1990s, using the same tricks and tropes.
I’m not sure if Catallaxy is the only blog source for the new Oz. The papers obsessive coverage of the AWU/Gillard case, which is looking rather quaint given the revelations of much more recent and clear-cut corruption on both sides of politics, seems to be a mixture of in-house stuff and lifts from the various extreme wingnut blogs devoted to the issue. In any case, it’s hard to tell the difference.
fn1. As previously agreed, no personal attacks on Catallaxy members, please.
Along with the rest of the neocon crew, Andrew Bolt is blaming the collapse of the Iraqi state on Obama’s withdrawal of US troops in 2011. Exactly how Obama was supposed to repudiate an agreement signed by Bush, and maintain an occupation force against the wishes of the Iraqi government (he tried, but failed to negotiate an extension) is not explained. But, no matter.
At least Bolt and the rest warned us that Iraq was still too fragile to be left on its own, and that an indefinite occupation was needed. Well not exactly. Here he is in 2009, gloating over the fact that Obama was going slow on withdrawal and thereby disappointing his supporters. That could be read either way, I guess, but there’s no warning that Bush’s timetable needed changing.
More striking is this piece from 2007, claiming that “the war has been won“. Here’s what he has to say about future prospects
Violence is falling fast. Al Qaida has been crippled.
The Shiites, Kurds and Marsh Arabs no longer face genocide.
What’s more, the country has stayed unified. The majority now rules.
Despite that, minority Sunni leaders are co-operating in government with Shiite ones.
There is no civil war. The Kurds have not broken away. Iran has not turned Iraq into its puppet.
And the country’s institutions are getting stronger. The Iraqi army is now at full strength, at least in numbers.
The country has a vigorous media. A democratic constitution has been adopted and backed by a popular vote.
Election after election has Iraqis turning up in their millions.
Add it all up. Iraq not only remains a democracy, but shows no sign of collapse.
If I were an American reading that, I would have said it was time to bring the boys and girls home, as Bush agreed to do in October 2008.
Apparently, despite all the past experience, lots of people were shocked by the latest developments in Game of Thrones. Still, not everyone is willing to wade through 700-page volumes just to avoid being surprised by a wedding episode on their favorite show. So, as a public service, I’ve listed, over the fold, all the important and exciting developments in Volumes 4 and 5.
Tony Abbott hasn’t exactly covered himself in glory on his overseas trip. But he has found one ally: Canadian PM (at least until next years election) Stephen Harper, also a climate denialist. They made a joint statement denouncing carbon taxes as “job killing”. I didn’t notice any massive destruction of jobs when the carbon price/tax was introduced in 2012, but rather than do my own analysis, I thought I’d take a look at the government’s own Budget outlook, to see how many jobs they claim to have been destroyed by the carbon tax, and what great benefits we can expect from its removal. Here’s the relevant section of the summary (note that the outlook is premised on the Budget measures being passed)
The Australian economy is in the midst of a major transformation, moving from growth led by investment in resources projects to broader‑based drivers of activity in the non‑resources sectors. This is occurring at a time when the economy has generally been growing below its trend rate and the unemployment rate has been rising. During this transition, the economy is expected to continue to grow slightly below trend and the unemployment rate is expected to rise further to 6¼ per cent by mid‑2015.
In this environment, the Government is focused on implementing measures to support growth and jobs while putting in place lasting structural reforms to restore the nation’s finances to a sustainable footing. The timing and composition of the new policy decisions mean that the faster pace of consolidation in this Budget does not have a material impact on economic growth over the forecast period, relative to the 2013‑14 Mid‑Year Economic and Fiscal Outlook (MYEFO).
Since MYEFO, the near‑term outlook for the household sector has improved. Leading indicators of dwelling investment are consistent with rising activity, while household consumption and retail trade outcomes have improved recently, consistent with gains in household wealth. This is partly offset by weaker business investment intentions, particularly for non‑resources sectors.
The outlook for the resources sector is largely unchanged from MYEFO. Resources investment is still expected to detract significantly from growth through until at least 2015‑16, as reflected in the outlook for investment in engineering construction which is forecast to decline by 13 per cent in 2014‑15 and 20½ per cent in 2015‑16. Rising resources exports are only expected to partially offset the impact on growth. Overall, real GDP is forecast to continue growing below trend at 2½ per cent in 2014‑15, before accelerating to near‑trend growth of 3 per cent in 2015‑16.
The labour market has been subdued since late 2011, characterised by weak employment growth, a falling participation rate and a rising unemployment rate, although outcomes since the beginning of 2014 have been more positive. The unemployment rate is forecast to continue to edge higher, settling around 6¼ per cent, consistent with the outlook for real GDP growth. Consumer price inflation is expected to remain well contained, with moderate wage pressures and the removal of the carbon tax.
The reference to the CPI effects of the carbon price (around 0.4 per cent) is, as far as I can tell, the only mention in the whole of the Economic Outlook statement.
I’m travelling, which explains the total absence of recent activity. I hope to resume posting soon, but probably on a limited basis for some time. In the meantime, please keep it civil and constructive.
I have a couple of pieces up on the topic that’s likely to consume much of my attention for some time to come: Piketty’s Capital in the 21st century.
Here’s a long review article at Inside Story focusing on the conditions that have made Piketty a bestseller. And here, at The Drum is my take on claims by Chris Giles at the Financial Times that Piketty’s data is fatally flawed.
Update Piketty has responded to the Financial Times. To sum up, as I said in the Drum piece, the criticisms are (mostly incorrect) nitpicks except for the point about UK wealth inequality. Here Piketty’s demolition is convincing. The FT hasn’t used a consistent series. Rather, it’s taken a recent survey estimate (likely to underestimate wealth) and spliced it onto older estate data to produce the counterintuitive finding that the inequality of wealth hasn’t increased.