Home > Economics - General > Howard’s economic record

Howard’s economic record

February 6th, 2008

If there was one thing John Howard and Peter Costello could reasonably have expected as part of the historical judgement on their terms as PM and Treasurer, it was a positive assessment of their record as economic managers. But a game isn’t over until the final whistle, and the last few months have produced some unpleasant data. Howard and Costello have left higher inflation and (if you impute the whole of the current tightening phase to their policies) higher interest rates than they inherited from the Keating government. Given that the ratio of household indebtedness to income has grown massively, the effective burden of interest rates is far higher now than in 1996.

A judgement based on inflation and interest rates is unfair in some senses. The big achievement of the last 15 years has been to avoid a recession. While most of the credit for this outcome must go to the Reserve Bank (particularly for getting policy right in the Asian crisis of 1997) and some is down to luck, the government should at least be credited for not doing anything to muck things badly enough to derail the Bank’s economic management (I’m assuming here that the housing bubble, to which the government’s policies contributed greatly, will deflate gradually rather than popping us into a recession. That would be a really nasty legacy for Howard and Costello to leave).

Unemployment has also fallen quite a lot, though until quite recently, the improvement in headline figures masked a deterioration in broader measures of employment and unemployment, particularly for men.

The problem for Howard and Costello is that they chose the criteria on which they wanted to be assessed. They never cared much about unemployment, abandoned the whole idea of an unemployment target early on, and their occasional policy interventions were either focus-group driven exercises like “work for the deal” or ideological costcutting like the Jobs Network.

By contrast, they ran hard on “keeping interest rates at record lows” and now have to live with their failure.

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  1. wilful
    February 6th, 2008 at 08:48 | #1

    Productivity?

    Skills?

    Keeping govt interference appropriate and effective?

    Successful privatisations?

    Infrastructure?

    Debt?

    Fail. Fail. Fail. Fail. Fail.

    Lucky lucky men, to have been able to sit on their arses while the tax receipts just tumbled in.

  2. Mr Denmore
    February 6th, 2008 at 09:02 | #2

    Oversaw an unprecedented explosion in household debt and foreign debt (which more than doubled in the time they were in office).

    Keating got it right – Outside his first two budgets, Costello spent the bulk of his time as treasurer laying in a hamock and coveting his boss’ job.

  3. wmmbb
    February 6th, 2008 at 09:46 | #3

    “Work for the dole” i.e. the no deal?

  4. February 6th, 2008 at 10:58 | #4

    You are a shade too blithe in writing Howard off just like that.

    Regardless of how much Howard cared about unemployment, he managed (accidentally or otherwise) to get everybody except for the unemployable into a job. This puts him ahead of every other Prime Minister in Australia (& NZ) for the past generation.

    Disingenuous (the kindest interpretation) to say he ran hard on record low interest rates.

    He ran on the unmeasurable promise of keeping interest rates lower than an ALP government would have.

    Having survived the abomination that was the Keating reign, I am inclined to cut Howard a little slack there. And interest rates when Howard left office were lower than when he was voted in.

  5. February 6th, 2008 at 11:21 | #5

    Does anyone care about the trade deficit these days? No, didn’t think so…

    Oh yeah, Australia’s oil production has been falling for eight years, while demand has been growing strongly and crude prices skyrocketing. Does anyone see any problems with that? No, didn’t think so…

    Oh well, lets just crank up interest rates another notch, put a fire under the AUD, and crush a few more exporters.

  6. wilful
    February 6th, 2008 at 11:53 | #6

    steve at the pub, yeah he’s a bloody miracle worker – fixing unemployment rates in NZ at the same time.

  7. February 6th, 2008 at 11:57 | #7

    It is disingenuous to comment that interest rates were lower when Howard left office than when he was voted in. Especially on a blog where most readers understand the influences on interest rates. This includes understanding the shallowness of Howard’s repeated claims of good fiscal management, claims that are now made more hollow given the current economic situation.

    I remember being so pleased when the Liberals came to power in 1996 and I am today appalled at how naïve I was to accept at face value their claims to economic management supremacy.

  8. February 6th, 2008 at 11:59 | #8

    “…he managed (accidentally or otherwise) to get everybody except for the unemployable into a job…”

    That happens to be incorrect; a large number got pushed into other categories and not counted as unemployed – but that’s not the same thing as being unemployable. (Plus, a lot of people are still counted as unemployed, but that doesn’t make them all unemployable either.)

    That was getting perilously close to blaming the victim.

  9. Ken Miles
    February 6th, 2008 at 12:02 | #9

    Regardless of how much Howard cared about unemployment, he managed (accidentally or otherwise) to get everybody except for the unemployable into a job. This puts him ahead of every other Prime Minister in Australia (& NZ) for the past generation.

    NZ’s unemployment rate is lower than Australia’s. So your reasoning, Helen Clark is the greatest.

  10. conrad
    February 6th, 2008 at 12:50 | #10

    “the improvement in headline figures masked a deterioration in broader measures of employment and unemployment, particularly for men.”

    It’s not clear to me what broader measures you are refering to at all here.

  11. Mr Denmore
    February 6th, 2008 at 13:01 | #11

    Does anyone else agree that in an increasingly globalised economy and marketplace, the relationship between cause and effect is very hard to judge and very easy to exagerrate?

    It’s not often remarked upon, but there is clearly a vested interest for the political commentariat in playing up the influence that federal politicians have on the economy. Every time there’s a rate rise we are subjected to this tedious and irrelevant finger-pointing exercise.

    The honest answer for a federal politician is to say the overwhelming influences on interest rates are global factors. We have higher interest rates than the US and Japan and Europe because we are the beneficiaries of the biggest commodity boom in more than a century. What politicians CAN do is deal with long-run supply issues that may amerliorate the pace of future rate increases (though may still be inflationary in the short-term).

    Howard’s failing was not to address these long-term supply issues and govern instead in the most short-term reckless manner.

  12. February 6th, 2008 at 13:36 | #12

    “Howard’s failing was not to address these long-term supply issues and govern instead in the most short-term reckless manner.”

    be serious, he’s a politician, that’s what they do. you would too, if you had to be rehired every 3 years.

    (democracy, citizen initiative, referenda, direct elections, etc…)

  13. STT
    February 6th, 2008 at 13:45 | #13

    I’ve been sneaking a look at some of the mainstream media blogs (on the SMH and the Age for example) in the wake of the interest wake rise, and it is truly amazing how many people have popped up with the line that the latest interest rate rise is evidence that the ALP are poor economic managers. People have fallen hook, line and sinker for the idea that interest rates are the only indicator that matters for the health of the economy.

    The low level of economic literacy in the general populace is something that really gets on my nerves. People fall for the simplest spin about economic issues (e.g. tax cuts = inflation, Rudd should cancel the tax cuts). If Rudd and Swan want to avoid being blamed for the aftermath of the asleep-at-the-wheel years of Howard and Costello, they will need to start telling people a slightly more sophisticated story about how the economy works, what causes what, how some measures lag behind others etc. Otherwise the Libs will just wheel out the ‘interest rates are always higher under Labor’ line, and some people will fall for it.

    As for the legacy of Howard and Costello, I think the best that can be said is that they didn’t derail us during a period of high growth. The high growth and ever-increasing tax receipts made them lazy – see Andrew Norton’s ‘big government conservatives’ arguments.

    Sad to say it, but I suspect that we need a slow-down, if not a full-blown recession to get the government back on the trail of meaningful economic reform. When things are good, it’s too easy for governments to coast along, hand out sweeteners as their political needs dictate and not worry about doing the uncomfortable (and at times unpopular) work of economic reform.

    Baring a recession, hopefully at least the Tanner razor gang will keep working as long as the Rudd government remains in power to scrap wasteful programs and encourage efforts to boost productivity.

  14. wizofaus
    February 6th, 2008 at 14:23 | #14

    STT, I’d argue it doesn’t really matter.
    Neither party’s economic policies are really all that fundamentally different, and had the ALP been in power the last 11 years, the economy would probably look not a lot different to what it did now.

    From the point of view of economics, the best democracy is likely to achieve is to quickly boot out a government whose policies were so bad that they were obviously causing significant economic pain. Which is one reason I wouldn’t be at all concerned if somehow the Greens magically swept to power next term – their economic policies might be rather naive, but the worst case scenario is 3 or 4 years of economic subsidence.
    Either they’d learn the hard way, or get booted out.

  15. February 6th, 2008 at 15:45 | #15

    . “NZ’s unemployment rate is lower than Australia’s. So your reasoning, Helen Clark is the greatest.”

    Not on your nelly Ken. Even you know what is wrong with your statement. If you are ARE having a blonde/senior day, the clue is in Wilful’s #6 comment.

    PM Lawrence at #8 should try hiring staff in the current economy. Soon discover that ANYTHING “proving” there is a pool of useful unemployed is absolute codswallop. No matter what some twerp twists statistics or something into, this cannot be translated into reality (ie, actual workers).

    A good courtroom tactic, or political line, but like so much of both those professions, talk is not reality.

  16. Spiros
    February 6th, 2008 at 16:17 | #16

    SATP, just because you can’t find people who want to work for you doesn’t mean all employers can’t find people.

  17. wilful
    February 6th, 2008 at 16:22 | #17

    Steve, point is, Howard did SFA to help the unemployment rate. Work for the dole has had distinctly average outcomes, and one of the problems with your inability to hire is the lack of skills. Long-term unemployables have been shuffled off into disability pensions, but they could have done a lot more for these losers.

  18. Tony G
    February 6th, 2008 at 16:59 | #18

    Monetary rates.
    Under Howard:
    7.50 inherited from keating
    7.00
    6.50
    6.00
    5.50
    5.00
    4.75
    5.00
    5.50
    5.75
    6.00
    6.25
    5.75
    5.50
    5.00
    4.75
    4.50
    4.25
    4.50
    4.75
    5.00
    5.25
    5.50
    5.75
    6.00
    6.25
    6.50
    6.75

    Average RBA rate under Howard 5.6%

    Under Rudd:
    6.75
    7.00

    Average RBA rate under Rudd 6.875% Thus far.

    Rates under Labour from 1990 to 1996:

    17.50
    17.00
    15.50
    14.00
    13.00
    12.00
    11.50
    10.50
    9.50
    8.50
    7.50
    6.50
    5.75
    5.25
    4.75
    5.50
    6.50
    7.50

    Average RBA rate under Labour from 1990 to 1996 9.9%

  19. Tony G
    February 6th, 2008 at 17:01 | #19

    Please tell Ruddy a lower score is better in this game.

  20. Smiley
    February 6th, 2008 at 17:31 | #20

    As has been pointed out before… the way that inflation was measured changed in 1998 when the RBA took out the components of CPI that caused feed-back i.e. the cost of housing loans (the interest payments) and the cost of personal credit (interest payments on credit)… so you cannot really compare the interest rates under Keating/Hawk and Howard.

    In fact you could argue that it was the “feed-back” effect that caused interest rates to go so high (as the result of the previous property boom) under Labor. If the same CPI measure had been in effect under Howard, the 2000-2003 property boom whould have had a drastic effect on inflation (i.e. bigger loans, bigger interest repayments, bigger feed-back).

  21. February 6th, 2008 at 17:45 | #21

    I presume Tony has listed nominal interest rates not real interest rates.

  22. Tony G
    February 6th, 2008 at 17:48 | #22

    You can compare Keating/Hawk and Howard using the 1993 and 1998 business cycle As there was no housing boom then and the rates are still higher under labour.

    http://www.rba.gov.au/Statistics/cashrate_target.html

  23. Bilko
    February 6th, 2008 at 18:02 | #23

    we have been running a current account deficit for years imports/exports and the coalition govt ignored it did nothing but fueled it with increased handouts I think their “economic” credentials are a myth rather like the devil convincing the world he does not exist, can anyone remember the last time we exported more than we imported

  24. SJ
    February 6th, 2008 at 18:14 | #24

    conrad Says:

    It’s not clear to me what broader measures you are refering to at all here.

    Participation rates.

  25. derrida derider
    February 6th, 2008 at 18:21 | #25

    Yeah, I agree that in macroeconomics the Howard government has a fairly good record. In particular, the horror 1996 budget (which I and everyone here bitterly opposed at the time) proved prescient and made life much easier for the RBA in the Asian economic crisis. Given the difficulties of managing a small, open, narrowly based economy “not stuffing up” is actually an achievement.

    As others have pointed out they were not very good on microeconomics. Their latter-day enthusiasm for spending our money on pork barrelling to buy elections, at the cost of pro-growth investment, was very damaging.

  26. rog
    February 6th, 2008 at 20:12 | #26

    John Howard tweaked noses, kicked shins and poked eyes and left the place far more forward thinking and robust than when he came in.

    Of course there is still much more to be done as young kev is finding out.

  27. conrad
    February 6th, 2008 at 21:07 | #27

    SJ: There is almost no difference in male participation rates between now and a decade and a half ago, nor any real difference between now and the last few years. A report out from the ABS today shows the the 2004 numbers are almost the same as the 2007 ones (evidentally the latest boom has done nothing to this number). SImilarly, the 1990 number for 15-64 year olds is only 2% higher than today. I imagine this would be easily explicable due to the expansion of higher education (hopefully a good thing), people being able to retire earlier due to the great wealth that has been generated (that one is speculative, but is a good thing too), and, since female workforce participation is higher, some males being able to work less (i.e., those with partners with decent jobs).

  28. peterd
    February 6th, 2008 at 21:58 | #28

    #4 SATP wrote: “Regardless of how much Howard cared about unemployment, he managed (accidentally or otherwise) to get everybody except for the unemployable into a job.”

    This comes dangerously close to circularity:
    “Dad, why doesn’t that bloke have a job?”
    “Because he’s unemployable, son.”
    “Why is he unemployable, Dad?”
    “Because he doesn’t have a job, son.”

  29. Ernestine Gross
    February 6th, 2008 at 22:16 | #29

    It seems to me the Howard government’s economic record is impeccable if one chooses the appropriate Key Performance Indicators (KPIs). Specifically:

    Economic growth, as measured by GDP
    Government budget (if one ignores asset sales)
    Inflation (if one ignores the change in the measure and the outsourcing of monetary policy)
    Unemployment (if one ignores the change in the measure and the emergence of working poor).

    Nevertheless, it was Howard who recognised toward the end of his government that governance by KPIs is not necessarily a good thing when he acknowledged that there are many people hurting. I believe this recognition is an important part of his economic record.

    The above list of KPIs happens to be a list of macroeconomic variables, excluding foreign debt and income distribution. These macroeconomic variables may have served a useful purpose during the post-WWII years, before ‘microeconomic reform’. They are, IMHO, inadequate in a deregulated globalised financial market economy. For example, the idea of increasing ‘savings’ – private or public, voluntarily or involuntarily – may have been a good one during the pre-microeconomic reform period. However, there is northing I can see which prevents mountains of financial securities being issued to transform ‘savings’ into ‘asset bubbles’. I am happy to be proven wrong.

    The above list of KPIs obviously misses all environmental issues.

    It seems to me the management of anything by KPIs is the problem.

  30. Lord Sir Alexander “Dolly” Downer
    February 6th, 2008 at 22:42 | #30

    It is preposterous to give the Howard government credit for the country surviving the 1997 Asian economic crisis – a year after they’d come to power. All because of $5bn in spending cuts (out of about $170bn or whatever)?

    That budget’s effect on interest rates would surely have been negligible, it didn’t suddenly make us more ‘robust’ in the short term.

    The 1996 budget might have been ‘good for us’, but it wasn’t the reason we survived the Asian meltdown. Nothing the 5 minute old Howard government did was responsible.

  31. SJ
    February 6th, 2008 at 22:56 | #31

    conrad, I assume you’re talking about 6202.0 Dec 2007

    It shows that the male participation rate has risen slightly (trend numbers) from 71.6 in Dec 2004 to 72.4 in Dec 2007.

    I can’t lay my hands on the number for a “decade and a half ago” (1992, suspiciously during a recession and at an unemployment peak), but the tren is reasonably obvious:

    The labour force participation rate for women increased from 46% in 1985 to 54% in 1995 and 55% in 2001. In contrast, the participation rate for men decreased from 76% in 1985 to 74% in 1995 and 72% in 2001.

    So I guess you do have a point that male participation has basically flatlined since about 2001, and an argument might be made that Howard arrested the decline.

    The female participation rate has further increased to 58.2% in Dec 2007.

    since female workforce participation is higher, some males being able to work less (i.e., those with partners with decent jobs).

    Well, there might be some women who suddenly say “Guess what, honey, I just got made a partner at Malleson’s, so you can give up your day job!”, but I’d want to see some stats before I’ be willing to agree that the declining trend in male participation was a voluntary thing.

    I’ll let John take it from here. Your original question looked to me like you were entirely unaware of what “broader measures” might exist.

  32. SJ
    February 6th, 2008 at 23:23 | #32

    However, there is nothing I can see which prevents mountains of financial securities being issued to transform ‘savings’ into ‘asset bubbles’. I am happy to be proven wrong.

    This point is basically the same as Smiley’s @20 above. Pre-1998, CPI was not a good deflator because it captured some asset price inflation. Post 1998, it’s still not a good deflator because it fails to capture asset price inflation.

    It seems to me the management of anything by KPIs is the problem.

    No, that’s silly. Management by KPIs just means judgement of results by things that are quantifiable and measureable.

    It’s the use of available but inappropriate measures as KPIs, or the absence of better measures that causes problems.

  33. SJ
    February 6th, 2008 at 23:25 | #33

    Scratch the above. I hit “submit” too soon.

    Ernestine Says:

    However, there is nothing I can see which prevents mountains of financial securities being issued to transform ‘savings’ into ‘asset bubbles’. I am happy to be proven wrong.

    This point is basically the same as Smiley’s @20 above. Pre-1998, CPI was not a good deflator because it captured some asset price inflation. Post 1998, it’s still not a good deflator because it fails to capture asset price inflation.

    It seems to me the management of anything by KPIs is the problem.

    No, that’s silly. Management by KPIs just means judgement of results by things that are quantifiable and measureable.

    It’s the use of available but inappropriate measures as KPIs, or the absence of better measures that causes problems.

  34. observa
    February 6th, 2008 at 23:32 | #34

    At least the cunning old fox left us with those LAW tax cuts, at exactly the same time past central bank profligacy chickens were coming home to roost with inflation. It’s all about interest rates and mortgages now as the Rudd govt’s frenetic attempts to heed fiscal conservatism amply demonstrates. Come hell or high water, they’re not going into the next election with high interest rates and inflation now. Razor gangs and tax cuts. What more could a bloke ask for from a Labor govt eh?

  35. observa
    February 6th, 2008 at 23:42 | #35

    And you’ll recall I told you all so when Johnny and Pete announced those tax cuts, facing those awful poll figures. That has gotta be their greatest legacy and I’ll look forward to it in Johnny’s memoirs.

  36. February 6th, 2008 at 23:51 | #36

    If that’s their greatest legacy, they were worse than even I thought.

  37. smally
    February 7th, 2008 at 00:23 | #37

    Steve at the pub, thanks for a shining example of post hoc ergo propter hoc reasoning.

  38. February 7th, 2008 at 03:01 | #38

    Smally: mi onli spik inglish, so ur furrin lingo post is grate for bignotin’ urself, but as far as comprehension (outside of latin scholars) goes, you may as well have typed “woof, woof, woof”.

  39. February 7th, 2008 at 06:52 | #39

    i can’t think why everyone doesn’t do latin, are we raising a nation of barbarians?

    i also wonder why the government doesn’t inject a day or so of political science in the history curriculum, so that ‘educated’ even scholarly people wouldn’t marvel that politicians run the nation for their electoral advantage, and would be aware that there are ways to run a nation that don’t depend on philosopher kings floating to the top of bandit gangs.

    well, no wonder there. the wonder is that educated people put up with their nation being buggered about by a few hundred grifters that couldn’t get into the real estate agents guild for moral failings.

    alas, educated people are generally “very comfortable, thank you”, and confine their dissatisfaction to whinging, in latin.

  40. MH
    February 7th, 2008 at 07:37 | #40

    I see no difference in the economic policies that Howard championed as PM as he did as Treasurer under Fraser. Howard astutely recognised that the only industry Australia actually had that did anything for exports was extractive. His economic grasp was distinctly mercantalist and he firmly believed in the idea of demand led recoveries, he simply gave those forces their head. Equality, equity and the need to invest in human capital really never entered his head. The Howard led governments greatest failures will be revealed over time to be the misplaced investment in fossil fuel driven energy sources, failure to address the changing climate, failure to support and foster higher education and good science and finally the failure to recognise the mirage of never ending economic growth and to have our minds redirected to a sustainable environment without which there will be no economy. In time they will be reviled not lauded.

  41. conrad
    February 7th, 2008 at 07:57 | #41

    SJ: I’m aware of some broader measures, but I’m aware of none that show males are convincingly terribly worse off than a decade ago. The main group people argue about being worse off is older unskilled males (hardly a broad group). However, the arguments are generally based on declining participation, but it isn’t at all obvious what that is from and whether it is good or bad — I don’t have an opinion, and haven’t seen convincing data determining why this is. It is generally assumed that this may have been due to greater levels of involuntary unemployment, but its not like males in that group in 1995 were exactly in high demand either. Given that people in that job are generally doing hard and dull jobs, it wouldn’t be surprising if more would retire earlier if they could. Similarly, older males are also the richest group in society, which again might allow more to retire early, so it would be good to see the age-by-wealth-by-participation graph to rule that out.

  42. philip travers
    February 7th, 2008 at 08:42 | #42

    Will be raining again today,and some of the paddocks have shown signs of potato virus,which ends up as a sort of milky rot.Steve at the pub,has been awol leave with his contemptuous statements.I will repeat,that some of my ideas have been valued in $ millions,this isnt a mental folly on my part.I would take to court,anyone who makes any statement like that by him,in any form of the media.Unless idiots like him,give up their present right to go on in generalities,then, they will be subjected to stolen tasers off Police,who are now getting on my goat.

  43. Smiley
    February 7th, 2008 at 10:26 | #43

    You can compare Keating/Hawk and Howard using the 1993 and 1998 business cycle As there was no housing boom then and the rates are still higher under labour.

    The early 1990′s property bubble didn’t disappear over night. House prices didn’t deflate instantaneously. So I would suggest that 1993 and 1998 have a significant difference. At least 5 years of mild deflation/stagnation.

  44. Ernestine Gross
    February 7th, 2008 at 11:04 | #44

    SJ,

    1. No, my point is not essentially the same as Smiley’s (20).

    2. “Management by KPIs just means judgement of results by things that are quantifiable and measureable”

    Exactly. But this is the problem because the relationship between those who have influence on the results and the results is not made explicit (hence wrongly ascribing achievements or failures to managers is possible) and the focus is on easily quantifable and measureable variables (hence it is possible to measure the values of variables that are not necessarily important)

    Describing or characterising ‘an economy’ by a few macroeconomic variables, which happen to be viewed as important by the finance sector, is not meaningful to the rest of the people who belong to the economy.

    I am saying the previous PM, John Howard, indicated toward the end of his goverment that he understands this.

  45. February 7th, 2008 at 13:01 | #45

    steve at the pub, if you (accurately) tell us that you cannot hire useful people, that does mean that they aren’t there, it means that there are blockages stopping things come together. I know, from seeing people at the other end, that there are unemployed yet useful people who can’t get work. Does that prove that you don’t exist? No, it proves that you can’t get together – that’s what “structural unemployment” is. And I have some reason to believe that if everybody did get together, there would be some useable unemployed left over.

  46. February 7th, 2008 at 13:02 | #46

    “Doesn’t mean”, I should have written

  47. February 7th, 2008 at 18:30 | #47

    PM Lawrence, you have read every word I typed, and not one of those words referred to me.

    I said all but the unemployable are in jobs. (this comment would be assumed by all but complete pedantic nutters to be a generalisation, & not to mean that it is proved wrong if the nice young thing 2 doors down with a lovely manner & excellent typing skills is currently out of a job)

    Applied to a population of 20million people my is a generalisation x 20million times.

    That said, the bulk of people who are “work-ready” should be able to find a job in the current climate.

  48. February 7th, 2008 at 18:37 | #48

    However, FYI PM Lawrence, it is a lot easier for me to get staff now than it was 2 years ago and for the first time in years I am only having staffing trouble with hiring in two areas, (both of which require a high degree of skill, or a high degree of experience & personal aptitude)

    Though it is nothing like it was in the early to mid-90′s, when prospective staff came seeking me out, & I could pick & choose!

  49. Raymond LuxuryYacht
    February 7th, 2008 at 21:51 | #49

    Did someone say “tax reform”? No, really, I am sure they did tax reform. Pretty close to “Option C” in the end too. Paul Keating of 1984 would be rolling in his grave.

  50. February 7th, 2008 at 21:59 | #50

    Yes, steve at the pub, I know you “said all but the unemployable are in jobs”, and I know you were not making an absolute universal statement of the sort that would even be disproved “if the nice young thing 2 doors down with a lovely manner & excellent typing skills is currently out of a job” but rather something of the sort that meant, say, that ‘the bulk of people who are “work-readyâ€? should be able to find a job in the current climate’.

    I know you meant all that, and I also know that… it… is… not… true. I know this from accounts from people working in service providers trying to place people, and so on. Your own direct observations, like mine, don’t tell the whole story – but they do tell part of it, the fact that there really was an improvement. But thinking that things reached the point where “said all but the unemployable are in jobs”, no, that’s a misreading – unless you are going to turn it into a self-fulfilling prophecy with employers refusing to consider the unemployed and so making them unemployable, like Groucho Marx not joining any club willing to have him.

  51. SJ
    February 8th, 2008 at 00:22 | #51

    conrad Says:

    I’m aware of some broader measures…

    I know that, I really should have said “Your original question looked to me like you were entirely unaware of what “broader measuresâ€? might exist, but it’s obvious now that that’s not the case.

    And like I said earlier, I’ll let John argue the point further if he chooses to.

    Ernestine Says:

    But this is the problem because the relationship between those who have influence on the results and the results is not made explicit (hence wrongly ascribing achievements or failures to managers is possible) and the focus is on easily quantifable and measureable variables (hence it is possible to measure the values of variables that are not necessarily important)

    Describing or characterising ‘an economy’ by a few macroeconomic variables, which happen to be viewed as important by the finance sector, is not meaningful to the rest of the people who belong to the economy.

    I am saying the previous PM, John Howard, indicated toward the end of his goverment that he understands this.

    Ernestine, you seem to be saying in a lot of words that you agree with John’s argument that they chose the KPIs that suited them at one time, and that was one of the factors that killed them in the end, because they couldn’t abandon the KPIs they’d chosen.

    Still, your statement that “…management of anything by KPIs is the problem” is not a rational or reasonable one.

  52. February 8th, 2008 at 00:38 | #52

    PM Lawrence, today in Australia, for an employer to be swamped with suitable candidates for a vacant position, it would almost be guaranteed to be (a) an unskilled job, and (b) located in an employment black spot, a geographical location which jobs have moved away from, but people are still there.

    Currently I am in the deep south, near to the mighty city of Sydney, and just one look when walking the main street shows that better quality staff are working for lower wages than at my place.

    Sort of a supply & demand thing. If people won’t/don’t move to where the work is, they take lower pay & lesser jobs. Not to say they aren’t happier.

    But if I was out of a job, & unable to get one at home no matter what, I would be humping bluey.

    If people are sitting in (say) western Sydney, with an IQ of 70, no skills & very few career opportunities, and are too stupid/lazy/uninformed/homesick/whatever to go to (say) Darwin where employers are desperate for workers, it is not quite the same as the same people stuck in western Sydney with the same hopeless personal conditions and there being NO WORK at Bourke, Tallarook, or any other place.

    Currently there is opportunity in Australia. Just that those who don’t have a job now are for one reason or another largely unable to take up the available jobs. Mostly it is lack of required skills, lack of mobility, lack of initiative, lack of awareness, or even lack of employer lateral thinking (eg, never occurred to an employer to hire retarded, or criminal record, or something)

  53. Salient Green
    February 8th, 2008 at 08:03 | #53

    steve at the pub
    Claearly a lot of work should move to where the people are.
    Then again, from the tone of your last post, I wouldn’t want to work for you if I was starving. I may have to but would never want to.

  54. February 8th, 2008 at 08:39 | #54

    And that, Salient Green, is why my customers keep coming back. Because I DO NOT have people like you on the team! :-)

  55. Tony G
    February 8th, 2008 at 09:46 | #55

    Smiley;

    I am a lay person so I look at things in nominal terms. .i.e. how much they really cost me.

    Interest rates were higher under labour;
    http://www.rba.gov.au/Statistics/cashrate_target.html

    And the they appear to be heading the same way under Rudd.

    Howard did not let an out of control banking oligopoly crank up rates over and above the cash rate targets. He also cut the crap out of the bloated public sector when he first got in. (later he changed)

    Howard was sworn in, in March 1996 and by July 1996 he had got rates down by 0.5 %. Rudd has got another 2 months left to achieve the same record. Early indications are not looking good.

  56. Ernestine Gross
    February 8th, 2008 at 10:27 | #56

    SJ, Your conclusion depends on a partial quote. Setting this aside, would you kindly provide exact conditions under which managment of anything by KPIs is not a problem?

  57. sdfc
    February 8th, 2008 at 14:12 | #57

    “Howard was sworn in, in March 1996 and by July 1996 he had got rates down by 0.5 %. Rudd has got another 2 months left to achieve the same record. Early indications are not looking good.”

    That’s the funniest thing I’ve seen this week.

  58. wilful
    February 8th, 2008 at 14:59 | #58

    Tony, your final comment really is pretty funny. I now understand what you mean by saying you’re a lay person.

    But anyway, interest rates are an indirect way of saying housing affordability, which is something we can and do measure separately anyway. So why don’t we just talk about what we mean to talk about? Or is because Howard left us with the worst housing affordability since this thing started to get measured?

  59. Tony G
    February 8th, 2008 at 15:50 | #59

    The cost of money is the cost of money. If you are paying a higher interest rate you are paying more regardless of the official inflation rate, as every bodies actual inflation rate is peculiar to them.

    “the worst housing affordability since this thing started to get measured?”

    The worst housing affordability was after Keating introduced the capital gains tax and abolished/reintroduced negative gearing.

    The best measure for housing affordability is to divided the Australia Median House Price
    by Basic Wage per Week.

    wages House price hp/bw
    1980 7020 $53,300 7.59
    1981 7280 $61,300 8.42
    1982 7540 $61,000 8.09
    1983 7852 $66,700 8.49
    1984 8164 $73,200 8.97
    1985 8372 $81,200 9.70
    1986 8892 $88,200 9.92
    1987 9412 $100,900 10.72
    1988 10036 $143,800 14.33
    1989 11128 $142,000 12.76
    1990 11128 $135,500 12.18
    1991 11960 $144,600 12.09
    1993 12376 $149,900 12.11
    1994 12376 $154,700 12.50
    1995 12792 $159,600 12.48
    1996 13520 $172,100 12.73
    1997 18148 $191,100 10.53
    1998 18668 $203,200 10.88
    1999 19396 $228,500 11.78
    2000 20020 $243,000 12.14
    2001 20800 $282,300 13.57
    2002 21476 $319,400 14.87

    From 1980 to 1984 house prices averaged 8.3 times the basic annual wage. Keating got it up to 14 times by 1987 and it hasn’t gone under 10 since.

    source of data;

    Median House Prices (approx.): 1980-2003″ page 33.

    http://www.parliament.nsw.gov.au/prod/parlment/publications.nsf/0/c43281eba16c7f36ca2570c40003081c/$FILE/Finalaffordable.pdf

  60. Tony G
    February 8th, 2008 at 16:09 | #60

    The introduction of the GST on new housing in 2000 further compounded the distortions introduced by keating to the housing market- making it housing even more unaffordable compared to income.

  61. Tony G
    February 8th, 2008 at 16:12 | #61

    Should be;

    The best measure for housing affordability is to divided the Australia Median House Price
    by Basic Wage per ANNUM.

  62. krusty
    February 8th, 2008 at 16:40 | #62

    “That’s the funniest thing I’ve seen this week.”

    Tony G (Ali G’s younger, funnier brudder?) is recovering nicely now – e’s not dead yet! – but yeah that was the best laugh I’d had all week too, sdfc.

  63. February 8th, 2008 at 17:31 | #63

    Steve at the pub, a good part of the things you listed are structural things, and only work out as “unemployable” in that self-fulfilling sense I mentioned earlier. Specifically:-

    - lack of required skills is often a mismatch thing;

    - lack of mobility is often a mismatch thing;

    - lack of initiative works at both ends (on potential employers as well as on potential employees – you’d be amazed how much of a barrier HR departments erect, from not being themselves familiar with what is needed and having to work from checklists), so it is often a mismatch thing too;

    - lack of awareness, ditto;

    - lack of employer lateral thinking (eg, never occurred to an employer to hire [the] retarded, or [those with a] criminal record, or something) – remember, “something” includes, say, not hiring qualified scientists or linguists as teachers because they don’t have education paperwork, but being willing to take people with the paperwork to teach subjects they don’t know or even like.

    On top of all that structural mismatch, there’s a structural disincentive stopping employers hiring with a view to training people up, making the catch 22 that you can only be hired if you already have relevant experience. (It also encourages retrenchments of and/or deskilling of people you already have, even when things are looking up in the economy.)

    You should only settle for the unemployable label if you have already ruled out these other obstacles as the problem, since we know these can happen and that the faulty incentives are operating.

  64. gerard
    February 8th, 2008 at 19:19 | #64

    By those numbers 2002, the final year, had it worse than the 1988 spike, and it would be interesting to see nation-wide figures for the past five years of housing price boom.

    Australian interest rates have tracked OECD averages since the early 80s, and were especially low in the first half of this decade.

  65. sdfc
    February 8th, 2008 at 20:09 | #65

    Sorry Tony but you’ve done it again. In simple terms nominal interest rates can be broken down into the real interest rate plus expected inflation.

    If inflation rises but nominal interest rates stay the same the real interest rate is falling.

    Again keeping it simple let’s assume you borrow $100 today at 6% for repayment in one years time, principal and interest. Inflation is running at 3%.

    In one year’s time you are paying $106 but the effects of inflation have eroded the purchasing power of that $106. That is it can only purchase the equivalent of $102.91 worth of the goods it could have purchased today.

    That is approximately 3% of the real value of your repayment has been eaten up by inflation leaving you to repay 2.9% in real interest.

    This is why inflation is good for debtors but not so good for creditors.

  66. Ernestine Gross
    February 8th, 2008 at 21:52 | #66

    Yes, sdfc, your real interest rate explanation conforms to any text containing something on Fisher (around 1900) and, later, Mundell (1960s). However, Tony G might wish to know how your notion of inflation relates to the time series introduced by him. It surely isn’t obvious.

    Further, sdfc, would you agree that the notion of ‘real rate of interest’ is not of interest to anybody except those people who make a living exclusively from the ownership of financial securities (financial capital). Furthermore, not everybody can be in this position because if everybody would be in this position then ‘nobody’ would grow food and produce other things useful for the material welfare of humans (central to the subject of Economics, as far as I know).

    (My comment does not imply that I agree with Tony G. per se.)

  67. SJ
    February 8th, 2008 at 23:41 | #67

    Ernestine Says:

    SJ, Your conclusion depends on a partial quote. Setting this aside, would you kindly provide exact conditions under which managment of anything by KPIs is not a problem?

    We’re getting into silly territory again. There may be some alternative to “management by KPIs” that I’m completely unaware of, or perhaps your interpretation of the term differs radically from mine.

    Here’s my interpretation of the term:

    a) a goal for an entity, e.g. a country, a company, is chosen somehow. The goal may be to become profitable, or to reduce income inequality, or to take over the entire world, or to reduce the incidence of malaria, or even to “make the world a happier place”.

    b) identify something that measures the goal. For a goal like “reduce the incidence of malaria”, the measure is obvious, as it is for profitability. For other things, it might be harder.

    c) try something that you think may help achieve the goal

    d) measure your performance. Did you reduce the incidence of malaria?

    That’s the essence of management by KPIs, and it’s just an application of the scientific method.

    You can get into all sorts of trouble in step (a), the choice of goal, and in the rest of the steps, too.

    As an extreme example, say you’ve decided that the goal is to reduce incidence of malaria, and you’ve discovered that the administration of lethal doses or arsenic reduce the incidence of malaria. To zero, in fact. This creates another problem, i.e. that more people are dying from the cure than the disease. That may cause you to modify your goal to something like “reduce mortality caused by malaria” or similar.

    In summary, there are no situations where management by KPIs is not a problem, or at least problematic.

    It’s like the Churchill thing: “Democracy is the worst form of government, except all the others that have been tried.”

  68. SJ
    February 8th, 2008 at 23:50 | #68

    …lethal doses of arsenic…

  69. Tony G
    February 9th, 2008 at 00:44 | #69

    “Democracy is the 2nd worst form of government”

    sdfc

    I can appreciate the concept of real interest rates and nominal interest rates, but I don’t see how they reflect reality.

    The problem with varying the price of money with interest rates is that the rate is calculated using a weighted average of many prices. Some of those prices will be applicable to the individual, but it is most likely to be hardly any of those prices as to be many of them.

    To expand on this;

    Let assume hypothetically that the borrower and lender squatted in the country on self sufficient farms. They did not need or transact any other monies.

    At the beginning of year 1, $100 is lent @ 5%pa. Inflation is stated at 5% according to the cpi measure.

    The debtor used the $100 to buy a cow which he kept for one year and then sold for $150 as the price of cows had risen.

    The creditor deferred purchasing a pig for $100 at the beginning of the year, but at years end its price had dropped and he purchased it for $50.

    At the beginning of year 2, $100 is lent @ 10%pa. Inflation is stated at 10% according to the cpi measure.

    The guy with the pig borrowed $ 100 dollars from the guy with the cow. He bought a goat for $100 at the beginning of the year and sold it $150 at the end of the year.

    The Guy with the cow deferred purchasing a sheep for $100 at the beginning of the year, but at years end its price had dropped and he purchased it for $50.

    Like most people the debtor and creditor had different rates of inflation to the cpi.

    In both cases the interest rates and the cpi are the same, but the guy with the pig is $5 worse off; Go figure, the guy setting the cpi basket went to both monetarist and Keynesian schools.

    Is this why economics is dismal?

  70. sdfc
    February 9th, 2008 at 01:01 | #70

    I’m not sure what you’re on about Ernestine. I was referring to Tony’s assertion that inflation does not matter . Do you believe the real interest rate doesn’t matter?

    Tony’s time series needs to include interest costs which in turn incorporate expected inflation.

    Is this a neutrality of money thing. That’s nice in theory but becomes more bollocks the higher inflation goes.

    As for the real interest rates not being of any interest to anyone except for owners of financial capital, don’t forget interest rates are largely set in the capital markets. Of course the cash rate forms the benchmark, but let’s not go there now.

    Getting to those who have no interest in the real rate of interest and I am assuming you are not disputing the inflation component in nominal interest rates. Let’s get back to the example I used earlier, only let’s up expected inflation to 4%. If the nominal rate remains at 6% then return to the lender decllines to 1.9%. Now lets say the demand for credit enables the lender to raise it lending rate to restore the real rate of return. The nominal rate rises to 7.1%.

    Just because not everybody concerns themselves with the real rate of interest does not mean it does not concern everybody.

    What is your point?

  71. Peter Evans
    February 9th, 2008 at 13:22 | #71

    Tony G, what is your obsession with the idea the the government sets (or effectively sets) interest rates? Are you mad? Have you been paying attention at all to the way the world’s economy is structured and how that’s changed over the past 25 years? You sound completely detached and clueless.
    It just looks like you’ve fallen for the old politician’s con of believeing them when they take credit for anything good that happens. (FYI, interest rates were far higher in the early 80s (>21%), with the exception of mortgage rates, which were capped by law at 13.5%, which meant a mortgagee needed to stump up about half the load value to even get in the bank manager’s door.)

  72. sdfc
    February 9th, 2008 at 20:45 | #72

    I’m not sure what you’re trying to say there Tony. It seems to be an example of asset flipping when the real rate of interest is effectively zero. The differences you describe are in effect timing issues.

    The cow guy borrows at only 5% and the 5% depreciation on the $150 dollars he receives in time 1 delivers a real value in time zero (beginning year 1) dollars of $142.86.

    The pig guy borrows at 10% in time 1 and at time 2 incurrs a 10% depreciation on his eventual receipt of $150 for his goat in time 2 a real value in time one dollars of $136.36.

    Similarly the pig guy pays $50 for a pig he could have bought for $100 in time zero. The real cost of this pig in time zero dollars was $47.62.

    The cow guy buys a sheep at $50 which with 10% inflation means his real cost in time 1 dollars was $45.45.

    Yes the cow guy is better off but so what?

    I’m sure Ernestine will inform me if my sums are out but I don’t see how it would make any material difference to the situation you describe.

    I have no doubt that everybody to some extent or
    another experiences differing rates of inflation, unfortunately there is no way of getting around this.

    Lenders are always going to require an inflation premium on their lending rates to protect their real return.
    It is this real return which is the price of money, the inflation premium just accounts for expected depreciation in purchasing power.

    Why is this important?

    The expected inflation rate is just an estimate. Under estimate and the real rate ends up being lower than expected, over estimate and the real interest rate ends up being higher.

    In times of high inflation, when the rate of inflation is usually volatile, the premium is higher to account for the greater uncertainty in future interest rates as well as inflation expectations.

    If inflation is thought to be credibly under control then the risk premium is reduced lowering interest rates, particularly for debt of longer maturities.

    We have seen this occur over the past decade or so as the credibility of the RBA in keeping inflation in check has grown, risk premiums have fallen.

    Is the CPI a perfect measure of inflation? It’s not even close in my opinion, but that is another story and has no bearing on whether inflation premiums are important.

    They exist, are important and can’t be ignored.

  73. Alison A
    February 10th, 2008 at 19:32 | #73

    Nice to read comments about unemployment. I must remember how “low” unemployment is when I compete with ONE THOUSAND, SEVEN HUNDRED OTHERS for a clerical position. Yes, I must tell myself, over and over, when I find there are SIX HUNDRED AND FIFTY APPLICANTS, that there is hardly any unemployment. Yes, yes, I will keep on, keep on reminding myself when I stand with TWO HUNDRED OTHERS for a dish pig job, that there is no unemployment.

  74. Tony G
    February 11th, 2008 at 02:05 | #74

    Peter Evans said;

    “Are you mad?”
    Yes, but so are a lot of economic theories.

    “what is your obsession with the idea the the government sets (or effectively sets) interest rates?”

    Who sets them then?
    If its the reserve bank, aren’t they the government?

    http://www.rba.gov.au/AboutTheRBA/governance_and_accountability_of_the_rba.html#consultation_with_government

    People can call me what they like “(Ali G’s younger, funnier brudder, ‘detached and clueless’ etc?)” .

    Regardless of different economic views, the fact remains interest rates dropped by 0.5% 4 months after Howard gained office and soon after they went under 7% and stayed under 7% for the rest of Howard’s term….If you are blaming him for the rise to 7% that occurred on labours watch, you should give Howard credit for keeping them well under 7% for all of his watch. (nb the blame for the recent unofficial rises clearly sit with Rudd. He has failed to stand up to the banks.Their funding costs are going down)

    sdfc

    The pig guy and the cow guy have totally different inflation rates applicable only to themselves and that is paralleled to everybody in the real world.

    The RBA use the cpi to determine the rent of money. It is based on a basket of goods. The point I was trying to convey is that as a measure of inflation, the cpi is not a relevant measure to most peoples inflation, This should be highlighted by the pig and cow guy. They have inflation and deflation in respective years.

    As such you say “The cow guy buys a sheep at $50 which with 10% inflation means his real cost in time 1 dollars was $45.45.”

    Inflation is STATED at 10% according to a theoretical (not proven) rate worked out by a 3rd party (RBA). IMHO it is not a relevant rate to the cow and the pig guy.

    They could theoretically go on infinitum trading with each other(loosing or gaining $50 or whatever the current price on trading).

    If this were their normal modus operandi the cow guys real cost in time 1 dollars could be $50 or any figure not just $45.45. IMHO there is no nexus between him and cpi; he has his own inflation rate peculiar to him.

    Money is just a medium to convey assets and it can be an asset it self. Its price, like the price of the assets it conveys can and does go up and down.

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