Home > Economic policy > Ergas v Quiggin debate

Ergas v Quiggin debate

April 27th, 2009

A year or so ago, Henry Ergas and I had a bit of debate about this paper

on ‘The Risk Society: social democracy in an uncertain world’.

The world has got a bit more uncertain over the past year and Henry has agreed to another round, this time live at the Customs House in Brisbane for an event organised by the UQ Economics Alumni. It’s on Tuesday 5 May, 5:30 to 7:30.

Important update In posting the notice above, I forgot to say (or rather, didn’t realise) that it’s not free and registration is essential. Members of the Alumni association pay $32, Non Members $38 and Students $25 and there will be a group student discount available. There are drinks and canapes, so you can estimate the net cost of the debate yourself.

Debate poster Wuthering Heights divx

Categories: Economic policy Tags:
  1. SeanG
    April 27th, 2009 at 15:15 | #1

    ProfQ,

    Regarding the board argument that social democrats through the welfare state want to reduce individual risk, how do you explain the first home owners grant or the baby bonus?

    What about lower prices from competition and free trade? Can this be part of the social risk matrix?

    But remember that risk mitigation costs can outweigh the benefits. Where does the government draw the line?

  2. April 27th, 2009 at 15:50 | #2

    The first home owners grant and the baby bonus aren’t social democrat concepts.

    Wouldn’t universal health care, equitable education and free public transport be social democrat concepts? Implement these kind of things and you eleminate a whole range of “risks”.

  3. SeanG
    April 27th, 2009 at 18:18 | #3

    Isn’t the baby bonus mitigating the risk of financial distress caused by a new arrival?

    Or what about the first home owner’s grant mitigating the risk of young people unable to purchase property?

  4. Monkey’s Uncle
    April 27th, 2009 at 19:02 | #4

    To be fair, the FHOG is probably not a social democrat concept inasmuch as it is largely just an industry subsidy.

    The baby bonus on the other hand is certainly a social democratic concept.

  5. SeanG
    April 27th, 2009 at 19:53 | #5

    So what constitutes risk mitigation if not the FHOG? It is about reducing the risk that housing is unaffordable for first home buyers. Does that not expand home ownership?

  6. April 27th, 2009 at 21:13 | #6

    Implement these kind of things and you eleminate a whole range of “risks”.

    Megan – please correct me if I am wrong but I think you mean to say “transfer the costs of” rather than “eliminate”.

    My prefered approach to health care is to provide a temporal transfer of the cost of risks via income contingent medical loans. I’ve outlined the concept here:-

    http://blog.libertarian.org.au/2008/04/04/medicare-should-be-like-hecs/

  7. April 27th, 2009 at 21:21 | #7

    “Does that not expand home ownership?”

    No. It just raises the prices of houses.

    Also, why is home ownership something the government should expand?

  8. SeanG
    April 27th, 2009 at 21:27 | #8

    So FHOG does not increase the numbers of people owning homes?

    Why should the government be prepared to give money out to people who refuse to work but not help those who pay their taxes and want the chance to own a house?

  9. Monkey’s Uncle
    April 27th, 2009 at 22:48 | #9

    Sean, the FHOG does not make housing more affordable. All that happens is those selling homes whack another $14,000 onto the price. And then the agents get more commission. Nice scam.

    It is nonsensical to make assets more affordable by subsidising their purchase. If an asset is over-valued the only effective way of making it more affordable is to wait until the price drops. All subsidising its purchase does is prop the market up.

  10. SeanG
    April 27th, 2009 at 23:01 | #10

    MU,

    Giving $14k provides extra cash for a deposit. It mitigates the risk. Housing affordability is an issue, hence the reason why it came in: people did not have the cash in the first place.

    So, considering that it gives someone a deposit, it mitigates the risk and is a social democratic principle because the cost is borne by everyone else.

  11. Alice
    April 28th, 2009 at 00:37 | #11

    Megan#2
    I agree on your public transport and health / education suggestions as being more in line with social democratic principles.

    I dont agree that the FHOG a good initiative. It is sensible when rents were climbing rapidly (at a certain point it is better to buy) but I now see much evidence around here that unit prices, which I have been tracking in my area have increased far more than the value of the FHOG in the past year – in fact up to 80,000 on a two bedroom unit and 50,000K on on one bedroom unit. There is no explanation for this given the fall in house (on land) prices and the general economic conditions other than the FHOG incentive is actually bringing unit purchases forward and distorting demand. In fact I think it is increasing risk for a lot of unit buyers especially given unemployment forecasts. I find it a worrying initiative and feel its time it should be removed. Rents do seem to have stabilised of late.

  12. SeanG
    April 28th, 2009 at 00:49 | #12

    Alice,

    The issue is not whether it works but whether it mitigates the risk of not having the available cash to put down a deposit for a house.

    That is where the argument regarding socialisation of risk faces problems. Risk mitigation does not completely work. Education does not mean equality of opportunity or equality of outcome. Healthcare does not mean people who are sick will automatically be better. The issue is one of cost-benefit and until we recognise that there must be a balance than we immediately move to the extremes of debate ie. all or nothing.

  13. Bingo Bango Boingo
    April 28th, 2009 at 05:41 | #13

    “The issue is one of cost-benefit and until we recognise that…”

    Everyone recognises that. The issue is who measures cost-benefit better – the aggregate decisions of individuals, or the top-down decision-making of a relative handful?

    BBB

  14. Alice
    April 28th, 2009 at 15:39 | #14

    Sean at 12

    “The issue is not whether it works but whether it mitigates the risk of not having the available cash to put down a deposit for a house.”

    I was commenting on your post at #10

    “Giving $14k provides extra cash for a deposit. It mitigates the risk. Housing affordability is an issue, hence the reason why it came in: people did not have the cash in the first place.”

    It may mitigate the risk of insufficient deposit. It will also increase the risk of housing unaffordability by distorting demand upwards such that the increase in average prices at first home buyer level exceeds $14000.

    Net increase in housing risk Sean.

  15. Jim Birch
    April 28th, 2009 at 17:14 | #15

    This thread seems to me to have gone up a goat path. If social democrat policies tend to more commonly mitigate risks to individuals it does not follow that everything done by a social democratic government must be ipso facto a risk mitigation policy. Risk is just one cost/benefit component of a policy. The BB or the FHOF have risk issues but it’s not primarily what they’re about, is it?

    JQ’s larger argument are about the relative merits of allocation of risks to governments, businesses and individuals seems to have been lost somewhere.

  16. El Mono
    April 28th, 2009 at 17:28 | #16

    Not to mention it is stupid to argue which policy belongs to which doctrine. If i policy is bad (like the BB and FHOG) then why would any doctrine be trying to defend them?

  17. SeanG
    April 28th, 2009 at 17:44 | #17

    Alice,

    The risk is deposits in order to get a mortgage to buy the house. In this case, it will work. I do not believe that house prices are elastic to the FHOG (I have no proof though, if someone can refute that with a study then I will more than accept it).

    However, risk management in the national economy is hardly a social democrat-centric area. The welfare state was not suddenly created in 1945, it was slowly but surely coming around, the wider the voting population became.

    The issue with risk mitigation is that the costs can outweigh the benefits. If we accept then that there should be some form of risk mitigation then policy differences emerge. What I think we are ignoring is the cost of risk mitigation.

    If we are looking at the costs, then should a tax on the bad behaviours be part of insuring against those risks? That would mean taxes on alcohol and cigarettes. Instead of focusing on direct tax eg. income and corporation tax.

  18. MAX
    April 29th, 2009 at 01:54 | #18

    Alice 14: [The FHOG] may mitigate the risk of insufficient deposit.

    Public provision of left-handed skyhooks would “mitigate the risk” of being unable to access left-handed skyhooks. Government subsidies for carpet snakes would mitigate the risk of being unable to afford carpet snakes.

    In place of skyhooks and carpet snakes feel free to insert Rolls Royces, sunscreen or pretty much anything you want.

    So, in what sense do ‘social democrat policies’ things like the FHOG, the BB or free public transport “mitigate the risk”? Only in the completely trivial sense that some people risk having a bad time if they can’t afford things, and these policies subsidise some of those things.

    BTW, the BB doesn’t seemed to have mitigated the risk of ugly people breeding, but I guess that’s covered in the intergenerational equity part of the manifesto.

    MAX

  19. MAX
    April 29th, 2009 at 02:02 | #19

    SeanG 15: Sin taxes by far outweigh the external costs of drinking and smoking. They’re not about making people pay for the costs they impose on others, or even changing behaviour since addiction isn’t very price elastic. They’re just about well intended but intellectually under-equipped regulators taking resources from the poor and given them to the middle classes who most typically support social democracy.

    MAX

  20. Alice
    April 29th, 2009 at 06:51 | #20

    Max at 18. I dont agree with the FHOG at the moment – read my prior post before you quote me out of context and go off some wild tangent about carpet snakes, Rolls Royces and sunscreens!

  21. John Quiggin
    April 29th, 2009 at 09:19 | #21

    I’ve let this run, but El Mono at 16 is on the money. While there may be (indeed are) ideological positions where it’s necessary to defend obviously silly policies on the grounds of consistency, social democracy is not such a position.

    The fact (if it is one) that a particular policy helps people to manage risk may mean it is worth looking at, but if the social costs exceed the social benefits, it’s not a good policy.

  22. Chris Warren
    April 29th, 2009 at 09:58 | #22

    Silly policies are ideologically determined.

    I regard the Aboriginal policy that only men can play the didgeridoo, as a silly policy.

    But I expect social democracy can support this.

    So, it appears, social democracy can defend silly ideological positions – for particular circumstantial reasons (out of respect for different peoples).

  23. SeanG
    April 29th, 2009 at 19:06 | #23

    ProfQ,

    I understand your point but I believe that using government to mitigate risk but I disagree that it is the preserve of social democracy. I think that assumes too much about liberal democratic advocates.

  24. Monkey’s Uncle
    April 30th, 2009 at 18:02 | #24

    There are many situations where people of different ideological persuasions are compelled to defend silly policies out of ideological loyalty or simple knee-jerk barracking.

    While social democrats may feel compelled to support some silly policies, the FHOG is clearly not one of them. If anything, it seems some conservatives feel compelled to support policies like the FHOG on the grounds that encouraging home ownership is a conservative principle.

    Generally social democrats are more likely to support things like more public housing or rent assistance, rather than subsidising private asset purchases.

    It is possible that expanding the size of government may increase the risk of resources being diverted to wasteful policies like the FHOG. But that doesn’t make such policies social democratic per se.

  25. SeanG
    April 30th, 2009 at 19:29 | #25

    If the argument is that social democracy is about using government to mitigate risk to society than FHOG will be part of that risk mitigation ideology.

    The problems with this approach are that it assumes that those who are liberal democrats automatically argue against any such risk sharing polcy and that only social democrats advocate risk mitigation via government. Finally, it does not take into consideration the costs of mitigation.

    If we agree that social democrats and liberal democrats can find common ground in using the government to mitigate risk then the argument put forward regarding risk and social democracy is mute.

  26. B. Kiernan
    May 1st, 2009 at 18:36 | #26

    If we use the definitions of JQ, the most socially democratic government Australia has ever had was the Howard government, and the most neoliberal the Hawke/Keating government.

    Of course this is not really relevant, because what JQ really means when he talks about “social democracy” is in fact Socialism.

    ‘Socialism’ is real ideology that will not speak its name.

  27. Alice
    May 1st, 2009 at 19:44 | #27

    Ill speak B.Kiernan. Neoliberalism has failed us all. Call it what you want socialism or social democracy…its a mere question of degree. One persons socialism is another persons social democracy is another persons institutionalism. But someone needs to get in and clean up the mess that has been made in planning and underlying infrastructure and short of letting the so called markets clean it up (the mess unregulated markets have made) I suggest we allow the government a greater say in the form of a mixed economy to implement some rules again. The neo liberals have had their day in the sun and stuffed up a whole lot of systems with false ideology. Id like to live in a system I can reasonably be assured acts to prevent fraud and unnecessary risk permeating our financial structures (or our tax revenues) and Im sure a lot of other people would too (otherwise its a gun and safe we need and Id prefer not to live like that). Neo liberalism is an abject failure.

  28. Belgian Dentist
    June 6th, 2009 at 23:32 | #28

    Well, what a difference a month makes! Given the resumption of business as usual and the return of usual capitalist prosperity, I wonder how we will all justify our intemperant “neoliberalism is dead, social democracy rules” and “Keynes beat Hayek” memes?

    It seems at least on this particular round, Mr. Egans beat Professor Quiggin.

  29. jquiggin
    June 7th, 2009 at 06:45 | #29

    This is a truly bizarre claim to make at a time when the success of the avowedly social democratic and Keynesian policies of the Rudd government in mitigating the global crisis is being recognised across the board. As for “the return of our usual capitalist prosperity”, go and announce it in the US where unemployment just reached 9.4 per cent, not to mention countries like Iceland and Ireland.

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