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What do Australian economists think about policy?

April 28th, 2016

Jan Libich of La Trobe University has a new book out called Real-World Economic Policy: Insights from Leading Australian Economists. Each chapter has a fairly accessible introduction to an economic policy issue, along with an interview with an Australian economist: examples include Bob Gregory, Andrew Leigh and Warwick McKibbin. It’s useful both as an intro text and to get a bit of insight into how some of our leading economists think about the issues facing Australia.

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  1. Ivor
    April 28th, 2016 at 16:56 | #1

    And what an insight.

    the first chapter interviewing Paul Frijters is a real shocker. According to this visiting fellow you need inflation to cut wages so that workers will not really notice as their nominal wage can remain the same. [page 17].

    This is the essence of capitalist exploitation and the real reason we have economic catastrophe.

    Frijters says “So I would say a bit of inflation is a good thing” [p18].

    As for his other policy suggestions to improve well being that people tend to disparage. He flags 3.

    – Free movement for people
    – addressing private political favours
    – public bank.

    Free movement of people and public banks are interesting, but his treatment of private favours is bizarre.

    Private favours are such things as getting a benefit from patents, movie copyrights, and property licences (think Eddie Obied) and so on.

    His solution is to maintain these but just offer them for public auction. This will only continue the current situation as these benefits will be purchased by the rich who will sequester all the benefits – we end up with our home grown Russian oligarchs.

    The chapter concludes with various economic homolies such as ;

    Foreign trade is generally beneficial, trade barriers reduce society’s overall wellbeing. If wage setting is inflexible then inflation can be beneficial. A country’s prosperity is largely determined by productivity.

    There is no attempt to define productivity.

    If capital employs 10 workers and makes $1000 profit – has productivity increased if the same capital employs 5 workers but makes $2000 profit?

  2. Ikonoclast
    April 29th, 2016 at 06:44 | #2

    I would certainly not purchase this book. I might pick it up and peruse it if I found it in a library. I doubt I would borrow it.

    I agree with Ivor, that Paul Frijters sounds “concerning”. Yet Frijters leads in Chapter 1 apparently. That might say something about the book. I note a title and abstract of another of Frijters’ articles (co-written and not necessarily in the book under question) reads;

    Rising inequality: A benign outgrowth of markets or a symptom of cancerous political favours?

    “Is the rise in inequality in Australia due to global changes in the distribution of marginal productivity or changes in the allocation of political favours? This article lays out the arguments for both views. Looking at the tax and subsidy changes that favour the rich, and considering that almost all the 200 richest Australians look like the beneficiaries of political favours rather than innovators or superstars, the article concludes that inequality is probably increasing due to changes in the political realm. The discussion outlines a research agenda and possible counter-moves, such as more direct democracy and having open markets for political favours.”

    The title contains the supposition that rising inequality must be due to one or the other of the factors named. Clearly, there is no recognition that rising inequality might be intrinsic to the system (late stage capitalism). Any suggestion to have an open market for political favours is downright crazy. The plutocrats would love that. The rest of us would be totally screwed.

  3. bjb
    April 30th, 2016 at 18:19 | #3

    Would have liked to order the ebook, but the idiots have time limited DRM. The publisher really needs to get clue. Ended up ordering the dead tree version – bit harsh to dismiss it on the basis on one chapter.

  4. Sancho
    April 30th, 2016 at 21:00 | #4

    I don’t understand the complexities of bookselling, but I do wish all these things went to Amazon, so I can have them on my phone and tablets.

    My last experiment with paper was The Just City, which has glared at me from a shelf, unread, for two months, for the simple reason that it’s a physical burden on the train.

  5. Ivor
    April 30th, 2016 at 21:50 | #5

    @bjb
    I do not dismiss it.

    It is required reading for anyone who really wants to know how these economists really think and the impact their dogmas have on society.

    Chapter 1 is consistent in terms of economic rationality with the rest of the contributions.

    If you want the antidote try:

    Jim Stanford “Economics for Everyone”

  6. bjb
    May 1st, 2016 at 06:41 | #6

    @Ivor
    Thanks for the reference. Looks to be a good read.

  7. Ikonoclast
    May 1st, 2016 at 08:32 | #7

    I am interested in what J.Q. thinks of the current world economic situation. Nouriel Roubini calls it “The new abnormal” and says it is “here to stay”.

    http://www.theguardian.com/business/economics-blog/2016/feb/04/global-economy-new-abnormal-inflation-growth-monetary-policies-asset-prices

    This crisis of late stage capitalism seems to have orthodox economics baffled. I would certainly be interested to hear what J.Q. thinks. Is the current global stagnation crisis surmountable? If so, how? What are the causes and cures for this crisis in J.Q.’s view? Note, Australia is now in deflation, a potentially serious development.

  8. Ivor
    May 2nd, 2016 at 22:34 | #8

    If any one has probed this book further they will see it goes from bad to worse.

    They propose that unemployment between 5% and 15%, sometimes higher – “have become the norm” !! [p29]

    Foreign debt is no problem they claim if economic growth rate is equal or above the serving obligations.

    This is extraordinarily naive. Foreign debt contracts are not written so that the “servicing obligations” are indexed or linked to our economic growth.

    Now for the real horror. According to Bob Gregory … he has “worked on (unemployment issues) for years and doesn’t really know the answer” [p38]

    Then along comes Andrew Leigh claiming “minimum wages sometimes increase inequality” and showing how minimum wage workers are really middle class [p43].

    Finally we hear admission of the deliberate duplicity introducing fees for degrees accompanied with in-house, wink-wink, and nod-nod. [p45]

    Do they want to be congratulated on the fact that the HECS scheme which has been forced on us, is better than what others were proposing?

    If our economists have no idea on the cause of unemployment after playing with it for years, and seem content with its increase, they need to be put out to pasture.

  9. Ikonoclast
    May 3rd, 2016 at 07:13 | #9

    “If our economists have no idea on the cause of unemployment after playing with it for years, and seem content with its increase, they need to be put out to pasture.” – Ivor.

    I agree. It is impossible for them to analyse the system when they don’t understand what kind of system it is nor any of the fundamental internal tendencies of that system.

  10. May 9th, 2016 at 00:24 | #10

    Ivor,

    thanks for your views on my book. I will leave your critiques of Bob Gregory’s expertise in the area of unemployment, Andrew Leigh’s careful research on minimum wages, and Bruce Chapman’s groundbreaking HECS scheme (imitated by many countries) without comment. I believe the readers will form their own views on the intellectual contribution of these esteemed economists to Australian public policy making.

    Let me just briefly address the other points you are critical about (it is a shame you do not give any reasons for your criticisms, that would have made the discussion more fruitful).

    1) In terms of Paul Frijters’ statement that a mild inflation can sometimes be useful, this is uncontroversial. The so-called Grease effects of inflation are one of the main reasons why most countries’ inflation targets are around 2-3% rather than 0%. Paul mentions that these are especially useful if wages are rigid downwards and in the aftermath of an economic downturn and liquidity trap environment. This is precisely why economists of all persuasions (including Olivier Blanchard, Larry Ball, and Paul Krugman) have advocated a temporary or permanent increase in the inflation targets.

    2) I am unsure why you have a problem with the statement that “unemployment between 5% and 15%, sometimes higher – has become the norm”. Using Wikipedia, out of the 197 countries listed only 52 (i.e. around a quarter) have unemployment below 5%.

    3) The book certainly does not claim that foreign debt is no problem if economic growth rate is equal or above the servicing obligations. A lot of my own work stresses the importance of long-term fiscal sustainability and of the policy debate focusing on the intertemporal fiscal gap rather than the official debt figures.

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