So, the latest round of the Greek debt crisis has ended in a typical European combination of delay and compromise, much as Yanis Varoufakis predicted a week ago. But in view of the obvious incompatibility of the positions put forward, someone must have given a fair bit of ground. The Greeks wanted continued EU support, and an end to the Troika’s austerity program. The Troika (at least as represented by German Finance Minister Schauble) wanted Syriza to abandon its election program and continue with the existing ND/Pasok policy of capitulation to the Troika.
Put that way, I think it’s clear that the Troika blinked. The new agreement allows Syriza to replace the Troika’s austerity program with a set of reforms of its choice, focusing on things like tax evasion. Most of Syriza’s election platform remains intact. Of course, it’s only for four months, and none of the big issues has been resolved. But four months takes us most of the way to the next Spanish election campaign, hardly an opportune time to contemplate expelling a debtor country from the eurozone with utterly unpredictable consequences.
If the negotations were a win for Greece (feel free to disagree!) how did it happen?
The Murdoch press is touting a report from Price Waterhouse Coopers, predicting all manner of disaster for Australia if we do not mend our debt ridden ways. A typical example is a projection of $1 trillion in debt by (IIRC) 2037. There’s no link in the stories I’ve read, and nothing obvious on the PwC website, so I’ll make some more general observations.
* It’s startling to read this kind of sermonizing from an outfit like PwC, recently described by the British Parliamentary Public Accounts Committee as ‘promoting tax avoidance on an industrial scale’. If we are facing a fiscal crisis, shutting down firms like PwC seems like an obvious prerequisite to achieving a solution
* Even on the hypothesis that this was in fact a serious effort at assessing our fiscal condition, why would anyone give any credence to one of the accounting firms that gave us the Global Financial Crisis
* The projections are highly implausible, though without access to the report I can’t point to the specific dodgy assumptions used to derive them.
* The same issues are regularly examined by the Commonwealth Treasury in its Intergenerational Report. The 2015 report was legally required to be published on 3 February but has not appeared. Now instead of the IGR, the government’s media arm comes out with this piece of tripe. Was the IGR not alarmist enough for Hockey?
Update My point about the IGR was pure conjecture when I wrote it. But on TV last night I saw Hockey pushing the PwC “report” (still vaporware, AFAICT), even though he is supposedly too busy to fulfil his legal obligation to release the IGR.
Further update Commenters Megan and Liam have dug up a link to a two-page paper from a talk given a few days ago. This in turn links to publications from 2013 and 2014, drawing on estimates published in 2012 which (I imagine) rely on data going back even earlier. The same alarming projections appear, but still without any basis for the calculations. To sum up, this is a total beat-up.
One of the most politically effective arguments made for selling publicly owned assets, such as government owned corporations is that, by reducing debt, it will reduce the interest rate on government bonds. This is plausible enough, and not by itself a conclusive argument. The interest saving (including the benefit of lower rates on remaining debt) needs to be set against the loss of earnings. But it would be nice to know how large this saving might be.
The Queensland state election, just passed, provides something of a natural experiment. The LNP government proposed to sell $37 billion in public assets and repay $25 billion in debt ($18 billion associated with the enterprises to be sold, and $7 billion in general government debt). Going in with 73 of 89 seats, the LNP was almost universally expected to be returned. Instead, they lost their majority and will probably lose office. Although the result is not yet final, everyone is now agreed that asset sales are off the table.
So, we should be able to look at the secondary market for QTC bonds to see how much this surprise changed the interest rate demanded by bondholders (this is what’s called an “event study” in the jargon of academic finance). You can get the data from https://www.qtc.qld.gov.au/qtc/public/web/individual-investors/rates/interactive%20rate%20finder/!ut/p/a0/04_Sj9CPykssy0xPLMnMz0vMAfGjzOLdnX2DLZwMHQ383QwtDDy9DUIsPTwDDA2NTPULsh0VAVfZvz4!/
and I’ve included it over the fold (a bit of a mess as I can’t do HTML tables)
The data shows that interest rates have generally been tending downwards, as you would expect given the Reserve Bank’s much-anticipated cut. On the trading day after the election, rates on longer term bonds rose by between 0.05 and 0.1 percentage points (or, in the market jargon 5 and 10 basis) points. But all of that increase, and more, was wiped out the next day when the RBA confirmed its cut. Overall rates on QTC debt have fallen by around 0.25 percentage points since Newman called, and then lost, his snap election.
To sum up, the surprise abandonment of one of the largest proposed asset sales in Australian history caused only a momentary blip in interest rates on Queensland government debt, immediately wiped out by a modest adjustment in monetary policy at the national level.
The announcement by the Conservative UK government of a tax on diverted profits (popularly referred to as the “Google Tax”), along with reports that the Abbott government may follow suit, has received only limited attention (as far as I have seen) but seems like a very big deal. A few observations on this
* It’s notable that these are conservative, business friendly governments that are, like all governments, short of money. It appears that, thanks to the steady drip feed of revelations about the “Double Irish”, Luxembourg private rulings and so on, that, even for such governments, highly profitable multinationals have become an appealing target, at least relative to domestic taxpayers
* If successful, this tax will turn two of the standard presumptions of the corporate tax debate on their heads. First, that corporate tax minimisation is not only legitimate but part of the obligation of managers (the corresponding shift was made with respect to individuals, in Australia at least) decades ago. Second, and more important, that global corporations can choose where they pay tax. The point of the UK tax is that, once corporations are found to be engaged in tax avoidance (pretty much a slam dunk), they can be made to pay in any jurisdiction, at rates that jurisdiction considers appropriate.
* It’s hard to see how corporations like Apple and Google can dodge this. They could refuse to supply their goods and services to the UK, but that would be immensely costly, and would be likely to provoke retaliation from other EU members.
* This will make a big change to the OECD processes aimed at a co-ordinated response to base erosion and profit shifting. Until now, corporations have had a strong interest in slowing this process down, and shopping around for good deals from the likes of Ireland, Luxembourg and, of course, Delaware. Now that they face the risk of facing unco-ordinated punitive action applied in many different countries, enlightened self-interest would suggest that they should support a global deal.
* In combination with the GFC, which revealed the extent to which “global” banks actually depended on protection from their home national governments, limits on global tax evasion undermine much of the analysis of globalisation that was dominant in the late 20th century
* If capital income can be taxed effectively in the countries where profits are generated, there’s much less need for ideas like Piketty’s global wealth tax.
A while ago, I suggested that bodies like Universities Australia should dissolve themselves and make way for a body that actually represents universities as communities of scholars (students and academics) and the workers (professional and administrative) who support them. I see I’ve been joined by Stephen Parker from the University of Canberra who describes UA support for deregulation as a “suicide ritual”. Meanwhile, Pyne is quoting the support of UA and its elite subset the Go8 as evidence of “consensus” in favor of his reform, treating the support of 30-odd individuals as more important than the overwhelming opposition of hundreds of thousands of students and staff.
Since these organizations appear determined to drag out their useless existence, can I at least ask for some honesty in labelling. How about
University Senior Management Australia and
Group of Eight University Senior Managers Who Are Better Than All The Others.
Seriously, it’s obvious that, while students, academics, other staff and senior managers have some common interests, they also have lots of conflicting interests. That’s true of universities, just as its true of the workers, bosses and customers of any industry in the private sector. The idea that a policy supported by top managers must be good for universities as a whole is on a par with the old claim that “what’s good for General Motors is good for American”
As the Mid-Year Economic and Fiscal Outlook approaches, talk about the budget deficit is approaching panic. This piece from Deloitte, warning that “the budget is burning” is typical. It predicts a 2014-15 budget deficit of $34.7 billion, and future deficits “as far as the eye can see”.
Billion dollar numbers are big and scary, but some perspective is useful. Australia’s GDP is currently $1.6 trillion dollars per year, so the massive deficit is about 2 per cent of GDP. On Deloitte’s current “disastrous” predictions, the deficit should be below 1 per cent of GDP by 2017-18.
But wait, there’s more. Australian government debt is currently about 20 per cent of GDP. It has been around this ratio, varying with the business cycle, for many years. Since GDP grows at around 5 per cent a year in nominal terms, the debt/GDP ratio stays unchanged if debt also grows by 5 per cent, that is, if deficits are equal to 1 per cent of GDP (that is, 5 per cent of 20 per cent).
Simply put, the budget is so close to balance that it doesn’t matter. In the absence of the terms of trade shock from coal and iron ore, it would have made good sense to aim for a surplus. As it is, the sensible short-term macro strategy is to take a modest hit to the deficit and cushion the economy from contraction, a point that has been made by the OECD.
As always, there are long term problems that need to be addressed. But absurd panics about whether a (necessarily arbitrary) budget measure is a little above or a little below zero don’t help.
I was going to post on the Newman government’s announcement of subsidies to development of new coal mines in the Galilee Basin, but this piece by Michael West says it all. Key observation
The very day after the G20 concluded, with its recommendations about ending government subsidies to fossil fuels, it appears the Queensland government is poised to ramp up its subsidies for the humungous Galilee Basin coal project.
Read more: http://www.smh.com.au/business/mining-and-resources/wise-investment-or-fossil-fools-queensland-backs-coal-as-g20-moves-the-game-on-20141117-11odkq.html#ixzz3JM8yeHsw
I was contacted by a journalism student here who would some commentary on the rosy projections being made about how the G20 meetings will put Brisbane on the world tourism map, assisted by such initiatives as a month of cultural celebrations (beginning tomorrow) along with “Team Brisbane” and “Global Cafe”. I offered the following response
G20 will provide a short-lived but substantial boost in demand for accommodation and restaurant services in the Brisbane CBD, associated with the arrival of thousands of delegates and media representatives. This will be offset by a negative effect on all other kinds of tourism, not only because of the difficulty of obtaining accommodation but because of the lockdown and other security measures associated with the event, and perhaps with fears of terrorism.
Longer-term effects on tourism, economic growth, and so on will be negligible. International news coverage of G20 will focus on staged events in the CBD, such as media conferences, held in settings indistinguishable from those of any other CBD. Viewers will scarcely be aware that the event is being held in Brisbane, let alone that there are associated cultural celebrations or that Brisbane is a desirable place to visit. A Google search on “G20 cultural celebrations” reveals zero coverage outside (greater) Brisbane, even though the event is starting today.
As regards “Team Brisbane” and “Global Cafe”, I was entirely unaware of these marketing efforts. I suspect that I am typical of the world’s population in this respect.
I’ve spent the last couple of days in Sydney at a conference organized by the Paul Woolley Centre for the Study of Capital Market Dysfunctionality. It’s striking that this is the only research group of which I’m aware that takes dysfunctionality, rather than the Efficient Markets Hypothesis as a starting point.
Various people have asked me about the paper and slides, so I’m putting them up for download.
Black Swans and Financial Regulation (presentation
That’s the title of my latest piece in Crikey. Paywalled, but I’ve reposted over the fold
Over the last couple of weeks, I’ve seen four major reports (details over the fold) from very different sources, all making the same point: decarbonizing the world economy will involve economic costs that are
(a) small; and
(b) far outweighed by the benefits
And, the empirical evidence so far is strong. The EU and US have both reduced CO2 emissions significantly, at negligible or even negative economic cost. The measures announced by Obama, including vehicle emissions standards and restrictions on coal-fired power stations appear set to achieve further substantial reductions, again while yielding net economic benefits.
Against the expectations of doubters, wind and solar PV are steadily increasing their share of electricity generation, to the point where they constitute the majority of new installations in many countries. Again, the costs have been trivially small: in Australia’s case, made up almost entirely of the reduction in asset value imposed on existing generators.
There is as far as I am aware, no credible analysis to support the opposite claim (call it the economic armageddon hypothesis) that decarbonization will involve economic costs sufficient to greatly reduce living standards, or, for poor countries, prevent catchup to the developed world. (Again, more detailed argument over the fold.
Nevertheless, past experience suggests that lots of people are sufficiently wedded to the economic armageddon hypothesis that neither this, nor any other evidence will change their minds. I have previously analyzed this unwillingness to respond to evidence in terms of Noah Smith’s Bayesian definition of “derp“: “the constant, repetitive reiteration of strong priors”.
But I no longer think this is sufficient. A central concept of Bayesian decision theory is the separation of preferences from beliefs. That is, your subjective belief about the probability that a proposition is true should be independent of whether (because you have bet on it, or for some other reason) you want it to be true. This is the opposite of what is often called “motivated reasoning” or, less politely, “wishful thinking”.
This, I think, is the central distinction between “derp” and “denial”. Both involve the rejection of factual evidence that would (to a person without strong preconceptions) be overwhelmingly strong. This must involve strong prior beliefs. Denial differs from derp in that these factual beliefs derive from preferences, and are unlikely to undergo any updating. If anything, denial may be strengthened by evidence of the proposition being denied.
This in turn suggests different possible cures. Derp may eventually, if very slowly, be overcome by an accumulation of evidence. By contrast, denial can only be addressed by changing the source of wishful thinking; for example, by convincing rightwingers to stop being rightwingers.
That’s the title of my submission to the Senate Education and Employment Legislation Committee inquiry into the Higher Education and Research Reform Amendment Bill 2014.
You can read it here
Michael Gallagher of the Go8 has put out a press release in reaction to my piece in The Conversation on higher education reform, accusing me of “an attack on a straw man”. It’s a fine example of John Holbo’s two-step of terrific triviality. Gallagher backs away from his previous advocacy of deregulation as a positive benefit to the much weaker position I mentioned in the article that it is “unpalatable but necessary response to cuts in funding”, or, in Gallagher’s words that “the status quo is not an option”.
For the last twenty years, I’ve been engaged in a lengthy debate with advocates of microeconomic reform who claim that reforms produced a surge of productivity growth in the 1990s and that more such reforms are urgently needed. I argued that the apparent surge was the result of increased capital utilization and higher work intensity in the aftermath of the 1989-92 recession. Hardly anyone in the economics profession was convinced.
Their views were unchanged after 2000 when (as I had predicted) productivity growth tailed off and then turned negative as the fear of unemployment decelined and the work intensification of the 1990s was reversed. First, this decline was attributed to a range of special factors (drought, Y2K and so on). Then it was said to be a measurement problem associated particularly with mining (true, but why accept measurement error in the 2000s while denying it then 1990s). Finally, after 2008, it was blamed on the end of Workchoices.
As everyone on both sides of the debate understands (though some choose to deny it at times) “productivity” is code for “working harder”. Microeconomic reform is supposed to increase competitive pressure and thereby keep workers on their toes at all times. In addition, they are suppose to “work smarter” which essentially means “find ways of getting more work done with no additional resources”.
Now, at last, it seems that I’m not alone in casting doubt on all this. Ross Gittins, always more sophisticated than the majority of economic commentators, has picked up some remarks by Ric Simes and Mike Keating telling business leaders to stop complaining about their workers’ laziness and start doing what they are supposed to be paid for: promoting innovations that yield genuine improvements in productivity. I’ve quoted at length over the fold, but do go and read the full piece.
The website of the Group of Eight long-established universities has a section devoted to “Leaders Statements” supporting the Abbott government’s university reform program. It’s a pretty depressing read. Not only are our leaders going in a direction that almost no-one in the sector wants to follow, but the quality of their arguments is depressingly mediocre. It’s a sad reflection on the university sector if this group is the best we can come up with to lead us.
First, there’s executive director Michael Gallagher (a longtime education bureaucrat rather than a former academic). His boilerplate advocacy of microeconomic reform reads as if he hasn’t had a new idea in 20 years. Most notably, he’s still beating the drum for the discredited for-profit model of the University of Phoenix. After giving the most glancing acknowledgement of the scandals that have exposed Phoenix as a machine for ripping off federal grants, he says
The important policy point is not about individual providers but about the directions of change that pioneering providers indicate for the future through their successes and failures. The thing about the US enterprise culture, unlike Australia’s, is a willingness to accept learning from failure as a step to success.
I thought we’d got over this “succeeding by failing” stuff back at the time of the dotcom bubble.
Then we have Warren Bebbington of the University of Adelaide who asserts
in a competitive environment, some fees will go up and some down. Students will have a range of choice they have never had before
Seriously? If Bebbington really believes this, I have a perpetual motion machine to sell him. His Go8 colleague, Ian Young was much more honest when he said that the Go8 institutions will not only raise fees across the board but will use the resulting financial freedom to cut intakes and offer smaller classes. That is, students will face both higher prices and less choice.
But the prize for embarrassment must surely go to the University of Western Australia whose Vice-Chancellor, Paul Johnson, asserts
“Government does not decide what businesses can charge for a loaf of bread, a litre of milk or any other product or service. Why should universities be any different?”
Apparently Professor Johnson has never heard of the Economic Regulatory Authority of Western Australia which, like its counterparts at state and federal level regulates the prices of a wide range of products and services, for a wide range of very good reasons. This is a level of argument which would be lame even for a random rightwing blogger.
Unfortunately, there is nothing new in this. Back in the 1990s, Alan Gilbert of Melbourne was pushing the Phoenix model and asserting that traditional academics were “handloom weavers” doomed to extinction. Among his many achievements was the $50-100 million or so wasted on U21Global, Melbourne University Private and similar initiatives. Before his unfortunate brush with plagiarism, David Robinson touted Monash as “the world’s first global university”, launching a series of overseas campuses that rapidly turned into money pits. At CQU, Lauchlan Chipman pioneered the use of universities as devices to rort Australia’s immigration system, with expensive central city campuses devoted entirely to overseas students majoring in Permanent Residency, while the domestic students in Rockhampton got nothing. The same advisors who pushed these disasters, along with likeminded successors, are driving education policy today.
fn1. I’ve given up using scare quotes around “reform”. Reform is just change of form, and there’s no reason to expect it will be beneficial.
A few days ago, the Courier-Mail ran an editorial supporting privatisation. They were kind enough to run a reply from me, which I’ve reproduced over the fold. The headline picked up the point at the end about the choice between higher taxes and reduced services, which is relevant more general
I’m a bit late joining the pile-on to Joe Hockey for his silly claim that poor people won’t be hit by fuel excise because they don’t drive (or not as much). Obviously, that’s true of just about every tax you can think of: poor people, earn less, spend less and therefore pay less tax. The big question, as the Australia Institute and others have pointed out, is how much people pay as a proportion of income. Food and fuel represent a larger than average share of spending for low-income households, so taxes on these items are more regressive than broad-based consumption taxes like the GST which in turn are regressive compared to income tax.
But there’s a more fundamental problem with the ABS Household Expenditure survey data cited by Hockey to defend his claim. In the tables he used, the ABS sorts households by income, with no adjustment for the number of people in the household (the ABS also provides “equivalised” figures, which adjust for household size). To quote the ABS
This difference in expenditure is partly a consequence of household size: households in the lowest quintile contain on average 1.5 persons, compared to 3.4 persons in households in the highest quintile. Lone person households make up 63% of households in the lowest quintile.
This makes a big difference to the figures quoted by Hockey, that top-quintile households spend $53 a week on fuel, and bottom quintile households only $16.
Comparing expenditure per person, the top quintile spends $16 per person and the bottom quintile $11 – a very small difference. Of course, the income figures need adjusting also, but here the difference remains huge. Income per person in the top quintile is about 5 times that in the bottom. And Hockey’s argument would look even worse if the ABS sorted households by income.
This is the kind of mistake that’s easy enough for an individual politician to make, but Hockey has the entire resources of the Treasury at his disposal. If he’d asked them before making his bizarre claim, I’m sure Treasury officials would have warned him off. As it is, they have had to provide him with the statistics most favorable to his claim and watch him get shot down.
Still, it was good enough to fool Andrew Bolt.
Among the zombie ideas refuted in my book, Zombie Economics, “trickle down” economics is the one that dare not speak its name. Even those who believe, or are paid to say, that favored treatment for the rich will benefit the poor mostly avoid the term “trickle down”, preferring bromides like “a rising tide lift all boats”.
But that didn’t deter Ian Young, Vice-Chancellor of ANU and head of the Group of 8 Universities (basically, those established first, which have, as elsewhere in the world, gained a permanent high-status position as a result). As I predicted not long ago, he wants to raise fees and reduce the number of students at elite universities, including ANU, allowing them to offer a more personalised education.
Young’s argument is that students excluded from the Go8 will “trickle down” to lower-status universities, giving them a chance to both increase numbers and raise standards. But this suggestion doesn’t stand up to the most cursory examination. Both logic and historical evidence suggests that all or most universities will follow the lead of the Go8. In both the UK and Australia, whenever universities have been given option to increase fees or hold them steady, nearly all have gone for the maximum increase.
Think about this from the position of a university in the tiers immediately below the Go8 in the prestige hierarchy, the 1970-vintage unis like Griffith and Macquarie, and the Universities of Technology. Both groups can fill all the places they have, and both, like all Australian universities are straining at the seams in terms of both physical space and overloaded staff. They could not possibly take in more students with their current finances. It makes perfect sense for them to do the same as the Go8, raise fees a lot, and pass on some of the benefits in the form of smaller classes.
There’s a cumulative effect here. Suppose the Go8 institutions reduce their student intakes by 30 per cent. A few of those will give up on uni altogether, deterred by higher fees, but most will try a second-tier uni, displacing other students who would otherwise have been accepted. On top of that, there will be less places in those uni, say another 30 per cent. So, something like 60 per cent of the students formerly admitted to these unis will be excluded.
At the bottom of the status scale, the hard-pressed regional universities and former CAEs probably won’t be able to raise their fees as much as the Go8. But they will still be in a position to raise fees and entry standards at the same time, and, if they choose, to reduce their numbers as well. This isn’t so much trickle down as a cascade effect.
Of course, if you believe the increasingly silly Business Council of Australia, this is all to the good. Its head, Catherine Livingstone (BA, Macquarie) thinks we need less university students. Her members clearly don’t agree, judging by their hiring patterns. The unemployment rate for university graduates is estimated at 3.3 per cent, about half that for non-graduates. Wages and participation rates are also higher.
The Oz (no link) is touting a campaign by Andrew Forrest to introduce an Australian version of the US “food stamps” system, replacing cash payments with a card that can only be used to buy an approved list of items. This is yet another step in the abandonment of economic rationalism by the political right. I’d be surprised if Forrest could get the support of any economist for this (though the recent performances of the IPA crew give me some pause). Free market advocates, following Milton Friedman, have long sought the replacement of in-kind benefits with cash. To those on the left, even where enthusiasm for markets is more qualified, the conclusion is reinforced by the obvious class warfare involved here. At best, someone like Forrest can be seen as a paternalist, hoping to protect the poor from themselves. But it’s obvious that the Murdoch press, and its target audience, want to punish the poor, not protect them.
As it happens, my slowly-progressing book has a section on just this issue, presenting the standard arguments of Friedman and others as part of the case for why markets work so well (when they do)
I got lots of very helpful responses to my recent post on the search theory of unemployment, here and at Crooked Timber. But it has occurred to me that I haven’t seen any answer to one crucial question: How many offers do unemployed workers receive and decline before taking a new job, or leaving the labour market? This is crucial, both in simple versions of search theory and in more sophisticated directed search and matching models. If workers don’t get any offers, it doesn’t matter what their reservation wage is, or what their judgement of the state of the market. Casual observation and my very limited experience, combined with my understanding of the unemployment benefit rules, is that very few unemployed workers receive and decline job offers, except perhaps for temporary work where the loss of benefits outweighs potential earnings. Presumably someone must have studied this, but my Google skills aren’t up to finding anything useful.
And, on a morbidly humorous note, it’s a sad day for the LNP when efforts to bash dole bludgers actually cost them support. But that seems to be the case with the latest plans, both expanded work for the dole and the requirement for 40 job applications a month. I’ll leave it to Andrew Leigh to take out the trash on work for the dole (BTW, his new book, The Economics of Almost Everything is out now).
The 40 applications requirement has already been the subject of some amusing calculations. I want to take a slightly different tack. Suppose (to make the math simple) that the average job vacancy lasts a month. There are roughly five unemployed workers for every vacancy, so meeting the target will require an average of 200 applications per vacancy. The government will be checking for spam, so lets suppose that all (or a substantial proportion) of the applicants take some time to talk about how they would be a good fit with the employer and so on. Dealing with all these applications would be a mammoth task. One option would be to pick a short list at random. But, there’s a simpler option. In addition to the 200 required applications from unemployed people, most job vacancies will attract applications from people in jobs. A few of them may be looking for an outside offer to improve their bargaining position with their current employer (this is a big deal for academics), but most can be assumed to be serious about taking the job and in the judgement that they have a reasonable chance of getting it. So, the obvious strategy is to discard all the applications except for those from people who already have jobs. What if there aren’t any of these? Given that formal applications are going to be uninformative, employers may pick interviewees at random or may resort to the informal networks through which many jobs are filled already.
Trying to relate this back to theory, the effect of a requirement like this is to negate the benefits of improved matching that ought to arise from Internet search. By providing strong incentives to provide a convincing appearance of looking for jobs for which workers are actually poorly suited, the policy harms both employers and unemployed workers who would be well suited to a given job.
Update I found the following quote widely reproduced on the web
On average, 1,000 individuals will see a job post, 200 will begin the application process, 100 will complete the application,
75 of those 100 resumes will be screened out by the Applicant Tracking System (ATS) software the company uses,
25 resumes will be seen by the hiring manager, 4 to 6 will be invited for an interview, 1 to 3 of them will be invited back for final interview, 1 will be offered that job and 80 percent of those receiving an offer will accept it.
Data courtesy of Talent Function Group LLC
Visiting the TFG website, I couldn’t find any obvious source. The numbers sound plausible to me, and obviously to those who have cited them. But, if the final number (80 per cent acceptance) is correct, then it seems as if the search theory of unemployment is utterly baseless. Assuming independence, the proportion of searchers who reject even three offers must be minuscule (less than 1 per cent).
… and the new age of entitlement.
That’s what we are getting under the Abbott government. It’s striking how suddenly the elite consensus in favor of free market policies has collapsed now that we have a tribalist pro-business government. Some examples:
* The Institute of Public Affairs, which once treated irrigation projects like the Ord River scheme as the worst kind of boondoggle now lobbies for them, and for special tax breaks, on behalf of their new
owner major sponsor, Gina Rinehart
* The Business Council of Australia wants a strategy of “growing those sectors of our economy that can win on a global scale and make the greatest contribution to lifting our national wealth.” Of course, they deny that this involves “picking winners” or “national champions”, but this is just an example of the euphemism cycle at work
* The Financial Review today runs a piece (paywalled) from Danny Price of Frontier Economics, combining absurd alarmism about the supposed cost of a carbon price (already refuted by experience) with advocacy of the nonsensical and dirigiste “Direct Action” policy
* Finance Minister Matthias Cormann has rejected cost-benefit analysis in favor of a “nation building” approach to infrastructure (the subtitle of Michael Pusey’s book on economic rationalism was “A Nation Building State Changes its Mind”
Economic rationalism had both strengths and weaknesses. The crony capitalism emerging under this government has no redeeming features.
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.
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.
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.
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.
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.
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.
That’s the mild pun the Chronicle of Higher Education picked for my article (paywalled, but I’ve put my draft version over the fold) making the point that a higher education system is, in important respects, a mirror of the society that created it, and that it helps to recreate. I make the point that, like the US health system and labor market, the US higher education does a great job for the 1 per cent who go to the Ivy League Schools (and whose parents are mostly in or close to the top 1 per cent of the income distribution), does an adequate but expensive job for the next 20 per cent or so, and leaves everyone else in the lurch.
This is important in the context of the Abbott governments proposed removal of caps on fees for higher education, explicitly aimed by Education Minister Pyne at creating a system in which we might have institutions like Harvard and Yale. I plan to write more on this, but the central point will be that, far from creating more places at existing universities, fee deregulation will give them incentives to shrink, pushing students out to the alternatives now being funded under HECS: for-profit institutions and the TAFE system (which has its own funding crisis), corresponding to the bottom tiers of the US education system, where all the recent growth has taken place.
I’ve finally got around to checking out the big-ticket item (estimated value $28 billion) in the Queensland government’s privatisation program, involving the electricity distribution sector. It’s called a Non-Share Equity Interest, and the Treasury web page explains its appeal to the government.
Under this option the State retains 100 per cent ownership of the ordinary shares in the network businesses and assets. Private sector participation occurs through a hybrid security instrument, a Non–Share Equity Interest (NSEI).
The private sector contribution will equate to the net funding for the capital expenditure requirement and therefore represents new capital injections.
The NSEI security is debt in its legal form, but classified as equity for tax and accounting purposes and these characteristics give the security it’s (sic) “hybrid” form. (emphasis added)
The returns on the NSEI are sculpted to reflect the holders proportionate interest in dividends and tax equivalents paid by the network businesses separately.
In other words, the government is replacing debt raised by the Queensland Treasury Corporation from the private sector with an instrument that’s almost identical, but is classified as equity, and can therefore be presented as a reduction in debt