John Quiggin

Bernard Keane in Crikey wrote exactly what I was going to regarding Wayne Swan’s use of a variety of timing fiddles to keep the 2012-13 Budget in surplus. This was a silly target, to which the government unwisely committed itself when the recovery from the financial crisis looked a bit stronger than they had expected in 2009, and also stronger than it has actually turned out to be. The sensible thing would have been to return to the original schedule of a surplus by 2014-15 (IIRC). But with an Opposition led by an economically illiterate attack dog like Tony Abbott, and a press gallery that’s not much better, that wasn’t an option. So, the next best thing is to shuffle payments and receipts to generate a surplus this year, at the expense of a smaller surplus next year.

I’ll talk a bit more about the substantive measures in the mini-budget (some good and some bad) when I get a little more time free.

Yesterday I took part in a debate with Judith Sloan, organised by the Economic Society of Australia, on the topic of labor market regulation. Before commencing, Judith paid me the backhanded compliment of saying that debating me was “like wrestling an eel”. I’ll take the complimentary part of the implication as “very difficult to beat”, while rejecting the suggestion that I’m prone to slipping from one position from another. I admit that I haven’t maintained the exact consistency of those market liberals (like Sloan) whose views appear to have remained unchanged since abotu 1980, but there has been a lot of data since then, some of it supporting the case for market liberalism but a lot going the other way.

My slides for the debate are online in PDF format and also Keynote for Mac.

I quote in full the Audit Commission’s response to my critique, as reported by the Oz

The statement only responds to the findings of the QCU study, and not those of Professor Quiggin.

“There are no other points of substance in his (Quiggin’s) report which warrant a response,” the statement said.

I’ve just finished a critique of the audit commission. Here’s the Courier-Mail report. There’s another report also due out today from Bob and Betty Walker, who were commissioned by the QCU. I did mine independently, but, like them, with the aim of being out in time for next week’s Budget. From the CM report, it looks as if we are in fairly close agreement, which isn’t that surprising – much of the analysis is the same as that we both used in critiques of the previous Labor government’s asset sales policy.

In the light of the latest news of large-scale fraud in the for-profit vocational education sector, I thought I would repost this from CT (in turn a repost of an article in Campus Review, that’s no longer on the website).

I also found a response by Andrew Norton

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We were talking at CT not long ago about universal basic income policy, and there were a variety of opinions about the desirability, political sustainability and implications of such a policy. But, before arguing about those issues, it’s useful to consider whether a basic income is feasible at all and, if so, what kinds of tax policies, and adjustments to other welfare policies, would be required to support it. I’ve considered the relatively easy case of a guaranteed minimum income, rather than a universal basic income paid to everyone, as advocated by Philippe von Parijs and others.

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According to standard economic theory, the least distorting of all taxes is a land tax. This point can be pushed too far – for example, most land is improved to some extent, and that may be capitalized into land values. Nevertheless, given the financial difficulties of state governments, their failure to make use of this revenue source is an indictment, especially since they impose much more distortionary taxes on transactions involving land, such as transfer duties. All states exempt owner-occupied homes and primary producers from land tax, while taxing land sales and purchases across the board. The effect is to benefit existing landowners (except owners of rental housing) at the expense of new home-buyers and tenants.

It appears to be beyond the realm of political possibility to change this, but a government facing a supposed financial crisis, and looking for luxury items to cut, could start with land tax exemptions. As you might expect, Queensland has both a high threshold ($600 000) and a low rate (1 per cent increasing gradually).

None of the usual justifications for Queensland’s low tax effort apply here. Land tax exemptions do nothing to attract business to Queensland. They are a straightforward handout to landowners, mostly wealthy households with investment properties.

Unsurprisingly, this handout attracts zero critical attention from the Commission of Audit which states “Queensland has historically maintained a competitive taxation environment compared to other states.” This is entirely wrong as it applies to land tax. Since land is immobile, there is nothing competitive about low rates of land tax.

Among the many cuts introduced by the LNP government (which promised, pre-election to improve services), some of the sharpest are in the area of hospitals. According to this report[1], Royal Brisbane&Womens and Metro North face cuts of $130 million a year between them, with much more to come elsewhere. But, according to the Premier, we are on the verge of the abyss, and everyone must make sacrifices.

Well, not quite everyone. Despite the emergency situation, Campbell Newman has managed to find $110 million to upgrade the racing industry statewide, including more than $30 million for the Gold Coast turf club, to build “a slick new bar and upgraded foyer and lobby entry”. I’m sure that if RBWH had an extra $33 million to spend, they could find a better use for it than a slick new bar and foyer.

(Hat tip @BigBadWolf1950 on Twitter)

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The most important single point in the Queensland Commission of Audit report (not a new one) is that Queensland is attempting to deliver the same services as the other states with a lower “tax effort”. To see what this means, let’s look at payroll tax which is both the biggest and (at least in principle, and with the exception of land tax) the least distorting tax available to state governments. The states were given the right to collect payroll tax back in the 1970s, in the hope that it would provide them with a tax base growing in line with the economy, and free them from dependence on the Commonwealth. It was never going to be enough, but the states made things worse by competing to provide exemptions, higher thresholds and so on, with the result that the tax collects less, and distorts more than it should. Unsurprisingly, Queensland has been the leader in this field. We have a payroll tax threshold of $1.0 million, about twice the level prevailing in other states, and a rate of 4.75 which is the lowest of any state. The LNP has promised a further increase in the threshold to $1.6 million.

The tax currently raises a bit under $4 billion, so raising the rate to 5 per cent would yield around $200 million a year. No one likes paying more tax, and a payroll tax is a tax on jobs[1], so raising the rate isn’t a step that should be taken lightly. Still, it seems clear that any job losses from a higher tax rate would be far less than those now under way. There are currently about 20 000 Queensland firms liable for payroll tax, and the average bill would increase by $10 000 a year. Perhaps some firms might respond by laying off an employee or not filling a vacancy, but surely most would not (and hardly any would lay off more than one. Cutting the threshold to $800 000, still much more generous than other states, would also raise $200 million a year.

If Newman took his hyperbolic rhetoric about a debt crisis seriously, the least he could do is ask his own supporters in medium-sized and big business to share some of the burden of fixing the problem, while still getting a better deal than anywhere else in Australia. Disregarding this rhetoric, we ought to have a serious discussion of whether the benefits of payroll tax concessions are sufficient to justify the lower standard of health, education, police services and so on now being imposed upon us.

fn1. The theory of tax incidence shows that, in equilibrium, a payroll tax is the same as a consumption tax, since both fall, in the end, on labour income. I’ve never been sure how much weight I should place on this result.

I was on Steve Austin’s radio program today, talking about my critique of Campbell Newman’s claim that Queensland was on the verge of the kind of debt crisis we have seen in Greece and Spain. At the end, Steve threw me a question I hadn’t prepared for, about a couple of claims made by Newman in the last day or so. These were

* Job cuts would not be needed if the unions would agree to a wage freeze
* Every 0.1 per cent wage increase implies the loss of 800 jobs.

Newman didn’t spell out his reasoning, but it seems clear that he is assuming a fixed fund available to pay wages. Given this assumption, any increase in wages implies a proportionately equal reduction in employment. So, we can easily check his arithmetic, starting from an estimate supplied by his own office that Queensland currently has just under 200 000 (full-time equivalent) public servants (using the term in the broad sense to cover teachers, firefighters and so on, in addition to administrative workers).

Looking at the second claim first, 0.1 per cent of 200 000 is 200, so Newman appears to be out by a factor of four here, or maybe a little less if part-time employees are taken into account. The first claim is a little harder to assess, but the announced cut of 20000 jobs amounts to 10 per cent of the existing total, so an offsetting wage freeze would need to hold wages constant over a period during which they would otherwise increase by 10 per cent. That would at least 2-3 years, assuming steadily increasing real wages, more like 4 years relative to an outocme that maintained the value of real wages. In practice, it’s very rare to sustain a comprehensive wage freeze for so long. Good staff start leaving and are hard to replace, morale is poor and so on. Then again, the alternative offered by the government isn’t doing much for staff retention or morale.

The big problem, as I said last time, is that long-term problems are being addressed with short-term panic responses. Although he is happily ditching promises made to public sector workers, Newman cites vague language about the ‘cost of living’ to rule out any re-examination of tax poloicy, even though most of QUeenland’s low tax effort reflects concessions to business rather than households.

That’s the title of my latest piece at The National Interest, opening paras below, follow the link for the whole thing:

“Whatever it takes.” Those were the words followers of the euro zone have been waiting to hear ever since Mario Draghi replaced Jean-Claude Trichet as head of the European Central Bank. To spell out the quote in full, Draghi said: “The ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.”

Central bankers are famously gnomic in their utterances. This is, however, about as unambiguous as they ever get. Jean-Claude Trichet used exactly the same phrase in reference to his determination to put inflation control ahead of all other objectives, and he demonstrated it with policies that came to the edge of destroying the euro in order to save it from inflation. Draghi’s choice of words therefore amounts to, at the minimum, a sharp change of course.

Of all the actions open to the ECB, there is only one that is sufficiently big, and sufficiently controversial, to justify Draghi’s statement. That is a decision to buy the bonds of EU member states, if necessary printing euros to do so, and accepting the risk of higher inflation.

Here’s my latest from Crikey:

Campbell Newman’s hyperbolic claims that Queensland is on the verge of becoming the “Spain of Australia”, is on a “slide into bankruptcy” and about to execute a “power dive into the abyss” have been rightly derided. Queensland has a strongly growing economy, unemployment rates at near 40-year lows and a budget that is close to balance, and likely to return to surplus, even without drastic cuts.

Credit ratings agencies are overrated, but they are paid to estimate the likelihood that a given bond will go into default as a result of corporate or state bankruptcy. Despite some egregious failures, they are more often right than wrong. The comparison between Queensland’s AA+ ranking (the same as that of US Treasury bonds) and Spain’s BB- speaks for itself.

Unfortunately, Newman’s silliness is an echo of the interim report of the Commission of Audit, headed by Peter Costello, which the Liberal-National Party government commissioned on taking office. The recommendations of the commission are drafted as if Queensland is facing a Spanish-style crisis, and propose austerity measures similar to those adopted in Spain.
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Opening paras of my latest at The National Interest

As the euro zone stumbles towards a seemingly inevitable collapse, it is easy to blame the politicians involved or the whole idea of a common currency. The outcomes of the latest top-level meeting, including a pledge to create a single euro-zone banking supervisor and a relaxation in conditions for lending to Spain, are welcome enough but seem, yet again, to be too little, too late to save the common currency.

In reality, the real problem is not with the euro but with the institution set up to manage it, the European Central Bank. The idea behind its creation—a central bank completely independent from government control—is detached from economic reality.

The ECB’s disconnectedness was evident in the decisions by President Jean-Claude Trichet to raise interest rates twice during the course of 2011, at a time when the danger of complete collapse was already evident. Although these decisions were subsequently reversed, they killed any chance that Europe would grow its way out of the debt crisis.

In my previous post, I noted that, while Andrew Bolt had correctly calculated the impact of the carbon tax for the year 2020, he hadn’t completed the analysis by evaluating the impact over the relevant policy timeframe. While I was working on this, Bolt produced another post, linking to this piece by John Humphreys, which suggested errors in my original analysis. I submitted comments to both sites. John noted the error in Bolt’s analysis, but advises me that he is not going to publish comments, and hasn’t yet corrected his own post[1]. I assume he’ll get around to this soon.

I submitted the following to Bolt’s blog

John Humphreys has updated his post to note “John Quiggin has pointed out that there is also a significant problem with the Bolt estimate, since it only calculates the benefit from reduced emissions for one year (2020) instead of adding up the cumulative reductions over multiple years. Good point. This means the Bolt methodology just got a while lot more complicated since it now requires an expected future emissions time series and an expected future emissions time series counter-factual. That task is too big for me at the moment, but [b]it’s fair to say that such a number is going to be quite a bit higher than Bolt’s original estimate[/b].”
(emphasis added) I give a corrected estimate here

Sadly, the comment didn’t make it through moderation, presumably due to an error, so I’m publishing it here.

Update: Another go-round on moderation Andrew Bolt has posted again, indicating that the non-publication of my comment was indeed a moderation error, and acknowledging the need to use cumulative effects rather than those for a single year. As he will see when he does this, his sensitivity estimate is consistent with mine.

Unfortunately, Bolt didn’t follow the link I gave, and therefore repeated the already-refuted claim that my estimated was out by a factor of five, relative to that of Roger Jones. As I’d already pointed out here, the error was due to Michael Bachelard, who applied Roger’s sensitivity analysis to an emissions reduction of 5 per cent, when the reduction relative to BAU is 25 per cent. That obviously explains the factor of 5 divergence. I’ve posted a comment to Bolt’s blog pointing this out, but that comment too is awaiting moderation.

fn1. In the meantime, John H. has noted the erroneous estimates by Michael Bachelard, corrected here, and also some estimates by Christopher Monckton, presumably as a reductio ad absurdam

My latest in The Conversation

There’s more to good policy than increasing GDP

By John Quiggin, University of Queensland

Economists are regularly criticized for worrying about Gross Domestic Product (GDP), and similar measures. The classic statement of the case was by Robert F Kennedy:

“Too much and too long, we seem to have surrendered community excellence and community values in the mere accumulation of material things. Our gross national product … if we should judge America by that – counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for those who break them. It counts the destruction of our redwoods and the loss of our natural wonder in chaotic sprawl. It counts napalm and the cost of a nuclear warhead, and armoured cars for police who fight riots in our streets. It counts Whitman’s rifle and Speck’s knife, and the television programs which glorify violence in order to sell toys to our children.

“Yet the gross national product does not allow for the health of our children, the quality of their education, or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages; the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage; neither our wisdom nor our learning; neither our compassion nor our devotion to our country; it measures everything, in short, except that which makes life worthwhile. And it tells us everything about America except why we are proud that we are Americans.”

Much of the time, this criticism is misplaced. For the purposes of medium-term macroeconomic management, that is, trying to maintain full employment and low inflation, it is important to measure how much economic activity is going in aggregate. If aggregate demand is weak, for example, it is sensible to stimulate the economy by cutting interest rates or increasing public spending. GDP is the best single measure of economic activity, precisely because it captures all output, taking existing market prices as the measure of value.

In the longer term though, the problems with GDP start to matter, even in relatively narrow issues of economic policy. In measuring economic performance, as opposed to activity, GDP suffers from three major drawbacks in this respect

• It’s Gross – that is, depreciation of physical and natural capital is not deducted

• It’s Domestic – that is, it measures output produced in Australia, even though the resulting income may flow overseas[1]

• It’s a Product – the ultimate aim of economic activity is not production in itself but the income it generates, which should be taken to include the economic value of leisure, household work and so on

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Coincidentally, Australia’s carbon price will come into effect on the same day, 1 July, as the new feed-in tariffs for solar PV, wind and other renewable adopted in Japan as part of the response to the Fukushima disaster[1]. The tariffs are incredibly generous (around 50c/kwh on a net feed-in basis) and supposedly guaranteed for 20 years. I can’t see it lasting that long, but it will certainly make Japan one of the world’s biggest markets for renewables, having installed almost none until now. China has also adopted feed-in tariffs, but at more realistic prices around 20c/Kwh. These policies will ensure continuation of the spectacular growth in installations of renewable energy and the associated reductions in costs.

What does this make of the claim that Australia is moving ahead the rest of the world with the carbon price policy. There’s a sense in which it’s true – our experience with MRET and various state-level policies have shown that these are second-best options compared to a comprehensive carbon price. The Europeans can teach the same lesson, but it seems as if everyone has to learn it for themselves.

But the belief among economic doomsayers that we are the only country doing anything about this is just nonsense. Even in the US, where nothing can be done through legislation thanks to Republican delusionists, a combination of regulation and low gas prices is leading coal-fired power plants to shut down at a rapid rate.

At this point, the global choice is not between doing nothing and doing something. It’s between sensible market-based policies and costly second-best options, of which the worst is the “direct action” in which Tony Abbott claims to believe.

fn1. Two nuclear plants are also to be restarted, and presumably most of the rest will follow eventually. The government still wants to build more,

That’s the title of my latest piece in Foreign Policy, about the seemingly inevitable collapse of the eurozone

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That’s the title of my latest post at The Drum (over the fold). It’s the latest round in my long dispute with the Productivity Commission on this issue, which flared up most recently here.

This is not an issue on which I’ve been impressed with the performance of either the PC or other economists who’ve weighed in to this debate (mostly associated with the business sector). As I point out below, my analysis is mainstream textbook orthodoxy, and led me to predict the productivity “slowdown” at a time when the PC and the others were proclaiming a miracle. But my arguments get even less attention now than they did fifteen years ago, when the PC was at least willing to reply.

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That’s the title of my latest piece, at ABC Environment. It’s over the fold
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That’s the title of my latest piece in The National Interest.Teaser follows

Although much remains uncertain about future developments in Greece and beyond, one thing can be predicted with certainty: no Greek government will voluntarily abandon the euro. The only parties favoring such a move are the (old-style Stalinist) Communist Party of Greece and the neo-Nazi Golden Dawn, neither of which has any chance of being part of a government. It is almost equally certain that no Greek government will take any further steps to implement the austerity measures previously agreed with the “Troika” of the European Central Bank, the European Commission and the International Monetary Fund.

New elections to be held on June 17 are most likely to produce substantial gains for the Coalition of the Radical Left (Syriza) at the expense of both the traditional governing party of the Left, PASOK, and the rejectionists of the Communist Party. Syriza advocates rejection of the current austerity package but is equally opposed to withdrawal from the euro. Given large enough gains, Syriza could potentially put together a government with support, or at least tolerance, from PASOK and the conservative but anti-austerity Independent Greek Party.

But the election outcome may be indecisive, perhaps leading to a government of national unity. Such a government would have little power to do anything decisive one way or the other.

The least likely outcome is a swing back to the traditional parties, with PASOK and its conservative counterpart the New Democracy Party gaining enough seats to form a coalition government. Even such a coalition would be unlikely to have the political will to enforce further austerity measures. On the other hand, it would certainly not abandon the euro.

For well over a decade, I’ve been debating the claim made by the Productivity Commission that Australia experienced a productivity surge in the 1990s. My claim has been that the apparent high rate of productivity growth in the mid-1990s was the result of measurement error, most importantly the failure to take account of the increase in the pace and intensity of work that was apparent to everyone (except PC economists) at that time. This view led me to conclude that the supposed productivity gains would dissipate as more normal labor market conditions returned, which was exactly what happened.

In most of these debates, one of my chief antagonists was Dean Parham, who worked for the PC at the time, and is now a Guest Researcher there. Today I heard that Parham had written a new paper on the weak productivity growth of the 2000s. So, I was keen to see what response he would have to my latest work and to my arguments about work intensity. The answer, quite literally is “Nothing”. I have, it appears become an un-person at the PC. Parham doesn’t cite any of my work and, more importantly, fails to mention work intensity at all.

Update The original version of the post contained a somewhat snarky suggestion that Parham had been negligent in ignoring my work. He has written to me to say that this is incorrect. The reason he doesn’t mention it is because, in his view, nothing I have written on this topic, at least since 2004, merits a response.

Further update Dean Parham writes that

the reason I did not mention your work or the work intensity thesis in my paper is that I did not consider it central to the focus of the paper (industry contributions) or even to the contextual motivation of the paper.

Since the contextual motivation of the paper is (as the title suggests) the slump in productivity, I can’t see that this differs from my summary. If Parham thinks my work merits a response, he’s welcome to provide that response here or in any other venue that suits him.

I’ve got some urgent commitments over the next few days, so I won’t be able to return to this topic until later. But in the meantime, here are some of the things I’ve written about this in the last few years. Agree or disagree, I think I’ve put forward a serious case that deserves an answer.

http://www.freepatentsonline.com/article/Australian-Bulletin-Labour/147466277.html

http://johnquiggin.com/2011/08/20/no-hard-and-fast-rule-for-/

http://johnquiggin.com/2012/03/13/enough-of-these-zombie-ideas-lets-be-bold/

http://apo.org.au/commentary/surge-we-didnt-have

That;s the title of my latest piece in The National Interest. Here’s the three-para teaser

European Elections and the Debt Debacle

The victory of socialist François Hollande in the French presidential election has been interpreted, correctly, as a repudiation of the austerity policies imposed on the euro zone by his predecessor, Nicolas Sarkozy, in collaboration with German chancellor Angela Merkel, who endorsed Sarkozy in the election.

Hollande’s win was part of a backlash across Europe, with pro-austerity parties from Britain to Greece taking electoral drubbings. Even in Germany, Merkel’s coalition parties were crushed in a state election in Schleswig-Holstein.

It’s safe to predict that Hollande and Merkel will soon come into conflict over austerity. But Hollande’s real opponents in the struggle over European economic policy are not Merkel and the German government but the European Central Bank and its chairman Mario Draghi.

On the whole, this Budget is free of smoke and mirrors trick. Most of the savings that have been announced are real cuts in the deficit rather than accounting gimmicks. There is, however, one big exception. It’s hard to square ‘Labor values’ with a budget that does virtually nothing for education. Rather than face the reality, the government has resorted to some disgraceful spin.

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I spent yesterday in the Budget lockup for Crikey. There’s little real need for a lockup these days. The original justification was to stop people taking advantage of inside information on things like higher tax on cigarettes, but these taxes are now indexed, and changes are mostly either backdated or applied from well after Budget night. Then, for a while, the Budget was the central statement of economic policy. But nowadays, policies are put out all through the year, and most of the Budget measures are leaked in advance. Still, it’s a traditional piece of theatre and no-one seems to mind.

The first piece I wrote, over the fold, was about the implications of the European crisis

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Here’s my first post under the new approach to blogging I’m trying. It’s the intro to an article I just published in The National Interest. They ran it under the headline “The Next Global Collapse” which is a bit more dramatic than the article itself. The deal with TNI is that I can published the first three paras here, to tease your interest. Thinking about how best to work this, it struck me that it would be really great if readers here would follow the link, comment on the article at TNI, then repost their comments here. Perhaps this might just be duplication, but it might also lead to quite different conversations. So, please give it a try

Four years after the near-meltdown of the global financial system, the world is no closer to an adequate system of financial regulation than it was in 2008. Attempts to regulate the market for derivatives have been stymied by a mixture of determined resistance from the industry and the technical difficulties of defining and regulating such complex and opaque financial instruments. The “shadow-banking” system, associated with investment banks, hedge funds and other speculative financial institutions, is as large and dangerous as ever.

Right now, the only thing preventing a new bubble and bust is the memory of the last one. And with the return of massive profits and bonuses to Wall Street, that memory is fading fast. Already, observers are noticing a renewed appetite for risk, fueled in part by the low returns available on relatively safe investments such as U.S. Treasuries.

As in most unwinnable wars, the time has come when the best option is, in the immortal words of Republican senator George Aiken (speaking of Vietnam) to declare victory and get out. But what does getting out mean, as far as the shadow-banking system is concerned?

Treasurer Wayne Swan has switched from a “hard Keynesian” to a structural justification of expenditure cuts. Rather than advocating a rapid return to surplus as consistent with macroeconomic balance and full employment, Swan now says cuts are needed because of structural factors like declining capital gains tax revenue, notably omitted the Howard income tax cuts adopted and implemented almost completely by Labor. claiming, as quoted by the Age and other sources.

Tax revenue, which plunged from the 24.2 per cent of GDP once enjoyed by the Howard government to 20 per cent, is set to recover only slowly to around 22.8 per cent by 2016.

Looking that the 2011-12 Budget papers show nothing of the kind. They are for receipts, not revenue, but they show a decline from 24.9 per cent in 2007-08, the last Howard Budget to a low of 21.9 in 2010-11 (I checked and the final figure was 21.7). The 2012-13 MYEFO has (General Government) receipts recovering to 23.9 per cent of GDP by 2012-13 on current policy. Revenue is higher at 24.5 per cent.

Before I talk about the merits and otherwise of Swan’s strategy, I’d like to get the numbers right. Does anyone have any info?

Update An inquiry to the Treasury produced an amazingly rapid response, pointing me to page 363 of the MYEFO, which is the source of the data. I think it’s fair to say that Swan is engaged in cherry-picking the past and relying on rubbery numbers for the future. The numbers represent tax revenue rather than total receipts. The number for the Howard government is not that of its last budget, but is for 2005-06. That was before some big tax cuts, and also before the establishment of the Future Fund, the earnings from which are not counted as revenue, although the debt interest that could have been saved is an expense. The rubbery projections involve claims that the revenue/GDP ratio will remain almost static from 2012-13 onwards, when bracket creep would typically be expected to produce growth, in the absence of policy change.

I’d suggest a more accurate summary of the data is that, on current policy, receipts are projected to be 23.9 per cent of GDP in 2012-13, down from 25.1 per cent in the last year of the Howard government (Labor has, unwisely, pledged to hold itself below this level). The gap is entirely explicable in terms the unaffordable income tax cuts promised by Howard in 2007 and implemented (with modest changes) by Labor.

It would be easy enough to fill this gap by taking a harder line on tax expenditures and tax avoidance, without cutting the services which, according to Gillard and Swan, we are supposed to trust Labor to deliver.

That’s the title of my last piece in the Fin (Thursday before last), which was about the zombie push for productivity (code for working harder) and the failure to pursue the genuine productivity gains that can be achieved through improvements in education, and particularly better education for kids from lower-income families. Ross Gittins made a similar argument, with some nice touches a few days later in the SMH. I particularly liked his point that the “productivity agenda” is essentially about making life easier for bosses.

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Yesterday’s Fin ran a piece from Stephen Kirchner and Robert Carling of the Centre for Independent Studies, under the headline “Give austerity a chance” which was a pretty accurate summary of the contents. It’s paywalled, but you may be able to read it by clicking here. The piece relies almost exclusively on the work of Alberto Alesina and his colleagues, promoting the zombie idea of expansionary austerity. As I pointed out here, the most influential of these pieces by Alesina and Ardagna, is riddled with errors, at least as it applies to Australia.

Although Kirchner is a blogger himself, he and his co-author could be forgiven for missing my post. But Alesina’s work is probably the most-refuted piece of economic analysis put out (though never published in a peer-reviewed journal) in recent decades. It’s been demolished not only by the usual suspects like Krugman and DeLong (and me), but by the Economist, the IMF and even by one of Alesina’s own co-authors, Roberto Perotti.

Charitably assuming that Kirchner and Carling had managed to miss just about every publication on the question of austerity in the last year, could they not have spent 30 seconds with Google before hitting “Send”? A search on Alesina+austerity reveals a torrent of criticism, none of which they mention.

It is hard to know which is worse – the possibility that Kirchner and Carling, presented by the CIS as expert economists, were ignorant of all this, or the alternative hypothesis that they knew it and decided not to mention it. Either way, it’s an appalling breach of elementary standards of research.

I’m pretty sure the facts have been brought to the attention of Kirchner and Carling. The honest thing to do would be to write to the Fin pointing out that the work on which they relied was, at best, highly controversial. If Kirchner, Carling and the CIS are unwilling to do this, we can draw the conclusion that they cannot be trusted in anything they write.

Update Sinclair Davidson at Catallaxy has a lengthy reply, but the sole substantive criticism is that contrary to my parenthetical remark, Alesina and Ardagna did finally publish a peer-reviewed paper in 2010. But the work that was actually influential was done back in the 1990s. I’ll republish my blog post pointing out what a shoddy job that paper in describing developments in Australia. Davidson’s piece is notable for the lack of any substantive defence of Alesina’s work, and also for this , offered in response to my observation that the research in question had been comprehensively demolished by the IMF among many others

Fancy that – cutting edge research into a highly politicised aspect of public policy is “controversial”. Does Quiggin think AFR readers are so dumb they wouldn’t realise that?

So, next time you read an opinion piece from the CIS you can safely assume the caveat lector “This research is probably discredited, the authors almost certainly know it, but, if so, they’re not going to tell you”.

No one expects opinion pieces to be “fair and balanced”, but if you are going to rely on work that has been subject to serious and credible criticism, you should at least point out the main criticisms and (if possible) say briefly why you think they don’t stand up. As an example, Wilkinson and Pickett’s The Spirit Level produces some striking evidence of relationships between inequality and bad social outcomes.. This work has been subject to a lot of criticism, not fatal in my view, but enough that it needs to be mentioned. I did this when I cited the work in Zombie Economics and then at greater length here

Further update While still not disputing any of the substantive points I’ve raised, Davidson digs deeper on the question of whether the original Alesina and Ardagna work was published in a peer-reviewed journal. The work was published in Economic Papers, which does not take unsolicited submissions. Rather the editors commission pieces, or you can propose a piece to them. That is, this is, as the webpage says, a policy forum, not an academic journal. Standard practice for publications of this kind is for the editors to approve (or return for revision, or, very rarely, reject) the pieces they’ve commissioned. This isn’t peer-review in the normal sense. I’ve always assumed that Economic Papers follows the standard practice in this respect, but Davidson is welcome to check it out, if he cares enough.

As a PS, I couldn’t resist checking a 700-comment thread on the US elections. I shouldn’t link, but I will. While there is plenty of not-so-innocent amusement to be had, what struck me was that most of the commenters appear to be creationists – the handful holding up the flag for evolution are getting hammered.

I’ve just read ‘Tales of Fiscal Adjustment’ by Alesina and Ardagna, which appears to be the founding text for the idea of expansionary austerity. The level of scholarship, at least as it applies to Australia (which is their first illustration) is exceptionally poor, to the extent that it requires a rescuscitation of the ancient Internet tradition of Fisking. I’m going to quote excerpts from their text (about 50 per cent of the total), and intersperse them with my comments.

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That’s the title of my piece in the Fin last week. As with my previous column, Catallaxy was out with a comment long before I got around to posting here, but it seemed to me to miss the point fairly comprehensively.

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